Phoenix Spree Deutschland Share Discussion Threads

[davebowler] 25/5/2021 09:20

Liberum;
M&A activity highlights attractive valuation

Mkt Cap £358m | Share price 370.0p | Prem/(disc) -19.0% | Div yield 1.8%

Event

Vonovia has agreed an €18bn takeover of Deutsche Wohnen, the Berlin-focused residential property company. 76% of Deutsche's Wohnen's €26bn portfolio is located in Berlin. Under the terms of the deal, shareholders in Deutsche Wohnen will receive €53.03 per share (€52 per share in cash and a €1.03 dividend). This represents a 1% premium to the diluted EPRA NTA per share of €52.50 at 31 March 2021. The offer price represented an 18% premium to the prior close.

Liberum view

Investment demand for German residential portfolios remains high, particularly for regions with long-term structural rental growth. The Berlin market is more institutionalised (60% professional landlords vs. 34% national average) but M&A activity had slowed considerably following the introduction of the rent freeze. Germany's Federal Constitutional Court recently ruled that Berlin's rent freeze is unconstitutional, leading to a strong upturn in investor sentiment towards the sector. We believe PSDL's high-quality €768m portfolio would also be an attractive acquisition target and further upside from the current 19% discount is supported by the supply demand imbalance and M&A activity. We also note the latest portfolio valuation from December 2020 assumed the rent freeze would be in place for five years, offering near term NAV upside in the June 2021 interims.

[rambutan2] 24/5/2021 23:05

Relevant enough to attract a bit of extra attention, I would have thought:

24-May-2021 / 22:25 CET/CEST
Deutsche Wohnen and Vonovia sign agreement on merger of both companies

Berlin, May 24, 2021 - Today, Deutsche Wohnen SE (ISIN DE000A0HN5C6) ("Deutsche Wohnen") and Vonovia SE ( "Vonovia") entered into business combination agreement ("BCA") regarding the merger of both companies. In this context, Vonovia has announced its intention to launch a voluntary public takeover offer pursuant to Section 10 para. 1 sent. 1, para. 3 of the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) ("WpÜG") for all outstanding shares of Deutsche Wohnen against a consideration in cash in the amount of EUR 52.00 per share. In addition, a cash dividend of EUR 1.03 per share is to be paid to the shareholders of Deutsche Wohnen for the 2020 financial year in accordance with the proposed resolution for the annual general meeting of Deutsche Wohnen on June 1, 2021, which will bring the total value of the planned takeover offer to EUR 53.03 per Deutsche Wohnen share.

Vonovia thus offers a premium of 17.9 % on the closing price of Deutsche Wohnen on May 21, 2021 and of 25 % to the three-month volume-weighted average price of Deutsche Wohnen shares as of May 21, 2021. The proposed takeover offer will be subject to a minimum acceptance rate of 50% of the outstanding shares in Deutsche Wohnen, merger control clearance and other customary conditions. Deutsche Wohnen and Vonovia expect that the merger control clearance will in any case be granted before the end of the acceptance period of the planned takeover offer.

The management board and the supervisory board of Deutsche Wohnen welcome Vonovia's planned takeover offer and, subject to the review of the final offer document, intend to support it and recommend its acceptance to the shareholders. Furthermore, the members of the management board and the supervisory board intend to tender the Deutsche Wohnen shares held by them as part of the planned takeover offer.

The business combination will lead to the creation of Europe's largest residential real estate group with a projected combined market capitalization of around EUR 45 billion and a combined real estate portfolio value of approx. EUR 90 billion.

The combined company will carry the name "Vonovia SE". The registered office of the combined company is to remain in Bochum following the business combination, with the combined company being managed from Bochum and Berlin. The BCA also sets forth certain governance rights for the combined company. Mr. Michael Zahn is to be appointed as deputy chairman of the management board and Mr. Philip Grosse as chief financial officer of Vonovia. Furthermore, an executive committee below the management board is to be established, in which Mr. Henrik Thomson and Mr. Lars Urbansky will serve. Following completion of the takeover offer, two persons will be appointed to the supervisory board of Vonovia, upon recommendation by Deutsche Wohnen prior to completion of the takeover offer. Moreover, Mr. Michael Zahn and Ms. Helene von Roeder are to become members of the supervisory board of Deutsche Wohnen.

As part of the business combination of Deutsche Wohnen and Vonovia, the two companies are taking responsibility for a social and sustainable housing policy. As the largest private housing providers in Berlin, they have concluded a "Future and Social Housing Pact" with the federal state of Berlin. Deutsche Wohnen and Vonovia have also agreed that they will abstain from operations-related redundancies with effect from a date prior to December 31, 2023 in connection with the transaction.

In connection with the transaction, Deutsche Wohnen and Vonovia have also agreed on the sale and transfer up to 16,070,566 but at least 12,708,563 treasury shares of Deutsche Wohnen to Vonovia, at a price of EUR 52.00. In addition, the management board of Deutsche Wohnen, with the approval of the supervisory board, has resolved to increase the share capital of Deutsche Wohnen by up to EUR 12,130,478 by issuing to Vonovia 12,130,478 new shares, provided that Vonovia requests this by June 20, 2021 and Vonovia's shareholding does not exceed 37,833,806 shares as a result of this capital increase. Furthermore, Deutsche Wohnen and Vonovia have agreed that Deutsche Wohnen will exercise its right to cash payment instead of delivery of shares in respect of the outstanding convertible bonds of Deutsche Wohnen upon conversion in the event of a change of control.

[jonwig] 24/5/2021 19:10

FT. But how relevant (note the premium)?

German residential landlord Vonovia is close to announcing an €18bn acquisition of rival Deutsche Wohnen in a deal that would need the support of local politicians in the hot housing market of Berlin.

Four people familiar with the matter told the Financial Times that Vonovia is to make an all-cash bid for Deutsche Wohnen, five years after an earlier attempt faltered.

Vonovia is to offer €52 per Deutsche Wohnen share, valuing the equity at €18bn, a premium to Friday’s closing price of more than 15 per cent. Deutsche Wohnen also has €11bn of net debt.

[davebowler] 13/5/2021 12:43

Numis -Justin Bell Property commentary-
Phoenix Spree Deutschland – Property vs Politics
Despite the very positive news last month on the striking out of the local Berlin government’s rental cap in the Federal courts, the rally in the shares has been modest and they are still available on a 17% discount to their December NAV… The market is still clearly harbouring concerns over politics with the German elections approaching in September with the Green Party gaining ground over the CDU in recent polls. PSDL management team have proved capable of generating strong returns against a backdrop of changing political headwinds and have optionality embedded in the portfolio through >70% split into condominiums. Ultimately, they are either able to enact their current business model of renovating vacant apartments to capture the c.40% reversionary potential and provide strong NAV growth; or they can pivot to selling apartments as condos where they have achieved uplifts of 20% to carrying value during the recent rental freeze/cap episode. Management continue to have the powerful ally of fundamentally under-rented units which are valued below replacement cost, in a city with net migration of 40,000 people a year and vacancy rates sub-2%.
I think there is very good value on offer here for those able to take a medium-term view.

[jonwig] 28/4/2021 15:10

Ha! She is, and has no views (except glad Angela goes). However, her brother is a property developer and renter in Bonn, and is pessimistic about prospects, in particular taxation.
The good side of this is that the coalition mindset means little radical is achievable; for instance you need (I think) 65% of the Bundestag to change basic laws (the key thing here).

[jeff h] 28/4/2021 14:05

Cant say that I know too much about German politics jonwig! - I shall bow to your views, or perhaps the views of your missus as if I recall she is German.

[jonwig] 25/4/2021 08:00

Jeff - the Questor article (thanks for that) carries a couple of comments and one of them says the Greens' manifesto proposes a nationwide Berlin style of rent controls.

The only coalition which would achieve this is "green-red-red" (Greens-SPD-Linke), which is less likely than "green-red-lib" (Greens-SPD-FDP) and the FDP would probably veto it. Normally, I'd still expect the CDU/CSU to be in government, but Laschet seems to be a turn-off.

It's analysed here:

[spectoacc] 22/4/2021 09:40

That's a good read, thanks - had sold some, was wondering what to do with the rest but think I may sit on them. 550p a bit gutsy tho! Particularly with the possibility of the Greens being a force in the next national govnt.

[spectoacc] 19/4/2021 15:05

Interesting, tho disagree with almost everything in it. If anything, Berlin renters have enjoyed an interest-free loan, based on legislation that has itself turned out to be illegal.

[apollocreed1] 19/4/2021 14:19

hxxps://christopherward.medium.com/the-mietendeckel-rent-cap-may-have-been-illegal-but-those-celebrating-its-demise-are-in-for-a-8b2eb0384b35

[jeff h] 16/4/2021 11:45

Stuart Young got back to me regarding the EGM. Here is a recent interview with him including an extensive Q&A:-

[davebowler] 15/4/2021 15:31

Zoom presentation is on at the moment hosted by PSDL.

[cerrito] 15/4/2021 14:51

The point in the last para of the RNS concerning a possible change of government after the September elections leading to a change in Federal law, especially if the Greens do as well as current indications suggest they will is well taken...but as they PSDL say they have been able to ride the waves.

[jeff h] 15/4/2021 10:25

Does anyone know the details behind the forthcoming EGM?...resolution appears to be:-

THAT THE ARTICLES PRODUCED TO THE EGM AND SIGNED BY THE CHAIR FOR THE PURPOSES OF IDENTIFICATION, BE APPROVED AND ADOPTED AS THE NEW ARTICLES OF THE COMPANY IN SUBSTITUTION FOR, AND TO THE EXCLUSION OF, THE EXISTING ARTICLES, WITH EFFECT FROM THE CONCLUSION OF THE MEETING.

Why the change in articles?

[davebowler] 15/4/2021 09:48

.........The latest portfolio valuation assumes the Mietendeckel is in place for the full five years.
i.e. The portfolio valuation and therefore NAV is too low.

[davebowler] 15/4/2021 09:46

Liberum;
Phoenix Spree Deutschland

Mietendeckel declared unconstitutional by Federal Court

Mkt Cap £361m | Prem/(disc) -18.1% | Div yield 1.7%

Event

Germany's Federal Constitutional Court has ruled that Berlin's rent freeze is unconstitutional. The rent freeze (Mietendeckel) came into law last year and has been the subject of a number of challenges. Doubts have consistently been expressed over the State of Berlin's ability to pass local rent legislation, given the differences from existing federal law. In Bavaria, a similar six-year rent freeze was blocked by the Bavarian Constitutional Court in July 2020.

Liberum view

Phoenix Spree has maintained throughout the process that there was a high likelihood that the rent freeze would be successfully challenged. The company has sought to maximise flexibility due to the uncertainty caused by the new legislation. New re-letting contracts include clauses to enable the company to charge rent permissible under the previous system in the event that the Mietendeckel is voided. We note Vonovia has stated that it will not seek to claw back any of the foregone rents in the period since the Mietendeckel has been in place.

PSDL's shares have risen by c.9% since the announcement this morning and we expect further upside in the near term. The removal of the rent freeze should lead to a strong upturn in investor sentiment towards the sector. The Mietendeckel would have had a material impact on earnings as it was expected to reduce like-for-like income by 16%. The latest portfolio valuation assumes the Mietendeckel is in place for the full five years.

[jeff h] 15/4/2021 09:26

Berlin, 15 April 2021

Federal Constitutional Court considers rent cap incompatible with basic law
The 2nd Senate of the Federal Constitutional Court has today ruled that the provisions of the Law on Rent Limitation in Housing in Berlin (MietenWoG Bln) are incompatible with the Basic Law and are therefore void. This decision is based on a review of the standards of several members of the Bundestag factions of the CDU/CSU and the FDP as well as on two proposals from the Landgericht Berlin and the District Court of Mitte.

In the opinion of the Federal Constitutional Court, the provisions of MietenWoG Bln are to be classified under civil law and are thus subject to civil law, for which the Federal Legislature has already finally exercised its legislative competence under Article 74 paragraph 1 (1) (1) of the Basic Law by means of the provisions of Sections 556 to 561 of the German Civil Code (BGB). In the opinion of the Federal Constitutional Court, the Federal Constitutional Court therefore prohibits the legal competence of the Länder.

Sebastian Scheel, Senator for Urban Development and Housing: "The Federal Constitutional Court has denied the Land of Berlin legislative competence for a public-law tenancy law. This blocks the way for national rental price regulation. We had entered new territory with the rent cap and expected a different decision. For good reason: competence for housing has been the sole responsibility of the Länder since the federalism reform in 2006. Social peace is threatened by rising rents and the associated displacement. It is the central task of politics not to stand idly by. The last few months have shown that the rent cap is a suitable instrument for this. It is now the task of the federal government either to create an effective rental price law that secures the social mix in cities or to give the Länder the competence to do so."

According to the decision of the Federal Constitutional Court, the provisions of MietenWoG Bln are null and void from the date of their entry into force. For the tenants, this means that they have to pay the rents agreed with their landlords on the basis of the BGB and, if necessary, also pay the difference between the rent cap rent and the contract rent.

Sebastian Scheel, senator for urban development and housing: "In the Senate we will discuss the consequences of the ruling on Tuesday. The Senate also sees itself as an obligation to develop socially acceptable solutions for tenants."

[jonwig] 15/4/2021 09:07

I'm blanked out of the link after a few seconds, but I've managed to copy:

Berliners will be holding their breath as a ruling on whether a controversial 'Mietendeckel' (rental cap law) will stay in place is expected on Thursday.

The sudden announcement was made by judges at Germany’s Constitutional Court in Karlsruhe on Wednesday, who said they expect to publish a written decision by 9:30am on Thursday.

With its unique statewide rent cap, the first of its kind across Germany, the Berlin Senate brought it in to slow down the increase in rental costs in the capital.

Since February 23th 2020, rents for 1.5 million apartments have been frozen at the June 2019 level. From 2022, they can rise by no more than 1.3 percent a year under the law.

If an apartment is rented out, the landlord must adhere to new caps set by the state and the last rent charged. On November 23rd 2020, the second part of the act went into effect: rents that were more than 20 percent above the upper limits became prohibited by law.

The regulation is limited to five years. Newly built apartments (Neubauten) that were ready for occupancy from January 1st 2014 are among those exempted.

Rental prices in many of Berlin’s trendiest neighbourhoods have more than doubled since 2009 – although they were down by 6.5 percent in 2020.


Why did the law go to court?

In May 2020, the liberal Free Democrats (FDP) and centre-right CDU/CSU parliamentary groups submitted a petition for a review to constitutional judges in Karlsruhe.

The total of 284 members of parliament believe that the city-state of Berlin has exceeded its powers – and that rental law is a matter for federal legislature.

The federal judges are now set to rule on the petition, as well as on two submissions by the Berlin Regional Court and a local court in the district of Mitte.

The Berlin Constitutional Court had suspended its own proceedings in October to await the Karlsruhe decision.

Germany’s real estate industry has also criticised Berlin’s law and fears negative effects, among other things, on housing construction and on investments such as modernization.

Germany’s Tenants’ Association (Mietverein), on the other hand, said that the legislation represented an historic opportunity to secure affordable rents for the majority of the population.
Is confidence of a favourable outcome so certain?

[spectoacc] 15/4/2021 08:39

Surely not out this early? Tho buyers at 380 so maybe it is. The 40k shares the co bought back at 335p yesterday are looking good :)

[frazboy] 15/4/2021 08:37

I guess it was positive

hxxps://www.thelocal.de/20210414/germany-to-rule-on-legality-of-berlins-rental-cap-law-on-thursday/

[spectoacc] 15/4/2021 08:28

Breakout & well bought, any news from Germany?

[hpcg] 29/3/2021 11:14

There is upside optionality here with the Mietendeckel appeal, but even absent that NAV performance is perfectly acceptable and the well executed buyback keeps a floor under the price. That said I recently reduced here to put cash into other racier opportunities, but I will start accumulating spreadbets into the appeal given the safety factors. There is some interest rate risk, which I think is what has held the share price back, but that is perhaps only a US phenomenon and possibly comes with a weaker dollar.

[davebowler] 29/3/2021 10:25

Liberum;
Phoenix Spree Deutschland generated an 8.8% NAV total return in 2020. EPRA NAV was €5.28 per share at 31 December 2020 (31 December 2019: €4.92). NAV performance has been driven by a 6.3% like-for-like revaluation gain in the period. The portfolio valuation uplift was mainly due to yield compression. The valuation assumes the Mietendeckel (rent freeze) is in place for the full five year term.


The portfolio value per sqm was €3,977 at 31 December 2020 (December 2019: €3,741). Nine of the properties have been valued as condominiums, with a total value of €52m (7% of the portfolio). The gross fully occupied yield on the portfolio is 2.4% (2019: 2.9%) and the EPRA vacancy rate at the period end was a record low of 2.1%. The annualised rental income at December 2020 was €16.4m on the basis of the full implementation of the Mietendeckel regulations, representing a like-for-like decline of 15.8%. New lettings in the period were completed at an average 25% premium to passing rents (36% premium in 2019).

Rent collection has remained strong throughout the period with over 99% of residential and commercial rents collected, in line with 2019. Phoenix Spree Deutschland notarised €14.6m of condominium sales in 2020 with the occurring in the second half of the year. The average price achieved was €4,320 per sqm, representing a 19.2% premium to book value. An additional €2.9m of condominium have been sold in Q1 2021. 70% of the Berlin portfolio has been legally split into condominiums and applications are in progress for a further 15%.


In relation to the Berlin rent cap (Mietendeckel), PSDL's legal advice is that the rules are unconstitutional and the company is awaiting a ruling on the legality of the Mietendeckel. A decision is expected by the Federal Court in H1 2021. If it is successfully challenged, the negative impact on net income from the Mietendeckkel will be removed from the portfolio valuation.

Net LTV was relatively stable at 33.1% (32.6% at December 2019). The weighted average maturity of the company's debt is now 6.0 years with an average cost of 2.0%.

Liberum view

The majority of the key figures in today's report were included in the valuation update at the beginning of February. The 6% valuation gain is broadly in line with the trend indicated by the latest figures from CBRE on the Berlin residential market. Valuations have continued to increase despite the introduction of the Mietendeckel. Demand for condominiums remains relatively high in an under-supplied market. CBRE's figures indicate a 5% increase for multifamily prices and a 7% rise for condominiums in the 12-month period to 31 December 2020. In the rental market, the rent freeze has had a significant impact on availability and new lettings with CBRE reporting a 35% drop in rental offers in the year. Given the combination of the rent cap and the impact of Covid-19, it has been a robust year for PSDL with no impact on rent collection and a 9% NAV TR.


The company remains confident on the potential for the Mietendeckel to be challenged. The decision now rests with the Federal Court after a German constitutional court dismissed a motion to suspend the law in October. Even if the Mietendeckel remains in place, we believe PSDL is attractive at the current 27% discount. We would expect the company to accelerate the pace of condominium sales in the event that the Mietendeckel is not overturned. The proportion of the portfolio that can be sold as condominiums has steadily increased and debt refinancing has been agreed to provide enhanced flexibility. The price level achieved on the condominium sales gives comfort over the level of downside protection. We estimate the upside from the achieved condominium sale price in H2 2020 to the value of the portfolio implied by the market capitalisation to be over 30%.