Phoenix Spree Deutschland Share Discussion Threads

[cwebb1] 14/8/2023 17:15

I have followed this thread for some time, and its refreshing to see others investigating this fund more deeply before piling in. I invested in PSDL several years ago, and after losing close to £20,000 of my money as the share price plummeted, I called it a day. Before I sold out, I spent a long night of the soul looking at the facts, something I should have done at the outset.

As many of you point out, the cashflow characteristics have been problematic for many years. The only way PSDL can sustain a payout is selling more and more property. The rental income is swallowed up by the adviser "QSIX". This is because they are paid as a percentage of the asset value and not the rental income. The annual fees they charge are almost twice those of similar investment funds. In addition, they have gotten away with charging a performance fee. This is a work of art for a public company and almost unheard of. I, too, read the article in the investor's chronicle last week. I don't believe for one second that they voted to pay themselves less, or this was a sign of the board of directors cracking the whip on the advisor. No one votes to pay themselves less unless they are up against the wall: in this case, they were trying to prevent an even bigger failure of the business model i.e., going cashflow negative (with all the warranted attention that would attract).

Reading about this new 1% fee to 'incentivise the adviser to dispose of property' made me laugh. Why do they need an incentive if they are already being paid handsomely to do the right thing for the investors? CAROLPIG1 has it right on the new 1% fee: QSIX must think that they have come to the end of the road and want another 'pay-day': a sale of the fund would mean they would get paid another 5/6/7/8 million (depending on what you believe the valuation to be). I shouldn't need to point out this is additional shareholder value going to the "property adviser", QSIX. So now that there is no chance of getting a performance fee, they have introduced this new fee to take its place. I didn't calculate the cumulative fees since listing. Still, if its 80 million euros and 50% of the gross revenue, it is excessive and unbelievable that they have gotten away with it for so long.

The condominium strategy is absurd: as LOOKHERE1 points out, 8 flats sold in 2022 out of maybe 2000 odd that are owned. QSIX must have seen cash flow was tightening and could have sold flats more to generate cash before the year-end, leaving some chance of maintaining the dividend. They didn't sell more. This is worrying on many fronts: 1) either they couldn't sell them because they were overvalued in their books and didn't want to sell them for much less, in which case the valuations don't stand up when extrapolated, or 2) there is no market for them, either because of the cost or location or quality, but we are constantly led to believe its the strongest housing market in Europe. or 3) they didn't know or notice and were asleep at the wheel. Either way, a disaster. The cash from sales this year will no doubt be used to pay down debt before returning any money to investors.

There is an odd narrative that they should sell assets for below NAV. Indeed then, the NAV doesn't reflect reality, and the actual price of the properties is much lower. I am highly skeptical about the 10% drop in value. I suspect this is just the start (and possibly captured by the share price). The problem is there are few comparisons as the sales markets are stalling. Given how interest rates have multiplied, 10% seems like an overly optimistic decline. Also, JLL has been the valuer since the listing. Once again, everyone is very cozy here. There is no one to challenge these values. Indeed, just like auditors, boards etc., there should be a rotation to ensure we're not all marking our homework with gold stars and a pat on the back.

The share buyback scheme was an unmitigated disaster and a complete failure.

PSDL guided higher in their last RNS on rent inflation. I'm looking forward to seeing the magnitude and the total rent increase over the past four years. I know it won't be very reassuring once you get into it.

The independent board is nothing of the kind. Many of these funds use a PO BOX board in the Channel Islands. The idea of proper governance is utter pretense and make-believe. Many of the board members are employees of the fund administrators. Everyone is taking a fee or salary that relies on keeping the 'show on the road' using LOOKHERE1's analogy.

I called the administrator years ago to enquire about the adviser and how they were selected. They told me that the advisor had managed the fund before it was listed and was the best placed to do so. I asked what consultation or review was regularly done to see if the fees were competitive. The answer was: "None that I know of". I asked if the 'independent board' has ever considered an alternative manager. The answer was: "not that I know of". She also didn't know or think there was ever a process to consider an alternative advisor. So QSIX gets waved through every time a vote has come along. The board must surely be compelled to run a regular 'beauty contest' or re-tender these agreements. Unbelievable, lazy, and inept conduct of the "independent" board.

I have given up reading about the industry, but the new environmental standards will be problematic. Buyers want grade "A" property. Anything less is a problem (PSDL mainly owns old, 100-year+ old property) and the anti-landlord rhetoric. Why bother?

All in all, abysmal governance. I strongly suspect QSIX will look to string out their contract for as long as possible. The 1% is a payday to replace a performance fee they would never get. The reduction in fees this year is where I suspect they would partly end up anyway after the new valuation. As you mention below: there is no capital growth, not enough top-line income growth, no dividend, not enough cash flow, just vested incumbents running it for fees. I agree with CARLOPIG1 that this may be a buy-out candidate - but PE's will want to double their money in four years: I don't think that is possible here with so much to unwind. Fundamentally, the yield is just too low, growth too slow, and costs too high.

The only reason to make a new investment is if you think someone will make an offer for it. There are much better investments out there. Whatever you do, don't get swallowed in by the rhetoric of too many tenants chasing too few flats. LOOKHERE1 is exactly right in their description - this is a classic example of a zombie fund that has been undetected for too long.

Good luck.

[carlopig1] 14/8/2023 15:14

As I said a few months ago QSIX are realigning their payday away from ongoing fees which are crimping cash flow to an exit bonus. Good luck on seeing a reinstated divi or significant uplift in the rental revenue. They will try to keep selling the odd condo to balance the books. I'm still predicting a cheeky PE bid sometime over the next year or so c £2.50 as the LTV starts to bite around 50+%. At this stage most exhausted investors will bail.

[lookhere1] 12/8/2023 16:50

How ODD!! that the 2015 PROSPECTUS / INVESTMENT MEMO has disappeared from the Phoenix Spree Website!!!

[lookhere1] 11/8/2023 10:58

Thank you HUGEPANTS for the link to the iC article. interesting. But the sceptic in me (and the 2022 accounts) say that they cut the fee to stay cash flow positive. 8/900k less and they would be cash flow negative. I know they got some cash in the bank. but its not a good look. I don’t think they were being altruistic and doing the right thing!! anyway, its like having a seven course tasting menu all to yourself and saying to your partner, you have the chocolate mint at the end! The shareholders have been stuffed. And meanwhile we keep hearing about this endless demand! But i like seeing cash in the door. And recently thats telling a different story.

I was talking to my daughter about the rental flats to get her take. She said “what’s the point of it” - I first thought she was being flippant but then she says “if its just being run to collect rent and pay the people collecting the rent and the mortgages and no cash left over for the owners (the shareholders) then what is the point” She is right of course. In my mind its more like one of those zombie funds that just carries on.

The only winner has been the adviser: come rain or shine they get paid. Even as the divided was cut, their fees went up. WHAT A WAY TO EARN A LIVING! SMART! Good work if you can get it!!!! AND who ever is doing all this administration!!!

RIGHT! I am clocking off for the weekend. I will try and organise my thoughts. I want to see what others are reporting in terms of valuations and whether 10% decline here is enough to accurately price the properties. BUT!!!! This has the stench of ZOMBIE about it!!!!!

[lookhere1] 10/8/2023 20:42

I have to say, the annual reports are iust superb. Such excellent disclosure . I encourage you all to take a look for interest. A LOT!! of information, however some of which seems to need a trained eye to examine!!! I don’t understand a lot of the accounting detail. I also don’t understand the cost of unwinding those mortgage fixes and what that means for selling things down. or tax. all of these things are important if disposals are the way to generate some sort of capital return.

ALSO!! Didn’t realise this but they actually spell it out - “Under PSD’s business model, cash to pay dividends is substantially dependent on condominium and/or other asset sales.” - so th rental business doesn’t offer real capacity to pay dividends because all the cash goes into paying for running the properties and the extremely high level of fees (as a proportion of cash in the door) paid to the advisor and all the administrators. I thought this was a PRS style fund like Grainger is in the UK with this apartment sales strategy as a value add piece on the side!!! NO! THEY NEED TO SELL THE SILVER TO KEEP IT GOING! This isn’t sustainable. surely.

SO No Capital Growth - because the values are falling (and we don’t know by how much more!) If i am buying a BTL here i look at the interest rate of the mortgages on offer and whether the property will generate a positive return. SO why would any buyer look at this differently. What i mean is that its great news that 2.2% is fixed to 2026 but a new buyer can’t buy the property and get 2.2% from any bank - they will pay 4 or 5% maybe - so what does that do to the price willing buyers would be able to pay to make the maths work. Thats a concern to me on this ‘disposal model’ to generate cash going forward. Frankly less than 2/3% income yield before the cost of your mortgage - wow. the only reason you would do that is if you believed the properties offered HUGGGGGEEE potential to increase your income.

Positive that in the latest RNS they are saying they expect rents to grow now - looking forward to seeing the results in September. I think that is something i am going to wait for until making a final decision. Looking at the TOP LINE rental income they got 25.8million in 2021 and 25.9m in 2022 - hardly explosive performance in the hottest market in europe!! this is why i get so frustrated with these thematic stories about a shortage of housing and endless demand. BECAUSE the numbers tell us something different. ITS ALL USELESS unless someone takes advantage of it. 100k a year on such a large fund!!!!

I can’t get over the lack of available cash flow. Sailing close to the wind!!! 800k of net net net money left over on 750m worth of property - thats just crazy. I see now why disposals are the only way to keep the SHOW ON THE ROAD!!!! BUT!! This is only worthwhile if its coming back to the shareholders. NOT if its to fund cash burn and the advisors fees. Surely this isn’t an unfair thing to expect.

I see qsix have managed it since inception. Someone below mentioned that they get the management contract renewed regularly - but i can’t find any information on this. Has anyone actually challenged or provided an alternative manager to the board who is more cost effective?

[lookhere1] 10/8/2023 15:53

Their Loan to value is rising very fast too. Rather than paying down they have increased borrowings. I kept thinking they didn't have much in the way of mortgages. I saw vonovia is working to reduce debt! In 2021 they had 288m on 801m of property = 36% LTV. Thats risen to 44% now: 315.8/714m (assuming they haven't paid any down this year). I have not spent the time including the cash balances, but the general direction is more borrowings. Still the 2.2% interest rate seems cheap and they are saved by the 2026 fixed rates. But the tightness of the cash flow is something not many seem to have paid attention to. Good to see in their recent rns they're selling more condominiums. Another 5.6m or so sold this year so far, but how much of that will translate into actual free cash for shareholders (?) and is there any reasonable chance of a dividend being reinstated this year. The sceptic inside me says that they can run this for ever and keep taking fees and there is little shareholder engagement asking any real questions. The story for berlin is always compelling but the cash flow isn't right. i believe this benefitted from a rising tide with a huge fall in interest rates and positive demand for housing because of all the people moving there. but one of those has u-turned. The net impact is the cash burn is too high and the investment yield makes no sense to me at all. The valuation is falling. SO both no income. No growth. Just selling assets to keep the lights on another day. And it looks like that is why they reduced their fee by 2m this year (after pocketing more than eighty million over the years!), because without that they would be cash flow negative to pay the finance charge. But that wasn't all - they have a new disposal fee now of 1%!!!! Another pay day for the adviser. The incentives seem wrong to me.I thought the original listing price of 150p and the level this has fallen to made this attractive at first. I'm going to have another look at everything later in the week

[hugepants] 10/8/2023 14:24

Taking a general view of the share price performance PSDL has certainly underperformed other Germanic residentials recently eg. Vonovia(VNA) is +20% the last month. Deutsche Wohnen +10% whereas PSDL is down 1%. Similarly for year to date PSDL is way worse at -24%.

[cerrito] 10/8/2023 11:04

Thanks lookhere1 for your thought provoking posts.
I am abit bogged down at the moment and look forward to organizing myself to comment.
I have not organized myself to buy now that it is sub 190p again and will not do anything till I have commented on your posts.
Looking forward to comments from others.

[lookhere1] 10/8/2023 08:40

Is anyone here looking to make a new investment? I would be interested in your thoughts if you are also looking at it? the share price looks cheap but I'm not sure whether it is anymore. I am still scratching my head how 750m of property can only leave 800k!!!! of net money after paying for everything. How is that possible. Also looking at the balance sheet then, that looks like a small margin between the financing costs and available cash. very tight. its good to see they have fixed mortgages for now. but what happens then. also does anyone understand if they have early repayment charges - so if they were going to sell condominiums can they sell them without triggering penalties?> I only understand cash - so maybe this is all about accounting? otherwise it all seems to be on knife-edge !!

[lookhere1] 10/8/2023 08:17

Thanks cerrito for the guttman connection!! lots of information there but thats a pretty steep premium for phoniex versus the average. also looks like they are an estate agency there - usually always the most positive on the state of the market i tend to find! certainly is here in manchester! come rain or shine they say business is booming!!

[lookhere1] 10/8/2023 07:47

I was reading their 2022 accounts last night - much to the annoyance of the wife! - and then spent the evening looking through the condominium story. From 2015-2022 they sold 215 flats for a total of 72.9m. (MUCH MORE!! than the total dividends was paid out in that whole time). In 2022 they sold just 8, and only 13 the year before. But they keep telling us that a bigger and bigger number of the flats have permissions and that they can sell them for more than the current valuation. My daughter is home from her first year at oxford and said "dad: if they could sell them they would". Sometimes it takes a young person to state the obvious!!!! In any case its not clear about how much of the mortgages they repaid and what taxes were due. In any of the best years of the condominium sales they sold them for 15.2 mill - yet the dividend barely moved growing by just 200k that year!!!! So once again - where does all the money goo? They must be paying the mortgages? Or is it the 'adviser' and 'administrators' costs In any case - it seems a bit foolish to rely on this source for the time being. the best sales years were in 2020 and 2021 - but things have dropped off a cliff!!!

[lookhere1] 09/8/2023 17:14

my last post tonight, but hopefully some of you might be able to shed some light: their 2022 accounts say the properties were worth 761m (i know they fell 10% ish from this in august. with total revenue of 26m, that means a yield of 3.4%. After all the 'costs' there was 8.8m of gross profit (1.16% yield). but they paid finance charges of 7.9m after that - so get left with 878k euro - that is 0.001% yield. this can't be right - what am i missing?

[lookhere1] 09/8/2023 17:04

i thought i made a mistake because that amount of money is so big. i looked once again - also maybe they were paying for the property costs out of that. answer is no. so on top of the 80million euro for the 'adviser' (over those years) they paid 8.8 to the property manager, 11.6 on repairs, and 24.6 on administration - i haven't looked at what that admin means but it seems like a lot of paperwork for some flats. I like the stock and want to invest but i've been bitten before with thematics. this time i want to understand the basics before i dip my toes. if any of you have looked in to the numbers and can help me understand i'd be very grateful. i don't understand much about finance charges - that must mean mortgages? The cost of those came down from 16m in 2019 to 8m in 2022. And yet they still stopped paying the dividend(?). Also the dividend didn't grow by much - low of 6.9 and high of 7.6 ,illoins over that time. so what I'm trying to ask is if the finance cost fell so much, where did all the rent get spent if it wasn't distributed to shareholders?

[lookhere1] 09/8/2023 13:39

that means they paid dividends of 1/2 of what they paid themselves in that time.

[lookhere1] 09/8/2023 13:37

for the first time i have looked at their balance sheets. From 2015 to 2022 - they got 171.5m of revenue (some of that includes service charges from tenants, so real rent must be less than that). Looks good. BUT WAIT! They paid themselves 80,351,000 - yes, more than eighty million euros in fees in that time. Thats 47% of the gROSS REVENUE (not income). They paid another 8.8 million to "property managers" who must be the people collecting the rent. I pay 10% to my estate agent to collect. this is more than 50% in total. I'm not saying anything untoward - this is what is in their prospectus. but it pays to look at the managers motive here....

[lookhere1] 09/8/2023 13:34

i am new to this chat,

[cerrito] 03/8/2023 07:40

Just read an interesting up to date report on the Berlin residential property market by Guthman who agree that the market has stabilised. Interesting comments on fuel efficiency which no doubt will be picked up in the interims. According to Guthman the average price per sq m in Berlin is Euro 2800 and no surprise that PSDL is higher at Euro 3800.
I might buy more if it goes sub 190.

[cerrito] 03/8/2023 07:01

Given that 78pc of Properties split into condominiums and the discount of the share price to NAV agree sensible to sell properties at a discount and return funds to shareholders though the question is how many others are doing the same.

[cerrito] 23/6/2023 12:10

News today that German house prices have fallen 6.8pc put the weak share price in PSDL in context.
To get a more Berlin focused outlook if you google Bloomberg Berlin Property prices, you should get an April story which says for already Built Berlin flats, in Q1 prices fell 0.3pc and in q4 2022 5.3pc.
I am not expecting a sudden increase in the price here but as I have no need for cash I will not be selling as I expect the price to bump along in the 185/205 range and not expecting any major change in the euro:£ FX rate.

[cerrito] 06/6/2023 15:26

Thanks HugePants for that.
My main comment from yesterday's announcement is that we are paying the adviser for IR and they do nothing ie no webinars no presentations.
Interesting to read the clear tone in which they said you are not welcome at the AGM.
I ask myself if there are other owners of property in Berlin who are under more financial pressure than PSDL and hence will be willing to sell at a lower price with the result that PSDL will sell little on the wholesale market.
My gut tells me that anyone who bought today will not loose money but have not summoned the energy to buy.

[hugepants] 06/6/2023 12:20

A mention in the recent TRY final results;

Our exposure to German residential was the poorest asset allocation decision of the year. I remained convinced, for too long, that the market fundamentals of virtually full occupancy and (sub-market) regulated rents would underpin investor sentiment. The fact that even at prices a year ago all of these names were trading below the reinstatement cost of the underlying assets mattered not a jot. The market focused exclusively on the impact of the cost of debt. During the year we reduced exposure in the larger names (Vonovia, LEG) but maintained the holding in Phoenix Spree, the small Berlin focused vehicle. It is an externally managed fund which has an annually renewed contract with QSix, the manager. Its assets are all prime Berlin, where open-market rents continue to grow. The share price total return in the year was -50%. I remain convinced that once prices stabilise the smaller companies will benefit disproportionately from the impact of portfolio sales. With a market cap of just GBP190m and the share price at half the asset value, it is an excellent example of a portfolio of assets which are no longer benefiting from being held in a listed company.

[peckers56] 05/6/2023 18:56

Add /a2418556 to the link address to visir pages.

[hugepants] 05/6/2023 07:49

Interesting rns