Phoenix Spree Deutschland Share Discussion Threads

[smithie6] 01/11/2023 12:35

What do ppl think about the interest rate & it's future impact on the company's numbers ?

Currently paying <3% when mkt rate for euros is perhaps almost double that.
Does that mean that the financial numbers implode over time as the existing loans end and new loans are taken out at a much higher % rate ?

[cerrito] 05/10/2023 08:45

davebowler
Thanks for these posts.

[davebowler] 04/10/2023 12:39

Numis-
Phoenix Spree Deutschland* – Interims: Condominium market reopening; Disposal
programme accelerated
● Results Summary: Phoenix Spree Deutschland’s interim results for the six months to 30 June show an EPRA NTA of €4.64
(£3.99) per share, which reflects a 9.0%. decrease in Euro terms versus the 31 December NTA of €5.10 (-11.7% in Sterling
terms). This decrease was driven by a 6.9% like-for-like valuation decline for the portfolio, (excluding impact of
disposals), which reflects the increase in market yields, partially offset by increasing rents. Rental growth remains
strong at 5.6% on an annualised basis and EPRA vacancy remains at historically low levels of 2.7%, reflecting the
continued supply demand imbalance within the Berlin residential market. The fund’s LTV at 30 June was 42.7%.
PSDL – Like-for-like portfolio valuation movement PSDL – Annual like-for-like rent per sqm growth
Source: Company Data As at 30 June. Source: Company Data
● Reversionary rental uplifts remain compelling: During H1 2023, supply-demand imbalances within the Berlin PRS market
have widened with the company signing 148 new leases at average rents of €13.39 per sqm, equating to an average
31.2% premium to previous passing rents. This reflects the continued net inward migration into the city, which combined
with the higher cost of home ownership thanks to rising mortgage rates, is increasing rental demand at a time when
supply remains constrained by higher funding and construction costs. The annualised like-for-like rental growth at 30
June was 5.6%, and management expect this to increase further. During the period a new transitional Berlin Mietspiegel
(rent index) was published by the Senate Department, which details permitted increases of 5.4% vs 2021. Where
applicable (c.20% of PSDL portfolio), the new rents will become effective from October and although not the primary
driver of the company’s rental growth, it will be accretive to rental income in H2 2023.
● Portfolio valuation: As at 30 June, Phoenix Spree Deutschland’s portfolio was valued at €714.3m. This represents a 6.9%
like-for-like valuation decrease over the six-month period, reflecting outward yield shift within the market given the
rise in interest rates and its impact on buyer sentiment. The valuation equates to an average value of €3,808 per sqm
(31 December: €4,082) and a gross fully occupied yield of 3.3% (31 December: 3.0%). Six properties were valued as
condominiums, with an aggregate value of €39.1m.
● In line with the strategic focus on enhanced disposal activity, the manager has undertaken a detailed analysis of the
entire portfolio to identify individual apartment blocks, portfolios of apartment blocks and additional condominiums
units that can be marketed for sale. Given the fund’s shares continue to trade at a discount to NAV, the Board will
consider disposals at a discount to carrying value. Since period-end the company has accepted offers on two
properties (completion expected at start of 2024), with discussions ongoing over a range of other assets. Several new
condominium projects are also being brought to market. No assets were acquired in H1, in line with the previous
guidance that no new acquisitions would be undertaken at this stage of the cycle. €4.6m of capex was invested in
the existing portfolio in H1 and management expects the full year figure to be materially lower than 2022 (€16.4m).


● Condominium buyer interest returning: The wider macroeconomic backdrop continued to weigh on sentiment in the
condominium market during H1 resulting in only eight condominium units being sold (aggregate value €2.0m).
However, pricing remained compelling with average sales value of €5,715 per sqm representing an average 68%
premium to 31 December 2022 carrying value, which reflects that these units were fully renovated and vacant. Since
period-end, there have been signs of a recovery in buyer interest, with a further six condominiums for sold for €2.1m.
The valuation equated to a 2.2% discount to 31 December 2022 carrying value, reflecting the fact that the majority of
these units were occupied and therefore carried lower premiums. Reservations on a further three units (aggregate
value €0.8m) have been received and are pending notarisation. Management is continuing to review and benchmark
its pricing of condo units, particularly for occupied units where the sales market remains challenging. Importantly, 78%
of the portfolio has been legally split into condominiums, which together with revised sales expectations and a greater
stock of renovated units, should underpin an acceleration in condominium disposals in H2 2023 and H1 2024.
PSDL – Condominium sales PSDL – Portfolio vacancy rate
As at 30 June. Source: Company Data As at 30 June. Source: Company Data
● Balance Sheet: At 30 June, the fund had total borrowings of €318.1m and cash balances of €13.1m, resulting in net debt
of €305.0m and a net loan to value of 42.7% (December 2022: 39.1%). The average remaining duration of the loan book
is 3.3 years with the nearest maturity in 2026. The blended interest rate is 2.49% with the interest rate on 88% of drawn
debt either fixed or hedged with swaps.
● Numis views: Phoenix Spree Deutschland’s 30 June NAV of €4.64 (-9.0% NAV TR in € terms) is broadly in line with
expectations given the 6.9% like-for-like portfolio valuation decrease in H1 had already been released. This reflects the
challenging macro backdrop as property markets respond to rising interest rates. Positively, the underlying supplydemand imbalance for rental property in Berlin continues to result in low vacancy and provides attractive prospects
for reversionary rental growth. Although macro headwinds also served to suppress the level of condominium disposal
activity in H1, pricing remains very attractive for this second avenue of value creation and there are signs of a cautious
recovery in buyer sentiment. The company remains uniquely well placed to capitalise on this, with 78% of its existing
portfolio legally split into condominium units. This, combined with recent realignment of management fees to
incentivise disposals, should help the company execute on its strategy of a period of enhanced disposal activity that
also includes possible sales of individual properties and portfolios. Given the shares continue to trade at a wide c.55%
discount to NAV we believe it is positive to see willingness to undertake disposals at small discounts to carrying value
that are still accretive to overall returns. Although the forecasts for German economy are weak in the near term in
particularly the manufacturing sector, the Berlin market should remain largely insulated thanks to its lower reliance
on the manufacturing sector. Therefore, in our view, the current share price (which implies a value of c.€2,600 per
sqm) is not reflective of the property market fundamentals and the portfolio’s embedded value, reflected by an
average sales price on condominiums of €5,545 per sqm over the past 12 months.

[davebowler] 03/10/2023 13:44

hTTps://citywire.com/investment-trust-insider/news/phoenix-spree-to-ramp-up-cheap-disposals-in-bid-to-narrow-57-discount/

[cerrito] 27/9/2023 21:01

I have so many company announcements coming out this week that I have not had the time to have a close study but I have read the Chair's and Manager's report and nothing really surprised me. I note the comments that the market is showing tentative signs of picking up but I have no clear view of the direction of Euro interest rates.
A silly question I am almost embarrassed to ask.
The following suggests that the average price of a condominium is euro 250k. Can that be right??
Quote
in condominium buyer interest

· During the six months to 30 June 2023, eight condominium units were notarised for sale for an aggregate value of €2.0 million (H1 2022: € 3.0 million).
Unquote

[spectoacc] 06/9/2023 16:53

I question whether any fund-of-funds type investor does much research (look how many were buying HOME, in M&G's case well after the allegations had emerged), but you'd think with that large a stake, TRY would get round to taking a dive into PSDL.

They've instigated the wind-up at EPIC, wonder if they'll do the same here. They'd never manage to sell out that many in the market.

[hugepants] 06/9/2023 16:52

According to TRY's last accounts PSDL was their 8th largest position comprising 3.1% of NAV. They hold 14.7% of PSDL so they have some influence.

[spectoacc] 06/9/2023 16:29

TRY are a big fan I believe. Not that I'm much of a fan of TRY.

[cwebb1] 06/9/2023 16:18

I just don’t understand why the institutional shareholders aren’t kicking up more of a fuss here to effect some meaningful change in direction and leadership.

[cwebb1] 06/9/2023 16:15

The entire business model is designed to extract maximum fees from shareholders. The only people here who win are QSIX and their related cabal of advisors. They get paid no matter what.

The yield on this at the stated valuation is extremely low. And far below the current cost of finance.

The cash flow is terrible because of all the fees that are being extracted by QSIX and their cabal.

[hugepants] 06/9/2023 15:12

Not great. Sub 160p now and still going the opposite direction to the peer group.

[hugepants] 31/8/2023 13:28

Looking pretty grim here. The other residential property companies all trending upwards recently eg. Vonovia, Deutsch, LEG. These are pretty much flat for the year whereas PSDL is down 30%+.
In fact Vonovia +10% this week.

[cerrito] 27/8/2023 18:21

I understand that tomorrow the SDP in Germany are going to propose a rent freeze for the next 3 years, with rents in cities with high demand, including presumably Berlin, increasing by 6pc over 3 years. The SDP will need to get FDP agreement but all 3 coalition parties have agreed to a 11pc 3 year limit.
I guess the difference between this and the rent controls imposed 6?years back by the Berlin government deemed unconstitutional is that this is a federal matter.
I assume there will be a PSDL comment in the interims.

[cerrito] 21/8/2023 16:27

There is a Berlin estate agent Guthman who produce market reports,
This is the headlines in their report published this month
quote
Beginning the third quarter of 2023, purchase prices for apartment buildings in Berlin are starting to stabilize at a lower level +++ Number of total transactions increased to over 260 +++ Declining of multipliers stopped +++ We offer a strategic roadmap for the successful sale of apartment buildings in Berlin
unquote.
hxxps://guthmann.estate/en/market-report/
I do not understand the figure of total transactions and may explain why PSDL selling so few condos.
They also have a price chart district by district of the price development over the last 12 months.
The shares seem friendless. I note that only 2 members of the BOD (Hingley and Thompson)have shares with 12,500 odd shares between them. Perhaps CT and Bracebridge may put some pressure on the board, knowing that if either were to sell the mind boggles at where the price would end up.
I saw that 350k shares traded Monday last week but generally speaking trading over the last month has been quiet.

[cerrito] 19/8/2023 15:43

Thanks from me as well davebowler for taking the initiative.

[cwebb1] 19/8/2023 10:42

Thank you, davebowler, for speaking with the corporate broker. You had more out of them than I ever had out of the QSIX investor relations person; what a hopeless endeavour. Where did they find him? Yet another nail in the coffin.

While it is certainly reassuring that Numis is providing assurances that they have 'no doubt that the board is independent' and not taking every lead from QSIX, there is one straightforward question that can help explain whether there is a slither of fiduciary duty towards its shareholders:

Has there ever been an arms-length, independent tender of the management agreement between PSDL and QSIX?

As cerrito points out below, the latest fee proposal was passed through ‘North Korea style’ with seemingly little scrutiny or level of shareholder participation that one would expect. This is not about a 1% fee on a couple of condominium sales. This is a 1% fee to replace a performance fee that QSIX would now not be entitled to. The previous fee was 1,000. This new arrangement is potentially more than 7 million. After years of serious underperformance. What a kick in the teeth to long-term shareholders. Though there always seems to be time for one last drink at the trough rodders! Of course, If this was not the board’s intention, then this new fee should be capped at a level far below this (something which was oddly omitted). If QSIX is unable to provide its services at a sensible rate, why doesn’t the board find someone that can. If someone had said ‘they got paid 40m over 7 or 8 years,’ even that would seem far higher than necessary to manage some flats. Here we have a level that is more than double this, and as calculated below, potentially more than 90 million over the period.

There is also the bigger question about how Robert Hingley was appointed to the board and whether this was a ‘hand-chosen&#8217; appointment by QSIX. While I don’t know the man, I see from his CV that he is a member of the takeover panel, which gives him some credence. However, I would say, what is very often the case, that it is difficult to say ‘no’ to the very people that have given you your position in the first place.

[davebowler] 18/8/2023 16:01

I asked Justin Bell at Numis their corporate broker what he thought about our thread/discussions yesterday.
He replied below-

... the company’s business model.... has never screened well on cash flows from rents but instead on active management within a tightly controlled rental market (condo splitting and refurbishments to capture reversion). Condo sales have always been needed to provide cash for the dividend – it’s a capital growth focused business.



Given what is going on in Berlin/German resi market with many large companies such as Vonovia and Adler trying to fire sale portfolios to de-leverage, the prospect of selling assets at NAV would seem rather low given the lack of buyers around so I think an element of realism is needed.

I can assure you that the institutional shareholders are all engaged with the Board and I have no doubts as to their independence from QSix.

[cwebb1] 17/8/2023 19:43

Lookhere1, I am not an accountant, but if you take a look at Note 29 in the 2022 Financial Statements: You can see that there is an entry for deferred taxation, which I believe is largely made up of capital gains tax, of just below 71 million euros. You can also see that it is “added back” to derive the reported NAV of 5.79 per share. I assume that this tax will become due if the properties are sold for any value above their cost. The 71 million figure is an estimate of that tax which will become due. The impact on the “NAV” can be calculated simply as follows: 71m/531m = 13%. This means that the “Gross” NAV of 5.79 is “over estimated” by 13% or approximately 0.77 euros per share. This means that a more realistic NAV per share is 5.01 on a post tax basis. But this assumes that properties are sold at NAV and you believe the current valuation is achievable.

I have not looked at the swaps, but it would be fair to assume that break fees are involved, similar to early repayment charges on a conventional mortgage.

A further point to note, I see that you have been looking at the gross revenue line to determine the investment yield. I fear this is overstating the yield. This entry includes a supposed ‘pass through’ for service charges. If you look at the table on page 17, you can see the actual rental income is much lower (21.4m vs. 25.9m stated as “gross revenue” in the highlights table). This would imply that the yield is much lower than you have calculated.

You will see on August 3, they guided forward rent growth of 6.5%.

What I would specifically draw attention to in that same August 3rd RNS is the condominium prices that they are achieving. These are the rental flats that they are selling as part of their 'side hustle' to generate cash.

“During the six months to 30 June 2023, eight condominium units were notarised for sale for an aggregate value of €2.0 million (H1 2022: € 3.0 million). The average achieved notarised value per sqm for the residential units was €5,715, representing an average 68 per cent premium to 31 December 2022 carry value.
 
Since the half year end, the Company has notarised a further three condominiums for €1.0m. The valuation represents a 2.2 per cent premium to 31 December 2022 carry value, reflecting the fact that these units were occupied. June 2023 book values have been adjusted to reflect the agreed sales prices.
 
Reservations on a further seven units have been received and are pending notarisation. Combined, these have a value of €2.6 million, representing a gross premium of 5.1% per cent to carry value as at 30 June 2023. Of the seven reservations, three units are currently occupied and therefore carry lower premiums.”
 
So you will see that the sales after the first six months are being agreed at much less. From an average of 68% above book value for early sales to between 2 and 5% premium for recent sales or reservations. This should serve as a warning about relying on the rhetoric of ‘condominiums sold at big premiums’: this may not continue. So not only are they unable to sell very many, they are now selling them for much less. Quite rightly, leading to the obvious conclusion that the prices are overvalued relative to the market. It seems rather shocking that they say “However, condominium values remain well supported, as evidenced by the premia to carry values that the Company continues to achieve on sales.”, when the direction of the ‘premia’ in down.

I am not in the least bit shocked carlopig1. This has the distinct whiff of ‘a closed shop’. As mentioned, I am no longer a shareholder, and I am pleased that I walked away when I did, even though it meant taking a big loss. I would have been in a far worse position had I held on.

[lookhere1] 16/8/2023 20:45

It REALLY is quite something! What a head scratcher!

I have been looking at the latest annual report (2022). Does anyone understand the deferred taxation of 73 million. What I am trying to work out is whether this creates a bottleneck to dispose of the fund or property at a fair price (in the event that it goes down that path!!). There will no doubt be substantial fees payable to the banks if they wish to break these "Swaps" - there must be an early repayment fee to break these agreements. These are all barriers to selling anything at NAV!!!

You were CORRECT about the fees! Looking at the accounts: "The Property Advisor is entitled to receive a transaction fee fixed at £1,000 in respect of any acquisition or disposal of property by any subsidiary." How on EARTH did they manage to get the board to accept such an increase to 1% OF ASSET VALUE!!!

I notice they have been selling entire buildings to pay for "Capex" and keep the lights on!!! How can this possibly continue! it CANNOT!!

SO if I ADD the 80 million QSIX Have been PAID, to 5m they will get in the next 12 months for being an "advisor" and another 7m (or thereabouts) from this new disposal FEE, then that takes it to 92 MILLION since 2015 - this is unbelievable for a simple PRS rental business! All they do is rent flats and if they feel like it, sell a few to keep the show going. How can this justify just shy of 100 million over 7 or 8 years. The CHALLENGING MAKRET conditions which stopped them paying a dividend CLEARLY didn't hurt them!!

[cwebb1] 16/8/2023 17:22

Well, I stand corrected, this is one thing that the board has pre-empted. I have just read the RNS from 5th June detailing the new fee proposals:

"It is proposed to pay the Disposal Fee in all of the circumstances identified above - so long as the Property Advisor (or any member of its group) does not form part of any offeror consortium and/or retain its role as Property Advisor following an offer for the Company becoming wholly unconditional - to ensure that the Property Advisor is indifferent to the method of disposal and is simply incentivised only to achieve the highest price possible for the assets of the Company."

So it seems that they have covered this base to ensure some sort of impartiality.

Nevertheless, the fact remains that QSIX are in for a 12 million euro pay day if we include the 5 million fee that they will receive for being the advisor on top of any disposal fee. Nice work if you can get it.

[cwebb1] 16/8/2023 16:40

I just returned from lunch with an old colleague who now works for one of the big law firms; we got talking about this. She said something that hadn’t previously occurred to me. Taking together the rhetoric of selling assets at a discount, a depressed share price, the new 1% disposal fee to replace the prior 1,000 fee, the continuation vote next year, and so forth: current shareholders need to ensure that the board leads any disposal of the fund independently of QSIX.

She said there is a significant risk of a ‘sweetheart deal, where QSIX takes a fee from existing shareholders and ‘selects’; a buyer who will retain their services in the future. This may not be the best deal for shareholders. QSIX is not about to walk away from a business that has been so lucrative for them. The only way to ensure impartiality is for any future sale to be led by an arms-length counter-party with QSIX firmly out of the process. Depending on how things are worded, the disposal fee can be paid to this third-party counter-party who works for the shareholders, not the vested interests of the gravy train.

The only way to ‘wake the board up’ is if the largest shareholders get involved. As cerrito points out, smaller shareholders have little strength with this structure, and you will inevitably operate in an echo tunnel. It should be easy to find the individual institutions' contact details to ask them to ‘act’.

[carlopig1] 16/8/2023 14:38

Just to expand on cwebb1's observation regarding his reference to QSIX and its 'independent board'. One of the QSIX directors is a personal friend of Robert Hingley the long serving chairman. Their friendship dates back many years. He introduced him to the other partners re becoming chairman of the board almost 9 years ago shortly before they floated. The advisors at the time were PMM who had a much smaller operation focused almost completely on PSDL. They changed their name to QSIX shortly thereafter and added shared mortgages, commercial real estate and debt servicing businesses to their roster. They are a significantly bigger team now but derive the large majority of revenues from PSDL. The falling share price and NAV has affected revenues which may explain some of the motivation to change the reward structure. This does seem to be putting QSIX's interests ahead of the shareholders and given the lack of board independence may explain why this has not been challenged. It does seem to be a very cozey set up.

[dennisbergkamp] 15/8/2023 23:44

Berlin is now a tech centre too. Banks like Deutsche have an ever growing hub.

Madness that these guys can only sell 13 in a year!

D