Phoenix Spree Deutschland Share Discussion Threads

[cwebb1] 06/9/2023 15:18

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 15:15

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 14:12

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

[hugepants] 31/8/2023 12:28

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 17:21

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 15:27

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 14:43

Thanks from me as well davebowler for taking the initiative.

[cwebb1] 19/8/2023 09:42

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’ 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 15:01

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 18:43

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 19:45

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 16:22

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 15:40

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 13:38

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 22:44

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

[cerrito] 15/8/2023 18:51

Thank you cwebb1 for your excellent post.You have reminded me of the need to do due diligence.
It made me check the shareholder base with Columbua Threadneedle at 18pc and Bracebridge at 15pc and I asked myself how they see it.
I see there was a voter turnout of about 50pc at the last AGM where everything was voted through North Korea style.
So it appears that neither of the big shareholders are prepared to shake the trees and it seems that apart from them we have an atomized shareholder base.. Not a good combination.

[cwebb1] 15/8/2023 18:20

A deterioration in buyer sentiment? So in the capital city of Germany, they haven't managed to sell more than 13 flats in either of the past two financial years? With all the post pandemic cash, liquidity and lockdown savings, and with interest rates at next to zero in each of those years. They couldn't sell more than 13 flats a year. What a sham.

[cwebb1] 15/8/2023 18:18

It is beyond belief that they are even suggesting that disposals at a discount may happen if its in the best interests of shareholders. How can anyone have confidence in the reported valuation?

[lookhere1] 15/8/2023 18:07

MUCH WORSE than i ever imagined!!!!

[cwebb1] 15/8/2023 17:37

If you need confirmation that the advisor believes they have reached the end of the road:. The previous disposal fee used to be a fixed 1,000 euros per disposal (or acquisition). So imagine selling the entire fund: QSIX may have been entitled to (let me get my calculator out) = 1,000 euros. Now the 'independent' board has voted to incentivise QSIX further, and by the stroke of a pen they are in for another 7 million payday. And this is good for the shareholders? This is in the best interests of shareholders?

[dennisbergkamp] 15/8/2023 17:20

Absolutely shambolic,

I’m going to dump this tomorrow

D

[cwebb1] 15/8/2023 17:18

Shambolic!

[cwebb1] 15/8/2023 17:08

I am speechless.

[cwebb1] 15/8/2023 16:56

Here are some quotes I found from a recent article:

"However, Hingley said the board was prepared to sell properties at a discount if the price achieved was in the interest of the shareholders."

"The new disposal fee of 1% of gross asset value is designed to incentivise the fund manager to generate the cash for dividends and share buybacks."

"Hingley blamed the decline on ‘a deterioration in buyer sentiment in light of more challenging economic circumstances’ that had hindered condominium sales, but added that the rental business continued to ‘thrive’."

"Hingley acknowledged the ‘frustration of shareholders that PSDL’s share price remains at a material discount to assets’ despite the strong rental performance it has shown over the past year. The company faces a continuation vote at its annual general meeting next year."