Phoenix Spree Deutschland, the UK listed investment company specialising in Berlin residential real estate, questions Berlin Senate’s competency regarding proposed rent controls in the city.
The company said it had concerns over whether the Berlin Senate, which passed a draft bill for rents to be frozen for five years in November 2019 and is expected to enforce it in early February 2020, “is competent to pass local rent legislation, as the provisions substantially deviate from existing German federal law”.
Opposition in the Berlin House of Representatives and a parliamentary faction of the Federal Government have already announced that they intend to have the proposed legislation reviewed by Berlin’s Regional Constitutional Court and the Federal Constitutional Court.
Phoenix Spree Deutschland, which suffered a 28% fall in its share price at one point last year before recovering some of the losses, said it remained of the view that the proposals are “unconstitutional and illegal”.
The group’s portfolio increased in value by 7.1% on a like-for-like basis in 2019 to €730.2m, however its valuers, Jones Lang LaSalle, did not factor in any additional future impact on property valuations that may materialise in the event the proposed rent controls are introduced.
The company said it intends to adapt its strategy during any period in which the proposed rent controls to mitigate any short-term impact on the portfolio, while “ensuring it maintains maximum strategic optionality in the event the proposals are found to be unconstitutional”.
It said it had made good progress with these plans which include share buybacks, condominium splitting and sales, as well as selective acquisitions in areas within Greater Berlin that are not impacted by the rent control proposals.
During the year the group sold 18 apartments for a total of €8.8m, reflecting a 17.5% premium to book value. It also commenced a share buy-back programme in October 2019 and, as at 30 January 2020, had purchased a total of 3.2 million shares (3.2% of the ordinary share capital) for £10.3m. The average price paid represented a 23.9% discount to its EPRA net asset value per share as at 30 June 2019.
Chairman Robert Hingley said the company was looking at further opportunities to acquire property in the Greater Berlin area that is unaffected by the proposed rent control, having completed the acquisition of an apartment complex in Brandenburg for €24.2m in December 2019.
He said: “I am pleased with the continued performance of the portfolio and the progress made in mitigating any short-term impact on the portfolio during the period of uncertainty created by the proposed rent controls. Supported by our strong balance sheet, we remain well placed to take advantage of selective acquisition opportunities and share buy-backs, while maintaining our strategic optionality in the event the rent control proposals are found to be unconstitutional.”
The company’s full year results will be published in early April 2020.
PSDL : Phoenix Spree Deutschland questions Berlin Senate’s competency over rent controls