Phoenix Spree Deutschland has suspended its dividend and has not paid a final dividend for the year to 31 December 2022 as the residential sales market in Berlin dries up following the hike in interest rates.
As per its business model, cash to pay dividends is substantially dependent on condominium and/or other asset sales. Just €4.7m of condominiums were notarised for sale during 2022 (2021: €15.2m), reflecting the deterioration in buyer sentiment and the difficulty in selling tenanted units.
Liquidity remains “very low” in the Berlin market, and so the company will preserve cash to support its core apartment rental business.
The company reported a 9.7% drop in EPRA net tangible assets (NTA) for the year to 31 December 2022 to €5.10 per share, due to the impact of higher interest rates on valuations. Like-for-like portfolio value, decreased by 3.1%, reflecting the increase in market yields, to €775.9m (2021: €801.5m).
Operationally, like-for-like rental income per sqm increased by 3.9% versus prior year, while new leases in Berlin were signed at an average 32.3% premium to passing rents.
The company signed 320 new leases during the year, with the average rent of all new lettings increasing to €13.0 per sqm, a 6.6% increase on the prior year.
EPRA vacancy of 2.4 per cent as at 31 December 2022 is at a historically low level, reflecting ongoing structural undersupply of available rental property.
The company has net debt of €303.3m and a net LTV of 39.1% (2021: 34.7%). The majority of its debt has a fixed interest rate through hedging, with the blended interest rate at 2.2%. Its debt has an average remaining duration exceeding three years, with its first maturity not until September 2026.
Outlook
On the rental sector, the company said: “Supply-demand imbalances within Berlin PRS (private rented sector) provide support for rental values. Rental growth remains strongly underpinned, with new letting rental values expected to continue to be at significant premia to average in-place rents across the portfolio. The rising cost of home ownership is forcing potential buyers to remain within the rental system for longer. Urban housing shortage has further exacerbated by anticipated net inward migration of almost one million from Ukraine to Germany. The rising cost of construction is further limiting new-build development.”
On transaction activity and asset values, the company said: ” The ongoing impact of 2022’s interest rate rises continues to weigh on buyer sentiment. Further declines in property values driven by macro factors such as higher medium-term interest rates are likely in the first half of 2023. The company continues to market actively both individual properties and portfolios for sale. The Portfolio remains under continuous review and additional properties will be put up for sale. Disposals at a discount to carrying value will be considered, but only at levels which the board considers to be in shareholders’ interests. Plans to bring additional condominium properties to market have been accelerated and bulk condominium sales are under active consideration.”
On the dividend, it said: “The company intends to reinstate dividends as soon as practical to do so. Any surplus cash generated over amounts required to reinvest in core portfolio and reinstate dividends on a sustainable basis will, so long as share price discount to NAV persists, be used for share buy-backs and not to acquire further properties.”
Robert Hingley, chairman of Phoenix Spree Deutschland, commented: “During 2022, the real estate industry has had to adjust to the combined effects of global inflationary pressures and higher interest rates, both of which have weighed on industry transaction volumes and asset values. Although our core rental business continues to thrive, PSD has not been immune from these broader trends, and the board has therefore taken the decision to suspend the dividend. Rental values remain well supported and the company has a strong balance sheet and conservative financing. Whilst the speed of recovery in transaction volumes and buyer sentiment is uncertain, the company will seek to resume dividends as soon as the outlook becomes clearer.”
PSDL : Phoenix Spree Deutschland suspends dividend as Berlin investment market dries up