Phoenix Spree Deutschland (PSDL), which owns a large portfolio of rental properties in Berlin, has accelerated plans for future condominium sales, reflecting the wide discrepancy between values it has been achieving and its share price.
Over the past 12 months, the company has achieved sales prices, on average, of €5,545 per square metre, while the current share price, on an EPRA basis, implies a value per square metre across the entire portfolio of around €2,600.
Three properties are being brought to market, while it added that a significant part of the rental portfolio has been identified for disposal and is being actively marketed.
Disposals at discounts to current carrying value are likely, although at a premium to the value implied by the share price as at 30 June 2023.
With the proceeds, the company will look to reduce overall debt levels and return capital to shareholders.
Condominium sales
During the six months to 30 June 2023, eight condominium units were notarised for sale for an aggregate value of €2.0m, at an average value per sqm of €5,708, representing an average 68% premium to the 31 December 2022 carrying value.
Since 30 June 2023, the company has notarised a further six condominiums for €2.1m and reservations on a further three units, with a combined value of €0.8m, have been received and are pending notarisation.
Although 95% of the company’s portfolio is currently valued on a rental property basis, it has over 78% of its properties legally split as condominiums, providing significant future optionality.
Rental growth accelerating
The company said that supply-demand imbalances and recent regulatory developments will continue to positively impact rental growth.
High net inward migration and declining construction levels are significantly increasing the supply-demand imbalance for Berlin residential rental property, it added.
It expects that rental growth on an annualised like-for-like basis will accelerate from the current rate of 5.6% as at 30 June 2023. New leases in the first six months of 2023 were signed at an average 31.2% premium to passing rents.
EPRA vacancy remains at historically low levels of 2.7% as at 30 June 2023, reflecting the ongoing structural undersupply of available rental property.
Regulatory backdrop more supportive
Following removal of the Mietendeckel rent cap, political sentiment is shifting from rent control towards increasing the supply of new homes, the company said. The new Berlin Mietspiegel (rent index) announced on 15 June 2023 permits, on average, an increase in industry-wide rental values of 5.4% versus 2021.
The company has notified all qualifying Mietspiegel tenants of rental increases, and these will become effective from October 2023 onwards.
Portfolio valuation impacted by interest rate rises and yield expansion
Like-for-like portfolio value, after adjusting for the impact of acquisitions and disposals, declined by 6.9% during the half-year to 30 June 2023, reflecting an increase in market yields, partially offset by rental growth.
The portfolio was valued at €714.3m as at 30 June 2023, compared to €775.9m as at 31 December 2022. EPRA net tangible assets (NTA) was €4.94 per share, versus €5.10 at 31 December 2022.
Due to the valuation decline, the group’s loan to value (LTV) moved up to 42.7% versus 39.1% at the end of 2022. The company has no near-term refinancing requirements, with its first loan maturity not due until September 2026.
PSDL : Phoenix Spree Deutschland to accelerate condominium sales