Phoenix Spree Deutschland has commenced a realisation programme that will see it sell down its portfolio of Berlin residential assets and return capital to shareholders.

It plans to achieve this by accelerating its individual condominium sales programme, where it has accomplished large premiums to book value.

The company is targeting annual sales of €50m from 2025 and has today announced the sale of 16 buildings, comprising 385 units, to Partners Group for €75.9m.

Given these strategic developments, the board intends to bring forward the date of the company’s continuation vote and will propose amendments to the investment objective and policy to facilitate the orderly portfolio liquidation.

Key highlights of the realisation strategy include:

• Enhanced financing structure: Modified debt terms agreed with the company’s principal lender to allow for accelerated condominium sales.
• Expanded condominium sales potential unlocked: This will increase the number of buildings permitted under PSD’s existing debt facility to be sold as condominiums at any one point in time from 6 to 40, currently representing 950 units.
• Valuation impact: For the financial year ending 31 December 2024, over 50% of buildings in the portfolio are expected to be valued on a condominium sales basis.
• Value realisation strategy: Implementation of accelerated sales programme to maximise shareholder returns through targeted condominium sales. There will be restrictions on cash returns to shareholders until the company’s principal debt facility is repaid or refinanced.
• Strategic disposal: Debt amendment facilitated through the sale of an SPV owning 16 rental buildings (385 units) to funds managed by Partners Group for €75.9m.
• Strengthened balance sheet: €58.8m debt reduction from €316.7m to €257.9m as at 30 June 2024 on a pro forma basis, resulting in a reduction in net LTV from 46.5% to 42.7%.
• Strategic direction: The board has explored a range of strategic options, including a possible sale of the company, to address proactively the company’s share price discount to EPRA net asset value and to maximise value for shareholders. The board believes the accelerated condominium sales strategy represents the best outcome for shareholders and is no longer actively exploring a possible sale of the company.
• Continuation vote: The board proposes to bring forward the company’s upcoming Continuation Vote and will recommend that shareholders vote in favour of continuation. This will allow the sale of condominiums and PRS assets to be implemented over time, offering greater optionality to deliver shareholder value.

The portfolio sale to Partners Group has allowed the company to renegotiate its principal debt facility, which will enable a step-change in permitted condominium sales and value-enhancing capital expenditure. In support of the new strategy, the company has strengthened its sales capability, having engaged the services of two leading condominium sales platforms, Engel & Völkers and Lübke Kelber. Current market evidence supports achievable values of around €5,000 per sqm for vacant units and €3,500 for tenanted units. In the year to date, the company has achieved an average condominium sales price of €4,122 per sqm, which was a 19% premium to the portfolio valuation.

Following the disposal, the company’s remaining portfolio comprises 61 buildings (or 1,689 units) approximately 80% of which are legally split for condominium sales and a further 14 PRS buildings (480 units) which are not legally split. 24 buildings, representing 576 units, are scheduled for marketing in the first half of 2025.

Financial impact

The company has reached agreement in principle with its main lender, Natixis, to modify the lending facility. The impacts of the combination of the amended financing terms and the disposal include:

• €58.8m debt reduction from €316.7m to €257.9m, resulting in an improvement in net LTV of 42.7% from 46.5%.
• After debt repayment, €12.9m of cash will be released, of which €9m will be allocated for value-enhancing capital expenditure on condominium properties in order to enhance sales proceeds and velocity.
• All in cost of debt following the modification rises from 2.58% to 2.90%.
• The transaction is expected to dilute EPRA net tangible assets by approximately 7.9% from €3.68 to €3.39 per share (£3.12 to £2.85 per share).
• A reduction in the annual asset management fees payable to the Property Advisor of approximately 7.9%.

Under the amended debt facility, the company will not be able to make distributions, including dividends and share buybacks, while the facility is outstanding. The Natixis loan is due to mature in September 2026. However, subject to the company’s Continuation Vote being approved, the company intends to seek alternative financing in order to accelerate distributions to shareholders ahead of this date. Any early repayment of existing debt would not trigger repayment penalties.

Robert Hingley, chairman of Phoenix Spree Deutschland, commented:

“The announcement of our agreement to sell a portfolio of 16 buildings marks a crucial step in advancing our value realisation strategy. This transaction has enabled us to secure revised lending terms that will facilitate a significant increase in condominium sales.

“The Board recognises the importance of next year’s Continuation Vote in determining the Company’s future strategic direction. Following consultation with our major shareholders, we believe that a managed Portfolio realisation, primarily through condominium sales, offers the optimal path to maximising shareholder value.

“We look forward to providing shareholders with detailed information about this proposal in a circular to be published on or before 17 February 2025.”