Phoenix Spree Deutschland swings to interim loss but rosy on demand

(Alliance News) - Phoenix Spree Deutschland Ltd on Wednesday reported an interim loss but was optimistic about high demand for property, boosted by high net migration.

The Berlin-focused residential real estate investor said it swung to a pretax loss of EUR58.0 million in the first half of 2023 from a profit of EUR17.0 million a year prior. Revenue climbed by 6.2% to EUR13.8 million from EUR13.0 million.

The loss came as Phoenix Spree Deutschland recorded a EUR57.3 million loss on investment property fair value compared to a EUR11.4 million gain a year prior.

Portfolio valuation as at June 30 dropped by 13% to EUR714.3 million from EUR820.1 million a year before and by 7.9% from EUR775.9 million on December 31. Portfolio valuation per square metre at June 30 declined 12% to EUR3,808 from EUR4,318 a year before. It was down 6.7% from EUR4,082 on December 31.

"High net inward migration and declining construction levels are significantly increasing the supply-demand imbalance for Berlin residential rental property," Phoenix Spree said.

EPRA for net tangible assets per share as at June 30 declined 19% to EUR4.64 from EUR5.72 a year prior.

The company did not declare an interim dividend, having declared a dividend of 2.35 euro cents the year prior.

Looking forward, it said that a "significant" part of its rental portfolio has been identified for disposal and says it is actively being marketed. It noted that disposals at discounts to current carrying value are "likely" but adds it would likely be at a premium to the value implied by the share price as at 30 June 2023.

While the company positively noted supply-demand imbalances favouring its business, as it positively impacted rental growth, it added that higher interest rates continued to weigh on buyer sentiment and transaction volumes, which pressures sales prices.

"Rental demand has been further increased by inward migration of more than 1.5 million refugees into Germany from Ukraine during 2022 and 2023, placing further pressure on residential vacancy levels, which are already at historically low levels. The bulk of net inward migration has been in major urban areas, including Berlin. The Berlin senate currently estimates that over 60,000 have settled in the city since the onset of the war," Phoenix Spree said.

Phoenix Spree shares were 2.7% lower at 165.35 pence each on Wednesday morning in London.

By Tom Budszus, Alliance News reporter

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