TIDMPSDL
RNS Number : 5411U
Phoenix Spree Deutschland Limited
29 March 2023
Phoenix Spree Deutschland Limited
(the "Company", the "Group" or "PSD")
Financial results for the year ended 31 December 2022
Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed
investment company specialising in Berlin residential real estate,
announces its full year audited results for the financial year
ended 31 December 2022.
Financial Highlights
Year to 31 Year to 31 2022 v 2021
December 2022 December 2021
% change
Income Statement
-------------- -------------- ------------
Gross rental income (EURm) 25.9 25.8 0.6
-------------- -------------- ------------
(Loss) / Profit before tax (EURm) (17.5) 45.3 (138.8)
-------------- -------------- ------------
Dividend per share in respect 2.35 (2.09) 7.50 (6.38)
of the period
(EUR cents (GBP pence))
-------------- -------------- ------------
Balance Sheet
-------------- -------------- ------------
Portfolio valuation (EURm) (1) 775.9 801.5 (3.2)
-------------- -------------- ------------
Like-for-like valuation (d ecrease)
/ increase (%) (3.1) 6.3 -
-------------- -------------- ------------
IFRS NAV per share (EUR) 4.50 4.74 (5.1)
-------------- -------------- ------------
IFRS NAV per share (GBP) (2) 3.99 3.98 0.3
-------------- -------------- ------------
EPRA NTA per share (EUR) 5.10 5.65 (9.7)
-------------- -------------- ------------
EPRA NTA per share (GBP)(2) 4.52 4.74 (4.6)
-------------- -------------- ------------
EPRA NTA per share total return
(EUR%) (8.4) 8.4
-------------- -------------- ------------
Net LTV(3) (%) 39.1 34.7
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Operational Statistics
-------------- -------------- ------------
Portfolio valuation per sqm (EUR) 4,082 4,225 (3.4)
-------------- -------------- ------------
Annual like-for-like rent per
sqm growth (%) 3.9 3.9
-------------- -------------- ------------
EPRA vacancy (%) 2.4 3.1
-------------- -------------- ------------
Condominium sales notarised (EURm) 4.7 15.2 (69.1)
-------------- -------------- ------------
(1 - Portfolio valuation) (includes investment properties under
construction) (.)
2 - Calculated at FX rate GBP/EUR 1:1.128 as at 31 December 2022
(2021: GBP/EUR 1:1.191) 3 - Net LTV uses nominal loan balances
(note 22) rather than the loan balances on the Consolidated
Statement of Financial Position which include Capitalised Finance
Arrangement Fees.
Further increase in rental levels, resilient reletting
premium
-- Like-for-like rental income per sqm increased by 3.9 per cent versus prior year.
-- New leases in Berlin signed at an average 32.3 per cent premium to passing rents.
-- 320 new leases signed during the year, with the average rent
of all new lettings increasing to EUR13.0 per sqm, a 6.6 per cent
increase on the prior year.
-- EPRA vacancy of 2.4 per cent as at 31 December 2022 remains
at historically low level, reflecting ongoing structural
undersupply of available rental property.
Portfolio valuation impacted by interest rate rises and yield
expansion
-- Like-for-like Portfolio value, adjusted for acquisitions and
disposals, decreased by 3.1 per cent versus 2021, reflecting an
increase in market yields.
-- Including investment properties under construction valued at
EUR5.3 million, the Portfolio was valued at EUR775.9 million as at
31 December 2022, compared to EUR801.5 million as at 31 December
2021.
-- EPRA NTA per share down 9.7 per cent versus 2022 to EUR5.10.
-- EPRA NTA per share total return of (8.4) per cent.
Condominium sales at a premium to carrying value , reduced
volumes
-- Condominiums notarised for sale during 2022 of EUR4.7
million, (2021 EUR15.2 million), reflecting deterioration in buyer
sentiment and the difficulty in selling tenanted units.
-- Average achieved value per sqm of EUR5,502 for residential
units, a 22.4 per cent premium to trailing carrying value of each
property.
-- Since the financial year end, a further three condominiums
have been notarised for sale, for a total consideration of EUR0.8
million, at an average 62 per cent premium to carrying value as at
31 December 2022.
-- Reservations for three additional units, with a combined
value of EUR0.6million, and an average 80.0 per cent premium to
carrying value, have recently been received and are pending
notarisation.
-- 77 per cent of Portfolio assets legally split into
condominiums, up from 75 per cent as at 31 December 2021.
-- A number of new condominium projects are being brought to
market, resulting in a significant increase in vacant apartments
offered for sale.
Portfolio management
-- Sales agreed on three non-core properties during the
financial year for an aggregate consideration of EUR12.1 million
and at an average 6 per cent discount to December 2021 carrying
value.
-- Although the Company has been actively marketing both
individual assets and portfolios, and continues to do so, liquidity
in Berlin has been, and remains, limited.
-- The majority of offers received during the last six months
have been significantly below carrying value, at levels where the
Property Advisor considers that sale is not in shareholders'
interests.
-- Approximately EUR16.4 million of capital investment was made
into the Portfolio during the financial year for refurbishment of
apartments and bringing new residential condominium projects to
market.
-- This investment is expected to be recouped from 2023 onwards
through significant rental uplifts.
-- It is expected that total capital investment will be materially lower in 2023.
Dividend suspended, investment in Portfolio prioritised
-- Under PSD's business model, cash to pay dividends is
substantially dependent on condominium and/or other asset
sales.
-- Priority for use of available cash is to continue to invest
in the Portfolio, underpinning our core reversionary rental
business which continues to thrive.
-- In light of this, and the persistent very low level of
liquidity in the Berlin market, and in line with its peer group,
the Company has suspended dividend payments to preserve cash and
support its core business.
-- Net LTV remains conservative at 39.1 per cent (31 December 2021: 34.7 per cent).
-- EUR42.4 million of Berliner Sparkasse debt successfully refinanced during financial year.
Outlook
-- Supply-demand imbalances within Berlin PRS provide support for rental values:
o 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.
o Rising cost of home ownership forcing potential buyers to
remain within the rental system for longer.
o Urban housing shortage further exacerbated by anticipated net
inward migration of almost one million from Ukraine to Germany.
o Rising cost of construction further limiting new-build
development.
-- Transaction activity and asset values
o Ongoing impact of 2022's interest rate rises continues to
weigh on buyer sentiment.
o Further declines in property values driven by macro factors
such as higher medium-term interest rates are likely in H1
2023.
o 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.
o Plans to bring additional condominium properties to market
have been accelerated and bulk condominium sales are under active
consideration.
-- Balance sheet and dividend
o The Board considers the current level of gearing and cash
balances to be appropriate at this stage in the real estate cycle
.
o The Company remains conservatively financed with its first
loan maturity not due until September 2026.
o The Company intends to reinstate dividends as soon as
practical to do so.
o 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."
Annual Report and Accounts
The full Annual Report and Accounts will shortly be available to
download from the Company's webpage www.phoenixspree.com. All page
references in this announcement refer to page numbers in the Annual
Report and Accounts.
The Company will submit its Annual Report and Accounts to the
National Storage Mechanism in the required format in due course,
and it will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
For further information, please contact:
Phoenix Spree Deutschland Limited
Stuart Young +44 (0)20 3937 8760
Numis Securities Limited (Corporate Broker)
David Benda +44 (0)20 3100 2222
Tulchan Communications (Financial PR) +44 (0)20 7353 4200
Olivia Peters
James Anderson
Faye Callow
CHAIRMAN'S STATEMENT
Since the onset of the war in Ukraine, the European real estate
industry has faced a number of headwinds which have impacted
investor confidence, transaction volumes and real estate pricing
across much of Europe. In particular, the industry has had to
adjust to the combined effects of global inflationary pressures and
higher interest rates. PSD has not been immune from these broader
trends and so has reported the first decline in the value of its
Portfolio.
Financial performance and dividend
As at 31 December 2022, the Portfolio was valued at EUR775.9
million, a like-for-like annual decline of 3.1 per cent. Reflecting
this decline, the Euro EPRA NTA total return per share was (8.4)
per cent over the year and the sterling return was (3.2) per
cent.
Although our core rental business continues to thrive,
condominium sales volumes have been impacted by a significant
deterioration in buyer sentiment in the light of more challenging
economic circumstances. With cash to pay dividends substantially
dependent on revenues generated from condominium and other sales,
the Board has taken the difficult decision to suspend the
dividend.
Further details relating to the Company's financial and
operating performance can be found in the Report of the Property
Advisor.
Our tenants and their homes
We recognise that the current cost of living crisis presents
challenges for a number of our tenants, and, at all times, their
health and wellbeing remain foremost in our minds. We are committed
to providing good-quality affordable homes with a reliable,
friendly rental service and continue to work constructively with
those in greatest need, wherever we can. Where necessary, the
Company endeavours to support its tenants who are experiencing
financial hardship.
The Company has continued with its programme of investment to
improve the overall standard of our tenanted accommodation and
provide a platform for rental growth. To this end, over 80 per cent
of the Company's net rental income was reinvested into the
Portfolio during the financial year.
"Better Futures"
The Board acknowledges the significance of conducting business
with integrity, transparency, and accountability towards
shareholders, tenants, and other key stakeholders. We recognize
that being a responsible company, balancing the needs of our
stakeholders, and addressing our environmental and social impacts,
is critical to the success and longevity of our business.
To achieve this, our "Better Futures" Corporate Responsibility
(CR) Plan provides a framework to monitor and improve our current
activities. The plan has five key pillars that are integrated
throughout our business operations: Protecting the Environment;
Respecting People; Valuing our Tenants; Investing in our
Communities, and Governance.
Protecting our environment
The Board recognises that the nature of our business has
environmental and social impacts and that we have a responsibility
to consider and minimise these impacts, where possible. As a member
of EPRA, we want to contribute to greater transparency in
reporting. We have strengthened our commitment to delivering
against our environmental and social impacts by introducing EPRA's
Sustainability Best Practices Recommendations and capturing our ESG
measurements within their framework.
I am therefore delighted to report that this commitment has been
recognised in the EPRA Sustainability Awards 2022, with PSD
receiving a Gold award in recognition of the Company's commitment
to best practice in its reporting. This recognition further
encourages us to continue to approach the future in a consistent,
ethical, safe and environmentally friendly way.
Our charities
The Company continues to provide financial support to two
charities in Berlin: The Intercultural Initiative, a refuge that
helps women and children affected by domestic violence, and
Laughing Hearts, which provides assistance to children living in
children's homes and under social care.
QSix, our Property Advisor, continues to provide support to two
charities in London: SPEAR and SHP. Both organisations work with
homeless people. SPEAR receives funding to run an outreach service
that provides accommodation to rough sleepers and addresses their
health and social care needs. SHP supports an employability
programme that helps homeless people or those at high risk of
homelessness to find jobs and secure sustainable income. During
2022, QSix additionally agreed funding for Home-Start, a UK
community network of trained volunteers and expert support helping
families with young children.
Ukrainian Crisis
The tragic humanitarian toll caused by Russia's invasion of
Ukraine remains foremost in our minds. The war in Ukraine has
caused unimaginable hardship and displaced millions from their
homes and, in recognition of this, PSD made available a number of
apartments on a rent-free basis for Ukrainian refugees. I am
pleased to report that these tenants have transitioned into
long-term tenancies with the costs covered by the Berlin district
of Teltow Fläming.
Our Board
The Board acknowledges the significance of a robust corporate
governance culture and adheres to the principles of good corporate
governance as outlined in the Association of Investment Companies
Code of Corporate Governance ("AIC Code"). More information on how
the Company has implemented the provisions of and adhered to the
AIC Code can be found in the Directors' Report.
The death of Greg Branch in August has deeply saddened us, and
we express our gratitude for his exceptional service during his
tenure on the Board. Greg brought a wealth of knowledge from over
30 years in financial services and real estate. He is greatly
missed as a colleague and friend by current and former Directors of
the Company, QSix investment professionals, and those in the
broader business community who had the opportunity to work with
him.
As previously announced, Isabel Robins was appointed as a
non-executive Director, effective 14 March 2022. Isabel brings over
23 years of expertise in offshore real estate structures, including
property funds, investments, and developments. Her extensive real
estate background and knowledge will provide valuable insight and
complement the skillset of the Board. She takes the place of
Monique O'Keefe, who resigned as Senior Independent Director to
accept a senior executive role at another company.
The Board was pleased to announce the appointment of Steven
Wilderspin as a non-executive Director in January 2023. A resident
of Jersey, Steven has had extensive experience as an independent
director for multiple public and private investment funds and
commercial companies since 2007.
Outlook
European real estate markets continue to adjust to more
challenging economic conditions, particularly higher inflation and
interest rates, with consequential impacts on transaction volumes
and real asset pricing.
Whilst it is still too early to predict when the current real
estate cycle will bottom out, PSD remains well positioned, with a
strong balance sheet and conservative debt financing. Moreover, our
core rental business continues to thrive, with rental values well
supported by the positive demographic trends that continue to exist
within the Berlin residential property market. This, combined with
the ongoing programme of investment into our buildings, underpins
the future reversionary potential that exists within the
Portfolio.
The Board and Property Advisor remain fully focussed on
delivering the best possible outcome for the Company's
stakeholders. We recognise the importance of dividends to our
shareholders, and the resumption of dividend payments is a
priority, once market conditions and the outlook for future
condominium sales become clearer.
Robert Hingley
Chairman
28 March 2023
REPORT OF THE PROPERTY ADVISOR
Financial highlights for the twelve-month period to 31 December
2022
EUR million (unless otherwise stated) Year to Year to
31-Dec-22 31-Dec-21
--------- ---------
Gross rental income 25.9 25.8
--------- ---------
Investment property fair value (loss)
/ gain (42.2) 38.0
--------- ---------
(Loss) / gain before tax (PBT) (17.5) 45.3
--------- ---------
Reported EPS (EUR) (0.17) 0.39
--------- ---------
Investment property value 775.9 801.5
--------- ---------
Net debt (Nominal balances)(1) 303.3 278.0
--------- ---------
Net LTV (%) 39.1 34.7
--------- ---------
IFRS NAV per share (EUR) 4.50 4.74
--------- ---------
IFRS NAV per share (GBP)(2) 3.99 3.98
--------- ---------
EPRA NTA per share (EUR)(3) 5.10 5.65
--------- ---------
EPRA NTA per share (GBP)(2) 4.52 4.74
--------- ---------
Dividend per share in respect of the
period (EUR cents) 2.35 7.50
--------- ---------
Dividend per share in respect of the
period (GBP pence) 2.09 6.38
--------- ---------
EUR EPRA NTA per share total return for
period (%) (8.4) 8.4
--------- ---------
GBP EPRA NTA per share total return for
period (%)(2) (3.2) 1.0
--------- ---------
(1 - Nominal loan balances as per note 22 rather than the loan
balances on the Consolidated Statement of Financial Position which
consider Capitalised Finance Arrangement Fees in the balance as per
IAS 23.)
2 - Calculated at FX rate GBP/EUR 1:1.128 (2021: GBP/EUR
1:(1.191)
(3 - Further EPRA Net Asset Measures can be found in note
29.)
Financial results
Revenue for the financial year to 31 December 2022 was EUR25.9
million (31 December 2021: EUR25.8 million). The Company recorded a
loss before tax of EUR17.5 million (31 December 2021: profit before
tax EUR45.3 million), reflecting the non-cash impact of a
revaluation loss of EUR42.2 million (31 December 2021: revaluation
gain of EUR38.0 million).
Property expenses rose by 6.4 per cent over the year, due
primarily to service charge increases and related energy/utility
price movements. Administration costs and legal and professional
fees were marginally down over the year, with slightly higher legal
costs from transactional activity offset by a drop in other
professional costs. Reported earnings per share for the period were
(0.17) EUR cents (31 December 2021: 0.39 EUR cents).
Reported EPRA NTA per share declined by 9.7 per cent in the
period to EUR5.10 (GBP4.52) (31 December 2021: EUR5.65 (GBP4.74)).
After accounting for dividends paid during 2022 of 7.5 EUR cents
(6.45 GBP pence), which were paid in June and October 2022, the
Euro EPRA NTA total return for the period was (8.4) per cent (2021:
8.4 per cent). The sterling EPRA NAV per share total return was
(3.2) per cent (31 December 2021: 1.0 per cent), reflecting the
decline in the value of sterling versus the Euro during the
financial year.
Dividend and share buybacks
The Company has taken the difficult decision to suspend dividend
payments. Although the performance of the Company's core rental
business remains strong and its balance sheet and financing remain
conservative, this is considered the appropriate course of action
in the light of ongoing weakness in buyer confidence, asset pricing
and condominium and other sales.
The dividend has always been paid from operating cash flows,
including the disposal proceeds from condominium projects and other
properties. Subject to the cash requirements of the business, and
after full consideration of the impact that the economic and
operating environment may have on the portfolio of assets owned by
the Company, it is the intention to resume dividends once the
outlook is clearer.
In the light of the decision not to pay a final dividend and
taking into account the interim dividend paid in October 2022, the
total dividend for the financial year to 31 December 2022 is 2.35
EUR cents per share (2.09 GBP pence per share) (31 December 2021:
7.5 EUR cents, 6.38 GBP pence).
During the financial year ended 31 December 2022, the Company
bought back a further 974,754 ordinary shares, representing 1.0 per
cent of the ordinary share capital, for a total consideration of
GBP3.5 million. The average price paid represents a 20.9 per cent
discount to EPRA NTA per share as at 31 December 2022.
Although the Company recognises that PSD's share price remains
at a material discount to EPRA NTA, it did not buy-back shares in
the second half of the financial year. This reflected a decline in
the proceeds from condominium sales and uncertainty on the
transaction market for other asset disposals.
The Company will continue to keep its cash commitments under
close review and will prioritise continued investment in the core
Portfolio. Any surplus cash generated over the amounts required to
reinvest in the 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 additional
properties.
Table: Portfolio valuation and breakdown
31 December 31 December
2022 2021
Total sqm ('000) 188.8 189.7
------------ ------------
Valuation (EURm) 775.9 801.5
------------ ------------
Like-for-like valuation (decline)/growth
(%) (3.1) 6.3
------------ ------------
Value per sqm (EUR) (1) 4,082 4,225
------------ ------------
Fully occupied gross yield (%) 3.0 2.8
------------ ------------
Number of buildings 96 97
------------ ------------
Residential units 2,553 2,569
------------ ------------
Commercial units 135 138
------------ ------------
Total units 2,688 2,707
------------ ------------
1 - Value per sqm provided by JLL based on portfolio valuation
excluding assets under construction of EUR5.3 million
Like-for-like decline in Portfolio Valuation of 3.1 per cent
Pricing in the Berlin residential property market weakened in
the second half of the financial year, with higher inflation and
interest rates adversely affecting buyer sentiment and,
consequently, transaction volumes. Market sales volumes in 2022
were at a 10-year low, reflecting a widening gap between buyer and
seller price expectations. These weaker market conditions have
impacted the valuation of the Portfolio.
JLL has conducted a full RICS Red Book property-by-property
analysis, tied back to comparable transactions in the Berlin
market, and provided a portfolio valuation on this basis. As at 31
December 2022, the Portfolio, including investment properties under
construction, was valued at EUR775.9 million (31 December 2021:
EUR801.5 million). Investment properties under construction
totalling EUR5.3 million were valued by the Board on a discounted
cost basis (see note 16 of the financial statements for further
detail). Across the Portfolio, this represents a 3.2 per cent
decline over the year, reflecting an increase in market yields and
the subsequent impact on real estate asset valuations.
On a like-for-like basis, after adjusting for the impact of
acquisitions net of disposals, the Portfolio valuation declined by
3.1 per cent in the year to 31 December 2022, and by 5.2 per cent
in the second half of the financial year.
The valuation as at 31 December 2022 represents an average value
per square metre of EUR4,082 (31 December 2021: EUR4,225) and a
gross fully-occupied yield of 3.0 per cent (31 December 2021: 2.8
per cent). Included within the Portfolio are six multi-family
properties valued as condominiums, with an aggregate value of
EUR30.1 million (31 December 2021: eight properties; EUR38.8
million).
Table: Rental income and vacancy rate
31 Dec 2022 31 Dec 2021
Total sqm ('000) 188.8 189.7
------------ ------------
Annualised Net Rental Income (EURm) 21.4 20.3
------------ ------------
Net Cold Rent per sqm (EUR) 10.0 9.6
------------ ------------
Like-for-like rent per sqm growth
(%) 3.9 3.9
------------ ------------
Vacancy % 6.2 8.4
------------ ------------
EPRA Vacancy % 2.4 3.1
------------ ------------
Like-for-like rental income per square metre growth of 3.9 per
cent
After considering the impact of acquisitions and disposals,
like-for-like rental income per square metre grew 3.9 per cent
compared with 31 December 2021. Like-for-like rental income grew
6.0 per cent over the same period. Net cold rent was EUR10.00 per
sqm as at 31 December 2022, an increase from EUR9.64 per sqm as at
31 December 2021.
The Company recognises the challenges that tenants are facing as
a direct consequence of inflation, particularly higher fuel prices.
Notwithstanding current cost of living pressures, rent collection
levels have remained stable. The Company has always managed
rent-to-income multiples for new tenants conservatively. Given this
customer demographic, combined with German Federal support
initiatives to help mitigate the financial impact of rising fuel
costs, the Company expects rent collection levels to remain
resilient.
EPRA vacancy remains low
Reported vacancy at 31 December 2022 was 6.2 per cent (31
December 2021: 8.4 per cent). On an EPRA basis, which adjusts for
units undergoing development, the vacancy rate was 2.4 per cent (31
December 2021: 3.1 per cent).
Reversionary re-letting premium rises to 29 per cent
During the year to 31 December 2022, 320 new leases were signed
(2021: 240 new leases), representing a letting rate of
approximately 12.9 per cent of occupied units. The average rent
achieved on all new lettings was EUR13.0 per sqm, a 6.6 per cent
increase on the prior year, and an average premium of 29.1 per cent
to passing rents, excluding condominium assets. This compares to a
26.8 per cent premium in the period to 31 December 2021.
The reversionary premium for the Portfolio is affected by the
inclusion of re-lettings from the acquisition in Brandenburg in
2022, where rents are lower than those achieved in central Berlin.
Looking solely at the Berlin portfolio assets held for rental,
which represents 90.3 per cent of total lettable space, the
reversionary premium achieved was 32.3 per cent, comparable to the
prior year (33.8 per cent).
Table: EPRA Net Initial Yield (NIY)
(All figures in EUR million unless otherwise stated)
31 Dec 2022 31 Dec 2021
Investment property 775.9 801.5
------------ ------------
Reduction for NCI share and property
under development (12.3) (12.8)
------------ ------------
Completed property portfolio 763.6 788.7
------------ ------------
Estimated purchasers' costs 63.2 65.1
------------ ------------
Gross up completed property portfolio
valuation 826.8 853.8
------------ ------------
Annualised cash passing collected rental
income 21.4 20.3
------------ ------------
Property outgoings (3.6) (3.4)
------------ ------------
Annualised collected net rents 17.8 16.8
------------ ------------
EPRA NIY (%) 2.1 2.0
------------ ------------
Portfolio investment
During the year to 31 December 2022, EUR16.4 million was
invested across the Portfolio (31 December 2021: EUR9.5 million).
These items are recorded as capital expenditure in the financial
statements. A further EUR1.5 million (31 December 2021: EUR1.7
million) was spent on maintaining the assets and is expensed
through profit or loss.
The year-on-year increase in capital expenditure reflects the
intensification in renovation and modernisation activity resulting
from the repeal of the Mietendeckel rent cap in April 2021 (which
made it economically viable for the Company to resume its programme
of vacant apartment improvements), alongside increased renovation
expenditure on the asset in Brandenburg and further work on
bringing assets into a position to be sold as condominiums. This
investment is expected to be recouped in 2023 and beyond through
condominium sales and rental uplifts.
In the light of current weaker market conditions and reflecting
that future expenditure on the Brandenburg asset will be lower, it
is anticipated that total discretionary capital investment will be
materially lower in 2023.
Table: EPRA Capital Expenditure
(All figures in EURmillion unless otherwise stated)
31 December 2022 31 December
2021
Acquisitions 11.6 -
----------------- ------------
Like-for-like portfolio 7.4 4.7
----------------- ------------
Development 8.5 4.4
----------------- ------------
Other 0.5 0.4
----------------- ------------
Total Capital Expenditure 28.0 9.5
----------------- ------------
Disposals
In September 2022, the Company announced that it had exchanged
contracts to sell two non-core properties for an aggregate
consideration of EUR8.6million. These buildings were acquired in
2008 and 2017 respectively, for an aggregate purchase price of
EUR3.9 million and had a carrying value of EUR9.0 million as at
December 2021.
The Company exchanged contracts to sell a further property
deemed to be non-core in December 2022 for EUR3.5 million. This
building was acquired in 2008 for EUR1.0 million and had a carrying
value of EUR3.9 million as at 31 December 2021.
Since the financial year end, a number of additional properties
have been placed on the market. However, the market for asset
disposals has been challenging in 2023 to date, with offers
significantly below carrying value, and at prices that would
release limited cash after repayment of associated debt. Although
the Company has and will consider asset disposals at a discount to
carrying value, it will only do so in instances where disposal is
clearly in shareholders' interests.
Acquisitions
On 21 March 2022, the Company announced that it has exchanged
contracts to acquire a portfolio of 17 new-build, semi-detached,
residential properties (34 units) for a total agreed purchase price
of EUR18.5 million. This new-build has been forward-funded, with
construction expected to complete in the second half of 2024. The
projected fully-occupied rental income generated by the property is
EUR0.7 million per annum, equivalent to 3.1 per cent of the
Portfolio gross in-place rent as at 31 December 2022. Based on the
price paid of EUR4,323 per sqm, this represents an estimated
prospective gross yield of 3.5 per cent.
On 5 May 2022, the Company exchanged contracts to acquire four
multi-family houses consisting of 24 residential units for a
purchase price of EUR6.3 million. These properties are located in
Hoppegarten
and Neuenhagen, Berlin. Built in 1995 and 1998, they are in good
technical condition and offer significant reversionary potential,
having benefited from recent positive demographic changes.
On 22 September 2022, the Company exchanged contracts to acquire
a multi-family house with 22 residential units and 3 commercial
units for EUR4.9million. This property is located in
Berlin-Neukölln, is well maintained, and offers significant
reversionary and attic potential. The property was acquired for a
price of EUR2,312 per sqm, a level which the Property Advisor
believes is below market value. The purchase is due to complete in
Q2 2023.
Acquisitions are financed using the Natixis loan facility. No
further acquisitions are planned for 2023, pending an improvement
in market conditions, the resumption of dividend payments and a
significant narrowing of the Company's discount to EPRA Net
Tangible Assets.
Condominium sales
Condominium sales during 2022 were heavily impacted by concerns
over increases in the cost of living, higher borrowing costs and
uncertainty surrounding the macro-economic environment caused by
the crisis in Ukraine. These factors led to a significant
deterioration in buyer sentiment and reduced volumes.
During the financial year, 13 condominium units were notarised
for sale for an aggregate value of EUR4.7 million (2021: EUR15.2
million). The average achieved notarised value per sqm for the
residential units was EUR5,502, representing a gross premium of
22.4 per cent to carrying value and a 34.8 per cent premium to
PSD's average Berlin residential portfolio value as at 31 December
2022.
Since the financial year end, a further three condominiums have
been notarised for a total consideration of EUR0.8 million, at an
average 62 per cent premium to carrying value. Reservations for a
further three units, with a combined value of EUR0.6million, and an
average 80 per cent premium to carrying value have recently been
received and are pending notarisation. These condominiums were
smaller than the average across the portfolio of condominium
assets, and the premium achieved should not be viewed as
representative of future condominium valuations.
Buyer confidence in the condominium market remains very fragile,
particularly for occupied units. The Company is therefore focussing
on plans to bring additional unoccupied condominium properties to
market and bulk condominium sales are under active
consideration.
German Federal Government legislation enacted in 2022 has placed
significant restrictions on the ability of landlords to split their
properties into condominiums. This legislation is, however, not
retrospective and does not impact assets that have already been
split into condominiums. These measures will inevitably increase
the scarcity of condominiums available for sale in the future,
further exacerbating the supply-demand imbalance which currently
exists. With 76.6 per cent of its Portfolio already legally split
in the land registry, the Company is well placed to benefit from
this trend over the longer term.
Condominium construction
As previously reported, a condominium construction project has
commenced in an existing asset bought in 2007, involving the
building-out of the attic and renovating existing commercial units
to create seven new residential units. Construction on this project
started in the second half of 2021, and the first unit has been
notarised for sale, with more units being made available throughout
2023. The total construction budget for this project is EUR4.5
million, a 15 per cent increase from initial budget due to an
industry-wide cost increase in building costs.
The Company also has building permits for another 20 existing
assets to create a further 49 attic units for sale as condominiums
or as rental stock. This investment will be considered as and when
market conditions permit.
Debt and gearing
PSD has loan facilities with two principal bankers, Natixis
Pfandbriefbank AG and Berliner Sparkasse, with an average remaining
duration of the loan book exceeding three years and none of the
Company's debt reaching maturity until September 2026. Despite
interest rate rises during 2022, the Company's interest rate
hedging policy has largely negated the impact on our cash borrowing
costs. The Board considers the current level of gearing and cash
balances to be appropriate at this stage in the real estate cycle
and will not look to materially increase debt levels until such
time as the market outlook becomes more stable.
As at 31 December 2022, PSD had gross borrowings of EUR315.8
million (31 December 2021: EUR288.4 million) and cash balances of
EUR12.5 million (31 December 2021: EUR10.4 million), resulting in
net debt of EUR303.3 million (31 December 2021: EUR278.0 million)
and a net loan-to-value ratio on the Portfolio of 39.1 per cent (31
December 2021: 34.7 per cent).
The change in gross debt in the period results from an
additional drawdown from the Natixis facility, which includes
borrowings for further capital expenditure, previously announced
acquisitions and a tranche of debt related to the new-build project
in Erkner. Partly offsetting the drawdowns are repayments of debt
on the sale of whole assets and condominiums, alongside
amortisation of debt held with Berliner Sparkasse.
The majority of PSD's debt effectively has a fixed interest rate
through hedging. As at 31 December 2022, the blended interest rate
of PSD's loan book was 2.2 per cent (31 December 2021: 2.0 per
cent).
Sustainability
The European Union has set a target of achieving carbon
neutrality by 2050 and the real estate sector will play a crucial
role in meeting this goal. The broad thrust of government policy is
to reduce carbon emissions and incentivize investments in
low-carbon and environmentally sustainable solutions.
Most climate related regulation as it affects the Berlin
residential sector has the objective of reducing and de-carbonising
the heat consumption of buildings. PSD regularly receives updates
from third-party experts on environmental legislative developments
in Europe, Germany, and Berlin to ensure compliance and plan for
future capital expenditure.
One example is green leases. Whilst currently predominantly used
in commercial real estate, they are likely to become increasingly
popular in the residential sector. Currently, residential landlords
in Germany do not have sight of the utility consumption in tenants'
homes, as the information is controlled by the tenant. Green leases
may eventually be helpful in encouraging landlords and tenants to
work together to understand where there can potentially be
reciprocal value in working towards shared environmental goals.
Under a green lease, the landlord and tenant may agree to
undertake measures such as improving the building's energy
efficiency, using renewable energy sources, reducing water
consumption and implementing waste management practices. Tenants
are encouraged to make changes to their own operations and
behaviour, such as using energy-efficient equipment, reducing
waste, and conserving resources.
The Property Advisor is monitoring the feasibility of smart
metering. Although it is expected that there will soon be an
obligatory rollout of smart metering infrastructure in Germany for
electricity, it is understood that the responsibility for the
implementation of this may reside with the respective meter
operators.
The Company has additionally mandated external consultants to
begin the process of establishing the carbon footprint of the
Portfolio. This work will initially commence on a representative
sample of five buildings within the Portfolio. It is anticipated
that the outputs of this exercise will help further clarify the
processes and any associated capital expenditure required to comply
with medium to long-term German residential emissions targets. Any
associated carbon emissions that occur as a result of remedial
works would also be considered.
The Company remains committed to best practice in ESG reporting
and will publish a separate EPRA Sustainability report in the
second half of 2023. The Company has additionally committed to
making its first Global Real Estate Sustainability Benchmark
(GRESB) submission with a view to obtaining full accreditation in
2023.
EPRA Best Practice Financial Reporting Metrics
PSD fully supports the European Public Real Estate Association
(EPRA) best practice recommendations (BPR) for financial
disclosures by public real estate companies which are designed to
improve the quality and comparability of information for
investors.
The following table sets out PSD's EPRA KPIs from the released
BPR dated February 2022 and references where more detailed
calculations supporting the KPIs can be found in the report.
Table: EPRA Metrics
Metric Balance Note reference
EPRA Earnings (EURm) (2.8) 28
-------- ---------------
EPRA Net Tangible Assets / share
(NTA) (EUR) 5.10 29
-------- ---------------
EPRA Net Reinvestment Value /
share (NRV) (EUR) 5.79 29
-------- ---------------
EPRA Net Disposal Value / share
(NDV) (EUR) 4.53 29
-------- ---------------
EPRA Capital Expenditure (EURm) 28.0 N/A
-------- ---------------
EPRA Net Initial Yield (%) 2.1 N/A
-------- ---------------
EPRA Vacancy (%) 2.4 N/A
-------- ---------------
EPRA Like-for-Like rent per sqm 3.9 N/A
growth (%)
-------- ---------------
Outlook
With the publication of the 2022 interim results, the Property
Advisor cautioned that there had been a deterioration in buyer
sentiment leading to reduced transaction volumes and that the
outlook for the German property market in the second half was
uncertain. Ultimately, the steep upward movement in interest rates
has triggered a price correction in real estate markets.
Uncertainty about the extent and duration of the correction led to
many investors withdrawing from the market. In instances where
portfolios of properties were placed on the market, pricing did not
match vendor expectations. Effectively, the bid-offer spread
widened to an extent that most potential transactions did not
complete, and transaction activity fell to a 10-year low.
This process of adjustment has yet to complete and the outlook
for property values in the first half of 2023 is likely to remain
challenging. Further declines in property values driven by higher
medium-term interest rates cannot be discounted. This risk is
already being reflected in the share prices of listed German
residential companies, all of which currently trade at a
significant discount to net asset value.
The Property Advisor retains a wide network of industry
practitioners, including potential buyers of assets. Since the
beginning of 2023, a significant number of larger participants,
that had temporarily withdrawn from the market, have now begun to
indicate an appetite for acquiring German residential property
again. Although this is an important first step in narrowing the
bid-offer spread, it remains uncertain as to when or whether
renewed interest is priced at a level that matches vendor
expectations.
Whilst there remains uncertainty about real asset values,
supply-demand imbalances within the Berlin residential market
remain supportive of rental values, underpinning our core rental
business. Demand for rental properties continues to rise as higher
home ownership costs force potential buyers to remain within the
rental system for longer. Demand has been further increased by
inward migration in excess of one million refugees into Germany
from Ukraine during 2022, placing further pressure on residential
vacancy levels, which are already at historically low levels.
At the same time, higher funding, labour and construction costs
represent significant headwinds to new-build construction, limiting
the future supply of rental accommodation. Set against an annual
target set by the German Federal Government of 400,000 new
completions per year, less than 250,000 are estimated to have
completed in 2022, with forecasts for 2023 and 2024 lower still.
Future rental growth should therefore continue to be underpinned,
and there remains significant reversionary re-letting potential
across PSD's Portfolio.
It remains too early to predict the timing of any industry
upswing in sales volumes in the condominium market. Buyer
confidence remains fragile, particularly for occupied units. Longer
term, Federal Government legislation enacted in 2022 has placed
significant restrictions on the ability of landlords to split their
properties into condominiums and these measures will inevitably
increase the scarcity of stock available for sale in the future,
further exacerbating the supply-demand imbalance which currently
exists. With 76.6 per cent of its Portfolio already legally split
in the land registry, the Company should be well placed to benefit
from this trend in the longer term.
With a net LTV of 39.1 per cent and no loans maturing until
September 2026, the Company remains conservatively financed. The
current level of gearing and cash balances is considered to be
appropriate at this stage in the real estate cycle and the Company
will not seek to undertake further acquisitions or increase debt
levels until such time as the market outlook becomes more stable.
Historically, excessive leverage at this stage in a real estate
cycle has not been well rewarded by equity and debt capital markets
and the Company will therefore continue to seek opportunities to
dispose of further assets where appropriate.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board recognises that effective risk evaluation and
management needs to be foremost in the strategic planning and the
decision-making process. In conjunction with the Property Advisor,
key risks and risk mitigation measures are reviewed by the Board on
a regular basis and discussed formally during Board meetings.
RISK IMPACT MITIGATION MOVEMENT
Economic The global economic Although the Board and Property Increased
and political and political environment Advisor cannot control external
risk remains uncertain, macro-economic risks, economic
heightened by the indicators are constantly
ongoing conflict in monitored by both the Board
Ukraine. and Property Advisor and
Company strategy is tailored
Economic, political, accordingly.
fiscal and legal issues
can have a negative The Company reviews and monitors
effect on property emerging policy and legislation
valuations. A decline to ensure that appropriate
in the Company's property steps are taken to ensure
valuations could negatively compliance.
impact the ability
of the Company to The Company monitors costs
sell properties within and cash balances closely
the Portfolio at valuations at all times and plans budgets
which satisfy the for capital expenditure that
Company's investment take into consideration the
objective. potential for cost inflation.
The Company has suspended
The ongoing war in dividend payments to preserve
Ukraine has negatively cash.
impacted gas, energy
and raw material supplies
to Germany and the The Company rigorously checks
rest of Europe. This the credit worthiness of
has led to, and could new tenants and has always
lead to, further rises set strict income to rent
in overall costs both criteria for incoming tenants.
for the Company and
its tenants. The Company engages with
external advisors to advise
Rising inflation has on potential policy and regulatory
directly impacted implications of political
the cost of building events.
materials and the
construction workforce, Blocking the ability of landlords
which could negatively to split assets at the land
impact the Company's registry would likely be
development, renovation a net positive for the Company
and modernisation since the supply of condominiums
projects. would be materially reduced,
increasing the value of the
The Federal Government existing stock. With 76.6
has introduced new per cent of the Company's
laws which would allow Portfolio already split in
States to block the the land registry as condominiums,
partitioning of apartment the Company is likely to
blocks into condominiums. benefit from this.
The Berlin Government
has adopted these
proposals.
--------------------------------- -------------------------------------- ----------
Financial Inadequate management The Company seeks to manage Increased
and interest of financing risks its loan to value ratio through
rate risk could lead to insufficient the property cycle to ensure
funds for sustaining that, in the event of a significant
business operations decline in property values,
and timely repayment its financial position remains
of existing debt facilities. robust.
These risks encompass
reduced availability Interest rate risk is managed
of financing, rising through the use of derivative
financing costs, higher instruments with matching
than planned leverage maturity or fixed-rate debt.
and breaches of borrowing At least 80 per cent of drawn
facility covenants. loan facilities are hedged.
The Company continues to
A fall in revenue model expected revenues,
or asset values could property values and covenant
also lead to the Company levels, and these are reported
being unable to restart to the Board as part of its
and maintain dividend annual Viability Assessment.
payments to investors.
The Company took on new covenants
when signing its facility
with Natixis in January 2022:
Interest coverage ratio (ICR),
debt yield and loan-to-value
covenants. Only the debt
yield and ICR covenants are
"hard" covenants, resulting
in an event of default in
case of breach. The loan-to-value
covenant is a "cash trap"
covenant (the requirement
to hold all related rental
income in Natixis accounts
until sufficient debt is
repaid to return within the
covenant level), with no
event of default. The Company
carried out extensive sensitivity
analysis prior to signing
this facility and, even in
the most stressed rent scenarios,
no covenants were breached.
The Company is in regular
contact with its financing
partners and regularly reviews
its financing covenants.
They are subject to biannual
valuations which were last
carried out at the end of
2022. At that time, the Company
retained substantial headroom
on all covenants.
Acquisition and disposal
activity within the Portfolio
is closely monitored in the
light of underlying property
market conditions to ensure
that the Company's loan to
value ratio and debt refinancing
schedules remain appropriate.
In the light of weak current
market demand, the Company
has suspended dividend payments
to preserve cash.
Berlin residential rental
values have historically
been relatively resilient
during times of economic
stress, and this is not expected
to change due to supply constraints.
--------------------------------- -------------------------------------- ----------
Inability During the 2022 financial The Company continually monitors Increased
to sell year, there has been the portfolio of assets to
properties a significant deterioration ascertain the potential for
including in investor and consumer disposals of buildings.
condominiums confidence in reaction
to inflationary pressures The Company regularly reviews
and consequential whether any current or future
interest rate rises. changes in the property market
outlook present risks which
A higher cost of financing should be reflected in the
has seen investor execution of its asset management
appetite for German and capital position.
residential assets
weaken, and, during The Company maintains a strong
the second half of relationship with its independent
the financial year, valuers who provide regular
pricing has weakened. assessments of the property
In parallel with this, market outlook.
a number of larger
market participants The Property Advisor maintains
are now net sellers a strong network of investors
of assets as they active in the market and
seek to reduce leverage. actively monitors valuation
As pricing expectations and liquidity trends in the
between buyers and Berlin residential market.
sellers have differed,
transaction volumes In the light of weak current
have dropped. market demand, the Company
has suspended dividend payments
Higher mortgage rates to preserve cash.
combined with economic
and geopolitical uncertainty
has negatively impacted
buyer sentiment for
condominiums.
Under PSD's business
model, cash to pay
dividends is substantially
dependent on condominium
and/or other asset
sales.
--------------------------------- -------------------------------------- ----------
Tenant and Property laws remain The Company has historically Increased
tenancy under constant review been able to adapt its business
law risk by both the Federal model to accommodate new
Government and the rent regulations.
coalition government The Property Advisor regularly
in Berlin. monitors the impact that
Further tightening existing and proposed laws
of the Mietpreisbremse or regulations could have
laws, which limit on future rental values and
the amount that landlords property planning applications.
can increase rent The Property Advisor maintains
in apartments in certain regular contact with a broad
zoned areas, could network of professional advisors
negatively impact and industry participants
the Company's reversionary to ensure that it is kept
reletting strategy. up to date on property tenancy
During the 2022 financial laws and regulations, both
year, there has been current and future.
increasing use of The Property Advisor is in
online platforms by constant dialogue with the
tenants in order to Company's property manager
ascertain if rents (Core Immobilien) to ensure
prescribed by landlords that tenants are notified
are compliant with on a timely basis of any
all tenancy laws and changes to tenancy laws and
regulations. rental levels.
A significant increase The Company, through its
in the cost of living Property Advisor and Property
has reduced net disposable Manager, maintains close
income and placed contact with tenants. To
more pressure on vulnerable date, few concerns have been
tenants, which could raised, either through online
lead to defaults on platforms or elsewhere in
rents. This, in turn, relation to non-compliance
could place financial with tenancy laws and regulations.
pressure on the Company. T he Company rigorously checks
the credit worthiness of
new tenants and has always
set strict income to rent
criterial for incoming tenants.
The Company has in place
a Vulnerable Tenant Policy
which it will continue to
monitor and apply to relevant
tenants. The Property Advisor
closely monitors vulnerable
tenants and those unable
to afford their rents. A
vulnerable tenants list is
reviewed by the Company Board.
In instances of hardship
the Company seeks to support
its tenants, both residential
and commercial, by agreeing,
on a case-by-case basis,
the payment of monthly rents
or deferring rental payments.
--------------------------------- -------------------------------------- ----------
IT and Cyber The Company is dependent There is a constant review Increased
Security on network and information of IT systems and infrastructure
risk systems of various in place for the Company
service providers to ensure these are robust.
- mainly the Property Service providers are required
Advisor, Property to report to the Board on
Manager and Administrator, request, and at least annually,
and is therefore exposed on their IT controls and
to the risk of cyber-crimes procedures.
and loss of data.
A detailed review has been
As cyber-crime remains undertaken of the cyber security
prevalent, this is of the Company and its outsourced
considered a significant processes. As part of this
risk by the Company. review, the Company has required
A breach could lead all its key service providers
to the illegal access to confirm to the Company
of commercially sensitive their procedures and protocols
information and the around cyber security on
potential to impact an annual basis. Additionally,
investor, supplier, the Company has requested
and tenant confidentiality that all service providers
and to disrupt the carry out cyber penetration
business of the Company. testing and report back to
the Board with any significant
The Russian state observations. No material
has been linked to concerns have arisen from
cyber-attacks on government these reviews.
and international
infrastructure and Service providers are also
the risk of an increase required to hold detailed
in these attacks is risk and control registers
highly likely now regarding their IT systems.
that the Russian state The Property Advisor and
is subject to international the Board review service
sanctions due to its organisations' IT reports
invasion of Ukraine. as part of Board meetings
each year. No material concerns
have arisen from these reviews.
The Board believes that,
while the risk of cyber-attacks
has increased due to the
sanctions imposed on Russia,
the risk to its service providers
directly remains relatively
low. The secondary risk from
cyber-attacks on digital
infrastructure, such as payment
systems, remains high and
the Board, and the Property
Advisor, will continue to
monitor the situation.
--------------------------------- -------------------------------------- ----------
Lack of Availability of potential The Property Advisor has Unchanged
Investment investments which been active in the German
opportunity meet the Company's residential property market
investment objective since 2006. It has specialised
can be negatively acquisition personnel and
affected by supply an extensive network of industry
and demand dynamics contacts, including property
within the market agents, industry consultants
for German residential and the principals of other
property and the state investment funds.
of the German economy
and financial markets The Company's shares are
more generally. currently valued at a significant
discount to Net Asset Value.
Decreased financial Given this, the Company has
liquidity has resulted undertaken to not commit
in reduced acquisition to further acquisitions until
opportunities available such time as this discount
to the Company. narrows.
Any future acquisitions will
be subject to rigorous checks
to ensure that they meet
financial and environmental
targets. Acquisitions are
benchmarked against the alternative
of share buy-backs.
--------------------------------- -------------------------------------- ----------
Outsourcing The Company's future Since the Company listed Unchanged
risk performance depends on the London Stock Exchange,
on the success of the Property Advisor has
its outsourced third-party expanded headcount through
suppliers, particularly the recruitment of several
the Property Advisor, additional experienced London
QSix, but also its and Berlin-based personnel.
outsourced property Additionally, senior Property
management, IFRS (International Advisor personnel and their
Financial Reporting families retain a significant
Standards) and German stake in the Company, aligning
GAAP accountants and their interests with other
its administrative key stakeholders.
functions. The departure
of one or more key The key third parties responsible
third-party providers for property management,
may have an adverse accounting and administration
effect on the performance are continually monitored
of the Company. by the Property Advisor and
must provide responses annually
to a Board assessment questionnaire
regarding their internal
controls and performance.
These questionnaires are
reviewed annually by the
Board.
--------------------------------- -------------------------------------- ----------
ESG risk A failure to anticipate All investment in the modernisation Increased
and respond to environmental of assets is undertaken with
risks and take proactive a view to the energy efficiency
measures could damage impact and is performed on
the Company's reputation an asset-by-asset basis.
and disrupt its operations.
The Company maintains its
Unplanned capital own dedicated ESG consultant
expenditure from the to advise and assist in the
cost of complying implementation of ESG related
with energy performance activity.
and climate legislation
with specific energy The Company has instructed
performance and/or a leading law firm to provide
building requirements a watching brief on current
could negatively impact and future climate and energy
on operational cashflow. performance related legislation
as they affect German residential
Future investor expectations properties.
for ESG compliance
could result in diminished The Company has recently
asset values and/or secured the services of a
illiquidity in the carbon mapping consultancy
resale market if assets to advise on the carbon footprint
are not deemed suitably of five buildings that are
ESG compliant. representative of the Portfolio.
ESG considerations are reviewed
by the Company Board on a
quarterly basis.
The Company seeks to ensure
accurate reporting of its
ESG related activities and,
in 2022, was awarded a gold
medal for its sustainability
reporting by the European
Public Real Estate Association
(EPRA).
--------------------------------- -------------------------------------- ----------
Going concern
The Directors have reviewed projections for the period up to
March 2024, using assumptions which the Directors consider to be
appropriate to the current financial position of the Group with
regard to revenues, its cost base, the Group's investments,
borrowing and debt repayment plans. These projections show that the
Group should be able to operate within the level of its current
resources and expects to manage all debt covenants for a period of
at least 12 months from the date of approval of the financial
statements. The Group's business activities, together with the
factors likely to affect its future development and the Group's
objectives, policies and processes from managing its capital and
its risks, are set out in the Strategic Report.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and, therefore, continue to adopt the going
concern basis in the preparation of these financial statements.
Viability Statement
The Directors have assessed the viability of the Group over a
three-year period to 31 December 2025. The Directors have chosen
three years because that is the period that fits within the
strategic planning cycle of the business. The Viability Statement
is based on a robust assessment of those risks that would threaten
the business model, future performance, solvency or liquidity of
the Group, as set out in the assessment of principal risks in this
document on pages 35 to 39. For the purposes of the Viability
Statement, the Directors have considered, in particular, the impact
of the following factors affecting the projections of cash flows
for the three-year period ending 31 December 2025:
a) the potential operating cash flow requirements of the Group;
b) the method of payment of the performance fee due to the Property Advisor;
c) seasonal fluctuations in working capital requirements;
d) property vacancy rates;
e) rent arrears and bad debts;
f) capital and corporate expenditure;
g) proceeds from the sale of condominiums and other assets;
h) dividends and share buybacks; and
i) asset acquisitions.
This model assumes stresses to each of a) through to i) in the
above list.
Financial modelling and stress testing were carried out on the
Group's cashflows, taking into account the following assumptions,
which the Directors believe to reflect the conditions present in a
reasonable 'worst case' scenario over the forecast period;
-- increased regulation of rent levels of tenancies in the
Berlin and Brandenburg markets leads to a fall in rental income of
20 per cent;
-- projected condominium sales are reduced by 20 per cent as a
result of continuing weak market conditions and/or response to the
Berlin and/or Federal authorities attempting to slow down
condominium sales;
-- whole asset sales are not economically viable and therefore reduced by 100 per cent;
-- changes in climate related and energy performance legislation
lead to a mandated 20 per cent increase in capital expenditure to
reach the required regulatory level. This includes a 20 per cent
increase in the costs of the forward funding development
acquisition in Erkner; and
-- a 20 per cent reduction in the debt available for future capital expenditure projects.
After applying the assumptions above, individually and
collectively, there was no scenario in which the viability of the
Company over the next 12 months was brought into doubt from a
cashflow perspective. Under the stresses set out above, cashflow
mitigation may be required in 2024 and headroom could be obtained
in the following ways:
-- cancellation of larger capital expenditure projects;
-- continuing the suspension of the dividend.
Under these stressed assumptions, the Group remains able to
manage all banking covenant obligations during the period using the
available liquidity to reduce debt levels, as appropriate.
The projected cash flows include the impact of already
contracted property acquisitions. On the basis of this assessment,
and assuming the principal risks are managed or mitigated as
expected, the Directors have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment.
Consolidated Statement of
Comprehensive Income
For the year ended 31
December 2022
Year Year
ended ended
Notes 31 December 31 December
2022 2021
EUR'000 EUR'000
Continuing operations
Revenue 6 25,934 25,790
Property expenses 7 (17,119) (16,082)
Gross profit 8,815 9,708
Administrative
expenses 8 (3,264) (3,447)
(Loss) / gain on disposal of investment
property (including investment property
held for sale) 10 (185) 1,518
Investment property
fair
value (loss) / gain 11 (42,241) 37,983
Performance fee due
to
property advisor 25 343 (343)
Operating (loss) /
profit (36,532) 45,419
Net finance charge (before
gain / (loss) on interest rate
swaps) 12 (7,937) (7,482)
Gain on interest rate
swaps 12 26,920 7,313
(Loss) / profit
before
taxation (17,549) 45,250
Income tax credit / (expense) 13 1,739 (7,882)
(Loss) / profit after
taxation (15,810) 37,368
Other comprehensive - -
income
Total comprehensive (loss)
/ income for the year (15,810) 37,368
========================= =====================
Total comprehensive
income
attributable to:
Owners of the parent (15,435) 37,311
Non-controlling
interests (375) 57
(15,810) 37,368
========================= =====================
Earnings per share attributable
to the owners of the parent:
From continuing
operations
Basic (EUR) 28 (0.17) 0.39
Diluted (EUR) 28 (0.17) 0.39
========================= =====================
Consolidated Statement of
Financial Position
At 31 December 2022
As at As at
Notes 31 December 31 December
2022 2021
EUR'000 EUR'000
ASSETS
Non-current assets
Investment
properties 16 761,377 759,830
Property, plant and
equipment 18 12 20
Other financial
assets
at amortised cost 19 828 926
Derivative
financial
instruments 24 16,036 -
Deferred tax asset 13 - 1,722
778,253 762,498
Current assets
Investment
properties -
held for sale 17 14,527 41,631
Trade and other
receivables 20 10,068 11,699
Cash and cash
equivalents 21 12,485 10,441
37,080 63,771
Total assets 815,333 826,269
========================= =====================
EQUITY AND
LIABILITIES
Current liabilities
Borrowings 22 820 922
Trade and other
payables 23 15,130 11,893
Current tax 13 808 512
16,758 13,327
Non-current
liabilities
Borrowings 22 311,264 283,233
Derivative
financial
instruments 24 - 10,884
Deferred tax
liability 13 70,920 75,198
382,184 369,315
Total liabilities 398,942 382,642
========================= =====================
Equity
Stated capital 26 196,578 196,578
Treasury shares 26 (37,448) (33,275)
Share based payment
reserve 25 - 343
Retained earnings 254,049 276,394
Equity attributable
to
owners of the
parent 413,179 440,040
Non-controlling
interest 27 3,212 3,587
Total equity 416,391 443,627
------------------------- ---------------------
Total equity and
liabilities 815,333 826,269
========================= =====================
Consolidated Statement of
Changes in Equity
For the year ended 31
December 2022
Attributable to the owners
of the parent
Stated Treasury Share Retained Total Non-controlling Total
capital shares based earnings interest equity
payment
reserve
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1 January
2021 196,578 (17,206) 6,369 244,685 430,426 3,530 433,956
Comprehensive income:
Profit for the year - - - 37,311 37,311 57 37,368
Other comprehensive - - - - - - -
income
Total comprehensive
income
for the year - - - 37,311 37,311 57 37,368
Transactions with
owners
-
recognised directly
in
equity:
Dividends paid - - - (7,435) (7,435) - (7,435)
Performance fee - - 343 - 343 - 343
Settlement of
performance
fee using treasury
shares - 4,536 (6,369) 1,833 - - -
Acquisition of
treasury
shares - (20,605) - - (20,605) - (20,605)
Balance at 31
December
2021 196,578 (33,275) 343 276,394 440,040 3,587 443,627
Comprehensive income:
Loss for the year - - - (15,435) (15,435) (375) (15,810)
Other comprehensive - - - - - - -
income
Total comprehensive
income
for the year - - - (15,435) (15,435) (375) (15,810)
Transactions with
owners
-
recognised directly
in
equity:
Dividends paid - - - (6,910) (6,910) - (6,910)
Performance fee - - (343) - (343) - (343)
Acquisition of
treasury
shares - (4,173) - - (4,173) - (4,173)
Balance at 31
December
2022 196,578 (37,448) - 254,049 413,179 3,212 416,391
=========== ======== =============== ======== =============== ========================= =====================
Consolidated
Statement
of Cash Flows
For the year ended 31
December 2022
Year Year
ended ended
31 December 31 December
2022 2021
EUR'000 EUR'000
(Loss) / profit
before
taxation (17,549) 45,250
Adjustments for:
Net finance charge (18,983) 169
Loss /(gain) on disposal of investment
property 185 (1,518)
Investment property revaluation loss
/ (gain) 42,241 (37,983)
Depreciation 8 8
Performance fee due to property advisor
(share based payment) (343) 343
Operating cash flows before movements
in working capital 5,559 6,269
Increase in receivables (2,882) (1,320)
(Decrease) / increase in payables (463) 2,875
Cash generated from operating activities 2,214 7,824
Income tax (paid) /
received (521) 163
Net cash generated from operating activities 1,693 7,987
Cash flow from investing activities
Proceeds on disposal of investment property
(net of disposal costs) 21,010 13,758
Interest received 474 1
Capital expenditure on investment property (16,437) (9,477)
Property additions (13,229) -
Disposals of property, plant and equipment - 14
Net cash (used in) / generated from investing
activities (8,182) 4,296
Cash flow from financing activities
Interest paid on bank loans (7,296) (6,699)
Loan arrangement fees
paid (499) (1,044)
Repayment of bank loans (6,354) (4,059)
Drawdown on bank loan facilities 33,765 900
Dividends paid (6,910) (7,435)
Acquisition of
treasury
shares (4,173) (20,501)
Net cash generated from / (used in) financing
activities 8,533 (38,838)
Net increase in cash and cash equivalents 2,044 (26,555)
Cash and cash equivalents at beginning
of year 10,441 36,996
Exchange (losses) / gains on cash and cash - -
equivalents
Cash and cash equivalents at end of year 12,485 10,441
========================= =====================
Reconciliation of Net Cash Flow to Movement
in Debt
For the year ended 31
December 2022
Year Year
ended ended
Notes 31 December 31 December
2022 2021
EUR'000 EUR'000
Cashflow from increase /
(decrease)
in debt financing 27,411 (3,159)
Loan arrangement fees
paid (499) (1,044)
Non-cash changes from increase /
(decrease) in debt financing 1,017 809
Change in net debt
resulting
from cash flows 27,929 (3,394)
------------------------- ---------------------
Movement in debt in
the
year 27,929 (3,394)
Debt at the start of
the
year 284,155 287,549
Debt at the end of
the
year 22 312,084 284,155
========================= =====================
Notes to the
Financial
Statements
For the year ended 31
December 2022
1 - General information
The Group consists of a Parent Company, Phoenix Spree Deutschland
Limited ('the Company'), incorporated in Jersey, Channel Islands
and all its subsidiaries ('the Group') which are incorporated and
domiciled in and operate out of Jersey and Germany. Phoenix Spree
Deutschland Limited is listed on the premium segment of the Main
Market of the London Stock Exchange.
The Group invests in residential and commercial property in Berlin,
Germany.
The registered office is at 12 Castle Street, St Helier, Jersey,
JE2 3RT, Channel Islands.
2 - Summary of significant accounting policies
The principal accounting policies adopted are set out below.
2.1 Basis of
preparation
The consolidated financial statements have been prepared in accordance
with international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and UK adopted international accounting standards.
The consolidated financial statements are presented to the nearest
EUR1,000.
In accordance with Section 105 of the Companies (Jersey) Law 1991,
the Group confirms that the financial information for the year ended
31 December 2022 is derived from the Group's audited financial statements
and that these are not statutory accounts and, as such do not contain
all information required to be disclosed in the financial statements
prepared in accordance with International Financial Reporting Standards
("IFRS").
The statutory accounts for the year ended 31 December 2022 have
been audited but have not yet been filed.
The Group's audited financial statements for the period ended 31
December 2022 received an unqualified audit opinion and the auditor's
report contained no statement under Section 113B (3) and (6) of
The Companies (Jersey) Law 1991.
The financial information contained within this preliminary statement
was approved and authorised for issue by the Board on 28 March 2023.
2.2 Going concern
The Directors have prepared projections for three years from the
signing of this report. These projections have been prepared using
assumptions which the Directors consider to be appropriate to the
current financial position of the Group as regards to current expected
revenues and its cost base and the Group's investments, borrowing
and debt repayment plans and show that the Group should be able
to operate within the level of its current resources and expects
to comply with all covenants for the foreseeable future. The Group's
business activities together with the factors likely to affect its
future development and the Group's objectives, policies and processes
for managing its capital and its risks are set out in the Strategic
Report and in notes 3 and 30. After making enquiries the Directors
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
The Group has considered the current economic environment alongside
its principal risks in its going concern assessment. Further information
can be found in the viability statement on page 46 to 47. The Group
therefore continues to adopt the going concern basis in preparing
its consolidated financial statements.
2.3 Basis of
consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). The Company controls an entity when the Group
is exposed to, or has rights to, variable returns through its power
over the entity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
Profit or loss and each component of other comprehensive income
are attributable to the owners of the Company and to the non-controlling
interests. Total comprehensive income of the subsidiaries is attributable
to the owners of the Company and to the non-controlling interests
even if this results in the non-controlling interests having a deficit
balance.
Accounting policies of subsidiaries which differ from Group accounting
policies are adjusted on consolidation. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately
from the Group's equity therein. Those interests of non-controlling
shareholders that present ownership interests entitling their holders
to a proportionate share of net assets upon liquidation may initially
be measured at fair value or at the non-controlling interests' proportionate
share of the fair value of the acquiree's identifiable net assets.
The choice of measurement is made on an acquisition-by-acquisition
basis. Other non-controlling interests are initially measured at
fair value. Subsequent to acquisition, the carrying amount of non-controlling
interests is the amount of those interests at initial recognition
plus the non-controlling interests' share of subsequent changes
in equity.
Changes in the Group's interests in subsidiaries that do not result
in a loss of control are accounted for as equity transactions. The
carrying amount of the Group's interests and the non-controlling
interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the amount
by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognised directly
in equity and attributed to the owners of the Company.
2.4 Revenue
recognition
Revenue includes rental income, service charges and other amounts
directly recoverable from tenants. Rental income and service charges
from operating leases are recognised as income on a straight-line
basis over the lease term. When the Group provides incentives to
its tenants, the cost of incentives are recognised over the lease
term, on a straight-line basis, as a reduction of rental income.
2.5 Foreign
currencies
(a) Functional and presentation currency
The currency of the primary economic environment in which the Group
operates ('the functional currency') is the Euro (EUR). The presentational
currency of the consolidated financial statements is also the Euro
(EUR).
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. At each reporting date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the
rates prevailing at that date. Foreign exchange gains and losses
resulting from such transactions are recognised in the consolidated
statement of comprehensive income.
Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
2.6 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating-decision maker.
The chief operating-decision maker, who is responsible for allocating
resources and assessing performance of the operating segments, has
been identified as the Board of Directors. The Board has identified
the operations of the Group as a whole as the only operating segment.
2.7 Operating profit
Operating profit is stated before the Group's gain or loss on its
financial assets and after the revaluation gains or losses for the
year in respect of investment properties and after gains or losses
on the disposal of investment properties.
2.8 Administrative and property expenses
All expenses are accounted for on an accruals basis and are charged
to the consolidated statement of comprehensive income in the period
in which they are incurred. Service charge costs, to the extent
that they are not recoverable from tenants, are accounted for on
an accruals basis and included in property expenses.
2.9 Separately disclosed items
Certain items are disclosed separately in the consolidated financial
statements where this provides further understanding of the financial
performance of the Group, due to their significance in terms of
nature or amount.
2.10 Property Advisor fees
The element of Property Advisor fees for management services provided
are accounted for on an accruals basis and are charged to the Consolidated
Statement of Comprehensive Income. These fees are detailed in note
7 and classified under 'Property advisors' fees and expenses. The
settlement of the Property Advisor performance fees is detailed
in note 25. Due to the nature of the settlement of the performance
fee, any movement in the amount payable at the year-end is reflected
within the share-based payment reserve in the consolidated statement
of financial position.
2.11 Investment
property
Property that is held for long-term rental yields or for capital
appreciation, or both, which is not occupied by the Group, is classified
as investment property.
Investment property is measured initially at cost, including related
transaction costs. After initial recognition, investment property
is carried at fair value, based on market value.
The change in fair values is recognised in the consolidated statement
of comprehensive income for the year.
A valuation exercise is undertaken by the Group's independent valuer,
Jones Lang LaSalle GmbH ('JLL'), at each reporting date in accordance
with the methodology described in note 16 on a building-by-building
basis. Such estimates are inherently subjective and actual values
can only be determined in a sales transaction. The valuations have
been prepared by JLL on a consistent basis at each reporting date.
Subsequent expenditure is added to the asset's carrying amount only
when it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably. Repairs and maintenance costs are charged to
the Consolidated Statement of Comprehensive Income during the financial
period in which they are incurred. Changes in fair values are recorded
in the consolidated statement of comprehensive income for the year.
Purchases and sales of investment properties are recognised on legal
completion.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected from the disposal. Any gain or loss
arising on derecognition of the property (calculated as the difference
between the net disposal proceeds and the carrying amount of the
asset, where the carrying amount is the higher of cost or fair value)
is included in the Consolidated Statement of Comprehensive Income
in the period in which the property is derecognised.
2.12 Current assets held for sale - investment
property
Current assets (and disposal groups) classified as held for sale
are measured at the most recent valuation.
Current assets (and disposal groups) are classified as held for
sale if their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as
met only when the sale is highly probable, and the asset (or disposal
group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be expected
to qualify for recognition as a completed sale within one year from
the date of classification.
The Group recognises an asset in this category once the Board has
committed to the sale of an asset and marketing has commenced.
When the Group is committed to a sale plan involving loss of control
of a subsidiary, all of the assets and liabilities of that subsidiary
are classified as held for sale when the criteria described above
are met, regardless of whether the Group will retain a non-controlling
interest in its former subsidiary after the sale.
If an asset held for sale is unsold within one year of being classified
as such, it will continue to be classified as held for sale if:
(a) at the date the Company commits itself to a plan to sell a non-current
asset (or disposal group) it reasonably expects that others (not
a buyer) will impose conditions on the transfer of the asset that
will extend the period required to complete the sale, and actions
necessary to respond to those conditions cannot be initiated until
after a firm purchase commitment is obtained, and a firm purchase
commitment is highly probable within one year;
(b) the Company obtains a firm purchase commitment and, as a result,
a buyer or others unexpectedly impose conditions on the transfer
of a non-current asset (or disposal group) previously classified
as held for sale that will extend the period required to complete
the sale, and timely actions necessary to respond to the conditions
have been taken, and a favourable resolution of the delaying factors
is expected;
(c) during the initial one-year period, circumstances arise that
were previously considered unlikely and, as a result, a non-current
asset previously classified as held for sale is not sold by the
end of that period, and during the initial one-year period the Company
took action necessary to respond to the change in circumstances,
and the non-current asset is being actively marketed at a price
that is reasonable, given the change in circumstances, and the criteria
above are met;
(d) otherwise, it will be transferred back to investment property.
2.13 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation.
Cost includes the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition for
its intended use. Depreciation is charged so as to write off the
costs of assets to their residual values over their estimated useful
lives, on the following basis:
Equipment - 4.50% to 25% per annum, straight line.
The gain or loss arising on the disposal of an asset is determined
as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the consolidated statement of
comprehensive income.
2.14 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction
or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended
use or sale, are added to the cost of those assets, until such time
as the assets are substantially ready for their intended use or
sale.
All other borrowing costs are recognised in the consolidated statement
of comprehensive income in the period in which they are incurred.
2.15 Tenants deposits
Tenants' deposits are held off the consolidated statement of financial
position in a separate bank account in accordance with German legal
requirements, and the funds are not accessible to the Group. Accordingly,
neither an asset nor a liability is recognised.
2.16 Financial instruments
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured
at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognised immediately
in profit or loss.
Trade and other receivables
Trade receivables are amounts due from tenants for rents and service
charges and are initially recognised at the amount of the consideration
that is unconditional and subsequently carried at amortised cost
as the Group's business model is to collect the contractual cash
flows due from tenants. Provision is made based on the expected
credit loss model which reflects the Company's historical credit
loss experience over the past three years but also reflects the
lifetime expected credit loss.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short-term deposits,
including any bank overdrafts, with an original maturity of three
months or less, measured at amortised cost.
Trade and other payables
Trade payables are recognised and carried at their invoiced value
inclusive of any VAT that may be applicable, and subsequently at
amortised cost using the effective interest method.
Borrowings
All loans and borrowings are initially measured at fair value less
directly attributable transaction costs. After initial recognition,
all interest-bearing loans and borrowings are subsequently measured
at amortised cost, using the effective interest method.
The interest due within the next twelve months is accrued at the
end of the year and presented as a current liability within borrowings.
Treasury shares
When shares recognised as equity are repurchased, the amount of
the consideration paid, which includes directly attributable costs,
is recognised as a deduction from equity at the weighted average
cost of treasury shares up to the date of repurchase. Repurchased
shares are classified as treasury shares and are presented in the
treasury share reserve. When treasury shares are sold or reissued
subsequently, the amount received is recognised as an increase in
equity and the resulting surplus or deficit on the transaction is
presented within retained earnings.
Interest-rate swaps
The Group uses interest-rate swaps to manage its market risk. The
Group does not hold or issue derivatives for trading purposes.
The interest-rate swaps are recognised in the Consolidated Statement
of Financial Position at fair value, based on counterparty quotes.
The gain or loss on the swaps is recognised in the Consolidated
Statement of Comprehensive Income and detailed in note 12.
The interest-rate swaps are valued by an independent third-party
specialist. The market value calculation is based on the present
value of the counterparty payments, the fixed interest, and the
present value of the payments to be received, the floating interest.
Fixed interest rates on the swaps range from 0.775% to 1.287% with
the floating interest based on 3-month Euribor.
2.17 Current and deferred income
tax
The tax expense for the period comprises current and deferred tax.
Tax is recognised in the Consolidated Statement of Comprehensive
Income, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In that case,
the tax is also recognised in other comprehensive income or directly
in equity, respectively.
(a) Current tax
The current tax charge is based on taxable profit for the year.
Taxable profit differs from net profit reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income
or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the accounting
date.
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit. Deferred tax assets are recognised
to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Deferred tax is charged or credited in the consolidated statement
of comprehensive income except when it relates to items credited
or charged directly in equity, in which case the deferred tax is
also dealt with in equity.
Deferred tax is calculated at the tax rates and laws that are expected
to apply to the period when the asset is realised or the liability
is settled based upon tax rates that have been enacted or substantively
enacted by the accounting date.
The carrying amount of deferred tax assets is reviewed at each accounting
date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
2.18 New standards and interpretations
The following relevant new standards, amendments to standards and
interpretations have been issued, and are effective for the financial
year beginning on 1 January 2022, as adopted by the European Union
and United Kingdom:
Title As issued by the IASB,
mandatory for accounting
periods starting on or after
Amendments to IFRS 16 Leasing - Covid-19 Accounting periods beginning
Related Rent Concessions on or after 1 April 2021
Onerous Contracts - Cost of Fulfilling Accounting periods beginning
a Contract (Amendments to IAS 37) on or after 1 January 2022
Accounting periods beginning
Annual Improvements to IFRS Standards 2018-2020 on or after 1 January 2022
Property, Plant and Equipment: Proceeds
before Intended Use (Amendments to IAS Accounting periods beginning
16) on or after 1 January 2022
Reference to the Conceptual Framework (Amendments Accounting periods beginning
to IFRS 3) on or after 1 January 2022
Amendments to IFRS 16 Leasing -
Covid-19 Related Rent Concessions
In May 2020, the IASB issued Covid-19-Related Rent Concessions (Amendment
to IFRS 16). The pronouncement amended IFRS 16 Leases to provide
lessees with an exemption from assessing whether a COVID-19-related
rent concession is a lease modification. On issuance, the practical
expedient was limited to rent concessions for which any reduction
in lease payments affects only payments originally due on or before
30 June 2021.
An extension was issued on 31 March 2021 which permits a lessee
to apply the practical expedient regarding COVID-19-related rent
concessions to rent concessions for which any reduction in lease
payments affects only payments originally due on or before 30 June
2022 (rather than only payments originally due on or before 30 June
2021).
The amendments do not impact on the current financial statements
as no Covid-19 related rent concessions have been recognised.
Onerous Contracts - Cost of Fulfilling
a Contract (Amendments to IAS 37)
Following the withdrawal of IAS 11 Construction Contracts, companies
apply the requirements in IAS 37 when determining whether a contract
is onerous. These requirements specify that a contract is 'onerous'
when the unavoidable costs of meeting the contractual obligations
- i.e. the lower of the costs of fulfilling the contract and the
costs of terminating it - outweigh the economic benefits.
The amendments clarify that the 'costs of fulfilling a contract'
comprise both:
-- the incremental costs - e.g., direct labour and materials; and
-- an allocation of other direct costs - e.g., an allocation of
the depreciation charge for an item of property, plant and equipment
used in fulfilling the contract.
The amendments do not impact on the current financial statements
as no onerous contracts exist during the reporting period.
Annual Improvements to IFRS Standards
2018-2020
IFRS 1 First-time Adoption of International Financial Reporting
Standards: This amendment simplifies the application of IFRS 1 for
a subsidiary that becomes a first-time adopter of IFRS Standards
later than its parent
IFRS 9 Financial Instruments: This amendment clarifies that - for
the purpose of performing the '10 per cent test' for derecognition
of financial liabilities - in determining those fees paid net of
fees received, a borrower includes only fees paid or received between
the borrower and the lender, including fees paid or received by
either the borrower or lender on the other's behalf.
IFRS 16 Leases, Illustrative Example 13: The amendment removes the
illustration of payments from the lessor relating to leasehold improvements.
As currently drafted, this example is not clear as to why such payments
are not a lease incentive. The amendments will help to remove the
potential for confusion in identifying lease incentives in a common
real estate fact pattern.
IAS 41 Agriculture: This amendment removes the requirement to exclude
cash flows for taxation when measuring fair value, thereby aligning
the fair value measurement requirements in IAS 41 with those in
IFRS 13 Fair Value Measurement.
The amendments to IFRS Standards 2018-2020 do not impact on the
current financial statements.
Property, Plant and Equipment: Proceeds before Intended Use (Amendments
to IAS 16)
Under the amendments, proceeds from selling items before the related
item of PPE is available for use should be recognised in profit
or loss, together with the costs of producing those items. IAS 2
Inventories should be applied in identifying and measuring these
production costs.
Companies will therefore need to distinguish between:
-- costs associated with producing and selling items before the
item of PPE is available for use; and
-- costs associated with making the item of PPE available for its
intended use.
Making this allocation of costs may require significant estimation
and judgement. Companies in the extractive industry may need to
monitor costs at a more granular level.
The amendments to IAS 16 do not impact on the current financial
statements.
Reference to the Conceptual Framework
(Amendments to IFRS 3)
In a May 2019 exposure draft, the IASB identified three possible
amendments to IFRS 3 that would update IFRS 3 without significantly
changing its requirements. These amendments have now been finalised.
-- update IFRS 3 so that it refers to the 2018 Conceptual Framework
instead of the 1989 Framework;
-- add to IFRS 3 a requirement that, for transactions and other
events within the scope of IAS 37 or IFRIC 21, an acquirer applies
IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify
the liabilities it has assumed in a business combination; and
-- add to IFRS 3 an explicit statement that an acquirer does not
recognise contingent assets acquired in a business combination.
The amendments to IFRS 3 do not impact on the current financial
statements.
New and revised IFRS Standards in issue but not yet effective and
not early adopted
The following standards have been issued by the IASB and adopted
by the EU:
As issued by the IASB,
mandatory for accounting
Title periods starting on or after
IFRS 17 Insurance Accounting periods beginning
Contracts on or after 1 January 2023
Amendments to IFRS 17 Accounting periods beginning
on or after 1 January 2023
Disclosure of Accounting Policies (Amendments Accounting periods beginning
to IAS 1 and IFRS Practice Statement 2) on or after 1 January 2023
Definition of Accounting Estimates (Amendments Accounting periods beginning
to IAS 8) on or after 1 January 2023
Deferred Tax Related to Assets and Liabilities Accounting periods beginning
Arising from a Single Transaction - Amendments on or after 1 January 2023
to IAS 12 Income Taxes
Initial Application of IFRS 17 and IFRS Accounting periods beginning
9 - Comparative Information (Amendments on or after 1 January 2023
to IFRS 17)
There are no anticipated material impacts to the Group from the
above new and revised IFRS Standards.
3. Financial risk
management
3.1 Financial risk
factors
The Group's activities expose it to a variety of financial risks:
market risk, credit risk and liquidity risk. The Group's overall
risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group's
financial performance.
Risk management is carried out by the Risk Committee under policies
approved by the Board of Directors. The Board provides principles
for overall risk management, as well as policies covering specific
areas, such as interest rate risk, credit risk and investment of
excess liquidity.
3.2 Market risk
Market risk is the risk of loss that may arise from changes in market
factors such as foreign exchange rates, interest rates and general
property market risk.
(a) Foreign exchange
risk
The Group operates in Germany and is exposed to foreign exchange
risk arising from currency exposures, primarily with respect to
Sterling against the Euro arising from the costs which are incurred
in Sterling. Foreign exchange risk arises from future commercial
transactions, and recognised monetary assets and liabilities denominated
in currencies other than the Euro.
The Group's policy is not to enter into any currency hedging transactions,
as the majority of transactions are in Euros, which is the primary
currency of the environment in which the Group operates. Therefore,
any currency fluctuations are minimal.
(b) Interest rate
risk
The Group has exposure to interest rate risk. It has external borrowings
at a number of different variable interest rates. The Group is also
exposed to interest rate risk on some of its financial assets, being
its cash at bank balances. Details of actual interest rates paid
or accrued during each period can be found in note 22 to the consolidated
financial statements.
The Group's policy is to manage its interest rate risk by entering
into a suitable hedging arrangement, either caps or swaps, in order
to limit exposure to borrowings at variable rates.
(c) General property
market
risk
Through its investment in property, the Group is subject to other
risks which can affect the value of property. The Group seeks to
minimise the impact of these risks by review of economic trends
and property markets in order to anticipate major changes affecting
property values.
(d) Market risk -
Rent
legislation
Through its policy of investing in Berlin, the Group is subject
to the risk of changing rental legislation which could affect both
the rental income, and the value of property. The Group seeks to
mitigate any effect of the changing legislations using strategies
set out in the principal risks and uncertainties on pages 35 to
39.
(e) Market risk -
Ukraine
Although the Company has no direct exposure to either Russia or
Ukraine, it is expected that the continuing conflict will cause
an impact on the global economy. These include the possible effects
of higher energy prices, the possible knock-on impact of inflation,
recession and increasing cyber-attacks. Additionally, These circumstances
have created a degree of uncertainty across global equity markets.
The conflict in Ukraine, and the introduction of sanctions against
Russia and Belarus, as well as possible secondary derivative impacts
are being closely monitored by the Board and the Property Advisor.
Further information regarding the risk to the Company from the crisis
in Ukraine can be found in the principal risks and uncertainties
on page 35.
3.3 Credit risk
The risk of financial loss due to a counterparty's failure to honour
their obligations arises principally in connection with property
leases and the investment of surplus cash.
The Group has policies in place to ensure that rental contracts
are made with customers with an appropriate credit history. Tenant
rent payments are monitored regularly, and appropriate action taken
to recover monies owed, or if necessary, to terminate the lease.
Cash transactions are limited to financial institutions with a high
credit rating.
3.4 Liquidity risk
The Group's objective is to maintain a balance between continuity
of funding and flexibility through the use of bank loans secured
on the Group's properties. The terms of the borrowings entitle the
lender to require early repayment should the Group be in default
with significant payments for more than one month.
3.5 Capital
management
The prime objective of the Group's capital management is to ensure
that it maintains the financial flexibility needed to allow for
value-creating investments as well as healthy balance sheet ratios.
The capital structure of the Group consists of net debt (borrowings
disclosed in note 22 after deducting cash and cash equivalents)
and equity of the Group (comprising stated capital (excluding treasury
shares), reserves and retained earnings).
In order to manage the capital structure, the Group can adjust the
amount of dividend paid to shareholders, issue or repurchase shares
or sell assets to reduce debt.
When reviewing the capital structure, the Group considers the cost
of capital and the risks associated with each class of capital.
The Group reviews the gearing ratio which is determined as the proportion
of net debt to equity. In comparison with comparable companies operating
within the property sector the Board considers the gearing ratios
to be reasonable.
The gearing ratios for the reporting periods are as follows:
As at As at
31 December 31 December
2022 2021
EUR'000 EUR'000
Borrowings (312,084) (284,155)
Cash and cash
equivalents 12,485 10,441
Net debt (299,599) (273,714)
========================= =====================
Equity 416,391 443,627
Net debt to equity
ratio 72% 62%
========================= =====================
4. Critical accounting estimates and judgements
The preparation of consolidated financial statements in conformity
with IFRS requires the Group to make certain critical accounting
estimates and judgements. In the process of applying the Group's
accounting policies, management has decided the following estimates
and assumptions have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the financial
year:
i) Estimate of fair value of investment properties (EUR775,904,000)
The valuation of the Group's property portfolio is inherently subjective
due to, among other factors, the individual nature of each property,
its location and condition, and expected future rentals. The valuation
as at 31 December 2022 is based on the rules, regulations and market
as at that date. The fair value estimates of investments properties
are detailed in note 16.
The best evidence of fair value is current prices in an active market
of investment properties with similar leases and other contracts.
In the absence of such information, the Group determines the amount
within a range of reasonable fair value estimates. In making its
estimate, the Group considers information from a variety of sources,
including:
a) Discounted cash flow projections based on reliable estimates
of future cash flows, derived from the terms of any existing lease
and other contracts, and (where possible) from external evidence
such as current market rents for similar properties in the same
location and condition, and using discount rates that reflect current
market assessments of the uncertainty in the amount and timing of
the cash flows.
b) Current prices in an active market for properties of different
nature, condition or location (or subject to different lease or
other contracts), adjusted to reflect those differences.
c) Recent prices of similar properties in less active markets, with
adjustments to reflect any changes in economic conditions since
the date of the transactions that occurred at those prices.
The Directors remain ultimately responsible for ensuring that the
valuers are adequately qualified, competent and base their results
on reasonable and realistic assumptions. The Directors have appointed
JLL as the real estate valuation experts who determine the fair
value of investment properties using recognised valuation techniques
and the principles of IFRS 13. Further information on the valuation
process can be found in note 16.
ii) Judgment in relation to the recognition of assets held for
sale
Management has made an assumption in respect of the likelihood of
investment properties - held for sale, being sold within 12 months,
in accordance with the requirement of IFRS 5. Management considers
that based on historical and current experience that the properties
can be reasonably expected to sell within 12 months.
5. Segmental information
The Group's principal reportable segments under IFRS 8 were as follows:
- Residential; and
- Commercial
The Group is required to report financial and descriptive information
about its reportable segments. Reportable segments are operating
segments or aggregations of operating segments that meet the following
specified criteria:
- its reported revenue, from both external customers and intersegment
sales or transfers, is 10 per cent or more of the combined revenue,
internal and external, of all operating segments, or
- the absolute measure of its reported profit or loss is 10 per
cent or more of the greater, in absolute amount, of (i) the combined
reported profit of all operating segments that did not report a
loss and (ii) the combined reported loss of all operating segments
that reported a loss, or
- its assets are 10 per cent or more of the combined assets of all
operating segments.
Management have applied the above criteria to the commercial segment
and the commercial segment is not more than 10% of any of the above
criteria. The Group does not own any wholly commercial buildings
nor does management report directly on the commercial results. The
Board considers that the non-residential element of the portfolio
is incidental to the Group's activities. Therefore, the Group has
not included any further segmental analysis within these consolidated
audited financial statements.
6. Revenue
31 December 31 December
2022 2021
EUR'000 EUR'000
Rental income 20,289 20,624
Service charge income 5,645 5,166
25,934 25,790
========================= =====================
The total future annual minimum rentals receivable under non-cancellable
operating leases are as follows:
31 December 31 December
2022 2021
EUR'000 EUR'000
Within 1 year 1,201 1,224
1 - 2 years 1,201 1,177
2 - 3 years 917 979
3 - 4 years 648 875
4 - 5 years 543 663
Later than 5 years 417 562
4,927 5,480
========================= =====================
Revenue comprises rental income earned from residential and commercial
property in Germany. There are no individual tenants that account
for greater than 10% of revenue during any of the reporting periods.
The leasing arrangements for residential property are with individual
tenants, with three months' notice from tenants to cancel the lease
in most cases.
The commercial leases are non-cancellable, with an average lease
period of 3 years.
7. Property expenses
31 December 31 December
2022 2021
EUR'000 EUR'000
Property management
expenses 1,233 1,195
Repairs and
maintenance 1,525 1,731
Impairment charge - trade receivables 868 420
Service charges paid
on
behalf of tenants 6,631 6,014
Property advisors' fees and expenses 6,862 6,722
17,119 16,082
========================= =====================
8. Administrative
expenses
31 December 31 December
2022 2021
EUR'000 EUR'000
Secretarial and
administration
fees 651 609
Legal and
professional
fees 2,261 2,405
Directors' fees 275 287
Bank charges 74 62
Loss on foreign
exchange 5 82
Depreciation 8 8
Other income (10) (6)
3,264 3,447
========================= =====================
Further details of the Directors' fees are set out in the Directors'
Remuneration Report on page 73.
9. Auditor's
remuneration
An analysis of the fees charged by the auditor and its associates
is as follows:
31 December 31 December
2022 2021
EUR'000 EUR'000
Fees payable to the Group's auditor and its associates
for the audit of the consolidated financial statements 231 237
Fees payable to the Group's auditor and its associates
for other services
- Agreed upon
procedures
- half year report 33 31
264 268
========================= =====================
10. (Loss) / gain on disposal of investment property
(including investment property held for sale)
31 December 31 December
2022 2021
EUR'000 EUR'000
Disposal proceeds 13,754 16,667
Book value of
disposals (12,982) (14,309)
Disposal costs (957) (840)
(185) 1,518
========================= =====================
11. Investment property fair
value (loss) / gain
31 December 31 December
2022 2021
EUR'000 EUR'000
Investment property fair value (loss)
/ gain (42,241) 37,983
========================= =====================
Further information on investment properties is shown in note 16.
12. Net finance
charge
31 December 31 December
2022 2021
EUR'000 EUR'000
Interest income (376) (26)
Finance expense on
bank
borrowings 8,313 7,508
Net finance charge before gain
on interest rate swap 7,937 7,482
Gain on interest rate
swaps (26,920) (7,313)
(18,983) 169
========================= =====================
13. Income tax
expense
31 December 31 December
2022 2021
The tax charge for
the
period is as
follows: EUR'000 EUR'000
Current tax charge /
(credit) 817 (201)
Deferred tax (credit) / charge - origination
and reversal of temporary differences (2,556) 8,083
(1,739) 7,882
========================= =====================
The tax credit for the year can be reconciled to the theoretical
tax credit on the loss in the Consolidated Statement of Comprehensive
Income as follows:
31 December 31 December
2022 2021
EUR'000 EUR'000
(Loss) / profit before tax (17,549) 45,250
Tax at German income tax rate of 15.8%
(2021: 15.8%) (2,773) 7,150
Expenses not
deductible
/ (income not
taxable) 29 (240)
Losses carried forward not recognised 1,005 972
Total tax (credit) /
charge
for the year (1,739) 7,882
========================= =====================
Reconciliation of current tax liabilities
31 December 31 December
2022 2021
EUR'000 EUR'000
Balance at beginning
of
year 512 550
Tax (paid) / received
during
the year (521) 163
Current tax charge /
(credit) 817 (201)
Balance at end of
year 808 512
========================= =====================
Reconciliation of
deferred
tax
Capital Interest
gains rate
on properties swaps Total
EUR'000 EUR'000 EUR'000
(Liabilities) (Liabilities) (Net
liabilities)
Balance at 1 January
2021 (68,273) 2,880 (65,393)
Charged to the statement of
comprehensive income (6,925) (1,158) (8,083)
Deferred tax (liability) /
asset at 31 December 2021 (75,198) 1,722 (73,476)
Credited / (Charged) to the statement
of comprehensive income 6,816 (4,260) 2,556
Deferred tax
liability
at 31 December 2022 (68,382) (2,538) (70,920)
=============== ========================= =====================
Jersey income tax
The Group is liable
to
Jersey income tax at
0%.
German tax
As a result of the Group's operations in Germany, the Group is subject
to German Corporate Income Tax ('CIT') - the effective rate for
Phoenix Spree Deutschland Limited for 2022 was 15.8% (2021: 15.8%).
Factors affecting
future
tax charges
The Group has accumulated tax losses of approximately EUR42 million
(2021: EUR35 million) in Germany, which will be available to set
against suitable future profits should they arise, subject to the
criteria for relief. These losses are offset against the deferred
taxable gain to give the deferred tax liability set out above.
14. Dividends
31 December 31 December
2022 2021
EUR'000 EUR'000
Amounts recognised as distributions
to equity holders in the period:
Interim dividend for the year ended 31 December
2022 of EUR2.35 cents (2.09p) declared 29 September
2022, paid 28 October 2022 (2021: EUR2.35 cents
(2.02p)) per share. 2,158 2,228
Dividend for the year ended 31 December 2021 of
EUR5.15 cents (4.36p) declared 30 March 2022,
paid 9 June 2022 (2021: EUR5.15 cents (4.65p))
per share. 4,752 5,207
========================= =====================
15. Subsidiaries
The Group consists of a Parent Company, Phoenix Spree Deutschland
Limited, incorporated in Jersey, Channel Islands and a number of
subsidiaries held directly by Phoenix Spree Deutschland Limited,
which are incorporated in and operated out of Jersey and Germany.
Further details are
given
below:
Country of Nature of
incorporation % Holding business
Phoenix Spree Deutschland I Limited Jersey 100 Investment
property
Phoenix Spree Deutschland III Limited Jersey 100 Liquidated
(Liquidated on 4 October 2022)
Phoenix Spree Deutschland VII Limited Jersey 100 Investment
property
Phoenix Spree Deutschland X Limited Jersey 100 Finance vehicle
Phoenix Spree Deutschland XI Limited Jersey 100 Investment
property
Phoenix Spree Deutschland XII Limited Jersey 100 Investment
property
Phoenix Property Holding GmbH & Co.KG Germany 100 Holding Company
Phoenix Spree Mueller GmbH Investment
Germany 94.9 property
Phoenix Spree Gottlieb GmbH Investment
Germany 94.9 property
PSPF Holdings GmbH Germany 100 Holding Company
Jühnsdorfer Weg Immobilien GmbH Germany 94.9 Investment
property
Phoenix Spree Property Fund Ltd & Germany 100 Investment
Co. KG (PSPF) property
PSPF General Partner (Jersey) Limited Jersey 100 Management
of PSPF
16. Investment
properties
2022 2021
Fair value EUR'000 EUR'000
At 1 January 801,461 768,310
Capital expenditure 16,437 9,477
Property additions 13,229 -
Disposals (12,982) (14,309)
Fair value (loss) /
gain (42,241) 37,983
------------------------- ---------------------
Investment properties at fair value 775,904 801,461
Assets classified as
"Held
for Sale" (Note 17) (14,527) (41,631)
At 31 December 761,377 759,830
========================= =====================
The property Portfolio (other than the assets held at directors'
valuation as noted below) was valued at 31 December 2022 by Jones
Lang LaSalle GmbH ("JLL"), in accordance with the methodology described
below. The valuations were performed in accordance with the current
Appraisal and Valuation Standards, 8th edition (the 'Red Book')
published by the Royal Institution of Chartered Surveyors (RICS).
The valuation is performed on a building-by-building basis from
source information on the properties including current rent levels,
void rates, capital expenditure, maintenance costs and non-recoverable
costs provided to JLL by the Property Advisors QSix Residential
Limited. JLL use their own assumptions with respect to rental growth,
and adjustments to non-recoverable costs. JLL also uses data from
comparable market transactions where these are available alongside
their own assumptions.
The valuation by JLL uses the discounted cash flow methodology.
Such valuation estimates using this methodology, however, are inherently
subjective and values that would have been achieved in an actual
sales transaction involving the individual property at the reporting
date are likely to differ from the estimated valuation.
All properties are valued as Level 3 measurements under the fair
value hierarchy (see note 30) as the inputs to the discounted cash
flow methodology which have a significant effect on the recorded
fair value are not observable. Additionally, JLL perform reference
checks back to comparable market transactions to confirm the valuation
model.
The unrealised fair value (loss) / gain in respect of investment
property is disclosed in the Consolidated Statement of Comprehensive
Income as 'Investment property fair value (loss) / gain'.
Valuations are undertaken using the discounted cash flow valuation
technique as described below and with the inputs set out below.
Discounted cash flow methodology ("DCF")
The fair value of investment properties is determined using the
DCF methodology.
Under the DCF method, a property's fair value is estimated using
explicit assumptions regarding the benefits and liabilities of ownership
over the asset's life including an exit or terminal value. The DCF
valuation by JLL used ten-year projections of a series of cash flows
of each property interest. The cash flows used in the valuation
reflect the known conditions existing at the reporting date.
To this projected cash flow series, an appropriate, market derived
discount rate is applied to establish the present value of the cash
flows associated with each property. The discount rate of the individual
properties is adjusted to provide an individual property value that
is consistent with comparable market transactions. For properties
without a comparable market transaction JLL use the data from market
transactions to adjust the discount rate to reflect differences
in the location of the property, its condition, its tenants and
rent.
The duration of the cash flow and the specific timing of inflows
and outflows are determined by events such as rent reviews, lease
renewal and related lease up periods, re-letting, redevelopment,
or refurbishment.
Periodic cash flow includes cash flows relating to gross income
less vacancy, non-recoverable expenses, collection losses, lease
incentives, maintenance costs, agent and commission costs and other
operating and management expenses. The series of periodic net operating
cash flows, along with an estimate of the terminal value anticipated
at the end of the ten-year projection period, is then discounted.
Where an individual property has the legal and practical ability
to be converted into individual apartments (condominiums) for sale
as a condominium, dependent upon the stage of the legal permissions,
the additional value created by the conversion is reflected via
a lower discount rate applied.
Included within Investment Properties is an investment property
under construction which has been valued by the Directors using
a methodology that the Directors deem appropriate to represent the
fair value of this asset. The fair value of the investment property
under construction has been calculated as the Red Book value of
the completed asset minus the present value of cashflows required
to achieve the finished asset. The Red Book value has been provided
by JLL based on the same valuation methodology as the rest of the
portfolio. The present value of cashflows required to achieve the
finished asset has been derived using a discounted cashflow using
the remaining contractual payments and the same discount rate as
JLL have applied to cashflows post completion. The subjectivities
surrounding the present value of future payments are deemed to be
the finished asset value, the discount rate and the timing of payments.
The principal inputs to the valuation are as Year Year
follows: ended ended
31 December 31 December
2022 2021
Range Range
Residential
Properties
Market Rent
Rental Value (EUR per 9.75 9.25
sq. - 15.50 - 14.75
p.m.)
Stabilised residency vacancy (% per
year) 1 - 10 1 - 3
Tenancy vacancy fluctuation (% per year) 4 - 10 4 - 9.5
------------------------------------------------------------- -------- --------------- ------------------------- ---------------------
Commercial Properties
Market Rent
Rental Value (EUR per
sq. 4.6 - 4.6 -
p.m.) 35.4 34
Stabilised commercial vacancy (% 0.5 -
per year) 89.3 0 - 67
Estimated Rental
Value
(ERV)
ERV per year per
property 54 - 23 -
(EUR'000) 2,553 2,366
ERV (EUR per sq.) 9.75 9.25
- 15.50 - 14.75
--------------------- ----------- -------- --------------- -------- --------------- ------------------------- ---------------------
Financial Rates -
blended
average
Discount rate (%) 4.1 3.1
Portfolio Gross yield
(%) 2.8 2.4
------------------------- ---------------------
Having reviewed the JLL report, the Directors are of the opinion
that this represents a fair and reasonable valuation of the properties
and have consequently adopted this valuation in the preparation
of the consolidated financial statements.
The valuations have been prepared by JLL on a consistent basis at
each reporting date and the methodology is consistent and in accordance
with IFRS which requires that the 'highest and best use' value is
taken into account where that use is physically possible, legally
permissible and financially feasible for the property concerned,
and irrespective of the current or intended use.
Sensitivity
Changes in the key assumptions and inputs to the valuation
models used would impact the valuations as follows:
Vacancy: A change in vacancy by 1% would not materially
affect the investment property fair value assessment.
Discount rate: An increase of 0.25% in the discount rate would reduce
the investment property fair value by EUR72 million, and a decrease
in the discount rate of 0.25% would increase the investment property
fair value by EUR88.8 million.
There are, however, inter-relationships between unobservable inputs
as they are determined by market conditions. The existence of an
increase of more than one unobservable input could amplify the impact
on the valuation. Conversely, changes on unobservable inputs moving
in opposite directions could cancel each other out or lessen the
overall effect.
The Group values all investment properties
in one of three ways;
Rental Scenario
Where properties have been valued under the DCF methodology and
are intended to be held by the Group for the foreseeable future,
they are valued under the "Rental Scenario".
Condominium Scenario
Where properties have the potential or the benefit of all relevant
permissions required to sell apartments individually (condominiums)
and have been approved for sale by the Board, then we refer to these
as a 'condominium scenario'. Properties expected to be sold in the
coming year from these assets are considered held for sale under
IFRS 5 and can be seen in note 17. The additional value is reflected
by using a lower discount rate under the DCF methodology.
Disposal Scenario
Where properties have been notarised for sale prior to the reporting
date but have not completed; they are held at their notarised disposal
value. These assets are considered held for sale under IFRS 5 and
can be seen in note 17.
The table below sets out the assets
valued using these 3 scenarios:
31 December 31 December
2022 2021
EUR'000 EUR'000
Rental scenario 738,554 762,690
Condominium scenario 28,470 33,050
Disposal scenario 8,880 5,721
Total 775,904 801,461
========================= =====================
The movement in the fair value of investment properties is included
in the Consolidated Statement of Comprehensive Income as 'investment
property fair value loss' and comprises:
31 December 31 December
2022 2021
EUR'000 EUR'000
Investment properties (41,647) 37,817
Investment properties held for sale (see
note 17) (594) 166
(42,241) 37,983
========================= =====================
17. Investment
properties
- held for sale
2022 2021
EUR'000 EUR'000
Fair value - held for sale investment properties
At 1 January 41,631 19,302
Transferred (to) /
from
investment
properties (14,566) 35,886
Capital expenditure 1,038 586
Properties sold (12,982) (14,309)
Valuation (loss) / gain on properties held
for sale (594) 166
At 31 December 14,527 41,631
========================= =====================
Investment properties are re-classified as current assets and described
as 'held for sale' in three different situations: Properties notarised
for sale at the reporting date, Properties where at the reporting
date the group has obtained and implemented all relevant permissions
required to sell individual apartment units, and efforts are being
made to dispose of the assets (condominium); and Properties which
are being marketed for sale but have currently not been notarised.
Properties which no longer satisfy the criteria for recognition
as held for sale are transferred back to investment properties at
fair value.
Properties notarised for sale by the reporting date are valued at
their disposal price (disposal scenario), and other properties are
valued using the rental and condominium scenarios (see note 16)
as appropriate.
Investment properties held for sale are all expected to be sold
within 12 months of the reporting date based on management knowledge
of current and historic market conditions. While whole properties
have been valued under a condominium scenario in note 16, only units
expected to be sold have been transferred to assets held for sale.
The investment properties held for sale have debt of EUR6.9m
(2021: EUR13.0m) that is repayable upon sale of those investment
properties.
18. Property, plant
and
equipment
Equipment
EUR'000
Cost or valuation
As at 1 January 2021 123
Disposals (14)
---------------------
As at 31 December
2021 109
Disposals -
As at 31 December
2022 109
=====================
Accumulated depreciation and impairment
As at 1 January 2021 81
Charge for the year 8
---------------------
As at 31 December
2021 89
Charge for the year 8
As at 31 December
2022 97
=====================
Carrying amount
As at 31 December
2021 20
As at 31 December
2022 12
---------------------
19. Other financial
assets
at amortised cost
31 December 31 December
2022 2021
Non-current EUR'000 EUR'000
At 1 January 926 901
Repayments (122) -
Accrued interest 24 25
At 31 December 828 926
========================= =====================
The Company entered into a loan agreement with the minority interest
of Accentro Real Estate AG in relation to the acquisition of the
assets as share deals. This loan bears interest at 3% per annum.
These assets are considered to have low credit risk and any loss
allowance would be immaterial.
20. Trade and other
receivables
31 December 31 December
2022 2021
EUR'000 EUR'000
Current
Trade receivables 932 827
Less: impairment
provision (373) (315)
------------------------- ---------------------
Net receivables 559 512
Prepayments and accrued income 68 514
Investment property disposal proceeds receivable - 4,513
Service charges
receivable 6,192 5,562
Other receivables 3,249 598
10,068 11,699
========================= =====================
Other receivables include EUR1.2m of Capex incurred prior to the
completion of the contract of sale regarding Margareten str, and
payable by the acquiror.
Ageing analysis of trade receivables
31 December 31 December
2022 2021
EUR'000 EUR'000
Up to 12 months 540 511
Between 1 year and 2
years 19 -
Over 3 years - 1
559 512
========================= =====================
Impairment of trade and service charge receivables
The Group calculates lifetime expected credit losses for trade and
service charge receivables using a portfolio approach. Receivables
are grouped based on the credit terms offered and the type of lease.
The probability of default is determined at the year-end based on
the aging of the receivables, and historical data about default
rates. That data is adjusted if the Group determines that historical
data is not reflective of expected future conditions due to changes
in the nature of its tenants and how they are affected by external
factors such as economic and market conditions.
On this basis, the loss allowance as at 31 December 2022, and on
31 December 2021 was determined as set out below.
No provision for expected credit losses is made against service
charge receivables on the basis that it would be immaterial.
The Group applies the following loss rates to trade receivables.
As noted below, a loss allowance of 50% (2021: 50%) has been recognised
for trade receivables that are more than 60 days past due except
for any receivables relating to the Mietendeckel which are expected
to be recovered in full. Any receivables where the tenant is no
longer resident in the property are provided for in full.
Aging
Trade receivables: 0-60 Over Non-current Total
days 60 days tenant 2022
Expected loss rate
(%) 0% 50% 100%
Gross carrying amount
(EUR'000) 328 462 142 932
Loss allowance
provision
(EUR'000) - (231) (142) (373)
Aging
Trade receivables: 0-60 Over Non-current Total
days 60 days tenant 2021
Expected loss rate
(%) 0% 36% 100%
Gross carrying amount
(EUR'000) 274 371 182 827
Loss allowance
provision
(EUR'000) - (133) (182) (315)
Movements in the impairment provision against trade receivables
are as follows:
31 December 31 December
2022 2021
EUR'000 EUR'000
Balance at the beginning of the year 315 222
Impairment losses
recognised 868 420
Amounts written off as uncollectable (810) (327)
Balance at the end of
the
year 373 315
========================= =====================
All impairment losses relate to the receivables arising from tenants.
21. Cash and cash
equivalents
31 December 31 December
2022 2021
EUR'000 EUR'000
Cash at banks 11,156 9,120
Cash at agents 1,329 1,321
Cash and cash
equivalents 12,485 10,441
========================= =====================
22. Borrowings
31 December 31 December
2022 2021
Nominal Book Nominal Book
value value value value
EUR'000 EUR'000 EUR'000 EUR'000
Current liabilities
Accrued interest -
NATIXIS
Pfandbriefbank AG 1,031 19 1,026 121
Bank loans - Berliner Sparkasse 801 801 801 801
1,832 820 1,827 922
Non-current
liabilities
Bank loans - NATIXIS
Pfandbriefbank
AG 253,602 250,872 237,678 234,328
Bank loans - Berliner Sparkasse 60,392 60,392 48,905 48,905
313,994 311,264 286,583 283,233
315,826 312,084 288,410 284,155
======== =============== ========================= =====================
The difference between book values and nominal values in the table
above relates to unamortised transaction cost.
The Group has complied with the financial covenants of its borrowing
facilities during the 2022 and 2021 reporting periods.
Financial covenants relating to the Natixis Pfandbriefbank AG loans
include a projected interest cover of at least 150%, minimum debt
yield of 4.3% and a maximum loan to value of 67.5%.
There are no financial covenants relating to the Berliner Sparkasse
loans.
The Natixis Pfandbriefbank AG loans mature on 11 September 2026
and the Berliner Sparkasse loans mature between 31 December 2026
and 31 October 2027.
All borrowings are secured against the investment properties of
the Group. As at 31 December 2022, the Group had undrawn debt facilities
of EUR39.0m (2021: EUR59.1m).
Interest rate risk
concentration
Interest Fixed Fixed Floating Total Hedged
rate basis Interest Interest Interest loans against
% % % floating
rate
loans
Interest
rate range 1-2% 2-3% Euribor
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
NATIXIS
Pfandbriefbank
AG - - 250,872 250,872 203,000
Berliner
Sparkasse 40,388 3,800 17,005 61,193 11,879
Total 40,388 3,800 267,877 312,065 214,879
=============== ======== =============== ========================= =====================
23. Trade and other
payables
31 December 31 December
2022 2021
EUR'000 EUR'000
Trade payables 4,525 2,758
Accrued liabilities 1,485 1,472
Service charges
payable 5,394 5,203
Advanced payment
received
on account 3,700 2,437
Deferred income 26 23
15,130 11,893
========================= =====================
Advanced payment received on account relates to disposal proceeds
received prior to the statement of financial position date for units
that proceeded to change ownership in the first quarter of the following
financial year.
24. Derivative
financial
instruments
31 December 31 December
2022 2021
EUR'000 EUR'000
Interest rate swaps - carried at fair value through
profit or loss
Balance at 1 January (10,884) (18,197)
Fair value movement through profit or loss 26,920 7,313
Balance at 31
December 16,036 (10,884)
========================= =====================
The notional principal amounts of the outstanding interest rate
swap contracts as at 31 December 2022 were EUR214,878,750 (2021:
EUR204,073,750). At 31 December 2022 the fixed interest rates vary
from 0.775% to 1.287% (2021: 0.775% to 1.24%) and mature between
September 2026 and February 2027.
The interest-rate swaps are valued by an independent third-party
specialist. The market value calculation is based on the present
value of the counterparty payments, the fixed interest, and the
present value of the payments to be received, the floating interest.
Maturity analysis of interest rate swaps
31 December 31 December
2022 2021
EUR'000 EUR'000
Less than 1 year - -
Between 1 and 2 years - -
Between 2 and 5 years 16,036 (10,405)
More than 5 years - (479)
16,036 (10,884)
========================= =====================
Analysis of contractual cashflows under interest rate
swaps as of 31 December 2022
Year Pay Receive Net
Fixed Floating
EUR'000 EUR'000 EUR'000
2023 (2,567) 7,160 4,593
2024 (2,140) 6,947 4,807
2025 (2,071) 5,992 3,920
2026 (1,432) 4,113 2,681
2027 (12) 46 35
Total (8,222) 24,258 16,036
=============== ========================= =====================
25. Share based
payment
reserve
Performance
fee
EUR'000
Balance at 1 January
2021 6,369
Fee charge for the
year 343
Settlement of
performance
fee (6,369)
---------------------
Balance at 31
December
2021 343
Fee charge for the
year (343)
Balance at 31 -
December
2022
=====================
The share-based payment reserve was established in relation to the
issue of shares for the payment of the performance fee to the property
advisor.
Property Advisor
performance
fee
The Property Advisor is entitled to an asset and estate management
performance fee, measured over consecutive three-year periods, equal
to 15% of the excess by which the annual EPRA NTA total return of
the Group exceeds 8% per annum, compounding (the 'Performance Fee').
The Performance Fee is subject to a high watermark, being the higher
of:
(i) EPRA NTA per
share
at 1 January 2021;
and
(ii) the EPRA NTA per share at the end of a Performance Period in
relation to which a performance fee was earned in accordance with
the provisions contained with the Property Advisor and Investor
Relations Agreement.
Should a fee be due, the fee will be settled shortly after the release
of the 2023 annual report in shares of the Company and being determined
by reference to an equity-based formula, meets the definition of
a share based payment arrangement. There is no fee due to be settled
for the current period.
26. Stated capital
31 December 31 December
2022 2021
EUR'000 EUR'000
Issued and fully
paid:
At 1 January 196,578 196,578
At 31 December 196,578 196,578
========================= =====================
The number of shares in issue at 31 December 2022 was 100,751,410
(31 December 2021: 100,751,410).
Treasury shares
The reserve for the Company's treasury shares comprises the cost
of the Company's shares held by the Group. At 31 December 2022,
the Group held 8,924,047 of the Company's shares (2021: 7,949,293).
During the year a further 974,754 shares were purchased in the market.
27. Non-controlling
interests
Non-controlling 31 December 31 December
interest 2022 2021
%
EUR'000 EUR'000
Phoenix Spree Mueller
GmbH 5.1% 1,571 1,475
Phoenix Spree
Gottlieb
GmbH 5.1% 1,307 1,342
Jühnsdorfer Weg
Immobilien
GmbH 5.1% 334 770
3,212 3,587
========================= =====================
28. Earnings per share and
EPRA earnings per share
31 December 31 December
2022 2021
Earnings per share
Earnings for the purposes of basic earnings per
share being net profit attributable to owners
of the parent (EUR'000) (15,435) 37,311
Weighted average number of ordinary shares for
the purposes of basic earnings per share (Number) 92,139,098 94,973,655
Effect of dilutive potential ordinary shares
(Number) - 72,433
Weighted average number of ordinary shares for
the purposes of diluted earnings per share (Number) 92,139,098 95,046,088
========================= =====================
Earnings per share
(EUR) (0.17) 0.39
Diluted earnings per
share
(EUR) (0.17) 0.39
========================= =====================
31 December 31 December
2022 2021
EPRA earnings per
share
Earnings for the purposes of basic earnings per
share being net profit attributable to owners
of the parent (EUR'000) (15,435) 37,311
Changes in value of
investment
properties 42,241 (37,983)
Profit or loss on disposal on investment properties 185 (1,518)
Changes in fair value of financial instruments (27,263) (6,970)
Deferred tax
adjustments (2,556) 8,083
Change in
Non-controlling
interest (13) 240
EPRA Earnings (2,841) (837)
========================= =====================
Weighted average number of ordinary shares for
the purposes of basic earnings per share (Number) 92,139,098 94,973,655
EPRA Earnings per
Share
(EUR) (0.03) (0.01)
Diluted EPRA Earnings
per
Share (EUR) (0.03) (0.01)
29. Net asset value per share
and EPRA net asset value
31 December 31 December
2022 2021
Net assets (EUR'000) 413,179 440,040
Number of participating ordinary
shares 91,827,363 92,802,117
Net asset value per
share
(EUR) 4.50 4.74
========================= =====================
EPRA NRV (Net Reinstatement Value) - this includes transfer duties
of the property assets.
EPRA NTA (Net Tangible Assets) - the Company buys and sells assets
leading to taking account of certain liabilities.
EPRA NDV (Net Disposal Value) - the value for the shareholder in
the event of a liquidation.
The net asset value calculation is based on the Group's shareholders'
equity which includes the fair value of investment properties, properties
held for sale as well as financial instruments.
The number of diluted shares does not include treasury shares.
EPRA EPRA EPRA
NRV NTA NDV
EUR'000 EUR'000 EUR'000
At 31 December 2022
IFRS Equity
attributable
to shareholders 413,179 413,179 413,179
Include / Exclude*:
Hybrid instruments - - -
--------------- ------------------------- ---------------------
Diluted NAV 413,179 413,179 413,179
Include*:
Revaluation of Investment Property - - -
Revaluation of Investment Property - - -
under Construction
Revaluation of other non-current - - -
investments
Revaluation of tenant leases - - -
held as finance leases
Revaluation of trading properties - - -
--------------- ------------------------- ---------------------
Diluted NAV at Fair
Value 413,179 413,179 413,179
Exclude*:
Deferred tax in relation to fair
value gains of Investment Property
and derivatives 70,920 70,920
Fair value of
financial
instruments (16,036) (16,036)
Goodwill as a result - - -
of
deferred tax
Goodwill as per the - - -
IFRS
balance sheet
Intangibles as per - - -
the
IFRS balance sheet
Include*:
Fair value of fixed
interest
rate debt 2,829
Revaluation of -
intangibles
to fair value
Real estate transfer
tax 63,176 -
NAV 531,239 468,063 416,008
=============== ========================= =====================
Fully diluted number
of
shares 91,827,363 91,827,363 91,827,363
NAV per share (EUR) 5.79 5.10 4.53
At 31 December 2021
IFRS Equity
attributable
to shareholders 440,040 440,040 440,040
Include / Exclude:
Hybrid instruments (343) (343) (343)
--------------- ------------------------- ---------------------
Diluted NAV 439,697 439,697 439,697
Include*:
Revaluation of Investment Property - - -
Revaluation of Investment Property - - -
under Construction
Revaluation of other non-current - - -
investments
Revaluation of tenant leases - - -
held as finance leases
Revaluation of trading properties - - -
--------------- ------------------------- ---------------------
Diluted NAV at Fair
Value 439,697 439,697 439,697
Exclude:
Deferred tax in relation to fair
value gains of Investment Property
and derivatives 73,476 73,476
Fair value of
financial
instruments 10,884 10,884
Goodwill as a result - - -
of
deferred tax
Goodwill as per the - - -
IFRS
balance sheet
Intangibles as per - - -
the
IFRS balance sheet
Include:
Fair value of fixed
interest
rate debt 3,051
Revaluation of -
intangibles
to fair value
Real estate transfer
tax 65,072 -
NAV 589,129 524,057 442,748
=============== ========================= =====================
Fully diluted number
of
shares 92,802,117 92,802,117 92,802,117
NAV per share (EUR) 6.35 5.65 4.77
30. Financial
instruments
The Group is exposed to the risks that arise from its use of financial
instruments. This note describes the objectives, policies and processes
of the Group for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks
is presented throughout the consolidated financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from which
financial instrument risk arises, are as follows:
-- Cash and cash equivalents
-- Trade and other receivables
-- Other financial
assets
-- Trade and other payables
-- Borrowings
-- Derivative financial instruments
The Group held the following financial assets at each reporting
date:
31 December 31 December
2022 2021
EUR'000 EUR'000
At Amortised cost
Trade and other receivables - current 10,000 11,185
Cash and cash
equivalents 12,485 10,441
Other financial assets at amortised cost 828 926
23,313 22,552
------------------------- ---------------------
Fair value through
profit
or loss
Derivative financial asset - interest rate 16,036 -
swaps
16,036 -
------------------------- ---------------------
39,349 22,552
========================= =====================
The Group held the following financial liabilities at each reporting
date:
31 December 31 December
2022 2021
EUR'000 EUR'000
At amortised cost
Borrowings payable:
current 820 922
Borrowings payable:
non-current 311,264 283,233
Trade and other
payables 15,130 11,893
327,214 296,048
------------------------- ---------------------
Fair value through
profit
or loss
Derivative financial liability - interest
rate swaps - 10,884
- 10,884
------------------------- ---------------------
327,214 306,932
========================= =====================
Fair value of
financial
instruments
The fair values of the financial assets and liabilities are not
materially different to their carrying values due to the short-term
nature of the current assets and liabilities or due to the commercial
variable rates applied to the long term liabilities.
The interest rate swap was valued by the respective counterparty
banks by comparison with the market price for the relevant date.
The interest rate swaps are expected to mature between September
2026 and February 2027.
The Group uses the following hierarchy for determining and disclosing
the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical
assets or liabilities;
Level 2: other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly
or indirectly; and
Level 3: techniques which use inputs which have a significant effect
on the recorded fair value that are not based on observable market
data.
During each of the reporting periods, there were no transfers between
valuation levels.
Group Fair Values
31 December 31 December
2022 2021
Financial assets/
(liabilities) EUR'000 EUR'000
Interest rate swaps - - -
Level
2 - current
Interest rate swaps -
Level
2 - non-current 16,036 (10,884)
16,036 (10,884)
========================= =====================
Financial risk
management
The Group is exposed through its operations to the following financial
risks:
-- Interest rate risk
-- Foreign exchange
risk
-- Credit risk
-- Liquidity risk
The Group's policies for financial risk management are outlined
below.
Interest rate risk
The Group's interest rate risk arises from certain of its borrowings.
Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. Borrowings issued at fixed rates expose the
Group to fair value interest rate risk. The Group is also exposed
to interest rate risk on cash and cash equivalents.
Under interest rate swap contracts, the Group agrees to exchange
the difference between fixed and floating rate interest amounts
calculated on agreed notional principal amounts. Such contracts
enable the Group to mitigate the risk of changing interest rates
on the cash flow exposures on the issued variable rate debt held.
Sensitivity analysis has not been performed as most variable rate
borrowings have been swapped to fixed interest rates, and potential
movements on cash at bank balances are immaterial.
The Group gives careful consideration to interest rates when considering
its borrowing requirements and where to hold its excess cash. The
Directors believe that the interest rate risk is at an acceptable
level.
Foreign exchange risk
The Group is exposed to foreign exchange risk on sales, purchases,
and translation of assets and liabilities that are in a currency
other than the functional currency (Euros).
The Group does not enter into any currency hedging transactions
and the Directors believe that the foreign exchange rate risk is
at an acceptable level.
The carrying amount of the Group's foreign currency (non-Euro) denominated
monetary assets and liabilities are shown below, all the amounts
are for Sterling balances only:
31 December 31 December
2022 2021
EUR'000 EUR'000
Financial assets
Cash and cash
equivalents 75 563
Financial liabilities
Trade and other
payables (494) (494)
Net position (419) 69
========================= =====================
At each reporting date, if the Euro had strengthened or weakened
by 10% against GBP with all other variables held constant, post-tax
profit for the year would have increased/(decreased) by:
Weakened by Strengthened
10% Increase/(decrease) by 10% Increase/(decrease)
in post-tax in post-tax
profit and impact profit and
on equity impact on equity
EUR'000 EUR'000
31 December 2022 (42) 42
31 December 2021 7 (7)
Credit risk
management
Credit risk refers to the risk that the counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises principally from the Group's trade and
other receivables and its cash balances. The Group gives careful
consideration to which organisations it uses for its banking services
in order to minimise credit risk. The Group has an established credit
policy under which each new tenant is analysed for creditworthiness
and each tenant is required to pay a two-month deposit.
At each reporting date the Group had no tenants with outstanding
balances over 10% of the total trade receivables balance.
The Group holds cash at the following banks: Barclays Private Clients
International Jersey Ltd, Deutsche Bank AG, Berliner Sparkasse,
UniCredit Bank AG and Hausbank. The split of cash held at each of
the banks respectively at 31 December 2022 was 36% / 50% / 7% /
2% / 5% (31 December 2021: Barclays Private Clients International
Jersey Ltd, Deutsche Bank AG, Berliner Sparkasse and Hausbank the
split was 26% / 57% / 10% / 7%). Barclays and Deutsche Bank have
credit ratings of A and A- respectively, Berliner Sparkasse has
a credit rating of A+.
The Group holds no collateral as security against any financial
asset. The carrying amount of financial assets recorded in the financial
statements, net of any allowances for losses, represents the Group's
maximum exposure to credit risk.
Details of receivables from tenants in arrears at each reporting
date can be found in note 20 as can details of the receivables that
were impaired during each period.
An allowance for impairment is made using an expected credit loss
model based on previous experience. Management considers the above
measures to be sufficient to control the credit risk exposure.
The credit risk on liquid funds and derivative financial instruments
is limited because the counterparties are banks with high credit-ratings
assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial
statements, which is net of impairment losses, represents the Group's
maximum exposure to credit risk as no collateral or other credit
enhancements are held.
Liquidity risk
management
Liquidity risk is the risk that the Group will not be able to meet
its financial obligations as they fall due. The Group's approach
to managing liquidity risk is to ensure that it will always have
sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses
or damage to the Group's reputation.
The Directors manage liquidity risk by regularly reviewing cash
requirements by reference to short term cash flow forecasts and
medium term working capital projections prepared by management.
The Group maintains good relationships with its banks, which have
high credit ratings.
The following table details the Group's remaining contractual maturity
for its non-derivative financial liabilities with agreed maturity
periods. The table has been drawn up based on the undiscounted cash
flows of the financial liabilities based on the earliest date on
which the Group can be required to pay. The tables include both
interest payable and principal cash flows.
Maturity analysis for financial liabilities
Less Between Between More
than 1 - 2 2 - 5 than
1 year years years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
At 31 December 2022
Borrowings payable:
current 820 - - - 820
Borrowings payable:
non-current - - 311,264 - 311,264
Trade and other
payables 15,130 - - - 15,130
15,950 - 311,264 - 327,214
--------------- -------- --------------- ------------------------- ---------------------
Less Between Between More
than 1 - 2 2 - 5 than
1 year years years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
At 31 December 2021
Borrowings payable:
current 922 - - - 922
Borrowings payable:
non-current - - - 283,233 283,233
Trade and other
payables 11,893 - - - 11,893
12,815 - - 283,233 296,048
--------------- -------- --------------- ------------------------- ---------------------
Loans are due to mature in September 2026 for the Natixis loan facility
and October 2027 for the Berliner Sparkasse loan facility.
31. Capital
commitments
31 December 31 December
2022 2021
EUR'000 EUR'000
Contracted capital commitments at 26,750 -
the end of the year
========================= =====================
Capital commitments include contracted obligations in respect of
the acquisition, enhancement, construction, development and repair
of the Group's properties.
32. Related party
transactions
Related party transactions not disclosed elsewhere are as follows:
Property Advisor Fees
In November 2018 the Company signed a new contract with the Property
Advisor, which superseded the previous property advisor agreement.
Under the Property Advisory Agreement for providing property advisory
services, the Property Advisor will be entitled to a Portfolio and
Asset Management Fee as follows:
(i) 1.2% of the EPRA NTA of the Group where EPRA NTA of the Group
is equal to or less than EUR500 million; and
(ii) 1% of the EPRA NTA of the Group greater than EUR500 million.
The Property Advisor is entitled to receive a finance fee equal
to:
(i) 0.1% of the value of any borrowing arrangement which the Property
Advisor has negotiated and/or supervised; and
(ii) a fixed fee of GBP1,000 in respect of any borrowing arrangement
which the Property Advisor has renegotiated or varied.
The management fee will be reduced by the aggregate amount of any
transaction fees and finance fees payable to the Property Advisor
in respect of that calendar year.
The Property Advisor is entitled to a capex monitoring fee equal
to 7% of any capital expenditure incurred by any Subsidiary which
the Property Advisor is responsible for managing.
The Property Advisor is entitled to receive a transaction fee fixed
at GBP1,000 in respect of any acquisition or disposal of property
by any Subsidiary.
The Property Advisor shall be entitled to a fee for Investor Relations
Services at the annual rate of GBP75,000 payable quarterly in arrears.
QSix Residential Limited is the Group's appointed Property Advisor.
Partners of QSix Residential Limited formerly sat on the Board of
PSD and retain a shareholding in the Group. During the year ended
31 December 2022, an amount of EUR6,861,680 (EUR6,773,608 Management
Fees and EUR88,072 Other expenses and fees) (2021: EUR6,722,029
(EUR6,653,493 Management Fees and EUR90,437 Other expenses and fees))
was payable to QSix Residential Limited. At 31 December 2022 EUR1,584,505
(2021: EUR977,260) was outstanding. Fees payable to the Property
Advisor in relation to overseeing capital expenditure during the
year of EUR492,859 (2021: EUR397,440) have been capitalised.
The Property Advisor is also entitled to an asset and estate management
performance fee. The charge for the period in respect of the performance
fee was EUR Nil (2021: Accrual of EUR343,000 reversed in 2022).
Please refer to note 25 for more details.
Apex Financial Services (Alternative Funds) Limited, the Company's
administrator provided administration and company secretarial services.
During the period, fees of EUR651,000 were charged (2021: EUR609,000)
with EURNil (2021: EUR154,000) outstanding.
Fees payable to Directors during the year amounted to EUR275,000
(2021: EUR287,000).
Dividends paid to directors in their capacity as a shareholder amounted
to EUR937 (2021: EUR2,976).
33. Events after the
reporting
date
In September 2022, the Company exchanged contracts to acquire a
multi-family house with 22 residential units and 3 commercial units
in Berlin-Neukölln for EUR4.9 million. The completion is expected
in Q2 2023.
In H2 2022, the Company exchanged contracts to dispose of two non-core
assets for the total consideration of EUR7.3 million. The two sales
completed in Q1 2023.
The Company had exchanged contracts for the sale of one residential,
one commercial and one attic units in Berlin with aggregated consideration
of EUR1.6 million prior to the reporting date. The sale of these
is expecting completion in 2023.
In Q1 2023 the Company exchanged contracts for the sale of three
condominiums in Berlin for the aggregated consideration of EUR0.8
million. All of them are still awaiting completion.
Professional Advisors
Property Advisor QSix Residential
Limited
54-56 Jermyn
Street
London SW1Y
6LX
Administrator, Company Secretary
and Registered Office
Apex Financial Services
(Alternative Funds) Limited
12 Castle Street
St Helier
Jersey JE2
3RT
Registrar Link Asset Services
(Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2
3RT
Principal Banker Barclays Bank Plc,
Jersey Branch
13 Library
Place
St. Helier
Jersey JE4
8NE
UK Legal Advisor Stephenson Harwood
LLP
1 Finsbury Circus
London EC2M 7SH
Jersey Legal Advisor Mourant
22 Grenville
St.
St. Helier
Jersey JE4
8PX
German Legal Advisor Mittelstein
Rechtsanwälte
as to property law Alsterarkaden
20
20354 Hamburg
Germany
German Legal Advisor Taylor Wessing Partnerschaftsgesellschaft
as mbB
to German partnership Thurn-und-Taxis-Platz
law 6
60313 Frankfurt
a.M.
Germany
Numis Securities
Sponsor and Broker Limited
45 Gresham
Street
10 Paternoster
Square
London
EC2V
7BF
Independent Property Jones Lang
Valuer LaSalle GmbH
Rahel-Hirsch-Strasse
10
10557
Berlin
Germany
Auditor RSM UK Audit
LLP
25 Farringdon
Street
London EC4A
4AB
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END
FR EAEDPAFNDEAA
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