TIDMPSDL
RNS Number : 8175I
Phoenix Spree Deutschland Limited
06 April 2020
Phoenix Spree Deutschland Limited
(the "Company" or "PSD")
Financial results for the year ended 31 December 2019
Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed
investment company specialising in German residential real estate,
announces its full year audited results for the financial year
ended 31 December 2019.
Highlights for the financial year ended 31 December 2019
Year to 31 Year to 31 2018 v 2019
December 2019 December 2018
% change
Income Statement
-------------- -------------- -----------
Reported gross rental income
(EURm) 22.6 22.7 (0.4%)
-------------- -------------- -----------
Profit before tax (EURm) 28.6 56.4 (49.3%)
-------------- -------------- -----------
Dividend (EUR cents (GBP pence))(1) 7.50 (6.3) 7.50 (6.7) 0%
-------------- -------------- -----------
Balance Sheet
-------------- -------------- -----------
Portfolio valuation (EURm) 730.2 645.7 13.1%
-------------- -------------- -----------
IFRS NAV per share (EUR cents) 4.23 4.05 4.4%
-------------- -------------- -----------
IFRS NAV per share (GBP pence) 3.58 3.64 (1.6%)
-------------- -------------- -----------
EPRA NAV per share (EUR cents) 4.92 4.58 7.4%
-------------- -------------- -----------
EPRA NAV per share (GBP pence) 4.16 4.11 1.2%
-------------- -------------- -----------
EPRA NAV per share total return
(EUR%) 9.1 13.2 -
-------------- -------------- -----------
Net LTV(2) (%) 32.6 26.1 -
-------------- -------------- -----------
Operational Statistics
-------------- -------------- -----------
Portfolio valuation per sqm (EUR) 3,741 3,527 6.1%
-------------- -------------- -----------
Annual like-for-like rent per
sqm growth (%) 5.6 7.4 -
-------------- -------------- -----------
EPRA Vacancy (%) 2.8 2.8 -
-------------- -------------- -----------
Condominium sales notarised (EURm) 8.8 9.0 (2.2%)
-------------- -------------- -----------
(1 FX rate GBP/EUR 1:1.18)
(2 Net LTV uses nominal loan balances as per note 23 rather than
the loan balances on the Consolidated Statement of Financial
Position which take into account Capitalised Finance Arrangement
Fees in the balance.)
Financial & Operational Highlights
-- The Portfolio continued to perform well:
o Aggregate Portfolio value increased by 13.1% to EUR730.2
million (31 December 2018: EUR645.7 million).
o Like-for-like Portfolio value, adjusted for acquisitions and
disposals, increased by 7.1%.
-- Robust like-for-like rental income growth per sqm of 5.6% during the year.
-- New leases signed at an average 36.4% premium to passing rents.
-- Underlying EPRA vacancy remains low at 2.8% (31 December 2018: 2.8%).
-- Contracts to acquire 286 units notarised during 2019,
representing an aggregate purchase price of EUR49 million and an
average cost per sqm of EUR2,706.
o This includes an apartment complex in Brandenburg, an area
within Greater Berlin that is unaffected by the Mietendeckel rent
controls.
-- Completion in September 2019 of new EUR190 million term loan
on improved interest rate terms provides additional liquidity. A
further EUR50 million acquisition facility is available.
-- Potential scenarios associated with COVID-19 and the
Mietendeckel have been rigorously stress tested.
-- Unchanged dividend of EUR5.15 cents per share (GBP 4.4 pence per share).
-- Share buy-backs at an average 22% discount to year-end 2019
EPRA Net Asset Value. As at 31 March 2020, 3.5% of the issued share
capital had been repurchased. Buy-back programme suspended pending
more clarity on the effects of COVID-19.
EPRA NAV underpinned by significant condominium potential
-- 18 Condominium sale notarisations during 2019 with total
proceeds of EUR8.8 million (2018: EUR9.0 million).
-- Average achieved value per sqm on notarised residential
condominium units of EUR4,711, a 25.9% premium
to 2019 year-end Portfolio average value per sqm.
-- New agreement with Accentro Real Estate AG, provides scope to accelerate condominium sales.
-- 58% of Portfolio assets legally split into condominiums, and
applications proceeding for a further 29%.
Timing, legality and implementation of new Berlin rent controls
("Mietendeckel")
-- Came into force on 23 February 2020. Legislation to be
reviewed by Berlin's Regional Constitutional Court and the Federal
Constitutional Court.
-- The Company has been advised that an injunction is likely to
be sought. If obtained, it could create a moratorium on the
implementation of the Mietendeckel, pending final ruling.
-- In the absence of an injunction being obtained, aggregate
rental income for 2020 is not likely to be significantly adversely
affected by the Mietendeckel compared with 2019.
-- Mietendeckel already impacting new construction, exacerbating
shortage of available rental stock.
-- Potential future impact after 2020 is dependent on duration
of, and eventual outcome of, legal challenge.
-- If the Mietendeckel continues throughout 2021, PSD estimates
annual rental incomes could reduce by approximately 17%, which the
Company would seek to mitigate by extending condominium sales.
Outlook
-- The current COVID-19 pandemic presents a significant economic
challenge to global economies:
o PSD's top priority remains the health, welfare and safety of
its tenants and wider stakeholders.
o Measures have already been taken in London and Berlin to
mitigate disruption resulting from the COVID-19 outbreak.
o PSD believes it is well positioned to withstand the current
dislocations COVID-19 may cause, with a robust business model, a
strong balance sheet and good levels of liquidity
-- PSD retains strategic optionality in the likely event the
Mietendeckel is found to be unconstitutional.
-- Notwithstanding the near-term impact of COVID-19, long-term
Berlin demographic trends likely to remain positive, driven by
strong job creation and ongoing population growth.
-- Availability of Berlin rental stock expected to decline.
Robert Hingley, Chairman of Phoenix Spree Deutschland,
commented:
"I am pleased to report another resilient performance with
significant progress achieved in adapting our strategy in
preparation for the new Berlin rent rules. As we await a successful
challenge of this new regulation, we are well positioned to
mitigate any short-term impact, supported by our strong balance
sheet and good liquidity, all the while maintaining our strategic
optionality in the event the rules are found illegal. Despite the
impact COVID-19 is having on the German economy, we continue to be
confident, in the longer-term, in the strength of demand for rental
housing in Berlin and in our ability to create value for all of our
stakeholders through the continued active management of our
portfolio."
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)
Elizabeth Snow
Amber Ahluwalia +44 (0)20 7353 4200
Notes to the preliminary announcement
This announcement has been extracted from the annual report and
financial statements for the year ended 31 December 2019 (the
"Annual Report"), which will be available on the Company's website,
www.phoenixspree.com/investors today. The Annual Report has been
submitted to the National Storage Mechanism and will shortly be
available for inspection at www.morningstar.co.uk/uk/NSM . Printed
copies of the Annual Report will be distributed to shareholders on
or around 27 April 2020.
CHAIRMAN'S STATEMENT
I am pleased to report that PSD has delivered another resilient
performance. As at 31 December 2019, the Portfolio was valued at
EUR730.2 million by Jones Lang LaSalle GmbH, a like-for-like
increase of 7.1%, primarily driven by an increase in like-for-like
average rents. The EPRA NAV total return per share was 9.1% over
the same period.
Notwithstanding these results, the Company's share price has
been affected by regulatory uncertainty and, more recently, the
broader impact of the COVID-19 pandemic, which has negatively
affected global equity markets more generally. This has been
reflected in the current valuation discount to year-end EPRA Net
Asset Value, which is broadly in line with its listed peer
group.
The Company enters this period with a robust business model, a
strong balance sheet and good levels of liquidity. After fully
considering the potential impact of both the Berlin Mietendeckel
and COVID-19, the Board is pleased to recommend an unchanged
dividend of EUR5.15 cents per share (GBP 4.4 pence per share),
taking the full year dividend to EUR7.5 cents per share (GBP 6.3
pence per share). Future dividend payments will be considered in
the light of any prevailing market disruptions.
Reflecting current market volatility associated with the
COVID-19 pandemic, the Board believes that it is prudent, for the
time being, to suspend the Company's share buy-back programme
pending more clarity.
The Berlin Mietendeckel
The political moves by the Berlin Red-Red-Green coalition to cap
statutorily or reduce rents for private non-subsidised rental
properties aim to prevent rents being set at free market levels.
This is despite the fact that Germany already has in place, at the
federal level, tenant protections which rank amongst the strongest
in the Western world. These measures have presented challenges to
the Company's rental business model, which has traditionally relied
on re-letting at market rates to justify the considerable
investment that significantly improves the standard of
accommodation available to our tenants.
PSD and its legal advisors remain of the view that the
Mietendeckel is unconstitutional. The new rules seek to address the
effects of a housing shortage rather than addressing the cause. PSD
believes that the long-term solution to the housing shortage and
rent-price inflation lies with incentivising increased supply,
which the current rules fail to address.
Adapted strategy
The Company set out in September 2019 how it intends to adapt
its strategy during the period in which the Mietendeckel is in
force, so as to mitigate any short-term impact on the Portfolio,
while ensuring it maintains maximum strategic optionality in the
event the Mietendeckel law is found to be unconstitutional.
Good progress has already been made, including condominium
splitting and sales, as well as selective acquisitions in areas
within Greater Berlin that are not affected by the Mietendeckel.
These measures are explained in more detail in this announcement.
The Company has also secured more flexible and cost-efficient
financing to support the medium and long-term strategic objectives
of the business.
COVID-19
The unprecedented and rapidly changing circumstances surrounding
the COVID-19 coronavirus outbreak provide an uncertain economic
landscape and increased risk aversion in the financial markets.
Whilst it is difficult to predict accurately the potential
long-term consequences, we remain vigilant and, in common with all
businesses, are closely monitoring the situation. The wellbeing of
our tenants and the employees of our service providers is our
overriding priority.
PSD's Property Advisor has a strong business platform and has
instituted measures in London and Berlin to ensure its people can
work remotely, ensuring the continuity of the business. The
Property Advisor has rigorously stress tested PSD's financial
forecasts for a range of potential outcomes associated with
COVID-19 and is confident that the Company is well positioned to
withstand any negative impact. To date, there has been no material
effect on PSD and the Company enters this period in a position of
robust financial health, with a strong balance sheet and a good
level of liquidity.
Governance and compliance
The Board recognises the importance of a strong corporate
governance culture and maintains the principles of good corporate
governance as set out in the Association of Investment Companies
Code of Corporate Governance ("AIC Code"), as set out in the
Corporate Governance Statement in the Annual Report.
Corporate Responsibility
The Board recognises the importance of operating with integrity,
transparency and clear accountability towards its shareholders,
tenants and other key stakeholders. We understand that being a
responsible Company, balancing the different interests of our
stakeholders and addressing our environmental and social impacts,
is intrinsically linked to the success and sustainability of our
business.
To this end, our 'Better Futures' Corporate Responsibility
('CR') Plan provides a framework to monitor existing activities
better. It has four key pillars that have been integrated
throughout our business operations: Protecting our Environment;
Respecting People; Valuing our Tenants and Investing in our
Communities. Our CR initiatives are reported in more detail in the
Annual Report.
Outlook
In addition to the Mietendeckel, the COVID-19 outbreak presents
an additional challenge for PSD and, whilst the ultimate impact on
the Berlin real estate market and property valuations is unclear,
PSD and its Property Advisor have a platform that, if required, can
accommodate an extended period of disruption. Our top priority
remains the health, welfare and safety of PSD's tenants and wider
stakeholders.
Although there currently remains additional uncertainty
surrounding the legality of the new Mietendeckel and the duration
of legal challenges, PSD is well positioned to mitigate the
financial impact pending legal clarification.
Since the launch of PSD over 13 years ago, tenant law has
continually changed and PSD has successfully evolved within the
changing regulatory framework. The Board remains firmly of the view
that the Mietendeckel rules will ultimately be successfully
challenged in the courts of law and the priority for the year ahead
is, therefore, to ensure that the Company maintains its strategic
optionality during this period.
REPORT OF THE PROPERTY ADVISOR
THE BERLIN MIETECKEL
The final draft of the new Berlin-specific rent cap (or
"Mietendeckel") became law, following publication in the official
gazette on 23 February 2020. Launched by the Red-Red-Green
coalition (the ruling coalition in the Berlin House of
Representatives, consisting of the Social Democrats, Die Linke and
the Green Party) the new rules allow the limitation of housing
rents, such that rates are no longer set at free market levels.
Legality of the Mietendeckel rules
PSD's legal advisors remain of the view that the Mietendeckel is
unconstitutional and, as such, will be successfully challenged.
They raise concerns about whether the state of Berlin is competent
to pass local rent legislation, as the provisions substantially
deviate from existing German federal law.
The opposition in the Berlin House of Representatives and a
quorum of Federal Parliament MPs have already announced that they
intend to have the legislation reviewed by Berlin's Regional
Constitutional Court and the Federal Constitutional Court. In
addition, it is expected that there will be a number of private
challenges. These legal actions were not possible prior to the
Mietendeckel being enacted in law.
The financial impact on the Company and its future business
model and strategy are largely dependent on the timing and eventual
outcome of the legal actions. Although there is a degree of
uncertainty as to the timing of the likely sequence of events, the
Company has been advised that the three most probable outcomes are
as follows:
1. A judicial review and injunction leading to an immediate
moratorium on implementation of the new rules, pending final
determination, with the Mietendeckel found to be illegal. Depending
on the timing of the injunction, there would be a low or minimal
impact on PSD's business.
2. No injunction, but Mietendeckel ultimately judged to be
illegal. In this scenario, PSD would have to adapt its business
model for the duration of court proceedings which could last 18
months or more.
3. No injunction and Mietendeckel ultimately judged to be legal.
Although the Company has been advised that this is unlikely, PSD's
strategic business model would need to be adapted on a permanent
basis.
Key elements of the Mietendeckel rules
The main components of the new regulations include a freeze on
rents, rent ceilings, possible rent reductions and a limitation of
the modernization costs that can be passed onto tenants in the form
of higher rents.
The new rules prescribe rent levels that apply throughout
central Berlin which are dependent on the age and technical
specification of each apartment. They cover all residential rental
leases, furnished apartments and short-term rental models. The only
exceptions are buildings constructed after 1 January 2014,
publicly-funded housing or housing that has been modernized or
repaired with funds from public budgets, accommodation provided by
publicly recognized providers of welfare care and refurbished
apartments that were previously uninhabitable. As such, the
Mietendeckel, if deemed to be constitutional, potentially applies
to the vast majority of residential properties within PSD's
Portfolio.
Impact of Mietendeckel
Given the timing and complexity of the legal challenges that are
currently underway, there remains considerable uncertainty
surrounding the potential financial impact of the proposed new
rules.
The table below sets out the timing for implementation of the
key elements of the new rules together with the potential impact on
rental income for the full year to December 2020. It should be
noted that these estimates assume that, by 23 November 2020, there
has been no successful legal action or moratorium preventing the
implementation of the Mietendeckel. They also do not take into
account any successful legal challenge or any mitigating action
taken by PSD to reduce the financial impact of implementation; nor
any potential impact of the COVID-19 outbreak.
Summary of Key Mietendeckel Rules
Effective Type of Applicable Measures Prescribed Likely Negative Financial
Date Rental by the Mietendeckel Impact
Contract
Post 23 First time In the case of first-time The impact of this
February letting letting or reletting requirement is dependent
2020 and reletting after the Mietendeckel on level of tenant
comes into force, the churn. Assuming this
new rent may not exceed remains unchanged versus
the prescribed upper FY 2019, the likely
rent limit. This could financial impact could
result in lessors having be in the region of
to lower the rent to 1.5% of annualised
a level below the rent net rental income.
paid by the previous
tenant.
----------------- ------------------------------- -------------------------------
Post 23 Existing For existing leases, Absent any mitigating
February leases: a rent freeze initially action by PSD (please
2020 rent freeze applies, but with no refer to section on
requirement to lower "Maintaining Strategic
rents, provided the rent Flexibility"), it is
level set at 18 June estimated that the
2019 has not been increased impact for the financial
since that date. If there year ended 31 December
has been a rent increase, 2020 could be in the
future rental payments region of 1% of annualised
must be reduced to the net rental income.
June 2019 level.
----------------- ------------------------------- -------------------------------
Post 23 Automatic If the rent limit (adjusted Absent any mitigating
November rent reduction for location surcharges action by PSD (please
2020 or discounts) is exceeded refer to section on
by more than 20%, the "Maintaining Strategic
landlord must reduce Flexibility"), it is
the rent to 120% of the estimated that the
prescribed rent limit, financial impact for
but only nine months the financial year
after the rental cover ended 31 December 2020
comes into force (i.e. could be in the region
23 November 2020). of 1.5% of annualised
net rental income.
If the landlord accepts
a rent higher than 120% Moreover, considering
of the prescribed limit, the 2021 impact, the
he is liable to a fine Company estimates that
of up to Euro 500,000 the rent reductions
in each case. for Berlin-based residential
tenants could represent
up to 17% of annualised
net rental income.
----------------- ------------------------------- -------------------------------
MAINTAINING STRATEGIC FLEXIBILITY
The Company set out in September 2019 how it intends to adapt
its strategy during the period in which the proposed rent controls
are in force, so as to mitigate any short-term impact on the
portfolio, while ensuring it maintains maximum strategic
optionality in the event the proposals are found to be
unconstitutional. These measures are summarised below:
New re-letting contracts
To avoid uncertainty among tenants as to their contractual
rental obligations during the period when the legality of
Mietendeckel remains unresolved, PSD will be amending its tenancy
agreements. The new agreements stipulate that if the Mietendeckel
or any part thereof is voided, suspended, repealed, or otherwise
abolished, any higher contractual rent permissible under the German
Civil Code (BGB) shall once again be payable. If the voiding or
suspension were to be applied on an ex-tunc basis (i.e. from the
outset), back-payments would be sought to cover the difference
between the capped rent and contractual rent for the entire term of
the agreement. Tenants have, therefore, been advised by the Berlin
government to set aside appropriate reserves to cover this
eventuality.
Additionally, PSD continues to review the option of reletting
newly vacant units as short-term furnished apartments until the
legal questions surrounding the Mietendeckel are resolved.
Condominium Conversion
PSD believes that there is significant additional value within
PSD's potential condominium portfolio and intends to increase
condominium sales activities during 2020. In order to ensure
strategic flexibility, PSD has sought to split as many multi-family
properties as possible into individual condominium units at the
Land Registry, a prerequisite to selling each apartment separately.
As at 30 March 2020, 58% of all units had been registered as
condominiums. A further 29% are in application, a significant
majority of which are in the final stage of approval. By the end of
2020, in excess of 75% of the portfolio could be registered as
condominiums.
The Property Advisor has an in-house capability for condominiums
which focusses on selling vacant, rather than occupied, units.
Occupied units are typically acquired by investors seeking income
or by buyers prepared to wait before taking possession (and in the
meantime benefiting from rental income).
In order to sell occupied units in volume, PSD has entered into
an agreement with Accentro Real Estate AG ("Accentro"), one of
Germany's leading condominium sales platforms. This provides access
to a successful, European-wide, distribution platform which should
allow PSD to accelerate significantly sales of apartments.
Under the terms of the agreement, PSD can, if and to the extent
it so chooses, offer properties to Accentro to market for sale as
condominiums at an agreed price per condominium unit. On
acceptance, Accentro will have an exclusivity period of 18 to 24
months during which they will be eligible to receive commission for
completed sales. At the end of this period, Accentro will make PSD
an irrevocable offer to purchase any remaining unsold condominiums
at the previously assigned minimum purchase price, guaranteeing PSD
a minimum value for the assets . This also guarantees the sale of
all condominiums within a building. Accentro markets the properties
at its own expense while PSD retains all rights and benefits of the
condominium assets while they remain unsold.
New Condominium Construction
PSD has building permits approved, or in process, for 91 units.
Approximately 75% of these units are attic conversions, with the
remainder representing a new apartment block in the footprint of an
existing property. A consequence of the Mietendeckel has been to
create overcapacity in the construction sector as landlords reduce
their capital expenditure programmes and developments are
reassessed, which, in turn, is being reflected in lower labour and
material costs. The Property Advisor intends to appraise future
projects on the basis of condominiums for sale, as opposed to
rental properties.
Reduced Capital Expenditure
In the light of the proposed new rental laws, careful
consideration has been given to certain elements of discretionary
capital expenditure that are no longer financially justifiable.
Regrettably, the maximum EUR1 rent per sqm premium (EUR600-700 per
annum) on future modernisations that the new rules permit will not
justify the typical investment of EUR20-30k that was possible when
reletting was permissible at free market levels. This is likely to
reduce planned capital expenditure by up to EUR3.5 million per
annum for so long as the Mietendeckel remains in force. Although
this reduction in capital expenditure is regrettable, PSD remains
committed to maintaining a portfolio of homes for tenants that are
both comfortable and compliant with all health and safety
standards.
Acquisitions outside the designated Mietendeckel zone
Pending clarity on the legality of the Mietendeckel rules, the
Company will also consider acquisitions in the Greater Berlin area
that are unaffected by the rent cap. There has been no change to
PSD's strict investment criteria and any acquisitions considered
would be benchmarked against share buy-backs at a discount to Net
Asset Value.
Share Buybacks
Following the completion of a new EUR240 million loan facility
on improved terms, the Company announced in September 2019 that it
would consider buying back up to 10% of existing share capital in
issue. The share buy-back programme commenced in mid-October and,
as at 31 March 2020, the Company had purchased a total of 3.5
million shares (3.5% of the ordinary share capital) for a total
consideration of GBP11.2 million. The average price paid
represented a 23% discount to EPRA Net Asset Value per share as at
31 December 2019.
In the light of current market disruption, the share buyback
programme has been suspended. The Board will keep this policy under
review.
FINANCIAL & OPERATIONAL HIGHLIGHTS FOR THE YEAR TO 31
DECEMBER 2019
EUR million (unless otherwise Year to Year to 6 months 6 months
stated) to to
-------------------------------
31-Dec-19 31-Dec-18 30-Jun-19 30-Jun-18
------------------------------- ---------------- --------- --------- ---------
Gross rental income (1) 22.6 22.7 10.8 11.9
---------------- --------- --------- ---------
Investment property fair
value gain 41.5 66.1 21.6 21.7
---------------- --------- --------- ---------
Profit before tax (PBT) 28.6 56.4 12.0 19.4
---------------- --------- --------- ---------
Reported EPS (EUR) 0.22 0.46 0.11 0.16
---------------- --------- --------- ---------
Investment property value 730.2 645.7 665.2 583.7
---------------- --------- --------- ---------
Net debt (nominal balances)
(3) 237.8 168.4 178.0 150.5
---------------- --------- --------- ---------
Net LTV (%) 32.6 26. 1 26.8 25.8
---------------- --------- --------- ---------
IFRS NAV per share (EUR) 4.23 4.05 4.11 3.74
---------------- --------- --------- ---------
IFRS NAV per share (GBP)
(2) 3.58 3.64 3.68 3.31
---------------- --------- --------- ---------
EPRA NAV per share (EUR) 4.92 4.58 4.73 4.23
---------------- --------- --------- ---------
EPRA NAV per share (GBP) 4.16 4.11 4.24 3.74
---------------- --------- --------- ---------
Dividend per share (EUR cents) 7.5 7.5 2.35 2.35
---------------- --------- --------- ---------
Dividend per share (GBP pence) 6.3 6.7 2.1 2.1
---------------- --------- --------- ---------
EPRA NAV per share total
return for period (EUR%) 9.1 13.2 4.4 4.1
---------------- --------- --------- ---------
EPRA NAV per share total
return for period (GBP%) 2.9 11.4 4.3 3.8
---------------- --------- --------- ---------
(1) June 2018 reported Gross rental income was restated due to
change in accounting policies (IFRS 15)
(2) FX rate GBP/EUR 1:1.18
(3) Net debt uses nominal loan balances as per note 23 rather
than the loan balances on the Consolidated Statement of Financial
Position which take into account Capitalised Finance Arrangement
Fees in the balance as per IAS 23.
Financial results
Reported revenue for the financial year to 31 December 2019 was
EUR22.6 million ( 31 December 2018: EUR22.7 million). Profit before
taxation was EUR28.6 million ( 31 December 2018: EUR56.4 million)
which was positively affected by a revaluation gain of EUR41.5
million ( 31 December 2018: EUR66.1 million).
The reduced profit before tax, compared with 2018, primarily
reflects a lower revaluation gain due to a moderation in the rate
of market yield compression coupled with loan break costs following
the completion of PSD's EUR240 million refinancing in September
2019. Reported earnings per share for the period were 0.22 cents (
31 December 2018: 0.46 cents).
Reported EPRA NAV per share rose by 7.4% in the period to
EUR4.92 (GBP4.16) (31 December 2018: EUR4.58 (GBP4.11)). After
taking into account the dividends paid during 2019 of 7.5 cents
(6.3 pence), which were paid in June and October 2019, the Euro
EPRA NAV total return for the period was 9.1% (2018: 13.2%).
Dividend
Having regard to the potential impacts of COVID-19 and the
Mietendeckel, the Company has declared a further dividend of
EUR5.15 cents per share (GBP 4.4 pence per share), (31 December
2018 EUR5.15 cents) (GBP 4.62 pence per share), which is expected
to be paid on or around 03 July 2020 to shareholders on the
register at close of business on 12 June 2020, with an ex-dividend
date of 11 June 2020. Taking into account the interim dividend paid
in October 2019, the full dividend for the financial year to 31
December 2019 is EUR7.5 cents per share (GBP 6.3 pence per share),
(31 December 2018: EUR7.5 cents per share (GBP 6.73 pence per
share)).
Since listing on the London Stock Market in June 2015, and
including the second dividend for 2019 and bought-back treasury
shares, EUR46.6 million has been returned to shareholders. The
dividend is paid from operating cash flows, including the disposal
proceeds from condominium projects, and the Company will seek to
continue to provide its shareholders with a secure dividend over
the medium term, subject to the distribution requirements for
Non-Mainstream Pooled Investments, and after full consideration of
the impact of the Mietendeckel and any ongoing impact associated
with COVID-19.
Portfolio valuation and breakdown
Year to Year to 6 months 6 months
to to
31-Dec-19 31-Dec-18 30-Jun-19 30-Jun-18
---------- ---------- ---------- ----------
Number of buildings 98 96 96 93
---------- ---------- ---------- ----------
Number of residential
units 2,537 2,392 2,378 2,322
---------- ---------- ---------- ----------
Number of commercial units 142 153 143 152
---------- ---------- ---------- ----------
Total Units 2,679 2,545 2,521 2,474
---------- ---------- ---------- ----------
Total sqm ('000) 195.2 183.1 179.0 178.2
---------- ---------- ---------- ----------
Annualised Net Rent (EURm) 19.7 18.0 18.1 17.0
---------- ---------- ---------- ----------
Valuation (EURm) 730.2 645.7 665.2 583.7
---------- ---------- ---------- ----------
Value per sqm (EUR) 3,741 3,527 3,716 3,275
---------- ---------- ---------- ----------
Fully occupied gross yield
% 2.9 3.0 2.9 3.1
---------- ---------- ---------- ----------
Vacancy % 6.7 4.8 4.2 5.6
---------- ---------- ---------- ----------
EPRA Vacancy % 2.8 2.8 2.5 2.8
---------- ---------- ---------- ----------
As at 31 December 2019, the total Portfolio was valued at
EUR730.2 million by Jones Lang LaSalle GmbH, the Company's external
valuers, an increase of 13.1% over the twelve-month period (31
December 2018: EUR645.7 million).
On a like-for-like basis, after adjusting for the impact of
acquisitions net of disposals, the Portfolio valuation increased by
7.1% in the year to 31 December 2019, a 3.1% increase in the second
half of the financial year. This reflects the combined impact of
market rental growth and the active management of the
Portfolio.
The valuation as at 31 December 2019 represents an average value
per square metre of EUR3,741 (31 December 2018: EUR3,527), a gross
fully occupied yield of 2.9% (31 December 2018: 3.0%) and a net
yield, using EPRA methodology, of 2.3% (31 December 2018: 2.4%).
Included within the Portfolio are five properties valued as
condominiums, with all sales permissions granted, with an aggregate
value of EUR26.5 million (31 December 2018: EUR22.3 million).
The Portfolio valuation conducted by Jones Lang LaSalle GmbH for
year to 31 December 2019 reflects current Berlin market prices and
does not factor in any additional future impact on property
valuations that may materialise as a result of the Mietendeckel
rent controls, or any impact of COVID-19 on the Berlin economy.
Rental income and vacancy rate
Year to Year to 6 months 6 months
to to
31-Dec-19 31-Dec-18 30-Jun-19 30-Jun-18
---------- ---------- ---------- ----------
Total sqm ('000) 195.2 183.1 179.0 178.2
---------- ---------- ---------- ----------
Gross in-place rent per
sqm (EUR) 9.0 8.6 8.7 8.4
---------- ---------- ---------- ----------
Like-for-like rent per
sqm growth % 5.6 7.4 6.3 9.5
---------- ---------- ---------- ----------
Vacancy % 6.7 4.8 4.2 5.6
---------- ---------- ---------- ----------
EPRA Vacancy % 2.8 2.8 2.5 2.8
---------- ---------- ---------- ----------
After considering the impact of acquisitions and disposals,
like-for-like rental income per square metre grew 5.6% in the year
to 31 December 2019 and like-for-like rental income grew 6.1% over
the same period. Gross in-place rent was EUR9.0 per sqm as at 31
December 2019, an increase of 4.6% compared with the prior
year.
Reported vacancy at 31 December was 6.7% (31 December 2018:
4.8%). On an EPRA basis, which adjusts for units undergoing
renovation, development or made available for sale, the vacancy
rate was 2.8% (31 December 2018: 2.8%). The rise in the reported
vacancy rate reflects the acquisition in December 2019 of a rental
apartment complex in Brandenburg. This complex is undergoing a
refurbishment programme and consequently has a significantly higher
vacancy rate. Excluding this, reported vacancy as at 31 December
2019 would have been 4.0 %.
During the year to 31 December 2019, 306 new leases were signed,
representing a letting rate of approximately 11.1% of units. The
average rent achieved on new lettings was EUR11.9 per sqm.
Acquisitions and disposals
During 2019, three new assets with an aggregate valuation of
EUR49.0 million were notarised for acquisition. In total, these
buildings comprise 286 units (282 residential and 4 commercial), at
an average price per sqm of EUR2,706, which represents an estimated
prospective gross yield of 3.9 % . The acquired properties
complement the existing Portfolio, adding an initial 6.6% to rental
income. These acquisitions were financed using a combination of
debt and equity, with an achieved loan-to-value ratio of
approximately 39%.
One of the acquired assets was an apartment complex in
Brandenburg, an area within Greater Berlin that is unaffected by
the proposed Mietendeckel rent controls, which the Company
notarised and completed in December 2019. The Property is a former
army barracks, comprising 259 residential units, one commercial
unit and 210 parking spaces. It was substantially redeveloped in
2018/19 through a refurbishment programme which has seen 155 units
receive new facades and insulation, new windows, balconies,
electricity, pipes and outside facilities. Refurbishment of a
further 40 units is ongoing and expected to be completed to the
same standard, and in accordance with our CSR strategy, by the end
of the first half of 2020. The last part of the housing complex
will be vacated before the end of 2020, after which the
redevelopment of another 65 units is expected to be completed
within a twelve-month period.
In January 2021 a commercial unit in the complex will become
vacant with outline planning permission already agreed for a new
three-storey building of approximately 15 units. Outline planning
permission has also been sought for the construction of a
residential building and the complex offers the opportunity for
further densification in the future. In total, the whole complex
offers new build potential for approximately 60 additional units
representing further growth opportunities.
The average price paid per square metre of EUR2,674 represents
an estimated prospective gross yield of 4.1 %. The average
residential rent per sqm is EUR9.02, with new lettings in 2019 (52
leases) of up to EUR14.01 per sqm. This acquisition has initially
been financed from existing cash reserves. It is expected that
outstanding bank debt of EUR16.4 million will be refinanced prior
to maturity.
Portfolio enhancements
During the financial year, a total of EUR6.5 million was
invested across the Portfolio (2018: EUR7.9 million). These items
are recorded as capital expenditure in the Financial Statements. A
further EUR1.7 million was spent on maintaining the assets and is
expensed through the profit and loss account. The year-on-year
decline in investment reflects ongoing regulatory uncertainty.
Regrettably, a number of capex projects which would previously have
been justified at free market rents have been postponed or
cancelled pending further clarity on the legality of the
Mietendeckel.
EPRA Capital Expenditure
Property related capex Value (EUR,000)
Acquisitions 62
----------------
Like-for-like portfolio 5,948
----------------
Other(1) 511
----------------
Total Capital Expenditure 6,459
----------------
(1) Relates to capex monitoring fees paid to property advisor in
the year
Condominium sales
PSD's condominium strategy involves the division and resale of
selected apartment blocks as private units. This is subject to
regulatory approval and involves the legal splitting of the
freeholds in properties that have been identified as being suitable
for condominium conversion.
During the year to 31 December 2019, a total of 18 units were
notarised for sale, with an aggregate value of EUR8.8 million. The
average notarised value per sqm achieved was EUR4,068, representing
a 17.6% premium to book value and an 8.8% premium to the 31
December 2019 Berlin Portfolio average of EUR3,741 per sqm.
Excluding the impact of one large commercial unit, the average
notarised value per sqm value of the 17 residential units was
EUR4,711, a 25.9% premium to 2019 year-end Portfolio average value
per sqm of EUR3,741. Condominium sales accelerated significantly
during the second half of the financial year, with a total of 14
units notarised with an aggregate value of EUR6.3m, a 23.7% premium
to prevailing book value.
Since the financial year-end, four additional apartments have
been notarised for sale for an aggregate value of EUR1.4 million,
which represents a 21.7% premium to the 31 December 2019 book
value.
Condominium conversion
As at 30 March 2020, 58% of all units (63% by value) had been
registered as condominiums. A further 29% are in application, a
significant majority of which are in the final stage of approval.
By the end of 2020, it is expected that in excess of 75% of the
portfolio could be registered as condominiums. Although PSD has not
had any applications declined during 2019, the speed at which
applications have been processed by planning offices has slowed and
there has been some discussion by the Berlin government regarding
new laws preventing condominium splitting. However, it is unlikely
that these will progress pending final judgement on the legality of
the Mietendeckel. Any laws should not impact properties already
split.
Debt and gearing
As at 31 December 2019, PSD had gross borrowings of EUR280.2
million (31 December 2018: EUR195.3 million) and cash balances of
EUR42.4 million (31 December 2018: EUR26.9 million), resulting in
net debt of EUR237.8 million (31 Dec 2018: EUR168.4 million) and a
net loan to value on the portfolio of 32.6% (31 December 2018:
26.1%).
Following a strategic review of PSD's liability structure, a new
EUR240 million term loan facility on improved terms was completed
in September 2019. The new facility was agreed with Natixis
Pfandbriefbank AG and comprises of two tranches, being a
refinancing facility for EUR190 million and a further acquisition
facility for EUR50 million.
The refinancing facility, which was partly used to refinance
existing indebtedness of c. EUR119 million, is a seven-year,
interest-only loan (eliminating the previous amortisation
obligations) with a margin of 115bp over 3-month Euribor, floored
at zero. The outstanding swap portfolio was restructured to provide
interest rate hedging so as effectively to provide a fixed interest
rate for the full duration of the new loan. This facility was drawn
in September 2019, after which PSD's gross loan to value (excluding
cash held on balance sheet) increased from 28.6% to 39.2%, while
the overall cost of the refinanced debt decreased from 2.2% to
2.1%. The remainder of the Refinancing Facility has been used to
fund working capital, capital expenditure, opportunities that have
arisen from the market dislocation caused by the Mietendeckel, and
to buy back the Company's shares.
The additional EUR50 million facility is available for drawdown
on acquisitions over a period of 24 months and carries a commitment
fee of 57.5bp. On utilisation, the drawn amounts will be subject to
the same terms as the Refinancing Facility.
The increase in gross debt in the period partly results from the
refinancing discussed above, offset by debt repayments associated
with the sale of condominiums during the year, and scheduled
amortisation repayments on existing debt. The Company acquired debt
of EUR16.4 million on the acquisition in December 2019 of the
company which owned the apartment complex in Brandenburg previously
described. This debt had a fixed interest rate of 1.35% and is
intended to be refinanced in mid-2020 using the acquisition
facility negotiated in 2019. There was a further disbursement of
EUR3.5 million of debt secured against other acquisitions made in
2019.
Nearly all PSD's debt effectively has a fixed interest rate
through hedging. As at 31 December 2019, the blended interest rate
of PSD's loan book was 2.0% (31 December 2018: 2.1%). The average
remaining duration of the loan book at 31 December 2019 had
decreased to 6.6 years (31 December 2018: 7.7 years).
Outlook
The COVID-19 outbreak has presented PSD with an unexpected new
set of challenges. On a macroeconomic level, it is too early to
predict accurately the medium-term impact on global and regional
economies. The German federal government has announced an
unprecedented EUR750 billion fiscal package to help cushion its
impact including financial assistance for public and private sector
industry as well as Germany's Hartz IV welfare programme. This
programme includes help for rental payments in instances of
financial hardship, and is available to tenants directly impacted
by the COVID-19 outbreak.
Although, as yet, the consequences of COVID-19 for PSD have been
limited, it does have the potential to impact the Berlin property
market. Firstly, the temporary restrictions on mobility will
restrict the ability of prospective tenants and buyers to view
rental properties and condominiums. Secondly, although commercial
tenants represent a small percentage of the PSD's rental income, a
number of businesses deemed to be "non-essential" under the current
restrictions may be forced to close for a period of time. Finally,
notwithstanding the financial hardship support offered by Germany's
Hartz IV programme, any negative impact on the Berlin economy and
employment levels could affect residential arrears.
If the COVID-19 outbreak is of limited time duration, these
potential impacts are likely to be temporary in nature. The
Property Advisor has rigorously stress tested for potential
downside scenarios associated with COVID-19, including any
potential impact on arrears and loan covenants, and is confident
that PSD is well positioned to withstand the current dislocations
it may cause. Moreover, PSD is well funded, with a low LTV and cash
on its balance sheet of EUR42.4m as at 31 December 2019. This
represents 188% of 2019 gross rental income.
In addition, uncertainty surrounding the new Berlin rent laws
has the potential to affect market dynamics as owners adapt to the
new regulatory environment. Jones Lang Lasalle GmbH, the Company's
independent property advisors, have confirmed that, as of 31
December 2019, there had been no material adverse effect on either
sale prices or rental levels in the Berlin market, although the
volume of transactions in both cases had reduced significantly.
However, given the current uncertainty about the legal validity of
the Mietendeckel, it is not yet clear what impact, if any, there
could be on future property prices.
During the past decade, Berlin has developed into one of
Europe's most vibrant and dynamic cities. Economic and population
growth have substantially outstripped nearly all other European
cities. In particular, growth in the business services, media and
technology sectors has ensured strong job creation and net inward
migration. At the same time, new construction has continually
failed to meet demand and, against this backdrop, rental prices
have risen. These demographic trends will continue in the absence
of a well-considered, long-term, policy response.
The Mietendeckel focuses exclusively on the effects of a housing
shortage rather than addressing the underlying causes. It fails to
address the result of years of underinvestment in new housing
supply. It is only by incentivising new supply and modernisation
that a sustainable solution to Berlin's housing shortage is likely
to be successful.
Pending regulatory clarity, PSD will seek to maximise its
strategic optionality. These actions will help alleviate the
short-term impact of the new rental laws and we remain of the view
the legal challenges against their permanent implementation will be
successful.
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
Changes Property laws remain The Property Advisor Increasing
to property under constant review regularly monitors
and tenant by the new "Red-Red-Green" the impact that existing
law coalition government and proposed regulation
in Germany and future could have on future
changes to property rental values and property
regulation and rent planning applications.
controls for new tenancies The Company has sought
could negatively affect independent legal advice
rental values and regarding the Mietendeckel
property valuations. and has been advised
The most recent tenant that the proposals
law changes involve are likely to be unconstitutional
the Mietendeckel rent and illegal and should
cap, which was passed be successfully challenged
into law in February in the courts of law.
2020, the main provisions The Company has set
of which are set out out how it intends
in this announcement. to adapt its strategy
during the period in
which the proposed
rent controls are in
force to mitigate any
short-term impact on
the portfolio, while
ensuring it maintains
maximum strategic optionality
in the event the proposals
are found to be unconstitutional.
These measures, together
with the potential
financial impact for
the current financial
year, are summarised
in this announcement.
------------------------------ ----------------------------------- -----------
Decline Economic, political, The Property Advisor Increasing
in property fiscal and legal issues believes Berlin housing
valuation can have a negative affordability metrics
effect on property remain favourable relative
valuations. A decline to other European countries.
in Group property However, the newly
valuations could negatively introduced Berlin Mietendeckel
affect the valuation (rent cap) legislation
of the Portfolio and has the potential to
the ability of the impact rental property
Group to sell properties valuations in the future.
within the portfolio Given the current uncertainty
at valuations which on the timing and outcome
satisfy the Group's of legal proceedings,
investment objective. the potential financial
impact on property
valuations remains
unclear. The Company
has set out how it
intends to adapt its
strategy during the
period in which the
proposed rent controls
are in force to mitigate
any short-term impact
on the Portfolio, while
ensuring it maintains
maximum strategic optionality
in the event the proposals
are found to be unconstitutional.
These measures, together
with the potential
financial impact for
the current financial
year, are summarised
within this announcement.
------------------------------ ----------------------------------- -----------
Insufficient Lack of capital may Dividends are due to Unchanged
capital restrict the ability be paid out of operating
to support of the Group to pay cashflows which include
dividend dividend, especially both rental income
in light of the Mietendeckel and condominium sales
rent caps and the cashflows. The Company
possible impact they has entered into an
will have on operating agreement with Accentro,
cashflows. one of Germany's leading
condominium sales platforms.
This Agreement provides
access to a successful,
European-wide, distribution
platform which should
allow PSD to accelerate
sales of apartments
if required to cover
operating cashflows.
The cashflow impact
of the Mietendeckel
is not due be felt
until November 2020,
therefore the impact
on rental income in
2020 is set to be minimal.
The Company therefore
has sufficient time
to implement its various
strategies discussed
within this announcement
to counteract the effects
on rental income.
The Group always maintains
conservative long-term
forecasts regarding
its cash balances to
ensure a three-year
viability projection,
which include full
settlement of dividends
in the forecast period.
------------------------------ ----------------------------------- -----------
Loss of Illegal access of Review of IT systems Unchanged
data due commercially sensitive and infrastructure
to cyber information and potential in place to ensure
security to impact investor, these are as robust
attack on supplier and tenant as possible. Service
IT systems confidentiality. Providers are required
to report to the board
on request on their
financial controls
and procedures.
A detailed review of
all IT processes led
to the introduction
of new invoice payment
software, as well as
introducing new IT
and Communication platforms
to ensure all communications
are carried out in
a secure environment.
Service providers are
also required to hold
detailed risk and controls
registers regarding
their IT systems. The
Board reviews service
organisations IT reports
as part of the management
engagement committee
each year.
------------------------------ ----------------------------------- -----------
Inability Inability to sell Over half of the Company's Unchanged
to sell vacant condominiums properties have been
vacant condominiums in the Berlin market split in the German
due to changing political land registry, the
or economic conditions final step to allowing
could affect the Company's the sale of properties
cashflows in the short as individual condominiums.
term, which may affect The Property Advisor
the ability of the reviews the condominium
company to fund its profile on a monthly
capital expenditure basis, and the Company
programme or fund can bring new condominium
its annual dividend. properties online quickly
for sale as appropriate.
The Company intends
to market vacant condominiums
for sale from its portfolio
which are easier to
release into the market,
even with the potential
market effects of the
Mietendeckel.
The Company has also
entered into an agreement
with Accentro, one
of Germany's leading
condominium sales platforms.
This agreement provides
access to a successful,
European-wide, distribution
platform which should
allow PSD to accelerate
sales of apartments
if required.
------------------------------ ----------------------------------- -----------
Insufficient Availability of potential The Property Advisor Increasing
investment investments which has been active in
opportunity meet the Group's investment the German residential
objective can be negatively property market since
affected by supply 2006. It has specialised
and demand dynamics acquisition personnel
within the market and an extensive network
for German residential of industry contacts
property and the state including property
of the German economy agents, industry consultants
and financial markets and the principals
more generally. of other investment
funds. It is expected
that future acquisitions
will be sourced from
these channels. While
the market in Berlin
is currently challenging
due to the recently
introduced Mietendeckel,
The Property Advisor
believes that this
will create other opportunities,
including acquiring
in the suburbs of Berlin,
outside the scope of
the Mietendeckel, where
the growth potential
is more promising.
------------------------------ ----------------------------------- -----------
Breach of Should any fall in The Group took on new Increasing
covenant revenues result in covenants when signing
requirements the Group breaching the EUR190m debt with
financial covenants Natixis; Interest coverage
given to any lender, ratio (ICR), debt yield,
the Group may be required and Loan-to-Value covenants.
to repay such borrowings Only the Debt yield
in whole or in part, and ICR covenants are
together with any "hard" covenants resulting
related costs. in an event of default
in case of breach.
The loan-to-value covenant
is a cash trap covenant
alone, with no event
of default. The Company
carried out extensive
sensitivity analysis
prior to signing these
covenants, and even
in the most stressed
Mietendeckel scenario,
no covenants were breached.
The cashflow impact
of the Mietendeckel
is not due to be felt
until November 2020,
therefore the impact
on rental income in
2020 is set to be minimal.
The Company therefore
has sufficient time
to implement its various
strategies discussed
within this announcement
to counteract the effects
on rental income.
In the event that rent
levels or property
values were to fall
to a point where the
covenants were in danger
of being affected,
the Company would use
its surplus cashflow
and cash reserves to
pay down the debt balances
to rectify the situation.
At the most recent
covenant test date,
in January 2020, all
covenants were cleared
with significant headroom.
------------------------------ ----------------------------------- -----------
Macro-economic A deterioration in Although the Board Increasing
environment economic growth and and Property Advisor
a recessionary environment cannot control external
could adversely affect macro-economic risks,
tenant demand and economic indicators
vacancy, leading to are constantly monitored
a reduction in rental by both the Board and
and property values. Property Advisor and
Group strategy is tailored
accordingly.
The Company has considered
the impact of the Coronavirus
(COVID-19) outbreak,
and while it considers
the risk to the Group's
operations to be minimal,
it continues to monitor
the situation.
The Company is a Jersey
and Guernsey based
entity operating in
Germany, and therefore
Brexit should not affect
the fund as it currently
operates outside the
UK.
------------------------------ ----------------------------------- -----------
Reputational Adverse publicity The Group has retained Increasing
risk and inaccurate media an external public
reporting could reflect relations consultancy
negatively on stakeholders' and press releases
perception of the are approved by the
Group, its strategy Board prior to release.
and its key personnel. The Group maintains
Landlords in Berlin regular communication
are likely to face with key shareholders
increasing negative and conducts presentations
sentiment and media and roadshows to provide
scrutiny in the light investors with relevant
of the Mietendeckel. information on the
Group, its strategy
and key personnel.
The Group also has
a dedicated CSR committee
of the Board which
ensures the company
ethos is in line with
societal expectations.
The Company also maintains
a technical department
with the property advisor
who ensures that all
health and safety regulations
are followed with respect
to landlord obligations
in Berlin.
------------------------------ ----------------------------------- -----------
Non-compliance Failure to identify The Group employs internal Unchanged
with new and respond to the compliance and corporate
regulatory, introduction of new governance advisors
health and financial regulation to provide updates
safety, in a timely manner. and boardroom briefings
accounting Risk of reputational on regulatory changes
and taxation damage, penalties likely to impact the
legislation or fines. Failure Group.
to suitably prove The Group works closely
that the substance with external accountants
of the Company is and tax advisors to
in Jersey could lead keep up to date with
to a change in the changes to financial
tax residency. regulation in the UK,
Channel Islands and
Germany. Berlin is
currently under the
government of a "Red-red-green"
coalition which is
looking at tenant law,
however the Company
believes that its external
legal, tax and accountancy
advisors, and market
experience are sufficient
to ensure that there
is no non-compliance
with new regulations
as they come in.
The Group is carrying
out an ongoing remediation
project with its new
administrators to ensure
all regulatory processes
have been followed
with respect to its
substance in Jersey
requirements, and its
corporate governance.
The Group has also
taken tax residency
advice over 2019 to
ensure The Group is
still complying with
residency in Jersey.
The Company also maintains
a technical department
with the property advisor
who ensures that all
health and safety regulations
are followed with respect
to landlord obligations
in Berlin.
------------------------------ ----------------------------------- -----------
Reliance The Group's future Since the Company listed Unchanged
on the Property performance depends on the London Stock
Advisor on the success of Exchange, the Property
and its the Property Advisor's Advisor has expanded
key personnel strategy, skill, judgement headcount through the
and reputation. The recruitment of several
departure of one or additional experienced
more key employees London and Berlin-based
may have an adverse personnel. Additionally,
effect on the performance senior Property Advisor
of the Group and any personnel and their
diminution in the families retain a stake
Property Advisor's in the Group, aligning
reputation may have their interests with
an adverse effect other key stakeholders.
on the Group's performance. In November 2018 the
Group announced that
it had signed a new
Property Advisor agreement
with PMM, committing
the Property Advisor
to the Fund for the
foreseeable future.
------------------------------ ----------------------------------- -----------
Coronavirus Disruption to business The broader impact Increasing
(COVID-19) activities, European of the Coronavirus
outbreak economic slowdown, outbreak will depend
equity market decline. on how the virus spreads
and the response of
the authorities. The
Property Advisor has
considered and will
continue to monitor
the threat and implications
of the coronavirus
and has prepared contingency
and mitigation plans.
The Group has carried
out extensive scenario
modelling, estimating
the impact of COVID-19
on the Group's financial
and operational performance,
further analysis of
this modelling can
be found in the Annual
Report.
All the Property Advisors
IT systems are cloud
based and all employees
have the necessary
equipment to conduct
their day to day business
activities from home
if required. All tenant
payments are by bank
transfer / direct debit.
Furthermore, a significant
portion of the Berlin
economy is based on
the service sector,
which tends to offer
a relatively flexible
working environment
and is likely to be
less affected by the
virus than other sectors
of the economy. This
overall effect however
remains uncertain.
------------------------------ ----------------------------------- -----------
Going concern
The Directors have reviewed projections for the period to 31
December 2022 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, and the assumed passing of the
continuation vote. 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 going concern assumption is based on the outcome of a
variety of scenarios that show the Group's ability to withstand the
expected market disruption arising from post balance sheet events,
including the Mietendeckel, and COVID-19. 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. After making enquiries and having regard to the FRC's
Guidance for Companies on COVID-19 issued in March 2020, 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. The Directors have chosen three years because
that is the period that broadly fits within the financing and
development 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 risks described earlier in
this document. 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 2022:
a) the potential operating cash flow requirement of the
Group;
b) seasonal fluctuations in working capital requirements;
c) property vacancy rates;
d) rent arrears and bad debts;
e) capital and administration expenditure (excluding potential
acquisitions as set out below) during the period;
f) condominium sales proceeds;
g) the impact of the Mietendeckel in the event a legal challenge
is unsuccessful, which the Board considers to be unlikely;
h) the potential impact of COVID-19; and
i) the passing of the continuation vote scheduled for the AGM in
May 2020.
Under normal scenarios, this base case model assumes stresses to
each of a) through to f) in the above list. However, this year the
Group has additionally considered g, h and i.
As per the Company's Articles of Association, a continuation
vote is due at the AGM scheduled for May 2020. The Directors have
examined the current circumstances of the Group and its prospects
over the next three years. Given current uncertainty related to the
Mietendeckel and COVID-19 and in consideration that both of these
will be short-term events, the Directors believe that the
continuation of the Company should deliver a better outcome for
shareholders than any proposal to reorganise, unitise or
reconstruct the Company or for the Company to be wound up with the
aim of enabling members to realise their holdings in the Company.
The Directors are, therefore, recommending that the vote to
continue the Group is passed at the forthcoming AGM, and are of the
opinion that there is no material uncertainty that the vote to
continue will be passed.
The assumptions on the effect of the Mietendeckel and COVID-19,
as they relate to the Company, were assessed by the Board. They are
intended to demonstrate the degree of stress that the Company is
able to withstand over an extended period. The Board considers that
it is unlikely that the more severe assumptions reviewed will
represent a real-life scenario as the Company believes that the
Mietendeckel will be found unconstitutional and, as the German
government has very high levels of social protection, arrears
arising from COVID-19 are unlikely to reach the levels incorporated
in the model.
In re sponse to the risks posed by the Mietendeckel and
COVID-19, the directors applied additional stresses to the model as
described below.
In the event that the Mietendeckel is not reversed, the Group
has estimated that it could have a material impact on its revenues
as set out in the tables contained within this announcement. The
cash impact of this fall in revenues could be mitigated in full by
reducing capital expenditure down to a level of essential
maintenance only, to preserve the condition of the assets to
required standards. Furthermore, as set out in the Mietendeckel
response in this announcement, the Group would plan to increase
sales of condominiums over the forecast period to mitigate any
falls in revenue.
COVID-19 has potential to cause significant disruption to the
German economy for at least a large part of 2020 and, while the
financial effect on the Group is difficult to quantify, various
scenarios have been modelled in respect of the impact of the
COVID-19 outbreak to stress the financial metrics of the Group.
This includes tenants' ability to pay their rents as they fall due,
the impact on the ability to sell condominiums, and the
consequential impact on debt finance facilities.
Financial modelling and stress testing was carried out on the
Group's cashflows taking into account the Mietendeckel and
COVID-19, and the following assumptions, which the Directors
consider to be reasonable estimates of a worst case scenario, were
made with respect to the operating metrics of the Company:
-- COVID-19 leads to a significant increase in tenant arrears up
to December 2020 - current tenant arrears stand at around 1% of
total revenues and, whilst the impact of the pandemic is uncertain
it has the potential to lead to tenant defaults;
-- projected condominium sales are reduced to only contractually
agreed sales over the forecast period;
-- capital expenditure is reduced to a level of essential
maintenance that preserves the condition of the assets to required
standards, but it is lower than in prior years, and in a base case,
business as usual, scenario;
-- dividends are maintained at current levels throughout the
forecast period, but, remain a potential source of mitigation from
interim 2020 onwards if cash retention is required;
-- the Mietendeckel remains in force throughout the forecast period;
-- Debt facilities with a maturity during the forecast period
are to be refinanced using the acquisition facility signed with
Natixis in 2019; and
-- EPRA NAV is assumed to remain constant during the forecast
period. The cash impact of any EPRA NAV movements is limited as few
overhead or property costs are linked to EPRA NAV.
After applying the assumptions above, individually and
collectively, there was no scenario by 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, mitigation
may be required in 2021 and 2022 and headroom could be obtained in
the following ways:
-- reducing the dividend to preserve cash; and
-- selling individual assets, or condominiums to release cash.
Under these stressed assumptions used to assess viability,
including the impact of COVID-19, the Group is able to manage all
banking covenant obligations during the period using the available
liquidity to reduce debt levels, as appropriate.
The projection of cash flows does not include the impact of
further potential property acquisitions over the three-year period,
as these acquisitions are ad hoc and discretionary in nature. In
this respect, the Directors complete a formal review of the working
capital headroom of the Group for material acquisitions.
On the basis of the above, 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.
The Directors' Report was approved by the Board of Directors and
authorised for issue and signed as follows:
Directors Responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations, including the requirements of the Listing Rules and
the Disclosure Guidance and Transparency Rules.
Jersey company law requires the directors to prepare group
financial statements for a period of not more than 18 months in
accordance with generally accepted accounting principles. The
directors are required under the Listing Rules of the FCA to
prepare group financial statements in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union ("EU").
The financial statements of the Group are required by law to
give a true and fair view of the state of the Group's affairs at
the end of the financial period and of the profit or loss of the
Group for that period and are required by IFRS as adopted by the EU
to present fairly the financial position and performance of the
group.
In preparing the Group financial statements, the directors
should:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS as adopted by the EU; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping accounting records
which are sufficient to show and explain the Group's transactions
and are such as to disclose with reasonable accuracy at any time
the financial position of the Group and enable them to ensure that
the Financial Statements comply with the requirements of the
Companies (Jersey) Law 1991 and Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Phoenix
Spree Deutschland Limited website. Legislation in Jersey governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
-- the Consolidated Financial Statements, prepared in accordance
with the applicable set of accounting standards (as detailed above)
and Company (Jersey) Law 1991, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the
Group;
-- the management report includes a fair and balanced review of
the development and performance of the business and the position of
the Group, together with a description of the principal and
emerging risks and uncertainties they face, as well as the business
model and strategy of the Group; and
-- the Annual Report and Consolidated Financial Statements, as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position, performance, business model and strategy.
So far as the Directors are aware, there is no relevant audit
information of which the Auditor is unaware, and each Director has
taken all steps that he or she ought to have taken as a Director in
order to make himself or herself aware of any relevant audit
information and to establish that the Auditor is aware of that
information.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Annual Report and Financial Statements, taken as a whole,
are considered by the Board to be fair, balanced and
understandable, and provide the information necessary for
shareholders to assess the Company's position, performance,
business model and strategy.
Consolidated Statement of Comprehensive
Income
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
Notes 2019 2018
EUR'000 EUR'000
Continuing operations
Revenue 6 22,600 22,681
Property expenses 7 (14,196) (15,763)
Gross profit 8,404 6,918
Administrative
expenses 8 (3,103) (3,194)
Gain on disposal of investment property
(including investment property held
for sale) 10 858 1,026
Investment property
fair value gain 11 41,491 66,146
Performance fee due to property
advisor 27 (2,798) (4,010)
Separately disclosed
items 12 (278) (966)
Operating profit 44,574 65,920
Net finance charge 13 (16,013) (9,491)
Profit before taxation 28,561 56,429
Income tax expense 14 (5,817) (11,071)
Profit after taxation 22,744 45,358
Other comprehensive
income - -
Total comprehensive income
for the year 22,744 45,358
====================== ======================
Total comprehensive income
attributable to:
Owners of the parent 22,293 45,094
Non-controlling
interests 451 264
22,744 45,358
====================== ======================
Earnings per share attributable to
the owners of the parent:
From continuing
operations
Basic (EUR) 30 0.22 0.46
Diluted (EUR) 30 0.22 0.46
====================== ======================
Consolidated Statement of Financial
Position
At 31 December
2019
As at As at
31 December 31 December
Notes 2019 2018
EUR'000 EUR'000
ASSETS
Non-current assets
Investment properties 17 719,521 632,933
Property, plant and
equipment 19 54 88
Other financial assets at amortised
cost 20 876 2,406
Deferred tax asset 14 2,529 948
722,980 636,375
Current Assets
Investment properties
- held for sale 18 10,639 12,747
Other financial assets at amortised
cost 20 1,590 -
Trade and other
receivables 21 7,937 7,531
Cash and cash
equivalents 22 42,414 26,868
62,580 47,146
Total assets 785,560 683,521
====================== ======================
EQUITY AND LIABILITIES
Current liabilities
Borrowings 23 17,752 3,642
Trade and other
payables 24 7,236 10,429
Derivative financial
instruments 25 - 1,354
Other financial
liabilities 26 6,951 -
Current tax 14 1,413 1,387
33,352 16,812
Non-current
liabilities
Borrowings 23 258,502 191,632
Derivative financial instruments 25 15,979 4,637
Other financial
liabilities 26 - 7,135
Deferred tax liability 14 60,825 53,458
335,306 256,862
Total liabilities 368,658 273,674
====================== ======================
Equity
Stated capital 28 196,578 196,578
Treasury shares 28 (11,354) -
Share based payment
reserve 27 6,808 4,010
Retained earnings 221,859 207,270
Equity attributable to
owners of the parent 413,891 407,858
Non-controlling
interest 29 3,011 1,989
Total equity 416,902 409,847
---------------------- ----------------------
Total equity and
liabilities 785,560 683,521
====================== ======================
Consolidated Statement of Changes
in Equity
For the year ended 31 December
2019
Attributable to the owners
of the parent
Share
based
Stated Treasury payment Retained Non-controlling Total
capital shares reserve earnings Total interest equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1 January
2018 162,630 - 33,953 169,634 366,217 1,725 367,942
Comprehensive income:
Profit for the
year - - - 45,094 45,094 264 45,358
Other comprehensive
income - - - - - - -
Total comprehensive
income for the
year - - - 45,094 45,094 264 45,358
Transactions with
owners -
recognised directly
in equity:
Issue of shares 33,948 - (33,948) - - - -
Dividends paid - - - (7,458) (7,458) - (7,458)
Performance fee - - 4,010 - 4,010 - 4,010
Adjustment to
performance
fee - - (5) - (5) - (5)
Balance at 31 December
2018 196,578 - 4,010 207,270 407,858 1,989 409,847
Comprehensive income:
Profit for the
year - - - 22,293 22,293 451 22,744
Other comprehensive
income - - - - - - -
Total comprehensive
income for the
year - - - 22,293 22,293 451 22,744
Transactions with
owners -
recognised directly
in equity:
Dividends paid - - - (7,704) (7,704) - (7,704)
Performance fee - - 2,798 - 2,798 - 2,798
Non-controlling
interests on
acquisition
of subsidiaries - - - - - 571 571
Acquisition of
treasury shares - (11,354) - - (11,354) - (11,354)
Balance at 31 December
2019 196,578 (11,354) 6,808 221,859 413,891 3,011 416,902
============ =========== ============== ============ ========== ====================== ======================
Treasury shares comprise the accumulated cost of
shares acquired on-market.
The share based payment reserve was established in relation to
the issue of shares for the payment of the performance fee of the
property advisor.
Retained earnings are the undistributed reserves to be either reinvested
within the Group or distributed to shareholders as dividends.
Consolidated Statement of Cash
Flows
For the year ended 31 December
2019
Year Year
ended ended
31 December 31 December
2019 2018
EUR'000 EUR'000
Profit before taxation 28,561 56,429
Adjustments for:
Net finance charge 16,013 9,491
Gain on disposal of investment
property (858) (1,026)
Investment property
revaluation gain (41,491) (66,146)
Depreciation 16 16
Performance fee
charge 2,798 4,010
Operating cash flows before movements
in working capital 5,039 2,774
(Increase) / decrease
in receivables (393) 6,492
(Decrease) / increase
in payables (3,193) 3,908
Cash generated from operating
activities 1,453 13,174
Income tax paid (5) (4,678)
Net cash generated from operating
activities 1,448 8,496
Cash flow from investing
activities
Proceeds on disposal of investment property
(net of disposal costs) 13,526 86,021
Interest received 62 54
Capital expenditure on investment
property (6,459) (7,943)
Property additions (32,208) (47,329)
Disposals/(additions) to property,
plant and equipment 18 (12)
Net cash used in investing
activities (25,061) 30,791
Cash flow from financing
activities
Interest paid on
bank loans (6,160) (5,118)
Repayment of bank
loans (124,032) (54,680)
Drawdown on bank loan
facilities 188,594 27,660
Dividends paid (7,704) (7,458)
Acquisition of treasury (11,536) -
shares
Net cash generated from financing
activities 39,162 (39,596)
Net increase / (decrease) in cash
and cash equivalents 15,549 (309)
Cash and cash equivalents at
beginning of year 26,868 27,182
Exchange (losses) / gains on cash
and cash equivalents (3) (5)
Cash and cash equivalents at
end of year 42,414 26,868
====================== ======================
Reconciliation of Net Cash Flow to
Movement in Debt
For the year ended 31 December
2019
Year Year
ended ended
31 December 31 December
2019 2018
EUR'000 EUR'000
Cashflow from increase/ (decrease)
in debt financing 64,562 (27,020)
Non cashflow from increase 16,418 -
in debt financing
Change in net debt resulting
from cash flows 80,980 (27,020)
---------------------- ----------------------
Movement in debt in
the year 80,980 (27,020)
Debt at the start
of the year 195,274 222,294
Debt at the end
of the year 276,254 195,274
====================== ======================
Notes to the Financial
Statements
For the year ended 31 December
2019
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, Guernsey 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, International
Accounting Standards and interpretations (collectively, 'IFRS'),
International and Financial Reporting Interpretation Committee
('IFRIC') interpretations, as adopted by the European Union ('IFRS
as adopted by the EU').
In accordance with Section 105 of The Companies (Jersey) Law 1991,
the Group confirms that the financial information for the year
ended 31 December 2019 are 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 2019 have
been audited and approved, but have not yet been filed. The Group's
audited financial statements for the period ended 31 December 2019
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 5 April 2020.
2.2 Going concern
The Directors have prepared projections for the period to 31 December
2022. 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 from managing
its capital and its risks are set out in the Strategic Report.
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 in its going concern assessment,
including COVID - 19, the Mietendeckel and the continuation vote,
further information can be found in the viability statement. 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 and 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 Company
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 27. 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 on 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, and that 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 17 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 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, fixtures and vehicles - 4.50% -
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 trade
and other payables.
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. 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 share premium.
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 Statement of Financial
Position at fair value, based on counterparty quotes. The gain
or loss on the swaps is recognised in the income statement within
net finance charges.
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 2019, as adopted by the European Union:
As issued by the IASB, mandatory
for accounting periods starting
Title on or after
IFRS 16 - Leases Accounting periods beginning
on or after 1 January 2019
IFRIC Interpretation 23 Uncertainty Accounting periods beginning
over Income Tax Treatment on or after 1 January 2019
Amendments to IFRS 9: Prepayment Features Accounting periods beginning
with Negative Compensation on or after 1 January 2019
Annual Improvements Accounting periods beginning
2015-2017 Cycle on or after 1 January 2019
IFRS 16 - Leases
IFRS 16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to lessee accounting
by removing the distinction between operating and finance leases
and requiring the recognition of a right-of-use asset and a lease
liability at commencement for all leases, except for short-term
leases and leases of low value assets. In contrast to lessee accounting,
the requirements for lessor accounting have remained largely unchanged.
The impact of the adoption of IFRS 16 on the Group's consolidated
financial statements is described below.
Impact on Lessor
Accounting
IFRS 16 does not change substantially how a lessor accounts for
leases. Under IFRS 16, a lessor continues to classify leases as
either finance leases or operating leases and account for those
two types of leases differently.
However, IFRS 16 has changed and expanded the disclosures required,
in particular with regard to how a lessor manages the risks arising
from its residual interest in leased assets.
Financial impact of the initial
application of IFRS 16
Being that the Group is not a lessee there has been no substantial
financial impact that requires disclosure on the adoption of this
standard.
IFRIC 23 Uncertainty over Income
Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current
year. IFRIC 23 sets out how to determine the accounting tax position
when there is uncertainty over income tax treatments. The Interpretation
requires the Group to:
-- determine whether uncertain tax positions are assessed
separately or as a group;
and
-- assess whether it is probable that a tax authority will accept
an uncertain tax treatment used, or proposed to be used, by an
entity in its income tax filings.
If yes, the Group should determine its accounting tax position
consistently with, the tax treatment used or planned to be used
in its income tax filings. If no, the Group should reflect the
effect of uncertainty in determining its accounting tax position
using either the most likely amount or the expected value method.
Amendments to IFRS 9 Prepayment Features with Negative
Compensation
The Group has adopted the amendments to IFRS 9 for the first time
in the current year. The amendments to IFRS 9 clarify that for
the purpose of assessing whether a prepayment feature meets the
'solely payments of principal and interest' (SPPI) condition, the
party exercising the option may pay or receive reasonable compensation
for the prepayment irrespective of the reason for prepayment. In
other words, financial assets with prepayment features with negative
compensation do not automatically fail SPPI.
Annual Improvements to IFRS Standards 2015-2017 Cycle Amendments
to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS
12 Income Taxes and IAS 23 Borrowing Costs
The Group has adopted the amendments included in the Annual Improvements
to IFRS Standards 2015-2017 Cycle for the first time in the current
year. The Annual Improvements include amendments to four Standards:
IAS 12 Income Taxes
The amendments clarify that the Group should recognise the income
tax consequences of dividends in profit or loss, other comprehensive
income or equity according to where the Group originally recognised
the transactions that generated the distributable profits. This
is the case irrespective of whether different tax rates apply to
distributed and undistributed profits.
IAS 23 Borrowing
Costs
The amendments clarify that if any specific borrowing remains outstanding
after the related asset is ready for its intended use or sale,
that borrowing becomes part of the funds that an entity borrows
generally when calculating the capitalisation rate on general borrowings.
IFRS 3 Business Combinations
The amendments clarify that when the Group obtains control of a
business that is a joint operation, the Group applies the requirements
for a business combination achieved in stages, including remeasuring
its previously held interest (PHI) in the joint operation at fair
value. The PHI to be remeasured includes any unrecognised assets,
liabilities and goodwill relating to the joint operation.
New and revised IFRS Standards in issue
but not yet effective
The following standards have been issued by the IASB but
have not yet been adopted by the EU:
As issued by the IASB, mandatory
for accounting periods starting
Title on or after
IFRS 17 - Insurance Accounting periods beginning
Contracts on or after 1 January 2021
IFRS 10 and IAS 28 Accounting periods beginning
(amendments) on or after 1 January 2020
Amendments to IFRS Accounting periods beginning
3 on or after 1 January 2020
Amendments to IAS 1 Accounting periods beginning
and IAS 8 on or after 1 January 2020
Amendments to References to the Conceptual Accounting periods beginning
Framework in IFRS Standards on or after 1 January 2020
While the above standards have not yet been adopted by the EU,
the Group is currently assessing their impact.
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, the Groups functional
currency. 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 23 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, specifically the Mietendeckel
which, if found constitutional, can affect the both the rental
income, and the value of property. The Group seeks to mitigate
any effect of the Mietendeckel using strategies set out in this
announcement.
(e) Market risk
- COVID - 19
The broader impact of the novel coronavirus (COVID-19) outbreak
will depend on how the virus spreads and the response of the authorities.
The risk around whether service providers can continue their duties,
and whether tenants can continue to pay rents as they come due
will continue to be monitors by the Board.
3.3 Credit risk
The risk of financial loss due to 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 23 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
2019 2018
EUR'000 EUR'000
Borrowings (276,254) (195,274)
Cash and cash
equivalents 42,414 26,868
---------------------- ----------------------
Net debt (233,840) (168,406)
====================== ======================
Equity 416,902 409,847
Net debt to equity
ratio 56% 41%
====================== ======================
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
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 2019 is based on the rules, regulations and market
as at that date, and does not take into account the potential effects
of the Mietendeckel which came into law after the reporting date.
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 17.
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
In prior periods, information reported to the Board of Directors,
the chief operating decision maker, for the purposes of resource
allocation and assessment of segment performance was focussed on
the different revenue streams that existed within the Group. In
these periods 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
2019 2018
EUR'000 EUR'000
Rental income 17,941 17,508
Service charge
income 4,659 5,173
22,600 22,681
====================== ======================
The total future aggregated minimum rentals receivable under non-cancellable
operating leases are as follows:
31 December
2019
EUR'000
Within 1 year 1,462
1 - 2 years 1,119
2 - 3 years 857
3 - 4 years 773
4 - 5 years 736
Later than 5 years 593
5,540
====================== ======================
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 one month 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
2019 2018
EUR'000 EUR'000
Property management
expenses 1,066 1,024
Repairs and
maintenance 1,665 1,710
Impairment charge -
trade receivables 61 29
Other property
expenses 5,306 7,053
Property advisors' fees
and expenses 6,098 5,947
14,196 15,763
====================== ======================
8. Administrative expenses
31 December 31 December
2019 2018
EUR'000 EUR'000
Secretarial and administration
fees 896 880
Legal and professional
fees 1,329 1,160
Directors' fees 246 300
Audit and accountancy
fees 761 840
Bank charges 19 54
Loss on foreign
exchange 49 133
Depreciation 16 16
Other income (213) (189)
3,103 3,194
====================== ======================
Key management compensation - the functions of management are undertaken
by external providers of professional services, as set out in note
34.
Further details of the Directors' fees are set out in the Directors'
Remuneration Report.
9. Auditor's
remuneration
An analysis of the fees charged by the auditor
and its associates is as follows:
31 December 31 December
2019 2018
EUR'000 EUR'000
Fees payable to the Group's auditor and its associates
for the audit of the consolidated financial statements: 195 188
Fees payable to the Group's auditor and its
associates for other services:
- Audit-related assurance
services 29 27
- Other - 8
224 223
====================== ======================
10. Gain on disposal of investment property (including
investment property held for sale)
31 December 31 December
2019 2018
EUR'000 EUR'000
Disposal proceeds 13,616 86,959
Book value of
disposals (12,668) (84,995)
Disposal costs (90) (938)
858 1,026
====================== ======================
Where there has been a partial disposal of a property, the net
book value of the asset sold is calculated on a per square metre
rate, based on the prior period or interim valuation.
11. Investment property fair
value gain
31 December 31 December
2019 2018
EUR'000 EUR'000
Investment property
fair value gain 41,491 66,146
====================== ======================
Further information on investment properties
is shown in note 17.
12. Separately disclosed
items
These relate to legal and professional fees incurred during a significant
transaction which was considered by the Board but not pursued totalling
EUR278,000 (December 2018: EUR966,000).
13. Net finance
charge
31 December 31 December
2019 2018
EUR'000 EUR'000
Interest income (62) (54)
Interest from related
party loans (54) (83)
Fair value loss on interest
rate swap 9,988 2,658
Finance expense on bank
borrowings 6,325 5,499
Fair value charge on redemption
liability (184) 1,471
16,013 9,491
====================== ======================
14. Income tax
expense
31 December 31 December
2019 2018
The tax charge for the period
is as follows: EUR'000 EUR'000
Current tax charge 31 3,151
Deferred tax charge - origination and reversal
of temporary differences 5,786 7,920
5,817 11,071
====================== ======================
The tax charge for the year can be reconciled to the theoretical
tax charge on the profit in the income statement as follows:
31 December 31 December
2019 2018
EUR'000 EUR'000
Profit before tax on continuing
operations 28,561 56,429
Tax at German income tax rate of 15.8%
(2018: 15.8%) 4,513 8,916
Income not taxable (136) (162)
Losses carried forward
not recognised 1,440 2,317
Total tax charge
for the year 5,817 11,071
====================== ======================
Reconciliation of current
tax liabilities
31 December 31 December
2019 2018
EUR'000 EUR'000
Balance at beginning
of year 1,387 2,914
Tax paid during
the year (5) (4,678)
Current tax charge 31 3,151
Balance at end
of year 1,413 1,387
====================== ======================
Reconciliation of deferred
tax
Capital gains Interest
on properties rate swaps Total
EUR'000 EUR'000 EUR'000
(Liabilities) Asset (Net liabilities)
Balance at 1 January
2018 (45,117) 527 (44,590)
Charged to the statement of
comprehensive income (8,341) 421 (7,920)
--------------
Deferred tax (liability) /
asset at 31 December 2018 (53,458) 948 (52,510)
Charged to the statement of
comprehensive income (7,367) 1,581 (5,786)
--------------
Deferred tax (liability) /
asset at 31 December 2019 (60,825) 2,529 (58,296)
============== ====================== ======================
Jersey income tax
The Group is liable to Jersey
income tax at 0%.
Guernsey income
tax
The Group is liable to Guernsey
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 2019 was 15.8% (2018:
15.8%).
Factors affecting future
tax charges
The Group has accumulated tax losses of approximately EUR29.0 million
(2018: EUR17.6 million) in Germany, which will be available to
set against suitable future profits should they arise, subject
to the criteria for relief. No deferred tax asset is recognised
as there is insufficient certainty the losses can be utilised by
Group entities.
15. Dividends
31 December 31 December
2019 2018
EUR'000 EUR'000
Amounts recognised as distributions to equity
holders in the period:
Interim dividend for the year ended 31 December
2019 of EUR2.35 cents (2.1p) (2018: EUR2.35 cents
(2.1p)) per share 2,420 2,420
Proposed dividend for the year ended 31 December
2019 of EUR5.15 cents (4.4p) (2018: EUR5.15 cents
(4.62p)) per share 5,034 5,189
====================== ======================
The proposed dividend has not been included as a liability in these
consolidated financial statements. The proposed dividend is payable
to all shareholders on the Register of Members on 12 June 2020.
The total estimated dividend to be paid is 4.4p per share. The
payment of this dividend will not have any tax consequences for
the Group. The translated amount shown as paid may differ from
that disclosed here due to foreign exchange movements between the
date of the dividend being proposed and it being paid.
16. 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, Guernsey
and Germany.
Further details are
given below:
Country of % holding Nature
incorporation of business
Phoenix Spree Deutschland Jersey 100 Investment property
I Limited
Phoenix Spree Deutschland Jersey 100 Investment property
II Limited
Phoenix Spree Deutschland Jersey 100 Investment property
III Limited
Phoenix Spree Deutschland Jersey 100 Investment property
IV Limited
Phoenix Spree Deutschland Jersey 100 Investment property
V Limited
Phoenix Spree Deutschland VII Jersey 100 Investment property
Limited
Phoenix Spree Deutschland Jersey 100 Investment property
IX Limited
Phoenix Spree Deutschland Jersey 100 Finance vehicle
X Limited
Phoenix Spree Deutschland Jersey 100 Investment property
XI Limited
Phoenix Spree Deutschland XII Jersey 100 Investment property
Limited
Phoenix Property Holding GmbH Germany 100 Holding Company
& Co.KG
Phoenix Spree Mueller Germany 94.9 Investment property
GmbH
Phoenix Spree Gottlieb Germany 94.9 Investment property
GmbH
PSPF Holdings GmbH Germany 100 Holding Company
Accentro 5. WE Germany 94.9 Investment property
GmbH
Phoenix Spree Property Fund Germany 94.8 Investment property
Ltd & Co. KG
PSPF General Partner (Guernsey) Guernsey 100 Management of
Limited PSPF
During the year the Group acquired an interest of 94.9% in Accentro
5. WE GmbH for consideration of EUR23.6 million. The net assets
acquired comprised investment property of EUR 43.5 million and
borrowings of EUR16.4 million. The objective of the acquisition
was to acquire a single asset, being the investment property, and
for this reason the acquisition has been treated as an asset acquisition,
and not a business combination
17. Investment
properties
2019 2018
Fair Value EUR'000 EUR'000
At 1 January 645,680 609,257
Capital expenditure 6,459 7,943
Property additions 49,198 47,329
Disposals (12,668) (84,995)
Fair value gain 41,491 66,146
---------------------- ----------------------
Investment properties at fair value - as
set out in the report by JLL 730,160 645,680
Assets considered as "Held
for Sale" (Note 18) (10,639) (12,747)
At 31 December 719,521 632,933
====================== ======================
The property portfolio was valued at 31 December 2019 by the Group's
independent valuers, 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 and non-recoverable costs provided to JLL by the Property
Advisors Residential (UK) Limited. Assumptions with respect to
rental growth, adjustments to non-recoverable costs and the future
valuation of these are those of JLL. JLL also use comparable market
transactions alongside their own assumptions to justify their valuations.
Such valuation estimates however, are inherently subjective and
actual values can only be determined in a sales transaction.
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.
All properties are valued as Level 3 measurements under the fair
value hierarchy (see note 32) 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 gain in respect of investment property
is disclosed in the consolidated statement of comprehensive income
as 'Investment property fair value 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 discounted
forecast cash flows, cross checked against comparable market transactions
where available.
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.
As an accepted method within the income approach to valuation the
DCF method involves the projection of a series of cash flows on
a real property interest. To this projected cash flow series, an
appropriate, market-derived discount rate is applied to establish
the present value of the income stream associated with the real
property.
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. The appropriate duration is typically driven
by market behaviour that is a characteristic of the class of real
property.
Periodic cash flow is typically estimated as gross income less
vacancy, non-recoverable expenses, collection losses, lease incentives,
maintenance cost, agent and commission costs and other operating
and management expenses. The series of periodic net operating incomes,
along with an estimate of the terminal value anticipated at the
end of the projection period, is then discounted.
The principal inputs to the Year Year
valuation are as follows: ended ended
31 December 31 December
2019 2018
Range Range
Residential Properties
Market Rent
Rental Value (EUR 7 -
per sq. p.m.) 9 - 15 14
Stabilised residency vacancy
(% per year) 2 2
Tenancy vacancy fluctuation 8 -
(% per year) 8 10
------------------------------------------- ----- -------------- -------- ---------- ----------------------
Commercial Properties
Market Rent
Rental Value (EUR 4 -
per sq. p.m.) 2 - 32 31
Stabilised commercial vacancy 0 -
(% per year) 0 - 25 25
Tenancy vacancy fluctuation 8 -
(% per year) 8 10
------------------------------------------- ----- -------------- -------- ---------- ---------------------- ----------------------
Estimated Rental Value
(ERV)
ERV per year per property 62 - 60 -
(EUR'000) 2,322 1,201
8 -
ERV (EUR per sq.) 8 - 15 14
---------------------- ----------------------
Financial Rates - blended
average
Discount rate (%) 4 4
Portfolio yield
(%) 2.9 3.0
---------------------- ----------------------
The rental values used in the valuation do not take into account
the impact of the Mietendeckel rent restrictions, which were only
enacted after the reporting date.
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 0.5% in the discount rate would reduce
the investment property fair value by EUR101.9m, and a decrease
in the discount rate of 0.5% would increase the investment property
fair value by EUR169.7m.
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 "Discounted Cashflow
Methodology" and are intended to be held by the Group for the foreseeable
future, they are valued under the "Rental Scenario" This will equal
the "Investment Properties" line in the Non-Current Assets section
of the consolidated statement of financial position.
Condominium scenario
Where properties have the potential or the benefit of all relevant
permissions required to sell apartments individually (condominiums)
then we refer to this as a 'condominium scenario'. Expected sales
in the coming year from these assets are considered held for sale
under IFRS 5 and can be seen in note 18. The additional value is
reflected by using a lower discount rate under the DCF Methodology.
Properties which do not have the benefit of all relevant permissions
are described as valued using a standard 'rental scenario'. Included
in properties valued under the condominium scenario are properties
not yet released to held for sale as only a portion of the properties
are forecast to be sold in the coming 12 months.
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 18.
The table below sets out the assets valued
using these 3 scenarios:
31 December 31 December
2019 2018
EUR'000 EUR'000
Rental scenario 703,650 619,430
Condominium scenario 23,956 22,330
Disposal scenario 2,554 3,920
Total 730,160 645,680
====================== ======================
The movement in the fair value of investment properties is included
in the consolidated statement of comprehensive income as 'gain
on disposal of investment property' and comprises:
31 December 31 December
2019 2018
EUR'000 EUR'000
Investment properties 41,429 65,717
Properties held for
sale (see note 18) 62 429
41,491 66,146
====================== ======================
18. Investment properties -
held for sale
2019 2018
EUR'000 EUR'000
Fair value - held for sale
investment properties
At 1 January 12,747 106,897
Transferred from investment
properties 10,064 5,850
Transferred (to) investment
properties - (15,434)
Capital expenditure 434 -
Properties sold (12,668) (84,995)
Valuation gain on apartments
held for sale 62 429
At 31 December 10,639 12,747
====================== ======================
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 condominium or rental scenarios (see note
17) as appropriate. The table below sets out the respective categories:
2019 2018
EUR'000 EUR'000
Rental scenario - 1,931
Condominium scenario 8,085 6,896
Disposal scenario 2,554 3,920
10,639 12,747
====================== ======================
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 17, only
the expected sales have been transferred to assets held for sale.
There were liabilities secured on the investment properties
held for sale of EUR0.6 (2018: EUR5.2m).
19. Property, plant
and equipment
Equipment
EUR'000
Cost or valuation
As at 1 January
2018 133
Additions 12
----------------------
As at 31 December
2018 145
Disposals (18)
As at 31 December
2019 127
======================
Accumulated depreciation and
impairment
As at 1 January
2018 41
Charge for the
year 16
----------------------
As at 31 December
2018 57
Charge for the
year 16
As at 31 December
2019 73
======================
Carrying amount
As at 31 December
2018 88
As at 31 December
2019 54
----------------------
20. Other financial assets
at amortised cost
31 December 31 December
2019 2018
Current EUR'000 EUR'000
At 1 January - -
Transfer from non-current other financial 1,554 -
assets at amortised cost
Accrued interest 54 -
Interest adjustment related (18) -
to prior period
At 31 December 1,590 -
====================== ======================
The Group entered into loan agreements with Mike Hilton and Paul
Ruddle in connection with the acquisition of PSPF. The loans bear
interest at 4% per annum, and have a maturity of less than five
years.
31 December 31 December
2019 2018
Non-current EUR'000 EUR'000
At 1 January 2,406 2,323
Transfer to current other financial (1,554) -
assets at amortised cost
Additions - 83
Accrued interest 24 -
At 31 December 876 2,406
====================== ======================
The Group entered into a loan agreement with the minority interest
of Accentro Real Estate AG (formerly Blitz B16 - 210 GmbH) 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.
21. Trade and other
receivables
31 December 31 December
2019 2018
EUR'000 EUR'000
Current
Trade receivables 1,219 1,045
Less: impairment
provision (223) (313)
---------------------- ----------------------
Net receivables 996 732
Prepayments and accrued
income 508 549
Investment property disposal
proceeds receivable 375 1,167
Service charges
receivable 5,271 4,766
Prepaid Treasury
Shares 182 -
Other receivables 605 317
7,937 7,531
====================== ======================
Prepaid Treasury Shares consist of a transaction for the Company's
own shares which had yet to settle at 31 December 2019.
Aging analysis of trade
receivables
31 December 31 December
2019 2018
EUR'000 EUR'000
Up to 12 months 977 731
Between 1 year
and 2 years 19 1
Over 3 years - -
996 732
====================== ======================
Impairment of trade and service charge
receivables
The Company 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 Company determines that historical
data is not reflective of expected future conditions due 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 2019, and on
1 January 2019 was determined as set out below.
The Company applies the following loss rates to trade and
service charge receivables:
As noted below, a loss allowance of 50% (2018: 50%) has been recognised
for trade receivables that are more than 60 days past due. Any
receivables where the tenant is no longer resident in the property
are provided for in full.
0-60 Over Non-current Total
Trade receivables: Aging days 60 days tenant 2019
Expected loss rate
(%) 0% 50% 100%
Gross carrying amount
(EUR'000) 889 214 116 1,219
Loss allowance provision
(EUR'000) - (107) (116) (223)
0-60 Over Non-current Total
Trade receivables: Aging days 60 days tenant 2018
Expected loss rate
(%) 0% 50% 100%
Gross carrying amount
(EUR'000) 582 300 163 1,045
Loss allowance provision
(EUR'000) - (150) (163) (313)
Movements in the impairment provision against trade
receivables are as follows:
31 December 31 December
2019 2018
EUR'000 EUR'000
Balance at the beginning
of the year 313 342
Impairment losses
recognised 61 360
Amounts written off
as uncollectable (151) (389)
Balance at the end of
the year 223 313
====================== ======================
All impairment losses relate to the receivables
arising from tenants.
22. Cash and cash equivalents
31 December 31 December
2019 2018
EUR'000 EUR'000
Cash at bank 40,737 25,626
Cash at agents 1,677 1,242
Cash and cash
equivalents 42,414 26,868
====================== ======================
23. Borrowings
31 December 2019 31 December 2018
Nominal Book Nominal Book
value value value value
EUR'000 EUR'000 EUR'000 EUR'000
Current liabilities
Bank loans - Deutsche Genossenschafts-Hypothekenbank
AG - - 2,596 2,596
Bank loans - NATIXIS Pfandbriefbank
AG 784 192 - -
Bank loans - Mittelbrandenburgische
Sparkasse 16,418 16,418 - -
Bank loans - Berliner
Sparkasse 1,142 1,142 1,046 1,046
18,344 17,752 3,642 3,642
Non-current
liabilities
Bank loans - Deutsche Genossenschafts-Hypothekenbank
AG - - 122,054 122,054
Bank loans - NATIXIS Pfandbriefbank
AG 190,000 186,636 - -
Bank loans - Berliner
Sparkasse 71,866 71,866 69,578 69,578
261,866 258,502 191,632 191,632
280,210 276,254 195,274 195,274
============ ========== ====================== ======================
The Group has complied with the financial covenants of its borrowing
facilities during the 2019 and 2018 reporting periods.
All borrowings are secured against the investment properties of
the Group. As at 31 December 2019, the Company had EUR50m of undrawn
debt facilities (2018: EUR1.2 million). A summary of the loans
as at the year end is as follows:
Interest
Amount rate Maturity
Bank EUR'000 %
Berliner Sparkasse 9,183 1.72 31/12/2026
7,573 1.74 31/12/2026
12,464 1.89 28/02/2027
4,944 1.93 31/08/2027
3,465 1.05 31/08/2027
10,436 1.95 30/11/2027
3,344 1.09 30/11/2027
11,730 2.30 30/04/2028
7,338 2.00 31/12/2028
2,531 2.14 30/07/2026
NATIXIS Pfandbriefbank
AG 29,000 1.89 09/11/2026
58,000 1.89 09/11/2026
103,000 1.89 09/11/2026
Mittelbrandenburgische
Sparkasse 16,418 1.35 31/12/2020
Accrued Interest due to NATIXIS
Pfandbriefbank AG 784
----------
280,210
==============
24. Trade and other
payables
31 December 31 December
2019 2018
EUR'000 EUR'000
Trade payables 1,597 1,808
Accrued liabilities 1,319 4,592
Service charges
payable 4,320 4,028
Deferred income - 1
7,236 10,429
====================== ======================
25. Derivative financial
instruments
31 December 31 December
2019 2018
EUR'000 EUR'000
Interest rate swaps - carried at fair value
through profit or loss
Balance at 1 January 5,991 3,333
Loss in movement in fair value
through profit or loss 9,988 2,658
Balance at 31 December 15,979 5,991
====================== ======================
The notional principal amounts of the outstanding interest rate
swap contracts at 31 December 2019 were EUR202,932,000 (2018: EUR206,690,000).
At 31 December 2019 the fixed interest rates vary from 0.775% to
1.07% (2018: 0.625% to 1.01%) above the main factoring Euribor
rate.
Maturity analysis of interest
rate swaps
31 December 31 December
2019 2018
EUR'000 EUR'000
Less than 1 year - 1,354
Between 1 and 2 - -
years
Between 2 and 5 - -
years
More than 5 years 15,979 4,637
15,979 5,991
====================== ======================
At 31 December 2018 the Company had Interest Rate Swaps which were
in excess of the debt being hedged. These were disclosed as having
a maturity of less than 12 months.
26. Other financial
liabilities
31 December 31 December
2019 2018
EUR'000 EUR'000
Current
Balance at beginning - -
of year
Transferred from non-current 6,951 -
liabilities
Balance at end 6,951 -
of year
====================== ======================
Non-current
Balance at 1 January 7,135 5,663
Profit share attributable to
NCI in PSPF (184) 1,472
Transferred to current
liabilities (6,951) -
Balance at 31 December - 7,135
====================== ======================
The redemption liability relates to the put option held by the
minority shareholders of PSPF for the purchase of the minority
interest in PSPF. The option period starts on 6 June 2020 and ends
three months later. The amount of the purchase price will be based
on the EPRA NAV on the latest reporting date as well as the movement
in the EPRA NAV during the period and the proportion of EPRA NAV
attributable to the non-controlling interest in PSPF.
A portion of the liability (EUR1,070k, 2018: (EUR1,124k)) is recognised
to cover the tax charge of the minority in PSPF on the proceeds
received if they choose to exercise their put option.
The recognition of the redemption liability has been accounted
for as a reduction in the Non-Controlling Interest with the remainder
of the recognition against the Group's retained earnings. Also
see the consolidated statement of changes in equity for the recognition
accounting.
27. Share based payment
reserve
Performance fee
EUR'000
Balance at 1 January
2018 33,953
Adjustment to performance
fee (5)
Transfer to stated capital -
settled by issue of shares (33,948)
Fee charge for
the period 4,010
----------------------
Balance at 31 December
2018 4,010
Fee charge for the period 2,798
Balance at 31 December
2019 6,808
======================
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 (or in the case of the initial period
or any performance period ending prior to 31 December 2020, 16%)
by which the annual EPRA NAV 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 NAV per share at 1
July 2018; and
(ii) the EPRA NAV 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.
The fee will be settled in shares of the Company and, being determined
by reference to an equity based formula, meets the definition of
a share based payment arrangement.
Property Advisor Fees (from
1 January 2019)
Under the new Property Advisory Agreement for providing property
advisory services, the Property Advisor will be entitled to a Portfolio
and Asset Management Fee as follows:
(i) 1.20% of the EPRA NAV of the Group where the EPRA NAV of the
Group is equal to or less than EUR500 million; and
(ii) 1% of the EPRA NAV of the Group
greater than EUR500 million.
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 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 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 is entitled to a letting fee equal to between
1 and 3 month's net cold rent (being gross rents receivable less
service costs and taxes) for each new tenancy signed by the Company
where the Property Advisor has sourced the relevant tenant.
The Property Advisor shall be entitled to a fee for Investor Relations
Services at the annual rate of GBP75,000 payable quarterly in arrears.
Details of the fees paid to the Property
Advisor are set out in note 34.
28. Stated capital
31 December 31 December
2019 2018
EUR'000 EUR'000
Issued and fully
paid:
At 1 January 196,578 162,630
Issued during the year
at EUR4.11 per share - 33,948
At 31 December 196,578 196,578
====================== ======================
The number of shares in issue at 31 December 2019 was 100,751,410
(31 December 2018: 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 2019,
the Group held 3,000,000 of the Company's shares (2018: nil).
29. Non-controlling
interests
Non-controlling 31 December 31 December
interest % 2019 2018
EUR'000 EUR'000
Phoenix Spree Mueller GmbH (formerly
Laxpan Mueller GmbH) 5.1% 1,197 1,026
Phoenix Spree Gottlieb GmbH (formerly Invador
Grundbesitz GmbH) 5.1% 1,076 963
Accentro 5. WE
GmbH 5.1% 738 -
3,011 1,989
====================== ======================
30. Earnings per
share
31 December 31 December
2019 2018
Earnings for the purposes of basic earnings
per share being net profit attributable to
owners of the parent (EUR'000) 22,293 45,094
Weighted average number of ordinary shares
for the purposes of basic earnings per share
(Number) 100,389,943 97,945,250
Effect of dilutive potential ordinary
shares (Number) 1,721,657 1,014,078
Weighted average number of ordinary shares
for the purposes of diluted earnings per share
(Number) 102,111,600 98,959,328
====================== ======================
Earnings per share
(EUR) 0.22 0.46
Diluted earnings per
share (EUR) 0.22 0.46
====================== ======================
31. Net asset value per share and
EPRA net asset value
31 December 31 December
2019 2018
Net assets (EUR'000) 413,889 407,858
Number of participating ordinary
shares 97,751,410 100,751,410
Net asset value
per share (EUR) 4.23 4.05
====================== ======================
EPRA net asset 31 December 31 December
value 2019 2018
Net assets (EUR'000) 413,889 407,858
Add back deferred tax assets and liabilities, derivative
financial instruments and share based payment reserves
(EUR'000) 67,467 53,137
EPRA net asset value
(EUR'000) 481,356 460,995
====================== ======================
EPRA net asset value
per share (EUR) 4.92 4.58
The derivative financial liability relating to swap contracts in
respect of borrowings repaid has not been added back as they no
longer have a hedging objective (EUR0m (2018: EUR1.354m)).
32. 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 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
2019 2018
EUR'000 EUR'000
At amortised cost
Trade and other receivables
- current 7,247 6,982
Cash and cash
equivalents 42,414 26,868
Other financial assets at amortised
cost 2,466 2,406
52,127 36,256
---------------------- ----------------------
The Group held the following financial liabilities
at each reporting date:
31 December 31 December
2019 2018
EUR'000 EUR'000
Held at amortised
cost
Borrowings payable:
current 17,752 3,642
Borrowings payable:
non-current 258,502 191,632
Other financial
liabilities 6,951 7,135
Trade and other
payables 7,236 10,429
290,441 212,838
---------------------- ----------------------
Fair value through profit
or loss
Derivative financial (asset)/ liability
- interest rate swaps 15,979 4,637
Excess hedge due to property
disposal - 1,354
15,979 5,991
---------------------- ----------------------
306,420 218,829
====================== ======================
Fair value of financial
instruments
With the exception of the variable rate borrowings, 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 externally 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 December 2028.
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
2019 2018
EUR'000 EUR'000
Financial assets/
(liabilities)
Interest rate swaps
- Level 2 - current - (1,354)
Interest rate swaps - Level
2 - non-current (15,979) (4,637)
(15,979) (5,991)
====================== ======================
The valuation basis for the investment properties
is disclosed in note 17.
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 all 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 balance only:
31 December 31 December
2019 2018
EUR'000 EUR'000
Financial assets
Cash and cash
equivalents 2,107 1,142
Financial liabilities
Trade and other
payables (317) (350)
Net position 1,790 792
====================== ======================
At each reporting date, if the Euro had strengthened or weakened
by 10% against GBP with all other variables held constant, post-tax
loss for the year would have increased/(decreased) by:
Weakened by 10% Strengthened
Increase/(decrease) by 10% Increase/(decrease)
in post-tax loss in post-tax loss
and impact on and impact on
equity equity
EUR'000 EUR'000
31 December 2019 179 (179)
31 December 2018 79 (79)
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 and Berliner Sparkasse.
The split of cash held at each of the banks respectively at 31
December 2019 was 73%/26%/1% (31 December 2018: Barclays Private
Clients International Jersey Ltd, Barclays Bank Plc Frankfurt and
Deutsche Bank the split was 57%/33%/10%) 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 information, 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 21 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
than 1 - 2 2 - 5 More than
1 year years years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
At 31 December
2019
Borrowings payable:
current 17,752 - - - 17,752
Borrowings payable:
non-current - - - 258,502 258,502
Other financial
liabilities 6,951 - - - 6,951
Trade and other
payables 7,236 - - - 7,236
31,939 - - 258,502 290,441
-------------- ------------ ---------- ---------------------- ----------------------
Less Between Between
than 1 - 2 2 - 5 More than
1 year years years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
At 31 December
2018
Borrowings payable:
current 3,642 - - - 3,642
Borrowings payable:
non-current - - - 191,632 191,632
Other financial
liabilities - 7,135 - - 7,135
Trade and other
payables 10,429 - - - 10,429
14,071 7,135 - 191,632 212,838
-------------- ------------ ---------- ---------------------- ----------------------
The analysis of the market risk review and sensitivity
analysis is detailed in note 21.
33. Capital
commitments
31 December 31 December
2019 2018
EUR'000 EUR'000
Contracted capital commitments at 3,000 -
the end of the year
====================== ======================
Capital commitments include contracted obligations in respect of
the enhancement and repair of the Group's properties.
34. Related party transactions
Related party transactions not disclosed
elsewhere are as follows:
PMM Residential Limited (Formerly PMM Partners (UK) Limited), was
the Group's appointed Property Advisor. Partners of PMM Residential
Limited formerly sat on the Board of PSD and retains a shareholding
in the Group. During the year ended 31 December 2019, an amount
of EUR6,097,647 (EUR5,943,969 Management Fees and EUR153,688 Other
expenses and fees) (2018: EUR5,947,282 (EUR5,858,791 Management
Fees and EUR88,491 Other expenses and fees)) was payable PMM Residential
Limited (Formerly PMM Partners (UK) Limited). At 31 December 2019
EUR9,000 (2018: EUR7,450) was outstanding. Fees payable to the
Property Advisor in relation to overseeing capital expenditure
during the year were EUR511,000 (2018: EUR458,000).
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 EUR2,798,000 (2018: EUR3,995,000). Please refer to note
27 for more details.
The Property Advisor has a controlling stake in IWA Real Estate
Gmbh & Co. KG who are contracted to dispose of condominiums in
Berlin on behalf of the Company. IWA does not receive a fee from
the Company in providing this service.
Apex Financial Services (Alternative Funds) Limited, the Company's
administrator provided administration and company secretarial services
along with Directors for the PSPF General Partner (Guernsey) Limited
entity in 2019. During the period, fees of GBP129,450 were charged
(2018: EURnil) with GBPnil (2018: GBPnil) outstanding.
In March 2015 the Group entered into an option agreement to acquire
the remaining 5.2% interest in Phoenix Spree Property Fund GmbH
& Co.KG (PSPF) from the remaining partners being M Hilton and P
Ruddle both Directors of PMM Partners (UK) Limited. The options
are to be exercised on the fifth anniversary of the majority interest
acquisition for a period of three months thereafter at the fair
value of the remaining interest. For their role as the limited
partner in Phoenix Spree Property Fund GmbH & Co.KG they were also
paid EUR120,000 (2018: EUR120,000) each.
The Group also entered into an unsecured loan agreement with M
Hilton and P Ruddle in connection with the acquisition of PSPF.
At the year-end an amount of EUR795,000 (2018: EUR768,195) each
was owed to the Group. The loans bear interest of 4% per annum.
Fees payable to key management personnel during the year amounted
to EUR246,000 (2018: EUR300,000).
Dividends paid to directors in their capacity as a shareholder
amounted to EUR1,735 (2018: EUR1,740).
35. Events after the
reporting date
The Company had exchanged contracts for the sale of three condominiums
in Berlin with aggregated consideration of EUR1.6 million prior
to the reporting date. The sale of these units subsequently completed
in Q1 2020.
Since the Balance Sheet date, The Company has exchanged contracts
for the sale of four condominiums with aggregated consideration
of EUR1.4 million. These four units await completion as of the
date of this report.
The Company continued with buying back its own shares. In Q1 2020,
425,000 PSD shares have been purchased back with average price
paid of GBP3.11, a 25% discount to December 2019 EPRA NAV per share
of GBP4.16.
The final draft of the new Berlin-specific rent cap (or "Mietendeckel")
became law following publication in the official gazette on 23
February 2020. The new rules allow the limitation of housing rents,
such that rates are no longer set at free market levels. The financial
impact and the Company's future business model and strategy are
largely dependent on the timing and eventual outcome of any legal
action. These have been outlined in more detail in this announcement.
The broader impact of the Coronavirus (COVID-19) outbreak will
depend on how the virus spreads and the response of the authorities.
The current impact on the Company is difficult to quantify as the
outbreak length and severity is unknown. A variety of scenarios
have been modelled and the result of these is set out in the Viability
Statement. The Property Advisor has considered and will continue
to monitor the threat and implications for PSD of the Coronavirus.
Professional Advisors
Property Advisor PMM Residential
Limited
54-56 Jermyn
Street
London SW1Y
6LX
Administrator, Company Secretary and
Registered Office
(From 04 October Apex Financial Services (Alternative
2019) Funds) Limited
12 Castle
Street
St Helier
Jersey JE2
3RT
(Until 04 October Estera Fund Administrators
2019) (Jersey) Limited
Estera Secretaries (Jersey)
Limited
13-14 Esplanade
St. Helier
Jersey JE1
1EE
Registrar Link Asset Services (Jersey)
Limited
12 Castle
Street
St. Helier
Jersey JE2
3RT
Principal Banker Barclays Private Clients International
Limited
13 Library
Place
St. Helier
Jersey JE4
8NE
Stephenson Harwood
UK Legal Advisor LLP
1 Finsbury
Circus
London EC2M
7SH
Jersey Legal Advisor Mourant Ozannes
22 Grenville
Street
St. Helier
Jersey JE4
8PX
German Legal Advisor Mittelstein Rechtsanwälte
as to property Alsterarkaden
law 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
Broker Limited
The London Stock Exchange
Building
10 Paternoster Square
London
EC4M 7LT
Independent Property Jones Lang LaSalle
Valuer GmbH
Rahel-Hirsch-Strasse
10
10557 Berlin
Germany
Auditor RSM UK Audit
LLP
25 Farringdon
Street
London EC4A
4AB
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EANLSEAFEEFA
(END) Dow Jones Newswires
April 06, 2020 02:00 ET (06:00 GMT)
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