Phoenix Spree Deutschland Limited Statement re Berlin rent controls (Mietendeckel) (6059V)
15 Aprile 2021 - 12:26PM
UK Regulatory
TIDMPSDL
RNS Number : 6059V
Phoenix Spree Deutschland Limited
15 April 2021
15 April 2021
Phoenix Spree Deutschland Limited
(the "Company" or "PSD")
Statement re Berlin rent controls ("the Mietendeckel).
Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed
investment company specialising in German residential real estate,
comments on the ruling by the German Federal Court on the legality
of the Mietendeckel
Federal Court rules against legality of Mietendeckel
The Company welcomes the ruling by the German Federal Court
today on the legality of the Mietendeckel. PSD and its legal
advisors have always been firmly of the opinion that the
Mietendeckel was unconstitutional and that State law could not
supersede Federal law, a view which has now been upheld by the
highest court in Germany.
Positive financial impact
The final phase of the Mietendeckel became effective on 23
November 2020 and had already been fully implemented by the
Company. QSix, the Company's Property Advisor, has previously
estimated that the financial impact of the combined measures for
the financial year ended 31 December 2020 was in the region of 4
per cent of gross rental income and that, in the event that the
Mietendeckel was not repealed, the reduction of annualised net
rental income would be up to 20 per cent in 2021. Following the
legal ruling, it is expected that the negative impact on rental
income will be reversed.
All rental agreements have been structured to revert back to
pre-Mietendeckel rent levels and to allow for the back-payment of
higher rents now legally due for the period during which the
Mietendeckel was in place. As at 31 March 2021, the Company
estimates that the amount of rent which could be claimed from
tenants is approximately EUR1.8 million. Tenants had been advised
by the Berlin government to set aside appropriate reserves for this
eventuality and the Company will work on a case by case basis with
any tenants suffering hardship.
The 2020 Portfolio valuation undertaken by Jones Lang Lasalle,
the Company's independent property valuer, had assumed that the
Mietendeckel would be fully implemented for its entire five-year
lifespan and therefore incorporated the negative impact on rental
income caused by the Mietendeckel. Although market transaction
values did not fall during the period in which the Mietendeckel was
in place, future Portfolio valuations will need to be adjusted to
reflect the fact that rental streams will revert back to
free-market levels.
Future Business Model
The removal of rent controls limiting collected rent levels to
well below free market levels will allow the Company to resume its
reversionary rental strategy. During the period in which the
Mietendeckel has been in place, the Portfolio has continued to
demonstrate significant reversionary potential. In 2020, new
lettings in Berlin were signed with a contracted rent at an average
premium of 34 per cent to passing rents. The Property Advisor
believes this reversionary gap should underpin rental growth in the
medium term, irrespective of market rental growth. Additionally,
most leases within the Portfolio include annual indexation
increases which can now be activated.
The Company will also continue with its strategy of
crystallising condominium reversionary value within the portfolio
through the selective sale of individual units as condominiums at a
premium to book value. Uniquely among its listed peers, over 70 per
cent of the Company's Berlin portfolio has already been legally
split into condominiums, with a further 15 per cent in application
. The Company delivered record condominium notarisations of last
year, up 65 per cent over 2019, with an achieved sales value in
excess of a 19 per cent premium to the book value.
Outlook
Predictably, the uncertainty created by the Mietendeckel has
significantly disrupted the Berlin residential market. This has
been reflected by a reduction in Berlin transaction activity from
prior peak levels, a significant reduction in the availability of
rental accommodation for tenants who require it most and a sharp
decline in investment in the stock of Berlin housing. The removal
of the Mietendeckel should alleviate this uncertainty, increase the
amount of choice for tenants and allow resumption of investment
into Berlin residential.
We believe that Berlin market dynamics remain attractive and
affordability comparisons with other German cities are still
favourable. It is expected that Berlin demographic trends,
particularly net inward migration, will further strengthen when
restrictions associated with COVID-19 are permanently removed.
The German Federal Elections are due to be held in September
2021. Following these elections there could be changes in the
current tenant and property law regulations. During its 14 years of
operation, the Company has adapted its business model many times to
the changing regulatory environment while continuing to deliver
positive returns to shareholders. During 2020, a year in which all
elements of the Berlin Mietendeckel were fully implemented, the
Company delivered a total return per share of 8.8 per cent.
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
Oliver Norgate +44 (0)20 7353 4200
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