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RNS

Interim Results for 6 months ended 30 June 2019

Released 07:00 26-Sep-2019

RNS Number : 7003N
Phoenix Spree Deutschland Limited
26 September 2019
 

Phoenix Spree Deutschland Limited
(the "Company" or "PSD")

 

Interim Results for the half year to 30 June 2019

 

CONTINUED STRONG PERFORMANCE - FLEXIBILITY TO RESPOND TO PROPOSED REGULATORY CHANGES

 

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in German residential real estate, announces its Interim Results for the six months ended 30 June 2019.

 

Financial Highlights

 

 

Six months to June 2019

Six months to June 2018

Year to 31 December 2018

H1 2018 v H1 2019 % change

Reported gross rental income1

€10.8m

€11.9m

€22.7m

(9.5%)

Annual like-for-like rent per sqm growth

5.2%

9.9%

7.4%

-

EPRA NAV per share (€)

€4.73

€4.23

€4.58

11.8%

EPRA NAV per share (£)

£4.24

£3.74

£4.11

13.4%

EPRA NAV per share total return

4.4%

4.1%

13.2%

-

Profit before tax2

€12.0m

€19.4m

€56.4m

(37.8%)

Net LTV

26.8%

25.8%

26.1%

-

Dividend € / (£)

2.35c (2.1p)

2.35c (2.1p)

7.50c (6.7p)

0%

1 June 2018 reported Gross rental income is restated due to a change in accounting policies (IFRS 15)

2 PBT decline reflects movement in the mark-to-market of interest rate hedges during the period.

 

Operational Highlights

·    

Portfolio performed well, reflecting modest rental growth and active management of the Portfolio:

 

Like-for-like Portfolio value, adjusted for acquisitions and disposals, increased by 3.9%.

 

Aggregate reported Portfolio value increased by 3.0% to €665.2 million (31 December 2018: €645.7 million).

·    

EPRA vacancy declined to 2.5% (31 December 2018: 2.8%).

·    

New leases in Berlin signed at an average 39.9% premium to passing rents in H1 2019.

·    

NAV underpinned by condominium potential; average achieved value per sqm on sold condominium units of €4,334, a 16.7% premium to Portfolio average value per sqm at 30 June 2019:

 

Four condominium notarisations during the period totalling €2.5 million (H1 2018: €6.1 million).

 

Seven condominium sale completions during H1 2019 totalling €3.8 million (H1 2018: €5.7 million).

 

A further €3.9 million has been notarised for sale since 30 June 2019.

 

Update on Mietendeckel - proposed new Berlin rent controls

·    

First draft of proposals was presented to the Berlin Senate on 30 August 2019, with the aim of preventing private residential rents being set at free market levels.

·    

Consultation process underway, with final draft expected in October. Implementation planned from January 2020, with retrospective effect to 18 June 2019.

·    

There remains considerable uncertainty surrounding the content, timing, legality and implementation of the new rental proposals. 

·    

Expect short-term impact on transaction volumes and potentially values for apartment blocks.

·    

Continued supply/demand imbalance expected, driven by strong job creation, population growth.

·    

Proposed rent cap likely to affect adversely new construction, exacerbating shortage of available rental stock.

·    

Evidence from other cities where similar rent controls have been introduced suggests condominium prices likely to benefit in the medium term, in the event the proposed new rules remain in place.

 

Proactive strategic response to evolving regulatory environment

PSD is well placed to respond to regulatory changes, with considerable strategic flexibility, pending clarity on legality of new rent law proposals:

·    

Condominium strategy being actively pursued:

 

Currently 55 assets out of 97 in the portfolio are legally registered as condominiums (55% of units), with a further 29 in the planning stage (35% of units).

 

New agreement with Accentro Real Estate AG, one of Germany's leading condominium sales platforms, which provides scope for a significant acceleration of condominium sales.

·    

New re-letting strategy for vacated rental units; with increased focus on short term furnished apartments, optimising strategic flexibility pending clarification of legality of Mietendeckel rules.

·    

Planned co-ordinated legal response to Mietendeckel proposal via homeowner associations.

·    

Completion in September 2019 of new €240 million term loan on improved terms offers the ability to:

 

Pursue any opportunities as a result of market uncertainty.

 

Take advantage of any exceptional weakness in the share price - buy-back of up to 10% of shares is under consideration.

 

Robert Hingley, Chairman, commented:

 

"I am pleased with the continued strong performance in the first half of this year. However, the new rental laws proposed by the Berlin Senate have created significant market uncertainty which has been reflected in PSD's share price. Although there are serious concerns regarding their legality and constitutionality, we have taken steps to mitigate any short-term impact on the portfolio while ensuring we maintain our strategic optionality in the event the proposals are found to be unconstitutional. I am confident that our condominium and new re-letting strategies, together with the strength of our balance sheet, mean we are well placed to respond to regulatory changes."

 

For further information, please contact:

 

Phoenix Spree Deutschland Limited

Stuart Young

 

 

+44 (0)20 3937 8760

Numis Securities Limited (Corporate Broker)

David Benda

 

Tulchan Communications (Financial PR)

Elizabeth Snow

 

+44 (0)20 3100 2222

 

 

+44 (0)20 7353 4200

 

CHAIRMAN'S STATEMENT

 

I am pleased to report that, during the first half of the financial year, PSD has delivered another resilient performance. As at 30 June 2019, the Portfolio was valued at €665.2 million by Jones Lang LaSalle GmbH, a like-for-like increase of 3.9% since 31 December 2018, driven by modest yield compression and an increase in like-for-like average rents. The EPRA NAV total return per share was 4.4% over the same period.

 

Notwithstanding the fact that our financial results have demonstrated further progress, the rent controls proposed by the Berlin Senate (the "Mietendeckel") have created significant uncertainty. This has been reflected in PSD's share price and has resulted in the shares trading at 34% discount to EPRA Net Asset Value as at 30 June 2019. The share price weakness and valuation discount are in line with Berlin-focussed listed peers.

 

The principal aim of the Mietendeckel is to prevent rents for private non-subsidised rental properties being set at free market levels, despite the fact that Germany and Berlin already have in place tenant protections which rank amongst the strongest in the Western world.

 

The first draft of these proposals was presented to the Berlin Senate at the end of August and the consultative process, involving experts, owners and trade associations, is ongoing. A Berlin Senate resolution on the final draft is currently scheduled to take place in mid-October, with implementation of the new rules by Berlin´s parliament expected during January 2020, with retrospective effect to 18 June 2019.

 

There remains considerable uncertainty surrounding the content, timing, legality and implementation of the new rental proposals. PSD, and its legal advisors remain firmly of the opinion that the rent proposals are unconstitutional and that State law cannot supersede Federal law. We expect a number of legal challenges should the Berlin Senate pass the bill into law.

 

Our main priority for the remainder of 2019 is to ensure that PSD optimises its strategic response and significant preparatory work has already taken place. More detail on the Mietendeckel and our strategic response is provided within this statement.

 

PSD has also recently secured more flexible and cost-efficient financing to support the medium and long-term strategic objectives of the business. It provides liquidity in order to take advantage of opportunities arising from market disruption caused by changes to the rent laws, as well as weaknesses in the share price. We are therefore considering plans to repurchase up to 10% of shares currently in issue.

 

Since the launch of PSD over 12 years ago, tenant law has continually changed, and we have successfully evolved within the changing regulatory framework. I am confident that this will continue to be the case and our commitment to delivering the best possible service to our tenants remains undiminished. Our "Better Futures" Corporate Responsibility Plan balances the different interests of all our stakeholders, recognising that our environmental and social impact is intrinsically linked to the success and sustainability of our business. The Board is pleased to declare an unchanged dividend of 2.35 cents (2.1 pence) per share for the first half of the year, which is expected to be paid on or around 25 October 2019 to shareholders on the register on 11 October 2019.

 

 

 

 

 

 

STATEMENT ON THE PROPOSED BERLIN RENT CAP

 

Backdrop

During the past decade, Berlin's economy has flourished and this economic renaissance has been supported by high levels of net inward migration. Between 2013 and 2017, the number of inhabitants grew by between 40,000 and 60,000 per year, increasing by a further 31,000 in 2018. Currently, the City of Berlin estimates the requirement for new housing will be 194,000 units by 2030, and that over 20,000 new housing units will need to be constructed annually to satisfy demand. However, in recent years, the number of building permits and completions has fallen well short of this target and it remains the case that the cost of new-build generally exceeds the cost of acquiring existing rental stock.

 

It is against this demographic backdrop that the new Berlin rental laws have been proposed. These rules seek to address the effects of 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 proposals fail to address.

 

Outline of the proposed new rules

The key elements of the new proposals as currently drafted are as follows:

·     for new leases, a range of upper limits or "Permissible Rents" or "Permissible Level" depending on building age, rather than location or condition

·     any in-place rent above this level is frozen for five years

·     provided that the Permissible Level is not exceeded, annual rent increases of 1.3% are allowed and the Permissible Level could be raised to take into account annual price inflation

·     the Permissible Rent limits can be increased by up to €1.40 per sqm if the apartment has been modernised during the last 15 years

·     rental uplifts on future modernisations are limited to €1.00 per sqm

·     the rent cap rules also apply to furnished apartments

·     for existing tenants, any rent over the Permissible Level can be lowered, subject to appeal, if the tenant can demonstrate that their in-place rent is more than 30% of net household income

·     for existing tenants applying for relief under the 30% rule, the rent cap is subject to the size of the property, limiting any reduction to a specified square meterage linked to individual household size

·     properties built after 2014 are excluded from these proposals.

 

Legality of the new rules

PSD and its legal advisors remain firmly of the view that the rent proposals as currently drafted are not lawful and are unconstitutional. In Germany, residential tenant law is governed by the German Civil Code and is therefore a matter for the Federal and not State Government. There is mounting legal opinion supporting this view, including the legal research department of the Bundestag, the Federal Housing Minister and the former head of the Federal Constitutional Court.

 

Timing of the new rules

Following the publication of the draft law for the introduction of the local Berlin rent freeze, relevant interest groups were able to submit their objections until 13 September. On 15 October, the Berlin Senate has stated it will decide on the final version of the law, which will be followed by two readings and votes in the Berlin parliament on 31 October and 12 December. The implementation of the rent freeze is scheduled for 11 January 2020, effective retroactively to 18 June 2019.

 

Likely impact of the new rules on the Berlin rental market

There is a significant body of evidence from other markets, including Stockholm, San Francisco and Vienna, that the effect of stringent rent controls which seek to limit rent levels to below those set by the market, has been to reduce the supply of quality rental property rather than grow it.

 

The impact in these markets has been:

·     to reduce the construction of new-build rental apartments

·     lower levels of tenant churn, which reduces choice for tenants

·     an increase in the number of rental apartments sold to owner occupiers as condominiums

·     a reduction in the existing stock of rental properties

·     the creation of waiting lists for available rental properties

·     rising demand for condominiums, short-term lets and illegal subletting as a direct consequence of a reduction of available rental stock

 

PSD believes that should the new Berlin rental regulations proceed, many of these themes will be repeated in Berlin. Developers could be reluctant to commit to new-build in an environment where future rental streams and returns are uncertain. Smaller landlords may seek to exit the housing market and sell apartments to owner occupiers, further reducing the supply of rental apartments. Property owners will also become reluctant to invest in the fabric of existing properties, resulting in an overall deterioration in the quality of housing stock at a time when the need for sustainable, environmentally friendly housing has become ever more apparent. The renovations, modernisations and improvements that have transformed the quality of housing stock in Berlin during the past decade were made possible because they were financially viable in an environment where rents for newly modernised apartments were set at free market levels.

 

As existing tenants realise that rent controls worsen rather than alleviate the housing shortage, it is likely that fewer properties will be returned to the rental market, further exacerbating the supply shortage. Meanwhile demand is forecast to continue to increase given continued expected inward migration to the City. This has the potential to discriminate against the most vulnerable tenants, an issue that has already been raised by Berlin's cooperative housing associations and municipal housing companies.

 

Faced with an acute shortage of rental accommodation, and with interest rates at or near record lows, demand for condominiums is likely to rise.

 

Impact of new rental laws for PSD

There remains considerable uncertainty surrounding the implementation of the proposed new rules. Moreover, likely tenant behaviour in the event the new rent proposals are introduced is difficult to predict. Given the possible range of outcomes, it is likely that PSD will be in a better position to assess accurately the impact of the proposed law on rental income by the middle of 2020. However, based on the proposals as they currently stand, the Property Advisor considers likely consequences are as follows:

·     PSD will lose the ability to obtain step rents or Mietspiegel rent increases for over half of existing tenants

·     the Permissible Rent will effectively cap rents for new lettings at levels below currently market levels, ending PSD''s ability to pursue its current reversionary rent strategy

·     theoretically, most tenants who occupied their unit in the last three or four years will have an incentive to give notice and seek a cheaper apartment. However, the lack of available supply post the implementation of the new rules is likely to make this very difficult in practice

·     tenants will be entitled to make an application to the District Office for a rent reduction in circumstances where their rent is above the Permissible Level and where net cold rent represents more than 30% of household net income. PSD has historically set stringent rent multiple limits for new tenants at the time of application, significantly reducing the risk of rent reduction claims. The fact that the amount of relief is limited by the size of the property further mitigates the impact.

 

 

PSD STRATEGIC RESPONSE

 

Although the new rules will almost certainly be subject to legal challenge, it is likely that, even if successfully repealed, there will be a period during which PSD will have to work within the regulatory framework that is currently being proposed. During the period of challenge, which is expected to last until at least early 2021, PSD intends to modify its strategy.

 

Acquisitions

Notwithstanding the fact that PSD has the financial capacity to acquire and will keep opportunities under close review, it is expected that future acquisitions will be limited until the impact of the proposals on tenant behaviour and market values is clearer.

 

Renovation Expenditure

PSD remains committed to maintaining a portfolio of homes for tenants that are both comfortable and compliant with all health and safety standards. However, in the light of the proposed new rental laws, careful consideration is being given to certain elements of discretionary capital expenditure that are no longer financially justifiable.  It is therefore expected that the strategy of renovating vacant apartments to current market standards will be reviewed. Regrettably, the maximum €1 rent per sqm premium (€600-700 per annum) on future modernisations that the new rules permit will not justify the typical investment of €20-30k that was possible when reletting was permissible at free market levels. This may reduce planned capital expenditure by up to €5 million per annum.

 

New Condominium Construction

PSD has building permits approved, or in process, for around 100 units. Approximately 76% of these units are attic conversions with the remainder representing a new apartment block in the footprint of an existing property. PSD believes future construction costs could decline, reflecting lower levels of reinvestment into the fabric of existing properties across Berlin. This has the potential to create near-term overcapacity in the construction sector, which in turn could be 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.

 

Furnished Lettings

Notwithstanding the fact that the new rent laws prohibit charging a premium for furniture, it is expected that new lettings by PSD could be offered as short-term furnished apartments until the legal question surrounding the new law is resolved. The rules permit short-term lettings (for example up to 12 months) where tenants are required to work or study in Berlin, a demographic that complements PSD's reletting activity in recent years. If, as expected, the law is overturned, PSD will be able to re-let these apartments, thereby avoiding establishing open ended tenancies at potentially sub-market levels. Should the law remain in place for the longer term, PSD will retain the option to sell these apartments as vacant condominiums.

 

Condominiums

PSD believes that there is significant unlocked 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 25 September, 55% of all units had been registered as condominiums. Applications are underway for a further 35% and, by the end of 2019, it is expected that approximately 70% could be registered as condominiums. Four buildings are actively being marketed for sale. Until they are actively marketed, those properties split into condominiums are still valued on a multi-family rental basis, which has typically been around 15-20% lower than the expected condominium sales value.

 

The Property Advisor has an in-house capability for condominiums which focusses on selling vacant units, 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 extended the scope of its agreement with Accentro, one of Germany's leading condominium sales platforms. This had previously been limited to the remaining unsold units of a single building, Boxhagener Strasse.

 

The new Cooperation Agreement with Accentro potentially covers the entire portfolio of condominium projects owned by PSD. The key features of this agreement are:

·     PSD can, at its discretion, offer properties for sale as condominiums to Accentro to market and sell at an agreed minimum 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

·     the amount of commission is to be negotiated between the parties and will, in principle, be based on additional proceeds from the sale in excess of the minimum price

·     for condominiums not sold by Accentro during the exclusivity period, Accentro will make PSD an irrevocable offer to conclude a purchase agreement corresponding to the previously assigned minimum purchase price.

 

This Cooperation Agreement provides access to a successful, European-wide, distribution platform which should allow PSD to accelerate significantly sales of apartments. Additionally, key benefits for PSD include:

·     a guaranteed minimum value for the assets

·     a guaranteed sale of all condominiums within a building regardless of how difficult they might be to sell

·     no obligation on PSD to sell condominiums through Accentro or to accept any particular offer on a condominium sale

·     Accentro markets the properties at its own expense

·     PSD retains all rights and benefits of the condominium assets while they remain unsold.

 

Share Buybacks

Following a strategic review of PSD's liability structure, a new €240 million term loan on improved terms was completed on 12 September 2019. This has provided significant additional liquidity while retaining a prudent gross loan to value of 39.2% or 28.6% when taking into account cash balances. The additional liquidity of approximately €70 million could be further supplemented by the proceeds of condominium sales.

 

Since the new rent proposals were announced PSD's share price has declined by 16%, valuing the shares at a 30% discount to the EPRA Net Asset Value as at 30 June 2019.  The current share price therefore implies a 19% decline in the portfolio value.

 

Given the current valuation discount, PSD is considering acquiring up to 10% of its shares in issue.

 

 

 

FINANCIAL HIGHLIGHTS FOR THE SIX-MONTH PERIOD TO 30 JUNE 2019

 

€ million (unless otherwise stated)

6 months to

6 months to

Year to

30-Jun-19

30-Jun-18

31-Dec-18

Gross rental income 1

10.8

11.9

22.7

Investment property fair value gain

21.6

21.7

66.1

Profit before tax (PBT)

12.0

19.4

56.4

Reported EPS (€)

0.11

0.16

0.46

Investment property value

665.2

583.7

645.7

Net debt

178.0

150.5

168.4

Net LTV (%)

26.8

25.8

26.1

IFRS NAV per share (€)

4.11

3.74

4.05

IFRS NAV per share (£)

3.68

3.31

3.54

EPRA NAV per share (€)

4.73

4.23

4.58

EPRA NAV per share (£)

4.24

3.74

4.11

Dividend per share (€ cents)

2.35

2.35

7.5

Dividend per share (£ pence)

2.1

2.1

6.7

EPRA NAV per share total return for period (€%)

4.4

4.1

13.2

EPRA NAV per share total return for period (£%)

4.3

3.8

11.4

 1 June 2018 reported Gross rental income was restated due to change in accounting policies (IFRS 15)

 

Financial results

Reported revenue for the six-month period was €10.8 million (six months to 30 June 2018 (restated): €11.9 million). Profit before taxation was €12.0 million (six months to 30 June 2018: €19.4 million) which was positively affected by a revaluation gain of €21.6 million (30 June 2018: €21.7 million). The fall in profit before tax reflects the movement in mark-to-market on the interest rate hedges. Reported earnings per share for the period were 11 cents (six months to 30 June 2018: 16 cents).

 

Reported EPRA NAV per share rose by 3.3% in the first half of 2019 to €4.73 (£4.24) (31 December 2018: €4.58 (£4.11)). After taking into account the 2018 final dividend of 5.15 cents (4.6 pence), which was paid in June 2019, the EPRA NAV total return in the first half of 2019 was 4.4% (H1 2018: 4.1%).

 

The Board is pleased to declare an unchanged interim dividend 2.35 cents per share (2.1 pence per share) for the first half of the year (six months to 30 June 2018: 2.35 cents, 2.1 pence). The dividend is expected to be paid on or around 25 October 2019 to shareholders on the register at close of business on 11 October 2019, with an ex-dividend date of 10 October 2019.

 

 

Portfolio breakdown

 

 

30 June 2019

30 June 2018

Buildings

96

93

Residential units

2,378

2,322

Commercial units

143

152

Total units

2,521

2,474

 

Like-for-like portfolio value increase of 3.9%

 

 

30 June 2019

30 June 2018

31 December 2018

Valuation (€m)

665.2

583.7

645.7

Value per sqm (€)

3,716

3,275

3,527

Like-for-like valuation growth (%)

3.9

5.4

14.0

Fully occupied gross yield (%)

2.9

3.1

3.0

 

As at 30 June 2019, the Portfolio was valued at €665.2 million (31 December 2018: €645.7 million) by Jones Lang LaSalle GmbH. This represents a 3.0% increase over the six-month period.

 

On a like-for-like basis, excluding the impact of acquisitions net of disposals, the Portfolio value increased by 3.9% in the six-month period. This increase reflects modest market growth in rental values, assisted by PSD's active asset management strategy. 

 

The valuation as at 30 June 2019 represents an average value per square metre of €3,716 (31 December 2018: €3,527), a gross fully occupied yield of 2.9% (31 December 2018: 3.0%) and a net yield, using EPRA methodology, of 2.5% (31 December 2018: 2.4%). Included within the Portfolio are condominium properties with an aggregate value of €19.0 million (31 December 2018: €22.3 million).

 

 Strong rental growth, falling vacancy

 

 

30 June 2019

30 June 2018

31 December 2018

Total sqm ('000)

179.4

178.2

183.1

Gross in place rent per sqm1 (€)

8.7

8.4

8.6

Like-for-like rent per sqm growth

5.2%

9.9%

7.4%

Vacancy %

4.2

5.6

4.8

EPRA Vacancy %

2.5

2.8

2.8

1 Gross in place rent per sqm was €8.3 for the Berlin portfolio as at 30 June 2018.

 

After considering the impact of acquisitions and disposals, like for like rental income per square metre grew 5.2% compared with 30 June 2018. Like-for-like rental income grew 5.8% over the same period, reflecting the fall in vacancy over the year.

 

Gross in-place rent was €8.7 per sqm as at 30 June 2019, an increase of 4.8% compared with 30 June 2018 for the Berlin portfolio.

 

Reported vacancy at 30 June 2019 was 4.2% (30 June 2018: 5.6%). On an EPRA basis, which adjusts for units undergoing development and made available for sale, the vacancy rate was 2.5% (30 June 2018: 2.8%).

 

During the first six months of 2019, 144 new leases were signed, representing a first-half letting rate of approximately 6% of units. The average rent achieved on new lettings was €12.2 per sqm, a 4.3% increase on the same period in 2018.

 

PSD was able to re-let units at levels set by the free market. During the first six months of 2019, new leases were signed at an average premium of 39.9% to passing rents. The proposed Berlin rent-cap did not affect the first half reversionary re-letting premium.

 

Acquisitions & Disposals

During the first six months of 2019, two buildings with an aggregate valuation of €5.5 million were notarised for acquisition. In total, these buildings represent 26 units (23 residential and 3 commercial), at an average price per sqm of €2,987. The acquired properties complement the existing Portfolio, adding an initial 1% to rental income.

 

Acquisitions have been financed using a combination of debt and equity, with an achieved loan-to-value ratio of approximately 50%.

 

Portfolio enhancements

During the first half of 2019, a total of €3.0 million was invested across the Portfolio (H1 2018 €3.4 million). These items are recorded as capital expenditure in the Financial Statements and a further €0.8 million incurred on repairs and maintenance has been expensed through the profit and loss account.

 

Condominium sales

PSD's condominium strategy involves the division and resale of selected apartment blocks as private units. This is subject to full regulatory approval and involves the legal splitting of the freeholds in properties that have been identified as being suitable for condominium conversion.  

 

During the first half of 2019, four condominiums units were notarised for sale totalling €2.5 million (H1 2018: €6.1 million). Seven unit sales completed, with an aggregate value of €3.8 million (30 June 2018: €5.7 million). The average achieved value per sqm for the residential units was €4,334, representing a 16.7% premium to the average 30 June 2019 residential portfolio value.

 

Since June 2019, ten additional apartments have been notarised for sale for an aggregate value of €3.9 million.

 

As at 25 September 2019, 55% of the Portfolio had been registered as condominiums, providing opportunities for the implementation of further projects where appropriate.  Planning applications for a further 35% of the portfolio are at varying stages of completion.

 

Condominium agreement with Accentro Real Estate AG to sell remaining Boxhagener Strasse units

Since the start of sales in Boxhagener Strasse, PSD's largest condominium project to date, PSD has successfully sold a total of 42 residential units and 4 commercial units to owner-occupiers, tenants and investors. The remaining 21 units are currently occupied, five of which are currently notarised for disposal.

 

In order to accelerate the sales process of the remaining Boxhagener Strasse units, as previously announced, PSD concluded an agreement in August with Accentro Real Estate AG, one of Germany's leading condominium sales platforms.

 

Under the terms of this agreement, Accentro will market the remaining Boxhagener Strasse units through their extensive network on behalf of PSD. After 18 months, Accentro is contracted to purchase any unsold units from the fund for a cash consideration, guaranteeing revenues on completion of contract.

 

Debt and gearing

As at 30 June 2019, PSD had gross borrowings of €190.4 million (31 December 2018: €195.3 million) and cash balances of €12.4 million (31 December 2018: €26.9 million), resulting in net debt of €178.0 million (31 Dec 2018: €168.4m) and a net loan to value on the portfolio of 26.8% (31 December 2018: 26.1%).

 

The decrease in gross debt in the period partly results from debt repayments of €3.8 million associated with the sale of condominiums in the first half of the year, the remainder being amortisation repayments. This was offset by the disbursement of €0.9 million of debt secured against new acquisitions. The decrease in cash balances, and resulting rise in net loan to value, arise from acquisitions during the first half of the year, alongside payment of dividends.

 

Nearly all PSD's debt has interest rates which have been fixed through hedging and, as at 30 June 2019, the blended interest rate of PSD's loan book was 2.1% (30 June 2018: 2.1%). The average remaining duration of the loan book at 30 June 2019 had decreased to 7.2 years (30 June 2018: 8.1 years).

 

Following a strategic review of PSD's liability structure, a new €240 million term loan on improved terms was completed on 12 September. The new facility was agreed with Natixis Pfandbriefbank AG and comprises of two tranches, being a refinancing facility for €190 million and a further facility for €50 million. As well as increasing the gross loan-to-value on the Portfolio to a level closer to the stated goal in the listing prospectus, the refinancing provides more flexibility.

 

The Refinancing Facility, which was partly used to refinance existing indebtedness of c. €119 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 to match the new loan maturity. This facility was drawn on 13 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 2.19% to 2.13%. The weighted average financing term remained unchanged at c.7 years. The remainder of the Refinancing Facility will be used to fund working capital, capital expenditure, potential opportunities that may arise from any market dislocation and potential share buy-backs.

 

The additional €50 million facility is available for drawdown 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.

 

Outlook

Changes to rental regulations are not a new phenomenon but the Mietendeckel proposals have very wide-ranging implications, as discussed above.

 

The new proposals will be legally challenged and PSD believes they are likely to be proven to be unlawful. However, in the near term the uncertainty surrounding the current proposals will inevitably affect market dynamics as owners prepare for the new regulatory environment. Notwithstanding the fact that there was no discernible slowdown in market transactions in the first six months of 2019, there has been a reduction in transaction activity in the second half as investors wait for more clarity on potential investment returns. Equity markets have also placed a significant discount on the valuations of listed Berlin residential businesses, reflecting current uncertainty, much of which should be removed in the event that the new rules are successfully challenged.

 

PSD has taken proactive steps as part of its strategic response to these changes as described above. These actions will help alleviate the short-term impact of the new rental laws if they are introduced, whilst maintaining strategic optionality within the portfolio if they fail to take effect or are subsequently repealed.

 

Pending finalisation and implementation of the proposed new rent proposals, the industry-wide response of property owners and tenants remains uncertain. However, although further growth in rental income will be difficult to achieve, PSD considers it unlikely that there will be a material adverse impact on total rental income in 2020. 

 

Key Performance Indicators

PSD has chosen a number of Key Performance Indicators (KPI's), which the Board believes may help investors understand the performance of the Company and the underlying property portfolio.

·     The value of the property portfolio grew by 3.9% on a like-for-like for basis. This increase was driven by modest yield compression and an increase in like-for-like average rent per let sqm of 5.2% (H1 2018: 9.9%).

·     The EPRA vacancy of the Portfolio stood at 2.5% (30 June 2018: 2.8%).

·     The Group continued with its targeted condominium programme, agreeing sales of €2.5 million in the half year to 30 June 2019 (H1 2018: €6.1 million).

·     EPRA NAV per share increased by 3.3% to €4.73 as at 30 June 2019 (31 December 2018: €4.58).

·     The declared dividend for the half year 2019 was €2.35 cents (£2.1 pence) per share.

 

Change of administrator

With effect from on or around 4 October 2019, the fund administrator will change from Estera Fund Administrators (Jersey) Limited to Apex Financial Services (Alternative Funds) Limited.

 

 

 

 

 

 

Forward looking statements

 

The interim management report contains certain forward looking statements in respect of Phoenix Spree Deutschland Limited and the operation of its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

 

Responsibility statement

 

We confirm that to the best of our knowledge;                

 

(a) the condensed set of financial statements gives a true and fair view of the assets, liabilities, financial position and profit  or loss of the Group, included in the consolidation as a whole as required by DTR 4.2.4R;              

 

(b) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';                

 

(c) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and their impact on the condensed set of financial statements and description of principal risks and uncertainties for the remaining six months of the year); and

 

(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).             

 

 

 

By order of the Board of Directors
 

 

Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

For the period from 1 January 2019 to 30 June 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Six months ended

 

Year ended

 

 

Notes

 30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 

 (restated)

 

 

 

 

 

 (unaudited)

 

 (unaudited)

 

 (audited)

 

 

 

€'000

 

€'000

 

€'000

Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

  10,767

 

  11,900

 

  22,681

Property expenses

 

5

(7,476)

 

(7,294)

 

(15,763)

 

 

 

 

 

 

 

 

Gross profit

 

 

  3,291

 

  4,606

 

  6,918

 

 

 

 

 

 

 

 

Administrative expenses

6

(1,483)

 

(1,315)

 

(3,194)

Gain on disposal of investment property (including investment property held for sale)

8

  202

 

  592

 

  1,026

Investment property fair value gain

11

  21,648

 

  21,677

 

  66,146

Performance fee due to property advisor

21

(719)

 

(103)

 

(4,010)

Non-recurring costs

 

7

(278)

 

(785)

 

(966)

 

 

 

 

 

 

 

 

Operating profit

 

 

  22,661

 

  24,672

 

  65,920

 

 

 

 

 

 

 

 

Net finance charge

 

9

(10,620)

 

(5,314)

 

(9,491)

Gain on financial assets

14

  -

 

 

 

  -

 

 

 

 

 

 

 

 

Profit before taxation

 

 

  12,041

 

  19,358

 

  56,429

 

 

 

 

 

 

 

 

Income tax expense

 

10

(979)

 

(3,861)

 

(11,071)

 

 

 

 

 

 

 

 

Profit after taxation

 

 

  11,062

 

  15,497

 

  45,358

 

 

 

 

 

 

 

 

Other comprehensive income

  -

 

  -

 

  -

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

  11,062

 

  15,497

 

  45,358

 

 

 

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 

Owners of the parent

 

 

  10,923

 

  15,352

 

  45,094

Non-controlling interests

 

 

  139

 

  145

 

  264

 

 

 

  11,062

 

  15,497

 

  45,358

 

 

 

 

 

 

 

 

Earnings per share attributable to the owners of the parent:

 

 

 

From continuing operations

 

 

 

 

 

Basic (€)

 

23

  0.11

 

  0.16

 

  0.46

Diluted (€)

 

23

  0.11

 

  0.16

 

  0.46

 

 

Condensed Consolidated Statement of Financial Position

 

 

 

 

 

At 30 June 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

As at

 

As at

 

 

Notes

 30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 (unaudited)

 

 (unaudited)

 

 (audited)

 

 

 

 

 €'000

 

 €'000

 

 €'000

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Investment properties

13

 

  654,229

 

  557,930

 

  632,933

 

Property, plant and equipment

 

 

  66

 

  96

 

  88

 

Deferred tax asset

10

 

  2,206

 

  708

 

  948

 

Other financial assets at amortised cost

15

 

  865

 

  2,380

 

  2,406

 

 

 

 

  657,366

 

  561,114

 

  636,375

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Investment properties - held for sale

14

 

  10,981

 

  25,740

 

  12,747

 

Other financial assets at amortised cost

15

 

  1,563

 

  -

 

  -

 

Trade and other receivables

16

 

  12,079

 

  12,697

 

  7,531

 

Cash and cash equivalents

 

 

  12,416

 

  40,872

 

  26,868

 

 

 

 

  37,039

 

  79,309

 

  47,146

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

  694,405

 

  640,423

 

  683,521

 

 

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Borrowings

17

 

  3,325

 

  3,115

 

  3,642

 

Trade and other payables

18

 

  9,092

 

  7,513

 

  10,429

 

Derivative financial instruments

19

 

  -

 

  -

 

  1,354

 

Current tax

10

 

  1,406

 

  2,874

 

  1,387

 

Other financial liabilities

20

 

  7,490

 

  -

 

  -

 

 

 

 

  21,313

 

  13,502

 

  16,812

 

Non-current liabilities

 

 

 

 

 

 

 

 

Borrowings

17

 

  187,103

 

  188,247

 

  191,632

 

Derivative financial instruments

19

 

  13,935

 

  4,474

 

  4,637

 

Other financial liabilities

20

 

  -

 

  6,509

 

  7,135

 

Non-current tax

10

 

  -

 

  3,721

 

  -

 

Deferred tax liability

10

 

  55,666

 

  45,472

 

  53,458

 

 

 

 

  256,704

 

  248,423

 

  256,862

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

  278,017

 

  261,925

 

  273,674

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Stated capital

22

 

  196,578

 

  196,578

 

  196,578

 

Share based payment reserve

21

 

  4,729

 

  103

 

  4,010

 

Retained earnings

 

 

  212,953

 

  179,947

 

  207,270

 

Equity attributable to owners of the parent

 

  414,260

 

  376,628

 

  407,858

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

  2,128

 

  1,870

 

  1,989

 

Total equity

 

 

  416,388

 

  378,498

 

  409,847

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

 

  694,405

 

  640,423

 

  683,521

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

 

 

 

 

For the period from 1 January 2019 to 30 June 2019

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to the owners of the parent

 

 

 

 

 

 

 

 

 

 

Stated capital

Share based payment reserve

Retained earnings

Total

Non-controlling interest

Total equity

 

€'000

€'000

€'000

€'000

€'000

€'000

 

 

 

 

 

 

 

Balance at 1 January 2018

 162,630

 33,953

  169,634

 366,217

         1,725

  367,942

Comprehensive income:

 

 

 

 

 

 

Profit for the period

  -

  -

  15,352

  15,352

145

  15,497

Other comprehensive income

  -

  -

  -

  -

  -

  -

Total comprehensive income for the period

  -

  -

  15,352

  15,352

  145

  15,497

 

 

 

 

 

 

 

Transactions with owners -

 

 

 

 

 

 

recognised directly in equity:

 

 

 

 

 

 

Issue of shares

  33,948

(33,948)

  -

  -

  -

  -

Dividends paid

  -

  -

(5,039)

(5,039)

  -

(5,039)

Performance fee

  -

        103

  -

  103

  -

  103

Adjustment to performance fee

  -

(5)

  -

(5)

  -

(5)

 

 

 

 

 

 

 

Balance at 30 June 2018 (unaudited)

 196,578

  103

  179,947

 376,628

  1,870

  378,498

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

Profit for the period

  -

  -

  29,742

  29,742

119

  29,861

Other comprehensive income

  -

  -

  -

  -

  -

  -

Total comprehensive income for the period

  -

  -

  29,742

  29,742

  119

  29,861

 

 

 

 

 

 

 

Transactions with owners -

 

 

 

 

 

 

recognised directly in equity:

 

 

 

 

 

 

Dividends paid

  -

  -

(2,419)

(2,419)

  -

(2,419)

Performance fee

  -

     3,907

  -

  3,907

  -

  3,907

 

 

 

 

 

 

 

Balance at 31 December 2018 (audited)

 196,578

  4,010

  207,270

 407,858

  1,989

  409,847

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

Profit for the period

  -

  -

  10,923

  10,923

  139

  11,062

Other comprehensive income

  -

  -

  -

  -

  -

  -

Total comprehensive income for the period

  -

  -

  10,923

  10,923

  139

  11,062

 

 

 

 

 

 

 

Transactions with owners -

 

 

 

 

 

 

recognised directly in equity:

 

 

 

 

 

 

Dividends paid

  -

  -

(5,240)

(5,240)

  -

(5,240)

Performance fee

  -

  719

  -

  719

  -

  719

 

 

 

 

 

 

 

Balance at 30 June 2019 (unaudited)

196,578

  4,729

  212,953

 414,260

  2,128

  416,388

 

 

 

 

 

 

 

The share based payment reserve had been established in relation to the issue of shares for the payment of the performance fee of the property advisor.

 

                               

 

 

 

Condensed Consolidated Statement of Cash Flows

 

 

For the period from 1 January 2019 to 30 June 2019

 

 

 

 

 

Six months ended

Six months ended

Year ended

 

 

 

 

30 June 2019

 30 June 2018

31 December 2018

 

 

 

 

 (unaudited)

 (unaudited) 

 (audited)

 

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

 

Profit before taxation

 

  12,041

  19,358

  56,429

 

 

 

 

 

 

 

Adjustments for:

 

 

 

 

Net finance charge

 

  10,620

  5,314

  9,491

Gain on disposal of investment property

(202)

(592)

(1,026)

Investment property revaluation gain

(21,648)

(21,677)

(66,146)

Depreciation

 

  8

  8

  16

Performance fee charge

  719

  103

  4,010

Operating cash flows before movements in working capital

  1,538

  2,514

  2,774

 

 

 

 

 

 

 

(Increase) / decrease in receivables

(4,548)

(4,710)

  6,492

(Decrease) / increase in payables

(1,337)

  5,421

  3,908

Cash (used in)/generated from operating activities

(4,347)

  3,225

  13,174

Income tax paid

 

 

(10)

(6)

(4,678)

Net cash (used in)/generated from operating activities

(4,357)

  3,219

  8,496

 

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

Proceeds on disposal of investment property

  7,574

  84,263

  86,021

Interest received

  38

  -

  54

Capital expenditure on investment property

(3,029)

(3,403)

(7,943)

Property additions

(2,225)

(31,180)

(47,329)

Disposals of property, plant and equipment

  14

(12)

(12)

Net cash used in investing activities

  2,372

  49,668

  30,791

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

Interest paid on bank loans

(2,381)

(3,221)

(5,118)

Repayment of bank loans

(5,772)

(50,723)

(54,680)

Drawdown on bank loan facilities

  926

  19,791

  27,660

Dividends paid

(5,240)

(5,039)

(7,458)

Net cash generated from financing activities

(12,467)

(39,192)

(39,596)

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

(14,452)

  13,695

(309)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period/year

  26,868

  27,182

  27,182

Exchange losses on cash and cash equivalents

  -

(5)

(5)

 

 

 

 

 

 

 

Cash and cash equivalents at end of period/year

  12,416

  40,872

  26,868

 

 

 

 

 

 

 

Reconciliation of Net Cash Flow to Movement in Debt

 

 

 

 

 

Six months ended

Six months ended

Year ended

 

30 June 2019

 30 June 2018

31 December 2018

 

€'000

€'000

€'000

Cashflow from decrease in debt financing

(4,846)

(30,932)

(27,020)

Change in net debt resulting from cash flows

(4,846)

(30,932)

(27,020)

Movement in debt in the period/year

 

(4,846)

(30,932)

(27,020)

Debt at the start of the period/year

  195,274

  222,294

  222,294

Debt at the end of the period/year

  190,428

  191,362

  195,274

 

 

 

 

 

 

 

Dividends paid during the six months to 30 June 2019 represent the final year dividend relating to the year end 2018.

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

 

 

For the period from 1 January 2019 to 30 June 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 Germany.

 

 

 

 

 

 

The registered office is at 13-14 Esplanade, St Helier, Jersey, JE1 1EE, Channel Islands.

 

 

 

 

 

 

2. Basis of preparation

 

 

 

 

 

The interim set of condensed consolidated financial statements has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union.

 

 

 

 

 

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2018.

 

 

 

 

 

 

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2018.

 

 

 

 

 

 

The comparative figures for the financial year ended 31 December 2018 are extracted from but do not comprise, the Group's annual financial statements for that financial year. The auditor's report on those financial statements was unqualified and did not contain statements where the auditor is required to report by exception

 

 

 

 

 

 

The interim condensed consolidated financial statements were authorised and approved for issue on 25 September 2019.

 

 

 

 

 

 

The interim condensed consolidated financial statements are neither reviewed nor audited, and do not constitute statutory accounts within the meaning of Section 105 of the Companies (Jersey) Law 1991.

 

 

 

 

 

 

2.1 Change of accounting policy

 

 

 

 

 

In 2018, the Group has carried out a review of IFRS 15, Revenue from Contracts with Customers, which is effective from 1 January 2018.  The main outcome of the review is to recognise service charges to tenants as revenue, and service costs recharged to tenants as property costs, whereas in prior years, service charges incurred on the properties were offset against service charge income. In accordance with the transition provisions of IFRS 15, the Group has adopted the new rules retrospectively and has restated comparatives from the 2018 interim period onward. For the 2018 interim period the effect has been to recognise service charge revenue of €2.772 million, and property expenses of €2.772 million, and to increase trade and other receivables, and therefore assets, by €5,178 million, and service charges payable, and therefore liabilities, by €5.178 million. The change of policy has no effect on reported profit or net assets.

 

 

 

 

 

 

2.2 Going concern

 

 

 

 

 

The interim condensed consolidated financial statements have been prepared on a going concern basis which assumes the Group will be able to meet its liabilities as they fall due for the foreseeable future. The Directors have prepared cash flow forecasts which show that the cash generated from operating activities will provide sufficient cash headroom for the foreseeable future.

 

 

 

 

 

 

2.3 New standards and interpretations

 

 

 

 

The following new standards, amendments or interpretations effective for annual periods beginning on or after 1 January 2019 have been adopted and had no impact on the Group;

 

 

 

 

 

 

 

 

 

 

Title

 

 

 

 

 

 

 

 

IFRS 16 - Leases

 

 

 

 

 

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

Amendments to IFRS 9: Prepayment Features with Negative Compensation

Amendments to IAS 19: Plan Amendment, Curtailment or Settlement

Amendments to IAS 28: Long-term interests in associates and joint ventures

Annual Improvements 2015-2017 Cycle

 

 

 

 

 

 

 

 

 

 

 

 

3. Critical accounting estimates and judgements

The preparation of condensed 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 period;

 

 

 

 

 

 

i) Estimate of fair value of investment properties

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 judgement, 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, and its third party independent experts, 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.

 

 

 

 

 

 

For further information with regard to the movement in the fair value of the Group's investment properties, refer to the management report on page 9.

 

 

 

 

 

 

ii) Judgment in relation to the recognition of assets held for sale

Management has assumed 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.

 

 

 

 

 

 

4.   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 which has resulted in the commercial segment not being more than 10% of any specific requirements as set out therein. The Group does not own any commercial buildings nor does it report directly on the commercial results. Therefore, the Group has not included any further segmental analysis within these condensed consolidated unaudited interim financial statements.

 

 

 

 

 

 

5.   Property expenses

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

(restated)

 

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Property management expenses

 

 

  551

  517

  1,024

Repairs and maintenance

 

 

  831

  897

  1,710

Impairment charge - trade receivables

 

 

  44

  101

  29

Other property expenses (restated - see note 2.1)

 

 

  3,096

  3,050

  7,053

Property advisors' fees and expenses

 

 

  2,954

  2,729

  5,947

 

 

 

  7,476

  7,294

  15,763

 

 

 

 

 

 

6.   Administrative expenses

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Secretarial & administration fees

 

 

  369

  402

  880

Legal & professional fees

 

 

  612

  658

  1,160

Costs associated with refinancing

 

  250

  -

  -

Directors' fees

 

 

  123

  88

  300

Audit and accountancy fees

 

 

  208

  231

  840

Bank charges

 

 

  9

  10

  54

Profit / (loss) on foreign exchange

 

(16)

  1

  133

Depreciation

 

 

  8

  8

  16

Other income

 

 

(80)

(83)

(189)

 

 

 

  1,483

  1,315

  3,194

 

 

 

 

 

 

Costs associated with the refinancing have arisen due to a valuation undertaken by a prospective financing candidate. The candidate was not subsequently chosen as the preferred lender

7.   Non-recurring costs

 

 

 

 

 

Non-recurring costs relate to legal and professional fees incurred during a significant transaction which was considered by the Board but not pursued totalling €278,000 (December 2018: €966,000, June 2018: €785,000).

 

 

 

 

 

 

8.  Gain on disposal of investment property (including investment property held for sale)

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Net proceeds

 

 

  7,687

  82,707

  86,959

Book value of disposals

 

 

(7,372)

(81,847)

(84,995)

Disposal costs

 

 

(113)

(268)

(938)

 

 

 

  202

  592

  1,026

 

 

 

 

 

 

Net proceeds relating to condominium sales amount to €3,766,900 and it includes a sale of a large commercial unit in Boxhagener str for its book value before disposal cost. Sales of residential condominiums resulted in a profit over the average value per square metre for the buildings of €402,000 before transaction costs.

 

 

 

 

 

 

The net book value of the asset sold is calculated on a per square metre rate, based on the prior period valuation.

 

 

 

 

 

 

 

9.  Net finance charge

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Interest income

 

 

(38)

(27)

(54)

Interest from partners' loans

 

 

(22)

(57)

(83)

Loss on interest rate swap

 

 

  7,944

  1,141

  2,658

Interest payable on bank borrowings

 

 

  2,381

  3,221

  5,118

Finance arrangement fee amortisation

 

 

  -

  190

  381

Finance charge on redemption liability

 

 

  355

  846

  1,471

 

 

 

  10,620

  5,314

  9,491

 

 

 

 

 

 

10.  Income tax expense

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

The tax charge for the period is as follows:

 

€'000

€'000

€'000

 

 

 

 

 

 

Current tax charge

 

 

  29

  3,687

  3,151

Adjustment in respect of prior year

 

 

  -

  -

  -

Deferred tax charge - origination and reversal of temporary differences

 

 

  950

  174

  7,920

 

 

 

  979

  3,861

  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:

 

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Profit before tax on continuing operations

 

 

  12,041

  19,358

  56,429

 

 

 

 

 

 

Tax at German income tax rate of 15.8% (2018: 15.8%)

 

 

  1,902

  3,059

  8,916

Income not taxable

 

 

(31)

(94)

(162)

Tax effect of losses brought forward

 

 

(1,258)

  -

  -

Tax effect of expenses that are not deductible in determining taxable profit

 

 

  366

  896

  2,317

Total tax charge for the period/year

 

 

  979

  3,861

  11,071

 

 

 

 

 

 

 

Reconciliation of current tax liabilities

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Balance at beginning of period/year

 

 

  1,387

  2,914

  2,914

Tax paid during the period/year

 

 

(10)

(6)

(4,678)

Current tax charge

 

 

  29

  3,687

  3,151

Balance at end of period/year

 

 

  1,406

  6,595

  1,387

 

 

 

 

 

 

 

Reconciliation of deferred tax

 

 

 

 

 

 

 

 

Capital gains on properties

Interest rate swaps

Total

 

 

 

€'000

€'000

€'000

 

 

 

Asset

 

 

 

 

 

 

 

Balance at 1 January 2018

 

 

(45,117)

  527

(44,590)

 

 

 

 

 

 

Charged to the statement of comprehensive income

(355)

  181

(174)

Deferred tax (liability) / asset at 30 June 2018

 

(45,472)

  708

(44,764)

 

 

 

 

 

 

Charged to the statement of comprehensive income

(7,986)

  240

(7,746)

Deferred tax (liability) / asset at 31 December 2018

(53,458)

  948

(52,510)

 

 

 

 

 

 

Charged to the statement of comprehensive income

(2,208)

  1,258

(950)

Deferred tax (liability) / asset at 30 June 2019

 

(55,666)

  2,206

(53,460)

 

 

 

 

 

 

11.  Investment property fair value gain

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Investment property fair value gain

 

 

  21,648

  21,677

  66,146

 

 

 

 

 

 

Further information on investment properties is shown in note 13.

 

 

 

 

 

 

12.  Dividends

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Dividends on participating shares proposed for approval (not recognised as a liability at 30 June 2019)

 

 

 

 

Proposed interim dividend for the year ended 31 December 2019 of €2.35 cents (2.10p) (2018: €2.35c (2.10p)) per share

 

  2,368

  2,368

  -

Proposed final dividend for the year ended 31 December 2018 of €5.15 cents (4.62p) (2017: €5.0 cents (4.4p)) per share

 

  -

  -

  5,189

 

 

 

 

 

 

Amounts recognised as distributions to equity holders in the period:

 

 

Interim dividend for the year ended 31 December 2018 of €2.35 cents (2.1p) (2017: €1.9 cents (1.6p)) per share

 

  -

  -

  2,420

Final dividend for the year ended 31 December 2018 of €5.15c (4.62p) (2017: €5.00c (4.4p)) per share

 

  5,189

  5,039

  -

 

 

 

 

 

 

The proposed dividend has not been included as a liability in these condensed consolidated financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 11 October 2018. The total estimated dividend to be paid is 2.1p per share. The payment of this dividend will not have any tax consequences for the Group.

 

 

 

 

 

 

 

13.  Investment properties

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

Fair Value

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Balance at beginning of period/year

 

 

  645,680

  609,257

  609,257

Capital expenditure

 

 

  3,029

  3,403

  7,943

Property additions

 

 

  2,225

  31,180

  47,329

Disposals

 

 

(7,372)

(81,847)

(84,995)

Fair value gain

 

 

  21,648

  21,677

  66,146

Investment properties at fair value - as set out in the report by JLL

 

  665,210

  583,670

  645,680

Assets considered as "Held for Sale" (Note 14)

 

 

(10,981)

(25,740)

(12,747)

Balance at end of period/year

 

 

  654,229

  557,930

  632,933

 

 

 

 

 

 

The property portfolio was valued at 30 June 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 and the source information on the properties including current rent levels, void rates and non-recoverable costs was provided to JLL by the Property Advisors PMM Partners (UK) Limited. Assumptions with respect to rental growth, adjustments to non-recoverable costs and the future valuation of these are those of JLL. Such estimates 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 condensed 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 25) as the inputs to the discounted cash flow methodology which have a significant effect on the recorded fair value are not observable.

 

 

 

 

 

 

The unrealised fair value gain in respect of investment property is disclosed in the condensed 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 as follows:

 

 

 

 

 

 

Discounted cash flow methodology (DCF)

 

 

The fair value of investment properties is determined using discounted cash flows.

 

 

 

 

 

 

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 Group categorises all investment properties in the following 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 considered valued under the "Rental Scenario" This will equal the "Investment Properties" line in the Non-Current Assets section of the condensed 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 14. 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 14.

 

 

 

 

 

 

The table below sets out the assets valued using these 3 scenarios:

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

€'000

€'000

€'000

Rental scenario

 

 

  646,210

  557,930

619,430

Condominium scenario

 

 

  19,000

  25,740

22,330

Disposal scenario

 

 

  -

  -

  3,920

Total

 

 

665,210

583,670

645,680

 

 

 

 

 

 

14.  Investment properties - held for sale

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Fair value - held for sale investment properties

 

 

 

 

 

 

 

 

At beginning of period/year

 

 

12,747

106,897

                         106,897

Transferred from investment properties

 

  5,048

  -

                             5,850

Transferred (to) investment properties

 

  -

  -

(15,434)

Capital expenditure

 

 

  267

  -

  -

Properties sold

 

 

(7,372)

(81,846)

(84,995)

Valuation gain/(loss) on apartments held for sale

 

291

  689

                                 429

At end of period/year

 

 

10,981

25,740

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 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 13) as appropriate. The table below sets out the respective categories:

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Rental scenario

 

 

  1,930

  -

  1,931

Condominium scenario

 

 

  9,051

  25,740

  6,896

Disposal scenario

 

 

  -

  -

  3,920

 

 

 

10,981

25,740

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.

 

 

 

 

 

 

15.  Other financial assets at amortised cost

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Current

 

 

 

 

 

Balance at beginning of period/year

 

 

-

-

-

Accrued interest

 

 

-

-

-

Transferred from non-current assets

 

 

1,563

-

-

Balance at end of period/year

 

 

1,563

-

-

 

 

 

 

 

 

Non-current

 

 

 

 

 

Balance at beginning of period/year

 

 

2,406

2,323

2,323

Accrued interest

 

 

22

57

83

Transferred to current assets

 

 

(1,563)

-

-

Balance at end of period/year

 

 

865

2,380

2,406

 

 

 

 

 

 

The Group entered into loan agreements with Mike Hilton and Paul Ruddle, then Directors of PMM Partners (UK) Limited, in connection with the acquisition of PSPF. The loans bear interest at 4% per annum and has a maturity of less than one year at 30 June 2019 and were transferred to current assets during the period. Mike Hilton remains a Director of PMM Residential Limited.

 

 

 

 

 

 

The Group also 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.

 

 

 

 

 

 

None of the loans and receivables were either past due or impaired in the prior year.

 

 

 

 

 

 

 

16.  Trade and other receivables

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 (restated)

 

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Current

 

 

 

 

 

Trade receivables

 

 

651

464

1,045

Less: impairment provision

 

 

(357)

(241)

(313)

Net receivables

 

 

294

223

732

Prepayments and accrued income

 

 

3,923

4,130

549

Investment property disposal proceeds receivable

 

 

490

408

1,167

Service charges receivable (30 June 2018 restated - see note 2.1)

 

 

6,372

7,078

4,766

Other receivables (30 June 2018 restated - see note 2.1)

 

 

1,000

858

317

 

 

 

12,079

12,697

7,531

 

 

 

 

 

 

17.  Borrowings

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Current liabilities

 

 

 

 

 

Bank loans  -  Deutsche Genossenschafts-Hypothekenbank AG

 

2,150

2,134

2,596

Bank loans  -  Berliner Sparkasse

 

1,175

981

1,046

 

 

 

3,325

3,115

3,642

Non-current liabilities

 

 

 

 

 

Bank loans  -  Deutsche Genossenschafts-Hypothekenbank AG

 

117,283

124,578

122,054

Bank loans  -  Berliner Sparkasse

 

69,820

63,669

69,578

 

 

 

187,103

188,247

191,632

 

 

 

 

 

 

 

 

 

190,428

191,362

195,274

 

 

 

 

 

 

For further information on borrowings, refer to the management report on page 11.

 

 

 

 

 

 

18.  Trade and other payables

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 (restated)

 

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Trade payables (30 June 2018 restated - see note 2.1)

 

247

1,805

1,808

Accrued liabilities

 

2,517

530

4,592

Service charges payable (30 June 2018 restated - see note 2.1)

 

6,328

5,178

4,028

Deferred income

 

 

-

-

1

 

 

 

9,092

7,513

10,429

 

 

 

 

 

 

 

 

 

 

19.  Derivative financial instruments

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Interest rate swaps - carried at fair value through profit or loss

 

 

 

At beginning of period/year

 

 

5,991

3,333

3,333

Loss in movement in fair value through profit or loss

 

7,944

1,141

2,658

At end of period/year

 

 

13,935

4,474

5,991

 

 

 

 

 

 

The notional principal amounts of the outstanding interest rate swap contracts at 30 June 2019 were €207,559,000 (December 2018: €206,690,000, June 2018: €200,165,000). At 30 June 2019 the fixed interest rates vary from 0.625% to 1.01% (December 2018: 0.625% to 1.07%, June 2018: 0.402% to 1.07%) above the main factoring Euribor rate.

 

 

 

 

 

 

 

 

 

 

 

Maturity analysis of interest rate swaps

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

€'000

€'000

€'000

Less than 1 year

 

 

                    -

                      -

                        1,354

Between 1 and 2 years

 

 

                   -

                     -

                               -

Between 2 and 5 years

 

 

                   -

                      -

                               -

More than 5 years

 

 

          13,935

              4,474

4,637

 

 

 

13,935

4,474

5,991

 

 

 

 

 

 

20.  Other financial liabilities

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Current

 

 

 

 

 

Balance at beginning of period/year

 

 

-

-

-

Transferred from non-current liabilities

7,490

    -

                       -

Balance at end of period/year

 

 

7,490

-

-

 

 

 

 

 

 

Non-current

 

 

 

 

 

Balance at beginning of period/year

 

 

                  7,135

                  5,663

                             5,663

Profit share attributable to NCI in PSPF

 

355

                 846

                        1,472

Transferred to current liabilities

 

 

          (7,490)

                    -

                               -

Balance at end of period/year

 

 

                           -

                  6,509

                             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. The amount of the purchase price will be based on the EPRA NAV on the consolidated statement of financial position date as well as the movement in the EPRA NAV during the year and the proportion of EPRA NAV attributable to the non-controlling interest in PSPF.

 

 

 

 

 

 

A portion of the liability (€1,175k, December 2018: (€1,124k), June 2018: (€980k)) is recognised to cover the tax charge of the minority in PSPF on the proceeds received if the put option is exercised.

 

 

 

 

 

 

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 condensed consolidated statement of changes in equity for the recognition accounting.

 

 

 

 

 

 

 

21.  Share based payment reserve

 

 

 

 

 

 

 

 

 

Performance fee

 

 

 

 

 

€'000

 

 

 

 

 

 

Balance at 1 January 2018

 

 

 

 

                           33,953

 

 

 

 

 

 

Transfer to stated capital - settled by issue of shares

 

 

(33,948)

Adjustment to performance fee

 

 

 

 

(5)

Fee charge for the period

 

 

 

 

103

Balance at 30 June 2018

 

 

 

 

                           103

 

 

 

 

 

 

Fee charge for the period

 

 

 

 

                        3,907

Balance at 31 December 2018

 

 

 

 

                        4,010

 

 

 

 

 

 

Fee charge for the period

 

 

 

 

                         719

Balance at 30 June 2019

 

 

 

 

                        4,729

 

 

 

 

 

 

Property Advisor Fees (from 1 January 2019)

 

 

 

 

On 1 January 2019, PMM Partners (UK) Limited was replaced as Property Advisor by PMM Residential Limited. A Property Advisor and Investors Relations agreement was entered in to between the Group and PMM Residential Limited also with an effective date of 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 €500 million; and

 

(ii) 1% of the EPRA NAV of the Group greater than €500 million.

 

 

 

 

 

 

 

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 £1,000 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 £1,000 in respect of any acquisition or disposal of property by any Subsidiary.

 

 

 

 

 

 

The Property Advisor shall be entitled to a fee for Investor Relations Services at the annual rate of £75,000 payable quarterly in arrears.

 

 

 

 

 

 

 

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.

 

 

 

 

 

 

Performance Fee (from 1 January 2019)

 

 

 

 

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 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 of the provisions continued with the Property Advisor and Investor Relations Agreement.

 

 

 

 

 

 

The Company's EPRA NAV performance for the three year's ending 31 December 2017 had resulted in a performance fee due under the Property Advisory Agreement to the Property Advisor of €33.948 million. The parties agreed that this performance fee (but not any further performance fees that may become due) shall be settled through the issuance by the Company to the Property Advisor of 8,260,065 new shares in the Company at EPRA NAV per share. 50% of the shares issued in settlement of this fee are subject to a 12-month restriction on disposal. The shares were admitted to trading on the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange on 4 May 2018.

 

 

 

 

 

 

(i) 1.50% of the EPRA NAV of the Group where the EPRA NAV of the Group is equal to or less than €250 million; and

(ii) 1.25% of the EPRA NAV of the Group between €250 million and €500 million; and

(iii) 1% of the EPRA NAV of the Group greater than €500 million.

 

 

 

 

 

 

The performance fee is 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 'Capex Monitoring Fee').

 

 

 

 

 

 

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 £1,000 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 £1,000 in respect of any acquisition or disposal of property by any subsidiary.

 

 

 

 

 

 

Details of the fees paid to the Property Advisor are set out in note 26.

 

 

 

 

 

 

22.  Stated capital

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Issued and fully paid:

 

 

 

 

 

At 1 January

             196,578

             162,630

                         162,630

Issued during the period/year at EUR4.11 per share

                   -

               33,948

                           33,948

 

 

 

             196,578

             196,578

                         196,578

 

 

 

 

 

 

The number of shares in issue at 30 June 2019 was 100,751,409 (31 December 2018: 100,751,409, 30 June 2018: 100,751,409).

 

 

 

 

 

 

23.  Earnings per share

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

 

 

 

Earnings for the purposes of basic earnings per share being net profit attributable to owners of the parent (€'000)

 

                10,923

               15,352

                           45,094

Weighted average number of ordinary shares for the purposes of basic earnings per share (Number)

 

     100,751,409

       95,046,876

                   97,945,250

Effect of dilutive potential ordinary shares (Number)

 

          1,159,594

               26,421

                     1,014,078

Weighted average number of ordinary shares for the purposes of diluted earnings per share (Number)

 

     101,911,003

       95,073,297

                   98,959,328

 

 

 

 

 

 

 

Earnings per share (€)

 

 

 

                    0.11

                    0.16

0.46

Diluted earnings per share (€)

 

 

             0.11

              0.16

0.46

 

 

 

 

 

 

24.  Net asset value per share and EPRA net asset value

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

 

 

 

Net assets (€'000)

 

 

  414,260

  376,628

  407,858

Number of participating ordinary shares

100,751,409

  100,751,409

  100,751,409

 

 

 

 

 

 

Net asset value per share (€)

 

 

4.11

3.74

4.05

 

 

 

 

 

 

EPRA net asset value

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

 

 

 

Net assets (€'000)

 

 

  414,260

  376,628

  407,858

Add back deferred tax assets and liabilities, derivative financial instruments and share based payment reserves (€'000)

 

                62,666

               49,135

                           53,137

 

 

 

 

 

 

EPRA net asset value (€'000)

 

 

  476,926

  425,763

  460,995

EPRA net asset value per share (€)

 

 

  4.73

  4.23

  4.58

 

 

 

 

 

 

 

 

 

 

 

 

25.  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 condensed consolidated financial statements.

 

 

 

 

 

 

Principal financial instruments

 

 

 

 

 

 

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

• financial assets

• cash and cash equivalents

• trade and other receivables

• trade and other payables

• borrowings

• derivative financial instruments

 

 

 

 

 

 

The Group held the following financial assets at each reporting date:

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 (restated)

 

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

 

 

 

 

 

 

Loans and receivables

 

 

 

 

 

Trade and other receivables - current (30 June 2018 restated - see note 2.1)

 

  8,156

  8,567

6,982

Cash and cash equivalents

 

 

  12,416

  40,872

26,868

Loans and receivables

 

 

  2,428

  2,380

2,406

 

 

 

23,000

51,819

36,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Group held the following financial liabilities at each reporting date:

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 

 (restated)

 

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Held at amortised cost

 

 

 

 

 

Borrowings payable: current

 

 

  3,325

  3,115

3,642

Borrowings payable: non-current

 

 

  187,103

  188,247

191,632

Other financial liabilities

 

 

  -

  6,509

7,135

Trade and other payables (30 June 2018 restated - see note 2.1)

 

  9,092

  7,513

10,429

 

 

 

  199,520

  205,384

212,838

 

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

Derivative financial liability - interest rate swaps

 

 

  13,935

  4,474

4,637

Excess hedge due to property disposal

 

 

  -

  -

1,354

 

 

 

  13,935

  4,474

5,991

 

 

 

 

 

 

 

 

 

  213,455

  209,858

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 February 2025 and March 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

 

 

 

 

 

 

 

 

30 June 2019

 30 June 2018

 31 December 2018

 

 

 

 (unaudited)

 (unaudited)

 (audited)

 

 

 

€'000

€'000

€'000

Financial liabilities

 

 

 

 

 

Interest rate swaps - Level 2 - current

 

 

-

-

(1,354)

Interest rate swaps - Level 2 - non-current

 

 

(13,935)

(4,474)

(4,637)

 

 

 

(13,935)

(4,474)

(5,991)

 

 

 

 

 

 

The valuation basis for the investment properties is disclosed in note 13.

 

 

 

 

 

 

26. Statement of voting at the Annual General Meeting on 21 June 2019

The Company remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The following table sets out actual voting in respect of the AGM Resolutions at the AGM held on Friday 21 June 2019.

 

 

 

 

 

 

 

 

Votes For/

 

 

 

 

AGM Resolutions

Discretionary

% of Vote

Against

% of Vote

Withheld

Ordinary Resolution 1

43,911,236

99.89

0

0.00

0

To receive the report of the directors and the financial statements for the year end 31 December 2018, together with the report of the auditors

 

 

 

 

 

Ordinary Resolution 2

36,441,755

82.90

7,469,480

16.99

0

To approve the Directors' Remuneration Report

 

 

 

 

 

Ordinary Resolution 3

43,911,236

99.89

0

0.00

0

To declare a final dividend of €5.15 cents (GBP: 4.62p) per share

 

 

 

 

 

Ordinary Resolution 4

36,345,109

86.66

5,544,657

13.22

2,021,469

To re-elect Robert Hingley as a director

 

 

 

 

 

Ordinary Resolution 5

32,580,546

74.15

11,308,189

25.74

22,500

 To re-elect Quentin Spicer as a director

 

 

 

 

 

Ordinary Resolution 6

33,956,368

79.17

8,881,748

20.71

1,073,119

To re-elect Charlotte Valeur as a director

 

 

 

 

 

Ordinary Resolution 7

33,957,055

79.17

8,881,061

20.71

1,073,119

To re-elect Jonathan Thompson as a director

 

 

 

 

 

Ordinary Resolution 8

33,957,055

79.17

8,881,061

20.71

1,073,119

To re-elect Monique O'Keefe as a director

 

 

 

 

 

Ordinary Resolution 9

43,886,243

99.89

0

0.00

24,993

To resolve that RSM UK Audit LLP be, and is hereby, re-appointed auditors of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company

 

 

 

 

 

 

 

 

 

 

 

Ordinary Resolution 10

43,891,243

99.89

0

0.00

19,993

To resolve that the Audit Committee determine the remuneration of the auditors on behalf of the Board

 

 

 

 

 

Special Resolution 11

43,349,306

98.66

542,062

1.23

19,868

To resolve that the Company be authorised to make market purchases of up to 15,112,711 of its shares

 

 

 

 

 

Special Resolution 12

31,441,935

78.98

8,316,137

20.89

4,153,163

To resolve that the Directors be empowered to issue up to 10,075,141 shares for cash as if the members' pre-emption rights contained in the Articles of Association did not apply to any such issue

 

 

 

 

 

 

 

 

 

 

 

All resolutions were passed by the requisite majority, although the Board notes that Resolutions 5, 6, 7, 8 and 12 have been passed with more than 20% of votes cast against.  In accordance with the AIC 2019 Code requirement, the Company has actively sought to engage with significant shareholders who voted against these resolutions. This dialogue has been initiated in order to better understand their voting decision.

The Board understands that the main issue of concern which ultimately led some investors to vote against resolutions 5,6,7 and 8 related to the levels of disclosure surrounding the variable component of Director remuneration as set out in the 2018 Annual Report. Following productive and positive engagement, the Board is reassured that the same vote would not have breached the 20% threshold now that it has had the opportunity to more fully engage with shareholders. 

With respect to resolution 12 (disapplication of pre-emption rights for the issuance of up to 10% of issued share capital) the feedback received indicated that some investors, as a matter of principle, consider that a share issue greater than 5% involving the disapplication of pre-emption rights should be the subject of shareholder consultation and approval on a case-by-case basis.  The Board has considered this feedback and reiterates that, in accordance with the commitment set out in the listing prospectus, the Company is not permitted to issue share capital at a discount to Net Asset Value without prior shareholder approval. 

The Board appreciates the feedback it has received to date on the above matters and will continue its policy of proactive engagement with its shareholders. In line with the UK Corporate Governance Code, a final summary of the Board's response to the AGM results will be set out in the FY 2019 Annual Report and Accounts.

 

 

 

 

 

 

 

 

 

 

 

27.  Related party transactions

 

 

 

 

 

 

 

 

 

 

 

Related party transactions not disclosed elsewhere are as follows:

 

 

 

 

 

 

During the six month period ended 30 June 2019, an amount of €369,000 (December 2018: €973,000, June 2018: €402,000) was payable to Estera Fund Administrators (Jersey) Limited and Estera Trust (Guernsey) Limited for accounting, administration and secretarial services. At 30 June 2019, €178,000 (December 2018: €134,000, June 2018: €189,000) Estera Fund Administrators (Jersey) Limited only) was outstanding.

 

 

 

 

 

 

During 2019, PMM Residential Limited (Formerly PMM Partners (UK) Limited) acted as the Property Advisor to the Company. For the six month period ended 30 June 2019, an amount of €2,954,000 (€2,871,000 Management Fees and €83,000 Other expenses and fees) (December 2018: €5,947,000 (€5,858,000 Management fees and €88,000 Other expenses and fees), June 2018: €2,963,000 (€2,467,000 Management fees and €496,000 Other expenses and fees)) was payable to PMM Residential Limited. At 30 June 2019 €nil (December 2018: €7,450, June 2018: €nil) was outstanding.

 

 

 

 

 

 

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 €719,000 (December 2018: €3,995,000, June 2018: €103,000). Please refer to note 21 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.

 

 

 

 

 

 

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 from the Limited Partners, M Hilton, a director of PMM Residential Limited and P Ruddle. 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.

 

 

 

 

 

 

The Group entered into an unsecured loan agreement with M Hilton and P Ruddle in connection with the acquisition of PSPF. At the period end an amount of €781,500 (December 2018: €768,195, June 2018: €770,119) each was owed to the Group. The loans bear interest of 4% per annum.

 

 

 

 

 

 

Dividends paid to Directors in their capacity as a shareholder amounted to €1,195 (December 2018: €1,740, June 2018: €1,160).

 

 

 

 

 

 

 

 

28.  Events after the reporting date

 

 

 

 

 

 

 

 

 

 

During the first half of 2019, the Company exchanged contracts for the acquisition of two properties in Berlin for the purchase price of €5.5 million neither of which had completed at the balance sheet date. Both transactions have subsequently completed in July and August respectively.

 

 

 

 

 

 

In August 2019 the Company exchanged contracts for the sale of one property in the outer Berlin suburb of Eichwalde with proceeds of €2 million. The transaction is still awaiting completion.

 

 

 

 

 

 

The Company had exchanged contracts for the sale of one condominium in Berlin for the proceeds of €0.1 million prior to the reporting date. The sale of that unit subsequently completed in Q3 2019.

 

 

 

 

 

 

In Q3 2019 the Company exchanged contracts for the sale of ten condominiums in Berlin for the aggregated consideration of €3.9million. The transactions are still awaiting completion.

 

 

 

 

 

 

In August, the Company concluded an agreement with Accentro Real Estate AG, one of Germany's leading condominium sales platforms. Under the terms of this agreement, Accentro will market the remaining Boxhagener Strasse units through their extensive network on behalf of PSDL. After 18 months, Accentro is contracted to purchase any unsold units from the fund for a cash consideration, guaranteeing revenues on completion of contract.

 

 

 

 

 

 

In September 2019 the Company announced the signing of a new €240 million facility with Natixis Pfandbriefbank AG, repaying the €119 million facility held with DZ Hyp. The facility comprises two tranches, one being for €190 million (the "Refinancing Facility") and the other for €50 million (the "Additional Facility").

The Refinancing Facility is a seven-year, interest-only loan with a margin of 115bp over 3-month Euribor, floored at zero. The outstanding swap portfolio was restructured to provide interest rate hedging to match the new loan maturity. The Company's LTV (excluding cash held on balance sheet) following drawdown increased from 28.6% to 39.2%, while the overall cost of financing decreased from 2.19% to 2.13%.

The Additional Facility is available for drawdown 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.

 

 

 

 

 

 

 

With effect from on or around 4 October 2019, the fund administrator will change from Estera Fund Administrators (Jersey) Limited to Apex Financial Services (Alternative Funds) Limited.

 

 

 

 

 

 

 

 

Professional Advisors

 

 

 

 

 

 

 

 

 

 

 

Property Advisor

 

 

PMM Partners (UK) Limited

 

 

 

 

54-56 Jermyn Street

 

 

 

 

London SW1Y 6LX

 

 

 

 

 

 

Administrator

 

 

Estera Fund Administrators (Jersey) Limited

Company Secretary

 

 

Estera Secretaries (Jersey) Limited

and Registered Office

 

 

13-14 Esplanade

 

(To 4th October 2019)

 

 

St. Helier

 

 

 

 

 

Jersey JE1 1EE

 

 

 

 

 

 

 

Administrator

 

 

Apex Financial Services (Alternative Funds) Limited

Company Secretary

 

 

12 Castle Street

 

 

and Registered Office

 

 

St Helier

 

 

(From 4th October 2019)

 

 

Jersey JE2 3QA

 

 

 

 

 

 

 

 

 

 

 

 

Registrar

 

 

Link Market 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

 

 

 

 

 

 

 

English Legal Advisor

 

 

Stephenson Harwood LLP

 

 

 

1 Finsbury Circus

 

 

 

London EC2M 7SH

 

 

 

 

 

 

Jersey Legal Advisor

 

 

Appleby

 

 

 

 

 

13-14 Esplanade

 

 

 

 

St. Helier

 

 

 

 

 

Jersey JE1 1BD

 

 

 

 

 

 

 

German Legal Advisor

 

 

Mittelstein Rechtsanwälte

 

as to property law

 

 

Alsterarkaden 20

 

 

 

 

Hamburg 20354

 

 

 

 

Germany

 

 

 

 

 

 

 

 

German Legal Advisor as

 

 

Taylor Wessing Partnerschaftsgesellschaft mbB

to German partnership law

 

 

Thurn-und-Taxis-Platz 6

 

 

 

 

60313 Frankfurt a.M.

 

 

 

 

Germany

 

 

 

 

 

 

 

 

Sponsor and Broker

 

 

Numis Securities Limited

 

 

 

 

10 Paternoster Square

 

 

 

 

London EC4M 7LT

 

 

 

 

 

 

 

Independent Property Valuer

 

 

Jones Lang LaSalle

 

 

 

 

Rahel-Hirsch-Strasse 10

 

 

 

 

10557 Berlin

 

 

 

 

 

Germany

 

 

 

 

 

 

 

 

Auditor

 

 

RSM UK Audit LLP

 

 

 

 

25 Farringdon Street

 

 

 

 

London EC4A 4AB

 

             

 


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Interim Results for 6 months ended 30 June 2019 - RNS