TIDMPSDL
RNS Number : 7165T
Phoenix Spree Deutschland Limited
29 March 2021
Phoenix Spree Deutschland Limited
(the "Company" or "PSD")
Financial results for the year ended 31 December 2020
Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed
investment company specialising in German residential real estate,
announces its full year audited results for the financial year
ended 31 December 2020.
Financial Highlights
Year to 31 Year to 31 2020 v 2019
December 2020 December 2019
% change
Income Statement
-------------- -------------- -----------
Gross rental income ( m) 23.9 22.6 5.7
-------------- -------------- -----------
Profit before tax ( m) 37.9 28.6 32.5
-------------- -------------- -----------
Dividend ( cents (GBP pence))(1) 7.50 (6.75) 7.50 (6.30) -
-------------- -------------- -----------
Balance Sheet
-------------- -------------- -----------
Portfolio valuation ( m) 768.3 730.2 5.2
-------------- -------------- -----------
Like-for-like valuation growth
(%) 6.3 7.1 -
-------------- -------------- -----------
IFRS NAV per share ( ) 4.48 4.23 5.9
-------------- -------------- -----------
IFRS NAV per share (GBP)(1) 4.04 3.58 12.8
-------------- -------------- -----------
EPRA NTA(2) per share ( cents) 5.28 4.92 7.3
-------------- -------------- -----------
EPRA NTA(2) per share (GBP pence) 4.76 4.16 14.4
-------------- -------------- -----------
EPRA NTA(2) per share total return
( %) 8.8 9.1 -
-------------- -------------- -----------
Net LTV(3) (%) 33.1 32.6 -
-------------- -------------- -----------
Operational Statistics
-------------- -------------- -----------
Portfolio valuation per sqm (
) 3,977 3,741 6.3
-------------- -------------- -----------
Annual like-for-like rent per
sqm growth (%) -15.8 5.6 -
-------------- -------------- -----------
EPRA vacancy (%) 2.1 2.8 -
-------------- -------------- -----------
Condominium sales notarised (
m) 14.6 8.8 65.4
-------------- -------------- -----------
1 - Calculated at FX rate GBP/EUR 1:1.11 2 - New EPRA Best
Practice guidelines from October 2019 introduced three new measures
of net asset value: EPRA net tangible assets (NTA), EPRA net
reinvestment value (NRV) and EPRA net disposal value (NDV). EPRA
NTA is calculated on the same basis as EPRA NAV; and is the most
relevant measure for PSD and therefore now acts as the primary
measure of net asset value. Further information can be found on
page 16. 3 - Net LTV uses nominal loan balances as per note 23
rather than the loan balances on the Consolidated Statement of
Financial Position which take into account Capitalised Finance
Arrangement Fees in the balance.
EPRA NTA underpinned by significant condominium potential
-- Record condominium notarisations of 14.6 million (43
condominium units) during the year to 31 December 2020, a 65.4 per
cent increase from 8.8 million in the prior year.
-- Average achieved value per sqm of 4,320 for residential
units, a 19.2 per cent premium to book value of each property.
-- 70 per cent of Portfolio assets legally split into
condominiums, up from 58 per cent as at 31 December 2019.
-- A further 15 per cent are in application, over half of which
are in the final stages of the process.
Berlin rent controls ("Mietendeckel") and COVID-19
-- Collected rental income per sqm as at 31 December 2020 fell by 15.8 per cent, reflecting the implementation of the final phase of the Mietendeckel in November 2020.
-- Contracted rental income per sqm as at 31 December 2020 grew
by 4.1 per cent year on year. The Company may have the right to
collect the difference between rents at the contracted level and
the rates set by the Mietendeckel in the event that the
Mietendeckel is successfully challenged.
-- New tenant contracts which provide for the reversion to
market rents in the event that the Mietendeckel is ruled to be
unlawful.
-- Underlying EPRA vacancy of 2.1 per cent, a near record low,
reflecting the limited impact of COVID-19 and the Mietendeckel on
the supply of available rental property.
-- Final legal ruling by the Federal Constitutional Court on the
Mietendeckel anticipated in H1 2021. The Company and its legal
advisors remain of the view that the Berlin rent-cap is
unconstitutional and will be removed.
-- Limited impact on rent collection from COVID-19. In excess of
99 per cent of rents collected during 2020, with the collection
rate remaining consistent in 2021 to date.
Continued shareholder value and robust balance sheet
-- Successful refinancing of 37.8 million releasing 12.0 million
of cash. Net LTV remains conservative at 33.1 per cent.
-- Unchanged annual dividend of 7.50 cents. Dividend increased
or maintained since listing in June 2015.
-- Resumption of share buy-back programme in second half of 2020.
-- As at 26 March 2021, 1.5 per cent of the issued share capital
had been repurchased since the resumption of the share buyback
programme in September 2020 at an average 32 per cent discount to
year-end 2020 EPRA NTA.
Outlook
-- Long-term Berlin demographic trends expected to remain positive:
o Decreased availability of rental stock, exacerbated by the
Mietendeckel, continues to support market rents;
o Condominium pricing expected to remain strong, particularly
for centrally located Berlin apartments.
-- Mietendeckel will continue to materially impact Collected
Rents in 2021 compared to 2020 unless legal challenge is
successful.
-- Pending clarification of the legality of Mietendeckel rules,
the Company will continue to explore all options within the
existing Portfolio to optimise strategic flexibility.
-- Two new condominium construction projects, representing a
combined total of 34 units, are under construction, with expected
completion in early 2022.
-- Condominium sales of 2.9 million to 26 March 2021, a 240 per cent increase versus Q1 2020.
-- Robust business model, a strong balance sheet and good levels
of liquidity mean PSD remains well positioned regardless of the
outcome of the Mietendeckel constitutional review.
Robert Hingley, Chairman of Phoenix Spree Deutschland,
commented:
"I am pleased to report another resilient performance for the
year . We have adapted our strategy to mitigate any short-term
impact on the portfolio and maintained our strategic optionality as
we await a successful challenge of the new Berlin rent controls.
Further progress on condominium splitting, combined with an
acceleration in condominium sales at a premium to book value,
highlights the intrinsic value within the Portfolio. W e remain
confident in the longer-term demographics for Berlin residential
rental market."
Notes to the preliminary announcement
This announcement has been extracted from the annual report and
financial statements for the year ended 31 December 2020 (the
"Annual Report"), which will shortly be available on the Company's
website, www.phoenixspree.com/investors . All page references in
this announcement refer to page numbers in the Annual Report.
The Annual Report has also been submitted to the National
Storage Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . Printed
copies of the Annual Report will be distributed to shareholder on
or around 21 April 2021.
For further information, please contact:
Phoenix Spree Deutschland Limited
Stuart Young +44 (0)20 3937 8760
Numis Securities Limited (Corporate Broker)
David Benda +44 (0)20 3100 2222
Tulchan Communications (Financial PR)
Elizabeth Snow
Oliver Norgate +44 (0)20 7353 4200
CHAIRMAN'S STATEMENT
I am pleased to report that PSD has delivered another resilient
performance. As at 31 December 2020, the Portfolio was valued at
768.3 million by Jones Lang LaSalle GmbH, a like-for-like increase
of 6.3 per cent. The Euro EPRA NTA total return per share was 8.8
per cent over the year and the sterling return was 16.0 per cent,
reflecting a fall in the value of sterling. The Company has
additionally delivered record condominium sales and made further
progress in condominium splitting.
This result has been achieved despite the full implementation
during the financial year of the new Berlin rent controls (the
"Mietendeckel") and the negative impact that COVID-19 has had on
the German economy.
Adapting our strategy
During the course of 2020, the Company has complied with, and
fully implemented, the various components of the Mietendeckel. All
of our tenants have been notified as to how they will be affected
by the new rules and, where necessary, rent reductions have been
implemented in accordance with the new rent caps.
PSD has adapted its strategy to mitigate any short-term impact
on the Portfolio, while ensuring it maintains maximum strategic
optionality if, as expected, the Mietendeckel is found to be
unconstitutional. More details of the measures we have taken can be
found in the Report of the Property Advisor.
The financial impact on the Company and its medium-term strategy
are largely dependent on the timing and eventual outcome of the
legal ruling on the Mietendeckel. However, it is encouraging that
the increase in the Portfolio valuation reported by JLL during the
financial year assumes that it is fully implemented for its entire
five-year term. PSD is well positioned to withstand any financial
impact in the event that the new rental regulations are not
overturned. However, PSD and its legal advisors remain of the view
that this legislation will be successfully challenged in the German
Federal court during the first half of 2021.
COVID-19
The Company's overriding priority is the health and wellbeing of
its tenants, work colleagues and wider stakeholders during what has
been a period of significant disruption. Where necessary, the
Company continues to support its tenants, both residential and
commercial, through agreeing, on a case-by-case basis, the payment
of monthly rents or deferring rental payments.
Although the pandemic has caused unprecedented shrinkage in
Germany's post war economy, I am pleased to report that the impact
of COVID-19 on PSD's rent collection has been very limited, with
the level of rent arrears in line with 2019.
I am pleased that PSD and its Property Advisor have continued to
support all of their charitable causes and initiatives during the
pandemic and that PSD has committed to supporting an additional
Berlin charity, Laughing Hearts, in 2021. This charity supports
children living in children's homes and social care.
Share buy-backs and dividend
After fully considering the potential impact of both the
Mietendeckel and COVID-19, the Board is pleased to recommend an
unchanged further dividend of 5.15 cents per share (GBP 4.65 pence
per share). Since listing on the London Stock Exchange in June 2015
and including the announced dividend for 2020 and bought-back
shares held in treasury, 57.9 million has been returned to
shareholders. The Board is committed to continue to provide
shareholders with a secure dividend over the medium term.
During the past year, PSD has secured more flexible and
cost-efficient financing to support the medium and long-term
strategic objectives of the business, providing liquidity in order
to take advantage of opportunities arising from market disruption
caused by changes to the rent laws. However, following the onset of
the COVID-19 pandemic, the Board considered it prudent, at that
time, to suspend PSD's share buy-back programme pending greater
clarity on the financial impact that it might have. As it became
clearer that the pandemic was not materially affecting rent
collection levels, share buy-backs were resumed in September
2020.
Property Advisor
On 21 September 2020 the Company announced that its Property
Advisor, PMM Residential Limited, had changed its name and
rebranded as QSix Residential Limited. This name change has no
impact on the existing property advisory and investor relations
agreement as it relates to PSD and the Board look forward to
continuing its valued partnership in the years to come.
Governance and compliance
The Board recognises the importance of a strong corporate
governance culture and maintains the principles of good corporate
governance, as set out in the Association of Investment Companies
Code of Corporate Governance ("AIC Code"). Further details of how
the Company has applied the provisions of, and complied with, the
AIC Code can be found in the Directors' Report.
During the year, the Company announced the appointments of
Antonia Burgess and Greg Branch as independent, Jersey-based,
non-executive Directors. Antonia and Greg bring with them a wealth
of experience and insight across the real estate, legal and
financial services worlds, which complement and enhance the skill
set of the Board. As previously announced, Charlotte Valeur retired
as a non-executive board member in May 2020. I would like to
welcome Antonia and Greg and thank Charlotte for her service and
contribution to the Company.
Quentin Spicer has signalled his intention to retire from the
Board at the forthcoming Annual General Meeting. Quentin has
overseen the transformation of the Company from inception in 2007,
through to listing on the London Stock Exchange in 2015 and its
expansion thereafter. On behalf of the entire Board and of QSix, I
would like to express our gratitude for his dedicated service over
the past fourteen years. He has provided invaluable guidance and
leadership through a period of considerable change and leaves with
all of our very best wishes.
Corporate responsibility
The Board recognises the importance of operating with integrity,
transparency and clear accountability towards its shareholders,
tenants and other key stakeholders. We understand that being a
responsible Company, balancing the different interests of our
stakeholders and addressing our environmental and social impacts,
is intrinsically linked to the success and sustainability of our
business.
To this end, our 'Better Futures' Corporate Responsibility
('CR') Plan provides a framework to monitor existing activities
better. It has four key pillars that have been integrated
throughout our business operations: Protecting our Environment;
Respecting People; Valuing our Tenants and Investing in our
Communities. This year, we have evolved our CR pillars to align
with EPRA's Environmental, Social and Governance (ESG)
reporting.
Protecting our environment
We recognise that the nature of our business has environmental
and social impacts and that we have a responsibility to consider
and minimise these impacts, where possible. Our Environment Policy
sets guidance as to how PSD, QSix and other key suppliers should
operate to reduce this impact.
Our aim is to strengthen our ESG monitoring and reporting by
introducing EPRA's Sustainability Best Practice Recommendations and
capturing our ESG measurements within their framework. During the
financial year, the Company introduced measures to capture relevant
environmental data for all our buildings that use oil-based energy
and plans to increase coverage in the coming years to include the
buildings using gas and district heating.
Outlook
As we await the outcome of the legal challenge to the
Mietendeckel in 2021, the Board remains confident in the long-term
outlook for PSD, particularly given the strength of demand for
housing in Berlin and the strategic flexibility available to the
Company.
PSD remains well positioned to mitigate any short or medium-term
impact associated with the Mietendeckel and COVID-19. The Company
continues to be supported by a strong balance sheet with good
liquidity and we have maintained our strategic optionality in the
event the rules are found unconstitutional. There continues to be
positive condominium pricing trends and, with 70 per cent of the
portfolio now legally split into condominiums, there is ample scope
to launch further condominium projects, where appropriate.
We are closely monitoring the recent spike in COVID-19 infection
rates in Germany and will continue to support our tenants as we
await further progress on the planned European vaccination
programme.
REPORT OF THE PROPERTY ADVISOR
The Property Advisor's priority throughout 2020 has been to
protect and support the Company's tenants, colleagues and
communities throughout this period of disruption. The Property
Advisor has also continued to manage the impact on the Portfolio of
the introduction of the Mietendeckel (outlined in further detail
below) and the successful acceleration of the condominium strategy,
reaching record levels in 2020.
The Berlin Mietendeckel
Regulations introduced by the Berlin Red-Red-Green coalition
during 2020 to cap, or potentially reduce rents for private
non-subsidised rental properties ("the Mietendeckel") aim to
prevent rents being set at free market levels. This is despite the
fact that Germany already has in place, at the federal level,
tenant protections which rank amongst the strongest in the Western
world.
The uncertainty created by the Mietendeckel has significantly
disrupted the Berlin market. This has been reflected by a reduction
in Berlin transaction activity from prior peak levels, a
significant reduction in the availability of rental accommodation
for tenants who require it most, and a sharp decline in investment
in the stock of Berlin housing. Notwithstanding these impacts,
Jones Lang LaSalle GmbH, the Company's independent property
valuers, have confirmed that, as of 31 December 2020, there had
been no material adverse effect on Berlin residential sales
prices.
These measures have presented challenges to the Company's rental
business model, which has traditionally relied on re-letting at
market rates to justify the considerable investment that
significantly improves the standard of accommodation available to
our tenants. However, PSD is well positioned to withstand any
financial impact if the new rental regulations are not overturned.
Scenarios in the event that the Mietendeckel is not successfully
challenged have been rigorously stress-tested, including any
potential impact on rental income growth and loan covenants.
Moreover, with over 70 per cent of the Portfolio now legally split
into condominiums, the Property Advisor believes the Company has
significant strategic flexibility to adapt its business model by
selling parts of its Portfolio as individual apartments at a
premium to book value if required.
The 2020 Portfolio valuation undertaken by Jones Lang Lasalle,
the Company's independent property valuer, assumes that the
Mietendeckel is implemented for its full five-year lifespan and
therefore incorporates the negative impact on rental income caused
by the Mietendeckel measures. Notwithstanding the fact that the
majority of the Portfolio is now split into condominiums, just 7
per cent were valued under a condominium scenario (see note 17) as
at 31 December 2020 as these were the only active sales
projects.
Legal developments
Whilst the exact timing of a legal decision remains unclear,
developments challenging the legality of the Mietendeckel during
2020 have been encouraging.
In May 2020, the opposition in the Berlin House of
Representatives and a quorum of Federal Parliament MPs lodged cases
in Berlin's Regional Constitutional Court and the Federal
Constitutional Court. Additionally, in June 2020, twelve
constitutional complaints from private owners were filed with the
Federal Supreme Court.
In July 2020, a similar move to introduce a six-year rent freeze
in Bavaria was blocked by the Bavarian Constitutional Court. The
ruling stated that a federal state may not issue its own
regulations that contradict federal rental laws. Whilst this ruling
does not directly impact the legality of the Berlin Mietendeckel,
many of the basic legal arguments against the imposition of a
rent-cap are the same, namely that in Germany, residential tenant
law is governed by the German Civil Code and is therefore a matter
for the Federal and not State Government.
Maintaining strategic flexibility
Pending clarification of the legality of the Mietendeckel rules,
the Company has explored all options within the existing Portfolio
to optimise strategic flexibility. This includes condominium
splitting and sales at a premium to book value, share buybacks at a
discount to EPRA NTA, careful monitoring of capex projects and new
tenant contracts which could allow the retrospective collection of
market rents in the event that the Mietendeckel is ruled to be
unlawful. These measures have been outlined in greater detail
below.
New tenancy agreements
To avoid uncertainty among tenants as to their contractual
rental obligations during the period when the legality of
Mietendeckel remains unresolved, PSD has amended its tenancy
agreements in line with the rest of the industry. These new
agreements specify both rents currently payable as prescribed by
the Mietendeckel whilst in place ("Collected"), and free market
rents which would have been permissible under the German Civil Code
("Contracted").
The new tenancy contracts stipulate that, if the Mietendeckel or
any part thereof is voided, suspended, repealed, or otherwise
abolished, any higher Contracted rent permissible under the German
Civil Code shall once again be payable. If the voiding or
suspension were to be applied on an ex-tunc basis (i.e. from the
outset), back-payments could be sought to cover the difference
between the Collected rent and Contracted rent for the entire term
of the agreement. Tenants have, therefore, been advised by the
Berlin government to set aside appropriate reserves to cover this
possibility.
Measures introduced to comply with the Berlin Mietendeckel
Specifically, the measures introduced by PSD to comply with the
Mietendeckel in 2020 were as follows:
Post 23 February 2020:
-- First time letting and reletting: New rents may not exceed
the prescribed upper rent limit. In some instances, PSD has had to
lower the rent to a level below the rent paid by the previous
tenant.
-- Rent freeze on existing leases: For existing leases, a rent
freeze initially applied, but with no requirement to lower rents,
provided the rent level set at 18 June 2019 had not been increased
since that date. In instances where there had been a rent increase,
PSD reduced rental payments to the June 2019 level.
Post 23 November 2020:
-- Rent reductions: Where the rent limit (adjusted for location
surcharges or discounts) was exceeded by more than 20 per cent, PSD
has had to reduce the rent to 120 per cent of the prescribed rent
limit. Around 44 per cent of tenants have received rent
reductions.
Financial impact
Reported rental income for the financial year ended 31 December
2020 includes the impact of the Mietendeckel measures that have
been implemented to date.
The Property Advisor estimates that the financial impact of
these combined measures for the financial year ended 31 December
2020 was in the region of 4 per cent of gross rental income over
the full year. In the event that the Mietendeckel is not repealed
during 2021, it is estimated that the reduction of annualised net
rental income would be up to 20 per cent, reflecting the
implementation of all rental reductions for a full financial
year.
Financial highlights for the twelve-month period to 31 December
2020
million (unless otherwise stated) Year to Year to
31-Dec-20 31-Dec-19
--------- ---------
Gross rental income 23.9 22.6
--------- ---------
Investment property fair value gain 41.5 41.5
--------- ---------
Profit before tax (PBT) 37.9 28.6
--------- ---------
Reported EPS ( ) 0.31 0.22
--------- ---------
Investment property value 768.3 730.2
--------- ---------
Net debt (Nominal balances)(1) 254.4 237.8
--------- ---------
Net LTV (%) 33.1 32.6
--------- ---------
IFRS NAV per share ( ) 4.48 4.23
--------- ---------
IFRS NAV per share (GBP)(2) 4.04 3.58
--------- ---------
EPRA NTA per share ( ) 5.28 4.92
--------- ---------
EPRA NTA per share (GBP) 4.76 4.16
--------- ---------
Dividend per share ( cents) 7.5 7.5
--------- ---------
Dividend per share (GBP pence)(2) 6.75 6.3
--------- ---------
EPRA NTA per share total return for period
(%)(3) 8.8 9.1
--------- ---------
GBP EPRA NTA per share total return for
period (%)(2) 16.0 2.9
--------- ---------
(1 - nominal loan balances as per note 23 rather than the loan
balances on the Consolidated Statement of Financial Position which
consider Capitalised Finance Arrangement Fees in the balance as per
IAS 23.)
(2 - Calculated at FX rate GBP/EUR 1:1.11)
(3 - Further EPRA Net Asset Measures can be found in note
31.)
Financial results
Reported revenue for the financial year to 31 December 2020 was
23.9 million (31 December 2019: 22.6 million). Profit before
taxation was 37.9 million (31 December 2019: 28.6 million) which
was positively affected by a revaluation gain of 41.5 million (31
December 2019: 41.5 million).
The year-on-year rise in profit before tax is driven by a
property valuation increase alongside a smaller loss on the value
of interest rate swaps than in prior year, a larger gain on
disposal of condominiums and a decline in the performance fee due
to the Property Advisor.
Property expenses rose over the year, reflecting service charge
costs on the new acquisition in Brandenburg not present in the
prior year. The increase in administrative expenses reflects an
acceleration in the volume of assets undergoing separation into
condominiums at the land registry. Reported earnings per share for
the period were 0.31 cents (31 December 2019: 0.22 cents).
Reported EPRA NTA per share rose by 7.3 per cent in the period
to 5.28 (GBP4.76) (31 December 2019: 4.92 (GBP4.16)). After taking
into account the dividends paid during 2020 of 7.5 cents (6.5
pence), which were paid in June and October 2020, the Euro EPRA NTA
total return for the period was 8.8 per cent (2019: 9.1 per cent).
The sterling EPRA NAV per share total return was 16.0 per cent (31
December 2019: 2.9 per cent), reflecting a favourable exchange rate
movement during the financial year.
Dividend
The Board is pleased to declare an unchanged further dividend of
5.15 cents per share (GBP 4.65 pence per share) (31 December 2019:
5.15 cents, GBP 4.40 pence). The dividend is expected to be paid on
or around 7 June 2021 to shareholders on the register at close of
business on 14 May 2021, with an ex-dividend date of 13 May 2021.
Taking into account the interim dividend paid in October 2020, the
total dividend for the financial year to 31 December 2020 is 7.50
cents per share (GBP 6.75 pence per share) (31 December 2019: 7.50
cents, GBP 6.30 pence).
Since listing on the London Stock Exchange in June 2015 to 29
March 2021, including the announced dividend for 2020 and
bought-back shares held in treasury, 57.9 million has been returned
to shareholders. The dividend is paid from operating cash flows,
including the disposal proceeds from condominium projects, and the
Company will seek to continue to provide its shareholders with a
secure dividend over the medium term, subject to the distribution
requirements for Non-Mainstream Pooled Investments, and after full
consideration of the impact of the Mietendeckel and any ongoing
impact associated with COVID-19.
Table: Portfolio valuation and breakdown
31 December 31 December
2020 2019
Total sqm ('000) 193.2 195.2
------------ ------------
Valuation ( m) 768.3 730.2
------------ ------------
Like-for-like valuation growth
(%) 6.3 7.1
------------ ------------
Value per sqm ( ) 3,977 3,741
------------ ------------
Fully occupied gross yield (%) 2.4 2.9
------------ ------------
Number of buildings 98 98
------------ ------------
Residential units(1) 2,555 2,537
------------ ------------
Commercial units 139 142
------------ ------------
Total units 2,694 2,679
------------ ------------
(1 Unit increase year-on-year down to units due to units in the
new acquisition in Brandenburg being available for rent while being
under construction in prior year)
Like-for-like increase in Portfolio Valuation of 6.3 per
cent
The Berlin residential property market has remained resilient
during the financial year and, although transaction volumes
remained below peak levels, investment demand observed by Jones
Lang LaSalle GmbH ("JLL"), the Company's external valuers,
continues to support increased pricing. JLL have conducted a full
RICS Red Book property-by-property analysis, tied back to
comparable transactions in the Berlin market, and have provided a
Portfolio valuation with no matters of concern or material
uncertainty raised. The discounted cash flow methodology used by
JLL assumes that the Berlin rent cap ("the Mietendeckel") is fully
implemented by PSD and remains in place for its full five-year
lifespan.
As at 31 December 2020, the total Portfolio was valued at 768.3
million by JLL, an increase of 5.2 per cent over the twelve-month
period (31 December 2019: 730.2 million).
On a like-for-like basis, after adjusting for the impact of
acquisitions net of disposals, the Portfolio valuation increased by
6.3 per cent in the year to 31 December 2020, and by 3.6 per cent
in the second half of the financial year. This increase reflects
the combined impact of yield compression, supported by a further
decline in risk-free interest rates during the financial year.
The valuation as at 31 December 2020 represents an average value
per square metre of 3,977 (31 December 2019: 3,741) and a gross
fully occupied yield of 2.4 per cent (31 December 2019: 2.9 per
cent). Included within the Portfolio are nine properties valued as
condominiums, with all sales permissions granted, with an aggregate
value of 52.4 million (31 December 2019: five properties, 26.5
million).
Table: Rental income and vacancy rate
31 Dec 31 Dec 31 Dec 30 June 30 June
2020 2020 2019 2020 2020
Collected(1) Contracted(1) Collected(1) Contracted(1)
Total sqm ('000) 193.2 193.2 195.2 194.5 194.5
-------------- --------------- ------- -------------- ---------------
Annualised Rental Income
( m) 16.4 20.3 19.7 19.3 19.7
-------------- --------------- ------- -------------- ---------------
Gross in place rent
per sqm ( ) 7.5 9.3 9.0 8.9 9.1
-------------- --------------- ------- -------------- ---------------
Like-for-like rent per
sqm growth (%) -15.8 4.1 5.6 1.8 4.1
-------------- --------------- ------- -------------- ---------------
Vacancy % 6.8 6.8 6.7 8.0 8.0
-------------- --------------- ------- -------------- ---------------
EPRA Vacancy % 2.1 2.1 2.8 4.3 4.3
-------------- --------------- ------- -------------- ---------------
1 - New tenant agreements specify both rents currently payable
as prescribed by the Mietendeckel whilst in place ("Collected"),
and free market rents which would have been permissible under the
German Civil Code ("Contracted"). This is discussed further under
'New tenancy agreements' section above.
"Collected" like-for-like rental income per sqm decreased by
15.8 per cent
Collected rental income includes the impact of the Mietendeckel
measures that have now been fully implemented. It includes only
rental income that can be legally "Collected" under the terms of
the new Mietendeckel regulations.
As at 31 December 2020, Collected like-for-like rental income
per sqm was 7.5, a decrease of 15.8 per cent compared with the
prior year. This decline reflects the implementation of the final
phase of the Mietendeckel in November 2020, included in December
2020 rent per sqm disclosure.
On an annualised basis, Collected rental income for the month of
December 2020 was 16.4 million, a decrease of 16.7 per cent
compared with the prior year. On a like-for-like basis, excluding
the impact of acquisitions and disposals, Collected like-for-like
rental income was down 16.1 per cent over the same period.
"Contracted" like-for-like rental income per sqm increased by
4.1 per cent
Including any higher contractual rents permissible under the
German Civil Code, Contracted like-for-like rental income per sqm
was 9.3 as at 31 December 2020, an increase of 4.1 per cent
compared with the prior year.
On an annualised basis, Contracted rental income for the month
of December 2020 was 20.3 million, an increase of 2.8 per cent
during the financial year. On a like-for-like basis, excluding the
impact of acquisitions and disposals, Contracted rental income was
up 3.8 per cent over the same period.
The Property Advisor believes that Contracted rental growth
slowed primarily due to the impact of COVID-19 in temporarily
pausing the inward flow of population. This modest slowing compares
to a significant drop in rents in other capital cities such as
London and New York.
Table: EPRA Net Initial Yield (NIY) and "Topped up" Net Initial
Yield (NIY)
(All figures in million unless otherwise stated)
2020 2019
Investment property 768.3 730.1
------- -------
Reduction for NCI share and property
under development (11.3) (10.9)
------- -------
Completed property portfolio 757.0 719.2
------- -------
Estimated purchasers' costs 62.7 57.8
------- -------
Gross up completed property portfolio
valuation 819.7 777.0
------- -------
Annualised cash passing collected rental
income 16.4 19.7
------- -------
Property outgoings (2.8) (3.3)
------- -------
Annualised collected net rents 13.6 16.4
------- -------
Expected increase from Mietendeckel
rent cap expiry (1) 3.2 0
------- -------
"Topped up" Annualised net rents 16.8 16.4
------- -------
EPRA NIY (%) 1.7 2.1
------- -------
EPRA "Topped Up" NIY (%) 2.1 2.1
------- -------
(1 - Under EPRA guidelines, legally allowed lease incentives and
contracted step rents are included in the "Topped up" yield
calculation, since the expectation is that the Mietendeckel is
declared unconstitutional in 2021, the difference between
annualised contracted rents and annualised collected rents has been
included in this line.)
Vacancy at record lows
Reported vacancy as at 31 December was 6.8 per cent (31 December
2019: 6.7 per cent). On an EPRA basis, which adjusts for units
undergoing renovation, development or made available for sale, the
vacancy rate reduced to 2.1 per cent (31 December 2019: 2.8 per
cent), driven by a significant decline in available Berlin rental
property, caused by industry capacity withdrawal following the
introduction of the Mietendeckel.
Berlin Reversionary re-letting premium of 25.2 per cent
During the year to 31 December 2020, 269 new leases were signed,
representing a letting rate of approximately 11.6 per cent of
occupied units. The average Contracted rent achieved on new
lettings was 11.7 per sqm, a 1.5 per cent decrease on the prior
year, and an average premium of 25.2 per cent to passing rents.
This compares to a 36.4 per cent premium in the period to 31
December 2019. The decline in reversionary premium partially
reflects the inclusion of the re-lettings from the recent
acquisition in Brandenburg, where rents are lower than those
achieved in central Berlin. Looking solely at the Berlin portfolio,
the reversionary premium achieved was 33.9 per cent, down from 36.4
per cent in the prior period and reflecting the fact that the
Company has reduced unit renovation spend compared to 2020 and
offers the majority of its apartments in an "as is" state.
Following the introduction of the final phase of the
Mietendeckel on 23 November 2020, which required an automatic rent
reduction to all tenants in line with the new prescribed
Mietendeckel levels, the average reletting rental level on a
Collected basis for the Berlin portfolio was 7.6 per sqm, a
reversionary discount of 7.7 per cent. The Property Advisor
believes this rent level is little more than half the current
market rent and is required to be applied City-wide, regardless of
apartment micro location, size or condition. For this reason, the
Property Advisor believes the policy primarily benefits wealthier
households, in contrast to the main policy intention which was to
make housing more affordable for low-income households.
Limited impact from COVID-19 on rent collection
The Company's overriding priority is the health and wellbeing of
its tenants, work colleagues and wider stakeholders throughout this
period of unprecedented disruption. Where necessary, the Company
continues to support its tenants, both residential and commercial,
through agreeing, on a case-by-case basis, the payment of monthly
rents or deferring rental payments.
To date, the impact on rent collection has been limited. During
the year to 31 December 2020, 99.6 per cent of rents due had been
collected in total compared to 99.2 per cent in the prior year.
Residential rent collection remained particularly resilient and,
although a small number of the Company's commercial tenants were
impacted, 99.3 per cent of commercial rents were collected,
compared with 98.6 per cent in 2019.
Rent collection during the months of January and February 2021
has remained stable and the Company will continue to work
sensitively with any tenants in arrears to agree appropriate and
workable repayment schedules.
Portfolio investment
During the year to 31 December 2020, a total of 4.2 million was
invested across the Portfolio (31 December 2019: 6.5 million).
These items are recorded as capital expenditure in the financial
statements. A further 1.6 million (31 December 2019: 1.7 million)
was spent on maintaining the assets and is expensed through the
profit and loss account. The year-on-year decline in investment
reflects ongoing uncertainty in the Berlin rental market and the
decision to cease the programme of apartment renovations since this
investment cannot currently be recouped in the form of a rent
uplift on re-letting. As a result, apartments are mainly rented in
an "as is" condition, with expenditure focussed on areas which
guarantee tenant safety.
Table: EPRA Capital Expenditure
(All figures in ,000 unless otherwise stated)
31 December 2020 31 December 2019
Acquisitions 0 62
----------------- -----------------
Like-for-like portfolio 3,645 5,948
----------------- -----------------
Development 274 0
----------------- -----------------
Other 252 511
----------------- -----------------
Total Capital Expenditure 4,171 6,459
----------------- -----------------
Record 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.
Condominium price growth across all major German cities has
remained robust during 2020 having been largely unaffected by
COVID-19 related disruptions. Industry data shows that, in the
fourth quarter of 2020, prices in Berlin had increased by 5 per
cent versus the same period in 2019.
During the financial year to 31 December 2020, 41 condominium
units and two undeveloped attic spaces were notarised for sale (31
December 2019: 18 units). The average achieved notarised value per
sqm for the residential units was 4,320, representing a 19.2 per
cent premium to the most recent assessed book value of each
property and an 8.6 per cent premium to the average residential
Portfolio value as 31 December 2020.
These sales represent a significant increase compared with the
first half of the financial year, during which eight residential
units and two attic spaces were notarised for sale, with an
aggregate value of 3.0 million. In total, the Company has notarised
for sale condominiums with an aggregate value of 14.6 million
during the year to 31 December 2020 (31 December 2019: 8.8
million), a 65 per cent increase compared with the prior year.
As at 31 December 2020, 70 per cent of the Berlin portfolio had
been legally split into condominiums, providing opportunities for
the implementation of further condominium sales projects, where
appropriate. A further 15 per cent are in application, over half of
which are in the final stages of the process.
The Company notes that the Federal Government has previously
discussed the introduction of legislation which may limit the
ability of landlords to split their properties into condominiums.
The implementation of any such measures would be likely to reduce
the stock of apartments available on the market. Given the high
proportion of the Portfolio already split into condominiums the
valuation impact on the Company's Portfolio is expected to be
positive.
Condominium construction
The Property Advisor has completed an exercise to examine the
financial viability of the creation of new condominium units within
the footprint of the existing Portfolio. Two new construction
projects, representing a combined total of 34 units across two
assets, have been granted planning approval.
The first project is for the construction of a new 23-unit
apartment block located in the footprint of a property acquired in
2018. Alongside this, the undeveloped attic of the same property
will be built out with the creation of four new units for sale as
condominiums, or for rental. The second project involves building
out the attic and renovating existing commercial units to create
seven new residential units in an existing asset bought in
2007.
Construction on both projects is expected to commence in the
middle of 2021 and the first units are projected to be available
for sale or rental in the first half of 2022. The total
construction budget for two combined projects is expected to be
11.8 million.
The Company also has building permits to renovate attics in 20
existing assets to create a further 49 units for sale as
condominiums, or as rental stock.
Debt and gearing
As at 31 December 2020, PSD had gross borrowings of 291.4
million (31 December 2019: 280.2 million) and cash balances of 37.0
million (31 December 2019: 42.2 million), resulting in net debt of
254.4 million (31 December 2019: 237.8 million) and a net loan to
value on the Portfolio of 33.1 per cent (31 December 2019: 32.6 per
cent).
Following a strategic review of PSD's liability structure, a new
240 million term loan on improved terms was completed in September
2019. The new facility was agreed with Natixis Pfandbriefbank AG
and comprised of two tranches, being a refinancing facility for 190
million which was drawn down in September 2019, and a further
acquisition facility for 50 million which was drawn down in two
parts in 2020.
The first drawdown of the acquisition facility comprised a 20.3
million facility signed in April 2020, replacing the existing 16.4
million facility acquired as part of the share deal acquisition of
the apartment complex in Brandenburg in December 2019. The new loan
was signed on improved terms with an extended duration and lower
interest rate.
The second drawdown comprised the remaining 29.7 million of the
acquisition facility. The 29.7 million drawdown refinanced 21.4
million of existing loans and offered more flexible terms, released
8.1 million of cash and had a maturity profile in line with the
Company's existing debt facilities. The new debt does not amortise,
whereas the replaced debt incurred amortisation of 1.5 per cent per
annum. Additionally, the new debt allows the sale of assets as
condominiums, offering more flexibility than the previous debt
provider terms.
The increase in gross debt in the period partly results from the
refinancing discussed above, offset by debt repayments associated
with the sale of condominiums during the year, and scheduled
repayments on existing debt.
Nearly all PSD's debt effectively has a fixed interest rate
through hedging. As at 31 December 2020, the blended interest rate
of PSD's loan book was 2.0 per cent (31 December 2019: 2.0 per
cent). The average remaining duration of the loan book at 31
December 2020 had decreased to 6.0 years (31 December 2019: 6.6
years)
EPRA Best Practice Reporting Metrics
In October 2019, the European Public Real Estate Association
(EPRA) published new best practice recommendations (BPR) for
financial disclosures by public real estate companies. PSD supports
this reporting standardisation approach designed to improve the
quality and comparability of information for investors.
The BPR introduced three new measures of net asset value: EPRA
net tangible assets (NTA), EPRA net reinvestment value (NRV) and
EPRA net disposal value (NDV). The Company has adopted these new
guidelines early and applies them in our 2020 Annual Report. EPRA
NTA is calculated in the same way as EPRA NAV has been calculated
in previous reports and is the most relevant measure for our
business and therefore now acts as our primary measure of net asset
value. Where relevant, the previously reported EPRA measures of net
assets are also included below for comparative purpose.
The following table sets out PSD's EPRA KPIs, and references
where more detailed calculations supporting the KPIs can be found
in the report.
Table: EPRA Metrics
Metric Balance Page reference Note reference
EPRA Earnings ( m) (4.5) 121 30
-------- --------------- ---------------
EPRA Net Tangible Assets
/ share (NTA) 5.28 122 31
-------- --------------- ---------------
EPRA Net Reinvestment
Value / share (NRV) 5.93 122 31
-------- --------------- ---------------
EPRA Net Disposal Value
/ share (NRV) 4.44 122 31
-------- --------------- ---------------
EPRA Capital Expenditure
( m) 4.2 14 N/A
-------- --------------- ---------------
EPRA Net Initial Yield
(%) 1.7 13 N/A
-------- --------------- ---------------
EPRA "Topped up" Yield
(%) 2.1 13 N/A
-------- --------------- ---------------
EPRA Vacancy (%) 2.1 1 N/A
-------- --------------- ---------------
EPRA Like-for-Like rental
income (%) (15.8) 1 N/A
-------- --------------- ---------------
Outlook
Predictably, the effect of Berlin rent controls, limiting rent
levels to well below free market levels, has been to reduce the
supply and quality of rental property. Since the Mietendeckel has
been implemented, the number of properties constructed prior to
2014 available for rent has fallen by 70 per cent. Moreover, at a
time when the need for sustainable, environmentally friendly
housing has become ever more apparent, levels of investment in the
fabric of existing properties in the wider market have reduced.
These trends are likely to continue whilst the Mietendeckel remains
in place.
Germany's National Statistics Office estimates that gross
domestic product fell 5 per cent in 2020, as the pandemic ended a
10-year growth period. However, the recession in Germany is
expected to be among the least severe in Europe , assisted by a
decisive fiscal response. By comparison, national output in 2020 is
estimated to have dropped by more than 9 per cent in Italy and
France, and by 11 per cent in the UK. After eight years of budget
surpluses, Germany recorded a budget deficit of almost 5 per cent
of GDP at the end of 2020. By contrast, the UK is expected to
record a deficit of 17 per cent of GDP for the financial year
ending March 2021. Under the German system of wage subsidies to
protect workers' jobs - similar to the UK furlough scheme - the
peak number of people accessing the support was the equivalent of
13 per cent of the labour force, compared with 26 per cent in the
UK.
Notwithstanding these headwinds, investor demand for German
residential property remains high, with CBRE reporting record
investment in 2020. The experience of German residential property
during a year of unprecedented economic disruption has been stable
and reliable cash flows. Whilst rental yields have fallen,
residential property has, compared to negative interest rates
available on German Bunds, offered an attractive risk adjusted
alternative.
The monetary policy pursued by the European Central Bank in the
wake of the COVID-19 pandemic has been extremely accommodating and
is set to remain so in the years ahead, as economies seek to regain
lost momentum. With interest rates set to remain at historically
low levels, relatively higher yields from residential real estate
will remain attractive to institutional investors, such as
insurance companies, pension funds and wealth managers, who are
increasingly looking favourably on multi-family housing as an
alternative to government bonds and other long-dated fixed income
instruments.
Low interest rates will continue to benefit the Condominium
market as well. Favourable mortgage rates, coupled with a lack of
available rental properties, and favourable mortgage versus market
rent dynamics, will continue to provide a tailwind for Condominium
pricing.
Demographic trends to date in Berlin's private rental market
have shown some signs of change in the wake of the Mietendeckel and
COVID-19. Scarcity of supply of high-quality rental property,
coupled with a growing realisation that working remotely is a
viable alternative to a daily city centre commute, has begun to
impact tenant settlement choices. Less densely populated areas in
the greener suburban areas of Berlin, where supply is less
constrained, with more affordable rents and strong commuter links,
now hold increasing appeal for tenants seeking to relocate. This
effect is likely to be seen in increased demand for apartments in
PSD's 2019 acquisition of the apartment complex in Brandenburg.
This phenomenon is by no means Berlin specific, with accelerating
rent momentum and yield compression being observed in many suburban
areas across Germany.
Looking specifically at PSD, the 2020 Portfolio valuation
conducted by JLL, by necessity, assumes that the Mietendeckel will
be in place for its full five-year term. However, the Company and
its legal advisors remain firmly of the view that the Berlin
rent-cap is unconstitutional and, although a formal timetable for a
legal ruling has yet to be published, it is currently expected that
the Federal Court will reach a final decision in the first half of
2021.
Prior to the announcement of the Mietendeckel laws, the shares
were valued at, or around, Net Asset Value. Although the shares are
currently valued at a significant discount to Net Asset Value, a
positive ruling on the Mietendeckel has the potential to materially
reduce this.
If the Mietendeckel were to be ruled to be legal then the
Property Advisor believes that there is unlikely to be an immediate
impact on the EPRA NTA of the Company but it may impact future
market volumes and ultimately prices of market transactions. The
Company, however, remains well positioned since it expects
condominium prices to continue to rise.
The German Federal Elections are due to be held in September
2021. Currently, there is a "Grand Coalition" led by Angela Merkel
between the CDU and the SPD which has been in power since the
previous Federal Elections in 2017. Any change in the Federal
Government make-up could lead to changes in the current regulations
around tax, compliance and tenant law. The Property Advisor
believes that the Company has a flexible enough business model to
adapt to new regulations caused by a change in Government.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board recognises that effective risk evaluation and
management needs to be foremost in the strategic planning and the
decision-making process. In conjunction with the Property Advisor,
key risks and risk mitigation measures are reviewed by the Board on
a regular basis and discussed formally during Board meetings.
RISK IMPACT MITIGATION MOVEMENT
Legal risk Failing to comply The Property Advisor Unchanged
with current regularly monitors
laws and regulations the impact that
in Germany, the existing and proposed
UK and Jersey, laws or regulation
as well as proposed could have on
changes to laws, future rental
and failing to values and property
implement changes planning applications.
in policies and The Company has
procedures to appointed legal
take into account advisors in Jersey,
new laws could the UK and Germany
lead to financial who advise of
penalties and/or any relevant changes
loss of reputation in legal requirements
of the Company. and are periodically
invited to Board
meetings to report
any changes.
The Company recently
underwent a detailed
review of its
structure, carried
out by EY to ensure
it was working
within the confines
of the law and
regulations of
Jersey.
-------------------------- --------------------------- -----------
Tenant / Letting Property laws The Property Advisor Unchanged
and Political remain under regularly monitors
risk constant review the impact that
by the "Red-Red-Green" existing and proposed
coalition government laws or regulations
in Berlin and could have on
changes to property future rental
regulation and values and property
rent controls planning applications.
for all tenancies The Property Advisor
have negatively feels that the
affected rental Company has a
values in 2020. flexible enough
The most recent business model
tenant law changes to adapt to new
involve the Mietendeckel regulations caused
rent cap, which by a change in
was passed into Government.
law in February The Company has
2020. The Company's sought independent
response to this legal advice regarding
and the legal the Mietendeckel
situation regarding and has been advised
appeals to the that the legislation
German Constitutional is likely to be
Court are set found unconstitutional
out in pages and illegal and
7 to 9 of this should be successfully
Annual Report. challenged in
The German Federal the courts of
Elections are law in the first
due to be held half of 2021.
in September The Company set
2021. Currently, out last year
there is a "Grand how it intends
Coalition" led to adapt its strategy
by Angela Merkel during the period
between the CDU in which the Mietendeckel
and the SPD which remains in law
has been in power to mitigate any
since the previous short-term impact
Federal Elections on the portfolio.
in 2017. Any These measures,
change in the together with
Federal Government the financial
make up could impact in 2020
lead to changes are summarised
in the current on pages 7 to
regulations around 9.
tax, compliance
and tenant law.
-------------------------- --------------------------- -----------
Market risk Economic, political, Although the Board Unchanged
fiscal and legal and Property Advisor
issues can have cannot control
a negative effect external macro-economic
on property valuations. risks, economic
A decline in indicators are
Group property constantly monitored
valuations could by both the Board
negatively impact and Property Advisor
the ability of and Company strategy
the Group to is tailored accordingly.
sell properties The effects of
within the Portfolio COVID-19 on the
at valuations Company's operations
which satisfy and finances have
the Group's investment been limited,
objective. with strong rent
COVID-19 remains collection during
prevalent in 2020. Its outsourced
Germany and potential service providers
restrictions have also managed
to work and assembly to continue operating
have the possibility with limited disruption.
of negatively The Company does
impacting the not anticipate
Company's operations potential further
and tenants' disruption negatively
ability to pay impacting its
rents as they operations in
fall due. 2021 but will
continue to monitor
the situation.
The German Federal
government is
currently considering
introducing new
laws which would
allow States to
block the partitioning
of apartment blocks
into condominiums.
The Berlin Government
is likely also
to adopt this
stance should
the proposals
proceed into law.
This would likely
be a net positive
for the Company
since the supply
of condominiums
would be materially
reduced, increasing
the value of the
stock of over
1700 split units
owned by the Company.
-------------------------- --------------------------- -----------
Financial risk A fall in revenues The Group took Unchanged
could result on new covenants
in the Group when signing the
breaching financial 240 million debt
covenants of with Natixis;
a lender, and Interest coverage
also lead to ratio (ICR), debt
the inability yield, and Loan-to-Value
to repay any covenants. Only
debt and related the Debt yield
borrowing costs. and ICR covenants
A fall in revenue are "hard" covenants
or asset values resulting in an
could also lead event of default
to the Company in case of breach.
being unable The loan-to-value
to maintain dividend covenant is a
payments to investors. cash trap covenant
alone, with no
event of default.
The Company carried
out extensive
sensitivity analysis
prior to signing
these covenants
and even in the
most stressed
Mietendeckel rent
scenarios, no
covenants were
breached.
The Company's
debt with Berliner
Sparkasse contains
annual reporting
rental requirements
but does not contain
any specific covenants.
The Property Advisor
continues to model
its expected revenues
and Covenant levels,
and these are
reported to the
Board as part
of its Viability
assessment which
can be seen on
pages 61 to 63.
At no point in
the three-year
projection process
were any covenants
projected to be
breached. Furthermore,
these projections
also did not anticipate
any reduction
in the dividend
to meet other
requirements.
In the event that
rent levels or
property values
were to fall to
a point where
the covenants
were in danger
of being affected,
the Company would
use its surplus
cashflow and cash
reserves to pay
down the debt
balances to rectify
the situation.
At the most recent
covenant test
date, in January
2021, all covenants
were cleared.
-------------------------- --------------------------- -----------
Outsourcing risk The Group's future Since the Company Unchanged
performance depends listed on the
on the success London Stock Exchange,
of its outsourced the Property Advisor
third-party suppliers, has expanded headcount
particularly through the recruitment
the Property of several additional
Advisor, QSix, experienced London
but also its and Berlin-based
outsourced property personnel. Additionally,
management, IFRS senior Property
and German GAAP Advisor personnel
accountants, and their families
and its administrative retain a stake
functions. The in the Group,
departure of aligning their
one or more key interests with
third-party providers other key stakeholders.
may have an adverse In November 2018,
effect on the the Company announced
performance of that it had signed
the Group. a new Property
Advisor agreement
with QSix, committing
the Property Advisor
to the Company
for the foreseeable
future.
The key third
parties responsible
for property management,
accounting and
administration
are continually
monitored by the
Property Advisor,
and also have
to provide responses
annually to a
Board assessment
questionnaire
regarding their
internal controls
and performance.
These questionnaires
are reviewed annually
by the Board.
-------------------------- --------------------------- -----------
IT and Cyber The Company is Review of IT systems Unchanged
Security risk dependent on and infrastructure
network and information in place to ensure
systems of various these are as robust
service providers as possible. Service
- mainly the providers are
Property Advisor, required to report
Property Manager to the Board on
and Administrator, request, and at
and is therefore least annually
exposed to cybercrimes via the Board
and loss of data. questionnaires,
As cyber-crime on their financial
remains prevalent controls and procedures.
across Europe, A detailed review
this is considered of all IT processes
a significant led to the introduction
risk by the Group. of new invoice
A breach could payment software,
lead to the illegal as well as introducing
access of commercially new IT and Communication
sensitive information platforms to ensure
and the potential all communications
to impact investor, are carried out
supplier and in a secure environment.
tenant confidentiality Service providers
and to disrupt are also required
the business to hold detailed
of the Company. risk and controls
registers regarding
their IT systems.
The Board reviews
service organisations'
IT reports as
part of Board
meetings each
year.
-------------------------- --------------------------- -----------
Lack of Investment Availability The Property Advisor Increasing
opportunity of potential has been active
investments which in the German
meet the Company's residential property
investment objective market since 2006.
can be negatively It has specialised
affected by supply acquisition personnel
and demand dynamics and an extensive
within the market network of industry
for German residential contacts including
property and property agents,
the state of industry consultants
the German economy and the principals
and financial of other investment
markets more funds. It is expected
generally. that future acquisitions
will be sourced
from these channels.
While the market
in Berlin is currently
challenging due
to the recently
introduced Mietendeckel,
the Property Advisor
believes that
this will create
other opportunities,
including densification
projects within
the current Portfolio
and acquiring
in the suburbs
of Berlin, outside
the scope of the
Mietendeckel,
where the growth
potential is more
promising.
-------------------------- --------------------------- -----------
Going concern
The Directors have reviewed cashflows for the period of 12
months from the date of signing using assumptions which the
Directors consider to be appropriate to the current financial
position of the Group with regard to revenues, its cost base, the
Group's investments and borrowing and debt repayment plans. These
projections show that the Group should be able to operate within
the level of its current resources and expects to manage all debt
covenants for a period of at least twelve months from the date of
approval of the financial statements. The Group's going concern
assumption is based on the outcome of a variety of scenarios that
show the Group's ability to withstand the potential market
disruption arising from events such as the Mietendeckel, and
COVID-19. The Group's business activities together with the factors
likely to affect its future development and the Group's objectives,
policies and processes for managing its capital and its risks are
set out in the Strategic Report and in notes 3 and 32. After making
enquiries and having regard to the FRC's Guidance for Companies on
COVID-19 issued in December 2020, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, and, therefore,
continue to adopt the going concern basis in the preparation of the
financial statements.
Viability Statement
The Directors have assessed the viability of the Group over a
three-year period. The Directors have chosen three years because
that is the period that broadly fits within the financing and
development cycle of the business. The Viability Statement is based
on a robust assessment of those risks that would threaten the
business model, future performance, solvency or liquidity of the
Group, as set out in the assessment of risks described earlier in
this document. For the purposes of the Viability Statement the
Directors have considered, in particular, the impact of the
following factors affecting the projections of cash flows for the
three-year period ending 31 December 2023:
a) the potential operating cash flow requirement of the
Group;
b) seasonal fluctuations in working capital requirements;
c) property vacancy rates;
d) rent arrears and bad debts;
e) capital and administration expenditure (excluding potential
acquisitions as set out below) during the period;
f) condominium sales proceeds;
g) the impact of the Mietendeckel in the event a legal challenge
is unsuccessful, which the Board considers to be unlikely; and
h) the continuing impact of COVID-19; and
i) condominium construction development costs
The assumptions on the effect of the Mietendeckel and COVID-19,
as they relate to the Company, were assessed by the Board. They are
intended to demonstrate the degree of stress that the Company is
able to withstand over an extended period. The Board considers that
it is unlikely that the more severe assumptions made with respect
to the Mietendeckel and COVID-19 will represent a real-life
scenario as the Company believes that the Mietendeckel will be
found unconstitutional and, as the Company's revenues and general
operations were relatively unaffected by COVID-19 in 2020, there is
not expected to be any significant impact from COVID-19 either in
2021.
In response to the risks posed by the Mietendeckel the Directors
applied additional stresses to the model as described below.
In the event that the Mietendeckel is not reversed, the Group
has estimated that it could have a material impact on its revenues
as set out in page 9. The cash impact of this fall in revenues
could be mitigated in full by reducing capital expenditure down to
a level of essential maintenance only, to preserve the condition of
the assets to required standards. Furthermore, as demonstrated in
2020, the Group could increase sales of condominiums over the
forecast period to mitigate any falls in revenue.
Financial modelling and stress testing was carried out on the
Group's cashflows taking into account the Mietendeckel and
COVID-19, and the following assumptions, which the Directors
consider to be reasonable estimates of a worst case scenario, were
made with respect to the operating metrics of the Company:
-- COVID-19 leads to an increase in tenant arrears up to
December 2021 - current tenant arrears stand at around 1 per cent
of total revenues;
-- Major changes in tenant law lead to necessary increases in legal and administrative expenses;
-- Regulatory authorities move to impede sales of condominiums,
leading to a fall in revenue arising from these sales;
-- Changes in local building regulations lead to an increase in
mandatory capex across all assets, as well as new projects;
-- dividends are maintained at current levels throughout the
projected three-year period but remain a potential source of
mitigation from interim 2021 onwards if cash retention is required;
and
-- the Mietendeckel remains in force throughout the projected period.
After applying the assumptions above, individually and
collectively, there was no scenario in which the viability of the
Company over the next three years was brought into doubt from a
cashflow perspective. Under the stresses set out above, mitigation
may be required in 2022 and 2023 and headroom could be obtained in
the following ways:
-- reducing the dividend to preserve cash;
-- cancellation of larger capital expenditure projects; and
-- selling individual assets, or condominiums to release cash.
Under these stressed assumptions used to assess viability,
including the impact of COVID-19, the Group is projected to be able
to manage all banking covenant obligations during the period using
the available liquidity to reduce debt levels, as appropriate.
The projection of cash flows does not include the impact of
further potential property acquisitions over the three-year period,
as these acquisitions are discretionary in nature, though the
cashflows do include the proposed condominium construction referred
to on page 15. In this respect, the Directors complete a formal
review of the working capital headroom of the Group for all
material acquisitions.
On the basis of the above, and assuming the principal risks are
managed or mitigated as expected, the Directors have a reasonable
expectation that the Group will be able to continue in operation
over the three-year period of their assessment.
Consolidated Statement
of Comprehensive Income
For the year ended
31 December 2020
Year Year
ended ended
Notes 31 December 31 December
2020 2019
'000 '000
Continuing
operations
Revenue 6 23,899 22,600
Property expenses 7 (16,437) (14,196)
Gross profit 7,462 8,404
Administrative
expenses 8 (3,263) (3,103)
Gain on disposal of investment property
(including investment property held
for sale) 10 2,178 858
Investment
property
fair value gain 11 41,458 41,491
Performance fee
due to property
advisor 27 439 (2,798)
Separately
disclosed
items 12 - (278)
Operating profit 48,274 44,574
Net finance charge 13 (10,417) (16,013)
Profit before
taxation 37,857 28,561
Income tax expense 14 (7,550) (5,817)
Profit after
taxation 30,307 22,744
Other - -
comprehensive
income
Total
comprehensive
income for the
year 30,307 22,744
================================= ==============================
Total
comprehensive
income
attributable
to:
Owners of the
parent 29,788 22,293
Non-controlling
interests 519 451
30,307 22,744
================================= ==============================
Earnings per share
attributable
to the owners of the
parent:
From continuing
operations
Basic ( ) 30 0.31 0.22
Diluted ( ) 30 0.30 0.22
================================= ==============================
Consolidated Statement
of Financial Position
At 31 December
2020
As at As at
Notes 31 December 31 December
2020 2019
'000 '000
ASSETS
Non-current assets
Investment
properties 17 749,008 719,521
Property, plant
and equipment 19 42 54
Other financial
assets at
amortised
cost 20 901 876
Deferred tax
asset 14 2,880 2,529
752,831 722,980
Current Assets
Investment
properties
- held for sale 18 19,302 10,639
Other financial
assets at
amortised
cost 20 - 1,590
Trade and other
receivables 21 8,414 7,937
Cash and cash
equivalents 22 36,996 42,414
64,712 62,580
Total assets 817,543 785,560
================================= ==============================
EQUITY AND
LIABILITIES
Current
liabilities
Borrowings 23 1,018 17,752
Trade and other
payables 24 9,018 7,236
Other financial
liabilities 26 - 6,951
Current tax 14 550 1,413
10,586 33,352
Non-current
liabilities
Borrowings 23 286,531 258,502
Derivative
financial
instruments 25 18,197 15,979
Deferred tax
liability 14 68,273 60,825
373,001 335,306
Total liabilities 383,587 368,658
================================= ==============================
Equity
Stated capital 28 196,578 196,578
Treasury shares 28 (17,206) (11,354)
Share based
payment
reserve 27 6,369 6,808
Retained
earnings 244,685 221,859
Equity
attributable
to owners of
the
parent 430,426 413,891
Non-controlling
interest 29 3,530 3,011
Total equity 433,956 416,902
--------------------------------- ------------------------------
Total equity and
liabilities 817,543 785,560
================================= ==============================
Consolidated Statement
of Changes in Equity
For the year ended
31 December 2020
Attributable to the owners
of the parent
Stated Treasury Share Retained Total Non-controlling Total
capital shares based earnings interest equity
payment
reserve
'000 '000 '000 '000 '000 '000 '000
Balance at 1
January
2019 196,578 - 4,010 207,270 407,858 1,989 409,847
Comprehensive
income:
Profit for the
year - - - 22,293 22,293 451 22,744
Other - - - - - - -
comprehensive
income
Total
comprehensive
income for the
year - - - 22,293 22,293 451 22,744
Transactions with
owners -
recognised
directly
in equity:
Dividends paid - - - (7,704) (7,704) - (7,704)
Performance fee - - 2,798 - 2,798 - 2,798
Non-controlling
interests on
acquisition
of subsidiaries - - - - - 571 571
Acquisition of
treasury
shares - (11,354) - - (11,354) - (11,354)
Balance at 31
December
2019 196,578 (11,354) 6,808 221,859 413,891 3,011 416,902
Comprehensive
income:
Profit for the
year - - - 29,788 29,788 519 30,307
Other - - - - - - -
comprehensive
income
Total
comprehensive
income for the
year - - - 29,788 29,788 519 30,307
Transactions with
owners -
recognised
directly
in equity:
Dividends paid - - - (6,962) (6,962) - (6,962)
Performance fee - - (439) - (439) - (439)
Acquisition of
treasury
shares - (5,852) - - (5,852) - (5,852)
Balance at 31
December
2020 196,578 (17,206) 6,369 244,685 430,426 3,530 433,956
======== ======== ======== ============= =============== ================================= ==============================
Treasury shares comprise the accumulated cost of shares acquired
on the open market.
The share-based payment reserve was established in relation
to the issue of shares for the payment of the performance
fee to the property advisor.
Consolidated
Statement
of Cash Flows
For the year ended
31 December 2020
Year Year
ended ended
31 December 31 December
2020 2019
'000 '000
Profit before
taxation 37,857 28,561
Adjustments for:
Net finance charge 10,417 16,013
Gain on disposal of investment
property (2,178) (858)
Investment property revaluation
gain (41,458) (41,491)
Depreciation 8 16
Performance fee
due to property
advisor (439) 2,798
Operating cash flows before movements
in working capital 4,207 5,039
Decrease / (increase) in receivables 2,071 (393)
Increase / (decrease) in payables 1,782 (3,193)
Cash generated from operating activities 8,060 1,453
Income tax paid (1,316) (5)
Net cash generated from operating
activities 6,744 1,448
Cash flow from investing activities
Proceeds on disposal of investment
property (net of disposal costs) 7,213 13,526
Interest received 19 62
Capital expenditure on investment
property (4,171) (6,459)
Property additions - (32,208)
Put option settlement (7,542) -
Repayment of shareholder loans 1,622 -
Disposals to property, plant and
equipment 4 18
Net cash used in investing activities (2,855) (25,061)
Cash flow from financing activities
Interest paid on bank loans (7,541) (6,160)
Repayment of bank loans (38,845) (124,032)
Drawdown on bank loan facilities 50,000 188,594
Dividends paid (6,962) (7,704)
Acquisition of
treasury
shares (5,956) (11,536)
Net cash (used in) / generated from
financing activities (9,304) 39,162
Net (decrease) / increase in cash
and cash equivalents (5,415) 15,549
Cash and cash equivalents at beginning
of year 42,414 26,868
Exchange gains / (losses) on cash
and cash equivalents (3) (3)
Cash and cash equivalents at end
of year 36,996 42,414
================================= ==============================
Reconciliation of Net Cash Flow to Movement
in Debt
For the year ended
31 December 2020
Year Year
ended ended
31 December 31 December
2020 2019
'000 '000
Cashflow from
increase
in debt financing 11,155 64,562
Non-cash changes from
increase in debt financing 140 16,418
Change in net debt
resulting from
cash
flows 11,295 80,980
--------------------------------- ------------------------------
Movement in debt
in the year 11,295 80,980
Debt at the start
of the year 276,254 195,274
Debt at the end
of the year 287,549 276,254
================================= ==============================
Notes to the
Financial
Statements
For the year ended
31 December 2020
1 - General information
The Group consists of a Parent Company, Phoenix Spree Deutschland
Limited ('the Company'), incorporated in Jersey, Channel Islands
and all its subsidiaries ('the Group') which are incorporated
and domiciled in and operate out of Jersey, Guernsey and Germany.
Phoenix Spree Deutschland Limited is listed on the premium
segment of the Main Market of the London Stock Exchange.
The Group invests in residential and commercial property in
Berlin, Germany.
The registered office is at 12 Castle Street, St Helier, Jersey,
JE2 3RT, Channel Islands.
2 - Summary of significant accounting policies
The principal accounting policies adopted are set out below.
2.1 Basis of
preparation
The consolidated financial statements have been prepared in
accordance with applicable law and international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The consolidated financial statements are presented to the
nearest 1,000.
In accordance with Section 105 of The Companies (Jersey) Law
1991, the Group confirms that the financial information for
the year ended 31 December 2020 are derived from the Group's
audited financial statements and that these are not statutory
accounts and, as such, do not contain all information required
to be disclosed in the financial statements prepared in accordance
with International Financial Reporting Standards ("IFRS").
The statutory accounts for the year ended 31 December 2020
have been audited and approved, but have not yet been filed.
The Group's audited financial statements for the period ended
31 December 2020 received an unqualified audit opinion and
the auditor's report contained no statement under section
113B (3) and (6) of The Companies (Jersey) Law 1991.
The financial information contained within this preliminary
statement was approved and authorised for issue by the Board
on 26 March 2021.
2.2 Going concern
The Directors have prepared projections for the 12 months
from the signing of this report. These projections have been
prepared using assumptions which the Directors consider to
be appropriate to the current financial position of the Group
as regards to current expected revenues and its cost base
and the Group's investments, borrowing and debt repayment
plans and show that the Group should be able to operate within
the level of its current resources and expects to comply with
all covenants for the foreseeable future. The Group's business
activities together with the factors likely to affect its
future development and the Group's objectives, policies and
processes from managing its capital and its risks are set
out in the Strategic Report and in notes 3 and 32. After making
enquiries the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. The Group has considered
the current economic environment and the impact of the COVID-19
pandemic in its going concern assessment, including the Mietendeckel
rent caps alongside the Company's principal risks, further
information can be found in the viability statement on page
61 to 63. The Group therefore continues to adopt the going
concern basis in preparing its consolidated financial statements.
2.3 Basis of
consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). The Company controls an entity when the
Group is exposed to, or has rights to, variable returns through
its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
Profit or loss and each component of other comprehensive income
are attributable to the owners of the Company and to the non-controlling
interests. Total comprehensive income of the subsidiaries
is attributable to the owners of the Company and to the non-controlling
interests even if this results in the non-controlling interests
having a deficit balance.
Accounting policies of subsidiaries which differ from Group
accounting policies are adjusted on consolidation. All intra-group
transactions, balances, income and expenses are eliminated
on consolidation.
Non-controlling interests in subsidiaries are identified separately
from the Group's equity therein. Those interests of non-controlling
shareholders that present ownership interests entitling their
holders to a proportionate share of net assets upon liquidation
may initially be measured at fair value or at the non-controlling
interests' proportionate share of the fair value of the acquiree's
identifiable net assets. The choice of measurement is made
on an acquisition-by-acquisition basis. Other non-controlling
interests are initially measured at fair value. Subsequent
to acquisition, the carrying amount of non-controlling interests
is the amount of those interests at initial recognition plus
the non-controlling interests' share of subsequent changes
in equity.
Changes in the Group's interests in subsidiaries that do not
result in a loss of control are accounted for as equity transactions.
The carrying amount of the Group's interests and the non-controlling
interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the
amount by which the non-controlling interests are adjusted
and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners
of the Company.
2.4 Revenue
recognition
Revenue includes rental income, service charges and other
amounts directly recoverable from tenants. Rental income and
service charges from operating leases are recognised as income
on a straight-line basis over the lease term. When the Group
provides incentives to its tenants, the cost of incentives
are recognised over the lease term, on a straight-line basis,
as a reduction of rental income.
2.5 Foreign
currencies
(a) Functional and presentation currency
The currency of the primary economic environment in which
the Group operates ('the functional currency') is the Euro
( ). The presentational currency of the consolidated financial
statements is also the Euro ( ).
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates
of the transactions. At each reporting date, monetary assets
and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing at that date. Foreign
exchange gains and losses resulting from such transactions
are recognised in the consolidated statement of comprehensive
income.
Non-monetary items carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign
currency are not retranslated.
2.6 Segment
reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating-decision
maker. The chief operating-decision maker, who is responsible
for allocating resources and assessing performance of the
operating segments, has been identified as the Board of Directors.
The Board has identified the operations of the Group as a
whole as the only operating segment.
2.7 Operating profit
Operating profit is stated before the Group's gain or loss
on its financial assets and after the revaluation gains or
losses for the year in respect of investment properties and
after gains or losses on the disposal of investment properties.
2.8 Administrative and property expenses
All expenses are accounted for on an accruals basis and are
charged to the consolidated statement of comprehensive income
in the period in which they are incurred. Service charge costs,
to the extent that they are not recoverable from tenants,
are accounted for on an accruals basis and included in property
expenses.
2.9 Separately disclosed items
Certain items are disclosed separately in the consolidated
financial statements where this provides further understanding
of the financial performance of the Group, due to their significance
in terms of nature or amount.
2.10 Property Advisor fees
The element of Property Advisor fees for management services
provided are accounted for on an accruals basis and are charged
to the consolidated statement of comprehensive income. These
fees are detailed in note 7 and classified under 'Property
advisors' fees and expenses. The settlement of the Property
Advisor performance fees is detailed in note 27. Due to the
nature of the settlement of the performance fee, any movement
in the amount payable at the yearend is reflected within the
share-based payment reserve in the consolidated statement
of financial position.
2.11 Investment
property
Property that is held for long-term rental yields or for capital
appreciation, or both, which is not occupied by the Group,
is classified as investment property.
Investment property is measured initially at cost, including
related transaction costs. After initial recognition, investment
property is carried at fair value, based on market value.
The change in fair values is recognised in the consolidated
statement of comprehensive income for the year.
A valuation exercise is undertaken by the Group's independent
valuer, Jones Lang LaSalle GmbH ('JLL'), at each reporting
date in accordance with the methodology described in note
17 on a building-by-building basis. Such estimates are inherently
subjective and actual values can only be determined in a sales
transaction. The valuations have been prepared by JLL on a
consistent basis at each reporting date.
Subsequent expenditure is added to the asset's carrying amount
only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item
can be measured reliably. Repairs and maintenance costs are
charged to the consolidated statement of comprehensive income
during the financial period in which they are incurred. Changes
in fair values are recorded in the consolidated statement
of comprehensive income for the year.
Purchases and sales of investment properties are recognised
on legal completion.
An investment property is derecognised upon disposal or when
the investment property is permanently withdrawn from use
and no future economic benefits are expected from the disposal.
Any gain or loss arising on derecognition of the property
(calculated as the difference between the net disposal proceeds
and the carrying amount of the asset, where the carrying amount
is the higher of cost or fair value) is included in the consolidated
statement of comprehensive income in the period in which the
property is derecognised.
2.12 Current assets held for sale
- investment property
Current assets (and disposal groups) classified as held for
sale are measured at the most recent valuation.
Current assets (and disposal groups) are classified as held
for sale if their carrying amount will be recovered through
a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be
committed to the sale which should be expected to qualify
for recognition as a completed sale within one year from the
date of classification.
The Group recognises an asset in this category once the Board
has committed to the sale of an asset and marketing has commenced.
When the Group is committed to a sale plan involving loss
of control of a subsidiary, all of the assets and liabilities
of that subsidiary are classified as held for sale when the
criteria described above are met, regardless of whether the
Group will retain a non-controlling interest in its former
subsidiary after the sale.
If an asset held for sale is unsold within one year of being
classified as such, it will continue to be classified as held
for sale if:
(a) at the date the Company commits itself to a plan to sell
a non-current asset (or disposal group) it reasonably expects
that others (not a buyer) will impose conditions on the transfer
of the asset that will extend the period required to complete
the sale, and actions necessary to respond to those conditions
cannot be initiated until after a firm purchase commitment
is obtained, and a firm purchase commitment is highly probable
within one year;
(b) the Company obtains a firm purchase commitment and, as
a result, a buyer or others unexpectedly impose conditions
on the transfer of a non-current asset (or disposal group)
previously classified as held for sale that will extend the
period required to complete the sale, and timely actions necessary
to respond to the conditions have been taken, and a favourable
resolution of the delaying factors is expected;
(c) during the initial one-year period, circumstances arise
that were previously considered unlikely and, as a result,
a non-current asset previously classified as held for sale
is not sold by the end of that period, and during the initial
one-year period the Company took action necessary to respond
to the change in circumstances, and the non-current asset
is being actively marketed at a price that is reasonable,
given the change in circumstances, and the criteria above
are met;
(d) otherwise it will be transferred back to investment property.
2.13 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation.
Cost includes the original purchase price of the asset and
the costs attributable to bringing the asset to its working
condition for its intended use. Depreciation is charged so
as to write off the costs of assets to their residual values
over their estimated useful lives, on the following basis:
Equipment, fixtures and vehicles - 4.50% - 25% per annum,
straight line.
The gain or loss arising on the disposal of an asset is determined
as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the consolidated
statement of comprehensive income.
2.14 Borrowing
costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time
to get ready for their intended use or sale, are added to
the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
All other borrowing costs are recognised in the consolidated
statement of comprehensive income in the period in which they
are incurred.
2.15 Tenants
deposits
Tenants deposits are held off the consolidated statement of
financial position in a separate bank account in accordance
with German legal requirements, and the funds are not accessible
to the Group. Accordingly, neither an asset nor a liability
is recognised.
2.16 Financial Instruments
Financial assets and financial liabilities are recognised
in the Group's statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured
at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted
from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss
are recognised immediately in profit or loss.
Trade and other receivables
Trade receivables are amounts due from tenants for rents and
service charges and are initially recognised at the amount
of the consideration that is unconditional and subsequently
carried at amortised cost as the Group's business model is
to collect the contractual cash flows due from tenants. Provision
is made based on the expected credit loss model which reflects
the Company's historical credit loss experience over the past
three years but also reflects the lifetime expected credit
loss.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short term
deposits, including any bank overdrafts, with an original
maturity of three months or less, measured at amortised cost.
Trade and other
payables
Trade payables are recognised and carried at their invoiced
value inclusive of any VAT that may be applicable, and subsequently
at amortised cost using the effective interest method.
Borrowings
All loans and borrowings are initially measured at fair value
less directly attributable transaction costs. After initial
recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost, using the effective
interest method.
The interest due within the next twelve months is accrued
at the end of the year and presented as a current liability
within trade and other payables.
Treasury shares
When shares recognised as equity are repurchased, the amount
of the consideration paid, which includes directly attributable
costs, is recognised as a deduction from equity. Repurchased
shares are classified as treasury shares and are presented
in the treasury share reserve. When treasury shares are sold
or reissued subsequently, the amount received is recognised
as an increase in equity and the resulting surplus or deficit
on the transaction is presented within share premium.
Interest-rate
swaps
The Group uses interest-rate swaps to manage its market risk.
The Group does not hold or issue derivatives for trading purposes.
The interest-rate swaps are recognised in the Consolidated
Statement of Financial Position at fair value, based on counterparty
quotes. The gain or loss on the swaps is recognised in the
Consolidated Statement of Comprehensive Income within net
finance charges.
2.17 Current and deferred
income tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the consolidated statement of comprehensive
income, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In that
case, the tax is also recognised in other comprehensive income
or directly in equity, respectively.
(a) Current tax
The current tax charge is based on taxable profit for the
year. Taxable profit differs from net profit reported in the
consolidated statement of comprehensive income because it
excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never
taxable or deductible. The Group's liability for current tax
is calculated using tax rates that have been enacted or substantively
enacted by the accounting date.
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit. Deferred
tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is charged or credited in the consolidated statement
of comprehensive income except when it relates to items credited
or charged directly in equity, in which case the deferred
tax is also dealt with in equity.
Deferred tax is calculated at the tax rates and laws that
are expected to apply to the period when the asset is realised
or the liability is settled based upon tax rates that have
been enacted or substantively enacted by the accounting date.
The carrying amount of deferred tax assets is reviewed at
each accounting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
2.18 New standards and interpretations
The following relevant new standards, amendments to standards
and interpretations have been issued, and are effective for
the financial year beginning on 1 January 2020, as adopted
by the European Union:
Title As issued by the IASB, mandatory
for accounting periods starting
on or after
Amendments to References to the Accounting periods beginning
Conceptual Framework in IFRS Standards on or after 1 January 2020
Definition of a Business (Amendments Accounting periods beginning
to IFRS 3) on or after 1 January 2020
Definition of Material (Amendments Accounting periods beginning
to IAS 1 and IAS 8) on or after 1 January 2020
Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS Accounting periods beginning
39 and IFRS 7) on or after 1 January 2020
Amendments to References to the
Conceptual Framework in IFRS Standards
Amendments to References to the Conceptual Framework in IFRS
Standards sets out amendments to IFRS Standards, their accompanying
documents and IFRS practice statements to reflect the issue
of the revised Conceptual Framework for Financial Reporting
in 2018. This was done to support transition to the revised
Conceptual Framework for companies that develop accounting
policies using the Conceptual Framework when no IFRS Standard
applies to a particular transaction.
The amendments do not impact on the current financial statements
and are in general an exercise to make reference to the Conceptual
Framework from existing IFRS Standards.
Definition of a Business (Amendments to IFRS 3)
Effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after 1 January 2020 and to asset acquisitions
that occur on or after the beginning of that period.
The amendments narrowed and clarified the definition of a
business. They also permit a simplified assessment of whether
an acquired set of activities and assets is a group of assets
rather than a business.
Definition of Material (Amendments
to IAS 1 and IAS 8)
The amendments clarify the definition of material and how
it should be applied by including in the definition guidance
that until now has featured elsewhere in IFRS Standards. In
addition, the explanations accompanying the definition have
been improved. Finally, the amendments ensure that the definition
of material is consistent across all IFRS Standards.
The new definition states that information is material if
omitting, misstating or obscuring it could reasonably be expected
to influence the decisions that the primary users of general
purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS
39 and IFRS 7)
The amendments to the hedge accounting requirements impact
both IFRS 9 and IAS 39 because entities have an accounting
policy choice under IFRS 9 as to whether to continue to apply
the hedge accounting model in IAS 39 or IFRS 9.
The amendments to IFRS 7 require entities to disclose the
following:
- the significant interest rate benchmarks to which the entity's
hedging relationships are exposed
- the extent of the risk exposure the entity manages that
is affected by the interest rate benchmark reform
- how the entity is managing the process to transition to
alternative benchmark interest rates
- a description of significant assumptions or judgements
the entity made in applying the amendments to IFRS 9 and IAS
39
- the nominal amount of the hedging instrument in the hedging
relationship for which the entity is applying the exceptions
in the scope of the amendments
New and revised IFRS Standards in issue but not yet effective
The following standards have been issued by the IASB but have
not yet been adopted by the EU:
Title As issued by the IASB, mandatory
for accounting periods starting
on or after
Covid-19-Related Rent Accounting periods
Concessions (Amendment beginning on or after
to IFRS 16) 1 June 2020
The above standard was endorsed by the EU in October 2020
and current proposals are to extend this into 2021.
3. Financial risk
management
3.1 Financial risk
factors
The Group's activities expose it to a variety of financial
risks: market risk, credit risk and liquidity risk. The Group's
overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out by the Risk Committee under
policies approved by the Board of Directors. The Board provides
principles for overall risk management, as well as policies
covering specific areas, such as interest rate risk, credit
risk and investment of excess liquidity.
3.2 Market risk
Market risk is the risk of loss that may arise from changes
in market factors such as foreign exchange rates, interest
rates and general property market risk.
(a) Foreign
exchange
risk
The Group operates in Germany and is exposed to foreign exchange
risk arising from currency exposures, primarily with respect
to Sterling against the Euro arising from the costs which
are incurred in Sterling. Foreign exchange risk arises from
future commercial transactions, and recognised monetary assets
and liabilities denominated in currencies other than the Euro.
The Group's policy is not to enter into any currency hedging
transactions, as the majority of transactions are in euros,
the Groups functional currency. Therefore, any currency fluctuations
are minimal.
(b) Interest rate
risk
The Group has exposure to interest rate risk. It has external
borrowings at a number of different variable interest rates.
The Group is also exposed to interest rate risk on some of
its financial assets, being its cash at bank balances. Details
of actual interest rates paid or accrued during each period
can be found in note 23 to the consolidated financial statements.
The Group's policy is to manage its interest rate risk by
entering into a suitable hedging arrangement, either caps
or swaps, in order to limit exposure to borrowings at variable
rates.
(c) General
property
market risk
Through its investment in property, the Group is subject to
other risks which can affect the value of property. The Group
seeks to minimise the impact of these risks by review of economic
trends and property markets in order to anticipate major changes
affecting property values.
(d) Market risk
- Rent legislation
Through its policy of investing in Berlin, the Group is subject
to the risk of changing rental legislation, specifically the
Mietendeckel which, if not found unconstitutional, will continue
to affect both the rental income, and the value of property.
The Group seeks to mitigate any effect of the Mietendeckel
using strategies set out in pages 7 to 9.
(e) Market risk
- COVID - 19
The COVID-19 restrictions imposed in Germany in 2020 did not
have a notable effect operations or finances of the Company.
However the broader impact of the outbreak in 2021 will depend
on how the success of the German vaccination programme and
further responses of the authorities. The risk around whether
service providers can continue their duties, and whether tenants
can continue to pay rents as they come due will continue to
be monitored by the Board, though no notable effect has been
noticed in 2020.
3.3 Credit risk
The risk of financial loss due to counterparty's failure to
honour their obligations arises principally in connection
with property leases and the investment of surplus cash.
The Group has policies in place to ensure that rental contracts
are made with customers with an appropriate credit history.
Tenant rent payments are monitored regularly and appropriate
action taken to recover monies owed, or if necessary, to terminate
the lease.
Cash transactions are limited to financial institutions with
a high credit rating.
3.4 Liquidity risk
The Group's objective is to maintain a balance between continuity
of funding and flexibility through the use of bank loans secured
on the Group's properties. The terms of the borrowings entitle
the lender to require early repayment should the Group be
in default with significant payments for more than one month.
3.5 Capital
management
The prime objective of the Group's capital management is to
ensure that it maintains the financial flexibility needed
to allow for value-creating investments as well as healthy
balance sheet ratios.
The capital structure of the Group consists of net debt (borrowings
disclosed in note 23 after deducting cash and cash equivalents)
and equity of the Group (comprising stated capital (excluding
treasury shares), reserves and retained earnings).
In order to manage the capital structure, the Group can adjust
the amount of dividend paid to shareholders, issue or repurchase
shares or sell assets to reduce debt.
When reviewing the capital structure the Group considers the
cost of capital and the risks associated with each class of
capital. The Group reviews the gearing ratio which is determined
as the proportion of net debt to equity. In comparison with
comparable companies operating within the property sector
the Board considers the gearing ratios to be reasonable.
The gearing ratios for the reporting periods are as follows:
As at As at
31 December 31 December
2020 2019
'000 '000
Borrowings (287,549) (276,254)
Cash and cash
equivalents 36,996 42,414
Net debt (250,553) (233,840)
================================= ==============================
Equity 433,956 416,902
Net debt to equity
ratio 58% 56%
================================= ==============================
4. Critical accounting estimates and judgements
The preparation of consolidated financial statements in conformity
with IFRS requires the Group to make certain critical accounting
estimates and judgements. In the process of applying the Group's
accounting policies, management has decided the following
estimates and assumptions have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities within the financial year:
i) Estimate of fair value of investment properties
The valuation of the Group's property portfolio is inherently
subjective due to, among other factors, the individual nature
of each property, its location and condition, and expected
future rentals. The valuation as at 31 December 2020 is based
on the rules, regulations and market as at that date, including
the Mietendeckel; and the valuation assumes that the Mietendeckel
remains in place for the five year period specificed in the
law.
The best evidence of fair value is current prices in an active
market of investment properties with similar leases and other
contracts. In the absence of such information, the Group determines
the amount within a range of reasonable fair value estimates.
In making its estimate, the Group considers information from
a variety of sources, including:
a) Discounted cash flow projections based on reliable estimates
of future cash flows, derived from the terms of any existing
lease and other contracts, and (where possible) from external
evidence such as current market rents for similar properties
in the same location and condition, and using discount rates
that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
b) Current prices in an active market for properties of different
nature, condition or location (or subject to different lease
or other contracts), adjusted to reflect those differences.
c) Recent prices of similar properties in less active markets,
with adjustments to reflect any changes in economic conditions
since the date of the transactions that occurred at those
prices.
The Directors remain ultimately responsible for ensuring that
the valuers are adequately qualified, competent and base their
results on reasonable and realistic assumptions. The Directors
have appointed JLL as the real estate valuation experts who
determine the fair value of investment properties using recognised
valuation techniques and the principles of IFRS 13. Further
information on the valuation process can be found in note
17.
ii) Judgment in relation to the recognition of assets held
for sale
Management has made an assumption in respect of the likelihood
of investment properties - held for sale, being sold within
12 months, in accordance with the requirement of IFRS 5. Management
considers that based on historical and current experience
that the properties can be reasonably expected to sell within
12 months.
5. Segmental information
In prior periods, information reported to the Board of Directors,
the chief operating decision maker, for the purposes of resource
allocation and assessment of segment performance was focussed
on the different revenue streams that existed within the Group.
In these periods the Group's principal reportable segments
under IFRS 8 were as follows:
- Residential; and
- Commercial
The Group is required to report financial and descriptive
information about its reportable segments. Reportable segments
are operating segments or aggregations of operating segments
that meet the following specified criteria:
- its reported revenue, from both external customers and intersegment
sales or transfers, is 10 per cent or more of the combined
revenue, internal and external, of all operating segments,
or
- the absolute measure of its reported profit or loss is 10
per cent or more of the greater, in absolute amount, of (i)
the combined reported profit of all operating segments that
did not report a loss and (ii) the combined reported loss
of all operating segments that reported a loss, or
- its assets are 10 per cent or more of the combined assets
of all operating segments.
Management have applied the above criteria to the commercial
segment and the commercial segment is not more than 10% of
any of the above criteria. The Group does not own any wholly
commercial buildings nor does management report directly on
the commercial results. The Board considers that the non-residential
element of the portfolio is incidental to the Group's activities.
Therefore, the Group has not included any further segmental
analysis within these consolidated audited financial statements.
6. Revenue
31 December 31 December
2020 2019
'000 '000
Rental income 19,055 17,941
Service charge
income 4,844 4,659
23,899 22,600
================================= ==============================
The total future annual minimum rentals receivable under non-cancellable
operating leases are as follows:
31 December 31 December
2020 2019
'000 '000
Within 1 year 1,267 1,462
1 - 2 years 1,217 1,119
2 - 3 years 925 857
3 - 4 years 703 773
4 - 5 years 627 736
Later than 5 years 437 593
5,176 5,540
================================= ==============================
Revenue comprises rental income earned from residential and
commercial property in Germany. There are no individual tenants
that account for greater than 10% of revenue during any of
the reporting periods.
The leasing arrangements for residential property are with
individual tenants, with one month notice from tenants to
cancel the lease in most cases.
The commercial leases are non-cancellable, with an average
lease period of 3 years.
7. Property
expenses
31 December 31 December
2020 2019
'000 '000
Property
management
expenses 1,143 1,066
Repairs and
maintenance 1,553 1,665
Impairment charge - trade receivables 160 61
Service charges
paid on behalf of
tenants 7,137 5,306
Property advisors' fees and
expenses 6,444 6,098
16,437 14,196
================================= ==============================
8. Administrative
expenses
31 December 31 December
2020 2019
'000 '000
Secretarial and
administration
fees 589 896
Legal and
professional
fees 1,734 1,329
Directors' fees 248 246
Audit and
accountancy
fees 630 761
Bank charges 32 19
Loss on foreign
exchange 69 49
Depreciation 8 16
Other income (47) (213)
3,263 3,103
================================= ==============================
Key management compensation - the functions of management
are undertaken by external providers of professional services,
as set out in note 34.
Further details of the Directors' fees are set out in the
Directors' Remuneration Report on page 85.
9. Auditor's
remuneration
An analysis of the fees charged by the auditor and its associates
is as follows:
31 December 31 December
2020 2019
'000 '000
Fees payable to the Group's auditor and
its associates for the audit of the consolidated
financial statements: 197 195
Fees payable to the Group's auditor and
its associates for other services:
- Agreed upon
procedures
- half year
report 28 29
- Agreed upon
procedures
- other 11 17
236 241
================================= ==============================
10. Gain on disposal of investment property
(including investment property held for sale)
31 December 31 December
2020 2019
'000 '000
Disposal proceeds 9,998 13,616
Book value of
disposals (7,479) (12,668)
Disposal costs (341) (90)
2,178 858
================================= ==============================
Where there has been a partial disposal of a property, the
net book value of the asset sold is calculated on a per square
metre rate, based on the prior period or interim valuation.
11. Investment
property
fair value gain
31 December 31 December
2020 2019
'000 '000
Investment property fair value
gain 41,458 41,491
================================= ==============================
Further information on investment properties is shown in note
17.
12. Separately
disclosed
items
These relate to legal and professional fees incurred in 2019
during a significant transaction which was considered by the
Board but not pursued totalling 278,000. No further costs
were incurred in relation to this transaction in 2020.
13. Net finance
charge
31 December 31 December
2020 2019
'000 '000
Interest income 6 (62)
Interest from
related
party loans (57) (54)
Fair value loss
on interest rate
swap 2,218 9,988
Finance expense
on bank
borrowings 7,659 6,325
Change in put option
liability arising on
settlement 591 (184)
10,417 16,013
================================= ==============================
Finance expense on bank borrowings includes a total of 382,699
in respect of loan breakage fees incurred due to the loan
refinancing carried out during the year (2019: 507,699)
14. Income tax
expense
31 December 31 December
2020 2019
The tax charge for '000 '000
the period is as
follows:
Current tax charge 453 31
Deferred tax charge - origination
and reversal of temporary differences 7,097 5,786
7,550 5,817
================================= ==============================
The tax charge for the year can be reconciled to the theoretical
tax charge on the profit in the Consolidated Statement of
Comprehensive Income as follows:
31 December 31 December
2020 2019
'000 '000
Profit before tax on continuing
operations 37,857 28,561
Tax at German income tax rate of
15.8% (2019: 15.8%) 5,981 4,513
Income not taxable (344) (136)
Losses carried forward not recognised 1,913 1,440
Total tax charge
for the year 7,550 5,817
================================= ==============================
Reconciliation of current tax liabilities
31 December 31 December
2020 2019
'000 '000
Balance at
beginning
of year 1,413 1,387
Tax paid during
the year (1,316) (5)
Current tax charge 453 31
Balance at end of
year 550 1,413
================================= ==============================
Reconciliation of
deferred tax
Capital Interest
gains rate
on properties swaps Total
'000 '000 '000
(Liabilities) Asset (Net liabilities)
Balance at 1
January
2019 (53,458) 948 (52,510)
Charged to the statement
of comprehensive income (7,367) 1,581 (5,786)
Deferred tax (liability)
/ asset at 31 December
2019 (60,825) 2,529 (58,296)
Charged to the statement
of comprehensive income (7,448) 351 (7,097)
Deferred tax (liability)
/ asset at 31 December
2020 (68,273) 2,880 (65,393)
=============== ================================= ==============================
Jersey income tax
The Group is
liable
to Jersey income
tax at 0%.
Guernsey income
tax
The Group is liable to
Guernsey income tax at
0%.
German tax
As a result of the Group's operations in Germany, the Group
is subject to German Corporate Income Tax ('CIT') - the effective
rate for Phoenix Spree Deutschland Limited for 2020 was 15.8%
(2019: 15.8%).
Factors affecting
future tax charges
The Group has accumulated tax losses of approximately 30.0
million (2019: 17.6 million) in Germany, which will be available
to set against suitable future profits should they arise,
subject to the criteria for relief. These losses are offset
against the deferred taxable gain to give the deferred tax
liability set out above.
15. Dividends
31 December 31 December
2020 2019
'000 '000
Amounts recognised as distributions
to equity holders in the period:
Interim dividend for the year ended 31
December 2020 of 2.35 cents (2.1p) declared
15 September 2020, paid 16 October 2020
(2019: 2.35 cents (2.1p)) per share. 2,284 2,420
Proposed dividend for the year ended 31
December 2020 of 5.15 cents (4.65p) (2019:
5.15 cents (4.4p)) per share. 5,010 5,034
================================= ==============================
The proposed dividend has not been included as a liability
in these consolidated financial statements. The proposed dividend
is payable to all shareholders on the Register of Members
on 14 May 2021. The total estimated dividend to be paid is
4.65p per share. The payment of this dividend will not have
any tax consequences for the Group. The translated amount
shown as paid may differ from that disclosed here due to foreign
exchange movements between the date of the dividend being
proposed and it being paid.
16. Subsidiaries
The Group consists of a Parent Company, Phoenix Spree Deutschland
Limited, incorporated in Jersey, Channel Islands and a number
of subsidiaries held directly by Phoenix Spree Deutschland
Limited, which are incorporated in and operated out of Jersey,
Guernsey and Germany.
Further details
are given below:
Country
of Nature
incorporation % holding of business
Phoenix Spree Deutschland I Jersey 100 Investment
Limited property
Phoenix Spree Deutschland II Jersey 100 Investment
Limited property
Phoenix Spree Deutschland III Jersey 100 Investment
Limited property
Phoenix Spree Deutschland IV Jersey 100 Investment
Limited property
Phoenix Spree Deutschland V Jersey 100 Investment
Limited property
Phoenix Spree Deutschland VII Jersey 100 Investment
Limited property
Phoenix Spree Deutschland IX Jersey 100 Investment
Limited property
Phoenix Spree Deutschland X Jersey 100 Finance vehicle
Limited
Phoenix Spree Deutschland XI Jersey 100 Investment
Limited property
Phoenix Spree Deutschland XII Jersey 100 Investment
Limited property
Phoenix Property Holding GmbH Germany 100 Holding Company
& Co.KG
Phoenix Spree Mueller GmbH Investment
Germany 94.9 property
Phoenix Spree Gottlieb GmbH Investment
Germany 94.9 property
PSPF Holdings GmbH Germany 100 Holding Company
Jühnsdorfer Weg Immobilien Germany 94.9 Investment
GmbH (Formerly Accentro 5. property
WE GmbH)
Phoenix Spree Property Fund Germany 100 Investment
Ltd & Co. KG property
PSPF General Partner (Jersey) Jersey 100 Management
Limited (formerly PSPF General of PSPF
Partner (Guernsey) Limited)
During the year the Group redomiciled PSPF General Partner
(Guernsey) Limited to Jersey from Guernsey. The entity was
renamed PSPF General Partner (Jersey) Limited. The nature
of business of the new entity remains as the management of
PSPF.
On 1 July 2020 the minority interest in Phoenix Spree Property
Fund Ltd & Co. KG exercised a put option to sell the remaining
5.2% share of the partnership to Phoenix Spree Deutschland
Limited. The option was settled net in cash inclusive of the
offsetting loans as disclosed in Note 26.
17. Investment
properties
2020 2019
Fair Value '000 '000
At 1 January 730,160 645,680
Capital
expenditure 4,171 6,459
Property additions - 49,198
Disposals (7,479) (12,668)
Fair value gain 41,458 41,491
--------------------------------- ------------------------------
Investment properties at fair value -
as set out in the report by JLL 768,310 730,160
Assets considered as "Held for Sale" (Note
18) (19,302) (10,639)
At 31 December 749,008 719,521
================================= ==============================
The property Portfolio was valued at 31 December 2020 by the
Group's independent valuers, Jones Lang LaSalle GmbH ('JLL'),
in accordance with the methodology described below. The valuations
were performed in accordance with the current Appraisal and
Valuation Standards, 8th edition (the 'Red Book') published
by the Royal Institution of Chartered Surveyors (RICS).
The valuation is performed on a building-by-building basis
from source information on the properties including current
rent levels, void rates, capital expenditure, maintenance
costs and non-recoverable costs provided to JLL by the Property
Advisors QSix LLP. JLL use their own assumptions with respect
to rental growth, and adjustments to non-recoverable costs.
JLL also uses data from comparable market transactions where
these are available alongside their own assumptions.
The valuation by JLL uses the discounted cash flow methodology.
Such valuation estimates using this methodology, however,
are inherently subjective and values that would have been
achieved in an actual sales transaction involving the individual
property at the reporting date are likely to differ from the
estimated valuation.
All properties are valued as Level 3 measurements under the
fair value hierarchy (see note 32) as the inputs to the discounted
cash flow methodology which have a significant effect on the
recorded fair value are not observable. Additionally, JLL
perform reference checks back to comparable market transactions
to confirm the valuation model.
The unrealised fair value gain in respect of investment property
is disclosed in the consolidated statement of comprehensive
income as 'Investment property fair value gain'.
Valuations are undertaken using the discounted cash flow valuation
technique as described below and with the inputs set out below.
Discounted cash flow methodology
(DCF)
The fair value of investment properties is determined using
the DCF methodology.
Under the DCF method, a property's fair value is estimated
using explicit assumptions regarding the benefits and liabilities
of ownership over the asset's life including an exit or terminal
value. The DCF valuation by JLL used ten-year projections
of a series of cash flows of each property interest. The cash
flows used in the valuation reflect the known conditions existing
at the reporting date, including the Mietendeckel rules for
the period to June 2024.
To this projected cash flow series, an appropriate, market
derived discount rate is applied to establish the present
value of the cash flows associated with each property. The
discount rate of the individual properties is adjusted to
provide an individual property value that is consistent with
comparable market transactions. For properties without a comparable
market transaction JLL use the data from market transactions
to adjust the discount rate to reflect differences in the
location of the property, its condition, its tenants and rent.
The duration of the cash flow and the specific timing of inflows
and outflows are determined by events such as rent reviews,
lease renewal and related lease up periods, re-letting, redevelopment,
or refurbishment.
Periodic cash flow includes cash flows relating to gross income
less vacancy, non-recoverable expenses, collection losses,
lease incentives, maintenance costs, agent and commission
costs and other operating and management expenses. The series
of periodic net operating cash flows, along with an estimate
of the terminal value anticipated at the end of the ten-year
projection period, is then discounted.
Where an individual property has the legal and practical ability
to be converted into individual apartments ( condominiums)
for sale as a condominium , dependent upon the stage of the
legal permissions, the additional value created by the conversion
is reflected via a lower discount rate applied.
The principal inputs to the valuation Year Year
are as follows: ended ended
31 December 31 December
2020 2019
Range Range
Residential
Properties
Market Rent
Rental Value ( per 10 -
sq. p.m.) 15 9 - 15
Stabilised residency vacancy 1 -
(% per year) 4 2
Tenancy vacancy fluctuation (% per 5 -
year) 8 8
------------------------------------------------ ------------- --------------- ------------------------------
Commercial
Properties
Market Rent
Rental Value ( per 2 -
sq. p.m.) 33 2 - 32
Stabilised commercial vacancy 1 -
(% per year) 3 0 - 25
Tenancy vacancy fluctuation (% per
year) 8 8
------------------------------------------------ ------------- --------------- --------------------------------- ------------------------------
Estimated Rental
Value (ERV)
ERV per year per 64 - 62 -
property ( '000) 2,278 2,322
9 -
ERV ( per sq.) 15 8 - 15
--------------------------------- ------------------------------
Financial Rates
- blended average
Discount rate (%) 3.1 4
Portfolio yield
(%) 2.2 2.9
--------------------------------- ------------------------------
Having reviewed the JLL report, the Directors are of the opinion
that this represents a fair and reasonable valuation of the
properties and have consequently adopted this valuation in
the preparation of the consolidated financial statements.
The valuations have been prepared by JLL on a consistent
basis at each reporting date and the methodology is consistent
and in accordance with IFRS which requires that the 'highest
and best use' value is taken into account where that use is
physically possible, legally permissible and financially feasible
for the property concerned, and irrespective of the current
or intended use.
All properties are valued as Level 3 measurements under the
fair value hierarchy (see note 32) as the inputs to the DCF
methodology which have a significant effect on the recorded
fair value are not observable.
Any unrealised fair value gain or loss in respect of investment
property is disclosed in the consolidated statement of comprehensive
income as 'Investment property fair value gain or loss'.
Sensitivity
Changes in the key assumptions and inputs to
the valuation models used would impact the valuations
as follows:
Vacancy: A change in vacancy by 1% would
not materially affect the investment property
fair value assessment.
Discount rate: An increase of 0.25% in the discount rate and
cap rate would reduce the investment property fair value by
63.9 million, and a decrease in the discount rate and cap
rate of 0.25% would increase the investment property fair
value by 58.5 million.
There are, however, inter-relationships between unobservable
inputs as they are determined by market conditions. The existence
of an increase of more than one unobservable input could amplify
the impact on the valuation. Conversely, changes on unobservable
inputs moving in opposite directions could cancel each other
out, or lessen the overall effect.
The valuation takes account of the
following three scenarios
Rental Scenario
Where properties have been valued under the "Discounted Cashflow
Methodology" and are intended to be held by the Group for
the foreseeable future, they are valued under the "Rental
Scenario".
Condominium
scenario
Where properties have the potential or the benefit of all
relevant permissions required to sell apartments individually
(condominiums) and the decision to sell the property has been
taken then we refer to this as a 'condominium scenario'. Expected
sales in the coming year from these assets are considered
held for sale under IFRS 5 and can be seen in note 18. The
additional value is reflected by using a lower discount rate
under the DCF Methodology. Properties which do not have the
benefit of all relevant permissions are described as valued
using a standard 'rental scenario'. Included in properties
valued under the condominium scenario are properties not yet
released to held for sale as only a portion of the properties
are forecast to be sold in the coming 12 months.
Disposal Scenario
Where properties have been notarised for sale prior to the
reporting date but have not completed; they are held at their
notarised disposal value. These assets are considered held
for sale under IFRS 5 and can be seen in note 18.
The table below sets out the
assets valued using these
3 scenarios:
31 December 31 December
2020 2019
'000 '000
Rental scenario 715,870 703,650
Condominium
scenario 45,264 23,956
Disposal scenario 7,176 2,554
Total 768,310 730,160
================================= ==============================
The movement in the fair value of investment properties is
included in the consolidated statement of comprehensive income
as 'investment property fair value gain' and comprises:
31 December 31 December
2020 2019
'000 '000
Investment properties 40,633 41,429
Properties held for sale (see note
18) 825 62
41,458 41,491
================================= ==============================
18. Investment
properties
- held for sale
2020 2019
'000 '000
Fair value - held for sale investment
properties
At 1 January 10,639 12,747
Transferred from
investment
properties 15,004 10,064
Capital
expenditure 313 434
Properties sold (7,479) (12,668)
Valuation gain on apartments held
for sale 825 62
At 31 December 19,302 10,639
================================= ==============================
Investment properties are re-classified as current assets
and described as 'held for sale' in three different situations:
Properties notarised for sale at the reporting date, Properties
where at the reporting date the group has obtained and implemented
all relevant permissions required to sell individual apartment
units, and efforts are being made to dispose of the assets
(condominium); and Properties which are being marketed for
sale but have currently not been notarised.
Properties which no longer satisfy the criteria for recognition
as held for sale are transferred back to investment properties
at fair value.
Properties notarised for sale by the reporting date are valued
at their disposal price (disposal scenario), and other properties
are valued using the condominium or rental scenarios (see
note 17) as appropriate. The table below sets out the respective
categories:
2020 2019
'000 '000
Condominium
scenario 12,126 8,085
Disposal scenario 7,176 2,554
19,302 10,639
================================= ==============================
Investment properties held for sale are all expected to be
sold within 12 months of the reporting date based on Management
knowledge of current and historic market conditions. While
whole properties have been valued under a condominium scenario
in note 17, only the expected sales have been transferred
to assets held for sale.
There were liabilities secured on the
investment properties held for sale of
2.7m (2019: 0.6m).
19. Property,
plant
and equipment
Equipment
'000
Cost or valuation
As at 1 January
2019 145
Disposals (18)
------------------------------
As at 31 December
2019 127
Disposals (4)
As at 31 December
2020 123
==============================
Accumulated depreciation and impairment
As at 1 January
2019 57
Charge for the
year 16
------------------------------
As at 31 December
2019 73
Charge for the
year 8
As at 31 December
2020 81
==============================
Carrying amount
As at 31 December
2019 54
As at 31 December
2020 42
------------------------------
20. Other
financial
assets at
amortised
cost
31 December 31 December
2020 2019
Current '000 '000
At 1 January 1,590 -
Transfer from non-current
other financial assets at
amortised cost - 1,554
Accrued interest 32 54
Interest
adjustment
related to prior
period - (18)
Loan repayment (1,622) -
At 31 December - 1,590
================================= ==============================
The Group entered into loan agreements with Mike Hilton and
Paul Ruddle in connection with the acquisition of PSPF. The
loans were due to be settled upon settlement of the put option
for the minority interest in PSPF. The put option liability
for the minority and these offsetting loans were settled in
cash on the 1 July 2020.
31 December 31 December
2020 2019
Non-current '000 '000
At 1 January 876 2,406
Transfer to current other
financial assets at amortised
cost - (1,554)
Accrued interest 25 24
At 31 December 901 876
================================= ==============================
The Group entered into a loan agreement with the minority
interest of Accentro Real Estate AG (formerly Blitz B16 -
210 GmbH) in relation to the acquisition of the assets as
share deals. This loan bears interest at 3% per annum.
These assets are considered to have low credit risk and any
loss allowance would be immaterial.
21. Trade and
other
receivables
31 December 31 December
2020 2019
'000 '000
Current
Trade receivables 707 1,219
Less: impairment
provision (222) (223)
--------------------------------- ------------------------------
Net receivables 485 996
Prepayments and accrued income 16 508
Investment property disposal proceeds
receivable 2,444 375
Service charges
receivable 4,895 5,271
Prepaid Treasury
Shares 104 182
Other receivables 470 605
8,414 7,937
================================= ==============================
Prepaid Treasury Shares consist of a transaction for the Company's
own shares which had yet to settle at 31 December 2020.
Aging analysis of trade receivables
31 December 31 December
2020 2019
'000 '000
Up to 12 months 482 977
Between 1 year and
2 years 3 19
Over 3 years - -
485 996
================================= ==============================
Impairment of trade and service charge receivables
The Company calculates lifetime expected credit losses for
trade and service charge receivables using a portfolio approach.
Receivables are grouped based on the credit terms offered
and the type of lease. The probability of default is determined
at the year-end based on the aging of the receivables, and
historical data about default rates. That data is adjusted
if the Company determines that historical data is not reflective
of expected future conditions due changes in the nature of
its tenants and how they are affected by external factors
such as economic and market conditions.
On this basis, the loss allowance as at 31 December 2020,
and on 31 December 2019 was determined as set out below.
The Company applies the following loss rates to trade receivables.
As noted below, a loss allowance of 50% (2019: 50%) has been
recognised for trade receivables that are more than 60 days
past due. Any receivables where the tenant is no longer resident
in the property are provided for in full.
Aging
Trade receivables: 0-60 Over Non-current Total
days 60 days tenant 2020
Expected loss rate
(%) 0% 50% 100%
Gross carrying
amount
( '000) 352 267 88 707
Loss allowance
provision
( '000) - (134) (88) (222)
Aging
Trade receivables: 0-60 Over Non-current Total
days 60 days tenant 2019
Expected loss rate
(%) 0% 50% 100%
Gross carrying
amount
( '000) 889 214 116 1,219
Loss allowance
provision
( '000) - (107) (116) (223)
Movements in the impairment provision against trade receivables
are as follows:
31 December 31 December
2020 2019
'000 '000
Balance at the beginning of the
year 223 313
Impairment losses
recognised 160 61
Amounts written off as uncollectable (161) (151)
Balance at the end
of the year 222 223
================================= ==============================
All impairment losses relate to the receivables arising from
tenants.
22. Cash and cash
equivalents
31 December 31 December
2020 2019
'000 '000
Cash at bank 35,971 40,737
Cash at agents 1,025 1,677
Cash and cash
equivalents 36,996 42,414
================================= ==============================
23. Borrowings
31 December 31 December
2020 2019
Nominal Book Nominal Book
value value value value
'000 '000 '000 '000
Current
liabilities
Accrued interest
- NATIXIS
Pfandbriefbank
AG 901 217 784 192
Bank loans -
Mittelbrandenburgische
Sparkasse - - 16,418 16,418
Bank loans - Berliner Sparkasse 801 801 1,142 1,142
1,702 1,018 18,344 17,752
Non-current
liabilities
Bank loans -
NATIXIS
Pfandbriefbank AG 240,000 236,789 190,000 186,636
Bank loans - Berliner Sparkasse 49,742 49,742 71,866 71,866
289,742 286,531 261,866 258,502
291,444 287,549 280,210 276,254
============= =============== ================================= ==============================
The Group has complied with the financial covenants of its
borrowing facilities during the 2020 and 2019 reporting periods.
All borrowings are secured against the investment properties
of the Group. As at 31 December 2020, the Company had no undrawn
debt facilities (2019: 50 million). A summary of the loans
as at the year end is as follows:
24. Trade and
other
payables
31 December 31 December
2020 2019
'000 '000
Trade payables 1,410 1,597
Accrued liabilities 2,463 1,319
Service charges
payable 5,145 4,320
9,018 7,236
================================= ==============================
25. Derivative
financial
instruments
31 December 31 December
2020 2019
'000 '000
Interest rate swaps - carried at fair value
through profit or loss
Balance at 1
January 15,979 5,991
Fair value movement through profit or
loss 2,218 9,988
Balance at 31
December 18,197 15,979
================================= ==============================
The notional principal amounts of the outstanding interest
rate swap contracts at 31 December 2020 were 204,269,000 (2019:
202,932,000). At 31 December 2020 the fixed interest rates
vary from 0.24% to 1.07% (2019: 0.775% to 1.07%) above the
main factoring Euribor rate, and mature between September
2026 and November 2027.
Maturity analysis of interest rate swaps
31 December 31 December
2020 2019
'000 '000
Less than 1 year - -
Between 1 and 2 - -
years
Between 2 and 5 - -
years
More than 5 years 18,197 15,979
18,197 15,979
================================= ==============================
26. Other
financial
liabilities
31 December 31 December
2020 2019
'000 '000
Current
Balance at beginning
of year 6,951 -
Transferred from non-current
liabilities - 6,951
Change in put
option
liability on
settlement 591 -
Exercise put
option (7,542) -
Balance at end of
year - 6,951
================================= ==============================
Non-current
Balance at 1
January - 7,135
Change in put option liability arising
in the year - (184)
Transferred to
current
liabilities - (6,951)
Balance at 31 - -
December
================================= ==============================
In March 2015 the Group entered into a five year put option
agreement to acquire the remaining 5.2% interest in Phoenix
Spree Property Fund Ltd. & Co.KG (PSPF) from the limited partners
M Hilton and P Ruddle both then Directors of PMM Partners
(UK) Limited. The options were exercised three months after
on the fifth anniversary of the majority interest acquisition,
on 1 July 2020. The option was settled for 7,542,000, and
was settled in cash for 5,920,000 net of initial loans to
the limited partners of 1,622,000. 7,542,000 being 5.2% of
the net asset value of PSPF at the time of settlement, as
set out in the original 2015 agreement.
27. Share based
payment reserve
Performance
fee
'000
Balance at 1
January
2019 4,010
Fee charge for the
period 2,798
------------------------------
Balance at 31
December
2019 6,808
Fee charge /
(credit)
for the year (439)
Balance at 31
December
2020 6,369
==============================
Property Advisor
performance fee
The Property Advisor is entitled to an asset and estate management
performance fee, measured over consecutive three year periods,
equal to 15% of the excess (or in the case of the initial
period or any performance period ending prior to 31 December
2020, 16%) by which the annual EPRA NAV total return of the
Group exceeds 8% per annum, compounding (the 'Performance
Fee'). As the EPRA NAV measurement has been superceded by
EPRA NTA (See note 31), future performance fees will be calculated
with respect to movements in EPRA NTA. The Performance Fee
is subject to a high watermark, being the higher of:
(i) EPRA NAV per
share at 1 July
2018; and
(ii) the EPRA NAV per share at the end of a Performance Period
in relation to which a performance fee was earned in accordance
with the provisions contained with the Property Advisor and
Investor Relations Agreement.
The fee will be settled shortly after the release of this
2020 annual report in shares of the Company and, being determined
by reference to an equity based formula, meets the definition
of a share based payment arrangement.
28. Stated capital
31 December 31 December
2020 2019
'000 '000
Issued and fully
paid:
At 1 January 196,578 196,578
At 31 December 196,578 196,578
================================= ==============================
The number of shares in issue at 31 December 2020 was 100,751,410
(31 December 2019: 100,751,410).
Treasury shares
The reserve for the Company's treasury shares comprises the
cost of the Company's shares held by the Group. At 31 December
2020, the Group held 4,628,500 of the Company's shares (2019:
3,000,000).
29.
Non-controlling
interests
Non-controlling 31 December 31 December
interest 2020 2019
%
'000 '000
Phoenix Spree Mueller
GmbH (formerly Laxpan
Mueller GmbH) 5.1% 1,329 1,197
Phoenix Spree Gottlieb GmbH
(formerly Invador Grundbesitz
GmbH) 5.1% 1,250 1,076
Jühnsdorfer Weg Immobilien
GmbH (Formerly Accentro 5.
WE GmbH) 5.1% 951 738
3,530 3,011
================================= ==============================
30. Earnings per share
and EPRA earnings per
share
31 December 31 December
2020 2019
Earnings per share
Earnings for the purposes of basic earnings
per share being net profit attributable
to owners of the parent ( '000) 29,788 22,293
Weighted average number of ordinary shares
for the purposes of basic earnings per
share (Number) 97,136,617 100,389,943
Effect of dilutive potential ordinary
shares (Number) 1,806,285 1,721,657
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share (Number) 98,942,902 102,111,600
================================= ==============================
Earnings per share
( ) 0.31 0.22
Diluted earnings
per share ( ) 0.30 0.22
================================= ==============================
EPRA earnings per
share
Earnings for the purposes of basic earnings
per share being net profit attributable
to owners of the parent ( '000) 29,788 22,293
Changes in value
of investment
properties (41,458) (41,491)
Profit or loss on disposal on investment
properties (2,178) (858)
Changes in fair value of financial instruments 1,779 12,786
Deferred tax
adjustments 7,097 5,786
Change in
Non-controlling
interest 498 228
EPRA Earnings (4,474) (1,256)
================================= ==============================
Weighted average number of ordinary shares
for the purposes of basic earnings per
share (Number) 97,136,617 100,389,943
EPRA Earnings per
Share ( ) (0.05) (0.01)
Diluted EPRA
Earnings
per Share ( ) (0.05) (0.01)
31. Net asset value per
share and EPRA net asset
value
31 December 31 December
2020 2019
Net assets ( '000) 430,426 413,891
Number of participating ordinary
shares 96,122,909 97,751,410
Net asset value
per share ( ) 4.48 4.23
================================= ==============================
According to the EPRA Best Practices Recommendations published
in October 2019, three new Net Asset Value measures have been
introduced for ongoing financial years from 1 January, 2020.
EPRA NRV (Net Reinstatement Value) - this includes transfer
duties of the property assets.
EPRA NTA (Net Tangible Assets) - the Company buys and sells
assets leading to taking account of certain liabilities.
EPRA NDV (Net Disposal Value) - the value for the shareholder
in the event of a liquidation.
The net asset value calculation is based on the Group's shareholders'
equity which includes the fair value of investment properties,
properties held for sale as well as financial instruments.
The number of diluted shares does not include treasury shares.
EPRA EPRA EPRA
NRV NTA NDV
'000 '000 '000
At 31 December
2020
IFRS Equity
attributable
to shareholders 430,426 430,426 430,426
Hybrid instruments (6,369) (6,369) (6,369)
--------------- --------------------------------- ------------------------------
Diluted NAV 424,057 424,057 424,057
Revaluation of Investment - - -
Property
Revaluation of Investment - - -
Property under Construction
Revaluation of other - - -
non-current
investments
Revaluation of tenant - - -
leases held as finance
leases
Revaluation of trading - - -
properties
--------------- --------------------------------- ------------------------------
Diluted NAV at
Fair
Value 424,057 424,057 424,057
Deferred tax in
relation to fair
value gains of
Investment
Property 65,393 65,393
Fair value of
financial
instruments 18,197 18,197
Goodwill as a - - -
result
of deferred tax
Goodwill as per - - -
the IFRS balance
sheet
Intangibles as per - - -
the IFRS balance
sheet
Fair value of
fixed
interest rate
debt 2,946
Revaluation of -
intangibles
to fair value
Real estate
transfer
tax 62,721 -
NAV 570,368 507,647 427,003
=============== ================================= ==============================
Fully diluted
number
of shares 96,122,909 96,122,909 96,122,909
NAV per share (
) 5.93 5.28 4.44
EPRA EPRA EPRA
NRV NTA NDV
'000 '000 '000
At 31 December
2019
IFRS Equity
attributable
to shareholders 413,891 413,891 413,891
Hybrid instruments (6,808) (6,808) (6,808)
--------------- --------------------------------- ------------------------------
Diluted NAV 407,083 407,083 407,083
Revaluation of Investment - - -
Property
Revaluation of Investment - - -
Property under Construction
Revaluation of other - - -
non-current
investments
Revaluation of tenant - - -
leases held as finance
leases
Revaluation of trading - - -
properties
--------------- --------------------------------- ------------------------------
Diluted NAV at
Fair
Value 407,083 407,083 407,083
Deferred tax in
relation to fair
value gains of
Investment
Property 58,296 58,296
Fair value of
financial
instruments 15,979 15,979
Goodwill as a - - -
result
of deferred tax
Goodwill as per - - -
the IFRS balance
sheet
Intangibles as per - - -
the IFRS balance
sheet
Fair value of
fixed
interest rate
debt 3,458
Revaluation of -
intangibles
to fair value
Real estate
transfer
tax 57,786 -
NAV 539,144 481,358 410,541
=============== ================================= ==============================
Fully diluted
number
of shares 97,751,410 97,751,410 97,751,410
NAV per share (
) 5.52 4.92 4.20
32. Financial
instruments
The Group is exposed to the risks that arise from its use
of financial instruments. This note describes the objectives,
policies and processes of the Group for managing those risks
and the methods used to measure them. Further quantitative
information in respect of these risks is presented throughout
the consolidated financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- Cash and cash equivalents
-- Trade and other receivables
-- Other financial
assets
-- Trade and other payables
-- Borrowings
-- Derivative financial instruments
The Group held the following financial assets at each reporting
date:
31 December 31 December
2020 2019
'000 '000
At amortised cost
Trade and other receivables
- current 8,294 7,247
Cash and cash
equivalents 36,996 42,414
Other financial assets at amortised cost 901 2,466
46,191 52,127
--------------------------------- ------------------------------
The Group held the following financial liabilities at each
reporting date:
31 December 31 December
2020 2019
'000 '000
Held at amortised
cost
Borrowings
payable:
current 1,018 17,752
Borrowings
payable:
non-current 286,531 258,502
Other financial
liabilities - 6,951
Trade and other
payables 9,018 7,236
296,567 290,441
--------------------------------- ------------------------------
Fair value through
profit or loss
Derivative financial liability -
interest rate swaps 18,197 15,979
18,197 15,979
--------------------------------- ------------------------------
314,764 306,420
================================= ==============================
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 by the respective counterparty
banks by comparison with the market price for the relevant
date.
The interest rate swaps are expected to mature between September
2026 and December 2028.
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities;
Level 2: other techniques for which all inputs which have
a significant effect on the recorded fair value are observable,
either directly or indirectly; and
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
During each of the reporting periods, there were no transfers
between valuation levels.
Group Fair Values
31 December 31 December
2020 2019
'000 '000
Financial assets/
(liabilities)
Interest rate - -
swaps
- Level 2 -
current
Interest rate
swaps
- Level 2 -
non-current (18,197) (15,979)
(18,197) (15,979)
================================= ==============================
Financial risk
management
The Group is exposed through its operations to the following
financial risks:
-- Interest rate
risk
-- Foreign
exchange
risk
-- Credit risk
-- Liquidity risk
The Group's policies for financial risk management are outlined
below.
Interest rate risk
The Group's interest rate risk arises from certain of its
borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Borrowings issued at
fixed rates expose the Group to fair value interest rate risk.
The Group is also exposed to interest rate risk on cash and
cash equivalents.
Under interest rate swap contracts, the Group agrees to exchange
the difference between fixed and floating rate interest amounts
calculated on agreed notional principal amounts. Such contracts
enable the Group to mitigate the risk of changing interest
rates on the cash flow exposures on the issued variable rate
debt held.
Sensitivity analysis has not been performed as all variable
rate borrowings have been swapped to fixed interest rates,
and potential movements on cash at bank balances are immaterial.
The Group gives careful consideration to interest rates when
considering its borrowing requirements and where to hold its
excess cash. The Directors believe that the interest rate
risk is at an acceptable level.
Foreign exchange
risk
The Group is exposed to foreign exchange risk on sales, purchases,
and translation of assets and liabilities that are in a currency
other than the functional currency (Euros).
The Group does not enter into any currency hedging transactions
and the Directors believe that the foreign exchange rate risk
is at an acceptable level.
The carrying amount of the Group's foreign currency (non-Euro)
denominated monetary assets and liabilities are shown below,
all the amounts are for Sterling balance only:
31 December 31 December
2020 2019
'000 '000
Financial assets
Cash and cash
equivalents 174 349
Financial
liabilities
Trade and other
payables (408) (317)
Net position (234) 32
================================= ==============================
At each reporting date, if the Euro had strengthened or weakened
by 10% against GBP with all other variables held constant,
post-tax profit for the year would have increased/(decreased)
by:
Weakened by Strengthened
10% Increase/(decrease) by 10% Increase/(decrease)
in post-tax in post-tax
profit and profit and
impact on equity impact on equity
'000 '000
31 December 2020 23 (23)
31 December 2019 (3) 3
Credit risk
management
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial
loss to the Group. Credit risk arises principally from the
Group's trade and other receivables and its cash balances.
The Group gives careful consideration to which organisations
it uses for its banking services in order to minimise credit
risk. The Group has an established credit policy under which
each new tenant is analysed for creditworthiness and each
tenant is required to pay a two month deposit.
At each reporting date the Group had no tenants with outstanding
balances over 10% of the total trade receivables balance.
The Group holds cash at the following banks: Barclays Private
Clients International Jersey Ltd, Deutsche Bank AG, Berliner
Sparkasse and Mittelbrandenburgische Sparkasse. The split
of cash held at each of the banks respectively at 31 December
2020 was 34% / 59% / 3% / 2% (31 December 2019: Barclays Private
Clients International Jersey Ltd, Barclays Bank Plc Frankfurt
and Deutsche Bank the split was 73%/26%/1%). Barclays and
Deutsche Bank have credit ratings of A and A- respectively,
Berliner Sparkasse and Mittelbrandenburgische Sparkasse have
a credit rating of A+.
The Group holds no collateral as security against any financial
asset. The carrying amount of financial assets recorded in
the financial information, net of any allowances for losses,
represents the Group's maximum exposure to credit risk.
Details of receivables from tenants in arrears at each reporting
date can be found in note 21 as can details of the receivables
that were impaired during each period.
An allowance for impairment is made using an expected credit
loss model based on previous experience. Management considers
the above measures to be sufficient to control the credit
risk exposure.
The credit risk on liquid funds and derivative financial instruments
is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial
statements, which is net of impairment losses, represents
the Group's maximum exposure to credit risk as no collateral
or other credit enhancements are held.
Liquidity risk
management
Liquidity risk is the risk that the Group will not be able
to meet its financial obligations as they fall due. The Group's
approach to managing liquidity risk is to ensure that it will
always have sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring
unacceptable losses or damage to the Group's reputation.
The Directors manage liquidity risk by regularly reviewing
cash requirements by reference to short term cash flow forecasts
and medium term working capital projections prepared by management.
The Group maintains good relationships with its banks, which
have high credit ratings.
The following table details the Group's remaining contractual
maturity for its non-derivative financial liabilities with
agreed maturity periods. The table has been drawn up based
on the undiscounted cash flows of the financial liabilities
based on the earliest date on which the Group can be required
to pay. The tables include both interest payable and principal
cash flows.
Maturity analysis for financial liabilities
Less Between Between More
than 1 - 2 - than
1 year 2 years 5 years 5 years Total
'000 '000 '000 '000 '000
At 31 December
2020
Borrowings
payable:
current 1,018 - - - 1,018
Borrowings payable: non-current - - - 286,531 286,531
Trade and other
payables 9,018 - - - 9,018
10,036 - - 286,531 296,567
-------- ------------- --------------- --------------------------------- ------------------------------
Less Between Between More
than 1 - 2 - than
1 year 2 years 5 years 5 years Total
'000 '000 '000 '000 '000
At 31 December
2019
Borrowings
payable:
current 17,752 - - - 17,752
Borrowings payable: non-current - - - 258,502 258,502
Other financial
liabilities 6,951 - - - 6,951
Trade and other
payables 7,236 - - - 7,236
31,939 - - 258,502 290,441
-------- ------------- --------------- --------------------------------- ------------------------------
33. Capital
commitments
31 December 31 December
2020 2019
'000 '000
Contracted capital commitments
at the end of the year 2,783 3,000
================================= ==============================
Capital commitments include contracted obligations in respect
of the enhancement and repair of the Group's properties.
34. Related party
transactions
Related party transactions not disclosed elsewhere are as
follows:
Property Advisor
Fees
In November 2018 the Company signed a new contract with the
Property Advisor, which superseded the previous property advisor
agreement. As per the new agreement, The Property Advisor
is entitled to an asset and estate management performance
fee, measured over consecutive three year periods, equal to
15% of the excess (or in the case of the initial period or
any performance period ending prior to 31 December 2020, 16%)
by which the annual EPRA NAV total return of the Group exceeds
8% per annum, compounding (the 'Performance Fee'). The Performance
Fee is subject to a high watermark, being the higher of:
(i) EPRA NAV per share at 1 July 2018; and
(ii) 1% of the EPRA NAV of the Group greater than 500 million.
The management fee will be reduced by the aggregate amount
of any transaction fees and finance fees payable to the Property
Advisor in respect of that calendar year.
The Property Advisor is entitled to a capex monitoring fee
equal to 7% of any capital expenditure incurred by any Subsidiary
which the Property Advisor is responsible for managing.
The Property Advisor is entitled to receive a finance fee
equal to:
(i) 0.1% of the value of any borrowing arrangement which the
Property Advisor has negotiated and/or supervised; and
(ii) a fixed fee of GBP1,000 in respect of any borrowing arrangement
which the Property Advisor has renegotiated or varied.
The Property Advisor is entitled to receive a transaction
fee fixed at GBP1,000 in respect of any acquisition or disposal
of property by any Subsidiary.
The Property Advisor is entitled to a letting fee equal to
between 1 and 3 month's net cold rent (being gross rents receivable
less service costs and taxes) for each new tenancy signed
by the Company where the Property Advisor has sourced the
relevant tenant.
The Property Advisor shall be entitled to a fee for Investor
Relations Services at the annual rate of GBP75,000 payable
quarterly in arrears.
QSix Residential Limited (Formerly PMM Residential Limited),
was the Group's appointed Property Advisor. Partners of QSix
Residential Limited formerly sat on the Board of PSD and retains
a shareholding in the Group. During the year ended 31 December
2020, an amount of 6,443,811 ( 6,295,082 Management Fees and
148,729 Other expenses and fees) (2019: 6,097,647 ( 5,943,969
Management Fees and 153,688 Other expenses and fees)) was
payable QSix Residential Limited. At 31 December 2020 336,251
(2019: 9,000) was outstanding. Fees payable to the Property
Advisor in relation to overseeing capital expenditure during
the year were 252,000 (2019: 511,000).
The Property Advisor is also entitled to an asset and estate
management performance fee. The credit for the period in respect
of the performance fee was 439,000 (2019: Charge of 2,798,000).
Please refer to note 27 for more details.
The Property Advisor has a controlling stake in IWA Real Estate
Gmbh & Co. KG who are contracted to dispose of condominiums
in Berlin on behalf of the Company. IWA does not receive a
fee from the Company in providing this service.
Apex Financial Services (Alternative Funds) Limited, the Company's
administrator provided administration and company secretarial
services along with Directors for the PSPF General Partner
(Jersey) Limited entity in 2020. During the period, fees of
GBP592,000 were charged (2019: 129,450) with GBPnil (2019:
nil) outstanding.
In March 2015 the Group entered into a five year option agreement
to acquire the remaining 5.2% interest in Phoenix Spree Property
Fund Ltd. & Co.KG (PSPF) from the limited partners M Hilton
and P Ruddle both then Directors of PMM Partners (UK) Limited.
The options were exercised three months after on the fifth
anniversary of the majority interest acquisition, on 1 July
2020. The option was settled for 7,542,000 and was settled
in cash for 5,920,000 net of initial loans to the limited
partners of 1,622,000. 7.542,000 being 5.2% of the net asset
value of PSPF at the time of settlement, as set out in the
original 2015 agreement. For their role as limited partners
in Phoenix Spree Property Fund Ltd. & Co. KG up to their date
of exit, they were paid 30,000.
Fees payable to key management personnel during the year amounted
to 248,000 (2019: 246,000).
Dividends paid to directors in their capacity as a shareholder
amounted to 3,494 (2019: 1,735).
35. Events after
the reporting
date
The Company had exchanged contracts for the sale of twenty
condominiums in Berlin with aggregated consideration of 7.2
million prior to the reporting date. The sale of these units
subsequently completed in Q1 2021.
In Q1 2021 the Company exchanged contracts for the sale of
eight condominiums in Berlin for the aggregated consideration
of 2.9 million. 0.6 million has since completed in Q1 2021
and 2.3 million are still awaiting completion.
The Company continued with buying back its own shares. In
Q1 2021, 397,382 PSD shares have been purchased back with
average price paid of GBP3.20, a 33% discount to December
2020 EPRA NTA per share of GBP4.76.
Professional
Advisors
Property Advisor QSix Residential
Limited
54-56 Jermyn
Street
London SW1Y
6LX
Administrator, Company
Secretary and Registered
Office
Apex Financial Services
(Alternative Funds) Limited
12 Castle
Street
St
Helier
Jersey JE2
3RT
Registrar Link Asset Services
(Jersey) Limited
12 Castle
Street
St.
Helier
Jersey JE2
3RT
Principal Banker Barclays Private
Clients International
Limited
13 Library
Place
St.
Helier
Jersey JE4
8NE
UK Legal Advisor Stephenson Harwood
LLP
1 Finsbury Circus
London EC2M 7SH
Jersey Legal Mourant Ozannes
Advisor
22 Grenville
St.
St.
Helier
Jersey JE4
8PX
German Legal Mittelstein
Advisor Rechtsanwälte
as to property law Alsterarkaden
20
20354 Hamburg
Germany
German Legal
Advisor Taylor Wessing Partnerschaftsgesellschaft
as mbB
to German
partnership Thurn-und-Taxis-Platz
law 6
60313 Frankfurt
a.M.
Germany
Numis Securities
Sponsor and Broker Limited
The London Stock
Exchange Building
London
EC4M
7LT
Independent
Property Jones Lang
Valuer LaSalle GmbH
Rahel-Hirsch-Strasse
10
10557
Berlin
Germany
Auditor RSM UK Audit
LLP
25 Farringdon
Street
London EC4A
4AB
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March 29, 2021 02:00 ET (06:00 GMT)
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