This Ger­man prop­erty trust is han­dling its twin chal­lenges adroitly and we will hold Phoenix Spree Deutsch­land is man­ag­ing to deal with a rent freeze and the pan­demic at the same time

The Daily Telegraph - Business - - Business - RICHARD EVANS

READ­ERS could be for­given for feel­ing any “Reit fa­tigue” after all the cov­er­age we have given to real es­tate in­vest­ment trusts re­cently both in this col­umn on trusts and in Fri­day’s up­dates on our In­come Port­fo­lio. But we must re­turn to prop­erty now, although to­day’s fund is dif­fer­ent not only in the type of as­set it owns but in the cir­cum­stances in which it finds it­self.

Phoenix Spree Deutsch­land owns flats in Ber­lin and faces the com­bi­na­tion of the coron­avirus epi­demic and a new law that bans rent in­creases for its ten­ants.

The lat­ter cer­tainly hit the shares hard when it emerged last year. But the trust has taken some imag­i­na­tive steps to over­come the set­back and the shares trade more or less where we tipped them in July 2017.

One mod­i­fi­ca­tion to the fund’s strat­egy that it

has been grad­u­ally putting into prac­tice since the rent freeze came along is to sell some of the flats it owns and was pre­vi­ously happy to let out. To do this it first needs to sep­a­rate the flats in a block into le­gally sep­a­rate en­ti­ties and this nat­u­rally takes time and ef­fort. How­ever, in a trad­ing up­date pub­lished yes­ter­day it said a fur­ther tranche had been sold at a pre­mium to the val­u­a­tion at which the prop­er­ties were held on its books. Quite a big pre­mium, in fact: in the first half of the year

the le­gal for­mal­i­ties for eight flats were com­pleted and the av­er­age price achieved was 15.7pc more than book value. Even more strik­ingly, an­a­lysts at Liberum, the bro­ker, cal­cu­lated that, in view of the dis­count, cur­rently 29.1pc, at which the shares have been trad­ing rel­a­tive to the fund’s net as­set value, a sale of all its flats at the pre­mium achieved on those eight prop­er­ties would im­ply a 54pc gain.

In other words, if all its flats were turned into sep­a­rate prop­er­ties and sold at a 15.7pc pre­mium to book value, and the dis­count dis­ap­peared, the share price would rise by 54pc.

We do not ex­pect such an out­come in ei­ther re­spect but the cal­cu­la­tion gives us plenty of com­fort: the share price seems to more than fully re­flect the chal­lenges that the fund faces.

Nei­ther is the sale of in­di­vid­ual flats the only means by which it is at­tempt­ing to counter the rent freeze.

Yes­ter­day’s up­date stated: “The board and its le­gal ad­vis­ers re­main of the view that there is a high like­li­hood that the Mi­etendeckel [rent freeze] will be suc­cess­fully chal­lenged. In par­tic­u­lar, the new leg­is­la­tion raises con­cerns about whether the state of Ber­lin is com­pe­tent to pass lo­cal rent leg­is­la­tion, as the pro­vi­sions sub­stan­tially de­vi­ate from ex­ist­ing Ger­man fed­eral law.

“Re­cent le­gal de­vel­op­ments chal­leng­ing the le­gal­ity of the Mi­etendeckel have been pos­i­tive. In May this year the op­po­si­tion in the Ber­lin House of Rep­re­sen­ta­tives and a quo­rum of fed­eral par­lia­ment MPs lodged cases at both Ber­lin’s Re­gional Con­sti­tu­tional Court and the Fed­eral Con­sti­tu­tional Court. Ad­di­tion­ally, in June, 12 con­sti­tu­tional com­plaints from pri­vate own­ers were filed with the Fed­eral Supreme Court.”

It added that a sim­i­lar move to in­tro­duce a six-year rent freeze in Bavaria had been blocked by the Bavar­ian Con­sti­tu­tional Court on July 16. “The rul­ing stated that a fed­eral state may not is­sue its own reg­u­la­tions that con­tra­dict fed­eral rental laws. This rul­ing is sig­nif­i­cant in the con­text of the Ber­lin Mi­etendeckel, as the ba­sic le­gal ar­gu­ments against the im­po­si­tion of a rent cap are the same,” Phoenix Spree said yes­ter­day.

As far as the pan­demic is con­cerned the trust said its ef­fects on rent col­lec­tion lev­els had been lim­ited: col­lec­tion in the six months to June 30 was broadly in line with the same pe­riod last year.

It said residentia­l rent col­lec­tion had re­mained “par­tic­u­larly re­silient”, with 99.6pc of rent col­lected dur­ing the first six months of 2020. Wel­fare pay­ments are avail­able to sup­port ten­ants af­fected by Covid-19.

Com­mer­cial rents, which ac­count for only 11.6pc of in­come, achieved a 96.2pc col­lec­tion rate (99.7pc last year). This trust is nav­i­gat­ing dif­fi­cult times adroitly and we will hold.

Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­ questor­rules; twit­

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