BUILDING
BETTER FUTURES
Annual Report and Accounts 2018
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Strategic Report
Phoenix Spree Deutschland is an investment company founded in 2007
and listed on the London Stock Exchange. It is a long-term investor
in Berlin rental property, committed to improving the quality
of accommodation to its customers.
Over the past eleven years, the Company has assembled an attractive
portfolio of real estate assets which the Directors believe offers investors
the potential for both reliable income as well as capital growth.
PMM has acted as the Property Advisor since the Company’s inception.
It has an experienced team of property professionals with long-standing
experience of the German residential property market.
STRATEGIC REPORT
Highlights of the Year
Our Business At a Glance
Chairman’s Statement
The Changing Face of Berlin
Our Strategy
Our Business Model
Key Performance Indicators
Report of the Property Advisor
Corporate Responsibility
– Respecting People
– Protecting our Environment
– Valuing our Customers
– Investing in our Communities
2
4
6
10
12
13
21
22
28
32
33
34
35
Principal Risks and Uncertainties 36
DIRECTORS’ REPORT
Board of Directors
Directors' Report
38
40
Corporate Governance Statement 43
Audit Committee Report
Remuneration Report
and Directors'
Responsibilities Statement
FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Reconciliation of Net Cash Flow
to Movement in Debt
52
55
57
62
63
64
65
66
Notes to the Financial Statements 67
Professional advisors
98
www.phoenixspree.com
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
HIGHLIGHTS
OF THE YEAR
Gross rental income
Like-for-like rental income growth
Invested in modernisations
€22.7m
9.0%
€7.9m
Profit before tax
Total dividend per share
Berlin acquisitions notarised
€56.4m
€7.50
€36.3m
Berlin transition complete: Further
progress on Berlin acquisitions
• Contracts to acquire 222 units
notarised during 2018, representing
an aggregate purchase price of
€36.3 million and an average value
per sqm of €2,390.
• As at 23 April 2019, contracts to
acquire a further 14 units in Berlin have
been notarised since the December
2018 year end for a purchase price of
€2.4 million, representing a price per
sqm of €2,956.
• Disposal of Central and Northern
Germany Portfolio completed
in April 2018 for €73.0 million,
a 26% premium to the Jones Lang
LaSalle valuation pre-notarisation.
• Since 31 December 2018, all residual
non-Berlin assets have been sold,
creating a fully-focused Berlin fund
with potential for greater economies
of scale.
Financial highlights: Increases in rental
growth, property values and EPRA NAV
•
IFRS NAV per share up 2.3% to
€4.05 (£3.64) (31 December 2017:
€3.96 (£3.52).
• EPRA NAV per share up 11.4% to
€4.58 (£4.11) (31 December 2017:
€4.11 (£3.65).
• Strong like-for-like rental income
growth per sqm of 9.0% during
the year.
– Contracted net rental income of
€17.5 million (31 December 2017
€18.1 million), reflecting the sale
of the Northern German portfolio
in April 2018.
– Gross rental income including
service charges of €22.7 million
(€23.7 million in 2017).
• EPRA total return per share of 13.2%
(year to 31 December 2017: 53.0%).
• Profit before tax €56.4 million (year
Operational highlights: Strong
Portfolio performance
• Like-for-like Portfolio valuation
increase of 14.0% in year to
31 December 2018.
– Total Portfolio valued at €645.7
million, an increase of 6.0% in
absolute terms over the twelve-
month period (31 December 2017:
€609.3 million), reflecting
the impact of non-Berlin disposals
during year.
– Berlin Portfolio valued at €641.8
million, an increase of 21.4%
year-on-year (31 December 2017:
€528.5 million).
– Portfolio valuation represents an
average value per sqm of €3,527
(31 December 2017: €2,853).
• EPRA Vacancy remains low at 2.8%
(31 December 2017: 2.9%).
• Condominium sale completion
to 31 December 2017: €138.5 million);
year-on-year change reflects lower
revaluation increase in 2018 after
exceptionally strong gains in 2017.
proceeds up 4.4%, to €9.9 million,
achieving an average value per sqm
of €4,566.
• Continued active management
• Earnings per share €0.46
(31 December 2017: €1.21).
• Net loan to value of 26.1% as at
31 December 2018 (31 December
2017: 32.0%).
• New debt of €28.8 million signed
during 2018. Average debt maturity
of 7.7 years, average interest rate
reduced to 2.0%.
• Final dividend per share of €5.15 cents
(GBP:4.62p), giving a total dividend
per share of €7.50 cents (GBP:6.73p)
for year to 31 December 2018 (2017:
€7.3 cents (GBP: 6.4p)).
of the Berlin Portfolio with record
investment of €7.9 million in
renovations and modernisations
during 2018.
• New leases on average signed at
a 39.7% premium to passing rents
and condominium sales completed
at a 27.8% premium to the average
valuation of Berlin rental properties
as at 31 December 2018.
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Strategic Report
EPRA NAV/share
€4.58
+11.4%
Portfolio value
€645.7m
+6.0%
Positive outlook: Significant embedded
value remains within rental Portfolio
• Berlin residential property prices
continue to benefit from lack of
supply and favourable demographics,
driven by strong job creation and
population growth.
• Significant reversionary potential
underpins future rental growth.
• Potential for further valuation
creation through condominium
projects and sales.
• Further Berlin acquisitions
expected in current financial year.
Acquisition prices remain below
construction values.
• Substantive review of financing
structure in progress. Expected
to create further capacity for
Portfolio development.
• Active consideration of densification
projects, including attic conversions
and new building construction on
land surrounding buildings already
owned by the Company.
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR BUSINESS
AT A GLANCE
The Company acquires and manages Berlin residential property. Since 2008,
the aggregate value of the Portfolio (including the assets of sister fund PSPF)
has risen from €168 million to €646 million as at 31 December 2018,
with each year seeing an increase.
Since listing on the Main Market of the
London Stock Exchange in June 2015,
the Company has increased the Berlin
focus of the Portfolio through a
combination of carefully selected
acquisitions and disposals, effectively
creating a pure-play Berlin fund.
The Portfolio mainly consists of classic
‘Altbau’ properties which were built
before 1914. Typically, these five-storey
buildings contain between 20 and
40 units, consisting of one to three-
bedroom apartments, often with
shops on the ground floor.
PMM Partners has acted as property
advisor and has an experienced
team of property and investment
professionals with an established
record in the German residential
property market.
Reported property Portfolio valuation 2008-2018 €m
Usable space (sqm)
+6.0% FY
645.7
609.3
423.8
2018
2017
2016
2015
2014
2013
2012
283.6
245.3
233.1
219.0
2011
190.3
2010
186.1
2009
170.3
2008
167.8
183k
Residential units
2,392
Commercial units
153
Pure play Berlin Portfolio – total properties
95
Germany
Berlin
Residential property
Commercial property
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Strategic Report
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
CHAIRMAN’S
STATEMENT
I am delighted that the Company has continued its growth over the last
twelve months, delivering further increases in rental revenues, property
values and EPRA NAV after an exceptionally strong set of results in 2017.
"I am delighted that the Company
has continued its growth over the
last twelve months, delivering
further increases in rental
revenues, property values and
EPRA NAV after an exceptionally
strong set of results in 2017.“
Robert Hingley
Chairman
This performance is underpinned
by the continued favourable Berlin
residential rental market dynamics.
After a long period of rapid property
price inflation, yield compression
has moderated, although the strong
underlying demographic trends remain
in place. The Berlin residential market
is still characterised by a significant
undersupply of available rental property,
as well as positive demographic and
employment trends.
Acquiring for growth
Phoenix Spree has continued to
add to the Portfolio in 2018 and has
completed a further €41.6 million
of acquisitions in central Berlin. The
Company has a proven record of
creating value for Shareholders through
property acquisitions, having acquired
buildings with a combined initial value
of €204.1 million from 2015 up to
31 December 2018, while maintaining
its disciplined approach.
Berlin transition complete:
geographically focused Portfolio
When Phoenix Spree listed on the main
market of the London Stock Exchange
in June 2015, 53.5% of the properties
in the Portfolio were located outside
of Berlin. Notwithstanding the solid
financial performance of these assets,
the Board considered that the Berlin
residential market offered superior
medium-term scope for further growth
in rental and property values. The
Company therefore successfully
repositioned its geographic focus by
divesting properties outside Berlin
through a disciplined disposal process,
all at a premium to trailing book value.
All remaining non-Berlin assets have
been successfully divested following
the sale of the Company’s remaining
Northern Germany assets in the
second quarter of 2018 and one
residual asset in Baden-Württemberg
in early 2019. We have simultaneously
enlarged our Berlin presence through
our strategy of further acquisitions
of attractive assets in central Berlin,
enhancing the scope for further
asset management efficiencies
and economies of scale.
We are well-placed to continue
to grow the Portfolio and we
continue to research attractive
acquisition opportunities.
Improving our tenanted
accommodation
Some properties acquired can be in
a poor state of repair, depending on
the level of historical under-investment
by previous owners. The Company
takes its responsibilities to its tenants
extremely seriously and we have
continued to invest in improvements
to our properties.
Through a carefully targeted process of
investment, we have raised the overall
standard of accommodation for our
tenants and the environment in areas
where our buildings are located. During
2018, the Company invested the
highest value yet on improvement
programmes, and it is anticipated that
this process will continue into 2019.
This improvement in the overall quality
of our living accommodation has created
significant future embedded value within
the Berlin Portfolio, as evidenced by new
leases signed at a premium to in-place
rents and condominium sales completed
at a premium to average rental
property valuations.
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Strategic Report
Partnering with our Property Advisor
Since our introduction to the Stock
Exchange in 2015, the Company
has benefitted significantly from
the expertise of its Property Advisor,
PMM Partners (UK) Limited. They have
actively managed and developed
the Portfolio, whilst simultaneously
sourcing value-enhancing acquisitions,
and achieving disposals at a premium
to book value. PMM Partners has also
overseen the capital structure of the
Company as well as its day-to-day
interaction with investors and other
key stakeholders in our business.
These activities have been fundamental
to the strong financial performance
of Phoenix Spree and its ability to
access capital markets.
I am therefore delighted that, following
overwhelming shareholder approval
at an Extraordinary General Meeting
in December 2018, the Company
entered into a new Property Advisory
and investor relations agreement with
PMM Residential Limited ('PMM'), a new
company within the PMM Group, which
will secure its continued expertise as
Property Advisor until at least the end
of 2022.
The new agreement will provide
greater certainty and stability for
Shareholders and allow PMM to invest
in infrastructure, IT systems and key
personnel dedicated to servicing the
Company’s growing requirements.
It will also reduce future management
and performance fees paid by the
Company and will, therefore, result
in significant cost savings compared
with the terms of the old Property
Advisor agreement. The Board looks
forward to building on our valued
relationship with PMM over the
coming years to continue our record
of strong performance.
In February 2019, the Company
announced it had been informed that
PMM Partners (UK) Limited and its
principals had sold a total of 2,239,361
shares in the Company. The sale of
these shares was principally made to
satisfy the tax liabilities arising from
the December 2017 performance fee
which was settled in Phoenix Spree
Deutschland ('PSD') shares issued to
PMM Partners (UK) Limited in May 2018.
“The Board remains confident that the
Company will continue to generate
growth in rental income and property
values during 2019 supported by
selected additions to the Portfolio.”
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
CHAIRMAN’S STATEMENT
Continued
The Board believes there is scope
for further market rental growth as
well as the opportunity to improve
rental incomes through our Property
Advisor’s active asset management
strategies, particularly on recently
acquired buildings. The reversionary
potential that our substantial
investment in the Portfolio to date
has created should provide a cushion
in the event of any market slowdown.
The Board remains confident that the
Company will continue to generate
growth in rental income and property
values during 2019 supported by
selected additions to the Portfolio and
further condominium projects. This,
in turn, should deliver further capital
growth and dividend income to
investors in the current financial year.
Robert Hingley
Chairman
26 April 2019
Share price and dividend
The 2018 financial year proved
difficult for global equity markets
in general, as concerns about global
growth, the increasing trend towards
trade protectionism and Brexit
weighed heavily. Against this backdrop,
2018 was a year of consolidation
for the Phoenix Spree share price.
Notwithstanding this, the shares
outperformed the FTSE All-Share index
by 5% and the FTSE 350 Real Estate
Investment Services sector by 12%.
The Board is pleased to recommend
a final dividend of €5.15 cents per share
(GBP 4.62 pence per share), taking the
full year dividend to €7.50 cents per
share (GBP 6.73 pence per share),
representing a 3% increase on the 2017
full-year Euro-denominated dividend.
Our 'Better Futures' Corporate
Responsibility Plan
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.
During the past year, the Board and
PMM have reviewed how sustainability
is managed within our business and
considered carefully the views of our
stakeholders and business priorities
to create our ‘Better Futures’ Corporate
Responsibility (‘CR’) Plan. This Plan
provides a framework to monitor existing
activities better, while adding new initiatives
to improve our overall sustainability.
Our Corporate Responsibility Plan has
four key pillars that have been integrated
throughout our business operations:
Protecting our Environment; Respecting
People; Valuing our Customers; and
Investing in our Communities. We have
established a CR Committee to oversee
the implementation of the 'Better
Futures' Plan, reporting to the Board
and advising on any CR-related material
issues. Our CR initiatives are reported
in more detail on pages 28 to 35 of the
Annual Report and are available on the
Company website.
The Board remains fully committed
to high standards of corporate
governance. It has considered the
Main Principles and Provisions of the
UK Corporate Governance Code
(July 2018) and is pleased to confirm
that the Company has complied with
the provisions of the Code throughout
the year, except in certain instances
which are set out in the Corporate
Governance Statement on pages
43 to 51.
Outlook
In recent years, Berlin property values
have benefited from significant yield
compression. Although this has
moderated, the outlook for the Berlin
residential market remains positive.
Residential prices remain on average
below the cost of construction and
demand for property continues to
grow, due to the continuing process
of urbanisation and population growth.
Berlin average monthly rents per sqm
remain among the lowest of all major
European cities.
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Strategic Report
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
THE CHANGING
FACE OF BERLIN
During the past decade, Berlin has developed into one of Europe’s
most vibrant and dynamic cities. Economic and population growth
have substantially outstripped nearly all other European cities.
Today, services account for 85% of
Berlin’s economic output and growth
in knowledge-based and future-
oriented sectors offer a bright future
for Berlin’s economy and labour
market compared with other European
cities which have relied more heavily
on manufacturing and exports.
Since 2009, employment has increased
by more than 30% in aggregate and this
development serves as a solid basis for
residential market demand in Phoenix
Spree’s core Berlin residential market.
Whilst manufacturing accounts for
one out of four jobs across Germany
as a whole, it plays a subordinated role
in Berlin, with only one out of eight
employees employed in this sector.
Berlin has clearly positioned itself as
an innovation hub. As its 'new world'
economy continues to grow and
flourish, the city’s inward migration
trends increasingly reflect the new
skills demanded by the labour market.
Employment growth has mainly taken
place in services, where more than
200,000 jobs were newly created
between 2013 and 2018. Almost
half of these new jobs were in three
services sectors only. First, professional,
scientific and technical services;
second, other business services;
and third, the information and
communications sector.
The changing population and
employment demographics are
reflected in Phoenix Spree’s own tenant
structure. Analysis of new tenancies
signed during 2018 shows that new
tenants attracted to Phoenix Spree’s
rental proposition are almost
exclusively from the services sector,
over 39% of new leases signed are
by tenants that have relocated either
from another German city or from
another country and only 18% are
native Berliners.
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Strategic Report
New leases signed in 2018 by tenant occupation
New leases signed in 2018 by place of birth
Employment sector
Customer service 23%
Other services 20%
Students 16%
Education service 12%
Information Technology
11%
Health services 9%
Technical services 9%
Nationality
Native Berliners 18%
Other German
locations 42%
Other European
Union countries 20%
Non-European Union
but in Europe 6%
Other countries 14%
Despite the significant rental increases seen in Berlin in recent years, rental values remain relatively low by European
standards and rent affordability remains high. For Phoenix Spree, analysis of all new leases signed during 2018 shows that
the average tenant net income after tax is €43,200 and that the percentage of total rent to income stands at only 26%.
Average monthly rents remain among lowest of all major European cities with the average monthly rent per sqm
of €9.8 significantly cheaper than other major European cities.
Monthly rents by European City
2018 (€ per sqm)
Average household income growth
(% change 2018-2028)
London
Edinburgh
Dublin
Paris
Barcelona
Birmingham
Amsterdam
Madrid
Rome
Frankfurt
19.5
19.2
18.0
17.9
16.2
16.0
15.1
14.0
13.3
Milan
12.0
Lisbon
10.6
BERLIN
9.8
Vienna
9.4
Source: Knight Frank
28.2
BERLIN
Birmingham
Edinburgh
Amsterdam
London
Barcelona
Dublin
Frankfurt
Madrid
Milan
Lisbon
Rome
Paris
Vienna
35.9
35.1
35.2
34.0
33.1
32.7
32.3
30.9
30.9
29.3
26.5
25.9
25.6
21.2
Not only are rents comparatively low, but available household incomes are predicted to rise faster in Berlin than
in any other European city over the next ten years.
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR
STRATEGY
Our strategy is to manage and invest in our Portfolio of properties to improve the
overall standard of accommodation to our tenants, and deliver superior risk-adjusted
returns to our investors. To deliver on our strategic objectives, it is imperative that
we work closely with all of our key stakeholders. These encompass tenants,
shareholders, regulators, our partners and local communities.
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PHOENIX SPREE
STAKEHOLDERS
REGULAT O R S
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Our key stakeholders
TENANTS
We aim to create
for our tenants
modern, well-
maintained homes
at affordable rents.
SHAREHOLDERS
We aim to deliver
superior risk adjusted
returns to our
shareholders through
rental income, growth
in property values
and selective
condominium sales.
REGULATORS
We always observe
all Berlin tenant laws,
building and other
relevant regulations.
PARTNERS
We respect and value
our partners, treating
them fairly, so they
in turn can deliver the
best service to our
tenants and investors.
LOCAL
COMMUNITIES
We aim to make a
positive contribution
to the local
environment in which
our properties are
located, through
improving the external
facades of the
buildings and
supporting local
charities.
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Strategic Report
OUR
BUSINESS MODEL
Actively managing the Portfolio
Reinvestment
ACQUIRE
Properties with
potential in Berlin
RENOVATE
Targeted and
value-added
investment
REINVEST
Properties revalued
or sold as
condominiums
OPTIMISE
Increase lettable
area and rental
income
Underpinning our strategy is a business model that
involves our Property Advisor’s active management of the
portfolio of assets. The key stages of this process are:
Acquire, Renovate, Optimise, and Reinvest.
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR BUSINESS MODEL
Continued
ACQUIRE
Properties with
potential in Berlin
The Company focuses on apartment
buildings that are sometimes poorly
maintained. Through significant
reinvestment, the apartments are
modernised to improve both the
standard of accommodation for
tenants and the look of the local
neighbourhood. We focus on carefully
selected central Berlin micro-locations
which offer the potential for medium-
term value creation through
modernisation and renovation.
The Company has historically
focused its acquisitions on properties
built before 1914 (Altbau). Single
properties, packages and portfolios
are considered. Since listing on the
London Stock Exchange in June 2015
the Company has notarised on
properties with an aggregate valuation
on acquisition of €206.3 million.
Acquisitions notarised since 2015 stock market listing
Region
Berlin
Berlin
Berlin
Berlin
Purchase
price
€
35,760,000
78,305,000
55,890,000
36,320,000
Units
227
634
336
222
sqm
18,197
41,406
25,135
15,195
Purchase
price
per sqm (€)
Fully
occupied
yield
1,965
1,891
2,224
2,390
4.3%
4.3%
3.6%
3.5%
4.0%
206,275,000
1,419
99,933
2,064
Year
2015
2016
2017
2018
Total
Number of units notarised in 2018
222
Purchase price Berlin properties
notarised in 2018
€36.3
Total purchase price of Berlin properties
acquired since 2015
€206.3m
Average purchase price per sqm
achieved in 2018
2,390
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR BUSINESS MODEL
Continued
RENOVATE
Targeted and
value-added
investment
Number of properties acquired in 2016
15
Aggregate purchase price in 2016
€78.2m
Buildings acquired may require
reinvestment to bring them up to
modern standards. It can take several
years for the Property Advisor’s
disciplined active asset management
strategies to be fully reflected in the
valuation of each acquired building.
The scope for value creation is clearly
evidenced in buildings acquired during
2016. Acquisitions that had completed
by 31 December 2016 were revalued
by Jones Lang LaSalle ('JLL') as at
31 December 2018 at an average 97.2%
premium to purchase prices. This
compares with growth in the properties
acquired before 2016 over the same
period of 57.8%. This clearly demonstrates
the scope for significant value creation
that the Property Advisor can achieve
through the selective acquisition and
repositioning of Berlin properties.
We place our tenants’ interests at the
forefront of everything we do. Many
of the buildings that we acquire are
in poor condition, with a substantial
backlog of under-investment. We
therefore seek to improve the standard
of accommodation available to tenants
through modernisation and renovation
of apartments and, where appropriate,
their communal areas.
Renovations are carried out sensitively,
and we carefully assess each
programme of building improvements to
ensure that they are justified, avoiding
excessive investment which might
lead to unaffordable rent increases.
Improvements are conducted on a
rolling basis across the Portfolio and
vary according to the condition of each
building and its apartments. Refurbishment
of occupied units is only carried out
with full agreement from tenants.
Vacant units in poor condition are
considered for full renovation and
vacant attic space is reviewed for
conversion to residential space.
Depending on the level of historical
under-investment, apartment
improvements can involve heating
system and boiler upgrades, new
insulation, double glazing, new
plumbing, kitchen and bathroom
renewal, new flooring and
redecoration. Communal areas,
both indoor and outdoor, are also
reviewed for potential improvement.
A single apartment generally costs
between €20,000 and €30,000 to
renovate, while an entire building
renovation might cost up to €2 million.
Acquisitions 2016
Number of properties acquired
Aggregate purchase price
Value growth of 2016 acquisitions (2016 – 31 December 2018)
Historic Portfolio valuation growth (2016 – 31 December 2018)
Rent per sqm growth of 2016 acquisitions (2016 – 31 December 2018)
Historic Portfolio rent per sqm growth (Average 2016 – 31 December 2018)
Average fully occupied purchase yield of 2016 acquisitions
Average fully occupied yield of Portfolio in December 2018
Value
15
€78.2m
97.2%
57.8%
23.3%
19.6%
4.3%
3.0%
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Strategic Report
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR BUSINESS MODEL
Continued
OPTIMISE
Increase lettable
area and rental
income
After acquisition, the Property Advisor
looks to realign these properties
to maximise their potential within
the Portfolio.
Realigning rents
For properties considered to be core
rental buildings, vacant units are re-let
after refurbishment at levels that at all
times comply with relevant regulations.
Tenant lists are reviewed carefully and,
only where appropriate, rent increases
are applied for, either where tenants are
paying less than the statutory rent level
(Mietspiegel), where modernisation
has been undertaken (and these costs
are allowed to be recouped), or where
the lease contains provisions for
indexation (Staffel).
Berlin reletting premium
Buildings that are re-let typically
command a rental premium to in-place
rental values. This 'reversionary gap'
reflects the significant investment in
these buildings and their surroundings
to bring them up to modern standards.
Realigning through the
creation of new living space
As well as acquiring buildings, the
Company is now exploring ways
to realign existing buildings within
the existing Portfolio by identifying
opportunities to create new residential
space. The substantial increase
in rental and property values has
created potential densification
opportunities which could involve
both attic conversions and new
building construction on land
surrounding buildings already
owned by the Company.
Year
2011
2012
2013
2014
2015
2016
2017
2018
Berlin Portfolio
average rent (€ per sqm)
Berlin average new leases
signed by quarter (€ per sqm)
6.2
6.6
7.0
7.4
8.0
7.7
8.1
8.5
6.7
7.9
9.1
9.8
11.2
10.6
11.9
12.0
19
Strategic Report
REINVEST
Properties revalued
or sold as
condominiums
20
Phoenix Spree Deutschland
Annual Report and Accounts 2018
OUR BUSINESS MODEL
Continued
The properties within the Portfolio
are revalued each year with historical
investment being reflected in revised
property values. To the extent that
additional borrowing can be secured
on higher property values, a substantial
portion are reinvested by way of
acquisitions and improvements in
the existing Portfolio of buildings.
For the year ended 2018, 50% of the
rental income has been reinvested
into the Portfolio.
Buildings that no longer fit the strategic
objectives of the Portfolio are considered
for sale, either as blocks, or via the
condominium strategy. Since listing on
the Main Market of the London Stock
Exchange in June 2015, the Company
has been progressively selling its
non-Berlin assets. In aggregate these
assets have been sold at an average
23.8% premium to trailing book value
and the majority of the proceeds
have been reinvested into further
improvements in the Berlin Portfolio
and Berlin acquisitions.
Creation of condominiums
In addition to its core rental business,
the Company also selectively identifies
a small number of condominium
projects. The Company is committed
to operating within the relevant
regulatory and planning frameworks
at all times during the condominium
realignment process.
This strategy is considered where a
significant differential exists between
the market value of a rental unit within
an apartment block and the resale
value of a unit as a private apartment,
or where there is limited opportunity
to generate further value as a rental
building. The process involves legally
splitting the freeholds in a small
number of selected buildings.
The sales comprise a combination
of vacant and occupied units and
can augment returns to reinvest in
the Portfolio on further acquisitions.
As at 31 December 2018, 90 units
representing proceeds of €26.9 million
had completed since condominium
sales commenced in mid-2015.
Disposals notarised since 2015 stock market listing
Region
2015
(€)
2016
(€)
2017
(€)
2018
(€)
Nuremberg & Fürth
870,000
Berlin (including
Greater Area)
Baden-Württemberg
Nuremberg & Fürth
Central & North
Germany
3,800,000
6,100,000 3,920,000
35,170,000
84,050,000
Premium
to prior FY
book value
77.0%
19.1%
6.3%
10.7%
32.9%
Total
870,000 3,800,000 125,320,000 3,920,000
23.8%
Berlin condominium sales 2015-2018
Year
2015
2016
2017
2018
Condominium sales
value €/sqm
Berlin rental portfolio
value €/sqm
Sales Value (€m)
Premium to trailing
book value (%)
3,899
4,427
4,352
4,566
1,982
2,150
3,220
3,576
4.7
5.5
9.1
9.9
19.4
33.3
23.8
24.2
21
Strategic Report
KEY PERFORMANCE
INDICATORS
The Company has chosen a number of Key Performance Indicators,
which the Board believes are relevant to help all stakeholders understand
the performance of the Company and the underlying property Portfolio.
In 2018, the value of the property
portfolio grew by 14.0% on a like-for-
like basis (2017: 40.1%). This growth
was assisted by an increase in like-for-
like portfolio rent per let sqm to €8.7
(2017: €8.1). The EPRA vacancy rate
fell to 2.8% compared with prior year
(2017: 2.9%).
The Group continued with its targeted
condominium programme, notarising
sales of €9.0 million during the financial
year (2017: €9.1 million). EPRA NAV
per share increased by 11.4% to €4.58
(2017: €4.11), and the total dividend
for the year was €7.50 cents per share
(GBP 6.73 pence per share) an increase
of 3% versus the prior year (2017: €7.30
cents per share, GBP 6.40 pence
per share).
Like-for-like property Portfolio value
growth 2015-2018
Like-for-like Portfolio rent
per sqm 2015-2018
14.0%
14.0
2018
2017
2016
19.4
2015
10.6
40.1
€8.7
2018
2017
2016
2015
8.7
8.1
8.0
7.4
EPRA vacancy 2015-2018
Condominium sales notarised 2018
2.8%
2018
2017
2016
2015
2.8
2.9
2.6
3.9
€9.0m
2018
2017
2016
2015
5.7
4.7
9.0
9.1
EPRA NAV per share 2015-2018
Dividend per share
€4.58
2018
2017
2016
2015
2.73
2.28
6.73p
4.58
4.11
2018
2017
2016
2015
6.7
6.4
5.3
4.2
22
Phoenix Spree Deutschland
Annual Report and Accounts 2018
REPORT OF THE
PROPERTY ADVISOR
On a like-for-like basis, the Portfolio valuation increased by 14.0% during the year
ended 31 December 2018 as it continued to benefit from the strong Berlin market
fundamentals. During 2018, the Company invested its highest sum to date to further
improve the overall quality of its accommodation and surroundings.
Like-for-like Portfolio value
rises by 14%
On a like-for-like basis, excluding
the net impact of acquisitions and
disposals, the Portfolio valuation
increased by 14.0% during the year
ended 31 December 2018 as it
continued to benefit from the strong
market fundamentals in Berlin.
The total Portfolio was valued at €645.7
million by Jones Lang LaSalle GmbH,
the Company’s external valuers, an
absolute increase of 6.0% over the
12-month period (31 December 2017:
€609.3 million), reflecting the impact
of non-Berlin disposals during year.
The Portfolio valuation represents an
increased average value per sqm of
€3,527 (31 December 2017: €2,853)
and a gross fully occupied rental yield
of 3.0% (31 December 2017: 3.4%).
Reported property Portfolio valuation (€m)
2018
2017
2016
2015
423.8
283.6
645.7
609.3
2014
245.3
2013
233.1
2012
219.0
2011
2010
2009
2008
190.3
186.1
170.3
167.8
Portfolio regional overview as at 31 December 2018
Berlin
(incl. Greater Area)
Baden-
Württemberg
% of fund by value
Number of buildings
Number of residential units
Number of commercial units
Total units
Total sqm (‘000)
Annualised net rent (€m)
Valuation (€m)
Value per sqm (€)
Fully occupied gross yield %
Vacancy %
EPRA vacancy %
99.4
95
2,374
142
2,516
179.4
17.6
641.8
3,576
2.9
4.7
2.9
0.6
1
18
11
29
3.7
0.4
3.9
1,084
12.1
7.7
0.0
Total
100
96
2,392
153
2,545
183.1
18.0
645.7
3,527
3.0
4.8
2.8
The Berlin Portfolio was valued at
€641.8 million, an increase of 21.4%
year-on-year (31 December 2017:
€528.5 million). This represents an
increased average value per sqm of
€3,576 (31 December 2017: €3,220).
The principal drivers behind the
like-for-like growth in the Portfolio
value were:
• a further contraction in market
yields, driven by the low interest
rate environment;
• strong growth in like-for-like rental
income within the Portfolio;
• the positive impact of the Property
Advisor’s active asset management
strategy;
• continued high levels of investor
interest in the Berlin property
market; and
• further development of the
condominium market, with
single apartment prices in Berlin
experiencing another year of
double-digit growth.
Rental income – growth
trend continues
Contracted net rental income (excluding
service charge revenue) declined by
3.2% to €17.5 million (31 December 2017
€18.1 million), reflecting the impact of
disposal of remaining non-Berlin assets
during the financial year. On a like-for-
like basis, excluding the effect of
acquisitions and disposals, rental income
across the Portfolio grew by 9%
compared with the prior year. Headline
average in-place rent per sqm was €8.6
as at 31 December 2018, compared
with €8.1 as at 31 December 2017.
Berlin saw a like-for-like increase in rent
per sqm of 6.9%. Average rent per sqm
was €8.5, a year-on- year increase of 5.1%
compared with 2017, reflecting strong
underlying rental growth in the existing
Portfolio, partially offset by the impact
of recent acquisitions, which typically
have lower rental values upon takeover.
As at 31 December 2018 the Company’s
net contracted annualised rental income
was €18.0 million.
23
Strategic Report
Recent letting prices achieve
new highs for the Company
The Company enjoyed another strong
letting performance in 2018. A total
of 284 new leases were signed,
representing 12.0% of the average
units owned during the period. In the
Berlin Portfolio, average new letting
prices were 5.3% to €11.9 per sqm
(2017: €11.3 per sqm).
Portfolio reversionary rental
potential remains high
Notwithstanding the growth in rental
prices, the Portfolio continues to
demonstrate significant reversionary
potential, as shown by the premiums
achieved on new letting prices when
compared to in-place rents. New leases
signed during the period in Berlin
were agreed, on average, at a 40.4%
premium to passing rents.
The Property Advisor believes this
reversionary gap should underpin rental
growth in the medium-term, providing
a buffer against any potential slow-
down in the rental market.
EPRA vacancy remains low
Reported vacancy as at 31 December
2018 was 4.4%, down from 6.8% as at
31 December 2017. On an EPRA basis,
which adjusts for units undergoing
redevelopment or reserved for resale,
vacancy was 2.8% as at 31 December
2018, compared with 2.9% as at
31 December 2017.
The Berlin EPRA vacancy rate also
remained low at 2.9% (31 December
2017: 2.7%), with the modest increase
reflecting a higher vacancy rate on
buildings acquired during the year.
The higher vacancy rate allows the
Company to redevelop and re-let
recently acquired apartments.
Berlin Portfolio rent per sqm (€) 2011 to 2018
9.0
8.0
7.0
6.0
5.0
2011
2012
2013
2014
2015
2016
2017
2018
Portfolio investment reaches new high
The Company remains committed to
improving living standards for its tenants
and fulfilling its environmental obligations
in areas where its properties are located.
Depending on the level of historical
under-investment by previous owners,
apartment improvements can involve
redecoration, heating system and heating
plant renewal, new insulation, double
glazing, plumbing and flooring, as well
as kitchen and bathroom renewal.
Communal areas, both indoor and
outdoor, are also reviewed for potential
improvement where investment has
previously been lacking. During 2018,
the Company invested €7.9 million, its
highest sum to date, to further improve
the overall quality of its accommodation
and surroundings (year to 31 December
2017: €6.7 million).
In the Berlin rental Portfolio,
€4.5 million was invested in the
refurbishment of 189 units representing
an average outlay of €354.6 per sqm.
The average premium achieved on
re-letting these vacant Berlin units
was 68.9%. A further €1.9 million
was invested in the infrastructure
of properties within the Portfolio for
items such as heating system upgrades
and improvements to indoor and
outdoor communal areas. An additional
€1.5 million was invested on the
development of condominium
projects. All these items are recorded
in the accounts as capital expenditure.
A further €1.7 million was spent on
repairs and maintenance and expensed
through the profit and loss account,
compared to €1.4 million in 2017. This
results in a total renovation and repair
investment of €9.6 million.
Net contracted rental income for
the year was 3.2% lower at €17.5
million (year to 31 December 2017:
€18.1 million). This decrease reflects
the sale of the Northern German
Portfolio in April 2018, effectively
offset by strong like-for-like rent
per sqm growth of 7.4%.
The Company has reported
a profit before tax for the period to
31 December 2018 of €56.4 million
(2017: €138.5 million) which was
positively affected by a revaluation
gain of €66.1 million (2017: €157.4
million). The revaluation gain was lower
than that experienced in 2017 and is
primarily due to a moderation in the rate
of market yield compression versus the
prior year. Reported earnings per share
for the period were €0.46 cents (2017:
€1.21 cents).
24
Phoenix Spree Deutschland
Annual Report and Accounts 2018
REPORT OF THE PROPERTY ADVISOR
Continued
Berlin Portfolio annual like-for-like rent per sqm growth (%) 2013 to 2018
9.0
7.5
6.0
4.5
3.0
2013
2014
2015
2016
2017
2018
Financial results
€ million (unless otherwise stated)
Gross rental income (including service charges)
Like-for-Like annualised rental income
Net contracted rental income
Profit before tax ('PBT')
Reported EPS (€)
Investment property value
Net debt
Net LTV
EPRA NAV per share (€)
EPRA NAV per share (£)
Dividend per share (€ cents)
Dividend per share (£ pence)
EPRA NAV per share total return for period (€)
EPRA NAV per share total return for period (£)
31 December
31 December
2018
22.7
16.6
17.5
56.4
0.46
645.7
168.4
26.1%
4.58
4.11
7.5
6.7
13.2%
11.4%
2017
23.7
15.2
18.1
138.5
1.21
609.3
195.1
32.0%
4.11
3.65
7.3
6.4
53.0%
57.7%
EPRA NAV increases by 11.4%
Reported EPRA NAV per share rose by
11.4% in the period to €4.58 (£4.11) as at
31 December 2018 (31 December 2017:
€4.11 (£3.65)). After taking into account
the dividends paid in 2018 of €7.35 cents
(GBP: 6.5p), which were paid in June
and October 2018, the Euro EPRA NAV
total return in the period was 13.2%
(2017: 53.0%).
IFRS NAV per share rose by 2.3% in the
period to €4.05 (£3.54) (31 December
2017: €3.96) (£3.52).
Dividend
The Company is pleased to have declared
a final dividend of €5.15 cents per
share (Sterling GBP 4.62p per share),
(2017: €5.0 cents; (Sterling GBP 4.4p
per share)), which is expected to be
paid on or around 27 June 2019 to
Shareholders on the register at close of
business on 7 June 2019, with an
ex-dividend date of 6 June 2019. Taking
into account the interim dividend paid
in October 2018, the dividend for the
year to 31 December 2018 is €7.5 cents
per share (Sterling GBP 6.73p per
share), (2017: €7.3 cents per share;
(Sterling GBP 6.4p per share)).
“Since listing
on the London
Stock Market in
June 2015, and
including the final
dividend for 2018,
€24.9 million has
been returned to
Shareholders.”
25
Strategic Report
Since listing on the London Stock
Market in June 2015, and including the
final dividend for 2018, €24.9 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 and progressive dividend over
the medium-term, subject to the
distribution requirements for Non-
Mainstream Pooled Investments.
Financing
As at 31 December 2018, the Company
had gross borrowings of €195.3 million
(31 December 2017:€222.3 million)
and cash balances of €26.9 million
(31 December 2017: €27.2 million)
equating to a net debt of €168.4 million
(31 December 2017: €195.1 million) and
a net loan to value for the Portfolio of
26.1% (31 December 2017: 32.0%).
Nearly all loans are fixed using
an interest rate hedge and, as at
31 December 2018, the blended
interest rate of all loans across the
Portfolio was 2.0%. The average
remaining duration of the loan book
at 31 December 2018 was 7.7 years
(31 December 2017: 8.4 years). By
31 December 2018, all the Company’s
debt had been refinanced within the
previous 24 months.
During the course of 2018, the
following ten-year loan facilities were
entered into in order to finance newly
acquired properties:
• April 2018, €12.0 million facility;
• July 2018, €1.6 million facility, of
which €0.3 million remains to be
drawn; and
• December 2018, €7.5 million facility
of which €0.9 million remained to be
drawn at 31 December 2018 and was
subsequently drawn in February 2019.
In March 2018, the Company
successfully refinanced existing debt
within PSPF Ltd. & Co.KG, against the
properties based in Berlin. An equity
release of €7.8 million, before costs,
was obtained on the existing property
Portfolio, all of which was drawn by
31 December 2018.
Following the disposal of the non-core
Central and Northern Germany assets,
€40.5 million of the total proceeds
of €73 million was used to repay debt,
with the remainder being reinvested
into the Portfolio. Further single
property disposals amounting to
€4.1 million were also completed
during the year with related debt
of €3.1 million being repaid.
In November 2018, the Company
notarised for disposal the final non-Berlin
property for €3.9 million. The transaction
completed in January 2019. There was
no debt secured against the asset.
The Company is currently undertaking
a substantive review of its financing
requirements to support its future
strategy and will update investors
following the conclusion of this exercise.
Acquisitions and disposals
The Company has continued to grow
in Berlin with a number of carefully
targeted acquisitions in central locations
which fulfil its strict acquisition criteria.
In total, 222 units (210 residential and
12 commercial) were notarised during
2018 for an aggregate purchase price
of €36.3 million, at an average price
per sqm of €2,390, and annual fully
occupied rent of €1.3 million.
The Company intends to continue
with its strategy of acquiring in Berlin
and, as at 23 April 2019, a further
14 units in Berlin had been notarised
since the December 2018 year end
for a purchase price of €2.4 million,
representing a value per sqm of €2,956.
Acquisitions have been financed
using a combination of debt and
cash reserves.
In April 2018 the Company completed
the sale of its remaining Northern
Germany assets for a cash consideration
of €73.0 million, representing a 26%
premium to the Jones Lang LaSalle
pre-notarisation valuation. This Portfolio,
initially acquired in 2006/2007 for an
aggregate purchase price of €38.7
million, consisted of 34 properties
located in Bremen, Hannover,
Hildesheim, Verden, Delmenhorst,
Kiel, Oldenburg, Lüneburg and Lübeck.
26
Phoenix Spree Deutschland
Annual Report and Accounts 2018
REPORT OF THE PROPERTY ADVISOR
Continued
Densification projects
Following the significant increase
in rental values in recent years, the
Property Advisor is in the process of
conducting an exercise to examine the
financial viability of new construction
within the footprint of the existing
Portfolio. This could involve both
attic conversions and new building
construction on land surrounding
buildings that are already owned by
the Company.
So far, 26 buildings have been identified
for attic conversion and permission
has been granted for 39 new apartments,
with a further 35 in planning. Permission
is also being sought for the first
new-build project in the courtyard
of a building already owned by the
Company with potential to create
23 new units. Preliminary estimates
of the gross development cost for
all these projects are in the region
of €30 million to €35 million. The
Board is committed to ensuring that
any decision to proceed with new
construction or investment in existing
assets will be based on the project
meeting or exceeding the Company’s
financial return targets.
Condominium sales
The Company has continued with
its strategy of crystallising the latent
value within the Portfolio through
selectively reselling apartment blocks
as individual units.
Across the Company’s condominium
projects, a total of 23 units were
notarised for sale in 2018, with an
aggregate sales value of €9.0 million,
consistent with the strong sales figures
in 2017 of €9.1 million. This represents
an average value per sqm of €4,490,
or €4,466 excluding commercial units
and parking.
Condominium sales proceeds during
2018 represented a 24.2% premium
to book value and the average price
achieved per sqm for notarised
condominiums was a 25.7% premium
to the average valuation per sqm for
properties in the Berlin Portfolio as at
31 December 2018, confirming the
potential for valuation creation through
apartment privatisation.
These sales constitute a combination
of vacant and occupied units and the
Property Advisor expects to identify
and prepare additional condominium
projects for sale, either to tenants, or new
buyers during 2019 in order to maintain
similar proceeds to previous years.
Market outlook
The trend towards trade protectionism,
slowing global growth and an uncertain
Brexit outcome have impacted negatively
on German GDP forecasts. After averaging
27
Strategic Report
“The Company’s
strategy will
continue to
develop to ensure
that it acts in
a responsible
manner, adhering
at all times to
relevant regulatory
requirements and
property laws.”
2.1% over the period 2014-2017,
Germany’s GDP growth slowed
to 1.5% in 2018, and the European
Commission forecasts this will cool
further to 1.1% in 2019, before
recovering to 1.7% in 2020. Although
headwinds to German economic
growth remain, the inherent strength
of the German labour market
continues, with unemployment levels
expected to reduce further (from 5.2%
during 2018 to 4.9% in 2019) and
employment levels expected to rise.
Berlin’s economic growth prospects
remain relatively uncorrelated given
its comparative under-reliance on
manufacturing and skew towards the
services sector as a source of job
creation. This positive labour market
development has been a key driver of
Berlin’s population growth. Between
2011 and 2017, its population increased
by nearly 290,000 and the number of
households by almost 200,000. The
population is expected to continue
to grow. According to the Senate
administration, Berlin will require
an additional 194,000 apartments
by 2030.
Against a backdrop of strong population
growth, medium-term demand for
residential property will continue to
outstrip supply, driven by a combination
of high new-build construction costs,
lack of available land and a shortage
of new-build permits. The net effect of
this supply-demand imbalance should
underpin the rental market and, in turn,
create significant future reversionary
potential within the Portfolio. This
offers potential to improve rental
incomes in the event that market
rental values stabilise.
With an active market vacancy
currently just over 1%, Berlin’s regional
government has reacted to supply
shortage by implementing a growing
number of regulatory measures such as:
• the exercise of pre-emptive
purchase rights; and
• additional designation of protected
residential areas to restrict the
partitioning and resale of rental
blocks as condominiums.
There has recently been a well-
documented grass roots proposal in
Berlin for a referendum which proposes
to expropriate properties of large
Berlin landlords with over 3,000 units
under management. The Property
Advisor continues to monitor
developments in relation to the
proposed referendum, but feels that
since the Company owns 2,516 units,
the outcome of the referendum is
unlikely to affect the Portfolio.
The Company’s strategy will continue
to develop to ensure that it acts in
a responsible manner, adhering at
all times to relevant regulatory
requirements and property laws.
Notwithstanding the fact that yield
compression has moderated, the
Property Advisor remains confident that
the favourable Berlin demographics
outlined above offer opportunity to
further improve rental incomes and
property values. This, combined with
carefully selected Portfolio acquisitions
and a continuation of selective
condominium sales, leaves the Company
well-placed for the year ahead.
28
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE
RESPONSIBILITY
Phoenix Spree is committed to acting responsibly by balancing
the different interests of all our key stakeholders and capturing
this within our Company Values and business model.
Our approach to
Corporate Responsibility
We strive to strike a meaningful balance
between providing a return to our
investors and addressing our social and
environmental impacts. We engage
with our stakeholders to ensure we
understand differing viewpoints and
take this into consideration when
making business decisions. We believe
that this is the right way to approach
business, and will help us to be a
sustainable company that delivers
long-term success.
Our business focuses on providing
homes for people that are both
comfortable and affordable. We often
acquire properties that are in relatively
poor condition and, through significant
reinvestment, we modernise the
apartments to improve the standard
of accommodation for our tenants
and improve the look of the local
neighbourhood. Providing good
customer service to our tenants and
improving the sustainability of housing
stock through renovation lies at the
core of our business.
In 2018, we reviewed how sustainability
is managed within our business and
aligned these with the views of our
stakeholders and business priorities
to create our Company Values and
our ‘Better Futures’ Corporate
Responsibility (CR) Plan.
Although we recognise that there is
more to do, we are pleased with the
progress we are making, through the
dedication of our partners.
Corporate Responsibility governance
To ensure the successful delivery of
our ‘Better Futures’ CR Plan within our
business, relevant policies have been
created for each of the pillars, a
measurement framework established
to monitor progress and a structure
put in place to ensure robust oversight.
We share the relevant policies with
PMM, who in turn have created their
own policies that are aligned with ours.
We request that PMM periodically
verifies that it has acted in accordance
with the policies. Where PMM
outsources any key functions to other
business partners, it has likewise shared
the policies with them and requested
that they periodically verify that they
have acted within the spirit of the
relevant policies.
Structurally, PMM has established
a CR Task Force that oversees the
implementation of the plan across the
business. This Task Force reports the
progress on the CR Plan, at minimum
twice a year, to Phoenix Spree’s CR
Sub-Committee, who in turn reports
into the Company’s Board.
For further information, please
visit the company’s website at
www.phoenixspree.com.
Our Company Values
Our Company Values mirror our CR
Plan and underpin our commitment to
acting responsibly. They set guidelines
for our behaviours to make good
commercial and ethical decisions.
We share these with our key business
partners who undertake many of the
day-to-day business operations for
Phoenix Spree to ensure that their own
values and behaviours are consistent
with ours.
Responsible
We act responsibly at all times and
expect a high level of integrity from
all our partners and their employees.
That means we treat our tenants,
suppliers and investors with the
highest ethical standards.
Fair
We are fair to all our stakeholders,
whether employees, partners,
investors or tenants and endeavour
to balance their different needs. We
seek to improve the overall standard
of our tenants' accommodation
whilst investing responsibly for
our investors and addressing
environmental and social impacts.
Excellence
We strive for excellence and
continuous improvement. We
carefully select our business partners
based on their strong industry
experience and take a rigorous
approach to managing our business
and executing our strategy to deliver
outstanding results.
Respectful
We respect and value our partners
and the people who work for them
as they are at the heart of our
business success and the face of our
company with tenants and investors.
We believe this will ultimately deliver
a better service to our tenants and
results for our investors.
29
Strategic Report
30
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY
Continued
Our ‘Better Futures’ Corporate Responsibility ('CR') Plan
Our ‘Better Futures’ Plan provides a framework to manage our existing activities
more effectively whilst adding new initiatives to improve our overall sustainability.
We have captured our activities under four key pillars that are
integrated throughout our business operations.
RESPECTING
PEOPLE
Our partners and their employees
are at the heart of our business’
success and the face of our
Company with tenants and investors.
Our key partner, PMM, is committed
to hiring, developing and retaining
highly-experienced people.
Read more page 32
PROTECTING
OUR ENVIRONMENT
We strive to reduce our
environmental impact by minimising
the waste during the property
refurbishment process, using
products and materials that have
a low environmental impact and
encouraging tenants to minimise
their utility use.
Read more page 33
31
Strategic Report
“Addressing our environmental and
social impacts is intrinsically linked
to the success and sustainability
of our business.”
Monique O'Keefe, Chair of Corporate Responsibility Committee
VALUING
OUR CUSTOMERS
Working together with our partners,
we provide good-quality affordable
homes with a reliable friendly rental
service for our tenants and a highly
professional service to our investors.
Read more page 34
INVESTING IN
OUR COMMUNITIES
By investing in the housing stock
and supporting local charities,
we help contribute to thriving
and sustainable communities.
Read more page 35
32
Phoenix Spree Deutschland
Annual Report and Accounts 2018
RESPECTING PEOPLE
The success of our business is based on the expertise, experience
and dedication of our partners and their employees, as they
undertake the day-to-day operations for Phoenix Spree.
Our Property Advisor, PMM, represents
the majority of this headcount and
has an experienced team of property
professionals with long-standing
experience of the German residential
property market, and is de facto the
face of Phoenix Spree. We therefore
believe it is important that PMM and
Phoenix Spree’s Company Values are
aligned and how PMM treats their
employees is consistent with our
People Policy.
PMM is committed to having an
inclusive working environment and
encourages employees to develop
personally and professionally via
access to a variety of training
programmes and challenging work
assignments. They take the health
and welfare of their employees
seriously and believe in promoting a
strong work-life balance. Results from
their Employee Survey demonstrate
that they are meeting these aims and
that their employees are very satisfied
with how they are treated.
Neither Phoenix Spree nor PMM meet
the criteria requiring the Company to
publish a Modern Slavery Statement.
Nevertheless, both companies fully
support the intentions of the Act
and are committed to implementing
systems and controls aimed at
minimising the risk of modern slavery
taking place anywhere within our
organisations or in our supply chains.
An Anti-Slavery and Human Trafficking
Policy has been introduced and shared
with key business partners.
“94% of employees believe
that PMM treats employees
with respect and provides
equal opportunities.”
PMM Employee Survey 2018
33
Strategic Report
PROTECTING OUR ENVIRONMENT
We are committed to minimising our impact on the environment in our rental
properties and in the offices of our key partner, PMM, by reducing our utility
use and minimising the amount of waste we produce and send to landfill.
Our Environment Policy formalises our
approach and sets guidance as to how
Phoenix Spree, PMM, and other key
suppliers should operate.
Throughout the property refurbishment
process, we work with our contractors
to minimise the amount of waste by
re-using materials, where feasible. In line
with our Sustainable Procurement Policy
we aim to use products and materials
that have a low environmental impact,
so long as their technical performance
meets the required standards and they
are economically viable for refurbished
properties. This includes items such as
energy and water-efficient fittings and
paint that has a Blue Angel award.
Measuring the total utility usage within
our rental properties is not feasible as the
majority of our tenants have a direct
contract with the utility provider which
limits our visibility and oversight. Despite
not having direct control over much of
the properties’ utility usage and waste,
our aim is to encourage our tenants to
reduce their utility usage by providing
them with helpful hints and advice. The
electricity supplied to our buildings is
increasingly from renewable sources
and many of our properties have been
awarded recycling awards.
Given the majority of the day to
day running of Phoenix Spree’s
operations is undertaken by our
Property Advisor, PMM, we focus on
their offices when reviewing our direct
environmental impact. Both PMM’s
Berlin and London offices are fitted
with energy saving products, with
the latter meeting RICS SKA Silver
standards. PMM has appointed an
Environment Champion for each office
to encourage employees to reduce
their utility usage, improve recycling
and reduce the amount of paper used
within the business.
34
Phoenix Spree Deutschland
Annual Report and Accounts 2018
VALUING OUR CUSTOMERS
Our core business focuses on providing good-quality rental
property at affordable prices in the city of Berlin.
"88% of new
tenants said they
were satisfied with
their apartment."
Tenants Survey 2018
We have in place a Vulnerable Tenant
Policy, which provides guidance on
procedures that should be followed
when dealing with tenants who are
vulnerable to provide them with
additional protection.
In addition to providing comfortable
affordable homes, it is important that
we provide a reliable friendly service to
our tenants, listening to their suggestions
and concerns and responding in a
timely manner. We monitor this
engagement and conduct Tenant
Surveys to ensure we are delivering a
high standard of service. Similarly, we
are also committed to providing an
excellent service to our investors.
We are rigorous in selecting the right
Partners to ensure they deliver the best
results for our tenants and investors. We
require them to share our commitment
to high standards of responsibility and
treating customers fairly, as outlined in
our Suppliers Code of Conduct. We
have shared our key policies and
Company Values with key partners
and suppliers, asking them to affirm
that they are operating in a manner
consistent with them.
Our tenants regard their apartment
as their home and, to that end,
we aim to make a positive contribution
to our tenants’ living standards and
to ensure that their apartment is
a place in which they enjoy living.
We seek to improve the standard of
accommodation available to tenants
through modernisation and renovation
within apartments and the communal
areas. In line with our Company Values,
we assess the renovations to ensure
these improvements are justified
so as to avoid excessive investment
which might lead to unaffordable
rent increases.
Improvements are conducted on a
rolling basis across the Portfolio and
vary according to the condition of each
building and its apartments. Upgrades
can include simple redecoration,
new flooring, kitchen and bathroom
renewals, improved insulation and
glazing, heating and plumbing renewal,
as well as electrical upgrades.
Communal stairwells and outdoor
areas can be improved for the tenants
and, where space permits, bike racks
are installed.
We always comply with the applicable
German law requirements limiting rent
increases. We are conscious of our
responsibility to tenants and ensure that
rents for existing tenants are set in line
with the Mietspiegel.
35
Strategic Report
INVESTING IN OUR COMMUNITIES
We help contribute to thriving communities by investing
in the housing stock and supporting local charities.
In addition to investing in communities by
providing homes that people want to live
in at affordable rents, we look to improve
the external façade of the buildings and
other outdoor areas. For our tenants, the
look and feel of a neighbourhood plays
an important role in how they feel
about their home and the community
they live in. During 2018, we re-
invested half of rental income across
all of our improvement programmes.
Within our new ‘Better Futures’ CR
Plan, we have structured our charitable
giving in a more strategic way through
our Community Investment Policy and
focus on supporting charities where
there is a connection with the ‘home’.
Phoenix Spree is supporting a women’s
refuge (The Intercultural Initiative) that
helps women affected by domestic
violence. This charity provides emergency
shelter, advice and counselling to the
women and their children.
The counsellors provide the women
with information on topics such as
education, legal and custody issues and
help them develop their social networks
so they can rebuild their confidence
and their lives. Their children are
helped with any educational issues
and receive support on how to process
and cope with their domestic abuse
experience. We will look for further
charities to partner with where our
support can make a positive impact
around the theme of ‘homes’.
“Intercultural
Initiative e.V. are
very pleased that
Phoenix Spree is
supporting our
work with women
and children who
have experienced
domestic violence.
The donation will
be used to fund
additional support
for the mothers
and their children.”
PMM, our key partner, is supporting
two charities in London that work
with homeless people or those at risk
of becoming homeless. PMM supports
SPEAR to run an outreach service, helping
rough sleepers into accommodation
and helping them to address health
and wider social care problems. With
SHP, PMM is funding an employability
programme that helps homeless
people to find a job and secure
a sustainable income that enables
them to afford housing.
PMM has appointed a Charity
Champion in both their Berlin and
London offices to engage employees
with their charitable activities. PMM
employees are also encouraged to
volunteer, receiving one day’s paid
leave to volunteer for a charity should
they wish. Some employees have
already taken this up, volunteering
with SHP prior to Christmas, delivering
presents to 830 homeless people.
Dr Lehmann
Managing Director,
The Intercultural Initiative
36
Phoenix Spree Deutschland
Annual Report and Accounts 2018
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
Decline in
property
valuation
Economic, political, fiscal and legal issues can
have a negative effect on property valuations.
A decline in Group property valuations could
negatively affect the valuation of the Portfolio
and the ability of the Group to sell properties
within the portfolio at valuations which satisfy
the Group’s investment objective.
Adverse
interest rate
movements
Future interest rate rises could increase
the borrowing cost to the Group which,
in turn, could negatively affect the Group’s
financial performance.
The Property Advisor believes German housing affordability
metrics remain favourable relative to other European countries and
that German residential supply-demand dynamics are supportive,
with limited supply of rental stock in urban locations putting
upward pressure on rents.
The Property Advisor has a record of securing financing across
the Portfolio. The Group mitigates its exposure to adverse interest
rate movements through the use of interest rate swaps or by fixing
its interest rates. All new debt drawn in the year was fixed using interest
rates swaps. The average blended interest rate of the Group’s debt
profile is now 2.0% with a blended maturity of 7.7 years. During the
past 24 months, 100% of the Group’s debt has been refinanced.
Inability to sell
condominiums
Inability to sell condominiums in the Berlin market
due to changing political or economic conditions
could affect the Company’s cashflows in the
short-term, which may affect the ability of the
Company to fund its capital expenditure
programme or fund its annual dividend.
The Company currently has split over half the properties in the
German land registry, the final step to allowing the sale of
properties as individual condominiums. The Property Advisor
reviews the condominium profile of the Company on a monthly
basis and the Company can onboard new condominium
properties quickly for sale if required.
Breach of
covenant
requirements
Should any fall in revenues result in the Group
breaching financial covenants given to any
lender, the Group may be required to repay
such borrowings in whole or in part, together
with any related costs.
Insufficient
capital
to support
expansion
Lack of capital may restrict the ability of the
Group to pursue future investment opportunities
consistent with the overall investment objectives.
The Group has no loan to value covenants on debt held. The
Group does have debt service coverage covenants on its finance
with DZ Hyp bank which are assessed annually in January. DZ Hyp
loan covenant requirements have always been met with significant
headroom, and were most recently met in January 2019, again
with significant headroom. The Property Advisor regularly monitors
all debt service coverage covenants and would seek to take
remedial measures in advance of any covenant being breached.
At year end the Group had cash reserves of €26.9 million and has
signed debt in 2018 of €28.9 million, €27.6 million of which was
drawn. The Group always maintains very conservative long-term
forecasts regarding its cash balances to ensure a three year viability
projection. Taking this into account, and current and future
spending commitment on improving the Increasing portfolio and
returns to shareholders, without further debt the Group has limited
capacity for acquisitions. It continues to look for methods to
achieve further capital on an ongoing basis.
Insufficient
investment
opportunity
Availability of potential investments which
meet the Group’s investment objective can
be negatively affected by supply and demand
dynamics within the market for German residential
property and the state of the German economy
and financial markets more generally.
The Property Advisor has been active in the German residential
property market since 2006. It has specialised acquisition
personnel and an extensive network of industry contacts, including
property agents, industry consultants and the principals of other
investment funds. It is expected that future acquisitions will be
sourced from these channels.
37
Strategic Report
Risk trend
Increasing
Unchanged
Decreasing
Risk
Impact
Mitigation
Changes to
property and
tenant law
Property laws remain under constant review by
the new 'Red-Red-Green' coalition government
in Germany and future changes to property
regulation and rent controls for new tenancies
could negatively affect rental values and
property valuations.
Occupancy
and tenant
risk
Unexpected vacancy and tenant default trends
across the Portfolio could lead to a rental income
shortfall which, in turn, may adversely impact
Group profitability and investment returns.
The Property Advisor regularly monitors the impact that existing
and proposed regulation could have on future rental values
and property planning applications. This includes the potential
referendum in Berlin which is discussed on page 27 of this Annual
Report. In order to reduce the dependency upon statutory rent
increases, the majority of the new leases signed within the
Portfolio include annual indexation (or ‘Staffel’) increases.
The Property Advisor implements strict vetting and screening
processes to improve tenant quality across the Portfolio. Where
appropriate, apartments becoming vacant are renovated and
modernised and then re-let at rents which are at a significant
premium to that paid by outgoing tenants.
Reliance on
the Property
Advisor and its
key personnel
The Group’s future performance depends on the
success of the Property Advisor’s strategy, skill,
judgement and reputation. The departure of one
or more key employees may have an adverse
effect on the performance of the Group and
any diminution in the Property Advisor’s
reputation may have an adverse effect on the
Group’s performance.
Since Listing on the London Stock Exchange, the Property Advisor
has expanded headcount through the recruitment of several
additional experienced London and Berlin-based personnel.
Additionally, senior Property Advisor personnel and their families
retain a stake in the Group, aligning their interests with other key
stakeholders. In November 2018 the Group announced that it had
signed a new Property Advisor agreement with PMM, committing
the Property Advisor to the Fund for the foreseeable future.
Reputational
risk
Adverse publicity and inaccurate media
reporting could reflect negatively on stakeholders’
perception of the Group, its strategy and its
key personnel.
Macro
economic
environment
A deterioration in economic growth and
a recessionary environment could adversely
affect tenant demand and vacancy, leading
to a reduction in rental and property values.
Failure to identify and respond to the introduction
of new financial regulation in a timely manner.
Risk of reputational damage, penalties or fines.
The Group has retained an external public relations consultancy
and press releases are approved by the Board prior to release.
The Group maintains regular communication with key
shareholders and conducts presentations and roadshows to
provide investors with relevant information on the Group, its
strategy and key personnel. The Group also has a dedicated
CSR committee of the Board which ensures the Company
ethos is in line with societal expectations.
Although the Board and Property Advisor cannot control external
macroeconomic risks, economic indicators are constantly
monitored by both the Board and Property Advisor and Group
strategy is tailored accordingly. The Fund is a Jersey & Guernsey-
based entity operating in Germany, and therefore Brexit should
not affect the fund as it currently operates outside the UK.
However, the uncertainty surrounding Brexit continues to affect
the macroeconomic environment around Europe and the
situation continues to be monitored by both the Board and
Property Advisor.
The Group employs internal compliance and corporate
governance advisors to provide updates and boardroom briefings
on regulatory changes likely to impact the Group. The Group
works closely with external accountants and tax advisors to keep
up to date with changes to financial regulation in the UK, Channel
Islands and Germany.
Illegal access of commercially-sensitive
information and potential to impact investor,
supplier and tenant confidentiality.
Review of IT systems and infrastructure in place to ensure
these are as robust as possible. Service Providers are required
to report to the Board on request on their financial controls and
procedures. Service providers are also required to hold detailed
risk and controls registers regarding their IT systems. The Board
is currently reviewing its IT procedures and controls for the 2019
financial year.
Non-
compliance
with new
regulatory
accounting
and taxation
legislation
Loss of data
due to cyber
security
attack on
IT systems
38
Phoenix Spree Deutschland
Annual Report and Accounts 2018
BOARD OF
DIRECTORS
The Company has an experienced Non-executive Board,
chaired by Robert Hingley. The Directors have a wealth of experience
in real estate, corporate finance, investment funds and capital markets.
Robert Hingley
Non-executive Director
and Chairman
Quentin Spicer
Non-executive Director and
Chair of the Valuation Committee
and Nomination Committee
Charlotte Valeur
Non-executive Director and
Chair of Risk Committee
Robert acts as an independent
Non-executive Director and
Chairman of the Company.
He has over 30 years’ experience as
a corporate finance adviser, retiring
as a partner at Ondra Partners LLP
in 2017. He joined the Association
of British Insurers as Director,
Investment Affairs in September
2012 and, following the merger
of ABI’s investment affairs with
the Investment Management
Association, acted as a consultant
to the enlarged IMA until the end
of 2014. From 2010 until January
2015, he was a Managing Director,
and later Senior Advisor, at Lazard.
He was previously Director General
of The Takeover Panel from
December 2007, on secondment
from Lexicon Partners, where he
was Vice Chairman. Prior to joining
Lexicon Partners in 2005, he was
Co-Head of the Global Financial
Institutions Group and Head of
German Investment Banking at
Citigroup Global Capital Markets,
which acquired the investment
banking business of Schroders in
2000. He joined Schroders in 1985
after having qualified as a solicitor
with Clifford Chance in 1984.
Quentin is a resident of Guernsey.
He qualified as a Solicitor in
England and Wales in 1968
with Wedlake Bell in London,
where he became head of the
property department.
He moved to Guernsey in 1996
to become Senior Partner of
Wedlake Bell Guernsey until
retiring in 2011. He specialised in
commercial property transactions
including funding for non-UK tax
residents and associated low tax
jurisdiction structures. He was
Chairman of F&C UK Real Estate
Investments Limited, standing
down in November 2015. He is
currently Chairman of Alternative
Liquidity Fund Limited, both are
LSE listed companies; he was
also Chairman of Guernsey
Housing Association LBG,
standing down in June 2017;
and is a Non-executive Director
of a number of other funds
including Summit Properties
Limited. He is a member of the
Institute of Directors.
Charlotte has held a number of
executive and non-executive roles
in listed and private businesses.
She was the Chair of the Board at
both Kennedy Wilson Europe Real
Estate Plc and a Non-executive
Director of 3i Infrastructure Plc.
She is currently Chair of
Blackstone GSO Loan Financing
Ltd, as well as Non-executive
Director of JP Morgan
Convertibles Income Fund Ltd
and NTR Plc. Charlotte has over
30 years of experience in the
Financial Services industry,
working for a range of
international investment banks
in the City of London. She is
also the Founder and CEO
of GGG Ltd, trading as Global
Governance Group. In 2018
she was elected as the Chair
of the Institute of Directors.
39
Directors’ Report
Jonathan Thompson
Non-executive Director and
Chair of Audit Committee
Monique O’Keefe
Non-executive Director
and Chair of the Corporate
Responsibility Committee
Jonathan is a Chartered
Accountant and spent 33 years
with KPMG and is an honorary
Fellow of the Royal Institute of
Chartered Surveyors.
He has extensive real estate and
board-level experience currently
holding the Non-executive
Chairmanship of the Argent
Group of investment and
development businesses and
is a Non-executive Director of
Schroder European Real Estate
Investment Trust Plc and is Chair
of its audit committee. He is a
former Non-executive Director
of the South West London NHS
Mental Health Trust and Strutt &
Parker where he also chaired
the remuneration committee.
He was the 2017-2018 Chair of
the Investment Property Forum.
Monique is a Jersey-based
Independent Non-executive
Director and also runs an
investment consultancy business.
She sits on a select number of
boards including a private equity
fund, a hedge fund and an
upstream oil and gas fund. She
also serves as a Commissioner
with the Jersey Financial Services
Commission. Prior to moving
to Jersey, Monique was an
investment banker at Goldman
Sachs and Merrill Lynch and a
structured finance lawyer at
Clifford Chance and Minter Ellison.
Monique is regulated by the Jersey
Financial Services Commission
to act as a company director
(Class G), and is registered with
the Cayman Islands Monetary
Authority. She has been appointed
as Chairman of the Corporate
Responsibility Committee.
40
Phoenix Spree Deutschland
Annual Report and Accounts 2018
DIRECTORS’
REPORT
The Directors are pleased to present their Annual Report and the audited consolidated financial statements for the year
ended 31 December 2018.
General information
The Company is a public limited company and incorporated in Jersey, Channel Islands under the Companies (Jersey) Law 1991.
The Company was admitted to the premium segment of the Main Market of the London Stock Exchange on 15 June 2015.
The Group’s objective is to generate an attractive return for shareholders through the acquisition and active management
of high-quality pre-let properties in Germany. The Group is primarily invested in the residential market, supplemented with
selective investments in commercial property. The majority of commercial property within the Portfolio is located within
residential and mixed-use properties.
Dividends
The Directors recommend a final dividend of €5.15 cents (2017: €5.0 cents) per Ordinary Share to be paid on or around
27 June 2019 to ordinary Shareholders on the register on 7 June 2019.
The Directors declared a dividend of €5.0 cents per share on 26 April 2018, paid on 29 June 2018 to ordinary Shareholders
on the register on 8 June 2018 and a further dividend of €2.35 cents per share on 26 September 2018, paid on 19 October 2018
to ordinary Shareholders on the register on 5 October 2018.
Directors
The Directors who served during 2018 and to date are as follows:
Name of Director
R Hingley
R Prosser (resigned 17 April 2018)
M Northover (resigned 24 January 2018)
Q Spicer
Independent Non-executive Director, Chairman
Non-executive Director
Non-executive Director
Independent Non-executive Director
(Not independent from 7 March 2019)
A Weaver (resigned 17 April 2018)
Non-executive Director
C Valeur (appointed 24 January 2018)
Independent Non-executive Director
J Thompson (appointed 24 January 2018)
Independent Non-executive Director
M O’Keefe (appointed 17 April 2018)
Independent Non-executive Director
Directors’ indemnities
The Company has made third party indemnity provisions for the benefit of its Directors which were in place throughout the
year and remain in force at the date of this report.
Substantial shareholdings
As at 9 April 2019, the Company has received the following notifications under chapter 5 of the Disclosure and Transparency
Rules of shareholdings of more than 5% of the Company’s share capital:
Name of holder
Bracebridge Capital, LLC
Thames River Capital
Invesco
Percentage of voting rights
No. of Ordinary Shares
12.2%
8.0%
6.8%
12,288,503
8,088,096
6,872,314
41
Directors’ Report
Requirements of the Listing Rules
The following table provides references to where the information required by the Listing Rule 9.8.4R is disclosed.
Listing Rule requirement
A statement of the amount of interest capitalised by the group during the period under review with an
indication of the amount and treatment of any related tax relief.
Not applicable
Any information required by LR 9.2.18 R (Publication of unaudited financial information).
Details of any long-term incentive schemes as required by LR 9.4.3 R.
Details of any arrangements under which a Director of the Company has waived or agreed to waive any
emoluments from the Company or any subsidiary undertaking. Where a Director has agreed to waive future
emoluments, details of such waiver together with those relating to emoluments which were waived during
the period under review.
Not applicable
Not applicable
No such waivers
Details required in the case of any allotment for cash of equity securities made during the period under
review otherwise than to the holders of the Company’s equity shares in proportion to their holdings of
such equity shares and which has not been specifically authorised by the Company’s shareholders. This
information must also be given for any major unlisted subsidiary.
No such share
allotments
Where a listed company has listed shares in issue and is a subsidiary undertaking of another company,
details of the participation by the parent undertaking in any placing made during the period under review.
Not applicable
Details of any contract of significance subsisting during the period under review: (a) to which the listed
Company, or one of its subsidiary undertakings, is a party and in which a Director of the listed Company
is or was materially interested; and (b) between the listed Company, or one of its subsidiary undertakings,
and a controlling Shareholder.
Details of contracts for the provision of services to the listed Company or any of its subsidiary undertakings
by the controlling Shareholder.
Details of any arrangement under which a Shareholder has waived or agreed to waive any dividends,
where a Shareholder has agreed to waive future dividends, details of such waiver together with those
relating to dividends which are payable during the period under review.
Board statement in respect of relationship agreement with the controlling Shareholder.
a) Notes 27, 33
to the accounts
b) No controlling
Shareholder, not
applicable
No controlling
Shareholder,
not applicable
No such agreements
No controlling
Shareholder,
not applicable
Corporate governance
The Directors have prepared a statement on how the UK Corporate Governance Code has been applied, which is set out
on pages 43 to 51.
Financial instruments
Details of the financial risk management objectives and policies followed by the Directors can be found in note 3 to the
consolidated financial statements.
Events after the reporting date
•
In April 2019, the Company exchanged contracts for the acquisition of one individual property in Berlin for the purchase
price of €2.4 million. The property is still awaiting completion.
• The Company had exchanged contracts for the acquisition of one property in Berlin with a purchase price of €2.2 million
•
prior to the balance sheet date, which as at balance sheet date had not yet completed. The purchase completed in
January 2019.
In Q1 2019, the Company exchanged contracts for the sale of one commercial unit and one residential unit in
BoxhagenerStraße with an aggregated purchase price of €1.9 million. These sale of these units subsequently completed
in April 2019.
• The Company had exchanged contracts for the sale of three condominiums in Berlin with aggregated consideration
of €1.1 million prior to the consolidated statement of financial position date. These sale of these units subsequently
completed in Q1 2019.
42
Phoenix Spree Deutschland
Annual Report and Accounts 2018
DIRECTOR’S REPORT
Continued
Events after the reporting date continued
• The Company exchanged contracts for the disposal of the last non-Berlin property for the sale price of €3.9 million prior
to the consolidated statement of financial position date, the sale of this property subsequently completed in January 2019.
In February 2019, the Company drew down the final €0.9 million portion of the €7.5 million loan with Berliner Sparkasse.
€6.6 million of the debt was released in December 2018.
•
Auditor
Each of the Directors at the date of approval of this Annual Report has taken all the steps that he or she ought to have taken as a
Director in order to make him or herself aware of any relevant audit information and to establish that the Group’s auditor is aware
of that information. The Directors are not aware of any relevant audit information which has not been disclosed to the auditor.
RSM UK Audit LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint them will be
proposed at the forthcoming Annual General Meeting.
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 over which the Group has sufficiently robust forecasts as part of its business plan. 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. 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 2021:
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; and
f) condominium sales proceeds.
The Directors recognise that the projections of cash flows do not include the impact of further potential property
acquisitions over the three-year period, as these acquisitions are ad hoc and discretionary in nature. In this respect,
the Directors complete a formal review of the working capital headroom of the Group for each potential acquisition.
On the basis of the above, and assuming the principal risks are managed or mitigated as expected, the Directors have
a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the three-year period of their assessment.
Registered office
13-14 Esplanade
St Helier
Jersey JE1 1EE
Channel Islands
The Directors’ Report was approved by the Board of Directors and authorised for issue and signed as follows:
On behalf of the Board
Jonathan Thompson
Director
26 April 2019
43
Directors’ Report
CORPORATE
GOVERNANCE STATEMENT
This Corporate Governance Statement comprises pages 43 to 51 and forms part of the Directors’ Report.
To comply with the UK Listing Regime, the Company must comply with Listing Rule 9.8.6(5) R which requires the Company
to apply the main principles of the UK Corporate Governance Code (‘the Code’) most recently published in July 2018 and report
to Shareholders how the Company has applied these principles or explain any departures therefrom.
On 16 July 2018, the Financial Reporting Council (‘FRC’) published the 2018 Code of Corporate Governance. The Code is available
for download from the Financial Reporting Council’s (‘FRC’) website www.frc.org.uk.
The Board intends to adopt The AIC Code of Corporate Governance (the AIC Code) for the accounting period beginning
1 January 2019. The Board deem the AIC Code more relevant with respect to the governance of investment companies.
The Board has considered the principles and recommendations of the Code. During the year, the Company has complied
with all of the provisions of the Code except as set out below.
• the role of the Chief Executive and Executives of the Board;
• Executive Directors’ remuneration;
• the internal audit function; and
• the composition of the Audit Committee and Risk Committee (rectified during 2018).
The Board considers that the provisions relating to the Chief Executive and Executive Directors’ role and remuneration are not
relevant to the Company, as the running of PSDL’s business is outsourced to third parties and there are no Executive Directors.
The objective of the Code to separate the roles of the Chairman who manages and provides leadership to the Board, and the
running of PSDL, is achieved because the Chairman is independent from the third-party providers.
PSDL does not currently have an internal audit function as the Board believe that it can ensure that PSDL’s risk management,
governance and internal control processes are operating effectively without this. This is because PSDL’s business is conducted by
relatively few individuals (through the outsourced service providers) who report to the Board, and its operations are not complex.
However, if PSDL increases in size, the appointment of an appropriately qualified and resourced internal audit department will be,
and is currently being, considered. Ultimately this role will be widened to encompass reviews of the efficiency of operations and
to make recommendations on rationalisation of the business. If established, such internal audit department would report directly
to the Audit Committee.
The members of the Audit and Risk Committees have been selected for their experience and expertise in relation to the risks,
financial reporting and internal controls relating to PSDL. The members bring specific experience in relation to the property
investment sector and externally managed structures which have been found to be invaluable to each Committee in identifying
risks and assessing the mitigating controls which have been established.
Board leadership and Company purpose
In accordance with the Code’s Principles A, B, C, D & E following the changes to its composition in 2018, the Board was
considered wholly independent for the year 2018 with no representation of external service providers on the Board. From
7 March 2019 Quentin Spicer was no longer considered to be an Independent Non-executive Director due to his length of
service exceeding ten years. The Board however consider his detailed knowledge of the Company a significant asset and are
happy for him to continue as a Non-executive Director for the coming period. The Board assesses the basis on which the
Company generates and preserves value over the long-term. Additionally, the Board considers and addresses the opportunities
and risks to the future success of the Company, along with the sustainability of the Company’s business model and how its
governance contributes to the delivery of its strategy.
This is achieved by considering the following matters:
• the overall objectives of the Company as described under the sections headed 'Our Strategy' & 'Business Model' in the
Strategic Report, and the strategy for fulfilling those objectives within an appropriate risk framework in light of market
conditions prevailing from time to time;
• the appointment of the Property Advisor, administrator and other appropriately skilled service providers and to monitor their
effectiveness through regular reports and meetings; and
• the key elements of the Group’s performance including NAV and EPRA NAV growth and the payment of dividends.
44
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE GOVERNANCE STATEMENT
Continued
Further to the above the Board has adopted a Diversity Policy which sets out the Board’s approach to diversity in Board composition
confirming that the Board would make any new appointments on merit taking into consideration gender diversity.
The Company has no direct employees therefore is not required to monitor culture in this respect, however, the Board recognises
its wider responsibility to demonstrate to Shareholders that it is operating responsibly, managing its social and environmental
impacts for the benefit of all stakeholders. Following a thorough review of how sustainability is managed within the Company,
a 'Better Futures' Corporate Responsibility Plan has been developed. This will provide a framework to measure existing activities
better while adding new initiatives to improve overall sustainability.
Additionally, the Board is mindful of culture within each of its service providers and stakeholders and where it is not satisfied that
policy, practices or behaviours are aligned with the Company’s purpose, values and strategy, the Board will seek assurance that
management have taken corrective action.
The Board has overall responsibility for maximising the Group’s success by directing and supervising the affairs of the business
and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Group and
also ensuring protection of investors.
Within the Annual Report and Financial Statements, the Directors have set out the Group’s investment objective and policy and
have reported how the Board and its delegated Committees operate and how the Directors review the risk environment within
which the Group operates and set appropriate risk controls. Furthermore, the Board has sought to provide further information
to enable Shareholders to understand the Group’s business and financial performance better. The Board also maintain a formal
schedule of matters specifically reserved solely for their decision.
The Chairman shall also be responsible for the promotion of a culture of openness and debate, for ensuring that the Directors
receive accurate, timely and clear information and for ensuring that there is adequate time available for the discussion of agenda
items at each Board meeting.
The Board believes that the maintenance of good relations with both institutional and retail Shareholders is important for
the long-term prospects of the Group. The Board receives feedback on the views of Shareholders from its corporate broker.
Through this process the Board seeks to monitor the views of Shareholders and to ensure an effective communication
programme. The Board shall seek to utilise stakeholder communication to inform them of the decisions that the Company
and Board takes, whether about the products or services it provides, or about its strategic direction, its long-term health and
the society in which it operates. The Board agrees that stakeholder engagement will strengthen the business and promote
its long-term success to the benefit of stakeholders and Shareholders alike.
The Chair is open to discussions on governance and strategy with major Shareholders and the other Directors shall also be
provided the opportunity to attend these meetings.
The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board
and encourages participation.
The Group regularly reviews the Shareholder profile of the Group. Shareholders may contact the Company directly through the
Investor section of the Company’s website www.phoenixspree.com.
The Board identifies and manages conflicts of interest, including those resulting from significant shareholdings, and also ensures
that the influence of third parties does not compromise or override independent judgement.
If a Board recommendation for a resolution receives 20% or more of votes cast against it, the Company will explain, when
announcing voting results, any actions it intends to take to consult shareholders in order to understand the reasons behind the
result. No later than six months after the shareholder meeting, the Company will publish an update on the views received from
shareholders and any actions taken. The Board will then provide a final summary in the Annual Report and Financial Statements
and, if applicable, in the explanatory notes to resolutions at the next Shareholder meeting, on the impact the feedback has had
on the decisions the Board has taken and any actions or resolutions that are to be proposed.
45
Directors’ Report
Where Directors have concerns about the operation of the Board or the management of the Company that cannot be resolved,
their concerns are recorded in the Board minutes. On resignation, a Non-executive Director will also provide a written statement
to the Chair, for circulation to the board, if they have any such concerns in connection with resignation.
Division of responsibilities
In adherence with the Codes Principles F, G, H & I, following the appointment of two new independent Directors in January
2018 and a further appointment in April 2018, the Board comprised five Non-executive Directors, one of whom also acts as
Chairman of the Company. The Chairman is Robert Hingley, who is considered to be independent for the purposes of Listing
Rule 15 and Provision 9 of the Code as he has neither current nor historical employment with the Property Advisor nor any
current directorships in any other investment funds managed by the Property Advisor. Listing Rule 15 requires there to be
a majority of independent Directors on the Board as a whole which was not in place until the new appointments. The Chair
ensures the Directors receive accurate, timely and clear information.
On 24 January 2018, the Company announced the appointments of two further independent Non-executive Directors,
Charlotte Valeur and Jonathan Thompson. At the same time, Matthew Northover, a Non-executive Director, stepped down from
the board to focus on the business of the Property Advisor. Furthermore, on 17 April 2018, Monique O’Keefe was appointed as an
independent Non-executive Director and chair of the Corporate Responsibility Committee, and both Richard Prosser and
Andrew Weaver stepped down from the Board.
Charlotte Valeur is the senior independent Non-executive Director. The Board have evaluated her independence and consider
Charlotte to remain independent.
The Board considers its current Non-executive Directors to be of sufficient calibre and number for their views to be of sufficient
weight and that no individual or small group can dominate the Board’s decision-making process. Their qualifications and
experience are relevant to their directorships and in their appointments to the Committees where applicable.
Due to his ten-year tenure of service on the Board, Quentin Spicer was deemed to be no longer independent. The Board
however consider his detailed knowledge of the Company a significant asset and are happy for him to continue as a Non-
executive Director for the coming period.
The Non-executive Directors’ terms and conditions of appointment are available for inspection at the Company’s registered
office on request and will be available at the forthcoming AGM.
The Directors believe that the Board has an appropriate balance of skills, experience and independence to discharge its duties
and provide effective strategic leadership and proper governance of the Company. The Board shall ensure that it conducts its
business at all times with only the interests of the Shareholders in mind and independently of any other associations.
Independence of Non-executive Directors
The Code states that the Board should identify in the Annual Report each Non-executive Director it considers to be independent
and should consider whether there are any relationships or circumstances that are likely to affect a Director’s independence.
On 7 March 2019 Quentin Spicer was no longer considered as an Independent Non-executive Director by the Board due to his
length of service exceeding ten years.
The senior independent director is to provide a sounding board for the chair and serve as an intermediary for the other directors
and shareholders. Led by the senior independent Director, the Non-executive Directors will meet without the Chair present at
least annually to appraise the Chair’s performance, and on other occasions as necessary.
Non-executive Directors’ shareholdings
The Board has assessed that the holdings of the Directors are not significant and believes such levels of investment should not
raise questions regarding their independence. The Board considers that Directors owning shares in the Company directly aligns
them with the interests of the Shareholders.
The responsibilities of the Chair, senior independent Director, Board and Committees are clear and set out in writing, after they
are agreed by the Board. They can be found on the Company’s website, www.phoenixspree.com.
46
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE GOVERNANCE STATEMENT
Continued
When considering any new appointments, the Board takes into account any other demands on Directors’ time. Prior to
appointment, any significant commitments are disclosed along with an indication of the time involved. Additionally, any external
appointments are not undertaken without prior approval of the Board. Any reasons for permitting significant appointments will
be explained further in this report as and when the time arises.
All Directors have access to the advice of the Company Secretary, who is responsible for advising the Board on all governance
matters. Both the appointment and removal of the Company Secretary would be a matter for the whole Board.
Composition, succession and evaluation
In adherence with the Codes Principles J, K & L, the Board has established a Nomination and Remuneration Committee which
is chaired by Quentin Spicer with Robert Hingley, Charlotte Valeur, Jonathan Thompson and Monique O’Keefe as Members.
The Nomination and Remuneration Committee met twice during the year.
As at the year-end there were five Directors, three of whom are male and two are female. The Directors have agreed that
appointments to the Board should be made on the basis of the Group’s specific needs based on merit, without reference to age,
gender or religious belief. Charlotte Valeur and Jonathan Thompson were appointed to the Board on 24 January 2018 (with
Matthew Northover stepping down) and Monique O’Keefe was appointed on 17 April 2018 (with Richard Prosser and Andrew
Weaver stepping down).
Re-election
All newly-appointed Directors shall stand for election by the Shareholders at the next Annual General Meeting following their
appointment. There are provisions in the Company’s Articles of Association which require Directors to seek re-election on
a periodic basis, however, in accordance with the Code all other Directors shall also offer themselves for annual re-election.
There is no limit on length of service, nor is there any upper age restriction on Directors. The names of all Directors standing
for appointment or reappointment shall be accompanied by sufficient biographical details and the specific reasons why their
contribution is, and continues to be, important to the Company’s long-term sustainable success in order to enable Shareholders
to make an informed decision.
The Board considers that there is significant benefit to the Group arising from continuity and experience among Directors, and
accordingly does not intend to introduce restrictions based on age or tenure. It does, however, believe that shareholders should
be given the opportunity to review membership of the Board on a regular basis.
After the most recent appointments, the Board is satisfied that all the Board members standing for re-election should be re-elected
as they have the right skills and experience to continue to manage the Group. The Board maintains its right to appoint further
Members if deemed necessary and considers succession on a regular basis.
The Board has implemented a process of formal evaluation for individual Directors, the Committees and the processes utilised
by the Board itself. This is undertaken by the Chair and the Audit Committee.
The Board areas of evaluation include:
• Board composition and quality;
• overall strategy, performance and risk;
• Shareholder value;
• governance;
• Board meetings;
• support and relations with suppliers;
• Personal evaluation; and
• Chair’s evaluation.
The process of performance evaluation is designed to consider all elements of performance including any perceived
shortcomings, training or development needs and unforeseen tasks and responsibilities that have arisen during the year.
47
Directors’ Report
The Chairman shall act on the results of the evaluation by recognising the strengths and addressing any weaknesses of the
Board. Each Director shall engage with the process and take appropriate action where development needs have been identified.
The Chairman and the Board have agreed to regular externally facilitated Board evaluations being undertaken, which shall occur
as necessary under the requirements of the Code. BoardAlpha has been appointed to carry out an assessment of the Board’s
effectiveness. It has no connection to the Company or any of the Directors of the Company.
While no KPIs are set for individual Non-executive Directors, the time, effort and application to the performance of their duties
for the Board and Committees is taken into account.
Governance structure
Committees
PSD BOARD
NOMINATION &
REMUNERATION
AUDIT
RISK
CSR
MANAGEMENT
ENGAGEMENT
PROPERTY
VALUATION
PMM
CR TASKFORCE
& CHAMPIONS
The Board, the Committees and the management process – performance evaluation
In line with the requirements of the Code, the Company has implemented annual performance evaluations of the Board, the
Committees and the processes utilised by each forum. The aim of the evaluation is to recognise the strengths and address
any weaknesses and consider improvements to the management process. The evaluation is designed to ensure that the Board
meets its objectives and effectiveness is maximised.
The evaluations focus on the following issues:
• the frequency of meetings and the business transacted;
• the workload of each forum;
• diversity and how effectively members work together to achieve objectives;
• the timing, level of detail and appropriateness of information put before meetings;
• the reporting process from Committees to the Board and delegation process itself;
• the levels of expertise available within the membership of the Committees and the need for, selection of and the use
of external consultants; and
• the effectiveness of internal controls following the review and report of the Audit Committee.
Following the changes to the Board, and if any potential future changes are made, due consideration to the evaluation process
will be made.
48
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE GOVERNANCE STATEMENT
Continued
Audit, risk and internal control
Audit and Risk Committee
Neither Matthew Northover nor Richard Prosser, up to the dates of their resignations, were considered to be independent
Members of the Board as a consequence of their relationship with the Property Advisor or the Administrator, respectively.
However, during the financial year, Jonathan Thompson, an independent Non-executive Director, has been appointed to Chair
the Audit Committee, and Charlotte Valeur the Risk Committee, meaning that the Company will comply with the Code principles
and recommendations on the composition of the Committee in future periods.
On 17 April 2018, Monique O’Keefe joined both the Audit and Risk Committee and the Committees split to become a separate
Audit Committee and Risk Committee.
Audit Committee
The Audit Committee is chaired by Jonathan Thompson with Quentin Spicer, Charlotte Valeur and Monique O’Keefe as
Members. The Audit Committee meets no less than three times a year and, if required, meetings can also be attended by the
Property Advisor and the external auditor. The Board considers Jonathan’s recent and relevant experience both in the sector
and in financial reporting make him suitably qualified to chair the Audit Committee.
In adherence with the Code’s Principles M & N, the Audit Committee is responsible for ensuring that the accounting policies
of the Company are appropriate and being followed, disclosures provided are clear and for reviewing the half-year and annual
financial statements before their submission to the Board. In addition, the Audit Committee is specifically charged under its
terms of reference to advise the Board on the terms and scope of the appointment of the auditors, including their remuneration,
independence and objectivity and reviewing with the auditors the results and effectiveness of the audit. The Committee
reviews and provides advice on whether the content of the Annual Report and Accounts is fair, balanced and understandable
and provides the information necessary for Shareholders to assess the Company’s performance, business model and strategy.
The Group does not currently have an internal audit function, as the Board believes that it can ensure that the Group’s risk
management, governance and internal control processes are operating effectively without this. This is because the Group’s
business is conducted by relatively few individuals (through the outsourced service providers) who report to the Board,
and its operations are not complex at present. However, if the Group increases in size or complexity, the appointment of
an appropriately qualified and resourced internal audit department will be, and is being, considered. Ultimately this role will
be widened to encompass reviews of the efficiency of operations and to make recommendations on rationalisation of the
business. Once established, such internal audit department would report directly to the Audit Committee.
The Board is satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
Risk Committee
The Risk Committee is chaired by Charlotte Valeur with Quentin Spicer, Jonathan Thompson and Monique O’Keefe as Members.
The Risk Committee meets no less than three times a year and, if required, meetings can also be attended by the Property Advisor.
In adherence with the Code’s Principle O, The Risk Committee is responsible for advising the Board on the Company’s overall
risk appetite, tolerance and strategy. The Risk Committee will also oversee and advise the Board on the current risk assessment
processes ensuring that both qualitative and quantitative metrics are used. Where requested by the Board, the Committee shall
review and provide advice on whether the content of the risk management and internal control report, as contained in the
Annual Report, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the
Company’s performance, business model and strategy.
The Members of both the Audit and Risk Committees have been selected for their experience and expertise in relation
to the risks, financial reporting and internal controls relating to the Group. The Members bring specific experience in relation
to the property investment sector and externally managed structures which has been found to be invaluable to the Committee
in identifying risks and assessing the mitigating controls which have been established.
Remuneration
In adherence with the Code’s Principles P Q & R the Board considers that the provisions relating to the Chief Executive and
Executive Directors’ remuneration are not relevant to the Group, as the running of the Group’s business is outsourced to third
parties and there are no Executive Directors. The objective of the Code, to separate the roles of the Chairman who runs the
Board, and the running of the Group, is achieved because the Chairman is independent from the third-party providers. The
remuneration of the Directors and the third-party providers is disclosed and explained in the notes to the financial statements.
49
Directors’ Report
Effectiveness
The Company holds a minimum of four Board meetings per year to discuss general management, structure, finance, corporate
governance, marketing, risk management, compliance, asset allocation and gearing, contracts and performance. The reports
provided by the outsourced providers are the principal source of regular information for the Board enabling it to determine policy
and to monitor performance, compliance and controls, which are supplemented by communication and discussions throughout
the year. The Board carries out internal evaluations of its effectiveness which are described on page 46 of the Annual Report.
Furthermore, the Board has contracted BoardAlpha to carry out an external review of the Board’s effectiveness. The scope of
this external effectiveness evaluation is in line with the scope set out on page 46.
Committees of the Board
The terms of reference for the Board Committees are available on the Company website at www.phoenixspree.com.
Property Valuation Committee
The Company has established a Property Valuation Committee. The Property Valuation Committee is responsible for reviewing
the property valuations prepared by the valuer and any further matters relating to the valuation of the Portfolio.
During 2018, the Property Valuation Committee’s composition changed, following the appointment of the Board’s new
independent Directors. It continued to be chaired by Quentin Spicer, with Charlotte Valeur and Jonathan Thompson joining
as Members on 24 January 2018. Richard Prosser ceased to be a member of the Property Valuation Committee following
his resignation from the Board on 17 April 2018 and Monique O’Keefe and Robert Hingley were both appointed.
The Property Valuation Committee met four times during the year and reported to the Board on its duties, which are to:
• review significant adjustments from the previous property valuation report;
• review the individual valuations of each property;
• receive any commentary from the Property Advisor and/or Directors following the review meeting held with the external valuer;
• register and discuss with the Property Advisor any asset specific issues highlighted by the valuer;
• review material, unexplained, movements in the Group’s Net Asset Value and to recommend the release of the net asset value
announcement following that review;
• review compliance with applicable standards and guidelines including those issued by the Royal Institution of Chartered
Surveyors and the UKLA Listing Rules;
• review the findings and any recommendations or statements made by the valuer;
• review at least annually, consider and make recommendations to the Board, in relation to the appointment, remuneration,
re-appointment and removal of the Group’s valuer. The Committee shall oversee the selection process for a new valuer
and if a valuer resigns the Committee shall investigate the issues leading to this and decide whether any action is required; and
• consider any further matters relating to the valuation of the properties.
The Committee reported to the Board its findings on the property valuation and the Committee was satisfied with the
independent valuation report and values associated with all properties of the Group.
Corporate Social Responsibility Committee
On 17 April 2018, the Company formed a Corporate Social Responsibility Committee. The Corporate Social Responsibility
Committee is chaired by Monique O’Keefe with Jonathan Thompson, Charlotte Valeur, Robert Hingley and Quentin Spicer
as members. The Corporate Social Responsibility Committee meets no less than three times a year.
The Corporate Social Responsibility Committee is responsible for approving a strategy for discharging the Company’s corporate
and social responsibilities, overseeing the creation of appropriate policies and supporting measures along with ensuring that the
policies are regularly reviewed and updated in line with national and international regulations. Where requested by the Board,
the Committee shall review and provide advice on whether the content of the CR report, as contained in the Company’s Annual
Report, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company’s
performance, business model and strategy.
Management Engagement Committee
In accordance with the Code, the Management Engagement Committee was established to review the performance of the Property
Advisor on an annual basis. It was previously chaired by Robert Hingley, with Richard Prosser and Quentin Spicer as Members. On
24 January 2018, the Management Engagement Committee’s composition has changed with Robert Hingley remaining as Chair but
with Charlotte Valeur and Jonathan Thompson joining as members. Richard Prosser ceased to be a Member of the Management
Engagement Committee following his resignation from the Board on 17 April 2018 and Monique O’Keefe was appointed.
50
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CORPORATE GOVERNANCE STATEMENT
Continued
The Management Engagement Committee met three times during the year and reported to the Board on its duties, which are to:
• monitor and evaluate the Property Advisor’s performance and compliance with the terms of the Property Advisory Agreement
and, if necessary, provide appropriate guidance, which may include considering the merit of obtaining an independent
appraisal of the Property Advisor’s services on an annual basis;
• review the terms of the Property Advisory Agreement from time to time to ensure that the terms thereof conform with market
and industry practice and remain in the best interests of Shareholders and make recommendations to the Board on any
variation to the terms of the Property Advisory Agreement which it considers necessary or desirable;
• review and make appropriate recommendations to the Board as to whether the continuing appointment of the Property
Advisor is in the best interests of the Group and Shareholders, and the reasons for this recommendation;
• review the level and method of remuneration, the basis on which the performance fees (if any) are calculated and the notice
period of the Property Advisor, giving due consideration to the competitive position of the Group against its peer group;
• consider whether the asset and estate management fee should be based on gross assets, net assets or market capitalisation;
• ensure that the basis of any performance fee or performance-related element does not encourage excessive risk and that it
rewards demonstrably superior performance by the Property Advisor in managing the portfolio against the Group’s stated
objectives when compared to a suitable benchmark or peer group;
• ensure that a sound system of risk management and internal control is maintained and reviewed annually in order to
safeguard Shareholders’ investment and the Group’s assets;
• review, consider and recommend any amendments to the terms of the appointment and remuneration of providers of other
services to the Group; and
• consider any points of conflict which may arise between the providers of services to the Group.
The Committee keeps under review the performance of the Property Advisor and the level and terms of the management
fee. On 27 November 2018 the Group announced that it had signed a new contract with the Property Advisor, effective
from 1 January 2019. Further information on this contract can be seen in note 33 to the financial statements, and on
www.phoenixspree.com. In the opinion of the Directors, the continuing appointment of the Property Advisor on the terms
agreed is in the interests of shareholders as a whole. The performance period as set out in the previous Property Advisory
agreement ended on 30 June 2018. According to the new agreement, the Performance Period starts on the 1 July 2018, ending
on 31 December 2020. The performance period commences benchmarked from the EPRA Net Asset Value of the Company
as at 30 June 2018.
Board and Committee meetings
The table below sets out the number of Board, Audit Committee, Risk Committee, Property Valuation Committee, Management
Engagement Committee and Nomination and Remuneration Committee meetings held during the year ended 31 December
2018 and, where appropriate, the number of such meetings attended by each Director.
R Hingley
R Prosser
Q Spicer
J Thompson
C Valeur
M O’Keefe
A Weaver
R Hingley
R Prosser
Q Spicer
J Thompson
C Valeur
M O’Keefe
A Weaver
Scheduled Board
Audit
Risk
Held
Attend
Held
Attend
Held
Attend
4
1
4
4
4
4
1
4
1
4
4
3
4
1
–
–
4
4
4
4
–
–
–
4
4
2
4
–
1
–
1
1
1
1
–
1
–
1
1
1
1
–
Property
Valuation
Management
Engagement
Nomination &
Remuneration
Held
Attend
Held
Attend
Held
Attend
4
4
4
4
4
4
–
4
1
4
4
3
2
–
3
3
3
3
3
3
–
3
–
2
2
3
3
–
2
–
2
2
2
2
–
2
–
2
2
2
2
–
51
Directors’ Report
During the year, there have been several additional ad-hoc meetings which the Directors were required to attend. These meetings
consisted of material matters relating to the running of the Group.
Information and support for Directors
New Directors receive a full, formal and tailored induction on joining the Board in order to further inform them of the Group’s
activities and structure.
Upon appointment new Directors are briefed about their responsibilities and duties, together with relevant background information
on the Company and assistance and information from representatives of the Investment Advisers and the Administrators.
New Directors are also provided with an opportunity to observe the Board before their appointment and meet representatives
of the Property Advisors and Administrators to the Company.
All the Directors comply with mandatory continued professional development requirement and are encouraged to attend
industry and other seminars covering issues and developments relevant to investment companies, and Board meetings regularly
include agenda items on recent developments in governance and industry issues.
The Chair regularly reviews and agrees with each Director their training and development needs.
All Directors are able to take independent professional advice at the Group’s expense in the furtherance of their duties, if necessary.
The Group purchases appropriate insurance in respect of legal action against its Directors and Officers.
Company Secretary
The Company Secretary is responsible for ensuring that Board procedures are followed. Under the guidance of the Chairman,
the Secretary ensures that appropriate and timely information flows between the Board, the Committees and to/from the
Directors. It facilitates inductions to new Directors and the provision of additional information where required and appropriate.
The Secretary is responsible for advising the Board on governance matters and is available to all Directors for advice and support
as required. The Board is presently considering the merit of adopting the AIC code and certain other relevant elements of the
UK code of corporate governance.
The Board intends to adopt the AIC Code of Corporate Governance ('the AIC Code') for the accounting period beginning
1 January 2019. The Board deems the AIC Code more relevant with respect to the governance of investment companies.
52
Phoenix Spree Deutschland
Annual Report and Accounts 2018
AUDIT COMMITTEE REPORT
This report provides details of the role of the Committee and the duties it has undertaken during the year under review.
Summary of the role of the Audit Committee
The Audit Committee is responsible for reviewing the half-year and annual financial statements and recommends them
to the Board for approval. The role of the Audit Committee includes:
• Monitoring the integrity of the Annual Report and Financial Statements of the Group, covering:
– formal announcements relating to the Group’s financial performance;
– significant financial reporting issues and judgements;
– matters raised by the external auditors; and
– the appropriateness of accounting policies and practices.
• Reviewing and considering the Code and FRC Guidance on Audit Committees.
• Monitoring the quality and effectiveness of the independent external auditors, which includes:
– meeting regularly to discuss the audit plan and the subsequent audit report;
– considering the level of fees for both audit and non-audit work;
– reviewing independence, objectivity, expertise, resources and qualification; and
– making recommendations to the Board on the appointment, reappointment, replacement and remuneration
of the external auditors.
• Reviewing the Group’s procedures for prevention, detection and reporting of fraud, bribery and corruption.
• Monitoring and reviewing the internal control and risk management systems of the service providers together with
the need for an Internal Audit function.
The Audit Committee’s full terms of reference can be obtained from the Company’s website www.phoenixspree.com.
Financial reporting
The Audit Committee is responsible for reviewing the half-year and annual financial statements before their submission
to the Board. In addition, the Audit Committee is specifically charged under its terms of reference with advising the Board
on the terms and scope of the appointment of the auditors, including their remuneration, independence, objectivity and
reviewing with the auditors the results and effectiveness of the audit.
Composition of the Audit Committee
The Audit Committee is chaired by Jonathan Thompson with Quentin Spicer, Charlotte Valeur and Monique O’Keefe as
Members. The qualifications and experience of the members of the Audit and Risk Committee during the financial year
are set out in their biographical details on pages 38 and 39.
Meetings
The Audit Committee is scheduled to meet no less than three times a year and, if required, meetings can also be attended
by the Property Advisor, the administrator and the external auditor.
Significant issues related to the financial statements
Valuation of investment property
Mitigation
A significant focus for the Audit Committee is the valuation
of the Group’s property Portfolio carried out at half-year in
June and at the financial year end in December each year,
as this is a key determinant of the Group’s NAV, its profit
or loss and the Property Advisor’s remuneration.
The Group has appointed Jones Lang LaSalle ('JLL') to act
as the Independent Property Valuer. The Audit Committee is
satisfied that the valuer is independent and that it conducted
its work in accordance with the Royal Institution of Chartered
Surveyors Valuation Standards ('RICS').
The Property Valuation Committee reviews the valuer’s report,
the methodology followed and the assumptions incorporated
to assess the adequacy of the valuation. They also meet the
independent valuers JLL as part of the valuation review.
53
Directors’ Report
External audit
Assessing the effectiveness of the external audit process
The Committee satisfied itself as to the effectiveness of the external audit process as follows:
The audit partner
As a new audit firm was appointed in 2014, no additional rotation considerations were required for the current year.
This is however the final year cycle for the current audit partner who is subject to mandatory rotation at the end of
the 2018 financial statement audit process. Following completion of the audit the Committee assessed the partner’s
performance against expectations and found this to be satisfactory.
The audit team
Continuity of personnel was reviewed and found to be satisfactory. To supplement the Committee’s necessarily limited
exposure to junior members of the audit team, feedback was sought on the performance of the external audit team,
in particular as regards their understanding of the business, technical competence and attitude.
The audit plan
The scope of the audit was reviewed and debated by the Committee with the auditors prior to work being commenced.
This was done in the light of both the auditors’ and the Committee’s assessment of the key risks. The auditors explained
materiality thresholds used in determining their audit scope and the Committee confirmed that these were in accordance
with normal audit practice.
The generality of the audit plan document was assessed and found to be satisfactory. Arrangements to identify, report and
manage conflicts of interest were satisfactory.
The Committee also considered whether it wished to commission further audit work to be conducted beyond which the
auditor considered necessary for the expression of their opinions on the Group accounts and concluded that it did not.
Matters arising from the audit
These were promptly and effectively communicated and addressed as appropriate. The robustness and perceptiveness
of the auditors in their handling of the key accounting and audit judgements were seen as appropriate. The detailed report
received from the auditors following completion of their work gave comfort as to the diligence of execution of that work.
Added value
In appraising the overall performance of the auditors, the Committee considered whether they had provided useful feedback
arising from their work additional to their statutory responsibilities and concluded that they had.
Independence
In addition to receiving the auditors’ formal confirmation of their independence, the Committee considered whether this
was demonstrated through their general approach and attitude and were satisfied that this was the case.
Audit fees
The level of audit fees was reviewed to ensure that it was sufficient for the work necessary but not excessive. In particular,
changes in fees from the previous year were considered in relation to changes in the Group and in risk assessments.
54
Phoenix Spree Deutschland
Annual Report and Accounts 2018
AUDIT COMMITTEE REPORT
Continued
Audit tendering
The Committee considered whether the audit appointment should be put out to tender. In doing so, it considered both
the performance of the current auditors and the likely costs and potential benefits of change.
Following the above, the Audit Committee has recommended to the Board that RSM UK Audit LLP is reappointed.
Going forward, the Committee will continue to keep the audit appointment under review, having regard for the new EU
requirements for audit tendering.
Group policy on the provision of non-audit services by the auditor
The Committee has an established policy for the commission of non-audit work from the Group’s auditor.
The external auditor is excluded from providing non-audit services to the Group where the objectives of such assignments
are inconsistent with the objectives of the audit. Additionally, no work is awarded to the auditor which would result in an
element of self-review, either during the work or via the audit itself.
The Committee will continue to approve all non-audit fees prior to the work commencing and review the non-audit fees
in aggregate for the year.
Risk management and internal control
The Committee reviews the adequacy and effectiveness of the Group’s (and its service providers’) internal financial controls
and internal control and risk management systems and review and approves the statements to be included in the Annual
Report concerning internal controls and risk management.
The Committee is also responsible for oversight and advice to the Board on the current risk exposures and future risk
strategy of the Group.
The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity. The result of this review, the potential impact of each
type of risk identified and the mitigation reasons put in place are set out in the ‘Principal Risks and Uncertainties’ section of
the Annual Report on pages 36 and 37. The Directors do not consider that there are any significant problems facing the
business in the coming year.
Internal audit
The Group does not currently have an internal audit function, as the Board believes that it can ensure that the Group’s risk
management, governance and internal control processes are operating effectively without this. This is because the Group’s
business is conducted by relatively few individuals (through the outsourced service providers) who report to the Board, and
its operations are not complex at present. However, if the Group increases in size, the appointment of an appropriately
qualified and resourced internal audit department will be considered.
55
Directors’ Report
REMUNERATION REPORT AND DIRECTORS'
RESPONSIBILITIES STATEMENT
Introduction
This report is on the activities of the Nomination and Remuneration Committee. The information provided in this part of the
Directors’ Report is not subject to audit, except where stated.
Remuneration policy
During 2018, the Nomination and Remuneration Committee comprised four Non-executive Directors and the Chairman and
is chaired by Quentin Spicer, with Robert Hingley, Monique O’Keefe, Charlotte Valeur and Jonathan Thompson as Members.
Andrew Weaver ceased to be a Member of the Nomination and Remuneration Committee following his resignation from the
Board on 17 April 2018.
The Group’s policy is that the remuneration of the Directors should reflect the experience of the Board as a whole, the
time commitment required, and be fair and comparable with that of other similar companies. Furthermore, the level of
remuneration should be sufficient to attract and retain the Directors needed to oversee the Group properly and to reflect its
specific circumstances. There were no changes to the policy during the year and it is intended that this policy will continue
to apply for the year ending 31 December 2019.
Duties
The Committee was responsible for setting the Directors’ remuneration levels, in conjunction with the Chairman and with
consideration of the following:
levels of Directors’ remuneration should reflect the time commitment and responsibilities of the role;
•
• Non-executive Directors’ remuneration should not include share options or other performance-related elements;
• careful consideration should be given to what compensation commitments entail in the event of early termination
of a Director’s appointment;
• notice of contract periods should be set at one year or less;
• no Director should be involved in deciding his or her own remuneration; and
•
independent judgement and discretion should be exercised when authorising renumeration outcomes, taking account
of Company and individual performance and wider circumstances.
The Committee is also responsible for judging where to position the Group relative to other companies in relation to the
level of Directors’ remuneration, but using such comparisons with caution in view of the risk of increased remuneration
with no corresponding improvement in performance; and considering and making the appropriate recommendations
to the Board with regard to the need to appoint external remuneration consultants.
The terms of reference of the Nomination and Remuneration Committee can be obtained from the Company’s website:
www.phoenixspree.com.
For the years ended 31 December 2018 and 31 December 2017 Directors’ fees were as follows:
Audited
R Hingley
R Prosser
M Northover
M O’Keefe
Q Spicer
A Weaver
C Valeur
J Thompson
Total
Annual
fee
£
50,000
Nil
Nil
40,000
40,000
Nil
40,000
45,000
215,000
2018
Special
projects
£
25,275
Nil
Nil
4,916
5,069
Nil
5,008
12,423
52,691
Total*
£
75,275
Nil
Nil
44,916
45,069
Nil
45,008
57,423
Annual
fee
£
45,000
25,000
Nil
Nil
35,000
25,000
Nil
Nil
267,691
130,000
2017
Special
projects
£
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Total
£
45,000
25,000
Nil
Nil
35,000
25,000
Nil
Nil
130,000
* Total Director fees in the table above reconciles to the directors’ fees in note 8 when converted from EUR to GBP at an average rate of EUR/GBP 1.119.
During 2018, additional attention was required from the Directors over and above their normal duties with respect to a
significant transaction that was considered but not pursued. It was agreed by the Committee that additional remuneration,
of an amount up to or equal to the annual salary of each Director, could be expensed to the Group. Details of the additional
remuneration payable to the Directors are disclosed above and within note 12 to the consolidated financial statements.
56
Phoenix Spree Deutschland
Annual Report and Accounts 2018
REMUNERATION REPORT AND DIRECTORS’
RESPONSIBILITIES STATEMENT Continued
During 2018, Richard Prosser was a Director of Estera Fund Administrators (Jersey) Limited, the Group’s Administrator.
The remuneration of Estera is disclosed in note 33.
During 2018, Andrew Weaver was a Partner in Appleby’s, the Group’s Jersey Legal Advisor. The remuneration of Appleby’s
is disclosed in note 33.
During 2018, Matthew Northover was a Partner in PMM Partners Ltd., the Group’s Property Advisor. The remuneration
of PMM Partners Ltd. is disclosed in note 33.
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance
with applicable law and regulations.
Jersey company law requires the Directors to prepare financial statements for each financial year, in accordance with
generally accepted accounting principles. The Directors are required under the Listing Rules of the Financial Conduct
Authority to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’),
as adopted by the European Union (‘EU’).
The financial statements are required by law and IFRS as adopted by EU to present fairly the financial position of the Group.
Under Jersey company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
the Company will continue in business.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time
the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies
(Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that these financial statements comply with these requirements.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors’ Responsibility Statement
The Directors confirm that to the best of their knowledge:
• the consolidated financial statements, prepared in accordance with the applicable set of accounting standards (as detailed
above) and Company Law, give a true and fair view of the assets, liabilities, financial position and profit and loss of the
issuer and the undertakings included in the consolidation taken as a whole;
• the management report includes a fair review of the development and performance of the business and the position
of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties they face, as well as the business model and strategy of the Group; and
• the Annual Report and consolidated financial statements, as a whole, are fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s position, performance, business model and strategy.
For and on behalf of the Board
Jonathan Thompson
Director
26 April 2019
57
Financial Statements
INDEPENDENT
AUDITOR’S REPORT
to the members of Phoenix Spree Deutschland Limited
Opinion
We have audited the Group Financial Statements of Phoenix Spree Deutschland Limited for the year ended 31 December
2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the
Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by
the European Union.
In our opinion:
• the Group Financial Statements give a true and fair view of the state of the Group’s affairs as at 31 December 2018 and
of the Group’s profit for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European
Union; and
• the Group Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey)
Law 1991 and Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the Financial Statements in the UK, including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and Viability Statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK)
require us to report to you whether we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 36 and 37 that describe the principal risks and explain how they are
being managed or mitigated;
• the Directors’ confirmation set out on page 54 in the annual report that they have carried out a robust assessment of
the principal risks facing the Group, including those that would threaten its business model, future performance, solvency
or liquidity;
• the Directors’ statement set out on page 56 in the Financial Statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in preparing the Financial Statements and the Directors’
identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least 12 months
from the date of approval of the Financial Statements;
• whether the Directors’ statement relating to going concern required under the Listing Rules in accordance with Listing
Rule 9.8.6R (3) is materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 42 in the Annual Report as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
58
Phoenix Spree Deutschland
Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT continued
to the members of Phoenix Spree Deutschland Limited
Valuation of investment properties held by the Group
Risk of material misstatement
This is detailed in the Audit Committee report on pages 52 to 54; the significant accounting judgements and estimates
on page 76; significant accounting policies on page 67 to 74 and notes 17 and 18 to the Financial Statements on pages
82 to 85.
The Group owns or controls through a portfolio of Special Purpose Vehicles (SPV’s) a portfolio of investment properties
which include residential and commercial. The total value of the portfolio including assets considered as held for sale
at 31 December 2018 was £645.7 million (2017: £609.3 million), including properties designated as held for sale. These
properties are all in Germany and predominately in Berlin.
The accounting policy in respect of investment properties is to hold them at fair value in the Financial Statements, and to
recognise the movement in the value in the accounting period in the Income Statement. The Directors’ assessment of the
value of investment properties at the year-end date is considered a significant audit risk due to the magnitude of the total
amount, the potential impact of the movement in value on the reported results, and the subjectivity of the valuation process.
Audit approach adopted
We audited the independent valuation of investment properties to ensure they had been prepared on a consistent basis
for all properties and are considered to be appropriate and correctly recorded in the Financial Statements in line with
Accounting Standards. We assessed the external valuer’s qualifications and expertise and considered their terms of
engagement. We also considered their objectivity and any other existing relationships with the Group and concluded
that there was no evidence that their objectivity had been compromised.
We carried out audit tests on the inputs provided by the Property Advisor to the valuer and ensured these reflected the
correct inputs for each property and discussed this with them directly.
We reviewed the largest properties by value, and the properties where there were unusual movements in value compared
to the average, or compared to the previous year, and discussed and challenged the valuation and significant movements
with the Property Advisor and the valuer, as well as obtaining evidence to support the explanations received.
We tested ownership of the properties by reference to land registry records.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and
extent of our audit procedures. When evaluating whether misstatements, both individually and on the Financial Statements
as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and
size of the misstatements. During planning we determined a magnitude of uncorrected misstatements that we judge would
be material for the Financial Statements as a whole ('FSM'). During planning FSM was calculated as €6.7 million, which was
not significantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them
all unadjusted differences in excess of €167,500, as well as differences below those thresholds that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
Our audit scope covered 100% of Group revenue, Group profit and total Group assets and was performed to the materiality
levels set out above.
59
Financial Statements
Other information
The other information comprises the information included in the annual report set out on pages 1 to 56 other than the
Financial Statements and our auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the
Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the Financial Statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items
in the other information and to report as uncorrected material misstatements of the other information where we conclude
that those items meet the following conditions:
• Fair, balanced and understandable set out on page 56 – the statement given by the Directors that they consider the
Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Group’s performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on pages 52 to 54 – the section describing the work of the Audit Committee does
not appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on pages 43 to 51 – the parts of
the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R (2)
do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report
to you if, in our opinion:
• proper accounting records have not been kept by the Parent Company; or
• proper returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company Financial Statements are not in agreement with the accounting records; or
• we have failed to receive all the information and explanations which, to the best of our knowledge and belief,
was necessary for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 56, the Directors are responsible for the
preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such internal control
as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
60
Phoenix Spree Deutschland
Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT continued
to the members of Phoenix Spree Deutschland Limited
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these Financial Statements.
As part of our audit, we will consider the susceptibility of the Group and Parent Company to fraud and other irregularities,
taking account of the business and control environment established and maintained by the Directors, as well as the nature
of transactions, assets and liabilities recorded in the accounting records. Owing to the inherent limitations of an audit, there
is an unavoidable risk that some material misstatements of the Financial Statements may not be detected, even though the
audit is properly planned and performed in accordance with the ISAs. However, the principal responsibility for ensuring that
the Financial Statements are free from material misstatement, whether caused by fraud or error, rests with management
who should not rely on the audit to discharge those functions.
A further description of our responsibilities for the audit of the Financial Statements is included in appendix 1 of this auditor’s
report. This description, which is located on page 61 forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey)
Law 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Euan Banks for and on behalf of RSM UK Audit LLP
Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
26 April 2019
61
Financial Statements
Appendix 1: Auditor’s responsibilities for the audit of the Financial Statements
As part of an audit in accordance with ISAs (UK), we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether
the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated Financial Statements. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
62
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Continuing operations
Revenue
Property expenses
Gross profit
Administrative expenses
Gain on disposal of investment property (including investment property held for sale)
Investment property fair value gain
Performance fee due to property advisor
Separately disclosed items
Operating profit
Net finance charge
Profit before taxation
Income tax expense
Profit after taxation
Other comprehensive income
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share attributable to the owners of the Parent:
From continuing operations
Basic (€)
Diluted (€)
Year ended
31 December
2018
€’000
Notes
Year ended
31 December
2017
(restated – see
note 2.2)
€’000
6
7
8
10
11
27
12
13
14
22,681
(15,763)
6,918
(3,194)
1,026
66,146
(4,010)
(966)
65,920
(9,491)
56,429
(11,071)
45,358
–
45,358
45,094
264
45,358
23,667
(12,587)
11,080
(2,967)
5,319
157,374
(26,339)
–
144,467
(5,995)
138,472
(26,150)
112,322
–
112,322
111,538
784
112,322
30
30
0.46
0.46
1.21
1.11
63
Financial Statements
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
At 31 December 2018
ASSETS
Non-current assets
Investment properties
Property, plant and equipment
Deferred tax asset
Other financial assets at amortised cost
Current assets
Investment properties – held for sale
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Current tax
Non-current liabilities
Borrowings
Derivative financial instruments
Other financial liabilities
Deferred tax liability
Total liabilities
Equity
Stated capital
Share-based payment reserve
Retained earnings
Equity attributable to owners of the Parent
Non-controlling interest
Total equity
Total equity and liabilities
As at
31 December
2018
€’000
Notes
As at
31 December
2017
(restated – see
note 2.2)
€’000
17
19
14
20
18
21
22
23
24
25
14
23
25
26
14
28
27
29
632,933
88
948
2,406
636,375
12,747
7,531
26,868
47,146
502,360
92
527
2,323
505,302
106,897
14,404
27,182
148,483
683,521
653,785
3,642
10,429
1,354
1,387
16,812
191,632
4,637
7,135
53,458
256,862
2,646
6,522
–
2,914
12,082
219,648
3,333
5,663
45,117
273,761
273,674
285,843
196,578
4,010
207,270
407,858
1,989
409,847
683,521
162,630
33,953
169,634
366,217
1,725
367,942
653,785
The financial statements on pages 62 to 97 were approved and authorised for issue by the Board of Directors and were
signed on its behalf by:
Monique O’Keefe
Director
26 April 2018
Quentin Spicer
Director
26 April 2018
64
Phoenix Spree Deutschland
Annual Report and Accounts 2018
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2018
Balance at 1 January 2017
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners – recognised directly in equity:
Dividends paid
Performance fee
Balance at 31 December 2017
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners – recognised directly in equity:
Issue of shares
Dividends paid
Performance fee
Adjustment to performance fee
Attributable to the owners of the Parent
Stated
capital
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Non-
controlling
interest
€’000
Total
€’000
Total equity
€’000
162,630
7,614
64,074
234,318
941
235,259
–
–
–
–
–
–
–
–
111,538
–
111,538
–
111,538
111,538
784
–
784
112,322
–
112,322
–
26,339
(5,978)
–
(5,978)
26,339
–
–
(5,978)
26,339
162,630
33,953 169,634 366,217
1,725 367,942
–
–
–
–
–
–
45,094
–
45,094
–
45,094
45,094
264
–
264
45,358
–
45,358
33,948
–
–
–
(33,948)
–
4,010
(5)
–
(7,458)
–
–
–
(7,458)
4,010
(5)
–
–
–
–
–
(7,458)
4,010
(5)
Balance at 31 December 2018
196,578
4,010 207,270 407,858
1,989 409,847
The share-based payment reserve was established in relation to the issue of shares for the payment of the performance fee
of the Property Advisor.
Retained earnings are the undistributed reserves to be either reinvested within the Group or distributed to Shareholders
as dividends.
65
Financial Statements
CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 31 December 2018
Profit before taxation
Adjustments for:
Net finance charge
Gain on disposal of investment property
Investment property revaluation gain
Depreciation
Performance fee charge
Operating cash flows before movements in working capital
Decrease/(Increase) in receivables
Increase in payables
Cash generated from operating activities
Income tax paid
Net cash generated from operating activities
Cash flow from investing activities
Proceeds on disposal of investment property
Interest received
Capital expenditure on investment property
Property additions
Additions to property, plant and equipment
Net cash used in investing activities
Cash flow from financing activities
Interest paid on bank loans
Repayment of bank loans
Drawdown on bank loan facilities
Dividends paid
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
Year ended
31 December
2018
€’000
Year ended
31 December
2017
€’000
56,429
138,472
9,491
(1,026)
(66,146)
16
4,010
2,774
6,492
3,908
13,174
(4,678)
8,496
86,021
54
(7,943)
(47,329)
(12)
30,791
(5,118)
(54,680)
27,660
(7,458)
(39,596)
(309)
27,182
(5)
26,868
5,995
(5,319)
(157,374)
23
26,339
8,136
(3,048)
788
5,876
(50)
5,826
60,436
103
(6,715)
(76,486)
(75)
(22,737)
(5,080)
(117,712)
154,414
(5,978)
25,644
8,733
18,450
(1)
27,182
66
Phoenix Spree Deutschland
Annual Report and Accounts 2018
RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN DEBT
For the year ended 31 December 2018
Cash flow from increase in debt financing
Change in net debt resulting from cash flows
Movement in debt in the year
Debt at the start of the year
Debt at the end of the year
Year ended
31 December
2018
€’000
Year ended
31 December
2017
€’000
(27,020)
(27,020)
(27,020)
222,294
36,702
36,702
36,702
185,592
195,274
222,294
67
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2018
1. General information
The Group consists of a Parent Company, Phoenix Spree Deutschland Limited (‘the Company’), incorporated in Jersey,
Channel Islands and all its subsidiaries (‘the Group’) which are incorporated and domiciled in and operate out of Jersey,
Guernsey and Germany. Phoenix Spree Deutschland Limited is listed on the premium segment of the Main Market of the
London Stock Exchange.
The Group invests in residential and commercial property in Germany.
The registered office is at 13-14 Esplanade, St Helier, Jersey, JE1 1EE, Channel Islands.
2. Summary of significant accounting policies
The principal accounting policies adopted are set out below.
2.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards,
International Accounting Standards and International and Financial Reporting Interpretation Committee (‘IFRIC’) interpretations
(collectively ‘IFRS’) as adopted by the European Union (‘IFRS as adopted by the EU’).
The consolidated financial statements are presented to the nearest €1,000.
The Group has adopted all of the new and revised standards and interpretations issued by the International Accounting
Standards Board (‘IASB’) and the International Financial Reporting Interpretations Committee (‘IFRIC’) of the IASB, as they
have been adopted by the European Union, that are relevant to its operations and effective for accounting periods beginning
on 1 January 2018.
The consolidated financial statements have been prepared on a going concern basis under the historical cost convention
as modified by the revaluation of investment property, and financial assets and liabilities at fair value through profit or loss.
The preparation of the consolidated financial statements requires management to exercise its judgement in the process of
applying accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions
or estimates are significant to the consolidated financial statements are disclosed in note 4.
2.2 Change of accounting policy
The Group has carried out a review of IFRS 15, Revenue from Contracts with Customers, which is effective from 1 January 2018.
The main outcome of the review is to recognise service charges to tenants as revenue, and service costs recharged to tenants
as property costs, whereas in prior years, service charges incurred on the properties were offset against service charge
income. In accordance with the transition provisions of IFRS 15, the Group has adopted the new rules retrospectively and
has restated comparatives for the 2017 financial year. For the 2018 financial year the effect has been to recognise service
charge revenue of €5.173 million, and property expenses of €5.173 million, and to increase trade and other receivables by
€4.766 million, and service charges payable by €4.028 million. For the year 2017, this has resulted in an increase in revenue
of €5.587 million with a corresponding increase in other property expenses along with an increase in trade and other
receivables of €4.403 million and a corresponding increase in service charges payable. The change of policy has no effect
on reported profit or net assets.
2.3 Going concern
The Directors have prepared projections for the period to 31 December 2021. These projections have been prepared using
assumptions which the Directors consider to be appropriate to the current financial position of the Group as regards to
current expected revenues and its cost base and the Group’s investments, borrowing and debt repayment plans and show
that the Group should be able to operate within the level of its current resources and expects to comply with all covenants
for the foreseeable future. The Group’s business activities together with the factors likely to affect its future development
and the Group’s objectives, policies and processes from managing its capital and its risks are set out in the Strategic Report.
After making enquiries the Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing
its consolidated financial statements.
68
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
2. Summary of significant accounting policies continued
2.4 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.
2.5 Revenue recognition
Revenue includes rental income and service charges and other amounts directly recoverable from tenants. Rental income
and service charges from operating leases are recognised in 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.
2.6 Foreign currencies
(a) Functional and presentation currency
The currency of the primary economic environment in which the Company operates (‘the functional currency’) is the Euro (€).
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.
2.7 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.
69
Financial Statements
2.8 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.
2.9 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.
2.10 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.
2.11 Property Advisor fees
The element of Property Advisor fees for management services provided are accounted for on an accruals basis and are
charged to the consolidated statement of comprehensive income. These fees are detailed in note 7 and classified under
‘Property Advisors’ fees and expenses’. The settlement of the Property Advisor performance fees is detailed in note 27.
Due to the nature of the settlement of the performance fee, any movement in the amount payable at the year end is
reflected within the share-based payment reserve on the consolidated statement of financial position.
2.12 Investment property
Property that is held for long-term rental yields or for capital appreciation, or both, and that is not occupied by the Group,
is classified as investment property.
Investment property is measured initially at cost, including related transaction costs. After initial recognition, investment
property is carried at fair value, based on market value.
The change in fair values is recognised in the consolidated statement of comprehensive income for the year.
A valuation exercise is undertaken by the Group’s independent valuer, Jones Lang LaSalle GmbH (‘JLL’), at each reporting
date in accordance with the methodology described in note 17 on a building-by-building basis. Such estimates are inherently
subjective and actual values can only be determined in a sales transaction. The valuations have been prepared by JLL on
a consistent basis at each reporting date.
Subsequent expenditure is added to the asset’s carrying amount only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance
costs are charged to the consolidated statement of comprehensive income during the financial period in which they
are incurred. Changes in fair values are recorded in the consolidated statement of comprehensive income for the year.
Purchases and sales of investment properties are recognised on legal completion.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use
and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset, where the carrying
amount is the higher of cost or fair value) is included in the consolidated statement of comprehensive income in the period
in which the property is derecognised.
70
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
2. Summary of significant accounting policies continued
2.13 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 will recognise an asset in this category once the Board has committed the sale of an asset and marketing
has commenced.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after the sale.
If an asset held for sale is unsold within one year of being classified as such, it will continue to be classified as held for sale if:
(a) at the date the Company commits itself to a plan to sell a non-current asset (or disposal group) it reasonably expects that
others (not a buyer) will impose conditions on the transfer of the asset that will extend the period required to complete
the sale, and actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment
is obtained, and a firm purchase commitment is highly probable within one year; or
(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; or
(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; or
(d) otherwise it will be transferred back to investment property.
2.14 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, straightline.
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.
2.15 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.
71
Financial Statements
2.16 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.
2.17 Financial Instruments under IFRS 9
The Company has applied IFRS 9 from 1 January 2018 but as explained in note 2.19 has not restated comparatives on initial
application. The classification and measurement policies adopted by the Company are explained in note 2.19, but the detailed
policies for each class of instrument is as follows:
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 on 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 model.
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 12 months is accrued at the end of the year and presented as a current liability within trade
and other payables.
The Company has applied IFRS 9 retrospectively, but has elected not to restate comparative information. As a result the
comparative information continues to be accounted for in accordance with the Company’s previous accounting policies
as set out below.
Financial instruments – accounting policies applied until 31 December 2017
Financial assets and financial liabilities are recognised in the Group’s consolidated statement of financial position when
the Group becomes party to the contractual provisions of the instrument. Financial assets are derecognised when the
contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are
transferred. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled
or expired.
The Group classifies its financial assets as held at fair value through profit or loss, or measured at amortised cost. The
classification depends on the purpose for which the financial assets were acquired, and is determined at initial recognition.
(a) Financial assets at fair value through profit or loss (‘FVTPL’)
Financial assets are classified as FVTPL when the financial asset is designated as FVTPL. A financial asset may be designated
as FVTPL upon initial recognition if:
• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise; or
• the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management strategy,
and information about the grouping is provided internally on that basis.
72
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
2. Summary of significant accounting policies continued
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in
the consolidated statement of comprehensive income. Fair value is determined in the manner described in note 32.
(b) Financial assets measured at amortised cost
The Group’s financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents.
Loans and receivables are recognised initially at fair value and subsequently at amortised cost using the effective interest method.
(i) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are
recognised in the consolidated statement of comprehensive income when there is objective evidence that the assets
are impaired. Interest income is recognised by applying the effective interest rate, except for short-term trade and other
receivables when the recognition of interest would be immaterial.
Service charges receivable and payable from tenants are presented gross as assets and liabilities separately.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due. For trade
and other receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being
recognised within property expenses in the consolidated statement of comprehensive income. On confirmation that the trade
and other receivables will not be collectable, the gross carrying value of the asset is written off against the associated provision.
(ii) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, cash at agents, demand deposits, and other short-term highly-liquid
investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash
and are subject to an insignificant risk of changes in value.
(c) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
(d) Trade and other payables
Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the
effective interest method; this method allocates interest expense over the relevant period by applying the ‘effective interest
rate’ to the carrying amount of the liability.
(e) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method.
2.18 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.
73
Financial Statements
(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.
2.19 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 2018, as adopted by the European Union:
Title
IFRS 9 – Financial Instruments
IFRS 15 – Revenue from Contracts with Customers
IFRIC 22 – Foreign currency transactions and advance
As issued by the IASB, mandatory for accounting periods starting on or after
Accounting periods beginning on or after 1 January 2018
Accounting periods beginning on or after 1 January 2018
consideration
Accounting periods beginning on or after 1 January 2018
IFRS 9 – The Company has applied IFRS 9 from 1 January 2018 but will not restate comparatives on initial application.
The Company has reviewed its financial assets and liabilities and the impact from the adoption of the new standard is
as follows:
(i) Classification and measurement
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through
profit and loss and fair value through other comprehensive income. The Company’s financial assets at 31 December 2018
consist primarily of trade receivables, including service charges, and other financial assets which will continue to be reflected
at amortised cost. Trade receivables are classified as at amortised cost as they meet the test of Solely Payments of Principal
and Interest (‘SPPI test’) as the Group’s model is to collect the contracted cash flows due from tenants. There was no impact
in respect of classification and measurement of financial liabilities under IFRS 9.
(ii) Impairment
The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than
only on incurred losses as was the case under lAS 39. It is therefore no longer necessary for a credit event to have occurred
before credit losses are recognised. IFRS 9 requires a simplified approach for measuring the loss allowance at an amount
equal to lifetime expected credit losses (‘ECLs’) for trade receivables without a significant financing component.
The main area of focus to the Company is considered to be impairment provisioning of trade receivables. Other financial
assets are also subject to the expected credit loss model.
Gross trade receivables held at 31 December 2018 were €1.0 million (2017: €0.3 million) with an impairment provision
recognised of €0.2 million (2017: €0.3 million). The credit risk associated with unpaid rent is deemed low.
We have performed an assessment of the impact of impairment losses recognised for trade receivables under IFRS 9
at 31 December 2018 through estimating the expected credit loss based on actual credit loss experienced over the past
three years and taking into consideration future expected losses. Based on this assessment, there was no material impact
of impairment losses recognised under IFRS 9.
74
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
2.19 New standards and interpretations continued
The impact of non-substantial debt modifications has been reviewed and there is no material impact on the financial
statements at transition.
IFRS 15 – The Company has contracts which include both an operating lease and a service, i.e. rental of space and service
charges. The contracts do not separate the operating lease component as the accounting for operating lease income and a
service/supply arrangement is similar. Under IFRS 16, lessors are required to account for the lease and non-lease components
of a contract separately. In the case of non-lease components such as service charges, this must be accounted for under
IFRS 15. The Company recognises the rental income over the duration of the life of the contract and recognising the service
charge component as incurred.
The following relevant new standards, amendments to standards and interpretations have been issued, but are not effective
for the financial year beginning on 1 January 2018, as adopted by the European Union, and have not been early adopted:
Title
IFRS 16 Leases
As issued by the IASB, mandatory for accounting periods starting on or after
Accounting periods beginning on or after 1 January 2019
The Directors have considered that the adoption of this standard in future periods will have no material impact on the
consolidated financial statements of the Group. The impact of IFRS 16 removes the differentiation between financial
and operational leases with regard to the Lessee party. As the Group is the lessor in their contractual arrangements
IFRS 16’s approach is substantially unchanged from its predecessor, IAS 17.
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
IFRIC 23 – Uncertainty over Income Tax Treatments
Prepayment Features with Negative Compensation
Accounting periods beginning on or after 1 January 2019
Accounting periods beginning on or after 1 January 2019
(Amendments to IFRS 9)
Long-Term Interests in Associates and Joint Ventures
Accounting periods beginning on or after 1 January 2019
(Amendments to IAS 28)
Annual Improvements to IFRS Standards 2015-2017 Cycle
Plan Amendment, Curtailment or Settlement
Accounting periods beginning on or after 1 January 2019
Accounting periods beginning on or after 1 January 2019
(Amendments to IAS 19)
Amendments to References to the Conceptual Framework
Accounting periods beginning on or after 1 January 2020
in IFRS Standards
IFRS 17 – Insurance Contracts
Accounting periods beginning on or after 1 January 2021
While the above standards have not yet been adopted by the EU, the Group is currently assessing their impact.
3. Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall
risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group’s financial performance.
Risk management is carried out by the Risk Committee (previously the Audit and Risk Committee up to 17 April 2018) 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.
75
Financial Statements
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.
(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.
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, reserves and retained earnings).
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.
76
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
3. Financial risk management continued
The gearing ratios for the reporting periods are as follows:
Borrowings
Cash and cash equivalents
Net debt
Equity
Net debt to equity ratio
As at
31 December
2018
€’000
(195,274)
26,868
As at
31 December
2017
€’000
(222,294)
27,182
(168,406)
(195,112)
409,847
41%
367,942
53%
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 best evidence of fair value is current prices in an active market of investment properties with similar leases and other
contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value
estimates. In making its judgement, the Group considers information from a variety of sources, including:
a) Discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing
lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties
in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
b) Current prices in an active market, and its third party independent experts, for properties of different nature, condition
or location (or subject to different lease or other contracts), adjusted to reflect those differences.
c) Recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions
since the date of the transactions that occurred at those prices.
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) Judgement in relation to the recognition of assets held for sale
Management has assumed the likelihood of investment properties – held for sale, being sold within 12 months, in accordance
with the requirement of IFRS 5. Management considers that based on historical and current experience that the properties
can be reasonably expected to sell within 12 months.
iii) Judgement in recognition of the Property Advisor performance fee
The new Property Advisor performance fee agreement is effective only from 1 January 2019 and the fee arising under
the prior agreement for the year ended 31 December 2018 was waived.
The performance fee is based on performance since 1 July 2018 and the Directors judge it to be appropriate to recognise
a charge in the year to reflect the services provided.
77
Financial Statements
5. Segmental information
Information reported to the Board of Directors, which is the chief operating decision-maker, for the purposes of resource
allocation and assessment of segment performance is focused on the different revenue streams that exist within the Group.
The Group’s principal reportable segments under IFRS 8 are therefore as follows:
• Residential; and
• Commercial.
All revenues are earned in Germany with property and administrative expenses incurred in Jersey, Germany and Guernsey.
31 December 2017
Investment property
Loans and receivables
Investment properties – held for sale
Other assets
Liabilities
Net assets
Revenue (restated – see note 2.2)
Property expenses (restated – see note 2.2)
Administrative expenses
Gain on disposal of investment property
Investment property fair value gain
Performance fee
Operating profit
Net finance charge
Income tax expense
Profit for the year
31 December 2018
Investment properties
Other financial assets at amortised cost
Investment properties – held for sale
Other assets
Liabilities
Net assets
Residential
€’000
Commercial
€’000
Unallocated
€’000
444,488
–
94,582
33,366
(265,020)
57,872
–
12,315
4,344
(7,843)
307,416
66,688
–
2,323
–
92
(8,577)
(6,162)
Residential
€’000
20,941
(11,137)
–
5,319
139,245
–
Commercial
€’000
Unallocated
€’000
2,726
(1,450)
–
–
18,129
–
–
–
(2,967)
–
–
(26,339)
Total
€’000
502,360
2,323
106,897
37,802
(281,440)
367,942
Total
€’000
23,667
(12,587)
(2,967)
5,319
157,374
(26,339)
154,368
19,405
(29,306)
144,467
(5,995)
(26,150)
112,322
Total
€’000
632,933
2,406
12,747
35,435
(273,674)
Residential
€’000
Commercial
€’000
Unallocated
€’000
560,019
–
11,279
31,275
(253,998)
348,575
72,914
–
1,468
4,072
(11,154)
67,300
–
2,406
–
88
(8,522)
(6,028)
409,847
78
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
5. Segmental information continued
Revenue
Property expenses
Administrative expenses
Gain on disposal of investment property
Investment property fair value gain
Performance fee
Separately disclosed items
Operating profit
Net finance charge
Income tax expense
Profit for the year
6. Revenue
Rental income
Service charge income
Residential
€’000
Commercial
€’000
Unallocated
€’000
20,068
(13,947)
–
1,026
58,526
–
–
65,673
2,613
(1,816)
–
–
7,620
–
–
8,417
–
–
(3,194)
–
–
(4,010)
(966)
(8,170)
Total
€’000
22,681
(15,763)
(3,194)
1,026
66,146
(4,010)
(966)
65,920
(9,491)
(11,071)
45,358
31 December
2018
€’000
17,508
5,173
22,681
31 December
2017
(restated – see
note 2.2)
€’000
18,080
5,587
23,667
The total future aggregated minimum rentals receivable under non-cancellable operating leases are as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
31 December
2018
€’000
31 December
2017
€’000
435
2,468
2,701
5,604
904
3,364
1,398
5,666
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 for cancellation of the
lease in most cases.
The commercial leases are non-cancellable, with an average lease period of three years.
7. Property expenses
Property management expenses
Repairs and maintenance
Impairment charge – trade receivables
Other property expenses
Property Advisors’ fees and expenses
31 December
2018
€’000
31 December
2017
(restated – see
note 2.2)
€’000
1,024
1,710
29
7,053
5,947
1,079
1,433
41
5,825
4,209
15,763
12,587
79
Financial Statements
8. Administrative expenses
Secretarial and administration fees
Legal and professional fees
Directors’ fees
Audit and accountancy fees
Bank charges
Loss on foreign exchange
Depreciation
Other income
31 December
2018
€’000
31 December
2017
€’000
880
1,160
300
840
54
133
16
(189)
3,194
901
1,045
148
894
56
20
23
(120)
2,967
Key management compensation – the functions of management are undertaken by external providers of professional
services, as set out in note 33.
Further details of the Directors’ fees are set out in the Directors’ Remuneration Report on page 55 and in note 12 below.
9. Auditor’s remuneration
An analysis of the fees charged by the auditor and its associates is as follows:
Fees payable to the Group’s auditor and its associates for the audit of the consolidated financial
statements:
Fees payable to the Group’s auditor and its associates for other services:
– Corporate finance
– Audit-related assurance services
– Other
10. Gain on disposal of investment property (including investment property held for sale)
Net proceeds
Book value of disposals
Disposal costs
31 December
2018
€’000
31 December
2017
€’000
188
–
27
8
223
176
26
24
–
226
31 December
2018
€’000
31 December
2017
€’000
86,959
(84,995)
(938)
1,026
61,652
(55,117)
(1,216)
5,319
Where there has been a partial disposal of a property, the net book value of the asset sold is calculated on a per sqm rate, based
on the prior period or interim valuation.
11. Investment property fair value gain
Investment property fair value gain
Further information on investment properties is shown in note 17.
31 December
2018
€’000
31 December
2017
€’000
66,146
157,374
80
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
12. Separately disclosed items
These relate to legal and professional fees incurred during a significant transaction which was considered by the Board but
not pursued totalling €966,000 (December 2017: €nil).
As part of this transaction, significant demands were made on the Directors’ time. It was agreed that these requirements
were far in excess of the Directors’ contracted obligations and that a sum up to or equal to their annual salary could be billed
for their time and effort. Directors fees relating to the above totalled £52,691. These additional fees have been included
within the total Directors’ fees expense as detailed in note 8.
13. Net finance charge
Interest income
Interest from Partners’ loans
Loss/(Gain) on interest rate swap
Interest payable on bank borrowings
Finance arrangement fee amortisation
Finance charge on redemption liability
14. Income tax expense
The tax charge for the period is as follows:
Current tax charge
Adjustment in respect of prior year
Deferred tax charge – origination and reversal of temporary differences
31 December
2018
€’000
31 December
2017
€’000
(54)
(83)
2,658
5,118
381
1,471
9,491
(116)
(57)
(1,535)
5,080
550
2,073
5,995
31 December
2018
€’000
31 December
2017
€’000
3,151
–
7,920
11,071
2,940
–
23,210
26,150
The tax charge for the year can be reconciled to the theoretical tax charge on the profit in the income statement as follows:
Profit before tax on continuing operations
Tax at German income tax rate of 15.8% (2017: 15.8%)
Income not taxable
Tax effect of expenses that are not deductible in determining taxable profit
Total tax charge for the year
Reconciliation of current tax liabilities
Balance at beginning of year
Tax paid during the year
Current tax charge
Balance at end of year
31 December
2018
€’000
31 December
2017
€’000
56,429
8,916
(162)
2,317
11,071
138,472
21,879
(840)
5,111
26,150
31 December
2018
€’000
31 December
2017
€’000
2,914
(4,678)
3,151
1,387
24
(50)
2,940
2,914
81
Financial Statements
Reconciliation of deferred tax
Balance at 1 January 2017
Charged to the statement of comprehensive income
Deferred tax (liability)/asset at 31 December 2017
Charged to the statement of comprehensive income
Deferred tax (liability)/asset at 31 December 2018
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%.
Capital gains
on properties
€’000
(Liabilities)
Interest rate
swaps
€’000
Asset
(22,150)
(22,967)
(45,117)
(8,341)
(53,458)
770
(243)
527
421
948
Total
€’000
(Net liabilities)
(21,380)
(23,210)
(44,590)
(7,920)
(52,510)
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 2018 was 15.8% (2017: 15.8%).
Factors affecting future tax charges
The Group has accumulated tax losses of approximately €17.6 million (2017: €18.1 million) in Germany, which will be available
to set against suitable future profits should they arise, subject to the criteria for relief. No deferred tax asset is recognised in respect
of losses of €0.3 million (2017: €0.3 million) as there is insufficient certainty the losses can be utilised by Group entities.
15. Dividends
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2018 of €2.35 cents (2.1p) (2017: €1.9 cents (1.6p))
per share
Proposed final dividend for the year ended 31 December 2018 of €5.15 cents (4.62p) (2017: €5.0 cents
(4.4p)) per share
31 December
2018
€’000
31 December
2017
€’000
2,420
2,079
5,189
5,038
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and 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 7 June 2019. The total estimated dividend to be paid is 4.62p per share. The payment of this dividend will not
have any tax consequences for the Group.
82
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
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:
Phoenix Spree Deutschland I Limited
Phoenix Spree Deutschland II Limited
Phoenix Spree Deutschland III Limited
Phoenix Spree Deutschland IV Limited
Phoenix Spree Deutschland V Limited
Phoenix Spree Deutschland VII Limited
Phoenix Spree Deutschland IX Limited
Phoenix Spree Deutschland X Limited
Phoenix Spree Deutschland XI Limited
Phoenix Spree Deutschland XII Limited
Phoenix Property Holding GmbH & Co.KG
Phoenix Spree Mueller GmbH (formerly Laxpan Mueller GmbH)
Phoenix Spree Gottlieb GmbH (formerly Invador Grundbesitz GmbH)
PSPF Holdings GmbH
PSPF General Manager GmbH (in liquidation)
PSPF Acquisition Vehicle GmbH (in liquidation)
PSPF Property GmbH & Co. KG (in liquidation)
Phoenix Spree Property Fund Ltd & Co. KG
PSPF General Partner (Guernsey) Limited
Country of
incorporation
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
% holding
Nature of business
100
100
100
100
100
100
100
100
100
100
100
94.9
94.9
100
100
99.64
94
94.8
100
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Finance vehicle
Investment property
Investment property
Holding company
Investment property
Investment property
Holding company
Management of PSPF
Acquisition vehicle
Investment property
Investment property
Management of PSPF
The investments in PSPF General Manager GmbH and PSPF Acquisition Vehicle GmbH & Co. KG are all held via the
investment is PSPF Holdings GmbH, which was acquired on 7 September 2007. The other subsidiaries are held directly.
17. Investment properties
Fair Value
At 1 January
Capital expenditure
Property additions
Disposals
Fair value gain
Investment properties at fair value – as set out in the report by JLL
Assets considered as “Held for Sale” (Note 18)
At 31 December
2018
€’000
2017
€’000
609,257
7,943
47,329
(84,995)
66,146
645,680
(12,747)
423,799
6,715
76,486
(55,117)
157,374
609,257
(106,897)
632,933
502,360
The property portfolio was valued at 31 December 2018 by the Group’s independent valuers, Jones Lang LaSalle GmbH (‘JLL’),
in accordance with the methodology described below. The valuations were performed in accordance with the current Appraisal
and Valuation Standards, 8th edition (the ‘Red Book’) published by the Royal Institution of Chartered Surveyors (‘RICS’).
The valuation is performed on a building-by-building basis and the source information on the properties including current
rent levels, void rates and non-recoverable costs was provided to JLL by the Property Advisors PMM Partners (UK) Limited.
Assumptions with respect to rental growth, adjustments to non-recoverable costs and the future valuation of these are those
of JLL. Such estimates are inherently subjective and actual values can only be determined in a sales transaction.
83
Financial Statements
Having reviewed the JLL report, the Directors are of the opinion that this represents a fair and reasonable valuation of the
properties and have consequently adopted this valuation in the preparation of the consolidated financial statements.
The valuations have been prepared by JLL on a consistent basis at each reporting date and the methodology is consistent
and in accordance with IFRS which requires that the ‘highest and best use’ value is taken into account where that use is
physically possible, legally permissible and financially feasible for the property concerned, and irrespective of the current
or intended use.
All properties are valued as Level 3 measurements under the fair value hierarchy (see note 32) as the inputs to the discounted
cash flow methodology which have a significant effect on the recorded fair value are not observable. Additionally, JLL perform
reference checks back to comparable market transactions to confirm the valuation model.
The unrealised fair value gain in respect of investment property is disclosed in the consolidated statement of comprehensive
income as ‘investment property fair value gain’.
Valuations are undertaken using the discounted cash flow valuation technique as described below and with the inputs set
out below.
Discounted cash flow methodology (‘DCF’)
The fair value of investment properties is determined using discounted cash flows.
Under the DCF method, a property’s fair value is estimated using explicit assumptions regarding the benefits and liabilities
of ownership over the asset’s life including an exit or terminal value. As an accepted method within the income approach
to valuation the DCF method involves the projection of a series of cash flows on a real property interest. To this projected
cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the income stream
associated with the real property.
The duration of the cash flow and the specific timing of inflows and outflows are determined by events such as rent reviews,
lease renewal and related lease up periods, re-letting, redevelopment or refurbishment. The appropriate duration is typically
driven by market behaviour that is a characteristic of the class of real property.
Periodic cash flow is typically estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease
incentives, maintenance cost, agent and commission costs and other operating and management expenses. The series of
periodic net operating incomes, along with an estimate of the terminal value anticipated at the end of the projection period,
is then discounted.
84
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
17. Investment properties continued
The principal inputs to the valuation are as follows:
Residential properties
Market rent
Rental value (€ per sqm)
Stabilised residency vacancy (% per year)
Tenancy vacancy fluctuation (% per year)
Commercial Properties
Market rent
Rental value (€ per sqm)
Stabilised commercial vacancy (% per year)
Tenancy vacancy fluctuation (% per year)
Estimated rental value (‘ERV’)
ERV per year per property (€’000)
ERV (€ per sqm)
Financial rates – blended average
Discount rate (%)
Portfolio yield (%)
Year ended
31 December
2018
Range
Year ended
31 December
2017
Range
7-14
2
8-10
4-31
0-25
8-10
5-13
2
8-10
2-28
0-26
10
60-1,201
8-14
48-1,200
5-14
4
3.0
4.7
3.5
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.
• Rental value: All other factors remaining equal an increase in rental income would increase valuations. Correspondingly,
a decrease in rental values would decrease valuations.
• Discount rate: An increase of 0.5% in the discount rate would reduce the investment property fair value by €85.9 million,
and a decrease in the discount rate would increase the investment property fair value by €129.9 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 Group categorises all investment properties in the following three ways;
Rental scenario
Where properties have been valued under the ‘Discounted Cashflow Methodology’ and are intended to be held by the
Group for the foreseeable future, they are considered valued under the ‘Rental scenario’. This will equal the ‘Investment
Properties’ line in the Non-Current Assets section of the consolidated statement of financial position.
Condominium scenario
Where properties have the potential or the benefit of all relevant permissions required to sell apartments individually
(condominiums) then we refer to this as a ‘condominium scenario’. Expected sales in the coming year from these assets
are considered held for sale under IFRS 5 and can be seen in note 18. The additional value is reflected by using a lower
discount rate under the DCF Methodology. Properties which do not have the benefit of all relevant permissions are described
as valued using a standard ‘rental scenario’. Included in properties valued under the condominium scenario are properties not
yet released to held for sale as only a portion of the properties are forecast to be sold in the coming 12 months.
85
Financial Statements
Disposal scenario
Where properties have been notarised for sale prior to the consolidated statement of financial position 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 three scenarios:
Rental scenario
Condominium scenario
Disposal scenario
Total
31 December
2018
€’000
31 December
2017
€’000
619,430
22,330
3,920
645,680
502,360
29,847
77,050
609,257
The movement in the fair value of investment properties is included in the consolidated statement of comprehensive income
as ‘gain on disposal of investment property’ and comprises:
Investment properties
Properties held for sale (see note 18)
18. Investment properties – held for sale
Fair value – held for sale investment properties
At 1 January
Transferred from investment properties
Transferred (to) investment properties
Properties sold
Valuation gain on apartments held for sale
At 31 December
31 December
2018
€’000
31 December
2017
€’000
65,717
429
66,146
155,787
1,587
157,374
2018
€’000
2017
€’000
106,897
5,850
(15,434)
(84,995)
429
27,970
88,990
–
(11,650)
1,587
12,747
106,897
Investment properties are re-classified as current assets and described as ‘held for sale’ in three different situations:
properties notarised for sale at the reporting date, properties where at the reporting date the Group has obtained and
implemented all relevant permissions required to sell individual apartment units, and efforts are being made to dispose
of the assets (‘condominium’); and properties which are being marketed for sale but have currently not been notarised.
Properties notarised for sale by the reporting date are valued at their disposal price (disposal scenario), and other properties are
valued using the condominium or rental scenarios (see note 17) as appropriate. The table below sets out the respective categories:
Rental scenario
Condominium scenario
Disposal scenario
2018
€’000
1,931
6,896
3,920
2017
€’000
–
29,847
77,050
12,747
106,897
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 €5.2 million (2017: €56.9 million).
86
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
19. Property, plant and equipment
Cost or valuation
As at 1 January 2017
Additions
As at 31 December 2017
Additions
As at 31 December 2018
Accumulated depreciation and impairment
As at 1 January 2017
Charge for the year
As at 31 December 2017
Charge for the year
As at 31 December 2018
Carrying amount
As at 31 December 2017
As at 31 December 2018
20. Other financial assets at amortised cost (2017: loans and receivables)
At 1 January
Accrued interest
At 31 December
Equipment
€’000
58
75
133
12
145
18
23
41
16
57
92
88
31 December
2018
€’000
31 December
2017
€’000
2,323
83
2,406
2,253
70
2,323
The above loans have been reclassified to ‘Other financial assets at amortised cost’ on adoption of IFRS 9, ‘financial instruments’.
The Group entered into loan agreements with Mike Hilton and Paul Ruddle in connection with the acquisition of PSPF.
The loans bear interest at 4% per annum, and have a maturity of less than five years.
The Group also entered into a loan agreement with the minority interest of Accentro Real Estate AG (formerly Blitz B16 – 210 GmbH)
in relation to the acquisition of the assets as share deals. This loan bears interest at 3% per annum.
These assets are considered to have low credit risk and any loss allowance would be immaterial.
None of the loans and receivables were either past due or impaired in the prior year.
87
Financial Statements
21. Trade and other receivables
Current
Trade receivables
Less: impairment provision
Net receivables
Prepayments and accrued income
Investment property disposal proceeds receivable
Service charges receivable
Sundry receivables
Aging analysis of trade receivables
Up to 12 months
Between one year and two years
Over three years
31 December
2018
€’000
31 December
2017
(restated – see
note 2.2)
€’000
1,045
(313)
732
549
1,167
4,766
317
7,531
691
(342)
349
6,521
2,232
5,302
–
14,404
31 December
2018
€’000
31 December
2017
€’000
731
1
–
732
344
5
–
349
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 ageing 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 2018, and on 1 January 2018 (the date of adoption of IFRS 9) was determined
as set out below. There was no material difference between the loss allowance determined on this basis at 1 January 2018
and on the basis previously used, and therefore there was no re-statement of opening retained earnings required.
The Company applies the following loss rates to trade and service charge receivables:
As noted below, a loss allowance of 50% (2017: 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.
Trade receivables:
Expected loss rate (%)
Gross carrying amount (€’000)
Loss allowance provision (€’000)
Trade receivables:
Expected loss rate (%)
Gross carrying amount (€’000)
Loss allowance provision (€’000)
0-60 days
Ageing over
60 days
Non-current
tenant
Total 2018
0%
582
–
50%
300
(150)
100%
163
(163)
1,045
(313)
0-60 days
Ageing over
60 days
Non-current
tenant
Total 2017
0%
173
–
50%
352
(176)
100%
166
(166)
691
(342)
88
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
21. Trade and other receivables continued
Movements in the impairment provision against trade receivables are as follows:
Balance at the beginning of the year
Impairment losses recognised
Amounts written off as uncollectable
Balance at the end of the year
All impairment losses relate to the receivables arising from tenants.
22. Cash and cash equivalents
Cash at bank
Cash at agents
Cash and cash equivalents
23. Borrowings
Current liabilities
Bank loans – Deutsche Genossenschafts-Hypothekenbank AG
Bank loans – Berliner Sparkasse
Non-current liabilities
Bank loans – Deutsche Genossenschafts-Hypothekenbank AG
Bank loans – Berliner Sparkasse
31 December
2018
€’000
31 December
2017
€’000
342
360
(389)
313
383
180
(221)
342
31 December
2018
€’000
31 December
2017
€’000
25,626
1,242
26,868
25,518
1,664
27,182
31 December
2018
€’000
31 December
2017
€’000
2,596
1,046
3,642
2,020
626
2,646
122,054
69,578
191,632
167,656
51,992
219,648
195,274
222,294
All borrowings are secured against the investment properties of the Group. As at 31 December 2018, the Company had
€1.2 million of undrawn debt facilities (2017: €0.6 million). A summary of the loans as at the year end is as follows:
Bank Berliner Sparkasse
Deutsche Genossenschafts-Hypothekenbank AG
Amount
€’000
9,333
7,696
12,658
5,024
3,519
10,563
3,396
11,910
6,525
26,988
26,988
1,217
38,352
23,357
7,748
195,274
Interest rate
%
Maturity
1.72 31/12/2026
1.74 31/12/2026
1.89 28/02/2027
1.93 31/08/2027
1.05 31/08/2027
1.95 30/11/2027
1.09 30/11/2027
2.30 30/04/2028
2.00 31/12/2028
2.30 31/07/2027
2.30 31/07/2027
2.30 31/07/2028
2.09 28/02/2025
2.09 28/02/2025
2.30 28/02/2025
89
Financial Statements
24. Trade and other payables
Trade payables
Accrued liabilities
Service charges payable
Sundry payables
Deferred income
25. Derivative financial instruments
Interest rate swaps – carried at fair value through profit or loss
Balance at 1 January
Loss/(Gain) in movement in fair value through profit or loss
Balance at 31 December
31 December
2018
€’000
31 December
2017
(restated – see
note 2.2)
€’000
1,808
4,592
4,028
–
1
10,429
1,489
622
3,849
554
8
6,522
31 December
2018
€’000
31 December
2017
€’000
3,333
2,658
5,991
4,869
(1,536)
3,333
The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2018 were €206,690,000
(2017: €188,165,000). At 31 December 2018 the fixed interest rates vary from 0.625% to 1.01% (2017: 0.402% to 0.775%)
above the main factoring Euribor rate.
Maturity analysis of interest rate swaps
Less than one year
Between one and two years
Between two and five years
More than five years
31 December
2018
€’000
31 December
2017
€’000
1,354
–
–
4,637
5,991
–
–
–
3,333
3,333
During the year the Company had interest rate swaps which were in excess of the debt being hedged, these have been
disclosed as having a maturity of less than 12 months.
26. Other financial liabilities
Redemption Liability
Balance at 1 January
Profit share attributable to NCI in PSPF
Balance at 31 December
31 December
2018
€’000
31 December
2017
€’000
5,663
1,472
7,135
3,590
2,073
5,663
The redemption liability relates to the put option held by the minority shareholders of PSPF for the purchase of the minority
interest in PSPF. The option period starts on 6 June 2020. The amount of the purchase price will be based on the EPRA NAV
on the consolidated statement of financial position date as well as the movement in the EPRA NAV during the year and the
proportion of EPRA NAV attributable to the non-controlling interest in PSPF.
90
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
26. Other financial liabilities continued
A portion of the liability (€1,124k, 2017: (€795k)) is recognised to cover the tax charge of the minority in PSPF on the proceeds
received if they choose to exercise their put option.
The recognition of the redemption liability has been accounted for as a reduction in the Non-Controlling Interest with the
remainder of the recognition against the Group’s retained earnings. Also see the consolidated statement of changes in equity
for the recognition accounting.
27. Share-based payment reserve
Balance at 1 January 2017
Fee charge for the period
Balance at 31 December 2017
Transfer to stated capital – settled by issue of shares
Adjustment to performance fee
Fee charge for the period
Balance at 31 December 2018
Performance fee
€’000
7,614
26,339
33,953
(33,948)
(5)
4,010
4,010
The Property Advisor is entitled to an asset and estate management performance fee, measured over consecutive three
year periods, equal to 15% of the excess (or in the case of the initial period or any performance period ending prior to
31 December 2020, 16%) by which the annual EPRA NAV total return of the Group exceeds 8% per annum, compounding
(the ‘Performance Fee’). The Performance Fee is subject to a high watermark, being the higher of:
(i) EPRA NAV per share at 1 July 2018; and
(ii) the EPRA NAV per share at the end of a Performance Period in relation to which a performance fee was earned in accordance
of the provisions continued with the Property Advisor and Investor Relations Agreement.
The Company’s EPRA NAV performance for the three year’s ending 31 December 2017 had resulted in a performance
fee liability under the Property Advisory Agreement to the Property Advisor of €33.948 million. The parties agreed that
this performance fee (but not any further performance fees that may become due) be settled through the issuance by
the Company to the Property Advisor of 8,260,065 new shares in the Company at EPRA NAV per share. 50% of the shares
issued in settlement of this fee are subject to a 12-month restriction on disposal. The shares were admitted to trading on
the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange on 4 May 2018.
Under the Property Advisory Agreement for providing property advisory services, the Property Advisor is also entitled to
a Portfolio and Asset Management Fee for the 2018 period as follows:
(i) 1.50% of the EPRA NAV of the Group where the EPRA NAV of the Group is equal to or less than €250 million;
(ii) 1.25% of the EPRA NAV of the Group between €250 million and €500 million; and
(iii) 1% of the EPRA NAV of the Group greater than €500 million.
The performance fee is reduced by the aggregate amount of any transaction fees and finance fees payable to the Property
Advisor in respect of that calendar year.
The Property Advisor is entitled to a capex monitoring fee equal to 7% of any capital expenditure incurred by any Subsidiary
which the Property Advisor is responsible for managing (the ‘Capex Monitoring Fee’).
The Property Advisor is entitled to receive a finance fee equal to:
(i) 0.1% of the value of any borrowing arrangement which the Property Advisor has negotiated and/or supervised; and
(ii) a fixed fee of £1,000 in respect of any borrowing arrangement which the Property Advisor has renegotiated or varied.
The Property Advisor is entitled to receive a transaction fee fixed at £1,000 in respect of any acquisition or disposal of
property by any subsidiary.
91
Financial Statements
The Property Advisor is entitled to a letting fee equal to three 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.
Property Advisor Fees (from 1 January 2019)
Under the new Property Advisory Agreement for providing property advisory services, the Property Advisor will be entitled
to a Portfolio and Asset Management Fee as follows:
(i) 1.20% of the EPRA NAV of the Group where the EPRA NAV of the Group is equal to or less than €500 million; 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 £1,000 in respect of any borrowing arrangement which the Property Advisor has renegotiated or varied.
The Property Advisor is entitled to receive a transaction fee fixed at £1,000 in respect of any acquisition or disposal of
property by any subsidiary.
The Property Advisor is entitled to a letting fee equal to between one and three 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 £75,000 payable quarterly in
arrears.
Details of the fees paid to the Property Advisor are set out in note 33.
28. Stated capital
Issued and fully paid:
At 1 January
Issued during the year at €4.11 per share
At 31 December
31 December
2018
€’000
31 December
2017
€’000
162,630
33,948
196,578
162,630
–
162,630
The number of shares in issue at 31 December 2018 was 100,751,409 (31 December 2017: 92,491,344).
29. Non-controlling interests
Phoenix Spree Mueller GmbH (formerly Laxpan Mueller GmbH)
Phoenix Spree Gottlieb GmbH (formerly Invador Grundbesitz GmbH)
Non-controlling
interest %
31 December
2018
€’000
31 December
2017
€’000
5.1%
5.1%
1,026
963
1,989
915
810
1,725
The non-controlling interest relates to the subsidiaries Phoenix Spree Gottlieb GmbH and Phoenix Spree Mueller GmbH.
92
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
30. Earnings per share
Earnings for the purposes of basic earnings per share being net profit attributable to owners of the
Parent (€’000)
Weighted average number of Ordinary Shares for the purposes of basic earnings per share (number)
Effect of dilutive potential Ordinary Shares (number)
31 December
2018
31 December
2017
45,094
97,945,250
1,014,078
111,538
92,491,344
7,677,250
Weighted average number of ordinary shares for the purposes of diluted earnings per share (Number)
98,959,328 100,168,594
Earnings per share (€)
Diluted earnings per share (€)
31. Net asset value per share and EPRA net asset value
Net assets (€’000)
Number of participating Ordinary Shares
Net asset value per share (€)
EPRA net asset value
Net assets (€’000)
Add back deferred tax assets and liabilities, derivative financial instruments, goodwill and share-based
payment reserves (€’000)
EPRA net asset value (€’000)
EPRA net asset value per share (€)
0.46
0.46
1.21
1.11
31 December
2018
31 December
2017
407,858
100,751,409
366,217
92,491,344
4.05
3.96
31 December
2018
31 December
2017
407,858
366,217
53,137
460,995
4.58
13,970
380,187
4.11
The derivative financial liability relating to swap contracts in respect of borrowings repaid has not been added back as they
no longer have a hedging objective (€1.354 million (2017: nil)).
32. Financial instruments
The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and
processes of the Group for managing those risks and the methods used to measure them. Further quantitative information
in respect of these risks is presented throughout the financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• financial assets;
• cash and cash equivalents;
• trade and other receivables;
• trade and other payables;
• borrowings; and
• derivative financial instruments.
93
Financial Statements
The Group held the following financial assets at each reporting date:
Loans and receivables
Trade and other receivables – current
Cash and cash equivalents
Other financial assets at amortised cost (2017: Loans and receivables)
The Group held the following financial liabilities at each reporting date:
Held at amortised cost
Borrowings payable: current
Borrowings payable: non-current
Other financial liabilities
Trade and other payables
Fair value through profit or loss
Derivative financial (asset)/liability – interest rate swaps
Excess hedge due to property disposal
31 December
2018
€’000
31 December
2017
(restated – see
note 2.2)
€’000
6,982
26,868
2,406
36,256
7,883
27,182
2,323
37,388
31 December
2018
€’000
31 December
2017
€’000
3,642
191,632
7,135
10,429
212,838
4,637
1,354
5,991
2,646
219,648
5,663
6,522
234,479
3,333
–
3,333
218,829
237,812
Fair value of financial instruments
With the exception of the variable rate borrowings, the fair values of the financial assets and liabilities are not materially
different to their carrying values due to the short-term nature of the current assets and liabilities or due to the commercial
variable rates applied to the long-term liabilities.
The interest rate swap was valued externally by the respective counterparty banks by comparison with the market price
for the relevant date.
The interest rate swaps are expected to mature between February 2025 and March 2028.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data.
During each of the reporting periods, there were no transfers between valuation levels.
94
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
32. Financial instruments continued
Group fair values
Financial assets/(liabilities)
Interest rate swaps – Level 2 – current
Interest rate swaps – Level 2 – non-current
The valuation basis for the investment properties is disclosed in note 17.
interest rate risk;
Financial risk management
The Group is exposed through its operations to the following financial risks:
•
• foreign exchange risk;
• credit risk; and
liquidity risk
•
The Group’s policies for financial risk management are outlined below.
31 December
2018
€’000
31 December
2017
€’000
(1,354)
(4,637)
(5,991)
(3,333)
–
(3,333)
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:
Financial assets
Cash and cash equivalents
Financial liabilities
Trade and other payables
Net position
31 December
2018
€’000
31 December
2017
€’000
1,142
(350)
792
598
(216)
382
95
Financial Statements
At each reporting date, if the Euro had strengthened or weakened by 10% against Sterling GBP with all other variables held
constant, post-tax loss for the year would have increased/(decreased) by:
31 December 2017
31 December 2018
Weakened by
10% Increase/
(decrease) in
post-tax loss and
impact
on equity
€’000
Strengthened by
10% Increase/
(decrease) in
post-tax loss and
impact
on equity
€’000
38
79
(38)
(79)
Credit risk management
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the
Group. Credit risk arises principally from the Group’s trade and other receivables and its cash balances. The Group gives
careful consideration to which organisations it uses for its banking services in order to minimise credit risk. The Group has
an established credit policy under which each new tenant is analysed for creditworthiness and each tenant is required to
pay a two-month deposit.
At each reporting date the Group had no tenants with outstanding balances over 10% of the total trade receivables balance.
The Group uses the following banks: Barclays Private Clients International Jersey Ltd, Barclays Bank Plc Frankfurt and
Deutsche Bank. The split of cash held at each of the banks, respectively, at 31 December 2018 was 57%/33%/10%
(31 December 2017: 61%/30%/9%) Barclays and Deutsche Bank have credit ratings of A and A-, respectively.
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 where there is an identified loss event which, based on previous experience, is evidence
of a reduction in the recoverability of the cash flows. 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.
96
Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018
32. Financial instruments continued
Maturity analysis for financial liabilities
At 31 December 2018
Borrowings payable: current
Borrowings payable: non-current
Other financial liabilities
Trade and other payables
At 31 December 2017
Borrowings payable: current
Borrowings payable: non-current
Other financial liabilities
Trade and other payables
Less than
1 year
€’000
3,642
–
–
10,429
14,071
Less than
1 year
€’000
2,646
–
–
6,522
9,168
Between
1 – 2 years
€’000
Between
2 – 5 years
€’000
More than
5 years
€’000
–
–
–
–
–
–
–
7,135
–
7,135
Between
1 – 2 years
€’000
Between
2 – 5 years
€’000
–
–
–
–
–
–
–
5,663
–
5,663
–
191,632
–
–
191,632
More than
5 years
€’000
–
219,648
–
–
219,648
Total
€’000
3,642
191,632
7,135
10,429
212,838
Total
€’000
2,646
219,648
5,663
6,522
234,479
The analysis of the market risk review and sensitivity analysis is detailed in note 21.
33. Related party transactions
Related party transactions not disclosed elsewhere are as follows:
R Prosser, who was a Director of the Company until 17 April 2018, is a director of Estera Fund Administrators (Jersey) Limited
and Estera Trust (Guernsey) Limited, both of which provide administration services to the Group.
A Weaver, who was a Director of the Company until 17 April 2018, is a partner of the Jersey law firm, Appleby, which provides
legal services to the Group and a member of Appleby group.
During the year ended 31 December 2018, an amount of €973,424 (2017: €690,165) was payable to Estera Fund Administrators
(Jersey) Limited and Estera Trust (Guernsey) Limited for accounting, administration and secretarial services. At 31 December 2018,
€134,400 (2017: €215,625) Estera Fund Administrators (Jersey) Limited only) was outstanding.
During the year ended 31 December 2018, an amount of €43,010 (2017: €40,044) was payable to Appleby, law firm for legal
and professional services. At 31 December 2018 €nil (2017: €nil) was outstanding.
M Northover was a Director during 2018 and shareholder of PMM Partners (UK) Limited, the Group’s appointed Property
Advisor (since changed to PMM Residential on signing of the new Property Advisor Agreement in November 2018). During
the year ended 31 December 2018, an amount of €5,947,282 (€5,858,791 management fees and €88,491 Other expenses
and fees) (2017: €4,209,000 (€4,110,000 Management fees and €99,000 Other expenses and fees)) was payable to PMM
Partners (UK) Limited. At 31 December 2018 €7,450 (2017: €Nil) was outstanding.
On 1 January 2019, PMM Partners (UK) Limited was replaced as Property Advisor by PMM Residential Limited. A Property
Advisor and Investors Relations agreement was entered in to between the Group and PMM Residential Limited also with
an effective date of 1 January 2019. Further details of the fees payable to PMM Residential Limited can be found in note 27.
The Property Advisor is also entitled to an asset and estate management performance fee. The charge for the period in respect
of the performance fee was €3,995,000 (2017: €26,339,000). 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.
97
Financial Statements
In March 2015 the Group also entered into an option agreement to acquire the remaining 5.2% interest in Phoenix Spree
Property Fund GmbH & Co.KG (‘PSPF’) from the remaining partners being M Hilton and P Ruddle both Directors of PMM
Partners (UK) Limited. The options are to be exercised on the fifth anniversary of the majority interest acquisition for a period
of three months thereafter at the fair value of the remaining interest. For their role as the limited partner in Phoenix Spree
Property Fund GmbH & Co.KG they were also paid €120,000 (2017: €120,000) each.
The Group entered into an unsecured loan agreement with M Hilton and P Ruddle in connection with the acquisition of PSPF.
At the period end an amount of €768,195 (2017: €747,120) each was owed to the Group. The loans bear interest of 4% per annum.
Dividends paid to Directors in their capacity as a shareholder amounted to €1,740 (2017: €1,527).
34. Events after the reporting date
In April 2019, the Company exchanged contracts for the acquisition of one individual property in Berlin for the purchase
price of €2.4 million. The property is still awaiting completion.
The Company had exchanged contracts for the acquisition of one property in Berlin with a purchase price of €2.2 million
prior to the reporting date, which as at balance sheet date had not yet completed. The purchase completed in January 2019.
In Q1 2019, the Company exchanged contracts for the sale of one commercial unit and one residential unit in
BoxhagenerStraße with an aggregated purchase price of €1.9 million. The sale of these units subsequently completed
in April 2019.
The Company had exchanged contracts for the sale of three condominiums in Berlin with aggregated consideration of
€1.1 million prior to the reporting date. The sale of these units subsequently completed in Q1 2019.
The Company exchanged contracts for the disposal of the last non-Berlin property for the sale price of €3.9 million prior
to the reporting date, the sale of this property subsequently completed in January 2019.
In February 2019, the Company drew down the final €0.9 million portion of the €7.5 million loan with Berliner Sparkasse.
€6.6 million of the debt was drawn down in December 2018.
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
PROFESSIONAL ADVISORS
(from 1 January 2019)
PMM Residential Limited
54-56 Jermyn Street
London SW1Y 6LX
(to 31 December 2018)
PMM Partners (UK) Limited
54-56 Jermyn Street
London SW1Y 6LX
Estera Fund Administrators (Jersey) Limited
Estera Secretaries (Jersey) Limited
13-14 Esplanade
St. Helier
Jersey JE1 1EE
Link Asset Services (Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2 3RT
Barclays Private Clients International Limited
13 Library Place
St. Helier
Jersey JE4 8NE
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Appleby Global Group Services Limited
13-14 Esplanade
St. Helier
Jersey JE1 1EE
Mittelstein Rechtsanwälte
Alsterarkaden 20
20354 Hamburg
Germany
Taylor Wessing Partnerschaftsgesellschaft mbB
Thurn-und-Taxis-Platz 6
60313 Frankfurt a.M.
Germany
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Jones Lang LaSalle GmbH
Rahel-Hirsch-Strasse 10
10557 Berlin
Germany
RSM UK Audit LLP
25 Farringdon Street
London EC4A 4AB
Property Advisor
Administrator
Company Secretary
and Registered Office
Registrar
Principal Banker
UK Legal Advisor
Jersey Legal Advisor
German Legal Advisor
as to property law
German Legal Advisor as
to German partnership law
Sponsor and Broker
(Broker until 17 September 2018)
Broker
(from 17 September 2018)
Independent Property Valuer
Auditor
99
NOTES
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Phoenix Spree Deutschland
Annual Report and Accounts 2018
NOTES continued
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Phoenix Spree Deutschland Ltd
13-14 Esplanade
St. Helier
Jersey
JE1 1EE
www.phoenixspree.com