Phoenix Spree to invest new capital in Berlin ‘within 18 months’

'Assuming equity of 45% to 50% per deal, that gives us a firepower of at least €100 mln,’ he said. 'Our priority is to grow our Berlin portfolio with that capital. Around 50% of our assets are already in Berlin but we’d like to grow that further.'

The group has also launched a placing programme for up to 120 million new shares between 7 March 2016 to 8 February 2017 to enable the company to act quickly to take advantage of opportunities as they arise. Phoenix Spree shares were trading at 178 pence sterling in the afternoon of 14 April.

Phoenix Spree has invested €40 mln in Berlin in the last six months. 'We believe that Berlin has the most attractive risk return profile in Germany. Berlin is also growing by 50,000 people a year – and that’s excluding any refugee numbers,' Schwagenscheidt said.

'We've very flexible regarding how we invest. We can do single asset deals on our own but we are also open to share and club deals. We’re targeting an annual yield of 4%,; said Schwagenscheidt.

Portfolio demand
Big residential portfolios still remain a draw in Germany. Luxembourg-based real estate group BGP Investment’s large German residential portfolio that was taken off the market last October is expected to be put up for sale again, according to those who track the market. BGP's managing director, Mark Dunstan told PropertyEU that the portfolio is not being actively marketed yet and that a decision is not expected to be made 'for a few weeks'.

However, BGP is expected to once again pursue a 'dual-track' process whereby it is considering a sale or an IPO, Dunstan said. The portfolio comprises 1.16 million m2 - or around 16,000 units - of which around 40% are located in Berlin, with the remaining properties mainly located in the north of the country. BGP postponed the dual-track process last October, citing that 'bids at that time were undervaluing the company'. BGP had initially hoped to raise €1.1 bn.

Interest in German residential assets has soared in the past two years, driven by strong international interest in assets that are seen as both stable and highly lucrative. There were €2.2 bn of residential transactions in Germany in the first quarter of the year, according to JLL. 'There is a lot of liquidity in the market but not a lot of product,' said Konstantin Kortmann, head of residential at JLL in Frankfurt. Last year, there were €25 bn in residential deals in Germany, according to JLL, although that figure is slightly skewed by Deutsche Annington’s takeover of rival Gagfah for €3.9 bn, to become Vonovia.

And as competition increases, yields are tightening. Yields for smaller resi portfolios are typically between 3.5% and 3.8%, which rises to 5% to 6% to the larger, mixed-quality portfolios. 'Opportunistic portfolios have risen in price and now offer yields of 9% to 11%, whereas five years ago there was no market at all for such assets,' Kortmann said.

Further consolidation is also likely in the sector this year, he said: 'I expect to see more consolidation in the sector this year – I think we’ll see at least one merger following Vonovia’s failed takeover bid for Deutsche Wohnen in February,' he said.

Schwagenscheidt agrees: 'I think we could see bigger mergers because listed companies need to grow but once you hold 300,000-400,000 residential units, it’s very hard to grow by doing single asset deals. Some of the big players might come back with a second attempt on their unsuccessful transactions of the near past.'

While there is much speculation as to which players are likely to merge, some analysts have suggested that France’s Foncière des Régions is already active in Germany’s residential market and could, therefore, be interested in a player such as Phoenix Spree. Deutsche Wohnen, for its part, might consider acquiring a competitor such as Austria's BUWOG because it’s trading at roughly NAV.

On paper, it could be tempting but the implementation could be tricky and Deutsche Wohnen has had its fingers burned before over Conwert. In April last year, Deutsche Wohnen’s takeover of Austrian rival Convert failed after the German company failed to secure at least 50% and one share needed for the bid to succeed. According to the IPD Austria Annual Property Index, residential property values increased by 2.2% last year, making it the most resilient sector in the index. Subsequently, residential properties in Austria achieved a total return of 6.4% in 2015.