Phoenix Spree Deutschland : Final Results for the year ended 31 December 2019

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

Financial results for the year ended 31 December 2019

Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed investment company specialising in German residential real estate, announces its full year audited results for the financial year ended 31 December 2019.

Highlights for the financial year ended 31 December 2019

	Year to 31 December 2019	Year to 31 December 2018	2018 v 2019 % change
Income Statement
Reported gross rental income (€m)	22.6	22.7	(0.4%)
Profit before tax (€m)	28.6	56.4	(49.3%)
Dividend (€ cents (£ pence))1	7.50 (6.3)	7.50 (6.7)	0%
Balance Sheet
Portfolio valuation (€m)	730.2	645.7	13.1%
IFRS NAV per share (€ cents)	4.23	4.05	4.4%
IFRS NAV per share (£ pence)	3.58	3.64	(1.6%)
EPRA NAV per share (€ cents)	4.92	4.58	7.4%
EPRA NAV per share (£ pence)	4.16	4.11	1.2%
EPRA NAV per share total return (€%)	9.1	13.2	-
Net LTV2 (%)	32.6	26.1	-
Operational Statistics
Portfolio valuation per sqm (€)	3,741	3,527	6.1%
Annual like-for-like rent per sqm growth (%)	5.6	7.4	-
EPRA Vacancy (%)	2.8	2.8	-
Condominium sales notarised (€m)	8.8	9.0	(2.2%)

^{1 FX rate GBP/EUR 1:1.18}

^{2 Net LTV uses nominal loan balances as per note 23 rather than the loan balances on the Consolidated Statement of Financial Position which take into account Capitalised Finance Arrangement Fees in the balance.}

Financial & Operational Highlights

· The Portfolio continued to perform well:

o Aggregate Portfolio value increased by 13.1% to €730.2 million (31 December 2018: €645.7 million).

o Like-for-like Portfolio value, adjusted for acquisitions and disposals, increased by 7.1%.

· Robust like-for-like rental income growth per sqm of 5.6% during the year.

· New leases signed at an average 36.4% premium to passing rents.

· Underlying EPRA vacancy remains low at 2.8% (31 December 2018: 2.8%).

· Contracts to acquire 286 units notarised during 2019, representing an aggregate purchase price of €49 million and an average cost per sqm of €2,706.

o This includes an apartment complex in Brandenburg, an area within Greater Berlin that is unaffected by the Mietendeckel rent controls.

· Completion in September 2019 of new €190 million term loan on improved interest rate terms provides additional liquidity. A further €50 million acquisition facility is available.

· Potential scenarios associated with COVID-19 and the Mietendeckel have been rigorously stress tested.

· Unchanged dividend of €5.15 cents per share (GBP 4.4 pence per share).

· Share buy-backs at an average 22% discount to year-end 2019 EPRA Net Asset Value. As at 31 March 2020, 3.5% of the issued share capital had been repurchased. Buy-back programme suspended pending more clarity on the effects of COVID-19.

EPRA NAV underpinned by significant condominium potential

· 18 Condominium sale notarisations during 2019 with total proceeds of €8.8 million (2018: €9.0 million).

· Average achieved value per sqm on notarised residential condominium units of €4,711, a 25.9% premium to 2019 year-end Portfolio average value per sqm.

· New agreement with Accentro Real Estate AG, provides scope to accelerate condominium sales.

· 58% of Portfolio assets legally split into condominiums, and applications proceeding for a further 29%.

Timing, legality and implementation of new Berlin rent controls ('Mietendeckel')

· Came into force on 23 February 2020. Legislation to be reviewed by Berlin's Regional Constitutional Court and the Federal Constitutional Court.

· The Company has been advised that an injunction is likely to be sought. If obtained, it could create a moratorium on the implementation of the Mietendeckel, pending final ruling.

· In the absence of an injunction being obtained, aggregate rental income for 2020 is not likely to be significantly adversely affected by the Mietendeckel compared with 2019.

· Mietendeckel already impacting new construction, exacerbating shortage of available rental stock.

· Potential future impact after 2020 is dependent on duration of, and eventual outcome of, legal challenge.

· If the Mietendeckel continues throughout 2021, PSD estimates annual rental incomes could reduce by approximately 17%, which the Company would seek to mitigate by extending condominium sales.

Outlook

· The current COVID-19 pandemic presents a significant economic challenge to global economies:

o PSD's top priority remains the health, welfare and safety of its tenants and wider stakeholders.

o Measures have already been taken in London and Berlin to mitigate disruption resulting from the COVID-19 outbreak.

o PSD believes it is well positioned to withstand the current dislocations COVID-19 may cause,with a robust business model, a strong balance sheet and good levels of liquidity

· PSD retains strategic optionality in the likely event the Mietendeckel is found to be unconstitutional.

· Notwithstanding the near-term impact of COVID-19, long-term Berlin demographic trends likely to remain positive, driven by strong job creation and ongoing population growth.

· Availability of Berlin rental stock expected to decline.

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

'I am pleased to report another resilient performance with significant progress achieved in adapting our strategy in preparation for the new Berlin rent rules. As we await a successful challenge of this new regulation, we are well positioned to mitigate any short-term impact, supported by our strong balance sheet and good liquidity, all the while maintaining our strategic optionality in the event the rules are found illegal. Despite the impact COVID-19 is having on the German economy, we continue to be confident, in the longer-term, in the strength of demand for rental housing in Berlin and in our ability to create value for all of our stakeholders through the continued active management of our portfolio.'

For further information, please contact:

Phoenix Spree Deutschland Limited Stuart Young	[phone]
Numis Securities Limited (Corporate Broker) David Benda	[phone]
Tulchan Communications (Financial PR) Elizabeth Snow Amber Ahluwalia	[phone]

Notes to the preliminary announcement

This announcement has been extracted from the annual report and financial statements for the year ended 31 December 2019 (the 'Annual Report'), which will be available on the Company's website,www.phoenixspree.com/investorstoday. The Annual Report has been submitted to the National Storage Mechanism and will shortly be available for inspection atwww.morningstar.co.uk/uk/NSM. Printed copies of the Annual Report will be distributed to shareholders on or around 27 April 2020.

CHAIRMAN'S STATEMENT

I am pleased to report that PSD has delivered another resilient performance. As at 31 December 2019, the Portfolio was valued at €730.2 million by Jones Lang LaSalle GmbH, a like-for-like increase of 7.1%, primarily driven by an increase in like-for-like average rents. The EPRA NAV total return per share was 9.1% over the same period. Notwithstanding these results, the Company's share price has been affected by regulatory uncertainty and, more recently, the broader impact of the COVID-19 pandemic, which has negatively affected global equity markets more generally. This has been reflected in the current valuation discount to year-end EPRA Net Asset Value, which is broadly in line with its listed peer group.

The Company enters this period with a robust business model, a strong balance sheet and good levels of liquidity. After fully considering the potential impact of both the Berlin Mietendeckel and COVID-19, the Board is pleased to recommend an unchanged dividend of €5.15 cents per share (GBP 4.4 pence per share), taking the full year dividend to €7.5 cents per share (GBP 6.3 pence per share). Future dividend payments will be considered in the light of any prevailing market disruptions.

Reflecting current market volatility associated with the COVID-19 pandemic, the Board believes that it is prudent, for the time being, to suspend the Company's share buy-back programme pending more clarity.

The Berlin Mietendeckel

The political moves by the Berlin Red-Red-Green coalition to cap statutorily or reduce rents for private non-subsidised rental properties aim to prevent rents being set at free market levels. This is despite the fact that Germany already has in place, at the federal level, tenant protections which rank amongst the strongest in the Western world. These measures have presented challenges to the Company's rental business model, which has traditionally relied on re-letting at market rates to justify the considerable investment that significantly improves the standard of accommodation available to our tenants.

PSD and its legal advisors remain of the view that the Mietendeckel is unconstitutional. The new rules seek to address the effects of a housing shortage rather than addressing the cause. PSD believes that the long-term solution to the housing shortage and rent-price inflation lies with incentivising increased supply, which the current rules fail to address.

Adapted strategy

The Company set out in September 2019 how it intends to adapt its strategy during the period in which the Mietendeckel is in force, so as to mitigate any short-term impact on the Portfolio, while ensuring it maintains maximum strategic optionality in the event the Mietendeckel law is found to be unconstitutional.

Good progress has already been made, including condominium splitting and sales, as well as selective acquisitions in areas within Greater Berlin that are not affected by the Mietendeckel. These measures are explained in more detail in this announcement. The Company has also secured more flexible and cost-efficient financing to support the medium and long-term strategic objectives of the business.

COVID-19
The unprecedented and rapidly changing circumstances surrounding the COVID-19 coronavirus outbreak provide an uncertain economic landscape and increased risk aversion in the financial markets. Whilst it is difficult to predict accurately the potential long-term consequences, we remain vigilant and, in common with all businesses, are closely monitoring the situation. The wellbeing of our tenants and the employees of our service providers is our overriding priority.

PSD's Property Advisor has a strong business platform and has instituted measures in London and Berlin to ensure its people can work remotely, ensuring the continuity of the business. The Property Advisor has rigorously stress tested PSD's financial forecasts for a range of potential outcomes associated with COVID-19 and is confident that the Company is well positioned to withstand any negative impact. To date, there has been no material effect on PSD and the Company enters this period in a position of robust financial health, with a strong balance sheet and a good level of liquidity.

Governance and compliance

The Board recognises the importance of a strong corporate governance culture and maintains the principles of good corporate governance as set out in the Association of Investment Companies Code of Corporate Governance ('AIC Code'), as set out in the Corporate Governance Statement in the Annual Report.

Corporate Responsibility

The Board recognises the importance of operating with integrity, transparency and clear accountability towards its shareholders, tenants and other key stakeholders. We understand that being a responsible Company, balancing the different interests of our stakeholders and addressing our environmental and social impacts, is intrinsically linked to the success and sustainability of our business.

To this end, our 'Better Futures' Corporate Responsibility ('CR') Plan provides a framework to monitor existing activities better. It has four key pillars that have been integrated throughout our business operations: Protecting our Environment; Respecting People; Valuing our Tenants and Investing in our Communities. Our CR initiatives are reported in more detail in the Annual Report.

Outlook

In addition to the Mietendeckel, the COVID-19 outbreak presents an additional challenge for PSD and, whilst the ultimate impact on the Berlin real estate market and property valuations is unclear, PSD and its Property Advisor have a platform that, if required, can accommodate an extended period of disruption. Our top priority remains the health, welfare and safety of PSD's tenants and wider stakeholders.

Although there currently remains additional uncertainty surrounding the legality of the new Mietendeckel and the duration of legal challenges, PSD is well positioned to mitigate the financial impact pending legal clarification.

Since the launch of PSD over 13 years ago, tenant law has continually changed and PSD has successfully evolved within the changing regulatory framework. The Board remains firmly of the view that the Mietendeckel rules will ultimately be successfully challenged in the courts of law and the priority for the year ahead is, therefore, to ensure that the Company maintains its strategic optionality during this period.

REPORT OF THE PROPERTY ADVISOR

THE BERLIN MIETENDECKEL

The final draft of the new Berlin-specific rent cap (or 'Mietendeckel') became law, following publication in the official gazette on 23 February 2020. Launched by the Red-Red-Green coalition(the ruling coalition in the Berlin House of Representatives, consisting of the Social Democrats, Die Linke and the Green Party) the new rules allow the limitation of housing rents, such that rates are no longer set at free market levels.

Legality of the Mietendeckel rules
PSD's legal advisors remain of the view that the Mietendeckel is unconstitutional and, as such, will be successfully challenged. They raise concerns about whether the state of Berlin is competent to pass local rent legislation, as the provisions substantially deviate from existing German federal law.

The opposition in the Berlin House of Representatives and a quorum of Federal Parliament MPs have already announced that they intend to have the legislation reviewed by Berlin's Regional Constitutional Court and the Federal Constitutional Court. In addition, it is expected that there will be a number of private challenges. These legal actions were not possible prior to the Mietendeckel being enacted in law.

The financial impact on the Company and its future business model and strategy are largely dependent on the timing and eventual outcome of the legal actions. Although there is a degree of uncertainty as to the timing of the likely sequence of events, the Company has been advised that the three most probable outcomes are as follows:

1. A judicial review and injunction leading to an immediate moratorium on implementation of the new rules, pending final determination, with the Mietendeckel found to be illegal. Depending on the timing of the injunction, there would be a low or minimal impact on PSD's business.

2. No injunction, but Mietendeckel ultimately judged to be illegal. In this scenario, PSD would have to adapt its business model for the duration of court proceedings which could last 18 months or more.

3. No injunction and Mietendeckel ultimately judged to be legal. Although the Company has been advised that this is unlikely, PSD's strategic business model would need to be adapted on a permanent basis.

Key elements of the Mietendeckel rules
The main components of the new regulations include a freeze on rents, rent ceilings, possible rent reductions and a limitation of the modernizationcosts that can be passed onto tenants in the form of higher rents.

The new rules prescribe rent levels that apply throughout central Berlin which are dependent on the age and technical specification of each apartment. They cover all residential rental leases, furnished apartments and short-term rental models. The only exceptions are buildings constructed after 1 January 2014, publicly-funded housing or housing that has been modernized or repaired with funds from public budgets, accommodation provided by publicly recognized providers of welfare care and refurbished apartments that were previously uninhabitable. As such, the Mietendeckel, if deemed to be constitutional, potentially applies to the vast majority of residential properties within PSD's Portfolio.

Impact of Mietendeckel

Given the timing and complexity of the legal challenges that are currently underway, there remains considerable uncertainty surrounding the potential financial impact of the proposed new rules.

The table below sets out the timing for implementation of the key elements of the new rules together with the potential impact on rental income for the full year to December 2020. It should be noted that these estimates assume that, by 23 November 2020, there has been no successful legal action or moratorium preventing the implementation of the Mietendeckel. They also do not take into account any successful legal challenge or any mitigating action taken by PSD to reduce the financial impact of implementation; nor any potential impact of the COVID-19 outbreak.

Summary of Key Mietendeckel Rules

Effective Date	Type of Rental Contract	Applicable Measures Prescribed by the Mietendeckel	Likely Negative Financial Impact
Post 23 February 2020	First time letting and reletting	In the case of first-time letting or reletting after the Mietendeckel comes into force, the new rent may not exceed the prescribed upper rent limit. This could result in lessors having to lower the rent to a level below the rent paid by the previous tenant.	The impact of this requirement is dependent on level of tenant churn. Assuming this remains unchanged versus FY 2019, the likely financial impact could be in the region of 1.5% of annualised net rental income.
Post 23 February 2020	Existing leases: rent freeze	For existing leases, a rent freeze initially applies, but with norequirement to lower rents, provided the rent level set at 18 June 2019 has not been increased since that date. If there has been a rent increase, future rental payments must be reduced to the June 2019 level.	Absent any mitigating action by PSD (please refer to section on 'Maintaining Strategic Flexibility'), it is estimated that the impact for the financial year ended 31 December 2020 could be in the region of 1% of annualised net rental income.
Post 23 November 2020	Automatic rent reduction	If the rent limit (adjusted for location surcharges or discounts) is exceeded by more than 20%, the landlord must reduce the rent to 120% of the prescribed rent limit, but only nine months after the rental cover comes into force (i.e. 23 November 2020). If the landlord accepts a rent higher than 120% of the prescribed limit, he is liable to a fine of up to Euro 500,000 in each case.	Absent any mitigating action by PSD (please refer to section on 'Maintaining Strategic Flexibility'), it is estimated that the financial impact for the financial year ended 31 December 2020 could be in the region of 1.5% of annualised net rental income. Moreover, considering the 2021 impact, the Company estimates that the rent reductions for Berlin-based residential tenants could represent up to 17% of annualised net rental income.

MAINTAINING STRATEGIC FLEXIBILITY

The Company set out in September 2019 how it intends to adapt its strategy during the period in which the proposed rent controls are in force, so as to mitigate any short-term impact on the portfolio, while ensuring it maintains maximum strategic optionality in the event the proposals are found to be unconstitutional. These measures are summarised below:

New re-letting contracts

To avoid uncertainty among tenants as to their contractual rental obligations during the period when the legality of Mietendeckel remains unresolved, PSD will be amending its tenancy agreements. The new agreements stipulate that if the Mietendeckel or any part thereof is voided, suspended, repealed, or otherwise abolished, any higher contractual rent permissible under the German Civil Code (BGB) shall once again be payable. If the voiding or suspension were to be applied on an ex-tunc basis (i.e. from the outset), back-payments would be sought to cover the difference between the capped rent and contractual rent for the entire term of the agreement. Tenants have, therefore, been advised by the Berlin government to set aside appropriate reserves to cover this eventuality.

Additionally, PSD continues to review the option of reletting newly vacant units as short-term furnished apartments until the legal questions surrounding the Mietendeckel are resolved.

Condominium Conversion

PSD believes that there is significant additional value within PSD's potential condominium portfolio and intends to increase condominium sales activities during 2020. In order to ensure strategic flexibility, PSD has sought to split as many multi-family properties as possible into individual condominium units at the Land Registry, a prerequisite to selling each apartment separately. As at 30 March 2020, 58% of all units had been registered as condominiums. A further 29% are in application, a significant majority of which are in the final stage of approval. By the end of 2020, in excess of 75% of the portfolio could be registered as condominiums.

The Property Advisor has an in-house capability for condominiums which focusses on selling vacant, rather than occupied, units. Occupied units are typically acquired by investors seeking income or by buyers prepared to wait before taking possession (and in the meantime benefiting from rental income).

In order to sell occupied units in volume, PSD has entered into an agreement with Accentro Real Estate AG ('Accentro'), one of Germany's leading condominium sales platforms. This provides access to a successful, European-wide, distribution platform which should allow PSD to accelerate significantly sales of apartments.

Under the terms of the agreement, PSD can, if and to the extent it so chooses, offer properties to Accentro to market for sale as condominiums at an agreed price per condominium unit. On acceptance, Accentro will have an exclusivity period of 18 to 24 months during which they will be eligible to receive commission for completed sales. At the end of this period, Accentro will make PSD an irrevocable offer to purchase any remaining unsold condominiums at the previously assigned minimum purchase price, guaranteeing PSD a minimum value for the assets. This also guarantees the sale of all condominiums within a building. Accentro markets the properties at its own expense while PSD retains all rights and benefits of the condominium assets while they remain unsold.

New Condominium Construction

PSD has building permits approved, or in process, for 91 units. Approximately 75% of these units are attic conversions, with the remainder representing a new apartment block in the footprint of an existing property. A consequence of the Mietendeckel has been to create overcapacity in the construction sector as landlords reduce their capital expenditure programmes and developments are reassessed, which, in turn, is being reflected in lower labour and material costs. The Property Advisor intends to appraise future projects on the basis of condominiums for sale, as opposed to rental properties.

Reduced Capital Expenditure

In the light of the proposed new rental laws, careful consideration has been given to certain elements of discretionary capital expenditure that are no longer financially justifiable. Regrettably, the maximum €1 rent per sqm premium (€600-700 per annum) on future modernisations that the new rules permit will not justify the typical investment of €20-30k that was possible when reletting was permissible at free market levels. This is likely to reduce planned capital expenditure by up to €3.5 million per annum for so long as the Mietendeckel remains in force. Although this reduction in capital expenditure is regrettable, PSD remains committed to maintaining a portfolio of homes for tenants that are both comfortable and compliant with all health and safety standards.

Acquisitions outside the designated Mietendeckel zone

Pending clarity on the legality of the Mietendeckel rules, the Company will also consider acquisitions in the Greater Berlin area that are unaffected by the rent cap. There has been no change to PSD's strict investment criteria and any acquisitions considered would be benchmarked against share buy-backs at a discount to Net Asset Value.

Share Buybacks

Following the completion of a new €240 million loan facility on improved terms, the Company announced in September 2019 that it would consider buying back up to 10% of existing share capital in issue. The share buy-back programme commenced in mid-October and, as at 31 March 2020, the Company had purchased a total of 3.5 million shares (3.5% of the ordinary share capital) for a total consideration of £11.2 million. The average price paid represented a 23% discount to EPRA Net Asset Value per share as at 31 December 2019.

In the light of current market disruption, the share buyback programme has been suspended. The Board will keep this policy under review.

FINANCIAL & OPERATIONAL HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2019

€ million (unless otherwise stated)	Year to	Year to	6 months to	6 months to
	31-Dec-19	31-Dec-18	30-Jun-19	30-Jun-18
Gross rental income1	22.6	22.7	10.8	11.9
Investment property fair value gain	41.5	66.1	21.6	21.7
Profit before tax (PBT)	28.6	56.4	12.0	19.4
Reported EPS (€)	0.22	0.46	0.11	0.16
Investment property value	730.2	645.7	665.2	583.7
Net debt (nominal balances)3	237.8	168.4	178.0	150.5
Net LTV (%)	32.6	26.1	26.8	25.8
IFRS NAV per share (€)	4.23	4.05	4.11	3.74
IFRS NAV per share (£)2	3.58	3.64	3.68	3.31
EPRA NAV per share (€)	4.92	4.58	4.73	4.23
EPRA NAV per share (£)	4.16	4.11	4.24	3.74
Dividend per share (€ cents)	7.5	7.5	2.35	2.35
Dividend per share (£ pence)	6.3	6.7	2.1	2.1
EPRA NAV per share total return for period (€%)	9.1	13.2	4.4	4.1
EPRA NAV per share total return for period (£%)	2.9	11.4	4.3	3.8

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

² FX rate GBP/EUR 1:1.18

³Net debt uses nominal loan balances as per note 23 rather than the loan balances on the Consolidated Statement of Financial Position which take into account Capitalised Finance Arrangement Fees in the balance as per IAS 23.

Financial results

Reported revenue for the financial year to 31 December 2019 was €22.6 million (31 December 2018: €22.7 million). Profit before taxation was €28.6 million (31 December 2018: €56.4 million) which was positively affected by a revaluation gain of €41.5 million (31 December 2018: €66.1 million).

The reduced profit before tax, compared with 2018, primarily reflects a lower revaluation gain due to a moderation in the rate of market yield compression coupled with loan break costs following the completion of PSD's €240 million refinancing in September 2019. Reported earnings per share for the period were 0.22 cents (31 December 2018: 0.46 cents).

Reported EPRA NAV per share rose by 7.4% in the period to €4.92 (£4.16) (31 December 2018: €4.58 (£4.11)). After taking into account the dividends paid during 2019 of 7.5 cents (6.3 pence), which were paid in June and October 2019, the Euro EPRA NAV total return for the period was 9.1% (2018: 13.2%).

Dividend
Having regard to the potential impacts of COVID-19 and the Mietendeckel, the Company has declared a further dividend of €5.15 cents per share (GBP 4.4 pence per share), (31 December 2018 €5.15 cents) (GBP 4.62 pence per share), which is expected to be paid on or around 03 July 2020 to shareholders on the register at close of business on 12 June 2020, with an ex-dividend date of 11 June 2020. Taking into account the interim dividend paid in October 2019, the full dividend for the financial year to 31 December 2019 is €7.5 cents per share (GBP 6.3 pence per share), (31 December 2018: €7.5 cents per share (GBP 6.73 pence per share)).

Since listing on the London Stock Market in June 2015, and including the second dividend for 2019 and bought-back treasury shares, €46.6 million has been returned to shareholders. The dividend is paid from operating cash flows, including the disposal proceeds from condominium projects, and the Company will seek to continue to provide its shareholders with a secure dividend over the medium term, subject to the distribution requirements for Non-Mainstream Pooled Investments, and after full consideration of the impact of the Mietendeckel and any ongoing impact associated with COVID-19.

Portfolio valuation and breakdown

	Year to	Year to	6 months to	6 months to
	31-Dec-19	31-Dec-18	30-Jun-19	30-Jun-18
Number of buildings	98	96	96	93
Number of residential units	2,537	2,392	2,378	2,322
Number of commercial units	142	153	143	152
Total Units	2,679	2,545	2,521	2,474
Total sqm ('000)	195.2	183.1	179.0	178.2
Annualised Net Rent (€m)	19.7	18.0	18.1	17.0
Valuation (€m)	730.2	645.7	665.2	583.7
Value per sqm (€)	3,741	3,527	3,716	3,275
Fully occupied gross yield %	2.9	3.0	2.9	3.1
Vacancy %	6.7	4.8	4.2	5.6
EPRA Vacancy %	2.8	2.8	2.5	2.8

As at 31 December 2019, the total Portfolio was valued at €730.2 million by Jones Lang LaSalle GmbH, the Company's external valuers, an increase of 13.1% over the twelve-month period (31 December 2018: €645.7 million).

On a like-for-like basis, after adjusting for the impact of acquisitions net of disposals, the Portfolio valuation increased by 7.1% in the year to 31 December 2019, a 3.1% increase in the second half of the financial year. This reflects the combined impact of market rental growth and the active management of the Portfolio.

The valuation as at 31 December 2019 represents an average value per square metre of €3,741 (31 December 2018: €3,527), a gross fully occupied yield of 2.9% (31 December 2018: 3.0%) and a net yield, using EPRA methodology, of 2.3% (31 December 2018: 2.4%). Included within the Portfolio are five properties valued as condominiums, with all sales permissions granted, with an aggregate value of €26.5 million (31 December 2018: €22.3 million).

The Portfolio valuation conducted by Jones Lang LaSalle GmbH for year to 31 December 2019 reflects current Berlin market prices and does not factor in any additional future impact on property valuations that may materialise as a result of the Mietendeckel rent controls, or any impact of COVID-19 on the Berlin economy.

Rental income and vacancy rate

	Year to	Year to	6 months to	6 months to
	31-Dec-19	31-Dec-18	30-Jun-19	30-Jun-18
Total sqm ('000)	195.2	183.1	179.0	178.2
Gross in-place rent per sqm (€)	9.0	8.6	8.7	8.4
Like-for-like rent per sqm growth %	5.6	7.4	6.3	9.5
Vacancy %	6.7	4.8	4.2	5.6
EPRA Vacancy %	2.8	2.8	2.5	2.8

After considering the impact of acquisitions and disposals, like-for-like rental income per square metre grew 5.6% in the year to 31 December 2019 and like-for-like rental income grew 6.1% over the same period. Gross in-place rent was €9.0 per sqm as at 31 December 2019, an increase of 4.6% compared with the prior year.

Reported vacancy at 31 December was 6.7% (31 December 2018: 4.8%). On an EPRA basis, which adjusts for units undergoing renovation, development or made available for sale, the vacancy rate was 2.8% (31 December 2018: 2.8%). The rise in the reported vacancy rate reflects the acquisition in December 2019 of a rental apartment complex in Brandenburg. This complex is undergoing a refurbishment programme and consequently has a significantly higher vacancy rate. Excluding this, reported vacancy as at 31 December 2019 would have been 4.0%.

During the year to 31 December 2019, 306 new leases were signed, representing a letting rate of approximately 11.1% of units. The average rent achieved on new lettings was €11.9 per sqm.

Acquisitions and disposals

During 2019, three new assets with an aggregate valuation of €49.0 million were notarised for acquisition. In total, these buildings comprise 286 units (282 residential and 4 commercial), at an average price per sqm of €2,706, which represents an estimated prospective gross yield of 3.9%. The acquired properties complement the existing Portfolio, adding an initial 6.6% to rental income. These acquisitions were financed using a combination of debt and equity, with an achieved loan-to-value ratio of approximately 39%.

One of the acquired assets was an apartment complex in Brandenburg, an area within Greater Berlin that is unaffected by the proposed Mietendeckel rent controls, which the Company notarised and completed in December 2019. The Property is a former army barracks, comprising 259 residential units, one commercial unit and 210 parking spaces. It was substantially redeveloped in 2018/19 through a refurbishment programme which has seen 155 units receive new facades and insulation, new windows, balconies, electricity, pipes and outside facilities. Refurbishment of a further 40 units is ongoing and expected to be completed to the same standard, and in accordance with our CSR strategy, by the end of the first half of 2020. The last part of the housing complex will be vacated before the end of 2020, after which the redevelopment of another 65 units is expected to be completed within a twelve-month period.

In January 2021 a commercial unit in the complex will become vacant with outline planning permission already agreed for a new three-storey building of approximately 15 units. Outline planning permission has also been sought for the construction of a residential building and the complex offers the opportunity for further densification in the future. In total, the whole complex offers new build potential for approximately 60 additional units representing further growth opportunities.

The average price paid per square metre of €2,674 represents an estimated prospective gross yield of 4.1%. The average residential rent per sqm is €9.02, with new lettings in 2019 (52 leases) of up to €14.01 per sqm. This acquisition has initially been financed from existing cash reserves. It is expected that outstanding bank debt of €16.4 million will be refinanced prior to maturity.

Portfolio enhancements

During the financial year, a total of €6.5 million was invested across the Portfolio (2018: €7.9 million). These items are recorded as capital expenditure in the Financial Statements. A further €1.7 million was spent on maintaining the assets and is expensed through the profit and loss account. The year-on-year decline in investment reflects ongoing regulatory uncertainty. Regrettably, a number of capex projects which would previously have been justified at free market rents have been postponed or cancelled pending further clarity on the legality of the Mietendeckel.

EPRA Capital Expenditure

Property related capex	Value (€,000)
Acquisitions	62
Like-for-like portfolio	5,948
Other1	511
Total Capital Expenditure	6,459

¹ Relates to capex monitoring fees paid to property advisor in the year

Condominium sales

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

During the year to 31 December 2019, a total of 18 units were notarised for sale, with an aggregate value of €8.8 million. The average notarised value per sqm achieved was €4,068, representing a 17.6% premium to book value and an 8.8% premium to the 31 December 2019 Berlin Portfolio average of €3,741 per sqm. Excluding the impact of one large commercial unit, the average notarised value per sqm value of the 17 residential units was €4,711, a 25.9% premium to 2019 year-end Portfolio average value per sqm of €3,741. Condominium sales accelerated significantly during the second half of the financial year, with a total of 14 units notarised with an aggregate value of €6.3m, a 23.7% premium to prevailing book value.

Since the financial year-end, four additional apartments have been notarised for sale for an aggregate value of €1.4 million, which represents a 21.7% premium to the 31 December 2019 book value.

Condominium conversion

As at 30 March 2020, 58% of all units (63% by value) had been registered as condominiums. A further 29% are in application, a significant majority of which are in the final stage of approval. By the end of 2020, it is expected that in excess of 75% of the portfolio could be registered as condominiums. Although PSD has not had any applications declined during 2019, the speed at which applications have been processed by planning offices has slowed and there has been some discussion by the Berlin government regarding new laws preventing condominium splitting. However, it is unlikely that these will progress pending final judgement on the legality of the Mietendeckel. Any laws should not impact properties already split.

Debt and gearing

As at 31 December 2019, PSD had gross borrowings of €280.2 million (31 December 2018: €195.3 million) and cash balances of €42.4 million (31 December 2018: €26.9 million), resulting in net debt of €237.8 million (31 Dec 2018: €168.4 million) and a net loan to value on the portfolio of 32.6% (31 December 2018: 26.1%).

Following a strategic review of PSD's liability structure, a new €240 million term loan facility on improved terms was completed in September 2019. The new facility was agreed with Natixis Pfandbriefbank AG and comprises of two tranches, being a refinancing facility for €190 million and a further acquisition facility for €50 million.

The refinancing facility, which was partly used to refinance existing indebtedness of c. €119 million, is a seven-year, interest-only loan (eliminating the previous amortisation obligations) with a margin of 115bp over 3-month Euribor, floored at zero. The outstanding swap portfolio was restructured to provide interest rate hedging so as effectively to provide a fixed interest rate for the full duration of the new loan. This facility was drawn in September 2019, after which PSD's gross loan to value (excluding cash held on balance sheet) increased from 28.6% to 39.2%, while the overall cost of the refinanced debt decreased from 2.2% to 2.1%. The remainder of the Refinancing Facility has been used to fund working capital, capital expenditure, opportunities that have arisen from the market dislocation caused by the Mietendeckel, and to buy back the Company's shares.

The additional €50 million facility is available for drawdown on acquisitions over a period of 24 months and carries a commitment fee of 57.5bp. On utilisation, the drawn amounts will be subject to the same terms as the Refinancing Facility.

The increase in gross debt in the period partly results from the refinancing discussed above, offset by debt repayments associated with the sale of condominiums during the year, and scheduled amortisation repayments on existing debt. The Company acquired debt of €16.4 million on the acquisition in December 2019 of the company which owned the apartment complex in Brandenburg previously described. This debt had a fixed interest rate of 1.35% and is intended to be refinanced in mid-2020 using the acquisition facility negotiated in 2019. There was a further disbursement of €3.5 million of debt secured against other acquisitions made in 2019.

Nearly all PSD's debt effectively has a fixed interest rate through hedging. As at 31 December 2019, the blended interest rate of PSD's loan book was 2.0% (31 December 2018: 2.1%). The average remaining duration of the loan book at 31 December 2019 had decreased to 6.6 years (31 December 2018: 7.7 years).

Outlook
The COVID-19 outbreak has presented PSD with an unexpected new set of challenges. On a macroeconomic level, it is too early to predict accurately the medium-term impact on global and regional economies. The German federal government has announced an unprecedented €750 billion fiscal package to help cushion its impact including financial assistance for public and private sector industry as well as Germany's Hartz IV welfare programme. This programme includes help for rental payments in instances of financial hardship, and is available to tenants directly impacted by the COVID-19 outbreak.

Although, as yet, the consequences of COVID-19 for PSD have been limited, it does have the potential to impact the Berlin property market. Firstly, the temporary restrictions on mobility will restrict the ability of prospective tenants and buyers to view rental properties and condominiums. Secondly, although commercial tenants represent a small percentage of the PSD's rental income, a number of businesses deemed to be 'non-essential' under the current restrictions may be forced to close for a period of time. Finally, notwithstanding the financial hardship support offered by Germany's Hartz IV programme, any negative impact on the Berlin economy and employment levels could affect residential arrears.

If the COVID-19 outbreak is of limited time duration, these potential impacts are likely to be temporary in nature. The Property Advisor has rigorously stress tested for potential downside scenarios associated with COVID-19, including any potential impact on arrears and loan covenants, and is confident that PSD is well positioned to withstand the current dislocations it may cause. Moreover, PSD is well funded, with a low LTV and cash on its balance sheet of €42.4m as at 31 December 2019. This represents 188% of 2019 gross rental income.

In addition, uncertainty surrounding the new Berlin rent laws has the potential to affect market dynamics as owners adapt to the new regulatory environment.Jones Lang Lasalle GmbH, the Company's independent property advisors, have confirmed that, as of 31 December 2019, there had been no material adverse effect on either sale prices or rental levels in the Berlin market, although the volume of transactions in both cases had reduced significantly. However, given the current uncertainty about the legal validity of the Mietendeckel, it is not yet clear what impact, if any, there could be on future property prices.

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. In particular, growth in the business services, media and technology sectors has ensured strong job creation and net inward migration. At the same time, new construction has continually failed to meet demand and, against this backdrop, rental prices have risen. These demographic trends will continue in the absence of a well-considered, long-term, policy response.

The Mietendeckel focuses exclusively on the effects of a housing shortage rather than addressing the underlying causes. It fails to address the result of years of underinvestment in new housing supply. It is only by incentivising new supply and modernisation that a sustainable solution to Berlin's housing shortage is likely to be successful.

Pending regulatory clarity, PSD will seek to maximise its strategic optionality.These actions will help alleviate the short-term impact of the new rental laws and we remain of the view the legal challenges against their permanent implementation will be successful.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board recognises that effective risk evaluation and management needs to be foremost in the strategic planning and the decision-making process. In conjunction with the Property Advisor, key risks and risk mitigation measures are reviewed by the Board on a regular basis and discussed formally during Board meetings.

RISK	IMPACT	MITIGATION	MOVEMENT
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. The most recent tenant law changes involve the Mietendeckel rent cap, which was passed into law in February 2020, the main provisions of which are set out in this announcement.	The Property Advisor regularly monitors the impact that existing and proposed regulation could have on future rental values and property planning applications. The Company has sought independent legal advice regarding the Mietendeckel and has been advised that the proposals are likely to be unconstitutional and illegal and should be successfully challenged in the courts of law. The Company has set out how it intends to adapt its strategy during the period in which the proposed rent controls are in force to mitigate any short-term impact on the portfolio, while ensuring it maintains maximum strategic optionality in the event the proposals are found to be unconstitutional. These measures, together with the potential financial impact for the current financial year, are summarised in this announcement.	Increasing
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.	The Property Advisor believes Berlin housing affordability metrics remain favourable relative to other European countries. However, the newly introduced Berlin Mietendeckel (rent cap) legislation has the potential to impact rental property valuations in the future. Given the current uncertainty on the timing and outcome of legal proceedings, the potential financial impact on property valuations remains unclear. The Company has set out how it intends to adapt its strategy during the period in which the proposed rent controls are in force to mitigate any short-term impact on the Portfolio, while ensuring it maintains maximum strategic optionality in the event the proposals are found to be unconstitutional. These measures, together with the potential financial impact for the current financial year, are summarised within this announcement.	Increasing
Insufficient capital to support dividend	Lack of capital may restrict the ability of the Group to pay dividend, especially in light of the Mietendeckel rent caps and the possible impact they will have on operating cashflows.	Dividends are due to be paid out of operating cashflows which include both rental income and condominium sales cashflows. The Company has entered into an agreement with Accentro, one of Germany's leading condominium sales platforms. This Agreement provides access to a successful, European-wide, distribution platform which should allow PSD to accelerate sales of apartments if required to cover operating cashflows. The cashflow impact of the Mietendeckel is not due be felt until November 2020, therefore the impact on rental income in 2020 is set to be minimal. The Company therefore has sufficient time to implement its various strategies discussed within this announcement to counteract the effects on rental income. The Group always maintains conservative long-term forecasts regarding its cash balances to ensure a three-year viability projection, which include full settlement of dividends in the forecast period.	Unchanged
Loss of data due to cyber security attack on IT systems	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. A detailed review of all IT processes led to the introduction of new invoice payment software, as well as introducing new IT and Communication platforms to ensure all communications are carried out in a secure environment. Service providers are also required to hold detailed risk and controls registers regarding their IT systems. The Board reviews service organisations IT reports as part of the management engagement committee each year.	Unchanged
Inability to sell vacant condominiums	Inability to sell vacant 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.	Over half of the Company's properties have been split in the German land registry, the final step to allowing the sale of properties as individual condominiums. The Property Advisor reviews the condominium profile on a monthly basis, and the Company can bring new condominium properties online quickly for sale as appropriate. The Company intends to market vacant condominiums for sale from its portfolio which are easier to release into the market, even with the potential market effects of the Mietendeckel. The Company has also entered into an agreement with Accentro, one of Germany's leading condominium sales platforms. This agreement provides access to a successful, European-wide, distribution platform which should allow PSD to accelerate sales of apartments if required.	Unchanged
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. While the market in Berlin is currently challenging due to the recently introduced Mietendeckel, The Property Advisor believes that this will create other opportunities, including acquiring in the suburbs of Berlin, outside the scope of the Mietendeckel, where the growth potential is more promising.	Increasing
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.	The Group took on new covenants when signing the €190m debt with Natixis; Interest coverage ratio (ICR), debt yield, and Loan-to-Value covenants. Only the Debt yield and ICR covenants are 'hard' covenants resulting in an event of default in case of breach. The loan-to-value covenant is a cash trap covenant alone, with no event of default. The Company carried out extensive sensitivity analysis prior to signing these covenants, and even in the most stressed Mietendeckel scenario, no covenants were breached. The cashflow impact of the Mietendeckel is not due to be felt until November 2020, therefore the impact on rental income in 2020 is set to be minimal. The Company therefore has sufficient time to implement its various strategies discussed within this announcement to counteract the effects on rental income. In the event that rent levels or property values were to fall to a point where the covenants were in danger of being affected, the Company would use its surplus cashflow and cash reserves to pay down the debt balances to rectify the situation. At the most recent covenant test date, in January 2020, all covenants were cleared with significant headroom.	Increasing
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.	Although the Board and Property Advisor cannot control external macro-economic risks, economic indicators are constantly monitored by both the Board and Property Advisor and Group strategy is tailored accordingly. The Company has considered the impact of the Coronavirus (COVID-19) outbreak, and while it considers the risk to the Group's operations to be minimal, it continues to monitor the situation. The Company is a Jersey and Guernsey based entity operating in Germany, and therefore Brexit should not affect the fund as it currently operates outside the UK.	Increasing
Reputational risk	Adverse publicity and inaccurate media reporting could reflect negatively on stakeholders' perception of the Group, its strategy and its key personnel. Landlords in Berlin are likely to face increasing negative sentiment and media scrutiny in the light of the Mietendeckel.	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. The Company also maintains a technical department with the property advisor who ensures that all health and safety regulations are followed with respect to landlord obligations in Berlin.	Increasing
Non-compliance with new regulatory, health and safety, accounting and taxation legislation	Failure to identify and respond to the introduction of new financial regulation in a timely manner. Risk of reputational damage, penalties or fines. Failure to suitably prove that the substance of the Company is in Jersey could lead to a change in the tax residency.	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. Berlin is currently under the government of a 'Red-red-green' coalition which is looking at tenant law, however the Company believes that its external legal, tax and accountancy advisors, and market experience are sufficient to ensure that there is no non-compliance with new regulations as they come in. The Group is carrying out an ongoing remediation project with its new administrators to ensure all regulatory processes have been followed with respect to its substance in Jersey requirements, and its corporate governance. The Group has also taken tax residency advice over 2019 to ensure The Group is still complying with residency in Jersey. The Company also maintains a technical department with the property advisor who ensures that all health and safety regulations are followed with respect to landlord obligations in Berlin.	Unchanged
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 the Company listed 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.	Unchanged
Coronavirus (COVID-19) outbreak	Disruption to business activities, European economic slowdown, equity market decline.	The broader impact of the Coronavirus outbreak will depend on how the virus spreads and the response of the authorities. The Property Advisor has considered and will continue to monitor the threat and implications of the coronavirus and has prepared contingency and mitigation plans. The Group has carried out extensive scenario modelling, estimating the impact of COVID-19 on the Group's financial and operational performance, further analysis of this modelling can be found in the Annual Report. All the Property Advisors IT systems are cloud based and all employees have the necessary equipment to conduct their day to day business activities from home if required. All tenant payments are by bank transfer / direct debit. Furthermore, a significant portion of the Berlin economy is based on the service sector, which tends to offer a relatively flexible working environment and is likely to be less affected by the virus than other sectors of the economy. This overall effect however remains uncertain.	Increasing

Going concern

The Directors have reviewed projections for the period to 31 December 2022 using assumptions which the Directors consider to be appropriate to the current financial position of the Group with regard to revenues, its cost base, the Group's investments, borrowing and debt repayment plans, and the assumed passing of the continuation vote. These projections show that the Group should be able to operate within the level of its current resources and expects to manage all debt covenants for a period of at least 12 months from the date of approval of the financial statements. The Group's going concern assumption is based on the outcome of a variety of scenarios that show the Group's ability to withstand the expected market disruption arising from post balance sheet events, including the Mietendeckel, and COVID-19. The Group's business activities together with the factors likely to affect its future development and the Group's objectives, policies and processes from managing its capital and its risks are set out in the Strategic Report. After making enquiries and having regard to the FRC's Guidance for Companies on COVID-19 issued in March 2020, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and, therefore, continue to adopt the going concern basis in the preparation of these financial statements.

Viability Statement

The Directors have assessed the viability of the Group over a three-year period. The Directors have chosen three years because that is the period that broadly fits within the financing and development cycle of the business. The Viability Statement is based on a robust assessment of those risks that would threaten the business model, future performance, solvency or liquidity of the Group, as set out in the assessment of risks described earlier in this document. For the purposes of the Viability Statement the Directors have considered, in particular, the impact of the following factors affecting the projections of cash flows for the three-year period ending 31 December 2022:

a) the potential operating cash flow requirement of the Group;

b) seasonal fluctuations in working capital requirements;

c) property vacancy rates;

d) rent arrears and bad debts;

e) capital and administration expenditure (excluding potential acquisitions as set out below) during the period;

f) condominium sales proceeds;

g) the impact of the Mietendeckel in the event a legal challenge is unsuccessful, which the Board considers to be unlikely;

h) the potential impact of COVID-19; and

i) the passing of the continuation vote scheduled for the AGM in May 2020.

Under normal scenarios, this base case model assumes stresses to each of a) through to f) in the above list. However, this year the Group has additionally considered g, h and i.

As per the Company´s Articles of Association, a continuation vote is due at the AGM scheduled for May 2020. The Directors have examined the current circumstances of the Group and its prospects over the next three years. Given current uncertainty related to the Mietendeckel and COVID-19 and in consideration that both of these will be short-term events, the Directors believe that the continuation of the Company should deliver a better outcome for shareholders than any proposal to reorganise, unitise or reconstruct the Company or for the Company to be wound up with the aim of enabling members to realise their holdings in the Company. The Directors are, therefore, recommending that the vote to continue the Group is passed at the forthcoming AGM, and are of the opinion that there is no material uncertainty that the vote to continue will be passed.

The assumptions on the effect of the Mietendeckel and COVID-19, as they relate to the Company, were assessed by the Board. They are intended to demonstrate the degree of stress that the Company is able to withstand over an extended period. The Board considers that it is unlikely that the more severe assumptions reviewed will represent a real-life scenario as the Company believes that the Mietendeckel will be found unconstitutional and, as the German government has very high levels of social protection, arrears arising from COVID-19 are unlikely to reach the levels incorporated in the model.

In response to the risks posed by the Mietendeckel and COVID-19, the directors applied additional stresses to the model as described below.

In the event that the Mietendeckel is not reversed, the Group has estimated that it could have a material impact on its revenues as set out in the tables contained within this announcement. The cash impact of this fall in revenues could be mitigated in full by reducing capital expenditure down to a level of essential maintenance only, to preserve the condition of the assets to required standards. Furthermore, as set out in the Mietendeckel response in this announcement, the Group would plan to increase sales of condominiums over the forecast period to mitigate any falls in revenue.

COVID-19 has potential to cause significant disruption to the German economy for at least a large part of 2020 and, while the financial effect on the Group is difficult to quantify, various scenarios have been modelled in respect of the impact of the COVID-19 outbreak to stress the financial metrics of the Group. This includes tenants' ability to pay their rents as they fall due, the impact on the ability to sell condominiums, and the consequential impact on debt finance facilities.

Financial modelling and stress testing was carried out on the Group's cashflows taking into account the Mietendeckel and COVID-19, and the following assumptions, which the Directors consider to be reasonable estimates of a worst case scenario, were made with respect to the operating metrics of the Company:

· COVID-19 leads to a significant increase in tenant arrears up to December 2020 - current tenant arrears stand at around 1% of total revenues and, whilst the impact of the pandemic is uncertain it has the potential to lead to tenant defaults;

· projected condominium sales are reduced to only contractually agreed sales over the forecast period;

· capital expenditure is reduced to a level of essential maintenance that preserves the condition of the assets to required standards, but it is lower than in prior years, and in a base case, business as usual, scenario;

· dividends are maintained at current levels throughout the forecast period, but, remain a potential source of mitigation from interim 2020 onwards if cash retention is required;

· the Mietendeckel remains in force throughout the forecast period;

· Debt facilities with a maturity during the forecast period are to be refinanced using the acquisition facility signed with Natixis in 2019; and

· EPRA NAV is assumed to remain constant during the forecast period. The cash impact of any EPRA NAV movements is limited as few overhead or property costs are linked to EPRA NAV.

After applying the assumptions above, individually and collectively, there was no scenario by which the viability of the Company over the next 12 months was brought into doubt from a cashflow perspective. Under the stresses set out above, mitigation may be required in 2021 and 2022 and headroom could be obtained in the following ways:

· reducing the dividend to preserve cash; and

· selling individual assets, or condominiums to release cash.

Underthese stressed assumptions used to assess viability, including the impact of COVID-19, the Group is able to manage all banking covenant obligations during the period using the available liquidity to reduce debt levels, as appropriate.

The projection of cash flows does not include the impact of further potential property acquisitions over the three-year period, as these acquisitions are ad hoc and discretionary in nature. In this respect, the Directors complete a formal review of the working capital headroom of the Group for material acquisitions.

On the basis of the above, and assuming the principal risks are managed or mitigated as expected, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

The Directors' Report was approved by the Board of Directors and authorised for issue and signed as follows:

Directors Responsibilities

The directors are responsible for preparing the Annual Report andthe financial statements in accordance with applicable law and regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules.

Jersey company law requires the directors to prepare group financial statements for a period of not more than 18 months in accordance with generally accepted accounting principles. The directors are required under the Listing Rules of the FCA to prepare group financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU').

The financial statements of the Group are required by law to give a true and fair view of the state of the Group's affairs at the end of the financial period and of the profit or loss ofthe Group for that period and are required by IFRS as adopted by the EU to present fairly the financial position and performance of the group.

In preparing the Group financial statements, the directors should:

· 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 will continue in business.

The Directors are responsible for keeping accounting records which are sufficient to show and explain the Group's transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Financial Statements comply with the requirements of the Companies (Jersey) Law 1991 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Phoenix Spree Deutschland Limited 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 (Jersey) Law 1991, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group;

· the management report includes a fair and balanced review of the development and performance of the business and the position of the Group, together with a description of the principal and emerging 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 provide the information necessary for shareholders to assess the Group's position, performance, business model and strategy.

So far as the Directors are aware, there is no relevant audit information of which the Auditor is unaware, and each Director has taken all steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Auditor is aware of that information.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Annual Report and Financial Statements, taken as a whole, are considered by the Board to be fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.