Phoenix Spree Deutschland : Investment Property Valuation

30 January 2020

Phoenix Spree Deutschland Limited(The 'Company' or 'PSDL')

Investment property valuation as at 31 December 2019

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in Berlin residential real estate, announces the valuation for the portfolio of investment properties held by the Company and its subsidiaries (the 'Portfolio') as at 31 December 2019.

Further increase in portfolio value

The total Portfolio was valued at €730.2 million by Jones Lang LaSalle GmbH, the Company's external valuers, an increase of 13.1 per cent over the twelve-month period (31 December 2018: €645.7 million). This valuation represents an average value per square metre of €3,741 (31 December 2018: €3,527) and a gross fully-occupied rental yield of 2.9 per cent (31 December 2018: 3.0 per cent).

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

Based on the Company's year-end Portfolio valuation, it is expected that the reported EPRA NAV per share as at 31 December will fall within a range of €4.90 - €4.96 (£4.15 - £4.20*) (31 December 2018: €4.58 (£4.11)). This represents a Sterling EPRA NAV per share total return within a range of 2.5 to 3.8 per cent for the financial year to 31 December 2019.

Update on proposed rent controls

On 26 November 2019, the Berlin Senate (the government of the federal state of Berlin) passed a draft bill for the Berlin rent price cap (Mietendeckel). It is expected that this bill will be adopted by the Berlin House of Representatives (the legislative chamber of the federal state of Berlin) and come into force in early February 2020.

The opposition in the Berlin House of Representatives and a parliamentary faction of the Federal Government have already announced that they intend to have the proposed legislation reviewed by Berlin's Regional Constitutional Court and the Federal Constitutional Court. The Company and its legal advisors remain of the view that the proposals as currently drafted are unconstitutional and illegal. In particular, 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.

Given the uncertainty about the legal validity of the proposed rent controls, it is not yet clear what impact there could be on future property prices. Jones Lang Lasalle GmbH have, however, confirmed that, to date, there has been no material adverse effect on either sale prices or rental levels in the Berlin market. The portfolio valuation conducted by Jones Lang LaSalle GmbH for year to 31 December 2019reflects current Berlin market prices and does not factor in any additional future impact on property valuations that may materialise in the event the proposed rent controls are introduced.

The Company has previously set out how it intends to adapt its strategy during any 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. Good progress has been made with these plans which include share buybacks, condominium splitting and sales, as well as selective acquisitions in areas within Greater Berlin that are not impacted by the rent control proposals.

Condominium sales at an 18 per cent premium to book value.

During the year to 31 December 2019, a total of 18 apartments were notarised for sale, with an aggregate value of €8.8 million. The average notarised value per sqm achieved was €4,068, representing a 17.5 per cent premium to book value and an 8.8 per cent premium to the 31 December 2019 Berlin Portfolio average of €3,741 per sqm. 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 23.6 per cent premium to book value.

Share Buy-backs at an average 24 per cent discount to net asset value

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 per cent of existing share capital in issue. The share buy-back programme commenced in mid-October and, as at 30 January 2019, the Company had purchased a total of 3.2 million shares (3.2 per cent of the ordinary share capital) for a total consideration of £10.3 million. The average price paid represented a 23.9 per cent discount to EPRA Net Asset Value per share as at 30 June 2019.

Acquisitions unaffected by proposed Berlin rent controls

Notwithstanding the uncertain regulatory backdrop in central Berlin, there remains opportunity to acquire in areas within the Greater Berlin region that are unaffected by the proposed Mietendeckel rent controls. In December 2019, the Company completed the acquisition of an apartment complex in Brandenburg, with a total asset value of €43.5 million, for a net consideration of €24.2 million, excluding acquisition costs. This property meets the Company's investment criteria and the Board believes there is significant potential to add value through active asset management strategies.

Full year results

The Company will publish its full year results in early April 2020.

* Based on Sterling / Euro exchange rate as at 31^stDecember 2019 of 1.182

Robert Hingley, Chairman of Phoenix Spree Deutschland commented:

'I am pleased with the continued performance of the portfolio and the progress made in mitigating any short-term impact on the portfolio during the period of uncertainty created by the proposed rent controls. Supported by our strong balance sheet, we remain well placed to take advantage of selective acquisition opportunities and share buy-backs, while maintaining our strategic optionality in the event the rent control proposals are found to be unconstitutional.'

This announcement contains inside information.

For further information, please contact:

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