Phoenix Spree D Regulatory News (PSDL)

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

Interim Results for the half year to 30 June 2020

PORTFOLIO VALUATION UPLIFT DESPITE IMPACT FROM COVID-19 AND BERLIN MIETENDECKEL

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in German residential real estate, announces its Interim Results for the six months ended 30 June 2020.

Financial summary

1 - Rental income is disclosed under IAS 18, and does not include any rents above what is allowed under the Mietendeckel.

2 - GBP:EUR FX rate 1:1.1009

3 - Net LTV uses nominal loan balances as per note 17 rather than the loan balances on the Consolidated Statement of Financial Position which consider Capitalised Finance Arrangement Fees in the balance.

Financial and operational highlights

· EPRA NAV per share up 2.8% in H1 2020 to €5.06, and 10.6% in £ sterling.

· Like-for-like Portfolio value, adjusted for acquisitions and disposals, increased by 2.6% in H1 2020.

· Increased average rental income per sqm of 1.8% reflecting the impact of the Mietendeckel.

· Underlying EPRA vacancy of 4.3%, reflecting delay to new lettings as a result of COVID-19.

· Condominium sales during H1 2020 delayed by COVID-19, with notarisations worth €3.0 million.

o Average achieved value per sqm of €4,392 for residential units, a 15.7% premium to book value and 14.4% to the portfolio average value per sqm as at 30 June 2020.

o 66% of Portfolio assets legally split into condominiums, up from 58% as at 30 March 2020. Applications representing a further 19% of the portfolio are underway, over half of which are in the final stages of the process.

· Successful refinancing in May 2020 of €16.4 million of debt assumed in connection with the December 2019 Brandenburg acquisition, on improved and extended terms.

· Unchanged interim dividend and resumption of share buy-back programme.

Update on COVID-19 and new Berlin rent controls ("Mietendeckel")

· Limited impact on rent collection from COVID-19, in excess of 99% in H1.

· Berlin Mietendeckel currently being challenged in the Federal and State courts.

· Bavarian Constitutional Court ruled against six-year rent freeze, stating proposals incompatible with Federal law, lending support to the Berlin Mietendeckel legal challenges.

· PSD has adopted a dual contract rental structure with new tenants pending clarity on the legality of the Mietendeckel.

Outlook

· Long-term Berlin demographic trends expected to remain positive with decreased availability of rental stock.

· Final phase of the Mietendeckel, due to come into force in November 2020, will materially impact collected rents in 2021 unless legal challenge is successful.

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

· Acceleration of condominium revenues expected in the second half of 2020:

o Since the financial half year end, condominiums worth a further €3.3 million notarised, with new reservations for notarisations showing a significant improvement.

o Additional €4.5 million revenues guaranteed to December 2020 from Accentro AG agreement, with a further €4.5 million of revenues guaranteed in 2021.

· Robust business model, a strong balance sheet and good levels of liquidity mean PSD remains well positioned to withstand any dislocations from COVID-19 and the Mietendeckel.

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

"I am pleased to report another resilient performance for the first half of this year, despite the dual impact of COVID-19 and the Mietendeckel. Our condominium potential continues to underpin our portfolio value and we are focused on maintaining our strategic optionality pending clarification of the legality of the Mietendeckel. I am confident that our strategies together with the strength of our balance sheet, mean we are well placed for the longer-term."

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CHAIRMAN'S STATEMENT

I am pleased to report that, during the first half of the financial year, PSD has delivered further increases in property values and rental revenues. As at 30 June 2020, the Portfolio was valued at €746.7 million by Jones Lang LaSalle GmbH, a like-for-like increase of 2.6% since 31 December 2019, driven by the combined impact of modest yield compression, supported by a decline in interest rates, and the active management of the Portfolio. The Euro EPRA NAV total return per share was 3.9% in the first six months of the year and the sterling return was 11.5%, reflecting the exchange rate movement in the period.

This result has been achieved despite the introduction of the first phase of Berlin rent controls (the "Mietendeckel"), implemented in February 2020, and the impact of COVID-19, which has caused an unprecedented shrinkage in Germany's post war economy.

COVID-19PSD's overriding priority has been the health and wellbeing of its tenants, work colleagues and wider stakeholders. Although the unprecedented and rapidly changing circumstances surrounding the COVID-19 pandemic have created a more uncertain economic landscape and increased risk aversion in the financial markets, it is pleasing that the financial impact on PSD has been limited. Germany was one of the first major European nations to begin the process of lifting restrictions imposed on business and public life caused by COVID-19.

We are closely monitoring the recent spike in infection rates in Germany and across Europe, and we are well placed to deal with any 'second wave'. Where necessary, PSD will continue to support its tenants, both residential and commercial, through agreeing, on a case-by-case basis, the payment of monthly rents or deferring rental payments. 

The Berlin Mietendeckel

PSD and its legal advisors remain firmly of the view that it is highly likely that the Mietendeckel is unconstitutional and that the legislation will ultimately be overturned. Whilst there remains some uncertainty surrounding the ultimate timing of a legal ruling, recent progress has been positive, with applications lodged in both the Berlin Constitutional and the German Federal courts. In Bavaria, a similar move to introduce a six-year rent freeze was blocked by the Bavarian Constitutional Court in July 2020, lending support to the Berlin Mietendeckel legal challenges

The financial impact on PSD and its future strategy are largely dependent on the timing and eventual outcome of the legal actions. PSD has adapted its strategy during the period in which 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 Mietendeckel is found to be unconstitutional. These measures include new re-letting contracts, condominium splitting and conversion, reduced capital expenditure, acquisitions outside the designated Mietendeckel zone and share buy-backs at a discount to Net Asset Value.

PSD has adopted a dual contract rental structure with its tenants pending clarity on the legality of the Mietendeckel. All new contracts include both "Contracted Rent," which is the rent agreed with the tenant in the absence of the Mietendeckel, and "Collected Rent," which is the rent level the tenant is legally obliged to pay while the Mietendeckel is in existence. In the event that the Mietendeckel is declared unconstitutional, PSD will revert back to the Contracted Rent; and any excess of the Contracted Rent from the beginning of the contract over the Collected Rent will become payable.

Share buy-back and dividend.

After fully considering the potential impact of both the Berlin Mietendeckel and COVID-19, the Board is pleased to recommend an unchanged dividend of €2.35 cents per share (GBP 2.1 pence per share). Future dividend payments will be considered in the light of any prevailing market disruptions.

During the past year PSD has secured more flexible and cost-efficient financing to support the medium and long-term strategic objectives of the business, providing liquidity in order to take advantage of opportunities arising from market disruption caused by changes to the rent laws. However, following the onset of the COVID-19, the Board considered it was prudent, at that time, to suspend the PSD's share buy-back programme pending greater clarity on the financial impact that the pandemic may have. Given current high levels of rent collection, and the lifting of the majority of lock-down restrictions in Berlin, I am pleased to announce the resumption of share buy-backs.

Board appointments

Following the half year-end, PSD announced the appointments of Antonia Burgess and Greg Branch as independent, Jersey based, non-executive Directors. Antonia and Greg bring with them a wealth of experience and insight across the real estate, legal and financial services worlds, which will complement and enhance the skill set of the Board. As previously announced, Charlotte Valeur retired as a non-executive Board member in May 2020. I would like to thank Charlotte for her invaluable support, dedicated service and contribution to PSD.

Outlook

Although there still remains uncertainty surrounding the progression of COVID-19 and the timing of the legal ruling on the Mietendeckel, PSD enters the second half of the financial year with a robust business model, a strong balance sheet and good levels of liquidity. 

Notwithstanding the fact that our financial results have demonstrated further progress, the Mietendeckel has already created significant disruption in the Berlin rental market. Predictably, the effect of rent controls which seek to limit rent levels to below those set by the market, has been to reduce the supply and quality of rental property rather than grow it. At a time when the need for sustainable, environmentally friendly housing has become ever more apparent, levels of investment in the fabric of existing properties are declining. This will likely result in an overall deterioration of the standard of Berlin housing stock which had benefited significantly from high levels of investment during the past decade.

These effects could be reversed if and when the Mietendeckel is overturned. In the interim period, uncertainty surrounding the legality of the Berlin rent laws has been reflected in PSD's share price, resulting in the shares trading at 34% discount to EPRA Net Asset Value as at 14 September 2020. Prior to the announcement of the Mietendeckel laws, the shares were valued at, or around, Net Asset Value. A positive ruling on the Mietendeckel has the potential to positively impact the current valuation discount. We hope for further clarity on the legality of the Mietendeckel in the months ahead.

Robert Hingley, Chairman of Phoenix Spree Deutschland

REPORT OF THE PROPERTY ADVISOR

Table: Financial highlights for the six-month period to 30 June 2020

1 - Net LTV and net debt uses nominal loan balances as per note 17 rather than the loan balances on the Consolidated Statement of Financial Position which consider Capitalised Finance Arrangement Fees in the balance.

2 - GBP:EUR FX rate 1:1.1009

Financial results

Revenue for the six-month period was €12.0 million (six months to 30 June 2019: €10.8 million). Profit before taxation was €15.3 million (six months to 30 June 2019: €12.0 million) which was positively affected by a revaluation gain of €17.0 million (30 June 2019: €21.6 million) and reduction in the cumulative success fee due to the Property Advisor of €1.9 million (30 June 2019: €0.7 million increase). The year-on-year fall in profit before tax reflects a lower revaluation gain than the prior year. Reported earnings per share for the period were 12 cents (six months to 30 June 2019: 11 cents).

Reported EPRA NAV per share rose by 2.8% in the first half of 2020 to €5.06 (£4.60) (31 December 2019: €4.92 (£4.16)). After taking into account the 2019 final dividend of 5.15 cents (4.4 pence), which was paid in June 2020, the EPRA NAV total return in the first half of 2020 was 3.9% (H1 2019: 4.4%).

The Board is pleased to declare an unchanged interim dividend of 2.35 cents per share (2.1 pence per share) for the first half of the year (six months to 30 June 2019: 2.35 cents, 2.1 pence). The dividend is expected to be paid on or around 16 October 2020 to shareholders on the register at close of business on 25 September 2020, with an ex-dividend date of 24 September 2020.

Table: Portfolio valuation and breakdown

Like-for-like portfolio value increase of 2.6%

The Berlin residential property market has remained stable in the first half of the financial year and, although transaction volume has reduced, investment demand observed by Jones Lang LaSalle GmbH continues to support current pricing. JLL have conducted a full RICS Red Book property-by-property analysis and have provided a portfolio valuation, with no matters of concern or material uncertainty raised. The methodology used by JLL assumes that the Berlin rent cap ("the Mietendeckel") is fully implemented by PSD and is in place for its five-year lifespan. The valuation carried out by JLL at 31 December 2019 did not include the Mietendeckel as part of its discounted cashflow RICS Red Book valuation as it was not in force at that time.

As at 30 June 2020, the Portfolio was valued at €746.7 million (31 December 2019: €730.2 million). This represents a 2.3% increase over the six-month period. On a like-for-like basis, excluding the impact of disposals, the Portfolio value increased by 2.6% in the six-month period. This increase reflects the combined impact of modest yield compression, supported by a decline in interest rates, and the active management of the Portfolio.

The valuation as at 30 June 2020 represents an average value per square metre of €3,839 (31 December 2019: €3,741), a gross fully occupied yield of 2.8% (31 December 2019: 2.9%) and a net yield, using EPRA methodology, of 2.4% (31 December 2019: 2.3%). Included within the Portfolio are six properties valued as condominiums, with an aggregate value of €33.0 million (31 December 2019: five properties, aggregate value €26.5 million).

Table:  Rental income and vacancy rate

1 - New tenant agreements specify both rents currently payable as prescribed by the Mietendeckel whilst in place ("Collected"), and free market rents which would have been permissible under the German Civil Code ("Contracted"). This is discussed further under 'New tenancy agreements' section below

New tenancy agreements

To avoid uncertainty among tenants as to their contractual rental obligations during the period when the legality of Mietendeckel remains unresolved, PSD has amended its tenancy agreements. These new agreements specify both rents currently payable as prescribed by the Mietendeckel whilst in place ("Collected"), and free market rents which would have been permissible under the German Civil Code ("Contracted"). 

The new tenancy contracts stipulate that if the Mietendeckel or any part thereof is voided, suspended, repealed, or otherwise abolished, any higher Contracted rent permissible under the German Civil Code 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 could be sought to cover the difference between the Collected rent and Contracted 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 possibility. 

"Collected" like-for-like rental income increased by 1.8%

Reported rental income includes the impact of the Mietendeckel measures that have been implemented to date. Specifically, the measures introduced on 23 February 2020 were as follows:

· First time letting and reletting: The new rent may not exceed the prescribed upper rent limit. In these instances, PSD has had to lower the rent to a level below the rent paid by the previous tenant.

· Rent freeze on existing leases: For existing leases, a rent freeze initially applies, but with no requirement 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.

After considering the impact of acquisitions and disposals, Collected like for like rental income was €8.9 per sqm for the six-months to 30 June 2020, an increase of 1.8% compared with the six-months to 30 June 2019. Collected like-for-like rental income was down 0.5% over the same period, reflecting the increase in vacancy over the year. 

"Contracted" like-for-like rental income increased by 4.1%

Including any higher contractual rents permissible under the German Civil Code, like for like Contracted rental income was €9.1 per sqm as at 30 June 2020, an increase of 4.1% compared with 30 June 2019. Like-for-like Contracted rental income grew 1.8%, and gross in-place Contracted rent, increased by 2.2%.

Rise in Vacancy reflects temporary COVID-19 impact.

Reported vacancy at 30 June 2020 was 8.0% (30 June 2019: 4.2%). On an EPRA basis, which adjusts for units undergoing development and made available for sale, the EPRA vacancy rate was 4.3% (30 June 2019: 2.5%). The increase in EPRA vacancy reflects that, for a three-month period, COVID-19 regulations made it difficult to re-let vacant apartments.

Reversionary re-letting premium of 18.6%

During the first six months of 2020, 88 new leases were signed, representing a first-half letting rate of approximately 3.7% of occupied units. The average Contracted rent achieved on new lettings was €10.7 per sqm, a 12% decrease on the same period in 2019, and an average premium of 18.6% to passing rents. This compares to a 39.9% premium in the period to 30 June 2019. The decline in reversionary premium partially reflects the inclusion of the re-lettings from the recent acquisition in Brandenburg, where rents are lower than those achieved in central Berlin. Looking solely at the Berlin portfolio the reversionary premium achieved was 37.0%, down from 39.9% in the prior period.

The decline in the Contracted letting premium was partially as a result of some tenants paying higher rents cancelling leases to look for apartments which have lower Collected rents due to the Mietendeckel. We believe this is a temporary factor which, absent a legal ruling that the Mietendeckel is unconstitutional, will cease in November when many existing tenants are entitled to lower rents.

The Collected rent of the 88 new leases was €10.5 per sqm, a 17.7% re-letting premium to passing rents. 78 of the new leases were signed prior to the commencement of the Mietendeckel and were therefore not affected by the new prescribed rental levels. In the event that the Mietendeckel rules continue (i.e. they are not ruled to be unconstitutional), it is anticipated that the average reletting rental level on a Collected basis for the Berlin portfolio will be in the region of €6.9 per sqm in the second half of the year, and therefore that there will be a reversionary discount on a Collected basis from December 2020.

Limited impact from COVID-19 on rent collection

The COVID-19 outbreak has presented PSD with an unexpected new set of challenges. To date, the impact of the COVID-19 pandemic on rent collection levels has been limited, with rent collection in the six months to 30 June 2020 broadly in line with the six months to 30 June 2019.

 Residential rent collection has remained particularly resilient, with over 99% of rent collected during the first six months of 2020. Germany's Hartz IV welfare programme includes help for rental payments in instances of financial hardship and remains available to tenants impacted by the COVID-19 outbreak. Additionally, the German furlough scheme (Kurzarbeit) has been extended.

Commercial rents represent a small proportion of total rents, accounting for only 11.6% of contracted rental income in the six months to 30 June 2020. The COVID-19 restrictions initially resulted in the temporary closure of many Berlin commercial businesses, including several of our commercial tenants. Most COVID-19 restrictions have now been lifted and businesses have now reopened or are in the process of doing so. During the first six months of the financial year, 96% of commercial rents have been collected, compared with close to 100% during the same period of 2019.

Where necessary, PSD continues to support its tenants, both residential and commercial, through agreeing, on a case-by-case basis, the payment of monthly rents or deferring rental payments. In addition, PSD has a Vulnerable Tenant Policy which it will continue to monitor and apply to applicable tenants.

The Berlin Mietendeckel

Recent legal developments challenging the legality of the Mietendeckel have been positive. In May 2020, the opposition in the Berlin House of Representatives and a quorum of Federal Parliament MPs lodged cases in Berlin's Regional Constitutional Court and the Federal Constitutional Court. Additionally, in June 2020, twelve constitutional complaints from private owners were filed with the Federal Supreme Court.

On 16 July 2020, a similar move to introduce a six-year rent freeze in Bavaria was blocked by the Bavarian Constitutional Court. The ruling stated that a federal state may not issue its own regulations that contradict federal rental laws. Whilst this ruling does not directly impact the legality of the Mietendeckel, we believe this ruling has potential implications for the Berlin Mietendeckel, as the basic legal arguments against the imposition of a rent cap are the same.

Although PSD and its legal advisors remain strongly of the view that the Mietendeckel will ultimately prove to be unconstitutional; as part of its annual report released in April 2020, it rigorously stress-tested and disclosed potential scenarios in the event that is not successfully challenged, including any potential impact on rental income growth and loan covenants. PSD has a strong balance sheet and ample liquidity and is well positioned to withstand any financial impact from the Mietendeckel if it is not overturned.

The uncertainty created by the Mietendeckel has already significantly disrupted the market. This has been reflected in a slowdown in market transactions, a significant reduction in the availability of rental accommodation for tenants who require it most and a sharp decline in investment in the stock of Berlin housing. Equity markets have also placed a discount on the valuations of listed Berlin rental participants, reflecting market uncertainty pending clarification of the legality of the Mietendeckel.

Whilst the volume of transactions for rental properties has declined, Jones Lang LaSalle GmbH, PSD's independent property valuers, have confirmed that, as of 30 June 2020, there had been no material adverse effect on sale prices.

PSD set out in its interim results 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 been made, including condominium splitting and sales, new reletting contracts, as well as selective acquisitions in areas within Greater Berlin that are not affected by the Mietendeckel. PSD continues to maintain the Portfolio in accordance with all applicable laws and regulations.

Portfolio investment

During the first half of 2020, a total of €2.3 million was invested across the Portfolio (H1 2019: €3.0 million). These items are recorded as capital expenditure in the Financial Statements. A further €0.8 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 uncertainty in the Berlin rental market. A number of capex projects which would previously have been justified at free market rents have been postponed or cancelled pending a final ruling on the legality of the Mietendeckel.

Condominium sales at a premium to book value

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

During the first half of 2020, 10 condominiums units were notarised for sale totalling proceeds of €3.0 million (H1 2019: €2.5 million). The average achieved notarised value per sqm for the residential units was €4,392, representing a 15.7% premium to book value and a 14.4% premium to the average residential portfolio value as at 30 June 2020.

As at 14 September 2020, 66% of the Portfolio had been registered as condominiums, providing opportunities for the implementation of further projects where appropriate. A further 19% are in application, over half of which are in the final stages of the process.

As previously announced, PSD concluded an agreement in August 2019 with Accentro Real Estate AG, one of Germany's leading condominium sales platforms, to facilitate the acceleration of the sales process of the remaining Boxhagener Strasse units. Under the terms of this agreement, Accentro will market the remaining Boxhagener Strasse units through their extensive network on behalf of PSD. Accentro is contracted to purchase any unsold units from the fund for a cash consideration, guaranteeing revenues of €4.5 million in the second half of this financial year.

Following the relaxation of Berlin COVID-19 lockdown restrictions, and conditional on these restrictions not being re-imposed, it is anticipated that additional condominium sales will accelerate in the second half of the financial year. As at 14 September 2020 condominiums worth a further €3.3 million have been notarised for sale, with new reservations also showing a significant improvement. The Property Advisor is confident that condominium notarisations for the full year will show a material improvement on the 2019 level of €8.8 million.

Debt and gearing1

As at 30 June 2020, PSD had gross borrowings of €283.6 million (31 December 2019: €280.2 million) and cash balances of €37.3 million (31 December 2019: €42.4 million), resulting in net debt of €246.3 million (31 December 2019: €237.8 million) and a net loan to value on the Portfolio of 33.0% (31 December 2019: 32.6%).

The increase in gross debt in the period results from the successful refinancing of the €16.4 million debt acquired on acquisition of the apartment complex in Brandenburg in December 2019, with a new €20.3 million facility; offset slightly by amortisation repayments in the period. The €20.3 million was refinanced using part of the €50 million acquisition facility negotiated with Natixis in September 2019 and was signed with an extended duration and lower interest rate. The decrease in cash balances arises mainly from payment of dividends in the period alongside investment in the Portfolio and purchase of treasury shares.

The remainder of the €50 million facility is available for drawdown over the next year and carries a commitment fee of 57.5bp. On utilisation, the drawn amounts will be subject to the same terms as the Refinancing Facility signed in 2019.

Nearly all PSD's debt has interest rates which have been fixed through hedging and, as at 30 June 2020, the blended interest rate of PSD's loan book was 2.0% (31 December 2019: 2.0%). The average remaining duration of the loan book at 30 June 2020 had decreased to 6.5 years (31 December 2019: 6.6 years).

In early July 2020, the put option for the minority in Phoenix Spree Property Fund GmbH was settled net in cash for €5.9 million.

1 - Section uses nominal loan balances as per note 17 rather than the loan balances on the Consolidated Statement of Financial Position which consider Capitalised Finance Arrangement Fees in the balance.

Outlook

The Board of PSD and its legal advisors remain of the view that it is highly likely that the Mietendeckel will be successfully challenged. Recent progress on legal challenges in both the Federal and Constitutional courts has been positive, and it is anticipated there will be more clarity on the timing of a full legal hearing in the second half of the financial year. 

Although it is unlikely that there will be a decline in reported rental income in 2020, like-for-like revenue is likely to decline from the second half of the year until such a time that the Mietendeckel is overturned.

PSD has taken proactive steps as part of its strategic response to these changes so as to alleviate the short-term impact of the new rental laws whilst maintaining strategic optionality within the Portfolio in the likely event they are repealed.

PSD remains well placed to respond to any further potential impact from COVID-19 and, although the number of cases is beginning to increase again in Germany, Berlin is faring better than the majority of other German states in terms of cases. PSD will continue to monitor the situation carefully and will work sensitively, and on a case-by-case basis, with its tenants in arrears to agree appropriate and workable repayment schedules.

The Board remains confident in the long-term outlook for PSD, particularly given the strength of demand for housing in Berlin, and the strategic flexibility available to PSD. The Board believes that PSD's liquidity and strong balance sheet leave it well placed to withstand any negative impact from the current short-term challenges.

Key Performance Indicators

PSD has chosen a number of Key Performance Indicators (KPI's), which the Board believes may help investors understand the performance of PSD and the underlying property portfolio.

· The value of the property Portfolio grew by 2.6% on a like-for-like for basis for the first half of the year. This increase was driven by modest yield compression and an increase in like-for-like average rent per let sqm of 1.8% (H1 2019: 6.3%).

· The EPRA vacancy of the Portfolio stood at 4.3% (31 December 2020: 2.8%).

· The Group continued with its targeted condominium programme, notarising sales of €3.0 million in the half year to 30 June 2020 (H1 2019: €2.5 million).

· EPRA NAV per share increased by 2.8% to €5.06 as at 30 June 2020 (31 December 2019: €4.92).

· The declared dividend for the half year 2020 was €2.35 cents (£2.1 pence) per share.

Statement of Director's Responsibilities

The important events that have occurred during the period under review, the key factors influencing the condensed consolidated financial statements and the principal factors that could impact the remaining six months of the financial year are set out in the Chairman's statement and the Property Advisor Report on pages 5 to 11.

With the exception of broader uncertainties around coronavirus (Covid-19) and the Mietendeckel as set out in the outlook section of the Chairman's statement on page 4, the Directors consider that the principal risks and uncertainties facing PSD are substantially unchanged since the date of the annual report for the year ended 31 December 2019 and continue to be as set out in that report on pages 30 and 31.

Risks faced by the Group include, but are not limited to:

- Decline in property valuation

- Compliance with new laws and regulations

- Loss of data and or functionality from cyber-attacks

- Condominium sale potential

- Berlin residential market conditions

- Changes to Berlin property and tenant law

- The wider German and global Macro-economic environment

- Inability to pay dividend

- Breach of loan covenants.