Phoenix Spree D Regulatory News (PSDL)

1 August 2024

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

Portfolio Valuation and Business Update

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in Berlin residential real estate, announces an update on business activity and the valuation of the portfolio of investment properties held by the Company and its subsidiaries (the "Portfolio") as at 30 June 2024.

Financial Summary:

Portfolio valuation

During the first half of the financial year, buyer sentiment and transaction volumes within the Berlin residential market continued to be negatively affected by historically high interest rates. As at 30 June 2024, the Portfolio was valued at €646.4 million, which represents an average value per square metre of €3,480 and a gross fully occupied yield of 3.5 per cent. Included within the Portfolio are six multi-family properties valued as condominiums, with an aggregate value of €29.6 million (30 June 2023: seven properties; €39.2 million).

On a like-for-like basis, after adjusting for the impact of disposals, the Portfolio valuation declined by 3.3 per cent during the half year to 30 June 2024, reflecting an increase in market yields, partially offset by rental growth. This compares with a decline of 6.9 percent in the first half of 2023 and 5.0 percent second half of 2023. Cumulatively, the like-for-like decline in the Portfolio valuation since the peak of 30 June 2022 is 19.2 per cent.

Upturn in condominium buyer interest

During the six months to 30 June 2024, 15 condominium units were notarised for sale for an aggregate value of €5.3 million (30 June 2023: eight condominiums, €2.0 million). The average achieved notarised value per sqm for all residential units notarised was €4,292, in line with 31 December 2023 carry value. June 2024 book values have been adjusted to reflect the agreed sales prices.

Of the 15 units notarised, eight were vacant and seven were occupied. The average achieved notarised value per sqm for vacant units was €4,841 and the average achieved value for occupied units was €3,611. Of the eight vacant units, seven were sold in either a bare shell or un-refurbished condition. The Company additionally has outstanding reservations for a further four residential units for a combined value of €1.3million. The average value per sqm of €3,545 reflects the fact that 3 of these units were occupied.

The average price for all condominiums notarised stood at a 23 per cent premium to the average per sqm valuation of the Portfolio as a whole as at 30 June 2024 and a 62 per cent premium to the valuation of the Portfolio implied by the current share price.

Vacant condominiums were notarised at a 39 per cent premium to the average per sqm valuation of the Portfolio as a whole as at 30 June 2024 and an 83 per cent premium to the valuation of the Portfolio implied by the current share price.

Whole building sales

As previously announced, during the first half of the financial year, the Company notarised for sale two properties with a combined value of €7.4 million. The Company marketed a significant proportion of its Portfolio as single-building sales and portfolios of apartment blocks. However, market conditions were not conducive to achieving sales at prices which the Board believed represented fair value for the assets.

Berlin rental market conditions remain strong

Conditions across the Berlin PRS market remain strong, with supply-demand imbalances at their widest in recent memory, leading to record market rents. New lettings across PSD's Berlin portfolio during the first six months of 2024 were signed at an average premium of 31.2 per cent to passing rents and EPRA vacancy as at 30 June 2024 stood at 1.4 per cent, a new all-time low.

Following the release on 30 May 2024 of the new Berlin Mietspiegel (rent index), it is anticipated that the impact on annualised like-for-like rent (per sqm) across the entire Portfolio will be approximately 2 per cent. Where applicable, the Company will notify qualifying tenants of any upward revisions to future monthly rental payments, with increases expected to become effective from September 2024.

Strategy update.

The current market environment remains characterised by historically weak pricing and transaction volumes for whole building and portfolio sales. As a result, the Board remains of the view that the best way to maximise shareholder returns in the medium term is to focus sales activities on the significant difference that currently exists between the average per square metre value of an apartment as a rental unit and the resale value per square metre of an apartment to a private buyer as a condominium. This was again evidenced in the first half of 2024, given the premiums achieved on condominium sales.

Accelerating condominium sales volumes to the previously disclosed target of over €50m annually will require a significant increase in time and resource to prepare, market and sell units in greater volume. To facilitate the increase in sales capacity, the Company will operate with several specialist condominium sales platforms, which have completed viewings of all relevant assets and have delivered valuations for vacant and let units that are in line with the Company's expectations. Assets that can be sold quickly with and / or with limited preparation work have been prioritised.

As previously announced, the acceleration of condominium sales is conditional on amending the Company's current financing arrangements to increase the number of buildings that can be made available for sale as condominiums from 6 to 40. Negotiations with the Company's principal lender and its loan syndication partners are progressing positively, and the Company expects to provide an update on progress on or before the announcement of its interim financial statement on 26 September 2024.

Outlook

While the rental market continues to benefit from high demand and limited supply, historically high interest rates and a weakening German economy continue to impact buyer sentiment and investment transaction volumes. However, with ECB interest rates now on a downward trajectory, buyer sentiment in the investment market for single buildings and portfolios of buildings has recently begun to show tentative signs of recovery, albeit from a low base.

Conditions in the condominium market remain relatively more robust. Despite some reductions, sales prices and market volumes, particularly for vacant units, have held up well. It is against this backdrop that the Company plans to materially increase condominium sales to unlock the inherent value within the Portfolio. The Company has over 1,900 units, representing 78 per cent of its Portfolio, already legally split in the land registry and, subject to a successful conclusion of negotiations to amend the terms of its current financing arrangements, is well placed to benefit from this pricing trend. Moreover, given that legislation passed in 2021 has made any future splitting of buildings into condominiums in Berlin effectively impossible, the supply-demand imbalance for condominiums is expected to widen.

The primary goals of the acceleration in condominium sales are to enhance the Company's ability to secure new long-term financing on favourable terms, reduce overall debt and provide capital for targeted capital expenditure into the condominium and PRS properties in order to optimise their sales value.

The Company will additionally continue to explore the sale of whole rental properties and portfolios of buildings at discounts to their carrying value when it is deemed to be in the best interest of shareholders. To this end, the recently observed upturn in buyer activity in Berlin is encouraging.

Funds from disposals will be allocated to debt reduction and capital expenditure for the preparation of further condominium sales, establishing a foundation to refinance the current debt facility on more advantageous terms before its maturity in September 2026.

Half-year results

The Company intends to publish its half year results for the six months to months to 30 June 2024 on 26 September2024.

For Further Information, Please Contact:

Phoenix Spree Deutschland Limited +44 (0) 20 3937 8760

Stuart Young

Deutsche Numis (Corporate Broker) +44 (0) 20 7260 1000

David Benda

Teneo (Financial PR) +44 (0) 20 7353 4200

Elizabeth SnowAnnushka Shivnani