Phoenix Spree D Regulatory News (PSDL)

8 August 2019

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

Portfolio Valuation and Condominium Agreement

Berlin Investment property valuation increases 3.7% for the half year to 30 June 2019

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

Increased portfolio value

As at 30 June 2019, the Portfolio was valued at €665.2 million by Jones Lang LaSalle GmbH, the Company's external valuers (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 3.9 per cent in the six months ended 30 June 2019. This reflects the combined impact of market rental growth and the active management of the Portfolio. 

New condominium agreement with Accentro Real Estate AG

Since the start of sales in Boxhagener Strasse, the Company's largest condominium project to date, the Company has successfully sold a total of 42 residential units and 3 commercial units to owner-occupiers, tenants and investors. The majority of the remaining 22 units are currently occupied.

In order to accelerate the sales process of the remaining Boxhagener Strasse units, the Company has concluded an agreement with Accentro Real Estate AG, one of Germanys leading condominium sales platforms.

Under the terms of this agreement, Accentro will market the remaining Boxhagener Strasse units through their extensive network on behalf of PSDL. After 18 months, Accentro is contracted to purchase any unsold units from the fund for a cash consideration, guaranteeing revenues on completion of contract.

Update on proposed rent controls

The proposed new Berlin State rent controls continue to create significant uncertainty which has negatively impacted the Company share price, resulting in a valuation discount to EPRA Net Asset Value as at 31 December 2018 of 28.6%. Both the share price decline and the discount are in line with the Berlin focussed listed peer group.

On June 2019, as expected, the Berlin Senate approved in principle the draft term sheet for the proposed bill for new rent controls. Although the proposed details and mechanisms are as yet unclear, there remain serious concerns regarding the legality and constitutionality of the draft proposal given that rental price laws have always been determined under German federal legislation.

A detailed analysis of the proposals will not be possible until the draft is presented at the end of August, after which there will be hearings from interested parties and experts and before entering the legislative process in October.

The legal research department of the Bundestag, the German Federal Parliament, issued a statement highlighting that the proposals violate the German Constitution in a number of key aspects and that there are numerous legal arguments to support the view that State law cannot supersede Federal law. We would expect an increasing number of legal challenges as details of the draft bill are made public at the end of August.

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 at this time. However, the interim portfolio valuation conducted by Jones Lang LaSalle GmbH does not factor in any impact on property values.

Strategic flexibility

Since the launch of Phoenix Spree 12 years ago, the regulatory environment has continually evolved. During this period the Company has successfully delivered positive returns to shareholders.

The Board believes that the Company retains significant flexibility to adapt its business model. As previously disclosed, over half of the buildings owned by the Company are already split into condominiums and the Company is in the process of completing a major refinancing which will deliver sufficient liquidity in order to take advantage of opportunities arising from market uncertainty.

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

"It is pleasing that the Company has delivered another resilient performance for the first six months of the financial year. However, it is also clear that our main strategic priority for the remainder of 2019 is to reassure investors that the company can continue to adapt in the eventuality that the new Berlin rent proposals are introduced. Significant preparatory work is already underway, although there is still considerable opposition and uncertainty on both the legality and content of these proposals. I am confident that the Company will be well positioned to respond when the regulatory environment becomes clearer."

The Company expects to report its interim results for the six-month period ended 30 June 2019 towards the end of September 2019.

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