Phoenix Spree Deutschland — Continuing strong returns despite rent cap

Phoenix Spree Deutschland (LSE: PSDL)

Last close As at 20/04/2024

GBP1.42

1.50 (1.07%)

Market capitalisation

GBP131m

More on this equity

Research: Real Estate

Phoenix Spree Deutschland — Continuing strong returns despite rent cap

The Berlin rent cap has disrupted the market, but with a continuing housing shortage and new investment curtailed, free-market rents and condominium prices continued to increase in FY20, driving continuing strong returns for Phoenix Spree Deutschland (PSD). As discussed in detail in our December initiation note, pending a resolution of the rent cap legal challenge, PSD has sought to mitigate the effects while maintaining strategic flexibility; a resolution, which PSD expects by mid-year, will determine the strategy for extracting the value embedded in its portfolio.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Phoenix Spree Deutschland

Continuing strong returns despite rent cap

FY20 results

Real estate

6 April 2021

Price

329p

Market cap

£332m

€1.17/£

Net debt (€m) as at 31 December 2020

254.4

Net LTV as at 31 December 2020

33.1%

Shares in issue

100.8m

Free float

100%

Code

PSDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.9

3.5

28.5

Rel (local)

(0.2)

0.8

(1.2)

52-week high/low

343p

255p

Business description

Phoenix Spree Deutschland is a long-term investor in mid-market residential property in Berlin, targeting reliable income and capital growth. Its core strategy is to acquire unmodernised apartment blocks that may be improved to the benefit of tenants, generating attractive returns for shareholders based on improved rents and capital values.

Next events

FY21 half-year end

30 June 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Phoenix Spree Deutschland is a research client of Edison Investment Research Limited

The Berlin rent cap has disrupted the market, but with a continuing housing shortage and new investment curtailed, free-market rents and condominium prices continued to increase in FY20, driving continuing strong returns for Phoenix Spree Deutschland (PSD). As discussed in detail in our December initiation note, pending a resolution of the rent cap legal challenge, PSD has sought to mitigate the effects while maintaining strategic flexibility; a resolution, which PSD expects by mid-year, will determine the strategy for extracting the value embedded in its portfolio.

Year end

PBT*
(€m)

EPS
(c)

EPRA NTA**/
share (€)

DPS
(c)

P/E
(x)

P/NTA
(x)

Yield
(%)

12/18

56.4

46

4.58

7.5

8.3

0.84

1.9

12/19

28.6

22

4.92

7.5

17.4

0.78

1.9

12/20

37.9

30

5.28

7.5

12.6

0.73

1.9

Note: *As reported including realised and unrealised gains. **EPRA net tangible assets per share.

Portfolio value increasing despite rent cap

The previously reported external portfolio valuation captures the rent reductions enforced by the rent cap and assumes that it is in place for a full five years. Despite this, yield compression and low interest rates generated a 6.3% like-for-like valuation increase in FY20 (of which 3.6% was in H220). Strong revaluation gains (and increased realised gains) drove the 32.5% increase in PBT and 7.3% growth in EPRA NTA per share with DPS unchanged. EPRA NTA total return was 8.8%. PSD says the rent cap negatively affected FY20 net rental income by c 4% and expects a significant c 20% impact on a full-year basis in FY21 if not repealed. The vast majority of the Berlin portfolio is now legally split into condominiums and record notarisations of €14.6m were at an average 19.2% premium to book value.

Outcome will determine strategy for realising value

The resolution of the legal challenge to the Berlin rent-cap law (the Mietendeckel) will determine PSD’s ongoing strategy for extracting the value embedded in its portfolio, and until it is resolved, accurate forecasting is not possible. Our initiation note provides a scenario analysis based on the potential outcomes. PSD and its advisers firmly believe the cap is unconstitutional and will ultimately be repealed, and in this case we would expect a return to focusing on reversionary rent capture to drive income and capital growth, consistent with the medium-term target of an 8–10% total return. If not repealed, we would expect a significant reduction in rent income and a focus on accelerated condominium sales to harvest value embedded in the portfolio. Positively, by limiting investment, the cap may aggravate the housing shortage and support growth in free market rents and capital values.

Valuation: Well above average P/NAV discount

An almost 30% discount to FY20 EPRA NTA per share compares with an average of 8% since IPO; premiums achieved on condominium sales suggest the discount is well above 30% on a ‘condominium’ valuation basis. We expect this to be in focus for investors if the rent cap is not repealed.

Berlin residential property

This note reviews the recently released FY20 results and updates on the analysis provided in detail in our December initiation note.

PSD is a Jersey-based, closed-ended investment company, listed on the Main Market of the London Stock Exchange. It targets an attractive total return from investment in residential property in Berlin, the most populous city in Germany, and represents the largest rental housing market in the country. It is externally managed by QSix (formerly PMM Residential), an independent and owner-managed alternative asset manager with an experienced team of property and investment professionals and established track record in the German residential property market.

With strong demand for housing in Berlin driven by net migration and a relative lack of supply, open market rents and capital values have steadily increased in recent years. Against this background, PSD has built a strong track record of creating value by acquiring under-rented apartment blocks at low valuations and actively managing them to capture reversionary rent potential and drive income and capital growth, supplemented by the division and subsequent resale of selected apartment blocks as private units (condominiums) at market valuations. The average annualised EPRA net asset value (NAV) total return over the five years to end-FY20 of 19.8% per year was well ahead of the 8–10% per year medium-term target. The FY20 return of 8.8% was also above the target despite the introduction of the Mietendeckel rent cap (see next section). PSD estimates the average free-market value of rents for the portfolio at €12–12.5 per square metre per month, well ahead of the end-FY20 average contracted level of €9.3 (applicable assuming Mietendeckel repeal, see below), and local demand for accommodation continues to significantly outstrip supply.

Mietendeckel outcome will determine strategy for value capture

Reflecting concern at the pace of rent growth over recent years and a desire by local authorities to maintain Berlin as a city of affordable rented accommodation, the Berlin rent cap (Mietendeckel) was introduced in stages during 2020, becoming fully effective in November. Legal challenges to the cap are in process and PSD and its legal advisers firmly believe the Mietendeckel legislation will ultimately be ruled unconstitutional and overturned; the timing of this remains uncertain but PSD expects a resolution by mid-2021. The rent freeze and, in some cases rent reductions, introduced in in 2020 remains in place and will have a material impact on rental income on a full year basis in 2021 if not repealed. In the short term, pending clarification of the legality of the Mietendeckel rules, PSD has adapted its strategy, seeking to maintain and optimise its strategic flexibility. This includes:

Condominium splitting and sales at a premium to book value. 70% of portfolio assets are now legally split into condominium units (58% at end-FY19) and a further 15% are in application, the majority of which are in the final stages of the process. Record notarisations of €14.6m in FY20 (up 65% versus FY19) were at an average 19.2% premium to book value.

Accretive share buybacks at a discount to EPRA NTA. The share buy-back programme, introduced in FY19, was suspended in March 2020 as a result of COVID-19 uncertainty but was reinstated in September 2020. PSD said that under the programme it would consider repurchasing up to 10% of the issued share capital. From 2019 to date c 5m shares have been repurchased (c 5% of the outstanding number at the commencement of the programme). Since resuming the buy-back programme in H220, c 1.5% of the issued capital has been repurchased at a more than 30% discount to end-FY20 EPRA NTA per share.

Careful monitoring of capex projects and new tenant contracts, which the company hopes will allow the retrospective collection of market rents in the event that the Mietendeckel is ruled to be unlawful.

A new tenancy agreement (discussed below).

If not repealed, the rent cap seems likely to limit investment in the sector, aggravate the housing shortage, and support further growth in free market rents and capital values, but will require a more material and permanent change in PSD’s strategy (discussed below) to realise this value.

New tenancy agreement

In line with the industry, PSD has amended its tenancy agreements in an effort to avoid uncertainty among tenants as to their contractual rental obligations during the period when the legality of the Mietendeckel remains unresolved. These new agreements specify both the rent currently payable as prescribed by the Mietendeckel while in place (‘Collected’) and the free market rents that would be permissible under the German Civil Code (‘Contracted’). The contracts make clear that if the Mietendeckel is voided, suspended, repealed or otherwise abolished, the contracted rent will again apply and back-payments may be payable. Tenants have, therefore, been advised by the Berlin government to set aside appropriate reserves to cover this possibility.

Anticipating the strategic response

Although we incline to agree with the company’s view that eventual repeal is the most likely outcome, the uncertainty around this, particularly in terms of timing, renders an accurate prediction for the next 12 months impossible. For that reason, in our initiation note we embedded the potential strategic responses and financial effects into two scenarios, intended to illustrate the alternative strategic paths that the company may take and the financial implications of these on an annualised basis. We would strongly encourage readers who have not seen the initiation note to examine the details of these scenarios.

Assuming a rent cap repeal and return to the traditional strategy based on reversionary rent capture, we would expect total return to remain consistent with the company’s long-term 8–10% return target range. Relative to the low rates of return prevailing in the market, taking account of the historically low volatility displayed by residential assets and considering the near 30% discount to FY20e EPRA NAV, we believe this level of total return is attractive.

If there is no repeal, we would expect a material strategic response, focusing on accelerated condominium sales to realise the value embedded in the portfolio, which has continued to increase despite the Mietendeckel introduction. In this case, we would expect investors to focus on the significant discount to net assets and the potential enhancement to NAV from condominium splitting and sale. Around 85% of the Berlin portfolio may soon be legally split into condominiums and our analysis indicates the discount to underlying NAV, adjusting asset values to reflect market-level condominium pricing, the discount to NAV is likely to be c 40%.

Mietendeckel appears to aggravate the Berlin housing shortage

The long-term positive demographic trend has created a housing shortage in Berlin, which if anything seems likely to be aggravated by the Mietendeckel rent cap. Since its introduction, there has been a noticeable reduction in market transaction activity and a significant reduction in the availability of rental accommodation for tenants who require it most. Investment in the Berlin housing market has declined sharply. Against this backdrop, free-market rents and condominium prices have continued to rise.

Continuing strong returns in FY20

The Mietendeckel had a limited impact on PSD’s financial performance, with strong realised gains on condominium sales offsetting the part-year rental income impact. If the rent cap is not repealed, the impact will be much larger in FY21.

Existing rents were frozen from February 2020, with rent limits imposed on new leases. From November 2020 rents were reduced where they exceeded newly introduced upper limits by more than 20%. Around 44% of PSD tenants received rent reductions and on the ‘collected’ basis that applies under the Mietendeckel, average gross in place rents per square metre fell 15.8% to €7.5. The company estimates the part-year negative impact on FY20 net rental income at 4%. If the Mietendeckel is not repealed, PSD estimates the full year FY21 impact at c 20%. Reflecting the underlying positive demand-supply balance in the Berlin market, rents continued to increase on a free-market contracted basis. EPRA vacancy (which excludes refurbishment properties) of 2.1% was at a record low.

Exhibit 1: Rental income and vacancy

FY20

H120

FY19

31 December 2020

30 June 2020

Collected

Contracted

Collected

Contracted

Total sqm ('000s)

193.2

193.2

194.5

194.5

195.2

Annualised rental income (€m)

16.4

20.3

19.3

19.7

19.7

Gross in place rent per sqm (€)

7.5

9.3

8.9

9.1

9.0

Like for like change in gross in place rent (y-o-y)

-15.8%

4.1%

1.8%

4.1%

5.6%

Vacancy by area

6.8%

6.8%

8.0%

8.0%

6.7%

EPRA vacancy*

2.1%

2.1%

4.3%

4.3%

2.8%

Source: PSD. Note: *EPRA vacancy excludes refurbishment properties.

During the year 269 new leases were signed, representing a letting rate of c 11.6% of occupied units. The average contracted rent achieved on new lettings was €11.7 per square metre, an average premium of 25.2% to the previous passing rent. This is a lower premium than in FY19 (36.4%), which substantially reflects the impact re-letting of properties from the 2019 Brandenburg acquisition. The central Berlin premium reduced from 36.4% to 33.9% with more of the properties re-let without renovation on an ‘as is’ basis. The Mietendeckel has reduced the financial return available on capex.

Exhibit 2 shows a summary of the financial results, and in particular we note:

Total revenue (gross rents and service charges) continued to increase for the year as a whole, reflecting the rent increases achieved up until November, the improving occupancy trend in H220, and a full year impact from the property acquired in Brandenburg in 2019. The pandemic had no material impact on rent collections, with a collection rate of more than 99% continuing into the current year.

Increased property expenses reflected the growth in service charge expenses, including the full year impact of the Brandenburg acquisition.

Administrative expense growth reflects costs related to the acceleration in condominium separation.

With continuing strong unrealised gains on properties (see below) and increased realised gains, operating profit increased 8.3% to €48.3m.

Combined with a decline in the net financial charge, profit before tax increased 32.5% to €37.9m. The decline in the net financial charge reflected much lower negative mark-to-market adjustments on interest rate derivates. Underlying interest expense grew with higher average borrowings partly offset by a lower average cost.

After tax and minority interests, attributable EPS increased 37.9% to 30.1 cents per share.

EPRA NTA per share increased 7.3% to €5.28 and DPS was unchanged at 7.5 cents per share. Including dividends paid the total return was 8.8%.

End-FY20 borrowings were €291.4m and adjusted for cash of €37.0m the net loan to value (LTV) was 33.1% (end-FY19: 32.6%). The debt has an average maturity of six years with an average cost, before hedging costs, of 2.0%.

Exhibit 2: Summary of FY20 financial performance

€m unless stated otherwise

FY20

FY19

FY20/FY19

Edison FY20e

Revenue

23.9

22.6

5.7%

24.1

Total property expenses

(16.4)

(14.2)

15.8%

(15.3)

Gross profit

7.5

8.4

-11.2%

8.8

Administrative expenses

(3.3)

(3.1)

5.2%

(3.7)

Gain on disposal of investment property

2.2

0.9

2.0

Fair value movement on investment property

41.5

41.5

24.4

Property advisor performance fee

0.4

(2.8)

1.9

Separately disclosed items

0.0

(0.3)

0.0

Operating profit

48.3

44.6

8.3%

33.4

Net finance charge

(10.4)

(16.0)

(9.7)

Profit before tax

37.9

28.6

32.5%

23.7

Tax

(7.6)

(5.8)

(4.4)

Profit after tax

30.3

22.7

33.3%

19.2

Non-controlling interest

(0.5)

(0.5)

(0.3)

Attributable profit after tax

29.8

22.3

33.6%

18.9

EPS (€ cents)

30.1

21.8

37.9%

19.2

DPS (€ cents)

7.50

7.50

0.0%

7.5

EPRA NTA per share (€)

5.28

4.92

7.3%

5.14

NAV total return

8.8%

9.3%

5.9%

Gross debt

(291.4)

(280.2)

(283.6)

Cash

37.0

42.4

33.4

Net debt

(254.4)

(237.8)

(250.2)

Net LTV

33.1%

32.6%

33.5%

Source: PSD data

Portfolio valuation

As previously disclosed, the property portfolio was externally valued by JLL at €768.3m at end-FY20 (end-FY19: €730.2m) and assumes the rent cap is in place for a full five years. Annualised growth of 6.3% on a like for like basis (of which 3.6% was in H220) reflects yield compression and low interest rates. The fully occupied net yield of 2.4% compares with 2.9% at end-FY19. The decline in yield substantially reflects the Mietendeckel impact on collected rents and we estimate a much smaller reduction in yield on a contracted rent basis. The cash flow analysis underlying the external valuation will have benefited from increased reversionary potential once the Mietendeckel expires after five years as a result of the further growth in free-market contracted rents.While a repeal of the Mietendeckel would be a positive for PSD, providing significantly greater strategic flexibility for extracting the value embedded in the portfolio, we would not expect a significant near-term impact on portfolio valuations and NAV. We would expect repeal to support recurring income earnings and a closing of the discount to EPRA NTA per share.

Although most units within the portfolio are officially registered as condominiums, this has not generally been reflected in portfolio values and in most cases their valuations reflect an expectation that they will be held for long-term rental income. Included within the portfolio are nine properties valued as condominiums, with an aggregate value of €52.4m (end-FY19: five properties with an aggregate value €26.5m). The properties concerned benefit from the potential (eg necessary structural adjustments) and all relevant permissions to be sold as individual apartments/condominiums. Continuing condominium sales highlight the value embedded in the portfolio and represent a complementary way to realise this value alongside reversionary rent capture. The sales values from period to period depend very much on the mix of assets (different locations, floor space etc) and estimating the value of the portfolio on a full condominium basis is difficult. Applying a value of c €4,500 per sqm to the 75% of the portfolio that is or will soon be designated as condominiums would imply an underlying P/NTA at the current share price of c 40%. Using the FY20 average notarised value of €4,320 per sqm the implied discount to NTA is 37%.

Exhibit 3: Annual notarisation data

FY15

FY16

FY17

FY18

FY19

FY20

Sales value of notarisations (€m)*

4.7

5.5

9.1

9.9

8.8

14.6

Average notarised value per sqm (€)

3,899

4,427

4,352

4,566

4,711**

4,320

Portfolio average value per sqm (€)

1,639

1,965

2,854

3,527

3,741

3,977

Berlin rental portfolio value per sqm (€)

1,982

2,150

3,220

3,576

3,854

N/A

Premium to portfolio average

137.9%

125.3%

52.5%

29.5%

25.9%

8.6%

Premium to Berlin portfolio average

96.7%

105.9%

35.2%

27.7%

22.2%

19.2%

Source: Phoenix Spree data. Note: *Includes a small amount of commercial. **Residential notarisations only.

Exhibit 4: Financial summary

Year ending 31 December, €m unless stated otherwise

2017

2018

2019

2020

INCOME STATEMENT

Revenue

23.7

22.7

22.6

23.9

Total property expenses

(12.6)

(15.8)

(14.2)

(16.4)

Gross profit

11.1

6.9

8.4

7.5

Administrative expenses

(3.0)

(3.2)

(3.1)

(3.3)

Gain on disposal of investment property

5.3

1.0

0.9

2.2

Fair value movement on investment property

157.4

66.1

41.5

41.5

Property advisor performance fee

(26.3)

(4.0)

(2.8)

0.4

Separately disclosed items

0.0

(1.0)

(0.3)

0.0

Operating profit

144.5

65.9

44.6

48.3

Net finance charge

(6.0)

(9.5)

(16.0)

(10.4)

Gain on financial asset

0.0

0.0

0.0

0.0

Profit before tax

138.5

56.4

28.6

37.9

Tax

(26.2)

(11.1)

(5.8)

(7.6)

Profit after tax

112.3

45.4

22.7

30.3

Non-controlling interest

(0.8)

(0.3)

(0.5)

(0.5)

Attributable profit after tax

111.5

45.1

22.3

29.8

Closing basic number of shares (m)

92.5

100.8

97.8

96.1

Average diluted number of shares (m)

100.2

99.0

102.1

98.9

IFRS EPS, diluted (€ cents)

111.35

45.57

21.83

30.11

DPS declared (€ cents)

6.9

7.5

7.5

7.5

DPS declared (Sterling pence equivalent)

6.4

6.7

6.5

6.8

EPRA NAV total return

52.6%

13.1%

9.3%

8.8%

BALANCE SHEET

Investment properties

502.4

632.9

719.5

749.0

Other non-current assets

2.9

3.4

3.5

3.8

Total non-current assets

505.3

636.4

723.0

752.8

Investment properties held for sale

106.9

12.7

10.6

19.3

Cash & equivalents

27.2

26.9

42.4

37.0

Other current assets

14.4

7.5

9.5

8.4

Total current assets

148.5

47.1

62.6

64.7

Borrowings

(2.6)

(3.6)

(17.8)

(1.0)

Other current liabilities

(9.4)

(13.2)

(15.6)

(9.6)

Total current liabilities

(12.1)

(16.8)

(33.4)

(10.6)

Borrowings

(219.6)

(191.6)

(258.5)

(286.5)

Other non-current liabilities

(54.1)

(65.2)

(76.8)

(86.5)

Total non-current liabilities

(273.8)

(256.9)

(335.3)

(373.0)

Net assets

367.9

409.8

416.9

434.0

Non-controlling interest

(1.7)

(2.0)

(3.0)

(3.5)

Net attributable assets

366.2

407.9

413.9

430.4

Adjust for:

Deferred tax assets & liabilities

44.6

52.5

58.3

65.4

Derivative financial instruments

3.3

6.0

16.0

18.2

Other EPRA adjustments

(34.0)

(5.4)

(6.8)

(6.4)

EPRA net assets

380.2

461.0

481.4

507.6

IFRS NAV per share (€)

3.96

4.05

4.23

4.48

EPRA NAV per share (€)

4.11

4.58

4.92

5.28

CASH-FLOW

Cash flow from operating activity

5.9

13.2

1.5

8.1

Income tax paid

(0.1)

(4.7)

(0.0)

(1.3)

Net cash flow from operating activity

5.8

8.5

1.4

6.7

Property additions

(76.5)

(47.3)

(32.2)

0.0

Proceeds from disposal of investment property

60.4

86.0

13.5

7.2

Capital expenditure on investment property

(6.7)

(7.9)

(6.5)

(4.2)

Other cash flow from investing activity

0.0

0.0

0.1

(5.9)

Cash flow from investing activity

(22.7)

30.8

(25.1)

(2.9)

Interest paid

(5.1)

(5.1)

(6.2)

(7.5)

Bank debt drawn/(repaid)

36.7

(27.0)

64.6

11.2

Share issuance/repurchase

0.0

0.0

(11.5)

(6.0)

Dividends paid

(6.0)

(7.5)

(7.7)

(7.0)

Other cash flow from financing activity

0.0

0.0

0.0

0.0

Cash flow from financing activity

25.6

(39.6)

39.2

(9.3)

Change in cash

8.7

(0.3)

15.5

(5.4)

FX

(0.0)

(0.0)

(0.0)

(0.0)

Opening cash

18.5

27.2

26.9

42.4

Closing cash

27.2

26.9

42.4

37.0

Closing debt

(222.3)

(195.3)

(280.2)

(291.4)

Closing net debt

(195.1)

(168.4)

(237.8)

(254.4)

LTV

32.0%

26.1%

32.6%

33.1%

Source: Company data


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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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OpGen — 2020 results

OpGen reported 2020 sales of $4.2m, up 20% compared to the $3.5m in sales in 2019, with growth mainly due to the merger with Curetis. We expect the company to be able to build on this level with the help of the future 510(k) clearance of its Acuitas AMR Gene Panel test in bacterial isolates as well as potential approvals for the Unyvero platform in China and Colombia. To maintain the momentum, OpGen plans to initiate a clinical trial program for complicated urinary tract infections (cUTI) and invasive joint infections (IJI) with the Unyvero platform in H221.

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