Phoenix Spree Deutschland — Flexibility to extract value

Phoenix Spree Deutschland (LSE: PSDL)

Last close As at 16/07/2024

GBP1.58

0.50 (0.32%)

Market capitalisation

GBP146m

More on this equity

Research: Real Estate

Phoenix Spree Deutschland — Flexibility to extract value

The repeal of the Berlin rent cap (the ‘Mietendeckel’), ruled unconstitutional, is a significant positive for Phoenix Spree Deutschland (PSD). It allows a resumption of its core reversionary rent strategy, providing greater flexibility in the extraction of the value embedded in the portfolio. With a continuing discount to net assets, the board has stepped up the share repurchase programme, aiming to ensure that the share price better reflects its view of intrinsic value and the improved outlook.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Phoenix Spree Deutschland

Flexibility to extract value

Introducing forecasts

Real estate

15 June 2021

Price

396p

Market cap

£381m

£/€1.16

Net debt (£m) at 31 December 2020

254.4

Net LTV at 31 December 2020

33.1%

Shares in issue

96.2m

Free float

100%

Code

PSDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.2

21.9

44.5

Rel (local)

6.5

15.2

19.9

52-week high/low

400p

277p

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 repeal of the Berlin rent cap (the ‘Mietendeckel’), ruled unconstitutional, is a significant positive for Phoenix Spree Deutschland (PSD). It allows a resumption of its core reversionary rent strategy, providing greater flexibility in the extraction of the value embedded in the portfolio. With a continuing discount to net assets, the board has stepped up the share repurchase programme, aiming to ensure that the share price better reflects its view of intrinsic value and the improved outlook.

Year end

PBT*
(€m)

EPS
(c)

EPRA NTA**/
share (€)

DPS
(c)

P/E
(x)

P/NTA
(x)

Yield
(%)

12/19

28.6

22

4.92

7.5

20.7

0.93

1.6

12/20

37.9

30

5.28

7.5

15.0

0.87

1.6

12/21e

44.3

37

5.68

7.5

12.3

0.81

1.6

12/22e

44.5

37

6.06

7.5

12.5

0.76

1.6

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

Reversion strategy has generated strong returns

Repeal of the rent cap in April 2021 reverses the rent reductions imposed in November and restores flexibility to capture reversionary rent potential; supplemented by the sale of selected apartment blocks as private units (condominiums), at market level valuations that are significantly above their value as apartments, this has generated strong returns. Average annual EPRA NTA total return in the five years to end-FY20 was 19.7% pa, well ahead of the 8–10% pa target, and was 8.8% in FY20 despite the rent cap and pandemic. PSD estimates that market rents are more than 30% above current levels, which should deliver medium-term growth irrespective of market conditions. Our forecasts provide an update on the FY21 scenario published in our December 2020 initiation note before the legal position of the rent cap had been decided. We forecast returns within the target range, including the collection of c €1.8m in contracted back rents in FY21.

Embedded value

Rent reversion is significant and, while more than 70% of the portfolio has been legally split into condominiums, only 7% is valued as such. We estimate that EPRA NTA may be c 13% higher on a ‘condominium valuation’ basis. This embedded value is highlighted by Vonovia’s proposed acquisition of Deutsche Wohnen (with 75% of its portfolio in Berlin but fewer properties split as condominiums) at around EPRA NTA. The board has decided to make a material capital allocation to the buyback programme, funded through existing cash balances, refinancing, and proceeds from the sale of condominiums and non-core assets, which it believes can be achieved without compromising its organic growth prospects.

Valuation: Not capturing value potential

Despite the recent rise in the share price, there remains a c 13% discount to FY20 EPRA NTA per share, above the average of c 8% since IPO. With a continuing premium being achieved on condominium sales, we estimate that the discount is around 25% on a ‘condominium valuation’ basis.

Return to core reversion strategy

Historically strong returns

The repeal of the Mietendeckel allows PSD to resume its core reversionary rent strategy, based on acquiring under-rented apartment blocks at low valuations and actively managing the assets to realise reversionary rent potential, driving growth in rental income and capital values. The reversionary strategy, supplemented by the division and subsequent resale of selected apartment blocks as private units (condominiums) at market-level valuations, significantly above their value as apartments and carried book value, has generated strong returns. The cumulative EPRA net tangible asset (NTA) total return (dividends added back but not reinvested) over the five years to end-FY20 was 146.2% or an average annual return of 19.7%, well ahead of the 8–10% pa target. Despite the twin challenges of the rent cap and the COVID-19 pandemic, the FY20 total return was 8.8%.

Continuing strong reversion potential

PSD estimates the average free market value of rents for the portfolio at c €13 per sqm per month, well ahead of the end-FY20 average portfolio contracted rent of €9.3. This significant reversion opportunity results from a combination of the positive demand-supply fundamentals in the market and the strict rent controls in place in Berlin over many years. The controls mean that tenants often pay rents that are well below market levels, and the gap has increased with significant rent market growth in recent years. PSD believes this reversionary gap should underpin rental growth in the medium term, irrespective of market conditions and rental growth. Alongside permissible rent indexation,1 PSD’s reversionary rent capture is driven by the refurbishment of vacated apartments, which enables PSD to re-let them at market-level rents. Despite the Mietendeckel being in place, during FY20 PSD’s average contracted rents per sqm increased by 4.1% on a like-for-like basis. New Berlin lettings were signed at an average 34% premium to passing rents and the average across the portfolio (including Brandenburg, where rents are lower) was 25%.

Most of PSD’s rental agreements include annual indexation or Staffel, as agreed with the tenant. A minority of older rent agreements have rent increases determined by a local rent table, calculated by the Berlin Senate, known as the Mietspiegel.

Exhibit 1: Average reletting rents and re-letting premium

Source: Phoenix Spree data

Condominium strategy supports returns

The reversionary rent strategy has been supplemented by the division and subsequent resale of selected apartment blocks as private units at a significant premium to book value. PSD is differentiated among listed peers by having a high proportion (more than 70%, with a further 15% in application) of its Berlin portfolio legally split into condominiums. In FY20, a record c €15m of PSD’s condominiums were notarised (sales legally agreed), a 65% increase over 2019, with an achieved sales value at more than a 19% premium to book value. The scale of the increase was partly in response to the Mietendeckel, as well as the introduction of a marketing agreement with Accentro, a large listed real estate agent and property manager, and we expect sales to revert to a more normal level in the current year.

Exhibit 2: 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.

End-FY20 valuation assumed continuing rent cap

Although most units within the portfolio are officially registered as condominiums, this has not generally been reflected in portfolio values. Only active sales projects, accounting for c 7% of the portfolio, are valued on a ‘condominium basis’. More generally, portfolio valuations reflect the expectation that they will be held for long-term rental income.

At end-FY20, the property portfolio was externally valued by Jones Land LaSalle at €768.3m and assumed the rent cap would be in place for a full five years. Nonetheless, the valuation increased with 6.3% annualised growth on a like-for-like basis reflecting yield compression and low interest rates. The cash flow analysis underlying the external valuation will have benefited from increased reversionary potential once the Mietendeckel was scheduled to expire after a five-year period as a result of further growth in free-market contracted rents. While a repeal of the Mietendeckel is a very clear positive for PSD, providing significantly greater strategic flexibility for extracting the value embedded in the portfolio, we would expect this to be reflected in the share valuation ratios rather than a significant near-term uplift to portfolio valuations and NTA. We nonetheless forecast continuing increases in property valuations and NTA, driven by rent growth and supported by continuing positive market fundamentals.

Investing in new living space

In addition to refurbishment, PSD’s asset management strategy includes exploiting underutilised space within the footprint of the existing portfolio. It currently plans two new construction projects, representing an aggregate 34 additional units, for which planning approval has been granted. At one property, a new 23-unit apartment block will be built within the curtilage, alongside the creation of four additional units in the existing attic space. At a second property, the attic space will be built out, and existing commercial space renovated, to create an additional seven units. Construction is expected to commence in mid-2021 with the first units available during H122, at an expected total cost of €11.8m. Building permits are in place for the renovation of attic space in 20 other properties, with the potential to create an additional 49 units.

Share repurchase programme

Since introducing a share buyback programme in October 2019, PSD has “passively” repurchased c 5.1% of the issued share capital, designed to limit downside risk to the share price. With the shares continuing to trade at a significant valuation discount to NTA and reflecting its renewed confidence in the outlook following the Mietendeckel repeal, the company recently adopted a more proactive buyback strategy to take advantage of the discount while seeking to ensure that the share price better reflects the underlying net asset value. A material capital allocation to the buyback programme will be funded through existing cash balances, additional debt funding, and proceeds from the sale of condominiums and non-core assets, which PSD believes can be achieved without compromising its organic growth prospects. The original buyback programme set out to repurchase up to 10% of the shares and the AGM held in June 2021 replaced this with authorisation to repurchase up to 14.5m shares or 14.99% of the outstanding shares at the time. Since announcing the new, more active approach to share repurchases the company has acquired c 646k shares (c 0.7% of the total) at a cost of c €2.6m or an average c €3.97 per share2. The ultimate number of shares repurchased will depend on the continuing level of the discount and the accretion available. By way of illustration only, rather than any attempt to quantify the scale of the share repurchases, we estimate that each 5% repurchase of the shares outstanding is c 1% accretive of FY21 NTA per share.

Purchases up to and including 11 June 2021

Berlin remains affordable with market rental growth driven by excess demand

The Berlin rent cap, now repealed, was a political response to the city’s housing shortage, which has seen rents increase sharply in recent years, although having started from a relatively low level, Berlin rents and condominium prices remain relatively affordable in both a national and international context. As many predicted, the Mietendeckel did nothing to solve the housing shortage and in 2020 had the impact of reducing the volume of transactions in the investment market (which continued to rise elsewhere in Germany), the availability of affordable rented property and investment in the creation of new housing stock. With the housing shortage still in place, unrestricted market rents and residential sales prices continued to increase. The COVID-19 pandemic had little direct impact on the housing market (PSD’s rental collection rate was above 99% and EPRA basis occupancy was at a record high), but softened net migration into Berlin, a driver of population growth in recent years; as with many cities, lockdowns and the ability to work from home has increased the attractions of suburban locations relative to more central locations. Given the scale of the Berlin housing shortage, it seems unlikely that even if sustained this will have a material impact on the market.

Financials

Given the uncertainty surrounding the Mietendeckel rent cap at the time of our initiation of coverage in December 2020, we provided two scenarios to illustrate the likely financial outcome; one assuming Mietendeckel repeal and the other assuming it remained in place and that PSD’s strategy was adapted as a result. For clarity, both scenarios were based on the assumption that the Mietendeckel outcome would be known by the beginning of FY21.

In Exhibit 3, we show our old ‘Mietendeckel repeal’ scenario, as well as our new FY21 and FY22 forecasts. Our FY21 forecast is ahead of the old FY21 scenario, which primarily reflects stronger H221 like-for-like growth in contracted rents and in capital values than we had allowed for (see our last update note).

Exhibit 3: Forecast summary

€m unless stated otherwise

FY21 ‘repeal’ scenario

FY21e

FY22e

Revenue

24.8

28.2

28.1

Total property expenses

(14.8)

(16.3)

(17.1)

Gross profit

9.9

11.9

11.0

Administrative expenses

(3.3)

(3.2)

(3.3)

Gain on disposal of investment property

1.9

2.7

1.3

Fair value movement on investment property

39.1

40.4

42.6

Property advisor performance fee

(0.2)

(0.3)

(0.0)

Operating profit

47.4

51.5

51.6

Net finance charge

(6.8)

(7.2)

(7.2)

Profit before tax

40.7

44.3

44.4

Tax

(7.8)

(8.1)

(8.5)

Profit after tax

32.8

36.2

35.9

Non-controlling interest

(0.5)

(0.5)

(0.5)

Attributable profit after tax

32.3

35.6

35.4

EPS (€ cents)

33.2

37.1

36.8

DPS (€ cents)

7.50

7.50

7.50

EPRA NTA per share (€)

5.48

5.68

6.06

NTA total return

8.1%

8.9%

8.0%

Source: Edison Investment Research

Our new forecasts include the following key assumptions:

FY21 back payment of the higher rents that are now legally due for the period during which the Mietendeckel was in place amounting to €1.8m, as estimated by PSD as at 31 March 2021. PSD had amended its contract terms specifically to allow for the recovery of back-dated rents and tenants were advised by the Berlin government to set aside appropriate reserves for this eventuality. PSD has said that it will work on a case-by-case basis with any tenants suffering hardship, but that it anticipates recovering most of the rent due. This is clearly a positive for FY21 earnings but any failure to collect the amount due is not material to the PSD investment case, representing c 0.4% of end-FY20 EPRA NTA.

We have included share repurchases up to and including 11 June but have not assumed additional share repurchases, which are likely to occur and which would be accretive of EPRA NTA at the current discount. Our forecast condominium sales are at a level that we would deem ‘normal’ and are not linked to repurchases.

Average rental like-for-like growth in rents per sqm per month of 6.0% pa. This comprises:

a contribution from re-letting, assuming 10% lease churn and an average 30% uplift on the new rents;

indexation (or ‘staffein’) at 3.5% in respect of an assumed 75% of the portfolio; and

a 1.0% Mietspiegel uplift in respect of an assumed 25% of the portfolio.

Vacancy (by area) is forecast to reduce from 6.8% at end-FY20 to 4% by end FY21 and throughout FY22, closer to the 2–3% historical norm. EPRA vacancy (which excludes refurbishment properties) was 2.1% at end-FY20.

A gross margin (rental income less property costs, including the investment advisory fees, as a percentage of rental income) of 48–49% (very slightly below the five-year average but above the FY20 level of c 40%).

A slight reduction in FY21 administrative expenses compared with FY20 as legal and other expenses related to the Mietendeckel challenge fall away, offsetting inflation driven uplifts.

Condominium sales of €10m pa in both FY21 and FY22. We assume a 15% unrealised uplift in valuation as sales are notarised and an additional 15% realised uplift on the carried book value at completion (30% gain on sales in total).

Unrealised property valuation uplifts driven by like-for-like rental growth, adjusted for capex, and the unrealised gain on sale properties as notarised. This implies an unchanged, full-occupancy rental yield (contracted basis) of c 2.8%.

Finance expense includes total interest costs (including hedging costs) at an assumed 2.3% pa plus c €0.6m of non-cash loan arrangement fee amortisation.

We have applied deferred tax at the basic German rate of 20% to the property gains but do not expect any current tax to be payable in the foreseeable future due to negative earnings before property gains and available off-balance sheet tax losses.

We have assumed an unchanged dividend while EPRA NTA increases with retained earnings (and deferred tax add-backs). Our forecast EPRA NAV total returns would be unaffected by a change in DPS, which would simply adjust the balance between income and capital returns.

With the current rental income capturing only part of the reversionary potential, the asset yield is low at c 2.8% (on a full occupancy basis) and so dividend payments reflect operational cash flow including condominium sales. First-time EPRA earnings disclosure in the FY20 Annual Report (with FY19 comparable data) shows an EPRA loss (excluding unrealised and realised property gains) for the year of €4.5m or 4.6 cents per share. As reversionary potential is captured and while Mietendeckel-related costs fall away, our forecasts indicate an improving trend in EPRA earnings. FY21e benefits from back-date rent collection but without this benefit FY22e still shows a small profit.

Exhibit 4: EPRA basis earnings summary

€m

2019

2020

2021e

2022e

IFRS attributable profit after tax

22.3

29.8

35.6

35.4

Adjust for:

Change in fair value of investment property

(41.5)

(41.5)

(40.4)

(42.6)

Profit/(loss) on disposal of investment property

(0.9)

(2.2)

(2.7)

(1.3)

Change in fair value of financial instruments

12.8

1.8

0.3

0.0

Deferred tax adjustment

5.8

7.1

8.1

8.5

Total EPRA adjustments

(23.8)

(34.8)

(34.7)

(35.4)

Adjust for:

Non-controlling interests

0.2

0.5

0.3

0.4

Non-controlling interest (%)

0.0

0.0

0.0

0.0

EPRA earnings

(1.3)

(4.5)

1.3

0.3

EPRA EPS (cents)

(1.3)

(4.6)

1.4

0.3

Source: Phoenix Spree historical data, Edison Investment Research

Valuation

As noted above, PSD has a strong track record of EPRA NTA total return generation, well above its 8–10% pa target range. Our forecasts indicate EPRA NTA returns (change in NTA plus dividends paid) of 8.9% and 8.0% in FY21 and FY22 respectively.

The FY20 yield is 1.6% and the current P/NTA of 0.87x compares with an average c 0.92x since IPO. We estimate that the P/NTA would be significantly lower if the NTA were adjusted to include all condominium-designated assets at market values (see below).

Exhibit 5: Price to net assets history*

Source: Refinitiv data as at 1 June 2021. Note: *Historical series combining NAV and NTA.

The average notarised values per square metre reflected in Exhibit 2 above are specific to the mix of assets (different locations, floor space, etc) sold in that period and estimating the value of the portfolio on a full condominium basis is difficult. The average notarised value over the past three years has been c €4,530 per sqm. Applying a value of c €4,500 per sqm to the c 75% of the portfolio that is or will soon be designated as condominiums, and which is not already valued on a condominium basis, would imply an underlying P/NTA at the current share price of c 24%.

Exhibit 6: Net asset sensitivity to condominium valuation

Average condominium value (€per sqm)

4,000

4,250

4,500

4,750

5,000

Premium to FY20 portfolio average value (€ per sqm)

1%

7%

13%

19%

26%

Implied uplift to FY20 NTA

1%

7%

14%

21%

27%

Implied P/NTA based on current price (x)

0.86

0.81

0.76

0.72

0.68

Source: Edison Investment Research

PSD is the only German residential property investment company listed on the LSE. Other London-listed German property companies, Summit Germany and Sirius RE, are focused on commercial property. Germany-listed residential property developers with significant Berlin exposure are all much larger and include Deutsche Wohnen (75% Berlin), Vonovia (14% Berlin) and Grand City (24% Berlin).

Exhibit 7 shows a valuation and performance summary for PSD and its Germany-listed peers. Given PSD’s Berlin focus, Deutsche Wohnen represents the closest comparator in terms of portfolio exposure, although only a minority of its Berlin portfolio is designated as condominiums. The PSD trailing dividend yield is slightly below the peer average (similar to Deutsche Wohnen) and P/NTA is also slightly below the average (and well below that of Deutsche Wohnen). The agreed acquisition price for Deutsche Wohnen is around the last published NTA, a c 18% premium to price immediately before the offer and a 25% premium to the three-month average. The transaction represents a significant vote of confidence by Vonovia in the long prospects for the Berlin residential property market.

Exhibit 7: Peer valuation and price performance comparison

Price (local)

Market cap. (€m)

P/NTA (x)

Yield (%)

Share price performance

1 month

3 months

12 months

From 12M high

Grand City Properties

23.9

4,104

0.88

3.4

8.1

14.3

12.4

-0.5

Deutsche Wohnen

51.8

17,814

0.99

2.0

19.7

33.4

30.4

-1.3

Vonovia

53.8

30,467

0.85

3.1

5.1

-1.5

0.9

-14.5

Phoenix Spree Deutschland L

396

443

0.87

1.9

6.6

20.0

42.3

-3.4

Average

0.90

2.6

9.9

16.5

21.5

-4.9

Source: Company data, Refinitiv. Note: Prices as at 15 June 2021.

Exhibit 8: Financial summary

Year ending 31 December, €m unless stated otherwise

2015

2016

2017

2018

2019

2020

2021e

2022e

INCOME STATEMENT

Revenue

12.1

15.9

23.7

22.7

22.6

23.9

28.2

28.1

Total property expenses

(6.0)

(7.0)

(12.6)

(15.8)

(14.2)

(16.4)

(16.3)

(17.1)

Gross profit

6.1

8.9

11.1

6.9

8.4

7.5

11.9

11.0

Administrative expenses

(2.1)

(3.0)

(3.0)

(3.2)

(3.1)

(3.3)

(3.2)

(3.3)

Gain on disposal of investment property

0.7

0.8

5.3

1.0

0.9

2.2

2.7

1.3

Fair value movement on investment property

18.1

55.2

157.4

66.1

41.5

41.5

40.4

42.6

Property advisor performance fee

(1.3)

(6.4)

(26.3)

(4.0)

(2.8)

0.4

(0.3)

(0.0)

Separately disclosed items

(6.7)

0.0

0.0

(1.0)

(0.3)

0.0

0.0

0.0

Operating profit

14.7

55.6

144.5

65.9

44.6

48.3

51.5

51.6

Net finance charge

(3.2)

(6.8)

(6.0)

(9.5)

(16.0)

(10.4)

(7.2)

(7.2)

Gain on financial asset

1.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit before tax

13.0

48.9

138.5

56.4

28.6

37.9

44.3

44.4

Tax

(2.6)

(10.9)

(26.2)

(11.1)

(5.8)

(7.6)

(8.1)

(8.5)

Profit after tax

10.3

38.0

112.3

45.4

22.7

30.3

36.2

35.9

Non-controlling interest

(0.6)

(1.0)

(0.8)

(0.3)

(0.5)

(0.5)

(0.5)

(0.5)

Attributable profit after tax

9.7

37.0

111.5

45.1

22.3

29.8

35.6

35.4

Closing basic number of shares (m)

69.9

92.5

92.5

100.8

97.8

96.1

96.2

96.2

Average diluted number of shares (m)

70.5

91.5

100.2

99.0

102.1

98.9

96.1

96.2

IFRS EPS, diluted (€ cents)

0.14

0.40

111.4

45.6

21.8

30.1

37.1

36.8

DPS declared (€ cents)

5.7

6.2

6.9

7.5

7.5

7.5

7.5

7.5

DPS declared (Sterling pence equivalent)

4.2

5.3

6.4

6.7

6.5

6.8

6.5

6.5

EPRA NTA total return

11.8%

22.2%

52.6%

13.1%

9.3%

8.8%

8.9%

8.0%

BALANCE SHEET

Investment properties

283.6

395.8

502.4

632.9

719.5

749.0

786.4

837.8

Properties under construction

0.0

0.0

0.0

0.0

5.9

0.0

Other non-current assets

1.7

3.1

2.9

3.4

3.5

3.8

9.8

3.9

Total non-current assets

285.3

398.9

505.3

636.4

723.0

752.8

796.2

841.7

Investment properties held for sale

0.0

28.0

106.9

12.7

10.6

19.3

9.3

9.3

Cash & equivalents

12.8

18.5

27.2

26.9

42.4

37.0

37.0

29.2

Other current assets

2.3

7.5

14.4

7.5

9.5

8.4

11.0

10.3

Total current assets

15.0

53.9

148.5

47.1

62.6

64.7

57.3

48.8

Borrowings

(11.5)

(9.2)

(2.6)

(3.6)

(17.8)

(1.0)

0.0

0.0

Other current liabilities

(2.7)

(1.7)

(9.4)

(13.2)

(15.6)

(9.6)

(12.1)

(11.4)

Total current liabilities

(14.2)

(10.9)

(12.1)

(16.8)

(33.4)

(10.6)

(12.1)

(11.4)

Borrowings

(122.3)

(176.4)

(219.6)

(191.6)

(258.5)

(286.5)

(288.1)

(288.7)

Other non-current liabilities

(12.7)

(30.2)

(54.1)

(65.2)

(76.8)

(86.5)

(94.5)

(103.1)

Total non-current liabilities

(134.9)

(206.6)

(273.8)

(256.9)

(335.3)

(373.0)

(382.7)

(391.8)

Net assets

151.2

235.3

367.9

409.8

416.9

434.0

458.6

487.3

Non-controlling interest

(2.6)

(0.9)

(1.7)

(2.0)

(3.0)

(3.5)

(4.1)

(4.6)

Net attributable assets

148.5

234.3

366.2

407.9

413.9

430.4

454.5

482.7

Adjust for:

Deferred tax assets & liabilities

10.5

21.4

44.6

52.5

58.3

65.4

73.5

82.0

Derivative financial instruments

1.9

4.9

3.3

6.0

16.0

18.2

18.2

18.2

Other EPRA adjustments

(1.3)

(7.6)

(34.0)

(5.4)

(6.8)

(6.4)

(0.4)

(0.4)

EPRA net tangible assets (NTA)

159.6

253.0

380.2

461.0

481.4

507.6

545.8

582.5

IFRS NAV per share (€)

2.13

2.53

3.96

4.05

4.23

4.48

4.73

5.02

EPRA NTA per share (€)

2.28

2.73

4.11

4.58

4.92

5.28

5.68

6.06

CASH FLOW

Cash flow from operating activity

4.7

0.8

5.9

13.2

1.5

8.1

8.7

7.7

Income tax paid

0.0

0.0

(0.1)

(4.7)

(0.0)

(1.3)

0.0

0.0

Net cash flow from operating activity

4.7

0.8

5.8

8.5

1.4

6.7

8.7

7.7

Property additions

(17.4)

(72.8)

(76.5)

(47.3)

(32.2)

0.0

(5.9)

(5.9)

Proceeds from disposal of investment property

5.5

4.3

60.4

86.0

13.5

7.2

22.7

11.3

Capital expenditure on investment property

(3.9)

(4.2)

(6.7)

(7.9)

(6.5)

(4.2)

(7.0)

(7.0)

Other cash flow from investing activity

(0.2)

(0.7)

0.0

0.0

0.1

(5.9)

0.0

0.0

Cash flow from investing activity

(16.1)

(73.4)

(22.7)

30.8

(25.1)

(2.9)

9.8

(1.5)

Interest paid

(4.0)

(3.2)

(5.1)

(5.1)

(6.2)

(7.5)

(6.7)

(6.7)

Bank debt drawn/(repaid)

26.3

39.4

36.7

(27.0)

64.6

11.2

0.0

0.0

Share issuance/repurchase

0.0

47.5

0.0

0.0

(11.5)

(6.0)

(4.6)

0.0

Dividends paid

(1.2)

(5.0)

(6.0)

(7.5)

(7.7)

(7.0)

(7.3)

(7.2)

Other cash flow from financing activity

(0.6)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Cash flow from financing activity

20.5

78.6

25.6

(39.6)

39.2

(9.3)

(18.5)

(13.9)

Change in cash

9.2

6.0

8.7

(0.3)

15.5

(5.4)

0.0

(7.8)

FX

0.0

(0.3)

(0.0)

(0.0)

(0.0)

(0.0)

0.0

0.0

Opening cash

3.6

12.8

18.5

27.2

26.9

42.4

37.0

37.0

Closing cash

12.8

18.5

27.2

26.9

42.4

37.0

37.0

29.2

Closing debt

(133.8)

(185.6)

(222.3)

(195.3)

(280.2)

(291.4)

(291.4)

(291.4)

Closing net debt

(121.0)

(167.1)

(195.1)

(168.4)

(237.8)

(254.4)

(254.4)

(262.2)

LTV

42.7%

39.4%

32.0%

26.1%

32.6%

33.1%

32.0%

31.4%

Source: Phoenix Spree Deutschland historical data, Edison Investment Research forecasts

General disclaimer and copyright

This report has been commissioned by Phoenix Spree Deutschland and prepared and issued by Edison, in consideration of a fee payable by Phoenix Spree Deutschland. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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

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60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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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

General disclaimer and copyright

This report has been commissioned by Phoenix Spree Deutschland and prepared and issued by Edison, in consideration of a fee payable by Phoenix Spree Deutschland. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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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