REG - Phoenix SpreeDeutsch - AGM & Property Advisor Proposal

Phoenix Spree DeutschlandAnnouncement

05/06/2023 07:00

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RNS Number : 5643B  Phoenix Spree Deutschland Limited  05 June 2023

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OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR"). UPON PUBLICATION OF THIS
ANNOUNCEMENT, THE INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC
DOMAIN FOR THE PURPOSES OF MAR.

 

5 June 2023

 

Phoenix Spree Deutschland Limited

("PSD" or the "Company")

Annual General Meeting and Proposal to Change Fees Payable to the Property
Advisor

Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed investment
company specialising in Berlin residential real estate, announces the
publication of the Notice of its 2023 Annual General Meeting ("AGM").

The Company's AGM is being held at IFC 5, St Helier, JE1 1ST, Jersey at 11:00
a.m. (BST) on 28 June 2023.

Separately, the Board of PSD has been discussing with QSix Residential
Limited, the Company's property advisor ("Property Advisor"), the fees paid
under the existing Property Advisor and Investor Relations Agreement ("PAIR").

These discussions considered, inter alia, the appropriate level of fees going
forward and how to align the incentives of the Property Advisor more closely
with the Company's short-term strategic priorities and the interests of its
shareholders ("Shareholders").

The Board and the Property Advisor have now concluded these discussions, and
the Board has decided to put forward a proposal to all Shareholders to change
the fees payable to the Property Advisor from 1 July 2023 for a 12-month
period as described below (the "Proposal"). A resolution to approve the
Proposal is set out in the circular (the "Circular" or "AGM Notice") published
today to convene the AGM, in addition to the ordinary course resolutions for
the AGM.

The Proposal does not require shareholder approval under the Listing Rules,
but the Board has decided that it should nevertheless be put to Shareholders.

Robert Hingley, Chairman of the Company, commented:

"The Board is pleased to recommend the Proposal to Shareholders. It should
ensure closer alignment of the Property Advisor's incentives with the
Company's short-term strategic priorities and in practice will likely result
in a lower level of fees being paid over the next 12 months than under the
existing terms."

Background and Rationale

As disclosed in the Company's financial results for the year ended 31 December
2022, the performance of the Company's core rental business remains strong and
its leverage remains at conservative levels. Given its confidence in the
long-term potential of the Berlin residential property market and the quality
of the Company's assets, the Board shares the frustration of Shareholders that
PSD's share price remains at a material discount to NTA. Under the Company's
business model, generating sufficient cash to pay dividends is substantially
dependent on condominium and/or other asset sales and, in recent times, these
have been difficult to implement at prices that the Board believes reflect the
long-term value of the properties. Accordingly, the Board took the difficult
decision to suspend dividend payments in order to preserve the financial
strength of the Company and to avoid pressure to dispose of assets at prices
which the Board considers not to be in Shareholders' interests.

Nevertheless, the Company continues to market actively both individual
properties and portfolios for sale. Disposals at a discount to current
carrying value may be made, but only at levels which the Board considers to be
in Shareholders' interests. Plans to bring additional condominium properties
to market have also been accelerated. Any surplus cash generated over amounts
required to reinvest in the Company's existing portfolio and reinstate
dividends on a sustainable basis will, so long as the material discount to NTA
persists, continue to be used principally to return capital to Shareholders
and not to acquire further properties. This enhanced disposal activity will be
the primary focus of the Company's strategy for at least the next 12 months.

In order more closely to align the incentives of the Property Advisor with the
Company's short-term strategic priorities and the interests of its
Shareholders, the Board is proposing to change the fees payable to the
Property Advisor from 1 July 2023 for a 12-month period as described below.

Proposal Overview

The Board proposes to cap all ongoing fees to QSix - other than a new disposal
fee ("Disposal Fee") set out below and any asset and estate management
performance fee ("Performance Fee") for the period - in aggregate at €5.0m
(the "Ongoing Fee Cap") starting from 1 July 2023 for a 12-month period. This
compares to aggregate asset management, capital expenditure monitoring and
investor relations fees of €7.4m for the year ended 31 December 2022. QSix
has agreed to waive any Performance Fee for the period, which in any case
would have been highly unlikely to accrue.

The €5.0m Ongoing Fee Cap will be renegotiated in the first quarter of 2024
(and each subsequent year) to take effect from 1 July in each year. In the
absence of a new ongoing fee cap being agreed by next July, the €5.0m
Ongoing Fee Cap under the Proposal will revert to the terms of the existing
PAIR. The Board will consult Shareholders with regard to these future
negotiations at the appropriate time.

Simultaneously, in order to align the incentives of the Property Advisor in
the context of the Company's expected enhanced disposal activity, the Board is
also proposing to introduce a disposal fee of 1% of the gross value of assets
sold over the 12-month period from 1 July 2023 in any form, including, but not
limited to, condominiums, single properties, portfolios or of all or any of
the entities that own the Company's properties. At least €235m of disposals,
representing ~30% of last reported GAV 1  (#_ftn1) , would be required over
the next 12 months for aggregate fees payable to QSix in the 12-month period
from 1 July 2023 to equal those paid for the year ended 31 December 2022. In
addition, although this is not a strategic option the Board is seeking or
contemplating given the current share price, if an offer was to be received
for the shares of the Company which became unconditional in the 12-month
period from 1 July 2023, a Disposal Fee would be payable to the Property
Advisor calculated on the following basis:

·      The gross value of assets sold for the purposes of the Disposal
Fee in this context would correspond to the offer price-implied enterprise
value of the Company (or a proportion thereof based on the shareholding
acquired).

·      Under the existing PAIR, an offer for PSD shares becoming wholly
unconditional entitles the Property Advisor to a crystallisation fee equal to
the performance fee that would be payable as if the offer completion date was
the end of a performance period. QSix have agreed to waive this for the period
of 12 months starting on 1 July 2023.

·      Under the existing PAIR, the Property Advisor would also be
entitled to an additional fee ("Additional Fee") equal to the full annual
asset management fee based on last reported EPRA NTA, effectively in lieu of
12 months' notice. It has now been agreed that a €5.0m cap will apply to
this fee, in line with the Ongoing Fee Cap. The cap on the Additional Fee may
be renegotiated in subsequent years in line with the Ongoing Fee Cap, but, in
the absence of agreement to the contrary, the fee payable will revert to the
terms of the existing PAIR.

·      The Property Advisor would not be entitled to the Disposal Fee if
it (or any member of its group) formed part of any offeror consortium and/or
retained its role as Property Advisor following an offer for PSD becoming
wholly unconditional.

It is proposed to pay the Disposal Fee in all of the circumstances identified
above - so long as the Property Advisor (or any member of its group) does not
form part of any offeror consortium and/or retain its role as Property Advisor
following an offer for the Company becoming wholly unconditional - to ensure
that the Property Advisor is indifferent to the method of disposal and is
simply incentivised only to achieve the highest price possible for the assets
of the Company.

In the context of ongoing disposals and potential returns of capital to
Shareholders, the Board would expect total fees payable to the Property
Advisor to decline over time. Disposal Fees may be incorporated in fee
arrangements for subsequent years if enhanced disposal activity is expected to
continue.

The Board is formalising the Proposal in the form of an amended and restated
property advisory and investor relations agreement, which is conditional on
Shareholder approval.

Related Party Transaction

The Proposal constitutes a related party transaction to which the modified
requirements for smaller related party transactions in the Listing Rules
apply. Under the smaller related party transaction rules, there is no
requirement for Shareholders to vote on the Proposal. However, given the
Proposal involves a change to the structure of QSix's fees, the Company is
giving Shareholders the opportunity to approve the Proposal as an ordinary
resolution at the AGM. The Company has received an undertaking from QSix
Residential Limited that neither it nor any member of the QSix Group nor their
associates as defined in the Listing Rules published by the Financial Conduct
Authority will vote on the resolution.

Lazard & Co., Limited ("Lazard") has provided written confirmation to the
Company pursuant to LR 11.1.10R(2)(b) in its capacity as the Company's sponsor
that the Proposal is fair and reasonable as far as the Shareholders of the
Company are concerned. Lazard has given and has not withdrawn its written
consent to the inclusion in this document of the references to its name in the
form and context in which they are included.

If the relevant resolution is not passed, the Proposal will not go ahead and
the Company's existing fee arrangements will remain in place.

Shareholder Circular and Annual General Meeting

As mentioned above, the Company's AGM is being held at IFC 5, St Helier, JE1
1ST, Jersey at 11:00 a.m. (BST) on 28 June 2023.

The Circular (including the Proposal), together with the annual report and
financial statements for the year ended 31 December 2022 , has been posted to
Shareholders, submitted to the National Storage Mechanism and is available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . The documents can
also be obtained from the Company Secretary or from the Company's website at
https://www.phoenixspree.com/investors/annual-general-meeting/
(https://www.phoenixspree.com/investors/annual-general-meeting/)

Instead of attending in person, Shareholders are strongly encouraged to
exercise their votes by submitting their proxy electronically or by post. To
ensure their vote counts, Shareholders should appoint the Chair of the AGM
(and not another named person) as their proxy. In order to be valid any proxy
form or other instrument appointing a proxy must be returned duly completed to
Link Market Services (Jersey) Limited by no later than 11:00 a.m. (BST) on 26
June 2023. Full details on registering a proxy are available in the AGM
Notice.

Shareholders with questions that they would have raised at the meeting are
kindly requested to submit these by email to the Company Administrator at
phoenix@apexgroup.com (mailto:phoenix@apexgroup.com) . Shareholders can
alternatively request a one-on-one conference call from Phoenix Spree Investor
Relations by e-mailing a request to the same address. Please note that it is
not possible to cast AGM votes by e-mailing the Company Administrator.

Legal Entity identified: 213800OR6IIJPG98AG39

For Further Information, Please Contact:

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

Stuart Young

 

Numis Securities Limited (Corporate Broker)
         +44 (0) 20 7260 1000

David Benda

 

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

Olivia Peters

Jo Blackshaw

Important Notice

Lazard, which is authorised and regulated in the United Kingdom by the
Financial Conduct Authority, is acting exclusively as financial adviser to PSD
and no one else in connection with the Proposal and will not be responsible to
anyone other than PSD for providing the protections afforded to clients of
Lazard nor for providing advice in relation to the Proposal or any other
matters referred to in this announcement. Neither Lazard nor any of its
affiliates owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, in tort, under statute or
otherwise) to any person who is not a client of Lazard in connection with this
announcement, any statement contained herein or otherwise.

 1  (#_ftnref1) Assuming that these assets are sold at their book value.

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