REG - Phoenix SpreeDeutsch - Debt Mod, Portfolio Sale & 2025 Continuation Vote

Phoenix Spree DeutschlandAnnouncement

17/12/2024 07:00

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RNS Number : 3066Q  Phoenix Spree Deutschland Limited  17 December 2024

17 December 2024

 

Phoenix Spree Deutschland Limited

("PSD" or the "Company")

DEBT MODIFICATION, PORTFOLIO SALE, AND UPDATE ON 2025 CONTINUATION VOTE

Phoenix Spree Deutschland (LSE: PSDL.LN), the Berlin residential real estate
specialist, announces a significant strategic transaction and updates
shareholders on the Company's future direction ahead of the 2025 Continuation
Vote.

Strategic Overview

The Company has agreed amended financing terms with the Company's principal
lender, which enables the Company to accelerate significantly its condominium
sales programme, targeting annualised sales of €50 million from 2025. In
order to achieve this amendment, the Company has agreed to a strategic
disposal of 16 buildings, comprising 385 units.

This enhanced strategy represents a carefully managed Portfolio realisation
programme designed to maximise shareholder value. Given these strategic
developments, the Board intends to bring forward the date of the Company's
Continuation Vote and will propose amendments to the Investment Objective and
Policy to facilitate an orderly Portfolio liquidation that balances timely
capital returns with value optimisation.

Key Highlights:

·    Enhanced Financing Structure: Modified debt terms agreed with the
Company's principal lender to allow for accelerated condominium sales.

·    Expanded Condominium Sales Potential Unlocked: This will increase the
number of buildings permitted under PSD's existing debt facility to be sold as
condominiums at any one point in time from 6 to 40, currently representing 950
units.

·    Valuation Impact: For the financial year ending 31 December 2024,
over 50 per cent of buildings in the Portfolio are expected to be valued on a
condominium sales basis.

·    Value Realisation Strategy: Implementation of accelerated sales
programme to maximise shareholder returns through targeted condominium sales.
There will be restrictions on cash returns to shareholders until the Company's
principal debt facility is repaid or refinanced.

·    Strategic Disposal: Debt amendment facilitated through the sale of an
SPV owning 16 rental buildings (385 units) to funds managed by Partners Group
for €75.9 million.

·    Strengthened Balance Sheet: €58.8 million debt reduction from
€316.7 million to €257.9 million as at 30 June 2024 on a pro forma basis,
resulting in a reduction in net LTV from 46.5 per cent to 42.7 per cent.

·    Strategic Direction: The Board has explored a range of strategic
options, including a possible sale of the Company, to address proactively the
Company's share price discount to EPRA net asset value and to maximise value
for shareholders. The Board believes the accelerated condominium sales
strategy represents the best outcome for shareholders and is no longer
actively exploring a possible sale of the Company.

·    Continuation Vote: The Board proposes to bring forward the Company's
upcoming Continuation Vote and will recommend that shareholders vote in favour
of continuation. This will allow the sale of condominiums and PRS assets to be
implemented over time, offering greater optionality to deliver shareholder
value.

 

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

"The announcement of our agreement to sell a portfolio of 16 buildings marks a
crucial step in advancing our value realisation strategy. This transaction has
enabled us to secure revised lending terms that will facilitate a significant
increase in condominium sales.

The Board recognises the importance of next year's Continuation Vote in
determining the Company's future strategic direction. Following consultation
with our major shareholders, we believe that a managed Portfolio realisation,
primarily through condominium sales, offers the optimal path to maximising
shareholder value.

We look forward to providing shareholders with detailed information about this
proposal in a circular to be published on or before 17 February 2025."

Strategic Context and Implementation

Since the market downturn began in 2022, the Board has observed that PSD's
share price has not reflected the inherent value of the Portfolio's
condominium potential, resulting in the shares trading at a significant
discount to EPRA Net Asset Value. The Board and Property Advisor have worked
actively to address this value gap through various initiatives.

The Company demonstrated its commitment to shareholder value by undertaking
share buybacks, having repurchased 8.9 per cent of its initial issued share
capital since 2019. The April 2024 strategy update focused on unlocking value
through increased condominium sales, recognising the substantial premium that
individual condominium sales command compared to disposals of whole PRS
buildings.

Enhanced Sales Strategy and Portfolio Sale

The portfolio sale to funds managed by Partners Group has unlocked an
opportunity to renegotiate our principal debt facility, which will enable a
step-change in permitted condominium sales and value-enhancing capital
expenditure. In support of the new strategy, the Company has strengthened its
sales capability, having engaged the services of two leading condominium sales
platforms, Engel & Völkers and Lübke Kelber. Current market evidence
supports achievable values of approximately €5,000 per sqm for vacant units
and €3,500 for tenanted units.

Condominium Sales Programme

Following the disposal, the Company's remaining Portfolio comprises 61
buildings (or 1,689 units) approximately 80 per cent of which are legally
split for condominium sales and a further 14 PRS buildings (480 units) which
are not legally split.

The strategic transaction and debt facility amendment announced today will
accommodate:

·    Increase from 6 to 40 buildings permitted for condominium sales at
any point in time.

·    Initial condominium sales phase of 16 buildings (including the
current sales inventory of 6), increasing available units for sale from 117 to
375 by end-2024.

·    A further 24 buildings, representing a further 576 units, are
scheduled for marketing in H1 2025.

·    Potential for further buildings to be added, subject to future
refinancing arrangements.

Condominium sales continue to demonstrate significant value uplift:

·    Average achieved price of €4,122 per sqm year-to-date.

·    19 per cent premium to H1 2024 JLL Portfolio valuation.

·    Vacant units achieving a material premium to Portfolio valuation.

·    Strong market fundamentals supporting continued price premiums.

Portfolio Sale Details

As previously announced, the Company has been actively pursuing opportunities
to sell individual assets and portfolios through various sales platforms and
direct marketing initiatives. The assets in the portfolio sale, most of which
were acquired in 2017, generate an average monthly rent per sqm of €9.8
compared to the remaining Portfolio average of €10.7 per sqm.

 

The portfolio, which is held in an SPV, is being acquired by funds managed by
Partners Group, a leading global private markets firm as share deal. To
facilitate the transaction, QSix is required to remain as Property Advisor for
the portfolio and has undertaken to co-invest 2.5 per cent.

 

The portfolio sale is not subject to shareholder approval. It is expected to
complete by the end of 2024 following receipt of regulatory approval.

 

Lazard & Co., Limited is acting as financial adviser to the Company in
relation to the portfolio sale and the Continuation Vote.

 

Financial Impact

The Company has reached agreement in principle with the Company's main lender,
Natixis, to modify the Company's principal lending facility (subject to
documentation). The impacts of the combination of the amended financing terms
and the disposal include:

·    €58.8 million debt reduction from €316.7 million to €257.9
million as at 30 June 2024 on a pro forma basis, resulting in an improvement
in net LTV of 42.7 per cent from 46.5 per cent.

·    After debt repayment, €12.9 million of cash will be released, of
which €9 million will be allocated for value-enhancing capital expenditure
on condominium properties in order to enhance sales proceeds and velocity.

·    All in cost of debt following the modification rises from 2.58 per
cent to 2.90 per cent.

·    The transaction is expected to dilute EPRA NTAPS by approximately 7.9
per cent. On a pro forma basis, EPRA NTAPS is expected to reduce from €3.68
to €3.39 per share (£3.12 to £2.85 per share).

·    A reduction in the annual asset management fees payable to the
Property Advisor of approximately 7.9 per cent.

·    For the financial year ending 31 December 2024, in excess of 50
percent of buildings in the Portfolio are expected to be valued on a
condominium sales basis, reflecting higher realisable values of condominium
units versus PRS buildings).

As a result, the Company will be able to execute its accelerated condominium
sales programme. Under the amended debt facility, the Company will not be able
to make distributions, including dividends and share buybacks, while the
facility is outstanding. The Natixis loan is due to mature in September 2026.
However, subject to the Company's Continuation Vote being approved, the
Company intends to seek alternative financing in order to accelerate
distributions to shareholders ahead of this date. Any early repayment of
existing debt would not trigger repayment penalties.

 

Shareholder Consultation and Strategic Direction

The Company is obliged, pursuant to its Articles, to propose a Continuation
Vote no later than June 2025.

The Board, supported by Lazard, has explored a range of strategic options to
address proactively the Company's material share price discount to EPRA Net
Asset Value and to maximise value for shareholders. This included exploring
the feasibility of a cash offer for the Company, an amendment of PSD's
existing debt facility with Natixis to enable accelerated condominium sales
and the sale of individual assets and portfolios of assets. Given current
market pricing dynamics for individual condominium unit sales versus the
alternative of whole building sales, the Board considers that the accelerated
condominium sales strategy represents the best outcome for shareholders.
Although the Board is no longer actively exploring a possible sale of the
Company, this strategy would not rule out alternatives in the future should
they appear feasible and provide higher returns for shareholders. The Board
did not receive a firm proposal to acquire the whole Company.

 

Given these significant developments, the Board believes it is sensible to
bring forward the Continuation Vote to allow shareholders to approve the
strategy stated above and create certainty over the Company's future
direction.

 

Accordingly, and having consulted with a number of major shareholders, the
Board today announces that it is bringing forward the date of the Continuation
Vote. Additionally, the Board proposes to amend the Investment Objective and
Policy to pursue a managed process of condominium sales over time, balancing
the need to return cash to shareholders promptly while maximising value. In
effect this constitutes a managed wind down of the Company's Portfolio.

 

If the Continuation Vote is passed by shareholders, the Board will continue to
undertake the accelerated condominium sales strategy, but within an extended
timeframe that allows for greater control and flexibility to renegotiate debt
facilities and to achieve better pricing for its assets.

 

Should the Continuation Vote not pass, the Board will be required to formulate
proposals for the voluntary liquidation, reorganisation or reconstruction of
the Company for consideration by shareholders at a general meeting to be
convened by the Board for a date not more than six months after the date of
the meeting at which the Continuation Vote was not passed.

 

The Board will recommend that shareholders vote in favour of the Continuation
Vote to allow the sale of condominium and PRS assets to be implemented over
time, offering greater optionality to deliver shareholder value. In the event
that the Continuation Vote is passed, the Company will propose a further
Continuation Vote no later than three years subsequently.

The posting of the circular to shareholders providing further details is
expected on or before 17 February 2025.

For further information, please
contact:

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

 Stuart
 Young

 Deutsche Numis (Corporate Broker)                                                               +44 (0)20 3100 2222

 David Benda

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

 Lizzie Snow / Annushka Shivnani

 

Disclaimer

Lazard & Co., Limited ("Lazard"), which is authorised and regulated by the
FCA in the United Kingdom, is acting exclusively as financial adviser for
Phoenix Spree Deutschland Limited and for no one else in connection with the
matters described in this announcement and will not be responsible to anyone
other than Phoenix Spree Deutschland for providing the protections afforded to
clients of Lazard or for providing advice in connection any matter described
in this announcement. Neither Lazard nor any of its affiliates (nor their
respective directors, officers, employees or agents) 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.

 

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