Phoenix Spree Deutschland Limited New Property Advisory Investor Relations Agreement (5533I)

TIDMPSDL

RNS Number : 5533I

Phoenix Spree Deutschland Limited

27 November 2018

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 ("MAR"). Upon publication of this announcement, the inside information is now considered to be in the public domain for the purposes of MAR.

27 November 2018

Phoenix Spree Deutschland Limited

New Property Advisory and Investor Relations Agreement

Phoenix Spree Deutschland Limited (LSE: PSDL.LN, "PSDL" or "the Company"), the UK premium-listed investment company specialising in Berlin residential real estate, is pleased to announce that it has entered into a new property advisory and investor relations agreement (the "New PAIR") with PMM Residential Limited (the "New Property Adviser"), a member of the PMM Group, conditional on shareholder approval.

The New PAIR will replace the existing property advisory agreement (the "Existing PAA") with PMM Partners (UK) Limited (the "Existing Property Adviser").

Key information:

-- The New PAIR will reduce future management fees paid by the Company and will, therefore, result in significant cost savings:

o Based on the Company's EPRA NAV as at 30 June 2018, the New PAIR represents an annual saving of EUR838k, when compared with the Existing PAA, rising to EUR875k per annum should EPRA NAV reach EUR500m.

o In respect of any finance fees and transaction fees, any amounts paid under the New PAIR will be deducted from the management fee. For the financial year ending 31 December 2018, these fees are estimated to equal approximately EUR130k.

o For the period from 1 July 2018 to 31 December 2020, the performance fee payable under the New PAIR will be reduced by 20% compared with that payable under the Existing PAA and by 25% for periods thereafter.

o The performance fee will now be satisfied entirely through the issue of new PSDL shares at a price equal to the higher of EPRA NAV per share or the then share price, rather than through the payment of cash used to subscribe for new shares.

-- The New PAIR strengthens the long-term relationship between the Company and its experienced property advisory team, which has an excellent record: since June 2015 PSDL has delivered total EPRA NAV shareholder returns of 115% and a 141% increase in share price. The initial term of the New PAIR will be to 31 December 2022, providing greater certainty and stability for shareholders.

-- The New Property Adviser expects to invest in infrastructure, IT systems and personnel dedicated to servicing the Company's requirements.

-- The types and levels of service provided to the Company by the New Property Adviser will be substantially the same as has been provided by the Existing Property Adviser, with, in fact, some expansion of scope.

-- The property advisory team will remain substantially the same, with the exception of Paul Ruddle, Co-Founder of PMM Partners, who has decided to step back from an executive role within the PMM Group and will not have a shareholding in the New Property Adviser. Paul will act as a consultant to the New Property Adviser for an initial 18-month period, ensuring that it continues to benefit from his advice and support.

-- The Company will benefit from the deeper pool of resources and expertise offered by the New Property Adviser, as part of the PMM Group. The PMM Group is a diversified group with FCA-regulated companies, and is larger and better capitalised than the Existing Property Adviser.

-- The Existing Property Adviser, together with its associates, is deemed to be a related party of the Company and the replacement of the Existing PAA with the New PAIR is, therefore, subject to PSDL shareholders (other than PMM Group and its associates) approving by ordinary resolution PSDL's entry into the New PAIR at an Extraordinary General Meeting of the Company, notice of which will be announced shortly.

Robert Hingley, Chairman of PSDL, commented:

"This is an excellent outcome for the Company. We are very pleased on behalf of shareholders to have secured PMM Group's continued expertise as property adviser until at least the end of 2022, as well as to have reduced the fees paid by the Company as a proportion of EPRA NAV for those services. We look forward to building on this relationship over the coming years and continuing our strong record of performance."

Mike Hilton, Director of PMM Residential Limited, commented:

"We are delighted to have agreed this extension to our relationship with PSDL. This will provide improved security and visibility for PSDL and its shareholders over the medium-term. We will maintain our highly disciplined approach to active property management in the Berlin market and continue to drive value for PSDL shareholders."

For further information, please contact:

Phoenix Spree Deutschland Limited

Stuart Young [phone]

Numis Securities Limited (Corporate Broker)

David Benda [phone]

Tulchan Communications (Financial PR)

Elizabeth Snow [phone]

Amber Ahluwalia

Notes to Editors

About Phoenix Spree Deutschland

PSDL is an investment company founded in 2007 and listed on the London Stock Exchange. It offers shareholders exposure to the Berlin residential market. Since PSDL was incorporated in Jersey in 2007, the Company has assembled an attractive portfolio of German real estate assets. As at 30 June 2018, the portfolio was valued at EUR584 million and consisted of 93 properties containing 2,322 residential units and 152 commercial units, representing a total lettable area of approximately 180,000 square metres. The primary assets are multi-apartment residential buildings, mostly built pre-1914 or post-1990, and 94 per cent. of the Company's portfolio by total units relates to residential property, with the balance being commercial property.

About PMM Group

PMM Partners was formed in 2006 by Mike Hilton, Paul Ruddle and Matthew Northover to act as property adviser to the Company. An affiliated and FCA-regulated entity, PMM Advisers LLP ("PMM Advisers") was formed in 2007 and acts as an investment adviser on a number of UK property and property-related debt funds. In 2015, a new related company, the Existing Property Adviser, replaced PMM Partners as property adviser to the Company.

As at 30 June 2018, the PMM Group had gross assets under management of approximately EUR1.0 billion, employed over 50 staff, and had four offices in London, Berlin, Dublin and Surrey. Its interests cover German residential, UK specialist mortgages, commercial property lending and loan servicing. The PMM Group benefits from a robust operating platform which includes in-house legal, finance, IT and compliance services.

Background to and rationale for the related party transaction

Phoenix Spree Deutschland Limited is a closed-ended investment company, incorporated in Jersey on 2 April 2007, which invests in the German real estate market, particularly residential property in Berlin. Since incorporation, it has been managed by various entities associated with Mike Hilton, Paul Ruddle and Matthew Northover. The Company appointed the Existing Property Adviser to act as its property adviser pursuant to the Existing PAA prior to the admission of the Company's shares to listing on the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities (which occurred on 15 June 2015). Under the stewardship of the Existing Property Adviser, the Company has experienced a successful period as a listed company, delivering total EPRA NAV shareholder returns of 115% and experiencing a 141% increase in share price.

The principals and shareholders of the Existing Property Adviser have notified the Board of their intention to restructure their business interests creating the PMM Group, with the aim of consolidating their interests in four business areas: German property; UK specialist mortgages; commercial property lending; and mortgage servicing. As at 30 June 2018, the PMM Group had gross assets under management in excess of EUR1.0 billion and employed 50 staff in its London, Berlin, Dublin and Surrey offices.

The restructuring of various business interests within the PMM Group and the entry into the New PAIR with the New Property Adviser, subject to PSDL shareholder approval, will mean PSDL is able to benefit from the services of an FCA-regulated entity which is part of a larger, more diversified group of companies. Moreover, the new structure will enable the New Property Adviser to more easily access shared PMM Group services such as finance, IT, compliance and legal.

As part of the restructuring, Paul Ruddle has decided to step back from an executive position within the PMM Group. As a result, he will not be a shareholder in the new structure and will, instead, provide consultancy services to the New Property Adviser for an initial 18-month period. Mike Hilton, Matthew Northover, Giles Avery and Jörg Schwagenscheidt (CEO of PMM Partners Germany GmbH) will continue to manage the day-to-day operations of the New Property Adviser. The New Property Adviser will also be able to call on the resources of the broader PMM Group, which brings significant additional expertise of relevance to PSDL's operations.

The Company has, subject to PSDL shareholder approval, agreed to: (i) enter into the New PAIR; and (ii) terminate the Existing PAA. Further information on each of the New PAIR and the Termination Agreement are set out below and in Appendix I.

Key differences between the Existing PAA and New PAIR

Set out in Appendix I are the fees to which the Existing Property Adviser is entitled under the Existing PAA, as well as the proposed amendments to these under the New PAIR. Except in relation to a small fee payable for a service to be provided by the New Property Adviser relating to investor relations, which itself replaces an existing payment to an associated company of the Existing Property Adviser, in each other case, the basis for determining the ongoing fees payable by the Company under the New PAIR will be either the same as or less than those that would be incurred under the Existing PAA.

Based on the Company's EPRA NAV as at 30 June 2018 of EUR425.8 million, the New PAIR represents an annual saving of EUR838k when compared with the Existing PAA, rising to EUR875k per annum should the Company's EPRA NAV reach EUR500.0 million.

Furthermore, under the terms of the New PAIR, additional fees relating to acquisitions and financing will now be deducted from the management fees. In 2018, these additional fees are expected to total approximately EUR130k.

The New PAIR also offers additional potential cost savings from a reduced rate of performance fee compared to the Existing PAA: for the period from 1 July 2018 to 31 December 2020, the performance fee payable under the New PAIR will be reduced by 20% compared with that payable under the Existing PAA and by 25% for periods thereafter.

The Existing PAA can be terminated by either party on 12 months' notice. In order to provide greater certainty and ongoing stability for the Company, its shareholders and its property adviser, the New PAIR has an initial minimum term ending on 31 December 2022 to ensure that the Company secures the services of the PMM Group over that period and to give the New Property Adviser the confidence to further invest in infrastructure, IT systems and personnel dedicated to servicing the Company's requirements. From 31 December 2021 and at any time thereafter, it may be terminated by either party on 12 months' notice.

To ensure the interests of the Company and its shareholders are aligned with the New Property Adviser, under the New PAIR, should the Company be subject to: (i) a takeover offer becoming or being declared wholly unconditional (a "Share Sale Exit"); or (ii) the Company realising its portfolio for cash (either directly or indirectly) pursuant to a single or linked series of transactions with the Company having a bona fide intention of returning all or substantially all of the proceeds in cash to shareholders (a "Property Sale Exit"), the fees that the New Property Adviser will be entitled to receive will be calculated as set out below.

In the event of a Share Sale Exit, the relevant performance period will end on the date the takeover offer becomes or is declared wholly unconditional (the "Share Sale Completion Date") and the New Property Adviser will be entitled to receive a performance fee calculated on the basis that the EPRA NAV per share is equal to the offer price per share of such takeover offer (the "Share Sale Fee"). The Share Sale Fee shall be satisfied by the issue of new shares. The New Property Adviser will also be entitled to an additional fee payable in cash equal to the full annual Portfolio and Asset Management Fee that would be payable based on the most recently published EPRA NAV immediately prior to the Share Sale Completion Date. The entitlement to this fee under the New PAIR replaces the existing requirement for the Company to serve 12 months' notice under the Existing PAA. The New PAIR will terminate automatically on the Share Sale Completion Date.

In the event of a Property Sale Exit, the Board will convene an extraordinary general meeting of the Company to put forward proposals to shareholders to realise the Company's portfolio and return all or substantially all of the proceeds in cash to shareholders (the "Property Sale EGM"). If approved by shareholders, the Board will proceed with a Property Sale Exit. The New Property Adviser will be entitled to a performance fee (the "Property Sale Performance Fee") equal to the amount that would become payable as if the date on which more than 75 per cent. by value of the Company's portfolio has completed (the "Property Sale Trigger Date") was the end of a performance period, calculated on the basis that the Company's EPRA NAV per share is equal to the Directors' calculation of the estimated return per share to shareholders. Payments to the New Property Adviser will be made at the same time as distributions to shareholders and the estimated return per share may be revised by the Directors with the result that the Property Sale Fee may be recalculated accordingly. The Property Sale Fee will be paid in cash. In addition to the Property Sale Fee, the New Property Adviser will be entitled to a fee payable in cash equal to the full annual portfolio and asset management fee that would be payable based on the most recently published EPRA NAV of the Company immediately prior to the Property Sale EGM. This fee will be payable in four equal instalments paid quarterly over the 12-month period following the Property Sale Trigger Date. The entitlement to this fee under the New PAIR replaces the existing requirement for the Company to serve 12 months' notice under the Existing PAA. In the event of a Property Sale Exit, the New PAIR will terminate automatically without notice on the liquidation of the Company.

The Company believes that these changes better align the interests of the New Property Adviser and shareholders.

Lock-in arrangements

The Company has entered into a lock-in deed with the New Property Adviser pursuant to which the New Property Adviser has covenanted not to dispose of any interest in fifty per cent. of any shares it receives pursuant to the New PAIR for a period (in each case) of six months from the date of issue of the relevant shares. The covenant would not apply in the event of a takeover offer for the Company.

Under the existing lock-in deed dated 9 February 2015 between the Company and the Existing Property Adviser as well as certain members of the management team (together the "Covenantors"), the Covenantors undertake not to dispose of fifty per cent. of any shares they receive from the Company pursuant to the Existing PAA for a period of twelve months from the date of issue.

As part of the restructuring of the PMM Group, the Existing Property Adviser has asked that the proportion of shares subject to the existing lock-in deed be reduced from 50% to 36% and that two of the individual Covenantors, Paul Ruddle and Alex Easton, be released from it entirely. The Company has agreed to this request.

Extraordinary General Meeting

The Existing Property Adviser is a substantial shareholder of the Company as it holds 10 per cent. of the voting rights able to be cast at a general meeting of the Company. A substantial shareholder and its associates are deemed to be related parties of an issuer under the Listing Rules. The Existing Property Adviser and the New Property Adviser (which is an associate of the Existing Property Adviser) are, therefore, deemed to be related parties of the Company.

The termination of the Existing Property Adviser's appointment pursuant to a termination agreement and the appointment of the New Property Adviser as the new property adviser to the Group pursuant to the New PAIR will require PSDL shareholder approval.

The Directors are therefore convening an extraordinary general meeting of the Company (the "EGM"), at which a resolution will be proposed to approve the termination of the Existing PAA and to approve the appointment of the New Property Adviser pursuant to the terms and conditions of the New PAIR (the "Resolution"). Notice of the EGM will be sent to shareholders shortly.

The Resolution will be proposed as an ordinary resolution. An ordinary resolution requires a simple majority of members entitled to vote and present in person or by proxy to vote in favour in order for it to be passed.

The Existing Property Adviser has undertaken not to, and to procure that its associates do not, exercise any rights to vote on the Resolution in respect of shares in which they are interested.

Compliance with the MAR

The person responsible for arranging the release of this announcement for the purposes of MAR and its implementing regulations is Robert Hingley, the Chairman of the Company.

Appendix I

 
         Fee                                Existing PAA                                New PAIR                                                         Commentary 
Portfolio           The Existing Property Adviser                                    The annual rate                                            This amendment 
 and Asset          is entitled to a fee for                                         will be reduced                                             will necessarily 
 Management         the portfolio and asset                                          as follows:                                                 result in a 
 Fee                management services it provides                                   *    1.20% of EPRA NAV where it is equal to or less than   reduction in 
                    to the Company and its subsidiaries                                    EUR500 million; and                                   fees payable 
                    at the annual rate of:                                                                                                       in all performance 
                     *    1.50% of EPRA NAV where it is equal to or less than                                                                    scenarios. 
                          EUR250 million;                                             *    1.00% of EPRA NAV greater than EUR500 million 
 
 
                     *    1.25% of EPRA NAV between EUR250 million and EUR500 
                          million; and 
 
 
                     *    1.00% of EPRA NAV greater than EUR500 million 

              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Portfolio     The Existing Property Adviser                                      For the initial                                                This amendment 
 and Asset     is entitled to a performance                                       period to 31 December                                          will necessarily 
 Management    fee of 20.0% of the excess                                         2020, the New Property                                         result in a 
 Performance   EPRA NAV total return per                                          Adviser will be                                                reduction in 
 Fee           share at the end of the                                            entitled to 16.0%                                              fees payable 
               relevant three-year performance                                    of the excess EPRA                                             in all performance 
               period over a performance                                          NAV total return                                               scenarios. 
               hurdle of 8.0% per annum.                                          per share at the 
                                                                                  end of the performance 
               The performance fee will                                           period over a performance 
               be satisfied through the                                           hurdle of 8.0% 
               payment of cash by the Company                                     per annum. This 
               provided always that the                                           will fall to 15.0% 
               Existing Property Adviser                                          for subsequent 
               uses this to subscribe for                                         periods thereafter. 
               new shares. 
                                                                                  Satisfied through 
               If the shares are trading                                          the issue of shares 
               at a discount to EPRA NAV                                          at a price equal 
               at the time that the performance                                   to the higher of 
               fee is due, the Company                                            EPRA NAV per share 
               shall use its reasonable                                           or the share price. 
               endeavours to purchase shares 
               in the market to settle 
               the performance fee from 
               the sale of such shares 
               out of treasury at a price 
               equal to the amount paid 
               by the Company for such 
               purchase. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Capital       The Existing Property Adviser                                    No change.                                                       No impact on 
Expenditure    is entitled to a capital                                                                                                          fees payable 
Monitoring     expenditure monitoring fee                                                                                                        in all performance 
Fee            equal to 7.0% of any capital                                                                                                      scenarios. 
               expenditure the commissioning 
               and/or supervising of which 
               the Existing Property Adviser 
               is responsible. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Finance Fee   Where a subsidiary of the                                        Calculated on the                                                This amendment 
               Company receives finance                                         same basis but                                                   will necessarily 
               services and a borrowing                                         deducted from the                                                result in a 
               arrangement is either (a)                                        Portfolio and Asset                                              reduction in 
               entered into or (b) renegotiated                                 Management Fee.                                                  fees payable 
               or varied otherwise than                                                                                                          in all performance 
               in any immaterial way, the                                                                                                        scenarios. 
               subsidiary shall be liable 
               to pay a fixed fee of (i) 
               0.1% of the value of any 
               borrowing arrangement made 
               available to the subsidiary 
               pursuant to (a) and (ii) 
               GBP1,000 in respect of matters 
               covered by (b) to the Existing 
               Property Adviser. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Transaction   Where a subsidiary completes                                     Calculated on the                                                This amendment 
 Fee           a transaction, it is liable                                      same basis but                                                   will necessarily 
               to pay the Existing Property                                     deducted from the                                                result in a 
               Adviser a transaction fee                                        Portfolio and Asset                                              reduction in 
               equal to GBP1,000.                                               Management Fee.                                                  fees payable 
                                                                                                                                                 in all performance 
                                                                                                                                                 scenarios. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Letting Fee   The Existing Property Adviser                                    No change.                                                       No impact on 
               is entitled to a commission                                                                                                      fees payable 
               of between one and three                                                                                                         in all performance 
               months' net cold rent (being                                                                                                     scenarios. 
               gross rents receivable less 
               service costs and taxes)                                                                                                         The New Property 
               for each new tenancy signed                                                                                                      Adviser must 
               by the Company where the                                                                                                         seek Board approval 
               Existing Property Adviser                                                                                                        if it wishes 
               has sourced the relevant                                                                                                         to charge this 
               tenant.                                                                                                                          fee. 
               The Existing Property Adviser 
               has never charged this fee. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
Investor      Under the New PAIR, the                                          The New Property                                                 While this 
 Relations     New Property Adviser will                                        Adviser is entitled                                             constitutes 
 Fee           agree to provide investor                                        to a fee for such                                               an additional 
               relations support to the                                         additional services                                             fee with reference 
               Company. This is a new service.                                  at an annual rate                                               to the fees 
               No specific provision is                                         of GBP75,000, while                                             covered in the 
               made for an annual investor                                      the existing charge                                             Existing PAA, 

               relations fee in the Existing                                    paid will cease.                                                its inclusion 
               PAA, though an additional                                                                                                        has no financial 
               annual fee of GBP75,000                                                                                                          impact since 
               has historically been charged                                                                                                    the existing 
               by an associated company                                                                                                         fee paid to 
               of the Existing Property                                                                                                         the Existing 
               Adviser for this service.                                                                                                        Property Adviser's 
                                                                                                                                                associated company 
                                                                                                                                                will cease. 
              ---------------------------------------------------------------  ---------------------------------------------------------------  ------------------- 
 

[1] Net asset value calculated in accordance with the Best Practice Recommendations published by the European Public Real Estate Association in November 2016.

[2] Calculated from 15 June 2015 to 30 June 2018.

[3] Calculated from 15 June 2015 to 1 November 2018.

[4] Calculated from 15 June 2015 to 30 June 2018.

[5] Calculated from 15 June 2015 to 1 November 2018.

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November 27, 2018 02:01 ET (07:01 GMT)