AGM & Property Advisor Proposal

THIS ANNOUNCEMENT IS NOT AN OFFER FOR SALE OR SUBSCRIPTION OR SOLICITATION TO PURCHASE SHARES IN ANYJURISDICTION. THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN, IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION, TRANSMISSION, DISTRIBUTION OR FORWARDING, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANYOTHER STATE OR JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE UK VERSION OF EU REGULATION 596/2014, WHICH FORMS PART OF UK LAW BY VIRTUE 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], 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. 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/

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 [email protected]. 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.