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 €838k, when compared with the Existing PAA, rising to €875k per annum should EPRA NAV reach €500m.
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 €130k.
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 +44 (0)20 3937 8760
Numis Securities Limited (Corporate Broker)
David Benda +44 (0)20 7260 1000
Tulchan Communications (Financial PR)
Elizabeth Snow +44 (0)20 7353 4200
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 €584 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 €1.0 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 €1.0 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 €425.8 million, the New PAIR represents an annual saving of €838k when compared with the Existing PAA, rising to €875k per annum should the Company's EPRA NAV reach €500.0 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 €130k.
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 and Asset Management Fee |
The Existing Property Adviser is entitled to a fee for the portfolio and asset management services it provides to the Company and its subsidiaries at the annual rate of: · 1.50% of EPRA NAV where it is equal to or less than €250 million; · 1.25% of EPRA NAV between €250 million and €500 million; and · 1.00% of EPRA NAV greater than €500 million |
The annual rate will be reduced as follows: · 1.20% of EPRA NAV where it is equal to or less than €500 million; and · 1.00% of EPRA NAV greater than €500 million |
This amendment will necessarily result in a reduction in fees payable in all performance scenarios. |
Portfolio and Asset Management Performance Fee |
The Existing Property Adviser is entitled to a performance fee of 20.0% of the excess EPRA NAV total return per share at the end of the relevant three-year performance period over a performance hurdle of 8.0% per annum. The performance fee will be satisfied through the payment of cash by the Company provided always that the Existing Property Adviser uses this to subscribe for new shares. If the shares are trading at a discount to EPRA NAV at the time that the performance fee is due, the Company shall use its reasonable 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. |
For the initial period to 31 December 2020, the New Property Adviser will be entitled to 16.0% of the excess EPRA NAV total return per share at the end of the performance period over a performance hurdle of 8.0% per annum. This will fall to 15.0% for subsequent periods thereafter. Satisfied through the issue of shares at a price equal to the higher of EPRA NAV per share or the share price. |
This amendment will necessarily result in a reduction in fees payable in all performance scenarios. |
Capital Expenditure Monitoring Fee |
The Existing Property Adviser is entitled to a capital expenditure monitoring fee equal to 7.0% of any capital expenditure the commissioning and/or supervising of which the Existing Property Adviser is responsible. |
No change. |
No impact on fees payable in all performance scenarios. |
Finance Fee |
Where a subsidiary of the Company receives finance services and a borrowing arrangement is either (a) entered into or (b) renegotiated or varied otherwise than in any immaterial way, the 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) £1,000 in respect of matters covered by (b) to the Existing Property Adviser. |
Calculated on the same basis but deducted from the Portfolio and Asset Management Fee. |
This amendment will necessarily result in a reduction in fees payable in all performance scenarios. |
Transaction Fee |
Where a subsidiary completes a transaction, it is liable to pay the Existing Property Adviser a transaction fee equal to £1,000. |
Calculated on the same basis but deducted from the Portfolio and Asset Management Fee. |
This amendment will necessarily result in a reduction in fees payable in all performance scenarios. |
Letting Fee |
The Existing Property Adviser is entitled to a commission of between one and three months' net cold rent (being gross rents receivable less service costs and taxes) for each new tenancy signed by the Company where the Existing Property Adviser has sourced the relevant tenant. The Existing Property Adviser has never charged this fee. |
No change. |
No impact on fees payable in all performance scenarios. The New Property Adviser must seek Board approval if it wishes to charge this fee. |
Investor Relations Fee |
Under the New PAIR, the New Property Adviser will agree to provide investor relations support to the Company. This is a new service. No specific provision is made for an annual investor relations fee in the Existing PAA, though an additional annual fee of £75,000 has historically been charged by an associated company of the Existing Property Adviser for this service. |
The New Property Adviser is entitled to a fee for such additional services at an annual rate of £75,000, while the existing charge paid will cease. |
While this constitutes an additional fee with reference to the fees covered in the Existing PAA, its inclusion has no financial impact since the existing fee paid to the Existing 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.
