London, UK, 7 December 2020

Phoenix Spree Deutschland (PSDL): Rent cap decision will determine strategy

Phoenix Spree Deutschland (PSD) is a pure play on Berlin residential property, where excess demand drives free market rent growth. H120 financial performance was robust despite the COVID-19 pandemic and the first effects of Berlin rent controls. Recent full implementation of the legislation will significantly reduce FY21 rental income and peg rents for five years, but it remains PSD's firm view that the legislation will ultimately be ruled unconstitutional and overturned. Our central scenario (shown below) assumes repeal, effective from 1 January 2021. Should this not happen, it has significant condominium optionality and our analysis highlights significant value embedded in the portfolio in either case.

A c 30% discount to FY20e EPRA NAV per share compares with a five-year average of 8% since IPO. The discount is a larger c 40% to our estimated 'condominium' valuation that we would expect to be in focus should the rent cap not be repealed. 

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