Peach Property Group AG: Rental income and operating profitability increased, interest rate environment weighs on EBIT

[ Report ]

Zürich (pta006/23.08.2023/07:00) - Ad hoc announcement pursuant to Art. 53 LR

* Rental income increased to EUR 59.8 million; + 3.6% like-for-like
* Operating profitability (FFO I) increased by 9% to EUR 9.5 million
* Significant increase in profit margin due to active cost management; adjusted EBITDA margin increased by approx. 3.7%
* Value of real estate portfolio reduced by -3.8% to EUR 2.5 billion
* Earnings before taxes (EBT) of EUR -92.1 million mainly due to devaluation charges
* Loan-to-value (LTV) at 55%; equity ratio increased to 40.1%
* Further progress in refinancing with conclusion of additional secured financing
* EPRA NTA per share of EUR 51.9 significantly above share price
* Guidance for FY 2023 confirmed

Peach Property Group AG, a real estate investor with an investment focus on affordable residential rental properties in Germany, further increased its rental income after collection losses in the first half-year of 2023 and generated a rental income of EUR 59.8 million (+3.6 percent like-for-like) out of the total portfolio of around 27 500 residential and around 500 commercial units. The vacancy rate decreased by 0.4 percentage points to 7.2 percent compared with the previous period. Compared to the 2022 financial year, a slight increase of 0.3 percentage points was recorded.

Peach Property Group currently pursues an active strategy to streamline operating efforts and the associated costs. This program already delivered efficiency gains and savings in the first half-year where operating expenses reduced by more than 15 percent compared to the previous period. Overall, Peach Property Group achieved an operating profit (FFO I) of EUR 9.5 million, corresponding to an increase of 9 percent compared to the previous period. The operating margin of EBITDA adjusted for valuation results and other non-cash effective items (adjusted EBITDA), also increased by approximately 370 basis points. The margin increase envisaged for 2025 has already been partially achieved.

Conversely, the turnaround in the interest rate environment, high inflation rates, and unprecedented construction material price increases accompanied by a shortage of skilled workers continue to burden the entire German real market. Peach Property Group also had to record a valuation adjustment of its real estate portfolio of approximately -3.8 percent to approximately EUR 2.5 billion at the period end. A non-cash devaluation charge of EUR 98 million was recorded in the first half-year of 2023. This led to a negative operating result of EUR 70.2 million and negative earnings before taxes (EBT) of EUR 92.1 million.

Further refinancing measures concluded; no substantial maturities until 2025

Peach Property Group actively manages its capital structure and remains focused on aligning the Company's capital structure mix with the rapid turnaround in interest rates implemented by central banks. As a result, equity increased to an equity ratio of 40.1 percent as of June 30, 2023 (39.6 percent as of December 31, 2022). In this regard, Peach Property Group issued a mandatory convertible bond with a nominal value of CHF 112.4 million (EUR 113.9 million) in January 2023. With the proceeds from the mandatory convertible bond, a Euro bond maturing in February 2023 was repaid early. In May 2023, a convertible bond of CHF 50 million (EUR 51.1 million) with an interest coupon of 3.0 percent p.a. was issued. The EPRA net tangible assets (NTA) decreased to EUR 51.88 per share (EUR 64.88 as of December 31, 2022), mainly due to the approximately 3.8 million additional new shares issued upon conversion of the mandatory convertible bond, and the devaluation charge for the period. The EPRA NTA however remains well above the share price of Peach Property Group AG (PEAN, ISIN: CH0118530366).

The loan-to-value (LTV) of Peach Property Group was 55.0 percent as of June 30, 2023, slightly above the 54.7 percent as of December 31, 2022. The Company continues to work proactively on refinancing its liabilities and concluded a further secured financing of EUR 33 million in mid-August 2023. Until 2025, there are no substantial liabilities due for refinancing.

With the CHF 50 million convertible bond issued in May 2023, the secured financing of approximately EUR 33 million, and smaller disposals, Peach Property Group could generate more than EUR 90 million of fresh liquidity since the start of 2023.

Continued high tenant satisfaction

Tenant satisfaction remains at the core of the Company's strategy. With approximately 82 000 tenant tickets, about 60 percent more tenant issues were resolved compared to the previous period. At the same time, the reaction time of the Peach Points was further reduced, while the satisfaction rate for the processing and handling of tenant issues was increased to a high 79 percent.

Development project "Peninsula Wädenswil" met with great market interest

In addition to the operational progress in the German portfolio of Peach Property Group, the Company concluded further notarized sales contracts for the last remaining development project "Peninsula Wädenswil" in Switzerland. Since notarizations began in July 2022, 29 residential units have been sold, representing 50.7 percent of the development project's sales volume. Reservations have been made for a further approximately 9 percent of the sales volume.

Guidance for 2023 confirmed

For the current 2023 financial year, Peach Property Group expects a positive operating business development. Due to the noticeable decline in new construction activity in Germany following sharp rises in construction and financing costs, the Company sees itself well positioned with its product of affordable housing delivered in a market where the demand exceeds the supply, and increases in market rents will accelerate.

Provided that the market environment remains unchanged, Peach Property Group currently remains confident that it will achieve the targets stated at the beginning of the year for the financial year 2023 with a rental income in the range of EUR 121 million to EUR 123 million, and the FFO I at the lower end of the range of EUR 21 million to EUR 23 million.

The optimization of the operating efficiency and cost structures will also be a focus for the second half-year of 2023.

In addition, the Company is considering sales of smaller parts of the portfolio to strengthen its capital structure.

Reto Garzetti, Executive Chairman of the Board of Directors of Peach Property Group AG since May 2023, commented: "Our business model of offering affordable housing in German Tier II locations is robust and is bearing fruit even in a difficult market environment. Continued high demand for housing at affordable rents ensures stable operating earnings for us. New construction activity in our market area will remain low due to high borrowing and construction costs. A high tenant satisfaction rate of nearly 80 percent across all tenant feedback on our digital platforms forms a solid foundation. If opportunities for the sale of real estate portfolios outside of the core locations of our portfolio should arise, we will consider them carefully against the background of efficient asset management and the optimization of our capital structure. We are also pleased to have welcomed Marcus Schmitt, an experienced COO who has taken on the operative management in Germany since mid-July, and is actively supporting us in our efforts to optimize our operational structures."

Thorsten Arsan, CFO of Peach Property Group AG, added: "Provided that the market environment remains unchanged, we confirm our guidance for 2023 despite the current challenges in the real estate industry. In the second half-year of 2023, we aim to achieve further increases in efficiency, to realize cost reductions, and to optimize our capital structure."

The detailed semi-annual report 2023 is available in English on the website at the following link: https://www.peachproperty.com/en/news-en/interim-reports/

An analyst and media conference call, including a Q&A, will be held today at 11 a.m. (CET) in English with CFO Thorsten Arsan and Stefan Feller, Head of Investor Relations.

The registration for the webcast can be accessed at the following link: https://register.vevent.com/register/BIac8842f047d54e9daa60e94618c4e099

Contact:

Media, investors, and analysts

Thorsten Arsan, Chief Financial Officer, and Stefan Feller, Head of Investor Relations
+41 44 485 50 18 | investors@peachproperty.com

Media Germany

Edelman Smithfield, Ruediger O. Assion
+49 (0) 221 8282 8111 | mobile: +49 (0) 162 4909624 | ruediger.assion@edelmansmithfield.com

About Peach Property Group AG

Peach Property Group is a real estate investor with an investment focus on residential real estate in Germany. The Group stands for many years of experience, competence, and quality. Innovative solutions that cater to tenants' needs, strong partnerships, and a broad value chain round off the profile while digitalization and sustainability underpin the operational activities. The portfolio consists of high-yield properties, typically in German Tier II cities in the commuter belt of metropolitan areas. The activities, therefore, span the entire value chain, from location evaluation and acquisition to active asset management and the letting or sale of properties. In addition, the Group develops selected properties in Switzerland to be sold as condominiums, of which the "Peninsula Wädenswil" development project is the final such development project.
Peach Property Group AG has its registered office in Zurich and the Group is headquartered in Cologne. Peach Property Group AG is listed on SIX Swiss Exchange (PEAN, ISIN CH0118530366). Its Board of Directors consists of Reto Garzetti (President and Executive Chairman), Peter Bodmer, Dr. Christian De Prati, Kurt Hardt and Klaus Schmitz.

More information at https://peachproperty.com/en/

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