Peach Property Group AG: Highest operating profit in the Group's history, EBITDA margin rises to over 54 percent

[ Report ]

Zürich (pta006/05.02.2024/07:00) - (All quoted 2023 financial figures are based on preliminary, unaudited figures.)

Ad hoc announcement pursuant to Art. 53 LR

* Best Funds from operations (FFO I) result in the Group's history, exceeding EUR 22 million
* Rental income increases to approx. EUR 121 million
* Market value of real estate portfolio reduced by approx. 8 percent compared to year-end 2022
* Loan-to-value (LTV) at approx. 58 percent
* Additional refinancings measures implemented
* Improved ESG rating assessed by Sustainalytics
* Marcus Schmitt, COO Germany, appointed as new additional member of Group executive management ­– further efficiency measures in focus
* Significant increase in margin through active cost management; adjusted EBITDA margin rises by more than 3 percentage points to over 54 percent

Based on preliminary and not yet audited financial results for the financial year 2023, Peach Property Group AG, a real estate investor with an investment focus on affordable residential rental properties in Germany, achieved the best operating performance since the Company's founding, despite a challenging market environment. Peach Property Group's full-year 2023 rental income increased to approx. EUR 121 million. The target rent increased on a like-for-like basis by 3.7 percent.

Through the optimization of operational processes and the initiated cost savings program, Peach Property Group was able to generate funds from operations I (FFO I) of well above EUR 22 million, thus reaching the upper end of the announced guidance of EUR 21 million to EUR 23 million. Operating profitability increased by approx. 18 percent during 2023 despite higher interest expenses compared to the previous year. In terms of adjusted EBITDA (excluding valuation changes and other non-cash items), the Group was able to achieve an increase in its operating margin from 50.9 percent to more than 54 percent, meaning that the margin increase envisaged for 2025 has already been partially realized.

However, Germany's real estate sector was strained by higher interest rates, the high inflation rate, significant surges in building material prices, and the shortage of skilled workers. Against this challenging backdrop, Peach Property Group has undertaken cost-saving measures in significant renovation projects in 2023, leading to an increase in residential unit vacancies from 6.9 percent at the end of the previous year to 7.4 percent at the end of the year. In the new financial year, the Group aims to reduce the vacancy rate and gradually increase rents across large parts of its portfolio to prevailing average market levels through targeted investments and efficiency improvements in renovation and re-letting processes.

Portfolio value

At the end of 2023, the overall market value of the Group's portfolio decreased to approx. EUR 2.4 billion compared to the end of the prior financial year, a decline of more than 8 percent. The overall portfolio loan-to-value (LTV) ratio thus rose to approx. 58 percent, approx. 3 percentage points higher than in the prior year.

Due to the negative valuation result, the Group expects to report a full-year loss before taxes of approx. EUR 230 million.

Marcus Schmitt, COO Germany, selected as new additional member of Group's Executive Management

Peach Property Group strengthened and expanded its executive management team to ensure that it will be able to continue to consistently deliver operational excellence long into the future. The Board of Directors appointed Marcus Schmitt, who has served as Chief Operating Officer (COO) for Germany since July 2023, as a new and additional member of the Group's Executive Management with immediate effect. In addition to Marcus Schmitt, the other members of the Group Executive Management are Thorsten Arsan (Chief Financial Officer) and Dr. Andreas Steinbauer (Head of Letting & Sales).

Ongoing ESG measures and improvement of ESG risk rating

Despite a tightened budget, Peach Property Group continued to modernize properties during the 2023 financial year with a particular focus on cost-effective measures that can deliver significant energy savings.

Peach Property Group is set to achieve dynamic hydraulic balancing as well as precise control of volume flows and system temperatures in many of its buildings through the installation of digital valves in the heating distribution system. This intelligent system learns and analyzes the building's operation, gradually driving savings to double-digit percentage levels.

The most recent ESG risk rating from Morningstar Sustainalytics, an independent provider of ESG and corporate governance ratings, reflects these ongoing sustainability efforts: During the reporting year, the Group's ESG risk rating improved from 11.5 to 10.3 and is thus at the far end of the Sustainalytics "low risk" category (10 to 20).

Additional refinancings completed, no significant maturities until 2025

In January of 2023, Peach Property Group issued a mandatory convertible bond with a nominal value of CHF 112.4 million (EUR 115.2 million), the proceeds of which were used to repay the Eurobond issue maturing in February of 2023. In May of 2023, the Group issued a convertible bond in the amount of CHF 50 million (EUR 54 million) with a coupon rate of 3.0 percent p.a. Along with additional secured financing of EUR 33 million completed in mid-August 2023, Peach Property Group was thus able to generate a total of over EUR 100 million in fresh liquidity over the past financial year. There are no remaining significant maturities to be refinanced until 2025.

Outlook for 2024

In terms of operating performance, Peach Property Group anticipates that this positive trend will continue through the 2024 financial year. In view of the significant recent reduction in inflationary pressure along with the market pick-up in residential real estate transactions, the Group expects macroeconomic conditions to normalize over the course of the year. Due to the noticeable decline in new construction activity in Germany caused by the sharply higher construction and financing costs, the Group, with its focus on affordable housing, sees itself well positioned to meet the ongoing excess demand for affordable housing and to benefit from the resulting accelerated increases in market rent levels.

The primary focus for this year will be on refinancing liabilities due in 2025, including the 300 million Eurobond due in November 2025. At the same time, the Group is focused on reducing the vacancy rate of its portfolio and further optimizing operational efficiency and cost structures. In addition, the Group is exploring the potential sale of certain portfolio holdings to improve its capital structure and generate liquidity for upcoming refinancings.

"Our strategy of consolidating and optimizing our cost structure is showing initial success," says Klaus Schmitz, Chairman of the Board of Directors. "In 2023, we were able to achieve the highest operating profit in the history of our Group. We will maintain this course in 2024. We focus our efforts on reducing vacancies and adjusting rents. Both measures will contribute to the long-term value creation of our portfolio while further improving our cash flow situation. Certainly, the potential of Peach Property Group is immense."

"Over the past year, we have taken a number of steps to strategically manage Peach Property Group's financing situation," adds Thorsten Arsan, Chief Financial Officer. "Our aim is to refinance our liabilities due in 2025 at an early point and thereby to improve our term structure. In addition, we wish to exploit the potential of the current market environment, characterized by the ongoing scarcity of affordable housing, while also further increasing our efficiency. Finally, we see a like-for-like rental growth potential of 4 percent, and we aim to gain an additional boost by realizing this opportunity. And here, the market is giving us tailwind."

Marcus Schmitt, Chief Operating Officer, comments: "In the past financial year, we were able to significantly increase our EBITDA margin by more than 3 percentage points through strategic cost reductions and efficiency measures, despite a slight increase in the vacancy rate. Our key operational priorities for 2024 include further improvements, particularly in reducing the lead times for vacancies. The strategic reduction of vacancies remains key to increasing our revenue and will continue to be our main focus in the coming year."

Contacts:

Media, investors and analysts

Thorsten Arsan, Chief Financial Officer and Vanessa da Cruz, Head of Investor Relations & ESG
+41 44 485 50 31 | investors@peachproperty.com

Media in Germany

Feldhoff & Cie.

Anke Sostmann, Executive Director

+49 159 04028505 | as@feldhoff-cie.de

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 most recent such development project.

Peach Property Group AG has its registered office in Zurich and operational headquarters in Cologne. The Company is listed on SIX Swiss Exchange (PEAN, ISIN CH0118530366). Its Board of Directors consists of Klaus Schmitz (Chairman), Dr. Christian De Prati and Peter Bodmer.

More information at https://peachproperty.com

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