Peach Property Group AG (PEAN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Peach Property Group AG H1 2024 Results Conference Call and Webcast. [Operator Instructions] This call is being recorded today, August 22, 2024. I would now like to turn the conference over to Mr. Gerald Klinck, CEO. Please go ahead, sir.

Thank you very much, [ Lara ]. So good morning, everybody. So for -- myself, as an introduction and maybe some of you saw me in the past because our worked for some listed companies. Now I'm with Peach since April, and I'm very happy to do here -- be here. But before I run through the presentation, let me give you some words to my leading CFO, Thorsten Arsan. He was in charge for the company for more than three years. He's leaving unfortunately at the end of August. So Thorsten [ wherever you are ], thank you very much for your work here with Peach. Made a good job and all the best for you and greetings from the team. So having said this, we can jump into the presentation. On the next slide here, we have an overview which we want to give you in every presentation. It's a little bit of a service from our side. You will see the major topics and KPIs of the company. We have there the portfolio numbers, financials and KPIs and we will update that for every call so that it's a little bit easier for you to find the right KPIs in the first launch here. So having said this, I would touch all these numbers or maybe most of them in my presentation, the next slides. So we can move on now to the agenda. Agenda for today, I want to give you a short and brief summary, what happened so far here in the last, let's say, 6 months and a little bit afterwards. That is -- we want to do that every time so that you have the major topics of the reported period. After that, we jump to operational and financial performance and give you some background to our performance here, some KPIs and numbers from accounting and so on. Update on ESG. I think that is a very important topic for all of us. And after that, some overviews for balance sheet numbers, but also for our bridge to FFO, EBITDA and so on. I think that is a little bit for you and homework. Hopefully -- I hope that we are self-explanatory there. If you have further questions come back to us over the e-mail address, and then we will answer your questions there. And obviously, some words of guidance and for information purposes, we also put some sheet in the appendix. So having said this, I want to jump to the next slide. So what happened so far in 2024, obviously in the time line. I think the major topic in the last 6 months was raising equity in Q1, which gives us a little bit of liquidity for the company, strength and liquidity for the operational business was a little bit less than EUR 200 million, that was good. AGM took place in end of June so -- in the beginning of June. So we have here, let's say, a new Board, which is good for our corporate governance. New board members are on here. There's a slide in the appendix which show you the members there, but I think I feel very comfortable with that. Sustainability report also, we reported in May. So it's also out, it's good, very interesting. Jump on it, it's on the website, where you can see what we are planning, a deal there. Portfolio strategy, we also published, during the road show presentation for fixed income investors for the bond. I think portfolio strategy from my point of view was very important to show that we, that we have a lot of upside in the portfolio regarding EBITDA growth. That's totally fine. And we also know now what is on sales track and where do we want to invest and when want to raise our growth path for the company. Last but not least, this morning, we also published that we are planning an AGM which is also good. Having said this, I move on to the next page, and I'll come to the equity a little bit later. But first of all, very important to show you how we see the company, how we see the portfolio. Unfortunately, we are a small company. But in that case, it's very good for us because we could run these analysis asset by asset. We sit together with all departments which are involved in the value chain and come out with the result that we have now a clear view what's our strategic portfolio and what's our nonstrategic portfolio. Nonstrategic portfolio we described on the right-hand side and what is not fit to these criteria, obviously, it fits to the strategic one. So you see the four major criterias there. I think the notarized part is something which is sold off, but we have to show it here on the balance sheet because it's not closed now. So we have that bucket here, but we focus here on the first three items. We can describe these nonstrategic as follows. We have roughly 4,200 units, which are small and scattered locations over Germany. It's totally inefficient for us to run this business there. We have then also condominiums and detached houses often in the ballpark of [ 750 ]. This is not a good asset, which you have to, let's say, maintain over the next years. This is a product which you have to sell to people who can use it. And then we, obviously, as in each portfolio, we have also some low performer and core regions. This is more or less linked to North Rhine-Westphalia where we are located very intensively. And these assets we want to get rid of. On the next page, you see also some of these, let's say, numbers in these two buckets more or less 3/4 is our strategic ones. And I think that is a good number, even better than I expected, that is good. And on the strategic side, we have a 1/4 of them, which we won't get rid of. In terms of driving efficiency of maintaining these assets, you see that it's very condensed in the strategic location. We have only 45 locations mainly in North Rhine-Westphalia. On the other hand, you see on only one quarter, we have here 74 locations. So there you can see really the impact on our, let's say, operational units, which is not really efficient to drive there. And this is what you also can see then in the vacancy rate because the rents are more or less in the same ballpark. Vacancy and strategic is only [ 6% ], which is a good number for us. I think there's some upside to be catched in the future. But on the right-hand side, you see, if you are not able to run these, let's say, efficiently because it's too far away from our pitch points, vacancy rate is increasing. So that's, let's say, a topic for us in future times, is sorted out. So what we want to do with the nonstrategic is we want to use the net sales proceeds, which comes in over the next years. Let's assume it's a 2-, 3-year plan here because we have to do it with asset-by-asset. We want to use these sales to see to refinance our CapEx needs in the strategic ones. So we do not really need from outside, let's say, bank debt or something like that. We can finance our CapEx in future time through the nonstrategic channel. That's good. So with having said this, it is a clear strategy for us. And in the next meetings, we will show how we perform on executing the strategy. And hopefully, team and myself will be successful on that. Next page, please. I mentioned before that we announced in AGM. AGM will take place at the 27th of September this year. You can expect the invitation, all the details at the -- early in September. But the main topic will be here is the potential equity raise for us, which is needed for lowering the debt leverage of the group and also funding upcoming CapEx. When I say also funding CapEx, that means that maybe sales is kicking in later so that we can execute CapEx at the beginning that we can start to execute our strategy, which I think is totally necessary here and also makes sense to drive EBITDA in future times. Some KPIs on the effect of the equity is as follows. We can drop the LTV by more or less 5 percentage points, which is good. Adding to our target, let's say, below 50%. And on the other hand, we will achieve with the emission price of CHF 5, almost EUR 120 million of cash, which is impossible to sit in our accounts after raising this equity. So having said this, these are the main topics which, which we had in the last couple of months here. And now I jump to the next slide and come to operational and financial performance. Starting as always because it is top line for us with the rent, what happens there. I think what is good if you compare our rent with the H1 result of 2028. We were able to increase our rents by 4.25%, which is, I think, a very good number. Half of it more or less is coming from existing tenants. The other half also in future times, will come from new tenants from fluctuation or bringing down the vacancy rate. There is still a big gap between our brands and market rents for our assets, which we hopefully can catch up in the next years with new contracts, that's good. There's 70% upside, which we want to, let's say, catch in future years. And you can see that also on the like-for-like rental growth. It's even 3.3%, which is good in terms of euros. Therefore, we think that guidance on that should be more than 4% for the year. Having said that, that was a positive thing. Now we come to one challenging point of the company, and this is not, let's say, we are not heading in the right direction. You see that vacancy is still, still increasing. I think there's a little bit of reason for that, it's a little bit of spending -- less CapEx in the last years, and it takes a little bit of time to catch up here. vacancy at the moment, if you count assets, it's 7.8%, which is even higher than at end of the year. That's weak, but I want to give you also some transparency on that. If you look at the strategic portfolio, we have here 1,250 of 2,120 units which are vacant at the end of June. More or less half of it, it's ready to relet. So these assets are in a good condition. Some one of them was modernized a couple of, let's say, weeks before. Others are in a position coming back from the market, which are totally good. So we can let that out easily and shortly. And so we are really focusing with the team on that to bring that to market. Having said this, overall in the strategic portfolio, if you would theoretically let all of these assets out, we have here upside of EUR 11 million, which we can catch up in the future time. Nonstrategic, and that is also interesting and that fits to our analysis from the strategy. The big part of it in our nonstrategic ones is in the scattered portfolio. And that makes totally sense, as I mentioned before. If you are not really there because Peach points are too far away, you are not able really to take care of your vacancy and that's the reason why we see here a higher percentage of vacancy in this scattered portfolio. And all the others like the condo sales was more or less 1/3 of it is empty. That's also good because in that case, you will sell it out to, let's say, people who wants to use it as to move in. So I think that is more or less a positive and not a negative impact for these asset class, which brings hopefully a successful sales price for these assets. So jumping from vacancy now to the next page is our operating costs. I think from the repairs and maintenance that we have to really focus on because due to inflation from the last year as we here increased or we have to increase our numbers in terms of repairs and maintenance. There's a clear focus on [indiscernible] the next years or next period. In terms of administration costs, we are moving into the right direction. You see this is exactly the right way which is good. And that brings us to total OpEx of EUR 12 million. I think you can -- it's a fair point to annualize that also for year-end and the slightly increase, as I mentioned before, is driven by higher repairs and maintenance. Moving on to next slide is our platform costs, personal expense, I would say, fine with that. Other operating expenses, we have here some one-offs, comments you can see on the right-hand side, it's more or less driven for our, let's say, cost to have here the restructuring of our portfolio as you know, sometimes you have to pay a little bit of advisers for that. This is one thing. The other thing is more or less due to ancillary cost billing receivables. I think we are not alone in that sector having, let's say, some problems to collect here this money from 2022 billings of the ancillary costs. I hope that's more or less a one-off that we can get rid of it in future times. If you then see that EBITDA -- adjusted EBITDA is in the ballpark of EUR 31 million. If you will annualize it, then you see that there's a fair drop to full year results 2023. But I think, and this is the reason why we do not put here annualized numbers in, because I think the one-offs in the first year has an impact on the second year. So it's not fair to do so. And therefore, we give you a little bit more transparency on the next page. We offer to you a bridge where we come to -- from, and that was the adjusted EBITDA of H1 2023, starting here with EUR 32 million. And you could see that in the first half year, our rental income uplift we're able to overcompensate our costs given by the inflation rate of repairs and maintenance. The next number, and I think that is what we have to move out next time because this is coming from sales. And I think with the new strategy, I think we come to another definition of adjusted EBITDA. So expect from our side, that we will carve these effects from sales out of it. Otherwise, it's not comparable. It doesn't make sense then. But this is what we want to show you in the next time and bring you their transparency on adjusted EBITDA. So that is a one-off effect from sales. It's not a big number, but if you count here on the operational EBITDA, it makes sense to show that here. Personnel expense was better in the first half year. So that's green, that's good. And as I mentioned before, our other operating expense is more or less a one-off effect, which is shown on the right-hand side. So I think with that, we hope that we bring adjusted EBITDA and a better performance in the next half of year, I hope. And secondly, this is something where we have to focus in future time. So we will show you how we develop our EBITDA in terms of our operation business. That is a very important KPI for us in future times. So having said this, moving on to the next page, and that is also a little bit of a service from our side that brings you here some operational KPIs for this half year and compare it to the last reported day. So that you have here one page, the most, I think, from my point, relevant KPIs. So moving then on, we're leaving the P&L numbers now and coming more or less to others. Let's call it CapEx and debt, so on. So it's a little bit more balance sheet driven here. So in terms of CapEx, it's coming back on track, as I mentioned before. So in the first half year, we spent more or less the same amount, what we spend on the full year in 2023. And having said this, on the right-hand side, you see we have a clear focus now on tenant improvements which has the effect to bring down vacancy rate. That's the most topic for us in terms of CapEx. And we will spend this CapEx in our fluctuation assets. We will want to spend that to reduce vacancy. And we also plan, at the moment, ESG measurements, which are bigger investments in our assets. This is a program which we have to put here into transparency to you in the next meeting, where we want to show you how we can spend and create value in our existing portfolio to drive rents but also have the ESG components in our market. So next page, what was our sales. Sales in the first half year was, I would say, a small impact here. It's in line with our portfolio strategy. It is very scattered or maybe we have not really upside in terms of EBITDA growth. So we sold out roughly 200 units, another 180 are notarized, but it's not closing at end of June to put that into your mind. And the good thing is if you're selling small-scale assets, you can achieve fair market value. And I think that's exactly what gives me a little bit of comfort if we go out and sell our nonstrategic smaller asset sales, then I think we can execute to fair market value which is a good proof of our values. One hand [indiscernible]. Secondly, we can achieve our net sales proceeds spend in the strategic portfolio, as mentioned before. Next page, portfolio valuation. Yes, that's, I think, a fair point because it's not over, but I think we reached now the bottom line. This is a small devaluation impact here, but it's still there has an impact on our LTV. I come to that later on the next page. But I think from my point of view, it was a marginal based on target rents in the ballpark of 16.5%, you'll see that on the right hand side in the green column. And also, we see value per square meter of 1,300 in the ballpark. I think compared to new construction costs, I feel comfortable with these numbers and I can't see really that we have further devaluation in future time, unless maybe we have some external impacts, which we can't really, let's say, see in the future. Hopefully, it's not, then I think we are, let's say, in the bottom line was our devaluation impact. Next page, you see our challenges on the debt structure. I think this maturity profile very similar to the last three quarter days. We have these challenges in terms of the bond and the promissory note, which are due next year. We were out for a road show this year in July. We met a couple of maybe hopefully, almost all bond investors. So we are staying here in contact with them. Clear focus on solving this out in the second half of the year. And having said this, I can't really give you results on that at the moment. But what I want to mention here a clear focus on solving out the bond and the promissory note things shortly and shortly, I think it's in the next half of the year that we can give you here some more transparency and hopefully also success that we get rid of that challenge. On the other side, our, let's say, secured structure of that, it's a very smooth profile also for future times. At the moment, we are also in contact to our lenders here. And we can't see here really risk. It's more or less ordinary course of business so -- to maintain these secured debt in future times. Our RCF, it's not withdrawn at the moment. It's zero out of EUR 75 million. This RCF line is due next year in April. So we have advantage also for, let's say, managing our daily liquidity also we said, but at the moment, we do not need also our covenants comply. So we feel comfortable on that. And on the bottom, you see some KPI numbers. I think looking on our, let's say, weighted average cost of debt, it's on the right-hand side, it's more or less in line with 2023 could be the case that, that will a little bit higher if we are, let's say, refinancing our 2025 debt. So having said this, next page. Back again, service for you, some financial KPIs on an overview coming to ESG. ESG sustainability report was published in May. I think it's totally worth to look into it, it's published on the website. We're still rated, with a good result coming out of it. So from this point of view, I think it's a very professional performance, which we can show here. The next page is one example where we are focusing on is a project in place where we are in cooperation with someone with [indiscernible] here. The idea is here really to have optimization of our heating systems, which reduce costs on the heating side, which I think totally fine and good. Also smart metering, there's projects on it. And as I mentioned before, our bigger ESG measurements, and we come to that later on in the next meetings here, we seek to give you more transparency on that is also in progress. Next page, in terms of tenant satisfaction, we are still on a very high level. The one touch rate where that means a ticket, which was sold out was the first interaction is on a very high percentage. That is very good. Also in terms of timing, you can see that on the right-hand side. So we are very let's say, fast to solve our problems here for our tenants, which -- with tickets here. Unfortunately, the talent satisfaction dropped, from my -- best guess from my side because all the KPIs here are looking very good. I think it's a little bit driven by the situation that ancillary costs are very high in the past and that we have here a lot of problems with our tenants to explain what we are selling here, and I think that has an impact on the tenant satisfaction, but still on a high level from our point of view. So coming to the next page, and I do not want to flip pages with you here and show here all these numbers. I think things got presented. We have some explanations on the right-hand side. Hopefully, it's self-explanatory for you. As I mentioned before, if you have here some questions, please have a look at our half year results report. I think it's very good there. Make good analysis, give you all the transparencies which you need. And if there are some questions left, please let us know. I don't want to make your page flipping on that. So we come to the last page from my side before we come to your questions, and that's the guidance. More or less what is the main takeaway from that. I think given that we have a little bit of a higher vacancy than expected, we are not able to reach our net rental income. So we adjust that slightly. I think for like-for-like rent growth should be higher than 4%, showing the numbers, which I showed you before. In terms of FFO, we stick to our number here. The reason for that is we have a little bit less [ debt ] service to pay here, also knowing that we have the equity in the first quarter, so we can save a little bit of that service so that we stick to our guidance in the ballpark of EUR 70 million to EUR 90 million. In terms of dividend policy, I think that's a little bit new, but it's not really a surprise. There will be no dividend from the management here to pay in 2024. We have to restructure our debt sheet first, and then we can look what is the dividend policy next year. So we come with a new policy guidance for 2025 to you back. And having said this, I want to give the word back to [ Lara ], to our operator, and I'm happy to answer your question, and hopefully, I can do that. Thank you.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Stefano Loprete from Atlantide Asset Management.

First of all, maybe I missed this, but is the capital increase back stopped by a group of banks or core shareholders? I'm also asking this because I didn't -- I think I saw that your largest shareholder being diluted in the last capital increase from April.

At the moment we lay the foundation that shareholders can decide about their support for the company. It's not back stopped yet. So first step, what we have to deliver here, company put out invitation and now shareholders have the right to vote, that's the first step. And afterwards, if this is coming through, and we need a simple majority for that, then it's the next stop -- step is then how can we raise the capital for that and that's the next challenge. So it's a good question, answer will be, it's not back stopped yet.

On the debt side, are you working with any financial or legal advisers? Just because I mean, this EUR 120 million, although it's very much appreciated from the lender side. It feels like -- I mean, you have a lot to do between CapEx, paying fees for the deal and doing debt repayment. I mean -- I don't know if your lenders think this is all enough for the future.

Yes. Let's just put that way. First your question was, that we have some advisers on. Yes, we are very close to JPMorgan. They are, let's say, with us. And on the legal side, we have also advise from Latham & Watkins. So we have good advice on that. And by the way, we have a fantastic Executive Board here with the Board of Directors, which also helps. That's good. Second question, is that enough? So I think it strengthened here really the balance sheet. I think it's a significant amount. And hopefully, we can raise it, but still a question mark here. And having said this, we are in contact to bondholders. We were out with the bond road show, and now it's time to find a solution with that. And if you see also other, let's say, comparables, it's very often that you have here, maybe partially pay back to par and extend the remaining piece. And from my point of view, I would say it's -- if we are able to raise this money, I think it is good for the balance sheet, for debt restructuring and also partially to finance the first CapEx issues. I mentioned before from the strategy that we can do that [indiscernible] chain of nonstrategic assets to sell it off. But very often, you are at the time -- a timing impact, selling and spending. So it would be great if we have also, let's say, a proportion of that for the CapEx. Hopefully, that answers the question.

It does. One last point and then I'll go back in the queue. Your FFO expectation for 2025 and '26, assuming you get your EUR 120 million of fresh capital into the company and you use it the way you want to use it. Do you expect the company to be FFO positive in '25, '26? Just because looking at your cash flow statement on Page 43, it seems kind of you're still burning cash. Again, this is not reported from the legacy situation. But it seems like you burned EUR 15 million in the first half of 2024, excluding the [indiscernible] capital increase.

I think, really hard to predict at this stage. What's going on there? What are the main components? To see what -- how will be the FFO will look like. I think we will see some negative impact on the -- from the secured lending. Yes, we are, at the moment, we have the benefit of the old coupons, let's put it that way. I don't know exactly what does it mean in future time at the moment and helps that interest rates for the secured lending also is coming back. So this is hardly to predict at the moment. This is one thing. And the second thing is how does the, let's say, the unsecured debt will be refinanced in future days. And how much money can I, let's say, repay, how much money can I use from the equity to fund CapEx, that's an open issue at the moment. So that's the reason why it's hardly to predict how does the FFO will look like. I would and, to be honest, burning cash means if you look on FFO, you have to deduct CapEx and amortization, right? And having said this, we also have to fund that. And this is coming in the next 5 years from the non-sales proceeds -- from the net sales proceeds of our nonstrategic assets. You see that on the nonstrategic, the fair market value is above EUR 0.5 billion. We have a lower average of secured loan on it, in the ballpark of [ EUR 28 million ], if I have that right in my mind. So that gives us enough cash to spend CapEx in future time and also fund the amortization. And if we are below, let's say, let's assume 50% or less, it's also fair to discuss this amortization efficient anymore. So hardly to predict. We have a lot of variables in it. I'm very comfortable that we can drive EBITDA in future times, but also have a good impact on FFO. And therefore, I would say I can't give you numbers here, but if EBITDA is increasing as we expect coming from rent upside and the effect from fluctuation, from new tenant contracts, drive efficiency in our costs on the platform in spend CapEx to drive rents by bigger measurements from ESG, I'm very positive that we can drive FFO and EBITDA in line so that we come back to a normal business case for, let's say, for a housing company in Germany.

Our next question comes from the line of Andreas von Arx from Baader-Helvea.

I have three questions to begin with, which are a bit more organizational. Regarding these additional changes to the bylaws, could you provide you some more details than in the press release? And who has asked for this? The shareholders, the Board or the Investment Bank? Second one is, do you plan to change your external value maybe to get more in line with your German peers? I mean, in the last 18 months, there has been a distinct difference between your revaluations and [indiscernible] at competitors who have not that on different portfolio. The third one on that organizational theme, is, do you plan to change your listing? I mean, if you have 100% of your assets in Germany, would it not make sense now to abandon [ this system ]. That's the first theme of three I would like to discuss.

Great. Can I start with the last one? So the listing, I think, here in Zurich is not my first priority, right? So I have also if you -- in my, let's say, shareholder base, I have a lot of Swiss investors, which is also good. I really appreciate that. But to be honest, that's not my first target and my priority. We can discuss it maybe later on, but not, let's say, in the next 12 months. That's one thing. Second thing, valuation I think that the next target for us is that we spend our CapEx in a very efficient way and that we see also the CapEx, which we spend will be reflected in our valuation. That's my next target, which I have that we do not have devaluation impact in the P&L anymore. And that also brings us then in a better position also to LTV and hopefully, also in line with rent growth and EBITDA and therefore also FFO growth. That's the second thing. And let's say, comments to my peers at the moment, I'm not in the situation that I'm really focused here on my peers at the moment. Peach is my priority one. And the first question, I would hope that you have a little bit of patience here. You will see all these details of the AGM coming up in the next days. There, you can see what will be the details on that. And we expect that we go out with indications of the first days of September.

With regards to the current business and the increase in the vacancies, I mean there is a lot of immigration in Germany. In the newspaper, one can read about shortage of units, there's low construction activity. I mean shouldn't you have that portfolio for people also bit suffering from -- with lower purchasing power?

I think from the fundamentals, I think I totally agree with you. So we have to catch up to better vacancy rates right now. I think the main driver that we have a higher vacancy than expected or maybe like others in the peer group. I think it is more or less what I mentioned before. It comes a little bit of our possibility to manage these scattered assets. And I'll give you one example. If you have a small asset far away from your service point, we call Peach points and assume it is a unit of 20 units and 2 of it are empty, then it's only two assets, 2 apartments and 1 property, but the KPI would be you have a vacancy rate of 10%. And I think that is exactly what we have here. We have more than 4,000 units, which are very scattered over the landscape. So I think that is the main driver. It's not on the fundamentals. It's not driven by, let's say, the quality of the portfolio. Obviously, we have some of them, which are not in the best shape at the moment. That's the reason why we want to spend CapEx. But this is more or less not the average. I think the main problem which we have here was our vacancy is given that we are not there where our properties are located. And they are too small to run on an efficient way. I think that is the main driver and there, you can't really argue with fundamentals or the quality of your assets or something like that. And it's better for people who are, let's say, the local heroes that can be better on these assets. So these are not poor assets, they're looking like low performer from our point of view, if you only, let's say, compare KPIs, but I think that is the main driver. And from my point of view, as I see it today.

Third theme, if we look a bit in the future and just looking at your, what you call core portfolio of these 20,000 units. I mean, can you give an indication on kind of adjusted EBITDA margin? We're looking just for that core part of the business or maybe an FFO yield in terms of the portfolio value. So do you think that you can get with these 20,000 units to a comparable performance than what your German peers have? Or in other words, if not, I mean, wouldn't it not have made more sense to sell 27,000 units instead of 6,000 and think about moving your assets into a larger entity?

So I think there is a very detailed presentation on our website from the bondholder roadshow, and I did exactly what you asked there and you see analysis, how does EBITDA look like on this portfolio and how can we increase that and the driver to increase that value there is explained, as I mentioned before, it's catch up to market, it's bringing down vacancy, it's running efficiency gains from the platform itself and so on. And there is also, let's say, let's say, forward-looking calculation, let's put it that way, how EBITDA can move on in this part of the portfolio and it's only linked to the strategic ones because, let's say, we're looking a little bit in the future. And in future times, non-strategics will be away. So it's really focused on exactly that portfolio. So question all of what you need for calculation purposes, it's a very good benefit for you to look in that presentation. And regarding the strategy of Peach itself, what will be the future of Peach, to be honest, it's too early to answer that question. I think if you are a listed company, if you want to use scaling effects from a platform, I think you have to be bigger than us. So we have to grow our business. But to be honest, at the moment, talking about growth, it's not the right time. We can do that maybe in the first part of next year. This year, priority #1 is bring, let's say, repair the debt side. That's, I think, the most important target, and that brings value to the company. And then we have to focus on operational performance. And if then comes opportunity across, we will talk about it. And if someone else want to catch up, and make offers to my shareholders, it's not in my ballpark then.

Our next question comes from the line of [ Timmon Rogers ] from -- no company indicated.

My name is [ Timmon Rogers ]. I would actually like to drill down on the earlier question of the FFO in the future. I think this is relevant because you are doing a large capital increase, you're doubling your share count. And I'm wondering, if I look at your 2024 FFO guidance of EUR 17 million to EUR 19 million, and then I see almost EUR 600 million of refinancings or financings coming due next year. I know that there is some deleveraging plans. But as you just said, this is low-cost debt. And it will have to be refinanced at significantly higher interest rates. And I'm wondering that at some point in late 2025 or maybe even 2026, will you actually have a negative FFO? Or what is your confidence that your FFO will stay positive in two years?

I think the time has value here and we are talking about resi business, we do not talk about, let's say, other business where you can hopefully, increase your top line maybe easily. Here, it's, let's say, long-term business with affordable housing in Germany. So I can't really drive here income streams in a very short and dramatic way. That gives me at the end, but the power to say I need, I would say, 3 to 5 years to bring back the company to a sustainable business where we can really, let's say, achieve FFO and where we have access to secure that market. I can't give you here really a good guidance, how does that will look like maybe in next one or the next year afterwards because there are too many variables, as I mentioned before, to make it on a calculation basis here. I think this the midterm guidance as you have to look at that. And having said this, I think EBITDA can grow significantly, but I need a little bit of time here, and that drives also FFO. And it's not only the impact of higher interest cost. It's more, let's say, driving the top line and driving EBITDA. And the key driver, which I mentioned before will help us to have here positive FFO [indiscernible] and I don't want to give transparency on these questions maybe in our next call to give you a little bit more of transparency, I do not want to tell it guidance, but a little bit of more transparency, how you can calculate on that.

By the way, I do not mean this in any antagonistic way because you inherited this capital structure from previous management. But as a shareholder, I mean, FFO is relevant. And if you talk about EBITDA, I mean, you're leaving out interest expense, which for resi it's usually after rental income, the second most important line item. And I mean, if shareholders make a subscription decision. I mean you need to have some sense of what kind of FFO you'll be getting in the years to come. And I'm somewhat concerned that the FFO could even be negative. That's where my question comes from. And then as I mentioned, on CapEx.

Yes, I think the CapEx. So maybe it's very helpful. And that's really, I think, a good benefit. If you will run through the presentation, from the last bond roadshow, because there, you will see how do we -- how are we able to perform in the next years? And how can, let's say, an ICR, which is linked to your question, how can it look like in future times, given that we have, let's say, assumptions on the coupon, right? You and me, we do not know how coupons will look like. We have maybe a good guess on that but there are also some sensitivities in it, which gives you a little bit of a background of this question. We are not at the moment in the mood that I have here on the roadshow for equity. First of all, I need the vote, I need the AGM. And afterwards, we have to decide how we can bring transparency to my shareholders, if I can, let's say, can raise also capacity. And this is a good question which you have and therefore, we have to bring a little bit more transparency. We gave it to the market in our presentation. Please have a look inside there and make your own, let's say, analysis out of it. From my point of view, FFO EBITDA has to increase over the next, I would say, couple of years. I can't do that very quick. It's a resi business. So it's a little bit of question of timing, right. A little bit of question of timing.

I have one question regarding your nonstrategic portfolio/disposal strategy. I saw that in H1, you sold dozens of condominiums, just around book value, but that's EUR 50 million of total value and in the light of the nonstrategic portfolio, that's a small number. And I'm wondering are you confident that you can sell larger parts of the nonstrategic portfolio, not only to like retail or like individual buyers who are going to pay a higher price close to institutional buyers who might have the perception that Peach is under selling pressure. Again, under the old management earlier this year, there was a sales process, which my understanding was aborted. But I mean the thing you absolutely want to avoid is having the perception of a [ forced ] seller, right?

I totally agree. So some comments to that. First of all, if you go out today with a big portfolio, big was beautiful in the past, smallest actually at the moment, right? If I go out with a big portfolio, I can only approach equity investors, and we all know what the expectation on yields are. So you can expect, I would say, discount to fair market value if you do that. Sometimes it makes sense because maybe you have the advantage of getting cash. if needed. On the other hand, if you go out and sell, I would say here, asset-by-asset, location by location, then it's more than 70 locations, which we have and if you sell off an location, then you need 70 investors. And this is what I mentioned before, it's not a one shot. It is something what we have to do over the next, I would say, 2 to 3 years. The good thing is I do not need to pull cash out of it. We expect there, let's say, given that you sell to fair market value or in our presentation, we assumed a little bit less than that. We are able to achieve EUR 300 million in over time and time means 3 -- let's say, 3 years. And this is, let's say, exactly also in line with our CapEx needs in the strategic portfolio plus a little bit upside on cash flow amortization purposes. So having said this, our sales time line is also in line with our CapEx spending and with our amortization needs. So I'm not under pressure there, but I totally agree with you, it is a challenge and a task and Peach didn't do it in the past like these asset sales. So we have to adjust our platform. We have to think about it, what will be our sales team looks like. So I think there are some things to do operationally wise. If you shift your strategy, as we mentioned here, you have to look what is the right composition of the sales team? What's the right composition of your CapEx team and how can we improve our [ ledger ]. These are the operational challenges besides the challenge on the debt side.

Final question on the sales proceeds. What kind of tax rate should we assume?

Tax, let's say, goes that way. If you look on NAV and NTA per share, so there is some components of effect if we sell the nonstrategic. I think tax is a very, very individual situation. You have to keep in mind that we have more than 60 [ STBs ] with 60 specific tax things. So tax is really hard to predict at the moment. We have also some instruments in place. Maybe you know [indiscernible] in German, where we can use it and use it for CapEx measurement. So I think we know here we are, let's say, professional ones to deal with that. I can't give you a right answer to that. It's too early for me. I do not have all the details in terms of tax in front of me. Tax will have an impact, of course, but I can't give you here really a good guidance. I can't give you now. I do not have that in front of me, it's too complex.

Yes, I know that. But just to confirm, I mean, out of the net sales proceeds, obviously, you still have to deduct the tax that you show on the slide, EUR 7 million net proceeds, that's before tax right?

Yes, exactly. So also -- and don't forget, we have also some tax losses carry forwards, which we can use. So I estimate that there is some tax will come up. Of course, it's a risk, but I can't give you a number here.

We have a follow-up question coming from the line of Stefano Loprete from Atlantide Asset Management.

Just a quick one. I understand the capital increase process will be voted on the 27th and then executed afterwards. But are you -- in terms of process, are you planning to kind of make it contingent on an agreement with the lenders or an amend-and-extend with the lenders? How should we think about that?

You're talking about [ tax ] right now. So I would say sometimes it's very good to have equity first. And there is some, let's say, people who think that's good. The other thing, the ordinary rules from debt capital markets that's even better to have the bond resolutions first and then the equity. We are not able to make a conditional AGMs regarding the topic. I think we have to be very careful how we deal with that. And I think this is one thing from our point of view from the company. And the other thing is raising this equity. I would say some investors would say, if you do not have a bond solution right now, it's hard for me to decide if I can give you the money. So I think there's a little bit of uncertainty right now. And we have to bring this -- the uncertainty away. And that means I have to be very clear on the bond side, what we offer for our bondholders, what can we offer, can we come together, and with that certainty, I also can approach my shareholders. And timing is also critical here. It also depends if bondholders are playing games with me, that will be harder. If we come together here, which I think we will do, then we can bring that aligned.

Our next question comes from the line of Philipp Kaiser from Warburg Research.

A quick follow-up, I got it right there, will there be a first decision on the bondholders, which you can then exempt in your equity component? Or how will that be on the time frame?

I think it was a similar question from the speaker before. I think there is a little bit of uncertainty right now if I would be very comfortable on the bondholder side that would be fantastic. So we have to deal with these uncertainties at the moment. And from my point of view, what would be the target from the company's point of view. First thing is we need support of my shareholders to delever here with a significant amount of equity, this is one target. And the second target would be, I have to find a solution for promissory noteholders and for the bond. And we have to -- and the best way is to bring that, let's say, on a parallel track aligned that we have at the end, reached our both targets. And this is what we have to deliver. And there, let's say, a lot of variables, a lot of possibilities how we can do that. And it is what we have to deliver. I will give you the transparent process over my communication line, [indiscernible] to you, like these kinds of management calls. If I'd be successful in that, I will let you know. But at the moment, I can't give you here my let's say, my perfect route, how I can do that. What I can tell you that we are in a very close contact with bondholders. We are very close to my Board of Directors, and you know that in my Board of Directors, I have also contact to shareholders. And what I'm doing here is also bring transparency to the whole world here. And then yes, we have a little bit of challenges in front of us. It's not, let's say, a 100% clear way here, but we feel comfortable to find solutions here.

Then the next question on the non-strategic and strategic portfolio. So the plan of just kind of selling part of the non-strategic portfolio over the next couple of years, only works out when the bond, at least part of the bonds are prolonged. If this is not the case, how convinced you are to sell quite quickly part of your strategic portfolio to refinance the bond? Or how would -- how is the plan if negotiation with the bond holders come [ to your ] end?

So look, if I will not find a solution for the bond until November next year, I have a problem. And then maybe I can solve also problem with selling the assets. If I'm under pressure then, I would say, definitely, yes. If I do not -- if I can achieve the right pricing for a company and for my shareholders, I would say no. So yes, the challenge is find the solution for the bondholders, and we all know how it works. We see so many other competitors in the market. And to be -- I want to be very clear on that, we are not a distressed company. I can show you my value upside on my strategic portfolio. The portfolio side is, for me, let's say, a performing asset future times. I have challenges there. Obviously, we talked about vacancy, for example. We talked also about rent increase, which is in a good way. There are some challenges where it's not distressed. And we have, on the debt side, we have the challenge that we have to refinance or repay or partially pay some of our unsecured debt. And this is the challenge which we have to find out here, whereas [indiscernible] have to find a solution. And the other thing is we can show to the market that our shareholders hopefully support with their vote in the next AGM of the company. And I think this is a clear signal to market that we are not distressed and that we do not have to sell higher sales, for example, if we sell assets, it has to be in line with our portfolio strategy. And with that, I feel comfortable. So it's not, let's say, a really huge problem on the debt side, but we have to find a solution for that. And having said this with the AGM, I think that the first step to find a solution, it's not done yet, there is some uncertainty still there. And then we will find the solution for bondholders. I think from my takeaway from the bond roadshow, I feel, let's say, I feel that we are able to find a solution [ itself ]. Let's put it that way.

My last question refers to the vacancy rate. So it's gone up over the last couple of quarters, but you already elaborated on that and why is it so. You also increased CapEx, so is it fair to assume that the vacancy rate will come down by the end of this year already that you see first signs of yes, lowering and [indiscernible]

So look, this is a clear, clear target but at the end, I can't execute that. I need the whole team for that. And I hope that I can bring them into a position that they are able to do so. What we have to deliver here from management, we have to deliver the circumstances that they can be successful. And one thing we delivered, and you saw that, that we spend CapEx, we start spending CapEx on [ TI ]. We are back on track. I think that's a good headline. And so the circumstances are becoming better week by week, and we have to perform there. And this is exactly the target which we have. And to be honest, yes, I hope that we are lower in the vacancy, and to be honest, also, I hope that is taking place also in the strategic portfolio. But we are not forgetting the non-strategic. As you know, if you have vacant units, sales price will drop. So we have to take care about 100% of our assets. And one major driver for value is bring the vacancy down. And don't forget in the strategic ones, more than 500 units are rented out.

Our next question comes from the line of Edward [ Sinclair ] from [ Ashler ] Asset Management.

I just wanted to follow up a little bit on a couple of these questions on potential restructuring. If you guys are going through this discussion with your bondholders and equity, do you guys also think you're going to need S6 opinion issued for the bank creditors as well?

I'm not sure if I really get your question because the line was very bad. Is that the question, if we are also in touch with banks? Was it [ debt ], the secured debt?

My first question was, if you go through this process with your equity holders successfully and the bond lenders. Are you also going to need an S6 opinion, like a restructuring opinion to get your bank holders over the line as well?

I see what you mean. That's not discussed yet. We are far away that the bond becomes current. So technically wise, I think we do not have to deliver. I think we have to make, let's say, a good offer to bondholders if they can decide. And having said this, it has to be commercially wise a good deal for them. as you know, the bond, I haven't seen how it's trading today, but let's say, day before, it was in the Board Hall of [ '85 ]. So there will be some upside for them. So commercially wise, if we pay them back to par, that will be the question of coupon for commercial purposes. And we also have to discuss maybe if we can bring them a little bit closer to assets in terms of security. And having said this is where I can convince them there will be some legal stuff as well, but I can't see here, I'd say, regulation stuff at the moment.

And then my second question was just following up a little bit more on the FFO. I wasn't sure I fully understood the issues going around the FFO that were asked by an earlier caller. But just kind of looking at the presentation you referred to for the bondholders on the roadshow, it seemed to me that you were trying to go from where you are now in EBITDA up until kind of mid-80s, roughly, low 80s to mid-80s in terms of EBITDA. But the interest burden is probably going to, I would think, at least go up by a similar amount, just moving to market interest rates. And so I wasn't following exactly how you guys were planning to offset that additional cost of interest and given your current profile of the business.

Yes. So if you take that EBITDA, which you mentioned, if you take a 4% coupon, if you take an ICR of 180 you can -- have a debt capacity of more than EUR 1.1 billion. I have EUR 745 million on the strategic. So there's still a headroom of more or less EUR 400 million, which is by accident of EUR 400 million, which we have the balance sheet for the unsecured. So I think if you have there, let's say, 1.8 ICR on a debt capacity, which you do not need in future time, that I would say I have a strong, let's say, capital structure which also gives me headroom for, let's say, FFO yielding.

Our next question comes from the line of Clark McPherson from Clearance Capital.

Just a couple of questions. First on disposals. I mean, during the fixed income this quarter, I think you were flagging like EUR 300 million of disposals at sort of a 10% discount to book, having the momentum so far as in H1 has been fairly limited. So I'm wondering when we could expect momentum on the disposal program to pick up? And just on that point, the residential developments year-end last year, I think you had 33 motorized sales. And now that seems to have dropped back to 31. Now it's a small point, but just wondering if you've actually had some potential buyers walk away from deposits there. Another question is just on the feedback from the fixed income roadshow on pricing was sort of 4% coupon. Was that the feedback that you've got from investors? Is that where you think you're going to be able to issue new debt? And then one last question. I think you touched on this earlier on the call. Just on this potential capital raise, do you have some sort of soft commitment from one of your large shareholders?

So I'm starting with the last one because it's very easy to answer, No. For the 4% coupon, I think if you reflect to the presentation from the bond roadshow, No, that is not the feedback from bondholders. That's an analysis that I can refinance in future times. And I think we speak there about 2028, so four years from now on. We are able with that EBITDA based on estimated coupon of 4% on liquid and there's some sensitivity. What's the debt capacity then. How can I refinance, for example, an amended part of the bond. And the answer will be, if I reach these numbers, I'm ready for the secured market in Germany with -- from big lenders then I can refinance such kind of facility. That was the idea to show what is the debt capacity, how could it look like in the future given we have some sensitivity there. And how can I refinance the debt in my balance sheet? That's the analysis. And it's not, let's say, feedback from bondholders. It is a sensitivity analysis looking into the future. I think that was the other question. In terms of development, I do not really -- I'm not sure if you really mean our development, what was the question because there was -- also the line was bad there?

Yes. Apologies. On 43 -- Page 43 of the report, you have your development properties than you note that there has been 31 out of 57 of the residential units that were notarized, but in the full year report 2023, that number was 33. So I'm wondering if there's some problems disposing of those units where you've had potential buyers walk away. And the reason I'm asking is just an indication of how tough it may be to implement your disposal plan going forward?

Yes. So look, this is a very, very detailed question regarding to the development here in Switzerland at the Lake of Zurich. To be honest, I'm not give you here the detailed answer, I do not have that information in front of me. I think we are in process with this development. If I can get rid of this development shorter than later. I would be happy, because I want to focus on resi business in Germany. So this is our last development in here in Switzerland. I think it's not really a significant driver for our performance, but I do not have that here really this answer for your question in front of me. Sorry for that. Apologize.

Okay. No problem. Just coming back to the coupon then. I mean rates are coming down, broadly speaking and I admire the ambition of maybe a 4% coupon is great. But realistically, a company with your rating and again, this is not to be antagonistic with a company with your rating, it's very ambitious to think that even 4 years, 5 years out, that 4% could be a realistic coupon.

Yes. No, I think I know -- I can imagine your question. So the 4%, put it that way. If I have an ICR of 180, if I have the debt market in the ballpark of [ 15 ] or less, and I have an LTV lower than 50%. Then I have access with my whole amount of debt to secured lenders. So I can deliver mortgages and not unsecured lending facilities. If I'm in debt at, let's say, situation, then we're talking about coupons on mortgage lending. Take, for example, let's say, swap rate by [ 2.50 ] plus a margin of 1.25 for such kind of LTVs, you are below 4%. That's the situation right now. It's not a situation that I say, I have at the moment, a weak, let's say, rating. And can I assume 4% for unsecured lending that would be bulls***? But I'm looking into the future and ask myself, do I have access to secured lending markets? And then we come to the discussion is the right coupon is then 3.75, is it 4, is the 4.25, we all do not know what will be margins or coupons or swap rates will look like in future time. If I compare that with today, I would say I feel comfortable with such kind of a number.

Well, I guess the problem is you've got this bond maturity that you need to deal with in the next 6 to 9 months. And in that time frame, you're not going to be able to refinance that at a 4% coupon. So that is going to be a drag on your funding costs and profit costs [indiscernible].

Yes, but that was not the scenario. It was not a scenario that I go out, let's say, in a couple of months, refinance the bond with a coupon of 4%, that's not the scenario. The scenario is, we want to answer a question if I can amend part of my unsecured debt right now and assume a maturity between 3 and 5 years, how can I refinance such kind of a facility if it becomes mature in future times. And therefore, I have to ask myself what could be the best guess to drive EBITDA because out of this number, I can pay that service? And how can it look like, at that time, assume 2028. And I showed up how does this, let's say, performance could look like. And then I have access to secured markets and not to unsecured markets. And then I can repay this facility in future times, if I have an ICR of 180, given I have a coupon or 4% in future time, given that we have -- we need the EBITDA assumptions, then I have the possibility to refinance it with a secured market, that is the scenario. It's not a scenario to refinance it tomorrow with a coupon of 4%. That was not the gist, and that's not showing well.

Our last question comes from the line of [ Rolf Arpagaus ] from AWP.

I just have one very brief question that is about the press release where you mentioned that one shareholder wants changes to the Board of Directors, and that is supposed to be proposed at the AGM. What exactly does that mean? What changes is he proposing?

I want to -- I ask a little bit of patience here that you will see all the details in the invitation. I can't give you here really good transparency right now. But I think it's only a couple of days left and it's not really significant for the company.

This ends our question-and-answer portion for today. I will turn the call back over to Mr. Klinck for any final closing remarks.

Thank you very much, [ Lara ]. So I'm very happy to answer your question. Maybe I was not very clear or I couldn't be very clear on some of that. But I hope that I can give you a little bit more transparency and clearness to our, let's say, challenging performance right now. I'm happy to hear you and see you again on the next management call. We will put that on [ wire ] if we have a next meeting. And thank you for your question, and see you. Bye-bye.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.