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

Ladies and gentlemen, welcome to the company presentation, Peach Property Group AG Conference Call and Live Webcast. I am Sargen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Gerald Klinck. Please go ahead.

Yes. Thank you. So good morning, everybody. Sorry for the short delay, as sometimes it happens with some technical issues here. But I want to go here through the presentation because we have 2 talks out in the last couple of days. So I think it makes a lot of sense to give a little bit more background information and the possibility that you also can raise questions and, hopefully, I can good -- can give good answers. So we have also a small presentation for you, the first slide, that is our housekeeping slide for these guys or ladies who doesn't know us very well or maybe follows us shortly here, where something a little bit of what we did in the past. So I think the most important thing on that time frame was in July when we started our analysis and also presented that to the public world here with our cluster and our portfolio strategy because only if you know in which kind of assets you will be invest or maintain or want to sell in future times, then you have the possibility to also show what does have an impact on future EBITDA and EBITDA growth. And also, you are able then to decide if you have an opportunistic sale in front of you, which are the right assets to sell in that strategy. And I think also to convince our shareholders or stakeholders to follow us is good to give transparency on that. And having said this, that was, I think, the starting point that we can now discuss and talk about 2 major events of Peach, and this is exactly what we have here on the right-hand side, close to the end of the year, it's our equity raise and also our portfolio sale, as I mentioned before, which we presented here via the ad hoc channel in the past. So maybe, this is also a little bit the reason why the share price moved up in the last couple of days in our favor. That's also good, and thank you on the shareholders who are on the line to support us with that, let's say, supply and demand in markets regarding our shares. So moving on to the next page. I want to give you a little bit of a technical overview of our equity raise. It's a technical slide. You have all the important figures in that here. We have -- we want to double our shares, you are aware of that. We have an AGM in September, so shareholders voted for that. Also the issue price of CHF 5 per share gives us a possibility to raise here roughly EUR 120 million in cash, which is also good. We have 100% underwriting of our shareholders. That is fantastic. We have a clear support of all our anchor shareholders where we have subscription rights of them. So I feel pretty good on that, that we have here the full support of all our anchor shareholders, plus the backstop of 2 major shareholders also. That's good. So I would say there is no risk in the market anymore for our equity, which is good for the company. On the right-hand side, you see a little bit of, let's say, technical data in terms of timing. The rights will trade at the beginning of 29th of November and ends up more or less a week later at the 5th of December. And the shares will be granted by the 12th of December this year. So that means before the window closed here for Christmas, we are done with our equity raise. So on the next -- or maybe also an important information. If you ask them, we received some questions if we can deliver the prospectus. The prospectus is published on our website. So if you want to have a look inside there, as you can see that at our website. Next slide. So I think that's also very important for us. It's regarding our sales portfolio. Internally, we called it Paula. So that is our project name for that. So if you hear me saying something about Paula, it is exactly here, our portfolio. So we are totally in line with our portfolio strategy. That's what I mentioned before because we only sold here non-strategic and also opportunistic locations. We see that on the next slide later on, on the map, we released Heidenheim, which is close to the former border to the GDR -- Helmstedt, sorry, and also on the South, it is Kaiserslautern and Heidenheim in that area. So we get rid of our assets in the South more or less and clean our portfolio, so that we can concentrate on North Rhine-Westphalia. So in terms of some important figures for us and, as you can imagine, one really important number is the cash in from the sales team. And you see the EUR 120 million. So together with the equity raise, we have more or less EUR 240 million on our accounts before some transaction costs, which gives us a lot of new flexibility in our liquidity. We'll come to that later to the debt side here. And also, we were able to get rid of our secured debt on that portfolio, which is EUR 185 million. So these are good numbers for us on the balance sheet side. It's good. And we will have the closing date, which is scheduled also mid of December. So before Christmas, we are, let's say, in a very good position to have a lot of cash sitting in our accounts, which then are ready to use for further debt restructuring or also for CapEx measurements, which we want to achieve here next year. So that's good. So last but not least, we were also able to find a solution for the new investor and also for us, especially for our employees. More than 30 people are moving on to an OpCo, where we have a joint venture together with our acquisition partner here. So that's good, that's the property management and the, let's say, offboarding and onboarding on the other side will very smoothly here. That's good. And also an impact on our EBITDA, we do not lose here our scaling impact. Having said that, on the property management and facility management people here who are moving on in the OpCo, Peach is still there for the new owner to deliver some other services like when collecting, accounting and such kind of these, I would say, more holding stuff. This is also agreed that we help them to have a very smooth, let's say, transfer of the assets from our side to them. And that is also good for our EBITDA because these services are also cost covered for us. So our negative impact of scaling, let's say, goes down. So that's also good. On the next page, you will see what is the impact on our strategic and nonstrategic portfolio. Maybe you remember that slide from our bond -- our last half year results where we presented that. On the left-hand side, I think that is very good. So we were able to decrease here our vacancy rate by more than 10% in our strategic portfolio. And as I mentioned before, you see the circles around there. We really, let's say, concentrate now our full focus on North Rhine-Westphalia. So we get rid of the South, more or less, Helmstedt, which is in the middle of Germany. That's also good. So also these numbers are shown on the left-hand side in the circles gives you really the clear view on North Rhine-Westphalia on our existing portfolio. On the right-hand side, it's also good. If you see on the lower end of the slide that we really get rid of our condominium business. That's good because these assets are, let's say, hard to sell in markets on an asset-by-asset level. So we could really clean up that. That gives us also, let's say, benefits in terms of administration of our remaining portfolio. And also the small and scattered locations, we were also able to decrease. The main reason here is, let's say, our sub-portfolio in Helmstedt. It's churning in, which we allocated to these numbers here, that's the main driver there. If you see here the pro formas, remember, there are also some smaller sales, which we executed in the Q2. So more or less 200 assets are also sold, which are not part of this bigger Paula transaction. So if you see here the pro forma numbers, this is really after half year results. That is Paula, plus more or less, give and take, 200 other units, which gives us here now a clear view how our portfolio on the nonstrategic will look like. On the next page, still there, I think that's a little bit also a housekeeping slide. We stick and keep our strategy here, and our main focus after the equity as the bigger sales portfolio here is now concentrating on our EBITDA drivers for next year. We want to catch up our rents. There's a lot of upside between existing rents and our market rents. It's more or less, we pointed out here 16%. I think it's a good number, you can say. On average, there's a gap of 20% over the next years. That's good. Also reducing vacancy rates. And remember, the numbers from the former slide on the nonstrategic. We were able to reduce it down below 6%. So it's in the ballpark of 5%. So we are here on the way to also release other impacts on our strategic portfolios in terms of vacancy reduction. We are still in another slide here as our bigger CapEx measurements. We also want to start that shortly here in 2025. And on our, let's say, next calls, we give you here little bit more transparency on that. But this is still also on our focus. And last but not least, we have to look on our cost structures and driving efficiencies on the property management cost and also on the platform. The nonstrategic are still there to refinance our CapEx in future times. So also this is something where we're focusing on in, let's say, 2025 and onwards to get rid of our remaining nonstrategic assets. We do not have further bigger portfolio sales at the moment here in the company as projects. The next sales will really go into the nonstrategics only and focusing on that to optimize our net sales proceed out of that part of our portfolio to refinance the CapEx in future time. Okay. So having said this, some numbers before and after Paula. You see here the main KPIs. So we reduced, obviously, our rent income by roughly 20%, which is in line with the sales of our portfolio, loan to value, and I think that is really a good number here. We are able to decrease that in the ballpark of 50%, hopefully lower in future times. So this is really a big movement for us on the strategic side of the debt side. That is good. In terms of our cost of capital, we are more or less still in the same ballpark here. But having said this, if you can get rid of risk of unsecured financing. We also get rid of, let's say, further risk of raising coupons. So that has also a big future impact on our FFO. In terms of net debt, we are now below the EUR 1 billion limit. So it's also decreasing here our debt position, which is obviously one of our main targets here, with these both projects to really bring down the leverage. In terms of shares, we mentioned that before, it's double sizing of our shares. In total, we have EUR 240 million. The -- it is after sales of tax -- sales tax of our portfolio sale. It's a little bit of transaction costs, you can imagine, in terms of lawyers. And also, let's say, with the equity raise, we have also here some costs. So you can deduct almost EUR 5 million to come to a net-net position of around EUR 235 million, which we can use for further measurements, and I come to the debt part a little bit later on. So next page. This is, I think, the major impact. You can see on the left-hand side, we are now in the position with the cash on our hands, the fine solution for the bond and also for the other unsecured debt, which are maturing in 2025 and 2026. So that is really a lot of headroom for us, gives us optionality to also then find, let's say, the remaining part of our refinancing needs in future time. With this, more or less, EUR 235 million, that is not the 100% solution of our debt, but it brings us totally in a different scenario that we can find here solutions for the upcoming debt amounts. In terms of secured debt, you'll see that, that is more or less the bright gray part on top of the columns. We almost get rid of all secured debt, which are maturing in 2026. And then it's also, let's say, smooth out all the maturity profile over the next years. So that helps us also on that side. It is not really our main focus here, our main challenge, the secured part because we are in a good relationship to our secured lenders. They feel comfortable with their LTVs. Obviously, they are looking to the bond and the unsecured proportions on holding level. But with these both effects now we have, I think we could really get rid of a lot of risk in our balance sheet in terms of debt financing. So with that slide, I want to close here my short presentation. And I think it's also good to come here into a discussion. Hopefully, you have some good questions for me and that I can give you good answers to that. So the line is open for your questions. And please, operator, you can go forward and take the questions.

[Operator Instructions] And we have the first question coming from line of Robert Stenger from Clearance Capital.

This is Robert Stenger from Clearance Capital. I have actually, well, 2.5 questions, let's call it like that. Regarding the portfolio disposal, what does the large discount that you sell the assets at? What does it imply for the remainder of your portion?

Yes, good question. So as you have seen in the slide that we are, let's say, agreed with the acquirer to keep that secret. It is -- but I'll give you maybe little bit of background that you can make a calculation on the back of your envelope yourself. As you know, that was a share deal -- or it is a share deal. We are staying in as a joint venture partner with 10%. And there are also some minorities, let's say, former rep lockers to sell also to the new acquirer. So it's not really 100%, which is going to us if you compare the EUR 120 million of cash into us, right? That is the first assumption, which you have to make. But if you -- and then you have the share deal and you have the detail is the devil at the end. If you do that in all this balance sheet item like how do you treat tax losses carried forward, deferred tax liabilities, pension liabilities, fair market value of your derivatives, leasehold, and I think there's so many details on the share deal, which gives you, let's say, not a full transparent situation here. But get rid of all these stuff, take the cash, take the debt which we get rid of, you are more than EUR 300 million. If you put that into account to the EUR 23 million of rent, you are up of more than 13x multiple. And knowing that is not 100%, it's less. So I would say it's more or less 87%. If you take the 10% into account, plus the minorities, then you end up with the multiple, which is, let's say, for us in a good situation compared to other sales. And having said this, this is a portfolio valuation and not an asset-by-asset valuation. You can assume that in these days and these market circumstances, a discount for a portfolio is obviously there. We can give a little bit more transparency in our full year results, which are coming up the next year in Q1. But there is, still, you can imagine a discount on fair market values if you measure that asset by asset and not as a portfolio. And I think that is also the answer for our value that we have here clear transaction with a portfolio and not an asset by asset one. That is one reason why we do not think that we have an impact on the remaining share market values. This is one thing. And also it is true that we have this transaction and market circumstances in which we are operating here as Peach with also our challenges on the debt side, which also obviously is a little bit of pressure then if you have to discuss that with your potential new owner of this portfolio. So at the moment, we do not see that there will be an impact on our remaining valuation of our remaining portfolio.

Okay. My second question is, basically, you sell this Paula portfolio at -- well, yes, you explained at a significant discount, but also to a major shareholder like a top 4 shareholder of Peach. And that same shareholder is also providing a backstop commitment for any -- and exercise rights in upcoming rights issue. So how can investors that are basically not part of this, let's say, top 4 group of shareholders, how can they be comfortable that the -- that all the interest -- all the other shareholders have been served well?

Yes. Okay. That's a good question. So I think, first of all, this shareholder is only a minority shareholder, and that new joint venture on the acquisition side, this is one thing. Secondly, we discussed that very deeply with the Board of Directors, and we are very transparent on the whole process. That's also good. And third, timing-wise and given transparency to Board of Directors and the market, I'm very happy that I have support of my -- all my anchor shareholders and also to 2 of them who gives here a backstop agreement of the remaining pieces of the shares.

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Mr. Gerald Klinck for any closing remarks.

That was very short, short question. So that -- hopefully, that means that we delivered a lot on, hopefully, all the information you need to make your analysis. Yes. So fine with that. So having said this, I think we are close to the end of the year. I wish all the best for all of you for the Christmas preseason here. Take care, and have a good, let's say, new year afterwards. And hopefully to see -- and looking forward to see and hear you next year when we can present our full year numbers. So thank you very much for your attention, and bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.