Peach Property Group AG ($PEAN)

Hello, and welcome to Peach Property Group FY 2025 Results Conference Call and Webcast. [Operator Instructions] I will now hand over to Gerald Klinck, CEO. Please go ahead.

Thank you, Lydia, and a warm welcome to all of you for our full year results 2025. Before we start with the presentation, I want to give you a couple of comments. I think it's very important to talk about full year results that after completion of our Phase 1 of the recovery story of Peach, the balance sheet transformation, we think it's more important to look to the actual situation and for the growth potential, which is in Peach. So let's talk a little bit more about the future. Having said this, we split the presentation, as you know in the past from us into 2 sections. One section is what I mentioned before. It's a little bit of looking backwards where we are today and the outlook for Peach. And for that reason, I'm very happy that also Michael Zahn, our Chairman of the Board, is joining the call, and he will give his view on Peach value upside and future growth of our company. So Welcome, Michael to us. And having said this, the second section of the presentation is dealing with the slides which you know from us in the past with all the details of the full year results. We do not want to touch these slides on the call. Please have a look at it. If you have any questions or need explanation for some background information, you can use the common channels to stay in contact to us via e-mail or via phone, and then we come back to you with all the details and answers on the specific ones. Last but not least, we are a little bit behind the schedule compared to last year, even almost 3 weeks later than last year. Reason is very easy to explain. We moved our core functions from Zurich to Germany, especially the group accounting. So our team -- accounting team here in Cologne was the first time in charge putting all these things together and put the reports together, and that was a big challenge. I'm very happy that they were able to do so. And I think the quality of our report has improved, especially in the section of the EPRA and maybe you have to look in specific numbers like the EPRA NTA or also our FFO definition. So very happy to that. So thank you to the team. Maybe they are on the call, especially to Michael. But having said this, we can start. And on the next page, it's a little bit of looking back where we start. So I'm joining Peach now since 2 years. And when I joined Peach, there was kind of a lot of challenges in place. So start with the asset side of the balance sheet, the portfolio and the operation, and we had 15,000 units in the market and nobody knows really are these the right assets to sell and what does it have an impact on NOI KPIs or the other stuff. And that was, I think, the first thing which I have to deal with. So we had no clear strategy on the -- on our sales strategy. In line with low spendings in 2023, you see only EUR 10 per square meter, and this is split into tenant improvement and health and safety measurements and CapEx, was so low spending with the result that the vacancy was pretty high. It was more than 10% of the overall portfolio and the development project in Switzerland, the Peninsula was on the execution risk. So no portfolio strategy in place. That was on the left-hand side of the balance sheet. On the right-hand side, and the liabilities had a very pretty high LTV, almost 60% end of year 2023. More than 2/3 of the debt were on the short-term maturity, EUR 350 million secured, but even more challenging, EUR 400 million in the unsecured sector like promissory notes, convertible and bond. And there was a cancellation of our RCF came from EUR 50 million when I started, it was EUR 30 million. And after that, it went away. So the debt on the development project also in Switzerland also not really produce NOI in Peninsula and was our yielding assets. So that was the situation on the liability side of the balance sheet. So a lot of challenges there. And having said this, in the capital markets, we saw the share price with a huge discount to NTA. Rating dropped down by CCC for Moody's, and we had an aggressive valuation place with a multiple of almost 20 compared to peers in these years, it was pretty high and nobody really trust these multiples. So the key challenges were totally clear. The major upcoming refinancing, operational inefficiencies, I mentioned that before. But the most important thing in these days was no trust and no trust in the domestic debt and in the capital markets. And having said this, the governance and also the management team was in an unstable situation. So this was really challenging. And now -- and this is on the next slide, we have a totally different Peach at the moment. So we were able to stabilize that. Coming back to the same, let's say, size of the balance sheet. So on the portfolio and operations, we have a clear portfolio strategy in place now. We talked a lot about our core portfolio in North Pine, Australia and the non-strategics, which we want to get rid of in order to get the funds for CapEx measurements and deleveraging the company. Our like-for-like rent growth last year was almost 4%, a little bit lower. Vacancy is down now to 5.2% end of year-end, if you collect the vacant units and in the strategic portfolio even lower. So that was a huge first impact on our operational improvement. For Peninsula, we were safe to what I'd say, it is, let's say, very clear that we have a handover of all apartments of all lofts at the end of the year. So Peninsula is, I hope, history at the end of the year. Why do I say this? EUR 85 million of debt is behind these assets producing EBITDA. I'll come back to this [indiscernible] later when we talk about leverage. And also for the last and remaining piece of our assets in Switzerland and yielding assets, we also signed LOI for sale and also be very comfortable that we can close that deal also. Having said this, another 2,000 units are signed last year. We talked about that, gives us a deleveraging of more than EUR 60 million and a net cash position of EUR 40 million. We are very close to sign and close it. We expect [indiscernible] closing in Q2 [indiscernible] in this quarter. And then there was the other 5,000 units, which we sold end of 2024, which gave us also a deleveraging effect of EUR 185 million and EUR 120 million cash, almost full refinancing the unsecured pieces of our debt profile. That ends up with lower LTV of 49%. So [indiscernible] relevant. So we are lower than that. We were able to regain trust in the domestic market for [indiscernible] lending in Germany. So we were able to find the new facility by EUR 410 million. That is our facility. It's a 3-year maturity plus 1-year extension option. We also have the possibility that we were able to sign a new CapEx facility by EUR 30 million, which gives us also more flexibility. The other secured facilities, we mature by 5 to 7 years by EUR 220 million with 2 lenders behind that. And there was also another domestic lender on the fund brief side who gave us the trust for another EUR 120 million. So we almost changed the whole structure of the debt profile. We are now with 85% [indiscernible] in our balance sheet, which is good. So capital markets, our rating is recovering. We are at the moment at Single-B. We'll see what's going up if we end up this year. Valuation is confirmed also by [indiscernible] value by CBRE with a multiple of 16.3x. I think that is a fair multiple at the moment also compared to our peers. And despite our sales, our FFO is at the upper end of our guidance, which we gave to you was EUR 7.7 million, and we guided at EUR 16 million to EUR 18 million. So that is also really good in line with expectation. So regained of trust in domestic and debt markets, resource financing situation. We have now a stable governance with a good Board. We feel a lot of support from them. And on operational processes, we also be better than before because we have with our new COO on the ground centralization of key operational processes. In terms of staff, we were able to release the Peach points with in line with the 5,000 units. And with the other 2,000 units, we are able to sign a contract for property management, which helps us also on some KPIs on the platform as well. Before I come to the next page, I want to give you my view on the last 2 years and why do we put these slides together. And I think maybe some of you will say, hey, we all know these things what you are presenting here because we were out with more than 30 talks or copy news plus the other presentations and we outlined that out, I think, in every presentation. So maybe they say it's a little bit boring. Others who are joining us here shortly will say or may say that was an ambitious and successful road trip of Peach for the last 2 years. Others told me, hey, you are quicker than expected with the recovery. And there are also some other voices they are not satisfied because we are too slowly and there are still some other issues which are not solved yet. I think the truth at the end, everybody is a little bit right. So my personal view on that is my staff, my people on the ground who are dealing with the assets directly, so property asset management, the letting team, techniques and so on, they made a great job. And that's not every time very easy, especially in our non-strategic assets. Some of these are very challenging with challenging tenant structures. The holding stuff, very proud of that, like the accounting stuff, like tax and all these things. But if you have to deal with the structure -- restructuring of the debt, the financing part and the portfolio sales, you only do that with a handful of people, which were very ambitious and successful in these days. And -- to be honest, I'm very proud to work with them. And that's the truth. I think from my point of view, we were quick and we find solutions for all our challenges by doing it on parallel tracks. It was not duck by duck in a row. We worked on so many things on a parallel track. But the only question for this year, why we're doing this is one thing. We want to give you the possibilities to make good experience with us, with the Peach team, with the Board, the management and my whole team. And that ends up the sum of good experience ends up in creating trust and building up trust. And I think that's all it's about and if you are in the position to trust in us, and that's very important when we flip to the next pages because now we give you a little bit more background of our view, also Michael's view on the value potential of Peach, I think it is necessary to build up trust in us, to build up trust in Peach. And if you come then to the same conclusion, if you see the -- look at the facts and make the analysis, and I think we have hopefully a successful future for all of us. And with these words, I'm coming back to facts. Next page gives you a target vision of Peach for 2028. On the portfolio, we want to get rid of our non-strategic in the next 2 years. So 2028, we are down by -- down to 60,000 units focused in North Pine, Australia. Our net code rent will pass the limit of EUR 7 per square meter net code per month. You will see organic [indiscernible] growth year-over-year between 3.5% and 4% and vacancy will be below 3%. Our clear LTV target, and we will achieve that is 45%. Debt-to-EBITDA multiple, and this is very important, very proud of that figure, and we come to that later on with facts, it's in a ballpark of 12x that has really outperformed the market. And the all-in interest rates will be on market level in these days. On the efficiencies, NOI margin, we can close the gap to all our peers by 80% EBITDA margin, clear target to 65%. I would say something between EUR 60 and EUR 65 million. And the FFO around EUR 30 million to EUR 32 million. That sounds very ambitious. If you look on our FFO today with the overall portfolio by almost EUR 80 million, that is more or less -- it's not really a double, but it's a huge, huge improvement by only 3 years. And our clear target is focused on the operational improvement, sales and non-strategic release the net sales proceeds to refinance the CapEx and delever the company also with the non-strategics. And that is a clear target for us for the next 2 to 3 years. Having said this, on the next page, and now I come to some figures. The first thing, if you want to understand us is that you have to look and focus on our strategic portfolio because the effects from the non-strategics are going away in the next 2 years. So if you deduct the NOI and the interest of our non-strategics, you have to reduce our FFO by almost EUR 11 million. And if you can see, the platform cost is then only allocated to the strategic portfolio, and that's the reason why we lose here the FFO. After that, we have to focus on 4, let's say, cornerstones. Three one are the assets itself, operational improvement. It's top line growth, operating cost effects and the platform savings cost effects. These are the main driver for our value growth in future time. And the fourth one is very important in the resi business because it's capital intensive and what is going on with our interest. And that's a good story because everything we earn on top line or cost savings is directly run through to the FFO. Why is that the case? Because our debt is more or less on market terms by almost 3.90 average coupon. So we do not have really risk in the interest in the future time. And with that, that is technically or mathematic, we end up with an FFO, I would say, between EUR 30 million and EUR 32 million. We put in here the midterm of our guidance and these [indiscernible] on the next page. If you focus on top line growth, and that is very easy to explain, we will see in 2026, 6% growth, 2% by vacancy, 4% by ordinary rent growth and for the next year, almost around 4% in the strategic portfolio. That ends up of an NOI impact of EUR 11 million to EUR 12 million. The operating cost, additional EUR 6 million to EUR 7 million, these are more or less 2 bigger issues here. We are able to reduce our collection rate, which is totally out of peers by 4.4% down to 2.5%. That should be achievable with new processes and concentration on these. The second thing is another EUR 5 million. And knowing that we have almost 1 million square meters in that core portfolio, it's roughly a EUR 5 per square meter. And we see that we have high repairs and maintenance compared also to others in the ballpark between EUR 12 and EUR 13. I think there's upside potential to get -- to come to lower numbers, also where we spent a lot of CapEx. And then we have the ancillary cost on lower vacancy, which gives us here also an impact. It's not shown in the top line growth. And then there will be also some of efficiency gains in our operating expenses. So these are the effects which were close to the assets. The platform itself, and this is important to know that the starting point is 2025, we can reduce by EUR 9 million to EUR 10 million. That's very ambitious. But knowing that in 2025, we have so many impacts on one-offs regarding refinancing or other stuff, which we get rid of in the next years, that is not, let's say, a real issue to achieve. Then we also -- and I mentioned that before, the Swiss office is 100% moved to Cologne and one is moved to Berlin. This gives us a lot of headroom in terms of salary costs. We have also effects on losing some of our managers on the first and second level, which we do not substitute with external ones. We did it with our own people on the ground, gives us also some headroom. Lower fees, as I mentioned before, also the possibility to arrange and sign the contract regarding property management for the 2,000 units also helps to have here impact on the platform itself. Last but not least, I mentioned before, is the interest impact. Castlelake will have a value then the debt volume of almost EUR 350 million. So we will reduce it by releases from the non-strategics. And we see here some opportunities, some synergies because these facilities is linked with a higher coupon than in the market due to higher LTV and our situation last year, we were under pressure. And we have also then some from dis-synergies because almost EUR 110 million is not under market circumstances. So that is more or less -- a little bit more than 10% of the overall debt with coupons which are below 2%, and there are some dis-synergies. And we think overall, there might be a slight impact on the negative side. We do not put in place here other synergies of maturities of our debt, which will mature in 2030 because that is a little bit too far away, but there is also hopefully some synergies based on actual rent levels. So these are more or less the 4 big impacts where we think that we are able to meet this midterm targets to have, let's say, expected or likely FFO, as I mentioned before. Next page. And I think that gives you also a little bit the question of are we refinanceable in 2028, gives you a little bit an overview of what we achieved in the last years. I think that is also something for homework at the end, what's the key message. We started with EUR 1.4 million mid of 2024. And after get rid of our non-strategic and release the debt on that, plus the convertible, which is not shown here at the end of this year, we will repay it in May. That's a EUR 54 million piece, plus the development in Switzerland, we are able to halve our debt profile based on our strategic portfolio, we come down to EUR 700 million. The actual average coupon on our debt is 3.9% are on market levels. So don't forget that if you compare us with our peers, they have lower interest coupons. So they will have some interest upside, I think, in the future times. We are done with our financing, and we do not see impact on the interest in the next years. So also some information for you in our debt maturity profile. First of all, the 2026 column will go away at the mid of May. funds are sitting in our accounts, so the convertible is refinanced. 2027, no maturities. 2028 is our wall with Castlelake. I'll come to that in a moment. So more or less the main part of it is Castlelake and another 1 or 2 facilities. The light green ones here is the releases of our non-strategics. So you will see that we come really down to the EUR 700 million. Next page. And that page is a very strong page and gives you a feeling of the capability of Peach, are we able to be refinanceable in 2028? The answer will be it is very, very likely. Why is it? It's not all about LTV. It's a question of paying interest and debt service out of the EBITDA. So the EBITDA debt multiple for us is the most important one. At the moment, we are at EUR 20 million, far away from efficient structures. Then we will lose 2 multiples by get rid of our Swiss properties, more or less EUR 100 million without really EBITDA impact gives us another 2x multiple to come down, another 3x multiple from our non-strategic assets. And then obviously, and that's mathematic, if you increase your EBITDA, that had also an impact by another 3. So in 2028, we expect an EBITDA debt multiple by 12x. And I think that gives you a clear view that we are refinanceable in 2028 and gives us maybe also a good likelihood that we can negotiate good terms in 2028. So having said this, and hopefully, you can follow me on my assumptions, I want to hand it over to Michael, who gives you now his view on Peach and the value potential upside and maybe some other background information. And after that, we come back to Q&A. So Michael, now it's your turn, and I hand it over to you.

Thanks, Gerald. Yes. Good morning, everyone. Let me start in summarizing Peach's current situation for the coming years. First, and that is for me the key message today. Peach is no longer under threat. All maturing debts have been settled or refinanced on time. The repayment of the convertible bond is effectively guaranteed. Additional signed credit facilities give us the necessary flexibility for the future. Peninsula, the development in Zurich will be completed this year and handed over to the buyers. The organization has been streamlined and is operating more effectively. We expect a further upgrade from our rating again. We are once again regarded as a reputable company in the German banking sector. So far, so good, but at least we are missing the recovery of our stock till today. In my view, there are 2 reasons for this. First, our debt remains too high. Our debt-to-EBITDA multiple is at least 5x too high. Secondly, we need simply to improve our profitability. On the debt side, we will make significant progress this year. We have already secured around EUR 200 million by executing the portfolio deal signed year-end 2025 and over the completed sales project in Zurich, repaid the convertible and sale of the last property in Zurich. Further sales from our non-strategic portfolio will reduce debt by a further EUR 100 million. Overall, these measures will reduce the debt multiple to 15x. The measures introduced in 2025 to improve profitability were completed in 2026. With the new appointments and the reorganization of the letting business, we are achieving much more better results. We have managed to boost our letting performance, secure higher rents and cut costs. In 2026 alone, we aim to increase net rental income by 6%. The reorganization of the admin departments, the move to Cologne and the reduction of overhead will lead to further efficiency data this year as well. Once the transformation is complete, there will be no further need for costly consultancy services. Please note, top line growth and improved efficiency gains will lead to a debt-to-EBITDA multiple between 12x to 13x. This is excellent and would bring us gain of 50 to 70 basis points on the interest side. Unlike our peers, top line growth leads, as Gerald mentioned, directly to an increase in FFO. We are already paying interest cost on current market levels. And with these improvements, we see lower margins. Summarize, the new Peach offers for me significant upside today. Please switch to Page 12. Based on the current share price, we have a discount to NTA of 70%. This translates in a current net yield of 8% and midterm with all the improvements calculated in plus 9%. We are currently selling assets from our so-called non-strategic portfolio for net yields between 7% to 8%, in my view. With all benefits from our improvements, the strategic portfolio should be valued at NIM 14x to 15x on net rent. Whilst this represents a discount of over 40% on the NTA per share, it also offers upside potential of over 100% from the current share price. We will not be able to close the gap to NTA on our own. We are simply too small compared to our competitors. Despite significant progress, our platform cost per unit will be by far the highest, that is the other truth. Peach for me is a takeover target, which make it all the more important that the company's intrinsic value is reflected in its share price. In this context, because it fits here a few comments on the hybrid, yet another legacy issue. The hybrid is fully reflected in the NTA, including interest costs. Cash for Peach is a scarce resource is needed for top line growth. That is why we discuss different option here. One part could be acquired opportunistically on the market. That could make sense, we create value for all shareholders. Another portion could be financed through debt. At the current share price, a conversion into shares is effectively out of the question. Nevertheless, we will need to create conditional capital at the next AGM. With this, I come to our midterm guidance on Page 14. 2016 is another year of transition. We intend to complete the reorganization of the company, wind up our Swiss operations, sell off a large portion of our non-strategic assets and thereby accelerate our debt reduction. Operationally, we have set ourselves ambitious targets. That's it for the moment. Now we can open the window for Q&A.

[Operator Instructions] And your first question comes from the line of Thomas Neuhold with Kepler Cheuvreux.

Thank you for the detailed midterm guidance. That's very helpful. I have first 3 questions, basically. The first one is on the planned sales of the non-strategic portfolio. Firstly, I was wondering if you can give us an update on the investment market environment after the sharp increase in interest rates in recent weeks, what impact do you think will that have on selling prices, buyer interest, et cetera? And I was also wondering regarding your disposal strategy, do you plan to sell the whole portfolio at once or you plan to split it up in smaller portfolios? Do you think you can achieve the book value? And I was wondering if there's anything in the pipeline which might materialize already this year in terms of disposal? That's the first question. I think I'll ask the other 2 later.

Thanks, Thomas. So what will be the market at the moment and the split of the non-strategic, that's what I understood. Maybe I'll start with the last one. The 2,000 units, which we are able to sell last year signing, closing very shortly, I think that was the last big proportion in a portfolio deal. All the others are more or less scattered over Germany, especially parts of them in North Pine, Australia and [indiscernible]. So we have here a lot of locations. You see in the deck and further slides here, maybe there's a pie chart where you see all the locations that we were able to sell. And so we have so many smaller locations. So clear answer, no bigger portfolio sales on the remaining non-strategics. We are here in the market with local brokers and with our team and sell it piece by piece. So you see the smallest one, which I saw was a EUR 100,000 sales price of one apartment. And the biggest one is in the ballpark of, I would guess, something between EUR 7 million and EUR 8 million. So that will be the sizes which we get rid of in the next years. And that is typically for our non-strategics because one of our key criteria was it was scattered far away smaller units, which are not efficient for us to maintain. I think that was the first answer. Secondly, what is -- what are the prices in there? To be honest, I do not want to open here price discussions maybe also for others who wants to be here a potential purchaser for us. But I assume that I think we are in the sales process, we do not achieve fair market value. You can't do that at the moment. So we are below that. The investors are different, looking on different products here. Some of them are looking more on the euro per square meter basis, where you have a lot of CapEx or you have a lot of vacancy. They are dealing a little bit more than euro per square meter. And other assets, which are in a good shape and where you have really yielding assets, it's really a multiple on that code, right. But to be honest, I do not want to really present prices because that has maybe also an impact on further discussions.

Okay. I understand. And the second question is on your 4% organic rental growth guidance. I was wondering if you could split that up in expected market rental growth, further vacancy reduction and then maybe CapEx-driven rent increases.

I think, as I mentioned before, 2026, we have really a one-off impact on the strategic ones by roughly 2%, bringing the vacancy down to a level of lower than 3%. And I think that will be then our, let's say, resilient, stable vacancy in such kind of a portfolio. that is about 2%. And knowing that we ended up last year by 3.8% on a December number, we have a good potential upside to achieve that in 2026. This is one thing. The other thing, the -- I would say 3.5% to 4% is split into 2 pieces. One thing is the normal ongoing business with the letted assets. I would say something in the ballpark by 1.5% to 2% in that range. And the other 50% comes from the turnover. At the moment, fluctuation in us is in the ballpark of 11%. So we catch up there with our tenant improvement to market rents, and that is the second part of it. So you can more or less say half of it comes from the 558 measurements and the other 0.5% or the other 50% comes from the turnovers.

And my last question is on the EUR 155 million of debt you mentioned in the presentation, which is not refinanced at current market rate yet. I was wondering when is this debt due for refinancing and what is the current average cost of this debt of this EUR 155 million?

Yes. So the overall amount is EUR 155 million. But from the EUR 155 million, there are releases from non-strategics in it. So we will get rid of it. So then we come to that number, which you mentioned. And the overall coupon in the debt structure is a little bit below 2%. And the facilities in that is almost 5 to 7 facilities. So it's a little bit smaller. We do that with saving banks here with local banks maturities is between 2028 and 2030, in that ballpark.