Peach Property Group
Swiss-based Peach Property Group AG, a prominent investor in German residential real estate, is navigating a precarious financial position despite achieving its best operational results in 2023. The recent sale of 5,200 residential units—amounting to 19% of its portfolio—underscores the company’s urgent need for liquidity as it grapples with rising costs, declining portfolio values, and mounting debt.
The sale, which generated €120 million in liquidity, reflects Peach Property’s strategic decision to prioritise debt management over growth. Combined with a CHF 50 million convertible bond issued earlier, the move has temporarily stabilised the company’s financial footing, with no major refinancing obligations due until 2025. However, the portfolio reduction also raises questions about the company’s ability to sustain long-term revenue growth, given the importance of rental income to its financial health.
In 2023, Peach Property reported funds from operations (FFO I) of €22.8 million, at the upper end of its guidance and an increase from €19.2 million the previous year. Rental income rose to €120.9 million, supported by like-for-like rent increases of 3.7%. At €6.20 per square metre, average rents remain 18% below market levels, offering potential for future adjustments.
These operational achievements are tempered by a 7.5% devaluation of the company’s €2.4 billion portfolio, driven by rising interest rates, inflation, and broader market pressures. The devaluation pushed the loan-to-value (LTV) ratio from 54.7% to 57.5%, while pre-tax losses reached €229.6 million. The 5,200-unit sale was a critical step in reducing immediate pressures but leaves the company more reliant on maximising the remaining portfolio’s performance.
Leadership reshuffle as Klinck takes the helm
Peach Property’s leadership has undergone a significant change with the appointment of Gerald Klinck as CEO and CFO in April 2024. Klinck, a seasoned industry figure with prior roles at Deutsche Wohnen and Vonovia, among others, is tasked with overseeing cost management, operational efficiencies, and financial restructuring. He joins a management team led by COO Marcus Schmitt and Dr. Andreas Steinbauer, Head of Letting and Sales.
Klinck’s dual responsibilities underscore the company’s focus on financial discipline, particularly as it navigates constrained cash flow. The decision to curtail major renovation projects to conserve liquidity resulted in a rise in the vacancy rate from 6.9% to 7.4% by year-end 2023. Management aims to reverse this trend in 2024 through targeted investments and efficiency improvements in re-letting processes.
While Peach Property forecasts an increase in rental income to €124–126 million in 2024, higher borrowing costs are expected to reduce FFO I to €17–19 million. The company’s decision to hold onto the remainder of its portfolio signals caution amidst ongoing market volatility.
ESG measures boosts risk rating amid financial pressures
Peach Property said it continues to pursue new environmental, social, and governance (ESG) initiatives, with over half of its properties now equipped with smart metering systems. Sustainalytics recently upgraded the company’s ESG risk rating, placing it among the top 9% of global real estate firms evaluated.
These efforts align with Peach Property’s broader strategic goals but also reflect the necessity of cost-effective measures in the face of limited resources. As Executive Chairman Klaus Schmitz remarked, “The best operating result in the history of the company is proof of the excellent work of the entire Peach team. The affordable housing segment remains attractive, and demand continues to grow.”
The sale of the 5,200 units highlights the extent of Peach Property’s financial constraints and the difficult trade-offs it faces to maintain liquidity. With a high LTV ratio and significant reliance on rental income, the company’s ability to navigate this precarious position will depend on disciplined execution under Klinck’s leadership.
While the broader market shows signs of stabilisation, Peach Property remains exposed to inflationary pressures, high borrowing costs, and a volatile real estate environment. The company’s near-term focus on operational efficiency and debt reduction leaves little room for error as it seeks to weather these challenges.
