Landlord Peach Eyes Options to Raise Cash Ahead of Bond Maturity

Berlin. (Liesa Johannssen-Koppitz/Bloomberg)

(Bloomberg) -- Landlord Peach Property Group AG is weighing options to raise fresh cash, as the specialist in German residential properties prepares to address a €300 million ($325 million) bond maturity due next year.

Chief Executive Officer Gerald Klinck said the company was considering asking shareholders, which include Ares Management Corp., for additional equity, as well as carrying out sales of non-strategic properties. It’s also mulling raising preferred equity, he added, which would involve selling a stake in a portfolio of assets with enhanced terms for the buyer.

Klinck declined to comment on the overall amount that Peach is hoping to raise. “It’s not €300 million, and it’s not €50 million. It is a significant amount,” he said. “We are checking all alternatives.”

Many landlords are facing refinancing challenges, with credit metrics being squeezed by higher interest rates and plunging property prices. Swiss-listed Peach, which focuses largely on affordable housing around second-tier German cities such as Kaiserslautern and Dortmund, has seen pressure on its liquidity that led to recent ratings downgrades from Moody’s and Fitch.  

In Peach’s case, it needs to refinance its high-yield bond coming due in November 2025, with one option being to coax creditors into agreeing to push back the maturity. The company is hoping to find a solution in the coming months, before the bond becomes current.

“It’s likely that we have here maybe an extension to discuss with the bondholders,” Klinck, who took up his post in April, said in an interview. “We have a lot of work to do, but I think we know exactly what we have to do and the next milestones are set up.”

Shareholder Backing

Peach’s anchor shareholders have already contributed around 16.9 million Swiss francs ($18.8 million) this year in new shares. Ares is the largest shareholder with around a 30% stake in the business, that it acquired via a convertible bond.

Despite the refinancing challenge, Peach is seeking to avoid selling large portfolios to raise cash, Klinck said, as that would eat into future earnings. The company has been in the market with portfolios amounting to around half of their property assets, Klinck added, but only a smaller portion may eventually get sold. 

“Should we sell some stuff? I would say yes. But you have to be careful with the size of sales,” said Klinck, noting that many usual core buyers of large portfolios, such as other residential landlords or open-ended funds, have retreated from the market. 

Vacancy Rates

Instead, the focus will be on boosting earnings by increasing occupancy through renovating properties and hiking rents to market levels. Improvements can be funded through smaller property sales, or potentially through loans from the German development bank KfW if a larger program is adopted, he said. 

Peach’s vacancy rate stood at 7.4% as of end-2023 — in contrast, landlord Vonovia’s portfolio, which largely consists of affordable apartments in similar locations, recorded a vacancy rate of 2% at the same time. 

In the future, Peach may look to refinance existing bonds through upsizing secured bank financing, rather than in the bond market, Klinck said. Convincing bondholders that it will be possible for banks to refinance Peach by 2027 or 2028, when an extended bond might mature, will be key, he said.  

“In the existing situation, debt capital markets are not the best approach,” he said. “If I come back with big acquisitions and our ratings are jumping back to investment grade, then I’m totally happy to approach debt capital markets again — but this is a little bit of a vision for future times.”

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