Equities

Peach Property Explores Sales, Equity to Fund €300M Bond

Peach Property Group explores options to raise significant capital for €300 million bond maturity due next year.

By Max Weldon

7/10, 07:28 EDT
Ares Management Corporation
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Key Takeaway

  • Peach Property Group is exploring options to raise significant capital, including shareholder equity and non-strategic property sales, ahead of a €300 million bond maturity.
  • The company faces liquidity pressures and recent ratings downgrades but aims to avoid large portfolio sales to protect future earnings.
  • Future refinancing strategies may involve upsizing secured bank financing rather than relying on the bond market, contingent on improving credit ratings.

Peach Property Group's Cash Raising Plans

Peach Property Group AG, a specialist in German residential properties, is exploring various options to raise fresh capital as it prepares to address a €300 million ($325 million) bond maturity due next year. CEO Gerald Klinck mentioned that the company is considering asking shareholders, including Ares Management Corp., for additional equity. Additionally, the company is contemplating sales of non-strategic properties and raising preferred equity, which would involve selling a stake in a portfolio of assets with enhanced terms for the buyer. Klinck did not specify the exact amount Peach aims to raise but indicated it would be a significant sum. "It’s not €300 million, and it’s not €50 million. It is a significant amount," he said. "We are checking all alternatives."

Peach Property Group, which focuses on affordable housing around second-tier German cities such as Kaiserslautern and Dortmund, has faced liquidity pressures leading to recent ratings downgrades from Moody’s and Fitch. The company needs to refinance its high-yield bond due in November 2025 and is considering negotiating with creditors to extend the maturity. Klinck, who took up his post in April, stated, "It’s likely that we have here maybe an extension to discuss with the bondholders. 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 Contributions and Property Sales

Peach’s anchor shareholders have already contributed around 16.9 million Swiss francs ($18.8 million) this year in new shares. Ares Management Corp. is the largest shareholder with around a 30% stake in the business, acquired via a convertible bond. Despite the refinancing challenge, Klinck emphasized that Peach aims to avoid selling large portfolios to raise cash, as this would impact future earnings. The company has been in the market with portfolios amounting to around half of their property assets, but only a smaller portion may eventually be sold. "Should we sell some stuff? I would say yes. But you have to be careful with the size of sales," Klinck noted, highlighting that many usual core buyers of large portfolios, such as other residential landlords or open-ended funds, have retreated from the market.

Instead, Peach plans to boost earnings by increasing occupancy through renovating properties and hiking rents to market levels. These improvements can be funded through smaller property sales or potentially through loans from the German development bank KfW if a larger program is adopted. As of the end of 2023, Peach’s vacancy rate stood at 7.4%, compared to landlord Vonovia’s portfolio, which recorded a vacancy rate of 2% at the same time.

Future Refinancing Strategies

Looking ahead, Peach may consider refinancing existing bonds through upsizing secured bank financing rather than in the bond market. Convincing bondholders that it will be possible for banks to refinance Peach by 2027 or 2028, when an extended bond might mature, will be crucial. "In the existing situation, debt capital markets are not the best approach," Klinck 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."

Management Quotes

  • Gerald Klinck, CEO of Peach Property Group AG:

    "It’s not €300 million, and it’s not €50 million. It is a significant amount. We are checking all alternatives."
    "It’s likely that we have here maybe an extension to discuss with the bondholders. 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."
    "Should we sell some stuff? I would say yes. But you have to be careful with the size of sales."
    "In the existing situation, debt capital markets are not the best approach... 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."