Cancellation of Peach Property IPO highlights developer problems
Despite protestations to the contrary from the company’s PR people, the recent cancellation of the IPO of Swiss luxury residential developer Peach Property Group’s German subsidiary must have come as somewhat of a blow to the group and its accompanying financial advisers.
Peach Property pulled its proposed nearly €38m flotation on the Frankfurt stock exchange a day before its re-scheduled launch, having previously extended the subscription period by further five days to accommodate apparent interest from a ‘strategically important’ investor, who needed further time to evaluate his commitment. The firm said in a statement that the IPO had been “indefinitely postponed”, but added that it will continue talks with strategically attractive investors (thought by insiders to include an investor group from Dubai).
“The talks will focus on alternative forms of co-operation and financing designed to bring about the future accelerated growth”, said the company. The group’s internal financing was more than sufficient to cover any previously acquired projects in the pipeline, it stressed.
The Zurich-based Peach Property is a developer of luxury residential properties, and the German IPO was to have funded further projects and acquisitions in Germany, where the firm has a number of large projects in development, notably in Berlin and Dortmund. However, the pulled IPO suggest that there was a lack of demand for the company’s shares, despite the price range of €8.25 to €10.25 per share being at a discount of at least 30% to stated book value.
Despite a capital-raising environment in Germany that has proved very favourable for listed German residential property groups over the last two years, project developers have had a much trickier time of it, given the greater volatility of their business models. Studies show that the developers’ share of new capital raised in the German property sector since 2009 is at most 5%, while the listed residential sector has had numerous successful rights issues in that time.
Notable flops among developers were the similarly cancelled IPO of Chamartin Meerman in 2010, and the more recent nearly 65% fall in the share price of Munich-based JK Wohnbau. By contrast, listed residential groups Deutsche Wohnen, TAG Immobilien, GSW Immobilien and Patrizia Immobilien AG have all raised sizeable sums for new acquisitions.
The steady yield from basic accommodation in Germany’s larger urban areas is the attraction for investors – while Peach Property’s luxury (but lower-yielding) business model may have greater appeal to well-financed Middle-Eastern investors, for whom prestige and location may prove more compelling arguments.