Zürich-based residential property investor Peach Property has boosted its German residential holdings with the acquisition of a 4,300-apartment portfolio. The deal marks Peach Property's first this year, and brings its holdings up to 27,500 units, with an estimated market value of about €2.5bn. The latest deal is likely to have cost about €400m, based on previous Peach figures.
The bulk of the units are in North Rhine-Westphalia, in Dortmund and Marl, while a further 340 are in Bremen. In total the portfolio comprises 275,000 sqm of residential space, 800 sqm for commercial use and more than 1,500 parking spaces. According to Peach, the properties were built between 1920 and 1990 and are mostly in 'very good condition'. With many refurbished in recent years, the company said it sees "significant potential" for rent increases. Currently, the annual net rental income amounts to about CHF 21 million with a vacancy rate of about 5% in the housing stock. The seller was only identified as "foreign capital"
With nearly all its holdings located in Germany, Peach Property already has a firm toehold in North Rhine-Westphalia, with much of its portfolio in cities such as Gelsenkirchen, Oberhausen, Recklinghausen, Essen and Bochum. To support its activities, the company is opening a further office ("Peach Point") in Marl, in the northern part of the Ruhrgebiet, to add to the twelve it already maintains close to its housing assets.
The company would only say that in financing the deal it was able to lower its overall LTV, and was assisted in the financing by Kempen & Co. It also expects its EPRA NAV per share to rise from CHF 57.29 to well over CHF 60.00. (The current share price is CHF 58.20 and has enjoyed a good run over the past 12 months, nearly doubling in the period.) The company also recently resumed paying a dividend (of 2%, or CHF 0.30) after a nine-year absence.
Dr. Thomas Wolfensberger, CEO of Peach Property, said: "While looking back on the most successful financial year in our company's history in 2020, we will continue our dynamic growth course in 2021. With the current acquisition in NRW and Bremen, we are ideally complementing our existing portfolio. In the Ruhr region in particular, we are very well connected with our network of currently six Peach Points, which will be a great advantage both for our tenants and for the efficiency of the management of the new portfolio. We will swiftly integrate the new portfolio into our fully digital and efficient platform."
Dr. Wolfensberger was referring to the company's investment spree in 2020, when it increased its residential holdings from 13,000 to 23,200 units, and increased its profits by, among others, reducing its vacancy rate by 25% to 7%.
The company has clearly made digitisation a major priority in its approach to dealing with a growing number of tenants. Last year Peach migrated its complete IT system to SAP S/4HANA, which integrates all its tenant accounts, group accounting and capex management, and enables all tenants to register damage complaints, contact repairmen, and directly contact their local Peach Point. Dr. Wolfensberger said that, although the portfolio and its rental revenue increased last year by 40%, overall administrative costs increased by only 14% - clear evidence of the benefits of scaleability. At the same time, the operating margin increased from 71% to 75%. The investment in the platform would enable the company to absorb plenty more housing units, and there is plenty of scope for further growth, he said.
As long as rents could continue to be increased organically by around 5% per year through vacancy reductions and rent increases, the portfolio would grow by around 100 million Swiss francs per year even if yields remained constant, Wolfensberger calculated. "Through our operational work, we can leverage these values without having to make transactions. But we are still interested in expanding the portfolio inorganically as well."
Discussing his group's plans in a recent media interview, Dr. Wolfensberger responded to the question of where he could continue to find well-priced housing assets, with competitors scouring the land for anything residential.
"Of course, we have observed in recent years that investor demand for properties in German B-cities, on which we focus our investments, has greatly increased. Thus it's all the more important to stand out from the competition and to identify and exploit attractive opportunities in portfolios that fall out of focus for other real estate investors. Our tenant-focused approach, combined with our innovative digital platform, has enabled us to do this very well so far. Another big help in acquiring properties is also our well-developed network, which allows us to realise many off-market transactions. So our business model works despite the high demand. The current gross yield of around five percent of our portfolio underpins this. From our point of view, there are still enough attractive opportunities."
On the company's improved financing terms, Dr. Wolfensberger said: "This has a lot to do with the appreciation in the existing portfolio and the reduction of vacancies. In addition, last year we successfully carried out a capital increase in the form of a mandatory convertible bond of over CHF 230 million. We deliberately made the capital increase larger in order to reduce our debt. In addition, we further strengthened our shareholder base in the course of the capital increase and have since brought Ares Management on board as a renowned investor, which gives us even better access to the capital market. By being included in the EPRA index in mid-March, we have also increased our visibility for international investors, and will help us to benefit from our strong equity base in the future."
Last autumn US group Ares Management took a 30% stake in Peach Property as part of a CHF 230m Peach mandatory convertible bond issue, while Peach raised a further €300m with a further unsecured corporate bond.
