Peach Property : Geschäftsbericht 2023 (Englisch) (21.03.2024, 7.9 MB)

Annual Report 2023

Growing with values

2 Annual Report 2023 of Peach Property Group AG

Key Figures

Peach Property Group AG is a real estate investor with an investment focus on residential real estate in Germany. Our tenants are at the center of our activities. With innovative solutions for modern living needs, we offer clear added value.

Our portfolio comprises high yielding investment properties, typically in German Tier II cities in the commuter belt of metropolitan areas. In addition we are developing selected projects to be sold as condominiums. Our services span the entire value chain, from location evaluation and acquisition to active asset management and the letting or sale of our properties.

We have our registered office in Zurich; our German headquarters are based in Cologne. The shares of Peach Property Group AG are listed on the SIX Swiss Exchange.

Peach Property Group (consolidated)		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021
Rental income	in EUR thousands	120 872	116 497	100 409
EPRA like-for-like rental income	in %	4.6	5.0	4.0
Funds from operation I (FFO I)	in EUR thousands	22 822	19 207	10 208
Result before taxes	in EUR thousands	-229 632	-19 967	239 997
Result after taxes	in EUR thousands	-193 913	-15 031	186 102
NAV IFRS	in EUR thousands	982 227	1 107 822	1 081 273
Equity ratio (IFRS)	in %	38.1	39.6	40.1
Real estate portfolio at market values	in EUR thousands	2 459 357	2 663 089	2 618 742
(incl. right-of-use assets) 1
Number of employees		228	233	194
Number of shares		20 740 918	16 882 373	16 882 373
(nominal value of CHF 1.00 / 30.00 each)
Share capital	in EUR thousands	19 095	455 597	14 510
Diluted earnings for loss per share	in EUR	-9.14	-0.97	11.45
Diluted FFO I per share	in EUR	1.11	1.14	0.67
NAV IFRS per share 2	in EUR	43.90	60.17	58.50
EPRA NTA per share	in EUR	47.37	64.88	66.40
Share price as of December 31	in CHF	11.48	16.40	63.40
Market capitalization as of December 31 3	in CHF thousands	238 097	276 688	1 069 852

1. NAV market value based on the independent appraisal of Wüest Partner incl. assets held for sale.
2. Excluding hybrid capital and non-controlling interests.
3. Excluding treasury shares.

Annual Report 2023 of Peach Property Group AG

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Content

Peach Property Group - Key Figures	2	Notes to the consolidated annual	90
Editorial	4	financial statements
Highlights	7	Report of the statutory auditor	139
Business Model	8	on the consolidated financial statements
Milestones	10	Report of the independent appraisal expert	144
Portfolio	13
Dortmund: economic engine of the Ruhr region	22	EPRA-Reporting	148
Ludwigshafen: underestimated business and	25
science location		Individual financial statements	159
Marl: the city with a clear strategy for the future	28	Statement of financial position	160
ESG Summary	32	Statement of income	162
Investor Information	37	Notes to the financial statements	163
		Proposed appropriation of retained earnings	176
Corporate Governance and Remuneration Report	43	Report of the statutory auditor	177
Section 1 - Corporate Governance	44	on the financial statements
Section 2 - Remuneration Report	65
Auditor's report on the remuneration report	76	Contact / Events / Imprint	183
Consolidated annual financial statements	79
Consolidated statement of income	80
Consolidated statement of comprehensive income...	81
Consolidated statement of financial position	82
Consolidated statement of cash flows	84
Consolidated statement of changes	86
in shareholders' equity

Our efforts are now paying off: operating expenses and personnel costs were reduced, and the usual high standards in terms of efficiency, quality, service, and speed have been maintained, or in some instances, even improved.

4 Annual Report 2023 of Peach Property Group AG

Editorial

Dear Shareholder,

As anticipated, 2023 was a challenging year for the real estate sector. Rising interest rates, high inflation directly impacting construction materials prices, persistently high energy prices, and a pronounced shortage of skilled workers created numerous challenges in the sector.

We also directly experienced the consequences of these macroeconomic factors at Peach Property Group. Despite the challenging conditions, we significantly improved our operating profitability in the 2023 financial year thanks to the increased efficiency of our business processes, our proven digital platform, and the optimization of our cost struc- ture. We also see a silver lining on the macroeconomic horizon: according to numerous experts, the interest rate plateau appears to have been reached, and a gradual reduction in key interest rates by the European Central Bank before

the end of the year seems entirely possible. This would also noticeably revive real estate transactional activities, which retracted sharply in 2023, and support market values. The strong demand for affordable housing in Germany's existing real estate market aligns well with our positioning and strategic focus. It is already foreseeable that the German federal government will not soon realize its target of annually creating 400 000 new apartments. Our business model of offering affordable housing with a high service orientation in German Tier II cities has proven itself even in turbulent times while the high demand for our product is set to continue.

Highest FFO I in Group history, improvement of cost structure and increase in efficiency, generation of economies of scale through digitalization, increase in operating margin

In the past financial year, we increased our FFO I by more than 18 percent year-on-year to EUR 22.8 million, thus reaching the upper end of the forecasted range. The FFO I achieved is the highest in Peach Property Group's history

and we achieved it despite the various challenges in the real estate sector in 2023. This strong performance in operating profitability is attributable to consistent cost reductions and the unlocking of efficiencies in the management of our portfolio. In particular, the stringent digitalization

of our corporate processes has enabled us to further leverage potential in the management of our business and generate economies of scale benefits. We have been a pioneer in the industry in terms of digitalization over the past years. Both the internal portfolio management processes and the administration of rental matters are integrated into our digital platform while simultaneously raising the ease and effectiveness of our communication with tenants to a new service level.

Our efforts are now paying off: operating expenses and personnel costs were reduced, and the

usual high standards in terms of efficiency, quality, service, and speed have been maintained, or in some instances, even improved. We further increased our operating margin from 50.9 percent to 54.6 percent, thereby fulfilling part of the margin increase forecast for 2025.

Increase in rental income

We met our guidance for 2023 in terms of rental income: Rental income amounted to EUR 120.9 million for the year, compared to EUR 116.5 million in the 2022 financial year. On a like-for-like basis, the growth in target rents was

1. percent. Contrary the vacancy rate increased from

1. percent to 7.4 percent in 2023. The increase resulted from a revision of our renovation plan. To conserve liquidi- ty, we postponed major refurbishment measures at certain residential properties. In the 2024 financial year, targeted investments in the portfolio and further efficiency im- provements in the refurbishment and re-letting processes should reduce the vacancy rate again and gradually raise the rent level in large parts of the portfolio to the average market rent.

Klaus Schmitz

Executive Chairman of the Board of Directors

Valuation gains from previous years reversed

Property prices in Germany have been plummeting sharply for almost two years due to increased borrowing costs caused by high interest rates. In some cases, this led to significant devaluations in the sector. Office and commercial properties were the most affected, while the devaluation of residential properties was less severe. Regardless, we had to record a non-cash valuation loss of EUR 209 million in the 2023 financial year. The market value of our real estate portfolio was EUR 2.4 billion as of the end of 2023, compared to EUR 2.6 billion as of the 2022 financial year-end. Earnings before taxes were negative at EUR -230 million, compared to EUR -20 million in the previous year. Due to the recorded property devaluations of around 8 percent, the LTV rose from 55 percent to 58 percent.

Issue of a new convertible bond confirms high level of investor confidence

The 2023 financial year was characterized by reducing debt and optimizing our financial structure. We used capital markets to strengthen our liquidity and secure the refi- nancing of further financial instruments. In January 2023, we issued a mandatory convertible bond with a nominal value of CHF 112.4 million (EUR 115.2 million). We used the proceeds from this bond to early repay a Euro bond maturing in February 2023. In May 2023, we successfully placed

Annual Report 2023 of Peach Property Group AG	5

Thorsten Arsan

Chief Financial Officer

a convertible bond of CHF 50 million (EUR 51.1 million) and an interest coupon of 3 percent per year. The conversion price is CHF 15 and the term is until May 16, 2026. With this issue, we both partially refinanced the hybrid warrant bond, and repaid debt capital. Together with the additional secured financing of EUR 33 million concluded in mid-August 2023, we were able to generate a total of over EUR 100 million in fresh liquidity during the 2023 financial year. Until 2025 no substantial liabilities are to be refinanced. Through the successful placement of the bonds on the capital market, investor confidence in our business model was confirmed even in challenging times - overall, well over two thirds of the investors were new subscribers.

Improvement of the ESG rating

In the 2023 financial year, we continued our ESG activities despite a tighter budget and focused on cost-effective measures that promise significant energy savings. We continued to move forward with the installation of the smart meter infrastructure and have now equipped over 50 percent of our properties accordingly. Smart meters allow tenants to see and manage their real-time water, electric- ity, or heating consumption and provide the opportunity to reduce energy consumption and save costs. Our clearly defined ESG growth strategy to achieve a climate-neutral real estate portfolio by 2050 remains unchanged.

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Editorial

These initiatives were recognized in our most recent ESG rating. Morningstar Sustainalytics improved our ESG rating from 11.5 in the previous year to 10.3 in 2023. According- ly, our operations are classified as low risk (10 to 20) with respect to ESG benchmarks. The rating places us in the top 9 percent of the more than 1 000 real estate companies worldwide evaluated by Sustainalytics and in the top 3 percent of all evaluated companies (out of a total of 15 600 companies) globally. In the investment property segment (real estate management), Sustainalytics ranks Peach Property Group 23rd out of 160 companies. Among other things, the regular surveys on tenant satisfaction, product governance, i.e. how we interact with our tenants, and the implementation of life cycle analyses for newly acquired properties were positively highlighted. In addition, MSCI ESG upgraded our sustainability rating to an "A" grade.

Changes in the Group management

In 2023, the Group underwent a partial repositioning in the C-suite and the Board of Directors. After more than 16 years at the helm of Peach Property Group, during which he strongly influenced the development of the Group, Thomas Wolfensberger resigned, at his own request, from his position as CEO as of the Annual General Meeting on May 24, 2023. Reto Garzetti, who served as Executive Chairman of the Board of Directors from the General Meeting onwards, and Kurt Hardt, a former member of the Board of Directors, also resigned from the Board of Directors of Peach Property Group AG at the end of October 2023. Klaus Schmitz, previously a member of the Board of Directors, was appointed Executive Chairman of the Board of Directors for the remaining term of office until the next General Meeting.

At the start of the new financial year, Marcus Schmitt, Chief Operating Officer Germany, was appointed as a new member of the Group Management Board by the Board

Sincerely

Klaus Schmitz

Executive Chairman of

the Board of Directors

of Directors on February 2, 2024. With this appointment, the foundation is laid for the continuation and intensification of operational excellence driven by operational Group Management.

Outlook for 2024: focus on vacancy reduction, ESG re- furbishments, cost reduction and platform optimization The main focus for the 2024 financial year will be on refi- nancing the debt maturing in 2025, including the EUR 300 million Euro bond due in November 2025. At the same time, the aim is to reduce the vacancy rate in the portfolio and further optimize operational efficiency and cost struc- tures. We are also considering sales in parts of the portfolio to improve our capital structure and generate additional liquidity for the upcoming refinancings.

In line with our decarbonization roadmap, we want to maintain our sustainability efforts in a targeted manner and focus more on energy-efficient renovations of our residential properties.

After a challenging 2023 financial year, we are optimistic about the 2024 financial year. Demand for affordable housing in central locations with good infrastructure will remain high. We will benefit from our strong market position here. The trend will be strongly reinforced by the decline in new construction projects and the persistently high borrowing costs. Due to this mix, there is excess demand for affordable housing, particularly in large cities and in the catchment areas of conurbations. We are therefore positioned in an attractive market environment. Should the transaction market pick up again in 2024, we will also examine sales opportunities to increase our liquidity.

We would be pleased should you continue to accompany us as shareholder on our journey of further developing and maturing our business.

Thorsten Arsan

Chief Financial Officer

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Highlights

							Portfolio
27 500	1 780 million m2	140.2 EUR million	120.9 EUR million
Residential units	Floor space	Target rental income	Actual rental income
						(after lost income due to collection losses)
-49	-0.2 %	-4	-0.2 %	+6.2	+4.6 %	+4.4	+3.8 %
92.60 %	4.80 %	2 459 EUR million	1 367 EUR
Occupancy rate	Gross rental yield	Market value of real	Market value of investment
				estate portfolio	properties per m2
-0.50	-0.5 %	+0.30	+6.7 %	-204	-7.7 %	-107	-7.3 %

				Corporate
22.8 EUR million	38.1 %	43.90 EUR	47.37 EUR	2.9 %
FFO I	Equity ration	NAV IFRS per share	EPRA NTA per share	Average interest rate
+3.5 +18.1 %	-1.5-3.8 %	-18.7-29.8 %	-17.5-27 %	+0.3 +11.5 %

ESG

10.3	18.8 hours	91.3 %
Sustainalytics rating	Average time to resolve tenant ticket	One-Touch quote
	(no involvement of external providers)
-1.2-10.4 %	+0.7 +3.9 %	+1.2 +1.3 %

76 %	16.9 hours	50 %
Tenant satisfaction	Average response time	Smart metering installations
	tenant tickets	( % of eligible apartments)

-2.0

-2.6 %

+2.7

+19.0 %

+12.7

+34.1 %

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Business Model

Peach Property Group is a real estate investor with an investment focus on residential real estate in Germany. Our investment strategy focuses on high-yielding real estate assets, typically located in Tier II cities or within the commuter belt of German metropolitan areas.

Our sustainable business model is based on the core elements of tenant-centricity, digitalization across all business areas, the consistent delivery of ESG related improve- ments, efficiency, and a strong partner network.

Affordable rents

Following our extensive acquisition activities in recent years, we own a real estate portfolio of 27 500, rental units in Germany rendering us a noteworthy portfolio holder in the residential real estate sector. Our product of affordable housing is in high demand across German metropolitan regions, and we are benefitting from the current undersup- ply situation. With an average rent of EUR 6.20 per square meter, our properties are let at rental rates well below the average market rent of our portfolio of EUR 7.31 per square meter. Despite the currently challenging real estate market conditions, demand for housing remains high, particularly in urban areas. In times of high inflation rates, increased energy prices and general economic uncertainty, it is more essential than ever for us to prioritize the well-being of our tenants and find consensual solutions in all life situations. Our approach fosters healthy long-term relationships with our tenants.

Direct tenant communication

Thanks to our efficient processes and our well-coordinated team, we are able to respond swiftly to tenant inquiries

• be it damage reports, queries about ancillary charges or other problems on site. Our tenants can contact us via a variety of channels: Online, via WhatsApp, by phone or in person at our Peach Points. Peach Points are tenant shops usually within walking distance of our core portfolios or integrated into our residential complexes. We had a total of 15 such Peach Points in operation in the 2023 financial year, including in Oberhausen, Gelsenkirchen, Heiden- heim and Kaiserslautern. Here, we not only offer our ten- ants the opportunity to report damages to their apartment, but also to have easy, direct, and informal exchanges with us or other Peach tenants. Tenants can also turn to Peach Point staff if personal emergencies arise that have finan-

cial implications, or they need advice on how to reduce energy consumption and save costs.

Digitalization makes us strong

We are also strongly positioned in terms of digitalization and have continuously optimized our processes in recent years. Digitalization is the cornerstone of our business model, and we benefit from this, especially in challenging times. Our digital processes allow for scalable operations and further operating efficiency - ultimately optimizing our operating costs. The digital platform also has many advantages for our tenants: For example, it is linked to numerous tradesmen with whom we have been enjoying a trustful working relationship built over the years of working together.

This beneficial link enables tenants to receive a timely repair service in the event of damage to their apartment. On average, it takes less than four days to fully repair damage in one of our apartments with the help of an external service provider. In addition, we have introduced a new tool that uses artificial intelligence to provide external repair service providers with more detailed information on the damage in question. This allows the arrangement of appointments between tenants and the tradesmen in a more targeted manner and ensures that the tradesmen arrive correctly equipped to repair the respective damage. Tenants can also rate our service via an implemented rating system. This feedback helps us to constantly optimize our service levels. This year, we achieved a satisfaction rate of 76 percent. The uniform, integrated platform also extends to our internal processes from property management to rental and financial accounting for the individual Group companies in a holistic manner. With the continuous expansion and constant improvements, we are not only leveraging synergies but also increasing the efficiency and quality of our property management. In addition, we introduced the digital rental agreement at the beginning of 2023, which enables faster and more efficient processing of new rental agreements. Since its introduction, we have concluded over 700 digital tenant agreements.

Sustainability - more than just a matter of the heart

In addition to a high level of service orientation, as a real estate group we also have a special responsibility towards society and the environment. We pursue a clearly defined sustainability agenda that considers the interests of our

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employees, tenants, investors, and society in general. We are committed to a positive working environment and ethical principles that also extend to our partners and suppliers. In addition, we strive to continuously minimize the CO2 emissions of our operations. Our efforts have far-reaching positive impacts - environmental pollution is reduced and our tenants benefit in the medium to long term from lower energy consumption and related costs. In the 2023 financial year, we further expanded our smart meter infrastructure. With the so-called "intelligent me- ters", tenants can monitor and manage their real-time water, electricity, or heating consumption and they are provided the opportunity to reduce energy consumption and save costs.

In line with our decarbonization strategy, we are aiming for a climate-neutral real estate portfolio by 2050.

The demand for energy-efficient housing is currently high and tenant satisfaction can be noticeably increased by offering a modernized apartment with a positive indoor climate combined with lower heating and operating costs.

We therefore attach great importance to the maintenance of the apartments, a well-kept living environment and attractive outdoor facilities for our tenants. Well-maintained real estate facilities increase tenant satisfaction and contribute to higher-valued assets. As a landlord, we welcome families as tenants and continually add new playgrounds or modernize existing playgrounds ensuring that the facilities meet the latest technical standard. During the 2023 financial year we not only had several new playgrounds built, but we also had our employees trained in the technical upkeep of them through TÜV-certified playground inspector certification, for example.

Capital markets

Institutional investors debt / equity,

private investors

Reinvestment of generated funds into

the acquisition of new assets

Sourcing

Modernization

Letting

›  Access to off-market

›  Comprehensive

›  Combination of online &

acquisitions

renovations to

offline letting channels to

›  Strict set of acquisition criteria

reduce vacany reserve

maximize customer reach

incl. environmental liabilities

›  Minimal follow-on capex

› Online booking of visits

of properties

required once stabilized,

› Online credit-

›  Strong underlying growth

driving cash flow generation

worthiness check

driven by organic drivers, as

›  Energy-related renovations

› Online contract

growth through acquisitions

and measures to improve

generation

energy performance of

properties

Granular insights into

Highly oversubscribed

tenant priorities guide

new apartments

modernization

Asset/Property

Management

›  Highly efficient and lean setup

• High degree of digitalization
• Central points of contact through local Peach Points
• Assets managed centrally in Cologne

Minimal ongoing repairs due to strong sense of tenant "ownership"

Economic

performance

›  Increased value of property and cash returns › Reduction in vacancy › Attractive like-for-like

rent increase

› Above-average tenancy period › Cost savings resulting from

ESG initiatives (e.g. lower CO2 tax liability)

›  Improved risk management and resilience through ESG investments

Very high acceptance

of rent increases;

low attrition

Tenant retention

Highly-satisfied tenants with

ownership feeling in rental units Fostering of strong communities

10 Annual Report 2023 of Peach Property Group AG

Milestones

Peach Property Group increases efficiency and improves ESG rating

Acquisition of Gretag-Areal near Zurich

Acquisition of almost 570 apartments in Neukirchen-Vluyn

Acquisition of more than 2 400 apartments, among others in Oberhausen, Nordhessen and Bochum; sale of the property in Bad Reichenhall

2013		2014		2015		2016		2017		2018

Acquisition of a portfolio in Nordhessen with

336 apartments and a hotel in Bad Reichenhall

Acquisition of almost

1 700 apartments: Rhineland, Eschwege, Fassberg and Kai- serslautern; sale of Erkrath Retail and Gretag-Areal

Acquisition of 2 899 apartments: including 1 247 units around Bielefeld,

1 061 units in Heidenheim, 273 units in Kaiserslautern and Saarbrücken and 213 units in Bochum

Expansion of tenant communication: Opening of

Peach Points in Heidenheim and Ober- hausen, further development

of tenant app, launch of tenant internet portal