- Rental income up by 34 percent to CHF 7.7 million
- Market value of investment properties up 32 percent to CHF 183 million
- Reduction of financing liabilities by CHF 77 million
- Consolidated net loss of CHF 10.4 million due to extraordinary charges from major projects
- The projects affected have mostly been completed; the majority of the apartments sold have been handed over and the sale of “Am Zirkus 1” has closed
- Strengthening of operational effectiveness with the creation a COO/Head of Asset Management position with direct reporting lines to the group management board
Zurich, 10 March 2015 – Peach Property Group, a leading investor for residential and commercial real estate, has more than tripled its operating income in 2014 according to its final figures. This figure has lifted to CHF 196.6 million compared to CHF 61.6 million in the previous year. In particular the income generated from handing over apartments in the developments had a positive impact, as did value appreciations of the investment properties and increased rental income.
However, during the period under review there were unfavourable extraordinary effects from major projects in the luxury segment to be completed shortly, which had a negative impact of around CHF 16 million on earnings. Including these one-off expenses, the group had to book a loss of CHF 10.4 million after profits in the previous year of CHF 1.4 million. Downstream tax effects of CHF 2.0 million caused the net loss in the final figures for 2014 to be slightly lower than had been forecast when the preliminary figures were presented.
The extraordinary charges resulted from defective services provided by individual companies that had been engaged in the major projects “yoo berlin”, “Am Zirkus 1” and “H36”. These issues came to light during the final inspections of the properties and in preparations for their handovers. Peach Property Group has already initiated legal action against the companies responsible in order to obtain a refund for the extraordinary additional costs.
The affected projects in Germany have now mostly been completed as compensatory activities have been put in place, and the majority of the apartments sold have been handed over to their buyers. The sale of the “Am Zirkus 1” property to a special-purpose fund run by KanAm Grund has now also been closed.
Handing over apartments to buyers from the now mostly completed major projects resulted in a substantial income from development properties in the amount of CHF 126.7 million after CHF 5.7 million in the previous year. Our portfolio of investment properties also exhibited significant growth: Rental income was up by around 34 percent from CHF 5.7 million to CHF 7.7 million. At the same time, the annual target rents passed the CHF 10 million mark at the end of 2014 with the acquisition of a residential portfolio in North Hesse and a hotel in Bad Reichenhall. The vacancy rate was cut once again and totalled 12.2 percent, down 2.3 percentage points year-on-year.
These two purchases and the operating and development progress in the two existing investment properties caused the income from the revaluation of investment properties to increase to CHF 30.4 million (net) compared to CHF 25.2 million in 2013. As a result of the value appreciation and acquisitions the market value of the investment portfolio increased by around 32 percent, up to CHF 183 million. The entire Peach investment portfolio recorded a gross return of almost 7 percent at the end of 2014, based on the revaluations.
The increases in value and the acquisitions for the Group’s investment properties also meant that the share of the investment portfolio within the total portfolio increased from 26 to 38 percent, in line with strategy. The Group is expecting a further increase in the current year 2015. This proportion has increased to a current total of around 46 percent purely as a result of the sale of the “Am Zirkus 1” project in Berlin, which has now been sold.
Development and construction management services also made a positive contribution to earnings. Income from this area was up year-on-year by 52 percent to CHF 24.9 million. The majority of this was due to the “Peninsula Beach House” project in Switzerland. Construction work for this project was completed at the end of 2014, on schedule, and all of the apartments that had been sold were handed over to their buyers.
As part of the completion work and handovers, total debt (mortgages, construction loans as well as current and non-current financing liabilities) were cut, as planned, by almost 27 percent to CHF 214 million (previous year: CHF 291 million). In particular it was possible to reduce financing liabilities, which bear interest of over 7 percent, by around 42 percent (from CHF 23.8 to CHF 13.8 million). This process has continued at the start of 2015. The average interest rate in 2014 was 3 percent for construction loans for development properties, 2.3 percent for mortgages for investment properties, and 7 percent for financing liabilities.
As a result of the consolidated net loss, the Peach Property Group’s equity fell to CHF 84.7 million (IFRS) at the end of 2014 or CHF 100.1 at market value (compared to CHF 95.8 million and CHF 126.4 million on 31 December 2013). At the same time, handovers of completed apartments to buyers also reduced total assets by a substantial amount. As a result, the equity ratio was on a par with the previous year. According to IFRS, this totalled 20 percent at the end of 2014, and 23 percent according to market values.
Peach Property Group is confident that it will record a profit again in the current fiscal year 2015. For example, the “Living 108” project is scheduled for completion in the second quarter of 2015 and will contribute substantially to the annual earnings in 2015. The Group is also expecting rental income to increase significantly as a result of the recent acquisitions in the investment portfolio. Finally, as a result of progress in the development of the two major investment projects “Gretag/Regensdorf” and “Rheinische Str. 173” in Dortmund, the Group is also expecting further value appreciation for these projects
The Group is holding to its target of increasing its equity ratio at market values to 40 percent over the medium term, i.e., in the next two years. Business activities continue to focus on investment properties. Specific investments will be made to further increase the value of the investment properties, and the portfolio will be further expanded. In order to make optimum use of the potential within its portfolio, the position of Chief Operation Officer (COO) /Head of Asset Management has been created in the Managing Board of the Group’s German subsidiary Peach Property Group (Deutschland) AG. A true industry expert has been engaged for this position – initially on a mandate basis.
Dr. Corinne Billeter-Wohlfahrt, President of the Board of Directors: “The Board of Directors had cost developments and workflows for our major projects in Germany reviewed by an independent expert in February 2015. This review confirmed that the costs estimated at the end of 2014 were adequate, and that financial controls were effective. In contrast, the Board of Directors sees potential for improvement with regard to technical project management on the basis of which the structural changes were implemented. The newly created COO position in Germany as well as a partnership with a leading technical company will do this potential justice. The assessment of the situation further revealed that no further action is required and, in particular, that the course we started to take last year is highly promising and is one we should continue to follow. We plan to continue to reduce the proportion of development projects in our overall portfolio in favour of investment properties – with a particular focus on Germany. This will minimise risks and stabilise income.”
Dr. Thomas Wolfensberger, Peach Property Group’s CEO added: “Purchasing and revitalising investment portfolios will become an even greater focus for Peach’s activities in the future. That is why we have created the new position of Chief Operating Officer (COO) / Head of Asset Management in our Managing Board in Germany. We have been able to fill this position on a mandate basis with a proven industry executive. We are thus strengthening operational effectiveness and underlie the importance of asset management for our business model. The finalization of our major projects in Germany, together with the planning progress which has been achieved in Wädenswil have allowed us to eliminate the major project risks which affected us since going public. We have also laid solid foundations for repeat income, and have a highly diversified portfolio of properties which promises constant income and is no longer exposed to the cycles prevalent in the luxury segment. In addition, implementing this strategy has allowed us to reduce our expense items and will also continue to do just that in 2015.”
Peach Property AG will be hold an Investors’ and Analysts’ Conference on its 2014 annual profits today at 1.30pm in Zurich.
The Group’s 2014 annual report can be downloaded here: www.peachproperty.com/GB2014
Contacts:
Media, investors and analysts
Dr. Thomas Wolfensberger, Chief Executive Officer and Dr. Marcel Kucher, Chief Financial Officer
+41 44 485 50 00 | investors@peachproperty.com
Media Germany
edicto GmbH, Axel Mühlhaus, Peggy Kropmanns
+49 (0) 69 90 55 05 52 | amuehlhaus@edicto.de
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About Peach Property Group AG
Peach Property Group AG is a property investor and developer focused on investments in Switzerland and Germany. The portfolio includes an increasing number of investment properties that are designed to generate sustained income as well as attractive residential development properties. The Group’s activities cover the entire value chain, from site evaluation to project planning, implementation and marketing. In the investment segment, the Group is focused on properties with a potential for achieving attractive yields based on active asset management – typically secondary locations in the catchment area of urban agglomerations. In the development segment, the Group concentrates on exceptional locations and properties with high-end specifications and amenities that meet the requirements of a demanding clientele.
Peach Property Group AG is headquartered in Zurich and has its German Group headquarters in Cologne. Peach Property Group AG is listed on the SIX Swiss Exchange (PEAN, ISIN CH0118530366).
For more information, see www.peachproperty.com
