Real Estate Monitor

Real Estate Monitor, June 2020

Latest trends

While the PwC Real Estate Index for German residential property companies recovered to pre-COVID-19 level on its highest value since mid 2019 (+2.4% YTD / +6.0% last month) and showing a “V-shape”, the Commercial Index slightly fell (-2.0%) in the last month and seems to develop more like a “L-shape” COVID-19 scenario or at least the start of an “U-shape”. At the same time, the average Real Estate WACC* for German property companies is starting to fall again (-0.1% points; due to rounding only visible in bandwidth of the graphic), which it continuously did before the COVID-19 crisis. The global average Real Estate WACC again fell strong by 0.4% points to 4.8%. The gap between German and global WACC, which widend last year, is now getting significantly smaller again.

Stock price data per company within the respective peer group is collected using the S&P Capital IQ Data Idem „IQ_ClosePrice_Adj“. Capital IQ defines the Close Price as: The closing price of the day, calculated once per day after the market close. This price is adjusted for stock splits. To obtain the price unadjusted for stock splits, multiply it by the data item called Cumulative Stock Split Factor. The applied adjustment is defined as: Close prices are adjusted for stock splits, cash dividends, rights offerings, and spin-offs.

*Following the publication by IDW FAUB as of 10/25/2019 the market risk premium bandwidth was adjusted upward from 5.5% - 7.0% to 6.0% - 8.0% (before personal taxes) for periods after the above mentioned date.

Real Estate KPIs

Commercial real estate more affected by COVID-19 crisis than residential

In order to gain insight into the changes in value of 18 major players in the German real estate market, we have analysed the sector-specific Real Estate KPIs FFO 1 and EPRA NAV from the financial periods FY2018, FY2019 and TTM2020 (TTM: Trailing Twelve Months). We have put the share prices on the balance sheet dates 31 Dec 2018, 31 Dec 2019 and 31 May 2020 in relation to the above-mentioned key figures from the corresponding financial periods. The resulting average ratios by segment are shown in the figures below.

The table below shows the individual FFO 1 multiples and Price/EPRA NAV ratios of our peer group by segment. The key figures relate to the financial periods FY2018, FY2019 and TTM2020 and the share prices as of 31 December 2018, 31 December 2019 and 31 May 2020.

Reading example: Vonovia was valued by the market at 21.3x of its FFO 1 as of 31 December 2019, whereas on 31 May 2020 it was valued at 22.7x of its FFO 1.

The ratios illustrate how a selection of major German real estate companies is valued by the market. They show that real estate companies are partly also affected by the COVID19 crisis. Commercial real estate has lost a significant part of its pre-crisis value. In contrast, residential real estate recovered very quickly and is back at pre-crisis level. Measured by both FFO 1 and EPRA NAV, commercial real estate companies have lost close to a quarter of their value since the beginning of 2020. In comparison, the market values of selected residential real estate companies are now on average back to their precrisis levels.