Real Estate Monitor

Real Estate Monitor, April 2021

Latest Trends

After a very strong increase in value of +26.2 percent in the past 6 months, the PwC Real Estate Index for commercial real estate has taken a breather for the time being. In contrast to the trend of recent months, the index fell slightly by -0.5 percent to 334 points. In comparison, the residential counterpart was able to recover a bit from the setbacks of the past months. In March, it rose by +2.6 percent to 388 points.

In March, we updated the composition of the peer group of international real estate companies due to changes in the composition of the MSCI World. This lowers the international WACC to 5.0% The German WACC, on the other hand, remains almost unchanged at 2.9 percent.

In comparison to Q4 2020, the EBITDA multiples for Residential fell by 2.4x to 32.8x, while the EBITDA multiples for Commercial rose by 1.5x to 20.7x.

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. Close prices are adjusted for stock splits, cash dividends, rights offerings, and spin-offs. The underlying peer groups are revised and adjusted once per year on 31 December. New players on the German real estate market are thus identified and included, while delisted companies are excluded.

Note: Since the vacancy rates are taken from the quarterly and annual reports, they are only updated every three month and therefore not part of this edition of the RE Monitor.

Real Estate KPIs

Minor increase of the gap between residential and commercial multiples

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 TFQ2020, i.e. Q4 2019 to Q3 2020 (TFQ: Trailing Four Quarters). We have put the share prices on the balance sheet dates 31 Dec 2018, 31 Dec 2019 and 31 Mar 2021 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.

FFO 1 multiples and Price/EPRA NAV ratios by segment

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 TFQ2020 and the share prices as of 31 December 2018, 31 December 2019 and  31 March 2021.

Reading example: Vonovia was valued by the market at 21.3x of its FFO 1 as of 31 December 2019, whereas on 31 March 2021 it was valued at 24.2x of its FFO 1.

Multiples for residential sector rising while multiples for commercial show negative development*

When analysing the FFO 1 multiple and the price/EPRA NAV ratio as at 31 March 2021, the same trend can be seen as in the development of the indices. For commercial, the average valuation level has fallen slightly, whereas the valuation for residential has risen moderately.

For better comparability, we kept ADLER Real Estate in the Peer Group, although no multiples could be calculated as of 31 March because of the merger with ADO Properties. Excluding ADLER would lead to higher multiples, since ADLER’s multiples are at the lower end of the average.

_{*Compared with last month’s issue of the RE Monitor.}

COVID-19 Special – Real Estate during the crisis

Real Estate sector is not able to keep the pace of the overall market

Overall market now at all-time highs after major price falls

Since we last published a COVID-19 special in May 2020, the global equity market has made an exceptionally strong comeback.

Contrary to all fears, equity markets in general have recovered in a V-scheme and are trading at new record highs at the end of the first quarter of 2021. Looking at the real estate capital markets, one has to note that real estate companies have recovered more slowly on average, and returns are clearly lagging behind those of the market. Especially companies with properties in the hotel or retail sector were hit hard in the last 12 months. In addition to lockdowns and travel restrictions, domestic tourism has also been banned in many cases.

Hopes arise from the progressive number of vaccinated people, while uncertainties result from unpredictable mutations of the virus.

Relevant COVID-19 Events: Real Estate Companies fail to recover at same pace like the global MSCI World index

In order to obtain an assessment of the impact of the corona pandemic on the real estate sector, we analysed the share prices of 119 real estate companies from Germany, USA, Great Britain, France and Spain from 17 February 2020 to 31 March 2021. These were divided into different peer groups by country and by segment (residential, commercial, developer).

Global market: Global Real Estate market changed from out- to underperforming the market.

Real estate companies worldwide with massive price declines

Since the overall market collapsed by more than 30 percent in March 2020, global equity markets have recovered quickly and are trading at new highs. In contrast to the five years before the crisis, from 2015-2020, when the real estate market significantly outperformed the overall market, the market has outperformed the real estate market since the crisis. Overall, the MSCI World is up by +15 percent since 17 February 2020, despite the crisis. The diversified real estate portfolio, on the other hand, is -4 percent below its reference value as of 17 February 2020 and thus 19 percentage points behind the market.

By sector, the project development market has recovered best from the crisis with -2 percent. The second best sector is the residential market with -5 percent below the pre-crisis level. As expected, the commercial sector is the clear laggard with -10 percent price loss since 17 February 2020.

German market: Residential Real Estate Industry limit downside movements during crisis.

German real estate market again proves more robust than abroad

Compared to the DAX, the German blue chip index, German real estate companies have on average recovered much better than those of the international real estate market.

The residential market in particular has contributed to this. While the DAX has gained +6 percent since 17 February 2020, German residential real estate companies have outperformed the market by 4 percentage points with a gain of +10 percent. In contrast to the international portfolio, German project developers have lagged the market by 22 percentage points with -14 percent. The German commercial sector recovered slightly better with a performance of -6 percent.

Important notice: This publication includes information obtained or derived from a variety of publicly available sources. PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft does not give any representation or warranty of any kind (whether expressed or implied) as to the accuracy or completeness of this publication. This publication has been prepared solely for general informational. Nothing in this publication should be construed as individual advice. Before making any decision or taking any action, you should consult the sources or contacts listed here. The graphics may contain rounding differences.