Real Estate Monitor

Real Estate Monitor, July 2021

Latest Trends

The PwC Real Estate Index for residential real estate fell by -1.8 percent to 427 points in June after reaching its previous all-time high in May. The commercial counterpart continues to remain at the level of the previous months, falling slightly by -0.6% last month.

According to the EBITDA multiples, the market-based valuation decreased for both residential and commercial. For residential real estate portfolio holders, it is noticeable that the relative valuation level is getting closer to the pre-crisis level. In March of last year, prices initially collapsed sharply. Since then, prices have been on a steady uptrend. In contrast, earnings have declined moderately, leading to higher valuation levels as measured by EBITDA multiples in recent quarters.

Both the German and the global WACC for real estate companies remain almost stable, although they decrease slightly by 0.1 percent respectively.

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.

Real Estate KPIs

Commercial multiples outperform residential year-to-date in 2021

In order to gain insight into the changes in value of 19 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 FY2019, FY2020 and TFQ2021, i.e. Q2 2020 to Q1 2021 (TFQ: Trailing Four Quarters). We have put the share prices as of the balance sheet dates 31 Dec 2019, 31 Dec 2020 and 30 June 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 FY2019, FY2020 and TFQ2021 and the share prices as of 31 December 2019, 31 December 2020 and 30 June 2021.

Reading example: Vonovia was valued by the market at 25.1x of its FFO 1 as of 31 December 2020, whereas on 30 June 2021 it was valued at 22.1x of its FFO 1.

Comparing Q2 2021 with FY 2020, commercial real estate multiples perform better than the residential counterpart

Compared to the end of 2020, Commercial's current valuation level (as of 30 June 2021) has increased by +5.2 (FFO 1 multiple) and +6.7 percent (Price/EPRA NAV ratio). In contrast, the current valuation level of Residential is at the same level.

Compared to last month's edition, the valuation level of the peer groups listed has hardly changed. Measured by the peer group averages, only the average FFO 1 multiple for Residential has changed slightly from 26.0x to 25.5x.