Real Estate Monitor

Real Estate Monitor, September 2020

Latest trends

Last month, the PwC Real Estate Index for residential companies (+8.2%) again clearly outperformed its commercial counterpart (+0.2%) and both indices continue to follow their general trends of recent months. Commercial has continued to develop as an “L-shape” since the beginning of the COVID-19 crisis in February. Residential development completed its “V-shape” and has reached a new all-time high in August 2020.

The average Real Estate WACC* for German real estate companies slightly rose last month by +0.2% points, a first time since March 2020. The global average Real Estate WACC fell by -0.1% points, which slightly reduced the gap between German and global WACC.

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

Sharp decline in commercial real estate

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, i.e. Q2 2019 to Q1 2020 (TTM: Trailing Twelve Months). We have put the share prices on the balance sheet dates 31 Dec 2018, 31 Dec 2019 and 31 July 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 July 2020.

Reading example: Vonovia was valued by the market at 21.3x of its FFO 1 as of 31 December 2019, whereas on 31 July 2020 it was valued at 24.2x of its FFO 1.

Residential real estate companies beat pre-crisis level

The ratios illustrate that German commercial real estate companies are still heavily affected by the COVID-19 crisis, while German residential real estate companies are valued higher than before the crisis. Comparing 31.12.2019 with 31.07.2020, the evaluated real estate KPIs fell more than 20% for commercial real estate companies and rose ~15% for residential real estate companies. This applies for both FFO 1 multiple and price/EPRA NAV ratio in the same ranges.