Real Estate Monitor

Real Estate Monitor, September 2021

Latest Trends

Shortly after the reporting season, the PwC Real Estate Indices for residential and commercial property companies continue to rise by around 7 percent. In comparison, the Dax rose moderately by around 2 percent last month. So, from an overall perspective, the reported company performances seem to please the investor community. Measured by FFO 1, the results were mostly positive compared to the same quarter last year. The same picture is reflected in the market-based valuation of the companies (see FFO 1 multiple and Price/EPRA NAV ratio). Comparing 6-month performances, residential real estate rose by impressive 18.6 percent, while commercial real estate increased only slightly by 2.9 percent.

Meanwhile, the WACC for German and international real estate decreases by -0.2 percent respectively. One of the main drivers of the decline in the WACC is the renewed decline in the risk-free interest rate last month.

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

Market-based valuation is consistent with the development of the indices

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. Q3 2020 to Q2 2021 (TFQ: Trailing Four Quarters). We have put the share prices as of the balance sheet dates 31 Dec 2019, 31 Dec 2020 and 31 Aug 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 31 August 2021.

Reading example: Vonovia was valued by the market at 25.1x of its FFO 1 as of 31 December 2020, whereas on 31 Aug 2021 it was valued at 22.9x of its FFO 1.

Both Residential and Commercial multiples are in recovery mode

Compared to the end of 2020, Commercial's current valuation level (as of 31 Aug 2021) has increased by +9.5 percent (FFO 1 multiple) and +5.1 percent (Price/EPRA NAV ratio), while the current valuation level of Residential has increased by +2.8 percent (FFO 1 multiple) and +3.3 percent (Price/EPRA NAV ratio).

Compared to the last edition of this monthly newsletter, the Price/EPRA NAV ratio for Commercial in particular has fallen. In relation to FY2020, the valuation is now only 5.1 percent higher. Previously, the valuation level was 9.0 percent higher than at the end of 2020.

Overall, the average valuation levels seem to be consistent with the development of the PwC Real Estate Indices.

Vacancy rates in % by segment

The picture below shows the vacancy rates of our peers by segment. The data is taken from the latest available quarterly and annual reports. If no data is available in a report, we have used the most recent available data. The averages are calculated both unweighted (simple arithmetic mean) and weighted using the total enterprise value (TEV) as a weighting factor. The line chart below shows the aforementioned averages to illustrate the market development.

The noticeable spread between residential and commercial is striking. While the average vacancy rate for Residential is declining significantly and reaching a relative low, it is rising considerably for Commercial. A clear increase is particularly evident since the first and second quarters of 2020, which could be linked to the Corona pandemic.