COVID-19 Impact on Real Estate€¦ · Deutsche Euroshop 687 (74,2%) DIC Asset 713 (42,7%) Demire...
Transcript of COVID-19 Impact on Real Estate€¦ · Deutsche Euroshop 687 (74,2%) DIC Asset 713 (42,7%) Demire...
COVID-19 Impact on Real Estate
Weekly PwC Expert Session via WebCast8 April 2020, 10:00-11:00
Topics:
• Market behaviour - negotiation, behaviour and attitude
• Transaction market - yields, cash flows, price stability
• Market overview - basics in European tenancy law
• Performance - Stock exchange-listed real estate companies
• Real estate loans - MAC, sweeps, covenants
• Income tax, social security issues and short-time work
• Management while working from home – fun, taxes and legal challenges
• Q&A Session
© 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
All rights reserved by PricewaterhouseCoopersehalten. "PwC" in this document refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a
member firm of International Limited (PwCIL). Each of the member firms of PwCIL is a separate legal entity.
Registration via LINK: https://www.pwc-events.com/Covid-19-Impact-Real-Estate
Questions to the PwC experts by mail to : [email protected]
Updates and information also on https://blogs.pwc.de/real-estate/
PwC
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
Thomas Veith
Partner, PwC Real Estate Deals Leader Germany
Moritz Gröning
Local Partner, PwC Real Estate Legal, Germany
Dirk Hennig
Partner, PwC Real Assets, Germany
Christiane Conrads LL.M.
Head of German Real Estate Desk, London
Dr. Philipp Schott
Manager, PwC Real Estate Legal, Germany
Sven Behrends
Partner, PwC Real Estate Tax, Germany
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
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Negotiation, behaviour and attitude - fair solutions are required
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
COVID-19 – Code of Conduct
• Be fair – people will remember how you managed the crisis
- this applies to both parties
• Remember – replacing tenants you lose in the crisis can be
expensive
• Build trust – pragmatic solutions will pay off over time
• Be open – agreements should help to break the deadlock
• Be innovative – there are always more possibilities than
you might think
• Check your options – be ready for quick decisions,
especially for the time until summer
• Be prepared – for a next wave of decisions in the 3rd / 4th
quarter of 2020
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Base Case 2 (W Shape)
Volatile Recovery
Worst Case (L Shape)
Prolonged Event
Best Case (V Shape)
False Alarm
Base Case 1 (U Shape)
Measured Recovery
Scenarios and impacts - Which industry suffers how much?
Which scenario will be the basis for further planning? PwC determines impacts of COVID-19 for 16 industries
scen
ari
os
imp
acts
• Reduction of medium-term
growth
• Postponement of
investment and consumption
(no reduction)
• Persistent recession:
return to previous GDP levels
after several quarters
• Impairment of performance
and growth (at least two years)
• Postponement / limitation of
investment & consumption
• Economic recovery begins
in part
• Reduction of medium-term
growth: return to earlier GDP
levels only quarters after the
last Covid-19 outbreak
• Reduction in consumption
and investment (partially)
• Continuing recession poses
a drastic threat to the
economy
• Return of total production
to pre-Covid-19 level not
foreseeable
• Strong influence on
investments and
consumption
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Scenario parameterization (extract GDP and unemployment) Status 31 March 2020
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Current estimate of -5.8% to -9.3% shrinkage in 2020
Version 1.1 (Scenarios as of 31.03.2020)
PwC
Specific impacts for 16 sectors - further detailing for real estate in preparation
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8. April 2020PwC Real Estate | COVID-19 WebEx1) Consolidated from formerly “Basic materials”, “Construction”, “Materials”
2) Passenger transport, travel and hospitality services
Source: Various Equity/ brokerage/ industry reports; Strategy& analysis
Industry COVID-19 impact Rationale for industry
Agriculture Neutral Demand unchanged; governments will protect agricultural business and output
Automotive Very negative Production stop during lock-down period; strong negative impact on both sales and supply chain
Industrial materials (incl. construction)1) Negative B2B requires less raw materials; worker supply shortage; less commercial investment/ development
Chemicals Negative B2B demand contraction; supply chain exposure to China leaves production vulnerable
Pharma & life sciences Slightly negative Boost for research & development investments related to COVID-19; supply chain uncertainties
Cons. goods & retail (food) Positive Groceries with higher demand then before crisis, compensating e.g. restaurant lock-downs
Cons. goods & retail (non-food) Very negative Lock-down leading to lack of (in-shop) demand, additionally supply chain disruptions (esp. China)
Energy Slightly negative B2B demand contraction (due to production slow-down in manufacturing)
Technology & software Slightly negative Stable B2B and B2C demand; large technological transformations on-hold
Entertainment & media Very Negative Sharp decline in advertising dragging on income; high media/ home entertainment demand
Telecommunications Neutral Increased demand for data consumption and high broadband communication
Services Very negative Lock-down affecting B2C services (esp. in-person service rendering in times of social distancing)
Passenger transport, travel, hospitality2) Very negative Very sharp B2C demand contraction (rail, air, ship) due to travel restrictions; B2B travel shut-down
Freight transportation/ logistics Slightly negative Order books remain filled; future demand at risk due to production stop in client industries
Financial services (incl. Real Estate) Negative New business contraction across FS; asset prices weighing on asset managers, insurers, PE
Healthcare Neutral Strong COVID-19-induced utilization; workforce infection as large risk
Impact scale: Normal 2020 growth;
no COVID-19 impact
Very negativeNeutral Slightly negative NegativePositive
Version 1.1 (Scenarios as of 31.03.2020)
Which scenario will be the basis for further planning? PwC determines impacts of COVID-19 for 16 industries
PwC
Thomas Veith
Partner, PwC Real Estate Deals Leader
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CompanyMarket Cap.
(1)NAV
(2)
prem./disc.
(€m) (%)
TLG Immobilien 1.513 (58,7%)
CA Immo 2.735 (28,3%)
Immofinanz 1.563 (54,0%)
Alstria 2.190 (31,2%)
Deutsche Euroshop
687 (74,2%)
DIC Asset 713 (42,7%)
Demire 517 (24,4%)
Hamborner 626 (32,3%)
Average: n/m (43,2%)
Median: n/m (37,5%)
Commercial Residential
CompanyMarket Cap.
(1)NAV
(2)
prem./disc.
(€m) (%)
Vonovia 24.207 (18,4%)
Deutsche Wohnen 12.296 (26,8%)
LEG Immobilien 7.087 (3,7%)
Grand City Properties
3.170 (23,1%)
TAG Immobilien 2.698 (9,8%)
ADO Properties 1.356 (53,3%)
Adler Real Estate 625 (68,3%)
Average: n/m (29,0%)
Median: n/m (23,1%)
Notes: (1) Non-diluted (2) Based on latest available reported EPRA NAV Market data as of 3rd of April 2020
Standstill on deals. Focus on banks. Valuations on the capital market fair?
Developments on the transaction market
• Current transactions largely stopped/postponed due to
numerous uncertainties
• PE and mezzanine providers still holding back –
intensive analysis of listed property companies
• Currently large discounts to the (historical) NAV on the
stock exchange – reflection of investor expectations
• Banks must be part of solidarity-based solutions –
currently important roles with new loans, prolongations,
promotional loans and bank guarantees as tenant deposits
• Construction sites largely open – Relaxation in
construction prices
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Dr. Philipp Schott
Manager, PwC Real Estate Legal, Germany
Market overview Europe - relief for commercial tenants
https://blogs.pwc.de/real-estate/files/2020/04/COVID-19-Summary-of-pan-european-relief-measures-for-
commercial-tenancies-01-April-2020.pdf
Christiane Conrads LL.M
Head of German Real Estate Desk, London
Tenancy law measures of EU countries
• General legal bases (e.g. on force majeure) Countries that
have already reacted extensively under tenancy law or are
planning appropriate measures:
− Germany and the United Kingdom (moratoria on
termination)
− Italy (tax relief for 60% of the rents for shops and
boutiques in March)
• Whether and to what extent the rent is reduced depends
in most European jurisdictions on the existing legal
regulations (regulations on cases of hardship, force
majeure and/or emergency) and the circumstances of the
individual case
• European legislators thus largely adhere to the principle of
separation of powers
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Dr. Philipp Schott
Manager, PwC Real Estate Legal, Germany
Market overview Europe - relief for commercial tenants
The agreement of tailor-made arrangements remains
the responsibility of the contracting parties
• Rental deferrals and reductions are still not foreseen by law
• In the individual case decision, the tenant's recourse to
legal principles (in particular force majeure and loss of the
business basis) must be weighed against the interests of the
landlord
• Our recommendations for you:
− Fair solutions - Follow the COVID-19 Code of Conduct
− Arrange flexible solutions (e.g. rent reductions,
deferrals, rent-free periods)
− Keep the possibility of adjustment in case of legal
regulations, administrative actions and/or court
decisions
− Involve your banks at an early stage (both tenants and
landlords)
Dr. Philipp Schott
Manager, PwC Real Estate Legal, Germany
https://blogs.pwc.de/real-estate/files/2020/04/COVID-19-Summary-of-pan-european-relief-measures-for-
commercial-tenancies-01-April-2020.pdf
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Spread between average real estate portfolio groups and market declines
Dirk Hennig
Partner, PwC Real Assets, Germany
www.pwc.de/en/real-estate/real-estate-monitor.html
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• 23.02. - The Italian Government establishes restricted zones in Lombardy
and Veneto: MSCI: -3%
• 11.03. - Several entry bans are imposed, for example for Europeans to
the USA; WHO declares Sars-CoV-2 a pandemic: MSCI: -4%
• 12.03. - ECB supports economy with € 120 billion: MSCI: -10%
• 23. – 25.03 - The Federal Reserve will continue to buy government bonds
in the amount needed to keep markets running smoothly; support the flow
of credit to employers, consumers and businesses by establishing new
programs that together will provide up to $300 billion in new
funding: MSCI: +16%
Development MSCI since February 2020
PwC
Change in average real estate portfolio groups turns from out- to underperformance in comparison to the market Retrospective (01 Jan. 2015 - 01 Jan. 2020)
“Strong Outperformance by the RE-P; Commercial Real Estate rather weak.”
„Corona-Period“ (CP) (17 Feb. 2020 - 02 Apr. 2020)
Strong underperformance by RE-P during the crisis; biggest change from normal
for Project Developers.”
Portfolio Group ~ Return (5Y) ~ ∆ to Index (PP)
MSCI World +40% -
Global Diversified Real Estate +50% +10
Global Residential +70% +30
Global Commercial +40% +/-0
Global Project Development +70% +30
MSCI World
Global Residential Real Estate
Global Commercial Real Estate
Global Project Development Real Estate
Portfolio Group ~ Return (CP) ~ ∆ to Index (PP)
MSCI World -25% -
Global Diversified Real Estate -35% -10
Global Residential -25% +/-0
Global Commercial -40% -15
Global Project Development -30% -5
Global Diversified Real Estate
MSCI World
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Residential- and project development industry limits the downward trend in the crisisRetrospective (01 Jan. 2015 - 01 Jan. 2020)
“Strong Outperformance by the RE-P; Commercial Real Estate overall best,
Residential and Project Development strong.”
„Corona-Period“ (CP) (17 Feb. 2020 - 02 Apr. 2020)
“RE-P still outperforming the market during the crisis; Commercial Real Estate
suffers and underperforms.”
German Diversified Real Estate
DAX 30
Portfolio Group ~ Return (5Y) ~ ∆ to Index (PP)
DAX 30 +15% -
Germany Diversified Real Estate +160% +145
Germany Residential +125% +110
Germany Commercial +190% +175
Germany Project Development +110% +95
DAX 30
Germany Residential Real Estate
Germany Commercial Real Estate
Germany Project Development Real Estate
Portfolio Group ~ Return (CP) ~ ∆ to Index (PP)
DAX 30 -30% -
Germany Diversified Real Estate -25% +5
Germany Residential -15% 15
Germany Commercial -35% -5
Germany Project Development -20% 10
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• Principle: no deferral (except consumer loans)
• Consequences of rental losses/delays:
1. Default of payment usually reason for termination
2. Threat/break of covenants
• Information requirements
• Cash Sweep
• Cure Rights - Privileged shareholder loans
3. „MAC“: Formulation is decisive
• (Impending) deterioration in financial situation/security
and risk Repayment (§ 490 BGB)
• Threat to payment obligations vs. "only" profitability?
4. Termination rights
→ Trust and cooperation are crucial!
Real estate loans - MACs, sweeps & covenants
Implications for existing real estate loans
Moritz Gröning
Partner, PwC Real Estate Legal, Germany
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Recognition of financial liabilities under IFRS from Q1 2020
Changes to conditions (e.g. new interest rate, deferral)
• Substantial modification within the meaning of IFRS 9? → 10%
test (present value criteria) + qualitative criteria if applicable
• If yes: Derecognition with effect on income & approach to FV
• If no: book value adjustment through profit or loss
„Government grants“ (IAS 20)
• for new borrowings with interest or other government benefits
• „government grant“ in the amount of the difference between
the initial carrying amount (i.e. FV) and the loan amount
(IAS 20)
• Accounting for loan amount using the effective interest
method
Covenant breach
• Classification as long-term or short-term is to be reviewed
• Liability is also classified as current when the lender has the
right (due to breach of contract) to declare the liability due but
does not exercise this right
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
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Management in home while working from home – investment structures and tax law
Implications for investment structures
• Managing activities from Working from Home for a
foreign company:
− Tax residence of the company - by the management
branch; i.e. the center of the business management
− Establishment of a permanent establishment - e.g.
by the management
• Tax implications for the taxation of income, capital gains tax
on dividends etc.
• Consideration of Covid19 conditioned Working from Home?Bernd Papenstein
Partner, PwC Public Sector, Germany
Sven Behrends
Partner, PwC Real Assets, Germany
SPV
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Management in home while working from home – Social security
Cross-border commuters
• no legislative change if the professional activity is carried out
from home in order to avoid Covid19
Multistate-Worker
• if A1 certificate is available, determination of applicable social
security law remains valid
Postings
• Termination and interruption >2 months must be reported to
competent authorities
Health insurance cover
• Validation in the context of Covid19
Accident insurance cover
• Protection also exists in home, but only for room/workplace
used for Working from Home
Daniel Concellon
Senior Associate, PwC Real Assets, Germany
Working from Home in an international context
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Management in home office while working from homeLegal framework
• Data protection and labour law
• Written form in home while working from home
• Registered office in home while working from home?
• Businesses in home while working from home (KaMaRisk)
• Video Conferencing: Tips & Tricks from IXDS (PwC
Germany) – Youtube: https://youtu.be/FQeoXGrUN70
• Team Management: Safe coworking. Digital collaboration
solutions – PDF:
https://www.pwc.de/de/consulting/sicheres-coworking-in-
zeiten-von-corona.pdf
• Time Management - How do I structure my working day
while working from home? Youtube:
https://www.youtube.com/watch?v=Oswy4W5ubbQ&feature
=youtu.be
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
Moritz Gröning
Partner, PwC Real Estate Legal, Germany
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Video Conferencing, Team & Time Management
PwC
fdf
Your questions to the PwC experts
Impact of legislative initiatives
Development of the value of real estate
companies
Market overview
Real estate loans
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
Thomas Veith
Partner, PwC Real Estate Deals Leader Germany
Moritz Gröning
Local Partner, PwC Real Estate Legal, Germany
Dirk Hennig
Partner, PwC Real Assets, Germany
Christiane Conrads LL.M.
Head of German Real Estate Desk, London
Dr. Philipp Schott
Manager, PwC Real Estate Legal, Germany
Sven Behrends
Partner, PwC Real Estate Tax, Germany
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
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PwC information on COVID-19 and its impact on the real estate industry can be found here:
Current information about Real Estate and also
COVID-19
https://blogs.pwc.de/real-estate/
Central email address for questions to PwC experts
Weekly expert session via WebCast on current
topics always Wednesday 10:00 to 11:00
PwC Plus - All the information about real assets
with push message function
https://pwcplus.de/
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PwC COVID-19 Services
• Experienced, interdisciplinary team (Legal, Tax, Operations, Financials)
• Pragmatic and efficient project approach
• Possibility of short-term support and 'Ready-to-Go' support with a proven
IT communication platform
PwC COVID-19
Real Estate
Taskforce
Operations
• Management of the tenant and service
portfolio
• Support in daily business
• Crisis Management
Scenario Analysis
• Development of scenarios for dealing
with the COVID-19 crisis
• Changes in the business model to
ensure sustainable cash flows
Liquidity/Financing
• Monitoring the liquidity status
• Review of the loan portfolio
• Support review grants and loan options
• Dealing with tax deferrals
Strategic Impact
• Expansion of IT systems & digitization
• Further development of the value chain,
business model & assets
• ESG implementation
PwC E-Mail
COVID-19 Expert Contact:
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COVID-19 Impact on Real Estate
Weekly PwC Expert Session via WebCast15 April 2020, 10:00-11:00
Registration via Link or via E-Mail:
https:/www.pwc-events.com/Covid-19-Impact-Real-Estate
Registration via LINK or via E-Mail: [email protected]
pwc.de
© 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
All rights reserved. "PwC" in this document refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of
PricewaterhouseCoopers International Limited (PwCIL). Each of the member firms of PwCIL is a separate legal entity.