EY Real Estate Capital Radar - Ernst & · PDF filePage 3 Key Results: EY Real Estate Capital...

EY Real Estate Capital Radar

Germany 2016

Agenda

EY Real Estate Capital Radar Germany 2016

Page

1 Key Results 3

2 Management Summary 4-5

3 Survey setup and explanation 6-7

4 Result Details 8-29

5 Summary 30-34

Key Results: EY Real Estate Capital Radar Germany 2016

6. Boom on the bond market for mortgages only with ‘investment grade‘ and for non-rated bonds

Market for commercial real estate financing Germany 2016

2. Return requirements for alternative financing instruments

average at 9.5% for mezzanine and 15.5% for private equity

1. Due to the increased usage of alternative financing

instruments, the market expects higher LTVs

5. Location tolerance for the financing of hotels is low, for

residential and energy properties high

3. Expected moderate turnaround in interest rate policy in 2016 with an increase of up to

50 basis points

4. Stream of refugees as possible positive accelerator for the

financing market of real estate investments

Return Expectation

Availability

Return Expectation

Availability

Bonds* ~€8.3bn.

Management Summary: EY Real Estate Capital Radar Germany 2016

Description

The EY Real Estate Capital Radar briefly shows the current framework conditions for commercial real estate financing in Germany. Each instrument on the radar is displayed with its availability, the current investor’s expected return, as well as the estimated market volume

Interpretation Guide

The position of the financing instruments on the radar indicates the expected return and availability. The size of the specific bubble reflects the market size of the individual instrument. The vertical line in the middle of the bubble displays the range of expected returns

Example

Senior/Junior loans have a very high availability and an expected return ranging between 0.5% up to ca. 4.5%

Ø highest 25%

Ø lowest 25%

average Volume

The estimation of the market volume refers to new business for commercial real estate financing (financing of existing buildings / prolongation, project development financing and acquisition financing) in Germany for the year 2015; bn = billions equal to European „Mrd“. * Market does not allow to derive an aggregated volume

4.5%

I 20%

Senior/Junior*

~€80.0 bn.

Private Equity*

~€5.0 bn.

4 3 2 1 1 2 3 4

IV III

PR

IVA

TE

P

UB

LIC

EQUITY DEBT

II Mezzanine* ~€4.0 bn.

15%

10%

5%

5%

10%

15%

20%

4.0%

15.0%

8.0%

5.0%

4.0%

9.0%

15.5%

20.0%

6.7%

9.5%

12.3%

0.6% 2.3%

4.5%

Shares €3.0 bn.

Management Summary: EY Real Estate Capital Radar Germany 2016

► Largest source of funding for real estate investments in Germany with a volume of about €80.0bn. in 2015

► Highest respectively easiest availability compared to other financing instruments

► Clear tendency for higher risk tolerance of capital providers

► Further increasing LTVs are expected

I Private Equity

II Private Debt

► 2015: Issue volume of roughly €8.3bn. nearly doubled compared to the previous year

► Bond volume of nearly €10.0bn. to be refinanced in the sector of German real estate in the next five years

► Wide range of issue volume from below €10m. to more than €1bn.

► Current market does not reflect the expectations with regard to the return and investment grade products

III Public Debt

► Market participants consider IPOs* (even of small volume) as a possible alternative to established financing methods

► 2015 – a difficult year for IPOs due to the difficult market situation

► Only one IPO and two SPOs** but three canceled IPOs

► Expected returns for real estate shares lie within a narrow range

IV Public Equity

► Private equity is gaining more and more popularity

► Trend: Increasing availability and rising proportion of private equity in real estate finance

► Rising return requirements are expected

► Demand will be further intensified due to bank regulations

* IPO = Initial Public Offering **SPO = Secondary Public Offering

► EY survey among 151 decision makers of capital providers of the financing market for real estate investments in Germany at the turn of the year 2015/2016

► Market coverage: more than 1/3 of the market volume for commercial real estate financing in Germany

► Content wise, the survey takes into account:

► General estimation of the past situation in 2015

► Estimation of the future development for 2016

► Purpose:

► Overview of the parameters for commercial real estate financing in Germany

EY Real Estate Capital Radar Respondent capital providers

► Banks (46%)

► Funds (17%)

► Pension Funds, Insurances, Benefit Plans (14%)

► Family Offices (11%)

► Others (12%)

► Survey by EY Real Estate Finance and Capital Market Services team

► 151 participants working in the finance and real estate industry

Background Purpose

► Some questions offered the opportunity to provide further individual statements

► Multiple congruent statements are shown in an aggregated form

Statements

► Current estimation of the German financing market for commercial real estate investments

► Estimation of the future development of the financing market for commercial real estate investments in Germany

Survey Setup: EY Real Estate Capital Radar considers a wide range of capital providers

Explanation: EY Real Estate Capital Radar Germany 2016

► Includes classical debt (first and/or subordinated loans) as well as often unsecured mezzanine capital

► Private debt usually has an ongoing interest payment and - referring mostly to senior debt - an ongoing amortization

► Mezzanine/hybrid capital can show characteristics of equity and debt structures

► Equity characteristics of are often present when a participation in the cash flow and/or sales return is agreed upon

I Private Equity

II Private Debt

► Bonds of real estate companies with or without collateralization

► Public debt products such as covered bonds, CMBS and RMBS are not considered in the following as – in German speaking countries - they are usually used as refinancing rather than as financing instruments

► Barriers to market entry are caused by market standards (e.g. reporting, rating) and capital markets psychology

III Public Debt

► Public financing (stock market)

► Public trading of corporate shares

► Real estate shares are not necessarily reacting to the underlying real estate markets

► Performance is heavily influenced by general determinants of the stock market

IV Public Equity

► Off-market equity financing of corporations with external investors (particularly international investors); Off-market trading

► High returns due to low collateralization possibilities and often blind-pool-characteristics

► Usually utilized for high-yield real estate investments

Key messages

► Within the focus of the popularity of capital providers still are classical types of use such as office, retail and residential

► Shopping centers benefit from a high attractiveness

► With the exception of hotels, the willingness to finance operator-run, managed real estate is low

► Contrary to the current market sentiment, the willingness to finance industrial and infrastructure real estate is low

► Amongst the different types of use, energy and leisure properties show the lowest attractiveness to receive financing with less than 20%

High availability of capital for classical property types

87%

83% 82%

68%

59% 55%

53%

43%

32%

24% 21%

18%

13%

7%

Available capital for different types of use

>75% >50% >25% ≤25%

Original question 4: “For which usage type do you provide capital to finance real estate investments in Germany? (multiple answers possible)”

99%

52%

21% 7% 6% 5% 0%

Germany Europe(excludingGermany)

North America Asia South America Australia Africa

Key messages

► A and B cities are dominating in all types of use as appreciated receivers of financing

► For offices and operator-run real estate, the willingness to provide financing decreases significantly depending on the city quality

► There is a high tolerance concerning the city quality of residential and energy properties to be financed

► For classical types of use such as office, retail and shopping center, the tolerance regarding the city quality is significantly lower

► Only roughly 50% of the respondents which finance in Germany are also active in other European countries

► For a part of those participants, Northern America is also a destination to finance real estate investments

► Only a small proportion of the capital providers for Germany is active on other continents as well

High ‘location tolerance’ for the financing of residential properties

Location dependency for real estate financing per type of use

0%

20%

40%

60%

80%

100%

A cities

B cities

C cities

Geographical distribution of real estate financing

0%

20%

40%

60%

80%

100%

Delta A-B

Delta B-C

Delta A-C

Lo

cati

on

re

qu

ire

me

nts

Lo

cati

on

to

lera

nce

Original question 6a: “For which regions in Germany do you provide capital for real estate investments? (multiple answers possible)” Original question 6b: “Where do you provide capital to finance real estate investments? (multiple answers possible)”

Key messages

► A majority of the respondents provides debt capital for acquisition financing

► Hybrid capital is rather relevant for acquisition and project development financing than for (follow-up) financing of existing real estate

► Equity capital is primarily provided for development and acquisition financing

Does a higher risk correlate significantly with increasing equity?

43%

26%

40%

14%

10%

21%

63%

58%

48%

Acquisition financing

Financing of existing real estate (prolongation)

Project development financing

Debt capital

Hybrid capital

Equity

Reasons to provide capital for financing of real estate investments

Original question 2: “For which of the following circumstances do you provide capital for property investments in Germany? (multiple answers possible)”

Key messages

► The majority of respondents (93%) are investing in or financing project specific real estate

► Blind pool investments are refused by a large majority and are only relevant for 12% of the capital providers

The majority of the respondents prefers financing project specific investments

70%

5%

23%

7%

2%

11%

3%

13%

2%

64%

Project specific investment Blind pool investment

very relevant rather relevant neutral rather not relevant irrelevant

Relevance of project specific and blind pool investments

very relevant irrelevant very relevant irrelevant

Original question 5: “Which structure is your company using to finance real estate investments?”

Key messages

► The current ECB politics are assumed to positively influence the financing market

► The stream of refugees is a potentially positive accelerator for real estate financing in Germany

► Negative macroeconomic factors are weakening the financing market

► Increases of the interest rate in the US are appraised as neutral by 50% of market participants

► Other reasons which are affecting the financing market for real estate investments in Germany in 2016 are according to the participants: ► „European breakdown“ ► „Decreasing asset availability“ ► „Strengthening of the US-Dollar“

Statements

Is the stream of refugees a positive accelerator for the German real estate financing market?

10%

2%

1%

47%

34%

6%

8%

1%

10%

7%

36%

41%

31%

39%

32%

51%

29%

7%

20%

51%

40%

43%

34%

43%

2%

11%

14%

23%

5%

21%

Further expansion of the central bankbalance sheets

European refugee crisis

GDP decline in parts of Europe

Weakening of the Chinese economy

Intensification of the regulations

Increase of interest rates in the USA

Brexit

positive rather positive neutral rather negative negative

Impact of possible events on the market volume for financing of real estate investments in Germany

Original question 18a: “How will the following events influence the market volume for the financing of real estate investments in Germany in the next 12 months?

Further expansion of the central bank balance sheets

European refugee crisis

GDP decline in parts of Europe

Weakening of the Chinese economy

Intensification of the regulations

Interest rate increase in the USA

British EU exit (“Brexit”)

Opportunity to diversify: Growing availability of financing instruments

Original question 12: „How do you assess the current availability of products for financing real estate investments?” Original question 21: „How do you assess the future availability of the following financial resources in the next 12 months?”

65% 23% 8% 2% 1%

very high very low

12% 41% 41% 5% 1%

very high very low

3% 24% 46% 24% 3%

very high very low

15% 49% 33% 3% 0%

very high very low

6% 27% 45% 19% 3%

very high very low

Estimation of current availability

Estimation of future availability

Senior/Junior Loan

Mezzanine Loan

Private Equity

Share issue

Bond issue

55%

35%

4%

53%

41%

5%

56%

37%

3%

20%

59%

20%

43%

50%

7%

increasing

decreasing

increasing

decreasing

increasing

decreasing

increasing

decreasing

increasing

decreasing

Key messages

► The participants assess the availability of senior/junior loans as very high

► The availability of mezzanine capital and private equity is evaluated lower, but still comparably high

► On the contrary, the availability of shares and bonds is evaluated to be average

► In the future, the respondent capital providers expect - despite the already high level - further increasing availability for senior/junior loans as well as mezzanine capital and private equity

► Regarding the availability for share and bond emissions no significant change is anticipated

6%

4%

2%

1%

Original question 8: “How necessary are the following components of a financing structure for you?”

Equity of the initiator is imperatively necessary; Mezzanine capital is regarded critically

89%

45%

14%

10%

10%

11%

55%

72%

63%

62%

44%

14%

26%

38%

46%

Equity of the initiator

Senior Loan

Senior Stretch Loan

Junior Loan

Mezzanine Loan

Private Equity

absolutely necessary facultative prohibitive

Relevance of different components of a financing structure

Key messages

► 89% of the respondents indicate that equity of the initiator is imperatively necessary

► For a majority of the participants, senior loans are mandatory or at least optional

► Mezzanine loans and private equity are not compulsory for the majority of the respondents and sometimes even prohibitive

Key messages

► The proportion of the selected financing instruments is increasing overall

► Particularly for the share of alternative financing instruments such as mezzanine capital or private equity an increase is expected

► As a result, it can be assumed that the proportion of external capital is going to increase

Original question 20: “How do you assess the future development of the share of the following products for financing real estate investments in the next 12 months?“

LTVs are increasing; equity surrogates more popular; lessons from the financial crisis?

3%

1%

2%

2%

49%

58%

61%

21%

43%

44%

35%

32%

60%

45%

4%

7%

6%

18%

11%

Senior/Junior Loan

Mezzanine Loan

Private Equity

Share Issue

Bond Issue

strongly increasing increasing neutral decreasing

Development of the share of different financing instruments for real estate investments in 2016

Key messages

► Increasing demand due to regulatory framework of banks

► High influence through planned acquisitions of portfolios and increased M&A-activities at corporate level

► Less relevant for the demand are the growing prominence of financial investors and the general internationalization trend

► Further reasons for a changing demand for private equity in regards to financing real estate investments in Germany in 2016 are according to the participants:

► „Increased amount of capital at cheaper conditions“ ► „Cash is King“ ► „Missing willingness of banks to take risks“

Statements

Missing risk tolerance and restrictive banks: accelerator for the private equity market?

60%

48%

39%

27%

23%

13%

Increasing restrictions on banks for the origination of loans

Planned acquisitions of portfolios

Increased M&A-activities at corporate level

Growing prominence of financial investors

Increased financial needs as a result of a general internationalization trend

None of these reasons

Original question 19: “What are potential reasons, you can imagine in the next 12 months, for a change in demand for private equity for the financing of real estate investments? (Multiple answers possible)”

Reasons for a higher demand for private equity

51%

18%

9%

5%

17%

Senior/Junior Loan

very active active average conservative very conservative

11%

14%

8%

22%

44%

Mezzanine Loan

27%

22%

5% 5%

41%

Private Equity

10%

7%

7%

14% 63%

Share Issue

13%

8%

8%

13%

58%

Bond Issue

Key messages

► Analogous to the market for senior/junior loans, the private equity market shows a high liquidity with many active participants as well

► The mezzanine market seems to be a growing special segment, especially of the non-banking sector; market for bonds and shares show restraint

► For the respondents, shares and bonds are not a commodity; access to this market is particularly viable via adequate experts

Original question 3: “How active is your company in the following instruments of real estate financing?”

Strong and liquid market for private equity; mezzanine market on the rise?

Provision of various instruments for financing of real estate investments

Historically low interest margins for senior loans: senior lenders soon-to-be junior lenders?

Key messages

► The average minimum and maximum conditions per annum for senior loans are in a very low range (average approx. 2%)

► Alternative financing instruments (such as private equity and mezzanine loans) but also junior loans are significantly more expensive

► Private equity providers ask as expected for by far the highest interest

► The up-front fees for the different financing instruments range between 65 and 140 basis points

► Due to the margin pressure, senior lenders can be pushed towards providing senior stretch or junior loans more actively in order to generate sufficient returns

Overview of minimum and maximum conditions in % p. a. for different financing instruments in Germany

banking market non-banking market

1.4

2.5 3.0

3.7 3.8

5.5

7.2

11.0

13.6

20.2

0,0

2,5

5,0

7,5

10,0

12,5

15,0

17,5

20,0

Senior Loan

Senior Stretch

Loan

Junior Loan

Mezzanine Loan

Private Equity

average of maximum conditions average of minimum conditions

Original question 9: “What are your conditions for financing real estate investments?”

Key messages

► In 2015, for the first time in its history, the interest rate for the 3-months-EURIBOR was negative (as of 31.12.2015: -0,131%)

► 80% of the respondents expect a rise of the interest rate level by up to 50 bps in 2016

► Only 20% of the respondents expect the 3-Months-EURIBOR to further fall by up to 50 basis points

Original question 16: “By how many basis points (bps) will the interest rate level change in the next 12 months (Base: 3-Months-EURIBOR)?”

Rising interest rates: A moderate turnaround to be expected in 2016

Source: Deutsche Bundesbank, EY Research

Historical Development of the 3-months-EURIBOR and interest rate level prognosis for 2016

-0,75

-0,50

-0,25

0,00

0,25

0,50

0,75

1,00

1,25

1,50

2012 2013 2014 2015 2016

EURIBOR in %

3-Month-EURIBOR 2012-2015 Forecast

80%

20%

Growing risk tolerance: Will cluster risks have to be tolerated again?

Original question 10: “Please name your key parameters for financing real estate investments in Germany.” Original question 15: “How will the conditions, upon which you provide capital, change for the financing of real estate investments in Germany in the next 12 months?”

17

119

315

15

76

200

6

38

90

4

29

76

9

47

113

0

50

100

150

200

250

300

350

Senior Loan

Senior Stretch

Loan

Junior Loan

Mezzanine Loan

Private Equity

10% 29%

33%

31%

33%

44%

52%

67%

69%

53%

50%

5%

13%

6%

5% Senior Loan

Senior Stretch Loan

Junior Loan

Mezzanine Loan

Private Equity

stronglygrowing

growing

neutral

falling

stronglyfalling

Key messages

► After the occurrence of the financial crisis, capital providers feared cluster risks: club deals and bank consortia served often as an instrument for risk diversification

► Currently the tranche sizes are increasing. For classical senior loans are still the highest tranche sizes provided

► A major share of active capital providers expects especially the tranche sizes for alternative financing instruments, such as private equity, to grow

► Only a minor part of respondents believes that the tranche sizes will decrease in 2016

Current maximum tranche sizes in million Euro

Future expectations with regard to future maximum tranche sizes

Ø highest 25%

Ø lowest 25%

average

Constant terms for financing instruments

5

13

22

4

11

21

3

9

18

3

5

9

3

6

11

0

5

10

15

20

25

20%

20%

20%

27%

33%

75%

73%

80%

67%

67%

5%

7%

7%

Senior Loan

Senior Stretch Loan

Junior Loan

Mezzanine Loan

Private Equity

stronglygrowing

growing

neutral

falling

stronglyfalling

Key messages

► Terms for classical debt (e.g. senior loans) are significantly higher than for mezzanine loans and private equity

► Future expectations of participants: mostly constant loan terms

► For the currently low terms of mezzanine loans and private equity, a comparably larger proportion of the respondents expects an increase in the future

Current maximum terms in years

Future expectations with regard to future maximum terms in years

Senior Loan

Senior Stretch

Loan

Junior Loan

Mezzanine Loan

Private Equity

Ø highest 25%

Ø lowest 25%

average

Original question 10: “Please name your key parameters for financing real estate investments in Germany.” Original question 15: “How will the conditions, upon which you provide capital, change for the financing of real estate investments in Germany in the next 12 months?”

Key messages

► Large spread of return requirements regarding mezzanine loans, private equity and bonds

► There is no clear tendency concerning future return requirements for private equity and mezzanine loans – a possible indicator that for these instruments are no significant fluctuations in return requirements to expect

► Growing return requirements for bonds indicate an imminent professionalization of the bond market

Original question 11: “What are your minimum requirements regarding the products for financing real estate investments?” Original question 17: “How will the yield requirements for the financing products change in the next 12 months?”

Professionalization of the real estate bond market about to happen?

Future return requirements for various financing instruments

Current annualized* return requirements (in %) for various financing instruments

0.6

2.3

4.5

6.7

9.5

12.3

9.0

15.5

20.0

4.0

4.5

5.0

4.0

8.0

15.0

0

5

10

15

20

Senior/ Junior Loan

Private Equity

Mezzanine Loan

Shares Bonds

3% 30%

30%

26%

28%

39%

45%

46%

43%

53%

45%

23%

23%

31%

19%

16%

Senior/Junior Loan

Mezzanine Loan

Private Equity

Share issuing(IPO/SPO)

Bond issuing

strongly growing growing neutral falling

Ø highest 25%

Ø lowest 25%

average

*upfront fees are apportioned to the entire term

Refinancing volume in million €

920 670 980

3.154 3.666

8.323

0

2.000

4.000

6.000

8.000

10.000

2010 2011 2012 2013 2014 2015

1.586 1.700

901

1.928

3.779

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

2016 2017 2018 2019 2020

Key messages

► Issue volume in 2015: €8.3bn.

► Average holding period: 7 years

► Average yield: about 5%

► Average issue size: about €220m.

► Refinancing volume for 2016/2017: about €3.3bn.

► 60% of currently emitted and listed bonds are rated

► 40% of currently emitted and listed bonds are unrated

► 14% of currently emitted and listed bonds are collateralized by real estate

► About 70% of currently emitted and listed bonds are fully placed

Year of the bonds – are real estate portfolios of a sufficient quality for future refinancing needs?

Source: Bondguide, Anleihenfinder, EY Research

Issue volume in million €

Company Placement

period Expiring

date Period

(in years) Platform

Target volume (in million €)

Fully placed Coupon Rating

Klépierre Jan 15 Nov 24 9 Paris Stock Market 630 Yes 1.75% A-

Klépierre Apr 15 Apr 23 8 Paris Stock Market 750 Yes 1.00% A-

Klépierre Oct 15 Oct 25 10 Paris Stock Market 150 Yes 1.25% A-

Klépierre Oct 15 Oct 25 10 Paris Stock Market 105 Yes 2.13% A-

Deutsche Wohnen Jul 15 Jul 20 5 Regulated market Luxembourg 500 Yes 1.38% BBB+

Vonovia SE Mar 15 Mar. 20 5 Regulated market Luxembourg 500 Yes 0.88% BBB+

Vonovia SE Mar 15 Mar 25 10 Regulated market Luxembourg 500 Yes 1.50% BBB+

Vonovia SE Dec 15 Dec 17 2 Regulated market Luxembourg 750 Yes 0.95% BBB+

Vonovia SE Dec 15 Dec 20 5 Regulated market Luxembourg 1,250 Yes 1.63% BBB+

Vonovia SE Dec 15 Dec 23 8 Regulated market Luxembourg 1,000 Yes 2.25% BBB+

Alstria Nov 15 Mar 21 5 Regulated market Luxembourg 500 Yes 2.25% BBB

Deutsche Studenten Wohn Bond I May 15 May 20 5 FV Frankfurt 77 Yes 4.68% BBB

Grand City Apr 15 Apr 25 10 Irish Stock Market 400 Yes 1.50% BBB

Grand City I-III Feb 15 Feb 22 7 Irish Stock Market 470 Yes 3.75% BBB

SeniVita Social Estate May 15 May 20 5 * 50 No 6.50% BB

Adler Real Estate AG Apr 15 Apr 20 5 Prime Standard 350 Yes 4.75% BB-

AK Immobilien Nov 15 Nov 17 2 * 3 *** 4.50% **

CA Immo Feb 15 Feb 22 7 Vienna Stock Market 175 Yes 2.75% **

Fair Value REIT Jan 15 Jan 20 5 FV Frankfurt 8 Yes 4.50% **

Immokles (Immovation) Dec 15 Dec 20 5 * 35 Yes 4.00% **

Lang + Cie. Real Estate AG Aug 15 Aug 18 3 FV Frankfurt 15 Yes 6.88% **

Publity AG Nov 15 Oct 20 5 FV Frankfurt 30 Yes 3.50% **

UBM Development AG Dec 15 Dec 20 5 Entry Standard / FV Vienna 75 yes 4.25% **

Bond market – selected emissions in 2015

Key messages

► Placement volume: €8.3bn. in 2015

► Weighted average coupon of 1.94% (unweighted average coupon of ~3.0%)

► ~30% (as measured by the number) of the bonds emitted in 2015 are unrated

Source: Bondguide, Anleihenfinder, EY Research; * private Placement; ** no rating / no rating published, *** not published

Key messages

► More than 2/3 of the participating decision-makers require a rating of at least BBB

► About one quarter accepts a rating below BBB

► For 11% of the bond investors are also unrated bonds quite attractive – „better having no rating than a bad one“

Bonds rated below BB+ are not relevant to the market; no market for non-investment grade

Minimum requirement for the rating of real estate bonds

29%

39%

18%

4%

0%

11%

better than BBB+ BBB+ to BBB BBB- to BB+ BB to BB- worse than B- no rating

Original question 9d: “What is your minimum requirement regarding the investment grade of bonds?”

Difficulties for real estate bonds in the sector of small- and medium-sized companies?

Original question 11: “What are your minimum requirements regarding the products for financing real estate investments?”

100

300

500

3

122

300

0

100

200

300

400

500

600

Issue volume in million EUR

1.0

1.3

2.0

1.0

2.5

4.0

0

1

2

3

4

5

6

Holding period/duration in years

Ø highest 25%

Ø lowest 25%

average

Share issuing Bond issuing Shares Bonds

Key messages

► Respondents expect an average issue volume of €300m. for real estate shares

► Compared to IPOs in other industries, the emission volume for real estate shares ranks low

► Compared to other share classes, real estate shares are seen as a long-term investment. The average holding period is 1.3 years

► The expected average emission volume for bonds is about €120m.

► Small emissions of bonds with a volume of <€10m. are placeable

► Bonds: short- to mid-term investments with an average holding period of 2.5 years

Overview of issue volume and holding period of shares and bonds

► Other reasons, which have an influence on the attractiveness of IPOs and capital increases (SPOs) for real estate companies, are according to the respondents:

► „Sale of company shares“ ► „Exit of shareholders“ ► „Low interest rate level“

Statements

88%

71%

70%

57%

32%

16%

12%

Financing corporate growth

Financing alternatives through access to capital markets

Strengthening the equity base

Independence from lenders

Securing the entrepreneurial independence

Raising the company's prominence

Securing the company management/successor regulations

Original question 22: “Which of the following are the main reasons for IPOs and capital increases within real estate companies in the next 12 months? (Multiple answers possible)”

IPOs: outlet for the diversification of financing; reaction to bank regulations?

Reasons for IPOs and capital increases of real estate companies in 2016

Key messages

► IPOs serve as an instrument to finance corporate growth

► They are used as a financing alternative and for the diversification of an existing financing mix

► They strengthen the equity base and provide direct access to the capital markets

Justified euphoria: real estate shares have outperformed the German DAX30 in recent years

Source: Bankhaus Ellwanger & Geiger, reuters. March 2016

Ind

ex

(20

10

= 1

00

)

Year

Key messages

► 62 real estate companies are listed on the German stock markets

► In comparison to the DAX, real estate shares have outperformed in recent years (base: 2010=100)

► However, despite of the good performance in the last years, the market capitalization is still lower than the overall NAV* (Ø Top 25 real estate shares: market capitalization amounts to approx. 95.5% of the NAV)

► Chances for investors as well as potential issuers: real estate shares are becoming more important in the composition of well-balanced portfolios

► 2016: experts forecast an upswing and a positive performance of real estate shares

Comparison of DAX30* and Dimax** from 1988-2015

0

50

100

150

200

250

300

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

E&G - Dimax

DAX

,

* German DAX30: blue chip stock market index consisting of the 30 major German companies listed in prime standard of the Frankfurt Stock Exchange ** Dimax = index of publicly traded German real estate companies

* NAV = Net Asset Value

Company Announced Status Date

CD Deutsche Eigenheim AG

07.11.2014 executed 03.11.2015

Hahn-Immobilien AG 04.08.2014 executed 18.02.2015

Gagfah S.A. 15.04.2015 executed 20.11.2015

POLIS Immobilien AG 06.03.2015 executed 07.10.2015

Delistings

Overview of IPOs, SPOs and delistings in 2015

Company Category Date of emission Status Volume

Ado Properties S.A. IPO 22.07.2015 executed ~€680m.

Aurelis Real Estate GmbH & Co. KG

IPO 2015 canceled -

BGP Investment S.à.r.l.

IPO 2015 canceled -

Corestate Capital AG

IPO 2015 canceled -

Deutsche Annington SE*

SPO 01.07.2015 executed ~€2.25bn.

TLG Immobilien AG SPO 23.10.2015 executed ~€100m.

Source: EY Research

Key messages

► 2015 – a difficult year for IPOs

► Only one out of four planned IPOs has been executed successfully

► Main reason for cancelling the IPOs: a “currently difficult market situation”

► Two SPOs, one with a volume higher than €2bn., were successfully placed

► Aurelis, Corestate and BGP Investment stick to their plans of an IPO

► A total of four real estate companies were delisted from the German stock market in 2015, amongst others Gagfah S.A. because of its merger with Deutsche Annington SE to Vonovia SE *today: Vonovia SE

IPOs and SPOs in 2015

Summary: EY Real Estate Capital Radar Germany 2016

Summary: Private Equity

► The demand for real estate private equity has been growing over the last years

► Reasons for the growing demand are increasing M&A activities at a corporate level and regulation of the banking sector

► Private equity is utilized especially for high-yield financing projects

► The real estate private equity market is already very liquid

► For 2016, a further growth in the availability of private equity is expected

► Private equity usually has a mid-term investment horizon

► The average for term is approx. 5 years, renewal option of 2 x 1 year possible

► Minimum: 3 years

► Maximum: 11 years

► EY Real Estate estimates the market volume of private equity in financing of real estate investments for 2015 to be approx. €5bn.

► The market participants estimated the average tranche size at €47m.

► Return requirements (as annual net return for equity) range from 9.0% to 20.0%

► About 26% of the responding decision makers expect return requirements for real estate private equity to increase

Attractiveness

Availability

Term

Volume

Return requirements

► As a consequence of the low interest rate environment, the attractiveness of this classical financing instrument remains unbroken

► Because of its ease of availability and the low return requirements, senior loans are expected to increase in attractiveness in the future

► The refugees stream could prove to be a positive accelerator for the German market for the financing of real estate investments, among other things like e.g. the current interest rate level

Summary: Private Debt

► The currently already high availability of private debt will remain in the future

► Rising LTVs and high-risk financing will positively influence the availability of private debt

► The reason is the historically low interest rate level, which puts capital providers in the environment of senior loans under a strong margin pressure and possibly pushes them towards more senior stretch or junior lending activities

► Average terms are normally long-term oriented

► Terms vary over a wide range from 5 to 20 years

► EY Real Estate estimates the market volume for collateralized commercial real estate loans at approx. €80bn.

► An increasing demand for residential properties might counterbalance the forecasted decrease in transaction and therefore financing volumes

► Return requirements (annual return) for senior loans range from 1.4% to 2.5%

► With respect to the negative 3-months-EURIBOR, roughly 1/5 of the responding decision makers expects more pressure and thus a further decreasing interest rate level

► An overwhelming majority of 4/5 of all respondents anticipates that the trend of falling interest rates is over (moderate interest rate turnaround)

Attractiveness

Availability

Term

Volume

Return requirements

► Emission volume in 2015 of approx. €8.3bn. nearly doubled in comparison to 2014

► Average emission volume in 2015 of €200m. (median €100m.)

► Market serves especially as a financing source for players that have already been established on the capital markets; the capital market ability of corporations seeking financing is critical

Summary: Public Debt

► The current availability is only seen as average

► Expectation of respondents: also average availability in the future

► In the surrounding of called off IPOs, several bond issues have been cancelled or postponed

► Short and mid-term investments

► Average holding period by investors: 2.5 years (min. 1 year, max. 4 years)

► Average term: 7 years

► Average issue volume: €120m.

► Marketable issue volume (min): €3m.

► Marketable issue volume (max): €300m.

► Return requirements range from 4% to 15% p.a. – market is still in its discovery phase

► Average is at 8%

► For 2016 slightly rising return requirements are expected

Attractiveness

Availability

Term

Volume

Return requirements

Summary: Public Equity

► IPOs as a possible alternative to established financing methods

► Consequences of an anticipated stricter lending policy of traditional financers?

► 2015 – a difficult year for the stock markets

► Main reason for IPOs and SPOs: Financing of corporate growth

► Current market situation: average availability

► Future estimation of respondents: average availability as well

► One IPO and two SPOs succeeded; cancelation of three planned IPOs

► Delisting of four real estate companies

► Respondents: real estate shares are, in comparison to shares in other industries, a long-term investment

► Average holding period is 1.3 years

► Minimum: 1 year

► Maximum: 2 years

► In 2015, the emission volume of only one IPO was approx. €680m

► Expectation for 2016: average emission volume of approx. €300m., especially smaller mid-sized IPOs

► Minimum: €100m.

► Maximum: €500m.

► In contrast to other financing instruments, return requirements are located in a narrow range and on average 4.5%

► Minimum: 4%

► Maximum: 5%

► Prognosis for 2016: return at previous year‘s level

Attractiveness

Availability

Holding period

Volume

Return requirements

For questions and feedback: Prof. Dr. Nico B. Rottke FRICS CRE

Phone +49 6196 996 22667

Email [email protected]

This publication contains information in summary form and is therefore intended for general guidance only. Although prepared with utmost care this publication is not intended to be a substitute for detailed research or the exercise of professional judgment. Therefore no liability for correctness, completeness and/or currentness will be assumed. It is solely the responsibility of the readers to decide whether and in what form the information made available is relevant for their purposes. Neither Ernst & Young Real Estate GmbH nor any other member of the global EY organization can accept any responsibility. On any specific matter, reference should be made to the appropriate advisor. www.de.ey.com

EY Real Estate Finance and Capital Market Services The team members:

Dr. Christopher Yvo Oertel (Project Manager)

Benedikt Huber

Alexander Zylla

Daniel Bauer

Alexander Kübel

Lukas Kuhn

Your contact

EY | Assurance | Tax | Transactions | Advisory

About the global EY organization

The global EY organization is a leader in assurance, tax, transaction and advisory services. We leverage our experience, knowledge and services to help build trust and confidence in the capital markets and in economies the world over. We are ideally equipped for this task – with well trained employees, strong teams, excellent services and outstanding client relations. Our purpose is to drive progress and make a difference by building a better working world – for our people, for our clients and for our communities.

The global EY organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information, please visit www.ey.com.

In Germany, EY has 22 locations. In this publication, “EY” and “we” refer to all German member firms of Ernst & Young Global Limited.

© 2016

Ernst & Young Real Estate GmbH

All Rights Reserved.

ED None

EY Real Estate Capital Radar - Ernst & · PDF filePage 3 Key Results: EY Real Estate Capital...

Documents

Transcript of EY Real Estate Capital Radar - Ernst & · PDF filePage 3 Key Results: EY Real Estate Capital...