german property ecm review & outlook
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Akselrod Consulting & Barkow Consulting
German property ECM review & outlook
Listed sector could double by 2015
30 January 2013
Executive Summary - I
2012 another year of records - placement window open
German property ECM 2012 review – Strong secondary placement activity. Return of Convertibles. No IPOs. 2012 was another strong year for German equity capital markets, with cash equity placements totaling EUR1.5bn in the listed real estate space. While this was more than twice the long term average, 2012 still fell short of previous year’s EUR2.0bn placement record. However, 2012 also saw a resurgence of German convertible bond placements after years of low or no issuance. Six convertible bond issues with a total volume of EUR0.5bn – a record in its own right– propelled 2012 to the best ever year for combined German real-estate ECM issuance. In addition, Deutsche Wohnen and TAG executed the two largest-ever rights issues in the German listed property sector. Though the placement window was open for most of the year - except for a short period in May/June - there was no IPO in 2012. Two listings (IVG Immobilien Management REIT and Grand City Properties), complemented the listed universe however.
Resi subsector continues to dominate While residential real-estate was already the main driver of 2011 equity placements, the subsector’s dominance was redoubled in 2012. EUR1.2bn or 85% of total equity was placed by residential companies while the combined commercial sector remained on the sidelines throughout the year. A secular consolidation trend also appears to be taking shape as stock-listed German resi players acquired ca. 100,000 housing units from unlisted sellers.
TAG and Dt. Wohnen most active issuers TAG and Dt. Wohnen were the most active issuers of 2012, both raising almost EUR0.5bn. Surprisingly, the most active issuer in the commercial space was Canadian REIT, Dundee International, a relatively new entrant to German real estate.
Substantial sector growth, still low by comparison In a nutshell, 2012 saw another year of strong growth for German public real estate companies. Comparing listed-space ECM activity to unlisted property funds paints a different picture however: German open-end funds raised over EUR3bn of fresh capital in 2012, 50% more than the listed sector. Looking to the US, equity offerings related to the Archstone acquisition by AvalonBay and Equity Residential alone surpassed the combined volume of capital raised by the listed German property sector by a wide margin. Positive ECM trends notwithstanding, German listed real-estate companies have a long way to go versus their private-fund counterparts and by international comparison.
2
Executive Summary - II
Sector could double by 2015 - LEG largest ever deal
Placement window remains open Despite significant ECM activity since the end of the financial crisis and strong share price performance over the last years, Germany’s investible market cap was only EUR9bn at the end of 2012 (defined as the aggregate free float capitalisation of property companies with a free float above EUR150m). Crunching some crude numbers, there is good reason to believe that the German listed sector is poised for a quantum leap in terms of growth. Firstly, a several-times oversubscribed EUR 200m placement by Deutsche Wohnen this January reaffirms that the placement window is open. With market volatility at record lows and many German property companies at significant NAV premiums, the stage is set for further growth.
LEG is by far the largest real estate IPO in German history At the moment the owners of the 90k unit LEG portfolio are marketing a 56% share in the company while books were covered after only a few days according to reuters. The offering volume of EUR1.2bn to EUR1.4bn represents by far the largest ever public equity offering by a German property company. All said, 2013 is off to a flying start with January equity placements alone surpassing the whole of 2012. We take this as another indication of strong demand for the German sector generally and Resi in particular.
Investible market cap could double by 2015 Medium to long term additional equity might come from Deutsche Annington, Conwert and Immofinanz to name just a few who have voiced intentions to tap the market. On top of that, current players should be expected to continue taking advantage of NAV premiums through further placements. Finally, the wildcard could come from the numerous shuttered open end funds currently liquidating. While tough to quantify, we do not count it out that some of these assets find their way into public markets as these funds wind down. All factors considered, investible market cap could double by 2015.
3
(2) Simple average of Alstria, DIC Asset, IVG and Prime Office indexed to 31.12.2011 (3) Simple average of Dt Wohnen, GAGFAH, GSW and TAG Source: EPRA, Akselrod Consulting, Barkow Consulting
-25,0
25,0
75,0
125,0
175,0
225,0
275,0
70
90
110
130
150
170
30-Dec-11 30-Apr-12 31-Aug-12 31-Dec-12 -10,0
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
80
90
100
110
120
130
140
30-Dec-11 30-Apr-12 31-Aug-12 31-Dec-12
Outperformance starting
20-Feb
Outperformance starting
23-Jan
German property stocks vs. EPRA
Substantial outperformance driven by residential sector
4
EPRA Germany vs. EPRA EU
Indexed to 100 Source: EPRA, Akselrod Consulting, Barkow Consulting
German resi(2) vs. German office(3) stocks
German property sector with substantial outperformance vs. EPRA since 01-2012 Outperformance starting in 01-2012 and peaking in 12-2012
Germany - EU EPRA Germany EPRA EU Resi - Office Resi (3) Office(2)
+22%
+33%
+11%
+19%
+62%
+43%
German outperformance driven by residential sector with office underperforming strongly Resi outperformance peaked in 12-2012 Office sector with recent outperformance
Source: Consensus data, 9m 2012 reported NAV for LEG, Akselrod Consulting, Barkow Consulting
IPO/Equity window wide open
Property stocks with NAV premium, VDAX at record low
5
Implied volatility at record low
Source: Deutsche Börse, Akselrod Consulting, Barkow Consulting
German resi stocks NAV premium (NAVPS 2012)
Implied market volatility substantially reduced, reaching record lows since financial crisis Implied market volatility significantly below IPO hurdle => Equity window is wide open at present
VDAX Average x LEG NAV premia
13
+9%
Most German resi stocks trading at premium to NAV GAGFAH the only stock with discount to NAV => Issuing equity attractive
10
15
20
25
30
35
30-Dec-11 30-Apr-12 31-Aug-12 31-Dec-12
25
IPO hurdle
15%
-21%
7%
33%
-8%
5%
Dt W GFJ GSW TAG LEG Lo LEG Hi
Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
66%
46% 55%
86%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 ytd
0
500
1.000
1.500
2.000
2.500
2000 2002 2004 2006 2008 2010 2012 Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
German property placements
2012 issuance 2x the historical average
6
German RE equity placement volume (in EURm) German RE equity placements by sector (in %)
A combined EUR1.5bn of equity placed in 2012 despite absence of IPOs 2012 volume declined by 23% yoy, but is still 2x the long term average 2013 issuance is off to a flying start with Dt. Wohnen acc. book build, some smaller Estavis issues and LEG IPO; Jan alone exceeds FY2012!
Average
733
Residential subsector dominates German equity placements 2013 a Resi ‘pure play’ vintage so far
1.549
Volume Volume ytd Resi Office Retail Mixed
1.536
LEG
0%
76%
10%
13%
1%
Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
Substantial increase in deal size
2012 the year of the rights issue, deal volume increasing
7
German RE equity placements 2012 by instrument German RE equity placements avg. deal size (in EURm)
Despite two additions to the listed universe (IVG REIT, Grand City) there was no IPO in 2012 2012 dominated by rights issues as listed Resi platform funded the acquisition of ca 100k housing units from unlisted sellers
IPO
2012 saw another increase in deal size despite the absence of large size IPOs Average deal size increased by 8% yoy to EUR90m
Rights Issue Acc BB 2009 2010 Placement Other
0
20
40
60
80
100
120
140
160
Retail Office Resi Mixed Total
2011 2012
Top 25 German RE equity transactions
0
200.000.000
400.000.000
600.000.000
800.000.000
1.000.000.000
1.200.000.000
1.400.000.000
LEG
13
IPO
GFJ
06
IPO
DES
00
IPO
GSW
11
IPO
Dt
W 1
2 R
I
Pat
06
IPO
AO
X 0
7 IP
O
TAG
12
RI
AO
X 1
1 C
I+P
Dt
W 0
9 R
I
DIC
06
RI
PO
11
IPO
GSW
12
RI
DIC
06
RI
Dt
W 1
3 C
I
IVG
05
P
Dt
W 1
1 R
I
CR
E 0
7 R
I
GSW
12
P
GSW
11
P
GJF
08
P
TAG
06
RI
IVG
11
RI
DES
10
RI
TAG
12
RI
Substantial increase in deal volume
Largest ever German RE equity deal currently marketed
2011 brought the two largest capital raises (Dt Wohnen, TAG) ever by a German RE company
LEG is currently marketing the largest public equity offering of a real estate company in German history
Note: LEG mid of range, Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
IPO Rights Issue Capital Increase Placement
+57%
8
Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
0
100
200
300
400
500
600
TAG Dt Wohnen GSW Dundee DES
0
100
200
300
400
500
600
2007 2008 2009 2010 2011 2012 Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
Return of converts - most active ECM players
EUR0.5bn converts placed - TAG issued most capital
9
German RE convertible placements (in EURm) Most active issuers (in EURm)
2012 has also seen the full force return of the German property convertible With a placement volume of EUR0.5bn 2012 was the best ever year for convertibles
TAG issued most capital via four transactions, followed by Dt Wohnen (two transactions) In the commercial sector Dundee, strictly speaking a Canadian REIT, issued most capital in three transactions
Equity
494
Convertible Total
491 467 385 194 168
5.9bn
10.9bn 12.9bn
16.1bn
0
5000
10000
15000
20000
25000
2012 2013 2014 2015 (1) Aggregate free float capitalisation of stocks with >EUR 150m free float Source: EPRA, Akselrod Consulting, Barkow Consulting
German equity pipeline
Strong issuance ahead, sector could double by 2015
10
German RE equity pipeline (in EURm)
Source: German RE ECM data base, Akselrod Consulting, Barkow Consulting
German RE investible market cap(1) (in EURm)
The three year equity pipeline totals more than EUR10bn, this is the largest ever equity pipeline to our knowledge Largest share of issuance expected for 2013
Residential equity continues to dominate, less visibility on commercial sector
Investible market cap totaled EUR9bn at the end of 2012 Investible market cap could double by 2015
Resi Office Retail Mixed Resi Office Retail Mixed Total Total
5.0bn
2.0bn
3.2bn
2013 2014 2015
5.6bn 3.5bn 2.4bn 9.0bn 14.7bn 17.1bn 20.6bn
Source: EPRA, German RE ECM data base, Akselrod Consulting, Barkow Consulting
Source: EPRA, German RE ECM data base, Akselrod Consulting, Barkow Consulting
German sector split
Domination of resi sector to increase further
11
German RE investible market cap by sector (2012) German RE investible market cap by sector (2015)
Resi stocks represented ca 2/3 of German investible market cap by end 2012
Resi share set to increase to ca 80% by 2015
Resi Office Retail Mixed Resi Office Retail Mixed
65%
14%
15%
5%
78%
11%
8%
3%
For further information please contact:
Jesse Freitag-Akselrod
Akselrod Consulting
137a New Kings Road
SW6 4SL London/UK
PH: +44 (0)7942 592 299
JFA@AkselrodConsulting.com
www.AkselrodConsulting.com
Peter Barkow
Barkow Consulting
Rethelstr. 38
40237 Düsseldorf/Deutschland
PH: +49 (0) 211 17 17 256
PB@BarkowConsulting.com
www.BarkowConsulting.com
DISCLAIMER
This presentation was prepared by Akselrod Consulting & Barkow Consulting (“The Authors”) as a basis for discussion of certain
financial issues described herein. This presentation may not be reproduced, summarized or disclosed, in whole or in part, without the prior written authorization of The Authors, and by accepting this presentation, you hereby agree to be bound by the
restrictions contained herein.
This presentation is based on publicly available data which has not been independently verified by The Authors. Any estimates
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