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/

https://www.pwc-events.com/Covid-19-Impact-Real-Estate

https://blogs.pwc.de/real-estate/

PwC

Susanne Eickermann-Riepe

Partner, PwC Real Estate Leader Germany

[email protected]

Thomas Veith

Partner, PwC Real Estate Deals Leader Germany

[email protected]

Moritz Gröning

Local Partner, PwC Real Estate Legal, Germany

[email protected]

Dirk Hennig

Partner, PwC Real Assets, Germany

[email protected]

Christiane Conrads LL.M.

Head of German Real Estate Desk, London

[email protected]

Dr. Philipp Schott

Manager, PwC Real Estate Legal, Germany

[email protected]

Sven Behrends

Partner, PwC Real Estate Tax, Germany

[email protected]

Dr. Frederik Mielke

Director, PwC Assurance Real Estate, Germany

[email protected]

2

8. April 2020PwC Real Estate | COVID-19 WebEx

PwC

Negotiation, behaviour and attitude - fair solutions are required



[email protected]

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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PwC

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

4


PwC

Scenario parameterization (extract GDP and unemployment) Status 31 March 2020


5

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

6

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

[email protected]

7

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

7


PwC

Dr. Philipp Schott


[email protected]

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


[email protected]

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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https://blogs.pwc.de/real-estate/files/2020/04/COVID-19-Summary-of-pan-european-relief-measures-for-commercial-tenancies-01-April-2020.pdf

PwC

Dr. Philipp Schott


[email protected]

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


[email protected]

https://blogs.pwc.de/real-estate/files/2020/04/COVID-19-Summary-of-pan-european-relief-measures-for-

commercial-tenancies-01-April-2020.pdf

9


https://blogs.pwc.de/real-estate/files/2020/04/COVID-19-Summary-of-pan-european-relief-measures-for-commercial-tenancies-01-April-2020.pdf

PwC

Spread between average real estate portfolio groups and market declines

Dirk Hennig


[email protected]

www.pwc.de/en/real-estate/real-estate-monitor.html

10


• 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

http://www.pwc.de/en/real-estate/real-estate-monitor.html

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

11


PwC

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

12


PwC

• 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

[email protected]

13


PwC

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


[email protected]

14


PwC

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

[email protected]

Sven Behrends


[email protected]

SPV

15


PwC

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

[email protected]

Working from Home in an international context

16


PwC

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



[email protected]

Moritz Gröning

Partner, PwC Real Estate Legal, Germany

[email protected]

17


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



[email protected]

Thomas Veith

Partner, PwC Real Estate Deals Leader Germany

[email protected]

Moritz Gröning

Local Partner, PwC Real Estate Legal, Germany

[email protected]

Dirk Hennig


[email protected]

Christiane Conrads LL.M.


[email protected]

Dr. Philipp Schott


[email protected]

Sven Behrends

Partner, PwC Real Estate Tax, Germany

[email protected]

Dr. Frederik Mielke


[email protected]

18


PwC

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


Central email address for questions to PwC experts

on [email protected]

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/

19



https://pwcplus.de/

PwC

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:

[email protected]

20


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]

https://www.pwc-events.com/Covid-19-Impact-Real-Estate

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.

covid-19 impact on real estate€¦ · deutsche euroshop 687 (74,2%) dic asset 713 (42,7%) demire...

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