new covid-19 impact on real estate - pwc blogs · 2020. 4. 16. · product packaging experiences a...

COVID-19 Impact on Real Estate

Weekly PwC Expert Session via WebCast15. April 2020, 10:00-11:00 amTopics:• Scenarios Real Estate - today: Retail sector• Movement in the Retail & Consumer sector• Business Recovery in sight yet? Banks at the limit• Clients and contractors: delays on construction site?• Legal perspectives on potential opening scenarios• Accounting - valuation, business recovery and supervisory board• Q&A session

Registration via LINK: https://www.pwc-events.com/Covid-19-Impact-Real-EstateQuestions to the PwC experts via e-mail to: [email protected] Updates and further informationen on https://blogs.pwc.de/real-estate/© 2020 PricewaterhouseCoopers GmbH Wirtschaf tsprüfungsgesellschaft.Alle Rechte v orbehalten. "PwC" bezeichnet in diesem Dokument die PricewaterhouseCoopers GmbH Wirtschaf tsprüf ungsgesellschaft, die eine Mitgliedsgesellschaf t der PricewaterhouseCoopers International Limited (PwCIL) ist. Jede der Mitgliedsgesellschaf ten der PwCIL ist eine rechtlich selbstständige Gesellschaf t.

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

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

PwC

Susanne Eickermann-RiepePartner, PwC Real Estate Leader [email protected]

Thomas VeithPartner, PwC Real Estate Deals Leader [email protected]

Christiane Conrads LL.M.Head of German Real Estate Desk, London [email protected]

Dr. Frederik MielkeDirector, PwC Assurance Real Estate, [email protected]

215. April 2020PwC Real Estate | COVID-19 WebCast

Dr. Philipp Pröbsting, maître en droitSenior Manager, PwC Legal Real Estate, [email protected]

Dirk KadelPartner, PwC Real Assets, Germany [email protected]

Dr. Christian WulffPartner, PwC Retail & Consumer Leader, [email protected]

PwC

Real Estate Scenarios – will there be winners and losers?


Real Estate - Markets. Assets. Player.


• Real Estate Capital Markets - MSCI Global Diversified Real Estate clouded especially for Commercial Real Estate (returns -40% or Index -15), in Deutschland gleicher Trend (returns – 35% or Index -5)

• Real Estate Markets to watch - No indication yet as to which European city (Emerging Trends 2020) will suffer most, but "Future Cities" will have to reassess opportunities and risks in the face of the "pandemic" challenge

• Assetklassen– There is hardly an asset class that does not have to react to the pandemic risk in the short, medium or long term, which is why we set the perspective at step by step scenarios and effects - today it is the retail real estate

• Real Estate Player – The partners of the real estate industry and the market participants within the different phases of the real estate life cycle are affected differently - taking a look at this topic is also interesting

PwC

Best 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 effects - Which asset class suffers how much and what consequences are to be expected?

Which scenario will be the basis for further planning? PwC determines the effects of COVID-19 for 16 industries

Scen

ario

Impa

ct

• Reduction of mid-term growth

• Shift of investment andconsumption (no reduction)

• Continuing recesion: Return to earlier GDP levels after several quarters

• Impairment of performance and growth (at least two years)

• Shift/Limitation of investment & consumption

• Economic recovery beginsin 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)

• Continued recession poses a drastic threat to the economy

• Return of total production to pre-Covid-19 level not foreseeable

• Strong influence on investment and consumption


PwC

Supply and demand shock: retail properties, hotels and restaurants particularly affected - office transformation accelerated in the medium term, residential hardly affected

Social distancing Hygiene standards Travel restrictions Entrance restrictions Infection risks Supply shock Demand shock

15. April 2020PwC Real Estate | COVID-19 WebCast5

Retail (non-food), hotels and restaurants are clearly affected - market adjustment and repurposing

Retail

Hospitality

Restaurants / BarsEvent-Locations

Logistics

Office

Residential

“Generally we are repurposing shopping centres into mixed residential and employment space, making co-working part of mixed-use schemes to drive activity back into town centres”

Climate of Change – but contrary to the November 2019 forecast for 2020 (Emerging Trends in Real Estate Europe 2020)

PwC

First effects are becoming apparent - but the corona effect has not yet reached the historic low in the financial crisis (December 2008: 42.2 points)


Significant shock - German Hypo Real Estate Climate Index falls by -37.3%; 72 points

Retail Logistik Hotel Office

Financial- Corona-crisis crisis

Smart Cities - What will they look like in the future?

Work. Live. Play.

Connectivity Mobility Sharing Security Quelle: Bulwiengesa AG: „Immobilienklima April 2020“

PwC

• Code of Conduct - German Council of Shopping Places (GCSP) • 7 open questions from perspective of Austrian Retail

Association – opening scenarios and restrictions• 10 Bullet-Plan of the HDE (Handelsverband Deutschland)

• E-Commerce remains strong – Boom in Digitization• Food Retailing – Stay home, we deliver! Pay digital!• New Non-Food strategies - Go asset-light? Short-term rents?• Small and medium-sized cities - between fear and hope• Metropolitan Areas – Connectivity. Health. Security. -

Restrictions on further consequences?• Pressure on sustainability remains – major challenges for CO2

footprint in food and non-food retail• Tenant – landlord – dilemma: Who will invest?• Problems remain – despite and after Corona crisis

Retail had a hard time even before the Corona crisis - now things are getting serious

Current actions


Future scenarios


Presenter

Presentation Notes

Vier Thesen, wie COVID-19 den Lebensmittel-einzelhandel langfristig verändert 1. Discounter erobern Marktanteile zurück Im vergangenen Jahr konnten vor allem die Vollsortimenter Marktanteile gewinnen – mit einem Fokus auf Frische, Bio-Produkten und einem ansprechenden Einkaufserlebnis. In der Krise schlägt nun wieder die Stunde der Discounter. Verbraucher legen den Fokus aktuell darauf, ihren Einkauf schnell und einfach zu gestalten. Sie achten dabei wieder verstärkt auf den Preis. Denn durch die wirtschaftliche Unsicherheit, Kurzarbeit und den zu erwartenden Anstieg der Arbeitslosigkeit wächst auch das Kostenbewusstsein der Menschen deutlich. Diese Entwicklung wird voraussichtlich mittel- und längerfristig anhalten. Wir gehen davon aus, dass Discounter im Jahr 2021 rund 1,5 Prozent an Marktanteilen gewinnen werden. Eine ähnliche Entwicklung war nach der Finanzmarktkrise 2008 zu beobachten. 2. Liefermodelle etablieren sich nachhaltig In Zeiten von Ausgangsbeschränkungen und der wachsenden Angst vor einer Infektion mit COVID-19 vermeiden Menschen wo immer möglich Interaktionspunkte und scheuen den Weg in den Supermarkt. Die Lieferung von Lebensmitteln nach Hause etabliert sich damit auch in Deutschland. Der Marktanteil wird nach unseren Schätzungen von derzeit knapp über einem Prozent bis 2023 auf drei bis vier Prozent steigen – und auch danach weiter wachsen. Die Folge: Nur wer in der Lage ist, seine Waren auch auszuliefern, wird langfristig erfolgreich bleiben. Aktuell sind die Lieferkapazitäten jedoch sehr begrenzt. Für Verbraucher ist es kaum möglich, einen zeitnahen Termin für eine Lebensmittellieferung zu vereinbaren. Wir beobachten, dass die Händler sich intensiv bemühen, diese Situation zu verbessern. Dabei helfen kreative Kooperationen: Lebensmittelhändler arbeiten probeweise mit den stark krisengebeutelten Taxi-Unternehmen zusammen, um die bestellten Waren schnell zum Kunden zu bringen. Während aktuell noch die Steigerung von Marktanteilen im Vordergrund steht, wird sich langfristig die Kostenbasis verbessern – Händler werden dann auch mit Liefermodellen die Gewinnschwelle überschreiten. Das rasante Wachstum des Online-Lebensmittelhandels ist dann nicht mehr aufzuhalten und bietet den Vollsortimentern die Möglichkeit, sich gegen das Marktanteilswachstum der Discounter zu behaupten. 3. Die Produktverpackung erlebt ein Revival In Zeiten von COVID-19 steigen auch die Anforderungen an die Produkthygiene. Kunden lassen unverpacktes Obst, Gemüse oder Backwaren aus Angst vor einer Ansteckung mit dem Virus links liegen. 2019 lag die Vermeidung von Plastikmüll noch voll im Trend – diese Entwicklung wird sich nun zumindest teilweise umkehren. Die Folge: Die Produktverpackung erlebt ein Revival. „Wie der Handel das Thema Hygiene im Massenkonsum langfristig lösen kann, ist noch offen. Denkbare Ansätze sind Technologien wie Blockchain in der Supply Chain, um die gesamte Lieferkette transparent zu gestalten und die Produktsicherheit jederzeit zu gewährleisten.“ Andreas Späne, Handels-Experte bei Strategy&, der globalen Strategieberatung von PwC Kurzfristig scheint es jedoch nur eine Lösung zu geben, um der Furcht der Verbraucher, sich über Lebensmittel mit dem Virus zu infizieren, zu begegnen: Die Rückkehr zu – immerhin verbessertem und abbaubarem – Plastik. 4. Digitale Zahlmethoden setzen sich durch Um die Übertragung mit dem Virus über Münzen und Geldscheine auszuschließen, wird das bargeldlose Bezahlen aktuell überall propagiert. Wenn sich die Verbraucher einmal an diese Art der Zahlung – auch bei kleinen Beträgen – gewöhnt haben, werden sie dieses Verhalten auch nach der Krise beibehalten. Im internationalen Vergleich hinkt Deutschland beim digitalen Bezahlen hinterher: Während in einigen Ländern Südostasiens, aber auch in Skandinavien, der Anteil bargeldloser Zahlungen bereits bei über 80 Prozent liegt, bewegte er sich in Deutschland Ende 2019 noch bei knapp unter 50 Prozent. Bis Ende 2020 wird der Anteil auf mindestens 60 Prozent, bis Ende 2023 sogar auf 80 Prozent ansteigen, wie Prognosen von PwC zeigen. Einmal auf den Geschmack gekommen, wird der Konsument auch andere Bezahl-Technologien wie Scan-as-you-Go oder Self-Scanning-Kassen nicht nur akzeptieren, sondern langfristig sogar bevorzugen. Investitionen in die technologische Aufrüstung der Filialen werden damit zum Wettbewerbsvorteil. Fazit Digitale Transformation schnellstmöglich vorantreiben COVID-19 beeinflusst das Kundenverhalten nicht nur kurzfristig. Viele der Veränderungen, die wir derzeit im Einzelhandel beobachten, werden auch langfristig Bestand haben. Händler stehen vor der Aufgabe, die digitale Transformation schnellstmöglich voranzutreiben, um den Kunden die komplette Bandbreite an technologischen Möglichkeiten anzubieten, an die sie sich in der Krise gewöhnt haben.

PwC

Retail & Consumer Sector:Food is booming – Non-Food is suffering!Impact

• Food - The massive increase in demand for certain everyday items is leading to temporary gaps on the shelves of some supermarkets. Some of the currently visible changes are short-term crisis phenomena. However, the pandemic will also trigger developments that will permanently change the retail:− Discounter regain market shares− Delivery models are established sustainably− Product packaging experiences a Revival− Digital payments are gaining ground

• Non-Food - Situation for retailers hadn't been easy before the Corona crisis, but the loss of sales increases the pressure significantly. Digital channels are often developed insufficiently and the demand for non-food tends to decline in times of crisis. The customer will determine which business models will prove themselves in the future.



PwC

Impact1):

Positive effects for food retailers, as shops remain open during the crisisIndustry impact: Consumer goods & retail (food)

PwC Real Estate | COVID-19 WebCast

2019 2020 2021 20220.0

1.5

1.0

2.0

3.0

0.5

2.5

V-Scenario (mild) U-Scenario (severe) L-Scenario (fatal)

2019 2020 2021 2022

3.0

0.0

1.0

2.0

0.5

1.5

2.5

2019 2020 2021 20220.0

1.0

0.5

2.0

3.0

1.5

2.5

POSITIVE

YoY Growth [%] Delta to base case [ppts]

Base Case

Scenario

1) Impact Scale: Positive = More output/ growth than w/o COVID-19 | Neutral: Normal 2020 growth; no COVID-19 impact | (Slightly/ Very) Negative: (Much) less output than w/o COVID-19Source: Strategy& analysis

+0.4 ppts

0.0 ppts

0.0 ppts

+0.4 ppts

0.0 ppts

0.0 ppts

+0.4 ppts

0.0 ppts

0.0 ppts

Overall rationale:• Positive momentum for food/ food-related goods as stores provide essential goods that remain accessible even if the

outbreak worsens (grocery stores will likely remain open throughout crisis)• Consumers substitute restaurant/ canteen visits with food from grocery stores and food delivery • Food and beverage production will continue during crisis (in some sectors even with higher output due to increasing

demand for locally produced goods), as industry has been categorized as critical infrastructure• Fast lane for food logistics has been agreed within the EU to secure cross-border food supply chains

Companies included:• Retail trade (food and food-related)• Grocery and speciality food stores

(incl. beer, wine, liquor)• Food and beverage manufacturers

AS OF MARCH 31st, 2020

915. April 2020

PwC

Impact1):

Non-Food retail clearly threatened, closed and at the same time consumer demand is restraintIndustry impact: Consumer goods & retail (non-food)


V-Scenario (mild) U-Scenario (severe) L-Scenario (fatal)

VERY NEGATIVE

YoY Growth [%] Delta to base case [ppts]

1) Impact Scale: Positive = More output/ growth than w/o COVID-19 | Neutral: Normal 2020 growth; no COVID-19 impact | (Slightly/ Very) Negative: (Much) less output than w/o COVID-19Source: Strategy& analysis

-10.0

-14.0

-6.0

202220212020

-4.0

2019

-12.0

-8.0

-2.00.02.04.0

-9.6 ppts

+1.1 ppts

+1.2 ppts

2019-14.0

2020

-10.0

2021

-8.0

2022

-12.0

-6.0-4.0-2.00.02.04.0

-11.7 ppts

-1.3 ppts

0.0 ppts

20212019 2020 2022-14.0-12.0-10.0

-8.0-6.0-4.0-2.00.02.04.0

-14.8 ppts

-2.5 ppts

-2.5 pptsBase Case

Scenario

Overall rationale:• Non-food retail, especially apparel, hit hard during lock-down in terms of demand; additionally supply chain disruptions

(esp. sourcing from China); online retail will not compensate for demand break-down • More negative effect on industry output if broadening outbreak causes drastic overall demand break-down, as the

industry performance is closely tied to consumer activity• Demand for soap, detergents, cleaning products and personal care stable as sales channels (supermarkets, drugstores)

remain open during the crisis, but no significant impact on overall industry due to low share of retail sales (around 3%)

Companies included:• Retail trade for non-food goods (incl.

online retail)• Furniture, electronics, appliances,

building material, apparel, etc. producers

• Personal care producers and beauty stores

AS OF MARCH 31st, 2020

1015. April 2020

PwC Source: Chinese National Bureau of Statistics, Strategy & analysis

China: Significant decline in sales in all categories, growth only in the food segment - furthermore online

-20%-14%

-18%

Online Food & Grocery

Online Apparel & Footwear

Health & Beauty

-33%Apparel & Footwear

Food & Grocery

-34%Home &

FurnitureElectronics

Total Retail Trade Online Retail26%

10%

15

China’s retail sales development

Retail sales per category, in % accumulated growth, as of February 2020


PwC

Thomas VeithPartner, PwC Real Estate Deals [email protected]

12

Business Recovery already in sight? Banks at Limit

Developments on the transaction/financing market

• Banks have little space for adjustments due to high capital requirements. Focus on promotional loans. Operational capacities at the limit.

• Screening of loan portfolios. Active analysis of hotel, fashion and non-food retail financing.

• So far (still) small restructuring of PropCos. Leeway for valuations, covenants, repayments. In fact, no new commitments or additional disbursements.

• Significant increase in demand for mezzanine capital expected (project developers and increasingly portfolio owners).

• In U or L scenario: preparation of (re)financing together with funding experts and scenario analysis.

• Survival forecast or "Quick Check" based on business planning creates transparency and the basis of EU requirements for "companies in difficulty".


Fair Financing

Subsidie

LandlordBank

PwC

Delays in construction projects due to COVID-19Causes for delays in construction time

• Building owner:− Grant of permission and procurement of plans− „corona compliant“ construction site

• Contractor:− Recruiting and procurement of material and equipment− „corona compliant“ construction site

Delay on part of the contractor• On delay, if consequence of COVID-19 and no other avoidability• But: Contractors must try to minimize the effects within the

bounds of reasonableness.• Caution: Regarding promised deadlines, be awar of COVID-19!

Delay on part of the building owner• Potential claim acc. to § 642 BGB (no-fault)

• BGH (30.01.2020): Calculation of the appropriate compensation by weighing, if necessary judicial estimation

• Quantification and enforcement may be difficult/uncertain

Dr. Philipp Pröbsting, maître en droitSenior Manager, PwC Legal Real Estate, [email protected]


PwC

Legal perspectives of possible opening scenarios

• Since the middle of March 2020, some of the orders of the federal stateshave been changed several times and differ from one another;

• In particular in the case of the "second or third wave", further, partially different adjustments are to be expected at state level;

• Legal verifiability is uncertain;

• Regulatory law serves to avert danger: official orders and opening scenarios are aligned to the - permanently changing –situation of infections and medical care;

• Contradictory positions of landlords and tenants.


Challenges in regards to Retail Real Estate

Christiane Conrads LL.MHead of German Real Estate Desk, [email protected]

PwC

Legal perspectives of possible opening scenarios

• Consideration of different interests;

• legally compliant regulations on operator responsibility including documentation (increased need for regulation and action by landlords, tenants and FM);

• Adaptation of emergency plans and measures;

• Balanced and sufficiently specific regulations in supplements to rental and FM contracts that offer sufficient flexibility;

• Observance of the legal requirement of written form;

• Use of the interface function of FM;

• Focus on digitisationand ESG.


Tenant

LandlordFacility Manager

Faire and flexible contracts

Operator Responsibility:Operator responsibility:Duty of conduct under tort law to prevent and avert danger to life, limb and health by securing sources of danger when using and operating real estate

Recommendations for contract drafting/design

PwC

Implications of the crisis for valuation and impairment testing

Dirk KadelPartner, PwC Real Assets, [email protected]


• Optimistic scenario: Economic growth Germany -7% in 2020 and +5% in 2021

• The real estate climate is also crashing…

International Monetary Fund - biggest economic crisis since the Great Depression in 1929

Quelle: Bulwiengesa AG: „Immobilienklima April 2020“

Retail climate lower than after the financial crisis

Logistics climate shows hope and stabil ity

Hotel climate with significant decline

Office climate loses pole position

PwC

Triggering event for impairment testing?

1715. April 2020

For many companies, market capitalization is below the book value of equity

• The number of companies in the STOXX Europe 600 with a market capitalization below the book value of equity has almost doubled since the end of 2019

Impact on impairment testing

• Impairment risk exists both for goodwill from previous transactions and for the value of the assets

• Certain effects on the valuation are difficult to predict at present, but initial analyses of capital market data show a significant increase in the cost of capital due to the Corona crisis:

• Across all industrial sectors up to approx. 5% surcharge on the cost of capital

• In real estate approx. 0.5% to 2% surcharge• Additional risks due to lower cash flow

Quelle: S & P Capital IG; PwC Analyse“

Highly simplified example calculation „Pre Corona“ „Post Corona“

Cashflow p.a. 100 100ROI 5% 7%Value 2.000 1.400


PwC

Accounting valuation of company shares and restructuring from Q1 2020 Valuation of company shares (IFRS/HGB):

• Differentiation between valuation of individual assets vs. financial assets/companies:

• Declined stock market price < book value => indication of impairment

• Assessment of existing enterprise- or company value resp. CGUs

Requirements for recognition in the balance sheet restructuring (IAS 37.14; 37.70ff.)

• Detailed, formal restructuring plan• Announcement of the main components to those affected

(before the balance sheet date)• Restructuring resolution under IFRS alone not sufficient

Dr. Frederik MielkeDirector, PwC Assurance Real Estate, [email protected]


PwC

Implications for the supervisory board of companies

Always well informed with the PwC Board Room App: https://pwc.to/boardroom-app


Role of the Supervisory Board

• Position and instruments basically unchanged• Mostly more intensive monitoring with high demands on

flexibility

Flexibilisation of the Supervisory Board Organisation possible

• Observe and, if necessary, adapt the statutes/internal regulations

• Ensure a quorum, circular resolutions if necessary• Video conferencing as a face-to-face session? Follow the

guidelines!• Resolution in telephone conference usually requires

acceptance by all

Annual General Assembly

• Relief: Online HV, shortened convocation period…• Decision with the approval of the SB (even without a meeting

in person)

Capacity to Act and Duties of the Executive Board

• Provisions for the Board's ability to act?• Ad-hoc requirements?

https://pwc.to/boardroom-app

PwC

.

Your questions to the PwC experts

Legal perspectives opening scenarios

Market overview

Delays on construction site

Accounting - valuation, business recovery & supervisory board involvement



Thomas VeithPartner, PwC Real Estate Deals Leader [email protected]

Christiane Conrads LL.M.Head of German Real Estate Desk, London [email protected]

Dr. Frederik MielkeDirector, PwC Assurance Real Estate, [email protected]. Philipp Pröbsting, maître en droitSenior Manager, PwC Legal Real Estate, [email protected]

Dirk KadelPartner, PwC Real Assets, Germany [email protected]


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-19https://blogs.pwc.de/real-estate/

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 functionhttps://pwcplus.de/


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

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-19Real 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]


COVID-19 Impact on Real Estate

Weekly PwC Expert Session via WebCast22. April 2020, 10:00-11:00 am

Registration via Link or via E-Mail: https:/www.pwc-events.com/Covid-19-Impact-Real-EstateRegistration via LINK or via E-Mail: [email protected]

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

pwc.de

© 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.Alle Rechte vorbehalten. "PwC" bezeichnet in diesem Dokument die PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, die eine Mitgliedsgesellschaftder PricewaterhouseCoopers International Limited (PwCIL) ist. Jede der Mitgliedsgesellschaften der PwCIL ist eine rechtlich selbstständige Gesellschaft.

new covid-19 impact on real estate - pwc blogs · 2020. 4. 16. · product packaging experiences a...

Documents