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€10.7bn Capital Markets Funding for German Real Estate

Below are the highlights of our current Real Estate Newsletter

EUR 10.7bn in Capital Markets Funding Allocated to German Real Estate – a Post Crisis Record

Combined German real estate capital markets funding volumes tripled in the 2013 year-to-date period, led by strong ECM activity, a recommencement of CMBS issuance and historic Euro-&-US benchmark bond issuances. This makes 2013 a post crisis record year and the second best RE markets funding year ever.

2013 ECM Volume +90%, LEG Completes Largest-Ever German Property IPO

ECM volumes nearly doubled to EUR 2.9bn driven by LEG’s EUR 1.2bn IPO and Deutsche Annington’s EUR 575m offering. In total, the two IPOs contributed 61% to overall ECM issuance, with remaining equity contributions evenly split between accelerated book builds and share placements by existing shareholders. In terms of sector-contribution, 2013 equity placements have come exclusively from Germany’s residential sector. Combined overhang for the residential space is estimated at EUR 5.7bn.

German Stocks Underperform in 2013, Volatility Remains at Historic Lows

The German stocks underperformed EPRA Europe by almost 10 percentage points during 2013 year-to-date, after outperforming by the same amount during 2012. German performance began to trend lower in Feb 2013, roughly at the same time as the LEG IPO came to market. Historically, low volatility suggests that the equity window remains open.

Merger Candidates Trade at Premiums, Other Residential Stocks Trade at Discounts

Trading levels for the German residential space are split: Both companies who recently announced their intention to merge are trading at premiums – on average +11% above reported NAV – while the four other companies are trading at an average discount of -11%.

Debt Capital Markets Contribute Strongly to Overall Capital Markets Activity

Debt capital markets contributed roughly 70% to overall German real estate capital markets funding during 2013. A strong resurgence in CMBS contributed more than EUR 4.2bn to German real estate funding, reaching pre-crisis levels not witnessed since 2005. In bond markets, Deutsche Annington’s unprecedented EUR 2.5bn issuance of Euro and US-dollar bonds introduced the Benchmark Bonds segment into German real estate capital markets for the first time. At the other end of the spectrum, issuance of German real estate Mittelstandsbonds more than doubled to EUR 565m.