Germany may have Europe’s biggest economy and the EU’s largest population, but as far as the country’s listed real estate sector is concerned things have only recently begun to get really interesting. This week, on 21.09.2015, Vonovia (formerly Deutsche Annington) became the first listed real estate company to be promoted to the blue-chip DAX index.
How has the sector reacted? What does this signal for Vonovia’s competitors? Is this the beginning of a definite trend? Read on to find out more.
Listed real estate companies in Germany—underrepresented?
Germany has a large real estate economy and a very active investment market. In the residential sector, more than half of the population live in rented apartments and houses, which means that there are clearly a lot of landlords out there. A number of these are small-scale private landlords, but the majority are large, for-profit housing companies. The last few years has seen something of a consolidation process, as the biggest companies have swallowed up (or merged with) smaller competitors. We have reached the stage at which a handful of mega-landlords control huge swathes of the housing market. And yet the companies involved could be viewed as underrepresented on Germany major stock indices – Vonovia only just made the DAX this week, and only around 10% of the companies listed on the prime standard markets, the MDAX and SDAX, are involved in real estate.
The German real estate landscape
As a result of recent market developments there has been a parallel increase in market capitalisations, capital increases and IPOs. A number of German real estate companies have been openly considering IPOs as a realistic exit strategy and alternative to trade sales (e.g. BGP and ADO). The top five listed German residential real estate companies increased the total volume of their assets by more than 80% between 2009-2014 and the current round of consolidation was started by Deutsche Annington’s takeover of Gagfah, which has resulted in the formation of Vonovia and the company’s DAX entrance. But there’s more to the German real estate industry than just residential property. Big names such as Deutsche EuroShop AG and TLG Immobilien AG are involved in the commercial real estate sector. To put recent developments into perspective it is worth pointing out that the combined market value of Germany’s publicly traded real estate companies has now broken through the €26 billion mark—a tenfold increase in less than four years.
Nevertheless, the biggest real estate companies in Europe have not traditionally been German. Companies such as Unibail Rodamco S.E. (France), Land Securities Group (UK), British Land Company plc (UK) and Swiss Prime Site (France) have all had higher market capitalisations. With the consolidations, IPOs and capital increases in Germany over the last 12 months or so, this is definitely changing. Vonovia, on the back of an acquisition spree that has seen it swallow up Gagfah and Südewo, has increased its market capitalisation to more than €13.5 billion, more than tripling its value since its IPO. Vonovia SE is now Europe’s largest listed real estate company and it operates in Europe’s biggest residential market, so there is still potential to grow. Not bad considering the company was struggling to keep itself afloat just four years ago.
Germany’s main stock indices
Although Germany has a number of stock exchanges spread across the country, the largest are based in Frankfurt. The blue-chip index that now includes Vonovia is the DAX (Deutsche Aktien Index/Xchange). The index lists the country’s top 30 publicly traded companies. Along with the MDAX (mid-cap DAX), SDAX (small-cap DAX) and TecDAX (technology DAX) it forms the Deutsche Börse’s Prime Standard segment. The Prime Standard was introduced in 2003 with the aim of making Germany’s major indices more transparent and thereby more accessible to international investors. The thirty DAX, fifty MDAX, fifty SDAX and thirty TecDAX companies are all required to publish their statements, ad hoc disclosures and reports in English as well as German and are held to higher standards than the General Standards for reporting set out in German law. For example, they have to apply international accounting standards, such as IFRS or US-GAAP, and organise at least one analysts’ conference per year.
Unsurprisingly, Germany’s real estate industry has reacted positively to Vonovia’s promotion to the DAX. A number of experts have been forecasting such a development for a number of years now and many market observers believe it is only a question of time until Vonovia is joined by another listed real estate company at Germany’s top table. Unless the number of mergers and takeovers within the sector has already peaked, which few believe to be the case, it might not be such a long wait after all. Deutsche Wohnen already has a market capitalisation of more than €7.7 billion and has recently announced its intention to acquire LEG Immobilien along with other residential units, manoeuvres which will close the gap to Vonovia somewhat. Deutsche Wohnen’s share price is up by almost 34% over the last 12 months, Vonovia has added 34.5% and Patrizia’s shares are trading 107% higher than in 2014. Indirect real estate investments are clearly popular. Vonovia’s ascent to the premier league certainly comes with responsibilities to the real estate industry as a whole, but it seems to be a development that everyone, even Vonovia’s competitors, can embrace.
Do you think that Germany’s listed real estate companies have a rosy future or that recent developments are symptomatic of a sector heading for a crash? Let us know in the comments below.
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