Pbb: profit could fall by up to 25% in 2018

Pbb Deutsche Pfandbriefbank has readjusted its profit forecasts for 2018 by up to 25%, citing increased competition in the German marketplace.

Pbb is now forecasting profit before taxes of between €150m and €170m this year, down from €204m in 2017, in a move that the company describes as ‘deliberately conservative’. The forecast is based on a slightly lower aggregate of net interest and commission income, as well as on risk costs estimated at around 10 to 15 bps of the real estate finance portfolio.

Similarly, the lender is forecasting a drop in new business this year, citing‘the maturity of the present real estate cycle’ to between €10b and €11b, down from €11.6b last year.

The lender aims to keep general and administrative expenses below €220m in 2018 as well. The application of the new IFRS 9 accounting standard means that year-on-year comparability of individual items will be limited.

"There is quite some competition on loan volumes and margins in Germany,’ Harm Semder, director of European Financial Services – Financial Institutions at Standard & Poor’s Credit Market Services in Frankfurt told REFIRE. ‘The fact that pbb has said it expects to underwrite a smaller volume of loans this year shows that it is being selective, which is a good thing, not least because LTVs are within a sensible range. We expect the bank to address its main weakness by further improving its risk-adjusted capital ratio above the 10% threshold that supports our strong assessment of its capital and earnings. The German commercial real estate market is performing very well but there’s one caveat: pbb’s loan portfolio is not seasoned, it hasn’t really been tested yet."

However, there is some good news for shareholders: the lender will distribute 50% of net profit as well as a ‘special dividend’ to shareholders, it announced this month.

The proposed dividend for 2017 of €1.07 per share (up from €1.05 in 2016) comprises the regular dividend amounting to 50% of consolidated profit after taxes in accordance with IFRS, plus a special dividend of 25% and full distribution of income after taxes, thereby exceeding the upper end of the original pre-tax profit guidance of €170m. The payouts will be made for 2017, 2018 and 2019, respectively, the company said.

‘The strong, operating result for 2017 clearly exceeds the previous year's figure, which benefited from a non-recurring income,’ said pbb's CEO and CFO Andreas Arndt. ‘Against this background, and in view of pbb's good capitalisation, the management and supervisory boards have resolved to markedly increase the payout ratio until 2019 inclusively – and with a payout of 79% for 2017, we will even exceed this.’

Earlier this month, pbb provided a €65m investment facility to BNP Paribas REIM for the acquisition of the ‘Horizon’ office building in Düsseldorf. BNP Paribas REIM is acquiring the building on behalf of a French consortium comprising BNP Paribas Diversipierre, an open-ended real estate fund for private investors, as well as insurance companies Société Générale Insurance and BNP Paribas Cardif. pbb had already financed the development of the property, which was completed at the end of 2017.

‘We are delighted that we were able to provide the long-term financing for this extremely attractive office property, having also financed the building's development,’ said Gerhard Meitinger, head of real estate finance Germany at pbb. ‘At the same time, we are expanding our pan-European business relationship with French investors BNP Paribas and Société Générale to include Germany.’

Standing at 60 metres tall, ‘Horizon’ is on Kennedydamm, north of Düsseldorf's city centre and close to the trade fair. The building, with its distinctive architecture, was designed by renowned local architects HPP. It features 16 floors with more than 24,000 sqm usable space, plus 400 underground parking spaces.

Also this month, pbb provided an investment facility of €37m to a group of companies managed by JR AMC Co., Ltd. on behalf of a consortium of Korean Investors. The funds will be used to finance the acquisition of an office building in Vienna, known as Porr Tower.

Porr Tower comprises more than 30,000 sqm over 22 floors and is leased long-term to Porr AG, Austria’s second-biggest construction group. The tower has also benefitted from the extension of Vienna’s U1 underground line last year. UK asset manager Knight Frank Investment Management (KFIM) acted for JR AMC in the acquisition and will manage the property.

‘This is our first transaction with KFIM, and we are delighted to have supported them in this acquisition of a landmark building in Vienna,’ said Charles Balch, head of international clients, UK & CEE, at pbb. ‘The Vienna office market continues to be of interest to pbb, due to its stability which has attracted a number of international investors.’