German listed property companies see doubling of 'free float'
It's now become a tradition at this time of the year to sit down with the German Property Association ZIA and with Peter Barkow of Barkow Consulting to review the performance of the German listed real estate sector. The briefing takes place as part of the Immobilien-Aktie gathering in Frankfurt, in which leading German listed real estate companies get to explain their corporate story. This year's briefing was enlightening, as always.
The key take-home message was that the 'investable market capitalisation', or free float of the 16 largest German listed property companies rose by 115% to €21.8bn in the year to August, according to ZIA. The sector has grown overall and will continue to do so, although forward prospects are for a somewhat slower pace. The growth story will be music to the ears of Philip Charles, CEO of EPRA in Brussels, for whom the slow growth of the sector in Germany has long been a bugbear, growing up as it has in the shadow of the overweening open-ended and closed-end funds segment.
“One of the most striking finds of our new study was that free float more than doubled on last June,” said Peter Barkow, the co-author of the study, which covered 80% of the German listed property index DIMAX. Market cap overall has risen to over €30bn from €22.2bn in June 2013 while assets under management rose 13% to €7.9bn.
The listed sector is still dominated by residential companies, responsible for 78% of assets under management, said Barkow. “Last year, total German market cap was 60% of Dutch-French REIT Unibail-Rodamco. Now the German listed sector is bigger than the company.” It is now the third largest in Europe after UK and the Netherlands.
Rüdiger Mrotzek, MD of Duisburg-based Hamborner REIT, commented, "Property shares have been the real outperformers in terms of market growth. That the DIMAX could show such growth over a 14-month period cold scarcely have been foreseen. Even in the boom years of 2006-2007 we didn't see such a positive development."
Mrotzek said growth should continue, and pointed to east German property firm TLG’s IPO. “This would mean a sizable addition to the commercial segment, which is where main growth of the listed sector now has to come from,” he said. Further growth hinges on developments in the commercial sector and new IPOs. “It will continue, as interest from foreign investors is very high and should be a catalyst for more listings. There are enough portfolios that would sustain this.”
Barkow pointed out that new investors into listed real estate have lower yield targets and a long-term outlook – although the preponderance of foreign investors in the sector at the expense of Germans remains an issue. Only 10% of the top 15 investors in the sector (with together 31% of the total free float) are German, as against 23% for the DAX as a whole. By contrast, US investors hold 39%, while Norwegian and UK investors alone hold 18% of the sector's free float.
Nonetheless, the majority of foreign investors are, by their own admission, safety-oriented. Barkow commented, "It is indeed difficult to understand why foreign investors, so concerned with security, are so heavily invested in the asset class while German institutionals are so reticent. We can only hope that our study helps to get decision-makers really thinking about this."