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IMMOFINANZ GROUP

IMMOFINANZ GROUP. ERES 2013 - 4 July 2013. 5 Years After The Crisis – Sustainable Business Models For The Listed Sector In Real Estate. Business models before the crisis. Strategy Value creation Acquisition oriented Relying on yield compression Financing

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IMMOFINANZ GROUP

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  1. IMMOFINANZ GROUP ERES 2013 - 4 July 2013

  2. 5 Years After The Crisis – Sustainable Business Models For The Listed Sector In Real Estate

  3. Business models before the crisis Strategy Value creation Acquisition oriented Relying on yield compression Financing Equity and equity linked as the primary source • Huge capital increasesExamples: IMMOEAST, IMMOFINANZ, MEINL, etc. High (structured) leverage Examples: Eastern European Developers IVG Extremely low margins on debtExample: IMMOFINANZ “FOREST FINANCE” CMBS 25 – 42 bips BUWOG-Financing: 7bips

  4. Goals Profits through appreciation Cash flow: irrelevant!!! “Economic laws” were abolished like in the internet boom (“value creation” became the successor of the “Cash-Burn-Rate”)

  5. “Crisis” Starting with 2007 and reaching its peak with the “Lehman Collapse” in September 2008 Massive revaluation of (Eastern European) properties Liquidity disappeared from the financial system Cash became king (once more again) The Eastern European real estate market collapsed

  6. 2013 – Five Years after the Crisis Normality is back Boring German residential is everybody’s darling Interest rates are extremely low Bank margins are extremely high Debt is very cheap, especially including hedging costs

  7. Stock Listed Sector 2013: Highflyer German residential I Characteristics: • Simple(st) business models (e.g. “triple pure play” of GSW) • (Moderate) dividend yields • Riskless and boring Why: • To replace asset classes like money market funds • Safe, with a little upside for appreciation • Inflation protected • Structural upside potential • Low housing spending as a percentage of disposable income • Positive demographics (household figures grow faster than population, migration, urbanisation) “Disadvantage / Danger” • Business model becomes unattractive as soon as growth is back and interest rates rise again

  8. Stock Listed Sector 2013: Highflyer German residential II “Breaking News”: • Deutsche Annington has cancelled the IPO! Reasons? • Pricing (foreground) • Limited business model (background)

  9. Requests of RE Sector Investors for Business models Simplicity • (very) limited number of asset classes Dividends, i.e. cash flow generation Limited leverage “Safe harbours” – “Köpenick” instead of “Krasnodar” or “Cluj”respectively “Berlin” and not “Budapest” or “Bukarest”

  10. What does that mean for a company like Immofinanz? Stabilisation throughactiveassetmanagement IMMOFINANZ portfolio consists of • Four asset classes • Eight countries • More than 50% of the portfolio is located in Eastern Europe Portfolio does not comply with the ideal of investors Therefore IMMOFINANZ had to create a sustainable cash flow generating business model of its own: “The Real Estate Machine” Cycle-optimsed sale Development Cash

  11. THE REAL ESTATE MACHINE Stabilisation through active asset management Cycle-optimsed sale 550 650 500 Development Cash 220 180 Figures in Mio EUR

  12. Conclusion Listed real estate companies have to develop specific business models, which are capable to convince investors • that these business models can survive at least two real estate cycles • that the company provides sound and secured dividend yields (ie. has sustainable cash flows over the cycles) • that the leverage does not trigger covenant breaches during the lower parts of the cycles.

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