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COVID-19 Impact on Real Estate
Weekly PwC Expert Session via WebEx 1. April 2020, 10:00-11:00 UhrAgenda:
• Current market developments
• Update on the implementation of legislative initiatives in Germany
• Application processes for subsidies/loans/liquidity support
• Valuation of real estate in market and accounting context
• Q&A Session
Register via Google Forms or via E-Mail:
Registration via LINK : https://forms.gle/tPDJEouJFAYwPNeE6
E-Mail: [email protected]
Questions to PwC Experts via E-Mail: [email protected]
Updates and Information on https://blogs.pwc.de/real-estate
© 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
Alle Rechte vorbehalten. "PwC" bezeichnet in diesem Dokument die PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, die eine Mitgliedsgesellschaft
der PricewaterhouseCoopers International Limited (PwCIL) ist. Jede der Mitgliedsgesellschaften der PwCIL ist eine rechtlich selbstständige Gesellschaft.
PwC
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
Thomas Veith
Partner, PwC Real Estate Deals Leader Germany
Moritz Gröning
Local Partner, PwC Real Estate Legal, Germany
Bernd Papenstein
Partner, PwC Public Sector Deals Leader, Germany
Martina Westenberger
Partner, PwC Tax Asset & Wealth Management, Germany
Dirk Hennig
Partner, PwC Real Assets, Germany
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
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First market participants report rent deferrals & need for liquidity
Market developments
• Implementation of rent deferrals by individual market participants
already announced
• Solidarity and social responsibility are in competition with
economic decisions
• Social lack of understanding and damage to reputation in the
context of an industry, which is not only associated with positivity
Reactions of market participants
Amicable solution - negotiations between
tenant and landlord
Solidarity - ethical action to overcome the
crisis together
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
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No panic in sight - international feedback on national measures very positive
Thomas Veith
Partner, PwC Real Estate Deals Leader
• Transactions, which are already in an advanced stage are
executed as planed - no large scale renegotiations are
recognized
• No market evidence for price discounts so far
• Cautious start or postponement of new deals – act “on sight”
until end of April
• Misunderstandings in the event of rental agreement
adjustments – only the statutory special right of termination due
to COVID-19-related rent arrears of the landlord in the period
1.4.-30.06. is suspended - no regulation on deferral/reduction
• Banks are partly reluctant to grant new loans
• Operational & regulatory challenges for lenders and borrowers
• Scenario calculations for liquidity- and business planning
• Alternative types of use for hotels (pandemic centers) and
commercial areas (logistics, street trading)
Market development Deals
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Securing of existing financings are in focus
Overview of governmental measures
Bernd Papenstein
Partner, PwC Public Sector, Germany
• Liquidity-, financing- and guarantee programs for companies
• Preconditions for application:
• The company must not have been in economic difficulties
on 31 December 2019
• The assumption of a fully financed project until the end of
2020 is applied
• The going concern assumption applies
The first point of contact is your house bank, which
must be prepared to bear 10% or 20% of the
additional credit risk
More information on www.pwc.de
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Governmental measuresFederal and state governments support companies with new and adapted funding programs
Notes on federal and state financing and guarantee programs
• For investments including takeovers and equipment (no
debt rescheduling or prolongation)
• KfW relieves banks with release from liability of 80% or
90% (SMEs) and provides them with liquidity
• Discounted fixed interest rate, partially subsidised
• "KfW Special Program 2020" ("KfW Entrepreneur Loan"):
for commercial enterprises (majority private ownership, sole
proprietors, self-employed; loan amount max. € 1 bn.,
simplified risk assessment up to € 10 mn.; term max. 5 years
incl. 1 years grace period
• "Special program for syndicated financing": Banks are
provided with additional liquidity by KfW in the form of a
syndicate participation by KfW or optionally a pass-through
loan; minimum € 25 mn., maximum term 6 years
Special programs of KfW State- and federal guarantees
• Loans from the (house) bank are secured with a default
guarantee of 90% of the state and / or federal
government depending on the amount
• No liquidity inflow to the bank, but security
• Credit Period max. 6 years
• Guarantee commission of 0.5 % - 2.0 % p.a. and
application fee
• Accelerated procedure (about 1-2 weeks)
• State guarantee: credit volume from € 3.125 mn.
(smaller credit volumes: guarantee banks)
• Federal guarantee: depending on the assisted area,
loan volume from € 20 mn. or [€ 50 mn.], federal and
state governments with at least 10% of the workforce
assume parallel liability
Economic Stabilisation Fund
Germany
• Stabilisation of companies in the real
economy by overcoming of liquidity
bottlenecks and creating the
framework conditions for
strengthening the capital base of
companies
• Providing guarantees of up to EUR
400 bn. for corporate liabilities
• Equity participation in companies
with the objective of recapitalisation
of companies
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New laws related to COVID-19 crisis
Moritz Gröning
Local Partner, PwC Real Estate Legal, Germany
• Legislative package passed in record speed - 4 days from final
draft to announcement
• Pillars of the package
• COVID-Abmilderungsgesetz
(Insolvency law, Civil law, Corporate law)
• Law on facilitating short-time work
(retroactively from 01.03.2020)
• WSF-Errichtungsgesetz – in line with SoFFin
• Legislative package partly already approved by the EU
Commission - WSF still pending
• RVO on the implementation of the WSF in progress
• Great international respect for the courageous package
• Criticism and prospects
Record speed of response - need for
improvement in detail
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Tax law measures to secure liquidity for real estate funds
Current situation and problems
Martina Westenberger
Partner, PwC Asset & Wealth Management
• Executed or planned deferrals of rent, as well as possible rent
losses, lead to a reduced free liquidity of real estate funds
• The end of the financial year for special real estate funds is often
31st of december and final payouts are usually planned in March
or April of the following year
Postponement of the payouts to a later date
Options for securing liquidity within the funds
Adjustment/reduction of the payouts to a
minimum payout
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A complete waiver of payouts is possible for special funds just to a limited extent
Tax consequences of waiving or postponing payouts for open-ended real estate special funds:
• If taxable investors hold shares in the special fund, capital gains tax must be paid for these investors
• Therefore, a complete waiver of a final payout is not possible, as otherwise the capital gains tax on the retained income would have had to
be paid by 10 January → in this case there is a risk of a late payment raised from the tax office
• Even a postponement of payouts into summer does not help, as the final payout must be made up to 4 months after the end of the financial
year → there is also the threat of a late surcharge payment raised from the tax office
Reduction of the final payout to the so-called "minimum amount" - i.e. only in the amount of the tax to be paid, in
order to avoid a late surcharge payment, but to keep as much liquidity as possible in the fund is as a possible
solution!
Open-ended public
real estate funds
• In the context of open-ended real estate funds, it is easier to postpone or even waive the payout (subject
to the provisions in the fund rules) in order to preserve liquidity in the fund
• Capital gains tax on payouts or on the advance lump sum for investors is not paid at the expense of the
fund assets, but at investor level by the custodian banks
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Effects of COVID-19 on the valuation of real estate
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
Cash flow adjustment or yield issue?
There are three challenges for investors in investment properties for
all sectors with a focus on retail and hotel:
Operating Finance Banks
Rent
adjustments/
loss of rent
Incentives
Liquidity
problems
Investments
are delayed
Credit lines,
difficulties in
refinancing
Challenges for appraisal agents:
No active market, longer marketing periods, emergency
sales; forecast of future development
Returns based on experience with lagging effects → these
are expected for Q3 and Q4/2020
Assessing
tenant
creditworthiness
and industry risk
(ex ante/ex post)
Calculating level
of damage
caused by
COVID-19 on
cash flow
forecast
Significantly
shorter intervals
for checking the
premises of
valuation
Dirk Hennig
Partner, PwC Real Assets, Germany
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Effects of COVID-19 on the valuation of real estate in annual and consolidated financial statements
Effects on open IFRS and HGB financial statements with a reporting date until 31st of december 2019
1. Company-specific consideration if COVID-19 provides an
indication of impairment
• No impact on balance sheet and income statement
• Consideration in the management report and, if applicable, supplementary report (appendix)
• Consideration in the assessment of going concern assumption and covenants
Effects on financial years/quarters from Q1/2020
2. Performance of an valuation in the next financial statements
(also during the year if quarterly reporting)
HGB
Important: In addition to the recoverability of the asset, the recoverability of the receivables must be checked in particular!
If yes
• Tangible/financial fixed assets: depreciation in the event of
permanent impairment (observation period 5 or 10 years)
• Inventories (e.g. development): Devaluation even in the case
of temporary impairment
IFRS/IAS 40
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fdf
Your questions to the PwC Experts
Answers to the questions submitted in advance
Valuation of assets
Financing
Legal
Liquidity and taxes for funds
Susanne Eickermann-Riepe
Partner, PwC Real Estate Leader Germany
Thomas Veith
Partner, PwC Real Estate Deals Leader Germany
Moritz Gröning
Local Partner, PwC Real Estate Legal, Germany
Bernd Papenstein
Partner, PwC Pubic Sector Deals Leader, Germany
Martina Westenberger
Partner, PwC Tax Asset & Wealth Management, Germany
Dirk Hennig
Partner, PwC Real Assets, Germany
Dr. Frederik Mielke
Director, PwC Assurance Real Estate, Germany
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PwC information on COVID-19 and its impact on the real estate industry can be found here:
Current information about Real Estate and also
COVID-19
https://blogs.pwc.de/real-estate/
Central email address for questions to PwC experts
Weekly expert session via WebEx on current
topics always Wednesday 10:00 to 11:00 am
PwC Plus – all information about real assets with
push message function
https://pwcplus.de/
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PwC
PwC COVID-19 Services
• Experienced, interdisciplinary teams (commercial, financial, legal, tax)
• Pragmatic & efficient support approach
• Possibility of short-term support and 'Ready-to-Go' support with proven
IT communication platform
PwC COVID-19
Real Estate
Taskforce
Operations
• Manage landlords/sub-tenants and
service provider
• Assistance in daily business
• Crisis management
Scenario Analysis
• Development of scenarios for dealing
with the COVID-19 crisis
• Changes in the business model to
ensure sustainable cash flows
Liquidity/Financing
• Monitor cash status
• Review loan portfolio
• Check subsidy/new loan options
• Use of tax deferrals
Strategic Impact
• Expansion of IT systems & digitization
• Further development of the value chain,
business model & assets
• ESG implementation
PwC E-Mail
COVID-19 Expert Contact:
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COVID-19 Impact on Real Estate
Weekly PwC Expert Session via WebCast8. April 2020, 10:00-11:00 Uhr
Register via Google Forms or via E-Mail:
Registration via LINK or via E-Mail: [email protected]
pwc.de
© 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
Alle Rechte vorbehalten. "PwC" bezeichnet in diesem Dokument die PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, die eine Mitgliedsgesellschaft
der PricewaterhouseCoopers International Limited (PwCIL) ist. Jede der Mitgliedsgesellschaften der PwCIL ist eine rechtlich selbstständige Gesellschaft.
