Deutsche Pfandbriefbank (PBB) closed €2.8bn in European real estate loans over the first half of the year, with the government-owned bank on track to surpass last year’s €4.9bn annual property lending haul as the PBB seeks to materially improve its return on equity ahead of re-privatisation.
PBB’s €2.8bn of real estate loans over the first six months – comprised of €2.0bn in new lending and the balance in loan extensions – took the European property loan book to €23.1bn, down €0.6bn over the last six months, net of maturities including a reduction in the bank’s modest problem loan pool.
Pre-tax profit for PBB’s Real Estate Finance (REF) business line was €58m over the first half of the year, contributing the lion’s share of the overall group’s €60m pre-tax profit for the six-month period.
The almost 20% year-on-year increase in PBB’s pre-tax profits over the first half of the year, reflects the considerable jump in real estate lending between the two six-month periods –from €1.2bn to €2.8bn – with the first half of last year constrained by tightened lending markets in the aftermath of the worst of eurozone debt crisis fears.
PBB’s post-tax return on equity (RoE), a key metric of profitability for bank, however, remains at a modest 2.5% – just 0.3% higher than the 2.2% for the same period last year when new real estate business was 127% higher.
This 2.5% post-tax RoE is someway off PBB’s stated 8% RoE target, which the bank admits is required for a successful reprivatisation on profitable basis for German taxpayers.
In its interim results published this morning, PBB re-affirmed its guidance for the full 2013 post-tax RoE as still “in line with the corresponding previous year figure, 2.1%”.
This underscores PBB’s business plan in seeking to book build its property loan portfolio over the next 18 months, along with the continued reduction of its operating costs.
Speaking at PBB’s analyst call this morning from its Munich headquarters, Alexander von Uslar, chief financial officer, said in respect of the looming re-privatisation: “We are in line with the developments and what we need to do to get us there, but on the other hand, the return on equity is not what we want or where we need to be.
“We need to grow the portfolio, and reducing costs over time… it [RoE] has to be around 8% for re-privatisation.”
Next month, PBB’s contract for providing loan servicing to FMS-WM, the bank bad which spun out of Hypo Real Estate almost three years ago, comes to an end, which will reduce both associated running costs – mainly staff many of whom are likely to transfer to FMS-WM – as well as the revenue stream from the dwindling loan book.
PBB insist the end of the contract is in line with its strategic aims of focusing only on its core businesses of real estate finance and public sector finance.
Over the first half of this year, PBB’s €2.8bn real estate lending tally comprised 53 separate deals, at an average maturity of 4.1 years, a 63% LTV and above 225 basis points gross margin.
Of the lending, €1.3bn was in Germany, €513m was in France, €385m was in Central and Eastern Europe, €307m was in the UK, which €275 was in the Nordic countries and the balance, at €18m, came from the rest of Europe.
PBB’s H1 €2.8bn lending haul included:
- A €208m loan to Deutsche Annington to refinance the Roosevelt and Wilson German multi-family portfolios, comprised of more than 6,400 residential units throughout Baden-Württemberg, Hesse and the Rhineland-Palatinate.
- A €108m long-term loan to refinance TAG Wohnen’s 3,700 German residential units distributed over Mecklenburg-Western Pommerania, Brandenburg, Berlin and Saxony-Anhalt.
- Up to a £80m five-year senior loan to finance KKR’s £112m acquisition of Tuscany portfolio from Resolution Property in early June, three retail parks in Oxford, Glasgow and Sunderland.
- A £38.5m facility to finance Pembroke Real Estate’s acquisition of One Grafton Street, London in February 2013, the 37,400 sq ft prime building in Mayfair is comprised of four retail units and one luxury residential apartment.
- A £29m loan to a refinance the 15-strong mixed-use Jeeves portfolio owned by joint venture vehicle of Mountgrange Investment Management and AEW Europe/Tristan Capital Partners
- A €199m facility to refinance a 65,150 m² office building in Nanterre, near La Défense in Paris, owned by Docks Lyonnais, the French subsidiary of a UBS-advised fund.
- A €90m five-year senior loan as part of a 50:50 €180m deal with Helaba to finance Starwood Capital’s just under €300m acquisition of office park The Park in Prague, from two maturing open-ended DEGI funds controlled by Aberdeen Asset Management.
- A 50% stake in a combined €163m five-year senior loan and capex facility with Helaba to finance Tishman Speyer’sambitious circa €220m Pacific Tower acquisition in Paris’ La Défense