Equity Research.
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Q&A Report
F Full report
Property Europe $) 04 December 2015
Q. Are German residential stocks about to peak due to the M&A climax? German residential stocks have performed strongly over the last 12 months, rising by between 21% (TAG) and 68% (Grand City Properties), and clearly outperforming the German DAX, which is up 14%. This strong outperformance and the recent M&A climax in the sector (attempted merger between Deutsche Wohnen and LEG, Vonovia’s ongoing bid to take over Deutsche Wohnen) have raised concerns that residential stocks could be near their peak.
A. No, valuations still look attractive in light of strong FFO and NAV per share growth We would remain buyers of all the German and Austrian residential stocks in our coverage. FFO I/share growth could remain solid on ongoing LFL rental growth of 2-3% a year, economies of scale from recent acquisitions and low, or further declining, financing costs. Pressure on rents to increase further could persist in key German regions due to low vacancy rates, persistently strong demographic trends and limited new supply in the target segments of listed companies, as construction costs for new apartments are still significantly above market prices for existing apartments. The positive sector fundamentals and the low interest rate environment could trigger strong NAV growth in the next few years, as investment yields are currently 550-700bps above risk-free rates.
Thomas Neuhold, CFA Main author tneuhold@keplercheuvreux.com +43 1 537 12 4147 Property research team Biographies at the end of the report
IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst certification(s).
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