FOCUS ON EQUITIES: Sale of portfolio stake by Vonovia supports the industry

FRANKFURT (dpa-AFX) – A stake sale on Wednesday proved to be a small glimmer of hope for real estate values ​​groaning under the interest rate turnaround. Investors were relieved to learn that Germany’s largest residential real estate group Vonovia (Vonovia SE (ex Deutsche Annington)) was raising money by selling a stake in its Südewo portfolio. The buyer is a company managed by the American financial investor Apollo. The money comes from insurance companies and other long-term investors.

Vonovia shares rose by 6.1 percent to EUR 19.72 by midday, making them the clear favorites in the Dax (DAX 40). The leading German index fell by 0.6 percent. LEG Immobilien shares gained 4.8 percent at the top of the similarly weak MDAX index for medium-sized companies. Behind them, Aroundtown (Aroundtown SA) rose 4 percent.

Two industry representatives, Patrizia (PATRIZIA SE) and Deutsche Wohnen (Deutsche Wohnen SE), were also in demand in the SDAX small-cap index. The European sector index recorded an increase of 1.1 percent, putting it at the top of the industry table.

The transaction between Vonovia and Apollo values ​​the portfolio of the subsidiary Südewo at EUR 3.3 billion. A trader emphasized that this means a discount of less than 5 percent on the fair value of Südewo as of December 31, 2022. He described the step “certainly not as a big step”, but as one in the right direction.

Analyst Jonathan Kownator from the US investment bank Goldman Sachs even spoke of an important step in the planned disposal of the group. The transaction also provides information about the valuation of Vonovia’s real estate.

In this context, Kownator pointed out that Vonovia is currently in talks with municipalities about the sale of real estate. Only recently the new coalition of the CDU and SPD in the capital Berlin decided to provide four billion euros for the purchase of 15,000 apartments.

The expert Simon Stippig from the analysis house Warburg Research also expressed confidence. The proceeds from the deal should be used to reduce debt, thereby reducing the impact of interest expenses.

The currently rising interest rates have been a burden on the real estate sector for months, as they generally worsen the financing conditions for companies and on the real estate market. More and more tenants are also feeling the effects of inflation, which the western central banks are trying to combat with interest rates. In addition, the real estate groups now have to lower the inflated valuations of their portfolios during the zero-interest phase. The boom in the residential real estate market, which has lasted for more than a decade, has come to an abrupt end for the time being.

And in the euro area further interest rate hikes are expected. It is currently only uncertain whether the European Central Bank (ECB) will carry out a smaller or larger interest rate hike at its next meeting in early May.

In this respect, the sector has been on the decline for a long time. After the Stoxx Europe 600 Real Estate (Stoxx Europe 600) was still a good 200 points at the end of 2021, it continued to fall in 2022 and only found a foothold at just over 100 points in October. Since then, the industry has struggled to recover.

Since the beginning of the year, Vonovia shares have lost 10 percent in value, while the Dax has risen by 13 percent in this period. This downturn could have negative consequences for Vonovia in a few months: According to analyst Pankaj Gupta from the US bank JPMorgan, the company is threatened with relegation from the EuroStoxx 50 (EURO STOXX 50), the leading index in September euro zone./la/ajx/stk

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