The US investment bank Morgan Stanley has downgraded Vonovia SE (ex Deutsche Annington) from “equal weight” to “underweight” and lowered the price target from 30 to 19 euros. In the case of continental European real estate companies, the returns are too low or the rental income is at risk – or both, wrote analyst Bart Gysens in a sector study available on Wednesday. The portfolios are often financed with too much debt. At Vonovia, measures to strengthen the balance sheet were also threatened after the company had not completely canceled the dividend.
Real estate values continue to slide ahead of the Fed
Investors continue to steer clear of the real estate sector on Wednesday ahead of the US interest rate decision. The Stoxx Europe 600 Real Estate sector index continued its weakness from the previous day with a discount of 2.3 percent and marked a low since October 2022. The pressure was particularly strong at Vonovia (Vonovia SE (ex Deutsche Annington)): According to a negative study by Morgan Stanley, the papers were at a discount of 4.1 percent to the Dax (DAX 40) bottom. They marked a low since 2014.
Morgan Stanley analyst Bart Gysens was generally cautious about continental European stocks on Wednesday because of achievable yields, threatened rental income and often excessive debt. This increases the risk that capital increases would be necessary. Shares in Aroundtown (Aroundtown SA) or Grand City Properties slipped down by up to three percent in the MDAX or SDAX.
Vonovia downgraded Gysens from “equal weight” to “underweight” on Wednesday and cut the price target significantly from 30 to 19 euros. While he appreciates the fact that some companies recently announced a dividend waiver in order to strengthen the balance sheet, he sees a point of criticism here at Vonovia. The Bochumer had only reduced the dividend. Gysens therefore fears that further measures will be necessary to repair the balance sheet.
On Wednesday, investors are now eagerly awaiting the course the US Federal Reserve will take. Some are hoping that the recent turmoil in the banking sector will prompt monetary authorities to adopt a more dovish stance monetary policy tempted – perhaps even by standing still. On the other hand, the Fed is under pressure to contain the high inflation with further rate hikes. Economists therefore mainly expect a further tightening of 0.25 percentage points. A stronger hike, as Fed Chairman Jerome Powell had promised before the turmoil on the markets, is now considered unlikely.
Rising interest rates are having a negative impact on the real estate sector, as they generally worsen financing conditions for companies and also on the real estate market. In addition, real estate companies are having to lower their portfolios as valuations have been inflated during the zero-interest phase.
The sector has therefore been on the decline for a long time. At the end of 2021, the Stoxx Europe 600 Real Estate was still at 200 points, having halved from the low of the previous year. A temporary recovery up to the beginning of February 2023 has recently been nullified. This year, the sector is one of the biggest losers in the industry, while the Dax 2023 is currently up nine percent.
In XETRA trading, the Vonovia share lost 3.47 percent to EUR 17.92.
/bek/teh
Original study published: 03/22/2023 / 05:00 / GMT
NEW YORK (dpa-AFX Broker)
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