Morgan Stanley cools on German property, sees limited returns

LEG Immobilien SE

07/06/2024 08:26

** Morgan Stanley says German real estate is no longer a
"preferred sub-sector", with the ECB cut removing a potential
catalyst 
    ** Moreover, stocks of landlords LEG Immobilien  LEGn.DE 
and Vonovia SE  VNAn.DE  are up more than 60% over the past
year, it says, limiting upside
    ** Vonovia's shares slip around 3% while LEG is down 2.6%
after the broker cuts its rating
    ** The two are further highly levered, MS says, with net
debt of 15-16x EBITDA, meaning "there are several plausible
scenarios that could cause distress"
    ** The broker expects Vonovia and LEG to return around
6.0-6.5% in the long term and says that markets seem to want
returns of around 12% for landlords to trade at NAV parity
    ** "As such, we expect a sustained wide NAV discount", it
says
    ** MS prefers LEG to Vonovia since the former's smaller size
should make it easier to make disposals
   
 COMPANY      NEW RATING   OLD RATING   NEW PT      OLD PT
 LEG          Equal-weigh  Overweight   78          78
 Immobilien   t                                     
 Vonovia SE   Underweight  Equal-weigh  24          24
                           t                        
 
 (Reporting by Louis van Boxel-Woolf)
 ((Louis.vanBoxel-Woolf@thomsonreuters.com))