European real estate's 'glory days are numbered,' BofA says

PSP Swiss Property AG

29/06/2022 15:44

** With negative carry, stagflation and work from home
disruption, BofA Global Research adopts a bearish view on
European real estate market
    ** The sector's "glory days are numbered", it says, pointing
to U.S. inflation, EU stagflation, and Chinese devaluation
signalling the end of property yield compression and the
ultra-low yield bond
    ** It also touts the end of a "free money era", as the
borrowing cost outpaces the return on investment rate, and
stagflation affects office prices  
    ** BofA cuts France's Icade  ICAD.PA  by two notches, from
"buy" to "underperform," citing its largest refinancing needs in
the next five years at the highest marginal cost of debt, and
delayed equity injection in its healthcare division 
    ** It also downgrades British Land  BLND.L , Workspace
 WKP.L , Covivio  CVO.PA , and Colonial  COL.MC  to
"underperform" from "neutral" citing unattracive risk; cuts
Great Portland  GPEG.L , Land Securities  LAND.L , and Gecina
 GFCP.PA  to "neutral" from "buy" on fairly priced-in returns
    ** Citing lower refinancing needs and a dividend yield of
11%, BofA ups Spain's Merlin Properties  MRL.MC  to "buy" from
"neutral"; while similarly upgrading PSP Swiss Property  PSPN.S 
pointing to recent share weakness, resilient Zurich office
market, and low LTV
    ** It keeps "buy" rating on British Derwent London  DLN.L 
seeing it as "best place to seek shelter"  

 (Reporting by Marta Serafinko)
 ((Marta.Serafinko@thomsonreuters.com; +48 58 769 66 00;))