European public real estate in good shape, led by German resi, French/Spanish office

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European public real estate markets are in good shape as our website goes live. German housing stocks are near highs, as are most of the main Spanish REITs, while French SIICs are a mixed bag. Italians are however not doing well.

For German residential stocks, the re-election of Chancellor Angela Merkel last month was good news. Despite the Sturm und Drang of the aftermath, where the left-wing SPD threw themselves on the sword and immediately declined to enter a new Grand Coalition. But the answer to the the endless discussion whether the liberal FDP and the environmentalist Green Party will form a coalition with Merkel’s CDU/CSU Union is yes. With a 99.9% probability. Where are they or her going to go? Plus, the whiff of power is very, very intoxicating. Even former Chancellor Gerhard Schröder cannot resist taking the chair at Russia’s Gazprom. Hubris, and the whiff of power. His worst political mistake in 40 years. I am recommending retirement.

Therefore in the new coalition, FDP leader Christian Lindner takes over as Finance Minister, and Cem Özdemir, son of a Turkish Gastarbeiter, takes the foreign ministry; it may be advantageous to have a person with Turkish roots in that post right now. Just my estimates. But you heard it here first.

For German housing companies, Merkel was already eyeing the rental cap, which she said did not work and should be abolished, adding Germany needs more building land. Amen to that. All the studies agree that this is the main driver of urban price surges. And the absence of a real left-wing party in her next coalition means she should not find too much resistance. No one really knows what the Greens think on such matters – or will think when push does come to shove. Score one for stocks of German residentials. But also German builders, as well as developers such as Strabag, UBM and Porr in Austria.

And German commercial real estate companies should be in good shape too. Their stocks are doing generally well, even if not as uniformly close to the top of a 52wk span as in resi. Still, the Autumn Forecast of the five leading economic institutes last week painted a rosy picture of the economy – 1.9% real GDP growth for this year, and 2.0% for next, up from a spring estimate of 1.8%. Not quite at Chinese levels but Germany is a mature economy. We know that German exports are doing well; they always do. What is important is that consumption and investment are strengthening – which means jobs, which means office space needed.

Here, I was particularly impressed at the EPRA conference corporate pitches by both Hambornerand Dream Global. The first is a company that in 2010 became the fourth and so far latest German REIT, and which, from a Duisburg base now has a well distributed portfolio throughout the country. Dividend yield of 4.3%. Dream is a Toronto-based Germany-focused REIT. It will be looking for a listing in Frankfurt soon, and offers a still higher yield. And it pays dividends monthly? Revolutionary stuff for Germany! Yet others such as alstriaOffice are also well run; interesting to see that CEO Olivier Elamine is advising companies like Coima Res in Italy now.

In France, the general wave of US negative sentiment toward shopping mall REITs that crossed the Atlantic with ease means shares of sector giants Unibail-Rodamco and Klepierre are firmly stuck to the bottom of 52wk ranges. Even Unibail’s €750m share buyback has not budged the stock much. CEO Christophe Cuvillier, also EPRA president, has his work cut out to bring the giant back to its traditional premium to NAV. But the same is true for Klépierre, where Jean-Marc Jestin, who took over last year from media-shy Laurent Morel, also faces challenges. The move out of mall stocks is of course a consequence of the massive inroads of Amazon into retail turnover of bricks and mortar stores. Remains to be seen if this can truly be combatted.

French office stocks are doing well, with Foncière des Régions stuck at its 52wk high due to its well-located office portfolio concentrated on Paris. But the same can be said of Gecina, fresh off a takeover of Eurosic for a pretty high premium to NAV – and Icade, also suddenly acquisitive with the ANF Immobilier.

In a similar category, but smaller, only Cegereal’s stock is lagging, but it is locked into a major shareholder. Until or unless Northwood Investors, with 55%, decide to start expanding the portfolio, the hands of Cegereal’s able CEO Raphael Tréguier are tied. One could well see a scenario where NI and the other major investor GIC of Singapore start to look covetously at more Paris office, particularly once more jobs pour out of London if or when Brexit takes place.

In Spain, the one anomaly among a very well-performing REIT/SOCIMI sector is Neinor Homes. Agreed, one cannot perhaps expect a soaring stock so soon after the IPO, and it is well back from the 52wk high. Still, when an investor like Boston-based Wellingtontakes an 8.5% chunk alongside senior investor Lone Star with 12.5%, we know that the story told by Neinor CEO Juan Velayos is gaing transaction with some very important, long-term funds.

Elsewhere in the main Spanish stocks, Merlin, Hispania, AxiaRe are all doing well. But so is Colonialwhere the highly capable management team headed by Pere Vinolasnimbly brought the group into the REIT/SOCIMI sector last January, and has benefited from a still higher profile, coupled with more incoming investment as a result.

Can anyone tell me what Renta Corporacion is about? Website pretty opaque and communications people unhelpful – but the stock has quadrupled from around €0.7 over the last 12 months. I see that it is attracting some serious foreign capital too. Pity that the Renta cards are played close to the Spanish table.

Italy? The stock of Coima Res is still well below its IPO price a couple of years ago, suffering mainly from the intransparency of the Italian market. It’s not that CEO Manfredi Catella and his team are not working hard to keep investors fully appraised of some good management work. Business is going well; opportunities are widespread and promising. Coima’s monthly conference calls are excellent and to the point. Not too many companies even do this. Aedes SIIQ? Well, clearly a vehicle for Carlo Puri Negri and associates, but if it is on the public markets, other shareholders need to know more. Yet the group is working hard to meet its communications challenge. At the EPRA conference last month Aedes SIIQ walked off with a Gold Award for most respecting, “the guidelines and compliance of the Best Practice Recommendations.” Share price still far below NAV though. Communications still not working as they should.

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