German residential companies’ credit quality to remain robust, says Moody’s
German residential property companies’ credit quality will remain strong over the next 12-18 months on the back of steady rental growth, low interest rates and conservative financial policies aimed at reducing leverage, Moody’s Investors Service said.
“Rising rents coupled with conservative financial policies will underpin and strengthen German residential property companies’ credit metrics
through 2016,” said Roberto Pozzi, author of the report.
Deutsche Wohnen A.G. (A3 stable) will benefit the most from rising rents, reflecting its large exposure to metropolitan areas where positive demographic changes and limited construction of new dwellings are driving the highest rental growth, such as Berlin, Frankfurt and Munich.
Deutsche Wohnen and Grand City Properties S.A. (Baa2 stable) will continue with their consolidation strategy because of the large cost savings that go with increased scale.
With only 7-8% of total housing units owned by professional private property companies, the German residential market remains highly fragmented and offers abundant opportunity for portfolio growth via acquisitions. Conversely, LEG Immobilien AG (Baa1 stable) will remain more focused on organic growth.
Deutsche Wohnen’s commitment to keeping leverage at 40-45% will support its credit quality, whilst Grand City Properties has publicly stated that it intends to maintain its loan-to-value at 50%.
Reflecting their more conservative financial policies, German residential companies are now targeting leverage below 50% (versus traditional 50%55%), supported by solid asset values.