European office real estate companies caught in ‘real storm’ of headwinds, according to BofA and Analyst recommendations

Icade and Covivio posted the biggest declines this Wednesday session on the Paris Stock Exchange, followed by Gecina. All of them are related to real estate, a sector that has fallen out of favor in the eyes of analysts at Bank of America Merrill Lynch. For the Anglo-Saxon research bureau, the value of European real estate is in ” true storm opposite winds.

Of the 10 real estate companies the broker followed, eight had their recommendations downgraded and only two saw their opinion increase. We are talking about the impact of current costs, risks of stagflation and “ extreme polarization between high demand for green or flexible properties on the one hand and traditional offices on the other, with lending rates and rate spreads back to levels not seen in a decade.

Watch out for dividends…

BofA estimates that office prices should fall by 12%. Dividends paid by real estate companies, which are one of the sector’s attractions, must suffer from this combination of negative elements.

It is Icade that bears the brunt of this wave of advisory reviews, which were downgraded two notches to “ineffective” due to the office real estate company’s use of leverage, and for which the security analyst foresees possible funding difficulties. . In this segment, marketing time is also longer than before the health crisis. This is also affected by the development of remote work, which has now become part of our lives and the way we do business. Therefore, beware of an oversupply of goods, while the space in the warehouse can only be reduced at the end of each lease.

… And Refinancing Needs

British Land, Covivio, Colonial and Workspace have also been downgraded by Bank of America Merrill Lynch to ‘Low Effective’ based on a risk-reward ratio considered to be ” unattractive “. Land Securities and Gecina, with more than 80% presence in offices and retail stores, have been revised from ‘purchase’ to ‘neutral’ and their valuation level is considered to be ‘ within a reasonable “.

Only two real estate companies float in this black chart compiled by the research bureau: Merlin Properties, a Spanish company founded in 2014 by ex-Deutsche Bank managers but with almost 50% of its activity in the office sector, and PSP Swiss. Real estate, one of the biggest players in this sector in Switzerland. The first case is valued for the company’s low refinancing needs, the second for the recent sharp drop in stocks. Dewent London is still buying given low refinancing and leverage needs.

No doubt about the strategy in Covivio

Yesterday, Invest Securities also provided an update on Covivio following the death of Leonardo Del Vecchio, founder of Luxottica and head of Italy’s second-largest fortune ($25.1 billion according to Forbes). He is the largest shareholder in Covivio with a 27.2% equity stake through his Delfin family. For the research bureau, this death does not seem to call into question the strategy.

In a telephone conversation, Covivio also stressed that the Delfin family holding company is autonomously managed.reminiscent of Invest Securities. Leonardo Del Vecchio’s fortune will be divided between his wife Nicoletta Zampillo, who will inherit 25% of Delfin, and six children (12.5% ​​each). As far as we know, there is no financial pressure that would force the Del Vecchio family to sell their shares in the short term, which represent less than 6% of the family fortune. »