Dear share buy-back
The accrued impact of Berlin’s rent-freeze should be €330m between 2020 and 2025, of which €190m in unrealised revenue growth, vs. the current €15bn NAV. If this impact is provisional (five years only?), the dimension of this potential one-off now looks clearer. And… pretty limited.
13 Nov 19
Answering the citizens
Market rents and prices per sqm are still increasing in Berlin. Both support our positive stance. DW is progressively answering Berlin’s citizens request by softening the rate of rent increases according to the tenants’ income. The net rent-roll is, nevertheless, very positive (new rents vs. former ones) and will support further revaluations by the end of H1 19.
14 May 19
Healthy Berlin housing market
Another good year for the German residential market. After Covivio and Vonovia, Deutsche Wohnen confirmed the nice appreciation of Berlin housing prices with an est. +11% revaluation, accelerating in H2 vs. H1. DW is the most exposed to the Berlin market (80% of assets), the most liquid in Germany.
26 Mar 19
The slowly but surely growing Berliner
Business Deutsche Wohnen (DW), with GAV €16bn, is the second largest German residential operator, just behind Vonovia (GAV €27bn). The group’s portfolio covers 9,487m², or 45% of Vonovia’s 21,228 m² portfolio. DW has an important exposure to the Berlin market, which represents 76% of its Residential segment, and accounts for roughly €15bn GAV. The group’s Residential segment offers comparatively smaller units relative to its peer Vonovia, but the better quality of assets allows for higher rents at DW. An average apartment at DW offers 60m² for an average price of €6.10/m²/month, vs 62m² at Vonovia for €6.02/m². The vacancy rate also stands at a lower 1.8% at DW vs 2.2% at Vonovia. The group also has a second increasing exposure to the Nursing segment, as much because nursing offers investment opportunities (in a time when Resi assets are hard to find), as because DW has accumulated over the years segment-specific knowledge that will allow the group to hit the ground running. The group recently acquired 6,700 units in the segment and expects to increase the contribution of the segment to as much as 15% of total EBITDA, in the medium term, from the current less than 5% EBITDA contribution. Recommendation We initiate the stock with an Add recommendation, marginally favouring the Berlin assets over the more diversified Vonovia portfolio. Our recommendation is fuelled by expectations that: 1/ demand will be supported for longer by the widening gap between construction permits and household needs — thus creating upward pressure on prices, 2/ rental growth will also be stimulated internally through redevelopments and modernisation — thus improving IRR, and 3/ the Nursing segment will drive growth through acquisitions, more so than in the Resi segment that is under consolidation. Our recommendation is, however, capped by the stock that already trades at a c.20% premium to its last published NAV. Market dynamics, triggers, and threats Political uncertainties in the world — with the elections in France, the Netherlands, and Trump — and from Germany present a major headwind for the sector. Although the current regulations that set caps on rents in major cities have had little impact on the market, the current measures proposed by different parties for the coming German elections all tend to favour clients. The prospect of increasing interest rates also presents a threat for the sector both in terms of property valued and operations. That said, the group is rather well funded, and the LTV is well controlled under 40% (better than the level published by Vonovia), so that prospects of an interest rate hike would almost seem palatable.
06 Jun 17