Residential Sector: Trouble brewing or storm in a teacup?
Report by Green Street Advisors
The sector’s cash flow stability is highly regarded by investors. However, listed companies have stretched their balance sheets as interest rates have fallen. TAG Immobilien, a ~€6bn German landlord, is the first victim of changing macro paradigm. A €200m equity rights issue (~20% share count expansion) is >10% dilutive to spot NAV. Other companies on Green Street’s watch list include Vonovia and Nordic PropCos. Tough decisions lie ahead. Cost of capital signal warrants disposing assets, paying down debt and taking other cash preservation measures otherwise equity raises could be required.