Capital Market Outlook
As Vonovia does not have any operating business in the UK, Brexit is not expected to have any direct negative consequences for the company. As a result, the potential negative implications of Brexit for Vonovia are unlikely to be material. An escalation in the potential trade wars could put a damper on the macroeconomic climate and the global growth outlook, possibly leading to negative repercussions on the capital markets.
The reputation of German real estate stocks as a safe haven could be enhanced as a result of Brexit if investors opt to pull capital out of real estate stocks in the UK and seek alternative investment opportunities. This sort of increased demand could actually have a positive impact on the performance of Vonovia’s shares.
We concur with a large number of analysts and market participants and expect receptive borrowing markets and attractive financing conditions to continue over the medium term due to an economic outlook that remains attractive, albeit slightly less than in the previous year, and based on the levels of liquidity that are still available. Given the global nature of the borrowing markets, we do not currently expect that the ongoing Brexit negotiations have any long-term impact in this regard either.
With a level of debt that is consistently in the Pfandbrief-eligible range and their investment grade rating, Vonovia’s debt instruments will remain a sought-after investment – even if investment pressure is low or liquidity levels drop. We do not expect to see any direct correlation between interest rate developments and earnings given the long maturities of our financing instruments and the steady maturity profile. Rather, it is evident that the supply/demand situation regarding residential real estate market and, as a result, rental development has much more of an impact on earnings. This is enhanced by the results of the Value-add segment, which is unrelated to interest rates.
As far as interest rates are concerned, we do not expect to see any significant changes within the next 12 months, nor do we predict any marked increase in risk premiums, compared with the level witnessed at the end of 2018, following the reduction of the European Central Bank’s asset purchase program.