Listed German residential property companies will maintain their strong credit positions over the next 12-18 months on the back of steady rental growth, low interest rates and conservative financial srategies aimed at reducing leverage, according to credit rating agency Moody's Investors Service.

Listed German residential property companies will maintain their strong credit positions over the next 12-18 months on the back of steady rental growth, low interest rates and conservative financial srategies aimed at reducing leverage, according to credit rating agency Moody's Investors Service.

Deutsche Wohnen will benefit the most from rising rents, Moody’s said, reflecting its large exposure to metropolitan areas in Berlin, Frankfurt and Munich where positive demographic changes and limited construction of new homes are driving the highest rental growth.

Both Deutsche Wohnen (144,000 residential units) and value-add specialist Grand City Properties (55,000 units) will continue with their consolidation strategies because of the large cost savings that go with increased scale, Moody’s said in a report published this week entitled ‘REITS and Commercial Property - Germany: Residential Property Fundamentals To Remain Strong, Supporting Credit Quality’.

‘Rising rents coupled with conservative financial policies will underpin and strengthen German residential property companies' credit metrics through 2016,’ said Roberto Pozzi, senior credit officer at Moody's and author of the report.

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.

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 stance on debt, German residential companies are now targeting leverage below 50% (versus 50-55% traditionally), supported by solid asset values, the report said.

Lower leverage targets will ensure access to cheaper unsecured funding, which is ‘very important’, Moody’s said, especially for larger players such as Deutsche Wohnen and Deutsche Annington, given their external growth strategies.