European property stocks have become caught up in a trading range so far this year with investors routinely taking profits once the GPR 250 Europe Index reaches 630 points and entering the market again when share prices fall by 10 to 15%.
Indeed the trend, which is reflected in the long-term chart of the GPR Index, goes back to March last year. Since then, the key index has turned south six times after peaking at around 630 points.
The same happened again during September, with the index shedding 3.58% after it had reached a high of 629 points at the end of the previous month.
‘After European property stocks soared 40% at the beginning of 2015, investors have become cautious of valuations, preferring to take profits once share prices appear to become overheated,’ says Helmut
Kurz, real estate fund manager at private bank Ellwanger & Geiger in Stuttgart.
Other stock market watchers agree with this analysis. ‘With dividend yields compressed by the strong valuations of property equities, investors have established this trading range in order to enhance profits by moving in and out at the lower and upper turnaround points,’ says Dieter Thomaschowski, managing director of Thomaschowski Research & Advisory in Erkrath, Germany.
Change in preferences
However, not every dip in a property stock during the month of September can be attributed to the actions of trend-following investors. ‘We are also seeing a change in preferences in some stocks,’ says Georg Kanders, analyst at Bankhaus Lampe in Düsseldorf.
A prime example is Grand City Properties (GCP). Shares of the Luxembourg-based company, which focuses on investing in value-add residential properties in Germany, fell by 10.13% in September, marking the sharpest fall of any listed property company in Europe during the month under review.
‘There was no fundamental reason for the stock to cave in,’ says Kanders. The company lifted rental and operating income in the first six months of this year by 46% to €209 mln. During the period, it also successfully placed €200 mln of subordinated notes with a coupon of 2.75% in order to finance further investments.
‘But opportunistic investors are seeing even more growth potential at GCP’s parent company Aroundtown and made the switch into those shares last month,’ says Kanders.
Specialist in distressed assets
Aroundtown holds a 33% stake in GCP and is specialised in investing in distressed commercial properties in Germany. In the first half of this year, the company boosted rental and operating income by 138% to €110 mln. It also has €727 mln in cash, thanks partly to a bond issuance in July.
‘Aroundtown has significantly more firepower for further acquisitions than GCP, making this stock very attractive to investors focused on value-add properties,’ says Kanders.
