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Morgan Stanley cools on German property, sees limited returns

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** Morgan Stanley says German real estate is no longer a "preferred sub-sector", with the ECB cut removing a potential catalyst

** Moreover, stocks of landlords LEG Immobilien LEGn.DE and Vonovia SE VNAn.DE are up more than 60% over the past year, it says, limiting upside

** Vonovia's shares slip around 3% while LEG is down 2.6% after the broker cuts its rating

** The two are further highly levered, MS says, with net debt of 15-16x EBITDA, meaning "there are several plausible scenarios that could cause distress"

** The broker expects Vonovia and LEG to return around 6.0-6.5% in the long term and says that markets seem to want returns of around 12% for landlords to trade at NAV parity

** "As such, we expect a sustained wide NAV discount", it says

** MS prefers LEG to Vonovia since the former's smaller size should make it easier to make disposals






LEG Immobilien





Vonovia SE





Reporting by Louis van Boxel-Woolf


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