Investors in European real estate companies have taken “too cautious” a view on the likelihood of financial distress for the sector, according to RBC Europe analyst Julian Livingston-Booth.
“European real estate share prices appear to be putting some probability on balance sheet restructuring being required in our view,” Livingston-Booth said in a note this week. “Overall, we believe this is too cautious, with 50% property revaluation headroom to debt covenants on average for our coverage.
“Factoring in the more-negative-than-consensus property revaluations we forecast, we estimate headroom still remains significant at 42% on average. For those landlords with more limited headroom, various other factors need consideration. The benefit to covenant headroom from forgoing dividends is generally not enough to make it likely in our view.”
