European Property - Downgrades

By ROBERT HARLEY 10/12/2008

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The outlook for commercial property in Europe has deteriorated markedly over the past few weeks, on the back of a poorer fundamental outlook and a significant increase in the cost of credit terms demanded by banks. If these conditions are born out the probability of covenant breaches and the total suspension of dividends on more highly geared plays is now that much greater. The market has moved quickly to price in this negative scenario and more - a number of listed European property companies now trade at a fraction of their quoted net asset values. Given what is already in the price we believe remaining investors might wish to consider holding, as a warrant on any potential rebound in the asset class, otherwise the sector remains illiquid. We have reduced our rating to hold for the following companies: Kenmore European Industrials, Matrix European Real Estate, Invista European Real Estate.

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Source: Financial Express