Scope Rating 2023: rated AA (AMR) – KanAm Grund Group remains among the top group of Asset Managers in Real Estate

• Scope once again attests KanAm Grund Group “a very high level of quality and expertise in real estate asset management “

• LEADING CITIES INVEST is rated a- (AIF) in the fund rating and takes 2nd and 4th place in the portfolio quality ranking 

• Scope: "Stronger technical focus complements focus on operational implementation of sustainability-related measures at individual property level - a sensible measure to drive portfolio development."

KanAm Grund Group was again rated AA (AMR) in the Scope Group's asset management rating. The independent rating company thus continues to attest the company very high quality and expertise in real estate asset management. This means that KanAm Grund Group remains among the top group in the asset manager real estate segment. LEADING CITIES INVEST was downgraded from a (AIF) to a- (AIF) in the current fund rating. According to Scope, it is thus "still at a good level" and at the same time achieved second place among open-ended real estate funds investing in office properties in the ranking of retail funds by quality of the real estate portfolio and fourth place in the comparison of all 20 open-ended real estate funds examined. The open-ended retail real estate fund launched in July 2013 also ranks among the top group of European funds in both a 3- and 5-year comparison.

The very good asset management rating is supported, among other things, by the "very high transaction and asset management expertise of the KanAm Grund Group in the office markets of Western European cities - particularly Paris and London - as well as in Germany and North America," according to Scope. The "above-average growth in assets under management from Euro 4.8 billion in 2019 to Euro 7.1 billion in 2022" and the "very high level of sector expertise and above-average seniority and stability of the management team" were also cited as reasons for the very good rating result.

KanAm Grund Group's increased ESG measures at company, fund and property level, as well as the strengthening of the ESG core team, were also mentioned positively in the rating report: "The newly established ESG Management Board makes all important decisions at company, fund and property level. As a result, sustainability is anchored as a fundamental component of KanAm Grund Group's core business," Scope writes. "The KanAm Grund Group's company-wide Sustainability Team has also been expanded to include the Sustainable Asset Strategy unit with a stronger technical focus, which places the focus on the operational implementation of sustainability-related measures at individual property level." In Scope's view, this is a "sensible measure to drive portfolio development forward."

Hans-Joachim Kleinert, Founding Partner of KanAm Grund Group, says: "We have used 2022 to expand our range of services with a new manage to green offering. This enables us as an asset manager to offer institutional investors the opportunity to implement tailored ESG solutions in the form of modern specialized institutional real estate funds or in existing real estate portfolios. We have been active in the field of sustainability for more than a decade with the management of our retail funds and belong to the circle of real estate asset managers who have built up special sustainability know-how in recent years. Thus, we have the necessary expertise to also further develop the properties of our investors, depending on the respective investment strategy, under sustainability aspects and taking into account the increasing EU regulation as well as the growing ESG demands of tenants, purchasers and portfolio holders."

LEADING CITIES INVEST remains in the top group of European funds in a 3- and 5-year comparison and occupies top positions in the portfolio quality ranking     
For 2023, Scope has downgraded the fund rating of LEADING CITIES INVEST from a (AIF) to a- (AIF), which corresponds to the average of the rated open-ended real estate funds, which are thus "still at a good level" according to Scope. The reassessment is justified by a slight increase in the risk parameters as well as a decline in performance. At the same time, LEADING CITIES INVEST achieved a top position in the Scope rating in the ranking of retail funds according to the quality of the real estate portfolio. Here, the fund ranks second among open-ended real estate funds that also invest in office properties. In a comparison of all 20 open-ended real estate funds examined, LEADING CITIES INVEST ranks 4th.

The result of the asset management rating is also supported by the positive performance of LEADING CITIES INVEST. The open-ended retail real estate fund launched in July 2013 ranks among the top group of European funds in both a 3- and 5-year comparison.

Heiko Hartwig, Managing Director at KanAm Grund Group, says: "Despite a slight decline in performance, LEADING CITIES INVEST is still ahead of fixed-term deposits in an after-tax comparison. Based on the targeted investment return of 3 percent by the end of the year - with partial tax exemption of 60 percent of the distribution - a fully taxable fixed deposit would have to achieve a return of 3.6 percent to keep up. This is not likely even in the current market environment in a comparable risk category."

The fund also scores particularly well due to the very good location quality of the properties in the portfolio and the low risk from tenancy agreements with sole tenants. Another positive aspect is that around 35 percent of the rental income is attributable to public tenants or state institutions and others to sectors currently classified by Scope as very low-risk. The average for the funds here is 11 percent. The age and size structure of the properties is clearly above average.

The fund's properties are predominantly young and very fungible. "LEADING CITIES INVEST has a significantly better age structure of the property portfolio compared to the sector," says Scope. This is particularly advantageous with regard to future ESG orientation," as older properties can entail increased expenses for refurbishment and conversion measures in the context of marketing and often also present challenges with regard to their ESG orientation," writes the rating company.

The fund portfolio is dominated by properties in the size category up to 50 million euros, which account for 53.3 percent of the fund's total market value. All properties fall into the size category of up to 100 million euros, which is currently considered particularly fungible. In the current market environment, this is a great advantage. Because "due to the reluctance of banks to provide financing and the increased interest rate level, equity buyers are currently predominantly active on the markets. Properties with a volume of more than 100 million euros are hardly fungible at present," explains Scope.

The occupancy rate remained stable compared to the previous year at 94.8 percent and is slightly above the industry average. The proportion of leases with remaining terms of at least ten years, however, is significantly above the industry average at 40.9 percent. In the medium term, this should lead to low expenses for the management-intensive re-letting or new leasing of vacant space in the portfolio.

"LEADING CITIES INVEST scores above average in the sustainability rating"    
The rating company also positively assessed the sharpening of the ESG strategy of LEADING CITIES INVEST.  Since 01.05.2022, the fund has been an Article 8 fund according to SFDR and since 01.08.2022 an Article 8 plus fund according to MIFID II. Among other things, the certification rate of the properties contained in the fund was increased. In addition, the CO2 emissions of the properties included in the fund are less than half the industry average. Scope adds: "The annual amount of CO2 emissions per square meter will be the most important key figure influencing portfolio management decisions over the next few years and will have a monetary impact on real estate as a taxation parameter, among other things." The rating company therefore rated the area of sustainability as "above average".

In addition to location, "ESG criteria will again or even more strongly become the focus of investors, asset managers and above all tenants in the future. ESG verification in the portfolio in particular will be a major challenge for management in the future in order to master the balancing act between high occupancy rates with adequate rents and rising costs for modernization, CO2 pricing and tenant incentives," Scope predicts for the future.

About Scope Group     
With more than 200 employees, the Scope Group is the largest European provider of ratings, research and analysis. For more than 20 years the analysts at Scope have been awarding ratings to investment funds – currently more than 6,000 in Germany. The Scope rating of open-ended real estate funds reflects the return and risk aspects of an investment fund. This involves an evaluation of all relevant risk drivers and a detailed analysis of real estate portfolios. The rating scale ranges from C (AMR) (does not meet institutional standards) to AAA (AMR). The rating enables systematic comparison of thematically similar investment funds.