LEADING CITIES INVEST has passed the coronavirus test

• Best commercial real estate portfolio: A+ rating (AIF) affirmed

• Top AA- (AMR) asset management rating for KanAm Grund Group

The LEADING CITIES INVEST has passed the coronavirus test in the latest market research by independent rating agency SCOPE. The KanAm Grund Group public fund is one of only 3 out of 15 real estate funds studied, that had their positive ratings from the previous year affirmed by SCOPE. The LEADING CITIES INVEST (LCI) continues to be rated at A+ (AIF). SCOPE based this decision on the low share of the retail and hotel segments in the fund’s real estate portfolio and the 2019 portfolio expansion. Hence, the LEADING CITIES INVEST provides the best real estate portfolio amongst the commercial real estate funds. Currently, less than 8 percent of the LEADING CITIES INVEST’s annual rental income comes from retail and none from hotel properties, which do not feature in the fund. According to SCOPE, these sectors, alongside the catering industry, suffered the hardest economic impact due to the coronavirus pandemic. SCOPE also valued the LEADING CITIES INVEST’s liquidity management and efforts in terms of sustainability, and affirmed the KanAm Grund Group’s AA- (AMR) asset management rating.  

Within the liquidity analysis, SCOPE investigates how the current crisis differs from the 2008/2009 economic crisis. Since the beginning of the coronavirus crisis, open-end real estate funds have barely registered any outflow of funds, to the contrary, according to SCOPE, the influx of funds has been stabilizing since May 2020. The new funds, launched after the introduction of the German capital investment code KAGB, such as the LEADING CITIES INVEST, are at a particular advantage in terms of liquidity management, because they do not have any “old investors”, who held investments before KAGB came into force in mid 2013 and would therefore be entitled to return shares in the fund without having to observe minimum investment and notice periods. The LEADING CITIES INVEST’s liquidity rate as per 31 May 2020 is 15 percent. During the first few months of 2020, the LCI saw an influx of funds worth more than 120 million euros and was thus able to increase the fund volume by 19.5 percent compared to the end of 2019.

Sinking, yet attractive average rate of return of open-end real estate funds 

This year, SCOPE expects the average rate of return for funds in the open-end real estate funds industry as a whole to lie between 1.5 percent and 2.0 percent. Even though this means a reduction in the average rate of return according to SCOPE’s predictions, it remains attractive compared to other asset classes. According to SCOPE, the reason behind the sinking returns in open-end real estate funds lies in the fact that many tenants may seek renegotiations due to the impact of the coronavirus crisis. The LEADING CITIES INVEST has received barely any requests to defer or renegotiate rents since the beginning of the crisis. Currently, the share in applications for rent deferral makes up around 1.6 percent of the annual rental income, but some of these applications have already been withdrawn and the rent has been paid. None of the LEADING CITIES INVEST tenants have so far had to file for insolvency. With an occupancy rate of 97,3 percent, the LEADING CITIES INVEST’s real estate portfolio can be considered at full occupancy and only 6.4 percent of the LEADING CITIES INVEST’s tenancy agreements are due to run out by the end of 2021. The one-year-performance of the LEADING CITIES INVEST on 31 May 2020 was 2.8 percent.

Sustainability is now a must for investors

A further focus of the SCOPE market research was on sustainability. Due to increasing regulations, this topic is gaining ever more importance in the industry. On 31 May 2020, the LEADING CITIES INVEST owned two large certified properties, making up a 19.7 percent share of the current market value. Eight further properties with a market value of 251.7 million euros or 34.7 percent of the total market value are currently undergoing certification.

KanAm Grund Group has been working on its sustainability positioning since 2018 and has developed the LEADING CITIES INVEST GOES GREEN sustainability strategy. It includes a reduction in the carbon footprint of all properties, by moving the energy provision for communal areas to carbon neutral energy sources and encouraging tenants to follow suit. Since transforming its energy supply to ensure sustainability in 2019, the LEADING CITIES INVEST has been able to reduce carbon emissions by 1,821 tonnes. KanAm Grund Group also has shown their commitment to Corporate Citizenship by supporting the two projects “Art in Public” and “Kids in Cities".