Morgan Stanley Cuts European Property Stock Ratings

Morgan Stanley cut its share ratings for Unibail-Rodamco SA (UL), Gagfah SA (GFJ) and other property companies in mainland Europe on expectations they will perform worse than U.K. property companies.

Analysts including Martin Allen and Bart Gysens reduced their ratings on Unibail-Rodamco, Europe's largest real estate company, and Gagfah, Germany's largest publicly traded residential landlord, to ``equal-weight'' from ``overweight.'' Overall, they lowered their 12-month price estimate for continental European property stocks by an average of 23 percent.

``The risk for continental Europe is on the downside,'' the analysts said yesterday in an e-mailed report. ``We are only at the start of a correction of direct property markets in most of continental Europe. The likelihood for corporate activity is lower in continental Europe than it is in the U.K.''

British commercial-property values have slumped 19 percent in 12 months as lenders have made it harder and more expensive to finance transactions. The slowing economy has resulted in lower demand for offices, cutting rents on new leases.

The Morgan Stanley (MS) analysts cut their rating on Klepierre (LI), the European shopping-center owner controlled by BNP Paribas SA, Castellum AB (CAST), Sweden's second-largest real estate company and DIC Asset AG (DAZ) to ``underweight'' from ``equal-weight.'' Klepierre fell as much as 8 percent and was down 2.04 euros, or 6.5 percent, at 29.16 euros at 11 a.m. in Paris, the biggest decline in 16 months.

Land Securities Group Plc (LAND), the U.K.'s largest real estate investment trust, Brixton Plc, Britain's biggest owner of industrial buildings, and Eurocastle Ltd. (ECT), an investor in German offices, were raised to ``overweight'' from ``underweight.'' The analysts raised British Land Co. (BLND), Europe's largest property company by assets, and Liberty International Plc, the U.K.'s largest shopping-center owner, to ``equal-weight'' from ``underweight.''

European property stocks could also lag behind U.K. real estate shares as the euro weakens over the next three to six months, the analysts said.

To contact the reporter on this story: Peter Woodifield in Edinburgh at

To contact the editor responsible for this story: Rob Urban at

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