Lufthansa flies out of the Dax, Deutsche Wohnen rises

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Four times a year, Deutsche Börse checks which 30 companies should belong to the Dax, the most important share index in the republic. On Thursday evening it was time again – and it hit Lufthansa in the middle of the corona crisis: Germany’s largest airline flies from the Dax in just over two weeks, the stock exchange decided. Lufthansa has lost too much value in the past few months when the corona pandemic means that hardly any passengers have flown.

Instead, Deutsche Wohnen now rises to the index. The second largest landlord in Germany owns more than 160,000 apartments, most of them in Berlin. As much as politics tries to slow the rise in rents in local cities, tenants’ protectors criticize the business model of housing groups: So far, Deutsche Wohnen’s rise on the stock exchange has hardly been able to stop this. A share of the Berlin company is worth almost 42 euros today – twice as much as five years ago.

The change is remarkable, as Deutsche Wohnen is now the second real estate company to move up to the leading index. Germany’s largest landlord Vonovia has also been listed in the Dax since 2015. Both companies benefit from the fact that many young people have moved to local cities, after the jobs and study places. Since then, hardly any apartments from Deutsche Wohnen and Vonovia have been vacant. In addition, the major landlords have regularly increased rents where there is demand and local regulations.

Real estate companies also benefit from historically low interest rates. You can borrow money cheaply – and at the same time, many investors want to invest in city apartments. This drives prices: All Deutsche Wohnen properties together are now worth around 25 billion euros. This is offset by a good nine billion euros in debt. This explains roughly the stock market value.

Tenant protectors are critical of the rise of the group. The German tenants’ association fears that Deutsche Wohnen will become even more of a focus of international investors in the future. “The pressure to increase rents will therefore increase,” said a spokeswoman. “It is therefore no reason for joy for tenants.” However, Deutsche Wohnen already has well-known shareholders from abroad. For example, the world’s largest asset manager, Blackrock, and the Norwegian state pension fund hold a good 17 percent of the shares.

The Berlin tenant association also criticizes that Deutsche Wohnen demands high rents if the company rents out vacant apartments. “Minimizing services, increasing income, that may be successful on the stock exchange,” said managing director Reiner Wild, “but this motto is deficient for the users of the apartments.”

The company sees it very differently. Chief executive Michael Zahn counters that Deutsche Wohnen offers properties of medium quality that are affordable. On average, tenants of the group recently paid a rent of EUR 7.01 per square meter. Expenditures for personnel and maintenance have also increased in recent years.

The extent to which Deutsche Wohnen became the enemy of critical tenant representatives was demonstrated last year in Berlin when a protest alliance was formed. It calls for a referendum to socialize large housing companies. His name: “Expropriate Deutsche Wohnen & Co”.

The Berlin Senate reacted to the criticism of rising housing costs in February – and frozen a large part of the apartment rents in the capital. Rent increases should only be allowed again next year – and then only to a limited extent. CDU and FDP want to bring the law to court. According to Deutsche Wohnen boss Zahn, the rental cover is unconstitutional. His luck: In addition to the apartment buildings in Berlin, his company also rents tens of thousands of apartments in the Rhine-Main area, Dresden or Leipzig. There are also nursing homes with a good 12,000 spaces and small commercial properties.

Critics are also annoyed about the rise of the group because, in their opinion, it is the result of a failed housing policy: Without the many privatizations around the turn of the millennium, Deutsche Wohnen would probably never have grown to its current size. Because the company, founded in 1998 as a residential property subsidiary of Deutsche Bank, has taken over two former urban housing companies in Berlin: 2007 Gehag, once founded as a “non-profit homestead, savings and construction company”. As well as in 2013 GSW Immobilien, once also an “urban housing association”, which privatized Berlin in 2004.

While Dax relegated Lufthansa suffered so much from the corona pandemic that the state joined the airline with billions of euros in aid, housing groups have so far come through the crisis relatively well. According to their own statements, Deutsche Wohnen is now foregoing dismissal if tenants are in financial need as a result of the pandemic. The company has also set up a relief fund for tenants and is currently not increasing rents. Nevertheless, shareholders should receive a dividend of 90 cents per share this year. Deutsche Wohnen has gained a further 14 percent in value on the stock exchange since the beginning of the year.

Deutsche Börse regularly decides which companies belong to the Dax based on two criteria: For how much money have investors bought shares in individual groups in the past few months? And how much have all of the company’s freely tradable share certificates been worth in the past few weeks? Lufthansa is by no means the first well-known company that is no longer far enough ahead in these criteria: the traditional group Thyssenkrupp had to leave the index last autumn. A year earlier, Commerzbank had made room for the much younger payment processor Wirecard.

The changes are significant in that many investors make targeted investments in companies that belong to certain stock indices. For example, index funds and so-called ETFs that closely replicate the Dax will soon have to sell Lufthansa shares and invest in Deutsche Wohnen. They now have a good two weeks to do so: on June 22, Lufthansa is scheduled to take off from the Dax course board in Frankfurt.

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