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3、page 21.German residential real estateA simple story that isnt working.Why?In German resi,we see a compelling top-down narrative withbuilt-in multi-year rental growth.But shares continue tounderperform and investor engagement has reduced.Why?We think low cash flow is the issue as companies complicat

4、ethe situation with non-standard KPIs.An apparently appealing top-down thesis that isnt working:In theory,German residentialshould be a simple,appealing investment:1)regulation has meant in-place rents are well belowmarket levels,and there are many years of rental growth to look forward to(as regula

5、tions limitannual rent increases)which should provide some confidence in the stability of the top-line;and 2)there is a broadly positive supply:demand dynamic(albeit not in all sub-markets)thatshould support further market rental growth.These factors havent been producing theexpected outcome as shar

6、es continue to underperform.We believe this underperformancestems from an underlying low free cash flow(AFFO)that is difficult to solve.Reported grossyields are too low,and,as we have previously highlighted,the high cost of operation severelyimpacts cash flows(see Why German residential should have