IAM Capital Markets View
With the failure of Credit Suisse and concerns over the US regional banking sector, corporates with “hard” property assets that offer defensive characteristics are going to be in demand. The Aroundtown name is not well known locally but is one of Europe’s leading property Real Estate Investment Trusts (REIT). We see outperformance in Aroundtown’s senior unsecured bonds (we expect the bonds to tighten by at least 100bps versus the BBB curve), especially as the bond price migrates to par with only two years to run until maturity.
IAM Credit Opinion
Aroundtown has pivoted its business strategy and is now a net seller of assets which support the balance sheet. Upcoming senior unsecured maturities are low over the next three years and the company can raise secured debt (83% of unencumbered assets) if required.
Risks to the credit include inflation and European recession which would feed into occupancy and valuations.
We are positive on Aroundtown’s senior unsecured bonds and believe they offer good risk/return. However, we would urge investors to exercise caution on the Aroundtown hybrids (given the higher yield environment which does not provide a favourable environment to call).
Key Statistics
Source: IAM Bloomberg
*- includes 50% hybrid **- includes equity accounted investments and using full 12M of EBITDA to calculate ratio
Business
Aroundtown is a diversified REIT with exposure primarily to the German and Dutch office markets. The company has equity stakes in 49% of German residential REIT Grand City Properties (GCP) and 30% of Globalworth. Aroundtown is listed with Avisco Group the largest shareholder with 10%. Of their shareholder base, 65% is freefloat of which Blackrock owns 5.5%.
Aroundtown’s properties are valued at EUR29.1bn. With GCP being 100% consolidated under relevant accounting standards, the property assets consist of Office (41%), Residential (28%), Hotel (17%), Retail (6%), Development (7%) with the residual Logistics/Other (1%). Around 85% of assets are in Germany and the Netherlands, with 7% in London. Importantly, 65% of assets are in top tier German and Dutch cities as well as London.
The company has grown through acquisition while looking to sell non-core and mature properties to manage their balance sheet.
Source: IAM Bloomberg
Relative Value
The Aroundtown 4.5 05/14/2025 price around 200bps cheap to the BBB curve and are one of the widest BBB bonds available.
These bonds are senior unsecured therefore do not have the same level of call risk as the Aroundtown hybrids. The Aroundtown 4.5 senior unsecured bonds have underperformed the Ausbond composite index as they’re seen as higher-beta securities in the current environment.
Source: IAM Bloomberg
