AroundTown €2.1 Billion Disposals Validate Portfolio Value
Throughout 2020, Aroundtown’s €2.1 billion disposals have validated the strength and resilience of the real estate giants core equity base and portfolio value. The company strengthened its strategic formula to success throughout the Covid pandemic.
Aroundtown S.A. (symbol: AT1), is traded on the Prime Standard of the Frankfurt Stock Exchange. The German-based commercial real estate company invests in income-producing properties possessing value-added potential in central locations across top-tier European cities mainly in Germany/NL. The main shareholders of Aroundtown are Avisco which is controlled by Mr. Yakir Gabay ( יקיר גבאי ) 10%, Blackrock 5%, Norges Bank, Fidelity, Allianz, Vanguard, and many other influential international investors. During the summer of 2020, Yakir Gabay raised his position in Aroundtown to more than 10% of company shares. The company is rated BBB+ by S&P, which is the highest rating for a German commercial real estate company.
The nine-month financial results of Aroundtown published last month on the 25th of November showed the operational results conforming to the guidelines, with revised collection rates and, non-hotel collection rate almost at pre-pandemic levels. The percentage of rent like for like stood at 1.7% in the past twelve months. Portfolio values reportedly validate the portfolio stability and strength where it shows an increase on a like for like basis. It increases by 3.6% coupled with disposals worth €2.1 billion disposed above book value at 3%.
Aroundtown’s Successful Formula:
- Nine-month results conforming to guidelines: The increase in the company’s top line by 37% is attributed to its consolidation with TLG earlier this year. The larger share counts resulted in the growth of FFOI (Funds from Operation Investment) along with the increase in FFO per share by 18% and 3% respectively. Adjusted for perpetual notes and Covid-19, FFO I per share shows a decrease in the initial nine months of 2020. This decline by 24% to €0.22 per share is attributed to extraordinary provisions worth €70 million for the hotel tenants.
- Improved collection rate as a strong representation of portfolio quality: The collection rate exclusive of hotel portfolio rounded to 96% throughout the first nine months of 2020. Moreover, the collection rate is in proximity to the pre-pandemic levels along with the indication of strengthened diversification in asset classes, locations, tenants, and tenant industries. On the other hand, the collection rate inclusive of the hotel portfolio rounded to 85% in the nine months of 2020.
- Support of above book value large disposals to portfolio valuations, providing firepower for share buyback: The disposals, mainly non-core and mature properties of worth ca. €2.1 billion were signed by the company this year, out of which the company closed over €770 million of disposals within the reporting period. Further, the company is reported to have disposals under advanced negotiations of additional half a billion euros.
- Mainly the disposed of properties are retail and wholesale situated in non-core cities across Germany. This results in a well-built portfolio focusing on premium quality assets located in top-tier cities thereby improving the overall portfolio quality. The validation of property valuations is observed due to the disposition of properties at an above book value of +3% with an average multiple of 18x. The company’s strong liquidity position is further strengthening due to the disposals. The conservative financial profile is also supported through these proceeds through debt further repayments. Moreover, the proceeds provide fuel for the highly accretive share buyback through reinvestment of funds into the company’s own share at a price well below Epra NAV and current valuations.
- Highly accretive share buy-back program: Share buybacks are noted to make the companies capable of taking advantage of the high arbitrage between above book value disposals to the current highly discounted share price. Until now, 13% of the Aroundtown shares are reported to have been bought back by the company at an average rate of approx. €4.9 per share, a sharp discount of €9.3 per share of September 2020 EPRA Net Asset Value (NAV).
Aroundtown share price have increased by 50% during the last month. The analysts emphasize this recovery is partially due to the announced vaccinations which will benefit the hotel portfolio significantly. The readiness by Aroundtown shows signs of speedy recovery supported by factors like strengthened portfolio, high liquidity, and strong market presence and attractive current share price with 35% discount to NAV.