The highly accredited (BBB+ from S&P) commercial property giant Aroundtown (symbol: AT1) is Germany’s largest publicly listed real estate company traded on the Prime Standard of the Frankfurt Stock Exchange. Their business model involves the investment in income-generating, value-add properties around major German and Dutch cities, as well as many other prime locations around Europe.
The reaffirmation of Aroundtown’s BBB+ rating solidifies the company’s strong financial profile, continuing to keep it as the highest-rated German commercial real estate firm. Its large €25-billion portfolio is noted by the S&P rating citing the benefits of its diversification, all while staying focused on strong geographical diversity, asset classes, and staying steady in their focus of operating in metropolitan Germany primarily in the realm of hotels, office spaces, and residential rentals.
It should also be noted that Aroundtown’s top 10 tenants account for just 18% of their annual rents, pointing to strong tenant diversity, a well-diversified tenancy structure, and a long weighted average lease term (WALT) of nearly 9 years for commercial properties.
This strong diversification model has helped Aroundtown thrive and stay financially stable even during the negative effects of the COVID-19 pandemic. Except for hotels, the portfolio saw a 96% collection rate in the first three quarters of 2020. The hotel portfolio has been impacted by government-enforced lockdowns put in place to mitigate the spread of the coronavirus. This prompted Q2 to be marred by the temporary closures of most hotels. The travel restrictions and reopening limitations that followed also took a toll on the hotel portfolio.
S&P believes, however, that the company will be able to make up some modest, but positive growth, via the residential and office sectors, helping to mitigate the financial hit from the losses in their hotel assets. Using conservative reservations, S&P forecasts a like-for-like asset revaluation of about 1.5% to 2% in the next few years for the company.
The €2.5 billion in cash further underscores Aroundtown’s strong liquidity. This is more than capable of covering the liquidity for 2021 through 2025. In addition, 74% of the company’s portfolio is unencumbered, leaving a large base for additional potential liquidity.
Aroundtown’s December 2020 straight bonds issuance proves that it has superior access to a variety of capital sources. The €1 billion bond issuance with a 0% coupon is, to date, the largest-ever issued by AroundTown. The company was able to garner the support of many large investors, with ECB being the largest participant, joined by the lead investors such as Allianz, Union Investment, Amundi, Henderson, Blackrock, and many other. The lead bank managers were Citibank, Santander, Bank of America, Societe Generale, and Barclays. The orders book was exceeding the €2.5 billion mark which assisted in achieving the low rate while doubling the amount of issuance from €500 million to €1 billion.
Aroundtown is regularly sourcing capital through the issuance of equity, perpetual notes, mandatory convertible notes, mortgage loans, straight bonds, and credit facilities through working with several financial partners.
The company’s ownership includes 10% owned by Avisco, controlled by the billionaire property magnate investor Yakir Gabay (יקיר גבאי), as well as other international investment firms including Vanguard, Norges Bank, Blackrock (5%), Allianz, along with many other leading international investors.
In addition, just a week before Aroundtown’s recent bond offering, Grand City Properties (40% held by Aroundtown) issued €700 million of perpetual notes with a 1.5% coupon, with JP Morgan, Santander, GS, DB, and Nomura leading the issuance.