AroundTown - playing catch up - Positioning

All,

I've included for you our updated analysis on AroundTown here.

AroundTown continues to make progress and post their liability management exercises, investor focus will switch to equity-enhancing strategies. We continue to analyse AroundTown on a standalone basis but acknowledge that dividends are likely to recommence from Grand City Properties, in which they hold a 61% shareholding. Grand City Properties has shown an appetite for unsecured debt at sustainable levels.

Investment Rationale:

- We are increasing our long position to 4% in the 5% perpetual bonds, 1st call July 2029 at 86%. We initiated our position in June at 58%, expecting further tightening in the unsecured as investors became more confident in AroundTown’s liquidity needs.

- Our concerns regarding the Office segment resulted in the position being undersized. AroundTown acknowledges the underperformance in the German office market due to slower economic activity.

- However, with dividends likely to recommence from Grand City Properties, coupled with the strong Hotels segment, we feel comfortable in taking a larger position.

- We expect further tightening in AroundTown’s perpetual position, with running yields potentially getting inside 5%. Yield to first call is currently 9% and although we don’t like using this measure, we envisage further 4-5pts of tightening, to yield to first call of c. 7.5%

- The downside is primarily macro-driven, and the perpetual bonds could easily trade down 10pts+ following any adverse movement in the rates market. This is slightly mitigated by a recommencement of dividends from Grand City Properties.

- The overall size of the position should be seen in context with our changed position in Grand City Properties. We have exited our long in GCP's perpetual bonds and taken a 2% long equity position.