AroundTown - With help from a friend - Positioning

All,

Please find our updated model here.

AroundTown continues to make progress with its efforts to make the Company boring again. The results are non-events, with the Company making steady, slow progress operationally. But with unsecured still trading wide of 7%, AroundTown continues to increase its secured funding levels, as the unsecured rates are uneconomical at these levels. AroundTown have the headroom available to access the secured market but it is not viable over the medium term. In the meantime, however, AroundTown have sufficient liquidity, and with dividends likely to commence from Grand City Properties, an investment opportunity has opened up.

Investment Considerations:

- We are taking a 2% long position in the 5% perpetual bonds, 1st call July 2029 at 58%. We expect a continuation of recent trends of tightening spreads in the unsecured which will pull the perpetual bonds along. We have opted for the lowest priced recently issued perpetual, which at 58% gives an 8.5% running yield.

- But it should be noted, the position size is relatively small versus our normal position size, which reflects the risk associated with this position. LTV through the perpetuals is 73%, assigning zero value to AroundTown’s Grand City Properties stake. It increases to 80% if we assume the current equity value is the correct valuation of AroundTown’s assets.

- Downside in this position could easily be 10+ pts, especially if there is more than just a pause in the rates environment. Any adverse rates movement will have a disproportionate impact on the trading levels of property companies, with AroundTown exposed more to the less favoured segments, including Offices and Hotels.

- However, we expect dividends to commence flowing up from Grand City Properties, c. €100m p.a. which has a material impact on cashflow at AroundTown.

- This is a bullish view, and the logical extension of this view is to take a position in the equity instead of the perpetuals. However, with the perpetuals trading sub 60%, we expect both will share similar upside in the medium term.

Perpetual Notes Exchange:

- Like its listed subsidiary Grand City Properties, AroundTown also entered into a voluntary exchange offer, issuing 4 new perpetual notes totalling €2.1bn. The acceptance level was also relatively high, at c.80%, with only half choosing to tender.

- The new perpetuals are all S&P compliant, with the equity content regained. There is a small coupon cost but the main purpose of the exchange was to regain the 50% equity content. The first call date on the new perpetuals is July 2029, although there is a €600m original, non-tendered perpetual callable in July 2026.

Vendor Loan Notes:

- AroundTown uses Vendor Loan Notes to assist in the sale of assets, The Loans generally have a maturity of 1-3yrs and are paid off in instalments. The loans are secured, against the assets sold, and usually at a LTV less than 70%.

- AroundTown have €650m of outstanding Vendor Loan Notes. Excluding this amount, AroundTown have sufficient liquidity (cash) to meet upcoming maturities until H1 2025. This is different to what the Company states, as the Company also includes expected disposal proceeds from assets sold but not yet completed. Including these proceeds AroundTown have sufficient liquidity until Q1 2026.

- This paints a negative picture. AroundTown also have a very low secured debt LTV and have amble room to maintain current liquidity.