Aroundtown Has No Easy Options for $21 Billion of Real Estate Debt

Spare a thought for the other AT1 crowd — not investors in Additional Tier 1 securities extinguished in Credit Suisse Group AG’s rescue, but shareholders in Aroundtown SA, the Frankfurt-listed property firm with the same stock-market ticker. The capital markets of yesteryear allowed the company to amass a sprawling real-estate empire valued on its books at €28 billion ($30 billion). The markets of today are forcing an unravelling.

Founded in 2004 and listed in 2015, the firm hoovered up offices, hotels and residential accommodation, mainly in Germany. Today, Aroundtown is a favorite for short sellers. Its market capitalization has shriveled to just €1.7 billion, representing a near-90% discount to net asset value — one of the lowest valuations in the European sector.

Aroundtown must now contend with a radically different interest-rate environment. At first glance, its leverage looks manageable. Its portfolio valuation would need to fall 40% before loan-to-asset value debt covenants were tested. That seemingly reduces the risk of a sudden crunch.

Net and Gross | Aroundtown supplemented €15 bn of conventional borrowing with hybrid debt

The flipside of rising yields is that Aroundtown’s €20 billion of total debt is trading below face value, and the company has been buying some of it back — a way of repaying less than originally borrowed. Last week it said it had retired €710 million of its bonds at an average 17% discount so far this year. The company also has decent liquidity. Cash, expected disposal proceeds and vendor loans of €4.1 billion comfortably cover maturities up to the end of 2025.

Hangover | Aroundtown shares have suffered badly after a lengthy acquisition spree