On Wednesday, UBS updated its financial outlook for Aroundtown SA (AT1:GR) (OTC: AANNF), raising the price target to €3.30 from the previous €2.00, while keeping a Neutral rating on the stock.
The firm acknowledged the company's adept management of the recent interest rate cycle, which had initially raised concerns due to Aroundtown's high financial leverage and significant office space exposure. These factors were particularly challenging in a climate of increasing rates and the shift towards working from home (WFH).
The analyst noted that despite bond yields peaking at 11.3%, they have since decreased by 750 basis points as the capital markets have become more accessible to Aroundtown, indicating a reduction in balance sheet risk.
This comes even as the company's stock continues to be one of the most shorted in the European real estate sector. The focus now shifts to dividend risk, with the company reporting a loan-to-value (LTV) ratio of 44% and an EPRA LTV of 61%, which could limit growth potential.
Aroundtown faces the challenge of refinancing approximately €14.4 billion of debt over the next four years at rates higher than the current 2.0% in-place cost, including step-ups on part of the €4.5 billion of perpetual notes.
UBS forecasts that dividend payments may resume from fiscal year 2026, anticipating a dividend yield of around 5% by fiscal year 2029. This projection is based on a net present value (NPV) basis and is expected to align with the sector average, in light of the new price target of €3.3. The firm's outlook also reflects Aroundtown's strong year-to-date share price performance, with a total shareholder return (TSR) of 26.1%.
The reiterated Neutral rating by UBS suggests a balanced view on the stock's potential, considering both the company's solid performance and the financial challenges it may encounter in the near future.
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