Aroundtown shares rise on upgraded FFO I guidance

Investing.com — Aroundtown SA (ETR:) shares rose on Wednesday after it raised its increase in full-year Funds from Operations (FFO I) guidance.

At 5:55 am (0955 GMT), Aroundtown was trading 3.7% higher at €2.355.

Aroundtown has revised its full-year FFO I forecast upwards by 3%, adjusting the range from €280 million-€310 million to €290 million-€320 million. 

This adjustment translates to an estimated EPS of €0.27 to €0.29 per share, surpassing the consensus estimate of €0.286 per share. 

“Results largely came in ahead of consensus, notably earnings metrics and LFL rental growth owing to rent reversions and indexation,” said analysts at UBS in a note.

The company reported a like-for-like rental growth of 2.9% for the first half of 2024, a slight increase from the 2.8% reported in Q1. 

This growth was driven by a 3.1% increase in in-place rents, although occupancy had a minor negative impact of -0.2%. 

The strongest rental growth was observed in the residential sector, which saw a 3.8% increase, followed by hotels at 2.6% and office spaces at 2.4%. The EPRA vacancy rate decreased marginally by 10 basis points to 7.9%, indicating stable demand across key segments.

In terms of asset management, Aroundtown made progress with asset disposals, signing €475 million year-to-date and closing €340 million of this amount. This is part of the company’s broader plan to streamline its portfolio and improve financial stability.

Despite these positive updates, Aroundtown’s shares continue to trade at a substantial 67% discount to NAV, compared to an 18% discount for European real estate peers excluding the UK. 

Morgan Stanley points out that while the improved FFO I guidance and rental growth are positive, the company’s high financial leverage and tight asset valuation yields remain significant concerns. 

The elevated 62% EPRA LTV ratio and substantial discount to NAV reflect ongoing market challenges. Morgan Stanley has set a price target that implies a 75% discount to NAV, resulting in a rounded target price of €1.50 per share.

UBS analysts, on the other hand, emphasize the positive impact of the raised FFO I guidance and rental growth on Aroundtown’s financial performance. The increase in FFO I guidance is viewed as a sign of the company’s operational resilience and effective asset management. However, UBS also notes the substantial valuation discount, highlighting ongoing concerns about high leverage and potential further devaluations.

Analysts from UBS and Morgan Stanley point out several key risks. UBS notes that reliance on acquisitions could impact FFO growth if market conditions change or if management overpays for assets. 

The high level of acquisition activity may also strain the company’s ability to drive value creation.