Real Estate Subsidiary of Aroundtown in Turmoil: Losses and Cautious Outlook

In the real estate sector, turbulent times are looming: The subsidiary of Aroundtown, Grand City Properties, is struggling with rising financing costs and a challenging market environment for property sales. A considerable write-down on the property portfolio resulted in a loss in the hundreds of millions for the past fiscal year. Despite a strong demand for residential properties and an increase in rental income, which recorded an increase of about four percent to approximately 411 million euros, the high financing expenses heavily weighed on the operating results. As a result, the operating profit (FFO1) fell by four percent to around 183.9 million euros. The suspension of dividend payments is based on an assumption of mixed prospects for the current year. An operating profit of 175 to 185 million euros is expected for 2023 - a possible slight increase or decrease compared to the previous year. The company is particularly concerned about the additional burden of bank debt and increased interest costs for hybrid bonds, which could offset potential gains from the core business. The share price of Grand City Properties also reflected the concerns, falling by more than four percent in early trading. Analysts such as Jonathan Kownator of Goldman Sachs confirm that the financial figures presented match forecasts. However, Paul May from Barclays critically noted the second consecutive dividend suspension. The approximately nine percent devaluation of the property portfolio, with a specific emphasis in Germany where an eleven percent decrease was recorded, ultimately led to a loss of almost 638 million euros for the full year - a reversal compared to the previous year's profit of about 179 million euros. In the sales sector, the company made transactions with a total value of 306 million euros, slightly below book value, with older properties in London and North Rhine-Westphalia being mainly affected. Christian Windfuhr, Chairman of the Board, emphasized that although there is still the possibility to sell apartments, there is no pressure to do so unless the sale price is appropriate. Ultimately, the group summarizes its current strategy as follows: cautious handling of capital and a focus on debt reduction on the condition that the market situation does not significantly improve. With sufficient liquidity reserves until 2026 and a possible improvement of the interest rate landscape from mid-2024, Grand City Properties - with a focus on German metropolitan areas and nearly 63,300 apartments - retains its position as a significant player in the industry.