Aroundtown SA (XTER:AT1, Financial) is a real estate company with a focus on income-generating, quality properties with value-add potential in central locations in top-tier European cities, primarily in Germany and the Netherlands. The company's largest shareholder is Yakir Gabay, an Israeli billionaire based in London.
The company invests in commercial and residential real estate that benefit from strong fundamentals and growth prospects. Aroundtown invests in residential real estate through its subsidiary, Grand City Properties SA (XTER:GYC, Financial), a real estate company that focuses on investing in value-added opportunities predominantly in the German residential real estate market. Grand City is now fully consolidated into Aroundtown.
Operating with a fully integrated real estate value chain, Aroundtown targets value creation opportunities from repositioning properties. The company picks quality, cash-generating properties with upside potential in rent or occupancy increases and consequential value. Through an intensive property management process, which includes operational and repositioning activities, Aroundtown further improves the portfolio results, creating secure and strong cash flow-generating characteristics and great internalized growth potential.
The following chart shows Aroundtown's valuation. Note the stock is selling for less than half of the company's tangible book value.
The company bought back 400 million euros' ($442.6 million) worth of stock last year and has stated its intention to buy another 500 million euros' worth of stock in 2022. This is further endorsement that the stock is undervalued.
The dividend, which was cut during the Covid-19 pandemic, has been restored, but the share price is still languishing far below pre-pandemic levels. The dividend yield is currently at 3.96%.
The balance sheet is in good shape with more equity than debt.
(Source: Simply Wall St.)
The company's debt structure is well spread out with a loan-to-value ratio below 40%. The cost of debt is low at just 1.3% with an interest coverage ratio of 5.1. Aroundtown's debt is rated BBB+ by Standard & Poor's.
The average analyst target for the stock is 7.6 euros. This would imply a possible appreciation of 26%.
Conclusion
Aroundtown has an attractive dividend profile and is selling substantially below net asset value. The real estate company is buying back shares and has strong appreciation potential. As such, it's a good play to diversify into continental Europe. Based on my calculations, an investment in the stock could deliver strong double-digit returns over the next three to five years.
