Grand City Properties - Nothing Changed

All,

Please find our updated model for Grand City Properties Q3 results here. AroundTown are due to report on the 29th of November.  

The results in themselves are a non-event. Operationally, GCP are improving the net rent (+3.1% lfl) and lowering vacancy levels to 3.8%. GCP have continued to bolster their liquidity, with €110m new bank facilities and €20m additional disposals since last reporting. This results in €1.1bn of cash and liquid assets, sufficient to meet debt maturities until Q2 2026. LTV is static at 36%, based on June valuations. 

Investment Rationale:

- This set of numbers doesn’t change our fundamental view on the credit.  

- We don't see any short or medium-term event that would result in a re-rating of either of the capital stacks. Management at both entities have shown a willingness not to call the Hybrids and instead accept the reset rates, leaving the bonds outstanding.

- We will focus on the loan market accessibility as we are currently expecting both entities (AroundTown and GCP) to have the capacity to refinance upcoming maturities with secured bank debt despite a slowdown in that market.

Guidance:

- Management have confirmed their guidance for FY23 but offered no metrics for FY24.  

- In respect to valuations, management expect further devaluations of c.5% in the year-end accounts.  

- Due to this, dividends are unlikely next year. We had expected dividends would recommence in FY24. The Company’s dividend policy of 75% of FFO, but with a 5% devaluation likely and given the outlook on valuations plus interest rates environment, management currently admits a dividend does not look probable. 

- This is marginally negative for AroundTown, but we had not included dividends in our projections.  

Bank Market:

- €550m of new bank facilities in the 9m23, with the margin is steady at 140bps and the average term is 7.5 years. 

- The Company highlighted a slowdown in the process of bank financing, with banks becoming more selective and the impact of non-related 3rd party real estate loans that are in breach of covenants. This is the first time the Company have highlighted the risk that the capacity in the German market could be reduced due to the stress in the overall German secured property loan market. 

- Our model has assumed access to the secured loan market remains unhindered, with the Company accessing c.€1.3bn in new bank facilities in FY24 and FY25.  

Quarterly Results:

- GCP continue to see strong rental growth, driven by improvement of their in-place rental rates and a reduction in vacancy rates. This was sufficient to compensate for the increase in property operating expenses, which grow by 11%, mainly due to inflation.  

- Although Adj EBITDA has increased, this is offset by higher finance costs, leading to a reduction on FFO.  

Happy to discuss, but we are waiting for AroundTown’s results on the 29th. 

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk