Aroundtown SA (AANNF) (H1 2026) Earnings Call Highlights: Stable Rents and Strategic Buybacks ...

Negative Points

• FFO 1 declined 4% year-over-year to EUR144 million, primarily due to higher financing expenses.

• Finance expenses increased to EUR142 million in H1 2026, reflecting the impact of refinancing at higher rates.

• The company expects continued pressure on FFO 1 in 2027 and 2028 due to legacy debt maturing at lower coupons, with a potential temporary decline in FFO.

• Loan-to-value ratio increased to 43% from 41% at year-end 2025, driven by share buybacks and investments.

• Interest coverage ratio decreased to 3.3x from 4.2x a year earlier, and is expected to decline further before stabilizing.

• Office segment like-for-like rental growth was only 0.9%, with vacancy rates slowly increasing by about 1% per year.

• The company faces headwinds from higher refinancing costs, with cost of debt rising to 2.6% pro forma from 2.4%.

• Development and investment properties experienced devaluations due to construction cost inflation, offsetting gains in other segments.

• Property operating expenses increased by around 5% due to inflation, while rental income remained flat.

• The company's FFO 1 per share was impacted by a higher effective share count from the GCP transaction, leaving the deal broadly neutral on a per-share basis.

Q & A Highlights

Q: Where can we expect to start seeing FFO I per share growth? A: Timothy Wright (Chief Capital Markets Officer) stated that while FFO1 pressure is expected to continue in 2027 and 2028 due to maturing legacy debt, 2029 is expected to be the inflection point. From that year, the cost of maturing debt aligns with the marginal cost of debt, allowing EBITDA growth from like-for-like rent increases, repositioning, and capital recycling to flow directly into FFO per share growth.

Q: With your shares still trading at a significant discount to NAV and the current program close to completion, would you consider increasing the size of your share buyback? A: Jonas Tintelnot (CFO) confirmed the program has been highly accretive, repurchasing shares at an average discount of around 67% to EPRA NTA. He stated that share buybacks remain one instrument within a broader capital allocation framework and will be funded on the back of disposals to maintain a strong and conservative balance sheet and interest coverage ratio.

Q: Following successful completion of the share exchange offer, do you intend to continue building your stake in GCP? A: Timothy Wright (Chief Capital Markets Officer) noted that the company has selectively increased its holding to around 84% through open market transactions. He stated they retain the option to continue increasing the stake opportunistically but have no specific ownership target, as GCP's FFO yield remains highly attractive and increases exposure to the defensive German and London residential market.

Q: Regarding office, how do you assess current leasing conditions and valuation? What is your outlook going forward? A: Barak Bar-Hen (Co-CEO) stated that letting conditions remain consistent with recent periods, with demand still needing to recover. He noted vacancy is increasing slowly at about 1% this year, but positive like-for-like rental income is being recorded as in-place rent increases offset occupancy pressure. He expects office valuations to remain broadly stable in 2026 as rental growth offsets macroeconomic volatility.

Q: Could you update us on your external growth strategy and where you currently see the most attractive opportunities? A: Kamaldeep Manaktala (Deputy CEO) explained the approach remains centered on capital recycling and extracting growth from the existing portfolio. The company is actively scanning the market, seeing opportunities from smaller, more leveraged players facing refinancing pressure. Strategically, they intend to increase weighting towards the living segment (residential, hospitality, mixed-use) while gradually reducing office exposure through disposals and conversions.

Q: You really helpfully guided on FFO trajectory, but can you also provide a similar comment on interest cover? When and at what level do you think that could stabilize? A: Jonas Tintelnot (CFO) acknowledged the ICR has declined to 3.3x but emphasized the exceptional headroom to bond covenants, which are at 1.8x. He noted that proactive refinancing front-loads expenses but reduces exposure, and while the ICR will continue to come down, the company expects to maintain good headroom going forward, subject to interest rate changes and refinancing decisions.

Q: Looking at the LTV now, which has crept up to about 43%, how much of the current balance sheet capacity do you realistically think you can deploy here? Should we expect future acquisitions to be funded mainly just strictly through disposals? A: Timothy Wright (Chief Capital Markets Officer) confirmed that disposal proceeds are seen as the primary recycling measure to fund growth opportunities, including acquisitions and conversion projects. He stated the company feels comfortable with its current leverage and has headroom up to the 45% guidance, but will always try to keep some headroom and is also working on decreasing it.

Q: Can you disclose the average yield on the disposals signed so far this year? What would you estimate the reversion to be in the office portfolio? A: Jonas Tintelnot (CFO) confirmed disposals were executed at a 17x rental multiple. Regarding the office portfolio, he stated the potential reversion is estimated at around 30%, but noted the market environment for offices remains difficult and it will take time to capture that potential.

Q: If you could give us a little bit more clarity in terms of your thought on the cost of debt and the ICR over the next two years. Are you using any sort of forward hedges? A: Timothy Wright (Chief Capital Markets Officer) explained the cost of debt has increased to 2.6% on a pro forma basis, and it is difficult to assess where rates will go. He emphasized the company has flexibility on timing and can use cash on hand and disposal proceeds for repayments. Jonas Tintelnot (CFO) added that the treasury team does engage in pre-hedging for interest rate risk on upcoming refinancings, and the existing debt stack has a very high ratio of fixed or hedged coupons.

Q: Why have property operating expenses gone up by around 5% when rents were just pretty stable? What are the components of the other financial result? A: Jonas Tintelnot (CFO) attributed the slightly higher operating expenses to inflation. Regarding the other financial result, he noted the biggest component includes bank fees and a positive impact from the buyback of debt at a discount. He also stated that tax expenses are not always linear and expects them to line up over the rest of the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .