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@ visit http://www.ifre.combonds many have sold. Unusually
for investment-grade companies,
Aroundtown and many of its
peers have had to cede ground to
investors when selling bonds,
agreeing to covenants that force
them to stick to strict maximum
loan-to-value ratios. While such
covenants are common for
property companies in the US,
they are relatively new in Europe.
“When they were building their
capital markets presence, they
had to throw the kitchen sink at it
to get investors comfortable,” said
one banker who has done a
number of deals for Aroundtown.
Rising property prices –
Aroundtown booked over €1bn of
valuations gains on its property
empire last year alone – have
enabled many in the industry to
take on more debt rapidly.
But if property prices plunge,
that process will reverse. Some
COMPANIESûCOULDûlNDû
themselves nearing or in breach
of covenants, which might force
them into raising equity –
possibly at highly dilutive levels
- or disposing of their best
assets. To be sure, many are a
long way from their covenant
levels, but bankers say that
investors have begun to ask
more questions about the
impact of breaches of late.
“It’s not something we worry
about, but it is something we are
very conscious of,” said Wallis, of
a possible downturn. “We’ve
spent years getting our balance
sheet into a very strong position
because we want to be in the best
position in that scenario. When
others are struggling, we’ll be
picking off the best assets. That’s
AûVERYûmIPPANTûWAYûOFûSAYINGûIT û
but it is basically what we’ve
prepared ourselves for.”
DISTRESSED ASSETS
Another concern is that bond
ANDûEQUITYûlNANCINGûHASûGIVENû
property companies more
freedom to buy distressed assets
- assets banks would have
traditionally been more wary
ABOUTûlNANCINGû!ROUNDTOWNûINû
particular has built its business
around such assets. Often, that
simply means that vacancy rates
are higher, or leases shorter. The
company aims to add value by
addressing those problems.
“You do have vacancies, you
do have rents in place that are
potentially very much below the
market, you might have high
operating costs, or where the
lease term remaining is quite
short; a lot of uncertainty,” said
Wallis. “Those kinds of assets,
the banks won’t touch it from a
lNANCINGûPERSPECTIVE ûSOûYOUûhave to deal with those things.
That’s our world, that’s our DNA- and we are just very good at it.”
Others say that the growth of
the past few years merely
REmECTSûTHEûBIRTHûOFûREALûESTATEû
as an asset class in its own right.
“Aroundtown is the poster child
for the growth of real estate as an
asset class in Europe,” said one
banker. “A lot of the buyside is
playing catch-up – until relatively
recently, many didn’t have the
expertise in-house, meaning that
many of the early real estate deals
were bought by generalist fund
managers. But, as the asset class
grows, many and are now bringing
in the right people, building upteams of specialists.” (^)
Societe Generale is a founding member of the positive impact initiative steering group of the United Nations Environment Program (UNEP).
Societe Generale is a french Société Anonyme (limited company) with share capital of € 1 009 897 173,75, whose registered head office is located at 29 boulevard Haussmann – 75009 Paris (France),
registered with the Paris trade and companies registry under number 552 120 222 - © Getty Images - FRED & FARID Paris.
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