> Financials Deutsche Bank Aroundtown Properties - Markus Scheufler, BUY, close €6.5, €7.50 tgt, 15% upside ■ We like Aroundtown as a play on a stronger German economy. Its portfolio is primarily based in German cities (88% of portfolio) and is mostly geared towards commercial property (76% of assets). • Key driver #1: Acquisitions keep beating expectations. Aroundtown has closed €3bn of acquisitions YTD at a 6.3% yield. ■ We believe that Aroundtown should be able to continue making acquisitions below replacement costs for the next two to three years. ■ Refinancing could drive cash flow upside. - Re-gearing the portfolio from 35% LTV at a low 1.5% marginal cost of debt would lock in a 500bps spread ■ Key driver #2: strong rental growth of >5% pa. We forecast a 23% FFO CAGR to 2020E. This in turn is driven by: - Closing the 20% gap to market rents for c90% of the portfolio. Aroundtown's strategy is to acquire undermanaged assets, refurbish them and realise the market upside; - LFL rental growth of 4%; - A fall in vacancy rates to c5% from c7% • Key driver #3: we expect a 12% NAV growth to 2020E, driven not just by rental growth but also by: - Revaluation — H1 revaluation to 5.5% yield was a positive surprise - Better portfolio quality and thus yield compression • Aroundtown currently trades on a discount to book value at 0.9x 2018E ■ The next catalyst is potential inclusion in the MDAX in March Related DB Research: 3Q17 results: Strong growth continues: BUY (Scheufler) Acquisition volume continues to surprise to the upside 3.500 3.000 2,500 2,000 1.500 1.000 500 0 o rmAcquisrtion volume (in EURm) ,,,, ,,, Acquisition yield (%. RHS) 2016 2017 YTD 2015 Source: Company data. Deutsche Bank estimates 9 85 8 75 7 65 6 55 5 4.5 4 20% upside to market rents drives LFL rental growth 100 90 80 70 60 50 40 30 20 10 0 OA) 88% 12% Below market rent At market rent Soutco Company data, Deutsche Bank Deutsche Bank