Gagfah Raises FFO Forecast After Vacancies, Debt Costs Fall

Gagfah SA (GFJ), the second-biggest owner of German homes, raised its full-year forecast for funds from operations after its vacancy rate and interest expenses fell.

FFO, a measure of a property company’s ability to generate cash, will be 49 cents per share, the Luxembourg-based company said in a statement today. The previous forecast was 47 cents.

Gagfah, controlled by Fortress Investment Group LLC (FIG), is in talks to sell its 38,000 apartments in Dresden to help pay 3.1 billion euros ($4 billion) of debt due next year. New York-based Fortress is among the private-equity firms facing debt deadlines after buying German properties with the cheap credit available in the years before the global financial crisis.

“We are on track towards resolving our 2013 debt maturities,” Gagfah Chief Executive Officer Stephen Charlton said in the statement.

Gagfah fell about 1.7 percent to 8.12 euros at 2:10 p.m. in Frankfurt trading. The shares have more than doubled this year, the second-best performance on the German DAX Mid-Cap Index for medium-sized companies, which has gained 26 percent.

Gagfah today said FFO rose 50 percent to 15 cents a share in the third quarter. The company’s FFO for the whole of last year was 52 cents a share.

The vacancy rate for Gagfah’s 146,000 units dropped to 5.1 percent at the end of September from 5.5 percent a year earlier. The company paid off loans to pare its interest expenses in the first nine months to 190 million euros, from 229 million euros a year earlier.

Debt Focus

“The company’s statement regarding the refinancing can be seen as supportive, but some players might have expected more details and progress,” said Kai Klose, an analyst at Berenberg Bank in London. “The main focus right now is on the debt.”

Gagfah has to pay back about 1 billion euros it borrowed to buy the Dresden apartments by May. The company has a further 2.1 billion euros to repay in August, according to its website.

The Dresden loan maturity will be met either with a sale of the apartments or a refinancing of the debt, Charlton said on a call with analysts today. The company is in talks with potential buyers and lenders, and plans to close a refinancing or sale in the first quarter of 2013.

“The option to refinance is a real option,” said Charlton.

In a conference call on Aug. 16, Charlton said Gagfah aims to sell the Dresden Woba apartments by the end of this year.

Gagfah is negotiating with banks and investors to refinance the German Residential Funding debt maturing in August, and expects to sign outline agreements in the first and second quarters of 2013, Gagfah Chief Financial Officer Gerald Klinck said during the call.

Germany’s biggest residential landlord is Deutsche Annington, which is owned by London-based Terra Firma Capital Partners Ltd. and has 186,000 apartments.

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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