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Gagfah Profit Declines as Home Sales Cut Revenue From Rents

Gagfah SA (GFJ), the second-biggest owner of German homes, said third-quarter profit fell 3.9 percent after the sale of apartments reduced rental income.

Funds from operations excluding asset sales, a measure of a real estate company’s ability to generate cash, slid to 31.9 million euros ($43 million) from 33.2 million euros a year earlier, the Luxembourg-based company said in a statement today. Gagfah repeated that FFO will increase by 5 percent to 10 percent this year and by as much as 35 percent next year.

Gagfah has been selling properties to help refinance debt and exit regions that aren’t vital to its business. Fortress Investment Group LLC (FIG) in July cut its stake to less than 50 percent as part of a deal through which Gagfah also sold shares.

“After completing our capital restructuring, our next step is to finalize our turnaround by further improving our operational performance,” Chief Executive Officer Thomas Zinnoecker said in the statement.

Gagfah took new loans and issued bonds to refinance more than 3.4 billion euros of debt that was due this year.

The company closed down 1.8 percent at 10.50 euros in Frankfurt trading having earlier fallen as much as 3.7 percent, the most since July 10. Gagfah has a market value of 2.3 billion euros.

Rental Income

Profit from Gagfah’s main business of renting apartments dropped to 91.7 million euros in the third quarter from 102.7 million euros a year earlier, according to the statement.

The company owns about 144,000 apartments in German cities including Berlin and Dresden, about 2,600 fewer than a year ago. Germany’s largest homeowner is Deutsche Annington Immobilien SE (ANN), with about 180,000 units.

Gagfah plans to pay a dividend of 20 cents to 25 cents per share for 2014, Zinnoecker said on a call with analysts today. The company’s last dividend was for 2010.

The company may make large acquisitions to become more profitability even as it sells the 12 percent of apartments that are outside of its main markets, Gagfah said.

“Acquisition is not our first priority,” said Zinnoecker. “If something comes along that is cheap and accretive, we’ll think about it.”

Gagfah would sell new shares to fund such an asset purchase, he said.

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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