Gagfah FFO Increases on Asset Sales, Lower Interest Costs

Gagfah SA, Germany’s second-largest property company by market value, said second-quarter funds from operations rose 37 percent as the company sold assets and reduced its interest expenses.

FFO, a measure of a property company’s ability to generate cash, rose to 42.9 million euros ($53 million), or 21 cents a share, from 31.4 million euros, or 14 cents, a year earlier, the Luxembourg-based company said in a statement yesterday. Fortress Investment Group LLC, the New York-based private-equity firm and hedge fund manager, owns 61 percent of the company.

Gagfah, which is selling homes to reduce the amount of properties it must finance, is seeking bids for its 38,000 apartments in Dresden, spokesman Rene Hoffmann said on Aug. 13. Gagfah is among the private-equity firms facing debt deadlines after buying German properties with cheap credit in the years before the global financial crisis started in 2008. The company must repay 3.1 billion euros of debt next year.

“Resolving Gagfah’s 2013 loan maturities will remain our principal focus for the remainder of the year,” Chief Executive Officer Stephen Charlton said in the statement.

Gagfah was up 44 cents, or 5.2 percent, at 8.89 euros at the 5:30 p.m. close in Frankfurt, the highest since Feb. 17, 2011. The shares have more than doubled this year, the best performance among stocks in the German DAX Mid-Cap Index for medium-sized companies, which has gained 25 percent. The company has a market value of 1.97 billion euros.

Sales Proceeds

Gagfah’s net income from the disposal of investment real estate and assets held for sale rose to 5.1 million euros in the second quarter from 3.6 million euros a year earlier, according to the statement. Interest expenses related to loans fell to 54.4 million euros from 60.1 million euros because the company had a smaller portfolio.

The company announced the results after the close of trading yesterday.

Gagfah expects to begin negotiating the sale of the Dresden Woba portfolio in the fourth quarter and aims to close the deal by the end of the year, Charlton said on a conference call today. The company may sell 3,000 homes in the western German city of Osnabrueck to an institutional buyer and plans to divest an additional 4,000 apartments to private individuals this year, he said.

On August 13, the company said it plans to sell the Dresden portfolio for at least its book value of about 1.8 billion euros. The condominium sales to private individuals will generate about 250 million euros in revenue this year, Charlton said.

“Investors and lenders both continue to value investments that provide stable cash flows throughout the economic cycle, creating an environment within the German residential real estate market that is conducive to our asset and portfolio sales efforts,” Charlton said.

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