Fortress’s Gagfah FFO Fell as German Homes Portfolio Shrank

Gagfah SA, the second-biggest owner of German homes, said funds from operations fell 5.8 percent in 2012 as it sold apartments and spent more on maintaining those it kept.

FFO excluding cash, a measure of property company’s ability to generate cash, dropped to 49 cents a share in 2012 from 52 cents in 2011, the Luxembourg-based company said in a statement today. That’s in line with its forecast in November.

Gagfah, controlled by Fortress Investment Group LLC, owned 145,000 apartments at the end of 2012, compared with 149,000 a year earlier. Repair and maintenance costs rose 6.9 percent to 81.8 million euros.

The company last year focused on reducing debt and fulfilling terms of an agreement with the city of Dresden. Gagfah increased maintenance spending after settling a lawsuit with Dresden in March that claimed it wasn’t adequately keeping up its apartments. Gagfah sold homes in part to raise cash as it faces 3.4 billion euros of debt maturities this year.

Rental income fell to 385.5 million euros in 2012 from 419.6 million euros. Net income was 43.2 million euros, or 22 cents a share, compared with a loss of 16.4 million euros, or 7 cents, a year earlier.

Gagfah rose as much as 6.5 percent in Frankfurt trading and was up 5.2 percent at 9.48 euros as of 11:31 a.m. The shares have gained about 60 percent in the past 12 months, while the FTSE EPRA/NAREIT Index of German property stocks rose about 20percent.

Loan Maturing

The company has signed term sheets for five of six tranches in its 2.1-billion euro German Residential Funding loan maturing in August, according to an analyst presentation posted today on its website. The final tranche will likely be a commercial mortgage-backed security with a weighted average maturity of seven years, it said.

In February, Gagfah obtained a five-year, 1 billion-euro loan from Bank of America Corp. to refinance debt maturing in May. That loan had a 3.85 percent interest rate.

Gagfah said Chief Executive Officer Stephen Charlton will be replaced by Thomas Zinnoecker after he leaves his post at the helm of GSW Immobilien AG on April 15.

“Having resolved the company’s key challenges during the past 12 months, Stephen Charlton has tendered his resignation,” Gagfah said in the statement. “We are ready to take the company to the next level.”

Gagfah is Germany’s second-largest homeowner by number of apartments. Deutsche Annington Immobilien AG is the country’s largest with about 186,000 homes.

Annual Outlook

FFO per share will grow by 5 percent to 10 percent in 2013, the company said. As many as 1,900 homes will be sold.

Average rents were little changed at 5.15 euros per square meter as only a fifth of its homes qualified for rent increases under government regulations.

“We expect this number to rise to more than 50 percent in 2013, providing us with more flexibility to grow rents across our portfolio,” the company said.

Vacancies fell to 5 percent from 5.1 percent and that will probably decline to 4.8 percent in 2013, Charlton said on a call with analysts.

(Adds outlook in final four paragraphs.)
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