Gagfah bullish after first half, plans €700m CMBS

Listed German residential property investor Gagfah issued its half-year results recently, which were long on bullish projections for the future based on its improved capital structure, but short on actual improvements on a like-for-like basis with last year. The company said it now has more ‘financial headroom”, with projected full-year FFO growth of 5% to 10%, along with the reduction in previously majority-owner Fortress’s stake to below 50%.

New CEO Thomas Zinnöcker has been busy tackling the company’s finances since arriving from Berlin listed residential investor GSW Immobilien earlier this summer. Zinnöcker was gung-ho on new prospects: “We’ve identified some great investment opportunities in fast-groowing cities like Berlin, Hamburg and Dresden, and with our new strategy, which focuse on operational imporvements in our portfolio, we believe we can see significant upside for repositioning Gagfah.”

Gagfah said it had refinanced over €3bn debt in the first half and will now refocus on asset management to unlock internal growth potential. Its overall interest rate is down to 3.54% from 4.35% at year end, and the company said it will reinvest the savings from lower interest rates back into the portfolio, having identified value-enhancing measures and growth opportunities worth €250m over the next five years.  

In its privatisation operations, Gagfah closed 305 single-unit sales for €31m over the first six months at a gross margin of 22.6% and a rent multiple of 20.9 times. “In addition, we sold 723 units in our portfolio optimisation program with gross proceeds of €57.2m,” said CFO Gerald Klinck. The portfolio vacancy rate fell to 5.1% in 2Q13 from 5.3% in 1Q13, while net cold rent per sqm rose by 1.1% since the end of last year to €5.17. As a result of a smaller portfolio, rental income fell to €276m from €284m in 1H12. Its stock was last around €8.84, a 34% discount to EPRA net asset value of €13.42.

Gagfah is now likely to drop down to be only the third-largest residential property company in Germany, assuming that the Deutsche Wohnen/GSW merger goes ahead. Gagfah currently owns about 145,000 apartments valued at €8.1bn, and manages a further 35,000 units for third parties.

Gagfah is already responsible for issuing the largest European CMBS this year, when it raised €2.1bn from its German Residential Funding 2013-1 Plc transaction to repay a previous mortgage-backed bond. In late August it also confirmed that it plans to refinance its NILEG residential portfolio in Lower Saxony with the issuance of a new €700m CMBS with a maturity of five to seven years. The interest rate is likely to be between 3% and 3.5% in the current climate, if the securisation goes well, said the company.

The NILEG portfolio was originally bought by Fortress for €1.5bn in 2005 from Hannover-based Landesbank NordLB, and backed into Fortress subsidiary Gagfah. Fortress has been successively lowering its stake in Gagfah over the past few years, and now holds only 48.8% after a recent share placement.