Gagfah tackles refinancing of €2bn operative loan

German listed housing group Gagfah, controlled by US private equity firm Fortress Investment, said earlier this month that it is close to completing the nearly €2bn refinancing of its securitised German Residential Funding portfolio, on improved terms. The facility is due to mature in August.

Assuming the refinancing goes through without a hitch, it will be a further positive step for the company, which managed to raise a loan from Bank of America Merrill Lynch in January to refinance its Woba unit of 38,000 apartments in Dresden, after reversing an earlier decision to find a buyer for the unit. Bank of America Merrill Lynch has since placed the €1.074bn as a CMBS with maturity in 2024 with institutional investors, in a heavily over-subscribed issue. Gagfah said the new terms would save it €4.4m annually.

For the new €2bn refinancing, the company said, “We are on track towards refinancing the On loan amount with improved terms. We have decided to reduce the number of pools from six to four to benefit from increased investor demand and favourable terms for CMBS loans, resulting in better terms, reduced complexity and lower execution risk.”

Underwriting for €900m of the new loan is coming from German and international banks as well as insurance companies, with board approval already in place for the three lender pools, while the rest is earmarked for a CMBS issue, for which there is renewed appetite in the market.

The company said it expects an overall interest rate between 3% and 3.5% (down from its previous 4.3%) and a maturity profile of between five and ten years. Leverage is now at 65%, about 5% to 10% higher than most of Gagfah’s peers.

New CEO Thomas Zinnöcker took the opportunity to stress the company’s renewed commitment to growing its housing stock, rather than shrinking it further, as had been the case last year. “This puts the company in a great position and enables us to refocus on our core business and to prepare Gagfah for the next phase. Our emphasis will be on investments in value-enhancing portfolio measures and accretive growth opportunities, to the extent that they add to the performance and value of the company”, he said. Zinnöcker arrived at Gagfah last month from the CEO ‘s position at Berlin housing investor GSW Immobilien AG.

The company is now planning to cluster its assets into different segments with separate strategies. However this is managed, Gagfah said it planned to invest more this year in maintenance and refurbishment of its apartments. This is budgeted to rise from €10.70 per sqm to between €12.00 and €13.00 for this coming year, with an increase in the overall spend from €86m to €100m. Geographically, too, the holdings are to be more tightly bundled to improve efficiency. Zinnöcker commented, “Since its IPO in 2007, Gagfah has sold off about 20% of its stock, primarily the better-quality apartments. We’re working on a new strategy to lower our vacancy rate through targeted modernisation and improved rental yields.” The new investment may involve a capital increase to fund it, said Zinnöcker, but said no decision on that had been made yet.

Reporting on the first quarter, Gagfah reported funds from operations (FFO) were stable at €23.6m, with FFO per share rising fractionally to €0.12 due to a decline in the number of shares. The firm made 181 single-unit sales at a gross margin of 21%, and a block sale of 542 units in Heidenheim. The vacancy rate fell to 5.3% from 5.5% a year earlier.

Gagfah now owns housing worth €8.1bn, with 145,000 units owned by itself and over 40,000 managed for third parties. Its share price discount to NAV has narrowed sharply to 24.1%, from around 70% in 1Q12 and was last trading at just over €10.00, at the top of a 52-week range.