Gagfah to revive dividend next year after strong performance

Investors have been steadily buying Luxembourg-based Gagfah stock over the past year, and seem increasingly encouraged by the wave of positive news coming from the company, particulary since the arrival of Thomas Zinnöcker as CEO from GSW Immobilien AG this time last year.

Zinnöcker described the last business year as a “breakthrough” year for the company on its way to a long-term solidly sustainable business model. Having refinanced most of the company’s debt and boosted operating results (FFO), Zinnöcker dangled the prospect of a €0.25 dividend for this and up to €0.50 next year, after a nearly four-year hiatus. At a current share price of about €11.10, this represents a dividend yield of about 2.25%.

This is a far cry from the glory days when, with private equity investor Fortress in the driving seat as majority shareholder and the share price in free fall, dividend yields of 20% were not uncommon – but the company has undergone a management transformation in the last two years in particular, and the effects of the new broom are increasingly evident, with a near-tripling of the share price over the last 24 months. The free float in Gagfah is now put at nearly 60%, with Fortress taking progressive advantage of the rising stock price to unload further tranches of its long-term holding.

Gagfah presented full-year figures for 2013 recently which showed company targets being surpassed, thanks largely to a strong Q4. Funds from operations – not counting proceeds from sales – rose 13% to €123.7m or €0.60 per share, well ahead of the 5-10% increase the company was targeting. This business year operating profits are expected to rise by 35%, while the vacancy rate should fall from 4.1% to 3.5%, again ahead of expectations, while rents are expected to rise by 2%.

The company invested €30m in upgrading its properties in 2013, with €70m planned for this year, which should both boost sales and help lower the loan-to-value ratio from its current 61.9% to 60% by year-end, on its way to a targeted 53% by end-2018. Gagfah owns and manages 144,000 apartment units throughout Germany.

Zinnöcker’s moves over the past year are designed to shift the company’s focus back onto its operating business rather than its roller-coaster refinancing projects, and to reposition the group as a strong independent player in the German residential sector – particularly in the light of major moves by peer groups such as Deutsche Wohnen/GSW Immobilien and Deutsche Annington. The Fortress influence is waning at the group as its shareholding declines, and Gagfah also recently appointed the Austrian Gerhard Zeiler to replace a third Fortress appointee, Jonathan Ashley, who departs from the board. Zeiler comes from Turner Broadcasting, and had earlier held top positions at RTL Group and Bertelsmann.