Good results at GSW overshadowed by boardroom row

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The good news coming from listed Berlin residential property investor GSW Immobilien AG is the nearly doubling of its first quarter profits over last year, and its establishment of a new €80m credit line with friendly neighbour Landesbank Berlin. However, the good news has been somewhat overshadowed by an unseemly boardroom row relating to the speedy installation of its new CEO, with veiled accusations of crony capitalism by a small but influential shareholder.

GSW Immobilien, which is solely focused on housing in Berlin and now ranks as the fourth largest landlord in the country, posted consolidated net income of €19.8m in the quarter, more than double last year’s corresponding figures. This was largely due to fresh rental income from last year’s acquisition of 7,000 new units, up 15% to €45.6m. The vacancy rate also fell from 3.3% to 2.7%. “Higher average rents (+2.7%) and lower vacancy compared with the same period of the previous year also made a significant contribution to the improvement in earnings,” said COO Jörg Schwagenscheidt in an earnings release.

Given the bubbling housing market in Berlin and strong net rental income, GSW is forecasting full-year FFO of €73m-€78m. Its 60,000-unit property portfolio is worth €3.3bn, with net asset value up 1.3% to €1.55bn, corresponding to €30.59 per share – about the same as the share price.

Separately, GSW said it has concluded an €80m revolving acquisition credit line with Landesbank Berlin enabling the company to purchase residential property via asset or share deals and secured by an existing property portfolio. It plans further external growth through acquisitions. The credit line gives GSW additional purchasing firepower up to €250m, and it is already in talks on a 1,500 unit portfolio,

Finance director Andreas Segal said the credit line was at ‘attractive conditions’ based on Euribor money market rates. He described it as a further tool in the company’s armament of innovative financing options, including convertible bonds, which the acquisitive GSW is availing of to be able to act quickly when it needs to. “External growth through additional acquisitions is definitely part of our future. Active finance management is therefore increasingly important to keep borrowing costs as low as possible and to simultaneously guarantee high flexibility for financing new investments”, he said.

All this doubtless positive news is being somewhat overshadowed by trouble in the company’s corporate governance, which has now reached the desk of Germany’s financial watchdog BaFin.

The story is this. Following the departure of former CEO Thomas Zinnöcker to rival and fellow-listed housing company Gagfah, he was replaced as CEO at GSW by Bernd Kottmann. The BaFin is now investigating whether GSW violated disclosure rules following the departure of Zinnöcker.

Giant €133bn Dutch pension fund PGGM, with just under 3% of GSW’s shares (currently worth about €40m), is demanding a vote of no confidence in the new CEO Kottmann, describing the nature of his appointment as ‘opaque’ and ‘unacceptable’ and at odds with proper corporate governance. They believe he lacks the experience of GSW’s ‘core competency’ in its Berlin residential market.

PGGM is also demanding the resignation of supervisory board chairman Eckart John von Freyend, who had sought Zinnöcker’s successor and approved the appointment of Kottman – with “undue haste”, according to PGGM. Its claim is that both men were board members at the property company IVG Immobilien, which ran into “great difficulties” under their management in 2008, and according to Hans op’t Veld, PGGM’s head of listed property, “We wanted the guarantee that the decision to appoint Kottmann was unaffected by the fact they knew each other.” The matter will be put to a vote at GSW’s agm on June 18th, where most analysts reckon the PGGM motion will be defeated.