GAGFAH SA, Germany's largest publicly traded residential landlord, said its first-quarter profit fell 78 percent as loans to fund acquisitions pushed up interest costs and it made losses on derivatives.
Net income dropped to 2.6 million euros (US$4 million), or 1 cent a share, from 33.4 million euros, or 15 cents, in the year previous, the Luxembourg-based company controlled by New York-based buyout firm Fortress Investment Group LLC said in a statement on its Website yesterday. Earnings before interest and taxes rose less than 1 percent to 115.4 million euros, Bloomberg News reported.
Gagfah, which owns about 176,000 apartments and manages about another 25,000, has spent more than 2 billion euros on acquisitions since its initial public offering in October 2006, financed mainly through borrowings.
"The results were a sign of operating strength," Unicredit analyst Mathias Becker, who rates the shares "hold," wrote in a note to clients yesterday. "The company exceeded our estimates" of earnings of 109.5 million euros before interest and taxes.
The company is seeking to benefit from Germany's home ownership rate, among the lowest in Europe, at a time when unemployment is falling and consumer spending is rising.
Gagfah rose 10 cents, or 0.9 percent, to 11.33 euros at 10:13am yesterday in Frankfurt trading, giving the company a market value of 2.6 billion euros.
Net interest payments increased 20 percent to 75.5 million euros from 62.8 million euros a year earlier, Gagfah said. Net rental income rose to 127 million euros from 113 million euros.
The loss on derivative investments totaled 10.9 million euros compared with a profit of 5 million euros a year earlier.
Funds from operations rose 16 percent to 48.8 million euros, or 22 cents a share, from 41.9 million euros, or 19 cents, a year earlier. Funds from operations is a cash flow measure commonly used by publicly traded real estate companies. It doesn't conform with generally accepted accounting principles.
The dividend was unchanged at 20 cents a share.
"We had a good start to the year," Chief Executive Officer Burkhard Drescher said in the statement. "Our rental growth rates and privatization program moved in the right direction. The German housing market continues to exhibit solid growth and stability."
Gagfah, which sold 2,438 properties to tenants last year, didn't revalue its apartments at the end of the first quarter. Appraisers check asset values at the end of the second quarter and at the end of this year.
Sales of apartments in the quarter tripled to 529 apartments. Gagfah plans to sell more than 2,500 units this year, compared with 2,438 in 2007. The company plans to cut management costs to 400 euros per unit.