Gagfah GFJ GY
May 26, 2010 - 12:58am EST by
2010 2011
Price: 5.20 EPS $0.80 $0.80
Shares Out. (in M): 226 P/E 6.5x 6.5x
Market Cap (in $M): 1,175 P/FCF 0.0x 0.0x
Net Debt (in $M): 6,000 EBIT 0 0
TEV (in $M): 7,175 TEV/EBIT 0.0x 0.0x

Sign up for free guest access to view investment idea with a 45 days delay.


I am recommending GAGFAH (GJF GY) as a long. GAGFA is the largest listed German residential property fund with a portfolio of 162 000 properties. Incredibly GJF trades on a dividend yield of 16% and at 40% of it's NAV. (Share price = EU5.00 vs NAV of EU12.52).

A very bullish reference point is that in 2007 GJF traded at a 16% premium to it's EU13.97 NAV. While I will describe the German residential property market below in more detail I must stress at the outset that Germany never experienced the property boom that many countries in the world now regret. In fact, while the world was booming German property prices actually recorded a slight decline.

 Before I move on to discussing GJF I thought it would be constructive to lists some points which will shed some light on the German residential property market.

German Residential Property Market


  • 1. Germany has the largest residential property stock in Europe with 40.1 mil dwelling units.
  • 2. The German residential property market has been very stable in terms of rent and house prices. Ignoring the reunification boom, rents have grown consistently since 1975. This record was kept in tact as rents grew by 1% in 2009 despite a 5% contraction in GDP.
  • 3. The home ownership rate in Germany is only 43% compared to a European average of 63%. Officials in Germany are encouraging home ownership and are targeting to boost ownership rates to 49% by 2020.
  • 4. The number of houses constructed has steadily declined since 2004 to less than 200k units per annum. This is attributed to scarcity of land, high construction costs and low returns for developers.
  • 5. The German population will shrink from 82mil today to 81mil in 2025. However, during the same period the number of households are forecast to grow by 1.2mil to 41.9mil which should lead to an increase in the demand for residential units.

Overview of GAGFAH


Price                = EU 5.20 (cum 0.20 dividend LDR May 28, 2010)

Market Cap     = EU 1 175mil

Ned Debt         = EU 9 000mil

EV                   = EU10 175mil


GFJ listed on the German market in 2006 and have paid a dividend every quarter since this listing. They paid 97c, 80c and 80c in 2007, 2008 and 2009. For Q12010 GFJ declared a 20c dividend which LDR's on the May,28 2010

 These dividends have been paid out of the letting business and to a lesser extend from the sale of properties.

The Letting Business

GFJ generate revenues from letting out the 162 000 flats. These flats are scattered around Germany in over 350 towns. The vacancy has been very steady tracking at 4.4%, 3.9% and 5% for 2007, 2008 and 2009. The latest vacancy figure for Q1 2010 is 5.4%.

 Vacancies are largely driven by churn as on average 11% of the dwellings are re-let every year. It is interesting to note that the average tenancy is 11 years. These long leases add to the stability of the business. The other driver of vacancies is a sales program targeted at selling EU500mil properties per annum.

The following table shows the results from the letting operation for 2008 and 2009.


                                  2009              2008

No Units                  172 298        162 258


Rental Income          669mil                685mil

Oper Expense           183mil             212mil

                                 ------------        -----------

Profit from Leasing   486mil             473mil

                                 =======        =======


While the rental income has been hurt by the sale of 11 000 units this has been somewhat offset by increases in the rates. Management estimate that their units are 10% under rented and have been driving through rental increases to push them closer to market rates. This saw the average rentals rise from EU328 per month in 2008 to EU335 per month.


Further, management have been on a major cost drive and costs have been pushed down by 14%. Overall the profit from letting business is up 2.7% which is fairly impressive given the 5% decline in GDP over this period.



The FFO generated from the letting business was 67c in 2008 and 73c in 2009.


                                  2009              2008

Profit from Leasing   486mil             473mil

Interest X                  (301mil)            (297mil)

Tax                            (11mil  )           (15mil)

Depreciation               4mil                  10mil

Other                          (12mil)             (22mil    )                      

                                 ------------        -----------

Profit from Leasing   166mil             149mil

                                 =======        =======

FFO/Share                  0.67                0.73



Sale of Units


GFJ sold R500mil property in both 2008 and 2009. These sales generated profits of EU51.6mil and EU23.9mil respectively adding 22c to 2008 FFO and 23.9c to 2009 FFO.


While the selling program continues one can count on receiving these profits as a dividend. This seems likely in the short term as demand for the units remains strong and finance is readily available. In addition, almost two thirds of the units are sold to institutions such as pension funds and real estate firms. Only one third to individuals.


Planned sales for 2010 are again targeted to be EU500mil and it seems that the extra 20c dividend from sales is sustainable.


To be prudent the normalized dividend is probably closer to 75c after adjusting for the profit on sales, once-offs and the dividend cover. Using 75c gets you to a yield of 15% which is still extremely attractive.



 The properties are valued at EU9 155mil which implies a cold rental multiple of 13.7times. In 2009 Richard Ellis confirmed 45% of the portfolios values. Further, the value of the properties appears to be supported by the profits made on sales.

 A summarized balance sheet as at 31 March 2010 is shown below.


Non Current Assets          9 054

Current Assets                     140

Cash                                     210  

Assets for Sale                     175


Total Assets                       9579



Equity                                2 424

LTD                                   5 888

NCL                                      553

STD                                      165 

CL                                        549


Total Assets                       9579




Net debt is R6 032mil. Small amounts are due before 2013 with a large EU5 600mil payment in 2013. This means that there are no immediate liquidity risk and management have proactively started working on the re-financing of the 2013 debt. While refinancing remains a concern it has become a lot easier to deal with European banks and many refinancings have already been successfully concluded.


The debt is fixed at an average cost of 4%.



GAGFAH is a very stable company that has ridden through the eye of the financial storm with no visible damage and the dividend in tact. All indications are that the stability of the business model will ensure the dividend into the future allowing investors to enjoy a 15% to 16% dividend yield.


With the stock price at EU5.00 and an NAV of EU12.52 there is also a lot of upside once investors become aware that this baby was thrown out with the bath water. Remember, just the other day it was trading above NAV.



No clear catalyst. A 16% dividend until something happens.
4% divided available on May 28,2010
    show   sort by    
      Back to top