(New: Statements from a conversation with the chairman of the board, share price, analyst)

LUXEMBOURG (dpa-AFX) - High financing costs are causing problems for Aroundtown subsidiary Grand City Properties, as well as the entire industry. Due to the current difficult environment for real estate sales, the company devalued its portfolio. The bottom line was a loss in the triple-digit million range in the first half of the year. While the real estate group was able to earn more from rents in the first six months thanks to strong demand for housing, financing costs put pressure on operating profit (FFO1). However, the company is becoming more confident about its operating profit for the current year.

Grand City shares were up about 0.8 percent in the afternoon. The real estate group's financials were slightly better than he expected, wrote analyst Kai Klose of private bank Berenberg. The raised annual outlook seems to be clearly achievable. However, the share price has lost a good fifth since the turn of the year.

Net rental income increased by a total of five percent to around 204 million euros in the first half of the year, as the SDax-listed company announced in Luxembourg on Wednesday. Most of the increase came from rent increases, but also from a lower vacancy rate. However, higher financing costs in particular put pressure on the operating result: the so-called FFO1 fell in the first six months compared to the same period last year by three percent to 94 million euros.

For the year as a whole, the company's CEO Refael Zamir is now targeting an operating profit of 175 to 185 million euros, not least due to higher rental growth. Previously, he had targeted at best 180 million euros, compared with 192 million euros in the previous year. As a result, the CEO is also planning for a higher dividend. It is now expected to be 76 to 80 cents, compared with the previously planned 74 to 78 cents. For the year 2022, the Group had cancelled the dividend completely.

Below the line, the real estate group made a loss of almost 402 million euros in the first half of the year due to a lower revaluation of the real estate portfolio. In the same period last year, Grand City Properties had reported a profit of just under 234 million euros.

For the second half of the year, too, Chairman of the Board of Directors Christian Windfuhr believes that a further devaluation of the portfolio is not unlikely under the given market conditions. Exactly how high, he says, is difficult to forecast. "We hope, of course, that it will be even less than in the first half of the year," he told the financial news agency dpa-AFX. The size of the write-down would depend on how interest rates, the transaction market and rents developed, he added.

The group - like other companies in the sector - is primarily looking at its debt and is therefore selling properties. In the first half of the year, Grand City Properties sold apartments worth 250 million euros, around three percent below book value, the company added. Most of these were older properties in London and North Rhine-Westphalia. The Group's total debt nevertheless rose to 5.3 billion euros by the end of June, from 5.2 billion at the end of 2022.

In addition, contracts for the sale of further apartments worth 130 million euros have been signed since the beginning of the year, according to the company. These are properties in North Rhine-Westphalia, Berlin, Dresden, Leipzig, Halle and a few in London, Windfuhr explained. They only need to be entered in the land register.

However, the company still wants to dispose of further properties: At the moment, further properties with a volume of 200 million euros are up for sale, Windfuhr said. Management hopes to get rid of the properties within the next 12 months. However, there is no time pressure. The properties are to be sold as close as possible to their book value. "Everything we have can be sold if we get the right price," he added.

The company's cost of debt remained low at 1.6 percent as of June 2023, with an average maturity of 5.7 years, it said. The group has cash and cash equivalents to cover debt maturities through the second quarter of 2026, it said.

Grand City Properties, with its approximately 63,400 apartments, is particularly active in densely populated areas of Germany, such as Berlin, North Rhine-Westphalia, the Halle-Leipzig-Dresden region and the Rhine-Main area. Grand City Properties is also represented in major cities such as London and Munich. The largest shareholder is the commercial real estate group Aroundtown, which holds 60 percent of the company./mne/knd/mis/men/mis