This German property company offers a 15% dividend yield.
Since I became a financial writer in 2003, I've warned Fool readers about what I believe to be a growing bubble in UK domestic housing.
In contrast to the UK, you couldn't find a more different property market than Germany's. From living in Germany on and off from the Seventies to the Nineties, I know it to be the world's most stable -- even boring -- property market. It may come as a shock to UK homeowners to learn that more than half (55%) of Germans rent rather than own!
Deutschland unten alles
Indeed, during the UK's boom of the mid-Nineties to the late Noughties, property prices in Germany barely budged. Likewise, in the financial meltdown of 2007/08, they held up well. Most recently, Germany recorded a lacklustre 0.9% rise (before inflation) in property prices between the first quarters of 2009 and 2010.
The reunification of East and West Germany in 1990 led to predictions of a boom which never arrived. Even in Berlin -- Germany's cultured, lively capital of 3.4 million people -- prices have barely moved over the past two decades, in line with the rest of the country.
Investing in Germany property
So, forget about capital gains, as investing in Germany property is all about weighing up rental yield against maintenance costs. What you want are property vehicles which are well-diversified with stable borrowing costs and attractive rental yields.
One such company, much discussed this year in our popular Paulypilot's Pub discussion board, is Speymill Deutsche Immobilien Company (LSE: SDIC). My Foolish friend David Holding covered SDIC as a play on German property in November 2009. Alas, Speymill's share price has suffered badly due to worries over its running costs and banking covenants.
Gagging for Gagfah?
Although I never took the plunge, watching Speymill's story unfold did alert me to an exciting play on German property: Gagfah.
Founded in 2005, Gagfah is Germany's largest listed housing association with 165,000 rental units, plus a further 20,000 managed units, spread across 350 German towns and cities.
Although Gagfah is a large, liquid, listed company, you should note that over 60% of its equity is still owned by its founder, the US hedge fund Fortress Investment Group. Fortress was one of a number of investment groups that snaffled up German property in the early Noughties. Given this dominant shareholding, Gagfah's future and strategy will be decided largely by Fortress, rather than Gagfah's other shareholders.
Shares in Luxembourg-based Gagfah SA trade on the Frankfurt Stock Exchange under the ticker GFJ, mostly via the Xetra Trading Platform. Here are Gagfah's basic fundamentals:
| Name | Gagfah SA |
| Ticker | GFJ |
| Shares in issue | 226m |
| Market cap | €1,234m |
| Price | €5.46 |
| Net asset value per share* | €12.52 |
| Funds from operations per share* | €0.21 |
| Dividend | €0.80 |
| Yield | 14.6% |
* as at 31 March 2010
For more detail, read Gagfah's latest quarterly update (1.7 Mb PDF document; 44 pages).
As you can see, at €5.46, Gagfah shares trade at a 56% discount to their underlying net asset value of €12.52. What's more, largely all of the firm's funds from operations are paid out in quarterly dividends.
Just look at Gagfah's dividend record during the credit crunch. It has paid a stable quarterly dividend of €0.20 since the second quarter of 2007, with the latest dividend arriving last week.
The share price has been much more volatile. The shares were floated at €19 in October 2006 and although they initially did well, a steady decline soon set in that lasted all of 2007 and 2008. The shares sank as low as €2 in December 2008 before mounting a partial recovery. They've traded at the €5-€7 level for the last year or so.
The credit crunch has drastically slowed Gagfah's expansion plans, too. When the company floated back in 2006, it intended to double its stock of houses from 150,000 over the next five years. Nearly four years later, it's only managed to add 10,000 units.
Of course, nearly all real-estate firms borrow to invest and Gagfah is no exception. It has property valued at €9 billion, net assets of €2.4 billion and financial liabilities of €6.3 billion (with 90% of its loans falling due after 2013).
In summary
Gagfah offers a mammoth yield for income investors, backed by one of the world's most stable property markets.
Of course, there could be a few bumps in the road -- especially if the euro or the EU economy tanks -- but a near-15% yield looks worthy of investigation.
More from Cliff D'Arcy:
> To buy or sell shares, try an online broker account with The Motley Fool's Share Dealing Service. You can deal in real time for a flat rate of just £10 per trade. Click here to open an account for free today.
