Grand City Announces 20.04% Stake in LEG, Expects Boost to Operating Earnings
Key Facts
Grand City Properties announced that its total stake in German residential property company LEG Immobilien had reached 20.04%, an investment it expects to increase funds from operations I by about 30% on a proportionate basis. The disclosed stake includes shares it already owned and shares covered by purchase agreements with financial intermediaries, according to the investment statement. The company said the shares were trading "at an FFO I yield exceeding 13%," based on its assessment of the investment position. It classified the stake as a financial investment, with the option to increase it to 29.9%, reduce it or sell it depending on market conditions. Citigroup Global Markets Europe acted as financial adviser on the transaction, according to Aroundtown's statement.
The book value of LEG's equity attributable to the acquired shares is about 1.8 billion euros, based on the company's June 2026 figures, according to Grand City's official disclosure. Grand City added that it could record an exceptional non-cash gain under International Financial Reporting Standards if the necessary accounting recognition criteria are met. The investment also affects Aroundtown, which expects its funds from operations I to increase by about 15% on a proportionate basis. Including the proportionate stake in LEG's portfolio, residential property becomes the group's largest asset class, accounting for 42% of the total portfolio. The weighting of the residential and accommodation sector, which also includes hotels, rises to nearly 60%, compared with 53% before the investment, according to Aroundtown.
The investment follows a share exchange offer that Aroundtown said increased its ownership of Grand City to 81.5% at settlement. Its ownership before the offer was 62.5%, according to the group's statement on the exchange results. At the subsidiary, funds from operations I totaled 91.450 million euros in the first half of 2026. That compares with 94.784 million euros in the first half of 2025, a year-on-year decline of 4%, according to Grand City's financial statements. The company attributed the decline to higher financing costs, increased amounts attributable to perpetual note holders and higher non-controlling interests' contributions.
Grand City's net rental income, meanwhile, rose to 219.275 million euros in the first half of 2026, according to its financial statements. The comparable figure was 212.832 million euros in the same period of 2025, representing year-on-year growth of 3%. On liquidity, the company reported cash and liquid assets of about 1.4 billion euros at the end of June 2026. Its loan-to-value ratio stood at 33% at the end of the same period, according to its first-half results statement. The company's average cost of debt was 2.1% at the end of June, while its interest coverage ratio was 4.7 times during the first half.
LEG, whose portfolio comprised 170880 residential units according to Investing's coverage of its first-half results, reported a decline in funds from operations during the period. FFO I fell by 4.4% to 230.5 million euros, according to the website's coverage of the results presentation. Adjusted funds from operations declined by 12.7% year on year to 110.5 million euros in the first half of 2026, according to its coverage of the earnings call. On debt, LEG's loan-to-value ratio fell to 45.5% at the end of the first half. The ratio stood at 46.8% at the end of 2025, according to coverage of the company's results.
LEG maintained its adjusted funds from operations outlook for 2026, according to Investing's coverage of its earnings call. The company set the guidance range at between 220 million euros and 240 million euros. On regulatory matters relating to the investment, Grand City said it would not exercise the voting rights attached to its LEG shares before obtaining the required approval from Germany's Federal Cartel Office. Grand City is scheduled to publish its third-quarter financial report on 11 November 2026, according to its financial calendar. Aroundtown's third-quarter report follows on 25 November 2026, according to the group's financial calendar.