UPDATE 1-Grainger selling property, braced for euro breakup

By Naomi O'Leary

LONDON Feb 8 (Reuters) - Property investor Grainger said British house prices had proved surprisingly resilient and that it continued to sell off properties as it cuts debt and braces for what Chief Executive Andrew Cunningham believes will be an orderly breakup of the euro zone.

"In terms of the euro zone, as far as our portfolio is concerned I'm glad that it's in Germany rather than in any other country in Europe," Cunningham told Reuters. "No matter what happens with some countries breaking off and other countries leaving, Germany is going to be the strongest economic area."

Cunningham predicted an orderly breakup of the euro zone, with Greece probably leaving the euro in the next 12 months.

Grainger is the largest listed residential landlord in Britain but about 20 percent its 2.4 billion pound ($3.8 billion) portfolio is in Germany.

The 100 year old company said in a trading statement on Wednesday that gross rents rose 22 percent to 30.4 million pounds in the four months to the end of January as acquisitions helped offset a drop in rental income in Germany.

The company said it was continuing to see growth in rental income and that vacant UK properties disposed of during the period had, on average, sold for 5.8 percent more than their valuations in September 2011.

"The lack of resolution of the issues within the euro zone and the related problems in the banking system continue to cause uncertainty in the UK economy and therefore a drag on confidence in the residential sector," the company said. "However, in general, house prices have been more resilient against these conditions than might have been expected."

Cunningham told Reuters that properties needing renovation had sold particularly well as buyers sought out bargains and that the company's focus on properties in the more affluent London and south east of England had paid off.

The company said it had been a net seller of properties over the last four months and that it still intended to cut debt levels this year with the reduction weighted more to the second half of its business year.

Net debt stood at 1.443 billion pounds at the end of January, down from 1.454 billion in September.

The company is also growing its property management business in order to reduce its reliance on property investment and said that fee income rose to 2.9 million pounds from 2.2 million pounds in the same period last year.

Cunningham said he expected the UK residential property market to remain flat over the next 12 months.

Shares in the group were up 1.9 percent at 106 pence by 0918 GMT.