CORRECTED-UPDATE 1-Germany's Gagfah readies start of property sale-sources
(Corrects FFO in fourth bullet point and in paragraph 10 to 0.13 instead of 0.14)
* Prepares sale of 38,000 flats-sources
* Aims for proceeds close to book value of 1.8 bln eur-sources
* Preliminary offers might come in by Oct. - source
* Q2 FFO rises to 0.13 eur/shr from 0.12 eur/shr
FRANKFURT, Aug 15 (Reuters) - Highly indebted German real estate company Gagfah is preparing to start the sale of nearly 38,000 apartments, or about a quarter of its portfolio, several people familiar with the process said on Wednesday.
The apartments in the eastern German city of Dresden have a book value of about 1.8 billion euros ($2.2 billion) and Gagfah would be targeting sale proceeds at about that level, the sources said.
Gagfah declined to comment.
The sale would be the latest in a string of major real estate deals this year, with demand and prices bolstered by investors seeking relatively safe assets in the wake of Europe's sovereign debt crisis.
One source said the quality of the portfolio of flats was above average.
"It was Gagfah's cash cow for years," the person said.
Gagfah will send out an initial information brochure on the flats to potentially interested investors in the coming days, with a detailed memorandum to follow later, the sources said.
"Preliminary offers could be submitted by October," one of the sources said, adding that some interested parties had already positioned themselves.
Strategic investors are seen as more likely bidders than private equity companies. German peer Deutsche Wohnen's Chief Executive said a few days ago Dresden was very interesting as an investment location.
Leading the sale of Gagfah's portfolio is investment bank Leonardo, which also handled Landesbank LBBW's sale earlier this year of more than 20,000 flats to Patrizia Immobilien for 1.4 billion euros.
Gagfah, whose biggest shareholder is U.S. investor Fortress , raised funds from operations - or FFO - to 0.13 euros per share in the second quarter from 0.12 euros per share in the second quarter last year.
Last year's FFO is taken from last year's second-quarter report, as the company did not publish a comparable number on Wednesday.
"Having successfully extended our 2012 debt maturity, resolving Gagfah's 2013 loan maturities will remain our principal focus for the remainder of the year," the company said in a statement.
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