Sirius boosts dividend, aiming for full London, J'burg listings

The AIM-listed Sirius Real Estate, which focuses on German business parks for light industrial properties, posted further solid figures for the first half, and sweetened its appeal to investors by increasing the interim dividend. FFO and dividend per share both rose by 51%, while NAV rose by 4% in the period.

The company improved its H1 pretax profit to €37.5m, from €28.3m. Net rental income was €23.7m, from €17.5m. Like-for-like annualised rental income increased by 2.4% to €64.5m from €63.0m, with current annualised rental income now standing at €69.1m. The interim dividend is 1.39 cents a share, up from 0.92 cents, while the current share price is at 52c.

Sirius Real Estate said it completed a €30.0 million private placement in the period and three acquisitions, along with a further acquisition following the end of its first half. Occupancy of the acquisition sites currently stands at 69%, which Sirius Real Estate said gives it "significant scope" to drive income and capital growth.

The company said its occupancy across its portfolio was 81% at the end of its first half, up on a like-for-like basis from 80% at the end of March, and the like-for-like rate per square metre of office space increased to €5.07 from €5.02 at the end of March.

The company is listed on the junior boards in both London (AIM) and Johannesburg (AltX), where it remains the only pure-play German commercial real estate stock for South African investors. In both jurisdictions Sirius is targeting a full listing on the main boards, perhaps as early as January or February 2017 in Johannesburg, where the company would be exposed to larger institutional investors.

Offshore property stocks in South Africa – particularly those with investments in the UK – had been outperforming their South African peers over the last three years, but have gone into reversal since the UK Brexit vote. Sirius has been hit much less hard than UK peers such as Capital & Counties Properties, Capital & Regional, Atlantic Leaf and Intu Properties, which have fallen by more than 30% on average since the vote.

CEO Andrew Coombs, who's based in Berlin, commented following the interim results on Sirius's prospects for the German market. “Germany has become an investment destination of choice for property investors overnight, as they are seeking safe havens outside of volatile markets,” he said.

He noted investment volume data from real estate firm JLL which showed Berlin, Munich and Frankfurt as three of the top five cities in Europe in terms of investment volumes for the third quarter of 2016. Coombs said that 53% of Sirius' total portfolio of 43 business parks valued at €771m is located in and around these three major German cities.

“We are not seeing people signing leases yet but we are seeing people come to us from the financial, telecoms and IT industry inquiring about the rental space we have. This means is that people are preparing for Brexit. But they won’t make a decision until March next year.”

Sirius said that the tentative demand has been for Sirius’ Smartspace product, space that is less than 500 square metres and has flexible lease terms. About 46% of its properties are let to small business (employing ten or more people) through the Smartspace product. Sirius is also seeing demand for properties with long-term leases (typically ten years).

Coombs remains very bullish on the company's immediate growth plans. Over the next 18 months it plans to add a net additional 70,000 sqm to its property portfolio through acquisitions and redevelopment projects, he said. The goal is to grow the portfolio value from the current €771m to €1.2 billion (R17.5 billion) in the next two years.

The typical Sirius modus operandi is to buy old buildings with up to 30% vacancies at a net yield of 8% and debt of less than 2% and convert them into mixed-used business parks. Coombs says its redevelopment initiatives have the potential to raise rental/sqm from €3 (after purchasing it) to €9.50 (after redevelopments).

Coombs said, "Over 99% of German enterprises are SMEs and 34% of these are enterprises with fewer than 10 employees. This is the market which is seeking flexible leases to meet ever-evolving space requirements and Sirius is well placed to take advantage of these market dynamics with our flexible multi-tenanted workspaces.

"We are encouraged by the results we are achieving to continue transforming our portfolio of assets under our investment programmes. Now that we have reduced our average cost of debt to below 2.0% and the average debt expiry to more than six years, we are well placed to continue to execute our strategy in a sustainable manner over the medium to long term."