Sirius posts strong figures, bullish on upside rental potential
Sirius Real Estate, which operates branded business parks and flexible workspaces throughout Germany, said it is planning on investment of a further €100m in acquisitions for its new business year, after posting full-year results that saw FFO rise by 4% to €38.4m.
The group said its profit before tax rose 17% to €89.6m during the period, while its portfolio book value increased by €126.1m to €967.3m. Like-for-like annualised rental income rose by 6.2% to €79.5m, while earnings climbed by 22% to €81.4m, thanks partly to valuation effects.
Chief executive Andrew Coombs said that Sirius would continue to grow while recycling mature and non-core assets into new business parks with much greater potential for income and capital growth into the future.
“We still have the financial capacity to acquire more than €100m of assets, for which we have a healthy pipeline of opportunities located in our target areas around Germany's big seven cities, where we have extensive market knowledge and expertise,” Coombs said.
Over the full financial year, Sirius bought 13 new assets for €163.7m, and reported an increase in total income from €68.8m in the comparative period to €72.1m. On the new assets acquired, Coombs said they were bought with an average vacancy of 42%. "Some were bought because they have a vacancy as high as 76%. For most landlords, these vacancy figures would equal risk. But for us it means an opportunity to grow our rent roll", he said.
Coombs said recently he also plans disposals of €103m of assets this year. "We do not collect assets and sit on them. We continuously recycle our portfolio and reinvest the proceeds to create higher-yielding assets", he said.
Sirius has grown strongly since opting for a dual listing on London's main exchange and in Johannesburg, where it fills a niche of being the only German-focused property stock listed on the JSE. Its strategy is to buy older, under-rented industrial parks on the outskirts of Germany's major cities and unlocking rental and value growth through redevelopments.
About 50% of the company’s income is secured by long-term leases with large corporations such as Siemens‚ Daimler and GKN Aerospace. The balance comes from its so-called smart space products — mixed-use units that are typically let on 12-month leases to small and medium-sized business owners.
This often enables Sirius to achive higher rentals than would normally be expected on conventional space rented to large companies on long-term leases. The company's rental income increase of 6.2% is well ahead of German inflation of just under 2%.
On the strength of this, Sirius is paying a current dividend yield of 4.7%, on a typical payout of 65% of FFO.
Coombs was bullish on growth prospects in his sector, seeing upside potential rental income of €10m on the new assets Sirius has recently bought. "We typically aim to double our equity on new acquisitions in three to five years, which we manage to do because we don’t pay for vacancies and are able to turn empty space into high-yielding, flexible-use products", he said.