Sirius raising fresh €50m for further acquisitions

The AIM-listed Sirius Real Estate, which focuses on business parks throughout Germany, is pushing ahead with its second equity raise in less than six months, issuing up to 106 million shares in a private placement and looking to raise about €50m in fresh funds.

The company plans to use the funds to buy five mixed-use business parks in Stuttgart and North Rhine-Westphalia for €58.2m, while also availing of a new €18m bank facility which is currently being negotiated at an expected fixed rate of 2.5%.

The five assets offer a net initial yield of 8.1%, have a 16.4% vacancy rate and an average remaining lease of 3.6 years. The acquisition will bring to 40 the business parks that Sirius now owns.

The company also has a listing on the Johannesburg Stock Exchange, so its placement was being managed by PSG Capital in South Africa as well as Peel Hunt in the UK.

According to CEO Andrew Coombs, the new assets will deliver immediate bottom-line returns for Sirius, with the acquired portfolio having an annualized rental income of about €5.4m, net operating income of €4.7m and a net initial yield of 8.1%. The total lettable area amounts to 103,610 sqm with a collective vacancy of 16.4% and is located in markets where Sirius wants to grow its exposure. “On completion, these will generate immediate return for shareholders as we exploit the yield gap between the new portfolio's cash generation and our low cost of borrowings”, Coombs said.

On its overall financing situation, Sirius also plans to reduce its leverage by repaying the two most expensive loans in its debt portfolio. The two credit lines from Macquarie Bank have a combined volume of €56m. They will be refinanced via a new ten-year €56m credit facility from an unnamed lender, with a margin of 135 basis points over Euribor. With the refinancing complete, the company expects to save about €2.4m in annual interest payments. Together with the capital raise and the acquisition, the company's loan-to-value ratio will drop to 46.8%.

With the latest assets, plus the €70.9m it invested over the last six months to buy a further four assets, the Sirius portfolio is now valued at more than €600m, with more than €1m sqm of lettable space. CEO Coombs commented to South African website Moneyweb recently that Sirius could strive for and manage more than €1bn of German properties, supported by growing demand for light industrial assets across Germany.

He said that the combination of capital increase, the latest acquisitions and the benefits of new financing would be about 16% accretive to annual dividend per share. Sirius is paying a final dividend for the 2014 full year to 31st March of 1.6 cents per share, at a current share price of €0.46.

REFIRE: Sirius initially floated in 2007 at the height of the credit boom, and subsequently saw their share price collapse as asset prices were written down and heavy borrowings were refinanced. The company has been stabilised under Coombs with selective disposals and improved operating income, and the renewed focus on genuine operational issues rather than just balance sheet engineering has seen the company's fortunes slowly getting back on track. The outlook is definitely improving.