Sirius Real Estate boosts FFO by 31%, €30m new funds raised
REFIRE has been bullish on the prospects for the AIM-listed light industrial German specialist Sirius Real Estate for the last two years, and recent results underline the progress the company has been making since getting to grips with its near-fatal debt burden of some years ago.
Just last week the company raised €30m in a private and a secondary placement, higher than the €20m originally planned. It placed 66.2m new shares at €0.53, with the offer being three times oversubscribed. The share placement represents about 7.5% of the share capital prior to the placement.
The funds raised will be used for further acquisitions and a refinancing of its banking facility. Specifically, the new funding will support the acquisition of a new portfolio of three business parks and the refinancing of an existing €39.6m facility which is currently paying interest of 2.68% with three and a half years remaining, with a new €77m seven-year bank facility at 1.6% with the same lender.
Sirius said the three new business parks it plans to buy will generate an IRR of more than 15% annually. The all-in cost of the acquisition is €55.8m, of which €29.1m is in exlusivity with €26.7m under negotiation. The net initial yield would be 8.1%, and the portfolio would contribute €5.3m to total annualised rental income of more than €68m, and €4.5m to net operating income, said Sirius.
For the year ending March 31st, Sirius grew FFO by 31%, while the like-for-like book value of the company's 40 business parks increased by 10.4% to €687.5m.
CEO Andrew Coombs said, "Our ability to acquire German mixed-use property portfolios yielding in excess of 8%, combined with the availability to us of seven-year debt at very low interest rates, creates an opportune time for the company to be expanding and locking in these valuable opportunities for our shareholders, for the longer term."
Sirius' classical modus operandi is to buy old industrial buildings, generally on city outskirts, and then redevelop them into mixed-used business parks offering a combination of offices, warehouses, conference rooms and self-storage units. Describing the company's approach, Coombs himself said recently: “Our strategy is to buy horrible, old warehouses and turn them into funky, modern business parks, enabling us to create new income from dead space. We can typically take rents from below €3/m² to €6/m², which significantly boosts income streams and valuations.”
The portfolio has 113,000 sqm of vacant space that will be redeveloped over the next 12-24 months, while it also plans to re-cycle non-core assets, with €20m worth of mature properties already earmarked for sale.
Coombs said the German economy was in good shape, with continued growth in the country’s small business sector, which is an important market for the company’s flexible space product, aimed at tenants that typically require less than 500m² on shorter leases. It also offers longer-term leases (ten years) on some of its assets, with blue-chip tenants including firms such as GKN Aerospace and Siemens.
The company's debt structure has been steadily improving, and its debt expiry profile is now at 5.8 years from 4.4 years last year. The LTV ratio declined from 65% to 42.8%, while it is now paying out a dividend of 65% of profits, or 2.22 cents for 2015 (the current share price is €0.53).
The company's shareholders are distributed about equally between UK-based and South African-based investors, with the company also listed on the Johannesburg Stock Exchange. The South African connection is important for the company, as with little dynamism domestically many local investors have been backing rand hedge property stocks. As a pure play on German industry, Sirius has been attracting more attention in Johannesburg recently, after delivering a total return of 47% in 2015, well above that returned by the JSE SA Listed Property Index of 8%.
Although still trading at a discount to NAV (at about €0.59), the company is planning a move to the JSE main board in the second half of this year, putting it on the radar screen of many more index tracker funds. That, plus a growing following in London watching very solid results, could well lead to a rerating of the stock in the near future.