Sirius Real Estate locks in new lending rate a year ahead of time

Sirius Real Estate, the operator of German branded business parks, has locked in a new extension to a €170m refinancing facility with lender Berlin Hyp, about a year in advance of the facility's expiring next year.

The new seven-year facility agreed with Berlin Hyp carries a fixed interest rate of 4.26% and replaces and redeems an existing facility. The new credit line extends the company's weighted average debt expiry from 3.8 to 5.0 years, and when it kicks off in a year's time, will raise Sirius's average weighted cost of debt from 1.4% to 1.9%.

Sirius had €993m of outstanding debt as of 30th September, of which €750m was unsecured, with the new facility accounting for the bulk of the remaining €243m, of which the most significant tranche is the newly refinanced €170 million Berlin Hyp facility. The company also had €1.6bn of unencumbered assets and over €138m of free cash available.

Over the next 12 months about €35m of debt is due to expire. Sirius said it was confident that either existing lenders would extend it, new lenders may replace it or it may pay it down.

According to Alastair Marks, chief investment officer and interim chief financial officer at Sirius, said of the extension with Berlin Hyp, "The willingness of Berlin Hyp AG to extend this EUR170 million facility now for seven years beyond its expiry in October 2023 is indicative of our relationship with our existing and longest standing financiers in Germany and the confidence that they have in our business model and the quality of our assets."

Sirius is listed on the London and Johannesburg Stock Exchanges. In South Africa, where CEO Andrew Coombs has long courted the investment community, the company offers a rare opportunity for South African retail investors to gain direct exposure to the German commercial property market without currency restrictions.

In addition to its recent acquisition of UK flexible workspace provider BizSpace Group last November, Sirius has been steadily recycling its assets, buying and selling as assets mature. It recently raised a combined total of €33.6m by selling two assets in Magdeburg and Heiligenhaus in Germany, and a BizSpace business park in Camberwell, London. With the proceeds it bought a €39.8m mixed-use property in Düsseldorf, a €3.9m warehouse asset located in a well-developed commercial area in Dreieich near Frankfurt am Main, and a €900,000 small 239 sqm vacant office building in Potsdam.

CEO Coombs said: "The strategic disposal of these mature assets at a premium to their book value demonstrates our continued ability to drive value within our portfolio and then crystallise returns, which can be recycled into new opportunities where we can grow operating income through our asset management platform."

However, he warned of a slowdown in new Sirius deals ahead. "Given the current uncertainty in the market, we now expect to slow our acquisition pipeline. However, we are continuing to monitor numerous acquisition opportunities so that we remain poised to execute transactions at the appropriate time in the future. We will also continue to seek to dispose of non-core or mature assets as and when we feel the timing is right."

REFIRE: Like most of its German peers in the listed property sector, the Sirius share price has taken a thumping since peaking nearly a year ago, since when it has fallen 50%. The share has been yielding nearly 4.8%, and rising, for the last few years, along with its earlier price appreciation. Whether that is sustainable given the share price weakness is questionable.

On the other hand, Sirius had a good track record of collecting its rents through the pandemic, when lots of its tenants came under pressure. This was partly due to the granular nature of its workspaces and flexible contracts, along with modest rent levels. Such is the level of uncertainty about how Germany will fare over the coming winter that all German real estate-related stocks have been pummelled, including Sirius.