Sirius Real Estate looking for fresh South African investment

The AIM-listed Sirius Real Estate, which owns and manages light industrial and flexible workspace in the form of business parks across Germany, seems to be building on its recovery under its new management and issued a buoyant recent trading statement.

As we reported back in June, the group raised €50m in a private equity placement to fund the investment of a further five German business parks for €57.24m and the early refinancing of two debt facilities. Four of the five have now been bought, and the fifth, in Aachen, was due to close at end-October.

In aggregate the five business parks will contribute €5.33 million of annual rental income (€4.7m net operating income), with a net initial yield of 8.1%. The company says that with the new banking terms negotiated, the portfolio will have an initial cash on cash yield of 14.6%, with more expected as vacancies are reduced.

Sirius also completed a new new 7-year €59m debt facility with SEB AG to refinance the two existing and expensive Macquarie debt facilities. The interest on the SEB AG debt facility has been fixed at an all-in interest rate of 1.84% for the full term, which is lower than previously anticipated, said Sirius. This debt facility will reduce Sirius's annualised interest cost by about €2.6m.

After the Aachen acquisition, Sirius will own 37 business parks with over 360 individual buildings comprising more than 1.2 million sqm of lettable space. It also manages two other properties on behalf of third parties.

CEO Andrew Coombs commented, "We are achieving our ambitions to increase the size and profitability of the business through both organic and acquisition led activities, thereby improving shareholder returns. In the last 12 months we have completed two equity Placings and raised €90 million which we have deployed by acquiring 9 new business parks adding over 200,000 sqm to the Sirius portfolio. The new sites have all been immediately earnings accretive and have significant potential for further contribution to net asset growth and FFO."

Although about half of Sirius’s income from its business parks is secured by long-term leases with large groups such as Siemens, Daimler and GKN Aerospace, the company is increasing its focus on mixed-use flexible workspaces with its popular packages including “Smartspace” and “FlexiLager” aimed at startup and early-stage businesses.

According to Coombs, Sirius’s CEO, this segment is showing the most rapid growth. “There’s high demand for flexible commercial and industrial spaces that can be refurbished for the specific needs of smaller tenants that typically require less than 500 sqm. Yet few German landlords are interested in renting out spaces smaller than 1,000 sqm.

Last year Sirius took up a secondary listing on the Johannesburg Stock Exchange, while retaining the primary lising on the AIM. The company was meeting South African investors during October, apparently with the goal of attracting a large institutional investment. South African boutique investors have injected funds into the company in the past, interested in broad exposure to light German manufacturing and exporting industries.