Some investors are steering clear of real estate, given the uncertainty created in the wake of the EU referendum; so here's a UK-traded company - soon to move from Aim to a full listing (with a similar move planned for its dual-listed shares in Johannesburg) - that offers an attractive yield and no exposure to the Brexit effect because it operates exclusively in Germany, the property hotspot of Europe.
- Attractive dividend
- Low cost of debt
- Rising rental income
- Actively recycling assets
- Relatively high loan-to-value ratio
- Election uncertainty
Sirius Real Estate (SRE) provides self-storage and flexible workspace for small- and medium-sized enterprises (SMEs) in a number of locations in Germany. Key business drivers are twofold. The first is the opportunity to acquire industrial assets that are ripe for rent-boosting refurbishment. The second is Sirius's ability to take advantage of the extremely favourable financing facilities available inside Germany.
Given that around 99 per cent of all German enterprises are SMEs, and of these around a third employ fewer than 10 people, Sirius has a ready-made market for tenants. It is also experiencing growing demand for self-storage. This backdrop is underpinning property values and rent rises.
The extent to which Sirius is succeeding was reflected in the half-year results to the end of September 2016, which saw funds from operations up by three-quarters at €17.1m (£14.6m), while recurring profit jumped 87 per cent to €16.1m. Like-for like occupancy rates rose to a record high of 81 per cent, but there remains significant scope for improvement. And occupancy levels at newly acquired sites of just 69 per cent provide plenty more potential, too.
Sirius's panache at attracting new tenants is central to its investment case. It is keen to make potential clients as comfortable as possible with welcoming reception centres, friendly staff and a good cup of coffee. Suffice to say that, whereas German clients normally view what's on offer and go away to consider, Sirius is signing up many clients on the spot.
| SIRIUS REAL ESTATE (SRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 52.9¢ | MARKET VALUE: | €445m | |
| TOUCH: | 52.5-53.3¢ | 12-MONTH HIGH: | 54.5¢ | LOW: 41.8¢ |
| FORWARD DIVIDEND YIELD: | 6.2% | TRADING PROPERTIES | €5.9m | |
| DISCOUNT TO FORWARD NAV: | 16% | NET DEBT: | 64% | |
| INVESTMENT PROPERTIES | €765m | |||
| Year to 31 Mar | Net asset value (¢*) | Net operating income (€m) | Earnings per share (¢*) | Dividend per share (¢) |
|---|---|---|---|---|
| 2014 | 44.0 | 28.5 | 2.3 | 0.3 |
| 2015 | 48.0 | 30.3 | 2.1 | 1.6 |
| 2016 | 53.4 | 39.7 | 3.1 | 2.2 |
| 2017** | 59.3 | 50.2 | 4.2 | 2.9 |
| 2018** | 63.2 | 56.7 | 4.8 | 3.3 |
| % change | +7 | +19 | +14 | +14 |
Normal market size: 20,000 Market makers: 7 Beta: 0.66 *Adjusted NAV and EPS **Peel Hunt forecasts | ||||
Sirius has built on its success with three acquisitions in the six months to September 2016 and one after the half-year-end for a total of €68.5m. These will add €7.2m to annualised rental income and have been purchased on a net initial yield of 8.8 per cent. Sirius has been busy shifting its debt into cheaper facilities while financing its acquisition spree, helped by a general drive by German banks to lend money at attractive rates to stimulate the economy. The average cost of debt has fallen below 2 per cent. Loan-to-value is relatively high at 44.6 per cent, but is expected to fall as a result of property revaluation gains.
Sirius is also using property valuation gains to recycle capital into new investment opportunities. Most recently, it secured a sale-and-leaseback agreement on its Rupert Mayer business park in Munich for €85m, a 9 per cent premium over book value and 48 per cent above its acquisition price. The sale represented a 5.7 per cent yield, which is a substantially higher rating than the 7.7 per cent average yield used to value the portfolio. Sirius will lease the site for six years at an annual rent of €5m, bagging itself the current net income from the site of €5.3m a year, as well as a €100,000 annual management fee.
