Sirius unveils double-digit return as asset values climb

Sirius Real Estate (SRE) is firmly in the canon of pandemic-proof stocks, but there is substance as well as sentiment behind the last year’s share price gains. Higher occupancy and a 3.5 per cent underlying growth in rent per square foot drove funds from operations - REITs' preferred measure of cash flow generation - up 9 per cent to €60.9m (£52.4m), taking the German industrial landlord closer towards a medium-term target of €100m. 

Along with underlying growth in the rent roll, the value of the portfolio was pushed higher by more than a tenth thanks to asset management actions, including refurbishing and re-letting cheaply-acquired vacant assets and moving tenants in return for a higher rent. 

Much larger revaluation gains, which together with profits on asset disposals, was behind the jump in pre-tax profits. The magnitude of the valuation increase included an element of “catch-up”, said chief executive Andrew Coombs. “One third is a hangover from the end of last year when the valuers were nervous about increasing the valuations,” he added. 

Enquiries were almost a fifth higher than the prior year and were markedly ahead of pre-pandemic levels in each of the first three months of 2021. An elevated level of enquiries meant letting volumes were maintained despite a dip in the conversion rate of enquiries to sales, said Coombs. He attributed that to the group’s sales platform, which includes in-house marketing and service charge collection functions.

House broker Peel Hunt upgraded its EPRA net tangible asset forecasts for March 2022 and 2023 by just over 6 per cent to 107¢ and 114¢, respectively. Against expectations of substantial growth in the rent roll and unlocking of value from reinvigorating acquired space, the shares stand at a near all-time high. The delivery of a double-digit accounting return in a period of such economic upheaval suggests that is warranted, and gives confidence that Sirius will deliver. Buy.

Last IC view: Buy, 86p, 23 Nov 2020