Sirius' strategy holds up in good times and bad

The world of commercial real estate has taken a beating since Sirius Real Estate’s (SRE) last set of results, but the outlook for this particular real estate investment trust remains rosy. Despite rising interest rates putting off prospective buyers and thereby knocking down property values across the board, Sirius has nevertheless recorded a £26.8mn gain in the value of its assets in the six months to 30 September this year.

The reason for this is the sort of buildings Sirius owns – medium-sized workspaces let on short or flexible terms – are precisely the sort of buildings which wary businesses uncertain of the post-Covid working environment and the looming recession want. Workspace (WKP) owns assets which are also let on flexible terms to small companies and it too recorded an increase in the value of its assets recently despite the wider headwinds in the world of commercial property.

Meanwhile, revenue has climbed 48 per cent despite a fall in its overall occupancy rate thanks to its acquisition of flexible workspace provider Bizspace last year. The deal has given the company a UK arm which owns similar assets to the ones it already holds in Germany and has allowed the company to continue to grow using a strategy which continues to work even in choppier waters.

However, things are likely to get worse before they get better. That occupancy rate will no doubt fall further as a UK recession takes hold and though the value of its assets has grown the speed of that growth has slowed compared with last year and will likely continue to slow – possibly even entering reverse if the situation in the wider property market worsens. As it is, Sirius is doing well in a challenging sector. Buy.
Last IC view: Buy, 106p, 13 Jun 2022