Join our community of smart investors

Sirius's UK expansion gets off to a strong start

This year's results suggest Sirius decision to debut in the UK was a wise move
June 13, 2022
  • First results since acquisition of BizSpace
  • Reit owns assets in Germany and UK

It is hard to compare Sirius Real Estate (SRE) to any other real-estate investment trust (Reit). For one thing, the company only achieved Reit status at the start of April and even then only for the UK arm of its business, an arm which it grew after snapping up flexible office and light industrial landlord BizSpace for £245mn late last year. Meanwhile, the majority of Sirius’ portfolio is business park space in Germany, yet another quirk that separates it from its UK-listed property peers.

However, investors would be foolish to overlook this company purely for its unorthodox set-up. At their hearts, its German strategy and the acquisition of BizSpace are both true to what Sirius is about: managing and operating assets on business parks let to small-to-medium businesses on short-term, flexible leases.

For years, Sirius has boasted that this strategy is a strong one because of the strength of the German economy. Short-term leases means that when an economy is growing – which Germany’s often is – Sirius can take advantage of the demand driven by the entrepreneurial zeal of small businesses. Of course, the short lease length also leaves it particularly exposed to economic downturns, which is why its profits took a hit in 2020. 

So, the question for this year’s results is: how has Sirius fared now that its UK portfolio means its fortunes are tied to the UK economy as well as the German one?

Quite well, actually. BizSpace’s occupancy has risen from 88.7 per cent to 90.5 per cent since Sirius' acquisition. Meanwhile, BizSpace’s annual rental income has increased 7.6 per cent from £41.9m to £45.1m. Sirius will no doubt point to its superior running of the business, having appointed four people to BizSpace's senior management team in April, but good timing has helped a lot as well. The economic recovery from the pandemic has seen demand for flexible space rise as businesses get back to the office.

Inflation might well hamper this recovery with some predicting another recession, which should act as a check for anyone considering this stock. However, these concerns look like they may have already been factored into the share price. In November last year, Sirius was trading at a dizzying premium to net asset value (NAV) of 68 per cent. That has since come crashing down to a much more reasonable 4.2 per cent. On balance, that looks like good value despite wider macro uncertainties. Buy.

Last IC View: Buy, 134p, 8 Nov 2021

SIRIUS REAL ESTATE (SRE)  
ORD PRICE:106pMARKET VALUE:£1.24bn
TOUCH:106p-106.4p12-MONTH HIGH:145pLOW: 100p
DIVIDEND YIELD:3.6%TRADING PROP:NIL
PREMIUM TO NAV:4.2%NET DEBT:-73%
INVESTMENT PROP:€2.1bn   
Year to 31 MarNet asset value (¢)Pre-tax profit (€mn)Earnings per share (¢)Dividend per share (¢)
201863.189.68.903.16
201971.014512.83.36
202077.41119.603.50
202188.316414.23.80
202210216913.54.41
% change+16+3-5+16
Ex-div: 07 Jul   
Payment: 18 Aug   
€1 = £1.16