The German JSE-listed real estate investment trust (Reit), Sirius Real Estate, is battling through a messy environment in western Europe and the UK. Nevertheless CEO, Andrew Coombs said in a recent update that Sirius is a highly resilient and reliable business which has been through worse. But will the market support him?
The group which owns business parks aimed at small and medium enterprises as well as storage assets in Germany and which has recently expanded into the UK, has seen its share price fall 50.73% year to date to about R14.85.
The market has been concerned about muted gross domestic product growth in Germany in the past year and the UK along with a rising cost of living for people in those countries.
Coombs said that demand for Sirius’ product offering had risen post the pandemic, even as much of the developed world was facing economic uncertainty and high inflation. The war in Ukraine had placed supply constraints on various commodities.
“Sirius is in a strong position to deal with any shortfalls in gas or electricity supply or further hikes in prices, having fixed rates for its and its occupiers’ gas supply until the end of 2023,” said Coombs in a statement.
The group which listed on the JSE’s Alternate Exchange in 2014, before moving to the main board of the bourse a few years later, reported for its German portfolio that it had achieved a 2.4% increase in like for like annualised rent roll to €115.2m in the six months to end-September 2022, compared with €112.5m in the six months to end-March 2022. This was driven by a 3.3% increase in the like for like rate per square metre to €6.53 from €6.32 at the end of March 2022. Sirius’ 12-month rolling cash collection rate in Germany was an impressive 98.0%.
The company refinanced its €17m BerlinHyp AG Amber loan facility with a seven-year term extension to October 31 2030. This would now begin at November 1 2023 at 4.26% interest, which would increase the group’s weighted average cost of debt from 1.4% to 1.9% and extend its weighted average debt expiry from 3.8 years to 5.0 years.
For its UK portfolio, it reported a 4.1% increase in like for like annualised rent roll to £46.5m compared with £44.7m at the end of March 2022, driven by an 8.4% increase in like for like rate per square foot to £12.64 compared with £11.67 per square foot at the end of March 2022. Sirius’ 12 month rolling cash collection rate in the UK was 99.3%.
Coombs said that despite the current economic headwinds, Sirius saw strong demand for the range of conventional and flexible spaces it offers both in the UK and in Germany.
In Germany, Sirius generated an average of 1259 enquiries per month in the six month period, of which 78.1% were converted into viewings. This led to a total of 79 872 m2 of space being let across 869 deals, which resulted in a sales conversion rate of 11.5%.
In the UK, an average of 1343 enquiries was generated per month, of which 17.3% was converted into viewings. As a result, a total of 161 470 square feet or 15 001 square metres of space was let in the period across 377 deals resulting in a sales conversion rate of 4.7%.
Sirius increased its free cash reserves to more than €138m from €126m, as reported at the end of March 2022, through a strong trading period as well as through disposals in Magdeburg and Camberwell. The company would continue to explore future opportunities to sell properties at premiums to book value in order to recycle capital and use the proceeds in excess of book value to reduce the overall loan-to-value (LTV) which sat around 40%.
LTV is used to indicate the strength of a property fund’s balance sheet. It measures a property fund’s debt relative to the value of its asset base. Fund managers tend to set 40% as a prudent ceiling for LTVs across property funds.
Coombs said Sirius’ €2.1bn portfolio was primed to grow steadily in the next year. The portfolio was last valued in March 2022 at, comparative to the rest of the sector, a relatively high gross yield of nearly 7% in Germany and nearly 12% in the UK.
Due to the strong rent roll performance in the period in both Germany and the UK, together with diversified income streams within the portfolio, the company was expecting values to increase as at September 30 2022, in spite of potential yield expansion across the multi-let sector.
“Additionally, with the improved funds from operations from continued rental growth, the lower quarterly debt repayments from introducing corporate bond financing last year and the lower capital expenditure requirements of Sirius over the next year or so, the group has the strongest operational cash flows it has ever had,” Coombs said.
In terms of the energy crisis, Coombs said Sirius secured gas supplies for its tenants at fixed rates in 2020. Sirius did not foresee any material changes to its fixed-rate agreements for gas supply expiring in December 2023.
Last month, the German government announced a relief package of up to €200bn (R3.6 trn) to cushion the help deal with the cost of energy for businesses and individuals until 2024.
The German Federal Agency responsible for the co-ordination of the supply of gas throughout Germany, confirmed that the events at the Nord Stream 1 and 2 pipelines were not affecting gas supply in Germany. Nord Stream 1 is Russia’s largest pipeline to western Europe. No gas has been delivered through Nord Stream 1 since the beginning of September 2022, when leaks were found in it, and Nord Stream 2 has never been put into operation. German gas reserves are now more than 90% of capacity and gas continues to be supplied from a range of different sources other than Nord Stream.
Sirius Real Estate, a leading owner and operator of branded business and industrial parks, says demand is high for its conventional space and flexible workspace in Germany and the UK.
This is despite fear in Europe of the Ukraine war leading to supply constraints, rising inflation and an uncertain economic environment.
“Sirius is in a strong position to deal with any shortfalls in gas or electricity supply or further hikes in prices, having fixed rates for its and its occupiers’ gas supply until the end of 2023,” said CEO Andrew Coombs.