Sirius Real Estate Limited a rarity in the property sector – a resilient growth

Britain left the EU after a last-minute trade deal agreed on Christmas Eve that was enacted just a few days ago.

Politically, this was a major landmark – even if clawing back of control from Europe may have untold ramifications.

Yet as an investor, turning one’s back on the world’s largest trading bloc lacks pragmatism. If portfolio diversity is important then exposure to mainland Europe is key.

In the property sector, access to the single market is provided by Sirius Real Estate Limited (), the FTSE 250 company focused on Germany.

It has a portfolio of more than 60 out-of-town storage facilities, industrial units and offices spread across the country’s main regions. It serves the Mittelstand, the small- and medium-sized businesses that form the backbone of German industry and commerce.

Emerging themes

Sirius chief executive Andrew Coombs points to three themes that have emerged or are emerging that play to the company’s strengths.

All three are the result of the coronavirus (and its impact on the way business is now done) but they also speak to German caution and pragmatism.

Storage space has become key as manufacturers, through necessity, have moved from just-in-time supply to warehousing vital components, Coombs says.

Longer-term, bosses are looking to “mitigate their risks” by bringing back onshore production formerly outsourced to the likes of China, India and Africa.

This brings us to the second big theme – the knock-on increase in demand for industrial capacity.

“German manufacturers no longer have the confidence in an intercontinental supply chain,” the Sirius CEO observes.

The third structural factor at play that could underpin the success of property companies such as Sirius is the growing clamour for low-rise, edge-of-town properties – a trend common to many developed economies.

Conscious that in the new world post-Covid, businesses will start to invest in offices that avoid packing in employees or piling them high.

Interest is now focused on bases that are likely to be able to accommodate the practicalities of work after the pandemic, most important of which is space.

“What we’re seeing is that these customers haven’t cancelled the leases in the centre of town; what they’ve simply done is taken additional offices on the edge of town,” says Coombs.

Solid financial performance

The last set of results – the interims to the end of September (published in the late November) – reveal Sirius as a company bucking the trend for the sector.

Funds from operations (FFO) rose 7.4% to €29.1mln, while cash collection was 97.3% for one of the most challenging periods in living memory for the world economy.

Not only that, enquiries were up 17.4%, reflecting proactive work done by the business development team, but also mirroring the trends outlined above.

The net asset value grew by 5.2%, though Coombs and his team don’t share the market’s obsession with this benchmark.

“Our mission is all about income and cash,” the Sirius CEO says at the end of an eloquent deconstruction of the investors’ and analysts’ pre-occupation with the NAV.

Medium-term plan

The plan over the medium-term is to grow FFO to €100mln.

This will be partially achieved by utilising Sirius’ asset management platform of over 250 people throughout Germany. They will help to realise modest rent increases, uplifts from the transformation of vacated properties, investment programmes and asset management initiatives.

Sirius also has €70mln of “acquisition firepower” which will help boost the bottom line. Further property purchases could be funded from debt and “a little bit of equity on top”, says Coombs.

Quietly simmering in the background is the company’s 35%-owned joint venture with the French financial giant AXA.

“What we’re targeting are properties that are worth more than €45mln that when bought that are typically about 90%-plus occupied,” explains…