Siriusly good results

• Global, South Africa
• AIM, AltX, Germany, JSE, London Stock Exchange, Property, Real estate, REIT
• November 23, 2020

Sirius Real Estate is one of the better-named companies on the JSE. Not to be confused with the Harry Potter character of the same name, Sirius was established in 2007 and initially listed on the AIM, the development board in London.

An AltX listing was added in 2014 (the JSE’s development board) before the listing moved to the main board of the London Stock Exchange and JSE in 2017.

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After listing at R6 per share, it’s now trading at R18.49 per share. That’s a fantastic six year CAGR (Compound Annual Growth Rate) of 20.6% excluding dividends, a particularly strong performance when viewed against most other JSE opportunities over this period.

It’s an interesting property fund, owning and managing 56 properties in Germany. The portfolio is focused on industrial and warehouse business parks, with a decent helping of office buildings thrown in too.

Sirius offers “SmartSpace” products, which are flexible workspaces for tenants. This puts the company on the front foot for the evolution in office space requirements that has taken place worldwide in the wake of being forced to work remotely.

Importantly, Sirius is not a REIT. This gives it far more balance sheet and dividend flexibility than most other property funds on the JSE.

Unternehmensimmobilien

The particular class of property that Sirius focuses on is known as the “Unternehmensimmobilien” market, a word that doesn’t get easier to say no matter how many drinks you’ve had. This is a distinct class of mixed-use and multi-let commercial properties.

There are seven major cities in Germany and Sirius focuses primarily on these, with a selection of border towns included in the mix.

Germany is easily the most powerful economy in Europe. It’s an industrial powerhouse with a vibrant trade economy. JSE-listed Imperial Logistics tapped into this market for years before recently selling its European shipping business to focus on Africa instead.

Sirius is extremely experienced in this German property market, offering South African investors a way to easily tap into the German growth story.

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Financial Achtung, Baby

Against this Covid-19 backdrop, the results for the six months to 30 September 2020 were impressive:

• 5.5% growth in rental income
• 9.2% growth in net operating income
• 7.4% increase in funds from operations (operating profit before depreciation and portfolio revaluations)
• 2.8% increase in interim dividend
• 97.3% cash collection success rate
• 4.3% increase in the value of the portfolio
• €128.4m cash on the balance sheet

Sirius management feels confident that €70m of the cash can be used for acquisitions in the second half of the financial year. They’ve deployed €470m for acquisitions since September 2014, so there is certainly a track record of sourcing deals.

Adjusted profit before tax grew 11.1% but profit before tax shrank -17.5%. This is due to a significantly lower uptick in portfolio value in this period vs. the comparable period.

Adjusted net asset value per share, the book value of the share, sits at 85.81 cents (in Euros remember) per share. In Rand, that works out to R15.66 per share vs. a share price of R18.49 after a strong rally today (+8.19%).

A premium to book value of 18% demonstrates that the market is extremely supportive of Sirius and is pricing in strong growth.

Sirius is also operating at manageable debt levels, with 31.6% net loan-to-value (LTV). This is in line with many REITs on the JSE. The portfolio achieves a gross yield of 7.3% which is strong when viewed against weighted average funding cost for the group of just 1.5%.

Remember, a property fund lives and dies by its ability to manage debt successfully and use it to drive strong returns for shareholders.

Looking ahead

Sirius’ share price is up 18.5% year-to-date. The Rand has lost 15.5% to the Euro year-to-date so much of this increase has been driven by Rand weakness.

However, this doesn’t detract from the fact that Sirius demonstrated strong resilience at a time when numerous JSE property funds simply couldn’t meet dividend expectations. Assuming the H1 dividend can be repeated in the second half, the company is trading at a dividend yield of just under 5.5%.

Including property funds in a portfolio is usually a risk management tool. If the idea is to achieve risk reduction, this fund offers a way for South Africans to obtain currency and geographical diversification at the same time as asset class diversification.

Perhaps it’s time to get Sirius?

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