Sirius Real Estate

An overview of the latest addition to the FinMeUp portfolio

About 

Sirius Real Estate Ltd. is a real estate company with a portfolio of 68 business parks owned or managed across Germany, providing a combination of conventional and flexible workspace. Listed on the main markets of the London and Johannesburg Stock Exchanges, Sirius is the leading operator of branded business parks providing flexible workspace to the German SME market. Since 2006, the Company has looked to acquire individual business parks and integrate them into its network of sites under the Sirius brand, whilst also reconfiguring and upgrading the space to appeal to the German SME market.

Business model

Siriuss core strategy is the acquisition of business parks in Germany and the UK which have either attractive yields, value-add potential, or both. Sirius transforms these business parks into higher-quality assets through investment and intensive asset management. Their portfolio consists of 36% office space, 32% storage, 24% production, and 8% other.

They enhance rental and capital value through active portfolio management, which can be split into four key stages:

1. Acquire: Seek out underutilised, multi-tenanted, mixed-use properties that they can transform into higher-yielding workspaces.

2. Transform: Convert properties into improved, more efficient, higher-yielding, flexible workspaces. Additionally, their active ongoing programme reconfigures and upgrades existing spaces.

3. Manage: Seek to maximise the value of assets with an active and ongoing asset management programme with the majority of functions performed internally.

4. Recycle: Sell off mature and non-core assets and use the proceeds to purchase core assets with higher value-add opportunities.

Technical Analysis

Overall trend: Sirius has been moving in an upward trend for the past 5 years, with only two notable retractions: The Covid19 crash in March 2020 and the recent retractions across all asset classes at the end of 2021. The overall trend remains bullish.

Support levels: The main support level, as indicated by the grey line, is the 100-day moving average on the weekly time frame. It has acted as support for the past 5 years and is now being tested again at the current price level. This could be a sign of reversal from the current downtrend. If the 100-day MA does not hold, investors can look to between the 1800c and 2000c range as entry levels, as these represent previous all-time highs.

The Relative Strength Index (RSI) indicates overbought or oversold levels. The stock price is currently oversold at around 30 RSI. This indicator, together with the strong support of the 100-day MA, signals a strong buy opportunity for investors.

Financials

Revenue, which mainly consists of rental income, increased by 8.1% for the year. There are three main ways in which revenue can keep increasing: Expansion of real estate holdings, higher rents, and higher occupancy rates. Stats for acquisitions held longer than 1 year are included in the attached images . Point is - Sirius has done some proper value addition.

1. Expansion of property portfolio: Total value from real estate acquired from 2014 to 2020 increased from 546.8 to 835.3, representing over a 50% increase.

2. Higher rents: Total annualized rent increased from 44.9 to 61.7, representing a 37% increase.

3. Higher occupancy rates: Occupancy rates when acquired averaged 72%, compared to 86% where they are now, representing a 14% increase.

Debt is another considerable factor to account for when it comes to valuing any business, especially real estate business where the acquisition of assets inevitably requires the use of loan financing.

Latest debt results:
Repayment of 170.7m of secured debt
Increase in book value of unencumbered assets to 944.1m
Weighted average cost of debt reduced to 1.2%
Term of debt extended to 3.7 years
Net LTV of 36.8% including unrestricted cash balances of 172.7m

These results indicate that Sirius understands how to manage their debt. Sirius maintains overall group LTV at 40% or less, financing new acquisitions with up to 50% LTV, using long-term, low-interest debt and subsequently blending them with unencumbered assets in the portfolio.

Investment case

- Real estate industry will continue to grow as populations increase. The idea of converting business parks into modern, well-managed workspaces seems like a pretty good business model.

- Post covid, employees are returning to offices or companies employ hybrid models, meaning that the demand for office space will probably keep increasing in the short-medium term.

- Revenue, property valuation, and occupancy rates increasing year-on-year, indicating consistent successful acquisitions and efficient management. 

- Sufficient cash flows to support growth opportunities. 

- Low LTV ratios, high interest-coverage ratios, and strong cash flows. 

- Attractive dividend yields for investors

- Recently expanded operations into the UK, with the acquisition of Bizspace, a UK flexible workspace provider. If the company can continue to manage their operations as efficiently as they have, this represents a massive opportunity.

- P/E ratio 28 at current levels even after recent retraction, versus 13.2 industry average. Though this is not unreasonably high, it is not ideal. 

***Disclaimer: This is not financial advice. Always do your own due diligence. All content is for informational purposes only***