Sirius turns in a seriously impressive performance as its share price doubles
• The German real estate group, a once struggling owner of business parks, delivers the best combined dividend and capital return in 2019 compared with the rest of SA’s listed real estate sector on the JSE
German group Sirius Real Estate’s share price has more than doubled over the past six years, making it one of the star performers on the JSE after it failed to impress UK investors.
The once struggling owner of business parks designed to house small and medium enterprises (SMEs), as well as personal storage warehouses, has delivered the best combined dividend and capital return in 2019, compared with the rest of SA’s listed real estate sector.
Sirius’s total return was 52.2% in 2019, while the FTSE/JSE SA Listed Property Index managed a measly 1.93%.
Stenprop, which owns multilet industrial parks in England, was the second best performing property stock in 2019 with a total return of 41.77%. Equites, which invests in high-end industrial properties focused on logistics, returned 10.74% in 2019, while Stor-Age mustered a return of 27.72%.
Sirius Real Estate, a British company formed in February 2007, listed on the London Stock Exchange’s AIM platform three months later.
In 2010, Sirius was in need of a management shake-up. The company owned large buildings in Western Europe that were not delivering attractive returns.
Andrew Coombs, a Briton who had been UK sales director at Regus, the shared office space provider, was brought on board as a consultant to help revive the business.
Coombs repositioned Sirius to focus on a specialised asset class. The fund picked multitenanted business parks, and the best market for these was in Germany, the largest economy in Europe.
These business parks were attractive for SMEs that did not want to rent large office premises, which were often located in city centres and demanded high rentals as a result.
Coombs, a former non-commissioned officer with the Grenadier Guards, an infantry regiment of the British Army, was then made CEO.
One of the first things he did after joining the company was to install a new IT system so staff could find space for and communicate with clients more effectively.
Coombs’s new system helped Sirius’s employees complete projects more efficiently. They would set timers for each task within a project and all operations were brought in-house.
Coombs was joined by Alistair Marks, who became the fund’s CFO, and the pair teamed up to raise capital for the company, opting for a listing on the JSE’s AltX in December 2014.
It debuted at R6 a share with a market capitalisation of about R3.8bn and assets worth R6.4bn. Three years later it moved to the JSE’s main board.
Sirius is now the only specialist German property player listed in SA and owns, co-owns or manages 65 assets, spread across the European country in cities and towns including Berlin, Munich, Dresden, Mainz, Nuremberg and Wiesbaden, among others.
The company has 5,151 tenants. Its directly held portfolio is worth about €1.16bn (R20.6bn) and its market capitalisation is R17bn with a share price of about R16.53.
Coombs says Sirius partly owes its recovery to South Africans who took a punt on the company.
“Sirius first came to SA in May 2013 with a share price of less than 20c. We were a deeply discounted recovery story — in fact, at the time we were 70% discounted to net asset value (NAV),” he says.
“Shareholders in London in 2013 were not interested in discounted recovery stories, but South Africans on the other hand were able to see the potential,” he says.
Coombs says that in 2014 the JSE introduced the opportunity for fast-track listing, when it offered companies publicly listed on other foreign exchanges the possibility of a dual list on the JSE.
“So the short answer is that South Africans believed in the story and those who backed it back in 2015 have been well rewarded with returns of over 200%,” says Coombs.
Brendon Hubbard, a portfolio manager who invested in Sirius in 2010, says the company’s operating platform has made it a success story for investors.
“Almost all the current questions from investors are around why Sirius trades at a premium. The answer lies in the power of the operating platform,” he says.
Chris Segar, of Ivy Asset Management, says Sirius stands out among JSE-listed property companies.
“Germany is a compelling primary economy and the investment offers a good rand hedge. Sirius developed a model to invest capital expenditure into properties that offered good potential by virtue of their great locations along major transit nodes,” he says.
Garreth Elston, chief investment officer at Reitway Global, says Sirius’s stock is undervalued and can continue to succeed even if Germany’s economy slows down.
“Sirius has been one of the strongest consistent growth stocks available to SA investors,” Elston says,
“The superb management team,” scalable model and strong German economic fundamentals have driven the company for years, and in my opinion should continue to drive the company into the future, he says.
“Should growth start to level off, the company still has several growth options, and the supply of stock available in Germany, coupled to the demand for the type of properties Sirius is involved in, bodes well for continued growth.”
ONE OF THE FIRST THINGS COOMBS DID AFTER JOINING THE COMPANY WAS TO INSTALL A NEW IT SYSTEM
SIRIUS IS NOW THE ONLY SPECIALIST GERMAN PROPERTY PLAYER LISTED IN SA AND OWNS, CO-OWNS OR MANAGES 65 ASSETS
52.2% Sirius’s total return in 2019