Second wave is possible — Sirius
Even though the Covid-19 infection curve has been flattened across parts of Europe and the rest of the world, it would be foolish to start to celebrate, Sirius Real Estate CEO Andrew Coombs says. Sirius, which has a property portfolio worth €1.18bn (about R22.5bn), invests solely in Germany and has listings in SA and London.
Even though the Covid-19 infection curve has been flattened across parts of Europe and the rest of the world, it would be foolish to start to celebrate, says Sirius Real Estate CEO Andrew Coombs.
Sirius, which has a property portfolio worth €1.18bn (about R22.5bn), invests solely in Germany and has listings in SA and London. The German economy has had social-distancing measures in place since mid-March. Leaders of that country’s 16 states have powers to determine when lockdown restrictions can be lifted. Since May, parts of the economy have been opening up as some states say they have reached acceptable levels of immunity to the coronavirus.
“The pandemic is far from over. We may not have even reached the middle yet,” Coombs said after the release of financial results for the year to March. This is why as a business we are not celebrating any victories. Instead, we are preparing ourselves for what could come next. There may be another outbreak and there may not be.
“Right now, the economic situation in Germany and globally is delicate as businesses reopen. I think companies and investors need to bear this in mind.”
Sirius, which owns and operates business parks, has been in the five top-performing listed property stocks every year since it listed on the JSE in December 2014. The group listed on the London Stock Exchange in 2007.
About two-thirds of Sirius’s revenue comes from letting office and industrial space in business parks to small- and medium-sized enterprises. The rest comes from a storage business, which caters to both companies and individuals. Personal storage is more popular in Germany than in some other large European economies because about half the Germans rent apartments instead of owning houses. In terms of countries which go on international holidays, Germans rank highly, along with the Chinese and Americans.
Demand for personal storage has risen while Germany’s borders have been closed with companies exporting less than usual.
The company’s total return was 52.2% in 2019, while the JSE listed property index managed 1.93%. On Monday, Sirius reported that its taxed profit for the year had fallen almost a quarter to €98.1m, but the group had been conserving cash for a number of financial periods, which meant it could still pay a rising dividend. It raised its total dividend for the year to 3.57c, from 3.36c previously.
Coombs said that while they could obviously not predict the pandemic, “we did prepare ourselves for a geopolitical event [just] in case”. He said the company was managed so that it could continue to increase its asset base and “grow our dividends even if our earnings don’t grow in a period”.
Germany’s response to Covid-19 could be viewed in three phases. “Phase one involved the government giving companies support while they couldn’t trade. That phase is ending, and we are moving into phase two, when companies go back to work. This is tricky. I think arguably it will [take up to] three months for companies to return to work. It won’t be easy. The economy cannot get complacent and we mustn’t lose momentum especially if there is a second outbreak and we have to move back into a restricted situation. Phase three is the normalisation after Covid-19.”
Stanlib senior portfolio manager for listed property Ahmed Motara said Sirius had been a reliable performer, but even it would experience uncertainty when the pandemic left Germany. “As businesses go back to work, tenant trading will take time to reach levels evident before Covid-19. As such, the 2021 financial year will [probably] see a greater impact from [the virus] on Sirius’s operations,” he said.
RIGHT NOW, THE ECONOMIC SITUATION IN GERMANY AND GLOBALLY IS DELICATE AS BUSINESSES REOPEN