Falling out of favour
Views are mixed on whether the beloved German property play is in a short-term correction, or set for a longer-term sell-off
Sirius Real Estate’s spectacular fiveyear rally has ground to an unexpected halt. The German business park owner’s share price is down 24% since it hit a record high of R30.67 on January 5.
That compares to a marginal 3% drop in the SA listed property index over the same time and places Sirius as the JSE’s worstperforming property stock year to date.
Sirius, also listed on the London Stock Exchange, is the
JSE’s only rand hedge property stock that generates 100% of its earnings in Germany (until November when the company entered the
UK). And until this year it has regularly topped the sector’s performance charts over the past five years.
In fact, R1m invested in Sirius when it listed on the
JSE in December
2014 would have been worth about
R5.1m on January 5.
That’s on top of a decent 5% average annual euro-based dividend yield.
The company is led by CEO Andrew Coombs and Alistair Marks, former CFO and now chief investment officer. The duo are highly regarded for their ability to unlock value through asset management initiatives.
The company’s strategy is to buy mostly underrented industrial and office parks on the outskirts of cities such as Berlin, Frankfurt, Stuttgart and Munich older, cheap properties that offer significant potential for rental growth through redevelopments and upgrades.
The portfolio of more than 70 business parks typically offers a mixture of office, storage and production space, a portion of which is rented on long-term leases to blue-chip tenants such as Siemens‚ Daimler and GKN Aerospace. The balance consists of flexible workspaces that are typically leased for shorter periods to SMEs.
Coombs and Marks have managed to grow assets more than fourfold since 2014
from €428m at listing to about €2bn. In November, Sirius management entered the UK for the first time via the £245m acquisition of BizSpace, which owns a portfolio of flexible workspace, light industrial, workshop, studio and out-oftown offices across the UK. Management subsequently announced it plans to convert to a UK real estate investment trust (Reit) structure this month.
So is this year’s sharp sell-off related to Sirius’s entry into the UK? Some may well fear that the UK move could dilute Sirius’s investment case as a niche German play, especially given that SA investors don’t have other JSE property options that provide exclusive exposure to Europe’s biggest and arguably most defensive economy.
However, Coombs believes the BizSpace portfolio is “highly complementary” to Sirius’s German business and offers huge value-unlock potential for shareholders. And instead of buying up bits and pieces over time, the deal allowed Sirius to enter an underserviced sector of the UK market in one fell swoop with immediate scale.
He says: “This acquisition marks a significant step forward in the continued evolution and growth of Sirius as a business. It provides us with our first expansion into a new geography via the acquisition of a significant portfolio of assets and an established operating platform.”