EPaper

Sirius finds favour in debt markets

• For the ninth year running, the company has recorded more than 5% like-for-like rental growth, resulting in significant increases in annual dividend

Denise Mhlanga mhlangad@businesslive.co.za

At a time when debt capital markets are constrained with many property companies concerned about debt, Sirius Real Estate has continued its successful refinancing run.

At a time when debt capital markets are constrained with many property companies concerned about debt, Sirius Real Estate has continued its successful refinancing run.

On May 26, the company completed the early refinancing of the group’s next major debt expiry, a €58.3m facility with Deutsche Pfandbriefbank, seven months ahead of due date.

The refinancing comprises a new seven-year facility with an all-in fixed interest rate of 4.25%, which will replace and redeem the existing facility on its expiry on December 31 2023, and will run until December 2030.

Sirius, owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the UK, looks at demand and supply dynamics in different areas and how best to cater for them.

“We didn’t just wake up and have the debt refinanced — we have been very proactive and talking to banks in the last 18 months,” said CEO Andrew Coombs.

Coombs said financing of these two new secured facilities well in advance of their maturity is indicative of the strong relationships that Sirius has with its financiers.

He said that in today’s environment banks consider a company’s creditworthiness and its leadership’s reputation on their ability to repay debt no matter what happens. This is now part of the scorecard that banks use to assess credit applications.

“Banks also look at company operations — a well-run business coupled with a strong balance sheet always finds favour with banks as they are assured debt will be repaid,” he said.

The platform Sirius built over a decade has given it the ability to engage with its tenants and understand their businesses and needs at any given time.

Instead of just increasing rentals, for example, Sirius would ask its tenants what value-add services they need to do business. Even though these are charged for, tenants understand the value and would rather stay with the group than vacate the space.

At the end of March, in Germany

and the UK, Sirius signed 2,737 new deals, involving 203,263m² and providing new annual contractual revenue of €28m.

For the ninth year running, Sirius recorded more than 5% like-for-like rental growth, resulting in significant increases in annual dividend, which rose 29% in the reporting period.

Like-for-like annualised rent roll rose 7.3% in Germany and 8.7% in the UK. Funds from operations rose 36.9% to €102.1m, exceeding the fiveyear €100m target set in 2018.

BALANCE SHEET

Coombs said Sirius has a strong balance sheet with nearly €1.2bn of net assets and an adjusted net asset value (NAV) per share of 109.21c from 108.51c in 2022.

Investment property value increased 1.1% to €2.123m from €2.1m in 2022 due to strong income growth and investment offsetting yield expansion.

The group reported a 25.7% increase in second-half dividend to 2.98c per share, amounting to a 28.8% lift in the total dividend for the financial year to 5.68c — maintaining the same payout ratio of 65% of funds from operations.

At the end of March, Sirius had €975.1m debt, €735m of which is unsecured.

The remaining €240.1m comprises mortgage-backed debt, of which the most significant tranches are the refinanced €170m Berlin Hyp facility announced in October — more than a year ahead of maturity on October 31.

This refinancing facility extends the group’s total weighted average debt expiry from 3.3 years to five years. When the new facility commences on January 1 2024, the group’s weighted average cost of debt will increase from 1.4% to 2.1% as these facilities were finalised with interest rates higher than those now in place.

Sirius will still maintain significant headroom on interest cover ratios, and there is no likelihood of the company breaching any of the covenants, said Coombs.

The group maintains €99.2m of cash net of tenant deposits and bank guarantees on the balance sheet, as well as 125 unencumbered assets with a book value of €1.6bn.

Coombs said debt capital markets are hard to access. It takes a lot of work and team credibility to get funding. Coombs has been with the business for more than a decade with long-standing leaders including Alistair Marks as CIO and interim CFO.

Another big consideration for banks when making credit assessments is environmental, social and governance (ESG) strategies and how these are embedded across the business. For example, with environmental, Sirius aims to reduce its carbon footprint and achieve netzero emissions, leaving a positive effect across its platform, portfolio and value chain.

Coombs said banks worry about ESG especially for mortgage-backed debt as having environmentally friendly buildings gives them reassurance.

Banks also look at capex investment allocations and whether those investments would optimise the portfolio resulting in higher rentals, for example.

Coombs said the focus over the past 12 months was to continue the capex investment into vacant space with the aim of increasing occupancy and rental rates achieved per lettable square metre, as well as selective asset recycling.

“We have about 90,000m² of space to focus on in the next two to three years, and this will involve refurbishing to extract value and drive rental growth,” Coombs said.

The company made acquisitions of €44.6m with annualised net operating income (NOI) of €1.6m and 54% occupancy completed across three new sites in Germany.

About €45.8m in disposals with annualised NOI of €1.8m and limited further growth opportunity were completed across six transactions (including the sale of two non-income producing land parcels in Germany), achieving a combined 25% aggregate premium to the last book value before each sale was completed during the reporting.

Sirius also recycled €90m worth of assets over the past 12 months at 25% combined aggregate premium to book value.

THE PLATFORM SIRIUS BUILT OVER A DECADE HAS GIVEN IT THE ABILITY TO ENGAGE WITH ITS TENANTS AND UNDERSTAND THEIR BUSINESSES

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2023-06-06T07:00:00.0000000Z

2023-06-06T07:00:00.0000000Z

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