Sirius Real Estate Limited (LON:SRE), the leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the U.K., has provided an update on trading for its financial year ended 31 March 2024.
The Group has achieved an 8.2%* increase in overall rent roll (7.2%* on a like-for-like basis), reflecting management’s ability to improve both rates and occupancy across the Group in spite of the wider macroeconomic conditions. For the tenth consecutive year, the Group has achieved like-for-like rent roll growth in excess of 5%, with similar levels achieved across both the U.K. and Germany. Cash collection has remained robust at above 98.0% on a rolling 12-month basis. The Group expects to deliver full year results in line with market expectations.
In Germany, rent roll particularly benefited from greater occupancy as we focused efforts on selling vacant space and improving tenant retention. With inflation now having fallen significantly since last year, we have again demonstrated the strength of our in-house asset management platform to manage product mix and occupancy carefully alongside rates, with the aim of generating the best overall returns from our space. Whilst we expect to see some slight yield expansion in our year end property valuations for Germany, we expect our strong operational performance will translate into an increase in value of our German portfolio.
In the U.K., we continue to achieve above inflation rate increases in rent, albeit at slightly lower levels than in the recent past, but as with Germany we have successfully focused our efforts on occupancy, where we have delivered an improvement. Like for like rent roll growth in both countries ended the year at broadly similar levels, and in the U.K., recent acquisitions have had a materially positive effect on the absolute rent roll given their materiality in the context of the business. We expect to see valuation yields continue to expand in the U.K., albeit our continued operational focus on driving rental income will offset much of the effect of yield changes on the portfolio valuation. Overall, we expect to announce a positive valuation movement at Group level at the year end.
In November 2023, the Company completed an oversubscribed equity fundraising of €165 million (£147 million) to provide funds to execute on a pipeline of acquisition opportunities. We have successfully executed on that pipeline in the second half of the financial year, notarising or acquiring approximately €150 million of assets (excluding acquisitions costs). €96 million (£84 million) (excluding acquisition costs) of these acquisitions were in the U.K., with a weighted average net initial yield (NIY) of 8.9%. We also made four acquisitions in Germany, totalling €55 million (excluding acquisition costs), which were acquired at a weighted average NIY of 9.3%.
Disposals in the second half amounted to €51 million. All sales were completed at or above book value and focused predominantly on mature assets in Germany at a weighted average NIY of 6.4%. Efficient capital recycling will be a mainstay of Sirius’ strategy as we continue to see attractive acquisition opportunities that meet our acquisitions criteria in both the U.K. and Germany, alongside opportunities to sell mature or non-core assets, with the aim to do so at or above book value.
The Group’s balance sheet remains strong with free cash reserves of approximately €220 million as at 31 March 2024 (before completion of four post balance sheet acquisitions totalling €91 million) and no significant debt maturities until June 2026. The Group’s weighted average cost of debt is 2.1% and the weighted average maturity is 3.9 years following last year’s successful re-financing of the 7 year €170 million Berlin Hyp AG facility at 4.26% and the 7 year €58.3 million Deutsche Pfandbriefbank AG facility at 4.25%.
Whilst the Group is mindful of the expected higher interest expense arising from future re-financings, it is also confident that leverage will continue to have a positive overall effect on shareholder returns, given the relatively high yielding nature of the Group’s assets and the continued growth in the rent roll which will help to offset future increases in financing costs. The higher interest rate environment is also reflected in expanding market yields which has delivered some highly attractive acquisitions for the Group in the last few months.
Commenting on trading during the period, Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said: “Sirius has delivered another twelve months of strong operational performance, increasing rates and occupancy and quickly executing on our significant pipeline of acquisitions in both Germany and the U.K., following our successful £147 million equity raise last November. Raising capital at that time has proved to be opportune, allowing us to acquire high quality real estate on very attractive financial terms. Our acquisition pipeline remains strong and we believe there will continue to be opportunities to deploy our capital on an accretive basis in the coming year.
As we begin to drive value from our recent asset acquisitions alongside our continued focus on operational excellence, we look ahead with confidence. The strength and breadth of our management team in being able to execute on acquisitions whilst still delivering good growth from our existing portfolio is encouraging, and I look forward to leading the business through the next stage of growth.”
Full Year Results
Sirius Real Estate will announce results for the financial year ended 31 March 2024 on Monday, 3 June 2024, at which time there will be an in-person presentation and virtual webinar for analysts and investors.
The financial information in this trading update has not been reviewed or reported on by the Company´s external auditors or a reporting accountant.
*Group rent roll has been translated utilising a constant foreign currency exchange rate of GBP:EUR 1.1695, being the closing exchange rate as at 31 March 2024.
