People holding these shares are probably already aware, but the company is delisting from AIM and joining the Main Market in London on 12 March 2017. It will also be listed in pounds sterling rather than euros.
Read finnCap's note on SIRIUS REAL ESTATE, out this morning, by visiting https://www.research-tree.com/company/GG00B1W3VF54
"Trading Well. The groups last newsflow highlighted the income potential from rental growth, refinancing and additional asset purchases which bodes well for dividend growth, based on a 65% pay-out ratio of FFO. Progress remains inline for 2016 but good progress for 2016/2017 could result in a stronger outcome than originally anticipated ..."
I am still bullish on this despite the slightly cheeky placement that was carried out at below NAV. The benefits from the refinancing should compensate for dilution however, and the macro-environment in Germany continues to be extremely positive despite the current Greek wobbles. The company appears to make intelligent investment choices which will allow it to rent out more of its space at higher prices.
This is my biggest single investment and I think it has further to run on the restructuring story. As you say, both the rising rental values per sqm and renting out vacant space provide for considerable upside, with the downside being cushioned by its still reasonable valuation (at least compared to the company's UK-focused counterparts).
I bought in here a little while ago on the same basis. A lot of refinancing IERE and TEIF has lead me to believe that property is coming back (commercial) - which has been backed up by the valuation increases here.
They have said the property improvements they are doing is from free cash which they can do and they have property to bring on line with 75% occupancy. What also is good is rental amounts are increasing ( I realise that there is scope for this number to be manipulated) .
All in all the discount together with positive news flow in an asset class that has found its feet again has made me invest
When I was writing my last comment, the share price was at 22.50c while today it is at 34.00c. The company has managed to do better on some counts than expected and has restarted dividend payments. Its blended interest rate is below 5%, and the rental values are still going up as the company continues to renew leases. Costs are still falling, and the company is investing capital in upgrading its vacant properties. Obviously, the low finance costs were facilitated by equity raisings which result in some dilution.
However, the share price is still considerably below NAV whereby the properties are valued at a yield of just above 9%. Net rent is now at least 26 for a property portfolio worth 450m. Interest cost are 11m, and admin costs are about 5-6m. This provides a good basis for operational profitability, in addition to the expected gains from capital investment. This would leave around 9m of revenue profit before tax, corresponding to 2.25c per share. Additional income from any of the currently vacant properties (24% of the portfolio) has the potential to boost this income considerably.
All in all, given the economic background in Germany, I would say these shares have further to run.
Ive completely disposed of my remaining Sirius Real Estate (SRE:LN) holding. [I previously noted a small sale in August, reducing my portfolio stake to 2.8%]. This is a rare event in the past year, my sellings been mostly limited to top-slicing as certain stocks neared/exceeded my price target(s). Crikey, I must sound like a buy & hold investor!? Rarer still, I think its only my second disposal of an investment that clearly hasnt been working out. [Cresud (CRESY:US) was the first - a v different macro decision. Fortunately, the right decision...the stock's down nearly 25% since!]
I actually managed to avoid a loss in both instances not what youd expect from stocks that havent worked out..! Obviously, there was plenty of luck involved but Id definitely credit a good entry price as a key saving grace. Having the discipline to demand an adequate margin of safety for each purchase isnt just about increasing your potential upside it can also save your bacon when things go wrong. Lets take a closer look (using my original Sirius post for reference) & see if theres anything to learn here:
Investment Opportunity & Crisis Hedge: My investment thesis identified German property as a secular investment opportunity its cheap in absolute terms, the German economys perhaps the most resilient in Europe, and Bund yields remain incredibly supportive. I continue to believe this thesis is correct, but actual property & share price gains to date have been mostly enjoyed by the residential sector. [Check out my German property series: Parts I to V]. I also suggested German property might be a good hedge against any further unraveling of the European sovereign debt crisis. Fortunately, sentiments improved dramatically this year its interesting to see German residential share prices peak & then trade sideways/lower for much of the year, as investors migrated back into higher risk European exposure.
Diversification: I also noted I had a 4.2% portfolio stake in Deutsche Wohnen (DWNI:GR) at the time putting my total German property allocation at 8.3%. Since then, Ive sold DWNI & basically exchanged it for a larger 6.4% portfolio holding in KWG Kommunale Wohnen (BIW:GR). Ive also become that much less risk-averse (in line with the market) so now Id prefer to limit (or even marginally reduce) my overall German property exposure, in favour of other opportunities. In turn, that caused me an increasing level of discomfort with the size of my SRE holding.
Leverage: With any property company, the very first & sometimes only thing you should focus on is leverage. We all lost our heads a little pre-financial crisis, but since then I limit myself to companies with a maximum Net LTV of 60-65%. And thats an absolute limit (which I think is quite appropriate for German property) depending on the country, level of development exposure, management & so on, I might actually restrict myself to significantly lower leverage. At the time, Sirius enjoyed a 57.6% Net LTV.
Unfortunately, as of end-March, Sirius was reporting an LTV of 65.4% due to continued (negative) property revaluations, and a disappointingly small & slow level of (non-core) property sales. Admittedly, theres been some mitigation since, via subsequent property sales (see Note 12) & a recent equity & bond issuance but I certainly didnt expect SREs leverage to march steadily higher!? Quite the contrary in fact, at one stage, I anticipated ending up with a significantly larger SRE holding, predicated on the company achieving key Net LTV milestones.
Property Fundamentals: The current valuation for the core portfolio is EUR 416 per sqm. With average in-place rent at EUR 4.44 per sqm, and a current occupancy rate of 77%, that puts the portfolio on an average gross yield of 9.9%. Granted, were talking about secondary assets (edge of town/converted light industrial) here, but that valuation still seems extraordi
I have been wondering how profitable Sirius will be after all the refinancing. It has EUR 25m net rental income; expenses can be estimated to be 5m, and there will be 13m in financing costs at a blended rate of 5%, or 15.6m if one assumes 6 % (always assuming a LTV of 65%). This leaves 7m or 4.4m respectively for shareholders, or .02p respectively 0.012p per share. The good news is that the company will be in any case sustainable, but also that the company is probably adequately valued as this point.
Among the risks is their relatively short-term lease profile. However, there is considerable potential for upside:
- German property market values are going up
- SRE' rental values have been going up consistently, meaning any new leases will be bringing in more rent
- Vacancy of 23% leaves upside for additional rental income and/or property sales. This and the rising rental values may result in a net rent of perhaps 28m in a year or two, giving us revenue profit of 10m in the optimistic 5% interest rate scenario, or 2.8p per share.
- Insiders are buying shares and convertible debt in the company (but note they are getting them at a moderate discount)
Hansteen has also completed the acquisition, notarised earlier this year, of Zeppelin Park, a 160 hectare industrial park located in western Berlin, for 11.3 million. The park contains 40,134 sq m of logistics and light industrial space in 19 buildings let to 26 tenants, with a current vacancy of approximately 17%. The passing rent is 1.7 million per annum and the target rent when fully occupied will be in the order of 2 million per annum. Around 3 million of capital expenditure cost is expected to be required to achieve the target rent.
"At the AGM on 6th November 2012, the shareholder representatives of both Laxey Partners and Weiss were voted off the board by three of the other main shareholders. There have been disagreements about how to proceed with the restructuring of the company and this has culminated in them not being re-elected."
My reading is that Weis and Laxey want to wind the company down as soon a possible while the other shareholders perhaps see long-term value by keeping the company alive. Any other views?
Well, actually Weiss lost 1 dir IIRC, they also originally nominated Rolf Elgeti who remains on the board (I dont believe he has any agreement/contract with them though hes simply a well-respected figure in German property).
Yes, Sirius disclosure re recent director departures leaves a lot to be desired Ive had similar questions from other readers.
I havent checked w/ the co, as 4 dirs makes more sense to me anyway, vs. the 9 they previously had (and they internalized property management, so theres a full layer of management below the dirs)! There may be an innocent explanation here large shareholders/activists may just have gracefully voted 2 dirs. off simply to reduce the size of the board. The other likely explanation, I guess, is that this represents some jostling of elbows between rival shareholders & some tit-for-tat voting? Conflicting objectives between activists/large shareholders doesnt really concern me it tends to lead to decisive action in the end, unless management can close the valuation gap themselves in a timely fashion.
...[btw The residential focus here doesn't imply a commercial property aversion. Sure, it may be more economically sensitive than residential, but many of the positive factors I've highlighted equally apply. In fact, I've only one complaint about German commercial property - my exposure to it unfortunately limits my exposure to residential property!
I track listed commercial property companies also - but not as closely, and I've no plans to write a similar series. For me, Sirius Real Estate (SRE:LN) (a 3.3% portfolio holding) stands head & shoulders above its peers in terms of its risk vs. reward proposition. Its current property valuation & yield, occupancy rate, colossal 66% discount to NAV, plus the presence of multiple activist investors on its board/register, all offer significant operational & share price upside potential. SRE does have significant debt maturing in the next year, but its latest Net LTV of 61.3% equals the peer average & doesn't appear to present any real re-financing (or other) threat to shareholders. Fresh news of property sales would quickly push Net LTV to sub-60%, highlight the current NAV discount & attract new investor attention.]...
For links above, and my entire series on German residential property, see the Wexboy blog.
I don't see any significance here. Due to circumstance, the board had ballooned to 9 bodies - far too large! I expect they're just reverting to historical levels (4-6 directors), and trimming costs. It's a pity they weren't clearer in the press release - I know director departures can often be a cause for concern (otherwise)..!
Incidentally, none of these departing directors were related to any of the significant/activist shareholders. As I've written up before, in this instance, I see the presence of these (potential) activists/directors as reassuring & offering significant upside potential on SRE.
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