SIRIUS REAL ESTATE LIMITED

(Incorporated in Guernsey)

Company Number: 46442

JSE Share Code: SRE

LSE (GBP) Share Code: SRE

LEI: 213800NURUF5W8QSK566

ISIN Code: GG00B1W3VF54

11 April 2022

Sirius Real Estate Limited

("Sirius Real Estate", "Sirius" or the "Company")

Trading Update for year to 31 March 2022

CONTINUED STRONG ORGANIC AND ACQUISITIVE GROWTH, TRANSFORMATIVE BOND ISSUANCES AND ENTRY INTO UK MARKET

Sirius Real Estate, the leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the UK, provides a pre-close trading update for the year to 31 March 2022.

Highlights

·      Transformative corporate bond issuances totalling €700.0 million

·      Entry into the UK market through the acquisition of BizSpace in November 2021

·      6.4% like for like rent roll growth in Germany (2021: 5.2%)

·      7.5% like for like rent roll growth in UK post BizSpace completion (4.5 months)

·      Total annualised rent roll increased to €167.1 million (2021: €96.5m*)

·      5.3% increase in like for like average rate per sqm in Germany to €6.50 (2021: €6.17*)

·      6.5% increase in like for like average rate per sq. ft in UK to £11.69 (15 November 2021: £10.98)

·      Cash collection rate in excess of 98%

·      Free cash balance of approximately €126.0 million

·      Group trading for the period expected to be in line with market expectations

*Excludes €0.7m of annualised rent roll and 7,000 sqm relating to the Daimler moveout in the Fellbach 2 asset that was anticipated at the time of acquisition in March 2021.

German platform continues to deliver strong organic growth driven by asset management and strong occupier demand

Total annualised rent roll of the German portfolio grew by €17.2 million to €113.7 million (2021: €96.5 million*) with €6.2 million relating to organic growth within the existing portfolio and €11.0 million relating to the net effect of acquisitions that completed in the year.

Like for like annualised rent roll increased by 6.4% representing the eighth consecutive year of like for like rent roll growth in excess of 5%. The increase in organic growth reflected the effect of approximately 13,000 sqm of net move ins together with an increase in the average rate per sqm of 5.3%. This highlights the way in which flexible space can attract premium pricing, together with the continuing ability of the Company's internal operating platform to capture reversionary potential. 

Like for like occupancy increased to 87.4% (March 2021: 86.6%*) whereas total occupancy in Germany reduced to 84.2% (March 2021: 86.6%*) as a result of vacancy levels within assets acquired in the year. The acquired vacancy provides a significant future value add and income growth opportunity which is expected to help Sirius continue its strong organic growth record well into the future.

*Excludes €0.7m of annualised rent roll and 7,000 sqm relating to the Daimler moveout in the Fellbach 2 asset that was anticipated at the time of acquisition in March 2021.

Active year for acquisitions and disposals

As investment markets in Germany grew in confidence following the easing of the pandemic, the Company was able to increase its investment activity, finishing the year with a total of €201.9 million invested into or committed to ten acquisitions. These fully-owned assets are expected to contribute a total of €8.8 million of net operating income at 62% occupancy, representing an EPRA net initial yield of 4.4%. They provide the opportunity to grow income through increasing occupancy, with more than 118,000 sqm of vacant space and significant scope for selective investment into unused or underutilised space.

Additionally, the Company acquired a building adjacent to its existing asset in Potsdam for €0.9 million as well as a land parcel at its Neuruppin asset for €0.5 million which provide the Company with a wider range of asset management opportunities for two of its existing sites going forward.

The Company's Titanium venture with AXA IM Alts also grew acquisitively through the completion of the Augsburg asset for €79.9 million which was notarised in the prior year. The new Titanium acquisition is expected to add approximately €1.5 million annually to the fees and profit share coming from the venture.

Within the year the Company also completed the €13.75 million sale of its Magdeburg asset, representing a 5.5% increase on the last reported book value.

Strategic entry into UK market providing geographic diversification and value creation opportunity

The Company was pleased to complete the acquisition of BizSpace in November 2021 for a cash consideration of c. £245 million, based on an enterprise value of £380 million and representing a 7.1% net operating yield. The acquisition was financed through a combination of existing cash resources and a successful £137 million equity raise priced at a premium to the last reported net asset value per share.

As a leading provider of regional flexible workspace across the UK, BizSpace has provided Sirius with an opportunity to diversify geographically at scale through the single acquisition of an established platform. The transaction provides a number of organic growth opportunities, overlayed with meaningful operational and financial synergies.

With integration work ongoing, trading has been strong, with like for like annualised rent roll increasing by 7.5% from £41.9 million to £45.1 million in the first 4.5 months of ownership. Over the same period, occupancy increased to 90.5% from 88.7% whilst like for like average rate per sq ft has increased by 6.5% from £10.98 per sq ft to £11.69 per sq ft, highlighting the opportunity to capture the major growth seen in rental pricing in the UK industrial property market. 

As part of the acquisition, the Company refinanced the external secured debt within BizSpace with part of the proceeds it received from its second bond issuance, in November 2021. The Company has also converted the UK business into a UK Real Estate Investment Trust ("REIT") with effect from 1 April 2022, resulting in the Company no longer being subject to UK corporation tax on income from its property rental business, as well as on profits on disposals of assets.

Balance Sheet Transformation

As previously communicated to shareholders, the Company had been assessing opportunities to optimise its funding structure to support its future growth ambitions. The Company's inaugural bond issuance in June 2021 followed the award of a BBB stable investment grade credit rating from Fitch in May 2021. Bonds totalling €400.0 million were issued, attracting a coupon of 1.125% with a maturity date of June 2026.

In November 2021, the Company successfully completed its second bond issuance, raising €300.0 million and attracting a coupon of 1.75% with a maturity date of November 2028. The bond issuances, coupled with the repayment of €340.2 million of existing debt and the acquired BizSpace secured debt, has transformed the Company's balance sheet and provided it with several benefits including:

·      financial capacity to fund Sirius' investment programmes and acquisition pipeline;

·      reduction in weighted average cost of debt to 1.4% (2021: 1.5%);

·      increase in weighted average term of debt to 4.3 years (2021: 2.7 years);

·     increase in the number of unencumbered assets to 126, with a book value in excess of €1.5 billion, lending considerable flexibility to asset recycling opportunities, and much reduced requirement to meet early repayment fees and;

·      improvement to cashflow as a result of a reduction in debt amortisation.

Following the bond issuance and related secured debt repayments, the Company has a total debt of €994.5 million of which €750.0 million or 75% is unsecured (2021: 11%). The transformation of the Company's financing arrangements positively supports Sirius' ambitions.

Total cash balances at the end of period exceeded €150.0 million, of which approximately €126.0 million is unrestricted.

Broadening senior management capability 

Over the past year, the Company made a number of strategic appointments at Group level, concluding its planned expansion and evolution of its senior management team to position the business for its next stage of growth. These changes saw Alistair Marks appointed to the newly created role of Chief Investment Officer and Diarmuid Kelly promoted to the role of Chief Financial Officer both of which follow the promotions of Rüdiger Swoboda to Chief Operating Officer and Kremena Wissel to Chief Marketing and Impact Officer in the previous financial year.

Sirius will continue to focus on hiring and retaining the best talent across its platforms to support its growth journey and is in advanced stages of strengthening the existing BizSpace senior team to bring in new skillsets that will help the Group achieve its goals.

Full Year Results

Sirius will announce results for the year to 31 March 2022 on 13 June 2022, at which time there will be a conference call for analysts and investors.

The financial information on which this trading update is based has not been reviewed or reported on by the Company´s external auditors or a reporting accountant.

Andrew Coombs, Chief Executive Officer of Sirius Real Estate, commented: 

"2021 was a transformative year for Sirius marked by two key firsts which saw the Company access the corporate bond market, successfully raising €700 million through two oversubscribed issuances, and the strategic acquisition of BizSpace, providing us with geographic diversification and an established operating platform in the U.K which is already showing positive momentum in terms of growing rents.

In Germany, our operating platform has continued to drive strong leasing growth, enabling Sirius to record its eighth consecutive year of like for like rent roll growth above five percent. In addition, we have acquired a record number of assets during the year which provide the Company with over 118,000 sqm of vacant space with which to use the capability of our internal operating platform to let up and selectively invest into in order to fuel future growth.

Over the past year, our business model has proven its ability not just to be resilient but to grow against an exceptionally challenging market backdrop and, as we emerge fully from the pandemic, we would expect both platforms to continue to perform strongly going forward. However, it would be remiss not to mention market uncertainty created by current geopolitical events which we continue to monitor closely. In the meantime, our thoughts go to everyone impacted by the situation in the Ukraine and we welcome all steps that lead to a cessation of hostilities and an end to the conflict."

Conference Call

There will be a conference call for analysts and investors hosted by Andrew Coombs, Chief Executive Officer of Sirius Real Estate, and Diarmuid Kelly, Chief Financial Officer of Sirius Real Estate at 08:30 BST (09:30 SAST) today, Monday 11 April 2022.

Dial-in UK: +44 (0)330 165 4012

Dial-in Germany: 0800 724 5376

Dial-in South Africa: 0800 991 630

Participant access PIN (for all participants): 8742138

For further information:

Sirius Real Estate

Andrew Coombs, CEO / Diarmuid Kelly, CFO / Alistair Marks, CIO

+49 (0) 30 2850 10110

FTI Consulting (Financial PR)

Richard Sunderland / Claire Turvey / James McEwan / Talia Jessener

+44 (0) 20 3727 1000

SiriusRealEstate@fticonsulting.com 

NOTES TO EDITORS

About Sirius Real Estate

Sirius is a property company listed on the main market and premium segment of the London Stock Exchange and the main board of the JSE Limited.  It is a leading operator of branded business parks providing conventional space and flexible workspace in Germany. The Company's purpose is to create and manage optimal workspaces that empower small and medium-sized businesses to grow, evolve and thrive. Sirius seeks to unlock the potential of its people, its properties, and the communities in which it operates, so that together we can create sustainable impact, and long-term financial and social value.

The Company's core strategy is the acquisition of business parks at attractive yields, the integration of these business parks into its network of sites under the Company's own name as well as offering a range of branded products within those sites, and the reconfiguration and upgrade of existing and vacant space to appeal to the local market, through intensive asset management and investment. The Company's strategy aims to deliver attractive returns for shareholders by increasing rental income and improving cost recoveries and capital values, as well as by enhancing those returns through financing its assets on favourable terms. Once sites are mature and net income and values have been optimised, the Company may take the opportunity to refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity for the asset management skills of the Company's team. 

Sirius also has a venture with clients represented by AXA IM Alts. Titanium was formed through the acquisition by AXA IM Alts, on behalf of its clients, from Sirius, of a 65% stake in five business parks across Germany. Sirius retained the remaining 35%. The venture seeks to grow primarily through the acquisition of larger stabilised business park assets and portfolios of assets with strong tenant profiles and occupancy. As well as its equity interest, Sirius acts as operator of the assets in the venture, on a fee basis. Sirius will continue to grow its wholly owned portfolio through acquisitions of more opportunistic assets, where it can capitalise on its asset management expertise to maximise utilisation of the space, grow occupancy and improve quality of the tenants. The strategies have been clearly defined so that the venture does not conflict with Sirius's existing business. 

In November 2021, Sirius Real Estate announced and completed the acquisition of BizSpace, a leading provider of regional flexible workspace in the UK. BizSpace offers light industrial, workshop, studio and out of town office units to a wide range of businesses across the UK. The acquisition provided Sirius with a unique opportunity to enter a new market with immediate scale through a one-step acquisition of an established platform. It provides Sirius with a portfolio that offers significant organic growth potential in rental pricing in a UK market characterised by supply constraints. The BizSpace business is also highly complementary to Sirius' existing platform, allowing for meaningful operational and financial synergies to drive value creation for Sirius shareholders.

For more information, please visit: www.sirius-real-estate.com 

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