Sirius expects to meet market expectations for FY2023
Since our last report on April 17, Sirius Real Estate has made an announcement regarding its trading performance for the financial year that ended on March 31. Despite challenging market conditions, the real estate investment company delivered a strong operational performance, resulting in an 8.1% increase in rent roll over the 12-month period. Of particular note for us is that the company expects to deliver full-year results that meet market expectations. Our default assumptions continue to indicate that an investment in Sirius will yield a 99% return over the next five years, equating to an annual return of 15%. The shares remain supported by an attractive dividend yield of 6.9%.
Summary
Strong rent roll growth and opportunistic asset strategy in 2023
Rent Roll Growth: Sirius Real Estate achieved an 8.1% increase in overall rent roll (7.7% on a like-for-like basis) in the financial year 2023, reflecting management's ability to capture rental growth in the current inflationary environment. For the ninth consecutive year, the company has achieved like-for-like rent roll growth in excess of 5%. The growth in rental rates was largely in-line with the growth in rent roll in Germany, reflecting stable occupancy rates in the country.
Acquisitions and Disposals: The acquisitions and disposals strategy of the company remained opportunistic and focused on non-core or mature assets with little upside. The company achieved returns in excess of book value on six disposals completed during the last 12 months, demonstrating efficient recycling of capital, which will continue to be a mainstay of Sirius' strategy.
Balance Sheet: Sirius' balance sheet remains strong with cash reserves of €123 million and around 90% of the group's debt maturing in excess of three years. The company successfully re-financed its Berlin Hyp AG €170 million facility at a 4.26% interest rate for a 7-year term, which from commencement in November 2023 will take the overall weighted average group cost of debt to 1.9%.
Outlook: The company expects to deliver full-year results in line with market expectations. The management is confident that the leverage levels 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.
Attractive valuation
We continue to suggest valuing the business using the discounted cash flow approach, in particular the free cash flow approach. The key things that underlie our model inputs remain the same: the company operates in a market that is material in terms of size; the management of the company has a proven track record of effectively operating and managing real estate, and, ultimately, delivering strong shareholder returns; and the company's value proposition is unique.
Year end Mar 31 · 2021 · 2022 · 2023 · 2024
Portfolio value, €-bn · 1.36 · 2.08 · 2.12 · 2.15
FFO, €-mln · 60.9 · 74.6 · 97.0 · 100.0
FFO/Shr, €-cents · 5.84 · 6.78 · 8.25 · 8.50
Div/Shr, €-cents · 3.80 · 4.41 · 5.40 · 5.60
Adj. NAV/shr €-cents · 93.8 · 108.5 · 109.5 · 114.5