GERMANY-focused business park owner Sirius Real Estate is winning over South African institutions after taking up a secondary listing on the JSE at the end of last year.
Over the past five years, under a turnaround management team, it has gone from owning large office buildings to a portfolio of properties suitable for small and medium businesses.
This has gained Sirius the attention of larger institutional investors. In the past couple of months, investors including SA’s largest listed real estate investment trust, Growthpoint Properties, have been courted as Sirius seeks strong acquisitions opportunities in Europe’s largest economy.
Sirius CEO Andrew Coombs said his team would visit SA in the next two months seeking large-scale investment.
“I will meet with various South African institutions about why Sirius is a strong investment proposition,” he said.
Sirius owns and operates business parks. It tends to buy old industrial buildings, mostly on city outskirts where it can attract tenants at lower rentals than those charged by inner city landlords. It redevelops these buildings into mixed-use parks that offer flexible office facilities, conference and meeting rooms, warehouses and storage units.
Mr Coombs, a Briton, and chief financial officer Alistair Marks, an Australian, took the company’s reins in 2010. They changed the operational structure and business offering and since then, the fund has grown from being worth €50m to about €383m.
“Much of Sirius’s success hinges on their capable internal management structure. Their strong head office management team and regional staff work coherently to optimise their asset base,” Chris Segar, portfolio manager at Ivy Asset Management, said.
He was impressed that Sirius was able to offer tenants varied sized offices that were of a high quality at competitive rentals.
“The specification quality of the office space, which is converted in the industrial parks is very high. There are high ceilings and high specification windows allowing in natural light.
“The rental range of €7 to €15 is appealing to prospective tenants who are being drawn to the outlying nodes, which are still easily accessible via the transit system,” he said.
“The product is flexible, cost efficient and is compelling to those with high base rentals who don’t need to be in the city centres.”
Adrian Jardine, an equity analyst at Avior Capital Markets, said Sirius was attractive for JSE investors because it had leverage to grow at a relatively low cost.
“We have a niche business model with strong operating leverage in that they can continue acquiring and investing in their asset base without having to increase staff or expand their head office to the same degree.”
The fund’s entrepreneurial and innovative management team understood its assets very well, Mr Jardine said.
“They sweat their properties hard through active asset management to extract every ounce of cash flow they can and thus increase attainable yields.
“Put another way, in my view they add significant value to assets they have acquired, which is composed of better yields and a better quality of earnings.”
He recognised that since the properties were business parks in decentralised parts of Germany, that was a possible risk to their performance.
“But the flexibility and inherent value of the underlying product are defensive, in our view. Also, the locations are stronger than might be expected as they are typically still within metropolitan areas of major cities and on transport networks,” Mr Jardine said.
Mr Segar said Sirius’s investment pipeline was hugely net asset value and yield accretive.
“If one combines this factor with favourable lending rates of 2%-2.5%, with a loan to value of 47%, then the cash-on-cash returns become very significant. With modest capital expenditure, and their strong sales capability, Sirius is able to extract huge value from the space in the industrial parks they have acquired,” he said.