Release Date: November 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sirius Real Estate Ltd (SRRLF, Financial) reported a 14.5% increase in funds from operations (FFO), driven by a 5.5% increase in group like-for-like annualized rent roll.
- The company announced its 22nd consecutive dividend increase, with a dividend of EUR3.06, which is 1.4 times covered by earnings.
- Sirius Real Estate Ltd (SRRLF) has a strong balance sheet with just under EUR300 million of firepower ready to invest.
- The company achieved a 17.3% growth in rental income, attributed to both organic and acquisitive growth, with the portfolio being 11% larger than the previous year.
- The net asset value (NAV) increased by 1.2%, reflecting a stable financial position and potential for future growth.
Negative Points
- The end of favorable utility hedging contracts in Germany led to increased utility costs, impacting service charge margins.
- In the UK, Sirius Real Estate Ltd (SRRLF) faces challenges with occupancy due to the need to churn tenants who cannot meet increased pricing.
- The company is experiencing a slight yield expansion in the UK, contrasting with the stabilization seen in Germany.
- There is a need to lower new business pricing in the UK to attract more volume, which may impact short-term revenue growth.
- The acquisition pipeline is not as strong as desired, and the company is cautious about rushing into new purchases, which could delay capital deployment.
Q & A Highlights
Q: Can you provide insights into the asset recycling strategy and what constitutes a "dry" asset for Sirius Real Estate?
A: Andrew Coombs, CEO, explained that determining a "dry" asset isn't straightforward. Some assets, like those in Munich, may seem dry but hold potential for future residential development, making them valuable long-term. Conversely, assets like Banbury, with fewer tenants, can be sold for a profit after lease extensions. The focus is on selling assets that may become capital-challenged and reinvesting in more promising opportunities. The approach is opportunistic, aiming to maximize value rather than flooding the market with sales.
Q: Regarding the German CapEx program, is there potential to accelerate the process given the opportunities?
A: Chris Bowman, CFO, emphasized maintaining a disciplined approach to CapEx, aligning it with a third of FFO to ensure self-sufficiency. While acquisitions offer high returns, the focus remains on prioritizing the highest-return opportunities within a sustainable budget. Accelerating CapEx could increase risk, so the current pace, which allows for flexibility and risk management, is preferred.
Q: How is the competitive landscape for acquisitions, and where is the EUR200 million of firepower likely to be deployed?
A: Andrew Coombs noted that while competition isn't the main issue, sellers' expectations have risen, making acquisitions more challenging. The focus is on being patient and selective, ensuring acquisitions are accretive. The EUR200 million is likely to be deployed in both the UK and Germany, but the exact allocation depends on market conditions and opportunities.
Q: Can you discuss the demand for German assets and any sector-specific trends?
A: Andrew Coombs highlighted that storage demand remains strong, with industrial demand stable and expected to grow with potential government changes. Office demand varies, with stable demand for offices linked to industrial sites and SMEs, but larger office spaces face challenges. The focus is on managing existing office space rather than seeking new customers in that segment.
Q: How has Sirius Real Estate achieved strong like-for-like growth in Germany despite economic concerns?
A: Andrew Coombs attributed the growth to the strength of Sirius's asset management platform, which focuses on outperforming market trends. The company uses data-driven insights to tailor its customer propositions, ensuring value and maintaining high margins. This proactive approach allows Sirius to achieve growth independent of broader economic conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
