If you’re in search of a reliable, hard currency dividend payer that continues to grow cash flows year after year, come rain or shine, look no further than Sirius Real Estate.
The Germany-focused landlord, which has expanded its portfolio of factory, warehouse, storage and office parks to the UK in the past two years, this month cemented its 11-year track record of uninterrupted dividend growth. That’s a remarkable feat, and bucks the general trend among real estate stocks, most of which were forced to slash or suspend dividends during the pandemic. And more recently, listed property payouts have been eroded by higher-for-longer interest rates.
Sirius, which has a primary listing on the London Stock Exchange (LSE), recently celebrated its 10th anniversary on the JSE. It was the first offshore company to make use of the fast-track listing process, in December 2014. JSE investors who bought shares at the time have bagged a hefty total return of about 400%, or 18% a year (in the 10 years to December). That compares with the JSE’s listed property sector’s uninspiring 3.1% a year over the same period.
For the year to March, Sirius achieved a total accounting return of 12.2%, increased funds from operations by 11.8% and lifted operating profit by 65%. Its rent roll is up 6.3%. Despite last year’s two dilutive equity raises to fund six acquisitions to the tune of €270m, management increased dividends by 1.7% to €6.15c a share (2024: €6.05c).
Importantly, the market expects dividends to grow by about 4%-8% a year (in euros) for the next three financial years as recent acquisitions start to translate into numbers.
Shareholders have also been rewarded by a 26% rebound in Sirius’s share price in the year to date. That comes after the successful conclusion of the German elections in February and the securing of the debt refinancing that had put Sirius’s share price under pressure in the second half of 2024.
Despite the recent rally to levels of just more than R23, Sirius is still trading well below its late 2021 peaks of R30. In fact, several UK and German analysts upgraded their target price and buy recommendations on the stock after results were released on June 2. European asset manager Berenberg, for one, raised its 12-month LSE target price to 120p, creating 27% upside on the 95p that Sirius was trading at in early June.
We have consistently achieved double-digit returns for shareholders in the past 10 years
— Andrew Coombs
Berenberg says in a research note that Sirius’s earnings for the year to March exceeded its estimates, “with more to come”. According to the note, both the UK and German portfolios delivered a strong operational performance with stable vacancies and positive rent reversions.
Sirius’s organic growth momentum is expected to remain high, while recent acquisitions offer further upside potential. The investment note goes on to say that based on its “defensive financial profile” with a low loan-to-value of 31%, Sirius has the balance sheet capacity to execute further growth opportunities.
Sirius CEO Andrew Coombs, who is highly rated for his capital allocation and value-unlock abilities, tells the FM he’s already in negotiations to buy another €250m worth of UK and German properties. He believes the two countries’ growing defence spending has created a new and lucrative opportunity for Sirius, which already owns several properties that were used as facilities for military ammunition storage, distribution depots and aircraft manufacturing in the past.
Referring to the UK’s recently announced increase in defence spending to 2.5% of GDP and, more notably, new German Chancellor Friedrich Merz’s approval of €900bn for infrastructure and defence spending, Coombs says: “Defence has the potential to become a major growth sector and driver of demand for warehouse and manufacturing space, where the rent is ultimately government derived. We are actively positioning our offering to attract some of this expected business.”
Sirius has appointed Angus Fay, an ex-British army logistics expert, as an adviser to help the company cash in on the expected rise in military-related demand for real estate. Coombs estimates that up to 20% of Sirius’s portfolio is suitable for defence-related purposes, whether as factories or as transport hubs to store and disperse military equipment across Europe.
Asked why South African investors should own Sirius shares, Coombs says: “We have consistently achieved double-digit returns for shareholders in the past 10 years, while some of the best property stocks in the UK and Europe have managed only 6%-7%.”
Besides, Coombs says the share is still undervalued. It trades roughly in line with its NAV of about R23.50, compared with a historic premium of 20%-30%, he says.
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