Is Sirius still a serious buy?

Offshore property stocks have garnered little attention from local investors this year, largely overshadowed by the strong rebound in South Africa Inc counters.

Domestic real estate investment trusts (Reits) have delivered a stellar 38% total return from January to November. And there’s not a single rand hedge stock among the sector’s top 10 performers, led by Delta Property Fund, Growthpoint Properties, Fairvest B, Resilient Reit and Vukile Property Fund.

Most analysts expect the local Reits rally to extend into 2026 on the back of a sustained recovery in earnings and dividend growth — and further potential rate cuts.

Still, as independent analyst Keillen Ndlovu points out, “one cannot ignore offshore property at this stage”. Some investors are no doubt viewing the relatively softer share prices of rand hedge counters, compared with their South Africa-based counterparts, as a buying opportunity.

The question is where to place your bets. Analysts say Sirius Real Estate, one of the JSE’s better-performing offshore stocks this year, still ticks the boxes if you’re looking for a growing hard currency income stream.

The company, which is dual-listed on the London Stock Exchange (LSE), owns and operates a €2.8bn portfolio of 153 business and industrial parks spread between Germany (75%) and the UK (25%). Tenants include a mix of one-man bands and SMEs on flexible lease terms and bigger blue-chip tenants preferring longer-term conventional lets.

The management team, led by CEO Andrew Coombs, is highly rated for its value-unlock capabilities. The strategy is to buy older, unloved buildings in need of TLC on the outskirts of major cities and towns — often with sizeable vacancies — and turn them into highly profitable income generators through reconfiguring, upgrading and retenanting initiatives.

While Sirius’s share price is down about 15% since late July, it still delivered a not-too-shabby 24% total return to end-November.

Last month, Sirius declared a 4% increase in dividends for the six months to September, cementing a 12-year track record of uninterrupted growth in payouts.

Like-for-like rent roll growth continues to exceed 5%, which drove 6.6% growth in funds from operations (FFO), the cash flow metric used by many European property companies to measure profitability.

More importantly, management has bulked up the portfolio, which will boost earnings for the year to March and beyond. This year, about €370m was spent on acquisitions in Germany and the UK, including a 29,448m² business park for €31.9m in Hamburg-Rothenburgsort, northern Germany’s largest industrial area; a business park in Dresden for €23.4m; Chalcroft Business Park in Southampton in the UK for £38.6m; and Hartlebury Trading Estate in Worcestershire for £101.1m. Hartlebury is now Sirius’s largest single UK asset and increases its UK portfolio size by about 20% and revenues by 10%.

Holding cash in sterling for acquisitions while reporting in euros has punished Sirius as currency tides shifted

—  Garreth Elston

This follows last year’s £150m book build, the proceeds of which are now fully invested. Ndlovu says shareholders were no doubt anxious to see how Sirius would deploy the cash it raised, given global uncertainty around US trade tariffs and a weakening in the German and UK economies in late 2024 to early 2025.

However, he says management timed acquisitions well, once again demonstrating prudent capital allocation skills. “Management never rests on its laurels and constantly looks for opportunities to grow and diversify the portfolio.”

Garreth Elston, MD of equity research firm Golden Section Capital, believes that local property stocks could again trump their offshore peers next year. He says that while domestic Reits have rallied, it comes off a base of “near-insolvency pricing — so there’s still room to run”.

Still, he agrees with Ndlovu that local investors always need to hedge their rand exposure, adding that Sirius has proved over many years it is a “safe pair of hands to trust that hedge to”.

But Elston says an investment in Sirius is not without risk, given a “messy” currency environment. While the 6.6% growth in FFO confirms that Sirius’s operational engine in Germany and the UK is still firing, he notes that the 0.9% slip in NAV highlights the headache for dual-currency stocks. “Holding cash in sterling for acquisitions while reporting in euros has punished Sirius as currency tides shifted,” he says.

Elston says Sirius remains a high-quality hedge but adds that the free lunch of an always weakening rand is over for now. “It is arguably a steady add, not a screaming buy.”

Meanwhile, UK-based Panmure Liberum recently upgraded its 12-month LSE target price for the stock from 125p to 130p, which translates into a hefty 43% potential share price upside on this week’s level of about 91p.

The brokerage’s research note on Sirius reads: “With dilution from 2024’s equity raise now behind us, and with the excellent track record of asset management-driven net rental income growth to lean on, we can see FFO per share growth re-accelerating.”

Panmure Liberum revised its earnings growth forecasts for Sirius upwards to at least 5% per year to 2030 and expects a total annual return of about 14%. It says: “We view the shares as excellent value.”