Company Announcements

SIRIUS REAL ESTATE LIMITED

(Incorporated in Guernsey)

Company Number: 46442

JSE Share Code: SRE

LSE (GBP) Share Code: SRE

LEI: 213800NURUF5W8QSK566

ISIN Code: GG00B1W3VF54

5 June 2023

Sirius Real Estate Limited

("Sirius Real Estate", "Sirius", the "Group" or the "Company")

Results for the year ended 31 March 2023

Sirius grows FFO growth to exceed €100 million FFO ambition and supports 29% dividend increase

-Record like-for-like rental growth drives 9th consecutive year of dividend increase-

Sirius Real Estate, the leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the UK, announces its consolidated financial results for the year to 31 March 2023.

Operating platform continues to drive rental and FFO growth

·      36.9% increase in Funds from Operations ("FFO") to €102.1 million (2022: €74.6 million), exceeding five-year €100 million target set in 2018

·      7.7%* increase in Group annualised like-for-like rent roll to €175.9* million (2022: €163.3* million) driven by continued strong occupier demand in Germany and the UK

·      24.5% increase in adjusted profit before tax to €96.0 million (2022: €77.1 million). Profit before tax decreased 48.5% to €87.0 million (2022: €168.9 million) primarily as a result of €7.7 million valuation deficit in 2023 compared to a €140.9 million surplus in the previous year.

·      28.9% increase in FFO per share to 8.74c (2022: 6.78c)

·      17.2% increase of EPRA EPS to 7.55c (2022: 6.44c)

Strong operational performance supporting 28.8% increase in dividend and strong total return

·      25.7% increase in H2 dividend to 2.98c per share (2022: 2.37c per share), amounting to a 28.8% uplift in the total dividend for the financial year to 5.68c (2022: 4.41c), maintaining the same pay-out ratio of 65% of FFO

Income driven valuation gains

·      1.1% increase in investment property book value** to €2,123.0 million (2022: €2,100.1 million) as a result of strong income growth and investment offsetting yield expansion

·      Gross yield of 7.3% (2022: 6.9%) in Germany and 9.3% net yield (2022: 8.0%) in the UK

·      EPRA NTA per share increasing by 0.8% to 108.11c (2022: 107.28c) demonstrating the resilience of the portfolio

·      Adjusted NAV per share increased 0.6% to 109.21c (2022: 108.51)

€90 million of asset recycling, with disposals achieved at 25% combined aggregate premium to book value

·      €44.6 million of acquisitions with annualised NOI of €1.6 million and 54% occupancy completed across three new sites in Germany

·      €45.8 million of disposals with annualised NOI of €1.8 million and limited further growth opportunity completed across six transactions (including the sale of two non-income producing land parcels in Germany), achieving a combined 25% aggregate premium to the last book value prior to each sale

Strong balance sheet with only c. 5% of total debt expiring within next 3 years

·    Total cash balance of €124.3 million, of which €99.2 million of cash in is unrestricted, providing capacity for further acquisitions and investment (2022: €151.0 million total cash of which €127.3 million unrestricted)

·      41.6% net LTV (March 2022: 41.6%) and Net Debt to EBITDA of 7.7x

·      95% of total Group debt (€975.1 million) at fixed interest rates for a minimum of 3.25 years

·     €170.0 million facility with Berlin Hyp AG and €58.3 million Deutsche Pfandbriefbank facility have been refinanced (the latter post period end) to 2030 extending the Group weighted debt expiry to 5.0 years and increase the weighted cost of debt to 2.1% (from 1.4% at 31 March 2022)

·      €1.6 billion of unencumbered assets (2022: €1.6 billion)

Outlook

·    The new financial year has started well, driven by continued strong occupier demand in both markets and the Group continues to trade in line with market expectations

·    In Germany, stable occupancy rates and the easing of energy price pressures continue to offset wider macro-economic concerns

·    Sirius continues to assess further growth options in both Germany and the U.K. on an opportunistic basis, including recycling of mature assets and reinvesting in value-add opportunities

·    Organic growth opportunities remain strong, particularly with further investment into the portfolio as well as taking advantage of the high inflationary environment

Commenting on the results, Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said: "Sirius has delivered another positive set of annual results, with sizeable rental growth underpinned by continued occupier demand for our high-quality and affordable products in both Germany and the UK. This is now the ninth consecutive year of like-for-like rental growth in excess of 5% in the year. This strong operational performance enabled us to deliver a significant increase to the annual dividend, which rose 29%, and to surpass our €100 million FFO ambition, with a 37% increase over the prior year to €102.1 million. The Company also recycled €90 million of assets over the past twelve months, including six disposals achieved at a 25% combined aggregate premium to book value. We will continue to pursue an opportunistic asset recycling programme where we see opportunities to crystalise returns and drive value."

"Looking ahead, our outlook remains positive: our balance sheet is strong, with cash reserves of €124 million and around 95% of the Group's debt secured at fixed interest rates for at least the next three years, and we continue to trade in line with market expectations. While we remain alert to the potential impact of ongoing global macro-economic uncertainty, Sirius remains well placed to continue to deliver attractive returns for shareholders."

Notes:

*Group rent roll and rental income KPI's have been translated utilising a constant foreign currency exchange rate of GBP:EUR 1.1374, being the closing exchange rate as at 31 March 2023.

** Including leased investment properties

WEBCAST

There will be an in-person presentation for analysts/investors at 08:30 BST (09.30 CET/ SAST) today, hosted by Andrew Coombs, Chief Executive Officer, and Alistair Marks, Chief Investment Officer and Interim Chief Financial Officer, at Peel Hunt's offices (100 Liverpool Street, London, EC2M 2AT).

There will also be a live webcast available, which can be accessed via the below link:
Webcast link: https://stream.brrmedia.co.uk/broadcast/642c14c009685ed988693297

For further information:

Sirius Real Estate

Andrew Coombs, CEO / Alistair Marks, CIO and Interim CFO

+49 (0) 30 285 010 110

FTI Consulting (Financial PR)

Richard Sunderland / James McEwan / Talia Shirion / Sebastian Duran de Huerta

+44 (0) 20 3727 1000

SiriusRealEstate@fticonsulting.com 

NOTES TO EDITORS

About Sirius Real Estate

Sirius is a property company listed on the main and premium market of the London Stock Exchange and the main board of the JSE Limited. It is a leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the UK. As of 31 March 2023, the Group's portfolio comprised 140 assets let to 9,201 tenants with a total book value of over €2.1 billion, generating a total annualised rent roll of €178.3 million. Sirius also holds a 35% stake in Titanium, its €350+ million German-focused joint venture with clients of AXA IM Alts.

The Company's strategy centres on acquiring business parks at attractive yields and integrating them into its network of sites - both under the Sirius name and alongside a range of branded products. The business then seeks to reconfigure and upgrade existing and vacant space to appeal to the local market via intensive asset management and investment and may then choose to selectively refinance or dispose of assets once they meet maturity, to release capital for new investment. This active approach allows the Company to generate attractive returns for shareholders through growing rental income, improving cost recoveries and capital values, and enhancing returns through securing efficient financing terms. The Company has a strong track record for growing its income and has delivered like-for-like rent roll growth in excess of 5% for the last nine consecutive years.

For more information, please visit: www.sirius-real-estate.com

Follow us on LinkedIn at https://www.linkedin.com/company/siriusrealestate/

Follow us on Twitter at @SiriusRE

LEI: 213800NURUF5W8QSK566

JSE Sponsor: PSG Capital

Chairman's Statement

Delivering on our ambition

I am pleased to be writing this as part of my fifth Annual Report as Chairman, and doubly pleased to be able to share another year of strong financial and operational performance despite a backdrop of continuing macroeconomic and geopolitical volatility.

Sirius has continued to execute on its strategy, which remains focused on the acquisition and management of business parks in Germany and the UK that have attractive yields, value-add potential or both. We use our operating platform to transform these parks into higher quality assets through investment and intensive asset management, an approach which has paid dividends as it has enabled us to work with customers through this present inflationary environment.

The Group continues to deliver on its ambition by capturing rent roll growth in both Germany and the United Kingdom whilst maintaining a robust balance sheet. The Board has authorised a dividend of 2.98c per share for the second half of the financial year, representing 65% of FFO, and a 25.7% increase on the 2.37c per share dividend for the equivalent period in the prior year. This brings the total dividend for the year to 5.68c, an increase of 28.8% on the 4.41c dividend for the year ended 31 March 2022.

Our sustainability agenda

We are proud of the progress we are making on our work to build a sustainable future, and we recognise the significant challenges that our sector and portfolio face in the coming years. These challenges remain a key focus in Board discussions and in recognition of the importance of this work, our Chief Executive Officer, Andrew Coombs, continues to chair the Sirius Real Estate Sustainability and Ethics Committee.

Chief Marketing and Impact Officer Kremena Wissel, a long-standing member of the Sirius leadership team, has overall responsibility for leading our sustainability initiatives as well as the broader ESG agenda within the operating companies. This year we are establishing a dedicated internal ESG team, reporting to Kremena, and we look forward to welcoming new colleagues who will further strengthen and accelerate our progress in this space.

Board changes

In March, we announced the appointment of Chris Bowman as Chief Financial Officer and we look forward to welcoming him to both the business and the Board of Sirius Real Estate in August 2023. Chris brings nearly 25 years' accounting, finance and capital markets experience, and he is extremely well qualified to oversee the continued financial management of the Group.

Chris' arrival allows Alistair Marks, our interim Chief Financial Officer, to resume his focus on his role as Chief Investment Officer, which he has held since January 2021. Alistair will step down from the Sirius Board at this year's AGM in July and I'd like to thank him for returning to his former Chief Financial Officer role allowing us to undertake a thorough search for the best permanent candidate, and for his continued valuable contribution to the Group.

Our leadership team

A key strength of the business continues to be the long-term commitment of our senior leadership team. Chief Executive Officer Andrew Coombs has been with the business for more than ten years and has recently restated his commitment to see through a number of our sustainability and growth ambitions to 2030. Additionally, a significant number of the executive leadership team have accompanied Andrew on this journey, from rescuing and turning Sirius around in 2010 to the successful multi-geography business it is today. Andrew is supported by a core group of long-standing and committed leaders throughout the business, including Kremena Wissel, Rüdiger Swoboda, Alistair Marks and Craig Hoskins, all of whom have been with Sirius for more than a decade as well as Tariq Khader, Mo Jiwaji, Anthony Payne and Vince Scammell in the UK, all of whom   and remain dedicated to driving future growth.

Of course, these individuals are complemented by experienced experts who are more recent joiners to the business - adding capabilities in areas ranging from asset management to ESG and more, including our BizSpace leadership team in the UK.

Looking ahead

There are a number of headwinds on the horizon that will challenge the Sirius business model in the coming years, most notably the higher interest rate environment, broader geopolitical uncertainty, and cost-of-living challenges in both the UK and Germany. We remain alert in assessing these risks, and the impact they will have on our business, and take confidence from our strong track record of adapting and thriving in the face of other significant external challenges in recent years.

Overall, we are confident that the strength of our balance sheet, our experienced management team and our long-term strategic view will enable our business to continue its growth journey in the years ahead. Sirius is well run and adaptive and continues to be a highly investible proposition.

Thank you

On behalf of the Board, I would like to express my gratitude to everyone across Sirius for their contributions to our successes in this financial year. I look forward to the coming financial year with confidence in our team, our business model and our ambition as we build on our strong foundations.

Daniel Kitchen

Chairman

2 June 2023

"We are confident that the strength of our balance sheet, our experienced management team and our long-term strategic view will enable our business to continue its growth journey in the years ahead."

Asset management review - Group highlights

Key highlights:

*   The Company has chosen to disclose certain Group rental income figures utilising a constant foreign currency exchange rate of GBP:EUR 1.1374, being the closing exchange rate as at 31 March 2023.

Introduction

The last financial year has been one of a changing environment and uncertainty around the European commercial real estate market, which is why the Company has decided to concentrate on what it has rather than continue to grow acquisitively as it has over the last years.  Sirius' management has always indicated that the Company's business model works well in both good and bad times and now is the opportunity to show that.  Its ability to provide a mix of conventional and flexible space allows it to adapt to a changing environment and continue to grow organically when others in the market face difficulty. 

The focus over the last twelve months has been to continue the Group's capex investment into its vacant space with the aim of continuing to increase occupancy and rate achieved per lettable sqm as well as to replenish this opportunity within its portfolio through selective asset recycling. Success has been achieved on all fronts with substantial like-for-like rental income increases in both the UK and Germany along with some excellent recycling of equity from mature or non-core assets with limited growth opportunity into assets with substantial value-add and income growth opportunity which can be realised over the next few years.  As such, the Company has seen record like-for-like rental growth but the total shareholder returns, including NAV growth, seen in the last financial year have not reached similar hights. Nevertheless, the Company has a solid foundation to continue to provide excellent risk-adjusted returns for its stakeholders over the next few potentially turbulent years. 

Operational platform continues to capture rental growth

Despite the current economic environment, the Company continues to see strong demand for the range of conventional and flexible spaces it offers both in the UK and in Germany.  Across both Germany and the UK, the Company was able to sign 2,737 new deals, occupying 203,263 sqm and providing new annual contractual revenue of €28.0* million.

As such, like-for-like annualised rent roll increased by 7.3% in Germany and 8.7% in the UK, which blends to 7.7*% at Group level. This represents the ninth consecutive year of like-for-like rent roll growth in excess of 5%. These improvements were driven by an 8.1% and 14.8% increase in the like-for-like average rental rate in Germany and the UK respectively. However, the Group's total occupancy was lower at 83.9% (31 March 2022: 85.3%), reflecting a slight drop in like-for-like occupancy due to the focus on price in both Germany and the UK as well as some recycling of mature assets into value-add assets with more vacancy and hence opportunity. The strong demand that Sirius is able to generate for its offerings allows the Company to focus on capturing inflationary increases as well as reversion within its existing tenant base. Achieving the largest like-for-like rental growth in the Company's history whilst also increasing the opportunity within its vacancy puts Sirius in an excellent position to continue this growth over the next few years without the need for substantial acquisitive growth.

€178.3m

total annualised rent roll

€8.11 per sqm

average rate

98.6%

cash collection rate

Asset management review - Germany

Key highlights:

German market overview

As the German economy recovered from the effects of the Covid-19 pandemic, market uncertainty increased due to the escalation of the Ukraine war and the resulting energy and cost of living crisis. The impacts of these were softened by initiatives of the German Government such as the "Energiepreisbremse" where the consumers were sheltered from increasing costs up to 80% of the previous year's consumption as well as other initiatives such as not being required to pay for energy consumption for the month of December. These savings, which are to be passed onto the consumer, dampened some of the negative impact of the inflationary pressures faced by companies operating within the German economy. Nevertheless, this has resulted in a slow-down in the German economy where only 1.8% GDP growth was recorded in 2022 compared to 2.7% in 2021. The increase in prices, coupled with dampening foreign demand and supply chain bottlenecks, has created uncertainty, which when combined with higher costs of borrowing has resulted in decisions for take-up of larger industrial, logistics and in particular office spaces being delayed. Conversely the demand for flexible and smaller spaces has been increasing which is an area in which Sirius can take advantage. Despite these challenges and in light of the supply chain bottlenecks, the Company has still managed to let some larger storage spaces in the year. Overall, however the occupier market has been more challenging over the last year than it was prior to the Covid-19 pandemic.

The Company has been able to reduce the impact of higher energy prices on its tenants through some fixed-price contracts it put in place before the large increases came into force. This, coupled with the competitive rental rates that Sirius offers its tenants, positions the Company well to continue to support its tenant base and grow its rental income for many years to come. The Company continued to adopt a highly dynamic and flexible approach to its marketing activities with several initiatives launched based on data generated from detailed analysis of online search patterns and take advantage of the increase in demand for storage and flexible office space. Flexibility and competitive pricing continued to be key factors in decision making. Accordingly, the Company generated an increased number of enquiries compared with the prior year which resulted in an increase in the volume of sales by sqm.

€123.1m

total annualised rent roll

€6.86 per sqm

average rate

98.4%

cash collection rate

Lettings and rental growth

The German portfolio recorded a like-for-like increase in its annualised rent roll of 7.3% to €120.7 million (31 March 2022: €112.5 million) whilst the total annualised rent roll increased in the year end by €9.4 million to €123.1 million (31 March 2022: €113.7 million).  Of this growth €8.2 million related to organic growth, €1.2 million was lost from disposals and €2.4 million represented the impact from acquisitions.

The €8.2 million organic growth was made up of €6.3 million coming from uplifts from existing tenants, either through contractual lease indexation or increases upon renewal, as well as €1.9 million from the net of move-ins over move-outs.  The latter can be further broken down into move-outs of 164,562 sqm that were generating €14.7 million of annualised rent roll at an average rate of €7.47 per sqm being offset by move-ins of 154,110 sqm generating €16.6 million of annualised rent roll at an average rate of €8.98 per sqm.  The combination of the above has resulted in like-for-like rate per sqm increasing by 8.1% to €6.83 (31 March 2022: €6.32) demonstrating the ability of the Company to realise the benefits of the investments into its portfolio, even in challenging markets.

Like-for-like occupancy in Germany has decreased by 0.5% to 84.0% (31 March 2022: 84.5%) due to some large known move-outs in the first half of the financial year. The Company has nevertheless made further progress in investing in its sub-optimal vacant space through its capex investment programme, so the space available to let has increased significantly throughout the year. Additionally, the acquisitions made during the year resulted in a further 18,277 sqm of vacant space, with upgrade potential, being added to this opportunity. Consequently, Sirius has been able to grow like-for-like annualised rent roll by 7.3% in the year whilst further increasing the opportunity to add value and grow income from its vacancy, especially through Sirius' well documented capex investment programme which is described in more detail later in this section.

The movement in annualised rent roll is illustrated in the table below:

The key to another excellent year of organic rental growth, despite a more challenging market, is the Company's ability to generate so many enquiries for its vacant space. This is because most of the enquiries Sirius receives are generated through the Company's in-house marketing platform which is able to adapt to changing markets and always attract a substantial amount of the demand towards Sirius' offerings. Total enquiries for the year were 15,412 compared to 16,180 enquiries generated in the period ended 31 March 2022, which, considering the market conditions, was another strong performance. However, whilst generating leads is important, the ability to convert these into new lettings is paramount. The Sirius operating platform was able to convert these enquiries at a rate of 12% (31 March 2022: 13%) which is indicative of the quality of lead Sirius is able to generate as well as the procedures it has in place to make the sale. As such, a total of 164,184 sqm of space was let (31 March 2022: 162,102 sqm) contributing €17.1 million (31 March 2022: €15.0 million) to the annual rent roll at an average rate of €8.68 per sqm (31 March 2022:  €7.72 per sqm). This strong lettings performance has more than offset the large move-outs mentioned above and, when coupled with the Company's ability to be able to take advantage of the high inflationary environment and the improvements it is making to its properties, means that Sirius has had another strong year of organic growth and is well positioned to take advantage of further growth over the near term.

Despite those large move-outs, overall tenant retention in the period was encouraging with a 75% renewal rate by sqm in the period being successfully extended (31 March 2022: 75%). Overall, the continued positive performance in marketing, lettings and renewals provides a clear demonstration of the ability of the Company to grow against the backdrop of rapidly changing market dynamics, which included the Covid-19 pandemic, the war in Ukraine, the energy crisis in Germany and resulting inflationary pressures.

Cash collection

The Company continued its trend of strong cash collection performance in the period. Sirius is very focused on cash collection and the advantage of its substantial operating platform is very evident here. The experienced cash collection team, combined with the on-site staff who have established strong relationships with our top tenants, has been key to keeping cash collection rates steady at 98.4% (31 March 2022: 98.4%), even though total billings (net of VAT) increased by 12.0% to €182.6 million from €163.0 million in 31 March 2022.  This demonstrates the resilience of Sirius' tenant base and strength of the Company's cash collection initiatives.

As at year end uncollected debt amounted to €2.9 million (31 March 2022: 2.6 million) which mainly related to recently billed service charge and repair and maintenance balancing for prior years.  The outstanding rent and service charge prepayments were €5.1 million and €1.3 million respectively. The Group has issued 48 deferred payment plans (31 March 2022: 10 deferred payment plans) amounting to €0.3 million (31 March 2022: €0.6 million) and immaterial write offs in the period (31 March 2022: €0.01 million). Whilst the number of deferred payment plans has increased, the overall value has decreased. The Company expects to collect most of the outstanding debt for the period over the next twelve months through its regular debt collection activities.

Asset recycling

Given the uncertainty around property values and occupier demand on the back of interest rate increases, changes in office working patterns and ESG, the Company has decided to hold back on substantial acquisitive growth and focus on selective asset recycling whilst retaining strong cash reserves to allow the Company to strike when new opportunities arise. Additionally asset recycling remains an important factor in proving values and replenishing the opportunity from vacancy which is realised through the Group's capex investment programme. The Company was able to complete over €90 million in deals in the period.

A summary of the acquisitions and disposals that completed or were notarised in the year is detailed in the table below:

Acquisitions

*     Includes purchaser costs.]

A summary of the opportunities and characteristics of each asset acquired in the period is detailed below.

•     The Düsseldorf asset was purchased for total acquisition costs of €39.8 million. The multi-tenanted site is located in close proximity to Düsseldorf International Airport and provides 24,400 sqm of office and 9,900 sqm of industrial space. With over 15,500 sqm of vacant space at the date of notarisation, the site provides significant rental and valuation growth opportunity as well as sufficient day-one net income to replace most of the income lost from disposals. The Company has a number of assets in the Düsseldorf area and Sirius expects to benefit from meaningful operational synergies by adding another.

•     Dreieich comprises a warehouse asset located in a well-developed commercial area in Dreieich, Germany, that is strategically adjacent to an existing property owned by Sirius. With total acquisition costs of €3.9 million, the asset consists of 5,200 sqm of industrial space and 439 sqm of residential space which will initially generate around €50,000 of annualised net operating income at 54% occupancy. There are plenty of value-add opportunities within this asset, which includes potentially converting the property into a self-storage facility. If progressed, this would add to the Company's existing Smartspace self-storage brand and take advantage of the high demand for self-storage in the area which Sirius has established through operating in the area for the last five years. Sirius currently owns and operates at 32 self-storage locations across Germany and this would be one of the largest and most significant.

•     The final completed purchase was of a 239 sqm office building in Potsdam, Germany, which strategically gives Sirius ownership of an asset located at an entrance to one of the Company's existing business parks. With total acquisition costs of €0.9 million the building was purchased fully vacant and gives the Company control of all buildings on a site which is located next to the world famous Babelsberg Film Studios.

The marketing and sales capabilities within the operating platform are part of several asset management disciplines that provide the Company with a significant competitive advantage over other owners of light industrial and business park assets in Germany. This allows Sirius to be more flexible with how it configures and offers its vacant space which should result in the Company being able to more easily fill up and transform these newly acquired sites and hence make the high returns at the asset level which underpins the Company's significant organic growth it generates each year.

Disposals

*     Calculated on net purchase price.

**    Asset held for sale, completed 1 April 2022.

Over the last twelve months, the Group sold six assets (including the sale of two non-income producing land parcels in Germany) for a total sales price of €45.8 million compared with a book value of €36.7 million, representing a 25% aggregate premium to the last book value prior to each sale. These disposals of mature and non-core assets at or above book value demonstrate the Company's ability to recycle its assets even in uncertain market conditions.

German capex investment programmes

The Group's capex investment programme on the German assets has historically been focused on the transformation of the poor-quality vacant space that is typically acquired at very low cost due to it being considered as structural vacancy by former owners. The transformation and take up of this space has not only resulted in significant income and valuation improvements for the Company but has also yielded significant improvements in service charge cost recovery and therefore further increased net operating income. The programme started in 2015 and to date 428,037 sqm of space has been fully transformed for an investment of €64.1 million. As at 31 March 2023, this space was generating €27.1 million in annualised rent roll (at 73% occupancy) plus the substantial improvement in the recovery of service charge costs. This transformed space has also been the major contributor towards the large valuation increases seen on the portfolio over the last eight years.

In addition to the space that has been completed and let or is currently being marketed, a total of approximately 40,920 sqm of space is either in progress of being transformed or is awaiting approval to commence transformation. A further €10.5 million is expected to be invested into this space on top of the €1.8 million already spent, and, based on achieving budgeted occupancy, is expected to generate incremental annualised rent roll in the region of €3.8 million.

The details of the capex investment programme on this low-quality vacant space is detailed below:

*     See the Glossary section of the Annual Report and Accounts 2023.

In addition to the capex investment programme on acquired "structural" vacant space, Sirius continually identifies and looks for opportunities to upgrade the space that is vacated each year as a result of move-outs. Within the existing vacancy at 31 March 2023, the Company has identified approximately 47,000 sqm of recently vacated space that has potential to be significantly upgraded before it is re-let. This space will require an investment of approximately €6.8 million and, at current rates, is expected to generate around €3.9 million in annualised rent roll when re-let. Upgrading this vacated space allows the Company to enhance the reversionary potential of the portfolio whilst significantly improving the quality, desirability and hence value of not only the space that is invested into but the whole site.

The analysis below details the sub-optimal space and vacancy at 31 March 2023 and highlights the opportunity from developing this space.

*     See the Glossary section of the Annual Report and Accounts 2023.

The German portfolio's headline 83% occupancy rate means that in total 297,943 sqm of space is vacant as at 31 March 2023. When excluding the vacancy which is subject to investment (5% of total space), and the structural vacancy which is not economically viable to develop (2% of total space), the Company's occupancy rate based on space that is readily lettable is approximately 90%.

Whilst the capex investment programmes are a key part of Sirius' strategy, they represent one of several ways in which the Company can organically grow income and capital values. A wide range of asset management capabilities including the capturing of contractual rent increases (especially whilst inflation is high), uplifts on renewals and the re-letting of space at higher rates are also expected to contribute to the Company's annualised rent roll growth going forward.

Whilst the Company will continue to look to asset recycling to replenish the vacancy which is let up after transformation, the Company maintains a risk adjusted strategy and expects to continue to hold a significant amount of core mature assets in order to maintain a balanced portfolio that provides a combination of stable, long-term financeable income with value-add assets with growth potential.

Well-diversified income and tenant base

Against the backdrop of continued market disruption, be it geopolitical conflict or a high inflationary environment, the importance of a well-diversified tenant base and wide range of products is evident. Sirius' portfolio includes production, storage and out of town office space that caters to multiple uses and a range of sizes and types of tenants. The Company's business model is underpinned by its tenant mix which provides stability through its large long-term anchor tenants and opportunity through the SME and flexible individual tenants.

The Group's large anchor tenants are typically multinational corporations occupying production, storage and related office space whereas the SMEs and individual tenants occupy space on both a conventional and a flexible basis including space marketed under the Company's popular Smartspace brand which provides tenants with a fixed cost and maximum flexibility. The Company's largest single tenant contributes 2.1% of total annualised rent roll whilst 7.9% of its annualised rent roll comes from government tenants.

SMEs in Germany, the Mittelstand, are typically defined as companies with revenues of up to €50.0 million and up to 500 employees. SME tenants remain a key target group which the Company's internal operating platform has demonstrated an ability to attract in significant volumes as evidenced through the high number of enquiries that are generated each month, mainly through the Company's own marketing channels. The wide range of tenants that the Sirius marketing and sales team is able to attract is a key competitive advantage for the Company and results in a significantly de-risked business model when compared to other owners of multi-tenanted light industrial and business park assets.

The table below illustrates the diverse nature of tenant mix within the Sirius portfolio at the end of the reporting period:

(1)   Mainly large national/international private and public tenants.

(2)   Mainly small and medium-sized private and public tenants.

(3)   Mainly small and medium-sized private and individual tenants.

*     See the Glossary section of the Annual Report and Accounts 2023.

Smartspace and First Choice

Sirius' Smartspace products are designed with flexibility in mind, allowing tenants to benefit from a fixed cost which continues to be desirable even in challenging market conditions. The majority of Smartspace has been developed from space that is either sub-optimal or considered to be structurally void by most light industrial real estate operators. Following conversion, the area is transformed into space that can be let at significantly higher rents than the rest of the business park and, as a result, is highly accretive to both income and value. The Company was able to add 11,006 sqm of Smartspace offering from 96,390 sqm in the prior year to 107,396 sqm which is an increase of more than 11%.  Whilst this has reduced total Smartspace occupancy to 65% (31 March 2022: 73%), the Company has been able to capture rate increases across all of its product lines which has more than offset this lower occupancy.

The most significant growth occurred in the Smartspace storage product. The Company's market research through its marketing and sales platforms indicated strong demand in this sector and Sirius was able to act accordingly to capture some of this. The addition of 6,569 sqm of Smartspace storage helped grow this product line's rental income contribution by €0.4 million.

Additionally a further 2,374 sqm of First Choice Office space and 4,661 sqm of Smartspace Office space were created in the period which contributed to rental growth of €0.1 million and €0.3 million respectively.

The total amount of Smartspace in the portfolio at the year end was 107,396 sqm (31 March 2022: 96,390 sqm), generating €8.4 million (31 March 2022: €7.7 million) of annualised rent roll which equates to 6.8% of the Company's total annualised rent roll. Average rate per sqm continued to increase by 7.5% year on year, highlighting the premium pricing opportunity associated with flexibility.

The table below illustrates the contribution of each of the Smartspace products:

*     See the Glossary section of the Annual Report and Accounts 2023.

Asset management review - UK

Key highlights:

Lettings and rental growth

The UK recorded a like-for-like increase in its annualised rent roll of 8.5% to £48.5 million (31 March 2022: £44.7 million) equating to a 4.5% increase in euro terms to €55.2 million (31 March 2022: €52.8 million) due to a weakening British pound compared to the euro. The total annualised rent roll increase in the year was £3.4 million (€3.9 million), with £3.9 million (€4.4 million) organic growth offset by asset disposals totalling £0.6 million (€0.7 million).

Encouragingly, like-for-like average rate per sq ft increased by 14.7% to £13.39 (31 March 2022: £11.67), equating to a 10.4% increase in euro terms to €13.66 (31 March 2022: €12.37), reflecting management's ability to capture rental growth in the current inflationary environment. In order to capture rate increases in excess of inflation, we have been comfortable ceding a small amount of occupancy in return for these higher rates and we believe this positions us well as the economy begins to recover. Like-for-like occupancy decreased to 86.5% from 90.5% as a result of the price led strategy as well as a small number of known large leavers. 

The increase in annualised rent roll over the period can be broken down into move-outs of 1,084,070 sq ft (100,713 sqm) generating £17.7 million (€20.4 million) of annualised rent roll at an average rate of £16.29 per sq ft (€16.92 per sqm) being offset by move-ins of 880,861 sq ft that were generating £17.6 million (€20.3 million) of annualised rent roll at an average rate of £19.94 per sq ft (€20.70 per sqm). Additionally, rental uplifts on existing tenants added a further £4.0 million to the annualised rent roll during the period. As mentioned above two assets were disposed of during the period which accounted for a £0.5 million (€0.5 million) reduction in annualised rent roll.

The movement in annualised rent roll is illustrated in the table below:

Despite a challenging market, driven by market uncertainty over inflation, the UK operating platform generated a healthy number of enquiries for the year, totalling 15,511 for the period ended 31 March 2023 (4.5 months to 31 March 2022: 6,647). In the period 963 deals were secured totalling 420,647 sq ft (39,079 sqm) with an average deal per sqm of 437 sq ft (40 sqm). During the second half of the year the Company averaged 97 deals per month compared to an average of 63 deals per month in the first six months. The annual sales conversion rate of 6.2% was an improvement on the 5.6% for the 4.5 months to 15 November 2021 reflecting the management's focus on improving the sales and marketing functions within BizSpace.

Cash collection

Through a combination of its experienced cash collection team and the team's active management of its tenant base, the cash collection rates remained steady at 99.3% (4.5 months to 31 March 2022: 99.6%). The 99.3% cash collection rate can analysed as total net of VAT billing amounting to £48.3 million, total uncollected debt at year end amounting to £0.3 million (€0.4 million) and £29,859 (€34,562) written off during the period. There are no deferred payment plans in place and the Company expects to collect the majority of the outstanding debt at year end through its regular debt collection activities.

£48.5m

total annualised rent roll

£13.39 per sq. ft

average rate

99.3%

cash collection rate

Site Investment

BizSpace has historically invested in its sites in order to maintain and upgrade its spaces which allows it to adapt to changes in tenant demand. In the period under review the Company invested a total of £4.8 (€5.6) million into its sites focused primarily on improving the condition of spaces to drive occupancy and price. The Company expects to identify further opportunities to invest into its assets in the new financial year whilst continuing to progress its ESG-related investment in order to align itself with the wider Group.

Well-diversified income and tenant base

BizSpace's portfolio includes light industrial, studio, out of town office space and storage that caters to multiple usages and a range of sizes and types of tenants. As a result, the Company's business model is underpinned by a well-diversified tenant base.

The Company's top 100 tenants, which are typically large corporates, account for 24% of the annualised rent roll with the next 900 tenants accounting for 46% of annualised rent roll. The remaining 30% of annualised rent roll relates to over 2,000 SME and micro-SME tenants which occupy 28% of the overall estate.

The table below illustrates the diverse nature of tenant mix within the Sirius portfolio at the end of the reporting period:

SMEs in the UK are typically defined as companies with revenues of up to £50.0 million and up to 250 employees. The Company's internal operating platform and product offering have a strong track record of attracting and retaining customers in this segment of the market which is expected to continue to grow as a result of structural trends impacting the UK market.

Financial review

€100 million FFO milestone achieved

"Sirius has achieved its €100 million funds from operations goal with further organic growth as the Company continues its price driven strategy in both Germany and the UK."

Alistair Marks

Interim Chief Financial Officer

Substantial FFO growth

The Company has reported in excess of €100 million in FFO for the first time, a five year target that was set in FY18/19 when the FFO run rate was below €50 million.  Sirius recorded FFO of €102.1 million which represents a 36.9% increase over the €74.6 million FFO reported last year. Whilst a significant portion of this growth has come from the full year effect of acquisitions that were made in the last financial year, including BizSpace, Sirius has benefited from substantial organic growth and excellent asset recycling despite the challenging markets which are continuing to be affected by instability from the Ukraine conflict and the cost of living crisis in both Germany and the UK. The main driver of organic growth was the 7.7%⁽¹⁾ increase in like-for-like rent roll which increases to 8.1%⁽¹⁾ rent roll growth when incorporating the effect of asset recycling and taking the total rent roll of the Group. This level of like-for-like rental growth was a record for the Company and has mainly come from the Group's price driven strategy which focuses on replacing rental contracts which are under-rented with those closer to market rates whilst also capturing inflationary increases where it can. This has resulted in a slight decline in the Group's total occupancy but the rent growth numbers speak to the success of this strategy.

Trading performance and earnings

The Company has reported a profit before tax in the year ended 31 March 2023 of €87.0 million (31 March 2022: €168.9 million), representing a decrease of 48.5% from the prior year. This reduction in profit is mainly due to the FFO growth mentioned above being offset by a net valuation deficit of €7.7 million (€21.4 million valuation increase less €29.9 million capex) being reported in the period whereas in the prior year a net valuation gain of €140.9 million (€163.5 million valuation increase less €22.6 million capex) was reported.  The €27.5 million increase in FFO to €102.1 million (31 March 2022: €74.6 million) included BizSpace contributing € 25.5 million, its first full year contribution to the Group (31 March 2022: €5.8 million). The organic growth within this FFO increase came mainly from the 6.4% and 7.7%⁽¹⁾ increases in like-for-like annualised rental income achieved in the March 2022 and March 2023 years respectively. 

Both the German and UK businesses saw strong demand for their offerings which translated to the excellent rental growth in the period as explained in more detail in the Asset management section of this report. Additionally, Sirius was able to achieve further improvements to its ancillary income streams which have more than offset some increases in overhead costs due to inflation as well as increasing the capacity of its management platform.

Further acquisitive growth was limited because the Company has decided to pause its large-scale acquisitive growth plans in favour of selective asset recycling due to the uncertainties that exist in the property investment markets within which Sirius operates. As such, the Company can focus more on its organic growth opportunities of which there remain plenty.

The split between the contribution from German operations and BizSpace for the year ended 31 March 2023 is set out in the table below.

(1) The Company has chosen to disclose certain Group rental income figures utilising a constant foreign currency exchange rate of GBP:EUR 1.1374, being the closing exchange rate as at 31 March 2023.

On a per share basis, most of what was discussed above is reflected with only a small number of new shares being issued in the period. The impact of valuations stabilising resulted in a 49.4% decrease in basic EPS for the period to 6.82c per share. Adjusted EPS, basic EPRA EPS and diluted EPRA EPS, which exclude the impact of valuations described above, increased by approximately 22.8%, 17.2% and 17.1% respectively reflecting the strong operational performance in the year.

*     See note 12 and the Business analysis section of the Annual Report and Accounts 2023.

Sirius converted the UK business into a UK Real Estate Investment Trust ("REIT") with effect from 1 April 2022, resulting in BizSpace no longer being subject to UK corporation tax on income from its property rental business, as well as on profits on disposals of assets.

Income

Total revenue reported in the period, which comprises rent, fee income relating to Titanium, other ancillary income from investment properties, and service charge income, increased from €210.2 million for the 31 March 2022 year to €270.1 million this year. The detail of the €59.9 million increase in income is shown on the following table.

Annualised rent roll in Germany increased by 8.3% from €113.7 million to €123.1 million with net acquisitions and organic growth contributing €2.4 million and €8.2 million respectively. BizSpace's annualised rent roll increased 7.4%⁽¹⁾ from €51.3⁽¹⁾ million to €55.1⁽¹⁾  million in the period, with the impact of organic growth of €4.4 million being reduced by disposals of €0.6 million. This is shown in more detail in the following table:

Whilst the rental growth in the period was impressive, the fact that this was achieved without reducing vacancy levels means that the opportunity that remains within this vacancy for further organic growth over the next few years has been preserved. The key to unlocking this in the most effective way is through the continuation of Sirius' capex investment programmes combined with a wide range of other intensive asset management initiatives. Additionally, whilst inflation levels continue to be high, Sirius is able to boost its organic growth numbers because of its ability to capture inflationary increases within its contracted rents as well as when tenants renew and new tenants are coming in.

Portfolio valuation - Group

The portfolio of owned assets was independently valued at €2,103.2 million by Cushman & Wakefield LLP at 31 March 2023 (31 March 2022: €2,079.0 million), which converts to a book value of €2,123.0 million after the adjustments in relation to lease incentives and inclusion of leased investment property. A breakdown of the movement in owned and leased investment property, excluding assets held for sale, is detailed in the table below.

*     Excluding assets held for sale.

The increase in value of the German portfolio of €57.6 million was made up of €44.6 million of asset acquisitions, less €8.8 million of disposals, plus a €22.4 million valuation increase on the existing portfolio and finally a €0.6 million negative adjustment in respect of lease incentives. The €22.4 million valuation increase was lower than the €24.4 million of capex spent on that portfolio; hence, the net of these resulted in a €2.0 million deficit being booked through the Company's profit.

In the UK, the value of the BizSpace portfolio reduced by €34.1 million due to €17.1 million of disposals partly offset by €1.4 million of additions*, a valuation decrease of €0.2 million on the existing portfolio and a €17.3 million foreign currency reduction due to the weakening of GBP against the EUR for the year. In addition to the €0.2 million valuation reduction, capex of €5.5 million was invested into the UK portfolio resulting in a €5.7 million deficit being reported through the Company's profit.

*  Sirius extended a lease on an asset in the UK resulting in an increase in the carrying value of €1.4 million.

Portfolio valuation - Germany

The book value of the existing German portfolio that was owned for the full period increased by €21.7 million or 1.3% from €1,623.2 million to €1,644.8 million. This was driven by an increase in annualised rent roll of €8.2 million in the year which more than compensated for a gross yield expansion of approximately 40 bps. The assets that were acquired during the year end were revalued at €44.4 million which is €0.2 million below the total acquisition costs paid and 7.8% above the net purchase prices paid for these properties, indicating that these assets were purchased well.

The German portfolio at 31 March 2023 comprises 70 assets with a book value of €1,689.6 million generating €125.5 million of rental income and €109.8 million of net operating income based on an occupancy of 83.4%.  This represents an average gross yield of 7.3% (31 March 2022: 6.9%), which translates to a net yield of 6.5% (31 March 2022: 6.2%) and an EPRA net yield (including estimated purchaser costs) of 6.2% (31 March 2022: 5.9%).

Whilst yields have expanded within the German portfolio valuation by around 40 bps in the period to 7.3%, this still appears to be conservative when compared to transactions that have completed over the last year in the industrial, logistics and office sectors in Germany. The average capital value per sqm of the portfolio of €912 (31 March 2022: €893) also remains below replacement cost and, when considered with the level of vacancy that remains within the portfolio, illustrates the excellent opportunity for further growth, particularly from upgrading and letting up the sub-optimal vacant space through the Company's capex investment programmes.

The acquisitions made over the last couple of years have replenished a lot of the vacancy that was transformed and let up through Sirius' capex investment programmes.  As a result, at 31 March 2023, 65% of the German portfolio are considered value-add assets which, with average occupancy of 79.3% and valued at a gross yield of 7.6%, provide significant opportunity for further earnings and value growth. The mature assets which make up about one-third of the German portfolio have reached an occupancy level of 94.4% and, at a gross yield of 6.7%, are valued at a yield that is 90 bps lower than the value-add assets. As the transformation of the value-add assets continues, the yield gap between the mature and value-add assets is expected to reduce. The full details of the capex investment programmes are provided in the Asset management review - Germany section of this report.  The specifics of the value-add and mature portfolios are detailed in the table below:

*     Expressed as averages.

**    Including assets held for sale.

The reconciliation of book value to the independent Cushman & Wakefield LLP valuation excluding assets held for sale is as follows:

*     Excluding assets held for sale.

Portfolio valuation - UK

At 31 March 2023, the value of the UK portfolio was £367.2 million (€417.7 million) which was broadly flat compared to the £367.4 million (€434.3 million) valuation of this portfolio at 31 March 2022. The benefits of the £3.8 million (8.7%) increase in annualised rent roll for this portfolio in the period were more than offset by yield expansion of around 100 bps to 9.3% (31 March 2022: 8.3%). Similar to the German portfolio, the EPRA net yield (including estimated purchaser costs) of 8.7% (31 March 2022: 7.6%) looks conservative compared to transactions seen in the market. On a euro basis the reduction in value was €16.6 million which was higher than the £0.2 million stated above due to the weakening of GBP against EUR.

The total portfolio valuation decreased by £15.0 million across the period to £367.2 million (31 March 2022: £382.2 million), being the combination of the £0.2 million valuation reduction as described above and the disposal of Camberwell and Ipswich during the period.

The average capital value per sqm of the portfolio of £88 per sq ft (€1,072 per sqm) (31 March 2022: £88 per sq ft (€1,105 per sqm)) also remains below replacement cost and further supports the sentiment that there remains value-add potential within the portfolio.

The UK does not have material lease incentives adjusting the investment property values.

Net asset value

The valuation movements mentioned above along with a dividend pay-out ratio of 65% of FFO resulted in a slight increase in net asset value per share to 102.46c at 31 March 2023, an uplift of 0.4% from 102.04c as at 31 March 2022. Similarly, the adjusted net asset value per share increased to 109.21c at 31 March 2023, an uplift of 0.6% from 108.51c as at 31 March 2022. In addition, the Company paid out 5.07c per share of dividends during the financial year which contributed to a total shareholder accounting return (adjusted NAV growth plus dividends paid) of 5.3% (31 March 2022: 20.0%). The movement in NAV per share is explained in the following table:

(1) Adjusting items includes non-recurring items including restructuring costs, share of profit in associates, gains and losses on investments, and foreign currency effects.

(2) See Annex of 2023 Annual accounts for further details.

(3) Adjusted for the potential impact of shares issued in relation to the Company's long-term incentive programmes, intangible assets, provisions for deferred tax and derivative financial instruments.

The EPRA NTA per share, which, like adjusted NAV per share, excludes the provisions for deferred tax and fair value of derivative financial instruments but also includes the potential impact of shares issued in relation to the Company's long-term incentive programmes and excludes intangible assets, was 108.11c, an increase of 0.8% from 107.28c as at 31 March 2022.

Financing

In May 2023 the Company refinanced its €57.3 million Deutsche Pfandbriefbank (PBB) loan facility, seven months in advance of it falling due on 31 December 2023. The new facility amounting to €58.3 million has a term of seven years at a fixed interest rate of 4.25%. In addition to this early refinancing, in August 2022 the Company secured a refinancing with Berlin Hyp AG, one year in advance, of its €170 million facility due in October 2023, agreeing a new 7-year €170 million facility commencing on 1 November 2023 with a fixed interest rate of 4.26%. When these facilities commence, the weighted average cost of debt will increase from 1.4% to 2.1% and the weighted term of debt will increase from 3.3 years to 5.0 years. Whilst Berlin Hyp and PBB facilities are classified as a current liability due to their accounting treatment, these do not have a negative impact on working capital as these have been financed as new loans.

Of the €975.1 million of total debt, the Company has €49.3 million of debt coming due in the next three years which is made up of three tranches of the HSBC Schuldschein totalling €35 million and €14.3 million Saarbrücken Sparkasse. Of this debt, €20 million of the HSBC Schuldschein is due in July 2023, which the Company is in negotiations with the current lender to refinance ahead of expiry but has the ability to repay if required.

During December 2022 and January 2023 of the financial year, the Company repaid two tranches of its HSBC Schuldschein amounting to €5 million and €10 million respectively. The debt structure of the Company remains such that 75% of its debt is unsecured (31 March 2022: 75%) allowing the Company to maintain flexibility over its €1.6 billion of unencumbered assets.

Net LTV was 41.6% (31 March 2022: 41.6%) whilst interest cover at EBITDA level was 8.6x as at 31 March 2023 (31 March 2022: 7.3x). All covenants were complied with in full during the period. A summary of the movement in the Group's debt is set out below:

Movement in debt

Dividend

The Board has authorised a dividend in respect of the second half of the financial year ended 31 March 2023 of 2.98c per share, representing a pay-out of 65% of FFO and an increase of 25.7% on the equivalent dividend last year which was also based on 65% of FFO. The total dividend in respect of the financial year is 5.68c, an increase of 28.8% on the 4.41c total dividend paid in respect of the financial year ended 31 March 2022.

The table below shows the dividends paid and pay-out ratios over the last five years, demonstrating the excellent progression the Company has made in the period as well as the ability of the Board to increase the dividend pay-out ratio whilst the proceeds of asset disposals are invested.

*     First half 67%, second half 65% of FFO.

Details of the dividend distribution and announcement are detailed in note 30 of the Annual Report and Accounts.

Summary

Despite continuing challenging market conditions, the year to 31 March 2023 demonstrated the resilience of the Sirius platform as it was able to achieve its goal of €100 million of FFO. Organic growth was mainly achieved through capturing rate increases via the Company's price driven strategy as well as continuing improvements to the service charge cost recovery.  Having a full year impact of the deals done in the prior year obviously helped but plenty remains in the tank as far as further FFO and dividend growth is concerned over the next few years.

In addition, the Company has significantly improved the strength of its balance sheet over the last few years which will allow it to focus on this growth and not have to worry about yield expansion, debt refinancing and cash flow like many of the other property companies operating throughout the world.  Regardless of what transpires in the markets that Sirius operates in, from increasing interest rates and high inflation, to further geopolitical issues, supply chain problems and volatile energy prices and investment markets, Sirius is in an excellent position to navigate through and continue to grow. Should substantial acquisition opportunities arise then the Company is also well positioned to take advantage. 

The Company's strong financial profile, along with its proven internal operating platform, means the Company is fully capable of adapting to changing market conditions. With acquisition firepower available, further vacancy to develop and reversion potential to capture, as well as a defensively positioned portfolio, the Company is well set to meet the challenges ahead and looks forward to continuing to deliver attractive and sustainable returns for shareholders in the future.

Alistair Marks

Chief Financial Officer

2 June 2023

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors confirm that, to the best of their knowledge the preliminary consolidated financial statements have been prepared in accordance with international financial reporting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and that this announcement includes a fair summary of the development and performance of the business and the position of the Group. After making enquiries, the directors considered it appropriate to adopt the going concern basis in preparing the financial statements. The names and functions of the Company's directors are listed on the Company's website.

Daniel Kitchen

Chairman

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Group are included on pages 74 to 81 of the Group's Annual Report and Accounts 2023 available on the website at: www.sirius-real-estate.com

Consolidated INCOME statement

for the year ended 31 March 2023

(1)   To conform to the current year presentation, the movement in expected credit loss provision has been shown as a separate line and this is a reallocation from administrative expenses for the year ended 31 March 2022.

All operations of the Group have been classified as continuing.

Consolidated statement of comprehensive income

for the year ended 31 March 2023

Consolidated statement of financial position

as at 31 March 2023