Sirius Real Estate Regulatory News (SRE)

14 April 2020

Sirius Real Estate Limited

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

Trading Update and Notice of Full Year Results

Sirius Real Estate, the leading operator of branded business parks providing conventional space and flexible workspace in Germany, provides the following trading update for the twelve months to 31 March 2020 (the "period"), ahead of the announcement of its full year results on Monday 1 June 2020 (Covid-19 permitting). Further to its announcement on 25 March 2020, the Company is also providing a further update on current trading in the light of Covid-19.

The Company confirms that the results for the twelve-month period are expected to be in line with market expectations.

Highlights for the year to 31 March 2020

· Total annualised rent roll increased to €90.3 million (31 March 2019: €87.8 million) in spite of sale of a seed portfolio to the Titanium joint venture

· Like-for-like annualised rent roll increased by 6.1%, to €81.2 million (31 March 2019: €76.5 million)

· 162,607 sqm of new lettings signed at an average rate of €6.55 per sqm

· Like-for-like occupancy increased to 87% (31 March 2019: 85%) and average rent to more than €6.07 per sqm (31 March 2019: €5.83)

· €120.0 million of acquisitions completed providing a mix of stable income and opportunity

· Titanium joint venture with AXA Investment Managers - Real Assets completed - €168.0 million seed portfolio transferred from Sirius and first new acquisition of €58.9 million in March 2020

· Average cost of debt reduced to 1.52% and first unsecured Schuldschein facility for €50 million completed

· Increase in number of unencumbered assets to 15 with book value of approximately €115.0 million

Lettings

This was another successful year of letting activity for the business with stronger than anticipated organic rental growth in the second half offsetting the impact of the expected large move-outs at the start of the year. Continued strong occupier demand during the year was reflected with 162,607 sqm of new lettings recorded in the period.

The annualised rent roll highlights are as follows:

· Total annualised rent roll, which includes the effect of acquisitions and disposals in the period, increased to €90.3 million

· Like-for-like annualised rental income increased by 6.1%, from €76.5 million to €81.2 million in the period, the sixth consecutive year of increases greater than 5%

· Like-for-like rent roll growth was driven by a 4.0% increase in average rental rate from €5.83 to €6.07 per sqm, plus an increase in occupancy from 85% to 87%

Joint Venture/Acquisition

The Company completed its Titanium joint venture with AXA Investment Managers - Real Assets ("Titanium") in July 2019 through the sale of 65% of its interest in five business parks at an implied property value of €168.0 million, generating net proceeds for Sirius in excess of €70.0 million.

On 1 March 2020, the Company completed the first external acquisition for Titanium, of Itterpark, a business park in Hilden near Düsseldorf for €58.9 million including acquisition costs. Sirius continues to own 35% of Titanium, as well as providing asset management services to the joint venture, which now owns over €225.0 million of assets and has drawn down on €84.0 million of debt facilities.

Financing

During the period Sirius agreed three new debt facilities amounting to €171.9 million, including the Company's first unsecured debt facility for €50.0 million of which €30.0 million was drawn down as at 31 March 2020. Additionally, the Company repaid €77.7 million of debt upon executing the Titanium joint venture and made €10.1 million of scheduled debt amortisation payments during the year. Total debt increased from €386.1 million at the start of the period to €485.8 million as at 31 March 2020, with unrestricted cash and undrawn facilities of €129.7million. The Company estimates net LTV at the year end to be below 35%, subject to the current valuation process.

Details of the three new debt facilities agreed in the period are as follows:

· €115.4 million increase to an existing facility with BerlinHyp which matures in October 2023. The extension incurs an all-in fixed interest rate of 0.9% and requires amortisation payments of 1.25% per annum;

· €50.0 million unsecured Schuldschein debt facility at a blended interest rate of 1.60%, with an average maturity of 3.7 years and no amortisation. This debt instrument is the Company's first unsecured loan facility and was subscribed to by a number of German and international investors;

· €6.5 million extension of the existing facility with Deutsche Pfandbriefbank which matures in December 2023 with a floating interest rate of 1.20% above 3-Month Euribor floored at zero which requires 2.0% amortisation per annum.

The Company reduced its weighted average cost of debt to 1.52% at year-end and despite the increase in total debt Sirius was able to reduce its annual interest charge. Furthermore, the Company was able to increase the number of unencumbered assets on its balance sheet from seven to fifteen, with a book value in the region of €115.0 million. Sirius's interest cover from net operating income also increased from 10.1x to in excess of 11.0x in the period.

Acquisitions/Disposals

The combination of Titanium, the new debt facilities and disposals of non-core assets provided the Company with approximately €190.0 million of financial resources for acquisitions. Seven properties were acquired during the year with total acquisition costs of €120.0 million. The acquisitions represent an attractive mix of stable income and value-add opportunity in locations in and around where Sirius already has a strong presence. 

Further details of acquisitions completed in the period are outlined in the table below:

In addition, the Company notarised the sale of a single tenant asset located in Weilimdorf which completed on 1 April 2020 generating proceeds of €10.1 million.

Covid-19 Update

The Company continues to assess the impact of Covid-19 on a daily basis. Our primary focus is the health, safety and wellbeing of our employees, whilst supporting our tenants and suppliers during this difficult period. The Sirius team continues to operate despite the fact that 75% of the workforce are currently working from home with the necessary access to our systems and communications network.

Since the beginning of the crisis letting enquiry levels understandably have decreased, which has had an impact on viewings and new lettings. However, over 13,000 sqm of new lettings have been completed since 1 March 2020, generating €1.2 million of annualised rent. The collection of rent and service charge income for the month of April 2020 has remained relatively robust with over 75% of billing collected by working day 7 (9 April 2020), representing circa 90% of the normal working pattern. There are a small number of tenants who are facing Covid-19 related financial difficulties who have requested deferral of rental and service charge payments. These cases will be addressed on a case by case basis. 

The Company completed the financial year with a strong balance sheet supported by total cash balances in excess of €121.0 million, €96.6 million of which is unrestricted. In addition, the Company has €33.1 million of undrawn debt facilities.

While the Sirius portfolio has in place lease agreements with more than 5,000 tenants, the top 50 tenants make up 44% of the rent roll and include some of the world's best known multi-national companies. 7% of its tenants are government agencies, and 35% of the portfolio is storage space, where an increase in enquiries has been seen since the start of the crisis. Additionally, a large portion of the rent roll comes from Germany's Mittelstand (SMEs) which operate across a wide range of industries and these are the companies that the German Government's funding package is intended to support. While it is expected that some rent payments for the next few months will be deferred, the Company is using its extensive platform across Germany to manage the impact to cash flow and will work with tenants to minimise any long-term impact to profits.

However, while the lockdown in Germany continues and there is no certainty on how or when it may end, it is not possible for the Company to assess accurately the impact of Covid-19 on the business and the overall financial performance of the Group and as such the Board are unable to provide future financial performance guidance at this time.

Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said:

"We are maintaining a close eye on the situation as it evolves daily with the welfare and interests of our staff and tenants very much in the forefronts of our minds.

"Sirius operates a particularly well diversified portfolio of properties together with a strong operating platform across Germany and we are well placed to maintain operational continuity through the duration of the crisis".

Conference call

A conference call for analysts will be held at 09.00 (BST)/10:00 (SA/CET) today. If you wish to dial in, the details are:

Participant access code (for all participants): 59043920#

UK Dial-In: Toll-Free: 08003589473 / Toll: +44 3333000804

SA Dial-In: Toll-Free: 0800111446 / Toll: +27 216724118

Germany Dial-In: Toll-Free: 08006270729 / Toll: +49 6913803430

All other countries: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

For further information:

Sirius Real Estate

Andrew Coombs, CEO/Alistair Marks, CFO

+49 (0)30 285010110

Tavistock (Financial PR)

Jeremy Carey

+44 (0) 7836 734 625

James Verstringhe

+44 (0) 7769 698 105

siriusrealestate@tavistock.co.uk

NOTES TO EDITORS

About Sirius Real Estate

Sirius is a property company listed on the main market and premium segment of the London Stock Exchange and the main board of the Johannesburg Stock Exchange. It is a leading operator of branded business parks providing conventional space and flexible workspace in Germany. The Company's core strategy is the acquisition of business parks at attractive yields, the integration of these business parks into its network of sites under the Company's own name as well as offering a range of branded products within those sites, and the reconfiguration and upgrade of existing and vacant space to appeal to the local market, through intensive asset management and investment. The Company's strategy aims to deliver attractive returns for shareholders by increasing rental income and improving cost recoveries and capital values, as well as by enhancing those returns through financing its assets on favourable terms. Once sites are mature and net income and values have been optimised, the Company may take the opportunity to refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity for the asset management skills of the Company's team.

In July 2019, the Company completed the formation of its Titanium real estate investment joint venture with clients represented by AXA Investment Managers - Real Assets. Titanium was formed through the acquisition by AXA IM - Real Assets, on behalf of its clients, from Sirius, of a 65% stake in five business parks across Germany. Sirius will retain the remaining 35% and will act as operator of the assets, on a fee basis. Subject to suitable investment opportunities, AXA IM - Real Assets and Sirius may consider opportunities to grow the JV's portfolio primarily through the acquisition of larger stabilised business park assets and portfolios of assets with strong tenant profiles and occupancy. Sirius will continue to grow its wholly owned portfolio through acquisitions of more opportunistic assets, where it can capitalise on its asset management expertise to maximise utilisation of the space, grow occupancy and improve quality of the tenants. The strategies have been clearly defined so that the JV does not conflict with Sirius's existing business.

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

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