Instead of buy-to-let, I’d rather invest in property companies listed on the London stock exchange. One good example is Sirius Real Estate (LSE: SRE), which has a market capitalisation around £648m and a position in the FTSE Small Cap index.
The company owns, develops and operates branded business parks providing conventional space and flexible workspace in Germany, which attracts some big-name tenants such as Porsche AG, Land Berlin (a government agency) and FOM (an educational body).
Clear operational and strategic progress
Since I last wrote about the firm in November, the share price has risen around 9%. However, I think the dividend yield remains attractive at close to 4.6%, and I’m encouraged by today’s trading update because it sets out the clear operational and strategic progress achieved over the company’s trading year, which finished on 31 March.
During the 12-month period, organic growth from the existing portfolio of property came in stronger than the directors previously expected. On top of that, the company made “good progress” with acquisitions, disposals and movement towards a “substantial” joint venture with AXA IM – Real Assets.
Demand from tenants has been “high” and this combined with the firm’s asset management programme to deliver a like-for-like increase in annualised rental income of around 6.2%. I like the way Sirius has raised almost €26m by selling three “non-core” assets in Bremen, meaning that the firm has withdrawn completely from the market in that area. There were other minor disposals in the period too, and the firm can reinvest the spare funds into property investments with a higher potential return. I reckon such flexibility and diversity is often limited if you own physical property in a buy-to-let arrangement yourself.
Driving future growth
Looking forward, I reckon there is plenty happening in the business that looks set to drive further total returns for the firm’s shareholders. The directors expect the joint venture to complete at the end of June. The process involves Sirius selling 65% of its interests in “five Group subsidiary companies” to AXA IM – Real Assets, which will deliver an “implied” property purchase price of €168m. The most recent book value of the assets was around €141m, suggesting an uplift in value for Sirius. The directors come across as very bullish on the deal, saying in the update that the JV looks set to provide “significant firepower” to make further acquisitions. On top of that, there will be an attractive income stream generated for Sirius because the firm will continue to manage the assets.
The JV will help Sirius expand its horizons because it will enable the company’s participation in “much larger assets and portfolios” with a “wider range” of return profiles and development opportunities than previously.
I’ve been watching Sirius for a while and continue to be impressed by the way the firm is driving its operations forward. I’m tempted to pick up a few of the company’s shares to see what happens from where we are now. We can find out more with the full-year results release due on 3 June.
