Key message: Sirius delivered a credibly strong set of results for FY23 and continues to capture superior income growth in its core operating markets through its capex initiatives and pricing-led strategies.  

  • Defensive amidst uncertainty: while FY23 FFO growth (+28.9% y/y to EUR8.74c per share) was substantially driven by accretion from the BizSpace acquisition (Nov-21), core performance was generally pleasing. The annualised lfl group rent roll grew +7.7% y/y (Germany +7.3%, UK +8.7%), driven by management’s focussed pricing-led strategy: lfl average rental rate grew +8.1% y/y in Germany and +14.8% in the UK, although this did result in some pressure on portfolio occupancy (total lfl occupancy down from 85.6% at FY22 to 84.5% at FY23). These impressive income-led gains offset underlying cap rate expansion (Germany +40bps, UK +100bps) and resulted in relatively stable portfolio valuations, as NAV (EPRA NTA) grew +0.8% y/y to EUR108.1c. In our view, these results vindicate the intrinsic value proposition of Sirius’ operating platform through the cycle: the strong demand that Sirius can generate for its offerings allows it to focus on capturing inflationary increases as well as reversion within its existing tenant base, despite greatly heightened uncertainty amid prevailing economic conditions.
  • Debt management in focus: net LTV remains elevated at 41.6% (FY22: 41.6%). But Sirius has refinanced its EUR170mn Berlin Hyp and EUR57.3mn Deutsche Pfandbriefbank facilities ahead of their respective expiries later in FY24, which will increase its average cost of debt from 1.4% to 2.1% when the new facilities come into effect. Furthermore, following the refinancing of these facilities, Sirius will have only EUR20mn of debt expiring within the next twelve months and a total of EUR49.3mn expiring within the next three years, relative to total debt of EUR975mn as of FY23. We expect major acquisitive growth to slow down relative to prior years, as the focus turns to driving organic growth through internal capex opportunities. Steady capital recycling should see any acquisitions matched by disposal activity: six disposals were executed in FY23 for EUR45.8mn (at a 25% combined premium to book value) against three acquisitions (Dusseldorf, Dreieich and Potsdam) for EUR44.6mn
  • Updated forecasts: we increase our FY24 FFO per share forecast to EUR9.09c per share (+4.1% y/y); our FY23 NAV forecast is EUR110.0c per share (+1.7% y/y). We highlight management’s revised medium-term FFO ambition of EUR115mn, which in our view is in sight for execution within the next 2-3 years through existing operational momentum from current initiatives around pricing and occupancy improvements, value-add capex opportunities and other asset management interventions.
  • Valuation and rating: our revised target price is EUR104c or ZAR22.95 translated at EUR/ZAR spot. This implies a one-year TSR of +23.6%, comprised of 6.7% income yield and +16.9% capital return; this return profile ranks in the top quartile of our rated coverage, and we accordingly maintain it on an OVERWEIGHT rating.

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