Key message: Sirius once again delivered strong operational and financial performance in 1H FY24, whilst concluding a significantly oversubscribed capital raise. While the dilution and interim cash drag from the capital raise will soften our near-term FFO per share forecasts until the acquisition pipeline is executed, the group remains well positioned to deliver progressive dividend growth through a flexible payout ratio. Medium-term income and capital growth prospects continue to rank highly relative to peers, in our view.
- Strong performance persists: Sirius delivered 1H FY24 FFO per share of EUR4.54c (+9.4% y/y) and a dividend of EUR3.00c per share (+11.1% y/y), which surpassed our expectations. NAV per share grew a marginal +0.4% to EUR108.5c, as modest valuation gains in Germany offset more aggressive cap rate expansion in the UK. Performance highlights include +7.0% annualised lfl rent roll growth in Germany and +9.0% in the UK; lfl occupancy was stable in Germany at 83.8% and improved 70bps to 87.7% in the UK; and capital recycling continued with the disposal of two mature properties in Germany for EUR47.4mn (at a 5-6% premium to book value) and the acquisition of five sites in the UK (Barnsley, Liverpool and North London) for GBP45.8mn at a 7.8% blended net initial yield. Near-term debt refinancing has been successfully concluded with the renewal of the Berlin Hyp and Deutsche PBB facilities, with immaterial maturities for the next two years; but we highlight that the EUR400mn unsecured bond with a 1.1% coupon maturing in FY27 remains a key factor affecting our medium-term FFO forecasts.
- Capital raise and acquisition pipeline: alongside the release of its interim results, Sirius successfully executed a GBP146.6mn (ZAR3.4bn) capital raise. The proceeds will be invested over the next 9-12 months in an accretive, yield-enhancing acquisition pipeline of properties in both Germany and the UK. Based on our modelling, the capital raise will initially provide a cash drag on earnings until the proceeds are invested; this reduces our FFO per share forecasts in 2H FY24 and FY25, but the acquisitions should strengthen Sirius’ medium-term income and NAV growth prospects as these assets are turned around through pricing, occupancy and investment capex-led initiatives.
- Updated forecasts: we reduce our FY24 FFO per share forecast to EUR8.98c per share (+2.7% y/y), reflecting dilution and initial cash drag from the capital raise; our FY24 NAV forecast is EUR106.9c per share (-1.1% y/y), growing +4.5% y/y to EUR111.6c in FY25. Our FY25 FFO forecast is sensitive to assumptions around the timing and net initial yields achieved on the acquisition pipeline, but we expect low FFO per share growth – if any – as the dilutive initial effect of the capital raise will persist, before normalising in FY26. We anticipate that the dividend payout ratio will flex between 70-75% over the forecast period.
- Valuation and rating: our revised target price is EUR106.6c or ZAR22.66 translated at EUR/ZAR spot. This implies a one-year TSR of +17.0%, comprised of 6.5% income yield and +10.5% capital return; trading in line with our assessment of intrinsic value and its underlying risks and growth prospects, we assign a NEUTRAL rating on the counter.