On the 23rd September, Sirius Real Estate will enter the FTSE 250 for the first time. It’s an important milestone in our journey and testament to the progress we’ve made and the great team that is in place here at Sirius. I thought now was a good time to update on our strategy going forward.
Sirius now has a portfolio valued at over €1 billion, up from just €400 million five years ago. We had deliberately taken the decision to grow and scale the size of our portfolio and I am delighted we’ve reached the €1 billion target. We’re now focused on enhancing returns from our portfolio.
We measure our returns through our FFO rate – Funds from Operations. It is our FFO that drives our dividend policy. Last year our FFO run rate was set at around €50 million euros. The plan is now to increase that to €100 million euros over the next five years.
How is Sirius going to do that?
There are several ways in which we can improve our FFO rate, these include: improving our rental rates as well the underlying occupancy of our portfolio; continuing to execute our organic growth programme; recycling of mature sites; purchasing new sites with higher levels of vacancy and therefore greater opportunity; improving our service charge recoverability and continuing to deploy our intensive asset management techniques.
There’s nobody in the market who can do what we do – what sets us apart is our internal expertise and operating platform. For example, we now have over 250 people in 60 different locations across Germany, our marketing team raises 90% of our new tenant leads independently of agents, our national sales force converted around 170,000 sq. m of new tenants last year, our service charge reconciliation team has improved recoverability by over €5 million euros in five years and we have particularly efficient and effective cash collection processes, thereby ensuring that the results of our work are reflected at both cash and P&L level. Most other real estate companies outsource many of these functions, Sirius, however is quite unique in terms of its direct control and inherent knowledge across wide ranging and detailed areas of its business operations and this is a key commercial advantage.
Is the market reaching maturity a threat to growth?
In any market it is important to buy well, and we are always looking to acquire new assets at discounted rates. Typically, we look at 100 properties before we buy one. We look for properties with highly discounted rates which have clear challenges that we know our platform can solve. A good example of this is our recently acquired site in Bochum. When we acquired the site around half the tenants were about to leave, we managed to quickly replace those tenants and reposition the tenant base, thereby stabilising the running yield, many other organisations who looked at this site took the view that it was simply too challenging.
As ever, we need to keep a close eye on our loan-to-value ratio (LTV) across our portfolio and make sure we are managing this closely, particularly at this point in the market cycle. We are ensuring that we access lending at the right interest levels whilst continuing to remain within our LTV targets.
A model that works
Our double-digit total shareholder return for the last five years demonstrates how well our model works. If we continue to purchase well, deploy our platform effectively and ensure sound financial management of our portfolio, we are well set to execute the next phase of our growth plan, which now having achieved over €1 billion of gross asst value is all about getting to €100 million of FFO.