Industrial property fund Sirius has released a trading update for the year to March 2022. The share price is up around 24% over the past 12 months but has shed 23% in 2022 as the valuation eventually started to return to earth.

Sirius has been trading at a substantial premium to net asset value and it had to turn at some point, something I flagged several times including in an article in InceConnect in October 2021.

This was a watershed financial year for Sirius. The company entered the UK market with the acquisition of BizSpace in November 2021 for around GBP245 million and made some big moves with the balance sheet, issuing corporate bonds of EUR700 million and raising equity of GBP137 million at a premium to net asset value.

There were two tranches of bonds issued: EUR 400 million of June 2026 bonds at 1.125% and EUR 300 million of November 2028 bonds at 1.75%. This helped reduce the weighted average cost of debt to 1.4% and increased the weighted average term of debt to 4.3 years. The benefit of raising debt at fund level rather than for individual properties is that Sirius now has 126 unencumbered assets, which creates far more dealmaking and capital raising flexibility than before.

Like-for-like rent roll growth has been strong across Germany and the UK after the BizSpace acquisition. In Germany, growth accelerated to 6.4% after a 5.2% result in FY21. The UK posted 7.5% like-for-like growth during the 4.5 months since Sirius acquired the asset.

This is the eighth consecutive year of like-for-like rent roll growth in Germany in excess of 5%. Sirius highlights that flexible space can attract premium pricing, with the operating platform quick to respond to opportunities for positive reversions. It’s hard to argue with the track record.

In Germany, like-for-like occupancy increased to 87.4%. With newly-acquired assets included, total occupancy fell to 84.2%, but Sirius sees this as an opportunity to manage the assets and drive income growth.

By the end of the period, Sirius had EUR201.9 million either invested into or committed to ten acquisitions in Germany. With a 62% occupancy rate, the net initial yield on the acquisitions is 4.4%. Of course, the plan is to significantly improve this occupancy rate.

In the UK, BizSpace’s occupancy has already improved to 90.5% from 88.7%. Combined with strong growth in the average rate per square foot, things are off to a great start in the region.

With a cash collection rate over 98% and a free cash balance of EUR126 million, Sirius has a balance sheet that many property companies can only dream of. Industrial property has been the darling of the pandemic, especially compared to office property.