Wednesday, 25 June 2014

update Sirius Real Estate

Sirius has posted results for the the year ended 31 March 2014 on 18/06/2014. The results were good.

Dividend

Sirius intends to recommence the payment of a regular dividend, starting with a final dividend of 0.30c per share for the period. Whilst only a modest payment at this stage, the 0.30c dividend represents 65% of the recurring profits after tax for the March 2014 quarter, following the capital raising completed in December. The Board has set a policy to pay a dividend equal to 65% of the recurring profits after tax in respect of each financial year of the Group.  It is intended that dividends will be paid on a semi-annual basis and offered to shareholders in cash or scrip form. 

Recurring profits are profits after tax and before property revaluation, change in fair value of derivative financial instruments and non-recurring costs.
Putting dividend into perspective:
Earnings Per Share amounted to 7.31c (2013: -9.52c) while Adjusted Earnings Per Share excluding property revaluation, change in fair value of derivative financial instruments and non-recurring costs amounted to 2.73c (2013: 2.66c). 

implied yield at share price of 34c:
2.73x65%/34=5.2%
Despite the dilutive equity issuance last year Sirius Real Estate is able to offer a good forward yield in this yield starving environment. My initial thesis regarding the dividend has played out as expected. But if yield seeking investors pour in after one year of semi-anual dividends I am inclined to sell. This yield has to be taken with a grain of salt because management has used a weighted average number of ordinary share. As shown in the P&L analysis and before savings for 2014 from refinancing loans I would use 1.84c as adjusted earnings: 1.84x65%/34=3.5% is a realistic yield without factoring in the favourable operational upside of Sirius.

NAV

Opening adjusted net asset value per share 48.4c
Impact of equity capital raisings and issues during the year (10.1)c
Impact of valuations/disposals 3.8c
Impact of retained profits 2.2c
Closing adjusted net asset value per share 44.3c

My personal calculations of NAV differs slightly with a NAV of 43.9c:


31.03.201331.03.2014
Cash/Marketable Securities16,71813,747
Current/Non-Current/Property440,020443,720
Derivative financial instruments0678
Borrowings(289,390)(224,884)
Financial Derivative Liabilities(197)(174)
minority interest book(17)(22)
accrued interest and expenses(8,108)(7,690)
NAV159,026224,697
Deferred tax liabilities2,6364,200
Epra NAV 161,662228,897
shares with voting rights317,578,176512,238,576
NAV per share€ 0.50€ 0.44
Epra NAV per share€ 0.51€ 0.45
P/NAV @0.3467.90%77.51%
P/Epra NAV @0.3466.79%76.09%

The equity issue was dilutive. It is difficult to follow the logic of raising equity in order to pay out this cash as a dividend to shareholders in the future. Debt is cheap like never before. At least the NAV would have increased without the effect of the equity issue.

LTV

The lower LTV has enabled Sirius to refinance at competitive financing rates.


31.03.201331.03.2014
Borrowings289,390224,884
Financial Derivative Liabilities197174
minority interest book1722
accrued interest and expenses8,1087,690
Cash/Marketable Securities(16,718)(13,747)
Derivative Financial Assets0(678)
sum loan280,994219,023
Current/Non-Current/Property440,020443,720
LTV63.86%49.36%
  

P&L 



year to 3/31/2013year to 3/31/2014
Rental income46,11545,065
Direct costs-16,889-16,519
Net rental income29,22628,546
Surplus/(deficit) on revaluation of investment properties-35,77622,735
Loss on disposal of properties-1,201-1,687
Administrative expenses-4,684-4,043
Other operating expenses-2,411-2,298
Operating profit/(loss)-14,84643,253
Finance income2564
Finance expense-14,998-12,155
Change in fair value of derivative financial instruments350-128
Profit/(loss) before tax-29,46931,034
Taxation-783-2,102
Profit/(loss) for the period-30,25228,932
Profit/(loss) attributable to:

Owners of the Company-30,22728,927
Non-controlling interest-255
Profit/(loss) for the period-30,25228,932
shares with voting rights317,578,176512,238,576
Profit/(loss) per share cents-9.535.65




year to 3/31/2013year to 3/31/2014
Profit/(loss) before tax-29,46931,034
Surplus/(deficit) on revaluation of investment properties-35,77622,735
Loss on disposal of properties-1,201-1,687
Profit before revaluation, disposal and tax7,5089,986
Non-recurring costs1,5371,235
surrender premium1,0001,700
Change in fair value of derivative financial instruments350-128
tax effect of revaluations5641,564
normalised profit before tax8,25911,213
tax @15.825%1,3071,774
normalised net profit6,9529,439
shares with voting rights317,578,176512,238,576
normalised Profit/(loss) per share cents2.191.84
Weighted average number of ordinary shares for the purpose of adjusted earnings per share317,559,843395,758,526

2.192.38
Non‑recurring costs relate primarily to loan extension fees associated with the debt facility with ABN Amro Bank N.V. and early payment penalties associated with the refinancing of the debt facility with Berlin Hannoversche Hypothekenbank AG.
As the refinancing is finished I am inclined to accept this related costs as non-recurring. I did not add them back in the original write-up.

Management uses Weighted average number of ordinary shares for the purpose of adjusted earnings per share, but I think it is more accurate to use the actual number of shares, although the raised equity did not work for the whole period already. The cost savings from repaying and refinancing borrowings would raise the adjusted EPS from 1.84c abviously.

Conclusion

Sirius Real Estate still offers a yield above 5% base on my conservative normalized earnings of 1.84c per share. This is not bad for German Real Estate. Additionally Sirius Real Estate is on an upward trajectory operationally. They will add new sights and have enough cashflow to invest in their - according to management high ROI projects. Nevertheless I will start to sell my position at these prices around €0.35 and reinvest into Dream Global REIT.

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