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.Putting dividend into perspective:
Recurring profits are profits after tax and before property revaluation, change in fair value of derivative financial instruments and non-recurring costs.
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:
| 31.03.2013 | 31.03.2014 | |
| Cash/Marketable Securities | 16,718 | 13,747 |
| Current/Non-Current/Property | 440,020 | 443,720 |
| Derivative financial instruments | ||
| Borrowings | (289,390) | (224,884) |
| Financial Derivative Liabilities | (197) | (174) |
| minority interest book | (17) | (22) |
| accrued interest and expenses | (8,108) | (7,690) |
| NAV | 159,026 | 224,697 |
| Deferred tax liabilities | 2,636 | 4,200 |
| Epra NAV | 161,662 | 228,897 |
| shares with voting rights | 317,578,176 | 512,238,576 |
| NAV per share | € 0.50 | € 0.44 |
| Epra NAV per share | € 0.51 | € 0.45 |
| P/NAV @0.34 | 67.90% | 77.51% |
| P/Epra NAV @0.34 | 66.79% | 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.| 31.03.2013 | 31.03.2014 | |
| Borrowings | 289,390 | 224,884 |
| Financial Derivative Liabilities | 197 | 174 |
| minority interest book | 17 | 22 |
| accrued interest and expenses | 8,108 | 7,690 |
| Cash/Marketable Securities | (16,718) | (13,747) |
| sum loan | 280,994 | 219,023 |
| Current/Non-Current/Property | 440,020 | 443,720 |
| LTV | 63.86% | 49.36% |
P&L
| year to 3/31/2013 | year to 3/31/2014 | |
| Rental income | 46,115 | 45,065 |
| Direct costs | -16,889 | -16,519 |
| Net rental income | 29,226 | 28,546 |
| Surplus/(deficit) on revaluation of investment properties | -35,776 | 22,735 |
| 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) | -14,846 | 43,253 |
| Finance income | 25 | 64 |
| Finance expense | -14,998 | -12,155 |
| Change in fair value of derivative financial instruments | 350 | -128 |
| Profit/(loss) before tax | -29,469 | 31,034 |
| Taxation | -783 | -2,102 |
| Profit/(loss) for the period | -30,252 | 28,932 |
| Profit/(loss) attributable to: | ||
| Owners of the Company | -30,227 | 28,927 |
| Non-controlling interest | -25 | 5 |
| Profit/(loss) for the period | -30,252 | 28,932 |
| shares with voting rights | 317,578,176 | 512,238,576 |
| Profit/(loss) per share cents | ||
| year to 3/31/2013 | year to 3/31/2014 | |
| Profit/(loss) before tax | -29,469 | 31,034 |
| Surplus/(deficit) on revaluation of investment properties | -35,776 | 22,735 |
| Loss on disposal of properties | -1,201 | -1,687 |
| Profit before revaluation, disposal and tax | 7,508 | 9,986 |
| Non-recurring costs | 1,537 | 1,235 |
| surrender premium | 1,000 | 1,700 |
| Change in fair value of derivative financial instruments | 350 | -128 |
| normalised profit before tax | 8,259 | 11,213 |
| tax @15.825% | 1,307 | 1,774 |
| normalised net profit | 6,952 | 9,439 |
| shares with voting rights | 317,578,176 | 512,238,576 |
| normalised Profit/(loss) per share cents | 2.19 | 1.84 |
| Weighted average number of ordinary shares for the purpose of adjusted earnings per share | 317,559,843 | 395,758,526 |
| 2.19 | 2.38 |
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.
