Sirius Sirius Real Estate

The Group’s core strategy is the acquisition of business parks across Germany and the UK that provide a mix of stable income and value-add potential which allow the Group to deliver consistent and attractive risk-adjusted returns for shareholders.

The Group’s strategy is executed through its internal operating platform that is responsible for the investment into vacant space and roll-out of a range of intensive asset management initiatives. Once mature, assets will either be held to provide stable income, or sold with the capital recycled into new value-add opportunities.

In addition, the Group holds a 35% interest in the Titanium joint venture with AXA IM Alts that provides the Company with an alternative source of capital and exposure to assets with differing return characteristics than those held on its own balance sheet, as well as income from its asset management services.

 

Our strategy has five key value drivers:

 

Sirius grows income and the capital value of its assets through active asset management throughout the period in which they are owned. The Group’s internal operating platform is focused on key drivers such as property and tenant management, new lettings, service charge recovery, lease management, tenant renewals and debt collection.

Sirius’ asset management initiatives are designed to convert properties into sustainable, more efficient and higher-yielding conventional and flexible workspaces.

The Group’s extensive capex investment programmes in Germany continue to deliver exceptional returns and remain key drivers of organic income and capital value growth. The programmes are focused on converting vacant or sub-optimal spaces like excess office space, redundant halls and basements into both conventional and Smartspace flexible workspaces. The investment also includes upgrading common and outside areas as well as branding sites. Often, amenities like conferencing rooms, canteens and fitness centres are created on site and let to external operators which increases footfall and overall attractiveness of the properties.

The returns that the Company achieves from these improvements are high as typically they not only deliver rental income and service charge recovery gains that come from letting the transformed areas but also include significant valuation uplifts that come from improving the space and business parks as
a whole. The capex investment programmes are outlined in more detail in the Asset management review of Germany on pages 29 to 33 of our Annual Report 2024.

The internal asset management platforms remain a key differentiator for Sirius over its competitors and play an integral role in driving occupancy and rental growth.

In Germany, the internal marketing team has developed and continues to evolve its significant web presence to drive leads and enquiries on a consistent basis, which are turned into viewings through a dedicated call centre team, which are in turn followed up by an on-site sales team. The on-site sales teams follow a structured sales process and are incentivised through the setting of asset-specific lettings targets. This approach reduces the reliance on third party brokers and provides real time market data, allowing the Company to realise the full potential of its transformed vacant space which has been created through its capex investment programmes.

Through the integration work conducted with BizSpace, the key learnings which have been acquired in Germany over the last 15 years are transferred where applicable, allowing the UK platform to benefit significantly from the successful methods deployed in Germany.

Poor recovery of service charge costs in mixed-use, multi-tenanted business parks typically results in high leakage from net operating income. In Germany, the Company has an established and seasoned in-house team that is focused on increasing service charge recovery levels and working closely with the operations and other departments to optimise service levels and costs. These optimisations include the following:

  • developing smart utilities metering thereby reducing leakage from consumptions in vacant areas;
  • consolidating purchasing power to negotiate better utilities deals and improve consumption allocation;
  • creating detailed equipment lists and matrices to manage maintenance programmes better and improve allocation down to granularity of room level;
  • working with tenants to manage service charge prepayments to reduce risk exposure to delinquent balancing payments at the end of each year; and
  • improving the overall cost allocation and recovery process.

The Company has developed the ability to achieve a cost recovery percentage that is higher than occupancy, which it believes represents best-in-class performance.

In the UK, service charge is predominantly charged on a lump sum basis to tenants, however the Company structures its contracts to maintain sufficient flexibility to mitigate against service charge increases.

Sirius actively seeks to grow its portfolios in both Germany and the UK through acquisitions which are typically funded through a combination of share placings, attractively priced financing and the selective recycling of equity out of mature or non-core assets. In order to establish and maintain a balanced portfolio, both opportunistic and stable assets have been acquired, providing the Company with an attractive combination of secure income and the potential to create significant value by utilising the abilities of our internal operating platforms.

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