One aspect of the job that keeps me on my toes is answering questions from investors. These usually focus on strategy or how external factors impact the business. So, I thought I’d share some answers to the questions I’m most commonly asked…

1. What’s going on in German politics?

The Chancellor, Angela Merkel, has confirmed that this will be her last term and that she’ll step down before the next federal election in 2021. Merkel has been a titan of European politics for over a decade and has led Germany through a period of prosperity and stability. Some commentators have suggested that her departure could be disruptive and mark the end of this period. I think that’s unlikely.

Why do I think that? Well, the German political system is better insulated from populist impulses than other Western democracies. Coalition government and consensus politics is the way that things are done. Whilst there’s some challenge to the status quo from new parties like Alternative Für Deutschland, I suspect we’ll see a relatively seamless transition of power from Merkel to her likely successor Annegret Kramp-Karrenbauer or, as she is better known, AKK. Who appears to be cut from the similar cloth to her predecessor.

Compared with the political ruptures that are set to continue across Europe, Germany seems well insulated and a broad pro-business attitude is likely to continue.

2. Is the German economy slowing down?

The latest figures indicate that the German economy is slowing after nine years of growth, although unemployment remains at a low of 3.3%. However over the last 2 years we have typically seen at least one quarter of numbers per annum that would suggest a slowdown. So, we should be careful about making too many judgements around a single quarter’s numbers. That said, if there is a downturn – which there inevitably will be at some point – we’re well placed.

We’ve prepared our balance sheet so that our lending is at less than 40% of the value of our properties. We also have some specific operational tactics ready to deploy in a downturn in order to maintain our revenues. I am confident that we’re conservatively valued compared to most of our peers, which means the effects of a downturn in terms of our valuations should be slower and less pronounced than will be the case with some other companies who are valued at much more tightly compressed valuation yields.

We are well prepared given our capital structure, valuation and ability to maintain revenues throughout the property and economic cycle, particularly with our pricing and flexibility.

3. What is your pricing structure?

Unlike many companies, we don’t optimise our pricing at the top of the cycle. Our policy is to price our products at the top of the third quartile at the peak of the cycle. This means we are better placed in a downturn to maintain our pricing - so we won’t need to reduce our prices in a downturn as they’re already set at more sustainable rates for our tenants.  

4. In a downturn businesses want more flexibility, how are you addressing this?

Firstly, we have deep expertise in adapting physical space to the specific needs of a variety of businesses. We have a product range called Smartspace which addresses this directly. Smartspace caters for the smaller micro SME business and what we saw in the last downturn is the larger core SME businesses require less space in the downturn. However, demand from smaller micro SMEs increases. When there is a contraction in the economy, we have the capacity to double the amount of Smartspace product on offer – we think our ability to absorb the rise in vacancy from core SMEs by expanding our Smartspace offering will enable Sirius to maintain a good return for its shareholders throughout a downturn.

5. How does Brexit impact your business?

I touched on Brexit in more detail in my last blog, my view remains the same:  Brexit in the short-term will cause varying degrees of pain for both UK and Europe, however the biggest winner from Brexit is going to be Germany. We’re seeing investors picking locations such as Berlin, Dusseldorf and Frankfurt over London and other UK cities and this is increasing demand for space as UK-based companies seek to move operations and staff out of the UK. For example, a 2% exodus of employees in the finance sector in London would be equivalent to an 11% increase in workers in the finance sector in Frankfurt and that is the point, a small exodus in a heavily populated city such as London can make 5 times plus difference to a German city with a population of a million or less. German real estate looks like an increasingly good investment for the future.

Let me know if you have any questions in the comments and I will do my best to answer them.