I reckon the fat and rising dividend yield from Sirius Real Estate (LSE: SRE) is attractive.
The company owns and operates business parks, offices and industrial complexes in Germany, providing flexible and conventional workspace to businesses. Since arriving on the FTSE AIM market in 2007, the firm has grown steadily and was promoted to the FTSE 250 index in September.
An impressive record
Today, it owns 59 properties and has around 4,829 tenants. Over the past 12 years, the share price has risen more than 150% and the dividend is around 120% higher. However, with the shares at just over 77p, the forward-looking dividend yield for the current trading year to March 2020 is running at just under 4%. City analysts following the firm expect it to increase by just over the 11% the following year, extending an impressive record of dividend-raising.
There is more good news in today’s half-year results report for the period ending 30 September. Profit before tax increased by almost 2% compared to the equivalent period the year before and the adjusted net asset value per share rose by nearly 7%. The directors applied their seal of approval and expressed confidence in the outlook by pushing up the interim dividend by just under 9%.
The firm has always been active in its approach to managing its estate, which I reckon adds value for shareholders. Buying, improving and reconfiguring property often leads to better cost recoveries and capital values. Once sites are mature and net income and values have “been optimised”, Sirius often looks at refinancing the sites to release capital for investment in new assets or it may consider selling sites to recycle money into assets with the potential for improvement, which could lead to higher returns.
Adding and realising value
I think the strategy chimes with what tends to work well in general stock investing. The process of selling mature and optimised assets to buy those that have the potential for improvement is really what investing is all about, for me.
In one example of the company’s activities, during the first six months of its trading year, Sirius sold 65% of five assets to AXA Investment Managers-Real Assets at a “significant premium” to previously reported book value. The deal generated around €70m of funds to reinvest. Sirius retained the remaining 35% and will operate the assets on a fee basis. The overall arrangement will be known as the Titanium real estate investment joint venture.
Chief executive Andrew Coombs said in the report that the Sirius value-add business model is working because of the diversity that comes from “intensive” asset management and the firm’s “wide range of products.” Looking forward, he sees strong demand for commercial rentals in the German market and Sirius has “considerable” potential to increase rent roll and capital values. The company has a war chest of around $80m available to fund future acquisitions. I think the shares are attractive.