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Sirius Real Estate Limited
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==== Other ==== A key, and common, way to value real estate is by dividing the estate's net operating income<ref>Net operating income is the rental and other income from investment properties generated by a property less directly attributable costs.</ref> by the estate's capitalization rate (or cap rate, for short)<ref>Capitalization rate is a financial metric used to estimate the potential return on a real estate investment. It is expressed as a percentage and is calculated by dividing the net operating income (NOI) of a property by its market value or purchase price. The formula for cap rate is: Cap Rate = Net Operating Income / Property Value For example, if a property generates $100,000 in NOI and is valued at $1 million, the cap rate would be 10% ($100,000 / $1,000,000). Cap rate is a useful tool for comparing different real estate investment opportunities and evaluating their potential returns. Generally, the higher the cap rate, the better the potential return on investment. However, it's important to consider other factors such as market conditions, location, and the condition of the property before making an investment decision.</ref>. The average cap rate for commercial properties can vary widely depending on the location, property type, and market conditions. In the United Kingdom and Germany, the average cap rate for commercial properties is typically in the range of 5-7%, according to ChatGPT. In the United Kingdom, the average cap rate for commercial properties in prime locations, such as central London, is typically lower, in the range of 3-5%, due to the high demand for real estate in these areas. In secondary markets, the average cap rate may be higher, in the range of 7-9%. In Germany, the average cap rate for commercial properties, with prime locations such as central Berlin or Munich having lower cap rates, in the range of 4-6%. In other regions, the average cap rate may be higher, in the range of 6-8%. We note that the current cap rate of Sirius is 6.8%, which is on the high-end of the for commercial properties in the United Kingdom and Germany (5-7%). In the company's most recent full-year results (i.e. the 12-month period ended 31st March 2022), net operating income (NOI) is β¬122.5 million. In the company's most half-year results (i.e. the 6-month period ended 30th September 2022), net operating income is β¬73.2 million, which, based on the most recent cap rate (i.e. 6.8%) and portfolio value (i.e. β¬2,032 million), equates to an annual income of β¬137.9 million. We note that a β¬5 million improvement in NOI (from β¬137.9 million to β¬142.9 million) equates to a β¬74 million improvement in the valuation of the portfolio, all other things being equal. Similarly, a half a percentage point reduction in the cap rate (from 6.8% to 6.3%) equates to a β¬162 million improvement in the valuation of the portfolio, again, ceteris paribus. We anticipate that any improvements (in the valuation of the portfolio) will translate to an almost identical increase in the valuation of the company. So, for example, if the improvement in the property valuation is β¬74 million, then the company valuation will also increase by β¬74 million. {| class="wikitable" |+Net yield against net operating income ! !5.50% !6.00% !6.50% !7.00% !7.50% !8.00% |- |'''125.0''' |2,273 |2,083 |1,923 |1,786 |1,667 |1,563 |- |'''130.0''' |2,364 |2,167 |2,000 |1,857 |1,733 |1,625 |- |'''135.0''' |2,455 |2,250 |'''2,077''' |'''1,929''' |1,800 |1,688 |- |'''140.0''' |2,545 |2,333 |'''2,154''' |'''2,000''' |1,867 |1,750 |- |'''145.0''' |2,636 |2,417 |2,231 |2,071 |1,933 |1,813 |- |'''150.0''' |2,727 |2,500 |2,308 |2,143 |2,000 |1,875 |}
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