Sirius Real Estate Limited

Summary

Sirius Real Estate Limited, a real estate company, engages in the investment, development, and operation of commercial properties in Germany. It owns and manages offices; warehouses, storerooms, and self-storage spaces; and production and workshop spaces. The company serves individuals and small to medium-sized enterprises under the Sirius brand name. It owns and manages business parks with approximately 4.3 million square feet of lettable space in the United Kingdom; and 1.8 million square meters of lettable space in Germany. The company was formerly known as Dawnay, Day Sirius Limited and changed its name to Sirius Real Estate Limited in October 2008. Sirius Real Estate Limited was incorporated in 2007 and is based in Saint Peter Port, Guernsey.

Operations

Offering(s)

Sirius specialises in the ownership, development and operations of business parks throughout Germany and the UK. What makes Sirius different is its operating platform and asset management programme. Combining the Sirius property portfolio with its unique operating platform gives it a range of advantages in the market which enable the delivery of strong and consistent returns for shareholders.

Mission

The mission of the company is to create and manage optimal workspaces that empower small and medium-sized businesses to grow, evolve and thrive. Sirius seeks to unlock the potential of its people, its properties and the communities in which it operates so that, together, we can create sustainable impact and long-term financial and social value.

Financials

Income statement

	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Fiscal Year Ends	31/03/2013	31/03/2014	31/03/2015	31/03/2016	31/03/2017	31/03/2018	31/03/2019	31/03/2020	31/03/2021	31/03/2022
Turnover	46.12	45.07	45.39	55.79	68.79	123.65	140.06	150.01	165.36	210.18
Expenses	22.32	21.54	23.64	23.06	29.74	83.25	85.02	85.95	98.67	121.30
EBITDA	-13.44	44.18	46.25	68.93	85.63	98.63	155.10	125.22	175.61	187.50
EBIT	-14.47	43.19	45.36	68.30	84.76	97.54	153.73	123.12	173.53	184.33
Operating Profit (reported)	23.80	23.52	21.76	32.73	39.05	40.40	55.04	64.06	66.69	88.88
Operating Profit (adjusted)	-	-	-	-	-	-	-	-	-	-
Investment Income	-36.98	21.05	26.70	44.17	49.86	60.95	100.50	58.00	104.62	147.20
Exceptional Items	-1.19	-1.36	-3.05	-8.54	-4.04	-3.68	-1.70	0.03	-0.50	-13.84
Net Interest	-15.10	-12.18	-12.75	-11.29	-8.44	-8.03	-9.12	-11.33	-7.16	-12.41
Pre-tax Profit	-29.47	31.03	32.65	57.08	76.44	89.65	144.71	110.77	163.66	168.93
Tax	0.78	2.10	5.65	2.39	9.50	8.29	15.99	12.62	16.10	20.94
Net Profit	-30.25	28.93	27.00	54.69	66.94	81.36	128.72	98.15	147.56	147.99
Minority Interests	-0.03	0.01	0.02	0.02	0.03	0.09	0.07	0.01	0.11	0.12
Profit For Financial Year	-30.23	28.93	26.99	54.67	66.91	81.27	128.66	98.14	147.45	147.87
Ordinary Dividends	-	-	-	-	-	-	-	-	-	-
Non Equity Dividends	-	-	-	-	-	-	-	-	-	-
Retained Profit	-30.23	28.93	26.99	54.67	66.91	81.27	128.66	98.14	147.45	147.87
Per Share Data
DPS	0.00	0.00	0.01	0.02	0.03	0.03	0.03	0.03	0.04	0.04
Normalized EPS	-0.09	0.07	0.05	0.08	0.08	0.09	0.13	0.09	0.14	0.14
Reported EPS	-0.10	0.07	0.05	0.07	0.08	0.09	0.13	0.09	0.14	0.13
Investment Ratios
Operating Margin	0.52	0.52	0.48	0.59	0.57	0.33	0.39	0.43	0.40	0.42
DPS Growth %	-	-	-	0.65	0.53	0.15	0.03	0.08	0.06	0.11
Dividend Cover x	0.00	0.00	21.32	3.86	3.26	56.50	3.22	3.82	2.26	3.93
Norm EPS Growth %	-	-	-0.30	0.59	0.02	0.08	0.43	-0.27	0.48	-0.01
Reported EPS Growth %	-	-	-0.33	0.51	0.11	0.10	0.47	-0.26	0.48	-0.05
Other
Market Cap at B/S Date	61.13	169.09	262.65	332.75	456.45	610.66	648.04	682.89	931.63	1,463.27

Balance sheet

	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Fiscal Year Ends	31/03/2013	31/03/2014	31/03/2015	31/03/2016	31/03/2017	31/03/2018	31/03/2019	31/03/2020	31/03/2021	31/03/2022
Assets
Non Current Assets
Intangible	3.74	3.74	3.74	3.74	3.74	3.74	3.74	5.72	6.57	4.28
Tangible	2.54	1.83	1.68	1.94	2.56	3.13	3.44	4.81	4.60	20.49
Investments	-	-	-	-	-	-	0.00	12.31	17.20	24.14
Other	-	-	-	-	-	-	974.68	1,232.93	1,407.15	2,148.33
Total	416.77	446.66	551.04	693.32	733.84	923.27	981.86	1,255.77	1,435.52	2,197.25
Current Assets
Stock	-	-	-	-	-	-	-	-	-	-
Debtors	9.44	11.38	9.12	6.68	7.31	7.67	9.43	13.90	17.66	19.93
Cash and Securities	7.72	7.01	10.06	9.02	48.70	64.41	15.95	96.58	49.31	127.29
Total	26.65	27.37	29.66	31.83	62.99	122.92	47.42	136.40	84.48	175.87
Held for Disposal	27.66	2.63	-	0.00	96.00	17.33	164.64	10.10	0.00	13.75
Total Assets	471.08	476.67	580.70	725.15	892.82	1,063.51	1,193.91	1,402.27	1,520.00	2,386.86
Liabilities and Equity
Liabilities
Current	286.17	23.92	30.15	36.07	41.50	51.87	112.13	95.56	67.98	120.48
Non-Current	33.88	226.44	262.28	301.97	356.05	386.01	355.74	504.90	525.20	1,075.33
Total	320.05	250.36	292.44	338.04	397.55	437.88	467.87	600.46	593.17	1,195.81
Equity
Share Capital	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Reserves	151.01	226.28	288.22	387.05	495.19	625.46	725.81	803.09	929.44	1,196.93
Shareholders Funds	151.01	226.28	288.22	387.05	495.19	625.46	725.81	801.57	926.53	1,190.65
Minorities	0.02	0.02	0.04	0.02	0.03	0.17	0.24	0.25	0.29	0.41
Total	151.03	226.30	288.26	387.11	495.27	625.63	726.05	801.82	926.83	1,191.06
Total Liabilities and Equity	471.08	476.67	580.70	725.15	892.82	1,063.51	1,193.91	1,402.27	1,520.00	2,386.86
Net Borrowings	281.67	217.87	244.72	284.97	293.10	302.66	315.51	402.80	433.74	892.87
Investment Ratios
Net Tangible Asset Value Per Share	46.75	26.48	27.41	37.67	43.62	49.46	56.84	67.15	68.26	71.02
ROCE	-7.83	9.54	8.24	9.91	9.96	9.64	14.21	9.42	11.95	8.13
ROE	-18.20	15.33	10.49	16.19	15.17	14.51	19.04	12.85	17.07	13.97
Gross Gearing	191.63	99.38	88.40	75.96	69.02	58.69	45.67	62.30	52.13	85.68
Cash	5.11	3.10	3.49	2.33	9.83	10.30	2.20	12.05	5.32	10.69
Interest Cover x	-0.97	3.55	3.57	6.09	10.18	12.36	17.05	9.96	17.58	11.97
Quick Ratio r	0.06	0.77	0.64	0.44	1.35	1.39	0.23	1.16	0.99	1.22
Current Ratio r	0.19	1.25	0.98	0.88	3.83	2.70	1.89	1.53	1.24	1.57
Borrowings
Total Borrowings	289.39	224.88	254.78	293.99	341.79	367.08	331.46	499.38	483.04	1,020.15
Due < 1 Yr	258.15	2.81	3.30	5.64	7.07	7.84	7.41	37.59	14.97	20.72
Due 1-2 Yrs	-	-	-	-	-	-	-	10.72	75.98	-
Due 2-5 Yrs	-	-	-	-	-	-	-	8.44	3.38	8.16
Due > 5 Yrs	31.24	222.07	251.48	288.35	334.72	359.23	324.05	442.63	388.72	991.28

Cash flow

	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Fiscal Year Ends	31/03/2013	31/03/2014	31/03/2015	31/03/2016	31/03/2017	31/03/2018	31/03/2019	31/03/2020	31/03/2021	31/03/2022
Operating Cash Flow	22.96	18.72	29.97	37.68	49.95	43.83	54.91	72.80	71.63	85.42
Taxation	-0.59	-0.19	-0.55	0.17	-0.02	-0.76	-1.81	-1.46	-0.63	-3.67
Investing Activities	16.81	10.22	-75.70	-100.03	-93.65	-74.07	-67.81	-122.24	-73.53	-429.51
Net Outflow/Inflow	39.18	28.75	-46.29	-62.18	-43.72	-31.00	-14.71	-50.90	-2.54	-347.76
Financing	-31.61	-31.72	52.68	61.92	72.54	61.91	-24.62	131.88	-53.05	431.75
Net Change in Cash	7.57	-2.97	6.39	-0.26	28.82	30.91	-39.32	80.98	-55.59	83.99
Foreign Exchange Adjustments	-	-	-	-	-	-	-	-	0.00	1.30
Opening Balance	9.15	16.72	13.75	20.14	19.87	48.70	79.61	40.28	121.26	65.67
Closing Balance	16.72	13.75	20.14	19.87	48.70	79.61	40.28	121.26	65.67	150.97
Investment Ratios
Cash Flow Per Share	0.07	0.04	0.05	0.05	0.06	0.05	0.05	0.07	0.07	0.07
CAPEX PS	0.00	0.00	0.00	-0.02	-0.02	-0.02	-0.03	-0.03	-0.03	-0.03

Risks

The key risks that could affect the Group's medium-term performance can be found in the table below.

Risk area	Principal risk(s)
1. Financing	• Availability and pricing of debt
	• Compliance with loan facility covenants
	• Availability and pricing of equity capital
	• Reputational risk
2. Valuation	• Property inherently difficult to value
	• Susceptibility of property market to change in value
3. Markets	• Participation within two geographically diverse markets
	• Reliance on specific industries and the SME market
	• Reduction in occupancy
4. Acquisitive growth	• Decrease in number of acquisition opportunities coming to market
	• Failure to acquire suitable properties with desired returns
5. Organic growth	• Failure to deliver capex investment programmes
	• Failure to refuel capex investment programmes
	• Failure to achieve targeted returns from investments
6. Customer	• Decline in demand for space
	• Significant tenant move-outs or insolvencies
	• Exposure to tenants' inability to meet rental and other lease commitments
	• Tenant affordability
7. Regulatory and tax	• Non-compliance with tax or regulatory obligations
8. People	• Inability to recruit and retain people with the appropriate skillset to deliver the Group strategy
9. Systems and data	• System failures and loss of data
	• Security breaches
	• Data protection
10. Macro-economic	• Impact of the Covid-19 pandemic
	• Inflationary pressure leading to increased costs
	• Interest rate movements impacting the commercial real estate market
	• Delays in cash collection and tenant insolvencies
	• Energy supply shortages caused by a variety of economic and geopolitical factors
11. ESG	• Unforeseen costs relating to physical and transition risks associated with climate change
	• Reputational risk
	• Failure to meet shareholder and societal requirements or expectations
	• Restricted access to financing market due to higher requirements ("green financing")
12. Foreign currency	• Financial impact of uncontrollable foreign currency fluctuation on earnings and net asset value

Valuation

What's the expected return of an investment in the company?

Stockhub estimates that the expected return of an investment in the company over the next five years is negative xxx%. In other words, an £1,000 investment in the company is expected to return £xxx in five years time. The assumptions used to estimate the return figure can be found in the table below.

Assuming that a suitable return level over five years is 10% per year and Sirius Real Estate Limited achieves its expected return level (of negative xxx%), then an investment in the company is considered to be an 'xxx' one.

What are the assumptions used to estimate the return?

Key inputs

Description	Value	Commentary
Which valuation model do you want to use?	Discounted cash flow	There are two main approaches to estimate the value of an investment: By calculating the present value of the investment's expected future cash flows (i.e. discounted cash flow valuation); and By comparing the investment to other similar investments (i.e. relative valuation). Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report). Tesla has never paid cash dividends, and on 7th February 2022, it said that it currently does not anticipate paying any cash dividends in the foreseeable future. Accordingly, Stockhub suggests using the free cash flow valuation method (rather than the dividend discount model).
Which financial forecasts to use?	Stockhub	The only available long-term forecasts (i.e. >15 years) are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those.
Growth stage 2
Discount rate (%)	15%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	90%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 90%.
Growth stage 3
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%.
Growth stage 4
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%.
Other key inputs
What's the current value of the company?	£981.20 million	As at 22nd November 2022, the current value of Sirius Real Estate Limited is £981.20 million.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.

Sensitive analysis

The main inputs that result in the greatest change in the expected return of the Sirius Real Estate Limited investment are, in order of importance (from highest to lowest):

1. The size of the total addressable market (the default size is $xxx trillion);
2. Sirius Real Estate Limited peak market share (the default share is xxx%); and
3. The discount rate (the default time-weighted average rate is xxx%).

The impact of a 50% change in those main inputs to the expected return of the Sirius Real Estate Limited investment is shown in the table below.

Tesla investment expected return sensitive analysis

Main input	50% worse	Unchanged	50% better
The size of the total addressable market	N/A	(24%)	N/A
Sirius Real Estate Limited peak market share	N/A	(24%)	N/A
The discount rate	N/A	(24%)	N/A

Appendix

Relative valuation approach

As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach.

What's the expected return of an investment in Tesla using the relative valuation approach?

Accordingly, Stockhub estimates that the expected return of an investment in Sirius Real Estate Limited over the next five years is xxx. In other words, an £1,000 investment in the company is expected to return £xxx in five years time. The assumptions used to estimate the return figure can be found in the table below.

Assuming that a suitable return level over five years is 10% per year and Sirius Real Estate Limited achieves its expected return level (of xxx), then an investment in the company is considered to be a 'xxx' one.

What are the assumptions used to estimate the return figure?

Key inputs

Description	Value	Commentary
Which type of multiple do you want to use?	P/AFFO	The value of real estate typically appreciates, rather than depreciates; furthermore, REIT property sales and capital expenditure tends to result in material differences in the profitable of the REIT across its lifespan. Accordingly, Stockhub suggests valuing the company using the Price to Adjusted Funds From Operations (P/AFFO) ratio, which is calculated by adding amortization and depreciation to the net income and then deducting the gains on the sale of properties and capital expenditure.
In regards to the P/AFFO multiple, for the AFFO figure, which year to you want to use?	Year 5	Stockhub suggests that with sales forecast to grow exponential over the five year forecast period, it's best to use forward-looking data, rather than historic data. In regards to the growth-adjusted EV/sales multiple, for the sales figure, Stockhub suggests that in order to account for the forecasted exponential growth of the business, it's best to use one at the end of the forecast period (i.e. Year 5).
In regards to the growth-P/AFFO multiple, what multiple figure do you want to use?	15x	In Stockhub's view, Sirius Real Estate Limited closest peer is xxx. xxx trades on a multiple of xxx.
Which financial forecasts to use?	Stockhub	The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those.
What's the current value of the Stockhub company?	£981.20 million	As at 22nd November 2022, the current value of its company at £981.20 million.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.

Adjusted Funds From Operations calculation

Item	2023E	2022	2021
Funds From Operations (€'million)	100.0	74.6	60.9
Capital expenditure (€'million)	20.0	23.8	31.1
Adjusted Funds From Operations (€'million)	80.0	50.8	29.8

Sirius Real Estate Limited peer(s)

Valuation table

Investments	Industry	Enterprise value/sales	1-year forward revenue growth rates (%)	Growth-adjusted enterprise value/sales ratio
Apple, Inc	Internet content & communication	7.27x	8.20%	89x

Sirius Real Estate Limited peers

Peer	Three-year average COGS margin (%)	Three-year average SG&A margin (%)	Three-year average tax margin (%)	Three-year average depreciation rate (%)	Three-year average fixed capital margin (%)	Three-year average change in working capital ($000)	Three-year average growth stage	Discount rate
Rivian Automotive, Inc.	945%	6827%	0%	358%	3262%	7,569,000	1	NA
Tesla, Inc.	79%	15%	11%	7%	10%	3,121,828	2	14.96%
Apple, Inc	62%	13%	14%	4%	3%	-18,780,000	3	9.91%
Workhorse Group	938%	-6077%	0%	58%	411%	-2,978	4	18.75%
Cenntro Electric Group Limited	90%	209%	0%	37%	0%	138,382	4	10.44%
Liaoning SG Automotive Group Co	99%	15%	18%	8%	1%	154,153	4	6.39%

Growth stage

Growth stage	Three-year average COGS margin (%)	Three-year average SG&A margin (%)	Three-year average tax margin (%)	Three-year average depreciation rate (%)	Three-year average fixed capital margin (%)	Three-year average change in working capital ($000)	Discount rate
One	945%	6827%	0%	358%	3262%	7,569,000	NA
Two	79%	15%	11%	7%	10%	3,121,828	14.96%
Three	62%	13%	14%	4%	3%	-18,780,000	9.91%
Four	99%	15%	0%	37%	1%	138,382	10.44%

Apple Inc.

Cost of equity (%)

Input	Input value	Additional information
Risk-free rate (%)	3.44%	Here, the risk free rate is the US 30 year treasury bond, and is calculated as at 15th September 2022.
Beta	1.23	The asset’s beta measures its market or systematic risk, which in theory is the sensitivity of its returns to the returns on the “market portfolio” of risky assets. Concretely, beta equals the covariance of returns with the returns on the market portfolio divided by the market portfolio’s variance of returns. In typical practice for equity valuation, the market portfolio is represented by a broad value-weighted equity market index. The asset’s beta is estimated by a least squares regression of the asset’s returns on the index’s returns. In the typical case in which the equity risk premium is based on a national equity market index and estimated beta is based on sensitivity to that index, the assumption is being made implicitly that equity prices are largely determined by local investors. When equities markets are segmented in that sense (i.e., local market prices are largely determined by local investors rather than by investors worldwide), two issues with the same risk characteristics can have different required returns if they trade in different markets. The opposite assumption is that all investors worldwide participate equally in set- ting prices (perfectly integrated markets). That assumption results in the international CAPM (or world CAPM) in which the risk premium is relative to a world market portfolio. In practice, the international CAPM is not commonly relied on for required return on equity estimation. For estimating the required return on the equity using the Capital Asset Pricing Model, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. An argument can be made that the 2 years, weekly data can be especially appropriate in fast growing markets. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta. The figure here is taken from Yahoo Finance (https://uk.finance.yahoo.com/quote/AAPL?p=AAPL&.tsrc=fin-srch), on 16th September 2022.
Equity risk premium (%)	5.26	The equity risk premium is the incremental return (premium) that investors require for holding equities rather than a risk-free asset (e.g., government bills or government bonds). Thus, it is the difference between the required return on equities and a specified expected risk-free rate of return. The equity risk premium, like the required return, depends strictly on expectations for the future because the investor’s returns depend only on the investment’s future cash flows. Note: the definition of risk-free asset used in estimating the equity risk premium should correspond to the one used in specifying the current expected risk-free return. Typically, analysts estimate the equity risk premium for the national equity market of the issues being analyzed (but if a global CAPM is being used, a world equity premium is estimated that takes into account the totality of equity markets). Historical estimates A historical equity risk premium estimate is usually calculated as the mean value of the differences between broad-based equity-market-index returns and government debt returns over some selected sample period. When reliable long-term records of equity returns are available, historical estimates have been a familiar and popular choice of estimation. If investors do not make systematic errors in forming expectations, then, over the long term, average returns should be an unbiased estimate of what investors expected. The fact that historical estimates are based on data also gives them an objective quality. In using a historical estimate to represent the equity risk premium going forward, the analyst is assuming that returns are stationary—that is, the parameters that describe the return-generating process are constant over the past and into the future. Forward-looking estimates Because the equity risk premium is based only on expectations for economic and financial variables from the present going forward, it is logical to estimate the premium directly based on current information and expectations concerning such variables. Such estimates are often called forward-looking or ex ante estimates. In principle, such estimates may agree with, be higher, or be lower than historical equity risk premium estimates. Ex ante estimates are likely to be less subject to an issue such as non-stationarity or data biases than historical estimates. However, such estimates are often subject to other potential errors related to financial and economic models and potential behavioural biases in forecasting.