A Sirius tale of two equity raises

The chief executive of Sirius Real Estate, Andrew Coombs, has cited new-found political certainty in the UK as helping the FTSE 250 company secure £150m in fresh equity from international investors. Sirius last week sealed a deal to raise the equity through the sale of new shares priced in line with its portfolio’s net asset value. That deal followed a near-£147m fundraise last November, priced at a 6% discount to NAV. Both deals were hugely oversubscribed – the November issuance by 250% and last week’s by 400%. And both represented making the right move at different stages in the shifting cycle, says Coombs. Calling the bottom When Sirius tapped investors for money last November, Coombs says, he told them the funding would be used for “once-in-a-cycle opportunities”. “I promised people I wouldn’t take lending on the back of it and would only buy sites with equity, which meant I had to find better deals,” he says. “I had to work harder to get the returns.” The company splashed the cash on purchases including three assets in London, Vantage Point Business Village in Gloucestershire, an industrial site in Banbury, business parks in Germany and more. The prices and yields were exactly the kind of “once-in-a-cycle” deals that Coombs was sure he could find. Now, looking back, he believes he called the market right. “We were brave enough and daring enough to go in November… and thank goodness we were because that enabled us to be well-equitised at what we now believe was the bottom of the market,” he says. “It was that springboard that then enabled us to plan to go again immediately off the back of the UK election. And it was that springboard that then allowed is to attract money from outside London. I suspect that if we had only relied on London for this capital raise, we would not have been 400% oversubscribed.” The ship has sailed The second raise was different in other ways too. “I was on the road last week talking to shareholders and I said, ‘Guys, the bottom has happened. It’s gone. We are not going to be able to take this money and produce the same results as we did from November’s money. That ship has sailed,’” Coombs says. “I explained that we could still get very good results but they weren’t going to be the Gloucestershires or the Banburys. They’re gone.” However, the success of the fundraise suggests investors still believe that Coombs and colleagues will be able to find compelling deals. The chief executive expects more of this equity raise to be spent on UK targets. Most of the money from last week’s deal came from outside London, he notes – funds in the US and Australia “looking to the UK market and finding the right vehicles to invest in at the right point in the cycle”. Those are investors that “we would not have been able to attract two years ago”, Coombs adds. And the change is not solely a reflection of Sirius’s growing track record. “Investors are saying, ‘You have a stable government in the UK. The transition of power has been orderly. You have a new agenda,’” Coombs says. “All of a sudden that seems to have switched… It’s no accident at all that we raised money the week after the election. That was always our plan, as soon as an election date was announced, and that was really important to the international money.” The change in government will now boost investor appetite for the UK “a great deal”, Coombs predicts, particularly with the US market “increasingly more of a question mark” in the run-up to its own election. But this period too will last only so long, the chief executive adds. “Now you’ve got certainty in the UK, the race is going to be to buy up the assets before you get a mixture of politics and interest rates pushing the value of property up,” he says. “So just as I said the money in November was for once-in-a-cycle opportunities, where we’re at now is good opportunities that we can get. And I put it to you that in six months’ time, I’ll be saying, ‘I’m not sure, unless I can find special situations, that we can access an awful lot of UK property at really good dynamics.’” Lucky, then, that the team has the money and the motivation right now. Photo © Sirius Real Estate