‘The window is closing’: Sirius knocks on doors for deals

The team at Sirius Real Estate is taking an increasingly hands-on approach to uncovering its next acquisitions, as its chief executive warns that there are fewer opportunities to seal deals at the kinds of yields it has achieved in recent months. The London-listed REIT has raised close to £300m in equity from shareholders over the past year. Chief executive Andrew Coombs said in July that there would be a “race” to snap up assets before values start to rise again.  The company has completed around £60m of acquisitions across the UK and Germany since the summer, almost all with double-digit gross yields. But speaking with EG as the company announced interim results for the six months to 30 September, Coombs said the chance to buy at those sorts of yields is fast disappearing.   No pressure “The window is definitely closing,” Coombs said. “If I take Germany as an example, it’s not that lots more buyers have come into the market, it’s more that whereas six months ago sellers were frightened of what the future holds, now they’re optimistic. Because of that, the ability to pull a double-digit gross yield out of the hat is very limited. Their expectations are more around 7% or 8% gross yields. It’s very difficult to get up to 12%, but we do sense that we can still find deals between 9% and 10%. And that is what we will be trying to do.” The company is looking for industrial estates that are at least 30% vacant, strategic land purchases and asset management opportunities. Coombs is eager but said he won’t be rushed into the wrong deal as the market shifts. “We have more than £200m in firepower,” he said. “We are putting it in the bank and getting 5% on that. And we have flexibility in our dividend policy to raise it to 71% [of funds from operations] and make sure the dividend is progressive. So I don’t feel the need to go out and do anything less than optimum property acquisitions just to show that I’m spending the money. “If we carried on at £10m [of acquisitions] a month and it took the next 18 months to deploy this capital, I don’t think that is the end of the world. Equally well, if the market straightened out and there were some really good transactions, I don’t mind spending it quicker – but I’m not spending it because we are under pressure time-wise.” Reverse engineering What will change, Coombs said, is the way he and colleagues hunt out those next deals in a tougher market. To close 10 transactions a year in Germany, the REIT typically looks at 1,000 targets. Half of those are brought to the company – it holds two broker breakfasts each year in the seven main cities. But the team also hits the streets in and around those cities. “We knock on the door of every building, find every maintenance man, every security guard,” Coombs said, adding that a hypothetical deal could come from an employee letting slip that an estate is vacant and is now owned by a distant member of the original owner’s family, who might want to sell.  “You are never going to find that through a local agent because they don’t knock on doors,” he said. “Now, knocking on doors is a 100-to-one shot. Every hundred doors you knock on, you will be lucky if you get interest on seven or eight and get traction on one or two. But if you do enough of that activity, bearing in mind we are only looking for 10 to 12 purchases a year, you will find it. And once you connect with something like that, that one has probably a 50% chance of conversion, whereas your [lead from a broker] has less than a 10% chance of conversion. “So we have to change the mix of activity. Knocking on doors is much harder than having breakfast with a broker. But we reverse-engineer on ratios that we have come to understand. We reverse-engineer the amount of activity that we have to put in to spit out the results at the end.” He added: “That is different from the rest of the market. We don’t accept ‘market conditions’. What we try to do is work out how we succeed.”