Questor: this property firm has worked wonders in the pandemic

Many of our Income Portfolio’s property holdings were chosen after the start of the pandemic when we were able to see their resilience in the face of the economic storm that had begun.

It is therefore no surprise to us that these funds have indeed continued to pay the income we had hoped for. In the case of our German property company, Sirius Real Estate, it was more a case of good fortune because we bought it long before anyone had heard of coronavirus – in November last year.

The company owns business parks in Germany and has been making a very decent fist of getting the most out of them, both before and during the pandemic.

The percentage of rents due that have actually been paid tells the story: for the period between April and September the fund has collected 97.2pc of the amounts due from tenants.

At the end of the six-month period just €2m (£1.8m) of rent and service charges remained uncollected. Total annual rental income, for comparison, is about €90m. Of the outstanding debt, €250,000 relates to deferred payment plans while €83,000 relates to insolvency cases. The company has written off €171,000.

It said it “continues to expect to collect the majority of the outstanding debt for the period April to September over the next 12 months through its regular debt collection activities”.

These numbers are backed up by the experiences of City analysts who recently visited some of the firm’s business parks near Frankfurt.

“We were struck by how busy the parks were, with the property managers estimating that around 80pc-90pc of workers were back on site on any given day,” said analysts from Peel Hunt, the broker. Admittedly the firm counts Sirius as a client so we shouldn’t be too surprised if it sounds a positive note, but we can trust the evidence of its analysts’ eyes.

They went on to describe the improvements that the company had made to one of the business parks, Neu-Isenburg.

“[It] was purchased three years ago for €9.6m. The acquisition price reflected a net initial yield of just 3.6pc, but this was due to the low occupancy of 41pc,” Peel Hunt’s analysts said. “The company has improved the building, including a partial conversion into Sirius’s all-inclusive ‘smartspace’ product.

“Management set a target occupancy of 90pc by March 2021 and it appears to be on track, with 77pc reported at March 2020. We understand the asset now generates a cash flow yield on equity of about 10pc. Rental collection averaged 98pc during the pandemic.”

At another site in Wiesbaden, Sirius has increased occupancy from 67pc to 89pc and the average rent per square metre has risen by about 30pc. Occupancy at a third, in Mainz, increased from 80pc to 94pc during Sirius’s ownership – it has now been sold.

Peel Hunt concluded: “All three assets have delivered exceptional returns, driven by growth in occupancy and rent, no doubt aided by Sirius’s first class operating platform. The shares trade on a 4.3pc dividend yield, which is 1.6 times covered and, given the relative strength of the German economy, the company remains one of our top picks.”

We will content ourselves with a hold rating.

Questor says: hold

Ticker: SRE

Share price at close: 81.1p

Update: Premier Oil bonds

We sold Premier Oil’s retail bonds at a painful loss in March when the onset of the pandemic had sent the oil price to such low levels that Premier’s survival was called into question.

But survive it has and it is now to merge with a rival, Chrysaor. We will briefly outline what this means for holders of the retail bonds in case any readers hung on to them.

The bonds are to be repaid and cancelled but unfortunately not at par value of £100. Holders will be given a choice: about £75 per bond in cash or about £61 in cash plus shares in the newly merged company.

The likely value of those shares has been estimated at £14-£22 for each bond currently held but it could be more if the oil price performs strongly.

Bondholders will need to make their choice known – their stockbroker will be in touch with them directly.

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.