Sirius Real Estate PLC’s (LON:SRE) investment-grade rating yesterday underlines the property group’s willingness to keep strict financial discipline, says Berenberg.
The FTSE 250 group was rated “BBB” with a stable outlook by Fitch in its first credit assessment.
Fitch said the structure of Sirius’s higher-yielding portfolio was a positive as rent collection rates have remained at a fairly high level, noted the broker.
The rating agency added that Sirius even generated some positive rental growth in the current environment and its capex programme should lead to further rent improvement.
Fitch expects rental growth of about 5% for FY 2021, with the rent collection rate coming out at 98%.
Also, Sirius’s diversified tenant base is viewed positively, even if some occupiers might be of lower credit quality.
Additionally, because of the broad tenant mix and the affordable rental levels, Fitch is not overly concerned about the low average lease length of currently just around three years.
For its rating assignment, Fitch projected annual rent growth of around 2%, acquisitions of €100m in the next fiscal year sourced at net initial yields of 6.5-7.0% and capex investment into the portfolio of c€70m until 2024.
Importantly, said Berenberg, Sirius’s leverage ratio is expected to remain low with net debt/EBITDA in a range of 6.0-6.7x and the interest cover ratio (ICR) above 8x (times).
The credit rating would be jeopardised if the ICR decreases to below 4x and the leverage exceeds 8x on a sustainable basis.
Operationally, Fitch would view a deterioration of the average lease length to below three years sceptically and if the occupancy rate of the portfolio falls below 80%.
Berenberg added: “In general, we strongly welcome it if corporates aim for a credit rating as it reflects also their willingness to keep strict financial discipline.
“Now an investment-grade-rated company, we believe Sirius’s overall investment profile is sharpened further.”
The broker has a buy rating and a 105p price target. Shares today were trading at 94.7p, down 1.8% on a tough day for markets.