Sirius Real Estate

What does the company do?

Sirius is a German property business, focused on the non-prime segment of key cities. It is an example of the breadth of investable opportunities we have in the UK market; the UK market does not represent solely the UK economy, as businesses listed in the UK have diverse global exposure. Why do we like the investment? We hold the management team in high regard, and they have shown strong execution in turning around and then growing the business since they joined. There are many quality aspects around how they manage the business; their low cost model of direct to consumer marketing, their in house property and tenant management platforms, their ability to utilise capacity to a higher level than previous owners given their breadth of space usage (office, storage, smart space, production etc.). They have a diversified mix of tenants, with the top 10 contributing only 17% of the rent roll, and a spread amongst sectors which both help to reduce risk. Their tenants have been shown to be sticky with low turnover. Whilst the investment case has an earnings focus on managing the business to maximize the rent roll, the management team look to trade properties as well, so there is also a property yield angle . In early 2019 they signed a joint venture with Axa, which broadens their addressable universe, provides a potential outlet for some properties and also a visible recurring fee income stream. They have a strong balance sheet position, allowing them the capacity to deploy capital into acquiring further locations. They display strong ESG credentials in their extension of building lifelines, and efficient consumption of energy by tenants. The board perhaps could benefit from some more innovative thinking, but we have a positive view of the Chair who we also know from other businesses. Whilst there are risks around the cost of debt increasing, and economic weakness in Germany we are confident that the resilience of the business, diverse nature of the tenants, and the growth levers that management can pull ensure the investment case remains attractive. The high yielding assets, together with their efficient platform provide an attractive level of recurring income, supporting attractive dividends to shareholders. Their historic dividend has been worth a 3.5% yield, and the dividend is growing strongly. With a policy to distribute 65% of recurring cash flow, it is one of the best covered dividends in its peer group.