Sirius Real Estate

What does the company do?

Sirius Real Estate 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 stock market is not limited to exposure to the UK economy. 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, and their ability to utilise capacity to a higher level than previous owners given their breadth of space usage (office, storage, smart space, production etc). The company has a diversified mix of tenants, with the top 10 contributing only 17% of the rent roll, and a spread amongst sectors. The tenants have been shown to be loyal, with low turnover. Whilst the investment case has an earnings focus on managing the business to maximize the rent roll, the management team also look to trade properties, so there is also a property yield angle. In early 2019, the company entered into a joint venture with Axa, which has broadened its addressable universe, providing a potential outlet for some properties, and also a visible recurring fee income stream. The company has a strong balance sheet, allowing management the capacity to deploy capital through acquisitions. The company displays strong ESG credentials in its extension of building lifelines, and efficient consumption of energy by tenants. Whilst there are risks around the cost of debt increasing, and economic weakness in Germany, we are confident about the resilience of the business, diverse nature of the tenants, and the growth levers that management can pull to ensure that the investment case remains attractive. The high yielding assets together with their efficient platform provide an attractive level of recurring income. The company’s historic dividend has been worth a 3.5% yield and its policy to distribute 65% of recurring cash flow has meant that Sirius has been one of the best covered dividends in its peer group. Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.