The largest self storage fund in South Africa, Stor-Age has maintained organic growth in earnings and in the underlying portfolio while also expanding locally and into the UK. The REIT has amassed a portfolio valued at R3.6 billion and effectively tripled its market capitalisation to approximately R3.5 billion over the past two years.
CEO Gavin Lucas says he is pleased with the REIT’s interim performance which has maintained its growth trajectory. “Since listing Stor-Age has consistently hit all financial and strategic markers, in contrast to a property sector which over the same two-year period appears to be buckling under the pressure of a constrained economy.”
He explains that while the business is underpinned by a high quality property portfolio, the recession-resilient nature of self storage itself provides the REIT with a distinct advantage in down cycles. He adds that “we also benefit in good economic times, as the product remains needs-based and the need prevails through the different economic cycles”.
Revenue increased year-on-year by 43% to R124 million, while operating profit grew by 50% to R84.5 million from September 2016. Lucas explains that rental income grew in double digits whether measured organically or including the period’s major acquisitions. On a like-for-like basis rental income increased 10% due to a higher average occupancy coupled with an 8.7% increase in the average rental rate.
Taking into account the period’s key acquisitions of Storage RSA and Unit Self Storage, rental income increased by 46% to R110 million. The closing rental rate of R88 per m2 grew 10% from this time last year.
The REIT’s acquisition of sizable peer Storage RSA - which Lucas describes as “a rare acquisition opportunity in South Africa of relative scale and comparable asset quality” - was completed in February 2017 and added six high-quality properties in Cape Town and Gauteng covering 42 000m².
The further acquisition of the 5 400m2 Unit Self Storage property in Cape Town was completed in May “and complements our existing Cape footprint”. Lucas says all new stores have been successfully integrated and are trading well as expected.
The period also saw Stor-Age innovate a development structure in the local market - a “Certificate of Practical Completion” deal - for its Bryanston self storage property. He explains that the CPC development model is based on the proven US self storage REIT structures. “Essentially it enables Stor-Age to mitigate development and lease-up risk by acquiring the completed asset off-plan from a developer, at a pre-determined price based on objective criteria, with a rental guarantee underpin for the forecast lease-up.”
Post the period Stor-Age continued expanding locally with four properties under the StorTown brand in the Durban area and notably, into the UK for the first time. On 2 November 2017 the group strategically entered the growing UK self storage market by acquiring Storage King, a top 10 UK self storage operator, bringing on board 13 high quality properties in England.
Stor-Age’s consequent bookbuild exercise to help fund the acquisitions enjoyed overwhelming investor interest, which Lucas says “affirms that there is significant investor confidence in our business model”.
He points out that while a significant portion of Stor-Age’s underlying earnings will now be Sterling-denominated, the company remains a primarily South African-focused REIT, based here and with earnings weighted to local properties for the foreseeable future.
However, he says the UK self storage market presents an excellent growth opportunity relative to more established markets such as Australia or the USA, which Stor-Age is well placed to benefit from, given that it has entered through an established, proven and scalable platform. “Importantly, we have retained the local skills with the Storage King management team remaining on board and co-invested.”
Looking ahead Lucas is confident that Stor-Age’s balance sheet flexibility and still low gearing will continue supporting the successful acquisition and development strategy to complement ongoing organic growth. He concludes: “We intend to continue pushing ourselves to outperform the sector and our own benchmarks”.
Subject to stable macro conditions, Stor-Age is forecasting an 11-12% rise in the full year dividend.
The share closed yesterday at R11.85.