JSE-listed Stor-Age has announced a joint venture with Moorfield, a UK real estate fund manager, to develop a portfolio of self-storage assets with an initial value of approximately R1.1 billion (£50 million) and with the potential to increase to over R2.1 billion (£100 million).
Stor-Age has also provided a business update ahead of the announcement of its interim results. Despite high levels of uncertainty and the impact of the pandemic, the company expects interim distributable earnings to be approximately R220 million, growing by an estimated 3% from the prior year comparable period.
The company has finalised the joint venture terms with the Moorfield Group who possesses a twenty-five-year track record of investing across most UK real estate sectors. The UK-focused development joint venture will provide Stor-Age with a significant platform to execute its strategic growth plans in the UK over the medium-term and it will enable the company to develop a portfolio of self-storage assets focused on London and the South East of England.
All properties will be branded and managed by Storage King as part of Management 1st, a comprehensive third-party management solution which the group launched in September 2019 for independent operators, developers, and private equity owners in the UK.
Stor-Age’s UK property growth strategy includes acquiring existing trading self-storage properties from third-parties, new developments, and the introduction of Management 1st. In addition to having a pre-emptive right to acquire all newly developed properties once certain pre-defined operating criteria have been met, Storage King will also earn management fees for acquiring, developing, and managing properties in the joint venture.
“We are delighted to have agreed final terms with Moorfield and we look forward to developing and assembling a portfolio of high-profile self-storage properties in prime locations in the UK. The UK self-storage market represents an exciting growth opportunity and by partnering with Moorfield, we are now both well placed to achieve our multi-year strategic growth objectives together” comments Gavin Lucas, CEO of Stor-Age.
Moorfield is well known as a vanguard investor in emerging sectors and it has pioneered investment in student accommodation, Build-to-Rent (formerly known as the Private Rented Sector or PRS) and senior living. Moorfield has an extensive track record in successfully identifying evolving investment themes in the office and industrial / logistics sectors.
“As a specialist alternative real estate investor with a track record of generating strong returns from the timely recognition and discerning exposure to sectors benefitting from changing demographic and societal change, the UK self-storage sector is a natural fit for our investment portfolio. Replicating the strategy of our recent nursing and dementia care-home partnership, we have selected a best-in-class partner whose operational and origination expertise will enable us to both access the sector and then scale a portfolio in a meaningful way” says Marc Gilbard, CEO of Moorfield.
The joint venture is in advanced discussions on numerous acquisitions, leveraging Storage King’s established relationships and industry experience to secure opportunities. The pipeline comprises of a mix of subject-to-planning development sites, turnkey developments, and existing investment assets.
Stor-Age’s business update
Despite the economic consequences caused by Covid-19 and the challenges and restrictions arising from the lockdowns in South Africa and the UK, Stor-Age has continued to deliver a robust operating performance over the last six months in both markets. Intense operational focus and discipline at a property level, supported by the company’s specialized digital marketing platform, enabled the company to extract both occupancy and revenue growth in both South Africa and the UK.
Since March 2020, group occupancy has increased by 10 000m2 while enquiries achieved in South Africa and the UK were up by 14% and 19% respectively over the same period. The high levels of demand experienced, together with the growth in occupied space, continue to support the self-storage investment theme of resilience and the ability of the sector to outperform during an economic downturn relative to the broader property market.
In South Africa, year-on-year occupancy grew by 11 500m² (8 800m² on a like-for-like basis), while in the UK occupancy grew by 14 500m² year-on-year. Excluding the impact of the Flexi Store portfolio acquisition in December 2019, occupancy increased in the UK by 1 500m².
“Our rapid response as we entered the early stages of the lockdowns in both markets and the optimal positioning of our product has stood us in very good stead. Our clear operational objectives, allocation of resources and focused execution ensured that we achieved key performance milestones from June through to September. I also need to single out the quite extraordinary effort, dedication and commitment of all of our staff during this period. Collectively, they have delivered what can only be described as an exceptionally strong operational performance” commented Lucas.
In the six-month period ending September, the company collected 96% and 98% of rental due in South Africa and the UK, respectively. The collection of rentals and recovery of debt remains a key focus area, with the company committing additional resources to the task of cash collections and continuing to refine and improve their internal processes accordingly.
Stor-Age is well capitalised with a strong balance sheet. The company’s Loan-To-Value (LTV) ratio of approximately 30% at period end remains comfortably within the 25-35% target range and provides Stor-Age with headroom to navigate the current period of uncertainty.
According to Lucas, the economic disruption and dislocation caused by the pandemic has manifested itself in many “life-changing events”, a primary driver of demand for self-storage. Stor-Age’s customers typically require the product either temporarily or permanently for various reasons throughout the economic cycle, which creates a market depth that is a significant contributing factor towards the resilience of the product. In dealing with the crisis, many SMME businesses have had to either temporarily close, shut down completely, relocate or seek flexibility in their space requirements. This continues to drive demand for the product and the growing use of self-storage by the commercial segment remains a key strategic priority. In both markets, Stor-Age is well placed to benefit from this increased demand.
In terms of future developments, as of 30 September 2020 Stor-Age has a secured development pipeline of eight properties (three of which are currently under construction), which will add an estimated 53 000m² of Gross Lettable Area (GLA) at a total cost of approximately R740 million. All new development projects continue to be monitored to ensure that they meet the group’s risk-adjusted yield expectations.
The company expects interim distributable earnings to be approximately R220 million for the six months ending 30 September 2020, growing by an estimated 3% compared to the prior year period, and the interim dividend per share to be approximately 52.0 cents (54.89 cents in the prior year period).
Adds Lucas, “The scale and depth of our operations offers a competitive advantage, complemented by our diversified portfolio, strong balance sheet, digital marketing capability, industry-leading platform and experienced teams. While not entirely immune to the impacts of the pandemic, Stor-Age remains well-positioned both financially and operationally to navigate these uncertain times.”
The share closed at R11.99 on Tuesday, the 20th of October 2020.