South Africa’s largest self-storage property fund, Stor-Age, has continued to outperform the sector, delivering a strong performance for the six months ended in September 2020.
Despite the disruption of the pandemic in South Africa and the UK, the company delivered a robust operating performance allowing it to declare an interim dividend of 52 cents for the period, further demonstrating the resilience of its operating model.
“The challenges over the last six months required swift business decisions with effective execution. Our high-quality property portfolio across two markets, specialist sector skills and experience, together with our unrelenting focus on servicing our customers, enabled Stor-Age to quickly recover from the initial setback of the lockdowns and deliver a very strong operational performance” commented CEO, Gavin Lucas.
Intense operational focus and discipline at a property level, supported by the company’s specialised digital marketing platform, enabled Stor-Age to continue extracting both occupancy and revenue growth locally and in the UK.
In the wake of the initial phases of lockdown in both markets, enquiries returned to pre-Covid-19 levels by the end of May. For the full period, South Africa and UK enquiries were 14% and 19% ahead respectively of the prior year’s period on a like-for-like-basis. The strong demand underpinned the impressive growth in occupancy of 26 100sqm, taking the closing group occupancy position to 86%.
Despite the subdued economic environments in both markets prior to the imposition of the lockdowns, like-for-like rental income grew by a healthy 6.1% and 2.8% in South Africa and the UK respectively, while at a group level rental income and net property operating income increased by 21.3% and 13.3% respectively.
Underpinned by the continued strong demand and operational performances in both markets, the value of Stor-Age’s seventy-one properties increased during the period by R529 million to R7.6 billion on the 30th of September 2020. Despite the disruption and negative economic impact of the pandemic, Stor-Age’s disciplined growth strategy in South Africa and the UK remains unchanged as it continues to expand its footprint. The group recommenced with construction at Tygervalley (Cape Town) and Cresta (Johannesburg) in June, while in the same month the first phase of construction of a second development in Cape Town began, in Sunningdale, which is expected to begin trading in March 2021.
As of the 30th of September 2020, Stor-Age’s secured development pipeline in South Africa comprised approximately R740 million of new properties, including those mentioned above, which will add an estimated 53 000m2 of gross lettable area to the portfolio.
In October 2020, the company announced that it had finalised terms and entered a joint venture (JV) with Moorfield, a leading UK real estate fund manager with a twenty-five-year track record of investing across most real estate sectors. The JV aims to develop a portfolio of self-storage assets with an initial value of approximately £50 million and with the potential to increase to over £100 million. The UK-focused development fund, which provides Stor-Age with a significant platform to execute its strategic growth plans in the UK over the medium-term, will enable the company to develop a portfolio of self-storage assets, focused on London and the South East of England.
The Covid-19 pandemic has no doubt hastened the journey of digitalisation that Stor-Age was already on. In line with the rapid grown of ecommerce experienced during the year, the group has continued to explore partnership opportunities.
“Some of the more interesting developments of the 2020 year will no doubt be the formalisation of our exploratory working relationship with Picup, a logistics software company specialising in ‘last mile’ delivery solutions. Our portfolio of prime, well-located, and secure properties in South Africa’s main cities, happen to be located right in the heart of where a significant majority of ecommerce deliveries are destined for. We recently launched a pilot last mile delivery hub at Stor-Age Craighall, in partnership with Picup, with the property primed to cater for up to 500 parcels per day. The hub is being driven off Picup’s tech platform and crowdsourced driver network, with Picup typically providing its services into third party logistics service providers, who in turn are commissioned to execute on the fulfilment leg of online retailers.”
“Equally as interesting, in July, as a sub-component of our third-party management platform in the UK, Management 1st, we launched Digital 1st, a full-service digital marketing agency focused on the self-storage sector. A critical ingredient for success in the highly competitive UK self-storage market is online enquiry generation, which is typically dominated by Google and Facebook in search and social media, respectively. Stor-Age benefits from an in-house nine-person digital marketing team and we are recognised by both tech giants as an accredited digital marketing partner. Recognising this highly valuable skillset, we have successfully begun the process of leveraging it into independent third-party self-storage operator’s platforms in the UK, with very promising early results. While delivering an attractive new revenue stream, it also allows us to build commercial relationships in the market, as well as gain improved recognition with both Google and Facebook. As is the case with Management 1st, Digital 1st supports a natural acquisition pipeline for the group.”
With a group loan-to-value ratio of 26.7% on the 30th of September 2020 and total undrawn borrowing facilities amounting to R496 million, Stor-Age continues to manage its balance sheet position conservatively. Given the uncertain environment ushered in after the lockdowns began, the company proactively bolstered its liquidity position by securing R250 million of new equity in an oversubscribed bookbuild in May 2020. Together with the strong operating performance, the group’s intense focus on cash collections, strict working capital management and cost containment measures allowed it to finish the period with R414 million of cash on hand.
Stor-Age has remained focused and responded to the challenges of the global pandemic by delivering strong growth in its underlying operating metrics. Although the business model has proved resilient, the company anticipates the operating environment to remain uncertain and challenging until the pandemic is under control.
“The pandemic will result in socio-economic shifts and long-term structural changes to the economy and business in general. Whilst we are encouraged by our operating performance and remain cautiously optimistic around opportunities that may arise from these changes, it remains difficult to accurately predict the full impact of the Covid-19 crisis on our business.”
The scale and depth of Stor-Age’s operating model offers a competitive advantage, complemented by a diversified portfolio, conservative capital structure, digital marketing capability, industry-leading platform, and experienced teams. The company believes this will stand them in good stead to deal with any challenges that may lie ahead.
The share closed at R12.26 on Monday, the 16th of November 2020.