Published Date: 2021-09-15 | Source: INCE|Community | Author: The Finance Ghost
Stor-age is one of the most interesting REITs on the JSE and a share that I did well on after the March 2020 crash.
Everyone was selling REITs because shopping centres were deserted, yet nobody was cancelling their storage agreements for extra stuff. If anything, as office leases were cancelled temporarily, the demand for short-term storage went up.
That was my thesis at least and it worked. I made a tidy profit on Stor-Age and sold out a few weeks ago, as the valuation had run to a point where I felt that sideways action would be the likeliest way forward. Year-to-date, Stor-Age is only up around 1.6%.
This isn't a reflection on the business, but rather on the valuation that had simply gotten too hot. In the five months to August 2021, the average rental rate is up 7.1% year-on-year and total occupancy increased 3%.
The UK is also doing well, with the average rental rate up 5.7% and total occupancy up 10.4%.
The development pipeline comprises eight properties with a total development cost of R685 million. To give an idea of the growth potential, this pipeline represents around 12.5% of the total South African portfolio gross lettable area (GLA).
Two of those properties are part of a new deal with Nedbank Property Partners to develop properties in Morningside and Bryanston, which the company says will help mitigate the financial impact of the initial operating phase when the property is filling up.
In that property joint venture, Stor-Age will hold a 50.1% equity stake. The venture will be 35% funded by equity and mezzanine funding (a type of funding structure that strives for a return somewhere between debt and equity returns) from both Nedbank and Stor-Age. The remaining 65% will be in senior debt (the cheapest form of financing).
Stor-Age will earn development and property management fees from the venture and will have a pre-emptive right to acquire the assets once certain operating criteria have been met. In other words, Stor-Age is essentially shifting some of the development risk to Nedbank.
In the UK business, Stor-Age is also busy with preparing the balance sheet for further growth. A refinancing process is underway with UK lenders and is nearing completion.
The group is also growing inorganically, acquiring two trading self storage properties in the Northern and Southern Suburbs of Cape Town. Silver Park Self Storage in Brackenfell was acquired for R60.1 million and the second property is still in due diligence phase so the details haven't been disclosed yet, but it has a planned purchase price of R48 million.
Finally, Stor-Age has put in a claim for damages of R83 million plus VAT to SASRIA for damages to the property in Hillcrest, KwaZulu-Natal. The property is being repaired and is scheduled to re-open in October 2021. As at 31 March 2021, the Hillcrest property represented 1.8% of the total group portfolio.
Interestingly, Stor-Age held SASRIA cover on behalf of tenants. That's really good of the company and could be a lifesaver for families who lost their belongings in those revolting and violent riots.
Despite such a strong update, the price closed flat for the day. It shows how much growth is already priced-in.