Our maiden performance
CEO’s Report
November 2015 marked an historic milestone for Stor-Age as the business transitioned from a group of private companies to become South Africa’s first JSE-listed self storage REIT. While Stor-Age had successfully been trading for close to a decade, the listing brought to market a low‑risk income paying specialist REIT and successfully introduced a new property sector asset class, fulfilling a long term strategic goal of the founding management team.
With the benefit of hindsight, the last quarter of 2015 turned out to be an interesting time to list. Our JSE debut was followed by possibly one of the most volatile December trading periods in South Africa’s history and then intense global market volatility on reopening after the year-end break. Despite this, I am pleased to report that appetite for our stock remained robust with the backing of our widespread institutional shareholders.
Stor-Age pioneered the development in South Africa of high profile, multi-storey ’Big Box’ self storage properties in upmarket locations in 2009. Since opening our first property in 2006, our entrepreneurial management team with its in-depth understanding of the property and self storage markets has proven an ability to manage and grow the business in different markets and varying economic cycles. The team has a strong track record of developing new properties and acquiring and integrating trading stores, while managing the portfolio to achieve ambitious strategic goals.
Our sector leadership in South Africa is evidenced in our status as top self storage operator by lettable area, number of properties, number of tenants and value, and exceptional geographic representation.
WHY SELF STORAGE
Self storage is the direct response of the built environment to the needs of society and represents an exciting growth sector, not just in South Africa and similar emerging markets, but across first world markets such as the US, Australia and the UK.
The built environment evolves over time in direct response to the needs of society, office skyscrapers, the US retail mall concept and a decentralised suburban business park are all examples of this.
Capitalism has ushered in an era of consumerism (consumption-led economies) and at the same time people’s living and working spaces are continuously becoming more efficient. People also place an extremely high value on their personal possessions. For our residential customers (approximately 80% of our tenant base), each life-changing event drives a need for the product of self storage. Businesses (approximately 20% of our tenant base), typically SMEs, are attracted to the flexible nature of the product based on size and the lease period.
OUR PERFORMANCE
We are pleased to report strong maiden results for the 4.5 months from listing date to March 2016, ahead of our listing forecasts. Our total shareholder distribution of R38.906 million translated into a distribution per share of 30.07 cents, being 4.7% ahead of the forecast 28.72 cents.
Given the prospect of an upward sloping US treasury interest rate cycle in 2016 and into the medium term and the resultant impact on the REIT sector, we took the decision at listing to conservatively reduce our gearing levels. We currently have R119 million of net debt representing a gearing level of 8.7%. Of this, 84% is hedged at 9.65% for a period of almost three years. We still have capacity to drawdown on a further R521 million of our current debt facility with Nedbank Limited.
The performance of the business remains highly resilient, driven by self storage sector fundamentals. ’Need’ will always motivate demand both in a healthy economic environment and in economic downturns. Despite the economic environment, people still go through life-changing events and businesses still require space on a flexible basis, even if for downscaling purposes.
Growing our property portfolio
South Africa
Stor-Age seeks investment opportunities where we can achieve strong market penetration, leverage and further benefit from our economies of scale, enjoy limited competition and produce high operating margins. Our property growth strategy, while aggressive in its targets, is tempered with a commitment to high quality self storage assets. We believe that in focussing on assembling a portfolio at the quality end of the spectrum, we will not compromise the sustainability of our business by chasing short term growth targets.
We plan to grow through a combination of acquisitions of existing self storage properties from third parties (directly into Stor‑Age) and developing new self storage properties. Given the limited supply of prime self storage properties in our primary urban and suburban target nodes in South Africa’s major cities, the development of new self storage properties forms a significant focus.
International
We have spent much time in the more developed self storage markets of the US, Australia and the UK since 2007 with the principal objective of learning from these markets to assist us in rolling out our business plan in South Africa. Our insights also stem from our deep peer networks of medium to large scale self storage operators in these markets.
Given that self storage is still a young and developing market even in these first world countries, we believe that an opportunity to enter one or more of these markets may transpire. We have identified that it would be critical for us to enter through an existing and well established operator.
Our people
Our people and our ability to manage the portfolio off a sophisticated, decentralised platform – a platform which recognises the transition from enquiry to customer to client, and staff who can build relationships with their clients – are critical to our long term success. Our distinct non-hierarchical structure with fully accessible management endeavours to reward everyone for their contribution to our success. We are fortunate to have an exceptional team of highly committed and passionate individuals who work to build on the legacy of the family business that lies at the heart of our company.
Our strong performance for the year was in large part attributable to the efforts of our loyal and quality staff. Our people remain pivotal to the achievement of our strategic objectives and we strive to ensure that we recognise this internally.
Outlook
Our current five year growth plan, currently in its first year, sets broad targets but more importantly details the strategic plan of both ’how we are going to do it’ and ’where we intend doing it’.
There is no doubt that South Africa is in the midst of a tough economic environment. However, with the benefit of a core product which has traditionally been highly resilient in challenging trading conditions and a conservatively geared and interest-rate hedged balance sheet, Stor-Age is well placed to withstand the tough economic headwinds blowing through the South African economy at present, as well as global macro-economic volatility.
On the back of a highly successful listing late last year, operating in an under-supplied growth sector and delivering an attractive set of results for the reporting period, Stor-Age is well positioned to move forward in a sustainable manner. We are excited about the future of Stor-Age and strongly believe in the growth potential of our business.
Gavin Lucas
CEO
13 June 2016