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Growth Strategy

As reported in our March 2020 Integrated Report.

Our growth strategy for the South African market

We are in the final year of the current cycle ending 2020, and have undertaken strategic and meticulous planning for the next five-year period. We intend to continue growing the portfolio and enhancing performance and investor returns by:

Our growth strategy 2020

The strategy seeks to maintain Stor-Age’s position as the leading and largest self storage property fund and brand in South Africa:

  • Largest store footprint
  • Quality stores – high-profile and convenient locations
  • Prominent and easily accessible
  • The benchmark for modern, urban self storage development

To inform our strategic cycle to 2025, we revisited the four major research projects completed in 2015 with a specific focus on supply levels, anticipated demand, customer profiling and consumer demographics. These projects give us key insights which inform and optimise our growth strategy, allowing us to better understand our residential and business customers, and anticipate future demand.

Based on our research, we believe that there are approximately 400+ self storage properties across South Africa. While we see an opportunity to acquire existing properties, our new development strategy is detailed, with a focus on high barrier to entry areas in our core markets. Our plan to 2025 includes growing the portfolio to 70+ properties.

Our growth strategy for the UK market

Our business plan for Storage King is guided by our strategic and long-term focus on growing and optimally positioning our UK property portfolio.

During the year, we continued to focus on key high-impact foundational areas to position Storage King optimally for future growth. We continued to make significant progress in integrating key South African-based head office support services into the Storage King platform. In addition to the property strategy outlined below, we continued to see the positive impact on enquiry generation during the year as a result of successfully leveraging our digital marketing capability into the UK.

Our five-year strategy for the UK market to 2025 seeks to grow the portfolio through a combination of acquiring existing self storage properties, developing new properties in key target areas and adding trading properties to our third-party management platform – Management 1st. We have identified a growth target of an average of two to four properties per annum. Read more about our third-party management platform below and in the CEO’s report on page 33.

Key features of the medium-term growth plan include:

Acquiring existing self storage properties that meet Storage King’s acquisition criteria:

Developing investment grade self storage properties in prominent, visible, convenient and accessible locations:

  • Good locations in strategic and regional cities
  • Within/close to attractive urban or suburban nodes
  • Ideally within/close to a retail corridor
  • Ideally located with main road frontage to passing traffic
  • 35+ operators identified
  • Minimum requirements targeted
    • 30 000+ sqf maximum lettable area (MLA)
    • 75 000+ population, 20 minute drive time
  • Key locations in strategic and regional cities
  • Big Box (greenfield) – high density retail or commercial type nodes, within attractive urban/suburban areas and with main road frontage to passing traffic (typically multi-storey, three+ floors)
  • Conversions (brownfield) – conversion of existing buildings in retail or commercial type nodes in close proximity to dense urban areas
  • Minimum requirements targeted
    • 45 000+ sqf MLA
    • 100 000+ population, 20 minute drive time

Storage King development JV

During the year we entered a Heads of Terms with a UK-based specialist private equity real estate group to form a joint venture (“JV”), with a target to develop a five to seven property portfolio of high profile big box self storage properties in prime locations in London and the South East over the medium-term.

The JV will include the following elements:

  • Equity contributions to the JV are anticipated to be in the ratio of 25:75, with Storage King contributing 25%
  • All newly developed properties will be branded and managed by Storage King on behalf of the owners of the JV under the Storage King Management 1st offering
  • Storage King will earn management fees from the JV for developing and managing the assets
  • Storage King will have a pre-emptive right to acquire all newly developed assets once certain pre-defined operating criteria have been met
  • A target has been set to achieve approximately 50% loan to cost for new developments
  • An initial JV equity contribution of £25million

Leasehold ownership

Storage King maintains a flexible approach to leasehold and freehold property ownership, which enables it to grow the business, secure prime locations and position the portfolio optimally.

While Storage King’s approach to leasehold property valuation is based conservatively on future cash flows until the next contractual lease renewal date, it has a demonstrable track record of successfully regearing leases several years before renewal. Storage King benefits from the Landlord and Tenant Act, which protects its right of renewal except in the case of redevelopment. In addition, the vast majority of Storage King’s leasehold properties are located in retail parks and/or have building characteristics that make their current usage either the optimal or best use of the property.

Furthermore, as property investors, Storage King’s landlords value the quality of Storage King as a tenant and often extend the length of the leases in their portfolios. This enables Storage King to maintain favourable terms.

Ultimately, maintaining a flexible approach to leasehold ownership as part of a broader portfolio assembly strategy has allowed Storage King to operate from properties that would otherwise have been unavailable.