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Investment Positives

The top operator (by m², number of properties, number of tenants, and value) with superb geographic representation in both South Africa and the UK

Stor-Age is the largest owner-operator of self storage properties in South Africa, with an attractively diversified portfolio positioned in prime urban and suburban locations throughout South Africa’s six main metropolitan cities – Johannesburg, Pretoria, Cape Town, Durban, Port Elizabeth and Bloemfontein.

In November 2017, Stor-Age successfully entered the United Kingdom with the strategic acquisition of Storage King – the sixth largest self storage brand in the country.

Self storage is a niche sub-sector of the broader commercial property market. Stor-Age is well ahead of any other competitor in the South African market in terms of scale. In the UK, the Storage King brand continues to expand its portfolio and further establish itself as a market leader.

Stor-Age’s unique best of breed portfolio and market leading positioning both combine to form an attractive long-term growth outlook. Stor-Age will continue to capitalise on the benefits of scale through acquisitions and developments in both South Africa and the UK. With its outstanding locations, excellent quality buildings (functional and purpose-built), big branding, top quality customer service, sophisticated on-line reservation platform, digital marketing capability, centralised contact centre, scale, good NOI growth and very low capex – Stor-Age is exceptionally well positioned.

Potential consolidation/acquisition opportunities, with balance sheet capacity to deliver

In a fragmented industry with many single asset (or small portfolio) operators, Stor-Age has the opportunity to grow through acquisitions in both South Africa and the UK. Stor-Age has significant balance sheet strength to deliver on any potential acquisition opportunities and it is well positioned to integrate any new acquisitions seamlessly into the operational management and trading platform. The company has also shown its ability to enter new markets, with the successful acquisition of the Storage King brand.

Management has built the portfolio from scratch

Founded by executive management in 2005, Stor-Age is the ‘blue-chip’ for quality in the South African self storage industry. The executive management team has demonstrated an ability to manage and grow the business over the last 15 years in a variety of different markets and economic cycles. Highly entrepreneurial, the executive team is relatively young by industry standards, however well respected by their peers for displaying an in-depth understanding of the dynamics of both the property and self storage markets. The team has an outstanding track record of developing new properties, acquiring trading stores, integrating them seamlessly into the platform and entering new markets, whilst managing the portfolio within a set strategy. The strong brands and high quality portfolios are backed by talented management in both South Africa and the UK, who have significant interests in the business.

Management has executed its mandate with discipline and focus on all fronts – acquisitions, new store development, existing property expansions, portfolio management, operational execution and marketing. The business model is based on global best practice and strong networks with leading first-world market peers.

A significant number of properties in the portfolio are purpose-built facilities in prominent locations concentrated in SA’s four main cities, with an additional eight properties in the pipeline. The UK portfolio consists of 21 well-situated properties with excellent visibility in the East and South East of England. A further 7 properties trade under licence of the Storage King brand in the UK, bringing the total number of properties trading under the Storage King brand to 28. The company has also entered a Heads of Terms with Moorfield, 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.

Sophisticated operating and management platform

The company has invested significantly to develop a sophisticated and scalable management platform that provides centralised services and support across the portfolio. This offers economies of scale and cost efficiencies. A web-based tenant management system, which features a unique built-in customer relationship management tool, provides real-time information on the operating and financial performance of each property.

Pricing is dynamic and varies according to unit size, demand, the stage of lease-up and location. Internal space across all properties can be reconfigured to produce variations of unit sizes in order to meet the demand profile and optimise the revenue streams from the property.

Market leading brand

Stor-Age’s focus on the location and visibility of its properties, together with excellent customer service, a leading online platform and extensive digital marketing capabilities, has created the largest and most recognisable brand in the South African self storage industry.

Leveraging industry experience and a sophisticated in-house digital skill-set, Stor-Age and Storage King continue to outperform their competitors in terms of new customer acquisition. The strength of the brands are underpinned by a marketing strategy which aims to drive customer response through multiple platforms by focussing on customer service and selling standards at the property level, while being supported and complemented by dynamic and sophisticated digital platforms.

Brand awareness has been achieved in the target customer groups throughout South Africa’s major cities, supported by the strategy to target high profile locations, with the high profile big-box flagship self storage properties particularly aiding in this regard. Customer service standards are measured through a programme of mystery shopper and customer satisfaction surveys, and the company continues to actively engage with customers on all digital review platforms. These reviews drive organic search performance as well as foster brand credibility. Results and feedback from customer satisfaction surveys drive employee learning, development and training programmes.

Digital platform and online presence

Stor-Age has continued to embrace and develop their in-house digital marketing capabilities which, combined with Google and Facebook partner accreditation, has allowed the company to remain at the forefront of online enquiry generation.

As a significant percentage of total web enquiries originates from smartphones and tablets, the Stor-Age and Storage King websites are accordingly designed to be simple and uncluttered. Both platforms continue to improve by enhancing security and the user experience, while  deeper integration between the Stor-Age and Storage King digital sales platforms continues to occur.

The Stor-Age website, whether accessed by desktop, tablet or smartphone, accounts for more than 60% of all enquiries. In the UK, more than 85% of all enquiries are made through the Storage King website.

Social media is used as a complementary measure to existing marketing channels to further strengthen the Stor-Age and Storage King brands.

Dedicated national contact centre and bespoke online reservation system

Stor-Age has a dedicated contact centre and an industry leading online reservation system. The contact centre currently manages all overflow calls and web enquiries from the individual properties. It is staffed by a team of trained operators enabling increased productivity and effective scalability as more properties are acquired or developed in the future.

The e-commerce platform comprises of an online reservation system, live customer engagement and a real-time pricing module. This enables online customers to seamlessly transition from obtaining a quote to moving in, thereby enhancing the user experience and reducing move-in time for improved productivity.

Self Storage is a well-established asset class in offshore markets with precedent of valuation premiums

Global REIT investors are familiar with self storage metrics and through-cycle performance. The US self storage REIT sector has an established track record of tighter implied cap rates, higher FFO multiples and overall outperformance versus the broader US REIT sector.

Markets such as the US and UK have well-established market leaders in self storage - the US example shows self storage has had a strong historical performance versus the broader REIT sub-sector. Operators such as Public Storage (US) and Big Yellow (UK) have traded at P/E premiums to their respective markets, and the broader self storage REIT sub-sector in the US has shown it has consistently traded at tighter implied cap rates, price-to-FFO premiums, price-to-NAV premiums and performed stronger overall in recent years. In 2013 the Australian market had its first listing in the self storage sector on the ASX, with National Storage coming to the market successfully.

Operating fundamentals - solid net operating income (‘NOI’) growth and low ongoing capex (relative to traditional commercial real estate) have made self storage a great business in the US - the public market now understands self storage’s capex/NOI growth profile which has often driven sizeable premiums to asset values (i.e. share price vs. NAV).

Barriers to new supply in key target nodes are significant

The barriers to new supply in key target nodes in South Africa’s major cities are significant. The industry was historically positioned in industrial or urban-edge areas. As a result, there are limited premium-grade self storage assets in prime urban and suburban nodes, where population density and average household income are key.

Town planning presents a major challenge with long lead times required to gain planning consents. This, in addition to the long lease-up period (financing cost implications) required to reach stabilised occupancy at new stores, is a significant barrier to entry and contributes to the defensive nature of the portfolio.

A significant challenge to new supply in key nodes is that there are few operators (or individuals) currently in the South African market who have the skills, expertise, as well as track record to take up the operational challenge of taking a new R100 million + property (at cost) through its lease-up phase of its life-cycle (three to five years). Bear in mind that there is no pre-letting of space when it comes to developing new self storage properties, thus all new self storage developments are 100% speculative in nature.

Stor-Age will only develop new properties where there is strong demand and the barriers to entry are at their highest, targeting prime real estate.