I would have preferred to be wrong, but, and in no small part helped by the pandemic, this has played out as expected and almost every single Reit on the JSE has been a disaster of an investment.
Almost every single Reit….
Enter Stor-Age Property Reit, which is up 43% over five years while most other Reits have halved over this period.
With an internal management committee and tech-enabled platform, Stor-Age services 71 self-storage properties with 448 600m2 gross lettable area (split about two thirds in South Africa and one third in the UK). This portfolio offers thousands of individuals and small- and medium-sized enterprises (SMEs) flexible self-storage space, often conveniently located, and collectively handles enquiries, new leases, renewals, escalations and terminations.
In fact, the Reit’s internal platform is so good that the Reit also earns management fees for managing third-party self-storage properties and, indeed, has entered into a joint venture in the UK to do this for a large property fund.
Besides the impressiveness of Stor-Age itself, the group’s exclusive focus on self-storage property also means it has enjoyed the positive fundamentals in this niche market – most notably that self-storage the world over is highly defensive.
Most humans cherish their possessions, thus when life conspires to put these items at risk (due to, for example, downsizing, divorce, death, global pandemics and other such life-changing events), many people seek out temporary self-storage as a quick, easy place to store their possessions.
Similarly, SMEs rent self-storage space as a cheap, flexible extension of their space requirements.
Finally, Stor-Age is piloting a last-mile solution for e-commerce deliveries from its predominantly well-positioned urban properties.
Using Growthpoint Properties and Redefine Properties as stalwarts of the domestic Reit sector, Stor-Age looks pretty good against their recent operating performances with less debt, positive rental reversions and a relatively attractive yield.
Both Growthpoint and Redefine hold more traditional property portfolios (such as shopping centres, offices and industrial) than Stor-Age. Thus, while illustrative on JSE-listed property options, the above comparison to Stor-Age is not fair on these two larger, older Reits.
Stepping further afield and outside of South Africa, how does Stor-Age compare against the major globally-listed pure self-storage Reits?
Stor-Age ranks quite nicely against these global peers. The Reit’s rental growth is best-in-class while its yield appears attractive.
In many instances, Stor-Age is also less geared than the peer group.
While an argument could be made that Stor-Age’s South African/emerging market exposure makes this higher growth rate and lower valuation justified, we must not forget that one third of its underlying property exposure lies in the UK.
If we assume that the market is valuing the Reit’s UK portfolio at the global average yield of 3.6%, this implies that the market is pricing the South African portfolio at a yield of around 10.3%.
This 10.3% yield is seriously attractive when considered against a South African 10-year government bond rate of 9.3% and the SA Property Index’s yield of 6.5%, particularly when, in Stor-Age’s case, the underlying cash flows are actually growing.
At first glance, Stor-Age appears fundamentally better than many (if not all) of the other JSE-listed Reits.
Furthermore, when viewed against the global and domestic alternatives, the Reit is hardly expensive considering what an investor is gaining exposure to.
Finally, while the last couple of years in property have revealed that houses may not be all that safe, Stor-Age Property Reit could be considered relatively safer.
Keith McLachlan – Investment Officer at Integral Asset Management