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Stor-Age’s R850m development drive as annual dividend tops 9%

The property fund has grown its portfolio more than four times and delivered seven consecutive reporting periods of growth since listing in 2015.

Despite tough times for most local real estate investment trusts (Reits), the JSE’s sole self-storage property fund Stor-Age has continued to be one of the sector’s top performers. It is even shrugging off the difficult economy, investing some R850 million in new developments in SA.

Stor-Age released its full-year results ending March 2019 on Tuesday and declared a total dividend of 107 cents per share. This was up 9.05% and came in at the bottom end of its guidance for the period. Western Cape-focused Spear Reit is the only listed fund to outperform Stor-Age in the current reporting period, having posted dividend growth of 10.1% for its 2019 financial year.

Stor-Age CEO Gavin Lucas says it was “another very attractive set of results” with the specialised fund “outperforming most of its [Reit] peers”.

He told Moneyweb that Stor-Age is committed to further growth in its core South African market with nine new self-storage developments in the pipeline, valued at some R850 million. This is in addition to new acquisition opportunities both locally and in the UK.

Gavin Lucas, CEO of Stor-Age. Picture: Supplied

“Stor-Age is one of only 10 publicly traded self-storage Reits globally and the only self-storage-focused counter on the JSE,” says Lucas. “We are operating in an attractive and growing niche sector globally.

“So, despite poor economic conditions in SA and ongoing economic uncertainty in the UK due to Brexit, we see opportunities for further growth and development in the self-storage space in both these markets.”

He adds that the group’s sustainable growth is due in large to its niche sector focus, combined with the relevance of underlying product irrespective of macro conditions, “which makes it cyclically defensive and resilient”. 

Ian Anderson, chief investment officer at Bridge Fund Managers, says Stor-Age’s latest results are in line with expectations. “The fund is doing a lot better than several other Reits and has not been significantly impacted by the weaker economic backdrop. As a self-storage fund, its niche gives it a defensive edge. The Storage King acquisition in the UK has been performing well and justifies Stor-Age’s foray into the UK self-storage market.”

Since listing on the JSE in 2015, Stor-Age has increased its portfolio and market capitalisation fourfold. As at its March 2019 year-end, the 423 700m2 Stor-Age portfolio was made up of 49 properties in SA and 16 in the UK, valued at R6 billion. The fund’s market capitalisation stands at R5.4 billion.

Oversubscribed capital raises

Stor-Age raised almost R1 billion in two oversubscribed capital raises on the JSE during its 2019 financial year – R400 million in November and another R585 million in March.

Lucas says that while most of the funds have been earmarked for new developments in SA, Stor-Age is also looking at quality acquisitions in line with its strict investment criteria.

“We remain confident in the SA and UK markets. We are not pulling back as there are still good growth prospects for our business. Stor-Age is planning for the next five-year phase of strategic growth from 2020 to 2025. It is difficult to put a number to where we will be. However, the fund’s growth since listing gives a good indication of the growth we’ve had.”

For its 2019 full year, Stor-Age’s portfolio value was up 56% to R6 billion.

Overall rental income was up 63%, with SA rental income up 7.5% on a like-for-like basis. In the UK, its net property operating income was up 6.3% on a like-for-like basis.

The fund made four acquisitions, while its loan-to-value ratio came in at 24.6%. 

Overall portfolio occupancy was up marginally by 0.5% to 83.5%; however, this included the newly developed Stor-Age property in Bryanston.

“Self-storage properties work differently to other commercial property types, with some leases as short as a month,” says Lucas. “On average our tenants take up space with us for about a two-year period. A new property can take a few years to reach 80% occupancy, a level which we see as ideal as you always want space available for new tenants.”

Stor-Age is forecasting dividend growth of between 7% and 9% for its 2020 financial year.

Its share price has appreciated more than 38% since it listed in 2015. Although it was flat at around R13.80 on the release of its results on Tuesday, it is up almost 11% year to date.

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Interesting how all the writers ignore what has happened on a per share basis, i.e. earning per share, FCF per share. This company issued new shares at 8x PE to buy properties in the UK for 20x PE. It was immediately value destructive. Indeed, DPS is up 9% y-o-y, but is that not merely returning cash that shareholders gave it in the rights issue.

What do I know..? nothing like a good story to keep retail investors (and some institutional ones?) interested – remember Curro. Indeed Stor-Age has potential, but much will rely on management’s capital allocation going forward. Continuing to issue stock at 8x to buy at 20x will end up in tears, no matter how attractive the “story” might be for the ignorant ones.

Interesting pieces of info, in some SA storage warehouses there isn’t space for a mouse, fully booked. Majority of customers I hear are people emigrating and selling. Is this a long term viable business or just a spike. Reminds me of the emirates when after financial crisis and property pop everyone dumped their assets and left country, coudnt get storage for all tea in china. People dumped their vehicles in mall parking lots cause even airport was full.

End of comments.

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