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Stor-Age:
why we’re keeping it
While the beleaguered listed property sector still faces multiple headwinds, the yields of some shares are starting to look interesting from a valuation perspective. We remain concerned about the deteriorating operating environment, over-indebted balance sheets and the supply glut across office, retail and industrial assets. However, we’ve held on to our existing positions and have started adding selectively in the sector – taking a rifle rather than a shotgun approach. One share we particularly like is Stor-Age.
Stor-Age is a highly specialised real estate investment trust (REIT) that listed on the JSE towards the end of 2015. It’s the only listed entity on the JSE to focus on the high-growth self-storage sector, a niche sphere within the broader commercial property market. Stor-Age is effectively a retailer of space – a needs-based product in a highly fragmented market.
The portfolio is underpinned by 65 self-storage properties across South Africa (49) and the UK (16), with just over 423 000m2 of gross leasable area and around 32 000 tenants. The SA portfolio is valued at R4 billion and the UK assets at R2 billion. Stor-Age entered the UK market in 2017, where it operates under the brand name Storage King.
We’ve been bullish on Stor-Age since participating in the 2015 listing, and have selectively added to the counter since then. The group’s most recent set of results in June saw healthy distribution growth of 9% compared to the previous year. Growth has been underpinned by both rental growth and acquisitions.
So what do we like about Stor-Age?
The quality of assets in a fragmented market, diverse tenant base, conservative balance sheet and sophisticated operating system all enable Stor-Age to better withstand the current stagnation of the operating environment. As is the case with most positive news or results, however, the market is responding and Stor-Age is starting to price in the good news. It’s trading at a forward yield of 8.1% and a premium to net asset value per share. We still see some upside in the share relative to other opportunities, however, so we remain happy to hold it.
In general, we remain cautious on the listed property sector. The contractual nature of the business has shown us that landlords are slower to benefit from an upturn in the economy, just as they’re slower to respond to weakness – there’s effectively a lag to both the upside and the downside.
We’re of the view that the operating environment will still translate to lower earnings as landlords deal with negative rental reversions and pressure on vacancy. The poor results being reported in the sector, however, means we’re starting to see valuations open up, and we’ll make good use of these opportunities as they arise.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
Your wealth plan is designed with you in mind. Your financial reality, aspirations and risk profile.
Carl Schoeman has spent 19 years in Investment Management.
Have a question for Carl?
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