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why we’re keeping it
Jul 12, 2019
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.
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