Wrap Text
Finalisation of Moorfield Development Joint Venture
and Business Update
Stor-Age Property REIT Limited
Incorporated in the Republic of South Africa
Registration number 2015/168454/06
Share Code: SSS ISIN: ZAE000208963
Approved as a REIT by the JSE
(“Stor-Age”, “the group” or the “Company”)
FINALISATION OF MOORFIELD DEVELOPMENT JOINT VENTURE
AND BUSINESS UPDATE
Stor-Age, South Africa’s leading and largest self storage property fund, provides the following update ahead
of the announcement of its interim results.
Moorfield development joint venture
Stor-Age is pleased to announce that it has finalised terms and entered into a joint venture (“JV”) with the
Moorfield Group (“Moorfield”) to develop a portfolio of self storage assets, focused on London and the South
East, with an initial value of approximately £50 million and the potential to increase to £100 million.
Moorfield is a leading UK real estate fund manager with a 25-year track record of investing across most UK
real estate sectors. Moorfield is especially well known as a vanguard investor in emerging sectors and has
pioneered investment in student accommodation, Build-to-Rent (formerly known as the Private Rented Sector,
or PRS) and senior living. Moorfield also has an extensive track record in successfully identifying evolving
investment themes in the office and industrial/logistics sectors.
The JV is in advanced discussions on a number of acquisitions, leveraging Storage King’s established
relationships and industry experience to secure off-market opportunities. The pipeline comprises a mix of
subject-to-planning development sites, turnkey developments and existing investment assets.
All properties will be branded and managed by Storage King as part of Management 1st, a comprehensive
third-party management solution which the group launched in September 2019 for independent operators,
developers and private equity owners in the UK.
The key terms of the JV are set out below:
• Initial equity £25m
• Target to achieve approximately 50% loan to cost for new developments
• Equity capital contributions will be in the ratio 75.1:24.9 (Moorfield:Stor-Age)
• Separate SPVs will be set up for each new development
• All newly developed properties will be managed by Storage King under the Management 1st offering
• Storage King will earn management fees for acquiring, developing and managing the assets
• Storage King will have a pre-emptive right to acquire all newly developed assets once certain pre-
defined operating criteria have been met
Marc Gilbard, CEO of Moorfield commented: “As a specialist alternative real estate investor with a track record
of generating strong returns from the timely recognition and discerning exposure to sectors benefitting from
changing demographic and societal change, the UK self storage sector is a natural fit for our investment
portfolio. Replicating the strategy of our recent nursing and dementia care-home partnership, we have selected
a best-in-class partner whose operational and origination expertise will enable us to both access the sector
and then scale a portfolio in a meaningful way. Self storage as an asset class has been one of the more
resilient during this period of uncertainty and is set to benefit from a number of favourable structural trends.
With a strong pipeline of assets identified, we are excited to be launching this latest venture on behalf of our
investors.”
The JV provides Stor-Age with a significant platform to execute its strategic growth plans in the UK over the
medium-term in a market that presents an attractive growth opportunity. The consistent performance of the
Storage King business this year, despite the backdrop of uncertainty and a muted economic environment as
a result of COVID-19, demonstrates the strength of our operating platform and the resilience of the business
model.
UK growth strategy
Our UK property growth strategy includes acquiring existing trading self storage properties from third-parties,
new developments and the introduction of Management 1st.
One of the unique characteristics of the self storage development model is the lease-up of the property to a
stabilised and mature level of occupancy, with the lease-up forming a considerable component of a property’s
overall formation cost. In order to mitigate the financial impact of the lease-up, it is desirable for Stor-Age to
develop new properties in conjunction with a development partner.
Business update
Trading performance to September 2020 and the impact of COVID-19
Stor-Age delivered a robust operating performance over the last six months with group occupancy increasing
by 10 000m² since March 2020, despite the devastating economic consequences caused by the pandemic
and the challenges and restrictions arising from lockdowns in both markets.
Intense operational focus and discipline at a property level, supported by our specialised digital marketing
platform, enabled the group to extract occupancy and revenue growth in a particularly difficult trading
environment. Our hands-on management approach across both the SA and UK markets remains critical to
delivering superior performance.
In SA, year-on-year occupancy grew by 11 500m² (8 800m² on a like-for-like basis), while in the UK occupancy
grew by 14 500m² year-on-year. Excluding the impact of the Flexi Store portfolio acquisition in December 2019,
occupancy increased in the UK by 1 500m². The high levels of demand experienced, together with the growth
in occupied space, continue to support the self storage investment theme of resilience and the ability of the
sector to outperform during an economic downturn relative to the broader property market. The closing rental
rate was up approximately 5.5% and 0.8% year-on-year in SA and the UK respectively.
With the easing of lockdown restrictions and increased enquiry generation, group occupancy increased by
10 000m² in the six-month period to September 2020 (SA and UK occupancy both increased by 5 000m² each).
To increase customer retention and retain occupancy, we suspended rental rate increases to customers in
both markets in April 2020 (we recommenced with the customer rate increase programme in August 2020). In
SA, we selectively increased promotions offered to new customers moving in during the period to drive
occupancy growth. For the second half of the 2021 financial year, we expect promotions to be in line with pre-
crisis levels.
Responding to the crisis
In responding to the crisis, our priority was to ensure the protection and safety of our employees and our
customers. We immediately educated our staff on safety protocols and introduced sanitisers, provided
protective personal equipment, reinforced hygiene and cleaning standards throughout our stores, and
introduced appropriate social distancing measures. Soon after the respective lockdowns commenced, we
successfully activated an online e-sign capability for the completion of new leases, allowing for the facilitation
of a contactless digital sign-up and move-in process. During lockdown, our properties remained accessible for
customers in both SA and the UK as we continued to support the provision of essential services. To support
the communities in which Stor-Age operates, we offered complimentary storage space to several relief and
government-based entities. Properties also acted as drop off points for public donations to assist the efforts of
charitable organisations in distributing much-needed items.
As expected, we immediately saw a significant reduction in enquiries and overall activity (both move-ins and
move-outs) as soon as the lockdowns commenced, resulting in a decrease in occupancy in April and May. As
lockdown restrictions were eased, our primary focus was improving enquiry generation and driving move-in
activity with a view to increasing occupancy. By the end of May, enquiry levels returned to pre-COVID-19
levels.
We continue to monitor ongoing developments to ensure that we adhere to government advice in SA and the
UK, while continuing to ensure the safety of our staff and customers.
Sector resilience and high levels of demand
Stor-Age and the self storage business model have a track record of resilience in constrained economic
environments relative to other asset classes. While this track record of resilience has been demonstrated by
the robust operating results delivered in the current environment, the impact of the lockdowns in both SA and
the UK could not be avoided in its entirety.
Despite the severely curtailed economic activity in the six-month period to end September 2020, enquiries
achieved in SA and the UK were 14% and 19% ahead respectively of the prior comparable period on a same
store basis.
The economic disruption and dislocation caused by the pandemic has manifested itself in many “life-changing
events”, a primary driver of demand for self storage. Our customers typically require the product either
temporarily or permanently for various reasons throughout the economic cycle, which creates a market depth
that is a significant contributing factor towards the resilience of the product. In dealing with the crisis, many
SMME businesses have had to temporarily close, shut down completely, relocate or seek flexibility in their
space requirements. This continues to drive demand for the product and the growing use of self storage by
the commercial segment remains a key strategic priority. In both markets, we are well placed to benefit from
this increased demand.
In the UK, the temporary reduction in stamp duty for property purchases under £500 000 added further impetus
to the housing market, a sector wherein elevated activity levels have traditionally been positive for the self
storage sector.
In the six-month period ending September 2020, we collected 96% and 98% of rental due in SA and the UK
respectively. The collection of rentals and recovery of debt remains a key focus area. Given the elevated risk
levels in this area, we have committed additional resources to the task of cash collections, and we continue to
refine and improve our internal processes accordingly.
In SA, we also offered settlement discounts and concessions to customers of approximately R2.0 million to
improve cash collections. We have adopted a conservative approach to our bad debt provision and we
anticipate bad debt to be approximately 2.0% of rental income (excluding any rental underpins or guarantees)
for the six-month period ending September 2020.
In the UK, we have experienced almost no deterioration in the levels of cash collections with bad debt
provisions in line with historic trends of 0.5% of rental income. We also offered approximately £30 000 of rental
concessions in a limited number of cases to customers as part of our retention strategy.
Management 1st
Management 1st is a key component of our UK growth strategy and will enable the group to earn additional
revenue with minimal capital investment.
In return for a monthly management fee based on a percentage of gross income, Storage King will use its
sector specific skills and expertise, operating infrastructure and online digital platform to manage properties
on behalf of third-party owners. It will allow us to apportion our central overheads over an increased number
of properties and drive further web traffic to our digital platform which benefits our entire operation. As part of
our strategic growth strategy, it further provides a natural acquisitions pipeline over the medium to long-term
should third-party owners wish to exit.
The group has been in discussions with interested parties since its launch and we remain confident in our
ability to source growth via this platform. All properties developed or acquired by the Moorfield JV will be
managed under the Management 1st offering.
We have entered into agreements with two independent operators across five properties to provide a full-
service digital services offering, a component of the broader Management 1st suite of services, and we are
currently finalising a further digital services agreement with an independent operator covering an additional
three properties. None of the eight properties compete with existing Storage King properties.
With an increasing proportion of enquiries being generated online across both markets, our customer data
platform, strong online presence, contemporary web user-experience, and multi-channel online customer
acquisition platform, together all play a crucial role in generating enquiries for our properties. Recognised by
both Google and Facebook as an accredited digital marketing agency, we continue to invest significantly in
our digital marketing platform to enable scalable and efficient growth. We have developed a unique and cost-
effective in-house skillset and capability in SA, which allows for relatively straightforward adoption for
independent UK operators and brands who do not compete with properties in our portfolio.
Whilst these new agreements will make a modest contribution to earnings in the short-term, we are pleased
with the results to date and remain excited about the prospects of expanding our digital service offering to
additional operators, and further developing a meaningful revenue stream from the Management 1st platform.
Capital structure
Stor-Age is well capitalised with a strong balance sheet. We expect our loan-to-value ratio to be less than 30%
at 30 September 2020 (subject to finalisation of investment property valuations) which remains comfortably
within our 25-35% target range and provides us with headroom to execute our growth strategy.
At 30 September 2020, the group had cash and undrawn debt facilities as follows:
ZAR million GBP million
Cash (including cash held in debt facilities) 351 2.9
Undrawn debt facilities 425 3.8
The average maturity of the group’s ZAR and GBP borrowings is 2.0 years and 3.7 years respectively.
In May 2020, we raised R250 million of new equity in an oversubscribed accelerated bookbuild and conserved
a further R55 million from the Dividend Reinvestment Programme in July 2020.
Development update
After the easing of lockdown restrictions, construction recommenced at Tygervalley (Cape Town) and Cresta
(Johannesburg) on 1 June 2020. At Sunningdale (Cape Town), construction of the first phase started on 8
June 2020.
Further details are set out below:
Location Gross Total project Costs to be
lettable cost incurred¹
area (m²)
Tygervalley - northern suburbs, Cape Town 7 100 R88 million R25 million
Cresta - opposite the Cresta Shopping Mall, Johannesburg 7 400 R102 million R50 million
Sunningdale - Western Seaboard, Cape Town 6 350 R67 million R23 million²
1 Estimated costs to complete the development from 1 October 2020 onwards
2 Stor-Age’s 50% interest in respect of phase I and II
Our expected opening dates for trading are March 2021 and August 2021 for Tygervalley and Cresta
respectively, assuming no further delays are experienced or lockdown restrictions imposed.
Sunningdale is being developed in a JV with Garden Cities. Stor-Age has a 50% equity interest in the
development and is earning development fees during the construction period. Upon completion and
commencement of trading (expected in March 2021), Stor-Age will earn ongoing property management fees
from managing the property.
At 30 September 2020, Stor-Age’s secured development pipeline comprised approximately R740 million of
new properties, including those mentioned above, which will add an estimated 53 000m² of gross lettable area.
We continue to monitor all new development projects to ensure that they meet our risk-adjusted yield
expectations.
Dividend guidance and prospects
The uncertainty and many challenges faced over the last six months required swift and decisive business
decisions to be made. Intense operational focus, the strength of our platform and the outstanding effort and
commitment of our staff, have collectively allowed us to recover from the initial setback arising from the
lockdowns and the significant curtailment of economic activity in the first quarter of the year.
We expect interim distributable earnings to be approximately R220 million for the six months ending 30
September 2020, growing by approximately 3% from the prior year comparable period, and the interim dividend
per share to be approximately 52.0 cents (54.89 cents in the prior year comparable period). This forecast has
not been reviewed and reported on by the external auditors.
Despite the macroeconomic challenges in SA and the UK, we continue to execute our multi-year strategy in a
disciplined and focused manner. We have made good strategic progress in the first half of the year, including
the finalisation of terms with Moorfield for our UK-focused development JV. The group remains disciplined in
the allocation of capital into selected development and acquisition opportunities, and continues to maintain a
conservative and efficient balance sheet position.
The scale and depth of our operations offers a competitive advantage, complemented by our diversified
portfolio, strong balance sheet, digital marketing capability, industry-leading platform and experienced teams.
While not entirely immune, Stor-Age remains well-positioned both financially and operationally to navigate
these uncertain times.
Cape Town
21 October 2020
Sponsor
Investec Bank Limited
Date: 21-10-2020 08:00:00
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