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STOR-AGE PROPERTY REIT LIMITED - Voluntary UK Acquisition announcement, Development Pipeline update and Small Related Party Transactions

Release Date: 18/11/2019 15:50
Code(s): SSS     PDF:  
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Voluntary UK Acquisition announcement, Development Pipeline update and Small Related Party Transactions

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” or the “Company” or “group”)


VOLUNTARY UK ACQUISITION ANNOUNCEMENT, DEVELOPMENT PIPELINE
UPDATE AND SMALL RELATED PARTY TRANSACTIONS


A. ACQUISITION OF A PORTFOLIO OF FIVE SELF STORAGE PROPERTIES IN THE UNITED
   KINGDOM

  1. Introduction

    The board of directors of Stor-Age (the “Board”) is pleased to announce that Stor-Age, through its
    subsidiary, Betterstore Self Storage Properties 1 Limited (“Betterstore”), has agreed terms on which
    Betterstore will acquire 100% of the issued share capital of Flexi Store Self Storage Limited (the
    “Acquisition” or “Flexi Store”), for an initial purchase consideration of £13.4 million (“Purchase
    Price”), which will be adjusted up or down (as the case may be) by the net working capital balance as
    at the effective date (which is limited to a maximum of £500 000) (“Working Capital Adjustment”).
    The transaction is subject only to formal exchange and completion of transaction documentation and
    the satisfaction of prescribed banking conditions under the groups existing facilities.

  2. Rationale

    The Acquisition is in line with the stated growth and investment strategy of the Storage King business
    of pursuing value-added acquisitions in the United Kingdom (“UK”) self storage market. The Board
    believes that the Acquisition represents an excellent opportunity to acquire a portfolio of five self
    storage properties in locations which complement the existing portfolio, providing additional scale from
    both a balance sheet and trading perspective. The portfolio, which has been trading under licence of
    the Storage King brand, will now also be managed under the existing operating infrastructure of the
    group.

    The acquisition increases the total number of owner operated Storage King properties to 21, adding
    an additional 157 062 square feet (“sqf”) of gross lettable area (“GLA”) with a maximum lettable area
    (“MLA”) of 190 520 sqf.

     Details of the properties acquired are set out below:

     Storage King Dudley

     Located prominently on Birmingham New Road (A4123) in the large town of Dudley in the West
     Midlands, 17 kilometres north-west of Birmingham, the property consists of 31 333 sqf GLA and 36
     658 sqf MLA. The property, which has dedicated new customer parking bays to the front and a
     dedicated loading area behind a secure fence line, is in close proximity to the local Tesco Extra
     supermarket and trades into a dense residential area.
 
     Storage King Nottingham

     Located in Nottingham in the Midlands, the property consists of 36 850 sqf GLA and 58 306 sqf MLA.
     The property is positioned in a commercial corridor and trades into a dense residential area, benefiting
     from good visibility on Radford Road, which sits just off the Western Boulevard (A6514).

     Storage King Shrewsbury

     Located in Shrewsbury, the county town of Shropshire in the West Midlands, the property consists of
     35 175 sqf GLA. The property is situated in a large trade park alongside several retail stores and car
     dealerships, offering good visibility to Harlescott Lane and trades into the local residential areas within
     the town.

     Storage King Warrington

     Located in the large town of Warrington in Cheshire in the north west of England, midway between
     Liverpool and Manchester, the property consists of 32 896 sqf GLA. Sitting on Winwick Road (A49)
     within a trading estate adjacent to several big box retailers including IKEA and an Aldi supermarket,
     the property trades into a dense residential area.

     Storage King West Bromwich

     Located in the town of West Bromwich in the West Midlands, north west of Birmingham, the property
     consists of 27 485 sqf GLA. The property enjoys prominent exposure onto Birmingham Road (A41),
     just off the M5 highway and trades into the local residential areas.

  3. Property specific information
     
    Details of the properties are set out in the table below:


    Property      Geographic location                               MLA       Weighted               Total
    name                                                           (sqf)       average       consideration
                                                                           rental rate             payable
                                                                               per sqf
    Dudley        Unit 8 Iconic Park, Birmingham New             36 658         £16.24       £4.35 million
                  Road, Dudley, DY1 4SR
    Nottingham    Unit 1 Lewis Industrial Estate ,Radford        58 306         £18.48       £2.18 million
                  Road, Nottingham, NG7 7NQ
    Shrewsbury    Archers Way Battlefield Enterprise Park        35 175         £19.35       £4.76 million
                  Shrewsbury, SY1 3AF
    Warrington    1 Colville Court Winwick Quay                  32 896         £17.23       £1.13 million
                  Warrington, Cheshire WA2 8QT
    West          AGL House, Birmingham Road, West               27 485         £15.90       £0.98 million
    Bromwich      Bromwich, West Midlands B71 4JY
    Total                                                       190 520                      £13.4 million
                                                                                           adjusted by the
                                                                                           Working Capital
                                                                                                Adjustment
  Notes
      1. The acquisition yield for the portfolio is 7.29%. This yield is based on the forecast GBP net
         operating income (pre UK corporations tax) for the next 12 months (the “Forecast”) and the total
         consideration payable of £13.4 million. The Forecast, including the assumptions upon which it is
         based and the financial information from which it has been prepared, is the responsibility of the
         Board. The Forecast has not been reviewed or reported on by independent reporting accountants,

      2. Warrington is held on a long leasehold basis with a lease expiry of 20 years, Nottingham with a
         lease expiry of 13 years and West Bromwich with a lease expiry of 18 years (subject to the
         conclusion of a reversionary lease with the landlord).

      3. Shrewsbury and Dudley are each held under 999-year peppercorn leases and are considered for
         valuation purposes as virtual freehold properties.

      4. The total consideration payable is considered to be in line with fair market value of the property,
         subject to the special assumptions of zero purchaser’s costs, as determined by an external
         valuation performed by Oliver Close, a Professional Valuer and Registered Valuer of The Royal
         Institution of Chartered Surveyors, of Cushman & Wakefield Debenham Tie Leung Limited as at
         31 August 2019. The valuation methodology adopted for the properties is consistent with the
         methodology used for the valuation of the Company’s properties as at 31 March 2019.

      5. Weighted average rental rate per sqf is quoted on an annual basis

  4. Categorisation

    The Acquisition is not a categorised transaction in terms of the JSE Listings Requirements (“Listings
    Requirements”). This announcement is voluntary and for information purposes only.


B. DEVELOPMENT PIPELINE UPDATE


  The Board is pleased to announce an update on the Company’s development pipeline.

  Tygervalley

  Located on Durban Road (R302) in a busy commercial corridor in close proximity to the well-established
  mixed use Tygervalley precinct the property will service the residential areas of Bellville, Oakdale, Boston,
  Welgemoed and Loevenstein.

  Comprising 7 100m² of GLA over six levels with the design catering for a separate receipting and despatch
  area to accommodate a growing demand from our commercial user segment, the total project costs are
  approximately R88 million, with construction having recently commenced.

  Cresta

  Located at the entrance to the Cresta Mall, the property will primarily service the residential areas of
  Cresta, Blackheath, Northcliff, Linden, Greenside and Fairland in addition to the broader commercial
  corridor along Beyers Naude Drive.

  Comprising 7 400m² of GLA over six levels with the design also catering for separate receipting and
  despatch areas for commercial customers, the total project costs are approximately R102 million, with the
  anticipated commencement of construction in November 2020.

  De Waterkant

  In December 2018 Stor-Age acquired the property situated at 2 Rose Street in the Cape Town CBD for a
  purchase consideration of R45 million.

  A rezoning application had been submitted to the local authorities in November 2018 to amend the zoning
  to allow for self storage. The City of Cape Town’s Municipal Planning Tribunal has approved the rezoning
  of the property to Mixed Use which allows for self storage as a land use, subject to a final appeal process
  which is scheduled to conclude before the end of November 2019.

  Located prominently on the corner of Rose and Waterkant Streets in the Cape Town CBD and in close
  proximity to the V&A Waterfront, the property is well located to service the residents and businesses of
  the Cape Town CBD, the V&A Waterfront, De Waterkant, Bo Kaap, Tamboerskloof and the Atlantic
  Seaboard suburbs of Green Point, Sea Point, Fresnaye, Bantry Bay, Clifton and Camps Bay.

  Anticipated to become one of the portfolio’s most high profile and valued assets, the property will comprise
  up to 6 600m² GLA over 14 levels, with excellent visibility to commuters travelling both into and out of the
  Cape Town CBD on Buitengracht Street, with the anticipated commencement of construction in the last
  quarter of 2020.

  The development will complement our existing Gardens property in Roeland Street at the top of the Cape
  Town CBD, and our Sea Point property in Regent Street, providing Stor-Age with a presence in three
  excellent locations in the heart of some of SA’s most densely populated and sought-after areas.

  Sunningdale

  On 30 September 2019 Stor-Age entered into a joint venture agreement with Garden Cities to develop a
  new self storage property in Sunningdale. Located on the Western Seaboard approximately 30 kilometres
  from the city of Cape Town, Sunningdale is a successful and sought-after Garden Cities suburban
  development.

  Located prominently on the corner of Berkshire Boulevard and Whitehall Way and close to the new Table
  Bay Mall, it will comprise 6 350m² GLA with excellent visibility to commuters accessing the retail and
  residential nodes of Parklands and Sunningdale. The property will also trade into the nearby suburbs of
  Bloubergstrand, Blouberg Rise, Big Bay and West Beach, with the anticipated commencement of
  construction in February 2020.

  The development will complement our existing Table View property providing Stor-Age with a presence
  in two excellent locations in the fast developing west coast region.

  Stor-Age will have a 50% equity interest in the estimated R67 million development and will also earn
  development fees prior to opening, and ongoing property management fees once the property
  commences trading.


C. SMALL RELATED PARTY TRANSACTIONS – CONSTRUCTION AND REFURBISHMENT SERVICES
   PROVIDED BY MADISON SQUARE HOLDINGS CC (“MSH”)


  1. Introduction


  Since listing in November 2015 Stor-Age has from time-to-time entered into agreements with MSH in
  relation to the provision by MSH of construction and refurbishment services (“the MSH Services“). The
  financial extent of the MSH Services has been disclosed in all integrated annual reports published by
  Stor-Age, and in SENS announcements of interim and final results. MSH is an associate of the executive
  directors of the Company and is therefore deemed to be a related party to Stor-Age.

  Shortly after its listing in November 2015, the Company’s Sponsor requested the JSE to confirm that the
  MSH Services would be considered to be in the ordinary course of business and, to the extent that the
  MSH Services fall below the 10% threshold of market capitalisation in any rolling 12-month period, such
  services would not be classified as a “transaction”.

  The JSE responded in February 2016 that the arrangement between Stor-Age and MSH is not a
  management agreement as contemplated in paragraph 13.40 of the Listings Requirements; that such
  agreement does not give rise to a transaction, as contemplated in section 9 of the Listings Requirements;
  and therefore section 10 of the Listings Requirements is not applicable to the agreements entered into
  between MSH and Stor-Age in respect of the MSH Services (“Original Response”).

  As a result of changes to the Listings Requirements to incorporate not only transactions, but also
  “agreements” in the definition of a “related party transaction”, the Company’s Sponsor requested the JSE
  to confirm whether the finding in the Original Response was still applicable, given that it was a practice
  which had been the subject of disclosure since listing in all integrated annual reports and related investor
  communications. In its response, the JSE advised that the value of the MSH Services (other than
  maintenance services which are considered to be in the ordinary course of business) must be
  categorised when entered into, amended or renewed, and announced on SENS.

  The MSH Services do not involve the acquisition or disposal of an asset by the Company. Accordingly,
  no assets can be valued using recognised valuation techniques. The JSE has accepted the Company’s
  proposal that the non-executive directors provide confirmation to the JSE that the terms and conditions
  of all agreements entered into between Stor-Age and MSH for the provision of the MSH Services are
  market-related, and that the procedures followed by the non-executive directors in reaching their
  conclusion are acceptable.

  In order to ensure that the agreements concluded with MSH are market related, the Company employs
  the services of an independent third party quantity surveyor to provide the necessary guidance and
  assurance to the non-executive directors that the terms and conditions of the agreements for the
  provision of the MSH Services are in line with market-related terms and conditions for such services.
  The non-executive directors rely on this independently procured assurance in order to assess the terms
  and conditions of the agreements, and to approve them.


2. Rationale for the agreements

  The MSH Services assist the Company with the construction, refurbishment and expansion of its property
  portfolio in line with its strategy. The construction techniques, skills set and processes, which are
  specialist in nature and specific to the self storage industry, have been developed and refined by MSH
  over the last 10 years. This ensures that a high quality and cost-effective service is provided to the
  Company for the benefit of shareholders.

  Added benefits for the Company from using MSH’s services are as follows:

 • in the planning stage of all new projects, the Company obtains the benefit of MSH’s expertise in
   “value-engineering” the proposed design and related construction inputs required, in order to arrive
   at an optimally priced project within pre-defined development budgets;

 • the Company makes design changes throughout the construction period without incurring penalty
   financial claims;

 • the Company does not incur penalty financial claims for standing time or late information, allowing
   for improved cost control, contract management and budgeting;

 • all savings achieved during the project are passed back to the Company as the nature of the building
   contract is “cost plus the predefined and agreed margin” as opined on upfront as fair and market-
   related by third party quantity surveyors.

  In the opinion of the Company’s directors, it is neither feasible nor appropriate for construction related
  activities to be carried out by the Company itself given the risk profile of construction in general; the
  associated large fixed overhead costs; the negative impact on cash available for distribution to
  shareholders; and the potential detriment to the Company’s REIT status.


  3. Details of the agreements

  In order to ensure compliance with the Listings Requirements, details of the following agreements (“the
  Agreements”) are required to be announced given that, on an aggregated basis together with other
  agreements of a similar nature entered into with MSH, the Agreements exceed a categorisation
  percentage of 0.25% of market capitalisation in a rolling 12-month period:


 Property    Total value    Key terms                                     Effective date of
             of projects                                                  payment

 StorTown    R10 279 070    Redevelopment of a property purchased         Paid monthly in various
 Durban                     from Dancor Properties Proprietary Limited    instalments from
 City                       as announced on SENS on 10 October            22 January 2018 to
                            2017
                                                                          17 May 2019

 Craighall   R13 555 824    Construction of Phase II of the Craighall     Paid monthly in various
                            Certificate of Practical Completion           instalments from 16 March
                            development as announced on SENS on           2018 to 21 August 2019
                            7 December 2017

 Stikland    R10 060 155    Alterations and expansion of GLA relating     Paid monthly in various
                            to the acquisition of All-Store as            instalments from
                            announced on SENS on 6 March 2018             18 September 2018 to 21
                                                                          August 2019

 Gardens      R2 212 254    Internal fit-out of additional GLA and        Paid monthly in various
                            associated construction work on the sixth     instalments from
                            floor of the expanded Gardens property as     17 September 2018 to 17
                            announced on SENS on 25 May 2016              May 2019


  All payments made to MSH in respect of the MSH Services have been fully disclosed in the Company’s
  integrated annual reports and SENS announcements of interim and final results.

  In addition to the above Agreements, the Company also entered into an agreement with MSH on
  6 November 2019 for the provision of MSH Services in respect of the new Tygervalley self storage
  property to be developed (“the Tygervalley Agreement”). Located in the northern suburbs of Cape
  Town, the property will comprise 7 100m² of GLA and is expected to be completed by December 2020.
  The total consideration payable by the Company to MSH is R67.1 million.


4. Categorisation and confirmation of market related terms and conditions

  The Agreements, when considered on an aggregated basis, and the Tygervalley Agreement constitute
  small Related Party transactions in terms of the Listings Requirements.

  The sole member of MSH is the Stor-Age Property Holdings Trust (“SPH Trust”). Gavin Lucas, Stephen
  Lucas and Steven Horton, who are the executive directors of Stor-Age, are ultimate beneficiaries of the
  SPH Trust.

  The non-executive directors have confirmed to the JSE that the terms and conditions of the Agreements
  and the Tygervalley Agreement are considered to be market-related, after having received, inter alia, a
  report from an independent third party quantity surveyor in respect of each property (“the QS Reports”).
  A copy of the non-executive directors’ resolution and the QS Reports will be open for inspection for 28
  days from the date hereof at the registered office of the Company and the Johannesburg office of its
  Sponsor, Questco Corporate Advisory Proprietary Limited.


Cape Town
18 November 2019


Sponsor to the Company and Transaction Sponsor
in respect of the small related party transactions
Questco Corporate Advisory Proprietary Limited


Financial Advisor in respect of the Acquisition
Investec Bank Limited

Date: 18/11/2019 03:50:00
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