Unlike most of its listed property peers, which are reporting a pandemic-induced rise in vacancies and falling rentals, Stor-Age — the JSE’s only self-storage company — is still seeing solid demand for its products. In fact, inquiries from people looking for a place to stash their goods have increased by about 10% year-on-year since May 1, when less stringent lockdown restrictions took effect.
The company has also experienced a gain in overall take-up rates over the past seven weeks (there were more move-ins than move-outs).
Stor-Age’s portfolio is worth R7bn and is split 60/40 by value between SA and the UK. The company owns and operates 71 sites across the two countries.
About 65% of Stor-Age’s 55,000-strong tenant base are individual residential users. The rest are commercial users such as SMEs.
Stor-Age CEO Gavin Lucas, the chartered accountant who co-listed the company on the JSE with his brother, Stephen Lucas, and varsity friend Steven Horton in November 2015, believes Covid-related changes in the way people live and work is underpinning fresh demand for self-storage across the globe.
At the release of Stor-Age’s annual results for the year to March earlier this week, Lucas said demand is typically driven by life-changing events and not economic cycles — death, divorce, marriage, having children or renovating a house.
He argued that Stor-Age is well-placed to benefit from the trends of "dislocation and mobility" brought about by Covid-19 and accompanying lockdowns.
The company is profiting from the work-from-home trend; the growth of home-run online retail businesses that require temporary storage space for their goods; cash-strapped homeowners and tenants who are forced to downscale to smaller properties; and students who are vacating shared digs and campus residences.
Lucas said the flexible nature of the company’s products will further support higher take-up rates in the months ahead.
Self-storage tenants typically renew leases on a month-to-month basis. Unlike the retail, office and industrial sectors, self-storage tenants aren’t locked into fixed, long-term leases with annual rental escalations.
Even so, the average length of use for a Stor-Age tenant is about two years.
Investors are clearly buying into Stor-Age’s growth story — the stock has in recent weeks recouped virtually all of its year-to-date share price losses. It was down about 30% in the first three months of the year but is now back to the levels of early January. In comparison, the SA listed property index is still down about 38% in the year to date despite a strong rebound earlier this month.
Stor-Age also continues to deliver on its income growth promises. For the year to the end of March, management declared a dividend of 112.05c a share, which is up 5.03% from the previous year.
That’s an impressive achievement at a time when most other real estate investment trusts (Reits) are either cutting or postponing dividends in order to shore up balance sheets.
Stor-Age’s inflation-beating dividend growth comes on the back of still solid rental growth of 6% and 5% respectively recorded by the SA and UK portfolios.
Analysts believe there’s still value to be had despite Stor-Age trading at what appears to be a rather demanding dividend yield of about 8.3% compared with at least two-thirds of the JSE’s 50-odd property counters, which are offering yields of 13%-30%.
Kelly Ward, investment analyst at Metope Investment Managers, says the declaration of a final dividend despite the current constrained economic climate is encouraging.
Though management hasn’t given any guidance in terms of the dividend growth outlook for the 2021 financial year, Ward expects the company to continue to generate strong income from its portfolio. "This is important for income-seeking investors, given that several other SA listed property companies — and indeed companies in many other sectors too — are looking to introduce lower payout ratios and retain income in order to weather the storm," she says.
Keillen Ndlovu, head of listed property funds at Stanlib, shares a similar view. He says that while the rate of rental growth in Stor-Age’s portfolio may slow over the next year, the company is still better positioned than most other Reits to withstand a recession and the economic fall-out that is likely to be caused by Covid-19.
Ndlovu says a key attraction is Stor-Age’s relatively low loan-to-value of 30% versus the sector average of close to 40%.
He also likes the company’s high UK exposure. He refers to the UK government’s provision of many incentives to keep smaller businesses and individual households afloat. Ndlovu adds: "We like it that Stor-Age has a strong, passionate and driven management team with vested interests in the business."
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