Stor-Age hasn’t been a major beneficiary of the listed property sector’s recent share price rally. The stock is up 16% year to date vs the South African listed property (Sapy) index’s overall 25%.
Yet results released last week from what is the JSE’s only pure self-storage play places the counter as one of the real estate sector’s most reliable dividend payers.
Distributable earnings for the six months to September rose 3.5%. Dividends per share, however, are down 6.8% year on year due to management adopting a 90% payout ratio, from 100% previously.
Stor-Age is one of only a few South Africa-based real estate investment trusts (Reits) that have consistently grown earnings in recent years, even during the pandemic.
In contrast, most Reits with exposure to the traditional retail, industrial and office sectors were badly burnt by Covid-induced rental concessions and trading restrictions in 2020/2021.
Stor-Age has also been relatively unscathed by load-shedding. Unlike the property portfolios owned by most of its peers, its buildings don’t house large numbers of people. So it’s not a heavy user of electricity and hasn’t had to spend as much on generators and diesel to keep the lights on 24/7.
In the six months to September, same-store rentals in the South African portfolio rose an average 10.8% year on year. That’s not insubstantial given that most retail and office landlords are typically still forced to drop rentals when leases come up for renewal — or risk losing tenants. UK rentals firmed 6.8%.
Net property operating income increased a decent 12% in South Africa and 7.4% in the UK, while occupancy grew 2.4% and 4.3% respectively.
Stor-Age’s latest performance metrics underscore the resilience of the self-storage sector, which has over time proved to be largely unaffected by changes in interest rates or whether the economy grows or shrinks.
Stor-Age has been relatively defensive and managed to grow earnings while other companies’ earnings declined
— Yusuf Mowlana
Instead, demand is driven by what the industry often refers to as “the four Ds”: death, disaster, displacement and divorce — life-changing events that force people to find temporary storage solutions for their “stuff”.
CEO Gavin Lucas, together with his brother Stephen and fellow chartered accountant Steven Horton, listed the company nine years ago. They continue to make impressive headway in growing the business.
Gavin Lucas says in the past 12 months, 10 new properties were added to the portfolio, bringing Stor-Age’s tally of owned and third-party-managed self-storage parks to 107 (63 in South Africa and 44 in the UK). Another 11 new projects are at various stages of planning and completion.
That takes the combined value of the portfolio to R17.4bn, a far cry from when Stor-Age listed in November 2015 with a portfolio of 24 properties worth R1.4bn.
According to Lucas, demand for additional storage space has been bolstered in recent years by the advent of hybrid working models, semigration, a move towards micro-living and the switch to online shopping.
These trends are particularly prominent in high-density urban areas where most of Stor-Age’s properties are located.
So why has the share price underperformed the sector of late?
Lucas suspects a key reason is that Stor-Age may be perceived to be expensive relative to its local peers, some of which continue to trade at steep discounts to NAV. At last week’s price of about R15, Stor-Age trades at a 3% discount to NAV — compared with a 20% sector average — and an income yield of just more than 7%.
Lucas believes fund managers may have rotated out of some of the higher-quality counters in a bid to cash in on the sector’s value plays.
That comes on the back of a sharp drop in earnings and dividends among many South African Reits in the past five years.
He says, in contrast, Stor-Age’s business has proved resilient through economic cycles. Since listing in November 2015, the counter has increased distributable income per share by about 50%.
“In South Africa, there is a limited amount of capital that’s allocated to the listed property sector. I think to a certain extent we’re a victim of our own success.”
Lucas adds that the sector dynamics and the true value of Stor-Age’s digital marketing platform may still be a little lost on the broader South African investment community.
“That’s understandable, given that self-storage is a highly specialised and nuanced sector,” he says. “It’s not like we are one of many outfits playing in this space publicly. Our local competitors are very small, private players and thus there is little to no local industry information in the public domain outside of what we publish.”
He notes that the sector is even underdeveloped globally, with Stor-Age being one of just 11 publicly traded self-storage Reits and the only one to trade in a developing market.
Still, over the nine years since listing, Stor-Age has outperformed the Sapy index by 150%, which Lucas says underscores the company’s steady, consistent performance over time.
He adds: “We’ve built a truly world-class Reit, one which is highly specialised and one which is well positioned for further growth in both South Africa and the UK.’’
Yusuf Mowlana, portfolio manager at M&G Investments, agrees.
“Stor-Age has been relatively defensive and managed to grow earnings while other companies’ earnings declined. So I think its recent underperformance has more to do with the improved outlook for companies with greater exposure to the property cycle than Stor-Age’s own prospects.’’
Mowlana says Stor-Age’s investment case remains intact. He refers to the company’s ability to continuously grow income, come rain or shine.
“The 12% and 7.4% like-for-like net income growth achieved in the six months to September in South Africa and the UK far outstrips the like-for-like performance of the companies operating in other sectors of the real estate market.”
Mowlana says Stor-Age’s relatively low capital expenditure requirements further support its cash flow-generating abilities.
Stor-Age expects distributable earnings per share to rise between 3% and 6% for the full year to March 2025.
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