Stor-Age’s niche still stores up value

Stor-Age Property Reit  recently announced its 10th set of annual results since listing on the JSE in 2015.

The company, perhaps reassuringly, continues to focus on its core competence of being a specialist or alternative real estate investment trust (Reit) focused solely on the self-storage property asset class.

Stor-Age operates in the South African and UK markets, with a nearly equal split between the two geographies in terms of revenue.

The group owns facilities directly on its balance sheet as well as through partnerships and joint ventures with various other parties. It has developed a proprietary property management software system for managing self-storage facilities, which it licenses to other operators. Another ancillary avenue is the provision of consulting services to other property developers looking to build their own self-storage facilities.

Investors who have held the stock over the past decade have done well, as Stor-Age has outperformed both the all share and all property indices on the JSE on a total return basis.

The most recent results show that the key change was that the board amended the distribution payout percentage to be between 90% and 95% of distributable earnings instead of the 100% of distributable earnings it had maintained since listing.

The distribution declared, 110.72c a share, represents 90% of distributable earnings for the financial year 2025. While it is not a significant shift in payouts, this is something for investors to be aware of when comparing it to the previous period’s distribution and knowing what to expect regarding future payouts.

That said, all the metrics you would like to see in a Reit were positive in the latest results, with net operating income up 8%, rental rates up (for South Africa by 7.9%, for the UK by 2.9%), total occupancy up (for South Africa by 1.9%, for the UK by 0.4%), bad debts steady at less than 1% and the number of properties in the portfolio up by eight. The business has 18 projects still in various stages of development that are expected to come online over the next few years, providing ample opportunities for the company’s growth.

The business continues to be managed by the founders. Given their track record since listing a decade ago, this should instil considerable confidence in investors

NAV for the year ended March 2025 comes in at R17.25 a share, which, even after the recent run in the Stor-Age share price, still sees it trading at a discount to NAV of about 7%. This is a relatively narrow discount compared with many other JSE-listed Reits, but perhaps justified, considering Stor-Age’s highly differentiated niche offering and that the business model has aspects of a services operation.

But gearing sits at a comfortable 31.3% and is in line with the rest of the JSE Reit sector.

The typical Stor-Age customer now averages a lease period of 26 months, an increase from 21 months five years ago. This increase is despite positive revisions in rental growth in each of the past five years.

Stor-Age has a diversified customer base, ranging from individuals to small businesses, all of whom require additional space for various reasons in both good and bad economic times. Overall, the group services more than 55,500 individual customers, which renders individual tenant risk nonexistent.

The short-term nature of leasing and rental contracts compared to traditional leases can be both a blessing and a curse. With lease expiry happening frequently, Stor-Age can increase rents more often when demand is high. Conversely, however, when demand is falling, previous prices need to be reduced to attract new tenants.

On balance and over the long run, though, the flexibility of rental pricing is more a positive than a negative.

Self-storage facilities are incredibly cost-effective to operate, in contrast to other property assets, as they require a small staff and have limited utility costs — unlike those associated with running a large shopping mall, for example. Given the low energy usage and the large roof area — suitable for solar photovoltaic (PV) systems — of Stor-Age’s buildings, the potential in South Africa for wheeling more energy into the grid could become a significant revenue stream as local energy markets become more deregulated.

Stor-Age has invested heavily in solar PV systems over the years and plans to continue rolling these out on existing and new facilities. Rainwater harvesting is now being incorporated into building design, given the issues with water supply, particularly in Gauteng, and the expectation of another drought at some stage in the Western Cape’s future.

These investments over the lifespan of the assets reduce costs and mitigate operational risk, thereby improving the attractiveness of the facilities to future tenants, particularly the small business customer segment.

Overall, Stor-Age continues to offer investors access to a property asset class that they cannot find elsewhere on the JSE in a pure-play form, coupled with a portion of rand hedging owing to its UK operations. The business continues to be managed by the founders. Given their track record since listing a decade ago, this should instil considerable confidence in investors.

The business has an attractive growth runway with plenty of optionality in terms of increasing various revenue streams. While Stor-Age does trade on a skinnier yield and a tighter discount than most JSE Reits, investors are paying for the quality of the track record and the uniqueness of the asset class.