Stor-Age previously released a cautionary announcement on 20 January that included far more details than most cautionary do. The company put forward a proposed deal in the UK for four self-storage properties with a total purchase price of GBP37.5 million.
The rationale for disclosing the details becomes clear if you look at what else happened that day: a bookbuild to raise R575 million on the market. That capital raise was multiple times oversubscribed and the shares were placed at a discount of just 0.9% to the 30-day volume-weighted average price (VWAP). You can’t raise capital unless you explain why you are doing so.
Stor-Age has a few investment vehicles including joint ventures, so it is important to note that this deal is being executed through a wholly-owned subsidiary.
The cautionary indicated an initial acquisition yield of 6% (based on 77% occupancy) that could increase to 7.8% assuming occupancy of 90%.
For the year ended March 2023, the acquisition is forecast to contribute R33.6 million to Stor-Age’s profit after tax. This isn’t the same as the acquisition yield as this number is net of finance costs and taxes. Net operating income is used in calculating yield and is expected to be R52.8 million in that financial year.
There is forecasting risk in these numbers of course, especially since self-storage lease agreements are month-to-month and can be terminated on two weeks’ notice. Stor-Age is incredibly experienced in this space and has detailed models that estimate churn based on experience across many properties. The fund has confirmed that these properties have similar levels of churn to comparable properties.
The purchase price will be settled in cash using existing equity resources and debt. The forecast assumes a loan-to-value of 50% and an interest cost of 3.15%.
The variable that is beyond management’s control is the exchange rate. A GBP:ZAR exchange rate of R22 has been assumed for the forecast period.
This is a Category 2 transaction and thus no shareholder approval is required.
