Stor-Age is continuing its expansion in the UK, a market that the company first entered in November 2017. Over that time, the UK brand Storage King has grown from 13 properties to 30.
This time, there’s a deal on the same terms as the existing joint venture arrangement between Stor-Age and Moorfield, which means that the latter will take a 75.1% interest and Stor-Age will take a 24.9% interest in the latest acquisition.
That acquisition is a group of four properties, collectively called Storagebase, for GBP59 million. The properties will be branded and managed by Storage King.
The three mature properties in the portfolio boast an occupancy of more than 90%. They are larger than most properties of this type, which is good for operating margins. These three properties represent a forward yield of around 6.3% and an equity yield of around 13.2%.
The fourth property is only scheduled to open in April 2022. This property is even bigger than the others, so there is significant valuation upside if a mature occupancy level can be achieved.
With this property included, the forward equity yield is 11.6%.
Importantly, Stor-Age has a right of first refusal over any of the properties in case Moorfield wants to exit.
Stor-Age needs to contribute GBP7.5 million in equity to this transaction for its share of the deal. Loan funding will come from Aviva Investors and will be sustainability-linked, so meeting “green” metrics is part of the deal. The debt is for a five-year term and only interest is payable until the eventual maturity date. The loan to value is 55% (so the loan is worth GBP30.8 million) and the cost of a debt is a 225bps margin above the five-year UK gilt rate.
This implies a cost of funding of around 3.53%, which is how a forward yield of 6.3% for the mature properties translates into a much higher equity yield.
This deal is too small to require a shareholder vote or even a detailed terms announcement, so this was a voluntary update to shareholders.
