Safestore of value

That's because self-storage in the UK and in Paris, where Safestore operates, is still immature. There are 7.4 sq ft of self-storage space per person in the US, but only half a sq ft per Briton. Self-storage companies used to be considered a play on the housing market because people often use them when they move. But Safestore has continued to grow throughout the housing slump. The reality is that most house moves don't involve owner-occupiers (renters move more often) and consumers use self-storage for lots of 'life events' – birth, death and divorce – that are unaffected by economic circumstance.

In any case, only half of Safestore's space is let to consumers. Businesses take the other half, and there's also scope for them to expand given the trends towards internet retailing, outsourcing and tight supply-chain management. For example, drinks giant Diageo uses Safestore for 'just-in-time' booze deliveries to local supermarkets. Other companies might find it efficient to let the leases expire on their expensive, fixed-cost warehouses and hire space from Safestore when they need it.

All of which explains why Safestore grew revenues by 6.6 per cent last year, with a similar growth rate in the first quarter of the current year, even as the economy barely budged. It opened two new stores last year, both in Paris, and rebuilt two older sheds, taking its count to 119. If anything, these new investments detracted from growth, which was higher for the like-for-like portfolio.

The company can grow turnover in two ways – by increasing rents or by increasing occupancy rates. Chief executive Peter Gowers joined Safestore from the hotel trade last year with the insight that these need to be balanced by focusing on 'revenue per available foot' (RevPAF), and changed internal incentive structures accordingly. The result has been a focus on raising occupancy, which remains relatively low at 63 per cent of available space. Average rates increased slightly last year, but dipped 2.7 per cent in the first quarter as managers of emptier sheds cut their prices. RevPAF still increased 3.4 per cent to £19.24 per sq ft, though, so the plan seems to be working.

The company's profits are obscured by revaluation gains and losses on its property portfolio – losses last year, gains in 2010. These are not operationally meaningful as the company does not sell assets; they are also more art than science as modern self-storage sheds are rarely traded. So the company's precise net asset value is a bit theoretical – although it's comforting that the shares trade far below it (see table).

More meaningful are adjusted profits, which were up last year thanks to revenue growth, but not by as much as costs rose significantly. This is something to watch. General cost inflation was the main culprit, but Mr Gowers also made various "strategic" investments in marketing, such as in a UK call centre, more of which are expected this year. Another risk concerns refinancing – most of the company's £385m of net debt expires next year. A higher interest rate thereafter could slow profit growth.