Safestore outperforms but challenges may lie ahead

It is not just those selling houses that stand to benefit from a surge in property transactions. Self-storage specialist Safestore (SAFE) outperformed analyst earnings expectations during 2020 as both occupancy and average store rates improved. 

Closing occupancy stood at 80.8 per cent at the end of October, up from 77.6 per cent on a like-for-like basis the same time the prior year. That included a record fourth-quarter performance in which 228,000 square feet of occupancy was added. Safestore has estimated that UK owner-occupied housing transactions drive around 10-15 per cent of the group’s new lets. However, the rise in online commerce also proved a boon to demand from business customers. 

Meanwhile, the average store rate rose 2 per cent at constant exchange rates. Revenue collection has also been broadly in line with pre-pandemic norms, during the three months to October just over 98 per cent of revenues were collected within 30 days of the period end. 

The figures follow a similarly strong performance from rival Big Yellow (BYG), which reported a 5.8 percentage point increase in closing occupancy to almost 86 per cent at the end of December. Domestic move-ins were up an annual 11 per cent during the final quarter, while business customers took an additional 18 per cent of space. 

However, expectations of a slowdown in activity across the housing market are rising. The Royal Institution of Chartered Surveyors residential market survey revealed that a negative net balance of 22 per cent of respondents anticipated a contraction in sales over the next three months. A negative net balance implies that more respondents expect sales to turn negative than those expecting continued growth.

Economic uncertainty ahead has not dimmed Safestore’s expansion activity. Further new store openings are scheduled at Paris-Magenta and Birmingham-Middleway in 2021 and two development sites in London were acquired. 

Financially, the group seems solid – the loan-to-value ratio reduced to 29 per cent and the interest coverage ratio stood at a multiple of nine. It has no borrowings to refinance before June 2023. Analysts at Panmure Gordon forecast a 6 per cent rise in net asset value (NAV) to 532p at the end of October this year, which leaves the shares trading at a 57 per cent hefty premium to forecast NAV. That is also a premium to peers Lok’n Store (LOK) and Big Yellow, which is justified by the greater scale of its portfolio and greater degree of geographical diversification. The quality of the income warrants remaining bullish. Buy. 

Last IC View: Buy, 740p, 25 Jun 2020