Safestore earnings and revenue up despite rate hit

When you look at what it cannot control, Safestore (SAFE) had a troublesome year. But when you look at what it can, the self-storage landlord and operator had about as good a time as possible.

In its results for the year to 31 October, pre-tax profit slumped by over half because higher interest rates meant its properties gained less value than in 2022. However, underlying earnings, which strips out valuation changes, rose 5.26 per cent thanks to a 5.5 per cent bump in rental income as the company "opened, acquired, or extended 13 stores across three countries, adding around 500,000 square feet of maximum lettable area to the portfolio".

Wisely, the company has not funded this expansion by loading up on more debt, meaning its net asset value (NAV) per share rose 8 per cent. No small feat at a time when most other landlords are posting steep drops in NAV.

The big bear point for Safestore is the occupancy rate, which fell from 82.1 per cent to 77 per cent. This trend has been evident for some time now, and its listed rival, Big Yellow (BYG), is in a similar position. Both companies say vacancy is a by-product of rapid expansion, directing shareholder attention instead to in-house figures such as revenue per available square foot. In Safestore's case, this has nudged up, but only by 0.4 per cent. Another bear point is the slow start to its 2024 financial year, with revenue for November and December down 0.6 per cent on a like for like basis

Still, when a company is showing this kind of earnings, dividend and NAV resilience, and comes at a discount to that NAV, it’s time to upgrade our rating despite an admittedly challenging backdrop. Contrarian buy.

Last IC view: Hold, 901p, 14 Jun 2023