I have started putting money into Stor-Age because of its rental income growth, steady dividend increases, and good reporting.
Stor-Age is the largest self-storage property investment fund in South Africa. It was founded by Gavin Lucas and listed on the JSE in November 2015.
The real estate investment trust has a market cap of R6.4 billion with a property portfolio value of R9.8 billion.
Stor-Age is headquartered in South Africa but expanded its operations to the UK.
For a dividend investor, REITs (real estate investment trusts) offer attractive characteristics as they are required to pay out at least 75% of their distributable income.
As a dividend investor, it is important to analyse the company’s dividend payments and the source of its dividends. In Stor-Age’s case, it is rental income.
Rental income growth was strong as its property portfolio increased. It is a good sign showing that the dividend’s underlying driver is growing.
For a REIT, it is important to see that the company can finance its dividends with its net income to ensure its ability to pay dividends is not eroded by costs.
Stor-Age has maintained an average dividend payout ratio of 56% of its net income since it started paying dividends.
It shows that the group can finance its dividends – it only had two half-year periods where dividends exceeded the net income.
Stor-Age’s dividend payment shows a stable increase backed by growing operational income and portfolio size. The stock currently pays an 8.2% dividend yield.
Another positive sign is Stor-Age’s successful expansion beyond South Africa, strengthening its business case through offshore operations.
It identified the UK as a developed country with a less mature self-storage property market.
It launched operations in the UK in November 2017 and proved to be very successful showing strong growth.
For the financial year ended 31 March 2022, four years after it entered the UK market, Stor-Age already generated 46% of its revenue in the UK.
For REITs, one of the most important things investors want to see is a growing or high occupancy rate for the properties they own.
In the case of Stor-Age both are true. In 2017, the group had an occupancy rate of 85%. Today it has 89.5% occupancy in South Africa and 91.8% occupancy in the UK.
In a market where most companies endure hardship, investors are looking for stocks that offer better protection against turmoil.
Stor-Age has shown strong performance during the 2020 pandemic, with its portfolio size increasing while its occupancy rate has increased.
It had resilience in a market where property was not favoured – especially for real estate such as office buildings.
The strong increase in property occupancy shows that individuals value their belongings, and even in times of financial distress, they would rather store their belongings than sell or discard them.
In 2022, when many companies struggled with high and increasing interest rates, Stor-Age still managed to increase its rental income by 15%.
Another thing which makes Stor-Age attractive is that its founders manage it.
Stor-Age experienced its growth under the leadership of its founder and CEO Gavin Lucas, his brother Stephen Lucas, a founding investor, and Steven Horton.
Today, these individuals still form the executive management team.
Founding management prioritises a company’s longer-term viability and success over short-term gains.
Their founding vision guides their decisions and benefits the company’s success.
A founder-run company reduces the risk of fraudulent practices and strengthens the going concern assumption of the company.
Stor-Age poses a compelling investment case and can be a valuable addition to a portfolio that requires regular income flows and is less reliant on capital growth.