Stock Pitch - Safestore (LON:SAFE)

13th Apr '21 by Ben Hobson

8 comments 4089 reads

Safestore (LON:SAFE) was pitched to the Stockopedia Investment Club on 2 March 2021.

With a cautionary eye on the club's growing exposure to cyclical small-caps, Safestore was pitched as a mid-cap play that's perhaps not being given a fair shout by the market.

Safestore is a Real Estate Investment Trust with a portfolio of properties that it develops and rents out as multiple storage units to the public and businesses. Its share price had been strong before Covid, but it was hit hard by the crisis. With a brighter economic outlook on the horizon, could this be a moment to buy a stake in a group with a solid record of organic and acquisitive growth?

Summary

Bull points: Apparently good growth potential in fragmented markets, especially in the UK and France; a solid record of buying and developing properties profitably; growth potential without the small-cap/cyclical growth risk we're exposed to elsewhere in the portfolio; cash income.

Bear points: REITs are a rather specialist topic, which can make them hard to understand and value; the market doesn't get excited about stocks like this; Safestore has been affected by Covid restrictions.

Profile

Safestore is a self storage business. It acquires large buildings and rents out space in them to people and businesses that want to store things. Some properties are owned freehold, others are on long leases. Its asset value/ income is derived from the upward valuation of owned property as well as its rental income.

Safestore has a market cap of £1.72 billion, an enterprise value of £2.24 billion and is quoted on the FTSE 250 under Financials/ REITs*.* EMS is 3K. This is a Balanced, Mid Cap, Super Stock with a current StockRank of 71.

Safestore is a Real Estate Investment Trust - but what does that mean?

REITS are a tax-efficient structure for companies that make money as property rental businesses. It means they can benefit from exemptions from UK corporation tax on profits.

As part of this structure, REITs are compelled to pay 90% of tax-exempt income profits (not capital gains) out to shareholders as dividends. Often, this manifests in quite high yields from REITs. But SAFE only has a forecast yield of 2.5% because it's redirecting a lot of that income back into growth.

REITS like SAFE are often geared (with net…

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Fuzziebee

13th Apr '21

What was the price they bought in at?

Mikelliekate

it was £7.88 on 3rd March

doctormc2

Does the group have a view on expected return %/exit price and/or timescale for this trade?

UK_Investor_8888

Funny enough, nearly all of my chattels (except for my computers, headphones, road bike and a set of weights) are locked up in a Safestore at the moment whilst I'm homeless.

Its clean, its basic, its cheap, you don't get a light in your Dexter style kill room, but it solves your problems.

And they know how to get their monetisation out of their clients.

Jack Brumby

Hi Fuzziebee,

The Club bought Safestore shares at 790.43p.

eggbaconandbubble

With lots of peeps moving out of pokey city flats into more spacious pads in the countryside I imagine demand for storage space will weaken in the short term.

Vader

Why is it that countries with the most space use the most storage?
I believe it boils down to affordability. I own $SAFE but for some of the reasons mentioned in the brilliant summary above, thanks Ben, but like most things, in the UK they just aren't good value for money.
Cheaper to throw/give away and replace than to store.

GrahamF

I’ve held this share for a number of years and it has been a good investment. The compelling factor for me is that modern housing is generally lacking in storage capacity. Homes often have no loft as such because rooms are already built into the roof. I can’t see the trend for pokey homes changing any time soon because the cost of new homes is such that people cannot afford homes with more space.

A TV programme called Storage Wars has been successful over the last few years and that has quite possibly publicised this as an option to people who never thought about it before.

I think that they were allowed to stay open during the first lockdown as being an essential service of sorts. But it is inevitable that the value of the property is potentially taking a hit in a downturn.

My one bugbear is that remuneration is way too high. The top people are paid as if they are running something much more complicated and much larger. I always make sure I vote against any remuneration related issues via the service provided by Interactive Investor.

Stock Pitch - Safestore (LON:SAFE)

Summary

Profile

Safestore is a Real Estate Investment Trust - but what does that mean?

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About the Author

Ben Hobson

8 comments

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