Stor-Age Property is doing an interesting deal to ultimately obtain a new storage complex in Bryanston. The company is selling land to a related company (Stor-Age Property Holdings Proprietary), which will develop the land and then sell the development back to Stor-Age Property at a fixed cost and with a guaranteed rental agreement for three years at a rental of R160 per square metre. This is a great rate considering its last set of results indicated an average rental for the group of R86 per square metre.
Overall this deal does reduce the risk for Stor-Age Property and guarantees rental income above Stor-Age’s average. It is a related party deal with the two companies sharing three directors, but it has been declared and investors can decide if they’re being prejudiced. My sense is that it seems above board. Storage is a big segment in developed markets, although I have written before about my concerns of the cost of client acquisition as the average rental period is relatively short. However, clever use of online marketing can help to manage the cost issues even with high client churn.