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Australia’s First Self Storage IPO is About to Lift Off

November 15, 2013 by Sam Kennard

Decades after self storage listed on Wall Street in the USA and more than 10 years after the UK’s first self storage listing, Australia looks set to see its first self storage IPO. National Storage look ready to do a deal with their property owner fund manager (APN Property Group) and combine the business and property assets in a listing of a going concern self storage – as reported in the Australian Financial Review Nov 15th, 2013: “National Storage Unlocks the Door to $280M Float”.

APN and National Storage began their relationship in 2003 when APN created a retail fund known as the APN National Storage Property Trust. The trust owned the properties while National Storage entered a 15 year triple net lease to operate from them.

This sale-and-leaseback structure contrasts starkly with the more classical storage ownership structures of the major operators around the world, who all operate and own the assets in a single entity. This reflects the unique property class that self storage operates as, where investors take business risk in the property. Something more like a going concern hotel investment.

The APN fund initially anticipated a 5 year exit. The trust grew after 2003 to raise additional funds to fuel further investment.

In 2008, APN were unable to engineer an exit for investors in the National Storage Property Trust and arranged a refinance, including a mezzanine loan from Gresham Partners, and later also imposed a brief distribution freeze on their retail investors.

The re-unification of the business and property in the National Storage IPO sees the arrangement come full circle and embrace the globally accepted investment structure of REIT’s and major operators. The IPO will now give the retail investors the ability to exit and crystallise their holding some 10 years after inception.

Self storage rentals to storers are an active type of business, requiring daily hands on involvement. To navigate the ASX passive income tests for a REIT, the National Storage IPO will likely need to adopt a Op Co / Prop Co stapled structure separating the manager from the property, and setting up synthetic leases between the internal entities. The prospectus will no doubt reveal this.

In Australia, the other major brand operators and investors include Storage King as Franchisor and Asset Manager, and Kennards Self Storage. At Kennards, we own and operate our assets as going concern in the classical fashion of global leaders. We own / operate 79 storage centres in Australia and New Zealand. Kennards is the largest owner of self storage assets in the region and remains a private family owned and operated business.

In addition, Abacus Property Group ranks as a major investor in self storage with 44 assets spanning Australia and New Zealand operated by Storage King.

The emergence of a Self Storage REIT in Australia was inevitable and slightly overdue. The small Australian market has lead to concentration of ownership and slow scale build-up, and interrupted by the GFC which has slowed the journey. The quantity of high quality institutional grade self storage assets in the market is modest further slowing growth and leading to over enthusiastic bidding for second tier assets.

The big question, how will the self storage REIT perform?
Like any property investment, the performance will depend heavily on the underlying asset quality and in addition for self storage, management capability will have a significant influence. Understanding the detail in this regard will provide some insights.

The arrival of the first self storage IPO will provide some benefits to the industry, illuminating a wider audience about the self storage asset class, it’s positive attributes and it’s risks. We will watch this space with interest.

Author: Sam Kennard, Managing Director, Kennards Self Storage

Sam Kennard

Sam joined the Family Self Storage Business in 1991. He was appointed Managing Director in late 1994. In that time Kennards Self Storage has grown from 8 locations to over 95 today. The company is an active and specialised developer of property, focussing on expanding the Kennards Self Storage portfolio in Australia and New Zealand. Today, Kennards Self Storage is the market leading Self Storage Brand and industry innovator and employs over 230 people in Australia and New Zealand. The company remains a privately owned and family run business.

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