Buy-to-let has been getting a bad press recently. Many commentators see gathering headwinds for the sector and there have been many reports that private landlords have been selling up and cashing in their gains.
Instead of taking a risk by buying and letting property, I’d rather invest in shares on the stock market. You can still back up your investments with property assets by buying shares in property companies. One of my favourites is Safestore Holdings (LSE: SAFE), which operates as a Real Estate Investment Trust (REIT).
A great track record
The stock’s performance over the past few years has been amazing. Over six years, the share price has risen more than 400% and the dividend is up around 170%. I think those are decent returns for shareholders and it’s been driven by strong operational performance, which shows in the record of generally rising revenue and cash flow over the period.
Safestore is a little different from the average REIT and has a focused business model, billing itself as the UK’s largest self-storage firm. It operates around 117 centres in the UK and 27 in the Paris region. The pace of expansion has been brisk as you can see from the financial record. Meanwhile, there’s more good news in today’s half-year results report covering the period to the 30 April.
Revenue at constant exchange rates rose 5.9% compared to the equivalent period the year before, and adjusted diluted earnings per share went up a little over 7%. The directors signalled confidence in the outlook by moving up the interim dividend by 7.8%.
The firm’s Net Asset Value (NAV) increased by 13.7% to 407p per share, which compares to the current share price around 652p. That’s a higher valuation than the traditional discount to NAV I’d look for with a REIT, but I think Safestore’s storage business justifies a premium above the pure underlying asset value.
Ongoing expansion, strong demand
The firm’s expansion continued in the period with the acquisition of a site in Peterborough scheduled to open at the end of 2019. On top of that, the company plans further new store openings this year in Paris, London and Birmingham. And extensions to the Bedford and Barking stores should be complete in early 2020.
It seems the firm is experiencing a lot of demand from people who want to lock stuff away. Chief executive Frederic Vecchioli said in the report that since 2016, 38 stores have been added to the estate.
Looking forward, the company expects to be able to continue to “seize” consolidation opportunities and new development sites “that can be turned relatively quickly into new stores.”
I can’t argue with the firm’s progress, and Vecchioli explained in the narrative that the self-storage market “remains resilient to macroeconomic uncertainty.”
There’s a lot to like about Safestore, but its attractions now reflect in the valuation. The forward-looking dividend yield, for example, stands at about 2.8% or so for the trading year to October 2020.
There’s no obvious bargain here, but the firm is performing well. I’m still interested and would aim to pounce on the shares during dips and down-days. I think the growth potential could be worth it.