Safestore has agreed an option to acquire Space Maker, the ninth largest self-storage portfolio in the UK with 12 stores. The initial consideration is £43.0m initial consideration and a £1.4m deferred consideration to be funded from existing Group debt facilities. At the initial consideration price, the Space Maker portfolio has an implied first year net operating income yield of c.8.7%. The deal is expected to be earnings accretive from completion of the acquisition.
Following this and other recent acquisitions, and the openings of our new stores at Chiswick, Birmingham and Wandsworth later this year, Safestore will have a total of 134 stores, of which 109 are in the UK and 25 in Paris, consolidating a leading positions in both markets.
The put and call option agreement is to acquire Space Maker Stores Ltd (“SMS”) from Allodial Capital Ltd and James Elton. An initial consideration of £43.0m less certain downward adjustments to the enterprise value will be payable in cash on completion of the acquisition. Up to £1.4m of deferred consideration may become payable in cash between six months and three years from the date of completion, subject to the SMS business achieving certain performance targets during that period.
SMS is the ninth largest self-storage portfolio in the UK with 12 stores located in Bournemouth (two stores), Colchester, Redhill, Romford, Brentford, Chelmsford, Exeter, Leeds, Plymouth, Portsmouth and Poole, and has a built out lettable area of c.496,000 sq ft. Six of the SMS stores are freehold or long leasehold and six are leasehold stores with an average remaining lease length of 16.6 years.
Safestore has a strong operational knowledge of the SMS portfolio, having managed the SMS business since 2010 under a management services agreement (for which Safestore received £0.6m per annum). This was due to expire at the end of April 2016. It will now continue until completion of the acquisition.
This acquisition will reinforce Safestore’s position as the leading operator in the UK by number of stores with a combined total of 109 stores, 63 of which will be in London and the South East. The SMS portfolio is currently operating at 61% occupancy (of built out lettable area) which Safestore believes it can improve once fully integrated into its own operational platform.
In the year to 30 April 2015, SMS delivered EBITDA (before management fees) of GBP3.4m on turnover of £8.2m. At the initial consideration price, the SMS portfolio has an implied first year net operating income yield of c.8.7% before the impact of management charges which would rise to c.12% if the SMS stores achieve 80% occupancy at today’s rental rate levels.
The SMS business, which had pro forma gross assets of £45.6m at 30 April 2015, will be acquired on a debt free basis with the total consideration (comprising the initial consideration and, if applicable, the deferred consideration) expected to be c.£44.4m. The acquisition will be funded from the Group’s existing debt facilities, with £45m of the Group’s £60m accordion facility converted into a committed revolving credit facility. On a pro forma basis, the Group’s Loan to Value ratio post completion of this acquisition would be c.36% compared to 32% at 31 October 2015.
The acquisition is expected to be immediately accretive to Group earnings per share from completion and will support the Group’s future dividend capacity.
The call option can be exercised by Safestore at any time during the next two years and, similarly, the put option can be exercised by the vendors at any time over the same two year period, conditional upon the conclusion of certain property related matters which are expected to be finalised in the next twelve months. A further announcement will be made following exercise of the call option by Safestore or the put option by the vendors.
SAFE : Safestore buys Space Maker