Storage King sale poses questions over worth of Abacus demerger

The Abacus Storage King is being purchased at $1.47 a share, or $1.9bn.

Many in the market on Monday were reading the sale of Abacus Storage King to the interests of its key shareholder Nathan Kirsh and Public Storage as a concession that its demerger was the wrong call.

The business is being purchased at $1.47 per share, or $1.9bn, not far from the value when it was demerged from Abacus Property Group in 2023. The price is a 26.7 per cent premium to its last traded price of $1.16.

While the deal is a positive for the Abacus Group in that it enables it to reduce its gearing level from 34 per cent to about 15-20 per cent, it also means Abacus has less fees for managing the Storage King fund and calls into question where chief executive Steven Sewell ends up in it all.

Some in the market are doubtful Mr Sewell will move with the privatised Storage King vehicle, but that’s apparently all still being decided.

Mr Kirsh, a wealthy investor from the African nation Eswatini, owns half of Storage King on a look-through basis through his interests and the Kirsh Group’s dissatisfaction with the company’s performance is laid out in a letter on the ASX saying that since the de-stapling it had “significantly underperformed its peers”.

The challenge for the demerger was that the businesses lacked scale, which placed Abacus in a position where it was then not attracting passive index funds as investors, and there was more private capital available in the private markets to fund development growth.

Public Storage previously came for Storage King’s rival, National Storage REIT and was planning to buy the business but pulled away at the onset of the global pandemic in 2020.

The understanding is that the Kirsh Group was eager to find a party to privatise the business, and Public Storage surfaced.

DataRoom reported in 2023 that Abacus Group was expected to be under the spotlight from investors on the back of its demerger, with some questioning whether its storage shed portfolio became a takeover target after disappointing share price trading of the spunout entity.

The company’s Abacus Storage King real estate investment trust, which comprised a portfolio of 131 properties worth $2.6bn, started trading on August 1, 2023, at $1.41 per share, taking its market value to $1.85bn, but its value swiftly fell to $1.53bn and Abacus, which held a 19.9 per cent stake in the spin off, also fell.

Abacus comprised about 24 office and retail properties worth $2.4bn, and the demerger was designed to make the storage assets rerate and create additional value to shareholders.

Nathan Kirsh’s The Kirsh Group owns 51 per cent of Abacus Group and 39.6 per cent of Abacus Storage King.

Before the Abacus demerger deal, some suggested that given Mr Kirsh’s large holding, the stock may struggle to trade well because it would not be that liquid, meaning it would not be that easy for investors to get their hands on a lot of shares for buying and selling.

Storage assets have been seen as one of the more resilient asset classes in a downturn for the real estate sector, hence the logic to try to separate them to demonstrate their value as a standalone business.

The Abacus demerger also saw it raise $225m.

Barrenjoey and Morgan Stanley worked on the demerger at the time – Goldman Sachs is working for Kirsh on the latest transaction and Macquarie is advising Storage King.

Elsewhere, GemLife’s move to launch its non-deal roadshow this week for its initial public offering has proved to be unfortunate timing. Floats could not be further from the minds of investors on Monday when the company, advised by JPMorgan, Morgan Stanley and Highbury Partnership, were scheduled to explain to fund managers the merits of the business.

The land lease real estate business was previously on the market for over $2bn and is trying to float at the same time as Virgin Australia and Koala Furniture.