Abacus hopes to be storage king with $3bn portfolio spin-off

Self-storage has emerged as an unlikely bright spot for commercial property and Abacus Property Group is advancing plans for a $3bn spin-off of its Storage King operation.

Abacus is seeking to raise $300m-$350m for its new trust, named Abacus Storage King.

Self-storage has emerged as an unlikely bright spot for commercial property with the segment emerging as one the few areas where values are holding and investors are backing expansions.

In one of the latest moves, Abacus Property Group has revealed that it is advancing plans for a $3bn spin-off of its Storage King operation and property portfolio, one of the largest in the country.

The proposed vehicle will become a rival to the listed National Storage, which has rapidly grown its own portfolio via a series of capital raisings. Abacus has a 7.16 per cent stake in its rival, which has 231 sites nationally with over 90,000 residential and commercial customers.

Both companies are capitalising on renewed interest in alternative areas of real estate at a time when large office towers and shopping malls are out of favour. Storage is attractive for its strong performance even when the economy slows and its exposure to e-commerce with operators taking up a large slice of the space.

Abacus is banking on these positives to help raise $300-$350m for its new trust, named Abacus Storage King, which it will run as a separately listed vehicle. Abacus managing director Steven Sewell will stay in charge of the head company and sit on the board of the storage company, which the firm intends to grow after its valuations bumped up in the last period on the back of rising rents.

Abacus managing director Steven Sewell.

“These independent valuations provide investors with a comprehensive update ahead of the proposed destapling. Pleasingly we have seen positive momentum continue in our $2.6bn self-storage portfolio, most notably in the valuer’s assumption of rents which have risen 3.2 per cent so far this calendar year,” he said.

Mr Sewell said the storage portfolio had delivered year-on-year double-digit annualised rental increases, showing its resilience from a diverse customer base. The gross assets of the spun-off vehicle will top $3bn and it is expected to list in August. The former executive chairman of investment banking and capital markets at Credit Suisse, John O’Sullivan, will be chair, alongside Stephanie Lai, Karen Robbins and Mark Bloom as non-executive directors of the externally-managed vehicle.

The new fund is the culmination of Abacus building up a storage property portfolio and buying out the Storage King operations, giving it control over trading stores and development sites. All up it has 131 sites, comprising 110 operating stores and 21 future projects. Abacus will hold a stake of up to 19.9 per cent and South African billionaire Nathan Kirsh will also take up a stake of less than 50 per cent, leaving the free float at more than 40 per cent.

Abacus intends to set gearing so both it as a manager and the storage fund can grow. The equity raising for the storage spin-off is structured as a pro-rata issue to existing Abacus shareholders and would leave both geared at 25-30 per cent. Abacus is advised by Barrenjoey and Morgan Stanley and analysts backed the plan.

“The transaction may be a key catalyst in unlocking value for Abacus in our view by separately listing Abacus Storage King, allowing the company to potentially raise equity funding at a more reasonable discount to net tangible assets and unlocking the large, implied discount to NTA in the commercial portfolio,” Citi analysts said.

“In our view the update highlights the continued earnings growth in Abacus’s self storage portfolio with a potential catalyst in the destapling,” they said.

Macquarie analysts said the valuation moves suggested upside from destapling self storage, although they would look to assess practical outcomes in future.