Positive News for U.K. Self-Storage

Andrew Donaldson Comments
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By the time you read this, who knows what will have happened in the U.K. self-storage market? The last quarter of 2003 and the first month of 2004 was all "go, go, go" with the industry’s publicly listed companies.

It started last year with a buyout offer for Safestore PLC, which led to a £40 million management buyout backed by private equity provider Bridgepoint. This was quickly followed by an approach for Lok’n Store. Although the offer of £1.15 a share was considered a good premium to the company’s recent share price, it was turned down by the controlling management team.

The third pitch occurred when Guy Hands, a respected dealmaker, was rumored on the front page of The Sunday Times to be bidding for Mentmore PLC. The storage company recently consolidated by disposing of its Imex managed workshop division and had just announced the sale of its 50 percent stake in Iron Mountain, the file-storage company.

What’s so exciting about this progress is the appetite for all of these deals, as each one had at least three serious bidders at the table. And rumors from the U.S. side of the water indicate U.S. investors are supposedly pitching for Mentmore, with Public Storage and Shurgard Storage Centers Inc. apparently having one foot in the door. One thing’s for sure: I bet the Mentmore deal is done and dusted by the time you read this; although I predict if it is taken over, it will be by a U.K. or European player and not a U.S. operator. (Was I right?)

To all indications, after years of self-storage stock falling to all-time lows as the large players rolled out their loss-making chains, there is now light at the end of the tunnel. A year ago, I predicted that if the big companies could start making money, the industry would be seen in a positive light. And at last, that’s happening, with Mentmore and Big Yellow shares recovering well from their lows.

I’m half way into my article and that’s the first mention of Big Yellow, the darling of the industry that has still not put a foot wrong. These guys keep delivering with their quarterly trading figures, even during the quiet winter season. And if a major U.S. player is going to enter the U.K. market with significant force, it will be via a takeover of Big Yellow and no one else.

If you take my advice, you’ll acquire some of the company’s stock sooner than later. Why, you ask? Because Big Yellow only owns third-generation facilities that are already future-proofed and move quickly past breakeven. The company has established a solid presence in the industry and a brand image that will no doubt maintain its premium rating and make it a very attractive target.

It looks like consolidation is going to be the watch word of 2004, certainly in the United Kingdom and perhaps in Europe. There are so few medium-sized operators that they may be in a position to make an impact, as there just aren’t enough multisite operators available via acquisition. Mid-sized operators, like Space Maker Self Storage and Keepsafe Self-Storage Ltd., are at the top of the consolidation list; although there may be the odd single- or twosite operators that can also make an impact in the marketplace.

The U.K. market is starting to mature, and the public is realizing what self-storage is all about. Momentum is building, thanks to the Big Yellows of the world; and the offering is spreading from Southeast England throughout the counties.

Funding is becoming more available, especially if geared against the freehold of a building, and more new entrants are coming to the market. The existing single-site operators are branching out to two or three sites.

It’s all positive news and, this year, everyone will feel the benefits. We haven’t reached the U.S. level of steady growth and reliable occupancy, but we have certainly gotten past the point of “build it, and they won’t know what it is!”

Andrew Donaldson is the founder and chief executive of Active Supply & Design (CDM) Ltd., a European fit-out contractor. He has set up and sold out a multi-site chain of facilities in the United Kingdom under the name Rent-A-Space Ltd. His most recent facility, Storage World, in Manchester, England, has more than 100,000 square feet of rentable space. Mr. Donaldson is also the founder of the Self- Storage Sentinel newsletter and www.askactive.com. For more information, e-mail andrew@askactive.com.

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