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Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

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<a href="https://www.smartkarma.com/entities/10566" target="_blank" data-smartkarma-citation="entities:10566:1">Abacus Property (ABP AU)</a>'s transition from speculator to rent collector unlocks value.</h2></div><hr><p>After a year at the helm, Abacus Property Group's Managing Director, Steven Sewell is making waves, changing the firm from a property speculator to an owner of stable rent-generating assets and occasional developer. Abacus will trade out of all but one residential project and mortgage lending activities over the next two to three years. Asset sale proceeds will go mostly to self-storage, with the balance to CBD fringe office assets. The upweighting to self-storage is a savvy and value-accretive strategy, as the asset class generates yields well above the major property categories. We think the high yields are due to storage being a niche asset class, with around AUD 5 billion of investment-grade properties, putting the sector often outside the mandates of larger property investors who focus almost exclusively on office, retail and industrial. We see a series of possible catalysts across the business that could trigger further share price appreciation, these being strong rent growth and further declines in Australian capitalisation rates.</p><hr><h2>Key Takeaways</h2><ul>
<li>We think investors overlook self-storage to their detriment, as the assets offer robust growth and occupancy resilience in periods of economic contraction. Occupancy fell 4% for U.S. storage operators following the 2008 global financial crisis, but fully recovered in two years. Growth drivers look sound, including population growth, increased apartment living and growing acceptance of storage in society.</li>
<li>Abacus' self-storage assets trade at a 40% discount to similar assets in the U.S. but won't fully equalise to U.S pricing due to country and liquidity risk premia. Nonetheless, we see foundations for a significant rerating of Australian storage, boosting net tangible assets per security by AUD 0.24 or 7% in our base case or AUD 0.39 or 12% in a bullish scenario.</li>
<li>While Abacus doesn't benefit from an economic moat, the scale of its operations provides cost advantages in advertising and call centre operations that should deliver returns on capital superior to most competitors. As the Australian self-storage sector is consolidating, the firm's scale advantage and ability to access cheap debt is expected to deliver superior returns over the next five years. Return on equity will get a boost when Abacus moves to 100% control of the Storage King platform from 25%.</li>
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Abacus Property (ABP AU)'s transition from speculator to rent collector unlocks value.After a year at the helm, Abacus Property Group's Managing Director, Steven Sewell is making waves, changing the firm from a property speculator to an owner of stable rent-generating assets and occasional developer. Abacus will trade out of all but one residential project and mortgage lending activities over the next two to three years. Asset sale proceeds will go mostly to self-storage, with the balance to CBD fringe office assets. The upweighting to self-storage is a savvy and value-accretive strategy, as the asset class generates yields well above the major property categories. We think the high yields are due to storage being a niche asset class, with around AUD 5 billion of investment-grade properties, putting the sector often outside the mandates of larger property investors who focus almost exclusively on office, retail and industrial. We see a series of possible catalysts across the business that could trigger further share price appreciation, these being strong rent growth and further declines in Australian capitalisation rates.Key Takeaways
We think investors overlook self-storage to their detriment, as the assets offer robust growth and occupancy resilience in periods of economic contraction. Occupancy fell 4% for U.S. storage operators following the 2008 global financial crisis, but fully recovered in two years. Growth drivers look sound, including population growth, increased apartment living and growing acceptance of storage in society.
Abacus' self-storage assets trade at a 40% discount to similar assets in the U.S. but won't fully equalise to U.S pricing due to country and liquidity risk premia. Nonetheless, we see foundations for a significant rerating of Australian storage, boosting net tangible assets per security by AUD 0.24 or 7% in our base case or AUD 0.39 or 12% in a bullish scenario.
While Abacus doesn't benefit from an economic moat, the scale of its operations provides cost advantages in advertising and call centre operations that should deliver returns on capital superior to most competitors. As the Australian self-storage sector is consolidating, the firm's scale advantage and ability to access cheap debt is expected to deliver superior returns over the next five years. Return on equity will get a boost when Abacus moves to 100% control of the Storage King platform from 25%.


Under-The-Radar Storage a Gem in the Portfolio

Abacus Group

Under-The-Radar Storage a Gem in the Portfolio