A typical going concern self storage in Australia and New Zealand comprises the overall freehold property worth including its real assets (land, buildings, site improvements. infrastructure, fittings and fixtures) and its notional leasehold or “business” value element.
In recent times the growing adoption of leasehold interests has occurred as operators and owners address the issues of business carrying costs, family generational change, asset retention or divestment issues within our ageing population, the need to recycle or reinvest capital due to tax or superannuation considerations, and to reduce the initial capital outlays necessary to access a market in the first place.
The estimation of leasehold worth alone should primarily use discounted cash flow (DCF) based upon the finite terms of the lease or management agreement involved. Rent and outgoings are a major and ongoing operational expense. Gross income must be substantial enough to cover all costs and to sustain a strong and continuing net income to produce an identifiable leasehold interest (value) as soon as possible, and to then maximise returns in the timeframe available set around a market-based rent established within the operational context.
Value creation will vary according to the operational status of a facility and whether it is in a greenfield, maturing or mature phase. Lease terms and conditions will directly affect potential current and future freehold and leasehold values as of course will the many internal and external forces at play in any market. Ongoing quality management is and will always be crucial to success.
And value creation and its continuity is now taking place in a changed world where all service and retail-based industries are under threat from start-ups, digital marketing, big data providers and the now ubiquitous “disruptors”.
People and service are intertwined in self storage – so far! Today’s society is a digital one, generally foreign to baby-boomers like me. Massive choice is available to consumers and it is immediate, cheap and replaceable. Client attention, client retention and client conversion into facilities is and was never easy.
The industry now faces new challenges to stay relevant, front-of-mind, and profitable. Astute owners and operators will need to recognise this earlier rather than later or risk seeing their value(s) erode.
In our “disruptive” economy where change is relentless, current and future value relies upon management innovation and proactivity as well as cutting-edge operational systems to monitor, amend, report, present, publicise and tailor the business to client expectations and needs – and to potential purchasers who demand transparency of operational numbers! This is fundamental as the world gets ever smaller and the choice(s) gets ever wider.
Going concern and leasehold self storage values will be open to future forces we are only just beginning to recognise beyond the traditional measurements of performance, and their impact on future value adds one more complexity to the creation and continued possession of that value.