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A solid rise in the valuations of its property portfolio has given cause for Abacus Storage King (ASX: ASK) to reject a $1.9 billion takeover offer from a US-based consortium that includes New York Stock Exchange-listed self-storage group Public Storage.
While the offer was pitched at a premium to the prevailing price of Abacus Storage Kings' securities when it was made early last month, Australia’s second-largest storage operator says it still falls way short of the company’s current valuations.
On 7 April, Public Storage (NYSE: PSA) and Ki Corporation put forward a conditional proposal to acquire all the securities in Abacus Storage King at $1.47 each.
This was up from the $1.16 at which the securities were trading prior to the offer being made.
However, Abacus Storage King today revealed that its pro-forma net tangible asset (NTA) backing currently sits at $1.73 per security based on an independent valuation review that boosted the valuation of its property portfolio by $165.7 million to $3.2 billion.
Abacus Storage King operates more than 200 Storage King outlets in Australia and New Zealand with the latest valuation increase leading to a firming of the portfolio’s weighted average cap rate by seven basis points to 5.49 per cent.
Storage King says the increased valuation has been driven by “income growth from improved operating performance, occupancy, lease-up and recently completed developments and expansions”.
Abacus Storage King says that after carefully considering the proposal put forward by the Public Storage consortium, the independent board committee (IBC) has rejected the offer as it undervalues the business. The group says that the consortium's offer price also loses its appeal because it will be reduced further by any future distributions it declares for investors.
“Despite being at a premium to prior trading prices, the IBC believes that the headline price of $1.47 (reduced for future distributions, of which there would be at least one), does not reflect fair value for an ASK security,” says the company.
“ASK today announced a pro-forma NTA figure of $1.73 based on an independent valuation review. Importantly these valuations are undertaken on a standalone basis and do not capture any portfolio premium to reflect the scale and significance of ASK’s portfolio.
“The IBC, in assessing value, has also had regard to factors including potential development profits, brand/platform value and corporate costs.”
Public Storage is the world’s largest owner, operator and developer of self-storage facilities with 3,380 sites in the US servicing about two million customers.
The proposal from the US consortium is subject to several conditions, including due diligence as well as approvals from the Foreign Investment Review Board and the New Zealand Overseas Investment Office.
The buyout partners are also seeking a binding ruling from the Australian Taxation Office confirming that Abacus Storage Property Trust would qualify as a withholding managed investment trust.
Abacus Storage King says the tax condition adds “timing risk and completion risk” to the proposal with the price offered by the US consortium “insufficient to compensate for this risk”.
In rejecting the indicative offer, the company has declined to provide the consortium with due diligence materials.
Abacus Storage King also has a growth pipeline comprising 19 new developments, which will expand existing group net lettable area by 17 per cent, as well as six planned expansions of existing sites over the short to medium term.
The Storage King business is heavily focused on metropolitan markets and over the latest half-year saw revenue per available metre increase by 5.4 per cent to $339 per square metre. This was driven by rental rate growth of 4.4 per cent to $373 per square metre and a 90-basis-point increase in occupancy to 91 per cent.
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