Case Study Flashcards
Describe the property
- Purpose Built
- Self storage property built in 2020
- It is of steel frame construction with composite cladding and glass curtain wall sections under a flat roof
- It provides c.59,000 sq ft MLA, set over ground floor and 6 upper mezzanine levels.
- Fit out to a high quality self storage specification including sensor leds, alarmed units, customer recpetion, 2x lifts and a loading bay
Describe the location
The Property is located in Harrow, a large town in Greater London, situated 10 miles to the northwest of Central London.
The Property fronts the junction of Honeypot Lane and Cumberland Road with very good vehicular access off A4140.
Surrounding development is of High Street retail and residential use.
In general terms it has a socio-economic demographic of low to moderate affluence.
Talk me through your inspection
- Considered personal safety
- Local area – competition, road frontage and visibility, affluence
- External – defects, construction type, access and parking
- Internal – layout, condition, specification
What was the method of construction?
The property was built in 2020 and is of steel frame construction with composite cladding and glass curtain wall sections under a flat roof
What was the state of repair of the property?
The property was in a good state of repair at the time of inspection.
It was purpose built in 2020 and appeared to be well maintained internally.
Composite cladding - Did you investigate this as part of the valuation further to Grenfell?
Not a property where people sleep.
Wasn’t part of the scope of work to do a full building survey.
It is noted within my valuation report that no investigations have been made into that and assumed the property is fully fire compliant.
“the building complies with all statutory and local authority requirements including
building, fire and health and safety regulations, and that a fire risk assessment and
emergency plan are in place”
What is composite cladding?
A low cost cladding material that is low maintenance and weather resistant
Was your building fire compliant?
We werent provided any information on this but included a comment stating that
In the absence of any information to the contrary, we have assumed that
“the building complies with all statutory and local authority requirements including building, fire and health and safety regulations, and that a fire risk assessment and
emergency plan are in place”
Talk to me about Attics business model
Characterised by a focus on achieving stabilised occupancy quickly and then applying strong growth to their rental rates.
What was the fee basis for this job?
Fixed fee based on rate per asset which I apply to the portfolio - confidential
What is a capitalisation rate?
As defined in DCF Valuations Practice Information doc. It is…
The yield used to capitalise the income to determine the capital value
What is a license agreement? How does it differ to a lease?
Agreement to occupy a self storage unit.
Key differences are:
- No exclusive possession in license agreement
- In a license the customer has less control over what they can do
- License agreements more flexible and informal. Can adjust rental rates
What is a DCF model and why did you use this valuation approach?
A growth explicit form of the investment method of valuation that looks at the future cash flow of an asset for a holding period to get to a present day value
I deemed it appropriate as there is an income stream, and this is the way investors price up the asset as they look to hold their investment for a period of years before looking to exit.
What is FMT?
The assessment of the trade that can be achieved at the property by a REO
What is FMOP?
The assessment of the profit that can be achieved at the property by a REO
What is a REO?
Concept where the valuer assumes that the market participants are competent operators, acting in an efficient manner
How did you provide good client care throughout?
- Ensuring good communication throughout
- Initial meeting to set timeframes and regular contact to update on progress
- Follow up meeting at end to talk through assumptions
If you were doing this valuation again now, what would be different?
I would ensure I understood how the property was trading from previous valuation and take into consideration any factors that affect value such as market conditions
MLA – how does it differ from GIA?
Excludes corridors, toilets, lifts, reception - only looks at the areas inside storage units
Would GIA include corridors?
Yes
What are potential defects you were looking out for?
- Damaged cladding panels
- Roof leaks
How did you measure the property?
Valued having regard to trading potential.
Therefore, area of the premises may not be a factor used directly in the assessment of value.
Not practical – unable to get access to each unit. They are secure to customers.
Widley assume that MLA is 65-70% of GIA.
But for this type of building if you had to it would be GIA, similar to an industrial building
What’s a mezzanine level?
An intermediate floor between main floors of a building
Is MLA and RICS adopted measurement standard?
No – it is a self storage industry standard and a key driver of revenue
What’s the definition of MLA?
Aggregate NIA of lettable units
What planning use is Self Storage?
B8 – covering storage and distribution properties
Mature FMOP assumptions – what did you assume and how did you come to these assumptions
90% Occ
– typical industry ranges for self storage occupancy and then made an adjustment based on location and demand
£35 per sq ft
- based on comp analysis plus taking into consideration current rental rates achieved
How did you undertake rental benchmarking?
Secret shopper approach + looking at previous trading data from other instructions
They set rates below market standard – is this a REO?
Their approach has enabled them to fill the store quickly and are almost at stable occ.
Whoever buys the store is inheriting that level of occ. Sensible to assume a REO will push the rate on from there. Using Revenue management
How did you determine the cap and collar for the management agreement?
Sensible assumption based on typical management agreements seen within the self storage industry
Where did you get the capex numbers from?
- No capex allowance assumed on this valuation.
- Spoke to management and informed that there were no one off projects in pipeline.
- Also fairly new site.
- Already allowing for FF&E of 1%.
Fill rate of 235 sq ft per month - is this market standard?
Yes it was calculated as taking 12 months to get to stabilisation from the current occ of 85.2%.
It had been filling at a rate much quicker than this.
What accounts did you have sight of?
April 2021 when it opened – present – YE2024 forecast aswell
What was the first year of your DCF? When does it start from and where does it end?
YE2024 is the first year
Year 10 = 2033 and then a sale assumed in 2034
Why a holding period of 10 years?
Sensible investor holding period assumption and for consistency of approach across my valuations - some assets might stabilise later than others but all likely within 10 years
Are you allowed to use confidential intel from previous instructions to inform your valuation?
Yes it is confidential but useful information. I would never share confidential info or explicitly include it within my valuation reports but it does help to form my view on the market sentiment and my understanding of the self storage market.
What are the different type of costs seen in their P&L?
Operating expenses such as staff marketing utilities
How did you determine 4 full time employees = 130,000?
£32,500 average salary – sensible assumption and looked back on an overall basis for a store of that size in the London area.
What is FF&E and why did you assume 1% of revenue?
Already an allowance for repairs and maintenance in the opex.
Sensible assumption to adopt a sinking fund general repairs.
Why did you adopt long term inflationary increases at 2.75%
Current inflation was 4% Dec 2023
I used CBRE’s house view for long term inflation outlook in the UK for consistency of approach across the firms valuations.
Why did you adopt revenue growth at 3.25%
CBRE’S inflation long term view.
Historically, Self Storage has outperformed inflation yr on yr so a sensible assumption to adopt revenue growth higher than inflation
What is an exit yield? How do you predict where yields might be at end of hold period?
Is your exit yield an initial yield
No
How did you determine the discount rate and why?
Discount rate is used to derive the net present value of the expected future cash flows.
The discount rate is the sum of the exit yield and growth rate.
This is because XXX
What makes this property 10bps sharper than a prime self-storage yield?
Has all features of a prime self storage asset and I have used valuer judgement to make a manual adjustment to reflect esg characteristics of the property which make it more attractive to an investor
Talk me through the comparable features of UK Storage Company
- It was a company sale so difficult to analyse
- Mixed tenure so the blended yield was 6.75% but 5.50% on the FH’s
- Location quality was inferior as the properties were located across the south and west midlands
- The asset quality was mixed so I would expect my subject property to achieve a stronger yield than this
Talk me through the comparable features of Easistore
- Location quality sightly worse as the properties were located across Kent
- Older purpose built assets than subject property
- C.4.75% NIY sharper due to purchaser factoring the added growth potential linked to additional MLA on recent extensions
What were the key details of the UK Storage Company transaction?
- C.6.75% blended 5.50% on the 8 FH assets
- Located across south and west midlands
- Mixed asset quality but mostly older purpose built
What were the key details of the Easistore?
- c. 4.75% NIY
- 4 stores located across Kent
- FH
- Mix of purpose built and converted stores
- Two recently undergone extensions to increase MLA
Why did Easistore and Titan Sidcup achieve the same yield?
C.4.75% NIY sharper due to purchaser factoring the added growth potential linked to additional MLA on recent extensions
Titan Sidcup underperforming asset with turnaround opportunity, so once again strong investor demand in process given the potential upside in trading
Why did you consider a company sale of portfolio of mixed tenure comparable?
I caveated in saying it is difficult to analyse but highlights the range of yields within key recent transactions.
I consider what is available to me and this piece of evidence pointed me to the judgment that my subject property would attract a stronger exit yield
Titan Sidcup looks like an older store – how is this comparable to your purpose-built subject property?
Titan Sidcup was significantly refurbished in 2022 and behind the façade of its listed frontage there is a modern purpose built extension with the operational efficiencies and specification of a prime self storage asset
Why did Titan Sidcup have the most comparable location and specification profile?
- Fringe London location
- Single asset transaction
Quantifying Trading risk – how do you come to a view on this?
Ultimately valuer judgement
I analyse revenues and occupancy built into the cash flow projection and take a judgement on level of risk
Mention that Attic is a fairly new operator, did this have any effect on valuation in terms of covenant strength?
No this is an owner operator trading valuation where you are assuming what a REO could achieve and therefore irrelevant
How did your fair value of £404.66 psf compare to the comps?
- It’s a good check back but shouldn’t be looked at by its self
- Its not the cleanest as is dependent on the rental rates that can be achieved in the area
- But for a London store I would expect and £ psf in excess of 300
Talk to me about the ESG features of the property and how they impacted the valuation
- Constructed in 2020 and therefore built with sustainability and ESG features in mind
- This includes ESG panels on top of the flat roof
- This is reflected as a factor in coming to an appropriate exit yield
What was the purpose of the valuation?
Financial Reporting
What documents did you review as part of your due dilligence?
Title plan, floor plans, management accounts, flood risk, epc, planning
Talk to me about the specification the property
2 Loading bays, modern reception, alarmed units, cctv, 2x lifts, sensor led lighting, internal surfaces decorated to high standard
Tell me about your cross check on an income capitalisation approach
When did this store open?
April 2021
When would it reach stabilisation?
Assumed a stabilised occ of 90% in 12 months
Typical proportion of ancillary revenue?
10-13% on a mature store
What was the CLA?
59,111 sq ft
Why did you decide there was no room to increase CLA?
- conversations with management
- building covered nearly all of the site
- checked local planning applications
- Already a fairly tall storage unit
What was your management fee?
7% of revenue with a cap and collar of £35k and £110k
What was your FF&E reserve?
1% of revenue
