Millers deal put away for $215m

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					                                                                                                                                                                                                                      The Australian Financial Review
74 PROPERTY                                                                                                                                                                                                   Friday 15 October 2004

Millers deal put
away for $215m
Kathryn House                                        KEY POINTS
The Valad Property Group raised                   ■ Millers facilities will be rebranded
$92.6 million yesterday to help fund                 under the Kennards name.
a joint purchase of leading storage
operation Millers Self Storage.                   ■ Valad is the first listed property trust
   Valad joined Kennards Self                        to target the self-storage market.
Storage to buy the Millers business
in a $215.1 million deal and create a
new giant in the self-storage market.                The high yield on the Millers deal
   Millers was the country’s biggest              ± initially 9.2 per cent, rising to about
player by area, with the family-                  11 per cent in the next two years ±
owned Kennards a close rival.                     was a key attraction for Valad, which
   Under the agreement, all of                    announced that its forecast earnings
Millers’ properties will eventually               for the 2005 financial year had                                 Sam Kennard warns that self-storage supply is limited and that rates will start to increase.                         Photo: MICHEL O’SULLIVAN
be rebranded under the Kennards                   increased to 9.91¢ per stapled security.
moniker, with the combined oper-                     The acquisition added 1.7 per cent
ation totalling 60 self-storage
facilities across the country.
   Valad was the first listed property
trust to target the fast-evolving self-
                                                  to Valad’s 2005 distribution and
                                                  boosted the group’s net asset back-
                                                  ing by 12 per cent. ‘‘These acqui-
                                                  sitions and this placement continues
                                                                                                                  Growth on the way, at a price
storage market. Melbourne-based                   our success in diversifying Valad’s                             Kathryn House                                 representing an ‘‘enormous oppor-                    Storage King director David Scan-
funds manager APN launched an                     portfolio and providing opportun-                                                                             tunity’’, particularly as Australians             len expects to have 100 facilities in
unlisted storage trust last year and at           ities for growth,’’ Mr Hurley said.                             The self-storage industry is poised           move towards higher-density living.               Australia within the next six months
least one other vehicle was on the                   ‘‘Valad’s revenues will now be                               for growth after years of rationalisa-           The tie-up with Valad gives Ken-               and has flagged plans to launch a
drawing board, backed by leading                  derived from income from 31 proper-                             tion and fierce competition.                  nards 60 facilities across the country,           Storage King property trust.
operator Storage King.                            ties in NSW, Queensland, Victoria                                  The Valad Property Group-                  putting it among the 40 biggest storage              National Storage is also in expan-
   ‘‘The     Australian     self-storage          and WA. We have more than                                       Kennards Self Storage alliance is             operators in the world. The venture is            sion mode in an alliance with
industry represents one of the fastest-           doubled the value of the portfolio                              already seeking out new deals, as are         seeking other opportunities to                    Melbourne funds manager APN.
growing segments within the property              since IPO and we now have 31§2 times                            its main competitors, Storage King            capitalise on what is still a highly                 National Storage operates 29
sector,’’ Valad managing director                 as many properties across office,                               and Brisbane-based National Storage.          fragmented industry in Australia.                 facilities in south-eastern Queens-
Peter Hurley said. ‘‘We are delighted             retail and now self-storage.’’                                     While margins have been                                                                      land, Adelaide, Melbourne and Syd-
to make this acquisition, and are                    Millers was put to the market                                squeezed in recent years, particu-               ‘‘The days of ‘build it                        ney ± all but five of which are
particularly pleased to be partnering             several months ago by its London-                               larly for smaller operators, Ken-                                                               owned through the APN National
with Kennards, whom we regard as                  based owner, Security Capital Euro-                             nards managing director Sam Ken-                   and they will come’                          Storage Property Trust.
market leaders. Kennards’ co-                     pean Realty. The Valad-Kennards                                 nard sees future supply as limited                 are behind us.’’                                National’s director of operations,
investment in this venture is consist-            joint venture usurped a number of                               and says rates will start to increase.                                                          Peter Greer, said the group made a
ent with Valad’s philosophy of align-             rivals, including APN, Macquarie                                   Mr Kennard expects Australia to                                                              bid for Millers and was still looking
ment of interests, with each partner              Goodman and the Sydney-based                                    follow the lead of the United States,            Four existing centres have been                to expand throughout Australia.
investing in equal proportions.’’                 Austcorp Property Group.                                        which has the most developed self-            targeted and Valad joint managing                 ‘‘The industry in my mind is going to
   The placement through UBS was                     Kennards was one of the industry                             storage industry in the world, with           director Peter Hurley says there is               go through further rationalisation.
about three times oversubscribed at               veterans, having opened its first                               about 0.3 square metres of space per          potential to build mixed-use facili-              You’ve got to get your cost synergies
the top end of Valad’s book-build                 facility in Sydney in 1973. Managing                            capita, about four times that of              ties incorporating self-storage and               in place to remain profitable.’’
range. The price of $1.06 a security              director Sam Kennard said it had                                Australia. ‘‘I don’t think we’ll ever get     bulky goods or industrial space.                     He noted that the market had
was a slim 1.85 per cent discount to the          grown from 12 to 29 facilities in nine                          to that same level, but we’re certainly          Kennards’ rivals are also on the               become increasingly competitive
volume-weighted average price of the              years and had been targeting further                            on a growth profile,’’ he said.               expansion path. Storage King has                  and that it now took an average of
previous five days’ trading. The issue            expansion, hence the Valad tie.                                    The potential comes from repeat            used a licensing model to rapidly                 four to five years to fill a 5000 square
will help fund the Millers purchase                  Millers controlled 31 self-storage                           business. In the US, about 50 per             grow its brand in Australia and this              metre storage facility, up from two
and a $31.95 million acquisition of the           operations, 24 of them freehold,                                cent of customers are repeat users, a         year has exported the Storage King                to three years in the late 1990s.
Home Central bulky goods centre at                representing about 195,000 square                               factor that amounts to only about             concept to the United Kingdom,                       ‘‘The days of ‘build it and they will
McGraths Hill, western Sydney.                    metres of self-storage space.                                   14 per cent of Kennards’ business,            New Zealand and Asia.                             come’ are behind us,’’ Mr Greer says.

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