SSA UK Rebuttal

Preamble

This note is written in response to the note published by the SSA on its website and concerning investing with Store First Investments Ltd.

The SSA is an association which, according to its own website represents the self-storage industry in the UK. Why then has it expended what must be a considerable amount in professional fees in commissioning a review from one of the UK’s top firms of accountants to run a report on Store First?

One possible answer is that the success which Store First is having in the field of self-storage is starting to hurt the profits of the traditional storage businesses which the SSA represents.

And, having spent the members’ hard earned money on the review, where is it? Why hasn’t the SSA published the actual review instead of giving its gloss on what is says?

General Response

In its opening, the SSA expresses its concern that people may be investing in Store First unaware of potential risks. Why is that a concern to SSA members?

The SSA also expresses concern that Store First Ltd’s marketing material, in its references to the SSA UK’s Annual Survey does not accurately represent the state of the industry, but instead of pointing out where it thinks the inaccuracies lies it chooses instead to spend tens of thousands of pounds (one would presume) on a review which still does not clarify where it thinks the inaccuracies are.

And, what instruction did the SSA give to Deloittes as to what the review should contain?

Does it contain any reference to, or investigation of, the Store First product itself? Does it trouble itself to review the actual sites owned and run by Store First? No, instead it concentrates on marketing.

If the SSA had been serious about having concerns for Store First investors, presumably it would have extended the review to the product itself.

Had the reviewers troubled to investigate the quality of the product being offered for investors the review would have needed to point out the extremely high quality facilities offered by Store First which other self-storage firms simply do not offer, for example:-

• Free use of work-stations with free Wi-Fi.
• Printing and copying facilities.
• Free use of offices and conference rooms.
• Kitchen facilities.
• Gymnasia.
• Shower and locker rooms.
  

The article makes unhelpful reference to two Australian storage businesses which have failed. A brief internet search reveals quotations by one of the receivers of Alan Ikin’s business (appearing in the Queensland Chronicle) indicating that, for the customers, it was “business as usual”, and that it was considered that the sale of the business was an option and that “one of the attractions of buying it is that it’s already got customers” and that they would be “encouraging customers to stick with the business”.

This is hardly an indictment of whatever business model had been used and, in any event, the SSA puts forward no evidence whatsoever as to points of similarity between Store First Ltd and the two Australian examples. The innuendo to be taken by a reader of SSA’s note is clear and deplorable. Without adducing any evidence to back-up what it is saying the SSA clearly wants to give the impression that Store First Ltd is afflicted with whatever problems beset Alan Ikin and Mark Baranov. This is irresponsible and unbefitting a national association whose aims supposedly includes promoting “industry standards and codes of ethics for the benefit of customers”.

And, that is where it becomes clear that the SSA is really just trying to compare chalk with cheese.

The fact is that Store First Ltd’s product is different. It sells storage units as an investment. Which other supplier of self-storage does the same?

Why is the SSA concerning itself with the value of the investment when that is irrelevant to its members who do not model their businesses to create the investment opportunities in the way Store First Ltd does?

Specific Response

This note will now address the specific points raised by the SSA note in the order they arise.

1. Investors are unaware of potential risks.

All Store First Ltd investors are invited to take their own independent financial and investment advice. Store First does not claim its investment is risk free. No investment is risk free. The question is why does the SSA seek to take on the role of advising potential investors? Is the reason one of self-interest, i.e. to try and stem the flow of customers going to Store First Ltd away from its members?

2. Store First Ltd has not responded to the SSA’s questions.

When the questions posed by the SSA are aimed at trying to obtain commercially sensitive information, this is hardly surprising!

3a. What if the VAT rules change?

Quite! The storage industry presumably tried its best to avoid VAT being applied to storage and failed. It is not through some Machiavellian scheme dreamed up by Store First Ltd that VAT does not apply to Store First Ltd’s investors. It is because of the law of the land!

If an individual investor purchases more than £1,012,500 worth of storage pods, then, on an 8% return he will need to register for and charge VAT.

That is no secret. It is made clear to all Store First Ltd’s investors.

The fact is that Store First Ltd’s Investor storage rates were highly competitive even before the VAT rules changed. The government has seen fit to make a change in the rules which makes Store First Ltd’s product even better.

3b. Other VAT issues.

The SSA states that the contract for storage is not between the investor and the end-user. Yes it is!

Store First Ltd provides a management company, Store First Management Ltd, which the investor may use to source and manage sub-lettings.

The investor is absolutely free to choose other managers or self-manage. No penalties or surcharges are attracted by such a decision. An end-user may pay its rent to Store First Management Ltd but only as agent for the investor.

The SSA also seeks to concern itself with the VAT status of Store First Management Ltd. This can be of no concern to SSA and cannot possibly have any impact on investors or SSA members.

The SSA says that “the application of VAT to storage fees would significantly affect the projected returns described by Store First”. Well, no it would not! If the individual investor exceeds £81,000 rental income then yes, he will have to register for VAT and charge VAT, but, for that to happen, as stated above, the individual investor, assuming an 8% return, would need to buy more than £1,000,000 of store pods!

4. How does Store First Ltd fund the rental returns.

Whist it should be of no concern to the SSA, Store First Ltd maintains a separate Client Rental Guarantee account with its bank which it keeps topped up to an amount always able to meet its full rental commitment to all its investors. Indeed, Store First Ltd has, in the past, paid to investors a full years rent up front if the investor particularly desires it, and, on occasions, two years rent up front.

5. Comparisons of the total value of a Store First Ltd site compared with a stand-alone self-storage site.

This point illustrates the SSA’s lack of understanding.

The business models for a stand-alone site and for Store First Ltd are completely different.

Comparisons are useless.

If an operator is running a stand-alone site it receives for itself all the rental income from the site and that will largely determine the value of the site.

On Store First Ltd’s business model the site is subdivided so that many different investors independently own their own units. Each investor receives an independent title to his units. He is free to do with them what he wishes. He can, sell, lease, mortgage or use them. Once sold by Store First Ltd to the Investor, they are removed from the value of the building of which they form part.

There can be no question of these units being available to be disposed of as part of the building as a whole. The comparison suggested is utterly pointless.

6. Re-sale opportunities and exit routes.

The SSA asks what will happen if Store First Ltd “exits the business”? As is probably clear from the above answer, each investor is autonomous. He owns his own lease. He can rent out or sell or mortgage or use regardless of what Store First Ltd does.

Having said that, Store First Ltd has no intention of “exiting the business”!

Investing in store pods is a long term strategy. The SSA’s own report shows that. Store First Ltd accept that it takes time for a site to reach maturity although given the rapid growth of Store First Ltd the maturity of its sites should occur quicker than most.

The target-buyer to purchase from the investor is generally the end-user. In other words, the business model creates its own market. As the sites mature end-users will want to acquire the units from the owners. It is, of course, entirely up to the investor whether he wants to sell.

7. The Australian Examples

These have been dealt with above and probably no more needs to be said but, at the risk of repetition, if the aim of the comparison is to try to prejudice the Store First Ltd product by association with products that have failed, then it is deplorable. No evidence is put forward. Based on the article in the Australian press the Ikin product, still appears viable, in any event.

8. Occupancy Predictions

Store First Ltd does not deny that it takes time for any new site to become mature.

The SSA makes the point that self-storage pricing varies markedly depending on the location of the store and the services provided.

Store First Ltd could not agree more!

All Store First Ltd’s sites are in prime locations. Store First Ltd believes that its facilities are second to none.

How many of the SSA’s members offer free:

• Office facilities.
• Conference rooms.
• Wi-Fi.
• Printing and copying.
• Work Stations.
• Kitchen facilities.
• Collection services.
• Assistance with moving.
• Delivery facilities.
• Toilet.
• Shower and locker room facilities.
• Gymnasia.
• Padlocks and insurance?
  

It is perfectly logical therefore, that Store First Ltd’s sites will fill up faster than its competitors. It is a completely new way of looking at the business. It is little wonder that the old-guard are taken off guard.

9. Freehold Ownership

This allegation by the SSA is perhaps the most scandalous.

There are attached to this report Official Copies of the Land Registry’s entries showing Store First Ltd to own (click the location name to view the PDF):

The information produced by Deloitte’s was out of date. The SSA really ought to do its research more carefully.

Incidentally, for those who are familiar with Land Registry registers, the attached Official Copies also prove that Store First Ltd does not have any mortgages on its sites, a fact which one might expect many SSA members to envy.

Store First Ltd fully accepts that at any one time its most recently acquired sites will be being fitted out. The very high standard to which Store First Ltd fits out its sites does not happen overnight.

10. Profitability

The SSA again seeks to compare the traditional business model of most of its members with Store First Ltd’s business model.

Once again, the comparison is not valid. The norm which the SSA cites of a self-storage operator paying rent at no more than 1⁄2 the income per square foot earned through storage fees has no application to Store First Ltd.

Store First Ltd owns all its sites outright either as freeholder or long-leaseholder. Store First Ltd will always buy the freehold if it is available. If Store First Ltd is obliged to buy a long-leasehold the ground rent will be nominal.

If Store First Ltd can sub-let the units it is leasing back from the Investor at a rent higher than it is paying to the Investor then surely that is a good thing!

It demonstrates the true market value of the rent and, remember, no investor is obliged to rent back to Store First Ltd. He can, instead, rent direct to the open market and take his chances of achieving the higher rental returns which the SSA seems to have discovered.

If anyone reading the SSA’s note and this rebuttal is left with any questions they should contact Ruth Almond at 01282 330 330 who will be pleased to assist.

Toby S Whittaker
Managing Director