Photo by Leong Chan Teik
AS JACK CHUA placed his first finger into a reader inside the lift, he said that the reader would allow customers to get off only on the level they had stored their goods.
That was a glimpse into the high technology that the building in Toa Payoh is equipped with, including climate control and closed-circuit TV monitoring.
We were at Hersing Corporation’s building yesterday (Sept 16), viewing the company’s storage facilities for customers to keep their assets.
Hersing, better known for being the master franchise holder of ERA, is the pioneer in Singapore for what it calls StorHub Self Storage: You rent a room as tiny as 12 sq ft and as large as 200 sq ft for a monthly fee, and store whatever you want.
Jack, the president of Hersing, which is listed on the Singapore Exchange, said there are customers who store their personal shoe collection and even Hello Kitty dolls. Rooms are accessible 24/7 by customers.
From one building in Changi in 2003 when it started this business, Hersing now owns four – two in Toa Payoh and two in Changi. It also operates a leased building in Kallang and is constructing one in Tampines.
In total, including the upcoming Tampines building which will be ready in 2009, Hersing has over 6,000 self-storage rooms occupying 500,000 sq ft of space.
Revenue from this business has grown sharply from $891,000 in 2003 to $8.4 million last year. Pre-tax profit amounted to $2.1 million last year.
Though rapidly growing, it’s still a small business for the group. Hersing’s total revenue last year amounted to $197.2 million while net profit, $38.8 million, which came largely from its real estate division.
The self-storage business seems attractive, as illustrated by the following:
* For a 12 sq ft space in Toa Payoh, the rental is $96, or $8 psf. “That’s Shenton Way rate,” quipped Jack. The average rate it charges in Toa Payoh is $5 psf and, in Changi, $3 psf.
The reason for the disparity is that Toa Payoh is seen as a more central location while Changi, relatively less accessible.
* In its Kallang building, Hersing pays only 50 cents psf to lease from Cambridge Industrial Trust. Hersing originally owned the building, which it sold to Cambridge in 2006. Hersing now rents out its self-storage space at an average of $3 psf.
This business is all about volume, and Hersing has achieved about 70% occupancy rate overall.
Recognising the demand for self-storage space, a few other players such as Mapletree have since set up a similar business in Singapore.
How might an impending slowdown in the economy affect the business? “People may have more things to store with us, as they downsize their business or home,” said Jack during yesterday’s briefing for half a dozen analysts.
Asia-Pacific is next big target
Buoyed by its success in Singapore, Hersing is looking to introduce StorHub Self Storage in other Asian countries, including Japan, South Korea and China.
These are developed countries which would have latent demand just as in the US, which utilised 4 sq ft of self-storage space per person in 2005. The figure grew to 7 sq ft in 2007.
“Singapore has a tiny fraction of that. If we have 1 sq ft per person, we would have 4 million sq ft for 4 million people. Now, Hersing has just 400,000 sq ft of self-storage space,” said Jack.
To propel the growth of this business, Hersing on Aug 21 announced that it has signed a non-binding MOU with a leading global real estate fund.
The proposed joint venture will allow Hersing to leverage on the financial expertise, network and other resources of the real estate fund. Link to announcement, here.
Modeled after how some international hotels are separately owned and managed, Hersing will sell its four properties in Toa Payoh and Changi – at a profit, of course - to an asset company in which Hersing will hold 20% while the fund, 80%.
The book value of these four assets is around $30 million. Proceeds from the sale will be used to acquire assets in Asia-Pacific for the self-storage business and for a dividend payout to shareholders.
Another JV company, a management company, will be set up by Hersing which will hold an 80% stake and sell the remaining 20% to the fund. This management company will provide property management and asset management services to the four assets.
The management company will charge a percentage of the revenue of the four assets.
Substantial shareholder purchase
On Sept 12, Hersing announced that Khoo Chin Wah had bought 6.3 million shares at 20.5 cents apiece in two married deals. With that, his direct holding rose to 19 million shares (3.2% stake) and his deemed holding to 19.6 million shares (3.3% stake).
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