European Real Estate
Self-Storage for Screens, Students and Stuff
► We initiate on Workspace, UNITE and Safestore and transfer coverage
of Big Yellow – These UK small-cap real estate companies operate in the
specialist sectors of flexible business space, student accommodation and selfstorage.
With this note we transfer primary coverage of Big Yellow, the selfstorage
REIT to Paul Pulze.
► Short-leases are the attraction of these sub-sectors – Short leases are an
asset in these sectors. Their flexibility benefits tenants who may not wish to
commit to longer leases, and they benefit landlords by allowing tenant churn
(and the associated price rises) and to manage occupancy.
► Safestore is our top pick – The company’s strategy of balancing its focus on
existing stores with its manageable development pipeline whilst maintaining
sustainable dividends is attractive in our opinion. The shares are compelling on
both an absolute and a relative basis, trading on 8.9x annualised 2009E P/E
and 5.1% dividend yield, and at a 70% discount to Big Yellow. We initiate with
a BUY recommendation.
► Big Yellow is relatively expensive – While the equity raising has secured the
capital required to complete the development pipeline, we see the shares as
being fully valued at present. With a zero dividend at present and little nearterm
capital growth we downgrade Big Yellow to a REDUCE recommendation
(from Buy).
► We see value in UNITE – The UK student accommodation sector is attractive
due to its counter-cyclical nature and the lack of supply particularly in London.
High leverage remains a risk but the company has substantially reduced its
development pipeline and we expect property values to stabilise in the nearterm,
relieving concerns over a LTV breach. We initiate with an ADD
recommendation.
► Workspace offers long-term value – After an emergency rights issue earlier
this year, the company has strengthened its balance sheet and has
renegotiated its covenants. We see earnings potential from early refinancing
and believe the portfolio has NAV upside in the longer-term but the visibility of
these remains too limited in the near-term, we believe the shares are above
their fair value. We initiate with a REDUCE recommendation.

Contents page
Investment overview 3
Big Yellow 11
Safestore 23
UNITE Group 34
Workspace 45