The Self Storage Association UK (SSA UK) is concerned people may be investing in the various investment vehicles which trade as Store First, unaware of the potential risks.

Store First offers unregulated investments in storage pods, containers that are used to store belongings, in the north west of England.

It markets them on its website as suitable for pensions, claiming, “Our development and investment strategy is designed to be highly tax efficient, especially when considered within the confines of SIPP’s and SSAS’s (sic)”.

FSA warning

The Financial Serves Authority (FSA) issued a consumer alert in January naming store pods among other unregulated investments that are “high risk” and could be used by scammers targeting people’s pensions.

Former Top Gear presenter Quentin Willson is featured in several Youtube videos promoting Store First.

In them he says the investment offers “a guaranteed return of 8 per cent in the first two years, rising to 10 per cent in years three and four”.

However SSA UK has said it is concerned that the material Store First distributes to market this investment, “does not accurately represent the state of the industry and may lead investors to make unrealistic assumptions about the industry and this specific investment opportunity”.

Store First has denied this, and suggests a partial motive behind the SSA UK’s investigation 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”.

To address its concerns, SSA UK commissioned Deloitte to undertake a review of the material made available to potential investors by Store First.

Profitability

A major issue dealt with by the review is the company’s profitability.

Store First leases storage units from investors at £17 to £25 per square foot per year. The units will then be rented out to the public at the same rate.

But according to the SSA UK, normally the rent paid by a self-storage operator to investors would be at most half of the income per square foot earned through storage fees.

“Store First is obliged to pay the guaranteed returns to investors, yet there does not appear to be sufficient income from the operations of the business to fund these returns,” SSA UK said, a point Store First dispute.

SSA continues: “A very serious question arises over how Store First is funding the guaranteed returns to existing investors…

“It may yet prove to be the case that the rental returns being paid to investors are in fact being funded from the sale proceeds of new units, and not the operation of the self-storage business.

“If this is indeed the case, then the Store First business model would not appear to be sustainable.”

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VAT exemptions

Another issue in the review is Store First’s claims that storage fees are exempt from VAT, based on individual unit holders being below the VAT threshold.

However the review claims the precise VAT position is unclear and there are a number of ways in which HMRC could potentially attack the favourable VAT analysis put forward by Store First.

“The application of VAT to storage fees would significantly affect the projected returns described by Store First,” SSA UK said, which Store First denies.

The trade body also has concerns about the actual number of Store First stores that have been built or begun trading, compared to the numbers claimed by Store First.

Its review found many sites appear to be in various stages of planning and development and “far from operational”: “How are Store First funding a rental guarantee on a site that is not yet developed, has no customers and hence no income stream?” it asks.

15 per cent management fee

In addition, Store First is proposing to charge investors a 15 per cent management fee, if the investor opts for Store First to manage letting of their units.

According to SSA UK this is well above the going market rate for full management of a self-storage business of between 6 per cent and 8 per cent of revenue.

Store First is not a member of SSA UK.

‘Store First does not claim it is risk free’

Store First managing director Toby Whittaker said in response to the SSA UK’s review that: “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?”