Continued growth in Occupancy.

Business and Financial Review.

Trading performance

Since we reported in May, the macroeconomic performance of the UK and in particular London and the South East has beaten expectations, with downbeat forecasts earlier in the year now being revised upwards. Self storage reacts to economic and housing activity, which are linked, and both of which have been improving gradually over the summer. This improved sentiment will incrementally feed through to our business, resulting in growing occupancy, earnings and cash flow. This is against a backdrop of limited new supply with very few new store openings committed in our core area of operation. Additionally, awareness of self storage continues to grow with the majority of our new customers using self storage for the first time.

Our third quarter is historically the weakest trading quarter and in recent years we have typically lost two to three percentage points of occupancy before a return to growth in the new year. Since the end of September we have seen an improvement, with 32,000 sq ft (0.9% of maximum lettable area “MLA”) lost since the end of September, compared to 91,000 sq ft (2.6% of MLA) lost at this stage last year. The move outs have been in line with our expectations following the strong summer trading. This improved performance is largely driven by an increase in move-ins of 14% compared to the same period last year, coupled with the impact of VAT in the prior year.

Store occupancy

The level of enquiries across all our stores increased by 10% compared to the same six months last year. Conversion rates of these enquiries have remained strong, meaning total move-ins, including the stores in Big Yellow Limited Partnership, were up 7.5% on the same period last year. We are experiencing a higher level of churn in the business, with move-outs increasing by a similar amount when compared to the same period last year.

We achieved occupancy growth of 232,000 sq ft across all stores in the period (2012: occupancy growth of 243,000 sq ft).

Portfolio at
30 September 2013		 Occupancy
at 30
September
2013		 Occupancy
growth from
March 2013
000 sq ft		 30 September
2013
000 sq ft		 31 March
2013
000 sq ft		 30 September
2012
000 sq ft
Established stores 77.1% 75 1,488 1,413 1,495
Lease-up stores 61.9% 113 923 810 815
Total – wholly
owned stores		 70.5% 188 2,411 2,223 2,310
Partnership
lease-up stores		 60.5% 44 453 409 391
Total – all stores 68.7% 232 2,864 2,632 2,701

At the period end, wholly owned store occupied space was 2,411,000 sq ft, up 4.4% from 2,310,000 sq ft at the same time last year and up 188,000 sq ft from 31 March 2013. We saw encouraging growth from domestic, student and business customers during the six month period, with the overall split by space being 68% domestic and 32% business at 30 September 2013. The improving domestic and student occupancy has slightly changed the mix from the same time last year, which was 67% domestic and 33% business.

The 32 established stores are those that had reached stabilisation as a portfolio in 2007 prior to the economic downturn; 18 of these stores are in London, with the other 14 in large metropolitan cities in the South. The occupancy of the stores in the established portfolio was impacted by the introduction of VAT in the second half of last year, with occupancy falling from 77.0% at September 2012 to 72.8% at 31 March 2013. This portfolio of stores (with an average net lettable area of 60,300 sq ft) recovered to 77.1% occupied at the end of the period. This occupancy represents an average of 46,500 sq ft occupied per store.

The closing occupancy of the 18 established stores inside London was 77.9% (an average of 50,400 sq ft occupied per store); for the 14 established stores outside London, closing occupancy was 75.3% (an average of 41,400 sq ft occupied per store).

Pricing and rental yield

Our core proposition remains a high quality product, competitively priced, with excellent customer service, providing value for money to our customers. Our stores offer a headline opening promotion of 50% off for up to the first 8 weeks, and we continue to manage pricing dynamically, taking account of customer demand and local competition.

Net rent at 30 September 2013 was up 2.9% from 31 March 2013. Our key aim over the next two to three years is to drive occupancy in the stores. As the stores lease-up, our pricing model reduces the level of promotional discounts offered in individual stores. This squeezing out of promotions leads to an increase in net achieved rents. The table below illustrates this, showing the growth in net rent per sq ft for the portfolio over the six month period.

Average occupancy
in the six months		 Net rent per sq ft growth
over the six months
0 to 60% 1.0%
60 to 75% 1.8%
75 to 85% 2.6%
Above 85% 5.4%

Security of income

Our principal financial aims remain growing cash flow, earnings and dividend. We believe that self storage income is essentially evergreen income with highly defensive characteristics driven from buildings with very low obsolescence risk. Although its form of contract with its customers is in theory as short as a week, it does not need to rely on contract for its income security. At 30 September 2013 the average length of stay for existing customers was 20 months. For all customers, including those who have moved out of the business, the average length of stay has remained at 8 months. In our established store portfolio, 34% of our customers by occupied space have been storing with us for over three years, and a further 14% of customers in these stores have been in the business for between one and three years.

The location of our stores, brand, security, and most importantly customer service, together with the diversity of our 43,000 customers, will serve better than any contract.

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