Business and Financial Review.

Property

We have a pipeline of four wholly owned development sites; all except our site in Central Manchester have planning consent. The three development sites with planning consent are on the A10 in Enfield, London, in Central Guildford and on the A40 at Gypsy Corner, London. We are constructing the store at Gypsy Corner, which will open in April 2014. We are commencing design works on the Enfield store, and anticipate that construction will commence in June 2014, with a planned opening in April 2015. The three sites with planning consent have an aggregate estimated cost to complete of £13.1 million.

The Group’s investment properties have been valued by Cushman and Wakefield LLP (“C&W”). At 30 September 2013 the total value of the Group’s wholly owned properties is shown in the table below:

Analysis of property portfolio No of
locations		 Value at 30
September
2013
£m		 Revaluation
movement in
the period
£m
Investment property 54 763.7 18.0
Investment property under construction 4 19.0 (0.2)
Investment property total 58 782.7 17.8
Surplus land 3 6.0 –
Total 61 788.7 17.8

Investment property

The valuation uplift for the open stores in the period, before an adjustment for the Capital Goods Scheme, was £18.9 million, as the growth in cash flows feed through to the valuation, coupled with a reduction in cap rate for a number of the London stores. The recognition of the Capital Goods Scheme receivable in the prior period reduced the book cost of the investment properties, and produced a revaluation surplus in the period. The revaluation uplift in the prior period, before adjusting for the impact of the Capital Goods Scheme, was £0.7 million. The table below summarises the key outputs of the valuations for the wholly owned open store portfolio.

  Established
store portfolio		 Lease-up
store portfolio		 Total
Number of stores 32 22 54
MLA capacity (sq ft) 1,930,000 1,491,000 3,421,000
Valuation at 30 September 2013 £406.3m £357.4m £763.7m
Value per sq ft £211 £240 £223
Occupancy at 30 September 2013 77.1% 61.9% 70.5%
Stabilised occupancy assumed in valuations 82.1% 80.8% 81.5%
Net initial yield pre-admin expenses 7.1% 5.4% 6.3%
Stabilised yield assuming no rental growth 7.8% 7.8% 7.8%

The initial yield on the established portfolio of 32 stores before administration expenses and assuming no rental growth, is 7.1% rising to a stabilised yield of 7.8% (March 2013: 6.8% rising to 8.1%). Including the 22 lease-up stores, the initial yield pre-administration expenses is 6.3% rising to 7.8% (March 2013: 5.9% rising to 8.2%).

Investment property under construction

The four wholly owned development sites have increased in value by £1.7 million in line with capital expenditure incurred at Gypsy Corner. C&W’s forecast valuations for when the assets have reached stabilised occupancy, including assumptions in relation to revenue and operating cost growth within these assets, are currently pointing to a revaluation surplus on total development cost of £30.9 million on the three wholly owned development sites with planning consent.

In their report, C&W have drawn attention to valuation uncertainty resulting from a lack of transactions in the self storage investment market. Please see note 15 for further details.

Surplus land

At 30 September 2013 the Group owned £6.0 million of land surplus to our requirements across three sites. We aim to sell this surplus land once we have maximised its realisable value through planning improvements. In the period a tenant vacated an office attached to one of our stores. We are looking at the options for redeveloping this office, which has been transferred to surplus land from investment property. The sites are held at the lower of cost and net realisable value and have not been externally valued.

Capital Goods Scheme receivable

We have a receivable of £9.9 million in respect of payments due back to the Group under the Capital Goods Scheme as a consequence of the introduction of VAT on self storage from 1 October 2012. The debtor has been reduced in the period by £0.6 million following the identification of some trapped Capital Goods Scheme recovery. We have also made revisions to the timing of the payments due back to the Group. The final amount is subject to agreement with HMRC. The debtor has been discounted in accordance with International Accounting Standards to the net present value using the Group’s average cost of debt, with £0.2 million of the discount being unwound through interest receivable in the period. The gross value of the debtor before discounting is £11.3 million. The first payment under the Capital Goods Scheme of £0.8 million was received in October 2013.

Net asset value

The adjusted net asset value is 436.3 pence per share (see note 14), up 4% from 419.2 pence per share at 31 March 2013. The table below reconciles the movement.

Movement in adjusted net asset value Equity
shareholders’
funds
£m		 EPRA
adjusted
NAV pence
per share
1 April 2013 594.5 419.2
Adjusted profit before tax 14.2 10.0
Equity dividends paid (8.4) (5.9)
Revaluation movements (including share of BYLP) 18.3 12.8
Movement in purchaser’s cost adjustment 1.1 0.7
Other movements (eg share incentives) 0.7 (0.5)
30 September 2013 620.4 436.3

Big Yellow Limited Partnership

Big Yellow Limited Partnership, a joint investment with Pramerica Real Estate Investors Limited, owns self storage centres outside London. In the consolidated accounts of Big Yellow Group PLC, the Partnership is treated as an associate using the equity accounting method. The Partnership is currently trading from twelve stores. There are no further stores under development.

The occupancy of the stores is 453,000 sq ft, against a total capacity of 749,000 sq ft, with growth of 62,000 sq ft in the last twelve months, of which 44,000 sq ft has been since 31 March. The stores’ occupancy at 30 September 2013 was 60.5% (March 2013: 54.6%). The net rent achieved at 30 September 2013 by the Partnership stores is £17.31 per sq ft, a decrease of 4.7% from the same time last year, and an increase of 3.5% from 31 March 2013. The REVPAF of the portfolio increased by 11% to £12.63 for the six months to 30 September 2013 compared to the same period last year (£11.33) and by 16% from £10.90 for the six months to 31 March 2013.

The Partnership made an operating profit of £2.3 million in the period, of which Big Yellow’s share is a third. After net interest costs and the revaluation of investment properties and interest rate derivatives, the profit for the period for the Partnership was £2.6 million, of which the Group’s share was £0.9 million.

The Group earns certain construction and operational fees from the Partnership. For the period to 30 September 2013, these fees amounted to £0.3 million (2012: £0.3 million).

The Partnership has a receivable of £4.3 million in the period in respect of payments due back to the Partnership under the Capital Goods Scheme. This amount is subject to agreement with HMRC. The receivable has been discounted; the gross value of the receivable before discounting is £4.9 million. The first payment under the Capital Goods Scheme of £0.4 million was received by the Partnership in October 2013.

The Partnership has a £60 million bank facility with RBS and HSBC expiring in September 2016. Interest rate swaps are in place covering £30 million of the debt at a pre-margin cost of 1.05%. These swaps commenced in July 2013 following the expiry of legacy swaps at a higher pre-margin cost. The balance of the drawn debt pays interest based on three month LIBOR plus margin. There is a margin ratchet based on the Partnership’s income cover which ranges between 250 bps and 400 bps. The facility’s weighted average interest cost is 4.8%. £1 million of the bank facility was repaid in the period reducing it to £59 million.

Big Yellow has an option to purchase the assets contained within the Partnership or the interest in the Partnership which it does not own exercisable from 31 March 2013. The option was deferred in March 2013, and is next exercisable in March 2014 (subject to meeting certain return hurdles) and again in March 2015. On exit, whether by way of exercise of the option or a sale to a third party, Big Yellow is entitled to certain promotes, which could result in Big Yellow sharing in the surplus created in the Partnership ahead of its equity participation.

James Gibson
Chief Executive Officer

John Trotman
Chief Financial Officer

18 November 2013