Business and Financial Review
Our core proposition remains a high quality product, competitively priced, with excellent customer service, providing value for money to our customers.
Delivering results
Big Yellow Limited Partnership
At the start of the prior year the Group had a 33.3% interest in Big Yellow Limited Partnership. This interest was accounted for as an associate, using equity accounting. On 1 December 2014, the Group acquired the remaining 66.7% of the Partnership interest that it did not previously own. From this date, the Partnership is accounted for as a wholly owned subsidiary of the Group.
Trading performance
This has been a solid six months of trading, and is consistent with our expectations and guidance for the current year. Demand levels, as represented by customer move ins over the six months, have been in line with last year’s strong performance, against a backdrop of slightly weaker economic growth.
Broader awareness of self storage continues to grow as a result of wider use of the product and the marketing spend from Big Yellow and the industry as a whole. We expect to continue to see this growth in awareness incrementally improve demand for self storage. We are confident that Big Yellow benefits disproportionately from this improving market for our product due to our market leading brand and operating platform with our focus on London, the South East and large metropolitan cities.
Competitor store openings remain constrained, particularly in London and our other core areas of operation. In the market as a whole new capacity is increasing at around 1% per annum, and in London this year, whilst there have been three store openings, we are aware of a similar amount of capacity being taken out of the market following lease expiries or sale of stores for alternative uses.
Store occupancy
The level of enquiries across all our stores increased by 4% compared to the same six months last year. With conversion rates remaining strong and higher occupancy in our stores, we were able to achieve total move-ins in line with the same period last year at a higher yield.
| Store move-ins | 2015 | 2014 | % | Net move-ins | Net sq ft |
|---|---|---|---|---|---|
| April | 5,229 | 4,961 | 5% | 52 | (18,000) |
| May | 6,514 | 6,500 | 0% | 1,238 | 46,000 |
| June | 8,298 | 8,466 | (2%) | 3,156 | 118,000 |
| July | 7,532 | 7,309 | 3% | 1,009 | 60,000 |
| August | 7,413 | 7,682 | (4%) | 428 | 29,000 |
| September | 6,760 | 6,812 | (1%) | (2,630) | (35,000) |
| Total | 41,746 | 41,730 | 0% | 3,253 | 200,000 |
| October | 6,258 | 6,119 | 2% | (754) | (24,000) |
The fall in occupancy in April was due to the loss of a short term national account customer occupying 25,000 sq ft, who moved out in April after storing with us for five months. Occupied space increased by 200,000 sq ft across all stores in the period (2014: occupancy growth of 288,000 sq ft).
Of the customers moving into our stores in the period, surveys undertaken indicate approximately 45% are linked to the housing market; either customers renting storage space whilst moving within the rental sector or the owner occupied sector. During the period 10% of our customers who moved in took storage space as a spare room for decluttering and approximately 35% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited possessions, are getting married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 10% of our customer demand during the period came from businesses.
We saw growth from domestic, student and business customers during the six month period, with the overall split by occupied space being 66% domestic and 34% business at 30 September 2015. These demand metrics are broadly unchanged from the same period last year.
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 lost 38,000 sq ft (0.9% of maximum lettable area “MLA”), compared to 51,000 sq ft (1.2% of MLA) lost at this stage last year (excluding a one-off short term 25,000 sq ft national account customer that moved in during November 2014). The move outs have been in line with our expectations following the strong summer trading.
| Occupancy at 30 September 2015 % |
Occupancy change from March 2015 000 sq ft |
30 September 2015 000 sq ft |
31 March 2015 000 sq ft |
30 September 2014 000 sq ft |
|
|---|---|---|---|---|---|
| 56 mature stores | 78.3% | 148 | 2,737 | 2,589 | 2,568 |
| 11 established stores | 73.9% | 18 | 520 | 502 | 498 |
| 3 developing stores | 59.0% | 34 | 121 | 87 | 78 |
| Total – all 70 stores | 76.7% | 200 | 3,378 | 3,178 | 3,144 |
The 56 mature stores are 78.3% occupied compared to 75.0% at the same time last year. The 11 established stores have grown in occupancy from 70.7% to 73.9%. The 3 developing stores added 34,000 sq ft of occupancy in the period to reach closing occupancy of 59.0%. Overall store occupancy has increased in the period from 73.2% to 76.7%. Excluding Enfield which opened on 1 April 2015 and Chester which was acquired in January 2015, like-for-like closing occupancy was 77.3%, representing growth of 4.1 percentage points from 1 April.
All 70 stores open at the period end are trading profitably at the EBITDA level, including Enfield which made a positive monthly EBITDA within six months of the store opening.
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. We 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.
The like-for-like closing net achieved rent per sq ft at 30 September 2015 was £25.79, up 3.5% compared to 30 September last year. Over the six months to 30 September 2015, net rent in the like-for-like stores grew by 1.7%.
As our portfolio is now at a higher level of occupancy, our pricing model is increasingly reducing promotions and increasing asking prices where individual units are in scarce supply. This lowering of promotions, coupled with price increases to existing and new customers, 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 period (the table below excludes Enfield which opened in April 2015).
| Average occupancy in the six months |
Number of stores | Net rent per sq ft growth over the six months to 30 September 2015 |
|---|---|---|
| 0 to 60% | 4 | (1.1%) |
| 60 to 70% | 15 | 1.6% |
| 70 to 80% | 27 | 1.1% |
| Above 80% | 23 | 2.7% |
The rental growth for the stores with an average occupancy above 80% equates to 5.4% on an annualised basis.
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 our contract with our customers is in theory as short as a week, we do not need to rely on contracts for our income security. At 30 September 2015 the average length of stay for existing customers was 21 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 portfolio, 28% of our customers by occupied space have been storing with us for over two years, and a further 17% of customers have been in the business for between one and two years.
The location of our stores, brand, security, and most importantly customer service, together with the diversity of our 51,000 customers, will serve better than any contract.
Revenue
Total revenue for the period was £50.2 million, an increase of £10.3 million (26%) from £39.9 million in the prior period. Like-for-like revenue for the six month period was £43.2 million, an increase of 9% from the prior period. Like-for-like revenue excludes the 12 Partnership stores (acquired December 2014), Oxford 2 (acquired July 2014), Chester (acquired January 2015) and Enfield (opened April 2015); the prior period figure excludes management fees earned from Big Yellow Limited Partnership.
The other revenue earned is management fee income from the Armadillo Partnerships and tenant income on sites where we have not started development.
Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 17.6% of storage income for the year (2014: 17.9%) and generated revenue of £7.4 million for the period, up 9% from £6.8 million in 2014 (see Portfolio Summary).
Operating costs
Cost of sales comprises principally of direct store operating costs, including store staff salaries, utilities, business rates, insurance, a full allocation of the central marketing budget, and repairs and maintenance.
Cost of sales in the income statement has increased by £3.7 million (29%) to £16.5 million (2014: £12.8 million). Of this increase, £2.2 million relates to the operating costs of the Partnership stores. The operating costs of the new stores at Enfield, Oxford 2 and Chester account for £0.5 million of the increase. The prior period figure included rates rebates of £0.4 million. The remaining increase of £0.6 million is due to inflationary increases, notably in online search expenditure, and an increased investment in operational staff.
Administrative expenses have increased by £0.5 million as a result of an increase in the non-cash share based payments charge, which represents £1.3 million of the overall £4.7 million expense.
Store EBITDA
Store EBITDA for the six month period included in the income statement was £33.1 million, an increase of 26% from the prior period (2014: £26.2 million). The increase including the Partnership stores on a proforma basis in the prior period is 12% (2014: £29.6 million) (see Portfolio Summary).
The overall store EBITDA margin increased to 67.0% (2014: 66.3%).
Interest
The loan interest expense during the period was £5.4 million, £0.3 million higher than the same period last year, due to the higher debt levels following the acquisition of the Partnership, in part offset by the lower average cost of debt. Capitalised interest in the period was £0.3 million, an increase of £0.1 million from the prior period. The interest capitalised in the period is principally on our Cambridge development.
Results
The 30% increase in adjusted profit before tax to £23.9 million is reconciled in the table below:
| Movement in adjusted profit before tax | £m |
|---|---|
| Adjusted profit before tax for the six months to 30 September 2014 | 18.4 |
| Increase in gross profit | 6.6 |
| Increase in administrative expenses | (0.5) |
| Decrease in share of associates’ recurring profit | (0.5) |
| Increase in net interest payable | (0.2) |
| Increase in capitalised interest | 0.1 |
| Adjusted profit before tax for the six months to 30 September 2015 | 23.9 |
The Group’s statutory profit before tax for the period was £59.6 million, an increase of 69% from £35.3 million for the same period last year. This increase is due to the increase in adjusted profit before tax, coupled with a higher revaluation surplus in the period.
The table below reconciles the statutory profit before tax to the adjusted profit before tax:
| Profit before tax analysis | Six months ended 30 September 2015 £m |
Six months to 30 September 2014 £m |
|---|---|---|
| Profit before tax | 59.6 | 35.3 |
| Adjusted for: Gain on revaluation of investment properties |
(34.8) | (15.3) |
| Change in fair value of interest rate derivatives | (0.5) | 0.2 |
| Gains on surplus land | – | (1.3) |
| Share of non-recurring gains in associates | (0.4) | (0.5) |
| Adjusted profit before tax | 23.9 | 18.4 |
Diluted EPRA earnings per share was 15.1 pence (2014: 13.0 pence), an increase of 16% from the same period last year. The percentage increase is lower than that reported for adjusted profit before tax due to the impact of the placing an additional 14.4 million shares on 19 November 2014 to part fund the acquisition of the Big Yellow Limited Partnership stores.
Cash flow growth
Cash flows from operating activities (after net finance costs) have increased by 44% to £25.7 million for the period (2014: £17.8 million), in line with the growth in store EBITDA, in addition to a more favourable working capital movement than in the prior period. These operating cash flows are after the ongoing maintenance costs of the stores, which are on average £35,000 per store per annum. The Group’s net debt is broadly unchanged over the period at £276.7 million (March 2015: £277.1 million).
| Six months ended 30 September 2015 £m |
Six months ended 30 September 2014 £m |
|
|---|---|---|
| Cash generated from operations | 30.6 | 22.9 |
| Finance costs (net) (see below) | (4.9) | (5.1) |
| Free cash flow | 25.7 | 17.8 |
| Capital expenditure | (8.2) | (6.9) |
| Net investment in associates | – | (1.9) |
| Dividend received from associate | 0.1 | – |
| Surplus land sales | – | 2.8 |
| Cash flow after investing activities | 17.6 | 11.8 |
| Non-recurring finance costs (see below) | – | (3.9) |
| Dividends | (17.5) | (11.8) |
| Issue of share capital | 0.4 | 0.7 |
| (Decrease)/increase in borrowings | (4.1) | 8.0 |
| Net cash (outflow)/inflow | (3.6) | 4.8 |
The capital expenditure in the period principally relates to the costs to acquire and construct our new store in Cambridge.
The non-recurring finance costs incurred in the prior period relate to the cancellation of interest rate swaps (£1.4 million) and arrangement fees and costs incurred in completing the refinancing of the bank and M&G loans (£2.5 million).
Taxation
The Group is a Real Estate Investment Trust (“REIT”). We benefit from a zero tax rate on our qualifying self storage earnings. We only pay corporation tax on the profits attributable to our residual business, comprising primarily of the sale of packing materials and insurance, and management fees earned by the Group.
There is a £0.2 million tax charge in the non-exempt residual business for the period ended 30 September 2015 (six months to 30 September 2014: £nil). This is due to the increase in taxable profit following the acquisition of the remaining two thirds of Big Yellow Limited Partnership.
Dividends
REIT regulatory requirements determine the level of Property Income Dividend (“PID”) payable by the Group. A PID of 12.1 pence per share is proposed as the total interim dividend, an increase of 16% from 10.4 pence per share PID for the same period last year.
The interim dividend will be paid on 7 January 2016. The ex-div date is 10 December 2015 and the record date is 11 December 2015.
Financing and treasury
Our financing policy is to fund our current needs through a mix of debt, equity and cash flow to allow us to selectively build out our development pipeline and achieve our strategic growth objectives, which we believe improve returns for shareholders. We aim to ensure that there are sufficient medium-term facilities in place to finance our committed development programme, secured against the freehold portfolio, with debt serviced by our strong operational cash flows.
We maintain a keen watch on medium and long-term rates and the Group’s policy in respect of interest rates is to maintain a balance between flexibility and hedging of interest rate risk.
The table below summarises the Group’s debt facilities at 30 September 2015:
| Debt | Expiry | Facility | Drawn | Average cost |
|---|---|---|---|---|
| Aviva Loan | April 2027 | £93.3 million | £93.3 million | 4.9% |
| M&G loan | June 2022 | £70 million | £70 million | 3.7% |
| Bank loan (Lloyds & HSBC) | October 2020, with option for an additional year | £170 million | £118 million | 2.6% |
| Total | Average term 7.0 years | £333.3 million | £281.3 million | 3.7% |
The Group’s loan with Aviva is at a fixed rate and amortises to £60 million over the course of its 15 year term.
During the period, the Group drew down the seven year £70 million M&G loan, repaying simultaneously a £70 million bridging loan that had been provided by Lloyds. The M&G loan is 50% fixed and 50% floating.
In October 2015, the Group extended the term of its bank loan from August 2019 to October 2020, with an option to extend for a further year to October 2021. The margin payable on the income cover ratchet was also reduced by 25 bps on both the term and the revolving debt. The revolving debt now pays a margin of 125 bps and the term debt 150 bps. Were the term and the revolver to be fully drawn, the weighted average margin would be 137.5 bps. This reduction in margin is reflected in the table above. The Group has an option to increase the amount of the revolving loan facility by £80 million during the course of the loan’s term.
The Group has an interest rate derivative of £30 million expiring in September 2016 at a pre-margin cost of 2.8%. The bank loan requires 50% of all drawn debt to be hedged or fixed.
The Group was comfortably in compliance with its banking covenants at 30 September 2015.
The net debt to gross property assets ratio is 26% (2014: 28%) and the net debt to adjusted net assets ratio is 33% (2014: 35%).
Property
Development pipeline
The status of the Group’s development pipeline is summarised in the table below:
| Site | Location | Status | Anticipated capacity |
|---|---|---|---|
| Cambridge | Adjacent to the Cambridge Retail Park, Newmarket Road | Under construction, store due to open in January 2016, cost to complete of £2.9 million |
55,000 sq ft |
| Guildford | Prime location in centre of Guildford on Woodbridge Meadows | Consent granted, store due to open in Spring 2017, cost to complete of £6.0 million |
56,000 sq ft |
| Wandsworth, London |
Possible extension of 30,000 sq ft to existing 47,000 store | Planning under negotiation | Additional 30,000 sq ft |
| Camberwell, London |
Located in prominent location on Southampton Way | Site recently acquired, planning application to be prepared | 55,000 to 60,000 sq ft |
| Kings Cross, London |
Prominent location on York Way |
Site recently acquired, planning application to be prepared | 85,000 to 90,000 sq ft |
| Battersea, London |
Prominent location on junction of Lombard Road and York Road (South Circular) | Potential redevelopment of Big Yellow store and adjoining retail in a mixed use residential scheme to increase our self storage capacity Early design discussions with the Borough Council |
Up to an additional 60,000 sq ft |
| Newcastle | Prime location on Scotswood Road |
Negotiations ongoing with existing long leasehold tenant to obtain vacant possession | 50,000 sq ft to 60,000 sq ft |
| Manchester | Prime location on Water Street in central Manchester | Planning under negotiation | 50,000 sq ft to 70,000 sq ft |
The committed capital expenditure for the remainder of the financial year is approximately £33.5 million, which includes the acquisitions of Kings Cross and Camberwell, and the completion of the construction of Cambridge. The current committed capital expenditure for the next financial year is the construction of Guildford which amounts to approximately £6 million.
The Group manages the construction and fit-out of its stores in-house, as we believe it provides both better control and quality, and we have an excellent record of building stores on time and within budget.
Investment property
The Group’s investment properties are carried at the half year at Directors’ valuation. They are valued externally by Cushman and Wakefield LLP (“C&W”) at the year end. The Directors’ valuations reflect the latest cash flows derived from each of the stores at the end of September. In performing the valuations, the Directors consider that the core assumptions underpinning the valuations including the stabilised occupancy assumptions used, rental growth, and discount rates used by C&W in the March 2015 valuations, are still appropriate at the September valuation date. In addition, following consultation with C&W, the Directors assessed that self storage cap rates have moved in by 5 bps since March, and this has been reflected in the valuations.
At 30 September 2015 the total value of the Group’s properties is shown in the table below:
| Analysis of property portfolio | No of locations | Value at 30 September 2015 £m |
Revaluation movement in the period £m |
|---|---|---|---|
| Investment property | 70 | 1,052.5 | 34.4 |
| Investment property under construction | 4 | 13.7 | 0.4 |
| Investment property total | 74 | 1,066.2 | 34.8 |
| Surplus land | 1 | 3.3 | – |
| Total | 75 | 1,069.5 | 34.8 |
The revaluation surplus for the open stores in the period was £34.4 million, as the growth in cash flows feed through to the valuation, coupled with the 5 bps inward movement on the cap rates.
The initial yield on the portfolio before administration expenses and assuming no rental growth, is 6.6% rising to a stabilised yield of 7.2% (31 March 2015: 6.4% rising to 7.4%).
Surplus land
At 30 September 2015 the Group owned £3.3 million of land surplus to our requirements at one site. We aim to sell this surplus land once we have maximised its realisable value through planning improvements. The site is held at the lower of cost and net realisable value and has not been externally valued.
In the prior period, the Group sold its surplus site at Guildford Central for £2.8 million, representing a profit over book value of £1.3 million.
Capital Goods Scheme receivable
At 30 September 2015 we had a receivable of £9.4 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. To date, we have received payments under the Capital Goods Scheme of £4.3 million.
Net asset value
The adjusted net asset value is 536.4 pence per share (see note 14), up 5% from 510.4 pence per share at 31 March 2015. The table below reconciles the movement from 31 March 2015.
| Movement in adjusted net asset value | Equity shareholders’ funds £m |
EPRA adjusted NAV pence per share |
|---|---|---|
| 1 April 2015 | 801.4 | 510.4 |
| Adjusted profit before tax | 23.9 | 15.1 |
| Equity dividends paid | (17.5) | (11.1) |
| Revaluation movements (including share of associate) | 35.4 | 22.4 |
| Movement in purchaser’s cost adjustment | 2.1 | 1.3 |
| Other movements (eg share schemes) | 1.7 | (1.7) |
| 30 September 2015 | 847.0 | 536.4 |
During the period, the Group cancelled the 1.4 million treasury shares in issue.
Armadillo Self Storage
The Group has a 20% investment in Armadillo Storage Holding Company Limited and a 20% investment in Armadillo Storage Holding Company 2 Limited. In the consolidated accounts of Big Yellow Group PLC, our investments in the vehicles are treated as associates using the equity accounting method.
The occupancy of the combined two portfolios is 486,000 sq ft, against a total capacity of 673,000 sq ft, with growth of 23,000 sq ft over the period. The stores’ occupancy at 30 September 2015 was 72.2% (31 March 2015: 68.8%). The net rent achieved at 30 September 2015 by the Armadillo stores is £15.46 per sq ft, an increase of 3% from the same time last year. The revenue of the portfolios increased by 4% to £4.5 million for the six months to 30 September 2015 (2014: £4.3 million).
The Armadillo Partnerships made a combined operating profit of £2.1 million in the period, of which Big Yellow’s share is £0.4 million. After net interest costs, the revaluation of investment properties, deferred tax on the revaluation surplus and interest rate derivatives, the profit for the period was £3.8 million, of which the Group’s share was £0.8 million.
Big Yellow has a five year management contract in place in each Partnership. For the period to 30 September 2015, the Group earned management fees of £0.4 million.
The Group’s share of the interim dividend declared for the period is £181,000, representing a 4.9% yield on our investment for the six months.
James Gibson
Chief Executive Officer
16 November 2015
John Trotman
Chief Financial Officer
16 November 2015
- Go to
- Big Yellow Limited Partnership
- Trading performance
- Store occupancy
- Pricing and rental yield
- Security of income
- Revenue
- Operating costs
- Store EBITDA
- Interest
- Results
- Cash flow growth
- Taxation
- Dividends
- Financing and treasury
- Property
- Capital Goods
Scheme receivable - Net asset value
- Armadillo Self Storage