TIDMSAFE
RNS Number : 6217L
Safestore Holdings plc
14 January 2021
14 January 2021
Safestore Holdings plc
("Safestore", "the Company" or "the Group")
Results for the year ended 31 October 2020
A strong performance for the year demonstrating resilience of
business model
Key measures
Year Ended Year Ended Change
31 October 31 October Change-CER
2020 2019 (1)
-------------------------------- ------------ ------------ --------- -------------
Underlying and Operating
Metrics- total
Revenue GBP162.3m GBP151.8m 6.9% 7.0%
Underlying EBITDA(2) GBP93.9m GBP87.5m 7.3% 7.4%
Closing Occupancy (let sq
ft- million)(3) 5.454 4.978 9.6% n/a
Closing Occupancy (% of
MLA)(4) 79.5% 77.0% +2.5ppts n/a
Average Storage Rate(5) GBP26.44 GBP26.09 1.3% 1.4%
Adjusted Diluted EPRA Earnings
per Share(6) 30.2p 28.5p 6.0% n/a
Free Cash Flow(7) GBP68.8m GBP61.2m 12.4% n/a
EPRA Basic NAV per Share(13) GBP5.32 GBP4.52 17.7% n/a
Underlying and Operating
Metrics- like-for-like (8)
Storage Revenue GBP129.1m GBP123.8m 4.3% 4.3%
Ancillary Revenues GBP27.3m GBP27.4m -0.4% -0.4%
Revenue GBP156.4m GBP151.2m 3.4% 3.4%
Underlying EBITDA(2) GBP91.8m GBP87.9m 4.4% 4.4%
Closing Occupancy (let sq
ft- million)(3) 5.171 4.940 4.7% n/a
Closing Occupancy (% of
MLA)(4) 80.8% 77.6% +3.2ppts n/a
Average Occupancy (let sq
ft- million)(3) 4.854 4.743 2.3% n/a
Average Storage Rate(5) GBP26.61 GBP26.10 2.0% 2.0%
Statutory Metrics
Operating profit(9) GBP212.2m GBP163.7m 29.6% n/a
Profit before tax(9) GBP197.9m GBP147.3m 34.4% n/a
Diluted Earnings per Share 84.0p 62.6p 34.2% n/a
Dividend per Share 18.6p 17.5p 6.3% n/a
Cash inflow from operating GBP75.7m GBP66.6m 13.7% n/a
activities
Highlights
Covid-19
-- Health, safety and wellbeing of our employees and customers of paramount importance
-- UK government's Covid-19 related support schemes not accessed
-- Stores operating normally with full observation of social
distancing rules and protective personal equipment provided to
employees
Robust Financial Performance
Despite the challenges of operating within the pandemic and the
effects of various lockdowns, the business has performed robustly.
Specifically, the highlights were :
-- Group revenue for the year up 6.9% (up 7.0% in CER(1) )
-- Like-for-like(8) Group revenue for the year in CER(1) up 3.4%:
o UK up 3.3%
o Paris up 3.8%
-- Underlying EBITDA(2) up 7.4% in CER(1) which, combined with
an increased gain on investment properties of GBP126.5m (FY2019:
GBP84.2m), resulted in statutory operating profit(9) of GBP212.2m
(FY2019: GBP163.7m)
-- Adjusted Diluted EPRA Earnings per Share(6) up 6.0% at 30.2
pence (FY2019: 28.5 pence). Diluted Earnings per Share was 84.0
pence (FY2019: 62.6 pence) largely due to the higher property
valuation gain in FY2020
-- 5.8% increase in the final dividend to 12.7 pence (FY2019:
12.0 pence) giving a total for the year of 18.6 pence (FY2019: 17.5
pence)
Operational Focus
-- Continued balanced approach to revenue management and
efficient marketing platform driving returns:
o Like-for-like(8) closing occupancy of 80.8% up 3.2ppts on 2019
(FY2019: 77.6%)
o Like-for-like(8) average occupancy for the year up 2.3%
o Like-for-like(8) average storage rate(5) for the year up 2.0%
in CER(1)
o Total average storage rate(5) up 1.4% in CER(1) reflecting
dilutive impact of new store openings
-- New stores trading well and in line with business plans
Strategic Progress
-- 125,000 sq ft of new MLA added in the UK with openings in
London Carshalton, Gateshead and Sheffield
-- Further new store openings scheduled at Paris-Magenta and Birmingham-Middleway in 2021
-- Freehold interest of existing Basildon store acquired
-- New 15-year lease signed on Notting Hill store
-- Extensions of Bedford, Barking and Chingford stores, adding 37,000 sq ft
-- Development sites London-Bermondsey and London-Park West Place acquired in the period
-- Acquisition of Fort Box Self Storage (two London stores) on 5
November 2019 for GBP14.3m(10)
-- On 30 December 2019 the Group entered the Spanish self
storage market with the acquisition of OMB Self Storage SL trading
as OhMyBox! (4 stores in Barcelona) for EUR17.25m(10)
-- Joint venture(14) with Carlyle acquired Lokabox in Belgium
(six prime locations in Brussels (2), Liege (2), Charleroi and
Nivelles) in June 2020 and Opslag XL in the Netherlands (two
freehold locations in The Hague and Hilversum, and one short
leasehold in Amsterdam) in December 2020
-- Continued development of Corporate and social responsibility
("CSR") agenda illustrated by a GRESB "A" rating to go alongside
the EPRA Silver and Most Improved Awards for the 2019
disclosures
Strong and Flexible Balance Sheet
-- Group loan-to-value ratio ("LTV"(11) ) at 29% (31 October
2019: 31%) and interest cover ratio ("ICR"(12) ) at 9.0x (31
October 2019: 8.9x)
-- Unutilised bank facilities of GBP148m at October 2020 and no
borrowings to refinance before June 2023
-- 16.8% increase in property valuation (including investment
properties under construction) driven by the acquisitions of Fort
Box and OhMyBox! ("OMB") in Spain (10) , new stores, revisions to
exit cap rates, stabilised occupancy assumptions and FX.
Frederic Vecchioli , Safestore's Chief Executive Officer,
commented:
"Through much of the year, the Covid-19 pandemic has presented
unprecedented challenges and I would like to thank our staff for
the tremendous effort and commitment demonstrated over recent
months, allowing the business to react positively to the Covid-19
crisis. As we navigate through the current Covid-19 restrictions, I
am confident that the business will continue to respond well to the
challenge.
"Despite the pandemic, the Group's business model demonstrated
its resilience resulting in another strong performance for the
year. All geographies have performed well and the UK business has
shown particularly pleasing momentum, growing like-for-like
occupancy by 4.2ppts to 81.0% at the end of the year.
"The Group has also made significant strategic progress during
the year successfully expanding into three new countries in the
last 18 months. After last year's acquisition of M3 in the
Netherlands, through our joint venture (14) with Carlyle, the Group
entered the Spanish market with the acquisition of four stores in
Barcelona early in the year (10) . This was followed by entry into
the Belgian market with the acquisition of six stores, also through
our joint venture with Carlyle. All new geographies are currently
performing ahead of their business plans. The acquisition of Fort
Box (10) brought another two London stores into the portfolio and,
further to our successful openings this year in Carshalton,
Gateshead and Sheffield, we plan to open new stores in
Birmingham-Middleway and Paris Magenta during the 2020/21 financial
year.
"We believe the resilient characteristics of the self storage
industry, together with our leading market positions across the UK
and Paris, place the business in a strong position to withstand the
economic uncertainty arising from Covid-19. Safestore's increasing
scale allows us to invest in our digital marketing platforms and
service proposition, and this remains a key competitive advantage
in a fragmented industry.
"Our efficient balance sheet remains strong, with a low cost of
debt, GBP148m of available bank facilities, significant covenant
headroom and no imminent refinancing required. This financing
capacity, combined with the strong free cash generation of the
business, allows us to continue to target selected development and
acquisition opportunities.
"Since 2013, we have added 19.5ppts of occupancy to the 113
stores still in the Group today, which now have an occupancy of
82.6% (an average increase of 2.8ppts per annum). Over that period
the same stores have grown average rate by 13.6% (a CAGR of 1.8%
per annum).
"Despite ending the year with record levels of occupancy, the
business still has 1.4m square feet of currently unlet space in our
existing fully invested estate, representing a significant organic
growth opportunity. Our leading market positions in the UK and
Paris, in addition to our presence in Spain and, through our joint
venture, in Netherlands and Belgium, combined with our balance
sheet strength and resilient business model, leave us well
positioned for the future.
Pleasingly, the strong performance of the final quarter has
continued into the first two months of the new financial year.
Whilst acknowledging the potential for disruption arising from
current COVID restrictions, the inherent resilience of our business
model as well as our recent and current trading allow me to look
forward with confidence to the 2020/21 financial year."
Notes
We prepare our financial statements using IFRS. However, we also
use a number of adjusted measures in assessing and managing the
performance of the business. These include like-for-like figures,
to aid in the comparability of the underlying business as they
exclude the impact on results of purchased, sold, opened or closed
stores. These metrics have been disclosed because management
reviews and monitors performance of the business on this basis. We
have also included a number of measures defined by EPRA, which are
designed to enhance transparency and comparability across the
European Real Estate sector, see notes 6 and 13 below and "Non-GAAP
financial information" in the notes to the financial
statements.
1 - CER is Constant Exchange Rates (Euro denominated results for
the current period have been retranslated at the exchange rate
effective for the comparative period, in order to present the
reported results on a more comparable basis).
2 - Underlying EBITDA is defined as Operating Profit before
exceptional items, share-based payments, corporate transaction
costs, change in fair value of derivatives, gain/loss on investment
properties, variable lease payments, depreciation payments and the
share of associate's depreciation, interest and tax . Underlying
EBITDA therefore excludes all leasehold rent charges. Underlying
profit before tax is defined as underlying EBITDA less leasehold
rent, depreciation charged on property, plant and equipment and net
finance charges relating to bank loans and cash.
3 - Occupancy excludes offices but includes bulk tenancy. As at
31 October 2020, closing occupancy includes 14,000 sq ft of bulk
tenancy (31 October 2019: 14,000 sq ft).
4 - MLA is Maximum Lettable Area. At 31 October 2020, Group MLA
was 6.86m sq ft (FY2019: 6.47m sq ft).
5 - Average Storage Rate is calculated as the revenue generated
from self storage revenues divided by the average square footage
occupied during the period in question.
6 - Adjusted Diluted EPRA EPS is based on the European Public
Real Estate Association's definition of Earnings and is defined as
profit or loss for the period after tax but excluding corporate
transaction costs, change in fair value of derivatives, gain/loss
on investment properties and the associated tax impacts. The
Company then makes further adjustments for the impact of
exceptional items, IFRS 2 share-based payment charges, exceptional
tax items and deferred tax charges. This adjusted earnings is
divided by the diluted number of shares. The IFRS 2 cost is
excluded as it is written back to distributable reserves and is a
non-cash item (with the exception of the associated National
Insurance element). Therefore neither the Company's ability to
distribute nor pay dividends are impacted (with the exception of
the associated National Insurance element). The financial
statements will disclose earnings on a statutory, EPRA and Adjusted
Diluted EPRA basis and will provide a full reconciliation of the
differences in the financial year in which any LTIP awards may
vest.
7 - Free cash flow is defined as cash flow before investing and
financing activities but after leasehold rent payments.
8 - Like-for-like adjustments have been made to remove the
impact of the acquisition of Valencia, Calabria, Glories and Marina
in Barcelona, the acquisition of Chelsea and St John's Wood in
London, the 2020 openings of Carshalton, Sheffield and Gateshead,
the 2019 acquisition of Heathrow, and the 2019 openings of
Peterborough, Birmingham-Merry Hill and Pontoise.
9 - Operating profit increased by GBP48.5m to GBP212.2m (FY2019:
GBP163.7m) principally as a result of an increase in the gain on
Investment properties of GBP42.3m to GBP126.5m (FY2019: GBP84.2m),
as well as an increase of GBP6.4m or 7.3% in Underlying EBITDA as a
result of stronger trading performance. Profit before tax
additionally included an increase in the fair value of derivatives
of GBP0.2m (FY2019: net loss GBP2.1m).
10 - The consideration paid for OMB on 30 December 2019 was
GBP14.3m net of cash acquired plus costs of approximately GBP0.3m
and for Fort Box Self Storage on 5 November 2019 was GBP13.6m plus
costs of approximately GBP0.7m, both net of cash acquired and both
are subject to customary working capital adjustment.
11 - LTV ratio is Loan-to-Value ratio, which is defined as gross
debt (excluding lease liabilities) as a proportion of the valuation
of investment properties and investment properties under
construction (excluding lease liabilities).
12 - ICR is interest cover ratio, and is calculated as the ratio
of underlying EBITDA after leasehold rent to underlying finance
charges.
13 - EPRA basic NAV per share is an industry standard measure
recommended by EPRA. The basis of calculation is set out in the
"Earnings per share" note to the financial statements.
14 - The joint venture with Carlyle, which represents a 20%
investment, has been accounted for as an associate using the equity
method of accounting, as described in the "Investment in
associates" note to the financial statements.
Summary
Despite the impact of the Covid-19 pandemic, the Group has
delivered a strong performance in 2020.
In 2020, the Group delivered 6.0% growth in Adjusted Diluted
EPRA earnings per share largely driven by organic growth. Total
Group revenue increased by 6.9% (7.0% CER(1) ) with a strong
performance in the UK (+5.8%) and continued strength in Paris
(+4.8%). In addition, the newly acquired Spanish business
contributed GBP2.2m of revenue. On a like-for-like (8) basis in CER
(1) , Group revenue increased by 3.4% with the UK up 3.3% and Paris
up 3.8%. The Group's like-for-like (8) closing occupancy increased
by 3.2 percentage points ("ppts") to a record 80.8% with the
like-for-like average storage rate (5) up 2.0% at CER (1) .
Prior to the spring 2020 Covid-19 lockdown, the Group was
trading very strongly. It recovered over the summer as lockdowns
were relaxed and again performed strongly in the fourth quarter.
Excellent enquiry generation and conversion, driven by our digital
marketing platform and our ongoing commitment to investing in and
supporting our staff, has resulted in like-for-like(8) closing
occupancy in the UK growing by 4.2ppts to 81.0%. Growth in
occupancy across the UK has been healthy with the UK regions and
London and the South East all performing well.
In the UK, we completed the acquisition of Fort Box (two London
stores in St John's Wood and Chelsea) in November 2019 for GBP14.3m
(10) including costs. In addition, three new stores in
London-Carshalton, Gateshead and Sheffield were opened in the
period.
In Paris, our performance has also been strong with
like-for-like (8) revenue growing by 3.8% driven by a like-for-like
growth in average storage rate of 3.0% combined with a
like-for-like average occupancy growth of 1.0%. Like-for-like (8)
closing occupancy ended the year at 80.1% (FY2019: 80.7%). This is
the 22(nd) consecutive year of revenue growth in Paris with average
growth over the last six years of approximately 5%.
In June 2020, the Group's joint venture (14) with Carlyle
acquired Lokabox in Belgium which has six stores in Brussels,
Liege, Charleroi and Nivelles. The Group earns management fees and
a 20% share of the profits of the joint venture (14) which are
immediately accretive to earnings.
On 30 December 2019, the Group acquired OMB for EUR17.25m, an
implied first year net operating income yield of 5.2%. OMB had four
leasehold stores in Barcelona and the option to acquire the
freehold of one of the stores was exercised in September 2020. The
business has been trading in line with its business case.
Group underlying EBITDA(2) of GBP93.9m increased by 7.4% at
CER(1) on the prior year. The Group's EBITDA(2) performance,
combined with modest increases in leasehold rent and finance costs,
resulted in a 6.0% increase in Adjusted Diluted EPRA EPS(6) in the
period to 30.2 pence (FY2019: 28.5 pence). Statutory operating
profit increased by GBP48.5m to GBP212.2m (FY2019: GBP163.7m)
principally as a result of an increase in the gain on investment
properties of GBP42.3m to GBP126.5m (FY2019: GBP84.2m), along with
an increase of GBP6.4m or 7.3% in Underlying EBITDA(2) as a result
of stronger trading performance.
Our property portfolio valuation, including investment
properties under construction, increased in the year by 16.8%,
driven by the acquisitions of Fort Box (10) and OMB in Spain (10) ,
new stores, revisions to exit cap rates, stabilised occupancy
assumptions and FX. After exchange rate movements, the portfolio
valuation increased to GBP1,571.5m with the UK portfolio up
GBP134.1m to a total UK value of GBP1,146.9m and the French
portfolio increasing by EUR61.8m to EUR447.9m.
Reflecting the Group's strong trading performance, the Board is
pleased to recommend a 5.8% increase in the final dividend to 12.7
pence per share (FY2019: 12.0 pence) resulting in a full year
dividend up 6.3% to 18.6 pence per share (FY2019: 17.5 pence). Over
the last seven years, the Group has grown the dividend by 223% or
12.85 pence per share.
Outlook
Covid-19 continues to create uncertainty but we believe that the
performance of the business through the crisis to date demonstrates
the business model's resilience and we anticipate that the Group is
in a good position to withstand any ongoing challenges presented by
the crisis.
In the last five financial years, Safestore has strengthened its
market-leading positions in the UK and Paris with the acquisitions
of Space Maker, Alligator, Fort Box and our store at Heathrow, as
well as opening fifteen new stores and establishing a short term
pipeline of a further five new stores. In addition, the Group has
entered new markets in Spain together with Belgium and the
Netherlands through our joint venture with Carlyle. Excluding the
joint venture, there is 1.4m sq ft of fully invested unlet space
available, offering significant operational upside in the existing
portfolio. We remain focused on further optimising the Group's
operational performance whilst our balance sheet strength and
flexibility provide us with the opportunity to consider further
selective development and acquisition opportunities in our key
markets.
The strong performance of the final quarter of 2019/20 has
continued into the new financial year with like-for-like Group
revenue (CER (1) ) up 6.4% for the first two months. Although
current COVID restrictions have the potential for disruption, the
aforementioned inherent resilience of our business model, combined
with encouraging current trading, means that we look forward to the
2020/21 financial year with confidence.
Enquiries
Safestore Holdings plc 020 8732 1500
Frederic Vecchioli, Chief Executive Officer
Andy Jones, Chief Financial Officer
www.safestore.com
Instinctif Partners 07917 178 920
Guy Scarborough
Catherine Wickman
A conference call for analysts will be held at 09:30am
today.
For dial-in details of the presentation please contact:
Guy Scarborough (guy.scarborough@instinctif.com or telephone on
07917 178920).
Notes to Editors:
-- Safestore is the UK's largest self storage group with 159
stores at 31 October 2020, comprising 127 wholly owned stores in
the UK (including 71 in London and the South East with the
remainder in key metropolitan areas such as Manchester, Birmingham,
Glasgow, Edinburgh, Liverpool, Sheffield, Leeds, Newcastle and
Bristol) and 28 wholly owned stores in the Paris region and
recently acquired 4 stores in Barcelona. In addition, the Group
operates 6 stores in the Netherlands and 6 stores in Belgium under
a joint venture agreement with Carlyle.
-- Safestore operates more self storage sites inside the M25 and
in central Paris than any competitor providing more proximity to
customers in the wealthiest and more densely populated UK and
French markets.
-- Safestore was founded in the UK in 1998. It acquired the
French business "Une Pièce en Plus" ("UPP") in 2004 which was
founded in 1998 by the current Safestore Group CEO Frederic
Vecchioli.
-- Safestore has been listed on the London Stock Exchange since
2007. It entered the FTSE 250 index in October 2015.
-- The Group provides storage to around 75,000 personal and business customers.
-- As at 31 October 2020, Safestore had a maximum lettable area
("MLA") of 6.862 million sq ft (excluding the expansion pipeline
stores, and the Carlyle Joint Venture) of which 5.454 million sq ft
was occupied.
-- Safestore employs around 660 people in the UK, Paris and Barcelona.
Chairman's Statement
Covid-19
A large part of the last year has involved dealing with the
unprecedented challenges presented by the Covid-19 pandemic. Our
priority throughout the crisis has been, and will continue to be,
the safety and wellbeing of our staff and customers. The Group has
taken measures to make our stores and Head Office Covid-secure,
equipping them with Perspex screens, visors, face masks, hand
sanitiser and ensuring social distancing measures are
implemented.
After a year in the role, I continue to be impressed by the
passion, enthusiasm and knowledge of the store and Head Office
teams. In addition, the last year has demonstrated a commitment and
resilience that has enabled the continued operation of the stores
throughout the crisis and which has delivered such a robust set of
results.
I would like to take this opportunity to thank all my colleagues
throughout the Group for their exceptional contributions this
year.
Financial and Strategic Progress
The challenges of the last year have demonstrated the resilience
of the business model at Safestore and I am delighted to announce,
on behalf of the Board of the Group, a strong set of results for
the year ended 31 October 2020.
Our purpose remains simple, to continue to add stakeholder value
by developing profitable and sustainable spaces that allow
individuals, businesses and local communities to thrive . Our
strategy is underpinned by our values, our behaviours and our
governance structure which shape our culture and remain central to
the way we conduct our business.
Over the past year the Group has continued to make strategic
progress. The Group has now opened fifteen stores over the last
five years and all are performing well. Fort Box Self Storage and
OMB in Barcelona, acquired in November 2019 and December 2019
respectively, have been fully integrated into the business and we
currently have two additional new sites opening over the next
twelve months.
Management's first priority remains to maximise the economic
return on our existing store portfolio and its 1.4m sq ft of fully
invested unlet space, building on the operational improvements made
over the previous six years.
Our joint venture (14) with Carlyle and our OMB acquisition in
Barcelona provide us with exciting platforms for entering into new
attractive geographies. Lokabox in Belgium, acquired by the joint
venture (14) with Carlyle, is performing strongly and complements
the joint venture's previous acquisition of M3 in the Netherlands.
Safestore's highly scalable platform will allow us to take
advantage of further opportunities in due course.
Corporate and social responsibility ("CSR") remains important to
Safestore's business processes and operations. Our CSR agenda
developed significantly in the year and is covered in the
"Sustainability" section of our Annual Report. I believe the Group
has made significant progress in this area, illustrated by a GRESB
"A" rating to go alongside the EPRA Silver and Most Improved Awards
for the 2019 disclosures.
This year's performance comes on the back of a sustained period
of excellent performance by the company. Over the last seven years,
the management and store teams have delivered a Total Shareholder
Return of 661.3%, ranking at number one in the property sector.
Since flotation in 2007, Safestore has also delivered the highest
Total Shareholder Return of any UK listed self storage
operator.
Financial Results
Revenue for the year was GBP162.3m, 6.9% ahead of last year
(FY2019: GBP151.8m), or 7.0% ahead on a constant currency basis.
Like-for-like (8) revenue was up 3.4% in constant currency. This
result was driven by a good performance in the UK which grew
like-for-like (8) revenue by 3.3%, combined with another strong
performance by Une Pièce en Plus, our Parisian business, which grew
like-for-like (8) revenue by 3.8%.
Underlying EBITDA(2) increased by 7.4% to GBP94.0m (FY2019:
GBP87.5m) on a constant currency basis. Underlying EBITDA(2) after
rental costs increased by 6.4% to GBP81.1m (FY2019: GBP76.2m).
Operating profit increased by GBP48.5m from GBP163.7m in 2019 to
GBP212.2m in 2020, reflecting a higher investment property gain in
2020, combined with an increase in underlying EBITDA(2) .
Adjusted Diluted EPRA earnings per share(6) grew by 6.0% to 30.2
pence (FY2019: 28.5 pence). Adjusted Diluted EPRA earnings per
share(6) has grown by 19.5 pence or 182% over the last seven years.
Statutory diluted earnings per share increased to 84.0 pence
(FY2019: 62.6 pence) as a result of the increase in Adjusted
Diluted EPRA earnings per share(6) combined with an increased gain
on valuation of investment properties.
Capital Structure
The Group's balance sheet remains robust with a Group LTV (11)
ratio of 29% (FY2019: 30%) and an ICR(12) of 9.0x (FY2019: 8.9x).
This represents a level of gearing we consider appropriate for the
business to enable the Group to increase returns on equity,
maintain financial flexibility and achieve our medium term
strategic objectives.
Dividend
Reflecting the Group's strong trading performance, the Board is
pleased to recommend a 5.8% increase in the final dividend to 12.7
pence per share (FY2019: 12.0 pence per share) resulting in an
increase of 6.3% in the total dividend to 18.6 pence per share for
the year (FY2019: 17.5 pence per share). The total dividend for the
year is covered 1.62 times by Adjusted EPRA diluted earnings (1.63
times in 2019). The Group's dividend has increased by 223% in the
last seven years, during which period the Group has returned to
shareholders a total of 95.1 pence per share. Shareholders will be
asked to approve the dividend at the Company's Annual General
Meeting on 17 March 2021 and, if approved, the final dividend will
be payable on 8 April 2021 to Shareholders on the register at close
of business on 5 March 2021.
The Board remains confident in the prospects for the Group and
will continue its progressive dividend policy in 2020 and beyond.
In the medium term it is anticipated that the Group's dividend will
grow at least in line with Adjusted Diluted EPRA Earnings per
Share(6) .
David Hearn
13 January 2021
Covid-19
At Safestore, the health and wellbeing of our customers and
colleagues is our absolute priority. Throughout the various stages
of the pandemic, we implemented strict safeguarding measures across
our portfolio, in line with government guidance in each geography,
to maintain social distancing and ensure we can operate safely,
protect our staff, and allow necessary access for our
customers.
All our stores in the UK, Paris, Barcelona and the Netherlands
remained open or accessible during the first lockdowns but the
reception areas were closed, the staffing and opening hours were
reduced and we removed the provision of services that involve
person-to-person contact. Access to our stores is largely automated
and, in general, the premises have relatively low footfall. We
supported our employees with alternative means of transport to work
where public transport continues to be a challenge.
The process for new enquiries remained unchanged with customers
able to enquire via our website or phone, and we adjusted the new
let process so that contracts were concluded electronically. In
addition, we intensified the daily cleaning levels of our stores,
especially commonly touched areas.
Safestore paid all our employees' salaries throughout the crisis
and did not access any of the UK government's support measures.
In line with UK government guidance relating to storage and
points of delivery facilities, our UK stores remained open as they
provide important support to small business customers and companies
engaged in key supply chains including healthcare, food industry
suppliers and infrastructure support such as electrical and
mechanical repair providers.
As lockdowns were gradually relaxed across our geographies in
early Summer 2020, operational processes reverted to more normal
practices. Employees were provided with personal protective
equipment ("PPE") and adhered to the social distancing rules
required in each geography.
During the second phase of restrictions and lockdowns, stores
remained open in all geographies with all reception areas adapted
to become Covid-secure environments with Perspex screens, personal
protective equipment and hand sanitiser provided whilst ensuring
social distancing measures were maintained. It is planned that this
approach will continue in the current third UK lockdown.
While Covid-19 continues to create uncertainty, we are
monitoring developments daily to ensure we adhere to government
advice in each of our geographies and continue to ensure the safety
of our staff and customers.
Operational action taken across the Group in relation to
Covid-19
Throughout the Covid-19 pandemic the safety of our colleagues
and our customers has been paramount.
We have carefully considered the mental and financial wellbeing
of our colleagues across all geographies at this time:
-- All colleagues have received full salaries, even where their hours have been reduced.
-- All operational colleagues who worked through the initial
twelve-12 week lockdown have received a recognition bonus.
-- All colleagues who have been identified as vulnerable and are
unable to work due to a requirement to "shield" have been fully
supported by Safestore continuing to offer full pay throughout the
twelve-week shielding period.
In February 2020, we established a Covid Action Group consisting
of eight key leaders across all geographies, meeting regularly to
discuss updated government advice and agree internal actions,
prioritising the safety of our colleagues, including:
-- Regular communication to colleagues of support and hygiene measures;
-- Supply of hand sanitiser gels and antibacterial spray to all sites from February 2020;
-- Temporary closure of the Head Office site with all Head
Office colleagues working from home;
-- Temporary closure of store reception areas to minimise
customer contact and reduction of colleagues in store to one per
site;
-- Covid-19 risk assessments in all stores;
-- Further enhanced cleaning schedules of high touch areas;
-- Additional stocks of PPE for every store, including masks,
visors, gloves and hand sanitizer;
-- Installation of protective screens and 2 metre social
distancing floor markers and signage for all stores across the
estate;
-- Provision of disposable gloves for customer use;
-- Introduction of electronic customer contracts and contact-free payment methods;
-- Continuing to encourage home working where possible for Head Office employees; and
-- Covid-19 risk assessment of the Head Office site to identify
appropriate measures required to facilitate a safe reopening. In
line with Government recommendations, we introduced a flexible
controlled approach to office based working, including
implementation of screens and social distancing protocols being put
in place with the Covid Action Group continuing to meet on a
regular basis to review these guidelines.
Our Strategy
The Group's proven strategy has evolved over the last year with
the creation of our joint venture(14) with Carlyle and our
acquisition of OMB(10) in Barcelona, but otherwise remains largely
unchanged. We believe that the Group has a well-located asset base,
management expertise, infrastructure, scale and balance sheet
strength and, as we look forward, we consider that the Group has
the potential to further increase its earnings per share and
dividends by:
-- Optimising the trading performance of the existing portfolio;
-- Maintaining a strong and flexible capital structure; and
-- Taking advantage of selective portfolio management and
expansion opportunities in our existing markets and, if
appropriate, in attractive new geographies either through a joint
venture (14) or in our own right.
Optimisation of Existing Portfolio
With the opening of fifteen new stores since August 2016, and
the acquisitions of 31 stores through the purchases of Space Maker
in July 2016, Alligator in November 2017, our Heathrow store, Fort
Box in London and OMB in Barcelona in 2019, we have established and
strengthened our market-leading portfolio in the UK and Paris and
have entered the Spanish market. We have a high quality, fully
invested estate in all geographies and, of our 159 stores as at 31
October 2020, 99 are in London and the South East of England or in
Paris with 56 in the other major UK cities and four in Barcelona.
We now operate 48 stores within the M25 which represents a higher
number of stores than any other competitor.
Our MLA(4) has increased to 6.86m sq ft at 31 October 2020
(FY2019: 6.47m sq ft) and has grown by 35% since 2013. At the
current occupancy level of 79.5% we have 1.4m sq ft of unoccupied
space, of which 1.1m sq ft is in our UK stores and 0.3m sq ft is in
Paris and Spain. In total this unlet space is the equivalent of
c.35 empty stores located across the estate and provides the
Company with significant opportunity to grow further. This
available space is fully invested and the related operating costs
are essentially fixed and already included in the Group cost base.
Our continued focus will be on ensuring that we drive occupancy to
utilise this capacity at carefully managed rates. Between the full
financial years 2013 and 2020, like-for-like(8) occupancy has
increased from 63.1% to 82.6%, i.e. an average of 2.8ppts per
year.
There are three elements that are critical to the optimisation
of our existing portfolio:
-- Enquiry generation through an effective and efficient marketing operation;
-- Strong conversion of enquiries into new lets; and
-- Disciplined central revenue management and cost control.
Digital Marketing Expertise
Awareness of self storage remains relatively low with 52%
(FY2019: 52%) of the UK population either knowing very little or
nothing about self storage (source: 2020 SSA Annual Report). In the
UK, many of our new customers are using self storage for the first
time. It is largely a brand blind purchase. Typically, customers
requiring storage start their journey by conducting online research
using generic keywords in their locality (e.g. "storage in
Borehamwood", "self storage near me") which means that geographic
coverage and search engine prominence remain key competitive
advantages.
We believe there is a clear benefit of scale in the generation
of customer enquiries. The Group has continued to invest in its
consumer website as well as in-house expertise which has resulted
in the development of a leading digital marketing platform that has
generated over 35% enquiry growth for the Group over the last five
years. Our increasing in-house expertise and significant annual
budget have enabled us to deliver strong results.
The Group's online strength came to the fore during the Covid-19
lockdowns. Online enquiries rose to 88% of our enquiries in the UK
(FY2019: 83%) and 79% in France (FY2019: 75%). Approximately 60% of
our online enquiries in the UK now originate from a mobile device
(excluding tablets), compared to c.55% last year, highlighting the
need for continual investment in our responsive web platform for a
"mobile-first" world. We continue to invest in activities that
promote a strong search engine presence to grow enquiry volume
whilst managing efficiency in terms of overall cost per
enquiry.
During the year, the Group further developed and successfully
executed its ability to integrate newly developed and acquired
stores into its marketing platform. The Group acquired two stores
in London during the financial year (Chelsea and St John's Wood in
November 2019) and the stores were successfully integrated onto
Safestore systems within weeks of completion. Newly developed
stores at Peterborough, Birmingham-Merry Hill, London-Carshalton,
Sheffield and Gateshead in the UK have made strong starts in terms
of enquiry generation. The Group has also commenced the integration
of OMB (Spain, acquired January 2020) onto the Safestore platform
with uplifts seen in both enquiry generation and marketing
efficiency despite the impact of the pandemic. Safestore was also
appointed to provide management services to the joint venture(14)
created to acquire M3 Self Storage in the Netherlands and Lokabox
in Belgium. These services include the implementation of the full
Safestore marketing platform (including use of the brand). Both
businesses are now fully operational on the Safestore platform and
physical rebranding of the properties is underway.
In 2020, Safestore UK won the Feefo Platinum Trusted Service
award given to businesses who have achieved Gold standard for three
consecutive years. It is an independent mark of excellence that
recognises businesses for delivering exceptional experiences, as
rated by real customers. In addition to using Feefo, Safestore
invites customers to leave a review on a number of review
platforms, including Google and Trustpilot. This way, wherever
customers look for trust and reputational signals about Safestore,
they will see an impartial view of our excellent customer
satisfaction. In France, Une Pièce en Plus uses Trustpilot to
obtain independent customer reviews. In 2020, 93% of customers
rated their service experience as "Excellent" or "Great" resulting
in a TrustScore of 4.6 out of 5. In Spain, OMB collects customer
feedback via Google reviews and has maintained a score of at least
4.8 out of 5.
Motivated and effective store teams benefiting from investment
in training and development
In what is still a relatively immature and poorly understood
product, customer service and selling skills at the point of sale
remain essential in earning the trust of the customer and in
driving the appropriate balance of volumes and unit price in order
to optimise revenue growth in each store.
The impact of the Covid-19 pandemic has been fast moving and
uncertain but our teams created and implemented our plans quickly.
The health, safety and wellbeing of our colleagues and customers is
of paramount importance and all sites were operated in accordance
with UK government guidelines in providing a Covid-secure
workplace. We consulted our colleagues about managing risks
associated with Covid-19, which included collaborating with them
about key decisions we made during this time. The decision was
taken not to access the UK government's Covid-19 related support
schemes including the job retention scheme. Our colleagues received
their full salary entitlement, irrespective of whether they were
working reduced hours or were unable to work because they were
self-isolating.
Our enthusiastic, well-trained and customer-centric sales team
remains a key differentiator and a strength of our business.
Understanding the needs of our customers and using this knowledge
to develop in-store trusted advisers is a fundamental part of
driving revenue growth and market share.
Safestore has been an Investors in People ("IIP") organisation
since 2003 and our aim is to be an employer of choice in our sector
as we passionately believe that our continued success is dependent
on our highly motivated and well-trained colleagues. In April 2018,
Safestore was awarded the Gold accreditation under the IIP
programme, a significant improvement from the Bronze accreditation
awarded in 2015. This puts Safestore as one of the top employers of
14,000 IIP accredited companies. In addition, Safestore was
subsequently shortlisted as a finalist for the IIP Gold Employer of
the Year in the 250+ employees category, putting us in the top ten
of all companies that have achieved Gold accreditation. IIP is the
international standard for people management, defining what it
takes to lead, support and manage people effectively to achieve
sustainable results. Underpinning the standard is the Investors in
People framework, reflecting the latest workplace trends, essential
skills and effective structures required to outperform in any
industry. Investors in People enables organisations to benchmark
against the best in the business on an international scale. We are
proud to have our colleagues recognised to such a high standard not
only in our industry but across 14,000 organisations in 75
countries.
We are committed to growing and rewarding our people and tailor
our development, reward and recognition programmes to this end. Our
IIP recognised coaching programme, launched in 2018, was upgraded
in 2019 to reflect the increase in the calibre and performance of
our teams and was well received by our colleagues on its launch in
January 2019. Our internal sales training framework also received
its 2019 enhancements to reflect the elevated performance of 2018
and target our high expectations of 2019. The programme was rolled
out in May 2019 in preparation for the third and fourth quarters'
selling seasons.
The training and development of our store and customer-facing
colleagues is an essential part of our daily routines. Due to the
restrictions created by the Covid-19 pandemic, our learning and
development portfolio was predominantly delivered online via our
Learning Management System and use of digital platforms. This
allowed us the flexibility to continue with high-quality delivery
of our core sales and development modules without the need to meet
face to face. This Learning Management System also provides the
opportunity for team members to receive rigorously enforced health
and safety, fire and compliance training, ensuring that our
colleagues are up to date in relation to their technical knowledge
and continue to operate a safe environment for both our colleagues
and customers. These tools, systems and resources have allowed us
to effectively communicate changes quickly and manage compliance
robustly. The onset of a national lockdown in March 2020 did not
stop the continued development and training of our colleagues. Our
training, developmental, welfare and compliance training modules
can all be remotely accessed. Along with our online-learning portal
and the adaptation of our face-to-face training programmes into a
video-linked Microsoft Teams format, we delivered a continuous
seamless learning experience for all of our colleagues. Whilst
overall training hours were reduced compared to 2019, in excess of
20,000 hours were still delivered.
All new recruits to the business benefit from enhanced induction
and training tools that have been developed inhouse and enable us
to quickly identify high potential individuals and increase their
speed to competency. They receive individual performance targets
within four weeks of joining the business and are placed on the
"pay-for-skills" programme that allows accelerated basic pay
increases dependent on success in demonstrating specific and
defined skills. The key target of our programme remains that close
to 100% of our Store Manager appointments are from within the
business via our Store Manager Development programme, and we are
pleased with our progress to date.
November 2016 saw the launch of our internal Store Manager
Development programme designed to provide the business with its
future Store Managers. The first group of trainees graduated in
November 2017 and the second intake of sales consultants at the end
of October 2018. We are proud to announce that our third intake of
programme delegates has the opportunity to gain a nationally
recognised qualification from ILM (Institute of Leadership &
Management) at Level 3 and a further ten new colleagues recently
started the 2020 programme.
Our Store Manager Development programme demonstrates the
effectiveness of our learning tools. In a spirit of constant
improvement, our content and delivery process is dynamically
enhanced through our 360-degree feedback process utilising the
learnings from not only the candidates but also from our training
Store Managers and senior business leaders. This allows our people
to be trained with the knowledge and skills to sell effectively in
today's market place. December 2019 also saw the inaugural launch
of our Senior Manager Development programme ("LEAD") which focuses
on developing our high performing middle managers aimed at
preparing them for more senior roles within the business. This
programme is built on the foundations of our Store Manager
Development programme and includes Level 5 accreditation from the
Institute of Leadership & Management upon successful
completion.
Our performance dashboard allows our store and field teams to
focus on the key operating metrics of the business providing an
appropriate level of management information to enable swift
decision making. Reporting performance down to individual employee
level enhances our competitive approach to team and individual
performance. We continue to reward our people for their
performances with bonuses of up to 50% of basic salary based on
their achievements against individual new lets, occupancy,
ancillary sales and pricing targets. In addition, a Values and
Behaviours framework is overlaid on individuals' performance in
order to assess team members' performance and development needs on
a quarterly basis.
February 2019 saw the launch of our "Make The Difference" forum"
when 14 of our colleagues were voted to be the "People Champions"
and attend our people's forum.
This new initiative allows our champions to be the
representative voice for each of the twelve Regions and Head Office
in order to influence change and drive improvement for "Our
Business, Our Customers and Our Colleagues".
People Champions:
-- Consult and collect the views and suggestions of all colleagues that they represent;
-- Engage in the bi-annual "Make the Difference Forum", raising
and representing the views of their colleagues; and
-- Consult with and discuss feedback with management and the leadership team at Safestore.
Our Values and Behaviours framework concentrates our culture on
our customers. Customers continue to be at the heart of everything
we do, whether it be in store, online or in their communities. Our
Gold standard Feefo customer service score along, with our
"Excellent" Trustpilot and strong Google ratings, reflects our
ongoing commitment to their satisfaction.
Central Revenue Management and Cost Control
We continue to pursue a balanced approach to revenue management.
We aim to optimise revenue by improving the utilisation of the
available space in our portfolio at carefully managed rates. Our
central pricing team is responsible for the management of our
dynamic pricing policy, the implementation of promotional offers
and the identification of additional ancillary revenue
opportunities. Whilst price lists are managed centrally and can be
adjusted on a real-time basis when needed, the store sales teams
have the ability, in selected stores, to offer a Lowest Price
Guarantee, as well as a selective range of specific discounts by
store or by unit size, in the event that a local competitor is
offering a lower price.
Average rates are predominantly influenced by:
-- The store location and catchment area;
-- The volume of enquiries generated online;
-- The store team's skill at converting these enquiries into new
lets at the expected price; and
-- The pricing policy and the confidence provided by analytical
capabilities that smaller players may lack.
We believe that Safestore has a very strong proposition in each
of these areas.
Costs are managed centrally with a lean structure maintained at
the Head Office. Enhancements to cost control are continually
considered and the cost base is challenged on an ongoing basis.
Strong and Flexible Capital Structure
Since 2014 we have refinanced the business on four occasions,
each time optimising our debt structure and improving terms, and
believe we have maintained a capital structure that is appropriate
for our business and which provides us with the flexibility to take
advantage of carefully evaluated development and acquisition
opportunities.
At 31 October 2020, based on the current level of borrowings and
interest swap rates, the Group's weighted average cost of debt was
2.13% and 82% of our debt facilities are at fixed rate or hedged.
The weighted average maturity of the Group's drawn debt is 5.1
years at the current period end and the Group's LTV ratio is 29% as
at 31 October 2020.
This LTV and interest cover ratio of 9.0x for the rolling
twelve-month period ended 31 October 2020 provide us with
significant headroom compared to our banking covenants. We had
GBP148m of undrawn bank facilities at 31 October 2020.
During the first half of the year, the Group took out average
rate FX forward contracts to hedge the majority of the Group's
exposure to the translation of Euro denominated earnings for the
next three years. The value of the contracts were EUR6.5m for the
second half of the 2020 financial year, EUR14.5m and EUR16m for the
2021 and 2022 financial years respectively and EUR8.5m for the
first half of the 2023 financial year. This has the effect of
fixing the rate at which Euro earnings are translated to the rate
of EUR1.0751 to GBP1, up to the value of the contract.
Taking into account the improvements we have made in the
performance of the business and the reduction in underlying finance
charges of c.GBP9.3m over the last seven years, the Group is
capable of generating free cash after dividends sufficient to fund
the building of two to three new stores per annum depending on
location and availability of land.
The Group evaluates development and acquisition opportunities in
a careful and disciplined manner against rigorous investment
criteria. Our investment policy requires certain Board-approved
hurdle rates to be considered achievable prior to progressing an
investment opportunity. In addition, the Group aims to maintain a
Group LTV(11) ratio of between 30% and 40% which the Board
considers to be appropriate for the Group.
Portfolio Management
Our approach to store development and acquisitions in the UK and
Paris continues to be pragmatic, flexible and focused on the return
on capital.
Our property teams in both the UK and Paris continue to seek
investment opportunities in new sites to add to the store pipeline.
However, investments will only be made if they comply with our
disciplined and strict investment criteria. Our preference is to
acquire sites that are capable of being fully operational within
18-24 months from completion.
Since 2016, the Group has opened 15 new stores: Chiswick,
Wandsworth, Mitcham, Paddington Marble Arch, Carshalton (all in
London), Birmingham-Central, Birmingham-Merry Hill, Altrincham,
Peterborough, Gateshead and Sheffield in the UK, and Emerainville,
Combs-la-Ville, Poissy and Pontoise in Paris, adding 762,000 sq
ft.of MLA.
We have also completed the extensions and refurbishments of our
Acton, Barking, Bedford, Chingford and Longpont (Paris) stores
adding a net 65,000 sq ft of fully invested space to the estate.
All of these stores are performing in line with or ahead of their
business plans.
New Stores
In the second half of 2018, we obtained planning for and
completed the acquisition of a site in Carshalton in South London.
This 40,000 sq ft freehold store opened in the first quarter of
2020.
In August 2019, we acquired a long leasehold 1.6-acre site with
an existing building in Gateshead, North East England. The lease
has 130 years remaining. Planning permission was obtained to
convert the building into a 42,000 sq ft store and the store opened
ahead of schedule in March 2020.
In September 2019, we acquired a freehold 1.5-acre site with an
existing warehouse in Sheffield. The site is located in an
accessible and prominent position on the northern side of the inner
ring road (A61) which is close to the city centre in a densely
populated catchment area. The Group was close to finalising the
conversion of the existing building into a 47,000 sq ft store when
the UK Covid-19 lockdown commenced. As a result, construction was
paused but subsequently recommenced and the store opened in June
2020, a delay of two months.
In July 2020, the Group completed the acquisition of a freehold
2.17-acre site including an existing warehouse in Birmingham. The
site is located on the southern side of the inner A4540 ring road.
It is anticipated that the existing warehouse will be converted to
a 58,500 sq ft storage facility. Planning permission has now been
granted and we anticipate opening the new store in the second
quarter of 2021 and intend to relocate our existing Digbeth store
(MLA 44,500 sq ft) to the new site.
The Group has also acquired two additional sites in the UK in
London at Morden and Bermondsey. Morden is a freehold 0.9-acre site
in an established industrial location. Planning permission for a
52,000 sq ft self storage facility has now been granted and we are
considering the appropriate time to commence construction on this
site. Bermondsey is a 0.5-acre freehold site with income from
existing tenants and is adjacent to our existing leasehold store.
Our medium term aim, subject to planning permission, is to extend
our existing Bermondsey operations with the addition of a new self
storage facility to complement our existing store.
In November 2020, the Group acquired a long leasehold (84 years)
site in London at Park West Place. The site is 150 metres from our
Paddington Marble Arch store and is currently operating as a car
park. The existing tenants will remain for 24 months after which
the site will be converted into a 13,000 sq ft MLA self storage
facility. The store will operate as a satellite to our Paddington
Marble Arch store resulting in operating cost efficiencies.
In Paris, where regulatory barriers are likely to continue to
restrict meaningful new development inside the city, we will
continue our policy of segmenting our demand and encouraging the
customers who wish to reduce their storage costs to utilise our
second belt stores. We will also manage occupancy and rates upwards
in the more central stores and ensure that pricing recognises the
value customers place on the convenience of physical proximity. The
strong selling organisation and store network established by Une
Pièce en Plus in Paris uniquely enables it to implement this
commercial policy to complement the strong second belt markets in
which we operate.
In April 2018, we agreed a lease on a site at Magenta in central
Paris. Planning permission has been granted for a 50,000 sq ft
store and construction had commenced prior to the Covid-19
lockdown. During the lockdown construction was temporarily paused
but has now recommenced and we anticipate the store opening in
early 2021, a delay of around two months.
We believe there will be further opportunities to develop new
stores in the outer suburbs of Paris and are actively reviewing the
market for new opportunities.
Lease Extensions and Assignments
As part of our ongoing asset management programme, we have now
extended the leases on 22 stores or 63% of our leased store
portfolio in the UK since 2012 and our average lease length
remaining now stands at 12.5 years as compared to 13.1 years at
FY2019.
In the period, we signed a new 15-year lease on our Notting Hill
store in London expiring in March 2035. A three-month rent-free
period was granted as part of the new lease.
Existing Store Extensions and Refurbishments
During the period, three store extensions, at Bedford, Barking
and Chingford, have been completed.
Bedford has an existing MLA of 35,300 sq ft and occupancy peaked
at 94% in 2018. An additional storage building on land already in
our ownership adjacent to the existing store was completed in June
2020 providing additional MLA of 26,000 sq ft.
Barking currently has an MLA of 47,900 sq ft and its occupancy
also peaked at 94% in 2018. The extension, which was completed in
August 2020, has added another 5,000 sq ft of MLA.
Chingford had an existing MLA of 42,500 sq ft freehold store
which was at 85% in November 2020. We have now added an additional
5,800 sq ft of MLA to this store. The existing store remained open
throughout construction.
In September 2020 the Group received planning permission to
extend its Southend store by 8,600 sq ft. The existing store has an
MLA of 49,400 sq ft and was 86% occupied at the end of September
2020. It is anticipated that the extension will be open in the
second calendar quarter of 2021 and that there will be minimal
impact on day-to-day operations of the store during
construction.
We continue to look at opportunities to add additional MLA to
existing stores as we seek opportunities to enhance our return on
invested capital.
Freehold Acquisition- Basildon
In July 2020 the Group acquired the freehold interest in its
Basildon store for GBP4.95m. The store had just over six years
remaining on its lease and a rent review was due in September 2021.
The store has an MLA of 41,600 sq ft and is currently 73% occupied.
The annual rent on the store was GBP210,000.
Acquisitions
Fort Box
On 5 November 2019, Safestore acquired 100% of the shares of
companies owning Fort Box Self Storage, which comprises two stores
in London, for GBP14.3m including costs.
The stores, in the affluent areas of St John's Wood and Chelsea,
have a total of 35,000 sq ft of MLA and were 79% and 69% occupied
respectively at acquisition.
St John's Wood is a long leasehold store (999 years remaining)
and Chelsea is a leasehold store with 20 years remaining on the
lease.
The acquisition was immediately earnings accretive with the
first-year initial yield anticipated at 4.4% rising to c.9% at
stabilised occupancy levels.
The Group has rebranded the stores and, since acquiring the
business, the stores have been trading in line with
expectations.
OhMyBox!
On 30 December 2019 the Group completed the acquisition of OMB
Self Storage SL ("OMB"), trading as OhMyBox!, for total
consideration of EUR17.25m on a debt-free and cash-free basis,
funded from the Group's existing debt facilities.
OMB operated four very well located leasehold properties in the
centre of Barcelona with an average unexpired lease term of 16
years and one option to purchase the freehold interest. The company
was 30% owned by the current management, which remains with the
business, and 70% by a Spanish family office. The portfolio
consists of four locations (Valencia, Calabria, Glories and Marina)
with an MLA totalling 104,000 sq ft. The occupancy of the business,
at the end of April 2020, was 89%.
The aforementioned option was exercised in September 2020. In
addition, a further 3,000 sq ft of MLA and a number of car parking
spaces were acquired over and above the parameters of the original
option. The total investment was EUR5.8m.
Barcelona and Spain are attractive markets for self storage.
Spain has a lower penetration of self storage operators than the
majority of European countries and less than half of the
penetration of the UK, and Barcelona is one of the most densely
populated cities in Europe. Only 14% of facilities in the Spanish
market are operated by large operators, which presents
opportunities for consolidation and growth.
At acquisition, pro forma first-year EBITDA after rent was
anticipated to be EUR0.9m on turnover of EUR2.5m. The business is
trading in line with these expectations. At the consideration
price, the OMB portfolio has an implied first year net operating
income yield of c.5.2% and was immediately accretive to
earnings.
Joint Venture (14) with Carlyle and Investment in Lokabox
In June 2020, the Group's joint venture with Carlyle,
established in August 2019, acquired the six-store portfolio of
Lokabox. Safestore's equity investment in the joint venture,
relating to Lokabox, was c.EUR2.8m funded from the Group's existing
resources. Safestore also earns a fee for providing management
services to the joint venture. The Group expects to earn an initial
return on investment of 12% before transaction related costs for
the first full year reflecting its share of expected joint venture
profits and fees for management services.
Lokabox has six prime locations in Brussels (2), Liege (2),
Charleroi and Nivelles. All six stores are freehold, with the two
Brussels stores having opened in the last nine months. The business
had 20,600 sq metres (222,000 sq ft) of MLA and an occupancy of
63%. This acquisition complements the six stores in Amsterdam and
Haarlem in the Netherlands acquired in August 2019.
The Belgian self storage market is the seventh largest in Europe
with 90 stores and 2.2m sq ft of MLA. This represents 0.19 sq ft
per head of population, which compares to 0.73 sq ft per head in
the UK, 0.20 sq ft per head in France and 9.44 sq ft per head in
the USA.
The Group's investment in the joint venture was immediately
accretive to Group earnings per share from completion.
Whilst our investments in the Netherlands, Belgium and Spain
represent interesting long-term growth opportunities, the
investment in the three businesses currently represents less than
2% of Group assets.
Joint Venture (14) with Carlyle- Investment in Opslag XL
In December 2020, the Group's joint venture with Carlyle
acquired the three-store portfolio of Opslag XL in the Netherlands.
Safestore's equity investment in the joint venture, relating to
Opslag XL, was c.EUR0.9m funded from the Group's existing
resources. Safestore also earns a fee for providing management
services to the joint venture. Safestore expects to earn an initial
return on investment of 12% before transaction related costs for
the first full year reflecting its share of expected joint venture
profits and fees for management services.
Opslag XL has three locations in The Hague, Hilversum and
Amsterdam. The Hague and Hilversum are freehold; the Amsterdam
store is a short leasehold (December 2021). The business had 7,000
sq metres (75,000 sq ft) of MLA and an occupancy of 58%. This
acquisition complements the six stores in Amsterdam and Haarlem in
the Netherlands acquired in August 2019. In total the joint venture
will own stores with 53,300 sq metres (574,000 sq ft) of MLA.
The Group's further investment in the joint venture is expected
to be immediately accretive to Group earnings per share from
completion and will support the Group's future dividend
capacity.
Our joint venture provides an earnings-accretive opportunity to
gain detailed operational exposure to new markets while carefully
managing the investment risk. The Group's leading digital platform
has already delivered substantial marketing benefits both in terms
of costs and volume of enquiries. The operational integration has
been completed in an efficient manner, leveraging the skills and
capacities of our existing Head Offices in the UK and Paris.
Our local property development team also enables us to further
our understanding of local property markets, which will allow the
Group to allocate equity investment efficiently with a risk/reward
profile similar to that of our historical core markets.
Portfolio Summary
The self storage market has been growing consistently for over
20 years across many European countries but few regions offer the
unique characteristic of London and Paris, both of which consist of
large, wealthy and densely populated markets. In the London region,
the population is 13 million inhabitants with a density of 5,200
inhabitants per square mile in the region, 11,000 per square mile
in central London and up to 32,000 per square mile in the densest
boroughs.
The population of the Paris urban area is 10.7 million
inhabitants with a density of 9,300 inhabitants per square mile in
the urban area but 54,000 per square mile in the City of Paris and
first belt, where 69% of our French stores are located and which
has one of the highest population densities in the western world.
85% of the Paris region population live in central parts of the
city versus the rest of the urban area, which compares with 60% in
the London region. There are currently c.245 storage centres within
the M25 as compared to only c.95 in the Paris urban area.
In addition, barriers to entry in these two important city
markets are high, due to land values and limited availability of
sites as well as planning regulation. This is the case for Paris
and its first belt in particular, which inhibits new development
possibilities.
Our combined operations in London and Paris, with 76 stores,
contributing GBP93.9m of revenue and GBP64.3m of Store EBITDA,
offer a unique exposure to the two most attractive European self
storage markets.
Owned Store Portfolio London Rest
by Region & of UK Paris Spain Group
South
East UK Total Total
Number of Stores 71 56 127 28 4 159
Let Square Feet (m sq
ft) 2.24 2.08 4.32 1.03 0.10 5.45
Maximum Lettable Area
(m sq ft) 2.77 2.67 5.44 1.31 0.11 6.86
Average Let Square Feet
per store (k sq ft) 32 37 34 37 24 34
Average Store Capacity
(k sq ft) 39 48 43 47 27 43
Closing Occupancy % 80.9% 77.9% 79.4% 78.8% 90.0% 79.5%
Average Rate (GBP per
sq ft) 29.44 18.66 24.37 34.91 26.70 26.44
Revenue (GBP'm) 76.8 44.5 121.3 38.8 2.2 162.3
Average Revenue per Store
(GBP'm) 1.08 0.79 0.96 1.39 0.55 1.02
The reported totals have not been adjusted for the impact
of rounding
We have a strong position in both the UK and Paris markets
operating 127 stores in the UK, 71 of which are in London and the
South East, and 28 stores in Paris.
In the UK, 63% of our revenue is generated by our stores in
London and the South East. On average, our stores in London and the
South East are smaller than in the rest of the UK but the rental
rates achieved are materially higher, enabling these stores to
typically achieve similar or better margins than the larger stores.
In London, we operate 48 stores within the M25, more than any other
competitor.
In France, we have a leading position in the heart of the
affluent City of Paris market with eight stores branded as Une
Pièce en Plus ("UPP") ("a spare room"). 58% of the UPP stores are
located in a cluster within a five-mile radius of the city centre,
which facilitates strong operational and marketing synergies as
well as options to differentiate and channel customers to the right
store subject to their preference for convenience or price
affordability. The Parisian market has attractive socio-demographic
characteristics for self storage and we believe that UPP enjoys
unique strategic strength in such an attractive market.
Together, as at 31 October 2020 London, the South East and Paris
represent, 62% of our stores, 71% of our revenues, as well as 57%
of our available capacity.
In addition, Safestore has the benefit of a leading national
presence in the UK regions where the stores are predominantly
located in the centre of key metropolitan areas such as Birmingham,
Manchester, Newcastle, Liverpool, Bristol, Glasgow and
Edinburgh.
Our portfolio of four stores in Barcelona, along with the
experienced local management team, gives the Group a profitable
platform for expansion into attractive urban conurbations in
Spain.
Market
The SSA stated in its 2020 report, issued in May 2020, that the
self storage industry "had a generally positive outlook" prior to
the Covid-19 pandemic arriving in Europe. However, it also reported
that most operators were seeing reductions in enquiry levels of
between 30% and 50% in the early weeks of the lockdown. Looking
forward, the report points out that previous downturns have
presented opportunities for self storage and speculates that
increased working from home and online retailing as well as a
potentially greater tendency for home improvements may complement
the already broad range of demand drivers.
In November 2020, the SSA gave an update as to how the self
storage industry had reacted to the pandemic in which it
highlighted the diversity of the customer base of the self storage
industry, the Covid-secure measures taken by industry participants
and the fact that trading performance across the industry had, in
general, been resilient.
The self storage market in the UK and France remains relatively
immature compared to geographies such as the USA and Australia. The
Self Storage Association ("SSA") Annual Survey (May 2020) confirmed
that self storage capacity stands at 0.73 sq ft per head of
population in the UK and 0.20 sq ft per capita in France. Whilst
the Paris market density is greater than France, we estimate it to
be significantly lower than the UK at around 0.36 sq ft per
inhabitant. This compares with 9.44 sq ft per inhabitant in the USA
and 1.89 sq ft in Australia. In the UK, in order to reach the US
density of supply, it would require the addition of around another
17,000 stores as compared to c.1,400 currently. In the Paris
region, it would require around 2,400 new facilities versus c.95
currently opened.
While capacity increased significantly between 2007 and 2010
with respondents to the survey opening an average of 32 stores per
annum, new additions were limited to an average of 19 stores per
annum between 2011 and 2016 (including container storage
openings).
The volume of new store openings increased in 2017 and 2018. In
2018, the SSA reported 70 stores as having been opened across the
industry in 2017. However, our own analysis of these openings shows
that many were container-based operators and only c.30 of the sites
represent self storage sites that are comparable with Safestore's
own portfolio. In the 2019 SSA Survey, it was estimated that c.40
traditional self storage stores were opened in 2018 (excluding
container storage) with less than half competing directly with
Safestore. The 2020 report does not give indications of the level
of openings in 2019 but own estimates are that also around 40 were
opened in the period.
The 40 comparable sites represent around 2.9% of the traditional
self storage industry in the UK. These figures represent gross
openings and do not take into account storage facilities closing or
being converted for alternative uses. We estimate that around 25%
of these sites compete with existing Safestore stores.
The SSA 2020 Survey also reported that operators' expectations
in terms of new store openings and site acquisitions remained
relatively consistent with previous years. For 2020, operators are
estimating the completion of around 44 developments and around 48
in 2021. Traditionally, operators have opened or acquired far fewer
stores than originally estimated. Based on these estimates, and
adjusting for historical inaccuracy, we estimate that around 20-25
stores per annum will be developed over the coming years. If that
supply is not within a relatively narrow radius of a Safestore
store, it does not represent a competitive threat.
New supply in London and Paris is likely to continue to be
limited in the short and medium term as a result of planning
restrictions and the availability of suitable land.
The supply in the UK market, according to the SSA Survey,
remains relatively fragmented despite a number of acquisitions in
the sector in the last four years. The SSA's estimates of the scale
of the UK industry are finessed each year and changes from one year
to the next represent improved data rather than new supply. In the
2020 report the SSA estimates that 1,900 self storage facilities
exist in the UK market including around 563 container-based
operations. Safestore is the industry leader by number of stores
with 126 wholly owned sites followed by Big Yellow with 75 wholly
owned stores (103 including Armadillo), Access with 58 stores,
Lok'n Store with 34 stores, Shurgard with 31 stores and Storage
King with 28 stores. In aggregate, the top ten leading operators
account for 23% of the UK store portfolio. The remaining c.1,459
self storage outlets (including 563 container-based operations) are
independently owned in small chains or single units. In total there
are 972 storage brands operating in the UK.
Safestore's French business, UPP, is mainly present in the core
wealthier and more densely populated inner Paris and first belt
areas, whereas our two main competitors, Shurgard and Homebox, have
a greater presence in the outskirts and second belt of Paris.
Consumer awareness of self storage is increasing but remains
relatively low, providing an opportunity for future industry
growth. The SSA survey indicated that 52% (52% in 2019) of
consumers either knew nothing about the service offered by self
storage operators or had not heard of self storage at all. Over the
last seven years this statistic has only fallen 12ppts from 64%.
Therefore, the opportunity to grow awareness, combined with limited
new industry supply, makes for an attractive industry backdrop.
Self storage is a brand-blind product. 64% of respondents were
unable to name a self storage business in their local area (FY2019:
57%). The lack of relevance of brand in the process of purchasing a
self storage product emphasises the need for operators to have a
strong online presence. This requirement for a strong online
presence was also reiterated by the SSA Survey where 73% of those
surveyed (67% in 2014) confirmed that an internet search would be
their chosen means of finding a self storage unit to contact,
whilst knowledge of a physical location of a store as reason for
enquiry was only c.26% of respondents (c.25% in 2014).
There are numerous drivers of self storage growth. Most private
and business customers need storage either temporarily or
permanently for different reasons at any point in the economic
cycle, resulting in a market depth that is, in our view, the reason
for its exceptional resilience. The growth of the market is driven
both by the fluctuation of economic conditions, which has an impact
on the mix of demand, and by growing awareness of the product.
Safestore's domestic customers' need for storage is often driven
by life events such as births, marriages, bereavements, divorces or
by the housing market including house moves and developments and
moves between rental properties. Safestore has estimated that UK
owner-occupied housing transactions drive around 10-15% of the
Group's new lets.
The Group's business customer base includes a range of
businesses from start-up online retailers through to multi-national
corporates utilising our national coverage to store in multiple
locations while maintaining flexibility in their cost base.
Business and Personal Customers UK Paris
Personal Customers
Numbers (% of total) 76% 84%
Square feet occupied (% of
total) 57% 69%
Average Length of Stay
(months) 19.8 27.7
Business Customers
Numbers (% of total) 24% 16%
Square feet occupied (% of
total) 43% 31%
Average Length of Stay
(months) 29.9 34.7
Safestore's customer base is resilient and diverse and consists
of around 75,000 domestic, business and National Accounts customers
across London, Paris and the UK regions.
Business Model
The Group operates in a market with relatively low consumer
awareness. It is anticipated that this will increase over time as
the industry matures. To date, despite the financial crisis in
2007/08 and the implementation of VAT on self storage in 2012, the
industry has been exceptionally resilient. In the context of
uncertain economic conditions, driven by the COVID-19 pandemic and
Brexit, the industry remains well positioned with limited new
supply coming into the self storage market.
With more stores inside London's M25 than any other operator and
a strong position in central Paris, Safestore has leading positions
in the two most important and demographically favourable markets in
Europe. In addition, our regional presence in the UK is unsurpassed
and contributes to the success of our industry-leading National
Accounts business. In the UK, Safestore is the leading operator by
number of wholly owned stores. With 86% of customers travelling for
less than 30 minutes to their storage facility (2020 SSA Survey)
Safestore's national store footprint represents a competitive
advantage.
The Group's capital-efficient portfolio of 159 wholly owned
stores in the UK, Paris and Barcelona consists of a mix of freehold
and leasehold stores. In order to grow the business and secure the
best locations for our facilities we have maintained a flexible
approach to leasehold and freehold developments.
Currently, around a third of our stores in the UK are leaseholds
with an average remaining lease length at 30 October 2020 of 12.5
years (FY2019: 13.1 years). Although our property valuation for
leaseholds is conservatively based on future cash flows until the
next contractual lease renewal date, Safestore has a demonstrable
track record of successfully re-gearing leases several years before
renewal whilst at the same time achieving concessions from
landlords.
In England, we benefit from the Landlord and Tenant Act that
protects our rights for renewal except in case of redevelopment.
The vast majority of our leasehold stores have building
characteristics or locations in retail parks that make current
usage either the optimal and best use of the property or the only
one authorised by planning. We observe that our landlords, who are
property investors, value the quality of Safestore as a tenant and
typically prefer to extend the length of the leases that they have
in their portfolio, enabling Safestore to maintain favourable
terms.
In Paris, where 39% of stores are leaseholds, our leases
typically benefit from the well-enshrined Commercial Lease statute
that provides that tenants own the commercial property of the
premises and that they are entitled to renew their lease at a rent
that is indexed to the National Construction Index published by the
state. Taking into account this context, the valuer values the
French leaseholds based on an indefinite property tenure, similar
to freeholds but at a significantly higher exit cap rate.
The Group believes there is an opportunity to leverage its
highly scalable marketing and operational expertise in new
geographies outside the UK and Paris. During 2019, a joint
venture(14) was established with Carlyle, which acquired the M3
Self Storage business in the Netherlands which has six stores in
Amsterdam and Haarlem. In June 2020, the joint venture(14) added
the Lokabox business, a portfolio of six stores in Brussels (2),
Liege (2), Charleroi and Nivelles. In December 2020, the joint
venture(14) acquired the Opslag XL portfolio adding a further three
stores in Amsterdam, The Hague and Hilversum. The Group earns a
management fee and a share of the profits of the joint venture(14)
. It is anticipated that the joint venture(14) will investigate
further opportunities in due course.
Our experience is that being flexible in its approach has
enabled Safestore to operate from properties and in markets that
would have been otherwise unavailable and to generate strong
returns on capital invested.
Safestore excels in the generation of customer enquiries which
are received through a variety of channels including the internet,
telephone and "walk-ins". In the early days of the industry, local
directories and store visibility were key drivers of enquiries.
However, the internet is now by far the dominant channel,
accounting for 88% (2019: 83%) of our enquiries in the UK and 79%
(2019: 75%) in France. This dynamic is a clear benefit to the
leading national operators that possess the budget and the
management skills necessary to invest in leading digital platforms
and generate a commanding presence in the major search engines and
Safestore has developed a digital marketing platform that has
generated 35% enquiry growth over the last five years.
Although mostly generated online, our enquiries are
predominantly handled directly by the stores and, in the UK, we
have a Customer Support Centre ("CSC") which handles customer
service issues in addition to enquiries, in particular when the
store colleagues are busy handling calls or outside of normal store
opening hours.
Our pricing platform provides the store and CSC colleagues with
system-generated real-time prices managed by our centrally based
yield-management team. Local colleagues have certain levels of
discretion to flex the system-generated prices but this is
continually monitored.
Customer service standards are high and customer satisfaction
feedback is consistently very positive. We have achieved over 96%
customer satisfaction, based on "excellent" or "good" ratings as
collected by Feefo via our customer website.
The key drivers of sales success are the capacity to generate
enquiries in a digital world, the capacity to provide storage
locations that are conveniently located close to the customers'
requirements and the ability to maintain a consistently high
quality, motivated retail team that is able to secure customer
sales at an appropriate storage rate, all of which can be better
provided by larger, more efficient organisations.
We remain focused on business as well as domestic customers. Our
national network means that we are uniquely placed to further grow
the business customer market and in particular National Accounts.
Business customers in the UK now constitute 43% of our total space
let and have an average length of stay of 30 months. Within our
business customer category, our National Accounts business
represents around 507k sq ft of occupied space (around 12% of the
UK's occupancy). Approximately two-thirds of the space occupied by
National Accounts customers is outside London, demonstrating the
importance and quality of our well invested national estate.
The business now has in excess of c.75,000 business and domestic
customers with an average length of stay of 31 months and 22 months
respectively.
The cost base of the business is relatively fixed. Each store
typically employs three staff. Our Group Head Office comprises
business support functions such as Yield-Management, Property,
Marketing, HR, IT and Finance.
Since the completion of the rebalancing of our capital structure
in early 2014, the subsequent amendment and extension of our
banking facilities in summer 2015, the refinancing of all
facilities in May 2017 and the issuance of a further GBP125m of US
Private Placement Notes in 2019, Safestore has secure financing, a
strong balance sheet and significant covenant headroom. This
provides the Group with financial flexibility and the ability to
grow organically and via carefully selected new development or
acquisition opportunities.
At 31 October 2020 we had 1.1m sq ft of unoccupied space in the
UK and 0.3m sq ft in France, equivalent to c.35 full new stores.
Our main focus is on filling the spare capacity in our stores at
optimally yield-managed rates. The operational leverage of our
business model will ensure that the bulk of the incremental revenue
converts to profit given the relatively fixed nature of our cost
base.
Trading Performance
UK - a robust performance
UK Operating Performance- total 2020 2019 Change
------------------------------------ ------ ------ ---------
Revenue (GBP'm) 121.3 114.7 5.8%
Underlying EBITDA (GBP'm)(2) 67.2 64.1 4.8%
Underlying EBITDA (after leasehold
costs) (GBP'm) 59.6 57.4 3.8%
Closing Occupancy (let sq ft
- million)(3) 4.325 3.963 9.1%
Maximum Lettable Area (MLA)(4) 5.44 5.16 5.4%
Closing Occupancy (% of MLA) 79.4% 76.9% +2.5ppts
Average Storage Rate (GBP)(5) 24.37 23.93 1.8%
UK Operating Performance- like-for-like(8) 2020 2019 Change
-------------------------------------------- ------ ------ ---------
Storage Revenue (GBP'm) 94.1 90.1 4.4%
Ancillary Revenues (GBP'm) 23.9 24.1 -0.8%
Revenue (GBP'm) 118.0 114.2 3.3%
Underlying EBITDA (GBP'm)(2) 66.8 64.4 3.7%
Closing Occupancy (let sq ft-
million)(3) 4.172 3.934 6.0%
Closing Occupancy (% of MLA) 81.0% 76.8% +4.2ppts
Average Occupancy (let sq ft-
million)(3) 3.863 3.762 2.7%
Average Storage Rate (GBP)(5) 24.37 23.94 1.8%
The UK's revenue performance was robust in the year with the
business growing total revenue by 5.8% and like-for-like(8) revenue
by 3.3%. Performance was consistently strong in Regional UK with
like-for-like(8) revenue up 2.8% as well as London and the South
East where like-for-like(8) revenue was up 3.6%.
Prior to the UK's first lockdown in March 2020, like-for-like
revenue growth was very strong. As a result of the lockdown this
subsequently slowed but over Q3 and Q4 trading strengthened again
and the business finished the year strongly with October 2020
like-for-like storage revenues up 7.7% compared to October
2019.
Ancillary revenues were impacted by the March 2020 lockdown but
have been recovering in the subsequent period. Like-for-like
ancillary revenues were down just 0.6% in October 2020 compared to
October 2019.
Over the year, the business added occupancy of 238,000 sq ft on
a like-for-like(8) basis (FY2019: 211,000 sq ft). This included a
record fourth quarter performance in which 228,000 sq ft of
occupancy was added (Q4 2019: 5,000 sq ft). As a result,
like-for-like(8) closing occupancy, at 81.0%, increased by 4.2ppts
compared to the prior year.
Like-for-like(8) average rate in the UK improved by 1.8% over
the course of the year.
Total revenue grew by 5.8% for the full year. This includes the
newly acquired Fort Box portfolio, management revenue from our
joint venture(14) businesses, new store openings in
London-Carshalton, Gateshead and Sheffield and the annualisation of
2019 new store openings or acquisitions in Peterborough,
Birmingham-Merry Hill and London-Heathrow. New stores, in the
initial period after opening, are dilutive to occupancy and rate.
However, all new stores are trading in line or ahead of our
business plans.
During the Covid-19 lockdown in March to July of this year, our
stores stayed open with fewer staff and with reception areas
closed. Since the first lockdown ended all stores were made
Covid-secure with social distancing measures in place, Perspex
screens and hand sanitiser in reception areas and staff wearing
personal protective equipment. Stores are all currently open and
reception areas operational under the aforementioned Covid-secure
procedures.
Since the March 2020 lockdown, revenue collections have been
largely unaffected by the Covid-19 pandemic. For the final quarter,
98.1% of revenues were collected within 30 days of the period end
(FY2019: 97.8%). Since the end of the financial year, the positive
collections trend has continued with 97.9% of November revenue
collected within 30 days of the period end (FY20: 97.4%) and 79.1%
of December revenues collected within the period (FY20: 73.4%).
We remain focused on our cost base. During the year, our UK cost
base, on a like-for-like(8) basis, increased by 2.8% or GBP1.4m.
Our total reported UK cost base grew by GBP3.5m or 6.9% reflecting
the acquisition of our Fort Box portfolio and the cost bases
relating to newly and recently opened stores.
As a result, underlying EBITDA (2) for the UK business was
GBP67.2m (FY2019: GBP64.1m), an increase of GBP3.1m or 4.8%.
For the two months to December 2020 trading has been strong.
Like-for-like occupancy was up 6.7ppts at 80.5% (December 2019:
73.9%) and like-for-like average rate was up 0.2% which resulted in
a 7.8% increase in like-for-like revenue. Total revenue for the two
month period was up 10.5%.
Paris - a good year representing the 22(nd) consecutive year of
revenue growth
Paris Operating Performance- 2020 2019 Change
total
------------------------------------ ------ ------ ---------
Revenue (EUR'm) 44.1 42.1 4.8%
Underlying EBITDA (EUR'm)(2) 28.5 26.5 7.5%
Underlying EBITDA (after leasehold
costs) (EUR'm) 23.2 21.3 8.9%
Closing Occupancy (let sq ft
- million)(3) 1.034 1.015 1.9%
Maximum Lettable Area (MLA)(4) 1.31 1.31 -%
Closing Occupancy (% of MLA) 78.8% 77.4% +1.9ppts
Average Storage Rate (EUR)(5) 39.64 38.93 1.8%
Revenue (GBP'm) 38.8 37.1 4.3%
Paris Operating Performance- 2020 2019 Change
like-for-like(8)
------------------------------- ------ ------ ---------
Storage Revenue (EUR'm) 39.78 38.22 4.1%
Ancillary Revenues (EUR'm) 3.76 3.74 0.5%
Revenue (EUR'm) 43.54 41.96 3.8%
Underlying EBITDA (EUR'm)(2) 28.2 26.7 5.6%
Closing Occupancy (let sq ft-
million)(3) 0.999 1.006 -0.7%
Closing Occupancy (% of MLA) 80.1% 80.7% -0.6ppts
Average Occupancy (let sq ft-
million)(3) 0.991 0.981 1.0%
Average Storage Rate (EUR)(5) 40.13 38.96 3.0%
On a like-for-like(8) basis, the business grew revenue by 3.8%
for the full year. This was driven by average occupancy growth of
1.0% for the year combined with average rate growth of 3.0%.
Like-for-like(8) occupancy reduced by 7,000 sq ft for the year
(FY2019: increase of 52,000 sq ft) resulting in closing occupancy
of 80.1%, down 0.6ppts compared to the prior year.
The impact of the new store opened in August 2019 in Pontoise
(65,000 sq ft of MLA) was to dilute rate and occupancy in the
initial period after trading commenced. This store, however, is
trading ahead of our business plan.
Over the year, the Sterling-Euro exchange rate was 1.1356,
marginally stronger than the prior year (FY2019: 1.1329). As a
result, there was minimal foreign exchange impact on the
translation of Paris revenues.
The cost base in Paris remained well controlled during the year
with both like-for-like(8) costs and total costs flat compared to
the prior year in local currency. As a result, like-for-like(8)
underlying EBITDA (2) in Paris grew by EUR1.5m and underlying
EBITDA (2) grew by EUR2.0m to EUR28.5m (FY2019: EUR26.5m).
Similarly to the UK, during the Covid-19 lockdown in March to
May of this year, our stores stayed open with fewer staff and with
reception areas closed. Since the first lockdown ended all stores
were made Covid-secure with social distancing measures in place,
Perspex screens and hand sanitiser in reception areas and staff
wearing personal protective equipment. Stores are all currently
open and reception areas operational under the aforementioned
Covid-secure procedures.
Recent revenue collections in Paris have also been largely
unimpacted by the Covid-19 pandemic. For the final quarter, 86.2%
of revenues were collected within 30 days of the period end (2019:
83.0%).Since the end of the financial year, the positive
collections trend has continued with 87.7% of November revenue
collected within 30 days of the period end (FY20: 84.8%) and 75.1%
of December revenues collected within the period (FY20: 67.8%).
For the two months to December 2020 trading has been robust.
Like-for-like occupancy was up 3.0ppts at 79.6% (December 2019:
76.6%) and like-for-like average rate was down 1.3%, which resulted
in a 1.8% increase in like-for-like revenue. Total revenue for the
two month period was also up 1.8%.
Spain Trading Performance
OMB was acquired on 30 December 2019 so has contributed ten
months of trading to the Group's results. In that period the
business delivered EUR2.5m of revenue.
In Q4, as expected, the business saw a modest seasonal outflow
of occupancy and ended the quarter at a closing occupancy of 90.0%.
However, the average rate grew by 2.2% compared to the third
quarter. The impact of the Covid-19 lockdown on the trading of the
business between mid-March 2020 and the end of April 2020 was
minimal.
Frederic Vecchioli
13 January 2021
Financial Review
Underlying Income Statement
The table below sets out the Group's underlying results of
operations for the year ended 31 October 2020 and the year ended 31
October 2019. To calculate underlying performance metrics,
adjustments are made for the impact of exceptional items,
share-based payments, corporate transaction costs, change in fair
value of derivatives, gain or loss on investment properties and the
associated tax impacts as well as exceptional tax items and
deferred tax charges. Management considers this presentation of
earnings to be representative of the underlying performance of the
business, as it removes the income statement impact of items not
fully controllable by management, such as the revaluation of
derivatives and investment properties, and the impact of
exceptional credits, costs and finance charges.
FY 2020 FY 2019 Mvmt
GBP'm GBP'm %
Revenue 162.3 151.8 6.9%
Underlying costs (68.7) (64.3) 6.8%
Share of associate's underlying
EBITDA 0.3 - -
-------- --------
Underlying EBITDA 93.9 87.5 7.3%
Leasehold costs (12.8) (11.3) 13.3%
-------- --------
Underlying EBITDA after leasehold
costs 81.1 76.2 6.4%
Depreciation (0.9) (0.7) 28.6%
Finance charges (9.1) (8.6) 5.8%
Share of associate's finance
charges (0.2) - -
-------- --------
Underlying profit before
tax 70.9 66.9 6.0%
Current tax (5.2) (5.1) 2.0%
Share of associate's
tax (0.1) - -
Adjusted EPRA earnings 65.6 61.8 6.1%
Share-based payments
charge (6.5) (5.6) 16.1%
EPRA basic earnings 59.1 56.2 5.2%
======== ========
Average shares in issue
(m) 210.4 210.2
Diluted shares (for
ADE EPS) (m) 217.2 216.8
Adjusted diluted EPRA EPS(1)
(pro forma) (p) 30.2 28.5 6.0%
1. Adjusted EPRA earnings excludes share-based payment charges
and, accordingly, the underlying EBITDA, underlying EBITDA after
leasehold rent and underlying profit before tax measures have been
restated to exclude share-based payment charges for
consistency.
The table below reconciles profit before tax in the income
statement to underlying profit before tax in the previous
table.
FY 2020 FY2019
GBP'm GBP'm
Profit before tax 197.9 147.3
Adjusted for
- gain on investment properties
and investment property under
construction (133.4) (89.6)
- change in fair value of derivatives (0.2) 2.1
- net exchange (gain)/ loss (0.2) 0.3
- share of associate's tax 0.1 -
- share-based payments 6.5 5.6
- exceptional items 0.2 0.6
- exceptional finance costs - 0.6
Underlying profit before tax 70.9 66.9
======== =======
Management considers the above presentation of earnings to be
representative of the underlying performance of the business.
Underlying EBITDA increased by 7.3% to GBP93.9 million (FY2019:
GBP87.5 million), reflecting a 6.9% increase in revenue and a 6.8%
increase to the underlying cost base. This performance reflects the
contribution of the twelve new stores opened and acquired since
November 2018.
Leasehold costs increased by 13.3% from GBP11.3 million to
GBP12.8 million, principally due to our new leasehold stores in
Valencia, Calabria and Marina through our recent acquisition in
Spain and in Chelsea through our acquisition of Fort Box.
Underlying finance charges increased by 5.8% from GBP8.6 million
to GBP9.1 million. This reflects increased interest charges from
drawdowns in the year to fund the Group's acquisition and
development activity.
As a result, we achieved a 6.0% increase in underlying profit
before tax of GBP70.9 million (FY2019: GBP66.9 million). The main
additional factor in the increase in statutory profit before tax in
the year is the GBP43.8 million increase in the gain on investment
and development property, due primarily to the fact that the
movements in stabilised occupancy, time to stabilised occupancy and
freehold exit yield assumptions, although positive in both periods,
were greater in 2020 than 2019.
Given the Group's REIT status in the UK, tax is normally only
payable in France. The underlying tax charge for the year was
GBP5.2 million (FY2019: GBP5.1 million), calculated by applying the
French statutory income tax rate of 31.0% to the taxable profits
earned by our Paris business, which results in an effective
underlying tax rate of 25.7%. The Group's share-based payment
charge increased GBP0.9 million to GBP6.5 million (FY2019: GBP5.6
million), representing the impact of additional grants in the
year.
As explained in note 2 to the financial statements, management
considers that the most representative earnings per share ("EPS")
measure is Adjusted Diluted EPRA EPS which has increased by 6.0% to
30.2 pence (FY2019: 28.5 pence).
Reconciliation of Underlying EBITDA
The table below reconciles the operating profit included in the
income statement to underlying EBITDA.
FY 2020 FY 2019
GBP'm GBP'm
Operating profit 212.2 163.7
Adjusted for
- gain on investment
properties (126.5) (84.2)
- share of associate's underlying
EDITDA 0.3 -
- depreciation 0.9 0.7
- variable lease payments 0.3 1.1
- share-based payments 6.5 5.6
Exceptional
items
- costs incurred relating to corporate
transactions and exceptional employee
costs 0.2 0.6
Underlying
EBITDA 93.9 87.5
======== ========
The main reconciling items between operating profit and
underlying EBITDA are the gain on investment properties as well as
adjustments for depreciation, variable lease payments and
share-based payment charges. The gain on investment properties was
GBP126.5 million, as compared to GBP84.2 million in 2019 due
largely to the fact that the movements in stabilised occupancy and
freehold exit yield assumptions, although positive in both periods,
were greater in 2020 than 2019. The Group's approach to the
valuation of its investment property portfolio at 31 October 2020
is discussed below.
Underlying Profit by Geographical Region
The Group is organised and managed in three operating segments
based on geographical region. The table below details the
underlying profitability of each region.
FY 2020 FY 2019
Total Total
UK Paris Spain (CER) UK Paris (CER)
GBP'm EUR'm EUR'm GBP'm GBP'm EUR'm GBP'm
Revenue 121.3 44.1 2.5 162.4 114.7 42.1 151.8
Underlying cost of
sales (44.3) (11.8) (0.5) (55.1) (41.7) (11.8) (52.0)
------- ------- ------ ------- ------- ------- -------
Store EBITDA 77.0 32.3 2.0 107.3 73.0 30.3 99.8
Store EBITDA margin 63.5% 73.2% 80.0% 66.1% 63.6% 72.0% 65.7%
LFL Store EBITDA
margin 64.1% 73.6% 66.4% 64.0% 72.6% 66.1%
Underlying administrative
expenses (9.8) (3.8) (0.5) (13.6) (8.9) (3.8) (12.3)
Underlying EBITDA 67.2 28.5 1.5 93.7 64.1 26.5 87.5
EBITDA margin 55.4% 64.6% 60.0% 57.7% 55.9% 62.9% 57.6%
LFL EBITDA margin 56.6% 64.8% 58.7% 56.4% 63.6% 58.1%
Leasehold costs (7.6) (5.3) (0.5) (12.8) (6.7) (5.2) (11.3)
Underlying EBITDA
after leasehold costs 59.6 23.2 1.0 80.9 57.4 21.3 76.2
======= ======= ====== ======= ======= ======= =======
EBITDA after leasehold
costs margin 49.1% 52.6% 40.0% 49.8% 50.0% 50.6% 50.2%
UK Paris Spain Total UK Paris Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Underlying EBITDA after
leasehold costs (CER) 59.6 20.4 0.9 80.9 57.4 18.8 76.2
Adjustment to actual
exchange rate - (0.1) - (0.1) - - -
Reported underlying
EBITDA after leasehold
costs 59.6 20.3 0.9 80.8 57.4 18.8 76.2
======= ======= ====== ======= ======= ======= =======
Note: CER is Constant Exchange Rates (Euro denominated results
for the current period have been retranslated at the exchange rate
effective for the comparative period in order to present the
reported results on a more comparable basis).
Underlying EBITDA in the UK increased by GBP3.1 million, or
4.8%, to GBP67.2 million (FY2019: GBP64.1 million), underpinned by
a 5.8% or GBP6.6 million increase in revenue, which was driven by
occupancy and rate improvements in the established portfolio as
well as the impact of the new developing stores opened in
Birmingham-Merry Hill, London-Carshalton, Peterborough, Sheffield
and Gateshead and the contribution from the recent acquisitions of
Heathrow, Chelsea and St John's Wood. Underlying UK EBITDA after
leasehold costs increased by 3.8% to GBP59.6 million (FY2019:
GBP57.4 million).
In Paris, underlying EBITDA increased by EUR2.0 million, or
7.5%, to EUR28.5 million (FY2019: EUR26.5 million), driven by a
EUR2.0 million increase in revenue. Underlying EBITDA after
leasehold costs in Paris increased by 8.9% to EUR23.2 million
(FY2019: EUR21.3 million).
On 30 December 2019, Safestore purchased OhMyBox! in Spain. For
the ten months since acquisition, OhMyBox! contributed GBP0.9
million (EUR1.0 million) of underlying EBITDA after leasehold
costs.
Recently opened or immature stores have a dilutive effect on the
Group's reported performance. On a like-for-like basis, adjusting
for the dilutive impact of immature stores, store EBITDA margin in
the UK was 64.1% (FY2019: 64.0%) and in France it was 73.6%
(FY2019: 72.6%).
The combined results of the UK, Paris and Spain delivered a 6.2%
increase in underlying EBITDA after leasehold costs at constant
exchange rates at Group level. Adjusting for an unfavourable
exchange impact of GBP0.1 million, the combined results of the UK,
Paris and Spain reported an underlying EBITDA after leasehold costs
increase of 6.0% or GBP4.6 million to GBP80.8 million (FY2019:
GBP76.2 million).
Revenue
Revenue for the Group is primarily derived from the rental of
self storage space and the sale of ancillary products such as
insurance and merchandise (e.g. packing materials and padlocks) in
both the UK and Paris.
The split of the Group's revenues by geographical segment is set
out below for 2020 and 2019.
% of % of
FY 2020 total FY 2019 total % change
UK GBP'm 121.3 75% 114.7 76% 5.8%
Paris
Local currency EUR'm 44.1 42.1 4.8%
Average exchange
rate EUR:GBP 1.136 1.133 (0.3%)
Paris in Sterling GBP'm 38.8 24% 37.1 24% 4.6%
Spain
Local currency EUR'm 2.5 -
Average exchange
rate EUR:GBP 1.136 -
Spain in Sterling GBP'm 2.2 1% -
Total revenue 162.3 100% 151.8 100% 6.9%
======== ======= ======== ======= =========
The Group's revenue increased by 6.9% or GBP10.5 million in the
year. The Group's occupied space was 476,000 sq ft higher at 31
October 2020 (5.5 million sq ft) than at 31 October 2019 (5.0
million sq ft), and the average storage rate per square foot for
the Group, affected in the year by the dilutive impact of our lower
priced new stores, was, at GBP26.44, 1.3% higher than in 2019
(GBP26.09).
Adjusting the Group's revenue to a like-for-like basis (to
reflect the opening of five new stores in the UK and one in Paris
and the acquisition of Heathrow, Chelsea and St John's Wood and the
OhMyBox! portfolio), revenue has increased by 3.4%. There was
minimal exchange rate movement in the year so Group like-for-like
revenue at constant exchange rates has increased by 3.4%.
In the UK, revenue grew by GBP6.6 million or 5.8%, and on a
like-for-like basis it increased by 3.3%. Occupancy was 362,000 sq
ft higher at 31 October 2020 than at 31 October 2019, at 4.32
million sq ft (FY2019: 3.96 million sq ft) largely reflecting
occupancy increases in the established portfolio. The average
storage rate for the year grew 1.8%, from GBP23.93 in 2019 to
GBP24.37 in 2020. On a like-for-like basis, the average storage
rate in the UK also increased by 1.8% to GBP24.37 (FY2019:
GBP23.94).
In Paris, revenue increased by 3.8% to EUR43.54 million on a
like-for-like basis (FY2019: EUR41.96 million). Closing occupancy
grew to 1.03 million sq ft (FY2019: 1.02 million sq ft), and the
average storage rate increased by 1.8% to EUR39.64 for the year
(FY2019: EUR38.93). Adjusting for the impact of immature stores, on
a like-for-like basis the average storage rate in France increased
3.0% to EUR40.13 (FY2019: EUR38.96).
For Spain, revenue was EUR2.5 million with a closing occupancy
of 0.95 million sq ft (90.0%).
Analysis of Cost Base
Cost of sales
The table below details the key movements in cost of sales
between 2019 and 2020.
Cost of sales FY 2020 FY 2019
GBP'm GBP'm
Reported cost
of sales (56.3) (53.8)
Adjusted for:
Depreciation 0.9 0.7
Variable lease
payments 0.3 1.1
Underlying cost of
sales (55.1) (52.0)
============ ========
Underlying cost of sales for
FY 2019 (52.0)
New developments cost of sales 0.7
Underlying cost of sales for FY 2019
(Like-for-like) (51.3)
Volume related cost of sales (0.5)
Facilities and
rates (1.3)
Enquiry generation savings 0.6
Underlying cost of sales for FY 2020
(Like-for-like; CER) (52.5)
New developments cost of sales (2.6)
Underlying cost of sales for
FY 2020 (CER) (55.1)
Foreign exchange -
Underlying cost of sales for
FY 2020 (55.1)
========
In order to arrive at underlying cost of sales, adjustments are
made to remove the impact of depreciation, which does not form part
of underlying EBITDA, and variable lease payments, which forms part
of our leasehold costs in the presentation of our underlying income
statement.
Underlying cost of sales increased by GBP3.1 million in the
year, from GBP52.0 million in 2019 to GBP55.1 million in 2020 on
both an absolute and constant currency basis. The 6.0% increase is
largely attributable to an increase in costs of sales arising from
our acquisitions of OhMyBox! in Spain, the acquisition of Fort Box
in the UK, and the opening of three new stores in the UK and one in
Paris. On a like-for-like basis, cost of sales increased by GBP1.2
million or 2.3%, with GBP1.3 million from business rates and
facilities costs including store maintenance and GBP0.5 million of
volume related costs including debt and merchandise cost of sales,
offset by savings in enquiry generation. The investment in
marketing during the year represented 4.5% of revenue (FY2019:
5.2%).
Administrative Expenses
The table below reconciles reported administrative expenses to
underlying administrative expenses and details the key movements in
underlying administrative expenses between 2019 and 2020.
Administrative expenses FY 2020 FY 2019
GBP'm GBP'm
Reported administrative
expenses (20.3) (18.5)
Adjusted for:
Share-based payments 6.5 5.6
Exceptional items 0.2 0.6
Underlying administrative
expenses (13.6) (12.3)
======== ========
Underlying administrative expenses
for FY 2019 (12.3)
New developments administration
costs 0.3
Underlying administrative expenses for
FY 2019 (Like-for-like) (12.0)
Employee remuneration (0.2)
Professional fees and administration
costs 0.1
Underlying administrative expenses for
FY 2020 (Like-for-like; CER) (12.1)
New developments administration
costs (1.5)
Underlying administrative expenses
for FY 2020 (CER) (13.6)
Foreign exchange -
Underlying administrative expenses
for FY 2020 (13.6)
========
In order to arrive at underlying administrative expenses,
adjustments are made to remove the impact of exceptional items,
share-based payments and other non-underlying items.
Underlying administrative expenses increased by GBP1.3 million
or 10.5% in the year, from GBP12.3 million in 2019 to GBP13.6
million in 2020 mainly through costs related to the newly acquired
OhMyBox! and Fort Box stores and the costs attributed to the
development of our joint venture operations in Belgium and the
Netherlands. When adjusting for the GBP1.2 million net increase in
new development administration costs, like-for-like administrative
expenses in absolute and constant currencies grew by 0.8% to
GBP12.1 million.
Total underlying costs (cost of sales plus administrative
expenses) on a like-for-like basis in constant currency have grown
by GBP1.3 million, or 2.1%, to GBP64.6 million (FY2019: GBP63.3
million), principally as a result of the increase in cost of sales
explained above.
Exceptional Items
A net exceptional cost of GBP0.2 million was incurred in the
year, primarily relating to fees associated with the Group's
acquisitions in the year. In the prior year, a net exceptional cost
of GBP0.6 million was incurred relating to fees associated with the
Group's acquisitions in the year and exceptional legal and
employment related costs.
Gain on Investment Properties
The gain on investment properties consists of the revaluation
gains and losses with respect to investment properties under IAS 40
and the fair value re-measurement of lease liabilities add back and
other items as detailed below.
FY 2020 FY 2019
GBP'm GBP'm
Revaluation of investment
properties 137.7 91.2
Revaluation of investment properties
under construction (4.3) (1.6)
Fair value re-measurement of lease
liabilities add back (6.9) (5.4)
Gain on investment
properties 126.5 84.2
======== ========
In the current financial year, including investment properties
under construction, the UK business contributed GBP83.2 million to
the positive valuation movement and the Paris business contributed
GBP50.1 million with the remaining GBP0.1million in Spain. The gain
on investment properties principally reflects the continuing
progress in the performance of both businesses, which has driven
further positive changes in the cash flow metrics that are used to
assess the value of the store portfolio.
Operating Profit
Operating profit increased by GBP48.5 million from GBP163.7
million in 2019 to GBP212.2 million in 2020, comprising a GBP6.4
million increase in underlying EBITDA, a GBP42.3 million higher
investment property gain primarily due to the fact that movements
in stabilised occupancy and freehold exit yield assumptions,
although positive in both periods, were greater in 2020 than 2019,
and non-repeating exceptional transactional costs of GBP0.2 million
recognised in the year.
Net Finance Costs
Net finance costs include interest payable, interest on
obligations under lease liabilities, fair value movements on
derivatives, exchange gains or losses, unwinding of discounts and
exceptional refinancing costs. Net finance costs decreased by
GBP2.1 million in 2020, to GBP14.3 million from GBP16.4 million in
2019, principally due to a favourable net fair value movement on
derivatives in the year of GBP0.2 million compared to a net loss of
GBP2.1 million in 2019. The net exceptional finance cost of GBP0.6
million in 2019 related to the termination of a portion of our
interest rate swaps following the refinancing in October 2019.
FY 2020 FY 2019
GBP'm GBP'm
Net bank interest
payable (9.1) (8.5)
Amortisation of debt issuance costs
on bank loans (0.3) (0.2)
Interest on obligations
under lease liabilities (5.6) (4.8)
Fair value movement on derivatives 0.2 (2.1)
Net exchange gains/(losses) 0.2 (0.3)
Interest income including unwinding of
discount on Capital Goods Scheme receivable - 0.1
Interest from loan
to associates 0.1 -
Financial instruments
income 0.2 -
Exceptional finance
expenses - (0.6)
Net finance
costs (14.3) (16.4)
======== ========
Underlying finance charge
The underlying finance charge (net bank interest payable
reflecting term loan, swap and USPP interest costs) increased by
GBP0.6 million to GBP9.1 million, principally reflecting the
Group's additional borrowings in the year drawn to fund the Group's
acquisition and development activity. The underlying finance charge
represents the finance expense before exceptional items and changes
in fair value of derivatives, amortisation of debt issuance costs
and interest on obligations under lease liabilities and is
disclosed because management reviews and monitors performance of
the business on this basis.
Financial instruments income in the year of GBP0.2 million
(FY2019: GBPnil) related to the gain made on the expiration of
average rate forwards which matured in October 2020.
Based on the year-end drawn debt position the effective interest
rate is analysed as follows:
Facility Drawn Hedged Hedged Bank Hedged Floating Total
GBP/EUR'm GBP'm GBP'm % Margin Rate Rate Rate
UK Revolver GBP250.0 GBP138.0 GBP55.0 40% 1.25% 0.82% 0.04% 1.60%
UK Revolver-
non-utilisation GBP112.0 - - - 0.50% - - 0.50%
Euro Revolver EUR70.0 GBP27.0 GBP27.0 100% 1.25% 0.17% (0.52%) 1.42%
Euro Revolver-
non-utilisation EUR40.0 - - - 0.50% - - 0.50%
US Private Placement
2024 EUR50.9 GBP45.8 GBP45.8 100% 1.59% - - 1.59%
US Private Placement
2027 EUR74.1 GBP66.7 GBP66.7 100% 2.00% - - 2.00%
US Private Placement
2029 GBP50.5 GBP50.5 GBP50.5 100% 2.92% - - 2.92%
US Private Placement
2026 EUR70.0 GBP63.0 GBP63.0 100% 1.26% - - 1.26%
US Private Placement
2026 GBP35.0 GBP35.0 GBP35.0 100% 2.59% - - 2.59%
US Private Placement
2029 GBP30.0 GBP30.0 GBP30.0 100% 2.69% - - 2.69%
Unamortised finance
costs - (GBP1.5) - - - - - -
Total GBP604.0 GBP454.5 GBP373.0 82% 2.13%
========== ========= ========= ======= ======
As at 31 October 2020, GBP138.0 million of the GBP250 million UK
Revolver and EUR30.0 million (GBP27.0 million) of the EUR70 million
Euro Revolver were drawn. The drawn amounts attract a bank margin
of 1.25%, and the Group pays a non-utilisation fee of 0.50% on the
undrawn balances of GBP112.0 million and EUR40.0 million.
The Group has interest rate hedge agreements in place to June
2023, swapping LIBOR on GBP55 million at a weighted average
effective rate of 0.82% and EURIBOR on EUR30 million at an
effective rate of 0.17%.
The 2024, 2026 and 2027 US Private Placement Notes are
denominated in Euros and attract fixed interest rates of 1.59% (on
EUR50.9 million), 2.00% (on EUR74.1 million) and 1.26% (on EUR70.0
million) respectively. The Euro denominated borrowings provide a
natural hedge against the Group's investment in the Paris and Spain
businesses.
The 2029 (GBP50.5 million), 2026 (GBP35.0 million) and 2029
(GBP30.0 million) US Private Placement Notes are denominated in
Sterling and attract a fixed interest rate of 2.92%, 2.59% and
2.69% respectively.
82% of the Group's drawn debt is effectively at fixed rates of
interest, as a result of the hedging arrangements and fixed
interest loan notes. Overall, the Group has an effective interest
rate on its borrowings of 2.13% at 31 October 2020, compared to
2.30% at the previous year end.
Non-underlying finance charge
Interest on obligations under lease liabilities was GBP5.6
million (FY2019: GBP4.8 million) and reflects part of the leasehold
costs. The balance of the leasehold payment is charged through the
gain or loss on investment properties line and variable lease
payments in the income statement. Overall, the leasehold costs
charge increased from GBP11.3 million in 2019 to GBP12.8 million in
2020, principally reflecting our newly acquired leasehold stores at
Chelsea and Barcelona.
Net finance costs include a GBP0.2 million exchange gain
(FY2019: GBP0.3 million loss) arising primarily on retranslation of
the Group's Euro denominated borrowings.
A net gain of GBP0.2 million was recognised on fair valuation of
derivatives (FY2019: net loss of GBP2.1 million).
The Group undertakes net investment hedge accounting for its
Euro denominated loan notes.
Tax
The tax charge for the year is analysed below:
Tax charge FY 2020 FY 2019
GBP'm GBP'm
Underlying current
tax (5.2) (5.1)
Prior year - exceptional 2.4 -
Current tax charge (2.8) (5.1)
-------- --------
Tax on investment properties
movement (17.1) (10.3)
Tax on revaluation of interest
rate swaps - 0.1
Other - 0.1
Deferred tax charge (17.1) (10.1)
-------- --------
Net tax charge (19.9) (15.2)
======== ========
The net income tax charge for the year is GBP19.9 million
(FY2019: GBP15.2 million), which relates solely to the Group's
non-UK European businesses. In the UK, the Group is a REIT and
benefits from a zero rate of tax on its qualifying earnings. The
underlying current tax charge relating to the European businesses
amounted to GBP5.2 million (FY2019: GBP5.1 million), calculated by
applying the statutory income tax rate of each country to the
taxable profits arising there, which results in an effective
overall underlying tax rate of 25.7% for the European
businesses.
The deferred tax charge relating to Paris and Spain was GBP17.1
million (FY2019: GBP10.1 million charge).
An exceptional prior year current tax credit of GBP2.4 million
arose during the year as a result of confirmation of loss claims
made in 2015 and 2016 by an overseas subsidiary following the
expiry of the statutory limitation period allowed for challenging
the utilisation of these losses on 31 December 2019.
All deferred tax movements are non-underlying. The deferred tax
impact of the revaluation gain on investment properties was a
charge of GBP17.1 million (FY2019: GBP10.3 million charge).
Earnings per Share
As a result of the movements explained above, profit after tax
for 2020 was GBP178.0 million as compared with GBP132.1 million in
2019. Basic EPS was 84.6 pence (FY2019: 62.8 pence) and diluted EPS
was 84.0 pence (FY2019: 62.6 pence).
Adjusted Diluted EPRA EPS is based on the European Public Real
Estate Association's definition of earnings and is defined as
profit or loss for the period after tax but excluding corporate
transaction costs, change in fair value of derivatives, gain/loss
on investment properties and the associated tax impacts. The
Company then makes further adjustments for the impact of
exceptional items, IFRS 2 share-based payment charges, exceptional
tax items, and deferred tax charges. This adjusted earnings is
divided by the diluted number of shares. The IFRS 2 cost is
excluded as it is written back to distributable reserves and is a
non-cash item (with the exception of the associated National
Insurance element). Therefore neither the Company's ability to
distribute nor pay dividends are impacted (with the exception of
the associated National Insurance element). The financial
statements disclose earnings on a statutory, EPRA and Adjusted
Diluted EPRA basis and will provide a full reconciliation of the
differences in the financial year in which any Long Term Incentive
Plan ("LTIP") awards may vest.
Management introduced Adjusted Diluted EPRA EPS as a measure of
EPS following the implementation of the Group's LTIP scheme in
2017. Management considers that the real cost to existing
shareholders is the dilution that they will experience from the
LTIP scheme; therefore, earnings has been adjusted for the IFRS 2
share-based payment charge, and the number of shares used in the
EPS calculation has been adjusted for the dilutive effect of the
LTIP scheme.
The Group has exposure to the movement in the Euro/Sterling
exchange rate. Based on the FY2020 results, for every 10 cents
variance to the average exchange rate of 1.1356, there would be an
impact of GBP1.2 million to Adjusted EPRA earnings.
Adjusted Diluted EPRA EPS for the year was 30.2 pence (FY2019:
28.5 pence), calculated on a pro forma basis, as if the dilutive
LTIP shares were in issue throughout both the current and prior
years, as follows:
FY 2020 FY 2019
Earnings Shares Pence Earnings Shares Pence
per per
GBPm million share GBPm million share
Basic earnings 178.0 210.4 84.6 132.1 210.2 62.8
Adjustments
Gain on investment
properties (126.5) - (60.1) (84.2) - (40.1)
Exceptional items 0.2 - 0.1 0.6 - 0.3
Exceptional finance
costs - - - 0.6 - 0.3
Net exchange (gain)/loss (0.2) - (0.1) 0.3 - 0.1
Change in fair value
of derivatives (0.2) - (0.1) 2.1 - 1.0
Tax on adjustments/exceptional
tax 13.9 - 6.6 9.4 - 4.5
Adjusted 65.2 210.4 31.0 60.9 210.2 28.9
EPRA adjusted:
Fair value re-measurement
of lease labilities
add back (6.9) - (3.3) (5.4) - (2.6)
Tax on lease liabilities
add back adjustment 0.8 - 0.4 0.7 - 0.3
EPRA basic EPS 59.1 210.4 28.1 56.2 210.2 26.6
Share-based payments
charge 6.5 - 3.1 5.6 - 2.7
Dilutive shares - 6.8 (1.0) - 6.6 (0.8)
Adjusted Diluted
EPRA EPS 65.6 217.2 30.2 61.8 216.8 28.5
========= ======== ======= ========= ======== =======
Dividends
The Directors are recommending a final dividend of 12.7 pence
(FY2019: 12.0 pence) which Shareholders will be asked to approve at
the Company's Annual General Meeting on 17 March 2021. If approved
by Shareholders, the final dividend will be payable on 8 April 2021
to Shareholders on the register at close of business on 5 March
2021.
Reflective of the Group's improved performance, the Group's full
year dividend of 18.6 pence is 6.3% up on the prior year dividend
of 17.5 pence. The Property Income Dividend ("PID") element of the
full year dividend is 18.6 pence (FY2019: 17.5 pence).
Property Valuation and Net Asset Value ("NAV")
Cushman & Wakefield Debenham Tie Leung Limited LLP
("C&W") has valued the Group's property portfolio. As at 31
October 2020, the total value of the Group's property portfolio was
GBP1,557.5 million (excluding investment properties under
construction of GBP14.0 million and net of lease liabilities of
GBP76.9m). This represents an increase of GBP225.7 million compared
with the GBP1,331.8 million valuation as at 31 October 2019. A
reconciliation of the movement is set out below:
UK Paris Spain Total Paris Spain
GBP'm GBP'm GBP'm GBP'm EUR'm EUR'm
Value as at 1 November
2019 998.9 332.9 - 1,331.8 386.1 -
Currency translation
movement - 15.7 1.0 16.7 - -
Additions 38.7 2.2 5.7 46.6 2.5 6.5
On acquisition of
subsidiary - - 14.6 14.6 - 17.2
Disposals - - - - - -
Reclassifications 10.1 - - 10.1 - -
Revaluation 87.5 50.1 0.1 137.7 56.8 0.1
Value at 31 October
2020 1,135.2 400.9 21.4 1,557.5 445.4 23.8
======== ====== ====== ======== ====== ======
The exchange rate at 31 October 2020 was EUR1.11:GBP1 compared
with EUR1.16:GBP1 at 31 October 2019. This movement in the foreign
exchange rate has resulted in a GBP16.7m favourable currency
translation movement in the year. This has improved the Group net
asset value ("NAV") but had no impact on the loan-to-value ("LTV")
covenant as the assets in Paris are tested in Euros.
The value of the UK property portfolio including investment
properties under construction has increased by GBP134.1 million
compared with 31 October 2019, including a GBP83.2 million
valuation gain and capital additions (including reclassifications
from investment properties under construction) of GBP50.9
million.
Our pipeline of expansion stores in the UK, comprising sites at
Bermondsey, Morden and Birmingham-Middleway, is valued at GBP11.7
million.
In Paris, the value of the property portfolio including
investment properties under construction increased by EUR61.8
million, of which EUR56.8 million was valuation gain and capital
additions (including our pipeline store at Paris-Magenta) were
EUR5.0 million. The net increase when translated into Sterling
amounted to GBP70.3 million, reflecting the foreign exchange impact
described above.
The Group's freehold exit yield for the valuation at 31 October
2020 reduced to 6.37%, from 6.57% at 31 October 2019, and the
weighted average annual discount rate for the whole portfolio has
reduced from 9.82% at 31 October 2019 to 9.45% at 31 October
2020.
C&W's valuation report confirms that the properties have
been valued individually but that if the portfolio was to be sold
as a single lot or in selected groups of properties, the total
value could be different. C&W states that in current market
conditions it is of the view that there could be a material
portfolio premium.
The adjusted EPRA NAV per share, as defined in note 11 of the
financial statements, was 532 pence at 31 October 2020, up 17.8%
since 31 October 2019, and reported NAV per share was 492 pence
(FY2019: 421 pence), reflecting a GBP149.7 million increase in
reported net assets during the year.
Gearing and Capital Structure
The Group's borrowings comprise revolving bank borrowing
facilities in the UK and France and a US Private Placement.
Net debt (including lease liabilities and cash) stood at
GBP512.1 million at 31 October 2020, an increase of GBP68.8 million
from the 2019 position of GBP443.3 million, reflecting funding for
the acquisition of OhMyBox! and the continued expansion of the
Group portfolio. Total capital (net debt plus equity) increased
from GBP1,329.2 million at 31 October 2019 to GBP1,547.7 million at
31 October 2020. The net impact is that the gearing ratio has
decreased from 33.4% to 33.1% in the year.
Management also measures gearing with reference to its
loan-to-value ("LTV") ratio defined as gross debt (excluding lease
liabilities) as a proportion of the valuation of investment
properties and investment properties under construction (excluding
lease liabilities). At 31 October 2020 the Group LTV ratio was 29%
as compared to 31% at 31 October 2019. The Board considers the
current level of gearing is appropriate for the business to enable
the Group to increase returns on equity, maintain financial
flexibility and to achieve our medium term strategic
objectives.
Borrowings at 31 October 2020
As at 31 October 2020, GBP138.0 million of the GBP250 million UK
Revolver and EUR30.0 million (GBP27.0 million) of the EUR70 million
Euro revolver were drawn. Including the US Private Placement debt
of EUR195 million (GBP175.5 million) and GBP115.5 million, the
Group's borrowings totalled GBP456.0 million (before adjustment for
unamortised finance costs).
As at 31 October 2020, the weighted average remaining term for
the Group's available borrowing facilities is 4.5 years (FY2019:
5.5 years).
Borrowings under the existing loan facilities are subject to
certain financial covenants. The UK bank facilities and the US
Private Placement share interest cover and LTV covenants. The
interest cover requirement of EBITDA: interest is 2.4:1, where it
will remain until the end of the facilities' terms. Interest cover
for the year ended 31 October 2020 is 9.0x (FY2019: 8.9x).
The LTV covenant is 60% in both the UK and France, where it will
remain until the end of the facilities' terms. As at 31 October
2020, there is significant headroom in both the UK LTV and the
French LTV covenant calculations.
The Group is in compliance with its covenants at 31 October 2020
and, based on forecast projections, is expected to be in compliance
for a period in excess of twelve months from the date of this
report.
Cash Flow
The table below sets out the underlying cash flow of the
business in 2020 and 2019. For statutory reporting purposes,
leasehold costs cash flows are allocated between finance costs,
principal repayments and variable lease payments. However,
management considers a presentation of cash flows that reflects
leasehold costs as a single line item to be representative of the
underlying cash flow performance of the business.
FY 2020 FY 2019
GBP'm GBP'm
Underlying
EBITDA 93.9 87.5
Working capital/exceptionals/other 1.9 (0.9)
Adjusted operating cash
inflow 95.8 86.6
Interest payments (8.9) (8.8)
Leasehold rent payments (12.8) (11.3)
Tax payments (5.3) (5.2)
Free cash flow (before investing and
financing activities) 68.8 61.2
Acquisition of subsidiary,
net of cash acquired (14.3) (6.4)
Loan to associates - (1.7)
Investment in associates (2.5) (2.8)
Capital expenditure - investment
properties (59.9) (38.7)
Capital expenditure - property,
plant and equipment (1.3) (0.9)
Capital Goods Scheme receipt 0.3 0.6
Proceeds from disposal - property,
plant and equipment 0.1 -
Net cash flow after investing
activities (8.8) 11.3
Issue of share
capital - 0.1
Dividends paid (37.7) (35.0)
Net drawdown of borrowings 33.1 47.9
Debt issuance
costs (0.5) (0.5)
Net hedge breakage costs - (0.6)
Net (decrease)/increase
in cash (13.9) 23.2
======== ========
Note: Free cash flow is a non-GAAP measure, defined as cash flow
before investing and financing activities but after leasehold rent
payments.
The first table below reconciles free cash flow (before
investing and financing activities) in the table above to net cash
inflow from operating activities in the consolidated cash flow
statement. The second table below reconciles adjusted net cash flow
after investing activities in the table above to the consolidated
cash flow statement.
FY 2020 FY 2019
GBP'm GBP'm
Free cash flow (before investing and
financing activities) 68.8 61.2
Add back: principal payment of
lease liabilities 6.9 5.4
Net cash flow from operating
activities 75.7 66.6
FY 2020 FY 2019
GBP'm GBP'm
From table above:
Adjusted net cash flow after investing
activities (8.8) 11.3
Add back: principal payment of
lease liabilities 6.9 5.4
Net cash flow after investing
activities (1.9) 16.7
-------- --------
From consolidated cash flow:
Net cash inflow from operating activities 75.7 66.6
Net cash outflow from investing
activities (77.6) (49.9)
Net cash flow after investing
activities (1.9) 16.7
-------- --------
Adjusted operating cash flow increased by GBP9.2 million in the
year, principally due to the GBP6.4 million improvement in
underlying EBITDA. Working capital, exceptional items and other
movements resulted in a net GBP1.9 million inflow (FY2019: GBP0.9
million outflow) principally relating to increases in trade
payables relating to our ongoing portfolio development.
Free cash flow (before investing and financing activities) grew
by 12.4% to GBP68.8 million (FY2019: GBP61.2 million). The free
cash flow benefited from the increase in underlying EBITDA and the
increase in adjusted operating cash flow.
Investing activities experienced a net outflow of GBP77.6
million (FY2019: GBP49.9 million outflow), which included GBP14.3
million relating to the acquisition of OhMyBox! (the prior year
included the GBP6.4 million acquisition of Salus Services Limited),
and GBP59.9 million (FY2019: GBP38.7 million) of capital
expenditure on our investment property portfolio in respect of our
new stores at London-Carshalton, Gateshead, Sheffield and
Paris-Magenta; store extensions in Barking, Bedford and Chingford;
the asset acquisition of Fort Box; pipeline sites at
London-Bermondsey and Birmingham-Middleway and the acquisitions of
the freehold interests in our Basildon and Barcelona-Glories
sites.
Adjusted financing activities generated a net cash outflow of
GBP5.1 million (FY2019: GBP11.9 million inflow). Dividend payments
totalled GBP37.7 million (FY2019: GBP35.0 million). The net
drawdown of borrowings was GBP33.1 million (FY2019: GBP47.9
million), which included the acquisition of OhMyBox! and
development of our pipeline stores. In addition, financing
activities included a net outflow of GBP0.6 million in the prior
year on breaking a portion of our interest rate swaps as a result
of the refinancing in October 2019.
Andy Jones
13 January 2021
Consolidated income statement
for the year ended 31 October 2020
Group
--------------
2020 2019
Notes GBP'm GBP'm
------------------------------------------------------- ----- ------ ------
Revenue 2, 3 162.3 151.8
Cost of sales (56.3) (53.8)
------------------------------------------------------- ----- ------ ------
Gross profit 106.0 98.0
Administrative expenses (20.3) (18.5)
Share of profit in associate 9 - -
------------------------------------------------------- ----- ------ ------
Underlying EBITDA 93.9 87.5
Exceptional items 4 (0.2) (0.6)
Share-based payments (6.5) (5.6)
Depreciation and variable lease payments (1.2) (1.8)
Share of associate's depreciation, interest and
tax (0.3) -
------------------------------------------------------- ----- ------ ------
Operating profit before gains on investment properties 85.7 79.5
Gain on investment properties 10 126.5 84.2
------------------------------------------------------- ----- ------ ------
Operating profit 3 212.2 163.7
Finance income 5 0.5 0.1
Finance expense 5 (14.8) (16.5)
------------------------------------------------------- ----- ------ ------
Profit before income tax 197.9 147.3
Income tax charge 6 (19.9) (15.2)
------------------------------------------------------- ----- ------ ------
Profit for the year 178.0 132.1
------------------------------------------------------- ----- ------ ------
Earnings per Share for profit attributable to
the equity holders
- basic (pence) 8 84.6 62.8
- diluted (pence) 8 84.0 62.6
------------------------------------------------------- ----- ------ ------
The financial results for both years relate to continuing
operations.
Underlying EBITDA is defined as operating profit before
exceptional items, share-based payments, corporate transaction
costs, gain/loss on investment properties, depreciation and
variable lease payments and the share of associate's depreciation,
interest and tax.
Consolidated statement of comprehensive income
for the year ended 31 October 2020
Group
--------------
2020 2019
GBP'm GBP'm
------------------------------------------------------ ------ ------
Profit for the year 178.0 132.1
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit
or loss:
Currency translation differences 12.1 (7.0)
Net investment hedge (7.4) 3.3
------------------------------------------------------ ------ ------
Other comprehensive income/(expense), net of tax 4.7 (3.7)
------------------------------------------------------ ------ ------
Total comprehensive income for the year 182.7 128.4
------------------------------------------------------ ------ ------
Consolidated balance sheet
as at 31 October 2020
Group
----------------
2020 2019
Notes GBP'm GBP'm
--------------------------------------------- ----- ------- -------
Assets
Non-current assets
Investment in associates 9 5.3 2.8
---
External valuation of investment properties,
net of lease liabilities 1,557.5 1,331.8
Add back of lease liabilities 76.9 63.5
Investment properties under construction 14.0 13.9
------------------------------------------------- -------------- -------
Total investment properties 10 1,648.4 1,409.2
Property, plant and equipment 3.2 2.4
Derivative financial instruments 14 0.5 -
Deferred income tax assets 0.2 0.3
Other receivables - 0.2
--------------------------------------------- ----- ------- -------
1,657.6 1,414.9
--------------------------------------------- ----- ------- -------
Current assets
Inventories 0.3 0.3
Derivative financial instruments 14 0.4 -
Trade and other receivables 23.2 22.6
Cash and cash equivalents 12,18 19.6 33.2
--------------------------------------------- ----- ------- -------
43.5 56.1
--------------------------------------------- ----- ------- -------
Total assets 1,701.1 1,471.0
--------------------------------------------- ----- ------- -------
Current liabilities
Trade and other payables (47.2) (40.6)
Current income tax liabilities (0.2) (2.7)
Obligations under lease liabilities 15 (12.3) (9.7)
--------------------------------------------- ----- ------- -------
(59.7) (53.0)
--------------------------------------------- ----- ------- -------
Non-current liabilities
Financial liabilities
- bank borrowings 13,18 (454.5) (413.0)
- derivative financial instruments 14 (1.4) (0.6)
Deferred income tax liabilities (85.0) (64.7)
Obligations under lease liabilities 15 (64.9) (53.8)
--------------------------------------------- ----- ------- -------
(605.8) (532.1)
--------------------------------------------- ----- ------- -------
Total liabilities (665.5) (585.1)
--------------------------------------------- ----- ------- -------
Net assets 1,035.6 885.9
--------------------------------------------- ----- ------- -------
Equity
Ordinary shares 16 2.1 2.1
Share premium 60.6 60.6
Translation reserve 14.5 9.8
Retained earnings 958.4 813.4
--------------------------------------------- ----- ------- -------
Total equity 1,035.6 885.9
--------------------------------------------- ----- ------- -------
These financial statements were authorised for issue by the
Board of Directors on 13 January 2021 and signed on its behalf
by:
A Jones F Vecchioli
Chief Financial Officer Chief Executive Officer
Company registration number: 4726380
Consolidated statement of changes in shareholders' equity
for the year ended 31 October 2020
Group
---------------------------------------------------
Share Share Translation Retained
capital premium reserve earnings Total
GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------------- -------- -------- ----------- --------- -------
Balance at 1 November 2018 2.1 60.5 13.5 712.5 788.6
Comprehensive income
Profit for the year - - - 132.1 132.1
Other comprehensive (expense)/income
Currency translation differences - - (7.0) - (7.0)
Net investment hedge - - 3.3 - 3.3
------------------------------------- -------- -------- ----------- --------- -------
Total other comprehensive expense - - (3.7) - (3.7)
------------------------------------- -------- -------- ----------- --------- -------
Total comprehensive (expense)/income - - (3.7) 132.1 128.4
------------------------------------- -------- -------- ----------- --------- -------
Transactions with owners
Dividends (note 7) - - - (35.0) (35.0)
Increase in share capital - 0.1 - - 0.1
Employee share options - - - 3.8 3.8
------------------------------------- -------- -------- ----------- --------- -------
Transactions with owners - 0.1 - (31.2) (31.1)
------------------------------------- -------- -------- ----------- --------- -------
Balance at 1 November 2019 2.1 60.6 9.8 813.4 885.9
Comprehensive income
Profit for the year - - - 178.0 178.0
Other comprehensive income/(expense)
Currency translation differences - - 12.1 - 12.1
Net investment hedge - - (7.4) - (7.4)
------------------------------------- -------- -------- ----------- --------- -------
Total other comprehensive income - - 4.7 - 4.7
------------------------------------- -------- -------- ----------- --------- -------
Total comprehensive income - - 4.7 178.0 182.7
------------------------------------- -------- -------- ----------- --------- -------
Transactions with owners
Dividends (note 7) - - - (37.7) (37.7)
Increase in share capital - - - - -
Employee share options - - - 4.7 4.7
------------------------------------- -------- -------- ----------- --------- -------
Transactions with owners - - - (33.0) (33.0)
------------------------------------- -------- -------- ----------- --------- -------
Balance at 31 October 2020 2.1 60.6 14.5 958.4 1,035.6
------------------------------------- -------- -------- ----------- --------- -------
Consolidated cash flow statement
for the year ended 31 October 2020
Group
---------------
2020 2019
Notes GBP'm GBP'm
----------------------------------------------------- ------ ------ -------
Cash flows from operating activities
Cash generated from operations 17 95.5 85.5
Interest received 0.2 0.1
Interest paid (14.7) (13.7)
Tax paid (5.3) (5.3)
----------------------------------------------------- ------ ------ -------
Net cash inflow from operating activities 75.7 66.6
----------------------------------------------------- ------ ------ -------
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired 22 (14.3) (6.4)
Investment in associates (2.5) (2.8)
Loans to associates - (1.7)
Expenditure on investment properties and development
properties (59.9) (38.7)
Proceeds in respect of Capital Goods Scheme 0.3 0.6
Purchase of property, plant and equipment (1.3) (0.9)
Proceeds from sale of property, plant and equipment 0.1 -
----------------------------------------------------- ------ ------ -------
Net cash outflow from investing activities (77.6) (49.9)
----------------------------------------------------- ------ ------ -------
Cash flows from financing activities
Issue of share capital - 0.1
Equity dividends paid 7 (37.7) (35.0)
Proceeds from borrowings 57.5 173.4
Repayment of borrowings (24.4) (125.5)
Debt issuance costs (0.5) (0.5)
Hedge breakage costs - (0.6)
Principal payment of lease liabilities (6.9) (5.4)
----------------------------------------------------- ------ ------ -------
Net cash (outflow)/inflow from financing activities (12.0) 6.5
----------------------------------------------------- ------ ------ -------
Net (decrease)/increase in cash and cash equivalents (13.9) 23.2
Exchange gain/(loss) on cash and cash equivalents 0.3 (0.5)
Cash and cash equivalents at 1 November 33.2 10.5
----------------------------------------------------- ------ ------ -------
Cash and cash equivalents at 31 October 12, 18 19.6 33.2
----------------------------------------------------- ------ ------ -------
Notes to the financial statements
for the year ended 31 October 2020
1. Basis of preparation
The Board approved this preliminary announcement on 13 January
2021.
The financial information included in this preliminary
announcement does not constitute the Group's statutory accounts for
the years ended 31 October 2019 or 31 October 2020. Statutory
accounts for the year ended 31 October 2019 have been delivered to
the Registrar of Companies. The statutory accounts for the year
ended 31 October 2020 will be delivered to the Registrar of
Companies following the Company's annual general meeting.
The auditor has reported on the 2020 and 2019 accounts; their
report was unqualified, did not include any references to any
matters by way of emphasis and did not contain statements under
section 498 (2) or (3) of the Companies Act 2006.
These financial statements for the year ended 31 October 2020
have been prepared under the historical cost convention except for
the following assets and liabilities, which are stated at their
fair value: investment property, derivative financial instruments
and financial interest in property assets. The accounting policies
used are consistent with those contained in the Group's last annual
report and accounts for the year ended 31 October 2019, except for
items as described below. All amounts are presented in Sterling and
are rounded to the nearest GBP0.1 million, unless otherwise
stated.
The financial information included in this preliminary
announcement has been prepared in accordance with EU endorsed
International Financial Reporting Standards ("IFRS"), International
Financial Reporting Interpretations Committee ("IFRIC")
interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
After making enquiries, the Directors of Safestore are confident
that, on the basis of current financial projections and facilities
available and after considering sensitivities, the Group has
sufficient resources for its operational needs and to enable the
Group to remain in compliance with the financial covenants in its
bank facilities for the foreseeable future, a period of not less
than twelve months. In assessing the Group's going concern position
as at 31 October 2020, the Directors have considered a number of
factors, including the current balance sheet position, the
principal and emerging risks which could impact the performance of
the Group and the Group's strategic and financial plan.
Consideration has been given to compliance with borrowing covenants
along with the uncertainty inherent in future financial forecasts.
In addition, in relation to the potential ongoing impact of
Covid-19, various scenarios and stress tests have been modelled
including sensitivities relating to the potential impact on
performance due to possible changes in lockdown durations and
post-lockdown demand levels. This included the potential impact on
performance due to possible changes in the levels of demand,
customer churn, sales performance and rate growth. The Group is a
profitable provider of self storage with a strong balance sheet,
significant liquidity and considerable headroom compared to its
banking covenants. The financial position of the Group, including
details of its financing and capital structure, is set out in the
financial review section of this announcement. The Directors have
assessed Safestore's viability over a three-year period to October
2023. This is based on three years of the strategic plan, which
gives greater certainty over the forecasting assumptions used. The
potential ongoing impact of Covid-19 is discussed further within
the front section of this announcement.
Standards, amendments to standards and interpretations issued
and applied
The following new or revised accounting standards or IFRIC
interpretations are applicable for the first time in the year ended
31 October 2020:
-- IFRS 16 "Leases" (see below)
-- IFRIC 23 "Uncertainty over Income Tax Treatments"
-- Amendments to IAS 28 "Long-term Interests in Associates and Joint Ventures"
-- Annual Improvements to the IFRS Standards 2015-2017 Cycle
-- Amendments to IFRS 9 "Financial Instruments"
-- Amendments to IAS 19 "Employee Benefits"
The adoption of the Standards and Interpretations has not
significantly impacted these financial statements and any changes
to our accounting policies as a result of their adoption have been
reflected in this note.
IFRS 16 "Leases"
This is the Group's first set of financial statements where IFRS
16 "Leases" has been applied. There have been no retrospective
adjustments made to the prior year figures. The impact on the
results on adoption of this standard is set out below:
-- IFRS 16 replaces IAS 17 "Leases" and requires all operating
leases in excess of one year, where the Group is the lessee, to be
included on the Group's balance sheet, and the recognition of a
right-of-use asset and a related lease liability representing the
obligation to make lease payments. The right-of-use asset is
assessed for impairment annually (incorporating any onerous lease
assessments) and amortised on a straight-line basis, with the lease
liability being amortised using the effective interest method. The
Group's only significant lease commitment, which is not classified
as part of its investment property portfolio, relates to its French
Head Office.
-- The Group has applied IFRS 16 using the modified
retrospective approach and has not restated comparative
information. The transition date of initial application of IFRS 16
for the Group was 1 November 2019. The Group already classified its
leasehold stores as lease liabilities. However, as a result of IFRS
16, these leases are now based on actual current rent payable,
rather than rent payable at inception of the lease, as was the case
under IAS 17 "Leases", with the difference previously being treated
as variable lease payments (previously classified as contingent
rent). This resulted in an opening transition adjustment to the
right-of-use asset and lease liability of GBP9.4 million. As these
offset, there will be no impact to net assets or the income
statement on transition.
-- The fair value of investment property held by the Group as a
right-of-use asset reflects expected cash flows (including rent
reviews settled that are expected to become payable). Accordingly,
if a valuation obtained for a property is net of all payments
expected to be made, it will be necessary to add back any
recognised lease liability, to arrive at the carrying amount of the
investment property using the fair value model, resulting in an
opening IFRS 16 transition adjustment.
-- For investment properties held under leases that are
classified as lease liabilities, the properties are initially
recognised at the lower of fair value of the property and the
present value of the minimum lease payments. An equivalent amount
is recognised as a lease liability. After initial recognition,
leasehold properties classified as investment properties are held
at fair value, and the obligation to the lessor is included in the
balance sheet at the present value of the minimum lease payments.
The minimum lease payment valuation is re-measured at each balance
sheet date and the value of the Group's right-of-use asset is
adjusted accordingly over the lease term.
-- In the prior year, the Group had one operating lease, with
non-cancellable future lease payments of GBP0.4 million. After
discounting the future lease payments under IFRS 16, the liability
on transition remained at GBP0.4 million. The Group recognised a
right-of-use asset of GBP0.4 million in property, plant and
equipment and a lease liability of GBP0.4 million at the transition
date. The impact at the transition date on the opening retained
earnings is GBPnil. As at 31 October 2020, the net carrying value
of the right-of-use asset was GBP0.3 million and lease liability
was GBP0.3 million. The additional depreciation charge for the
right-of-use asset recognised during the year was GBP0.1 million.
The reduction in the lease liability in respect of principal
repayments and interest was GBP0.1 million. Therefore, the
recognition of this operating lease has had no impact to net assets
or the income statement.
-- When measuring the lease liabilities for leases that were
classified as operating leases, new lease liabilities acquired and
lease extensions, the Group discounted lease payments using an
incremental borrowing rate specific for each asset based on what
the Group would have to pay to borrow over a similar term, and with
a similar security, the funds necessary to obtain an asset of a
similar value to the right-of-use asset in a similar economic
environment. The Group has followed industry practice, utilising a
stepped approach to determine the incremental cost of borrowing by
determining the risk-free rate, the risk premium and making any
lease-specific adjustments. To ensure the incremental borrowing
rates calculated were reasonable, appropriate and did not create a
material misstatement, sensitivity analysis was undertaken to
determine the impact of alternative measures of the rate through
use of various metrics, such as the weighted average cost of
capital (5%) and the Group's blended rate of interest on the
overall debt at 31 October 2019 (2.13%).
The reconciliation of the balance sheet movement is shown in the
table below:
IFRS 16
Pre-transition adoption Post-transition
1 November 1 November 1 November
2019 2019 2019
GBP'm GBP'm GBP'm
-------------------------------------------------- ---------------- ----------- ---------------
Add back of lease liabilities 63.5 9.4 72.9
Property, plant and equipment - 0.4 0.4
Obligations under lease liabilities (current) (9.7) (1.7) (11.4)
Obligations under lease liabilities (non-current) (53.8) (8.1) (61.9)
-------------------------------------------------- ---------------- ----------- ---------------
Policy applicable from 1 November 2019
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the lease term. The estimated useful lives of right-of-use assets
are determined on the same basis as those of property and
equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
re-measurements of the lease liability.
Leasehold properties that are classified as right-of-use assets
within investment properties are included in the balance sheet at
fair value.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease, or if
that rate cannot be readily determined the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
Lease payments included in the measurement of the lease
liability comprise the following:
-- fixed payments, including in-substance fixed payments;
-- variable lease payments that depend on an index or rate,
initially measured using the index or rate at the commencement
date;
-- amounts expected to be payable under a residual value guarantee; and
-- the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the
effective interest method. It is re-measured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected
to be payable under a residual value guarantee, or if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option.
Where the lease liability is re-measured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to
zero.
Policy applicable before 1 November 2019
In the comparative period, leases were only classified as
operating leases when they did not meet the definition of finance
leases under IAS 17 "Leases". Rentals payable under these leases
were charged to the statement of comprehensive income on a
straight-line basis over the term of the relevant lease. In the
event that lease incentives were received to enter into operating
leases, such incentives were recognised as a liability. The
aggregate benefit of incentives was recognised as a reduction of
rental expense on a straight-line basis, except where another
systematic basis was more representative of the time pattern in
which economic benefits from the leased asset were consumed.
Key sources of estimation uncertainty
The following key estimate has significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the consolidated financial statements:
Estimate of fair value of investment properties and investment
properties under construction
The Group values its investment properties using a discounted
cash flow methodology, which is based on projections of net
operating income. Principal assumptions and management's underlying
estimation of the fair value of those relate to: stabilised
occupancy levels; expected future growth in storage rental income
and operating costs; maintenance requirements; capitalisation rate;
and discount rates. There are inter-relationships between the
valuation inputs, and they are primarily determined by market
conditions. The effect of an increase in more than one input could
be to magnify the impact on the valuation. However, the impact on
the valuation could be mitigated by the inter-relationship of two
inputs moving in opposite directions, e.g. an increase in rent may
be offset by a decrease in occupancy, resulting in no net impact on
the valuation. For immature stores, these underlying estimates hold
a higher risk of uncertainty, due to the unproven nature of its
cash flows. A more detailed explanation of the background,
methodology and judgements made by management is adopted in the
valuation of the investment properties and is set out in note
10.
Judgement of business combinations
The Directors assess whether the acquisition of property through
the purchase of a corporate vehicle should be accounted for as an
asset purchase or a business combination. Where the acquired
vehicle is an integrated set of activities and assets that is
capable of being conducted and managed to provide a return to
investors, the transaction is accounted for as a business
combination. Where this is not the case, the transaction is treated
as an asset purchase. The Directors assess when the risks and
rewards associated with an acquisition or disposal have
transferred. All business combinations have been disclosed in note
22.
Non-GAAP financial information
The Directors have identified certain measures that they believe
will assist the understanding of the performance of the business.
The measures are not defined under IFRS and they may not be
directly comparable with other companies' adjusted measures. The
non-GAAP measures are not intended to be a substitute for, or
superior to, any IFRS measures of performance but they have been
included as the Directors consider them to be important comparables
and key measures used within the business for assessing
performance. The following are the key non-GAAP measures identified
by the Group:
-- The Group defines exceptional items to be those that warrant,
by virtue of their nature, size or frequency, separate disclosure
on the face of the income statement where, in the opinion of the
Directors, this enhances the understanding of the Group's financial
performance.
-- Underlying EBITDA is defined as operating profit before
exceptional items, share-based payments, corporate transaction
costs, gain/loss on investment properties, variable lease payments
and depreciation. Management considers this presentation to be
representative of the underlying performance of the business, as it
removes the income statement impact of items not fully controllable
by management, such as the revaluation of derivatives and
investment properties, and the impact of exceptional credits, costs
and finance charges. A reconciliation of statutory operating profit
to Underlying EBITDA can be found in the financial review.
-- Adjusted Diluted EPRA EPS is based on the European Public
Real Estate Association's definition of earnings and is defined as
profit or loss for the period after tax but excluding corporate
transaction costs, change in fair value of derivatives, gain/loss
on investment properties and the associated tax impacts. The
Company then makes further adjustments for the impact of
exceptional items, IFRS 2 share-based payment charges, exceptional
tax items and deferred tax charges. This adjusted earnings is
divided by the diluted number of shares. The IFRS 2 cost is
excluded as it is written back to distributable reserves and is a
non-cash item (with the exception of the associated National
Insurance element). Therefore, neither the Company's ability to
distribute nor pay dividends are impacted (with the exception of
the associated National Insurance element). The financial
statements disclose earnings on a statutory, EPRA and Adjusted
Diluted EPRA basis and will provide a full reconciliation of the
differences in the financial year in which any LTIP awards may
vest. A reconciliation of statutory basic Earnings per Share to
Adjusted Diluted EPRA EPS can be found in note 8.
-- EPRA basic net assets per share is an industry standard
measure recommended by the European Public Real Estate Association
("EPRA"). The basis of calculation, including a reconciliation to
reported net assets, is set out in note 11.
Forward-looking statements
Certain statements in this preliminary announcement are
forward-looking. Although the Group believes that the expectations
reflected in these forward-looking statements are reasonable, we
can give no assurance that these expectations will prove to have
been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
2. Revenue
Analysis of the Group's operating revenue can be found
below:
2020 2019
GBP'm GBP'm
------------------------- ------ ------
Self storage income 132.2 122.0
Insurance income 19.4 18.6
Other non-storage income 10.7 11.2
------------------------- ------ ------
Total revenue 162.3 151.8
------------------------- ------ ------
3. Segmental analysis
The segmental information presented has been prepared in
accordance with the requirements of IFRS 8. The Group's revenue,
profit before income tax and net assets are attributable to one
activity: the provision of self storage accommodation and related
services. This is based on the Group's management and internal
reporting structure.
Safestore is organised and managed in three operating segments,
based on geographical areas, being the United Kingdom, Paris in
France and Barcelona in Spain.
The chief operating decision maker, being the Executive
Directors, identified in accordance with the requirements of IFRS
8, assesses the performance of the operating segments on the basis
of Underlying EBITDA, which is defined as operating profit before
exceptional items, share-based payments, corporate transaction
costs, gain/loss on investment properties, variable lease payments
and depreciation.
The operating profits and assets include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis.
UK Paris Spain Group
Year ended 31 October 2020 GBP'm GBP'm GBP'm GBP'm
-------------------------------------------- ------- ------ ------ -------
Continuing operations
Revenue 121.3 38.8 2.2 162.3
Share of profit in associates - - - -
-------------------------------------------- ------- ------ ------ -------
Underlying EBITDA 67.5 25.0 1.4 93.9
Exceptional items (0.3) 0.1 - (0.2)
Share-based payments (5.8) (0.7) - (6.5)
Variable lease payments and depreciation (0.9) (0.3) - (1.2)
Share of associate's depreciation, interest
and tax (0.3) - - (0.3)
-------------------------------------------- ------- ------ ------ -------
Operating profit before gain on investment
properties 60.2 24.1 1.4 85.7
Gain on investment properties 79.7 47.1 (0.3) 126.5
-------------------------------------------- ------- ------ ------ -------
Operating profit 139.9 71.2 1.1 212.2
Net finance expense (12.1) (2.1) (0.1) (14.3)
-------------------------------------------- ------- ------ ------ -------
Profit before tax 127.8 69.1 1.0 197.9
-------------------------------------------- ------- ------ ------ -------
Total assets 1,244.4 435.9 20.8 1,701.1
-------------------------------------------- ------- ------ ------ -------
UK Paris Spain Group
Year ended 31 October 2019 GBP'm GBP'm GBP'm GBP'm
------------------------------------------- ------- ------ ------ -------
Continuing operations
Revenue 114.7 37.1 - 151.8
------------------------------------------- ------- ------ ------ -------
Underlying EBITDA 64.1 23.4 - 87.5
Exceptional items (0.6) - - (0.6)
Share-based payments (5.0) (0.6) - (5.6)
Variable lease payments and depreciation (1.2) (0.6) - (1.8)
------------------------------------------- ------- ------ ------ -------
Operating profit before gain on investment
properties 57.3 22.2 - 79.5
Gain on investment properties 51.0 33.2 - 84.2
------------------------------------------- ------- ------ ------ -------
Operating profit 108.3 55.4 - 163.7
Net finance expense (14.2) (2.2) - (16.4)
------------------------------------------- ------- ------ ------ -------
Profit before tax 94.1 53.2 - 147.3
------------------------------------------- ------- ------ ------ -------
Total assets 1,105.4 365.6 - 1,471.0
------------------------------------------- ------- ------ ------ -------
Inter-segment transactions are entered into under the normal
commercial terms and conditions that would also be available to
unrelated third parties. There is no material impact from
inter-segment transactions on the Group's results.
4. Exceptional items
2020 2019
GBP'm GBP'm
--------------------------------------------- ------ ------
Costs relating to corporate transactions and
legal and employment proceedings (0.3) (0.6)
Other exceptional items 0.1 -
---------------------------------------------- ------ ------
Net exceptional cost (0.2) (0.6)
---------------------------------------------- ------ ------
A net exceptional cost of GBP0.2 million (FY2019: GBP0.6
million) was incurred in the year, comprising of GBP0.3 million
relating to fees associated with the Group's acquisitions in the
year and exceptional legal and employment related costs less GBP0.1
million compensation received from a landlord in respect of water
damage in France.
5. Finance income and costs
2020 2019
GBP'm GBP'm
----------------------------------------------------------- ------ ------
Finance income
Interest receivable from loan to associates 0.1 -
Financial instruments income 0.2 -
Interest income including unwinding of discount on Capital
Goods Scheme ("CGS") receivable - 0.1
----------------------------------------------------------- ------ ------
Underlying finance income 0.3 0.1
Net exchange gains 0.2 -
----------------------------------------------------------- ------ ------
Total finance income 0.5 0.1
----------------------------------------------------------- ------ ------
Finance costs
Interest payable on bank loans and overdraft (9.1) (8.5)
Amortisation of debt issuance costs on bank loan (0.3) (0.2)
----------------------------------------------------------- ------ ------
Underlying finance charges (9.4) (8.7)
Interest on obligations under lease liabilities (5.6) (4.8)
Fair value gain/(loss) of derivatives 0.2 (2.1)
Net exceptional finance expense - (0.6)
Net exchange losses - (0.3)
----------------------------------------------------------- ------ ------
Total finance costs (14.8) (16.5)
----------------------------------------------------------- ------ ------
Net finance costs (14.3) (16.4)
----------------------------------------------------------- ------ ------
Included within interest payable of GBP9.1 million (FY2019:
GBP8.5 million) is GBP0.3 million (FY2019: GBP0.4 million) of
interest relating to derivative financial instruments that are
economically hedging the Group's borrowings. The total change in
fair value of derivatives reported within net finance costs for the
year is a GBP0.2 million net gain (FY2019: GBP2.1 million net
loss). Included within finance income is GBP0.2 million received on
settlement of the EUR6.5 million average rate forward contract
acquired in March 2020 and settled in October 2020.
Net exceptional finance costs of GBPnil relating to terminating
a portion of the interest rate swaps, following the refinancing in
October 2019, were incurred in FY2020 (FY2019: GBP0.6 million).
6. Income tax charge
Analysis of tax charge in the year:
2020 2019
Note GBP'm GBP'm
--------------- ----- ------ ------
Current tax:
- Current year 5.2 5.1
- Prior year (2.4) -
---------------------- ------ ------
2.8 5.1
--------------------- ------ ------
Deferred tax:
- Current year 17.1 10.1
- Prior year - -
17.1 10.1
--------------------- ------ ------
Tax charge 19.9 15.2
---------------------- ------ ------
Reconciliation of income tax charge
The tax for the period is lower (FY2019: lower) than the
standard effective rate of corporation tax in the UK for the year
ended 31 October 2020 of 19.0% (FY2019: 19.0%). The differences are
explained below:
2020 2019
GBP'm GBP'm
------------------------------------------------------------- ------ ------
Profit before tax 197.9 147.3
------------------------------------------------------------- ------ ------
Profit on ordinary activities multiplied by standard
rate of corporation tax in the UK of 19.0% (FY2019:
19.0%) 37.6 28.0
Effect of:
- permanent differences 0.3 -
- profits from the tax exempt business (24.2) (17.9)
- deferred tax arising on acquisition of overseas subsidiary 3.0 -
- difference from overseas tax rates 5.6 5.1
- prior year adjustments - exceptional (2.4) -
------------------------------------------------------------- ------ ------
Tax charge 19.9 15.2
------------------------------------------------------------- ------ ------
The Group is a real estate investment trust ("REIT"). As a
result, the Group is exempt from UK corporation tax on the profits
and gains from its qualifying rental business in the UK provided
that it meets certain conditions. Non-qualifying profits and gains
of the Group remain subject to corporation tax as normal. The Group
monitors its compliance with the REIT conditions. There have been
no breaches of the conditions to date.
The main rate of corporation tax in the UK is 19%. Accordingly,
the Group's results for this accounting period are taxed at an
effective rate of 19.0% (FY2019: 19.0%). The expected decrease in
the rate of corporation tax to 17% from 1 April 2020 provided for
in Finance (No.2) Act 2015 has been postponed indefinitely. There
will be no deferred taxation impact in respect of this change in
taxation rates if it is re-introduced.
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
An exceptional prior year current tax credit of GBP2.4 million
arose during the year as a result of confirmation of loss claims
made in 2015 and 2016 by an overseas subsidiary following the
expiry of the statutory limitation period allowed for challenging
the utilisation of these losses on 31 December 2019.
7. Dividends per share
The dividend paid in 2020 was GBP37.7 million (17.90 pence per
share) (FY2019: GBP35.0 million (16.65 pence per share)). A final
dividend in respect of the year ended 31 October 2020 of 12.70
pence (FY2019: 12.00 pence) per share, amounting to a total final
dividend of GBP26.7 million (FY2019: GBP25.2 million), is to be
proposed at the AGM on 17 March 2021. The ex-dividend date will be
4 March 2021 and the record date will be 5 March 2021 with an
intended payment date of 8 April 2021. The final dividend has not
been included as a liability at 31 October 2020.
The property income distribution ("PID") element of the final
dividend is 12.70 pence (FY2019: 12.00 pence), making the PID
payable for the year 18.60 pence (FY2019: 17.50 pence) per
share.
8. Earnings per share
Basic Earnings per Share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year
excluding ordinary shares held as treasury shares. Diluted Earnings
per Share is calculated by adjusting the weighted average number of
ordinary shares to assume conversion of all dilutive potential
shares. The Company has one category of dilutive potential ordinary
shares: share options. For the share options, a calculation is
performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market
price of the Company's shares) based on the monetary value of the
subscription rights attached to the outstanding share options. The
number of shares calculated as above is compared with the number of
shares that would have been issued assuming the exercise of the
share options.
Year ended 31 October Year ended 31 October
2020 2019
------------------------------ ------------------------------
Earnings Shares Pence Earnings Shares Pence
GBP'm million per share GBP'm million per share
-------------------- -------- -------- ---------- -------- -------- ----------
Basic 178.0 210.4 84.6 132.1 210.2 62.8
Dilutive securities - 1.4 (0.6) - 0.7 (0.2)
-------------------- -------- -------- ---------- -------- -------- ----------
Diluted 178.0 211.8 84.0 132.1 210.9 62.6
-------------------- -------- -------- ---------- -------- -------- ----------
Adjusted earnings per share
Explanations related to the adjusted earnings measures adopted
by the Group are set out in note 1 under the heading Non-GAAP
financial information. Adjusted Earnings per Share represents
profit after tax adjusted for the valuation movement on investment
properties, exceptional items, change in fair value of derivatives,
exchange gains/losses, unwinding of the discount on the CGS
receivable and the associated tax thereon. The Directors consider
that these alternative measures provide useful information on the
performance of the Group.
EPRA earnings and Earnings per Share before non-recurring items,
movements on revaluations of investment properties and changes in
the fair value of derivatives have been disclosed to give a clearer
understanding of the Group's underlying trading performance.
Year ended 31 October Year ended 31 October
2020 2019
------------------------------ ------------------------------
Earnings Shares Pence Earnings Shares Pence
GBP'm million per share GBP'm million per share
------------------------------ -------- -------- ---------- -------- -------- ----------
Basic 178.0 210.4 84.6 132.1 210.2 62.8
Adjustments:
Gain on investment properties (126.5) - (60.1) (84.2) - (40.1)
Exceptional items 0.2 - 0.1 0.6 - 0.3
Exceptional finance costs - - - 0.6 - 0.3
Net exchange (gain)/loss (0.2) - (0.1) 0.3 - 0.1
Change in fair value
of derivatives (0.2) - (0.1) 2.1 - 1.0
Tax on adjustments 13.9 - 6.6 9.4 - 4.5
------------------------------ -------- -------- ---------- -------- -------- ----------
Adjusted 65.2 210.4 31.0 60.9 210.2 28.9
EPRA adjusted:
Fair value re-measurement
of lease liabilities
add back (6.9) - (3.3) (5.4) - (2.6)
Tax on lease liabilities
add back adjustment 0.8 - 0.4 0.7 - 0.3
------------------------------ -------- -------- ---------- -------- -------- ----------
EPRA basic EPS 59.1 210.4 28.1 56.2 210.2 26.6
Share-based payments
charge 6.5 - 3.1 5.6 - 2.7
Dilutive shares - 6.8 (1.0) - 6.6 (0.8)
------------------------------ -------- -------- ---------- -------- -------- ----------
Adjusted Diluted EPRA
EPS1 65.6 217.2 30.2 61.8 216.8 28.5
------------------------------ -------- -------- ---------- -------- -------- ----------
Note
1 Adjusted Diluted EPRA EPS is based on the European Public Real
Estate Association's definition of earnings and is defined as
profit or loss for the period after tax but excluding corporate
transaction costs, change in fair value of derivatives, gain/loss
on investment properties and the associated tax impacts. The
Company then makes further adjustments for the impact of
exceptional items, IFRS 2 share based payment charges, exceptional
tax items, and deferred tax charges. This adjusted earnings is
divided by the diluted number of shares. The IFRS 2 cost is
excluded as it is written back to distributable reserves and is a
non-cash item (with the exception of the associated National
Insurance element). Therefore neither the company's ability to
distribute nor pay dividends are impacted (with the exception of
the associated National Insurance element). The financial
statements disclose earnings both on a statutory, EPRA and Adjusted
Diluted EPRA basis and will provide a full reconciliation of the
differences in the financial year in which any LTIP awards may
vest.
Gain on investment properties includes the fair value
re-measurement of lease liabilities add back of GBP6.9 million
(FY2019: GBP5.4 million) and the related tax thereon of GBP0.8
million (FY2019: GBP0.7 million). As an industry standard measure,
EPRA earnings is presented. EPRA earnings of GBP59.1 million
(FY2019: GBP56.2 million) and EPRA Earnings per Share of 28.1 pence
(FY2019: 26.6 pence) are calculated after further adjusting for
these items.
2020 2019 Movement
EPRA adjusted income statement (non-statutory) GBP'm GBP'm %
------------------------------------------------------ ----------- ----------- --------
Revenue 162.3 151.8 6.9
Underlying operating expenses (excluding depreciation
and variable lease payments) (68.7) (64.3) 6.8
Share of associate's underlying EBITDA 0.3 - n/a
------------------------------------------------------ ----------- ----------- --------
Underlying EBITDA before variable lease payments 93.9 87.5 7.3
Share-based payments charge (6.5) (5.6) 16.1
Depreciation and variable lease payments (1.2) (1.8) (33.3)
------------------------------------------------------ ----------- ----------- --------
Operating profit before fair value re-measurement
of lease liabilities add back 86.2 80.1 7.6
Fair value re-measurement of lease liabilities
add back (6.9) (5.4) 27.8
------------------------------------------------------ ----------- ----------- --------
Operating profit 79.3 74.7 6.2
Net financing costs (14.7) (13.4) 9.7
Share of associate's finance charges (0.2) - n/a
------------------------------------------------------ ----------- ----------- --------
Profit before income tax 64.4 61.3 5.1
Income tax (5.2) (5.1) 2.0
Share of associate's tax (0.1) - n/a
------------------------------------------------------ ----------- ----------- --------
Profit for the year ("EPRA earnings") 59.1 56.2 5.2
------------------------------------------------------ ----------- ----------- --------
EPRA basic Earnings per Share 28.1 pence 26.6 pence 5.2
Final dividend per share 12.70 pence 12.00 pence 5.8
------------------------------------------------------ ----------- ----------- --------
9. Investment in associates
On 21 August 2019, the Group acquired a 20% interest in CERF
Storage JV B.V. ("CERF"), a company registered and operating in the
Netherlands. CERF is accounted for using the equity method of
accounting. CERF invests in carefully selected self storage
opportunities in Europe and currently owns six stores in the
Netherlands and six stores in Belgium, the latter of which was
acquired during the year requiring an additional investment of
GBP2.5 million. The Group will earn a fee for providing management
services to CERF. This investment is considered immaterial relative
to the Group's underlying operations. The aggregate carrying value
of the Group's interest in the associate was GBP7.3 million
(FY2019: GBP4.5 million), made up of an investment, of GBP5.3
million (FY2019: GBP2.8 million), a loan to the associate including
interest accrued of GBP1.9 million (FY2019: GBP1.7 million) and
other receivables of GBP0.1 million (FY2019: GBPnil) (note 29). The
Group's share of profits from continuing operations for the period
was GBPnil million (FY2019: GBPnil). The Group's share of total
comprehensive income of associates in the year was GBPnil (FY2019:
GBPnil).
10. Investment properties
External
valuation
of investment Investment
properties, Add back property Total
net of of under investment
lease liabilities lease liabilities construction properties
GBP'm GBP'm GBP'm GBP'm
----------------------------------------------- ------------------ ------------------ ------------- -----------
At 1 November 2019 1,331.8 63.5 13.9 1,409.2
IFRS 16 day one transition adjustment - 9.4 - 9.4
Additions 42.2 3.9 14.5 60.6
Acquisition of subsidiary (note 22) 14.6 10.0 - 24.6
Disposals - - - -
Reclassifications/purchase of freehold 14.5 (4.4) (10.1) -
Revaluations 137.7 - (4.3) 133.4
Fair value re-measurement of lease liabilities
add back - (6.9) - (6.9)
Exchange movements 16.7 1.4 - 18.1
----------------------------------------------- ------------------ ------------------ ------------- -----------
At 31 October 2020 1,557.5 76.9 14.0 1,648.4
----------------------------------------------- ------------------ ------------------ ------------- -----------
External
valuation
of investment Investment
properties, Add back property Total
net of of under investment
lease liabilities lease liabilities construction properties
GBP'm GBP'm GBP'm GBP'm
----------------------------------------------- ------------------ ------------------ ------------- -----------
At 1 November 2018 1,216.2 56.1 4.7 1,277.0
Additions 13.7 14.1 25.2 53.0
Acquisition of subsidiary 6.4 - - 6.4
Disposals - (0.7) - (0.7)
Reclassifications 14.4 - (14.4) -
Revaluations 91.2 - (1.6) 89.6
Fair value re-measurement of lease liabilities
add back - (5.4) - (5.4)
Exchange movements (10.1) (0.6) - (10.7)
----------------------------------------------- ------------------ ------------------ ------------- -----------
At 31 October 2019 1,331.8 63.5 13.9 1,409.2
----------------------------------------------- ------------------ ------------------ ------------- -----------
The gain on investment properties comprises:
2020 2019
GBP'm GBP'm
------------------------------------------------------------ ------ ------
Revaluations of investment property and investment property
under construction 133.4 89.6
Fair value re-measurement of lease liabilities add back (6.9) (5.4)
------------------------------------------------------------ ------ ------
126.5 84.2
------------------------------------------------------------ ------ ------
Revaluation
Cost on cost Valuation
GBP'm GBP'm GBP'm
------------------- ------ ----------- ---------
Freehold stores
At 1 November 2019 566.4 534.2 1,100.6
Movement in year 63.8 84.0 147.8
------------------- ------ ----------- ---------
At 31 October 2020 630.2 618.2 1,248.2
------------------- ------ ----------- ---------
Leasehold stores
At 1 November 2019 100.5 130.7 231.2
Movement in year 22.4 55.5 77.9
------------------- ------ ----------- ---------
At 31 October 2020 122.9 186.2 309.1
------------------- ------ ----------- ---------
All stores
At 1 November 2019 666.9 664.9 1,331.8
Movement in year 86.2 139.5 225.7
------------------- ------ ----------- ---------
At 31 October 2020 753.1 804.4 1,557.5
------------------- ------ ----------- ---------
The valuation of GBP1,557.5 million (FY2019: GBP1,331.8 million)
excludes GBP0.6 million in respect of owner-occupied property,
which is included within property, plant and equipment. Rental
income earned from investment properties for the year ended 31
October 2020 was GBP135.2 million (FY2019: GBP125.1 million).
The Group has classified the investment property and investment
property under construction, held at fair value, within Level 3 of
the fair value hierarchy. There were no transfers to or from Level
3 during the year.
As described in note 2 summary of significant accounting
policies, where the valuation obtained for investment property is
net of all payments to be made, it is necessary to add back the
lease liability to arrive at the carrying amount of investment
property at fair value. The lease liability of GBP77.2 million
(FY2019: GBP63.5 million) per note 21 differs to the GBP76.9
million disclosed above as a result of accounting for the French
Head Office lease under IFRS 16. This lease is included as part of
property, plant and equipment, and has a net book value of GBP0.3
million as at 31 October 2020.
All direct operating expenses (excluding depreciation) arising
from investment property that generated rental income as outlined
in note 3 were GBP67.9 million (FY2019: GBP63.3 million).
The freehold and leasehold investment properties have been
valued as at 31 October 2020 by external valuers, Cushman &
Wakefield Debenham Tie Leung Limited ("C&W"). The valuation has
been carried out in accordance with the current edition of the RICS
Valuation - Global Standards, which incorporates the International
Valuation Standards and the RICS Valuation UK National Supplement
(the "RICS Red Book"). The valuation of each of the investment
properties has been prepared on the basis of fair value as a fully
equipped operational entity, having regard to trading potential.
Two non-trading properties were valued on the basis of fair value.
The valuation has been provided for accounts purposes and, as such,
is a Regulated Purpose Valuation as defined in the RICS Red Book.
In compliance with the disclosure requirements of the RICS Red
Book, C&W has confirmed that:
-- the member of the RICS who has been the signatory to the
valuations provided to the Group for the same purposes as this
valuation has done so since April 2020. The valuations have been
reviewed by an internal investment committee comprising two
valuation partners and an investment partner, all unconnected with
the assignment;
-- C&W has been carrying out regular valuations for the same
purpose as this valuation on behalf of the Group since October
2006;
-- C&W does not provide other significant professional or agency services to the Group;
-- in relation to the preceding financial year of C&W, the
proportion of total fees payable by the Group to the total fee
income of the firm is less than 5%; and
-- the fee payable to C&W is a fixed amount per property and
is not contingent on the appraised value.
Market uncertainty
C&W's valuation report comments on valuation uncertainty
resulting from low liquidity in the market for self storage
property. C&W believe that this is due to a lack of supply of
good quality stock rather than a weakness of demand for the same.
Very few property transactions have taken place and most activity
that has occurred in this sector has been corporate. Due to this
lack of comparable market information in the self storage sector,
C&W have had to exercise more than the usual degree of
judgement in arriving at their opinion of value.
Portfolio premium
C&W's valuation report confirms that the properties have
been valued individually but that if the portfolio was to be sold
as a single lot or in selected groups of properties, the total
value could be different. C&W states that in current market
conditions it is of the view that there could be a material
portfolio premium.
Valuation method and assumptions
The valuation of the operational self storage facilities has
been prepared having regard to trading potential. Cash flow
projections have been prepared for all of the properties reflecting
estimated absorption, revenue growth and expense inflation. A
discounted cash flow method of valuation based on these cash flow
projections has been used by C&W to arrive at its opinion of
fair value for these properties.
C&W has adopted different approaches for the valuation of
the leasehold and freehold assets as follows:
Freehold and long leasehold (UK, Paris and Spain)
The valuation is based on a discounted cash flow of the net
operating income over a ten-year period and a notional sale of the
asset at the end of the tenth year.
Assumptions:
-- Net operating income is based on projected revenue received
less projected operating costs together with a central
administration charge of 6% of the estimated annual revenue,
subject to a cap and collar. The initial net operating income is
calculated by estimating the net operating income in the first
twelve months following the valuation date.
-- The net operating income in future years is calculated
assuming either straight-line absorption from day one actual
occupancy or variable absorption over years one to four of the cash
flow period, to an estimated stabilised/mature occupancy level. In
the valuation the assumed stabilised occupancy level for the
trading stores (both freeholds and all leaseholds) open at 31
October 2020 averages 87.09% (FY2019: 86.18%). The projected
revenues and costs have been adjusted for estimated cost inflation
and revenue growth. The average time assumed for stores to trade at
their maturity levels is 23.79 months (FY2019: 28.16 months).
-- The capitalisation rates applied to existing and future net
cash flows have been estimated by reference to underlying yields
for industrial and retail warehouse property, yields for other
trading property types such as purpose-built student housing and
hotels, bank base rates, ten-year money rates, inflation and the
available evidence of transactions in the sector. The valuation
included in the accounts assumes rental growth in future periods.
If an assumption of no rental growth is applied to the external
valuation, the net initial yield pre-administration expenses for
mature stores (i.e. excluding those stores categorised as
"developing") is 6.60% (FY2019: 7.20%), rising to a stabilised net
yield pre-administration expenses of 7.41% (FY2019: 8.22%).
-- The weighted average freehold exit yield on UK freeholds is
6.40% (FY2019: 6.60%), on France freeholds is 6.27% (FY2019: 6.43%)
and on Spain freeholds is 5.62%. The weighted average freehold exit
yield for all freeholds adopted is 6.37% (FY2019: 6.57%).
-- The future net cash flow projections (including revenue
growth and cost inflation) have been discounted at a rate that
reflects the risk associated with each asset. The weighted average
annual discount rate adopted (for both freeholds and leaseholds) in
the UK portfolio is 9.44% (FY2019: 9.83%), in the France portfolio
is 9.51% (FY2019: 9.80%) and in the Spain portfolio is 8.12%. The
weighted average annual discount rate adopted (for both freeholds
and all leaseholds) is 9.46% (FY2019: 9.82%).
-- Purchaser's costs in the range of approximately 3.3% to 6.8%
for the UK, 7.5% for Paris and 2.5% for Spain have been assumed
initially, reflecting the progressive SDLT rates brought into force
in March 2016 in the UK, and sales plus purchaser's costs totalling
approximately 5.3% to 8.8% (UK), 9.5% (Paris) and 4.5% (Spain) and
are assumed on the notional sales in the tenth year in relation to
freehold and long leasehold stores.
Short leaseholds (UK)
The same methodology has been used as for freeholds, except that
no sale of the assets in the tenth year is assumed but the
discounted cash flow is extended to the expiry of the lease. The
average unexpired term of the Group's UK short term leasehold
properties is 12.0 years (FY2019: 12.3 years). The average
unexpired term excludes the commercial leases in France and
Spain.
Short leaseholds (Paris)
In relation to the commercial leases in Paris, C&W has
valued the cash flow projections in perpetuity due to the security
of tenure arrangements in that market and the potential
compensation arrangements in the event of the landlord wishing to
take possession. The valuation treatment is therefore the same as
for the freehold properties. The capitalisation rates on these
stores reflect the risk of the landlord terminating the lease
arrangements.
Short leaseholds (Spain)
In relation to the two commercial leases in Spain, C&W has
valued the cash flow projections in perpetuity due to the nature of
the lease agreements which allows the tenant to renew the lease
year-on-year into perpetuity. The valuation treatment is therefore
the same as for the freehold properties. The capitalisation rates
on these stores reflect the risk of the rolling lease
arrangements.
In relation to one other short leasehold in Spain, the lease
allows for a five-year automatic extension beyond the initial lease
expiry date subject to neither party serving notice stating it does
not wish to do so. This allows the landlord to terminate the lease
at the original expiry date if it so wishes. The same methodology
has been used as for freeholds, except that no sale of the asset in
the tenth year is assumed but the discounted cash flow is extended
to the expiry of the lease.
Investment properties under construction
C&W has valued the stores in development adopting the same
methodology as set out above but on the basis of the cash flow
projection expected for the store at opening and allowing for the
outstanding costs to take each store from its current state to
completion and full fit out. C&W has allowed for carry costs
and construction contingency, as appropriate.
Immature stores: value uncertainty
C&W has assessed the value of each property individually.
However, three of the stores in the portfolio are relatively
immature and have low initial cash flow. C&W has endeavoured to
reflect the nature of the cash flow profile for these properties in
its valuation, and the higher associated risks relating to the as
yet unproven future cash flow, by adjustment to the capitalisation
rates and discount rates adopted. However, immature low cash flow
stores of this nature are rarely, if ever, traded individually in
the market, unless as part of a distressed sale or similar
situation. Although, there is more evidence of immature low cash
flow stores being traded as part of a group or portfolio
transaction.
C&W considers there to be market uncertainty in the self
storage sector due to the lack of comparable market transactions
and information. The degree of uncertainty relating to the three
immature stores is greater than in relation to the balance of the
properties due to there being even less market evidence than might
be available for more mature properties and portfolios.
C&W states that, in practice, if an actual sale of the
properties was to be contemplated then any immature low cash flow
stores would normally be presented to the market for sale lotted or
grouped with other more mature assets owned by the same entity, in
order to alleviate the issue of negative or low short term cash
flow. This approach would enhance the marketability of the group of
assets and assist in achieving the best price available in the
market by diluting the cash flow risk.
C&W has not adjusted its opinion of fair value to reflect
such a grouping of the immature assets with other properties in the
portfolio and all stores have been valued individually. However,
C&W highlights the matter to alert the Group to the manner in
which the properties might be grouped or lotted in order to
maximise their attractiveness to the market place.
C&W considers this approach to be a valuation assumption but
not a special assumption, the latter being an assumption that
assumes facts that differ from the actual facts existing at the
valuation date and which, if not adopted, could produce a material
difference in value.
Valuation assumption for purchaser's costs
The Group's investment property assets have been valued for the
purposes of the financial statements after adjusting for notional
purchaser's costs in the range of approximately 3.3% to 6.8% (UK),
7.5% (Paris) and 2.5% (Spain), as if they were sold directly as
property assets. The valuation is an asset valuation which is
strongly linked to the operating performance of the business. They
would have to be sold with the benefit of operational contracts,
employment contracts and customer contracts, which would be
difficult to achieve except in a corporate structure.
This approach follows the logic of the valuation methodology in
that the valuation is based on a capitalisation of the net
operating income after allowing a deduction for operational cost
and an allowance for central administration costs. A sale in a
corporate structure would result in a reduction in the assumed
stamp duty land tax but an increase in other transaction costs
reflecting additional due diligence resulting in a reduced notional
purchaser's cost of c.2.75% of gross value. All the significant
sized transactions that have been concluded in the UK in recent
years were completed in a corporate structure. The Group therefore
instructed C&W to prepare additional valuation advice on the
basis of purchaser's cost of 2.75% of gross value which is used for
internal management purposes.
Sensitivity of the valuation to assumptions
As noted in "Key sources of estimation uncertainty", self
storage valuations are complex, derived from data which is not
widely publicly available and involves a degree of judgement. All
other factors being equal, higher net operating income would lead
to an increase in the valuation of a store and an increase in the
capitalisation rate or discount rate would result in a lower
valuation, and vice versa. Higher assumptions for stabilised
occupancy, absorption rate, rental rate and other revenue, and a
lower assumption for operating costs, would result in an increase
in projected net operating income, and thus an increase in
valuation.
There are inter-relationships between the valuation inputs, and
they are primarily determined by market conditions. The effect of
an increase in more than one input could be to magnify the impact
on the valuation. However, the impact on the valuation could be
mitigated by the inter-relationship of two inputs moving in
opposite directions, e.g. an increase in rent may be offset by a
decrease in occupancy, resulting in no net impact on the
valuation.
As noted in "Key sources of estimation uncertainty", self
storage valuations are complex, derived from data which is not
widely available and involves a degree of judgement. For these
reasons we have classified the valuation of our property portfolio
as Level 3 as defined by IFRS 13. Inputs to the valuation, some of
which are 'unobservable' as defined by IFRS 13, include
capitalisation yields, stable occupancy rates, and time to
stabilised occupancy. The existence of an increase of more than one
unobservable input would augment the impact on the valuation. The
impact on the valuation would be mitigated by the
inter-relationship between unobservable inputs moving in opposite
directions. For example, an increase in stable occupancy may be
offset by an increase yield, resulting in no net impact on the
valuation. A sensitivity analysis showing the impact on valuations
of changes in capitalisation rates and stable occupancy is shown
below:
Impact
of a delay
Impact of change Impact of a change in stabilised
in capitalisation in stabilised occupancy occupancy
rates assumption assumption
GBP'm GBP'm GBP'm
--------------- -------------------- -------------------------- --------------
25 bps 25 bps 24-month
decrease increase 1% increase 1% decrease delay
--------------- --------- --------- ------------ ------------ --------------
Reported Group 30.5 (28.0) 25.5 (25.4) (22.3)
--------------- --------- --------- ------------ ------------ --------------
11. Net assets per share
The European Public Real Estate Association ("EPRA") has issued
recommended bases for the calculation of net assets per share
information and these are shown in the table below:
2020 2019
GBP'm GBP'm
---------------------------------------------------------- ------- ------
Analysis of net asset value:
Net assets 1,035.6 885.9
Adjustments to exclude:
Fair value of derivative financial instruments (net
of deferred tax) 0.4 0.5
Deferred tax liabilities on the revaluation of investment
properties 84.8 64.4
---------------------------------------------------------- ------- ------
Adjusted net asset value 1,120.8 950.8
---------------------------------------------------------- ------- ------
Basic net assets per share (pence) 492 421
EPRA basic net assets per share (pence) 532 452
Diluted net assets per share (pence) 489 420
EPRA diluted net assets per share (pence) 529 450
---------------------------------------------------------- ------- ------
Number Number
---------------- ----------- -----------
Shares in issue 210,578,509 210,381,968
---------------- ----------- -----------
Basic net assets per share is shareholders' funds divided by the
number of shares at the year end. Diluted net assets per share is
shareholders' funds divided by the number of shares at the year
end, adjusted for dilutive share options of 1,400,763 shares
(FY2019: 706,231 shares). EPRA diluted net assets per share
excludes deferred tax liabilities arising on the revaluation of
investment properties. The EPRA NAV, which further excludes fair
value adjustments for debt and related derivatives net of deferred
tax, was GBP1,120.8 million (FY2019: GBP950.8 million), giving EPRA
net assets per share of 532 pence (FY2019: 452 pence). The
Directors consider that these alternative measures provide useful
information on the performance of the Group.
EPRA adjusted balance sheet (non-statutory)
2020 2019
GBP'm GBP'm
------------------------------- --------- ---------
Assets
Non-current assets 1,657.1 1,414.9
Current assets 43.1 56.1
------------------------------- --------- ---------
Total assets 1,700.2 1,471.0
------------------------------- --------- ---------
Liabilities
Current liabilities (59.7) (53.0)
Non-current liabilities (519.7) (467.2)
------------------------------- --------- ---------
Total liabilities (579.4) (520.2)
------------------------------- --------- ---------
EPRA net asset value 1,120.8 950.8
------------------------------- --------- ---------
EPRA net asset value per share 532 pence 452 pence
------------------------------- --------- ---------
12. Cash and cash equivalents
2020 2019
GBP'm GBP'm
------------------------- ------ ------
Cash at bank and in hand 19.6 33.2
------------------------- ------ ------
13. Financial liabilities - bank borrowings and secured
notes
2020 2019
Non-current GBP'm GBP'm
----------------------------- ------ ------
Bank loans and secured notes
Secured 456.0 414.3
Debt issue costs (1.5) (1.3)
----------------------------- ------ ------
454.5 413.0
----------------------------- ------ ------
The Group's borrowings consist of bank facilities of GBP250
million and EUR70 million maturing in June 2023. US Private
Placement Notes of EUR125 million have maturities extending to
2024, 2026 and 2027, and GBP115.5 million have maturities extending
to 2026 and 2029. The blended cost of interest on the overall debt
at 31 October 2020 was 2.13% per annum.
The bank facilities attract a margin over LIBOR/EURIBOR. The
margin ratchets between 1.25% and 2.50%, by reference to the
Group's performance against its interest cover covenant.
Approximately 50% of the drawn bank facilities have been hedged at
an effective rate of 0.8152% (LIBOR) or 0.1656% (EURIBOR).
The Company also has in issue EUR50.9 million (FY2019: EUR50.9
million) 1.59% Series A Senior Secured Notes due 2024, EUR70.0
million (FY2019: EUR70.0 million) 1.26% Series A Secured Notes due
2026, GBP35.0 million 2.59% (FY2019: GBP35.0 million) Series B
Senior Secured Notes due 2026, EUR74.1 million (FY2019: EUR74.1
million) 2.00% Series B Senior Secured Notes due 2027 and GBP50.5
million (FY2019: GBP50.5 million) 2.92% Series C Senior Secured
Notes due 2029 and GBP30.0 million (FY2019: GBP30.0 million) 2.69%
Series C Senior Secured Notes due 2029. The EUR195.0 million of
Euro denominated borrowings provides a natural hedge against the
Group's investment in the France and Spain businesses, so the Group
has applied net investment hedge accounting and the retranslation
of these borrowings is recognised directly in the translation
reserve.
The bank loans and overdrafts are secured by a fixed charge over
the Group's investment property portfolio. As part of the Group's
interest rate management strategy, the Group has entered into
several interest rate swap contracts, details of which are shown in
note 14.
Bank loans and secured notes are stated before unamortised issue
costs of GBP1.5 million (FY2019: GBP1.3 million).
Bank loans and secured notes are repayable as follows:
Group
--------------
2020 2019
GBP'm GBP'm
----------------------------- ------ ------
Between two and five years 210.8 174.5
After more than five years 245.2 239.8
----------------------------- ------ ------
Bank loans and secured notes 456.0 414.3
Unamortised debt issue costs (1.5) (1.3)
----------------------------- ------ ------
454.5 413.0
----------------------------- ------ ------
The effective interest rates at the balance sheet date were as
follows:
2020 2019
------------------------- -------------------------- --------------------------
Quarterly or monthly LIBOR Quarterly or monthly LIBOR
Bank loans (UK term loan) plus 1.25% plus 1.25%
Bank loans (Euro term Quarterly EURIBOR plus Quarterly EURIBOR plus
loan) 1.25% 1.25%
Private Placement Notes Weighted average rate of Weighted average rate of
(Euros) 1.63% 1.63%
Private Placement Notes Weighted average rate of Weighted average rate of
(Sterling) 2.76% 2.76%
------------------------- -------------------------- --------------------------
Borrowing facilities
The Group has the following undrawn committed borrowing
facilities available at 31 October in respect of which all
conditions precedent had been met at that date:
Floating rate
---------------
2020 2019
GBP'm GBP'm
------------------------- ------- ------
Expiring beyond one year 148.0 179.7
------------------------- ------- ------
As described above the Group's bank facilities mature in June
2023.
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
2020 2019
GBP'm GBP'm
--------- ------ ------
Sterling 253.5 212.5
Euros 202.5 201.8
--------- ------ ------
456.0 414.3
--------- ------ ------
14. Financial instruments
Financial instruments
Financial instruments disclosures are set out below:
2020 2019
----------------- -----------------
Asset Liability Asset Liability
GBP'm GBP'm GBP'm GBP'm
-------------------------- ------ --------- ------ ---------
Interest rate swaps - (1.4) - (0.6)
Foreign currency forwards 0.9 - - -
-------------------------- ------ --------- ------ ---------
The fair value of financial instruments that are not traded in
an active market, such as over the counter derivatives, is
determined using valuation techniques. The Group obtains such
valuations from counterparties which use a variety of assumptions
based on market conditions existing at each balance sheet date.
The fair values of all financial instruments are equal to their
book value, with the exception of bank loans, which are set out
below. The fair value of secured loan notes is determined using a
discounted cash flow, while the fair value of bank loans drawn from
the Group's bank facilities equates to book value. The carrying
value less impairment provision of trade receivables, other
receivables and the carrying value of trade payables and other
payables approximate their fair value.
The fair value of bank loans is calculated as:
2020 2019
---------------------- ----------------------
Book value Fair value Book value Fair value
GBP'm GBP'm GBP'm GBP'm
----------- ---------- ---------- ---------- ----------
Bank loans 454.5 495.3 413.0 457.6
----------- ---------- ---------- ---------- ----------
Fair value hierarchy
IFRS 13 requires fair value measurements to be recognised using
a fair value hierarchy that reflects the significance of the inputs
used in the measurements, according to the following levels:
Level 1 - unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2 - inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
or indirectly.
Level 3 - inputs for the asset or liability that are not based
on observable market data.
The table below shows the level in the fair value hierarchy into
which fair value measurements have been categorised:
2020 2019
Assets per the balance sheet GBP'm GBP'm
------------------------------------------- ------ ------
Derivative financial instruments - Level 2 0.9 -
Amounts due from associates - Level 2 2.0 1.9
------------------------------------------- ------ ------
2020 2019
Liabilities per the balance sheet GBP'm GBP'm
------------------------------------------- ------ ------
Derivative financial instruments - Level 2 1.4 0.6
Bank loans - Level 2 495.3 457.6
------------------------------------------- ------ ------
There were no transfers between Levels 1, 2 and 3 fair value
measurements during the current or prior year.
Over the life of the Group's derivative financial instruments,
the cumulative fair value gain/loss on those instruments will be
GBPnil as it is the Group's intention to hold them to maturity.
Interest rate swaps not designated as part of a hedging
arrangement
The notional principal amounts of the outstanding interest rate
swap contracts at 31 October 2020 were GBP55 million and EUR30
million (FY2019: GBP55 million and EUR30 million). At 31 October
2020 the weighted average fixed interest rates were Sterling at
0.8152% and Euro at 0.1656% (FY2019: Sterling at 0.8152% and Euro
at 0.1656%) and floating rates are at quarterly LIBOR and quarterly
EURIBOR. The GBP55.0 million LIBOR swaps and the EURIBOR swaps
expire in June 2022, whilst a further GBP55.0 million LIBOR
forward-starting swaps become effective in June 2022 and expire in
June 2023 and have a fixed interest rate of 0.6885%. The movement
in fair value recognised in the income statement was a net loss of
GBP0.8 million (FY2019: GBP2.1 million net loss).
Foreign currency forwards not designated as part of a hedging
arrangement
In March 2020, the Group acquired six tranches of average rate
forward contracts for a notional amount totalling EUR45.5 million
at a rate of EUR1.0751 to the Pound. The Group will receive the
Sterling equivalent at this average exchange rate and pay the
Sterling equivalent of the average monthly spot rates on the Euro
notional amounts which have maturity dates as follows: EUR7.0
million maturing 30 April 2021, EUR7.5 million maturing 29 October
2021, EUR8.0 million maturing 29 April 2022, EUR8.0 million
maturing 31 October 2022 and EUR8.5 million maturing 28 April 2023.
The movement in the fair value recognised in the income statement
in the period was a gain of GBP0.9 million. The remaining EUR6.5
million matured on 30 October 2020 at a rate of 1.1100 resulting in
a GBP0.2 million gain recognised as finance income in the profit
and loss.
Financial instruments by category
Assets
Financial at fair
assets value through
at amortised profit
cost and loss Total
Assets per the balance sheet GBP'm GBP'm GBP'm
-------------------------------------------------- ------------- -------------- ------
Trade receivables and other receivables excluding
prepayments 15.0 - 15.0
Amounts due from associates 2.0 - 2.0
Derivative financial instruments - 0.9 0.9
Cash and cash equivalents 19.6 - 19.6
-------------------------------------------------- ------------- -------------- ------
At 31 October 2020 36.6 0.9 37.5
-------------------------------------------------- ------------- -------------- ------
Liabilities
Other financial at fair
liabilities value through
at amortised profit
cost and loss Total
Liabilities per the balance sheet GBP'm GBP'm GBP'm
---------------------------------------------- --------------- -------------- ------
Borrowings (excluding obligations under lease
liabilities) 454.5 - 454.5
Obligations under lease liabilities 77.2 - 77.2
Derivative financial instruments - 1.4 1.4
Payables and accruals 31.5 - 31.5
---------------------------------------------- --------------- -------------- ------
At 31 October 2020 563.2 1.4 564.6
---------------------------------------------- --------------- -------------- ------
Assets
Financial at fair
assets value through
at amortised profit
cost and loss Total
Assets per the balance sheet GBP'm GBP'm GBP'm
-------------------------------------------------- ------------- -------------- ------
Trade receivables and other receivables excluding
prepayments 14.3 - 14.3
Amounts due from associates 1.9 - 1.9
Derivative financial instruments - - -
Cash and cash equivalents 33.2 - 33.2
-------------------------------------------------- ------------- -------------- ------
At 31 October 2019 49.4 - 49.4
-------------------------------------------------- ------------- -------------- ------
Liabilities
Other financial at fair
liabilities value through
at amortised profit
cost and loss Total
Liabilities per the balance sheet GBP'm GBP'm GBP'm
---------------------------------------------- --------------- -------------- ------
Borrowings (excluding obligations under lease
liabilities) 413.0 - 413.0
Obligations under lease liabilities 63.5 - 63.5
Derivative financial instruments - 0.6 0.6
Payables and accruals 26.0 - 26.0
---------------------------------------------- --------------- -------------- ------
At 31 October 2019 502.5 0.6 503.1
---------------------------------------------- --------------- -------------- ------
The interest rate risk profile, after taking account of
derivative financial instruments, was as follows:
2020 2019
---------------------------- ----------------------------
Floating Floating
rate Fixed rate Total rate Fixed rate Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
----------- -------- ---------- ------ -------- ---------- ------
Borrowings 81.5 373.0 454.5 48.4 364.6 413.0
----------- -------- ---------- ------ -------- ---------- ------
The weighted average interest rate of the fixed rate financial
borrowing was 2.03% (FY2019: 2.04%) and the weighted average
remaining period for which the rate is fixed was six years (FY2019:
seven years).
Maturity analysis
The table below analyses the Group's financial liabilities and
non-settled derivative financial instruments into relevant maturity
groupings based on the remaining period at the balance sheet date
to the contractual maturity dates. The amounts disclosed in the
table are the contractual undiscounted cash flows.
One to Two to
Less than two five More than
one year years years five years
GBP'm GBP'm GBP'm GBP'm
------------------------------------ --------- ------ ------ -----------
2020
Borrowings 8.8 8.8 230.1 258.6
Derivative financial instruments 0.4 0.4 0.3 -
Obligations under lease liabilities 12.8 12.6 31.1 57.9
Payables and accruals 31.5 - - -
------------------------------------ --------- ------ ------ -----------
53.5 21.8 261.5 316.5
------------------------------------ --------- ------ ------ -----------
One to Two to
Less than two five More than
one year years years five years
GBP'm GBP'm GBP'm GBP'm
------------------------------------ --------- ------ ------ -----------
2019
Borrowings 9.0 9.0 197.4 258.2
Derivative financial instruments 0.8 0.8 1.3 -
Obligations under lease liabilities 10.2 10.1 27.1 50.8
Payables and accruals 26.0 - - -
------------------------------------ --------- ------ ------ -----------
46.0 19.9 225.8 309.0
------------------------------------ --------- ------ ------ -----------
15. Obligations under lease liabilities
The Group leases certain of its investment properties under
lease liabilities. The average remaining lease term is 10.5 years
(FY2019: 10.9 years).
Present value of
minimum
Minimum lease payments lease payments
------------------------ ------------------
2020 2019 2020 2019
GBP'm GBP'm GBP'm GBP'm
-------------------------------------- ----------- ----------- -------- --------
Within one year 12.8 10.2 12.3 9.7
Within two to five years 43.7 37.2 35.6 29.7
Greater than five years 57.9 50.8 29.3 24.1
-------------------------------------- ----------- ----------- -------- --------
114.4 98.2 77.2 63.5
Less: future finance charges on lease
liabilities (37.2) (34.7) - -
-------------------------------------- ----------- ----------- -------- --------
Present value of lease liabilities 77.2 63.5 77.2 63.5
-------------------------------------- ----------- ----------- -------- --------
2020 2019
GBP'm GBP'm
------------ ------ ------
Current 12.3 9.7
Non-current 64.9 53.8
------------ ------ ------
77.2 63.5
------------ ------ ------
Amounts recognised within the consolidated income statement
include interest on lease liabilities of GBP5.6 million and
variable lease payments not included in the measurement of the
lease liabilities of GBP0.3 million. Amounts recognised in the
consolidated statement of cash flows include lease liabilities
principal payments of GBP6.9 million and interest on lease
liabilities of GBP5.6 million. The maturity analysis for
obligations under lease liabilities under contractual undiscounted
cash flows is included in note 14.
16. Called up share capital
2020 2019
GBP'm GBP'm
----------------------------------------------------- ------ ------
Called up, allotted and fully paid
210,611,207 (FY2019: 210,420,424) ordinary shares of
1 pence each 2.1 2.1
----------------------------------------------------- ------ ------
17. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from
operating activities:
2020 2019
Cash generated from continuing operations Notes GBP'm GBP'm
--------------------------------------------------- ----- ------- ------
Profit before income tax 197.9 147.3
Gain on investment properties 10 (126.5) (84.2)
Share of profit in associates - -
Depreciation 0.9 0.7
Net finance expense 5 14.3 16.4
Employee share options 4.7 3.8
Changes in working capital:
(Increase)/decrease in trade and other receivables (0.1) 0.9
Increase in trade and other payables 4.3 0.6
--------------------------------------------------- ----- ------- ------
Cash generated from continuing operations 95.5 85.5
--------------------------------------------------- ----- ------- ------
18. Analysis of movement in gross and net debt
Non-cash
2019 Cash flows movements 2020
GBP'm GBP'm GBP'm GBP'm
--------------------------------------------- ------- ---------- ---------- -------
Bank loans (413.0) (32.5) (9.0) (454.5)
Lease liabilities (63.5) 6.9 (20.6) (77.2)
--------------------------------------------- ------- ---------- ---------- -------
Total gross debt (liabilities from financing
activities) (476.5) (25.6) (29.6) (531.7)
--------------------------------------------- ------- ---------- ---------- -------
Cash in hand 33.2 (14.0) 0.4 19.6
--------------------------------------------- ------- ---------- ---------- -------
Total net debt (443.3) (39.6) (29.2) (512.1)
--------------------------------------------- ------- ---------- ---------- -------
The table above details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
The cash flows from bank loans make up the net amount of
proceeds from borrowings, repayment of borrowings and debt issuance
costs.
Non-cash movements relate to the amortisation of debt issue
costs, GBP0.3 million (FY2019: GBP0.2 million), foreign exchange
movements, GBP8.3 million (FY2019: GBP3.9 million), and unwinding
of discount including IFRS 16 transition adjustments to lease
liabilities, GBP20.6 million (FY2019: GBP12.8 million).
19. Contingent liabilities
As part of the Group banking facility, the Company has
guaranteed the borrowings totalling GBP456.0 million (FY2019:
GBP414.3 million) of fellow Group undertakings by way of a charge
over all of its property and assets. There are similar
cross-guarantees provided by the Group companies in respect of any
bank borrowings which the Company may draw under a Group facility
agreement. The financial liability associated with this guarantee
is considered remote and therefore no provision has been
recorded.
Following tax audits carried out on the Group's operations in
Paris, elements of tax were challenged by the French Tax
Administration ("FTA") for financial years 2011 to 2013 and 2016 to
2019. Similar challenges from the FTA have also been made to other
operators within the self storage industry. The Company and its
legal advisers are of the opinion that there are no valid grounds
for these challenges and are in the process of contesting the
findings of the FTA through the French courts. The duration and
outcome of this dispute cannot be anticipated at this stage of the
proceedings. Based on our analysis of the relevant information, the
maximum potential exposure in relation to the tax audit issues at
31 October 2020 is GBP4.2 million. No provision for any potential
exposure has been recorded in the consolidated financial statements
since the Group believes it is more likely than not that a
successful outcome will be achieved resulting in no eventual
additional liabilities. Bank guarantees to cover any potential
additional tax assessment are currently being put in place, of
which guarantees totalling GBP0.6 million have been put in place as
at 31 October 2020.
20. Capital commitments
The Group had GBP15.3 million of capital commitments as at 31
October 2020 (FY2019: GBP59.7 million).
21. Related party transactions
The Group's shares are widely held. Transactions between the
Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and are not disclosed in this note.
Transactions with CERF Storage JV B.V.
As described in note 12, the Group has a 20% interest in CERF
Storage JV B.V. ("CERF"), and entered into transactions with CERF.
During the year, the Group invested a further GBP2.5 million into
CERF, which was used to acquire six additional stores for the
portfolio in a new geographical location, Belgium. This amount is
included as part of its non-current investments in associates.
During the year the Group recharged GBP0.2 million (FY2019:
GBP0.2 million) to CERF for operational costs paid on behalf of
CERF and was repaid GBP0.3 million (FY2019: GBPnil) of cumulative
outstanding balances during the year. GBP0.1 million (FY2019:
GBPnil) of unpaid interest was accrued and charged during the year
on the EUR2 million (GBP1.8 million) principal loan note
outstanding (FY2019: GBP1.7 million). The total amount outstanding
at 31 October 2020 included within current trade and other
receivables was GBP2.0 million (FY2019: GBP1.9 million). Management
fees charged and settled during the year amounted to GBP0.3 million
(FY2019: GBP0.3 million).
22. Business combination
On 30 December 2019, the Group completed the acquisition of OMB
Self Storage S.L.U. ("OMB") which includes properties located in
central Barcelona, for a net cash consideration of GBP14.3 million
and GBP12.8 million excluding the debt and cash acquired. The
acquisition has complemented the Group's strategy of strengthening
its market-leading portfolio geographically in Europe. The
acquisition is located in a new geographical region, Spain, and is
operated using different financial and operational IT
infrastructure compared to the existing Group. In addition, with
key management being retained under this transaction, this
acquisition has been treated as a business combination. Final fair
values of assets and liabilities have been determined following
finalisation of working capital balances, resulting in no goodwill
being recognised on acquisition due to the consideration paid being
equal to the fair value of the identifiable net assets. GBP0.3
million of transaction related costs were reported as an
exceptional item within administrative expenses for the year ended
31 October 2020.
The fair value of the assets and liabilities of OMB recognised
at the date of acquisition is set out in the table below:
GBP'm
-------------------------------------- ------
Assets
Total investment properties (note 10) 24.6
Trade and other receivables 0.2
-------------------------------------- ------
Total assets 24.8
-------------------------------------- ------
Liabilities
Trade and other payables (0.5)
Lease liabilities (10.0)
-------------------------------------- ------
Total liabilities (10.5)
-------------------------------------- ------
Net assets 14.3
-------------------------------------- ------
Gross consideration 12.8
Add: debt acquired 2.0
Less: cash acquired (0.5)
-------------------------------------- ------
Net consideration paid 14.3
-------------------------------------- ------
Since the date of the acquisition, OMB has contributed GBP2.2
million to the revenue of the Group and GBP2.3 million loss to the
profit after tax for the Group.
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