Property
Our landmark store on the A4 in Chiswick, West London opened shortly after the year end. We have a pipeline of four wholly owned development sites; all bar our site in Central Manchester have planning consent.
The three development sites with planning consent at Enfield, Guildford Central and Gypsy Corner have an estimated cost to complete of £14.3 million excluding VAT. At this stage we have not committed to their construction, but we will keep this under review, particularly in light of the potential change to the Group’s VAT status.
During the year we sold our surplus land at Blackheath to a social housing developer for £4.5 million. As we have previously reported, the Premier Inn hotel we are developing at Richmond is due for completion this summer with further consideration of £7.4 million to be received on the sale of the building. At 31 March 2012 there was a further £2.8 million of costs to complete the development. During the year we have exchanged contracts on the sale of the surplus one acre site adjacent to our new flagship Chiswick store for £4.75 million, with completion expected in July 2012.
At 31 March 2012, the Group owned approximately a further £7.6 million of land surplus to our requirements across three further sites. We aim to sell this remaining surplus land once we have maximised its value through planning.
We continue to monitor site acquisition opportunities, principally focussed on London.
VAT change
The rental of self storage units is currently exempt from VAT as a licence to occupy land in the same way as the rental of commercial property. The March 2012 Budget included a proposed change of legislation which would require VAT to be applied to storage rent from 1 October 2012.
HMRC have invited consultation on this proposed change and we, with the help of our tax advisors are actively engaged in discussions with them. This is an industry wide issue, and affects around 70% of the total self storage market, including all of our major competitors.
Should the change come into force we would be able to recover VAT on our ongoing operating expenses, and would be entitled to a refund of previously irrecoverable VAT on capital expenditure under the Capital Goods Scheme, amounting to approximately £18 million across the Group and our Partnership with Pramerica. Our business customers would be largely unaffected by the proposed change as the majority are able to recover VAT. In addition, we would be passing on a minimum of half of the VAT to our domestic customers. We have a flexible yield management system and our licence agreement allows us to move customers' rents at 28 days' notice. Notice of the VAT change would be sent out to all customers at the beginning of September, and take effect from 1 October.
Self evidently, the precise impact will not be clear until after the event, but we anticipate that the combination of these factors will substantially mitigate the impact of the VAT change on the Group’s cash flow in the second half of the year.
Delivering growth
73% of our current revenue derives from within the M25; for London and the South East, the proportion of current revenue rises to 89%. We would expect the proportion of revenue from London to increase over time as 74% of the current available vacant capacity in the wholly owned stores is in London, where the average net rent per sq ft is also higher.
We believe that the value creation opportunity in this business for shareholders in the medium term will be driven mainly from leasing up stores to drive revenue, the majority of which flows through to the bottom line given that our operating costs are already largely embedded. We have increased occupancy of the wholly owned stores that were open at 1 April 2011 from 59.3% to 64.9% in the year. Store revenue has increased by £4.7 million in the year and the Group’s operating cash flow after finance costs has increased by £3.9 million.
Share buy back
During the year, we acquired 1.4 million shares in the Company at an average price of 260 pence. These shares are currently being held as treasury shares. This was a tactical, not strategic decision. We will keep this under review as we have the flexibility to either sell them back into the market in due course, use them for share based remuneration or cancel them.
Dividend
The Board is recommending the payment of a final dividend of 5.5 pence per share, taking the total dividend declared for the year to 10 pence per share (31 March 2011: 9 pence per share).
The cash dividend payment is over two times covered by our free cash flow.
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