Balance sheet
Property
The Group’s 53 wholly owned stores and five stores under development at 31 March 2012, which are classified as investment properties, have been revalued by Cushman & Wakefield (“C&W”) and this has resulted in an investment property asset value of £760.3 million, comprising £682.9 million (90%) for the 46 freehold (including one long leasehold) open stores, £43.5 million (6%) for the seven short leasehold open stores and £33.9 million (4%) for the five investment properties under construction, including Chiswick.
| Analysis of property portfolio | No of locations |
Value at 31 March 2012 £m |
Revaluation movement in year £m |
|---|---|---|---|
| Investment property | 53 | 726.4 | (49.5) |
| Investment property under construction | 5 | 33.9 | (1.9) |
| Investment property total | 58 | 760.3 | (51.4) |
| Surplus land | 5 | 18.0 | – |
| Total | 64 | 778.3 | (51.4) |
Investment property
Each store is reviewed and valued individually by Cushman & Wakefield LLP, who are the valuers to a significant proportion of the UK and European self storage market.
The valuer has taken into account its estimate of the proposed introduction of VAT from 1 October 2012 on the asset valuation. This has led to a revaluation fall of the investment property portfolio in the year of £51.4 million.
The valuer also reported to us on the valuation of the portfolio assuming the VAT change was not implemented. The valuation of the 53 wholly owned open stores under this valuation is £773.0 million, £46.6 million higher than the value recorded in the financial statements, which would represent a revaluation deficit of only £2.9 million in the year.
As can be seen above the majority of the 6% fall is following adjustments made due to VAT. The movement in the valuations before the impact of VAT is largely due to the net effect of the following operational factors:
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- an increase in operating costs assumed in the cash flows, principally down to business rates;
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- a reduction in the long term rental growth assumptions to reflect the current trading patterns;
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- a reduction in the stabilised occupancy level assumed in the valuations from 83.1% to 82.4%; and
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- improved current cash flow following the occupancy growth recorded in the year.
The valuation is based on an average occupancy over the 10 year cash flow period of 78.9% across the whole portfolio. Between April 2004 and March 2008, the 32 established stores had an average occupancy of 83%.
| Established store portfolio |
Lease-up store portfolio |
All wholly owned stores |
|
|---|---|---|---|
| Valuation at 31 March 2012 | £401.8m | £324.6m | £726.4m |
| Occupancy at 31 March 2012 | 74.3% | 48.8% | 63.5% |
| Stabilised occupancy assumed in valuations | 83.0% | 81.6% | 82.4% |
| Net initial yield pre admin expenses | 6.8% | 4.4% | 5.7% |
| Stabilised yield assuming no rental growth | 8.1% | 8.6% | 8.3% |
The initial yield pre-administration expenses assuming no rental growth is 5.7% rising to a stabilised yield of 8.3% (2011: 8.4%). The 32 established stores that were mature in 2007 are assumed to return to stabilised occupancy in 32 months on average (2011: 36 months). The 21 lease-up stores, the majority of which have opened in the past four years, are assumed to reach stabilised occupancy in 44 months on average from 1 April 2012 (2011: 49 months). Note 14 contains more detail on the assumptions underpinning the valuations.
Investment property under construction
The five wholly owned development sites have increased in value by £8.3 million, £10.2 million relating to capital expenditure incurred (principally on Chiswick), with the balance of £1.9 million a revaluation deficit. C&W’s forecast valuations for when the Group assets have reached stabilised occupancy, including assumptions in relation to revenue and operating cost growth within these assets, are currently pointing to a revaluation surplus on total development cost of £45 million on the four wholly owned development sites with planning consent, including Chiswick, which opened in April 2012.
In their report to us, our valuers, Cushman and Wakefield have drawn attention to valuation uncertainty resulting from a lack of transactions in the self storage investment market. Please see note 14 for further details.
Purchaser’s cost adjustment
As in prior years, we have instructed an alternative valuation on our assets using a purchaser’s cost assumption of 2.75% (see note 14 for further details) to be used in the calculation of our adjusted diluted net asset value. This Red Book valuation on the basis of 2.75% purchaser’s costs, results in a higher property valuation at 31 March 2012 of £794.2 million (£33.9 million higher than the value recorded in the financial statements). The valuations in Big Yellow Limited Partnership are £4.9 million higher than the value recorded in the financial statements, of which the Group’s share is £1.6 million. The sum of these is £35.5 million and translates to 27.2 pence per share.
The adjusted net asset per share calculation has also been adjusted for the Group’s estimate of capital goods scheme repayments due to it following the proposed introduction of VAT on self storage from 1 October 2012. As described in note 14, the investment property valuations have been adjusted to reflect the impact of VAT being introduced, and the Board consider it appropriate to reflect the estimated amounts due back to the Group from HMRC following the introduction of VAT in the calculation of adjusted net assets per share. This cannot be recognised as an asset at the balance sheet date as the legislation to introduce VAT had not been substantially enacted at 31 March 2012.
The revised valuation translates into an adjusted net asset value per share of 429.2 pence (2011: 449.8 pence) after the dilutive effect of outstanding share options.
Surplus land
These are sites which the Directors do not intend to develop into self storage centres. The sites are held at the lower of cost and net realisable value and have not been externally valued. The Directors have assessed the carrying value of these sites. The Group received £5.5 million gross sales proceeds during the year from the disposal of surplus land; £4.5 million from the disposal of our surplus site in Blackheath; and £1 million initial consideration on the disposal of our surplus land at Richmond.
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