Financing and treasury
In April 2012 the Group entered into a new £100 million 15 year loan with Aviva Commercial Finance Limited, secured over a portfolio of 15 freehold self storage centres valued at £242.1 million at 29 February 2012. The annual fixed interest rate on the loan is 4.90%. The loan was deployed to repay and cancel £100 million of the Group’s core bank debt facility. The Group also cancelled £100 million of interest rate derivatives at a cost of £9.2 million. There is no charge in respect of the cost of cancelling the swaps in the current period income statement, as it had been recognised in prior periods through the fair value movement on derivatives.
The loan amortises to £60 million over the course of the 15 years, consistent with the Group’s medium term debt reduction strategy. The debt service is payable monthly based on fixed annual amounts. The loan outstanding on the fifth anniversary will be £89.8 million; £76.7 million on the tenth anniversary, with £60 million at expiry in April 2027.
On 5 October 2012 the Group entered into a new £190 million 4 year bank facility with Lloyds TSB, HSBC and Santander, expiring in September 2016. £140 million of the facility is term loan with the balance of £50 million revolving.
This facility replaced the Group's existing £225 million facility, expiring in September 2013, which was provided by the same three banks and HSH Nordbank, who have been fully repaid following completion of this refinancing. The amount of the facility has been reduced to £190 million as the Group does not need a higher capacity given our commitment to reduce debt over the next two to three years.
The facilities attract a ratcheted margin over LIBOR based on interest cover. The Group is currently paying a blended 2.4% margin, the lowest margin on the ratchet, which is effective for income cover of greater than 3 times.
The Group has an historic interest rate swap of £90 million fixed at 2.99% plus margin until September 2015. As part of the bank refinancing in October 2012, we cancelled £20 million of this interest rate swap at a cost of £1.5 million. The remaining £70 million interest rate swap has been extended to September 2016 at a fixed rate of 2.8% plus margin. The £108 million balance of the bank debt drawn accrues interest at variable rates based on one month LIBOR plus margin. The 15 year £100 million loan with Aviva pays a fixed coupon of 4.9%.
The Group’s proforma cost of funding post the completion of the new bank facility in October is summarised in the table below:
| Amount of debt (£m) |
Weighted average interest cost (%) |
|
|---|---|---|
| Aviva debt | 99.2 | 4.90 |
| Fixed rate bank debt | 70.0 | 5.30 |
| Floating rate bank debt | 108.0 | 2.95 |
| Total debt | 277.2 | 4.24 |
The Group was comfortably in compliance with its banking covenants at 30 September 2012. The net debt to gross property assets ratio is 35.2% and the net debt to equity ratio is 52.0%.
Property
The Group’s investment properties have been valued by Cushman and Wakefield LLP (“C&W”). At 30 September 2012 the total value of the Group’s wholly owned properties is shown in the table below:
| Analysis of property portfolio | No of locations |
Value at 30 September 2012 £m |
Revaluation movement in the period £m |
|---|---|---|---|
| Investment property | 54 | 745.5 | 11.3 |
| Investment property under construction | 4 | 17.9 | 0.2 |
| Investment property total | 58 | 763.4 | 11.5 |
| Surplus land | 3 | 7.6 | – |
| Total | 61 | 771.0 | 11.5 |
We have recognised a receivable of £10.3 million in the period in respect of payments due back to the Group under the Capital Goods Scheme as a consequence of the introduction of VAT on self storage from 1 October. These amounts are subject to agreement with HMRC. The Group had an historical creditor in respect of Capital Goods Scheme payments due to HMRC; this has been reduced by £0.3 million in the period, representing amounts that we are no longer required to pay. The recognition of the receivable and the write back of the creditor reduces the book cost of the investment properties, and has produced a revaluation surplus in the period. The debtor has been discounted in accordance with International Accounting Standards; the gross value of the debtor before discounting is £11.8 million.
Investment property
The valuation uplift, before adjusting for the Capital Goods Scheme, was £0.9 million, as the cash flows moved broadly in line with the previous valuation. The table below summarises the key outputs of the valuations.
| Established store portfolio |
Lease-up store portfolio |
All wholly owned stores |
|
|---|---|---|---|
| Valuation at 30 September 2012 | £400.7m | £344.8m | £745.5m |
| Occupancy at 30 September 2012 | 77.0% | 54.7% | 67.3% |
| Stabilised occupancy assumed in valuations | 82.9% | 81.6% | 82.3% |
| Net initial yield pre-admin expenses | 7.3% | 5.0% | 6.3% |
| Stabilised yield assuming no rental growth | 8.1% | 8.5% | 8.3% |
The initial yield on the established portfolio of 32 stores before administration expenses and assuming no rental growth, is 7.3% rising to a stabilised yield of 8.1% (March 2012: 6.9% rising to 8.1%). If we include the 22 lease-up stores, then on the portfolio as a whole the initial yield pre-administration expenses is 6.3% rising to 8.3% (March 2012: 5.7% rising to 8.3%).
Investment property under construction
Chiswick was transferred from investment property under construction to investment property on the opening of the store in April. The remaining four wholly owned development sites have increased in value by £0.3 million. C&W’s forecast valuations for when the assets have reached stabilised occupancy, including assumptions in relation to revenue and operating cost growth within these assets, are currently pointing to a revaluation surplus on total development cost of £31 million on the three wholly owned development sites with planning consent.
In their report to us, C&W have drawn attention to valuation uncertainty resulting from a lack of transactions in the self storage investment market. Please see note 15 for further details.
Surplus land
These are sites which we 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 book value of surplus land has reduced following the disposal of the Richmond hotel development and the Chiswick surplus site in the period.
Net asset value
The adjusted net asset value is 427.9 pence per share (see note 14), up from 427.7 pence per share at 31 March 2012. The table below reconciles the movement from 31 March 2012.
| Movement in adjusted net asset value | Equity shareholders’ funds £m |
EPRA adjusted NAV pence per share |
|---|---|---|
| 1 April 2012 | 559.0 | 427.7 |
| Adjusted profit before tax | 13.9 | 10.6 |
| Equity dividends paid | (7.1) | (5.4) |
| Revaluation movements (including share of BYLP) | 1.1 | 0.8 |
| Movement in purchaser’s cost adjustment | 0.2 | 0.2 |
| Cancellation of interest rate derivatives | (9.2) | (7.0) |
| Other movements (eg share incentives) | 2.7 | 1.0 |
| 30 September 2012 | 560.6 | 427.9 |
Big Yellow Limited Partnership
Big Yellow Limited Partnership, a joint venture with Pramerica Real Estate Investors Limited, owns self storage centres outside London. In the consolidated accounts of Big Yellow Group PLC, the Partnership is treated as an associate using the equity accounting method.
The Partnership is currently trading from twelve stores. There are no further stores under development.
Our estimate of the Big Yellow equity commitment required to fund the remaining second phase fit-out of the stores is £1.0 million.
The Group earns certain construction and operational fees from the Partnership. For the period to 30 September 2012, these fees amounted to £0.3 million (2011: £0.4 million).
The occupancy of the stores is 391,000 sq ft, against a total capacity of 743,000 sq ft, with growth of 102,000 sq ft in the last twelve months, of which 66,000 sq ft has been since 31 March. The stores’ occupancy at 30 September 2012 was 52.6% (March 2012: 43.7%). The net rent achieved at 30 September 2012 by the Partnership stores is £18.17 per sq ft, a decrease of 1% from the same time last year, and an increase of 0.3% from 31 March 2012. The REVPAF of the portfolio increased by 35% to £12.17 for the six months to 30 September 2012 (2011: £9.04).
The Partnership made an operating profit of £1.7 million in the period, of which Big Yellow’s share is a third. After net interest costs and the revaluation of investment properties and interest rate derivatives, the profit for the period for the Partnership was £5.7 million, of which the Group’s share was £1.9 million.
We have recognised a receivable of £4.3 million in the period in respect of payments due back to the Partnership under the Capital Goods Scheme. These amounts are subject to agreement with HMRC. The receivable has been discounted; the gross value of the receivable before discounting is £4.9 million.
In October 2012, the £60 million Partnership bank facility with RBS and HSBC was extended to September 2016 from its previous expiry date of September 2013. The new facility has an initial higher average cost of debt of approximately 6.4%. We expect this to reduce to 4.8% from July 2013, when existing hedging arrangements expire, with forward start swaps covering 50% of the drawn debt at a pre-margin cost of 1.05% starting from that date. There is a margin ratchet based on the Partnership’s income cover which ranges between 250 bps and 400 bps.
Big Yellow has an option to purchase the assets contained within the Partnership or the interest in the Partnership which it does not own, exercisable from 31 March 2013. On exit whether by way of exercise of the option or a sale to a third party, Big Yellow is entitled to certain promotes, which could result in Big Yellow sharing in the surplus created in the Partnership ahead of its equity participation.