Business Review - Big Yellow Group PLC Annual Report and Accounts 2013

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Self storage income is largely evergreen with highly defensive characteristics driven from buildings with very low obsolescence.

Introduction

Given the continued muted economic background, the 6% revenue growth achieved year on year is a creditable performance, particularly as we faced the additional headwind of absorbing VAT into our business in the second half of the year.

We continue to believe that the medium term opportunity to create shareholder value will be principally achieved by leasing up stores to drive revenue, the majority of which flows through to the bottom line given that our operating and central overhead costs are already largely embedded.

The location of our stores, strong brand, unrivalled security and most importantly, excellent customer service attracts and retains a loyal and diverse customer base.

Self storage income is largely evergreen with highly defensive characteristics driven from buildings with very low obsolescence. Although our contract with customers is in theory as short as a week, we do not need to rely on contract length for income security. At 31 March 2013 the average length of stay for existing customers was 18.9 months, in line with the prior year. For the stores open more than five years, the average length of stay increases to 21.3 months. For all customers, including those who have moved out of the business, the average length of stay has remained at 8.4 months. This translates into a loyal customer base. In our 32 established store portfolio, 36% of our customers by occupied space have been storing with us for over three years. A further 15% of customers in these stores have been in the business for between one and three years.

Awareness of self storage will continue to grow as more businesses and individuals use the product at a time when the supply side is restricted, with very few store openings expected in the calendar year.

Store performance

Self storage is a dynamic business, and in any month, customers move in and out at the margin resulting in changes in occupancy. We had a very strong quarter to June with good net move-in growth. The second quarter peaks in August and then we see many of our students and short term house moves start to vacate in September, leading to a relatively flat quarter. The third quarter saw a fall in the pace of move-in growth of 5% compared to the prior year, whilst move outs were up 13% reflecting continuing student and house move vacations, coupled with some impact from the imposition of VAT, leading to a significant net loss in units occupied and sq ft. In the final quarter we have seen a return to growth in net occupied rooms and increased occupancy in the wholly owned stores by 52,000 sq ft. The table below illustrates the occupancy growth performance in the year.

Wholly owned store move-ins	Year ended 31 March 2013	Year ended 31 March 2012	%	Net move-ins
April to June	13,844	11,081	25%	3,445
July to September	14,973	12,661	18%	(410)
October to December	10,738	10,195	5%	(2,354)
January to March	11,047	10,149	9%	544
Total	50,602	44,086	15%	1,225

Store revenue for the year grew by 6%, feeding through to an 8% improvement in adjusted profit and a 10% increase in operating cash flow. This improvement in earnings has been achieved after absorbing the impact of VAT and a higher interest cost in the second half following the completion of the Group’s refinancing in October.

In all Big Yellow stores, the occupancy growth in the current year was 174,000 sq ft, against an increase of 328,000 sq ft in the prior year. This growth across the 54 wholly owned and 12 stores in the Partnership represents an average of 2,636 sq ft per store (2012: 5,046 sq ft per store).

During the year we opened our wholly owned flagship store in Chiswick, West London. The store has started encouragingly, with over 25,000 sq ft of occupancy already added. This opening brings the number now trading in the Group and the Partnership to 66 stores.

Store occupancy summary

	Occupancy 31 March 2013 000 sq ft	Occupancy 31 March 2012 000 sq ft	Growth for year to 31 March 2013 000 sq ft	Growth for year to 31 March 2012 000 sq ft
32 established stores	1,413	1,442	(29)	61
22 lease-up stores	810	691	119	157
Total – 54 wholly owned stores	2,223	2,133	90	218
12 Partnership lease-up stores	409	325	84	110
Total – all 66 stores	2,632	2,458	174	328

The 54 wholly owned stores had a net gain in occupancy of 90,000 sq ft, representing an average of 1,666 sq ft per store. This compares to an overall gain in the wholly owned stores of 218,000 sq ft in the year to 31 March 2012, and a gain of 117,000 sq ft in the year to 31 March 2011. The 12 stores in the Partnership, which are at an earlier stage of lease-up, increased their occupancy by 84,000 sq ft, representing average growth of 7,000 sq ft per store.

The 32 established stores are 72.8% occupied compared to 74.3% at the same time last year. The 22 lease-up stores have grown in occupancy from 48.8% to 54.3%, and overall store occupancy has increased in the year from 63.5% to 64.8%. Like for like occupancy, excluding Chiswick which opened in the year, increased from 63.5% to 65.6%.

The established stores grew in occupancy to 77.0% at September 2012, which was higher than in September 2011. The fall in occupancy over the second half of the year was higher than in prior years, which reflects the same factors as mentioned above for the portfolio as a whole, but in addition, this portfolio may have been impacted by the imposition of VAT, which is likely to have caused some longer stay customers to re-evaluate their storage requirements.

All 54 wholly owned stores, and all twelve stores within Big Yellow Limited Partnership, open at the year end are trading profitably at the EBITDA level.

74% of our current store revenue derives from within the M25; for the South East, the proportion of current store revenue rises to 90%. REVPAF performance of our stores in London has been more resilient over the downturn than in the regions.

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prompted brand awareness in London

unprompted brand awareness in London

online market share of web visits (April 2013)