Pricing and rental yield
In anticipation of the introduction of VAT, we successfully increased our yield in the first half of the year by 1.8% from 31 March 2012. However, given the decision not to pass all of the VAT on to our domestic customers the Group’s achieved net rent fell by 5.6% at the beginning of October. Over the second half of the year net rent fell by a further 3% to £24.65 at 31 March 2013 as industry asking prices adjusted to VAT, and we had suspended our rolling price increase programme to existing domestic customers.
Average rents were therefore lower in the second half of the financial year. At the end of March we increased the standard rates in all stores, and recommenced our existing customer price increase programme. Since the year end the Group’s net achieved rent per sq ft has increased by 2.5%.
Our key focus over the next two to three years remains to drive occupancy and hence revenue in the stores. As the stores lease up, and the number of vacant rooms reduce, our pricing model will automatically reduce the level of discounts offered, leading to an increase in net achieved rents. In our higher occupancy stores, we have historically seen net rental growth of 4 to 5% in a year. This year was affected by the introduction of VAT as previously explained.
Store operations
The Big Yellow store model is well established. The “typical” store has 60,000 sq ft of net lettable storage area and takes some 3 to 5 years to achieve 70% to 80% plus occupancy in the current economic environment. Some stores have taken longer than this given they opened just before or during the downturn. The average room size occupied in the portfolio is currently 68 sq ft, an increase from 66 sq ft in the prior year.
The store is open seven days a week and is initially run by three staff, with a part time member of staff added once the store occupancy justifies the need for the extra administrative and sales workload.
Given that the operating costs of these assets are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins. The table below illustrates the average key metrics across the store portfolio for the year ended 31 March 2013:
| 32 Established stores |
22 Lease-up stores |
|
|---|---|---|
| Store capacity | 60,656 | 67,773 |
| Sq ft occupied per store at 31 March 2013 | 44,156 | 36,818 |
| % occupancy | 72.8% | 54.3% |
| Revenue per store | £1,379,000 | £1,100,000 |
| EBITDA per store | £922,000 | £665,000 |
| EBITDA margin | 66.8% | 60.5% |
Like for like revenue per available square foot (“REVPAF") across the wholly owned portfolio, excluding the 75,000 sq ft store at Chiswick, which opened in April 2012, increased from the last year by 4.2% to £20.25 (2012: £19.43).
The average store size in the UK market is approximately 40,000 sq ft according to the 2013 Self Storage Association Survey. The upside from filling our larger than average sized stores is, in our view, only possible in large metropolitan markets, where self storage demand from domestic and business customers is at its highest.
Of the customers moving into our stores in the last year, surveys undertaken indicate approximately 50% are linked to the housing market, of which 11% are customers renting storage space whilst using the rental sector, and 39% moving within the owner occupied sector. During the year 12% of our customers who moved in took storage space as a spare room for decluttering and approximately 25% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited furniture, are getting married or divorced, are students who need storage during the holidays, or homeowners developing their lofts or basements. The balance of 13% of our customer demand in the year came from businesses. There has been an increased in demand in the current year from businesses and students.
Our business customers range across a number of industry types, such as retailers, professional service companies, hospitality companies and importers/exporters. These businesses store stock, documents, equipment, or promotional materials all requiring a convenient flexible solution to their storage, either to get started or to free up more expensive space.
We have a dedicated national accounts team for business customers who wish to occupy space in multiple stores. These accounts are billed and managed centrally. We have three full time members of staff working on growing and managing our national account customers. The national accounts team can arrange storage at short notice at any location for our customers.
Business customers typically stay longer than domestic customers, and also on average occupy larger rooms. Whilst only representing 13% of new customers during the year, businesses represent 18% of our overall customer numbers, occupying 34% of the space in our stores. The average room size occupied by business customers is 125 sq ft, against 55 sq ft for domestic customers.
We have seen solid demand from business customers, as they seek a cost effective, flexible solution to their storage requirements, preferring self storage to the commitment of a long lease. We believe there is an opportunity to grow business occupancy and national accounts in the coming year, and we have improved our business offer further, we have increased the resource of our national accounts team, and are increasing our marketing to that space to drive business prospects.
The split between business and domestic customers for the 54 wholly owned stores is as follows:
| Sq ft occupied at 31 March 2013 |
% | No of customers at 31 March 2013 |
% | % of storage revenue at 31 March 2013 |
|
|---|---|---|---|---|---|
| Business customers | 747,000 | 34% | 6,046 | 18% | 27% |
| Domestic customers | 1,476,000 | 66% | 27,487 | 82% | 73% |
| Total | 2,223,000 | 33,533 | 100% |
The net rent per sq ft for domestic customers is approximately 33% higher than for business customers, reflecting the smaller average unit size occupied by domestic customers.
For the 32 established stores, the average split between business and domestic customers is shown in the table below.
| Domestic | Business | Total | |
|---|---|---|---|
| % of occupied space | 66.1% | 33.9% | 100% |
| Sq ft occupied per store at 31 March 2013 | 29,187 | 14,969 | 44,156 |
The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. We measure customer service standards through a programme of mystery shoppers and online customer reviews, which give an average customer service score of 4.8 out of 5. We have recently launched a new improved customer-experience programme which combines the feedback from mystery shopping and customer reviews into the reinforcement of customer focus in our store operations.
We have a team of Area Managers in place who have on average worked for Big Yellow for ten years. They develop and support the stores to drive the growth of the business. Adrian Lee, Operations Director, is the Board member responsible for dealing with all customer issues.
The store bonus structure rewards occupancy growth, sales growth and cost control through setting quarterly targets based on occupancy and store profitability, including the contribution from ancillary sales of insurance and packing materials. Information on bonus build up is circulated monthly and stores are consulted in preparing their own targets and budgets each quarter, leading to improved visibility, a better understanding of sales lines and control of operating costs.
We believe that as a customer-facing branded business it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in a rolling programme of store makeovers, preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £30,000 per store, which is included within cost of sales. This excludes makeovers, which typically take place every four years, at a cost of approximately £15,000 to £20,000 per store.
We have continued to manage the ten freehold stores branded as Armadillo Self Storage alongside our Big Yellow stores using the same operating model. The management contract expires in February 2014 and our key objective within the Armadillo portfolio remains driving occupancy, revenue and cash flow.
» Continue