Balance sheet
Property
The Group’s 54 wholly owned stores and four stores under development at 31 March 2013, 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 £762.9 million, comprising £700.5 million (92%) for the 47 freehold (including one long leasehold) open stores, £45.1 million (6%) for the seven short leasehold open stores and £17.3 million (2%) for the four investment properties under construction.
| Analysis of property portfolio | No of locations |
Value at 31 March 2013 £m |
Revaluation movement in year £m |
|---|---|---|---|
| Investment property | 54 | 745.6 | 10.2 |
| Investment property under construction | 4 | 17.3 | (0.7) |
| Investment property total | 58 | 762.9 | 9.5 |
| Surplus land | 2 | 4.6 | – |
| Total | 60 | 767.5 | 9.5 |
We have recognised a receivable of £10.3 million in the year 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. The final amount is subject to agreement with HMRC. The Group had an historic creditor in respect of Capital Goods Scheme payments due to HMRC; this has been reduced by £0.3 million in the year, 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 year. The debtor has been discounted in accordance with International Accounting Standards to the net present value using the Group’s average cost of debt. The gross value of the debtor before discounting is £11.8 million.
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.
In the prior year the valuer took into account its estimate of the proposed introduction of VAT from 1 October 2012 on the asset valuation. This led to a revaluation fall of the investment property portfolio in the prior year of £51.4 million.
The valuations in the current year are broadly in line with the prior year, with a revaluation deficit of £0.4 million on the open stores, before adjusting for the Capital Goods Scheme.
The valuation is based on an average occupancy over the 10 year cash flow period of 78.4% 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 2013 | £406.3m | £339.3m | £745.6m |
| Occupancy at 31 March 2013 | 72.8% | 54.3% | 64.8% |
| Stabilised occupancy assumed in valuations | 82.0% | 80.9% | 81.5% |
| Net initial yield pre-admin expenses | 6.8% | 4.9% | 5.9% |
| Stabilised yield assuming no rental growth | 8.1% | 8.4% | 8.2% |
The initial yield pre-administration expenses assuming no rental growth is 5.9% (2012: 5.7%) rising to a stabilised yield of 8.2% (2012: 8.3%). The 32 established stores that were mature in 2007 are assumed to return to stabilised occupancy in 35 months on average. The 22 lease-up stores are assumed to reach stabilised occupancy in 44 months on average from 1 April 2013. Note 14 contains more detail on the assumptions underpinning the valuations.
Investment property under construction
Chiswick was transferred to investment property in the year. The remaining four wholly owned development sites have reduced in value by £0.4 million, £0.3 million relating to capital expenditure incurred, with the balance of £0.7 million a revaluation deficit. C&W’s forecast valuations for when the assets have reached stabilised occupancy, including assumptions in relation to revenue and operating cost growth, are currently pointing to a revaluation surplus on total development cost of £28 million on the three wholly owned development sites with planning consent.
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 2013 of £796.9 million (£34.0 million higher than the value recorded in the financial statements). The valuations in Big Yellow Limited Partnership are £4.8 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 £35.6 million and translates to 25.1 pence per share.
The revised valuation translates into an adjusted net asset value per share of 419.2 pence (2012: 422.7 pence, restated – see note 12) after the dilutive effect of outstanding share options.
Surplus land
These are sites which the Group does 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 £15.8 million gross sales proceeds during the year from the disposal of surplus land; £4.8 million from the disposal of our surplus site in Chiswick; £7.4 million from the disposal of the hotel in Richmond and £3.6 million from the disposal of our site in South Bow.
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