Big Yellow Limited Partnership
Big Yellow Limited Partnership, a joint venture with Pramerica Real Estate Investors Limited, owns self storage centres and development sites in the Midlands, the North, Scotland and four locations in the South. In the consolidated accounts of Big Yellow Group PLC, the Partnership is treated as an associate. We have adopted equity accounting for the Partnership, so that our share of the Partnership’s results are disclosed in operating profit and our net investment is shown in the balance sheet within “Investment in Associate”. We have provided in note 13d the balance sheet and income statement of the Partnership, along with the Group’s share of the income statement captions.
Structure
The Group and Pramerica have committed equity in a one third, two thirds split respectively. The Board of the Partnership comprises two representatives of both Pramerica and Big Yellow. Pramerica have the casting vote over the approval of the Partnership’s annual business plan.
The Partners have resolved not to develop any further stores. No further equity contributions are forecast.
The Group earns certain property acquisition, planning, construction and operational fees from the Partnership. For the year to 31 March 2013, these fees amounted to £0.6 million (2012: £0.7 million).
Funding
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.
Results
For the year ended 31 March 2013, the operating profit of the Partnership was £3.4 million (2012: £1.8 million), with all 12 stores being profitable at the operating level.
The Partnership made a profit before tax of £1.9 million (2012: loss of £1.8 million). Big Yellow’s share of this profit was £0.6 million (2012: share of loss of £0.6 million).
After adjusting for non-recurring items (revaluation gains of £2.5 million, non-recurring refinancing costs of £1.5 million, and fair value gain on interest rate derivatives of £0.6 million), the Partnership made an adjusted profit of £0.3 million (2012: adjusted loss of £0.8 million), of which the Group’s share is £0.1 million (2012: share of loss of £0.3 million). The Partnership is tax transparent, so the limited partners are taxed on any profits.
We have recognised a receivable of £4.3 million in the year 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.
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. The option has been deferred this year, and is next exercisable in March 2014 and again in March 2015. 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.