Page 2 of 3

Business and Financial Review

Pricing and rental yield

Our core proposition remains a high quality product, competitively priced, with excellent customer service, providing value for money to our customers. We offer a headline opening promotion of 50% off for up to the first 8 weeks, and we continue to manage pricing dynamically, taking account of room availability, customer demand and local competition.

Over the past year we have been more aggressive with our promotions to drive occupancy growth, which led to a reduction in net achieved rent per sq ft in the second half of the prior financial year. Following this fall in the period to March, and hence a lower starting point in this financial year, the average rate achieved in the six months to 30 September 2017 was in line with the same period last year. These more aggressive promotions are now embedded in our business, and with the portfolio at a higher occupancy level over the six months to 30 September 2017, net achieved rent per sq ft grew by 1.0% from 31 March 2017, and has grown by 1.6% to the date of these results.

Our pricing model reduces promotions and increases asking prices where individual units are in scarce supply. This lowering of promotions, coupled with price increases to existing and new customers, leads to an increase in net achieved rents. The table below illustrates this, showing the growth in net rent per sq ft for the portfolio over the period (on a non-weighted basis).

Average occupancy in the six months	Number of stores	Net rent per sq ft growth from 1 April to 30 September 2017
0 to 75%	12	(0.3%)
75 to 80%	18	0.8%
80 to 85%	27	2.1%
Above 85%	16	2.2%

The rental growth for the stores with an average occupancy above 85% would equates to 4.4% annualised were it to be replicated in the second half of the year.

Security of income

Our principal financial aims remain to grow cash flow, earnings and dividend. We believe that self storage income is essentially evergreen income with highly defensive characteristics driven from buildings with very low obsolescence risk. Although our contract with our customers is in theory as short as a week, we do not need to rely on contracts for our income security. At 30 September 2017 the average length of stay for existing customers was 24 months. For all customers, including those who have moved out of the business, the average length of stay has remained at 8 months. 30% of our customers by occupied space have been storing with us for over two years, and a further 17% of customers have been in the business for between one and two years.

The location of our stores, brand, security, and most importantly customer service, together with the diversity of our 56,000 customers, serve better than any contract in providing income security.

Revenue

Total revenue for the period was £58.1 million, an increase of £3.3 million (6%) from £54.8 million in the prior period. Like-for-like revenue for the six month period was £57.1 million, an increase of 6% from the prior period. Like-for-like revenue excludes Nine Elms and Twickenham 2 in both periods, which were acquired from Lock and Leave in April 2016.

Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 17.4% of storage income for the period (2016: 17.0%) and generated revenue of £8.4 million for the period, up 8% from £7.8 million in 2016 (see Portfolio Summary).

The other revenue earned is management fee income from the Armadillo Partnerships and tenant income on sites where we have not started development.

Operating costs

Cost of sales comprises principally of direct store operating costs, including store staff salaries, utilities, business rates, insurance, a full allocation of the central marketing budget, and repairs and maintenance.

The breakdown of the portfolio’s operating costs compared to the prior period is shown in the table below (see Portfolio Summary):

Category	Period ended 30 September 2017 £000	Period ended 30 September 2016 £000	% change	% of store operating costs in period
Cost of sales (insurance and packing materials)	1,341	1,237	8	8
Staff costs	4,510	4,434	2	28
General & admin	570	558	2	4
Utilities	679	752	(10)	4
Property rates	5,172	5,044	3	32
Marketing	2,178	2,062	6	13
Repairs and maintenance	1,296	1,272	2	8
Insurance	404	384	5	2
Computer costs	229	221	4	1
Irrecoverable VAT	8	7	14	–
Total per portfolio summary	16,387	15,971	3

Store operating costs have increased by £0.4 million (3%) compared to the same period last year.

Following the recent rating review, we calculated that the impact on the Group’s rates bill for the year ending 31 March 2018 would be an increase of 9%, (£0.9 million). This increase has in part been mitigated in the current period by rates rebates received at two of our stores in respect of the previous rating period to March 2017.

The cost of insurance and packing materials varies with sales and has increased in a similar proportion to revenue. We continue to invest in marketing to maintain the Group’s online market share and enquiry levels. Our investment in LED lighting has contributed to a reduction in our utility expenditure. The other increases in store operating costs are inflationary.

The table below reconciles store operating costs per the portfolio summary to cost of sales in the income statement:

	Period ended 30 September 2017 £000	Period ended 30 September 2016 £000
Direct store operating costs per portfolio summary (excluding rent)	16,387	15,971
Rent included in cost of sales (total rent payable is included in portfolio summary)	509	557
Depreciation charged to cost of sales	226	(278)
Prior period VAT recovery	–	xxx
Head office operational management costs charged to cost of sales	392	432
Other (e.g. void costs of development sites)	74	139
Cost of sales per income statement	17,588	17,023

Store EBITDA

Store EBITDA for the period was £39.7 million, an increase of £2.8 million (8%) from £36.9 million for the period ended 30 September 2016 (see Portfolio Summary). The overall EBITDA margin for all Big Yellow stores during the period was 69.6% an improvement from 68.5% in 2016.

Administrative expenses

Administrative expenses in the income statement have decreased by £0.1 million. The prior period contained an exceptional cost of £0.3 million in relation to acquisition costs of Lock and Leave, hence the like for like increase is £0.2 million. The increase is due to national insurance payable on the vesting of LTIPs, coupled with inflationary increases. The non-cash share based payments charge represents £1.1 million of the overall £5.1 million expense.

Interest

The interest on bank borrowings during the period was £5.0 million, £0.8 million lower than the same period last year. Average debt levels were broadly in line with the prior period, but the Group benefited from a lower average cost of borrowing compared to the same period last year following the fall in base rates, lower margins post refinancing and the cancellation of interest rate swaps and associated re-hedging.

Interest capitalised in the period amounted to £0.2 million (2016: no capitalised interest), principally arising on the construction of our Guildford Central store and the construction of the extension of our Wandsworth store.

Results

The Group’s statutory profit before tax for the period was £78.7 million, an increase of 36% from £57.7 million for the same period last year. The increase is due to the higher revaluation surplus in the period, coupled with the increase in adjusted profit before tax (as explained below).

After adjusting for the gain on the revaluation of investment properties and other matters shown in the table below, the Group made an adjusted profit before tax in the period of £30.6 million, up 13% from £27.0 million in 2016.

	Six months ended 30 September 2017 £m	Six months ended 30 September 2016 £m
Profit before tax analysis	Six months ended 30 September 2017 £m	Six months ended 30 September 2016 £m
Profit before tax	78.7	57.7
Gain on revaluation of investment properties	(47.5)	(31.6)
Gain on part disposal of investment property	(0.6)	–
Change in fair value of interest rate derivatives	(0.8)	1.0
Acquisition costs written off	–	0.3
Prior period VAT recovery	–	(0.3)
Refinancing costs	1.5	–
Share of non-recurring gains in associates	(0.7)	(0.1)
Adjusted profit before tax	30.6	27.0
Tax	(0.3)	(0.3)
Adjusted profit after tax	30.3	26.7

During the period, the Group sold land at its Richmond store to an adjoining landowner for £650,000. The valuation of the store was not impacted by this disposal, hence the full proceeds have been recorded as profit on part disposal of investment property and is an adjusting item above.

The movement in the adjusted profit before tax from the prior year is shown in the table below, with the majority of the increase being driven by the improvement in gross profit:

Movement in adjusted profit before tax	£m
Adjusted profit before tax for the six months to 30 September 2016	27.0
Increase in gross profit	3.0
Increase in administrative expenses	(0.2)
Reduction in net interest payable	0.7
Decrease in share of associates’ recurring profit	(0.1)
Increase in capitalised interest	0.2
Adjusted profit before tax for the six months to 30 September 2017	30.6

The Group’s share of associates’ profit before tax increased by £0.1 million compared to the same period last year, however following a prior year tax adjustment and an increase in the corporation tax charge in both companies, the share of profit after tax reduced by £0.1 million.

Diluted EPRA earnings per share was 19.1 pence (2016: 16.9 pence), an increase of 13% from the same period last year.