Chairman’s Statement
In our view, it makes no sense to have significant unutilised capacity, and consequently we have focussed on occupancy and will continue to do so for the time being.
Targeting
90% occupancy
Big Yellow Group PLC, the UK’s brand leader in self storage, is pleased to announce its results for the six months ended 30 September 2017. In this seasonally stronger six month trading period, the Group has delivered a good performance with like-for-like revenue growth of 6% compared to the same period last year. In May, along with our year end results, we set out our ambition to see material growth in occupancy towards our long held target of 85%. We are therefore pleased to be reporting significant progress in occupancy with these results, albeit, there has been no rate growth period on period. That said, we have seen a 1.6% increase in net achieved rent per sq ft to the date of these results since 31 March 2017.
Closing Group occupancy is up 5.8 percentage points to 83.8% compared to 78.0% at 31 March 2017 (up 5.3 percentage points from 78.5% at 30 September 2016). Occupancy growth over the six month period was 265,000 sq ft (2016: 134,000 sq ft, excluding 76,000 sq ft of occupancy acquired in the Nine Elms and Twickenham 2 stores).
The Group’s central overhead and operating expense is largely embedded in the business. The growth in revenue and resultant improved operating margin, together with the period on period savings on interest costs, has led to a 13% increase in adjusted earnings per share.
Financial results
Revenue for the period was £58.1 million (2016: £54.8 million), an increase of 6%. Cash inflows from operating activities (after finance costs and excluding working capital movements) increased by 12% to £32.5 million for the period (2016: £28.9 million).
The Group made an adjusted profit before tax in the period of £30.6 million, up 13% from £27.0 million for the same period last year (see note 6). Adjusted diluted EPRA earnings per share were 19.1 pence (2016: 16.9 pence), an increase of 13%. 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, due to the increase in operating profit and a higher revaluation gain in the period.
The Group’s interest cover for the period (expressed as the ratio of cash generated from operations pre-working capital movements against interest paid) was 7.6 times (2016: 6.1 times). This is comfortably ahead of our internal minimum interest cover requirement of five times.
Investment in new capacity
We are pleased to report the acquisition of three development sites since March, increasing our pipeline to eight new stores and two extensions, with a total capacity (subject to planning) of approximately 575,000 sq ft (13% of current MLA). The acquisitions in Wapping (just east of Tower Bridge), Bath Road in Slough, and Bracknell are all in London and the South East, and we believe when developed will be quality additions to the portfolio.
We continue to look for land and existing storage centres in large urban conurbations, with a focus on London and the South East, and should the current uncertainties throw up new opportunities, we will pursue them aggressively. That said, developing stores in these areas remains challenging given the competition for land and the pressure to produce more housing.
Our 56,000 sq ft Guildford Central store on Woodbridge Meadows is due to open in March 2018 and the 25,000 sq ft extension to our Wandsworth store is due to complete in April 2018. We are pleased to report that we have obtained planning consent for a landmark Manchester city centre store of 60,000 sq ft on Water Street, with a scheduled opening in Spring 2019. After lengthy consultations, we have made good progress on our planning consultations at Kings Cross, Battersea and Camberwell and anticipate submitting applications on all three schemes in 2018, but as always, the process is subject to the vagaries of the planning system.
At 30 September, the future cost of the current pipeline of ten development sites and extensions, seven of which are subject to planning, is estimated to be £90 million.
Dividends
The Group’s dividend policy is to distribute 80% of adjusted earnings per share. The interim dividend declared is 15.3 pence per share. This has all been declared as Property Income Dividend (“PID”). The interim dividend declared represents an increase of 13% from 13.5 pence per share for the same period last year.
Outlook
In our view, it makes no sense to have significant unutilised capacity, and consequently we have focussed on occupancy and will continue to do so for the time being. Our pricing model is largely automated and higher levels of occupancy deliver more traction on pricing. We know this because we can see the performance of stores with elevated occupancy.
We are now in our seasonally weakest quarter, in which for the last couple of years we have lost 3 ppts of occupancy and then rebuilt occupancy in the final quarter to March. Given closing occupancy of 83.8% at 30 September, we would expect to comfortably pass the 85% mark next summer providing there are no significant external shocks. We are therefore adjusting our occupancy target for the business as a whole to 90%.
Over the long term, we are confident that the existing platform will continue to deliver attractive returns. That said, adding more capacity will improve those returns. The expeditious way of doing that would be to acquire existing freehold self storage assets in London and other large conurbations in the UK. However, there are few self storage centres that meet our quality criteria and for those that do exist, they are generally not for sale. Furthermore, as stated previously, we have no interest in expanding abroad.
We will therefore continue to develop the Big Yellow platform organically, site by site. This does involve risk and requires patience, but it will allow us to expand and improve our unique and irreplaceable portfolio.
Nicholas Vetch
Executive Chairman
20 November 2017