Business and Financial Review
Trading performance
We are pleased to report a solid trading performance for the six months with an increase in like-for-like occupancy of 3.4 ppts from March 2018. Revenue growth for the half year was 7%.
As we have often said, a significant risk to this business is around competition and new supply in our areas of operation. Competitor store openings remain constrained, particularly in London and our other core areas of operation, due to the scarcity of land and competition from other land users. The SSA UK Annual Industry Report (2018) refers to 29 substantial self storage centres in excess of 12,000 to 15,000 sq ft opening in 2017. Many of these openings are not in the larger conurbations where we operate and by way of example, in London, there were five store openings, but also two closures in 2017. In 2018 to date there have been three new openings in London, including our Wapping store, and three store closures.
Customer demand
Demand for self storage is largely driven by need, with security, convenience, quality of product, service and location being key drivers. Awareness remains relatively low compared to commoditised products, such as hotel rooms or airline seats, albeit it is increasing slowly year on year with increased supply, marketing spend and customer use.
We are confident that Big Yellow benefits disproportionately from this improving market for our product, due to our market-leading brand and operating platform with our focus on London, the South East and large metropolitan cities. Our digital platform now accounts for 90% of our prospects, of which over half come through our mobile site.
Customers renting storage space whilst moving within the rental or owner occupied sectors represent 42% of move-ins during the period. 10% of our customers who moved in took storage space as a spare room for decluttering. 37% 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 possessions, are getting together or separating, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 11% of our customer demand during the period came from businesses. These demand segments are broadly in line with the same period last year.
Of our occupied space today, customers who are longer stay lifestyle users, decluttering into small rooms as an extension to their accommodation, occupy 10% to 15%; 50% to 55% are using it for less than 12 months for largely event driven reasons, which could be inheritance, moving, carrying out building work, and the balance of 35% are businesses, typically SMEs.
There is a continuing trend towards self-employment and smaller business start-ups in the UK, dynamics that are positive for self storage. Additionally, businesses in the UK are increasingly seeking flexible, convenient office and storage space as a means of operation, shying away from longer inflexible leases. The deindustrialisation of big cities with the conversion of commercial space into residential and other uses is also a driver for demand from the SME market seeking flexible warehouse space. Our recent survey of our business customers showed that 60% of our business customers were start-ups who have never rented space anywhere else before and for approximately 50% it was their only business space.
Domestic demand represents approximately 80% of customers and 65% of space at any point in time. Given the continuing issues around the shortage of housing supply, planning continues to be focussed on the creation of more residential stock particularly in our larger conurbations. Most of this is being built with high density and a lack of storage space. Additionally, the trend to more of our customers being renters rather than owners of property where they may move more and need surplus space is also supportive to demand for our product.
Store occupancy
Prospects for the six months were slightly up on the same period last year. The table below shows the monthly move-in and move-out activity over the half year:
| Move-ins period ended 30 September 2018 |
Move-ins period ended 30 September 2017 |
% | Move-outs period ended 30 September 2018 |
Move-outs period ended 30 September 2017 |
% | |
|---|---|---|---|---|---|---|
| April | 5,275 | 5,530 | (5) | 5,134 | 5,082 | 1 |
| May | 6,172 | 6,470 | (5) | 5,266 | 5,168 | 2 |
| June | 8,337 | 8,322 | - | 5,099 | 4,862 | 5 |
| July | 7,178 | 7,562 | (5) | 6,362 | 6,679 | (5) |
| August | 7,089 | 6,969 | 2 | 6,657 | 6,622 | 1 |
| September | 7,298 | 6,932 | 5 | 9,723 | 9,651 | 1 |
| Total | 41,349 | 41,785 | (1) | 38,241 | 38,064 | – |
| October | 5,896 | 5,989 | (2) | 6,909 | 6,978 | (1) |
The performance in the prior period was a strong comparator, and hence move-ins were down 1% on the same period last year, although up 3% on the six month period to 30 September 2016. Across the period, move-outs were broadly in line with the prior period. October’s move outs show a reduction on the prior year, following the lower levels of move-ins over the summer and this trend has continued into November.
Occupancy growth over the six month period was 174,000 sq ft (2017: 265,000 sq ft).
| Net sq ft period ended 30 September 2018 |
Net sq ft period ended 30 September 2017 |
Net move-ins period ended 30 September 2018 |
Net move-ins period ended 30 September 2017 |
|
|---|---|---|---|---|
| April | (8,000) | 30,000 | 141 | 448 |
| May | 26,000 | 48,000 | 906 | 1,302 |
| June | 113,000 | 105,000 | 3,238 | 3,460 |
| July | 57,000 | 78,000 | 816 | 883 |
| August | 22,000 | 36,000 | 432 | 347 |
| September | (36,000) | (32,000) | (2,425) | (2,719) |
| Total | 174,000 | 265,000 | 3,108 | 3,721 |
| October | (31,000) | (46,000) | (1,013) | (989) |
Our third quarter is historically the weakest trading quarter and in recent years, we have typically lost two to three percentage points of occupancy before a return to growth in the new year. The third quarter last year, which followed a strong summer showed a loss of 3.7 ppts of MLA, which was unusually high. However, in the current year, we have lost 56,000 sq ft (1.2% of maximum lettable area “MLA”) since the end of September, compared to a loss of 86,000 sq ft (1.9% of MLA) at the same stage last year. The year-on-year like-for-like increase in occupancy at the date of these results is 2.1 ppts. We do expect to return to occupancy growth in our seasonally stronger March quarter.
The 69 mature stores are 85.0% occupied compared to 83.7% at the same time last year. The 3 established stores have grown in occupancy from 83.5% to 84.5%. The 3 developing stores added 29,000 sq ft of occupancy in the past 12 months to reach closing occupancy of 48.6%. Overall like-for-like store occupancy has increased over the 12 months from 83.4% to 84.9%, and by 3.4 ppts from 1 April 2018.
| Occupancy at 30 September 2018 % |
Occupancy growth from 31 March 2018 000 sq ft |
30 September 2018 000 sq ft |
31 March 2018 000 sq ft |
30 September 2017 000 sq ft |
|
|---|---|---|---|---|---|
| 69 mature stores | 85.0% | 145 | 3,661 | 3,516 | 3,604 |
| 3 established stores | 84.5% | 3 | 174 | 171 | 172 |
| 3 developing stores | 48.6% | 26 | 69 | 43 | 40 |
| Total – all 75 stores | 83.8% | 174 | 3,904 | 3,730 | 3,816 |
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- Trading performance
- Customer demand
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- Pricing and rental yield
- Security of income
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- Armadillo Self Storage