Chairman’s Statement
We remain focused on strengthening our market leading brand and operating platform; filling stores and then driving rental growth at higher occupancy levels; and developing new high quality stores, while maintaining a conservative capital structure.
Building
on a proven model
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 2018. In this seasonally stronger six month trading period, the Group has delivered a solid set of results with like-for-like revenue growth of 7% compared to the same period last year, and an increasing contribution from rate growth, given the higher occupancy level of the portfolio.
We have continued to grow our like-for-like occupancy to 84.9% (up 3.4 percentage points from 81.5% at 31 March 2018) and remain focussed on our core objective of 90% across the portfolio. As we have reduced vacant capacity, our pricing model is delivering improved rental growth and we are pleased to have achieved growth in average net rent of 3.7%.
The Group’s central overhead and operating expense is largely embedded in the business, and as a consequence increases in revenue should deliver higher growth in earnings. In the current period we have seen a 9% increase in adjusted earnings per share compared to the same period last year.
Financial results
Revenue for the period was £62.2 million (2017: £58.1 million), an increase of 7%. We have seen strong growth in cash flow from operating activities (after net finance costs) which has increased by 16% to £34.6 million for the period (2017: £29.9 million). The Group made an adjusted profit before tax in the period of £33.3 million, up 9% from £30.6 million for the same period last year (see note 6). The period on period growth in cash flow is higher than for adjusted profit before tax as a result of favourable working capital movements.
Adjusted diluted EPRA earnings per share were 20.9 pence (2017: 19.1 pence), an increase of 9%. The Group’s statutory profit before tax for the period was £61.4 million, a decrease of 22% from £78.7 million for the same period last year, due to a lower revaluation gain in the period.
The Group’s interest cover for the period (expressed as the ratio of cash generated from operations against interest paid) was 7.5 times (2017: 7.1 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 high quality development sites since March, in Uxbridge (West London), Queensbury (North West London) and Hove. The 25,000 sq ft extension to our Wandsworth store completed in May 2018, and we opened a 25,000 sq ft store in Wapping in July 2018.
Construction is underway on our Manchester and Camberwell stores which we anticipate will open in Summer 2019 and Spring 2020 respectively. After lengthy consultations, we have submitted planning applications on our Kings Cross, Battersea and Bracknell developments. Good progress has been made on other consultations but as always, the process is subject to the vagaries of the planning system.
Big Yellow now has a pipeline comprising eleven development sites (including the proposed increases in capacity of our Battersea and Wapping stores) with a cost to complete of approximately £100 million in addition to the £23 million of capital expenditure spent in the first half. These store openings are expected to add approximately 680,000 sq ft of storage space to the portfolio, an increase of 15% from the current maximum lettable area of the Group’s portfolio.
Our current estimate of net operating income at stabilisation, at today’s prices, for this increase in capacity is in excess of £17.4 million. The total development cost including cost incurred to date is estimated to be approximately £198 million implying an 8.8% net operating income return on cost.
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. We anticipate reporting further acquisitions in due course.
In September, the Group issued 7.2 million shares (4.5% of the issued share capital prior to the placing) at a price of 930 pence per share, raising £65.3 million (net of expenses). The proceeds will be used to acquire new development sites in attractive locations that will allow the Company to continue to deliver a contribution to earnings from external growth whilst maintaining a strong capital structure.
Dividends
The Group’s dividend policy is to distribute 80% of adjusted earnings per share. The interim dividend declared is 16.7 pence per share. This has all been declared as Property Income Distribution (“PID”). The interim dividend declared represents an increase of 9% from 15.3 pence per share for the same period last year.
Outlook
It is self-evident that the current political and economic outlook is more uncertain than usual, but as a management team we cannot influence the outcomes.
We remain focused on strengthening our market leading brand and operating platform; filling stores and then driving rental growth at higher occupancy levels; and developing new high quality stores, while maintaining a conservative capital structure.
We believe this strategy positions the Group to provide a good degree of protection against adversity, and at the same time flexibility to invest in our business and exploit growth opportunities when they come along.
Nicholas Vetch
Executive Chairman
19 November 2018