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Big Yellow Group PLC, the UK’s leading self storage brand, (“Big Yellow”, “the Group” or “the Company”), is pleased to announce its results for the year ended 31 March 2008.
Trading conditions are difficult, but in the circumstances, we believe that the Group’s results are satisfactory.
In spite of the difficult conditions, we were pleased to have continued our strategy of site acquisitions and store openings, and have acquired the freeholds of our stores in Cheltenham and Chelmsford.
In order to further develop our expansion into the North and Midlands, in November 2007 we were pleased to announce that we formed a £150 million partnership with Pramerica Real Estate Investors.
At the end of March 2008 we opened our flagship store in Fulham. This innovative store includes the first wine self storage in the UK, with 480 climate controlled cellars, with the same benefits as self storage, including accessibility, flexibility and convenience.
Financial Results
Revenue for the year was £56.9 million (2007: £51.2 million), an increase of 11%. Revenue for the fourth quarter was £13.9 million up by 9% from the same quarter last year (after adjusting for £1.2 million surrender premium received in March 2007). The quarterly revenue has decreased by 3% from £14.4 million for the third quarter ended 31 December 2007. 1% of this fall is due to 1 less day in the quarter and the remainder due to increased promotions.
Earnings before non-recurring items and revaluation movements increased by 17% in the year to £29.6 million.
Profit before tax for the year was £101.8 million down from £152.8 million last year. After adjusting for the gain on the revaluation of investment properties and other matters (see note 10), the Group made an adjusted profit before tax in the period of £13.3 million, down 6% from £14.2 million in 2007. The decline was primarily due to a higher interest cost in the current financial year as a result of the increased development pipeline of £103 million.
We do not currently capitalise interest against our development pipeline, however from 2009 International Accounting Standards requires us to do this. We are therefore planning to adopt a policy of capitalising interest against our development pipeline from 1 April 2008.
The basic earnings per share for the year was 89.20 pence (2007: 192.97 pence) and the fully diluted earnings per share was 88.53 pence (2007: 190.31 pence). This reduction is due to the lower revaluation gains reported in the period and the prior year release of deferred taxation following the Group’s conversion to a REIT (see note 9). Adjusted earnings per share based on adjusted profit after tax was 11.20 pence (2007: 10.01 pence) (see note 12).
Cash generated from operations rose to £30.8 million in the year (2007: £30.2 million), an increase of 2%.
Net bank debt of £282.3 million at 31 March 2008 (2007: £187.9 million) represents approximately 33% (2007: 27%) of the Group’s investment property and development property assets totalling £854.3 million (2007: £686.5 million) and 48% (2007: 38%) of the adjusted net assets of £582.8 million (2007: £491.2 million).
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Dividend
The Board has proposed a final dividend of 5.5 pence per share, which brings the total declared dividend in respect of the results of the financial year to 9.5 pence per share (2007: 9.0 pence per share). For further information on the dividend, see the Financial Review.
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Big Yellow Limited Partnership
In November 2007 we formed a £150 million partnership with Pramerica Real Estate Investors Limited to develop stores in the Midlands, the North and Scotland. Big Yellow has made a £25 million commitment, of which £5.7 million has been contributed to date. Pramerica will contribute £50 million of equity and the balance of the initial capital required will be funded by way of a committed £75 million development loan facility provided by Royal Bank of Scotland.
The Group sold five of its development sites, Edinburgh, Liverpool, Nottingham and two in Sheffield, and its existing store in Leeds to the Partnership for a cash payment of £20.3 million. Big Yellow has also entered into conditional contracts to sell two more of its development sites in Manchester and Birmingham to the Partnership.
Big Yellow has an option to buy the assets in the Partnership at 31 March 2013. The Group is entitled to various acquisition, planning and construction fees and a carried interest geared to the success of the venture.
The effect of the venture is to increase our development capability in the Midlands, the North of England and Scotland whilst releasing financial resource for further expansion in London and the South. Additionally the fees earned will reduce the initial dilutive effect of our development programme.
We are pleased to have re-established our relationship with Pramerica, who were early backers of Big Yellow in 1999.
The total number of stores open and the capacity where discussed in this report include those wholly owned stores and those operated within Big Yellow Limited Partnership. The analysis of revenue and performance of stores as shown in the Portfolio summary is for the 47 wholly owned stores, and excludes the one trading store in the Partnership.
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Valuation and Net Asset Value
The value of the investment property portfolio at 31 March 2008 was £750.9 million, up £160.8 million from £590.1 million at 31 March 2007. Of the £160.8 million movement £79.2 million is capital expenditure in the year and £93.7 million is the revaluation increase in the year, and the balance is the transfer of Leeds to Big Yellow Limited Partnership for £12.1 million.
The revaluation movement in the year comprises £56.7 million in respect of the six new stores opened in the year and £37.0 million in respect of the 42 stores open and valued at 31 March 2007.
In analysing the revaluation movement of the 42 stores above, we have excluded the store being redeveloped at Sheen and the two leasehold stores where we acquired the freehold in the year. This portfolio of 39 same stores shows a 6.5% increase in the value over the year, the majority of which occurred in the first six months. Of this 6.5% increase virtually all the growth was from improved cash flow performance. Since September 2007, 25 of these 39 stores decreased in value, partially due to an increase in exit cap rates and also due to changes of assumptions on operating cash flow performance.
The net yield of the portfolio of 47 wholly owned stores based on the net operating income at store level in the first year after the projected stabilisation of each store is 7.64% pre administration expenses and 7.02% post administration expenses (March 2007: 7.40% pre admin and 6.80% post admin).
The initial yield on the open store portfolio has reduced from 5.24% to 4.21% in the year following the opening of six new London stores, which are initially loss making, and this has caused much of the increase in the reversionary yield above.
Whilst there has been a significant outward yield movement for UK real estate assets, the yields have not increased as significantly for these types of self storage assets, due to a number of key factors:
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4.5% average annual net storage rent increases over the last six years |
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the assets have historically been conservatively valued |
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this is an increasingly institutional asset class |
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strong demand for institutional grade freehold self storage assets from both financial and trade buyers |
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The increase in value of the investment portfolio results in an adjusted fully diluted net asset value of 520.2p, an increase of 19% over the prior year. See note 14 for detailed valuation assumptions and adjustment to purchasers’ cost assumptions.
92% by value of the Group’s 47 wholly owned open stores are freehold (including one long leasehold). The freehold proportion will increase as we open stores in the development pipeline, all of which are freehold. We strongly believe that these assets will materially outperform our short leasehold assets due to the wasting nature of the latter. This is illustrated by the fact that the freeholds within the same store portfolio showed a valuation uplift in the year of 7.8%, compared to an uplift of 1.2% in respect of the seven short leasehold stores. Where opportunities present themselves in this market, we will purchase the freehold of our leasehold stores, as we did at Cheltenham and Chelmsford in the year.
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Stores
At the year end, occupied space represented 1,817,000 sq ft, up 2% from 1,780,000 sq ft at the same time last year. This represents a 62% occupancy rate across all 47 stores open at the period end.
A table summarising the performance of these 47 directly owned stores over the year can be found in the portfolio summary on page 16.
The portfolio of 32 stores that were open for more than two years at the beginning of the period was 79% occupied at the end of the year, with an average occupancy during the year of 82%. In addition these 32 stores achieved EBITDA margins of 65% (2007: 64%) and, after an allocation of central overhead, net operating income margins of 59% (2007: 58%). The 25 freehold stores within this 32 achieved EBITDA margins of 71% in the year.
Same store revenue for these 32 stores increased 5.5% year on year, 4.4% as a result of increases in average storage rents; stable average occupancy and the balance from improved insurance sales. In addition from May 2008, we have put through an annual storage rent increase of approximately 6% across the whole store portfolio.
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Property
We acquired ten freehold sites in the year, four in London and six outside London at Birmingham, Camberley, Edinburgh, Reading, and second sites in Guildford and Sheffield.
We now have 22 stores in the pipeline and one extension site at our existing Richmond store, which when fully developed will represent an additional 1.5 million sq ft and when open will provide the Group with a total of 70 stores and 4.5 million sq ft. The total development programme is £242 million, of which 1.1 million sq ft is wholly owned (£187 million total cost; of which £85 million has been spent to date). 60% of our total stores and sites by area are located within the M25 and 63 are freehold or long leasehold. In the year we have opened six stores – all in London, whilst we closed our store at Sheen for redevelopment.
We have obtained planning consents on nine stores since 1 April 2007. In addition on a further five sites applications have been submitted and three more are close to being submitted.
We have decided to dispose of our sites at Blackheath and Bow South. We were unsuccessful in obtaining planning consent at Blackheath following a lengthy appeal process. The Bow South site was acquired as a relocation for our Bow store, which formed part of the Olympic Zone and was subject to a compulsory purchase order. That order has been lifted and therefore the Bow South site is surplus to requirements. In addition we have been able to create an additional 20,000 sq ft of storage capacity at the existing Bow store.
At 31 March 2008, there was surplus land held in the balance sheet of £29.4 million (2007: £29.7 million), £16.3 million of which we are currently marketing for sale.
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Our People
As we have consistently reported over the last seven years, the Big Yellow team has remained largely stable, both at Head Office and within the stores. Never complacent on this issue however, we are constantly investing in our people, which we believe is reflected in the very high customer satisfaction responses that we receive. 98% of our customers would recommend using Big Yellow to a friend.
I take this opportunity on behalf of the Board to thank David White for his significant contribution to the Group over the past eight years. David has been the senior Non-Executive over his time with the Group and will be retiring at the AGM in July of this year. His long experience and measured approach will be missed by me and my colleagues.
I am pleased to report that we will shortly be welcoming two new Non-Executive Directors to the Board. Tim Clark will be joining in August and Mark Richardson in July as Senior Non-Executive and Chairman of the Audit Committee respectively. Tim Clark has recently retired from a long career at Slaughter and May, the last seven of which was as senior partner. Mark Richardson is a senior audit partner, working in the real estate practice at Deloitte & Touche LLP, from which he will be shortly be retiring.
I am confident that both these appointments will make a significant contribution to the Board and I look forward to working alongside them.
I would like to take the opportunity of thanking all the people who work at Big Yellow for their continued efforts, loyalty and hard work which, at the risk of repetition, really does make the difference between success and failure in our business.
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Outlook
Trading conditions are likely to remain difficult for some time, however we have spent much time planning for a more testing environment. The Group has a strong brand, an unmatchable portfolio of stores owned largely freehold, together with significant available financing, over £350 million of property assets uncharged, and a first class partner in our Pramerica joint venture.
These moments always provide opportunity for those well positioned. Land availability and planning barriers have always acted as a significant barrier but in addition we believe that the current environment will considerably reduce the competitive threat for sites, which we fully intend to exploit. |
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Nicholas Vetch
Chairman
16 May 2008
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