Review of the year
Chief Executive's review
Chief Executive Officer
"In a period where self-storage demand has been increasing, supply growth has been limited and some competitors have been financially constrained, we have continued to invest for the future."
- This year marked our fifth successive year of growth in revenues, EBITDA and the total value of our property portfolio and continues our track record of maintaining or growing dividend payments each year.
- We focused on maximising revenue per available foot ("RevPAF") by striking the right balance between occupancy and rate growth. Occupancy grew by 268,000 sq ft or 9.1% to a record 3.21 million sq ft.
- Our strategy is to develop either freehold or long leasehold stores wherever possible as this creates greatest long-term shareholder value.
- Self-storage demand has been increasing during the year and enquiries grew by 16% compared to the prior year.
- We are now in the second year of our management contract at Spacemaker and successfully grew occupancy, rate, revenues and profitability on behalf of the owners during the year.
We are pleased to announce another year of growth for the Group, with considerable progress at Safestore and Une Pièce en Plus.
Our market leadership position enabled us to deliver further growth in revenue, profitability and the total value of our property portfolio notwithstanding the challenging wider economic environment.
In a period where self-storage demand has been increasing, supply growth has been limited and some competitors have been financially constrained, we have continued to invest for the future. We have made targeted investments to enhance our sales and marketing infrastructure and grown our store network in the UK and France.
In view of our growth, our confidence in the future and commitment to delivering sustainable returns to shareholders, we have increased the final dividend by 9.2% to 3.55 pence per share.
The table below summarises the impact of our operating performance on Group financial performance.
Safestore delivering sustained growth
Safestore continues to be focused on delivering strong operational results, a high quality earnings stream and sustainable returns to shareholders. This year marked our fifth successive year of growth in revenues, EBITDA and the total value of our property portfolio and continues our track record of maintaining or growing dividend payments each year.
Operating and financial performance
EPRA profit after tax (adjusted)2
Profit after tax ("earnings")
EPRA earnings per share (adjusted)2 (pence)
Basic EPS2 (pence)
EPRA net asset value ("NAV") per share (adjusted)3 (pence)
NAV per share3 (pence)
Dividend – final pence per share
Dividend – total pence per share
1 EBITDA before exceptional items, contingent rent, fair value movement of derivatives and (loss)/gain in investment
2 See note 9.
3 See note 12.
* Like-for-like stores are those that have been open for two full financial years or more.
Highlights of FY2011
Total portfolio valuation
Dividend (pence per share)
These results reflect the strength of our market position and the great commitment of all our store and support centre teams in the UK and France. I would like to join the Chairman in thanking the team for all they have done to drive Safestore forward this year.
Highlights of FY2011 – Safestore driving performance through market leadership
Safestore continued to build on its strengths during the year, using our scale to drive continued improvements in operational performance and maintaining our selective investment programme to drive future growth.
We have a straightforward business model. We identify attractive sites for personal and business storage, use our scale to market those sites to customers and create enquiries, use our customer insight and operating skill to convert enquiries into occupancy, and manage pricing and business mix to drive the self-storage rate and ancillary revenues.
As at 31 October 2011 our portfolio comprised 119 stores, 96 in the UK and 23 in Paris, giving us a market leadership position in both markets. During the year we opened two new stores in Paris and two modern replacement stores in the UK at Bolton and Southend. Since the year end we have also opened a further two stores, one in London and one just outside central Paris, bringing the total number of stores in the portfolio to 121.
We focused on maximising revenue per available foot ("RevPAF") by striking the right balance between occupancy and rate growth. Occupancy grew by 268,000 sq ft or 9.1% to a record 3.21 million sq ft, or 64.1% of our maximum lettable area ("MLA"). Average self-storage rental rate was up 2.2% to £26.11 (FY2010: £25.55). As a result, we successfully grew total RevPAF by 3.0% to £18.99 for our overall portfolio (FY2010: £18.44).
Geographically Paris remained our strongest market during the year, reflecting the solid demand for self-storage within central Paris, the limited supply growth and our relative market strength. London and the South East, where we are a market leader with scale, was the next strongest performing region with solid demand albeit in a more competitive environment than that experienced in Paris. In the UK beyond London and the South East, demand was solid during the year and our strategic focus on RevPAF enhanced performance.
In an economic environment with inflationary pressures, particularly on utilities and business rates, we maintained our focus on cost control. Underlying cost of sales (excluding the operating costs of new stores opened during the year) grew by 4.5%. Administrative costs were impacted by a number of one off movements, the full-year impact of changes in headcount and by changes in the level of incentive rewards and national insurance. As a result, underlying administrative expenses grew by £1.3 million to £14.1 million representing a 10.7% increase overall.
Underlying EBITDA (£m)
Final dividend per share
During the second half of the year we made strategic investments of approximately £0.6 million which are included in the underlying level of cost increases. At a time when many smaller competitors have limited resources to grow we believe selective strategic investment will strengthen our position as market leader. These targeted investments support our drive to strengthen sales and yield management, including enhancement of our team, the launch of a new website platform and the expansion of our London and Paris call centres. Further details of the overall movement in our cost base are detailed in the Finance review.
As a result of our strong operational performance, discipline on costs and the targeted strategic investments, underlying EBITDA was up 2.7% to £50.5 million (FY2010: £49.2 million). Underlying profit after tax, measured using the EPRA adjusted measure increased by 4.8%, to £16.1 million (FY2010: £15.3 million).
Statutory reported profit after tax was £13.0 million (2010: £26.3 million). This movement arose predominantly as a result of the requirement to record a non-cash reduction in property valuation of £18.4 million in the "investment (loss)/gain on investment properties" line of the income statement. This compares to an investment gain of £18.5 million in FY2010. The total property portfolio valuation increased by 4.0% to £714.4 million. However, an adjustment to values in the like-for-like portfolio was required, including an exceptional impairment charge of £2.2 million relating to the La Défense property in France.
Strategy – More SpaceSM through market leadership and scale
At Safestore, our aim is to deliver More SpaceSM for our customers to store the things that matter most, to generate growth for our shareholders and our team to develop their careers.
Strategic opportunity to grow the self-storage market
We believe there are significant strategic opportunities to grow the self-storage industry itself and strengthen our performance.
We estimate, based on data from the UK Office for National Statistics ("ONS") and proprietary research, that more than 8 million individuals and businesses in the UK could potentially benefit from self-storage, either because changes in their lives create a need for more space (for example, major events like marriage, the birth of a child, divorce and bereavement), or in connection with a home move (either between rented properties or the owner-occupied sector) or because there are opportunities to expand their business or optimise property and logistics costs.
In contrast, the self-storage market in the UK presently consists of around just 400,000 customers and penetration of the product is at a fraction of the level already reached in the United States, even in the more developed London and Paris markets.
We believe that a greater emphasis on customer marketing, segment-specific product offers and a greater focus on yield management will enhance our ability to take advantage of this market opportunity.
"Our strategy is straightforward. We develop the self-storage product, create specific offers for specific customer segments and use our scale to maximise the yield on our property portfolio."
Strategy based on capitalising on our market leadership and scale
Our strategy is straightforward. We develop the self-storage product, create specific offers for specific customer segments and use our scale to maximise the yield on our property portfolio.
The Company has four strategic priorities which underpin our strategy. They drive the objectives of every team member, the measures we monitor internally in our balanced scorecard and form part of the criteria against which we assess our investment decisions. The four Safestore strategic priorities are:
- strengthen the brand;
- build a powerful team;
- drive operational excellence; and
- create value.
Over the course of the years ahead we expect progress on our strategic priorities to help us drive occupancy in the mature store portfolio beyond 75% at increasing levels of RevPAF, thereby driving the benefits of operational gearing and enhanced profitability.
Progress against each priority during the year is set out in further detail in the Operational review.
Our people – enhancing customer service and improving productivity
At Safestore, our people make the difference. In line with our mission to offer More SpaceSM for our customers and More SpaceSM for our team members to develop, we have maintained a strong focus on people development during the year.
Self-storage is a relatively new product in the UK and France and many customers look for guidance and support when working out how best to store their property, where to store it and how to safeguard it. Our teams provide that support and we look to recruit, develop and reward a high quality team.
During the year we made significant investments in strengthening our customer service proposition, by rolling out our "Space Specialist" training programme, which focused our store teams on identifying the needs of specific customers and finding the right solution for those needs. The "Space Specialist" programme, which includes a residential training course and follow-up in store, has now been successively deployed to all our UK stores and key elements are now being leveraged by the business in France.
Beyond Space Specialist, our in-house, award-winning personal development programme Careerstore continues and Safestore has now been "Centre Recognised" by the Open College Network ("OCN"), which means we are authorised to run our own OCN accredited courses. This gives our staff the opportunity to gain a nationally recognised qualification by pursuing our internal programme, Careerstore. We have seen a continued commitment to personal development over the past twelve months with our online training modules being completed over 800 times during the year.
We are proud of our continued status as "Investors in People", a designation which we have held since 2003.
On behalf of the Board I would like to thank all our people throughout the UK and France for their hard work and continued support throughout the year.
Portfolio valuation (£m)
Property and asset management
Store network continues to expand
As at 31 October 2011, Safestore had a portfolio of 119 stores of which 96 are branded as Safestore in the UK with a further branded 23 as Une Pièce en Plus in France. In addition we manage a further twelve stores, branded as Spacemaker in the UK, for a third party for which we receive a management fee.
The portfolio consists of 73 freehold/long leasehold stores, 46 short leasehold and the twelve managed stores.
Our strategy is to develop either freehold or long leasehold stores wherever possible as this creates greatest long-term shareholder value. However, we selectively develop using short-term leases where this permits us to access attractive markets where freeholds are not available or where greater returns to shareholders can be achieved through leasing.
During the year we opened four new freehold stores: two new stores at Torcy and Trappes in Paris and two modern replacement stores at Bolton and Southend in the UK.
The two new Parisian stores extend our network along main arterial routes around the city of Paris. These openings extend the business into new areas, which offer the economic and demographic criteria needed for successful self-storage operations. They also enable us to further increase our market share into the wider Ile de France region around Paris, while strengthening our regional scale and synergies.
The new Southend and Bolton stores are both freehold, purpose built facilities. Both offer modern facilities replacing older stores, enhancing the brand and improving operational efficiency. We successfully transferred the majority of existing customers to the new stores and the larger footprint added approximately 51,000 sq ft of net additional MLA.
In June we also acquired the freehold interest in our store at London Pentonville Road. This acquisition has secured the long-term future of this central London location, enhances the value of our property portfolio and demonstrates our ability to enter into a location with a lease and, where returns are attractive, convert the store to a freehold and thereby enhance shareholder value.
As already announced, one store at La Défense in Paris was closed during the year, resulting in the loss of 24,000 sq ft of occupancy and approximately €0.5 million of operating profit. This store was damaged by fire and is insured for both the loss of the building and loss of profits. A review is currently underway on the optimal future for this site.
"We have reviewed our portfolio and we believe that self‑storage remains the highest and best use of the overwhelming majority of our sites."
|Tenure||Planning||MLA in sq ft||Estimated opening|
Total sq ft in pipeline
* Relocation store, MLA shown is the net additional MLA
Since the year end we have opened further stores in London at New Southgate and at Gonesse in Paris. London New Southgate develops our Safestore brand proposition and introduces some new features for our business customers. These include:
- a business lounge providing informal meeting and refreshment facilities;
- an office suite of six offices available on flexible letting terms;
- a separate unloading area for business customers;
- secure charging points for mobile phones and laptops; and
- archiving units with racking for those businesses that need to store documents.
Paris Gonesse similarly enhances the Une Pièce en Plus brand with a modern facility located within a retail park development.
Attractive development pipeline supports future growth
We have five stores in our pipeline (see table above), principally in London and Paris. Even in a challenging wider economic environment, the right self-storage locations continue to be attractive investments. As an example, our London Chingford store, which opened in 2008 at the onset of the recent economic downturn, is now delivering an annualised EBITDA of more than £600,000 and an EBITDA operating return of more than 10% on its original development cost.
Within the current pipeline, four sites are freehold with the remaining store being long leasehold. We intend to develop the additional sites in the pipeline in line with market conditions and the opportunities to maximise value.
In the UK, the Staines store is presently under construction. This store is prominently located on the A30 and is expected to open during the first half of FY2012. We have also had success on the planning front in the last year having obtained planning permission on two London sites at Wandsworth and Chiswick and for a flagship store in Birmingham.
In France, the Velizy site, which is adjacent to the main regional shopping centre known locally as "Velizy 2", is expected to open during the second half of FY2012.
Asset management driving returns
We actively manage our portfolio to maximise income, minimise costs and enhance asset value.
We have reviewed our portfolio and we believe that self-storage remains the highest and best use of the overwhelming majority of our sites. In a small number of locations there are opportunities to explore alternative use schemes and these are now being evaluated. There are also a number of city centre locations outside London where consolidation of our existing stores may be value creating and we will continue to explore the optimal solution in these locations. One such example is our satellite store at Stevenage which we will close in January 2012 with the majority of existing customers moving to our main store.
Operational review – Growth and targeted investment
Self-storage demand and enquiries continue to grow
Self-storage demand has been increasing during the year and enquiries grew by 16% compared to the prior year. Enquiries are categorised as either "personal" or "business" with the strongest growth coming from personal customers during the year.
The principal trend in enquiries is the continuing shift to customers using a multi-channel route to acquire the self-storage product. The majority of customers now start their enquiry process online and 63% of all enquiries were sourced from the internet during the year, compared to 47% in the prior year. However, many customers subsequently choose to engage with national account sales team members, call centre colleagues or our store teams to make their final decision and ultimately contract their business. Our focus has therefore been in maximising our performance at each stage of the multi-channel journey.
Safestore continues to lead in the online space and development of our Web offer is an ongoing process. We actively manage the display of our websites in the main internet search engines, place advertising online and develop our Web offer. Customers can now find pricing for our stores on our website and begin the reservation process.
The design of the UK website was updated in June, improving the user journey and fuelling enquiry growth. This led to further improvements in the volume and quality of our enquiries. Shortly a new website technical platform and further redesign will be launched. This new website offers simplified navigation, a separate information section for different customer segments, a quick price guide, simplified quote process, the ability to quote three different store prices, order fulfilment and an updated size estimator. This is being initially rolled out in the UK before being deployed in France.
Personal customer enquiries growing
Enquiries for personal customers grew by 17% during the year with personal customers accounting for approximately 91% of enquiries.
Storage needs for this segment are principally driven by two factors: lifestyle events and the housing market. Demand created by lifestyle events, such as people moving in together, having children, becoming divorced or addressing the issues presented by bereavement, are needs related and we believe remain largely unaffected by the economic environment.
Demand created by home moves is created by sales and purchases within the owner-occupied and rental sector as well as refurbishments in both. As an example, in the UK, while the number of owner-occupied housing market transactions fell in the aftermath of the 2008 financial crisis, demand has been relatively resilient since. This principally results from the large size of the rental market and the increasing level of home refurbishments, such as loft conversions. According to the UK Office for National Statistics, approximately 1.4 million rental moves took place in the UK during 2010 compared to 360,000 owner-occupied housing market transactions. Our proprietary UK research, the 2011 "Safestore Moving Trends Survey", also suggested that 73% of homeowners are considering renovating or extending their property as an alternative to a home move.
Business customer enquiries growing
Enquiries for business customers grew by 7% during the year with business customers accounting for approximately 9% of enquiries.
Storage needs for this segment are principally driven by the need to store stock and manage logistics, the former being principally a small and medium-sized business ("SME") need and the latter being more driven by larger businesses.
Demand for business storage is fuelled by rising awareness of the benefits of self-storage and economic conditions. Even with low GDP growth during 2010–2011, demand grew overall during the year, although fluctuating on a month-to-month basis somewhat in line with business confidence.
Occupancy growth significantly strengthened with focus on RevPAF
During the year, we grew occupancy in our store network by 268,000 sq ft to a record 3.21 million sq ft or approximately 64.1% of the total MLA (FY2010: closing occupancy of 2.94 million sq ft or 60.8% of MLA).
This significant occupancy growth, which including a fourth quarter where occupancy grew at all-time record levels, was driven by an increased focus on maximising RevPAF. RevPAF is a similar measure to "sales per square foot" or "revenue per available room" measures used in retail and hospitality respectively. This focus creates actions in the business to strike the right balance between occupancy and rate and optimise the capture of demand from different segments.
During the second half of the year in the UK we experimented with price tests in a range of different locations and they indicated promising results with overall RevPAF increases in markets we attractively priced by segment. Against a background of a tough economic environment we therefore focused on offering pricing and promotions to deliver great value for our customers. During the course of the year we conducted a detailed store-by-store review of pricing and promotions in the UK and introduced a number of new pricing strategies. This enables us to offer excellent value and services for our customers, appropriate for each market place we operate in. This resulted in a strong second-half performance in occupancy growth which has continued into the new financial year.
Our ability to optimise demand has been enhanced with the continued expansion of our Customer Support Centre ("CSC"). In the UK, we have invested in additional team members and information technology infrastructure as well as extending the trading hours until 9.00pm. This ensures we have Space Specialists available to talk to customers when they want to speak to us. On the back of this expansion and our 17% year on year UK enquiry growth, our CSC was equipped to handle an additional 7,500 enquiries compared with the prior year.
In the second half of FY2011 we experimented with a further test which saw our UK call centre handle the majority of enquiries from a range of high performing, moderate and low-performing stores across our network. The results were encouraging with call centre conversion rates running significantly higher than the equivalent had been in the stores and we believe there are further opportunities to extend this trial.
During the second half of the year we opened a centralised call centre in our Paris head office, designed to leverage the best practices from the UK and expected to drive further performance improvements.
Personal customers fill approximately half our occupied space
1.61 million sq ft or approximately 50% of total occupied space is filled by personal customers. The average length of stay for these customers is now 87 weeks, slightly down from 89 weeks at 31 October 2010.
During the year, Safestore and Une Pièce en Plus continued to develop their service and value for money proposition to customers. We offer a range of storage pricing options depending on size of space, length of stay and location and also provide value-added service such as packing materials, free pickup of goods and free van hire.
Business customers fill approximately half our occupied space
1.60 million sq ft or approximately 50% of total occupied space is filled by business customers. The average length of stay for these customers is now 121 weeks, up from 119 as at 31 October 2010.
During the year we successfully continued our focus on serving small and medium enterprises ("SMEs") who account for the majority of business occupied space. In the UK, Safestore is an attractive solution for many small businesses. In addition to storage and office space, our store teams offer a range of value-added services that free up small businesses to focus on their core activities, including signing for deliveries, help with unloading, serviced fork-lift trucks and arranging for dispatch of stock. This has been particularly helpful in driving growth from online retailers, where businesses that would previously have had a traditional high street presence now choose a self-service solution which gives them a single bill for space, rates and utilities, greater flexibility over lease term and value-added services.
We also continued to grow our national accounts base in the UK. Safestore, as the UK market leader, has a unique scale position with a network of stores across the length and breadth of the UK, from Portsmouth to Edinburgh and from Cardiff to Ipswich. Unlike most other self-storage providers, who tend to be concentrated in one geographic region, we are ideally positioned to serve major UK brands and companies who need storage for archiving, stock or as a solution to complex logistics. During the year we grew total space occupied by national accounts by 16% to approximately 135,000 sq ft as at 31 October 2011, with 179 national accounts now storing right across our UK portfolio. The opportunity for national accounts is demonstrated by the fact that 65% of the space occupied by our national accounts is outside London and the South East.
Rental rate growth balanced with occupancy to drive RevPAF growth
Our successful strategy of maximising the yield from our portfolio by optimising the balance between occupancy and rate resulted in a moderate improvement in the average storage rental rate, which was £26.11, up 2.2% on £25.55 for FY2010. Our key measure of RevPAF increased by 3.0% across the network of stores despite some experimental discounting in the second half of FY2011.
Ancillary revenues, principally generated by sales of insurance and merchandise, grew by 8.3% to £13.2 million (FY2010: £12.2 million).
Cost of sales being managed in inflationary environment
Self-storage is a relatively fixed cost business and the largest cost items are store teams, utilities, rents and facilities charges. The main discretionary cost items are marketing and corporate levels of support.
During the year relatively high levels of cost inflation did create pressures for the business in the UK while in France inflation was somewhat lower. Underlying cost of sales (excluding the costs associated with stores fully opened during the year) were managed carefully, to grow broadly in line with UK inflation at 4.5% with the total cost of sales increasing by 7.8% overall. More details of the movement in costs of sales are included within the Financial review. We increased our underlying administration costs (excluding the impact of exceptional items, derivative movements, and one off credits last year) by approximately £1.3 million. More detail is set out in the Financial review.
Review of Spacemaker operations – Safestore management creating value
Safestore manages twelve Spacemaker stores in the UK on behalf of a third party owner, giving us stable management fee income, additional UK operational scale and further store presence to offer to our national accounts customers.
We are now in the second year of our management contract at Spacemaker and successfully grew occupancy, rate, revenues and profitability on behalf of the owners during the year.
We have a strong and dedicated team of people in the Spacemaker stores who have handled the change process superbly well and delivered a great performance in what have been challenging economic conditions. We thank them for their commitment and hard work.
Summary – another year of growth
Safestore has delivered another strong set of results, our fifth successive year of growth in revenues, profits and property valuation.
Thanks to our customer focus, scale and the efforts of our dedicated teams we continue to build on our market leadership position and remain confident in the future.
Chief Executive Officer
26 January 2012