Our approach to store development and acquisitions in the UK and Paris continues to be pragmatic, flexible and focused on the return on capital.
Our property teams in both the UK and Paris continue to seek investment opportunities in new sites to add to the store pipeline. However, investments will only be made if they comply with our disciplined and strict investment criteria. Our preference is to acquire sites that are capable of being fully operational within 18-24 months from completion.
Since 2016, the Group has opened 15 new stores: Chiswick, Wandsworth, Mitcham, Paddington Marble Arch, Carshalton (all in London), Birmingham-Central, Birmingham-Merry Hill, Altrincham, Peterborough, Gateshead and Sheffield in the UK, and Emerainville, Combs-la-Ville, Poissy and Pontoise in Paris, adding 762,000 sq ft. of MLA.
We have also completed the extensions and refurbishments of our Acton, Barking, Bedford, Chingford and Longpont (Paris) stores adding a net 65,000 sq ft of fully invested space to the estate. All of these stores are performing in line with or ahead of their business plans.
New Stores
In In the second half of 2018, we obtained planning for and completed the acquisition of a site in Carshalton in South London. This 40,000 sq ft freehold store opened in the first quarter of 2020.
In August 2019, we acquired a long leasehold 1.6-acre site with an existing building in Gateshead, North East England. The lease has 130 years remaining. Planning permission was obtained to convert the building into a 42,000 sq ft store and the store opened ahead of schedule in March 2020.
In September 2019, we acquired a freehold 1.5-acre site with an existing warehouse in Sheffield. The site is located in an accessible and prominent position on the northern side of the inner ring road (A61) which is close to the city centre in a densely populated catchment area. The Group was close to finalising the conversion of the existing building into a 47,000 sq ft store when the UK Covid-19 lockdown commenced. As a result, construction was paused but subsequently recommenced and the store opened in June 2020, a delay of two months.
In July 2020, the Group completed the acquisition of a freehold 2.17-acre site including an existing warehouse in Birmingham. The site is located on the southern side of the inner A4540 ring road. It is anticipated that the existing warehouse will be converted to a 58,500 sq ft storage facility. Planning permission has now been granted and we anticipate opening the new store in the second quarter of 2021 and intend to relocate our existing Digbeth store (MLA 44,500 sq ft) to the new site.
The Group has also acquired two additional sites in the UK in London at Morden and Bermondsey. Morden is a freehold 0.9-acre site in an established industrial location. Planning permission for a 52,000 sq ft self storage facility has now been granted and we are considering the appropriate time to commence construction on this site. Bermondsey is a 0.5-acre freehold site with income from existing tenants and is adjacent to our existing leasehold store. Our medium term aim, subject to planning permission, is to extend our existing Bermondsey operations with the addition of a new self storage facility to complement our existing store.
In November 2020, the Group acquired a long leasehold (84 years) site in London at Park West Place. The site is 150 metres from our Paddington Marble Arch store and is currently operating as a car park. The existing tenants will remain for 24 months after which the site will be converted into a 13,000 sq ft MLA self storage facility. The store will operate as a satellite to our Paddington Marble Arch store resulting in operating cost efficiencies.
In Paris, where regulatory barriers are likely to continue to restrict meaningful new development inside the city, we will continue our policy of segmenting our demand and encouraging the customers who wish to reduce their storage costs to utilise our second belt stores. We will also manage occupancy and rates upwards in the more central stores and ensure that pricing recognises the value customers place on the convenience of physical proximity. The strong selling organisation and store network established by Une Pièce en Plus in Paris uniquely enables it to implement this commercial policy to complement the strong second belt markets in which we operate.
In April 2018, we agreed a lease on a site at Magenta in central Paris. Planning permission has been granted for a 50,000 sq ft store and construction had commenced prior to the Covid-19 lockdown. During the lockdown construction was temporarily paused but has now recommenced and we anticipate the store opening in early 2021, a delay of around two months.
We believe there will be further opportunities to develop new stores in the outer suburbs of Paris and are actively reviewing the market for new opportunities.
Lease Extensions and Assignments
As part of our ongoing asset management programme, we have now extended the leases on 22 stores or 63% of our leased store portfolio in the UK since 2012 and our average lease length remaining now stands at 12.5 years as compared to 13.1 years at FY2019.
In the period, we signed a new 15-year lease on our Notting Hill store in London expiring in March 2035. A three-month rent-free period was granted as part of the new lease.
Existing Store Extensions and Refurbishments
During the period, three store extensions, at Bedford, Barking and Chingford, have been completed.
Bedford has an existing MLA of 35,300 sq ft and occupancy peaked at 94% in 2018. An additional storage building on land already in our ownership adjacent to the existing store was completed in June 2020 providing additional MLA of 26,000 sq ft.
Barking currently has an MLA of 47,900 sq ft and its occupancy also peaked at 94% in 2018. The extension, which was completed in August 2020, has added another 5,000 sq ft of MLA.
Chingford had an existing MLA of 42,500 sq ft freehold store which was at 85% in November 2020. We have now added an additional 5,800 sq ft of MLA to this store. The existing store remained open throughout construction.
In September 2020 the Group received planning permission to extend its Southend store by 8,600 sq ft. The existing store has an MLA of 49,400 sq ft and was 86% occupied at the end of September 2020. It is anticipated that the extension will be open in the second calendar quarter of 2021 and that there will be minimal impact on day-to-day operations of the store during construction.
We continue to look at opportunities to add additional MLA to existing stores as we seek opportunities to enhance our return on invested capital.
Freehold Acquisition - Basildon
In July 2020 the Group acquired the freehold interest in its Basildon store for £4.95 million. The store had just over six years remaining on its lease and a rent review was due in September 2021. The store has an MLA of 41,600 sq ft and is currently 73% occupied. The annual rent on the store was £210,000.
Acquisitions
Fort Box
On 5 November 2019, Safestore acquired 100% of the shares of companies owning Fort Box Self Storage, which comprises two stores in London, for £14.3 million including costs.
The stores, in the affluent areas of St John’s Wood and Chelsea, have a total of 35,000 sq ft of MLA and were 79% and 69% occupied respectively at acquisition.
St John’s Wood is a long leasehold store (999 years remaining) and Chelsea is a leasehold store with 20 years remaining on the lease.
The acquisition was immediately earnings accretive with the first-year initial yield anticipated at 4.4% rising to c.9% at stabilised occupancy levels.
The Group has rebranded the stores and, since acquiring the business, the stores have been trading in line with expectations.
OhMyBox!
On 30 December 2019 the Group completed the acquisition of OMB Self Storage SL (“OMB”), trading as OhMyBox!, for total consideration of €17.25 million on a debt-free and cash-free basis, funded from the Group’s existing debt facilities.
OMB operated four very well located leasehold properties in the centre of Barcelona with an average unexpired lease term of 16 years and one option to purchase the freehold interest. The company was 30% owned by the current management, which remains with the business, and 70% by a Spanish family office. The portfolio consists of four locations (Valencia, Calabria, Glories and Marina) with an MLA totalling 104,000 sq ft. The occupancy of the business, at the end of April 2020, was 89%.
The aforementioned option was exercised in September 2020. In addition, a further 3,000 sq ft of MLA and a number of car parking spaces were acquired over and above the parameters of the original option. The total investment was €5.8 million.
Barcelona and Spain are attractive markets for self storage. Spain has a lower penetration of self storage operators than the majority of European countries and less than half of the penetration of the UK, and Barcelona is one of the most densely populated cities in Europe. Only 14% of facilities in the Spanish market are operated by large operators, which presents opportunities for consolidation and growth.
At acquisition, pro forma first-year EBITDA after rent was anticipated to be €0.9 million on turnover of €2.5 million. The business is trading in line with these expectations. At the consideration price, the OMB portfolio has an implied first year net operating income yield of c.5.2% and was immediately accretive to earnings.
Joint Venture1 with Carlyle and Investment in Lokabox
In June 2020, the Group’s joint venture with Carlyle, established in August 2019, acquired the six-store portfolio of Lokabox. Safestore’s equity investment in the joint venture, relating to Lokabox, was c.€2.8 million funded from the Group’s existing resources. Safestore also earns a fee for providing management services to the joint venture. The Group expects to earn an initial return on investment of 12% before transaction related costs for the first full year reflecting its share of expected joint venture profits and fees for management services.
Lokabox has six prime locations in Brussels (2), Liege (2), Charleroi and Nivelles. All six stores are freehold, with the two Brussels stores having opened in the last nine months. The business had 20,600 sq metres (222,000 sq ft) of MLA and an occupancy of 63%. This acquisition complements the six stores in Amsterdam and Haarlem in the Netherlands acquired in August 2019.
The Belgian self storage market is the seventh largest in Europe with 90 stores and 2.2 million sq ft of MLA. This represents 0.19 sq ft per head of population, which compares to 0.73 sq ft per head in the UK, 0.20 sq ft per head in France and 9.44 sq ft per head in the USA.
The Group’s investment in the joint venture was immediately accretive to Group earnings per share from completion.
Whilst our investments in the Netherlands, Belgium and Spain represent interesting long-term growth opportunities, the investment in the three businesses currently represents less than 2% of Group assets. capacity.
Joint Venture1 with Carlyle - Investment in Opslag XL
On In June 2020, the Group’s joint venture with Carlyle, established in August 2019, acquired the six-store portfolio of Lokabox. Safestore’s equity investment in the joint venture, relating to Lokabox, was c.€2.8 million funded from the Group’s existing resources. Safestore also earns a fee for providing management services to the joint venture. The Group expects to earn an initial return on investment of 12% before transaction related costs for the first full year reflecting its share of expected joint venture profits and fees for management services.
Lokabox has six prime locations in Brussels (2), Liege (2), Charleroi and Nivelles. All six stores are freehold, with the two Brussels stores having opened in the last nine months. The business had 20,600 sq metres (222,000 sq ft) of MLA and an occupancy of 63%. This acquisition complements the six stores in Amsterdam and Haarlem in the Netherlands acquired in August 2019.
The Belgian self storage market is the seventh largest in Europe with 90 stores and 2.2 million sq ft of MLA. This represents 0.19 sq ft per head of population, which compares to 0.73 sq ft per head in the UK, 0.20 sq ft per head in France and 9.44 sq ft per head in the USA.
The Group’s investment in the joint venture was immediately accretive to Group earnings per share from completion.
Whilst our investments in the Netherlands, Belgium and Spain represent interesting long-term growth opportunities, the investment in the three businesses currently represents less than 2% of Group assets.
1 – The joint venture with Carlyle, which represents a 20% investment, has been accounted for as an associate using the equity method of accounting, as described in the “Investment in associates” note to the financial statements.