Strategy

The Group’s strategy remains the same as stated in our last annual report. We believe that the Group has a well located asset base, management expertise, infrastructure, scale and balance sheet strength to exploit the current healthy industry dynamics. As we look forward, we consider that the Group has the potential to significantly further increase its earnings per share by:

  • Optimising the trading performance of the existing portfolio;
  • Maintaining a strong and flexible capital structure; and
  • Taking advantage of selective portfolio management and expansion opportunities.

Optimisation of Existing Portfolio

With the opening of six new stores in the last 16 months, and the acquisitions of Space Maker in July 2016 and Alligator in November 2017, we have strengthened our market leading portfolio. We have a high quality, fully invested estate in both the UK and Paris. Of our 146 stores (including Alligator), 93 are in London and the South East of England or in Paris with 53 in the other major UK cities. We now operate 44 stores within the M25 which represents a higher number of stores than any other competitor.
 
With the aforementioned new store openings our MLA has increased to 5.71m sq ft at 31 October 2017. At the current occupancy level of 72.6% we have 1.6m sq ft of unoccupied space (excluding Alligator), of which 1.3m sq ft is in our UK stores and 0.3m sq ft in Paris. With the addition of the Alligator portfolio from 1 November 2017, a further 0.57m sq ft of MLA is added, of which 0.40m sq ft was occupied at 31 October 2017 resulting in a total MLA of 6.28m sq ft with an occupancy of 72.3%. In total this unlet space is the equivalent of circa 40 empty stores located across the estate. This available space is fully invested and the related operating costs are essentially fixed and already included in the Group cost base. Our continued focus will be on ensuring that we drive occupancy to utilise this capacity at carefully managed rates.
 
There are three elements that are critical to the optimisation of our existing portfolio.

  • Enquiry generation through an effective and efficient marketing operation;
  • Strong conversion of enquiries into new lets; and
  • Disciplined central revenue management and cost control.

In-house digital marketing expertise
 
Awareness of self-storage is increasing each year but remains relatively low with 58% of the UK population either knowing very little or nothing about self-storage (source 2017 SSA Annual Report). In the UK around 75% of our new customers are using self-storage for the first time. It is largely a brand blind purchase with only 12% of respondents in the 2017 Self Storage Association Annual Survey stating that a brand would influence their purchase decision. Typically customers requiring storage start their journey by conducting online research using generic keywords in their locality (e.g. “storage in Borehamwood”, “self-storage near me”).
 
We believe there is a clear benefit of scale in the generation of customer enquiries. The Group has continued to invest in its consumer website as well as in-house expertise which has resulted in the development of a leading digital marketing platform that has generated over 40% enquiry growth over the last four years.
 
In December 2016, the Group launched a new trading website for the Paris business, building on the success of the new UK site which is performing well.
 
Online enquiries now represent over 82% of our enquiries in the UK (FY2016: 81%) and 72% in France (FY2016: 63%). 57% of our online enquiries in the UK originate from mobile devices, compared to 54% last year highlighting the need for continual investment in our responsive web platform.
 
Our in-house expertise and skills and significant annual budget enable us to achieve the above results. We will continue to invest in activities that promote a strong search engine presence to grow enquiry volume whilst managing efficiency in terms of the overall cost per enquiry.
 
Feefo, the independent review system, which allows our customers to leave their feedback on the quality of our customer service, has been integrated into our website since 2013. Over this period, our customer satisfaction score has averaged above 96% and we have achieved a Feefo Gold Service Merchant rating every year since its introduction.
 
Motivated and effective store teams benefiting from improved training and coaching
 
Having an enthusiastic, well trained and customer centric sales team remains a key differentiator and a strength of our business. Understanding the needs of our customer and using this knowledge to develop in store trusted advisers is a fundamental part of driving revenue growth and market share.
 
The experience gained from the integration of the Space Maker brand, as well as enhancements to our Regional leadership structure, supported the recent acquisition of Alligator self-storage, allowing us to quickly integrate the stores into our geographical regional structure. Our dedicated on-line learning platform allows our new colleagues to take part in our industry leading training and development programmes.
 
November 2016 saw the launch of our internal Store Manager Development programme designed to provide the business with its future store managers. The first group of trainees graduated in November 2017 and the second intake of sales consultants have now commenced the 2018 programme.
 
As with our new Alligator colleagues, new recruits to the business benefit from enhanced induction and training tools which have been developed in-house and enable us to quickly identify high potential individuals. Our Store Manager Development programme demonstrates the effectiveness of our learning tools. In a spirit of constant improvement our content and delivery process is dynamically enhanced through our 360 degree feedback process utilising the learnings from not only the candidates but also our training store managers. This allows our people to be trained with the knowledge and skills to sell effectively in today’s market place.
 
All new recruits receive individual performance targets within four weeks of joining the business and are placed on the ‘pay-for-skills’ programme which allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. The key target of our programme, to ensure that close to 100% of our store managers are promoted internally, still remains and we are pleased with our progress to date.
 
The training and development of our store and customer facing colleagues is an essential part of our daily routines. In 2017 we delivered a further 22,500 hours of training through face-to-face sessions and via our internally developed online learning tool. This Learning Management System also provides the opportunity for team members to receive rigorously enforced Health and Safety, fire and compliance training, ensuring that our staff are up-to-date in relation to their technical knowledge and continue to operate a safe environment for both our colleagues and customers. These modules are continually updated to target the areas of most opportunity and maintain colleague engagement.
 
To further support our Cyber security efforts we have introduced further enhanced online training modules. All colleagues are required to complete this training.
 
Our performance dashboard allows our store and field teams to focus on the key operating metrics of the business providing an appropriate level of management information to enable swift decision making. Reporting performance down to individual level enhances our competitive approach to team and individual performance. We continue to reward our people for their performances with bonuses of up to 50% of basic salary based on their achievements against individual new lets, occupancy, ancillary sales and pricing targets. In addition, a Values and Behaviours framework is overlaid on individuals’ financial performance in order to assess team members’ performance and development needs on a quarterly basis.
 
Customers continue to be at the heart of everything we do. Whether it be in store, online or in their communities. Our Feefo customer service score of 96% reflects our ongoing commitment to their satisfaction.
 
Central Revenue Management and Cost Control
 
We continue to pursue a balanced approach to revenue management. We aim to optimise revenue by improving the utilisation of the available space in our portfolio at carefully managed rates. Our central pricing team is responsible for the management of our dynamic pricing policy, the implementation of promotional offers and the identification of additional ancillary revenue opportunities. Whilst price lists are managed centrally and are adjusted on a real time basis when needed, the store sales teams have the ability to offer a Lowest Price Guarantee in the event that a local competitor is offering a lower price.
 
During the last year, we have continued to enhance our Business Intelligence software which we first implemented in 2015. This has improved the team’s ability to identify pricing opportunities, monitor competitive pricing in local markets and to establish optimal unit mix in individual stores.
 
Our strategy to optimise revenue is implemented by continually reviewing the appropriate mix of occupancy and rate growth targets, store by store.
 
Rate growth is predominantly influenced by:

  • The store location and catchment area;
  • The volume of enquiries generated online;
  • The store team skills at converting these enquiries into new lets at the expected price; and
  • The pricing policy and the confidence provided by analytical capabilities that smaller players may lack.

 We believe that Safestore has a very strong proposition in each of these areas.
 
Costs are managed centrally with a lean structure maintained at the Head Office.
 
We are continually challenging our cost base and in 2017 we completed a full retendering process of maintenance suppliers to further improve the efficiency, quality and cost of both our planned and reactive maintenance. Our roll-out of LED lighting has moved at pace in 2017 and we plan to complete the entire estate by March 2018 reducing our CO2 emissions by the equivalent of removing 800 cars from the road per annum.

Strong and Flexible Capital Structure

Since 2014 we have refinanced the business on three occasions and believe we now have a capital structure that is appropriate for our business and which provides us with the flexibility to take advantage of carefully evaluated development and acquisition opportunities.
 
On 31 May 2017 we completed the refinancing of the Group’s US Private Placement Notes (“USPP”) and an amendment and extension of its existing bank facilities to extend the average maturity and lower the cost of the Group’s debt financing.
 
The key terms of the new and amended arrangements are as follows:
 
US Private Placement Notes

  •  The previous $65.6m 5.83%14 2019 USPP and $47.3m 6.74%14 2024 USPP were repaid in full;
  • New Euro and Sterling denominated USPP notes were issued with the following tenor and fixed coupons:
    • €50.9m 7 year notes at a coupon of 1.59%;
    • €74.1m 10 year notes at a coupon of 2.00%; and
    • £50.5m 12 year notes at a coupon of 2.92%.
 
Amendment and Extension of Bank Facilities
  • The previous UK and Euro revolving credit facilities were extended by two years from June 2020 to June 2022, with an option (on an uncommitted basis) to extend for a further year; the previous £126m term loan was cancelled.
  • As at 31 May 2017, the amended facilities comprised:
    • a £190m revolving credit facility; and
    • a €70m revolving facility.
  • The margin on the amended facilities was reduced by 25 bps from 150 bps to 125 bps.
  • Similarly, the non-utilisation fee on the undrawn facilities reduced from 0.6% to 0.5%.
  • The Group also had the option (on an uncommitted basis) to increase the quantum of the Sterling revolving credit facility by £60m. This option was exercised in October 2017 to increase the UK revolving facility to £250m, in anticipation of the acquisition of the Alligator business, which completed following the year end on 1 November 2017.

 
As part of the refinancing, the Group made a ‘make-whole’ payment to existing USPP noteholders of £12.4m and broke the Sterling/Dollar cross-currency swap relating to the existing USPP notes, leading to the Group receiving £13.9m, being the mark to market value of the swap which was in the Group’s favour and which was carried at that value at the date of breakage. Exceptional finance charges reported by the Group in respect of the refinancing for the year are £16.3m, comprising the £12.4m ‘make-whole’ payment, with the balance relating to fees and the write off of previous unamortised issue costs. The refinancing was broadly cash flow neutral.
 
The USPP was issued to insurance company affiliates of AIG, Inc. and the bank facilities are provided by a syndicate of RBS, HSBC, Lloyds, Santander and BRED.
 
Subsequent to amendment and extension of the bank facilities, the Group also restructured its interest rate hedge arrangements. Existing swaps, which mirrored the previous term of the bank facilities to June 2020, at weighted average fixed rates of 1.34% (over £100m) and 0.309% (over €30m), were broken, resulting in a cash outflow of £2.6m. New interest rate hedge agreements were put in place to June 2022, swapping LIBOR on £100m at an effective rate of 0.8145% and EURIBOR on €30m at an effective rate of 0.1635%.
 
At 31 October 2017, based on the current level of borrowings and interest swap rates, the Group’s weighted average cost of debt is 2.14%, a reduction of 144 bps since the prior year end (FY2016: 3.58%). The weighted average maturity of the Group’s debt has increased from 3.9 years at 31 October 2016 to 6.7 years at the current year end. The Group’s LTV ratio under the new financing arrangements was 36% as at 31 October 2017, however this has been distorted due to the drawdown of £56m of loans just prior to the year end in anticipation of the Alligator acquisition, which completed immediately after the year end on 1 November 2017. On a pro forma basis, excluding this £56m drawdown, LTV at 31 October 2017 would have been 31%, or by including the value of the Alligator stores at 31 October 2017, LTV would have been 34%.
 
This LTV and interest cover ratio of 6.7x for the year ended 31 October 2017 provide us with significant headroom compared to our banking covenants. We have £108m of available bank facilities at 31 October 2017.
 
Taking into account the improvements we have made in the performance of the business and the reduction in underlying finance charges of £9.0m per annum over the last four years, the Group is now capable of generating free cash after dividends sufficient to fund the building of 2-3 new stores per annum depending on location and availability of land.
 
The Group evaluates development and acquisition opportunities in a careful and disciplined manner against rigorous investment criteria. Our investment policy requires certain Board approved hurdle rates to be considered achievable prior to progressing an investment opportunity. In addition, the Group aims to maintain LTV of between 30% and 40% for the foreseeable future.

Portfolio Management

As ever, our approach to store development and acquisition in the UK and Paris will continue to be pragmatic, flexible and focused on the return on capital.
 
Our property teams in both the UK and Paris are continually seeking 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.
 
In the last 16 months, the Group opened six new stores in Chiswick and Wandsworth in London, Birmingham, Altrincham and Emerainville and Combs-la-Ville in Paris as well as completing the extension and refurbishment of our Acton and Longpont (Paris) stores. All of these stores are performing in line with or ahead of their business plans.
 
In December 2016, we acquired the freehold of a site in Mitcham, in South West London. We now have planning permission and have started construction on a new circa 54,000 sq ft store on this site. The store is scheduled to open in the first half of the current financial year.
 
In July 2017, we obtained planning permission and exchanged contracts for a new 37,000 sq ft leasehold store located between Paddington and Marble Arch in central London. The lease will be for a period of 20 years, with an option to extend for a further 10 years. We anticipate that the store will open in the second calendar quarter of 2018.
 
In addition, in October 2017, we completed the acquisition of a 1.34 acre industrial site at Merry Hill, around ten miles west of the centre of Birmingham, in a very prominent location close to Merry Hill regional shopping centre. Subject to receiving planning consent we expect to open a purpose-built freehold 55,000 sq ft store in the first quarter of 2019.
 
In Paris, where regulatory barriers are likely to continue to restrict 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 the 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 2017 we completed the acquisition of a freehold site in south-eastern Paris adjacent to the M104 motorway at Combs-la-Ville. The cost to buy and convert the site was €6.3m and the store opened for business in June 2017. The building was constructed in 2001 and is in good condition requiring a relatively simple reconfiguration for self-storage usage. The store has 73,500 sq ft of MLA and circa 10,000 sq ft of serviced offices.
 
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.
 
In November 2017, we exchanged contracts on a site at Poissy, in the West of Paris, an area where we currently have no stores. We expect to complete the acquisition of the site in the first calendar quarter of 2018 and to open a freehold 80,000 sq ft store in Summer 2018. 
 
In June 2017, we accepted an offer of £4.8m on our leasehold Deptford store. The store contributed £0.4m of EBITDA after rent in the year ended October 2016. The transaction was completed on 31 August 2017.
 
In September 2017, we continued our programme of extending the leases on our leasehold store portfolio. The lease on our Oldbury store, which had six years remaining, has been extended to 2042 resulting in a certain term of 25 years. A year’s rent free period was agreed as part of the extension. We have now extended the leases on 18 stores or 51% of our leased store portfolio in the UK over the last five years and our average lease length remaining now stands at 13.3 years as compared to 13.7 years at FY2016.

Subscribe to our email alerts
Find a store & Get a quote
Complete your quote

You’re almost done!

Complete your quote at