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 five new stores in the last few months (including Chiswick which opened on 4 November 2016), and the acquisition of Space Maker, we have strengthened our market leading portfolio. We have a high quality, fully invested estate in both the UK and Paris. Of our 134 stores, 88 are in London and the South East of England or in Paris with 46 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.
In the last year, with the aforementioned new store openings and acquisition our MLA has increased by 13% to 5.59m sq ft at 31 October 2016, excluding Chiswick. At the current occupancy level of 71.0% we have 1.62m sq ft of unoccupied space, of which 1.37m sq ft is in our UK stores and 0.25m sq ft in Paris. This is the equivalent of 40 empty stores located across the estate. The 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. In the UK over 70% of our new customers are using self-storage for the first time. It is essentially a brand-blind product with only 12% of respondents in the 2016 Self Storage Association Annual Survey stating that a brand would influence their purchase decision. Typically customers requiring storage start their journey by conducting detailed online research using generic keywords in their locality.
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, combined with the employment of carefully selected external partners, has resulted in the development of a leading digital marketing platform that has generated 35% enquiry growth over the last four years.
A key objective of our marketing team has been to improve the volume of organic enquiries generated by the business and we will continue to invest in our Search Engine Optimisation (“SEO”) capabilities. In November 2015 we launched a new dynamic customer website designed to further improve our industry leading web offering with enhanced search engine performance, optimisation for mobile devices and to allow for improved bespoke management of our rich website content. The website features a more responsive design and a social hub featuring a new blog and, since its launch, enquiry capture has improved by 14%. The Group’s efforts in this area were acknowledged by its winning the ‘Best Consumer Products/ Services Campaign 2016’ at the Drum Search Awards.
Whilst enquiry growth, as envisaged, was initially slower in the first quarter as we transitioned to the new website, enquiries for the full year were up 7.5% on the prior year. The restructured ‘back-end’ of the website has resulted in increased efficiency which has contributed to a reduction in the cost per enquiry.
The Group has recently launched a new trading website for the Paris business, building on the success of the new UK site.
Online enquiries now represent 81% of our enquiries in the UK and 63% in France. 54% of our online enquiries in the UK originate from mobiles or tablets, compared to 47% last year. It is, therefore, critically important to appear at the top of the rankings of customer searches made through the internet. The ranking in the search pages is a result of a complex function that combines the budget invested directly into the paid search and the capacity to allocate it efficiently on a real time basis, with the budget invested indirectly into the numerous actions that optimise the website, which, together with its size and traffic, determines its relevance and quality score for the search engines. Our in-house expertise and skills and an annual budget of c. £5.3m (£4.3m in the UK and £1m in Paris) (FY2015: c. £5m) enable us to achieve the above results. Approximately 95% of our budget in the UK is spent on digital marketing.
Feefo, the independent merchant review system, which allows 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 95%.
Motivated and effective store teams benefiting from improved training and coaching
In what is still a relatively immature and poorly understood product, customer service and selling skills at the point of sale remain essential in earning the trust of the customer and in driving the appropriate balance of volumes and unit price in order to optimise revenue growth in each store.
Over the last three years we have established an enthusiastic, dynamic and effective store team. Our Director of Operations, Head of HR, 60% of our UK Regional Managers and 50% of our UK Store Managers have joined the business in that period. In addition, in order to make the store team management structure more efficient, we decided to merge the Sales Assistant and Assistant Manager roles into a new Sales Consultant role. We have now completed 85% of this transition and since 2014 we have recruited 170 sales consultants.
The employees of Space Maker, which was acquired during the year, are now fully integrated into the Safestore training and incentive framework and the twelve stores have each been geographically integrated into one of our eleven regions. Two new Divisional Managers, reporting to our Director of Operations, have been internally recruited to further support our experienced team of Regional Managers.
In the last twelve months we have also invested further resources to manage our building maintenance and facilities management program in a more efficient and cost effective manner.
New recruits to the business benefit from enhanced induction and training tools which have been developed in-house, enabling us to quickly identify high potential individuals. All new recruits receive individual performance targets within four weeks of joining the business and certain new recruits are placed on the ‘pay-for-skills’ programme which allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. A key target of our program is to ensure that close to 100% of our store managers are promoted internally and our Management Development programme was launched in the period with 15% of our sales consultants participating.
All store staff continue to benefit from on-going training and development. In 2016, we delivered 27,500 hours of training to sales staff 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 and compliance training, ensuring that our staff are up to date in relation to their technical knowledge in these areas.
Over the last two years we have developed a customised coaching programme for Store Managers. The training is delivered by Regional Managers and is focused on continual improvement in sales performance.

The performance of all team members is monitored closely via a series of daily, weekly and monthly Key Performance Indicators. A new dashboard was introduced in the year which has enabled increased focus at store and regional level on the key operating metrics of the business. Bonuses of up to 50% of basic salary can be earned monthly based on performance against 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.
The benefit of these initiatives is reflected in an improved performance by the stores in converting enquiries into new lets. Conversion of enquiries is now consistently strong and has improved by c.19% since 2013.
As an “Investors in People” organisation since 2003 our aim is to be an employer of choice in our sector and we passionately believe that our continual success is dependent on our highly motivated and well trained colleagues.
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 can be 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. The reduction in the level of discount offered over the last three years is linked to store team variable incentives and is monitored closely by the central pricing team.
During the last year, we have continued to enhance the Business Intelligence software which we 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.  The work of the central pricing team has contributed to like-for-like average rate increases of 4.5% in the UK and 2.3% in Paris over the financial year, while maintaining an average occupancy that was 3.8% up in the UK and 2.5% up in Paris over the previous year on a like-for-like basis.
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. Enhancements to cost control are continually considered and the cost base is challenged on an ongoing basis.

Strong and Flexible Capital Structure

Since 2014 we have refinanced the business on two 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. We will continue to seek opportunities to optimise our capital structure.
Our current LTV
 of 31% and our Interest Cover Ratio of 5.5x provides us with significant headroom compared to our banking covenants. We drew down a net £39m in 2016, primarily to finance the acquisition of Space Maker but, at October 2016, have £104m (including the remaining £15m uncommitted accordion facility) of available bank facilities. The weighted average maturity of our debt is 47 months at October 2016.
Taking into account the improvements we have made in the performance of the business and the reduction in interest costs of over £8m per annum over the last three years, the Group is now capable of generating free cash after dividends sufficient to fund the building of 1-3 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 have recently been strengthened and 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.
Five new stores opened on time and on budget
Between August and November 2016, the Group opened five new stores and completed the extension and refurbishment of our Acton store. An extension of our store in Longpont in Paris is in progress and is due to be completed in January 2017. All the completed projects were opened on time and on budget. Overall, the five new sites provide gross new MLA of 226,000 sq ft (190,000 sq ft net of existing space in Wandsworth and the conditional disposal of our Birmingham Central site).
The Chiswick site, which is located on the A4 in West London, opened on 4 November 2016 and provides a new flagship freehold store of 42,500 sq ft.
In Wandsworth, we had an existing 10,000 sq ft store on Garratt Lane in South West London as well as an additional adjoining 0.25 acre parcel of land. We closed our existing store at the end of 2015 and opened a new purpose-built 33,200 sq ft freehold store in August 2016.
In Birmingham, we opened a new flagship store on the A34 North of the centre of Birmingham in September 2016. The long leasehold store provides 51,000 sq ft of space.
We exchanged contracts in May 2016 on the sale of our Birmingham Central store for £3.6m to Unite Group plc, subject to the purchaser receiving satisfactory planning permission. Birmingham Central was a highly occupied 26,000 sq ft store and we successfully transferred the majority of our Birmingham Central customers to our new Birmingham store on completion of the build.
In June 2016, we completed the freehold purchase of a building located on an easily accessible site opposite Altrincham Retail Park. Altrincham and Sale is an affluent area with a population of 206,000 and significant inward investment. The 39,000 square foot store opened in September 2016 and we are confident that it will be a valuable addition to our portfolio.
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.

We announced in February 2016 the acquisition of a freehold site in eastern Paris adjacent to the A4 motorway at Marnes-la-Vallée in the town of Emerainville. The site contains an existing warehouse which has been converted into a c.60,000 sq ft self-storage facility and c.8,000 sq ft of serviced offices. The new store opened in September 2016.
The Altrincham and Emerainville stores demonstrate that, with a skilled property development team, it is possible to convert existing buildings into storage facilities in an expeditious and cost effective manner. In both cases, the time between exchanging contracts and opening the stores was less than twelve months.
We also completed the refurbishment and extension of our Acton store in the period. The Acton store was 89% occupied prior to the extension and we have added a further 4,900 square feet of space.
Early trading on all completed sites is encouraging and at least in line with our forecasts.
The capital spend on the above completed projects (excluding the historical cost of acquiring the Chiswick, Wandsworth and Birmingham sites) was £25.2m and was funded from the cash flow and existing debt facilities of the Group.
The Paris Longpont extension, which is due to be completed in January 2017, will add 22,600 square feet of new space. The store was 83% occupied prior to the commencement of works.
During the period we also extended the lease on our Burnley store. We have now extended the leases on 18 stores or c.47% of our leased store portfolio (including Space Maker) in the UK since FY2012 and our average lease length remaining now stands at 13.7 years as compared to 13.9 years at FY2015.
In December, we acquired the freehold of a site in Mitcham, in South West London. Subject to planning permission, we plan to build a c.54,000 sq ft store on this site, scheduled to open in 2018.
Acquisition of Space Maker

At the end of July 2016 we announced the completion of the acquisition of Space Maker Stores Ltd (“SMS”) from Allodial Capital Ltd and James Elton. The initial consideration, after certain downward adjustments, was £40.9m and £1.4m of deferred consideration has subsequently been paid resulting in a total consideration of £42.3m.
SMS was the ninth largest self-storage portfolio in the UK with 12 stores, located in Bournemouth (two stores), Colchester, Redhill, Romford, Brentford, Chelmsford, Exeter, Leeds, Plymouth, Portsmouth and Poole, and has a fully invested built out lettable area of c.496,000 sq ft. Six of the SMS stores are freehold or long leasehold and six are leasehold stores with an average remaining lease length of 15.9 years at 31 October 2016.
Safestore has a strong operational knowledge of the SMS portfolio, having managed the business since 2010 under a management services agreement (“MSA”) until completion of the acquisition. The MSA, for which Safestore received £0.6m per annum, had been due to expire at the end of April 2016.
In the year to 30 April 2016, SMS delivered EBITDA (before management fees) of £3.9m (unaudited) on turnover of £8.7m. Based on the total consideration net of cash acquired with the business and SMS’s unaudited EBITDA, the SMS portfolio has an implied first year net operating income yield of c.9.3%, before the impact of management charges, which would rise to c.12% if the SMS stores achieve 80% occupancy at the rental rate levels at acquisition.
The SMS portfolio was operating at 66% occupancy (of built out lettable area) at acquisition, which Safestore believes it can improve now that it is fully integrated into its own operational platform. The rebranding of the business is progressing to plan.
The SMS business, which had net assets with a fair value of £47.9m at acquisition, was acquired on a debt free basis and was funded from the Group’s existing debt facilities, with £45m of the Group’s £60m accordion facility converted into a committed revolving credit facility.
This acquisition was immediately accretive to Group earnings per share from completion and supports the Group’s future dividend capacity.

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