Safestore Holdings plc (LON:SAFE) has announced its results for the year ended 31 October 2023.
Key measures
| Key Measures – Total | Year ended31 October 2023 | Year ended31 October 2022 | Change | Change CER1 |
| Group | ||||
| Revenue (£’m) | 224.2 | 212.5 | 5.5% | 4.8% |
| Underlying EBITDA2 (£’m) | 142.2 | 135.1 | 5.3% | 4.5% |
| Closing Occupancy (let sq ft- million) | 6.231 | 6.317 | -1.4% | n/a |
| Closing Occupancy (% of MLA) | 77.0% | 82.1% | -5.1% | n/a |
| Maximum Lettable Area (MLA)4 | 8.09 | 7.70 | 5.1% | n/a |
| Average Storage Rate (£) | 30.26 | 29.25 | 3.5% | 2.7% |
| Adjusted Diluted EPRA EPS6 (pence) | 47.9 | 47.5 | 0.8% | n/a |
| Free Cash Flow (£’m) | 89.2 | 101.4 | -12.0% | n/a |
| EPRA Basic NTA per Share13 (pence) | 952 | 908 | 4.8% | n/a |
| REVPAF (£)10 | 27.70 | 27.59 | 0.4% | -0.2% |
| Key Measures – Like-For-Like8 | Year ended31 October 2023 | Year ended31 October 2022 | Change | Change CER1 |
| Group | ||||
| Revenue (£’m) | 209.9 | 205.3 | 2.2% | 1.7% |
| Underlying EBITDA2 (£’m) | 136.1 | 131.7 | 3.3% | 2.8% |
| Closing Occupancy (let sq ft- million) | 5.583 | 5.793 | -3.6% | n/a |
| Closing Occupancy (% of MLA) | 79.6% | 82.8% | -3.2% | n/a |
| Average Occupancy (let sq ft- million) | 5.586 | 5.779 | -3.3% | n/a |
| Maximum Lettable Area (MLA)4 | 7.02 | 7.00 | 0.3% | n/a |
| Average Storage Rate (£) | 31.57 | 29.89 | 5.6% | 5.0% |
| REVPAF (£)10 | 29.91 | 29.34 | 1.9% | 1.4% |
| Statutory Metrics | Year ended31 October 2023 | Year ended31 October 2022 | Change | Change CER |
| Operating Profit9 (£’m) | 230.4 | 514.5 | -55.2% | n/a |
| Profit Before Tax (£’m) | 207.8 | 498.8 | -58.3% | n/a |
| Diluted Earnings per Share (pence) | 91.8 | 212.4 | -56.8% | n/a |
| Dividends per Share (pence) | 30.1 | 29.8 | 1.0% | n/a |
| Cash Inflow from Operating Activities (£’m) | 98.0 | 109.8 | -10.7% | n/a |
| Basic Net Assets per Share (pence) | 888 | 848 | 4.7% | n/a |
Highlights
Financial Performance
· Group revenue for the year up 5.5% (up 4.8% in CER1)
· Like-for-like8 Group revenue for the year in CER1 up 1.7%
· Underlying EBITDA2 up 4.5% in CER1 which, combined with a reduced gain on investment properties of £93.8 million (FY2022: £381.6 million), resulted in statutory operating profit9 of £230.4 million (FY2022: £514.5 million)
· Strong cost control with like-for-like costs increasing 0.3% on a CER basis
· Adjusted Diluted EPRA Earnings per Share6 up 0.8% at 47.9 pence (FY2022: 47.5 pence)
· 1% increase in the dividend for the year to 30.1 pence (FY2022: 29.8 pence) in line with our progressive policy
Strategic Progress
· New stores or acquisitions adding c. 500,000 sq ft of new MLA4 across thirteen projects in the financial year (five in the UK, six in Spain and two in Netherlands)
· Total Group development and extension pipeline increased to 30 projects and 1.5 million sq ft representing c. 18% of the existing portfolio providing £25-£30 million of future EBITDA at stabilisation
· Purchases of the freehold interests of two stores in Barcelona and West Birmingham
· Lease extensions completed for four stores in Edinburgh, London- Charlton, London- Slough and Burnley
· Successful integration of Benelux acquisition
· Entry into German market via a new Joint Venture15 (“JV”) with Carlyle which has acquired the seven-store myStorage business with 326,000 sq ft of MLA4
Strong and Flexible Balance Sheet
· 9.3% increase in property valuation (including investment properties under construction)
· 4.8% increase in EPRA basic NTA per share to £9.52 (FY2022: £9.08)
· New ESG linked Revolving Credit Facilities (RCFs) completed in November 2022 with an increased £400 million unsecured multi-currency four-year facility (with two, one-year extension options, the first of which has been completed recently). Margins remain at 1.25% in line with previous RCFs and all facilities, including private placement notes, are unsecured
· Approximately £200 million of headroom under the RCF plus £100 million accordion facility
· 73% of debt at fixed interest rates with tenors from 2024 to 2033
· Group loan-to-value ratio (“LTV”11) at 25.4%, calculated on net debt (31 October 2022: 23.6%) and interest cover ratio (“ICR”12) at 6.7x (31 October 2022: 10.4x)
Frederic Vecchioli, Chief Executive Officer commented:
“I am pleased that 2023 has been a resilient year of significant strategic and operational progress building on two years of out-performance in which we delivered total like-for-like8 revenue growth of over 30.3% and Adjusted Diluted EPRA EPS growth of 57.3%.
The Group’s industry leading REVPAF10 grew by 1.9% on a like-for-like8 basis whilst Total Group revenue grew by 5.5% reflecting recently added new stores and the annualisation effect of our acquisition of the Benelux business.
We have made excellent strategic progress during the year having opened, acquired, or extended thirteen stores across three countries adding c. 500,000 sq ft of MLA to the portfolio. In addition, we have grown the development pipeline to a further 1.5 million sq ft across 30 projects which represents 18% of the existing MLA of the business and will contribute £25-30 million upside to EBITDA upon stabilisation. Following our previous successful JV with Carlyle, we partnered again to facilitate the Group’s entry into the under-penetrated German market and the integration of our Benelux business, acquired in 2022, is now complete.
Our strong and flexible balance sheet was significantly enhanced by the agreement of an unsecured four-year £400 million multi-currency RCF at the beginning of the year which increases funding capacity, allowing us to continue to consider strategic, value-accretive investments as and when they arise.
Importantly, the underlying fundamentals of the European self storage industry with limited supply, strong barriers to entry and a steadily growing product awareness are as strong as ever. We believe that the COVID period has acted as an accelerator of growth for the still relatively immature self storage industry. Whilst demand (as measured by enquiry growth) stabilised during the year at a level that is below 2022, we are still seeing enquiry levels that are ahead of the pre-COVID period.
Over the last ten years, Safestore has delivered an industry leading 16% CAGR of its adjusted diluted EPRA EPS. During that period, we expanded our geographical reach to six European countries leveraging and improving our platform and central functions while carefully managing investment risk. I’m confident that Safestore will continue to play a leading role in the development of the self storage industry across Europe, delivering significant further value to its stakeholders.
Our industry leading business model remains unchanged and we have substantial EPS growth to deliver both from filling the 1.9 million sq ft of fully invested, currently unlet space, and from the new sites and expansion of existing sites in our pipeline, across major cities in the UK and continental Europe. Safestore has a proven track record, and as the returns we deliver are significantly ahead of our cost of debt, we look to the future with confidence.
Finally, I would like to thank all our colleagues in the UK, France, Spain, the Netherlands and Belgium for their commitment and loyalty in 2023. We are appreciative of their efforts.”
Notes
We prepare our financial statements using IFRS. However, we also use a number of adjusted measures in assessing and managing the performance of the business. These measures are not defined under IFRS and they may not be directly comparable with other companies’ adjusted measures and are not intended to be a substitute for, or superior to, any IFRS measures of performance. These include like-for-like figures to aid in the comparability of the underlying business as they exclude the impact on results of purchased, sold, opened or closed stores and constant exchange rate (“CER”) figures are provided in order to present results on a more comparable basis, removing FX movements. These metrics have been disclosed because management reviews and monitors performance of the business on this basis. We have also included a number of measures defined by EPRA, which are designed to enhance transparency and comparability across the European Real Estate sector; see notes 6 and 13 below and “Non-GAAP financial information” in the notes to the financial statements.
1 – CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the exchange rate effective for the comparative period. Euro denominated results for the comparative period are translated at the exchange rates effective in that period. This is performed in order to present the reported results for the current period on a more comparable basis).
2 – Underlying EBITDA is defined as Operating Profit before exceptional items, share-based payments, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties, variable lease payments, depreciation and the share of associate’s depreciation, interest and tax. Underlying EBITDA therefore excludes all leasehold cost charges. Underlying profit before tax is defined as Underlying EBITDA less leasehold cost, depreciation charged on property, plant and equipment and net finance charges relating to bank loans and cash.
3 – Occupancy excludes offices but includes bulk tenancy. As at 31 October 2023, closing occupancy includes 18,000 sq ft of bulk tenancy (31 October 2022: 24,000 sq ft).
4 – MLA is Maximum Lettable Area. At 31 October 2023, Group MLA was c. 8.09 million sq ft (FY2022: c. 7.70 million sq ft).
5 – Average Storage Rate is calculated as the revenue generated from self storage revenues divided by the average square footage occupied during the period in question.
6 – Adjusted Diluted EPRA EPS is based on the European Public Real Estate Association’s definition of Earnings and is defined as profit or loss for the period after tax but excluding corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties and the associated tax impacts. The Company then makes further adjustments for the impact of exceptional items, IFRS 2 share-based payment charges, exceptional tax items and deferred tax charges. This adjusted earnings is divided by the diluted number of shares. The IFRS 2 cost is excluded as it is written back to distributable reserves and is a non-cash item (with the exception of the associated National Insurance element). Therefore neither the Company’s ability to distribute nor pay dividends is impacted (with the exception of the associated National Insurance element). The financial statements will disclose earnings on a statutory, EPRA and Adjusted Diluted EPRA basis and will provide a full reconciliation of the differences in the financial year in which any LTIP awards may vest.
7 – Free cash flow is defined as cash flow before investing and financing activities but after leasehold cost payments.
8 – Like-for-like adjustments remove the impact of the 2023 acquisition of Apeldoorn, the 2023 openings of Wigan, London-Morden, Ellesmere Port, North Barcelona, South Barcelona, Central Barcelona 3, South Madrid, North Madrid, East Madrid, Nijmegen, and Amersfoort, the 2022 acquisition of the Netherlands and Belgium Joint Venture, the 2022 acquisition of Christchurch, and the 2022 openings of London-Bow and Central Barcelona
9 – Operating profit decreased by £284.1 million to £230.4 million (FY2022: £514.5 million) principally as a result of a decrease in the gain on investment properties of £287.8 million to £93.8 million (FY2022: £381.6 million), as well as an increase of £7.1 million or 5.3% in Underlying EBITDA as a result of stronger trading performance. Profit before income tax in FY2022 additionally included exceptional items of £10.8m, being other exceptional gains. This included £5.5 million relating to the valuation gain of the 20% equity investment held in the Joint Venture with CERF, when the Group acquired the remaining 80% on 30 March 2022 and £5.1 million relating to the net gain on disposal of the Paris Nanterre site in November 2021.
10 – REVPAF is an alternative performance measure used by the business. REVPAF stands for Revenue per Available Square Foot and is calculated by dividing revenue for the period by weighted average available square feet for the same period
11 – LTV ratio is Loan-to-Value ratio, which is defined as gross debt (excluding lease liabilities) as a proportion of the valuation of investment properties and investment properties under construction (excluding lease liabilities). At 31 October 2023, the Group LTV ratio was 25.4%, calculated on a net debt basis.
12 – ICR is interest cover ratio and is calculated as the ratio of Underlying EBITDA after leasehold costs to net interest payable.
13 – EPRA basic NAV was superseded and transitioned to three new measures: EPRA Net Reinstatement Value (“NRV”), EPRA Net Tangible Assets (“NTA”) and EPRA Net Disposal Value (“NDV”) for periods commencing 1 January 2020 or thereafter. Safestore considers EPRA NTA to be the most consistent with the nature of the Group’s business. The basis of calculation, including a reconciliation to reported net assets, is set out in note 11 of the Financial Statements.
14 – In 2019, Safestore entered a strategic arrangement with Carlyle to enter the Benelux market, with an investment of 20%. This arrangement represented a joint venture and has been referred to as such. On 30 March 2022, the Group acquired the remaining 80% of the Joint Venture with CERF. Prior to acquiring the 80%, the Joint Venture with CERF, which represented a 20% investment, was accounted for as an associate using the equity method of accounting, as described in the “Investment in associates” note to the financial statements..
15 – On 1 December 2022, the Group made an initial investment into a new joint venture with Carlyle, to enter the German self storage market, of c. €2.2 million for a 10% share. The Group will also earn a fee for providing management services to the joint venture.
16 – Store Protect has replaced our customer goods insurance programme from 1 November 2023, attracting VAT rather than Insurance Premium Tax (IPT). When comparing the first two months of the 2024 financial year, the 2023 comparative included revenue of £0.4 million representing 12% IPT on insurance sales for the two months. For 2024, VAT is not included in the revenue. The overall impact of these changes is neutral at EBITDA. With the LFL revenue figure adjusted to remove the IPT from the prior year, LFL revenue is down 0.6%. Including the IPT in revenue in the PY would result in a variance of -1.6%.
Summary
The Group has delivered a resilient performance in 2023 and has made significant strategic and operational progress.
In 2023, the Group delivered 0.8% growth in Adjusted Diluted EPRA Earnings per Share, which, if calculated on a like-for-like basis, grew by 3.3%. Total Group revenue increased by 5.5% (4.8% CER1) with the UK up 2.1%, Paris up 3.5%, Spain up 19.4%, Netherlands up 100% and Belgium up 78.3%. Resilient performances in the UK and Paris were complemented by new store driven growth in Spain and the annualisation of our ownership of the Netherlands and Belgium businesses. On a like-for-like8 basis in CER1, Group revenue increased by 1.7% with the UK up 1.2%, Paris up 3.5% and Spain flat. The Group’s like-for-like average storage rate5 was up 5.0% at CER1 with average occupancy down 3.3%, whilst like-for-like8 closing occupancy decreased by 3.2ppts to 79.6%.
The Group has traded solidly over the year despite strong comparable performances in the record 2021 and 2022 financial years over which c. 25% like-for-like revenue growth was delivered. Our digital marketing platform has driven good enquiry generation and conversion despite a slightly weaker overall market such that enquiry levels remain ahead of the pre-COVID period.
The like-for-like average storage rate growth drove the UK revenue performance and increased by 5.1% in the year whilst average occupancy declined by 4.1% and closing occupancy was down 3.8ppts at 79.2%.
In Paris, our performance was resilient with like-for-like8 revenue growing by 3.5% at CER1 driven by a like-for-like growth in average storage rate of 3.9% with like-for-like average storage occupancy broadly flat. Like-for-like8 closing occupancy ended the year at a similar level to the prior year at 81.3% (FY2022: 81.7%). This is the 25th consecutive year of revenue growth in Paris with average growth over the last eight years of approximately 6.2%.
Our Spanish business saw flat like-for-like revenue for the year with an increase in the like-for-like average storage rate of 7.4% offsetting a decline in average occupancy of 7.4% which reflects the impact of opening new stores in catchment areas of existing stores increasing overall revenue but impacting like-for-like occupancy. Ancillary sales were also strong. Spain opened six stores in the year and now has eleven stores open and a pipeline of a further five sites. Total revenue growth was 19.4%.
Our Netherlands and Belgium businesses performed well in their first full financial years as fully owned subsidiaries of the Group. The businesses were not treated as like-for-like in the year but, over the two quarters (Q3 and Q4) for which comparable revenue figures are available, like-for-like growth would have been 11.0% and 9.7% respectively.
The Group’s current pipeline of 30 new developments and store extensions has been replenished over the last year and now constitutes c. 1.5 million sq ft of future MLA (equivalent to 18% of the existing portfolio) with associated outstanding capital expenditure of £128 million. 29 of the 30 projects are in London, Paris, Spain, the Randstad region of the Netherlands and Brussels with just one in the UK outside of London, in the South-East of England.
Group Underlying EBITDA2 of £142.2 million increased by 4.5% at CER1 on the prior year. The Group’s Underlying EBITDA2 performance, offset by a 9.6% increase in leasehold cost and a £5.0 million or 45.9% increase in finance costs, resulted in a 0.8% increase in Adjusted Diluted EPRA EPS6 in the period to 47.9 pence (FY2022: 47.5 pence). The increase in finance costs was driven by higher debt levels to fund the development pipeline and an increase in the marginal cost of borrowing. On a like-for-like basis the increase Adjusted Diluted EPRA EPS6 in the period, as mentioned above, would have been 3.3%. Statutory operating profit decreased by 55.2% to £230.4 million (FY2022: £514.5 million) as a result of the gain on investment properties of £93.8 million being lower than the record gain experienced in 2022 of £381.6 million.
Our property portfolio valuation, including investment properties under construction, increased in the year by 9.3%, driven by the underlying performance of the stores, new stores, acquisitions and exchange rate movements. After exchange rate movements, the portfolio valuation increased to £2,789.7 million with the UK portfolio up £118.6 million to a total UK value of £1,934.0 million and the French portfolio increasing by €50.8 million to €676.7 million.
Reflecting the Group’s dividend policy, the Board is pleased to recommend a final dividend of 20.2 pence per share (FY2022: 20.4 pence) resulting in a full year dividend up 1.0% to 30.1 pence per share (FY2022: 29.8 pence). Over the last ten years, the Group has grown the annual dividend by 419% or 24.3 pence per share.
Outlook
We remain focused on further optimising the Group’s operational performance and continuing to grow in all of our geographies. Our development pipeline represents 18% of our existing MLA and our balance sheet strength and flexibility provide us with the opportunity to consider further selective development and acquisition opportunities in all of our markets.
As disclosed in our 2023 half year results we expect the development pipeline and associated financing to be dilutive to earnings in the 2024 financial year before becoming highly accretive in future years as the stores stabilise. We believe that, on stabilisation, an incremental £25-£30 million of EBITDA will be added by the 30 projects in the pipeline.
For the first two months of the 2024 financial year total Group revenue is broadly flat with like-for-like revenue down 0.6%16 on the prior year. Regionally, we have seen strong like-for-like growth in the Netherlands and Belgium, solid improvements in Paris and Spain and a modest decline in the UK.
Further, in the first two months of the 2024 financial year, the Group took limited promotional actions that resulted in year-on-year UK like-for-like occupancy improving from -3.8ppts as at 31 October 2023 to -1.4ppts at 31 December 2023, and similarly from -0.4ppts to +0.3ppts in Paris. The immediate impact on rates is expected to gradually reduce over the next few months, particularly as the Group will annualise the discounting activity that took place later last year in spring.
Whilst we are fully aware of the current macro-economic environment, our business model has proven to be highly resilient with multiple drivers of demand. We believe the Group is strongly positioned to withstand pressures from challenging market conditions.
Analyst and investor presentation
A presentation will be held at 09:30am today at the offices of Instinctif Partners.
A live-webcast facility will also be available and to register please use the following link: https://storm-virtual-uk.zoom.us/webinar/register/WN_X5npmDXhTyilRoS8yh0qgA
