# Safestore deliver a resilient year of significant strategic and operational progress

- Link: https://www.directorstalkinterviews.com/safestore-deliver-a-resilient-year-of-significant-strategic-and-operational-progress/4121138641
- Published: 2024-01-17T08:08:56+00:00
- Author: Amilia Stone

**Safestore Holdings plc** (LON:SAFE) has announced its results for the year ended
31 October 2023.

**Key measures**

| **Key Measures – Total** | **Year ended****31 October 2023** | **Year ended****31 October 2022** | **Change** | **Change CER^(1)** | 
| **Group** | ** ** |  |  |  | 
| Revenue (£’m) | 224.2 | 212.5 | 5.5% | 4.8% | 
| Underlying EBITDA^(2) (£’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 EPS^(6) (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 Share^(13) (pence) | 952 | 908 | 4.8% | n/a | 
| REVPAF (£)^(10) | 27.70 | 27.59 | 0.4% | -0.2% | 
| **Key Measures – Like-For-Like^(8)** | **Year ended****31 October 2023** | **Year ended****31 October 2022** | **Change** | **Change CER^(1)** | 
| **Group** | ** ** |  |  |  | 
| Revenue (£’m) | 209.9 | 205.3 | 2.2% | 1.7% | 
| Underlying EBITDA^(2) (£’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 ended****31 October 2023** | **Year ended****31 October 2022** | **Change** | **Change CER** | 
| Operating Profit^(9) (£’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 CER^(1))

·      Like-for-like^(8) Group revenue for the year in CER^(1) up 1.7%

·      Underlying EBITDA^(2) up 4.5% in CER^(1) which, combined with a reduced gain
on investment properties of £93.8 million (FY2022: £381.6 million), resulted in 
statutory operating profit^(9) 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 Share^(6) 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 MLA^(4) 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 Venture^(15) (“JV”) with Carlyle
which has acquired the seven-store myStorage business with 326,000 sq ft of MLA^(
4)

**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-like^(8) revenue growth of over 30.3% and Adjusted Diluted EPRA
> EPS growth of 57.3%_.
> _The Group’s industry leading REVPAF^(10) grew by 1.9% on a like-for-like^(8) 
> 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% CER^(1)) 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-like^(8) basis
in CER^(1), 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 rate^(5) was up 5.0% at CER
^(1) with average occupancy down 3.3%, whilst like-for-like^(8) 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-like^(8) revenue growing by
3.5% at CER^(1) 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-like^(8) closing
occupancy ended the year at a similar level to the prior year at 81.3% (FY2022: 
81.7%). This is the 25^(th) 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 EBITDA^(2) of £142.2 million increased by 4.5% at CER^(1) on the
prior year. The Group’s Underlying EBITDA^(2) 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 EPS^(6) 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 EPS^(6) 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

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