REG - Safestore Hldgs plc - Full Year Results <Origin Href="QuoteRef">SAFE.L</Origin> - Part 3
09/01/2017 07:05
- Part 3: For the preceding part double click ID:nRSI5870Tb
Trade and other receivables 23.0 19.4
Cash and cash equivalents 15 5.4 13.8
28.6 33.4
Total assets 1,066.9 867.7
Current liabilities
Trade and other payables (41.2) (36.5)
Current income tax liabilities (3.2) (0.7)
Obligations under finance leases 12 (9.4) (7.2)
(53.8) (44.4)
Non-current liabilities
Financial liabilities
- bank borrowings 10 (315.7) (249.5)
- derivative financial instruments 11 (3.4) (1.4)
Deferred income tax liabilities (57.1) (41.9)
Obligations under finance leases 12 (49.5) (39.9)
(425.7) (332.7)
Total liabilities (479.5) (377.1)
Net assets 587.4 490.6
Equity
Ordinary shares 13 2.1 2.1
Share premium 60.1 60.0
Other reserves 16.6 (12.8)
Retained earnings 508.6 441.3
Total equity 587.4 490.6
Consolidated statement of changes in shareholders' equity
for the year ended 31 October 2016
Group
Sharecapital£'m Sharepremium£'m Translationreserve£'m Retainedearnings£'m Total£'m
Balance at 1 November 2014 2.1 60.0 (2.9) 348.8 408.0
Comprehensive income
Profit for the year - - - 108.7 108.7
Other comprehensive income
Currency translation differences - - (9.9) - (9.9)
Total other comprehensive income - - (9.9) - (9.9)
Total comprehensive income - - (9.9) 108.7 98.8
Transactions with owners
Dividends (note 6) - - - (17.2) (17.2)
Employee share options - - - 1.0 1.0
Transactions with owners - - - (16.2) (16.2)
Balance at 1 November 2015 2.1 60.0 (12.8) 441.3 490.6
Comprehensive income
Profit for the year - - - 87.4 87.4
Other comprehensive income
Currency translation differences - - 29.4 - 29.4
Total other comprehensive income - - 29.4 - 29.4
Total comprehensive income - - 29.4 87.4 116.8
Transactions with owners
Dividends (note 6) - - - (21.3) (21.3)
Increase in share capital - 0.1 - - 0.1
Employee share options - - - 1.2 1.2
Transactions with owners - 0.1 - (20.1) (20.0)
Balance at 31 October 2016 2.1 60.1 16.6 508.6 587.4
Consolidated cash flow statement
for the year ended 31 October 2016
Notes Group
2016£'m 2015£'m
Cash flows from operating activities
Cash generated from operations 14 61.9 57.8
Interest paid (13.2) (15.8)
Tax paid (1.7) (0.6)
Net cash inflow from operating activities 47.0 41.4
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (41.8) -
Expenditure on investment properties and development properties (28.3) (7.5)
Proceeds in respect of Capital Goods Scheme 1.5 1.6
Purchase of property, plant and equipment (0.8) (0.5)
Proceeds from disposal of investment properties - 1.5
Net cash outflow from investing activities (69.4) (4.9)
Cash flows from financing activities
Issue of share capital 0.1 -
Equity dividends paid 6 (21.3) (17.2)
Proceeds from borrowings 58.4 -
Repayment of borrowings (19.8) (13.0)
Debt issuance costs (0.4) (1.4)
Hedge breakage payments - (2.0)
Finance lease principal payments (4.6) (4.1)
Net cash inflow/(outflow) from financing activities 12.4 (37.7)
Net decrease in cash and cash equivalents (10.0) (1.2)
Exchange gain/(loss) on cash and cash equivalents 1.6 (0.3)
Cash and cash equivalents at 1 November 13.8 15.3
Cash and cash equivalents at 31 October 15 5.4 13.8
Notes to the financial statements
for the year ended 31 October 2016
1. Basis of preparation
The Board approved this preliminary announcement on 6 January 2017.
The financial information included in this preliminary announcement does not constitute the Group's statutory accounts for
the years ended 31 October 2015 or 31 October 2016. Statutory accounts for the year ended 31 October 2015 have been
delivered to the Registrar of Companies. The statutory accounts for the year ended 31 October 2016 will be delivered to the
Registrar of Companies following the Company's annual general meeting.
The auditor has reported on the 2016 and 2015 accounts; their report was unqualified, did not include any references to any
matters by way of emphasis and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
These financial statements for the year ended 31 October 2016 have been prepared under the historical cost convention
except for the following assets and liabilities which are stated at their fair value: investment property, derivative
financial instruments and financial interest in property assets. The accounting policies used are consistent with those
contained in the Group's last annual report and accounts for the year ended 31 October 2015. All amounts are presented in
Sterling and are rounded to the nearest £0.1m, unless otherwise stated.
The financial information included in this preliminary announcement has been prepared in accordance with EU endorsed
International Financial Standards ("IFRS"), IFRIC interpretations and those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The Directors of Safestore have assessed the viability of the Group over a three year period to October 2019 and are
confident that, on the basis of current financial projections and facilities available, it is appropriate to prepare the
preliminary results on a going concern basis.
There are no new or revised accounting standards or IFRIC interpretations which are applicable for the first time in the
year ended 31 October 2016.
The following new standards, amendments to existing standards and interpretations issued by the International Accounting
Standards Board have not been applied in preparing these consolidated financial statements, as their effective dates fall
in periods beginning after 1 November 2016. The Group has no plan to adopt these standards earlier than the effective
date:
Effective for the year ending 31 October 2017:
IFRS 14 'Regulatory Deferral Accounts';
IFRS 10, IFRS 12 and IAS 28 Amendments relating to investment entities: applying the consolidation exception;
IFRS 10 and IAS 28 Amendments relating to the sale or contribution of assets between an investor and its associate or joint venture;
IFRS 11 Amendments relating to acquisitions of interests in joint operations;
IAS 1 Amendments relating to the Disclosure Initiative
IAS 16 and IAS 38 Amendments relating to clarification of acceptable methods of depreciation and amortisation;
IAS 16 and IAS 41 Amendments relating to bearer plants;
IAS 27 Amendments relating to equity method in separate financial statements; and
Annual improvements to IFRSs 2012-2014 Cycle.
Effective for the year ending 31 October 2018:
IAS 12 Amendments relating to recognition of deferred tax assets for unrealised losses;
IFRS 2 Amendments relating to classification and measurement of share-based payment transactions; and
IFRS 7 Amendments to cash flows relating to the Disclosure Initiative.
Effective for the year ending 31 October 2019:
IFRS 4 Amendments relating to applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts;
IFRS 9 'Financial Instruments' - final standard, addressing the accounting for financial assets and liabilities including classification and measurement, impairment, hedge accounting and own credit; and
IFRS 15 'Revenue from Contracts with Customers'.
Effective for the year ending 31 October 2020:
IFRS 16 'Leases'.
The Directors are currently considering the potential impact arising from the future adoption of these standards and
interpretations listed above.
Forward-looking statements
Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations
reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove
to have been correct.
Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as
a result of new information, future events or otherwise.
2. Segmental analysis
The segmental information presented has been prepared in accordance with the requirements of IFRS 8. The Group's revenue,
profit before income tax and net assets are attributable to one activity: the provision of self-storage accommodation and
related services. Segmental information is presented in respect of the Group's geographical segments. This is based on the
Group's management and internal reporting structure.
Safestore is organised and managed in two operating segments, based on geographical areas, being the United Kingdom and
France.
The chief operating decision maker, being the Executive Directors, identified in accordance with the requirements of IFRS
8, assesses the performance of the operating segments on the basis of underlying EBITDA, which is defined as operating
profit before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment
properties, contingent rent and depreciation.
The operating profits and assets include items directly attributable to a segment as well as those that can be allocated on
a reasonable basis.
Year ended 31 October 2016 UK£'m France£'m Group£'m
Continuing operations
Revenue 87.4 28.0 115.4
Underlying EBITDA 46.5 17.7 64.2
Exceptional items 4.3 - 4.3
Contingent rent and depreciation (0.6) (0.3) (0.9)
Operating profit before gain on investment properties 50.2 17.4 67.6
Gain on investment properties 35.1 6.6 41.7
Operating profit 85.3 24.0 109.3
Net finance expense (12.4) (2.0) (14.4)
Profit before tax 72.9 22.0 94.9
Total assets 800.6 266.3 1,066.9
Year ended 31 October 2015 UK£'m France£'m Group£'m
Continuing operations
Revenue 79.9 24.9 104.8
Underlying EBITDA 40.6 16.5 57.1
Change in fair value of derivative - (0.3) (0.3)
Contingent rent and depreciation (0.9) (0.6) (1.5)
Operating profit before gain on investment properties 39.7 15.6 55.3
Gain on investment properties 64.9 14.0 78.9
Operating profit 104.6 29.6 134.2
Net finance expense (13.6) (2.4) (16.0)
Profit before tax 91.0 27.2 118.2
Total assets 668.5 199.2 867.7
Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available
to unrelated third parties. There is no material impact from inter-segment transactions on the Group's results.
3. Finance income and costs
2016£'m 2015£'m
Finance income
Fair value movement of derivatives 20.9 3.1
Unwinding of discount on Capital Goods Scheme ("CGS") receivable 0.1 0.1
Total finance income 21.0 3.2
Finance costs
Interest payable on bank loans and overdraft (9.7) (11.2)
Amortisation of debt issuance costs on bank loan (0.4) (0.2)
Underlying finance charges (10.1) (11.4)
Interest on obligations under finance leases (3.7) (3.8)
Fair value movement of derivatives (2.5) (1.2)
Net exchange losses (19.1) (2.8)
Total finance cost (35.4) (19.2)
Net finance costs (14.4) (16.0)
Included within interest payable of £9.7 million (FY2015: £11.2 million) is £0.9 million (FY2015: £1.1 million) of interest
relating to derivative financial instruments that are economically hedging the Group's borrowings. The total change in fair
value of derivatives reported within net finance costs for the year is a net gain of £18.4 million (FY2015: £1.9 million).
4. Exceptional items
2016£'m 2015£'m
Negative goodwill on acquisition of subsidiary 5.6 -
Costs relating to corporate transactions (1.3) -
Net exceptional income 4.3 -
The negative goodwill on acquisition of subsidiary arose on the acquisition of Space Maker Stores Limited on 29 July 2016
and, along with the related transactions costs, is explained in further detail in note 19.
5. Income tax charge
Analysis of tax charge in the year:
2016£'m 2015£'m
Current tax:
- UK corporation tax - 0.2
- tax in respect of overseas subsidiaries 3.7 1.4
3.7 1.6
Deferred tax:
- current year 3.8 7.7
- adjustment in respect of prior year - 0.2
3.8 7.9
Tax charge 7.5 9.5
Reconciliation of income tax charge
The tax for the period is lower (FY2015: lower) than the standard effective rate of corporation tax in the UK for the year
ended 31 October 2016 of 20.0% (FY2015: 20.4%). The differences are explained below:
2016£'m 2015£'m
Profit before tax 94.9 118.2
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 20.0% (FY2015: 20.4%) 19.0 24.1
Effect of:
- permanent differences 0.2 0.2
- profits from the tax exempt business (14.6) (18.5)
- difference from overseas tax rates 2.9 3.5
- adjustments in respect of prior years - 0.2
Tax charge 7.5 9.5
The Group is a REIT. As a result the Group is exempt from UK corporation tax on the profits and gains from its qualifying
rental business in the UK provided that it meets certain conditions. Non-qualifying profits and gains of the Group remain
subject to corporation tax as normal. The Group monitors its compliance with the REIT conditions. There have been no
breaches of the conditions to date.
The main rate of corporation tax in the UK reduced from 21% to 20% from 1 April 2015. Accordingly the Group's results for
this accounting period are taxed at an effective rate of 20.0% (FY2015: 20.4%). Due to the Group's REIT status there will
be no deferred taxation impact in respect of the changes in taxation rates.
6. Dividends per share
The dividend paid in 2016 was £21.3 million (10.25 pence per share) (FY2015: £17.2 million (8.30 pence per share)). A final
dividend in respect of the year ended 31 October 2016 of 8.05 pence (FY2015: 6.65 pence) per share, amounting to a total
final dividend of £16.8 million (FY2015: £13.8 million), is to be proposed at the AGM on 22 March 2017. The ex-dividend
date will be 9 March 2017 and the record date will be 10 March 2017 with an intended payment date of 7 April 2017. The
final dividend has not been included as a liability at 31 October 2016.
The PID element of the final dividend is 8.05 pence (FY2015: 6.65 pence), making the PID payable for the year 9.85 pence
(FY2015: 9.65 pence) per share.
7. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year excluding ordinary shares held as treasury shares. Diluted
earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conversion of all
dilutive potential shares. The Company has one category of dilutive potential ordinary shares: share options. For the share
options, a calculation is performed to determine the number of shares that could have been acquired at fair value
(determined as the average annual market price of the Company's shares) based on the monetary value of the subscription
rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of
shares that would have been issued assuming the exercise of the share options.
Year ended 31 October 2016 Year ended 31 October 2015
Earnings£'m Sharesmillion Penceper share Earnings£'m Sharesmillion Penceper share
Basic 87.4 208.2 42.0 108.7 207.5 52.4
Dilutive securities - 1.5 (0.3) - 1.6 (0.4)
Diluted 87.4 209.7 41.7 108.7 209.1 52.0
Adjusted earnings per share
Adjusted earnings per share represents profit after tax adjusted for the valuation movement on investment properties,
exceptional items, change in fair value of derivatives and the associated tax thereon. The Directors consider that these
alternative measures provide useful information on the performance of the Group.
EPRA earnings and earnings per share before non-recurring items, movements on revaluations of investment properties and
changes in the fair value of derivatives have been disclosed to give a clearer understanding of the Group's underlying
trading performance.
Year ended 31 October 2016 Year ended 31 October 2015
Earnings£'m Sharesmillion Penceper share Earnings£'m Sharesmillion Penceper share
Basic 87.4 208.2 42.0 108.7 207.5 52.4
Adjustments:
Gain on investment properties (41.7) - (20.1) (78.9) - (38.0)
Exceptional items (4.3) - (2.1) - - -
Unwinding of discount on CGS receivable (0.1) - - (0.1) - -
Net exchange losses 19.1 - 9.2 2.8 - 1.3
Change in fair value of derivatives (18.4) - (8.8) (1.6) - (0.8)
Tax on adjustments 2.9 - 1.4 5.7 - 2.7
Adjusted 44.9 208.2 21.6 36.6 207.5 17.6
EPRA adjusted:
Depreciation of leasehold properties (4.6) - (2.2) (4.1) - (2.0)
Tax on leasehold depreciation adjustment 0.9 - 0.4 0.8 - 0.4
EPRA basic 41.2 208.2 19.8 33.3 207.5 16.0
Adjustment for underlying deferred tax - - - 1.2 - 0.6
Adjusted cash tax earnings1 41.2 208.2 19.8 34.5 207.5 16.6
1 Adjusted cash tax earnings is defined as profit or loss for the year before exceptional items, corporate transaction
costs, change in fair value of derivatives, gain/loss on investment properties (adjusted for leasehold depreciation),
discount unwind on the CGS receivable and the associated tax impacts, as well as exceptional tax items and deferred tax
charges.
Gain on investment properties includes depreciation on leasehold properties of £4.6 million (FY2015: £4.1 million) and the
related tax thereon of £0.9 million (FY2015: £0.8 million). As an industry standard measure, EPRA earnings is presented.
EPRA earnings of £41.2 million (FY2015: £33.3 million) and EPRA earnings per share of 19.8 pence (FY2015: 16.0 pence) are
calculated after further adjusting for these items.
EPRA adjusted income statement (non-statutory) 2016£'m 2015£'m Movement%
Revenue 115.4 104.8 10.1
Operating expenses (excluding depreciation and contingent rent) (51.2) (47.7) (7.3)
EBITDA before contingent rent 64.2 57.1 12.4
Depreciation and contingent rent (0.9) (1.5) 40.0
Operating profit before depreciation on leasehold properties 63.3 55.6 13.8
Depreciation on leasehold properties (4.6) (4.1) (12.2)
Operating profit 58.7 51.5 14.0
Net financing costs (13.8) (15.2) 9.2
Profit before income tax 44.9 36.3 23.7
Income tax (3.7) (3.0) (23.3)
Profit for the year ("EPRA earnings") 41.2 33.3 23.7
Adjusted EPRA earnings per share 19.8 pence 16.0 pence 23.8
Final dividend per share 8.05 pence 6.65 pence 21.1
8. Investment properties, investment properties under construction and interests in leasehold properties
Investmentproperty£'m Interests inleaseholdproperties£'m Investmentpropertyunderconstruction£'m Totalinvestmentproperties£'m
As at 1 November 2015 775.5 47.1 6.0 828.6
Additions 11.6 3.0 18.1 32.7
Acquisition of subsidiary (note 19) 48.0 10.3 - 58.3
Reclassifications 13.7 - (13.7) -
Revaluations 45.8 - 0.5 46.3
Depreciation - (4.6) - (4.6)
Exchange movements 48.7 3.1 - 51.8
As at 31 October 2016 943.3 58.9 10.9 1,013.1
Investmentproperty£'m Interests inleaseholdproperties£'m Investmentpropertyunderconstruction£'m Totalinvestmentproperties£'m
As at 1 November 2014 704.0 51.0 5.3 760.3
Additions 5.5 7.1 0.8 13.4
Disposals (1.5) (4.9) - (6.4)
Purchase of freehold 1.8 (0.7) - 1.1
Revaluations 83.1 - (0.1) 83.0
Depreciation - (4.1) - (4.1)
Exchange movements (17.4) (1.3) - (18.7)
As at 31 October 2015 775.5 47.1 6.0 828.6
The gain on investment properties comprises:
2016£'m 2015£'m
Revaluations 46.3 83.0
Depreciation (4.6) (4.1)
41.7 78.9
Cost£'m Revaluationon cost£'m Valuation£'m
Freehold stores
As at 1 November 2015 364.5 264.1 628.6
Movement in year 66.9 63.0 129.9
As at 31 October 2016 431.4 327.1 758.5
Leasehold stores
As at 1 November 2015 74.6 72.3 146.9
Movement in year 14.2 23.7 37.9
As at 31 October 2016 88.8 96.0 184.8
All stores
As at 1 November 2015 439.1 336.4 775.5
Movement in year 81.1 86.7 167.8
As at 31 October 2016 520.2 423.1 943.3
The valuation of £943.3 million (FY2015: £775.5 million) excludes £0.6 million in respect of owner occupied property, which
is included within property, plant and equipment. Rental income earned from investment properties for the year ended 31
October 2016 was £95.2 million (FY2015: £86.0 million).
The Group has classified the investment property and investment property under construction, held at fair value, within
Level 3 of the fair value hierarchy. There were no transfers to or from Level 3 during the year.
The freehold and leasehold investment properties have been valued as at 31 October 2016 by external valuers, Cushman &
Wakefield LLP ("C&W"). The valuation has been carried out in accordance with the current UK edition of the RICS Valuation -
Professional Standards, published by The Royal Institution of Chartered Surveyors ("the Red Book"). The valuation of each
of the investment properties has been prepared on the basis of fair value as a fully equipped operational entity, having
regard to trading potential. One non-trading property was valued on the basis of fair value. The valuation has been
provided for accounts purposes and, as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance
with the disclosure requirements of the Red Book, C&W has confirmed that:
• of the members of the RICS who have been the signatories to the valuations provided to the Group for the same purposes
as this valuation, one has done so since October 2006 and the other is a signatory for the first time;
• C&W has been carrying out regular valuations for the same purpose as this valuation on behalf of the Group since October
2006;
• C&W does not provide other significant professional or agency services to the Group;
• in relation to the preceding financial year of C&W, the proportion of total fees payable by the Group to the total fee
income of the firm is less than 5%; and
• the fee payable to C&W is a fixed amount per property and is not contingent on the appraised value.
Market uncertainty
C&W's valuation report comments on valuation uncertainty resulting from low liquidity in the market for self-storage
property. C&W notes that in the UK since the start of 2013 there have only been six transactions involving multiple assets
and 13 single asset transactions, and C&W is unaware of any comparable transactions in the Paris market. C&W states that
due to the lack of comparable market information in the self-storage sector, there is greater uncertainty attached to its
opinion of value than would be anticipated during more active market conditions.
Portfolio premium
C&W's valuation report confirms that the properties have been valued individually but that if the portfolio was to be sold
as a single lot or in selected groups of properties, the total value could be different. C&W states that in current market
conditions it is of the view that there could be a material portfolio premium.
Valuation method and assumptions
The valuation of the operational self-storage facilities has been prepared having regard to trading potential. Cash flow
projections have been prepared for all of the properties reflecting estimated absorption, revenue growth and expense
inflation. A discounted cash flow method of valuation based on these cash flow projections has been used by C&W to arrive
at its opinion of fair value for these properties.
C&W has adopted different approaches for the valuation of the leasehold and freehold assets as follows:
Freehold and long leasehold (UK and France)
The valuation is based on a discounted cash flow of the net operating income over a ten-year period and a notional sale of
the asset at the end of the tenth year.
Assumptions:
• Net operating income is based on projected revenue received less projected operating costs together with a central
administration charge of 6% of the estimated annual revenue, subject to a cap and collar. The initial net operating income
is calculated by estimating the net operating income in the first twelve months following the valuation date.
• The net operating income in future years is calculated assuming either straight-line absorption from day one actual
occupancy or variable absorption over years one to four of the cash flow period, to an estimated stabilised/mature
occupancy level. In the valuation the assumed stabilised occupancy level for the trading stores (both freeholds and all
leaseholds) open at 31 October 2016 averages 80.23% (31 October 2015: 77.87%). The projected revenues and costs have been
adjusted for estimated cost inflation and revenue growth. The average time assumed for stores to trade at their maturity
levels is 23.78 months (31 October 2015: 23.93 months).
• The capitalisation rates applied to existing and future net cash flows have been estimated by reference to underlying
yields for industrial and retail warehouse property, yields for other trading property types such as purpose built student
housing and hotels, bank base rates, ten-year money rates, inflation and the available evidence of transactions in the
sector. The valuation included in the accounts assumes rental growth in future periods. If an assumption of no rental
growth is applied to the external valuation, the net initial yield pre-administration expenses for the 127 mature stores
(i.e. excluding those stores categorised as "developing") is 7.98% (31 October 2015: 7.89%), rising to a stabilised net
yield pre-administration expenses of 8.99% (31 October 2015: 9.08%).
• The future net cash flow projections (including revenue growth and cost inflation) have been discounted at a rate
that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds
and all leaseholds) is 10.75% (31 October 2015: 10.79%).
• Purchaser's costs in the range of approximately 6.0% to 6.8% for the UK and 7.5% for France have been assumed
initially, reflecting the new progressive SDLT rates brought into force in March 2016 in the UK, and sales plus purchaser's
costs totalling approximately 8.0% to 8.8% (UK) and 9.5% (France) are assumed on the notional sales in the tenth year in
relation to freehold and long leasehold stores.
Short leaseholds (UK)
The same methodology has been used as for freeholds, except that no sale of the assets in the tenth year is assumed but the
discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group's UK short-term
leasehold properties is 13.7 years (31 October 2015: 12.7 years). The average unexpired term excludes the French commercial
leases.
Short leaseholds (France)
In relation to the French commercial leases, C&W has valued the cash flow projections in perpetuity due to the security of
tenure arrangements in that market and the potential compensation arrangements in the event of the landlord wishing to take
possession. The valuation treatment is therefore the same as for the freehold properties. The capitalisation rates on these
stores reflect the risk of the landlord terminating the lease arrangements.
Investment properties under construction (UK only)
C&W has valued the stores in development adopting the same methodology as set out above but on the basis of the cash flow
projection expected for the store at opening and allowing for the outstanding costs to take each store from its current
state to completion and full fit out. C&W has allowed for carry costs and construction contingency, as appropriate.
Immature stores: value uncertainty
C&W has assessed the value of each property individually. However, five of the stores in the portfolio are relatively
immature and have low initial cash flow. C&W has endeavoured to reflect the nature of the cash flow profile for these
properties in its valuation, and the higher associated risks relating to the as yet unproven future cash flow, by
adjustment to the capitalisation rates and discount rates adopted. However, immature low cash flow stores of this nature
are rarely, if ever, traded individually in the market, unless as part of a distressed sale or similar situation. Although,
there is more evidence of immature low cash flow stores being traded as part of a group or portfolio transaction.
C&W considers there to be market uncertainty in the self-storage sector due to the lack of comparable market transactions
and information. The degree of uncertainty relating to the five immature stores is greater than in relation to the balance
of the properties due to there being even less market evidence that might be available for more mature properties and
portfolios.
C&W states that in practice, if an actual sale of the properties were to be contemplated then any immature low cash flow
stores would normally be presented to the market for sale lotted or grouped with other more mature assets owned by the same
entity, in order to alleviate the issue of negative or low short-term cash flow. This approach would enhance the
marketability of the group of assets and assist in achieving the best price available in the market by diluting the cash
flow risk.
C&W has not adjusted its opinion of fair value to reflect such a grouping of the immature assets with other properties in
the portfolio and all stores have been valued individually. However, C&W highlights the matter to alert the Group to the
manner in which the properties might be grouped or lotted in order to maximise their attractiveness to the marketplace.
C&W considers this approach to be a valuation assumption but not a Special Assumption, the latter being an assumption that
assumes facts that differ from the actual facts existing at the valuation date and which, if not adopted, could produce a
material difference in value.
Lotting of stores with customer transfers
Where stores within the portfolio are expected to close in the short term, C&W has assumed that a proportion of the
customer base from these stores will be transferred, at closure, to nearby stores also owned by the Group.
C&W has assumed that the properties that are closing would be sold together with the stores where customers will be
transferred to, in the event they were offered to the market. C&W considers this approach to be a valuation assumption but
not a Special Assumption, the latter being an assumption that assumes facts that differ from the actual facts existing at
the valuation date and which, if not adopted, could produce a material difference in value.
Valuation assumption for purchaser's costs
The Group's investment property assets have been valued for the purposes of the financial statements after adjusting for
notional purchaser's costs in the range of approximately 6.0% to 6.8% (UK) and 7.5% (France), as if they were sold directly
as property assets. The valuation is an asset valuation which is strongly linked to the operating performance of the
business. They would have to be sold with the benefit of operational contracts, employment contracts and customer
contracts, which would be difficult to achieve except in a corporate structure.
This approach follows the logic of the valuation methodology in that the valuation is based on a capitalisation of the net
operating income after allowing a deduction for operational cost and an allowance for central administration costs. A sale
in a corporate structure would result in a reduction in the assumed stamp duty land tax but an increase in other
transaction costs reflecting additional due diligence resulting in a reduced notional purchaser's cost of 2.75% of gross
value. All the significant sized transactions that have been concluded in the UK in recent years were completed in a
corporate structure. The Group therefore instructed C&W to prepare additional valuation advice on the basis of purchaser's
cost of 2.75% of gross value which are used for internal management purposes.
Sensitivity of the valuation to assumptions
All other factors being equal, higher net operating income would lead to an increase in the valuation of a store and an
increase in the capitalisation rate or discount rate would result in a lower valuation, and vice versa. Higher assumptions
for stabilised occupancy, absorption rate, rental rate and other revenue, and a lower assumption for operating costs, would
result in an increase in projected net operating income, and thus an increase in valuation.
9. Net assets per share
The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of net assets per
share information and these are shown in the table below.
2016£'m 2015£'m
Analysis of net asset value:
Net assets 587.4 490.6
Adjustments to exclude:
Fair value of derivative financial instruments (net of deferred tax) (17.7) 0.7
Deferred tax liabilities on the revaluation of investment properties 56.3 41.2
Adjusted net asset value 626.0 532.5
Basic net assets per share (pence) 281.5 236.2
EPRA basic net assets per share (pence) 300.0 256.4
Diluted net assets per share (pence) 279.5 234.4
EPRA diluted net assets per share (pence) 297.9 254.4
Number Number
Shares in issue 208,656,168 207,682,712
Basic net assets per share is shareholders' funds divided by the number of shares at the year end. Diluted net assets per
share is shareholders' funds divided by the number of shares at the year end, adjusted for dilutive share options of
1,480,168 shares (FY2015: 1,651,532 shares). EPRA diluted net assets per share exclude deferred tax liabilities arising on
the revaluation of investment properties. The EPRA NAV, which further excludes fair value adjustments for debt and related
derivatives net of deferred tax, was £626.0 million (FY2015: £532.5 million), giving EPRA net assets per share of 300.0
pence (FY2015: 256.4 pence). The Directors consider that these alternative measures provide useful information on the
performance of the Group.
EPRA adjusted balance sheet (non-statutory)
2016£'m 2015£'m Movement%
Assets
Non-current assets 1,017.2 833.6 22.0
Current assets 28.6 33.4 (14.4)
Total assets 1,045.8 867.0 20.6
Liabilities
Current liabilities (53.8) (44.4) (21.2)
Non-current liabilities (366.0) (290.1) (26.2)
Total liabilities (419.8) (334.5) (25.5)
EPRA net asset value 626.0 532.5 17.6
EPRA net asset value per share 300.0 pence 256.4 pence 17.0
10. Financial liabilities - bank borrowings and secured notes
Non-current 2016£'m 2015£'m
Bank loans and secured notes:
Secured 317.5 251.3
Debt issue costs (1.8) (1.8)
315.7 249.5
The Group's borrowings consist of bank facilities of £251 million and E70 million, which run to June 2020, and a $112.9
million US private placement note issue, originally of seven and twelve years with maturities extending to 2019 and 2024.
The blended cost of interest on the overall debt is 3.58% per annum.
The Group's UK bank facilities were increased by £45 million during the years, in advance of the Space Maker acquisition,
by the utilisation of £45 million of an uncommitted £60 million facility. The bank facilities attract a margin over
LIBOR/EURIBOR. The margin ratchets between 1.50% and 2.75%, by reference to the Group's performance against its interest
cover covenant. Approximately 56% of the drawn bank facilities have been hedged at an effective weighted average rate of
1.34% (LIBOR) or 0.309% (EURIBOR).
The Company also has in issue $65.6 million (FY2015: $65.6 million) 5.52% Series A Senior Secured Notes due 2019 and $47.3
million (FY2015: $47.3 million) 6.29% Series B Senior Secured Notes due 2024. The proceeds of the US private placement have
been fully hedged by cross currency swaps converting the US Dollar exchange risk into Sterling.
The bank loans and overdrafts are secured by a fixed charge over the Group's investment property portfolio. As part of the
Group's interest rate management strategy, the Group entered into several interest rate swap contracts, details of which
are shown in note 11.
Bank loans and secured notes are stated before unamortised issue costs of £1.8 million (FY2015: £1.8 million).
Bank loans and secured notes are repayable as follows:
Group
2016£'m 2015£'m
Between two and five years 278.7 220.6
After more than five years 38.8 30.7
Bank loans and secured notes 317.5 251.3
Unamortised debt issue costs (1.8) (1.8)
315.7 249.5
The effective interest rates at the balance sheet date were as follows:
2016 2015
Bank loans (UK term loan) Quarterly or monthly LIBOR plus 1.50% Quarterly or monthly LIBOR plus 1.50%
Bank loans (Euro term loan) Quarterly or monthly EURIBOR plus 1.50% Quarterly EURIBOR plus 1.50%
Private placement notes Weighted average rate of 6.21% Weighted average rate of 6.21%
The private placement secured loan notes bear interest at 5.83% on $65.6 million (FY2015: $65.6 million) and 6.7375% on
$47.3 million (FY2015: $47.3 million), as a result of cross currency swap agreements.
Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at 31 October in respect of which all
conditions precedent had been met at that date:
Floating rate
2016£'m 2015£'m
Expiring beyond one year 89.2 77.8
The carrying amounts of the Group's borrowings are denominated in the following currencies:
2016£'m 2015£'m
Sterling 187.0 146.0
Euro 37.8 32.1
US Dollar 92.7 73.2
317.5 251.3
11. Financial instruments
Financial instruments disclosures are set out below. Additional disclosures are set out in the Financial Review.
2016 2015
Asset£'m Liability£'m Asset£'m Liability£'m
Interest rate swaps 0.1 (3.4) - (0.8)
Cross currency swaps 20.8 - 0.6 (0.6)
20.9 (3.4) 0.6 (1.4)
The fair value of financial instruments that are not traded in an active market, such as over the counter derivatives, is
determined using valuation techniques. The Group obtains such valuations from counterparties who use a variety of
assumptions based on market conditions existing at each balance sheet date.
The fair values of all financial instruments are equal to their book value, with the exception of bank loans which are set
out below. The carrying value less impairment provision of trade receivables, other receivables and the carrying value of
trade payables and other payables approximate their fair value.
The fair value of bank loans is calculated as:
2016 2015
Book value£'m Fair value£'m Book value£'m Fair value£'m
Bank loans 315.7 327.6 249.5 259.3
Fair value hierarchy
IFRS 13 requires fair value measurements to be recognised using a fair value hierarchy that reflects the significance of
the inputs used in the measurements, according to the following levels:
Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable market data.
The table below shows the level in the fair value hierarchy into which fair value measurements have been categorised:
Assets per the balance sheet 2016£'m 2015£'m
Derivative financial instruments - Level 2 20.9 0.6
Liabilities per the balance sheet 2016£'m 2015£'m
Derivative financial instruments - Level 2 3.4 1.4
There were no transfers between Levels 1, 2 and 3 fair value measurements during the current or prior year.
Over the life of the Group's derivative financial instruments, the cumulative fair value gain/loss on those instruments
will be £nil as it is the Group's intention to hold them to maturity.
Interest rate swaps not designated as part of a hedging arrangement
The notional principal amounts of the outstanding interest rate swap contracts at 31 October 2016 were £100 million and E30
million (FY2015: £90 million and E30 million). At 31 October 2016 the weighted average fixed interest rates were Sterling
at 1.34% and Euro at 0.309% (FY2015: Sterling at 1.447% and Euro at 0.309%) and floating rates are at quarterly LIBOR and
quarterly EURIBOR. The LIBOR swaps and the EURIBOR swaps expire in June 2020. The movement in fair value recognised in the
income statement was a net loss of £2.4 million (FY2015: £1.2 million).
Cross currency swaps not designated as part of a hedging arrangement
The Group entered into cross currency swaps to mitigate the foreign exchange risk arising on future interest payments and
the principal repayments arising from the $65.6 million and $47.3 million US Senior Secured Notes. These cross currency
swaps commenced in May 2012 and terminate in 2019 and 2024 in line with the maturity of the notes. The movement in fair
value during the year recognised in the income statement was a net gain of £20.8 million (FY2015: £3.1 million).
Financial instruments by category
Assets per the balance sheet Loans andreceivables£'m Assets at fairvalue throughprofit and loss£'m Total£'m
Trade receivables and other receivables excluding prepayments 17.0 - 17.0
Derivative financial instruments - 20.9 20.9
Cash and cash equivalents 5.4 - 5.4
As at 31 October 2016 22.4 20.9 43.3
Liabilities per the balance sheet Liabilities at fairvalue throughprofit and loss£'m Other financialliabilities atamortised cost£'m Total£'m
Borrowings (excluding finance lease liabilities) - 315.7 315.7
Finance lease liabilities - 58.9 58.9
Derivative financial instruments 3.4 - 3.4
Payables and accruals - 28.3 28.3
As at 31 October 2016 3.4 402.9 406.3
Assets per the balance sheet Loans andreceivables£'m Assets at fairvalue throughprofit and loss£'m Total£'m
Trade receivables and other receivables excluding prepayments 14.4 - 14.4
Derivative financial instruments - 0.6 0.6
Cash and cash equivalents 13.8 - 13.8
As at 31 October 2015 28.2 0.6 28.8
Liabilities per the balance sheet Liabilities at fairvalue throughprofit and loss£'m Other financialliabilities atamortised cost£'m Total£'m
Borrowings (excluding finance lease liabilities) - 249.5
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