Big Yellow Regulatory News (BYG)

Big Yellow Group PLC

Results for the YEAR ended 31 MARCH 2022

Strong full year results driven by rate and occupancy

1 See note 28 for glossary of terms

2 The like-for-like metrics exclude stores opened in the current and preceding financial years, and the Armadillo stores

3 The increase in closing net rent per sq ft is lower than the like-for-like increase in closing net rent per sq ft due to the inclusion of the regional Armadillo stores which were acquired on 1 July 2021

Highlights

Nicholas Vetch, Executive Chairman of Big Yellow, commented:

"The Group has delivered strong revenue growth, driving earnings growth from a combination of occupancy, improvements in average net rent driven by our yield management systems, and the accretive acquisition of Armadillo.

The business delivered very strong occupancy growth from the end of the first lockdown in 2020 through to last summer, benefiting from an acceleration in certain structural trends around housing, working from home, the move to online trading and the like. These trends, combined with the shortage of quality flexible mini-warehousing space, from which to operate small scale storage and e-fulfilment is helping to drive our demand. We believe these are long-term trends. 

Since our last results, the events in Ukraine have added to macroeconomic uncertainty. We spend considerable time planning for such situations, having successfully navigated two crises since the Global Financial Crisis. 

We enjoy over 10 times interest cover from cash flows that may not be immune to adversity but have proven themselves to be resilient for over twenty years.

Our task is not only to defend well, but also to find new advantage and opportunity at times like this, which we are in a position to do given the strength of our capital structure and business model."

ABOUT US

Big Yellow is the UK's brand leader in self storage. Big Yellow now operates from a platform of 105 stores, including 24 stores branded as Armadillo Self Storage. We own a further 12 self storage development sites of which seven have planning consent. The current maximum lettable area of the existing platform is 6.1 million sq ft. When fully built out the portfolio will provide approximately 7.1 million sq ft of flexible storage space. 98% of our stores and sites by value are held freehold and long leasehold, with the remaining 2% short leasehold.

The Group has pioneered the development of the latest generation of self storage facilities, which utilise state of the art technology and are located in high profile, accessible, main road locations. Our focus on the location and visibility of our stores, with excellent customer service, a market-leading online platform, and significant and increasing investment in sustainability, has created in Big Yellow the most recognised brand name in the UK self storage industry.

Chairman's Statement

Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company"), the UK's brand leader in self storage, is pleased to announce its results for the year ended 31 March 2022.

We acquired the 80% of the Armadillo store portfolio that we did not previously own on 1 July 2021, and these results therefore benefit from consolidating the Armadillo business for nine months of the year. The Armadillo portfolio has been managed as part of our operating platform and has therefore been fully integrated for many years. In these results we have separated out the Armadillo performance in the portfolio summary to provide a transparent understanding of the performance of the business. 

The Group has delivered strong revenue growth, driving earnings growth from a combination of occupancy, improvements in average net rent driven by our yield management systems, and the accretive acquisition of Armadillo.

The business delivered very strong occupancy growth from the end of the first lockdown in 2020 through to last summer, benefiting from an acceleration in certain structural trends around housing, working from home, the move to online trading and the like. These trends, combined with the shortage of quality flexible mini-warehousing space, from which to operate small scale storage and e-fulfilment is helping to drive our demand. We believe these are long-term trends. 

As expected, we did see a return to our more normal seasonal fall in occupancy in the third quarter of the financial year, accentuated by a very strong early summer which in itself was partially influenced by distortions caused by the stamp duty holiday coming to an end. 

In the fourth quarter, we would normally see increasing occupancy growth from mid-February to the end of March. We have experienced some softness in demand since the tragic events began to unfold in Ukraine, following the Russian invasion. As a consequence, our occupancy performance was largely flat in the fourth quarter with a small gain, with year-on-year like-for-like revenue growth of 10% largely driven by increases in net achieved rents. This is a needs-driven business with many of our customers making significant decisions around moving, business start-ups, extensions and the like, and at times of significant uncertainty there can be some hesitancy; although, based on previous experience, these decisions are often only deferred. We are now some weeks on, and we are seeing an improvement in the demand picture with prospects and move-ins up on last year in April. We can also state that the trading patterns in our business in terms of move-ins and move-outs have now normalised, following two years of pandemic related distortions.

Financial results

Revenue for the year was £171.3 million (2021: £135.2 million), an increase of 27%.  Like-for-like store revenue growth (see note 28) was 13% driven by a combination of increases in average occupancy and average net rent.  Like-for-like store revenue excludes new store openings, and the impact of the acquisition of the remaining interest in Armadillo. Armadillo was previously equity accounted as an associate, and from 1 July 2021 is consolidated, as we now own 100%. 

Store revenue for the fourth quarter was £43.9 million, an increase of 30% from £33.8 million for the same quarter last year. 

Operating cash flow (after net finance costs) increased by £30.4 million (40%) to £107.1 million for the year (2021: £76.7 million). 

The Group made an adjusted profit before tax in the year of £96.8 million up 30% from £74.6 million in 2021. EPRA earnings per share increased by 24% to 52.5p (2021: 42.4p) with an equivalent 24% increase in the dividend per share for the year. 

The Group's statutory profit before tax was £698.9 million, an increase of 163% from £265.8 million in the prior year with a higher revaluation gain on our investment properties in the year, reflecting the growth in cash flow and some improvement in cap rates.  The Financial Review and note 15 contains further details on the Group's valuation, which has this year been carried out for the first time by Jones Lang Lasalle.

Acquisition of Armadillo

On 1 July, the Group acquired the remaining 80% interest in Armadillo which it did not previously own from its JV partners. The total consideration was £119 million, including underlying debt of £50.9 million for a Year One net operating income ("NOI") yield of 7.7% (based on a projected NOI of £10.9 million). The acquisition was funded by a combination of equity from last summer's placing and the pre-existing debt and is, and continues to be, earnings enhancing.

The Armadillo portfolio is more regional and as a result the proportion of our revenue derived from London and the South East reduced from 82% to 74%, albeit we expect this weighting to revert over the medium term to over 80%, given our development pipeline is focused largely on London and the South East. Armadillo represents 11% of the Group's total combined EBITDA and 12% of revenue.

We continue to look to acquire existing assets into the business which meet our requirements in terms of location, quality of build, environmental rating, and capacity. 

Investment in new capacity

We opened three new stores in the year adding 185,000 sq ft to our platform. Initial trading has been encouraging, with Uxbridge (opened June 2021) at 75% occupancy at the date of these results, Hayes (opened January 2022) at 21% occupancy and Hove (opened mid-March 2022) at 22% occupancy. Uxbridge broke even at the EBITDA level within four months of opening, and we expect the other two stores to start making a positive contribution to earnings this year. We will continue to open our pipeline stores and are now seeing the benefit of several years building up the development pipeline and successfully gaining planning consents. 

Site acquisitions

In our core area of operation, being London and its commuter towns, we continue to see increased competition for sites from urban logistics and the industrial sector alongside mixed use residential and other uses. Opportunities are scarce and well-bid when they do come along, particularly in London. 

In April the Group acquired a prime Zone 2 0.9 acre site on Regis Road in Kentish Town, North London for £16.5 million. We will be seeking planning permission for a 68,000 sq ft self storage centre on the site. 

In June the Group acquired 66 Hammersmith Road, West Kensington, in London for £26 million. This is a strategic acquisition adjacent to the Olympia conference centre, a short distance from one of the wealthiest and densest enclaves in London. Subject to planning, the store is currently estimated to open in 2025, and will provide approximately 175,000 sq ft of space, including 7,000 sq ft of SME space. 

Planning

The planning system remains complex and a time-consuming process. During the year we were pleased to be granted planning consents for new stores in Slough and Newcastle. Seven of the 12 stores in our development pipeline now have planning consent, with the balance at various stages of planning.

Development pipeline

Big Yellow now has a pipeline comprising 12 development sites with a cost to complete of approximately £190 million, which will be phased over the next five years as we build out stores.  As a result of the well-documented supply chain, Covid-related issues, and rising energy, labour, and raw materials costs, we are experiencing higher than normal inflation in construction costs. We have reflected this in the projected costing of our pipeline and will continue to keep it under review.

These store openings are expected to add approximately 1.0 million sq ft of storage space to the portfolio, an increase of 16% from the current maximum lettable area of the Group's portfolio. There is also available capacity for growth in the open store portfolio of a further 1.0 million sq ft.

Our current estimate of net operating income at stabilisation, at today's prices, for the 12 store pipeline is approximately £30 million. The total development cost is estimated to be approximately £353 million implying an 8.5% net operating income return on cost.

Capital Structure

The Group's interest cover for the period (expressed as the ratio of cash generated from operations pre-interest against interest paid pre working capital movements) was 10.5 times (2021: 9.8 times). This is comfortably ahead of our internal minimum interest cover requirement of five times. 

Net debt is £411.8 million at 31 March 2022, and we have available liquidity of £162.8 million and the business continues to generate positive post-dividend cash flow both of which we will use to fund future growth. The average cost of debt on drawn facilities is now 3.1% and the marginal cost of RCF bank debt is currently 2.25%.

In addition, the Group has property surplus to its needs which will be sold over the medium term, generating net cash proceeds estimated currently at over £100 million. We were therefore very pleased to announce this morning the exchange of contracts on the sale of our industrial warehouse scheme at Harrow for gross sales proceeds of £61 million. Completion of the sale is conditional, inter alia, on practical completion of the development, and is expected to occur in August of this year. At 31 March 2022 the cost to complete the development was £4.5 million.

Dividends

The Group's dividend policy is to distribute a minimum of 80% of full year adjusted earnings per share. The final distribution of PID declared is 21.4 pence per share. This brings the total distribution declared for the year to 42.0 pence per share representing an increase of 24% from 34.0 pence per share last year. 

Our people

The last two years has been very challenging for everyone with significant and continuing uncertainty and against all of that we have managed, not only to remain open for business, but also to improve our operations with many enhancements, continue to expand, and deliver what are excellent results. 

This can only be achieved when our colleagues feel valued in a culture which is inclusive with high levels of employee engagement - one of the key planks of our business strategy from day one. I would like to thank all of the team for their continued efforts over the last year.

Board

Michael O'Donnell joined the Board as a Non-Executive Director with effect from 1 September 2021. Michael is a former Managing Director of LGV Capital, a private equity firm, and has significant corporate experience, with a focus on high-growth companies.

Richard Cotton will be stepping down from the Board at the Annual General Meeting in July 2022, after serving his full term as a Non-Executive.  I have worked with Richard for nearly thirty years: he advised on the flotations of Edge Properties and in 2000 that of Big Yellow and a short while after his departure from investment banking joined our Board. In that time few days have passed when I have not sought his advice and the best of counsel it has been. Whatever successes this Company has enjoyed it is in good part due to his involvement, for which I thank him.

Outlook

Since our last results, the events in Ukraine have added to macroeconomic uncertainty. We spend considerable time planning for such situations, having successfully navigated two crises since the Global Financial Crisis. 

We enjoy over 10 times interest cover from cash flows that may not be immune to adversity but have proven themselves to be resilient for over twenty years.

Our task is not only to defend well, but also to find new advantage and opportunity at times like this, which we are in a position to do given the strength of our capital structure and business model.

Nicholas Vetch

Executive Chairman 23 May 2022

CEO introduction

When we reported our results at the interim stage and in January for the third quarter, we were looking forward to a normalisation of our trading as the economy fully reopened with Covid risks receding. The 24th of February Russian invasion of Ukraine and the tragic events that have been unfolding are not only a humanitarian crisis, but have also increased uncertainty and stoked inflation.  Once again, I was impressed by how our teams around the country responded to requests from local community groups for packing materials and storage to support their collection of vital goods prior to being transported to Poland and other EU border countries. The support for local charities through the provision of free storage space is something we have done for many years and there are currently over 200 local charities across the business receiving free or discounted storage. In the year ended 31 March 2022, the total cost of free or discounted storage and packing materials was over £300,000. 

Nick Vetch has recently, with others, founded a charity called Ukrainian Sponsorship Pathway UK ("USPUK") to help Ukrainians displaced by the war to travel to the UK as part of the "Homes for Ukraine" scheme. The charity has set up offices in Warsaw and Krakow and is one of the few that has been recognised for this purpose by the UK Government. We are proud to be financial supporters of this new charity and the Board approved a donation in May 2022 of £50,000. Nick, Richard Cotton and myself have all made personal donations and Heather Savory has kindly volunteered as a Trustee of the charity.

Over the two year pandemic period, we have remained open for trading thanks to the loyalty, determination, and conscientiousness of our teams, providing our services to businesses, individuals, and charities. Furthermore, we have made significant progress on a number of fronts in developing and growing our business.

In response to feedback from our colleagues and some of the learnings of trading through the pandemic, we have increased our investment in, and focus on, inclusivity, diversity, and wellbeing. We do believe that we have a highly engaged and positive culture. We carry out externally facilitated surveys of our colleagues every two years and responded to last Autumn's with some key changes to improve work/life balance as follows:

Our Foundation continues to grow and over the last two years we have donated some £345,000 to our seven charity partners, St Giles Trust, Bounce Back, Back-up Trust, Street League, Down Syndrome Association, Breaking Barriers, and Hire a Hero, all of whom are focussed on the rehabilitation of those needing specialist support back into work.

Over the pandemic period, we continued to innovate and invest in our business to improve efficiency. Examples include a significantly improved check-in online system which was launched in the Spring of last year; our Learn digital training platform; paperless interaction with customers at stores; and a new digital facilities management system, which was launched recently. In addition, we have made further investment into our digital infrastructure, comms, and cyber security. We have always, and will continue to, invest in technology which can improve the customer experience and productivity and efficiency of all aspects of our business.

Since the first lockdown in the Spring of 2020, we have seen the benefit of the hard work our property team put into building our store pipeline, with the opening of six stores with a total storage space of 389,000 sq ft. All are performing well and making an increasing contribution to our growth in cash flow and earnings. This is illustrated in our portfolio summary, with the Big Yellow stores which are less than three years old increasing their EBITDA by £3.0 million during the year to £3.7 million, with their EBITDA margin increasing from 28.0% to 51.9%. Having opened these stores it is important that we continue to acquire new sites, and in the last year we have acquired two development sites in Kentish Town and West Kensington in addition to the three acquired the year before. Our current pipeline consists of 12 development sites with the potential to add 1.0 million sq ft. Seven of these have planning consents, following the grant of planning consents for Slough and Newcastle during the year, with the planning applications on Wapping and Staines currently submitted pending a decision this Summer. 

We started managing the first ten Armadillo stores in 2009 and were successful in acquiring them in joint venture with our Australian partners five years later when they were put up for sale. Our strategy at the time was to grow this regional brand through acquisition of existing stores that met key requirements for us around the location, the quality of the building and a minimum size. We would then rebrand these new stores and add them seamlessly to our digital platforms alongside the Big Yellow store portfolio. They are managed in exactly the same way and have allowed us to expand our store network into parts of the country where we were unlikely to build a Big Yellow but were still reasonably sized urban conurbations. This network has allowed us to improve the efficiency of our central overhead, particularly marketing, service our national customers more efficiently, and also to provide an opportunity for our people to move around the business with more opportunity for promotion. Following discussions with our JV partner, we successfully acquired the 80% of the Partnership we did not own, funded by a placing and the assimilation onto our balance sheet of the existing bank debt. This transaction is earnings enhancing and very importantly has been well received by all the staff within Armadillo who are now firmly part of the Big Yellow family. There are no changes into how the portfolio has been operated since the acquisition and we will run it as a regional brand alongside Big Yellow. We intend to make existing store acquisitions in the future, alongside our new-build development programme, however finding product of the right quality, particularly around environmental standards, remains difficult. 

Sustainability remains a key focus and during the year we were pleased to publish our Net Renewable Energy Positive and Net Zero Strategy. We have installed solar PVs on all new stores since 2008 and will continue to do so. However, we have commenced a £10 million programme to retro-fit solar PV across 36 existing Big Yellow stores to maximise their solar energy generation, with the first 12 completing by this Autumn. We also in the process of reviewing the Armadillo portfolio with a view to increasing this investment and adding them to the programme.

The Sustainability Committee has approved stretching Science Based Targets which will be published as part of our full 2022 CSR report. I am fully aware that getting to Net Zero is a challenge for all businesses and we as a Board are committed to meeting that challenge in the coming years. Battery technology will be a key aspect of any carbon reduction strategy and we have recently commenced a battery pilot study at our Guilford Central store, the aim being to improve our energy management at stores. Battery technology will doubtless develop further, and I am excited at the possibility of retaining self-generated electricity for use at our stores rather than sending it to the grid. 

Turning to our results, this has been a strong performance and over the last year reflecting a significant increase in occupancy over the summer and consequent increase in average rents. Self storage has a very broad and diverse customer base with demand largely driven by need, with the average customer moving out in a year staying some 8 months with over half of our customers staying more than 12 months and some 40% more than two years. Our customer licence provides flexibility to the customer in that they stay for as long as they need the space and can leave with a week's notice, but it does allow us to move pricing regularly with 30 days' notice. As a consequence, we can deploy strategies to increase our pricing in a higher inflationary environment, so as to protect our operating margins. In October last year we increased our scheduled rents to reflect projected levels of inflation and our yield management systems have been adjusted to deliver higher levels of rental growth. Our aim is to achieve sustainable rental growth over the long term.

From mid-April we are seeing an improvement in demand after the initial shock of the Ukraine conflict. We remain confident in our business model and are looking forward to our seasonally stronger summer trading period in an economy that has fully reopened. 

Jim Gibson, Chief Executive Officer

Marketing and Operational Review

The store platform

We now have a portfolio of 105 open and trading stores, with a further 12 development sites.  The current maximum lettable area of the 105 stores is 6.1 million sq ft. When fully built out the portfolio will provide approximately 7.1 million sq ft of flexible storage space.

Activity

The tables below show the quarterly move-in and move-out activity over the year for the 81 Big Yellow stores, as we acquired the remaining interest in Armadillo during the year:

The first quarter in the prior year saw a significant decrease in activity caused by the Spring 2020 lockdown. Move-ins and move-outs in the first quarter this year are therefore showing a significant increase on last year, with a more normalised move-in picture in the second quarter. We saw strong demand from domestic customers in the first quarter of this year in part due to the stamp duty holiday tapering off from 1 July. This resulted in an acceleration of housing-related demand in June. We also saw the return of student demand in June as universities looked to re-open their campuses for conferences. Some of this occupancy growth from both the housing and student sectors was relatively short-term, impacting occupancy performance in the second quarter. In the quarter to March activity levels were impacted in the latter part of the quarter by some consumer hesitancy following the invasion of Ukraine. In April 2022, average move-ins per store were up 11% on April 2021, with move-outs up 5%.

In the prior year, move-outs took longer to normalise, hence we are showing an increase in move-outs compared to the year ended 31 March 2021. We have also included the data for the year ended 31 March 2020, which shows more normalised levels of move-ins and move-outs this year compared to that year.

We did see an increase in move-outs in July and October 2021, some of which was related to the gradual tapering off of the stamp duty holiday with key dates being 30 June and 30 September when it ended. Move outs normalised in the fourth quarter compared to 2020.

Move-ins for the Armadillo stores for the year were up 12% on the prior year, and up 12% on 2020, with move-outs up 25% on 2021, and up 12% on 2020.

The average space occupied by business customers at the period end has remained at 180 sq ft. Domestic customers occupy on average 59 sq ft (up from 57 sq ft last year) and pay on average 21% more in rent per sq ft (2021: 22%), however business customers do stay longer and take more space and represent around 32% of revenue (2021: 31%). 

In all Big Yellow stores, occupancy for the year increased by 91,000 sq ft, against an increase of 420,000 sq ft in 2021 and a fall of 29,000 sq ft in 2020. The quarterly movement is shown in the table below:

The occupancy performance in the prior year was very strong with the pandemic accelerating many structural changes that were already occurring, such as the move to online retailing and an increase in working from home facilitated by technological advances. In addition, move-outs were below normal levels with customers on average staying longer. These developments, combined with the shortage of quality flexible mini-warehousing space, from which to operate small scale storage and e-fulfilment have been driving our demand. 2020 was impacted by the uncertainty around Brexit, and in the run up to the general election, with the final quarter impacted in March by the onset of the first lockdown. Nevertheless, this demand was largely deferred, and we have delivered significant occupancy growth over the last two years.

During the current year, we saw record occupancy growth in our first quarter, driven in part by the stamp duty holiday tapering off from 1 July. This resulted in an acceleration of housing-related demand in June, which in turn led to a small loss in occupancy in our second quarter, as we saw some short-term users vacate. The quarter to December saw a return to more normal seasonal losses, with the quarter to March impacted by the uncertainty triggered by the Russian invasion of Ukraine. 

The 73 established Big Yellow stores are 86.8% occupied compared to 87.7% at the same time last year. The eight developing Big Yellow stores added 129,000 sq ft of occupancy over the year to reach closing occupancy of 55.4%. The 24 Armadillo stores are 83.1% occupied, compared to 83.8% at this time last year. The occupancy loss for the Armadillo stores includes the impact of the fire at Cheadle (see Financial Review for further detail). Excluding this, the occupancy gain for the Armadillo stores for the year was 2,000 sq ft. Overall store occupancy was 83.7%.

With the exception of our recently opened stores at Hayes and Hove, all stores are trading profitably at the EBITDA level. The table below shows the average per store key metrics across the store portfolio (from the Portfolio Summary) for the year ended 31 March 2022:

Pricing and net rent per sq ft

We offer a headline opening promotion of 50% off for up to the first 8 weeks, and we continue to manage pricing dynamically, taking account of room availability, customer demand and local competition. Our pricing model reduces promotions and increases asking prices where individual units are in scarce supply. This lowering of promotions, coupled with price increases to existing and new customers, leads to an increase in net achieved rents. Rental growth can also be driven through sub-dividing larger rooms into smaller rooms, which yield a higher net rent per sq ft. We have increased our scheduled rents in line with current inflation. 

As a result of these changes, given our higher levels of occupancy, we are seeing improving growth in net rent per sq ft. The average achieved net rent per sq ft increased for Big Yellow stores by 8% compared to the prior year, with closing net rent up 10% compared to 31 March 2021. The average achieved net rent per sq ft grew by 10% from last year in the Armadillo stores and closing net rent per sq ft increased by 11% from 31 March 2021.

The table below shows the change in net rent per sq ft for the combined Big Yellow and Armadillo portfolio by average occupancy over the six months (on a non-weighted basis). The analysis excludes our most recent store openings.

Development pipeline

We own 12 development sites, seven of which have planning consent. The status of the Group's development pipeline is summarised in the table below:

The Group manages the construction and fit-out of its stores in-house, as we believe it provides both better control and quality, and we have an excellent record of building stores on time and within budget. 

Marketing and ecommerce

Our marketing strategy focuses on building our market-leading brand awareness further and using it to maximise the cost-efficient generation of enquiries, customer move-ins and user satisfaction through our digital platforms. Our strong brand and continued digital investment and innovation has helped us create a market-leading website which delivers over 90% of our enquiries.

Our annual YouGov survey (published April 2022) again confirmed that the brand awareness of Big Yellow remained ahead of other UK operators in the sector. The survey shows our unprompted brand awareness to be nearly six times higher than our nearest competitor across the UK.

The Big Yellow website allows users to browse different room sizes, obtain a price, reserve online and check-in online. 

The online customer experience also allows customers to communicate with us in real-time via Live Chat, WhatsApp, or Facebook Messenger. The comprehensive online FAQs provide our users with another way to ask questions they may have about the service without needing to call us directly.

The seamless digital experience continues with our online check-in platform. This allows customers to complete the majority of their move-in process remotely. They can upload their photo and identity documents, sign the full customer licence, set up authorised persons, complete their storage inventory and set up a paperless Direct Debit - all done remotely. This check-in online capability has significantly cut down the time our customers need to spend in our receptions when they move-in. The final process is completed through our in-store digital signature pads.

We also offer the ability to purchase boxes and packing materials through our online BoxShop store. These items can be home delivered or made available for our Click and Collect service from stores.

Driving online traffic

Self storage is a consumer-facing business, and the development of a strong and sustainable brand is multi-layered and requires a consistency of product, customer service and interaction at all touch points, particularly online. 

Search engines are the most important acquisition tool for us, accounting for the majority of traffic to our website. Our focus for a competitive advantage on search continues and search engine optimisation ("SEO") work has helped us to maintain high organic listings for popular generic and local self storage related search terms. This in turn drives the growth and cost efficiencies of acquiring new prospects.

Brand search terms are also a valuable driver of enquiries for Big Yellow and help improve the efficiencies of our cost per enquiry. 37% of all traffic generated from search engines to our website originated from "Big Yellow" brand searches in the year.

This clearly indicates, that although self storage is a relatively immature industry with approximately 70% of customers using it for the first time, brand is important in driving higher levels of prospects and customer referrals, leading to improved operational efficiencies. 

We have demonstrated this through significant improvements in the performance of existing storage centres following their acquisition, re-branding, and assimilation into our business. 

Search engine marketing remains our largest source of paid for web traffic. Ongoing website optimisation and an engaging user experience through our digital platforms helps ensure we maximise the conversion of these web visits into enquiries and then customers.

Digital display advertising enables us to regionally target audiences in the market for self storage, raising consideration of the service and the Big Yellow brand through engaging creatives.

Online customer reviews and social media

Supporting our values of putting the customer at the heart of our business, our online customer reviews generate real-time feedback from customers and provide positive word of mouth referral to our website visitors. Through our 'Big Impressions' customer feedback programme, we ask our new customers to rate our service. With the users' permission, we then publish these independent customer reviews on the Big Yellow website which currently total over 42,000, averaging 4.8 out of 5. 

The Big Impressions programme also generates customer feedback on their move-out experience and from prospects who decided not to store with us. These customer reviews and mystery shop results are transparently accessible across the business and helps reinforce our focus on outstanding customer service.

We also gain real-time customer feedback from over 15,500 Google Reviews averaging 4.6 out of 5. These help to enhance our visibility within local search listings conveying trust in the Big Yellow brand. Additionally, we have over 3,200 reviews from the independent review site TrustPilot. These reviews average a 4.7 out of 5-star rating, labelled as "Excellent" on the TrustPilot ratings scale.

We monitor our customer reviews and respond where necessary for customer service reasons or to manage our online reputation and improve our service offering.

Social media continues to be complementary to our existing marketing channels. Big Yellow actively posts content across Twitter, Facebook and Instagram which help to raise awareness of our CSR activities. These social channels are also used by customers to connect with us and are monitored in real-time, enabling us to respond promptly to any enquiries.

The Big Yellow LinkedIn platform is used to communicate company achievements, CSR initiatives and company culture.

The Big Yellow YouTube channel is used to allow web prospects to experience our stores online through our video guides to self storage. The online blog is updated regularly with tips and advice for homeowners and businesses, as well as summaries of our charitable and CSR initiatives. 

Sustainability

We have developed a new long-term strategy to become Net Renewable Energy Positive and deliver Net Zero Scope 1 and 2 Emissions targets, which will be funded with significant investment from the Group over the next few years. The main delivery vehicle for this new strategy will be the installation of solar generation capacity onto our existing store estate. By 2025, we expect to have completed a multi-million pound investment in renewable energy generation both on the roofs of our estate and also at other locations.

During the year we published our Strategy document that sets out our Commitments, Actions and Timelines to become 100% Renewable Energy Positive and Net Zero Scope 1 and 2 Emissions by 2030.

The sustainability performance highlights for the year are:

Foundation and charitable activities

The Foundation has continued to support our seven established charity partners during the year. The Foundation has raised funds of £172,000 during the year and has paid out £198,000 in grants, in response to requests for additional funding from some of our charity partners. 

Big Yellow's community investment for the year, delivered via discounted space, was £306,000, £284,000 of which was given free of charge. Our stores allocate this space to worthy local charitable organisations and not-for-profits and we house different organisations, from foodbanks to small community groups to NHS partners. 

Cyber security and IT infrastructure

Cyber security remains high on the agenda within the Group, and we make investment where required in response to the ever-changing threat landscape. Using both external specialists and in-house knowledge we perform regular reviews of our cyber risk and security posture. Testing of both systems and people is carried out on a regular basis, including penetration testing and phishing simulations. During the year the Group's systems were subject to an external audit and achieved IASME Gold certification. This also incorporates Cyber Essentials. The Board receives bi-monthly reports on the Group's IT infrastructure and information security. The Group has not experienced an information security breach in the past three years and has cyber insurance in place in the event that a breach should occur in the future.

Our Data Compliance Officer oversees our ongoing compliance with GDPR and PCI DSS. The role also includes Business Continuity and Crisis Communication management. Policies and procedures are under regular review and benchmarked against industry best practice. There are mandatory courses for all staff to complete both for Information Security and Data Protection. Our Infrastructure and Development teams continue to drive innovation and efficiencies throughout the Group.

The self storage market opportunity

In the recently published 2022 Self Storage Association UK Survey, only 51% of those surveyed had a reasonable or good awareness of self storage. Furthermore, only 8.5% of the 2,057 adults surveyed were currently using self storage or were thinking of using self storage in the next year. This indicates a continued opportunity for growth and with increasing use of self storage, together with the ongoing marketing efforts of everyone in the industry, we anticipate awareness will continue to grow.

Self storage is not a commoditised product and awareness is driven largely by businesses and individuals using self storage. Consequently, the increase in awareness over time has been relatively slow, with good awareness of self storage increasing from 38% in 2014 to 51% in 2022 across the UK (source: UK SSA Survey 2022). Our YouGov Survey carried out in April 2022 showed higher levels of awareness in London of 63%.

Occupancy rates across the UK industry at 31 December 2021 of built space was 83.3%, compared with approximately 60% in December 2008. This has increased from 76.2% at the start of the pandemic.

Growth in new facilities across the industry has been largely in regional areas of the UK and particularly in smaller towns.  Historically, new supply creation in our core markets in London and the South East, has been difficult, with high land values driven by competing uses such as residential and urban industrial.  In London in the year to 31 December 2021, there were seven new store openings, including one Big Yellow store. We are aware of five planned store openings in London in calendar year 2022, including three Big Yellow stores.

The Self Storage Association ("SSA") estimates that the UK industry is made up of approximately 1,429 self storage facilities and 621 purely container operations, providing 52 million sq ft of self storage space, equating to 0.76 sq ft per person in the UK. This compares to 9.4 sq ft per person in the US, 1.9 sq ft per person in Australia and 0.16 sq ft for mainland Europe, where the roll-out of self storage is a more recent phenomenon (sources: UK Self Storage Association Surveys, May 2020, and May 2022 and FEDESSA European Self Storage Annual Survey 2021).

Big Yellow is well placed to benefit from the growing self storage market, given the strength of our brand, and our online platform which delivers over 90% of our prospect enquiries. Our portfolio is strategically focussed on London, the South East and large metropolitan cities, where barriers to entry and economic activity are at their highest.

Store operating model

Our store model is well established. The "typical" store has 60,000 sq ft of MLA and takes some three to four years to achieve 85% plus occupancy. The average room size occupied in the portfolio is currently 69 sq ft compared to 67 sq ft last year. The store is open seven days a week and is initially run by three staff, with a part time member of staff added once the store occupancy justifies the need for the extra administrative and sales support.

There has been some debate in the self storage industry around fully automated stores. It is very important for us to maintain a physical, face-to-face interaction with our customers when they arrive at our stores to move-in or move-out. This is imperative to help us achieve our company values of helpfulness, empathy, and flexibility towards our customers. It is also critical for us to monitor and operate a safe working environment for everyone, including our staff. This is akin to renting a car but with some final checks and balances, which require our staff in store.

70% of our new customers have not used self storage before, and they will want to see the storage room for themselves before moving in. We want to be on hand to ensure they are satisfied with their choice and to accommodate them if they are not.

Face-to-face interactions also allow us to check the individual customer moving in matches the identity documents they have uploaded when checking-in online. From a health and safety perspective, we need our teams at the store to ensure the stores and customers are operating safely. They carry out fire-risk assessments, provide additional business services such as accepting deliveries on behalf of our business customers, manage occupancy levels and deliver ancillary sales of insurance and packing materials.

The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. We measure customer service standards through a programme of mystery shopping and online customer reviews, which are externally managed. Over the year, we have achieved an average net promoter score of 78.9 from customers who moved in and moved out of the business.

The store bonus structure rewards occupancy performance, sales growth and cost control through quarterly targets based on occupancy and store profitability, including the contribution from ancillary sales of insurance, and packing materials. Information on bonus build-up is circulated monthly and stores are consulted in preparing their own targets and budgets each quarter, leading to improved visibility, a better understanding of sales lines and control of operating costs.

We believe that, as a consumer-facing branded business, it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £40,000 per store, which is included within cost of sales. This excludes our rolling programme of store makeovers, which typically take place every five years, at a cost of approximately £20,000 per store. 

Demand

Demand for self storage is largely driven by need, with security, convenience, quality of product, service and location being key drivers. Awareness remains relatively low compared to commoditised products, such as hotel rooms or airline seats, albeit it is increasing slowly year-on-year with increased supply, marketing expenditure and customer use.

We are confident that we benefit disproportionately from this improving market for our product, due to our market-leading brand and operating platform with our focus on London, the South East and large metropolitan cities. 

Customers renting storage space whilst moving within the rental or owner-occupied sectors represent 41% of move-ins during the year (2021: 39%), split approximately 65/35 between homeowners and renters (2021: 60/40). 12% of our customers who moved in took storage space as a spare room for decluttering (2021: 13%). 34% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited possessions, are getting together, or separating, are students who need storage during the holidays, or homeowners developing into their lofts or basements (2021: 34%). The balance of 13% of our new customer demand during the year came from businesses (2021: 14%). 

Of our overall occupied space today, customers who are longer stay lifestyle users, decluttering into small rooms as an extension to their accommodation, occupy 10% to 15% of our space; approximately 50% of the space is customers using it for less than 12 months, for reasons which are largely event driven, which could be inheritance, moving in the owner occupied or rental sector, home improvements, travelling; the balance of 37% of our space is businesses. Businesses occupy larger rooms on average than domestic customers and, despite being in 37% of the occupied space only represent 21% of customer numbers.

Over the past few years, there has been a growing trend towards self-employment and smaller business start-ups in the UK, dynamics that are positive for self storage. Additionally, businesses in the UK have been increasingly seeking flexible office and storage space rather than longer inflexible leases. The current crisis has accelerated the structural changes in retail that were already occurring, resulting in more demand from online retailers looking to trade without a physical high street presence. The deindustrialisation of big cities with the conversion of commercial space into residential and other uses, is also a driver for demand from the SME market seeking flexible warehouse space. We believe that these long-term trends will continue to drive demand for our product.

The Group has previously commissioned an external survey to assess the value the average Big Yellow store generates for its local economy to assist our discussion with local authorities around planning. Key highlights were:

Given the growth in homeworking over the past two years, this trend of businesses choosing to operate without needing the expense of office space may increase. Furthermore, increased homeworking in general may result in domestic customers taking small rooms to declutter and create space for home offices.

We have a dedicated national customers team for businesses who wish to occupy space in multiple stores. These customers are billed and managed centrally. We have four full time members of staff working on growing and managing our national customers. The national customers team can arrange storage at short notice at any location. In smaller towns where we do not have representation, we have negotiated sub-contract arrangements with other operators who meet certain operating standards.

 PORTFOLIO SUMMARY

(1) The Big Yellow established stores have been open for more than three years at 1 April 2021, and the developing stores have been open for fewer than three years at 1 April 2021.

(2) Armadillo's Cheadle store was destroyed by fire in February 2022. It is excluded from the closing occupancy and capacity figures, however its average occupancy, average net rent per sq ft, revenue and operating costs are included in the portfolio summary up to the date of the fire. 

(3) See glossary in note 28.

(4) Rent under IFRS 16 for eight short leasehold properties accounted for as investment properties and right-of-use assets under IFRS.

(5) The Group acquired the 80% of the Armadillo Partnerships that it did not previously own on 1 July 2021. The results of the stores in the Partnerships have been included in the results above for both years to give a clearer understanding of the performance of all stores. The table below shows the results excluding the period when the stores were not wholly owned:

The table below reconciles Store EBITDA to gross profit in the statement of comprehensive income.

(6) See note 3 of the financial statements, reconciling items are management fees and non-storage income.

(7) See reconciliation in cost of sales section in Financial Review.

(8) The rent shown above is the cost associated with leasehold stores, only part of which is recognised within gross profit in line with right-of-use asset accounting principles. The amount included in gross profit is shown in the reconciling items in cost of sales.

Financial Review

Financial results

Armadillo

As explained above, the Group acquired the remaining interest in Armadillo which it did not previously own on 1 July 2021. Armadillo currently consists of 24 stores with a maximum lettable area of 1.0 million sq ft. 

Revenue

Total revenue for the year was £171.3 million, an increase of £36.1 million (27%) from £135.2 million in the prior year. Like-for-like store revenue for the year was £148.1 million, an increase of 13% from the prior year (2021: £131.1 million). Like-for-like revenue excludes our six most recent Big Yellow store openings and the Armadillo stores. The revenue from the Armadillo stores for the nine months from acquisition of the remaining interest on 1 July 2021 to 31 March 2022 was £16.2 million.

Other sales comprise the selling of packing materials, insurance, and storage related charges. We saw growth of 13% in packing material sales during the year, with the prior year's sales impacted by the Spring lockdown. Insurance sales have also seen strong year-on-year growth, with improvements made to the average value insured.

The other revenue earned by the Group is management fee income from Armadillo (up to 30 June 2021) and tenant income on sites where we have not started development. 

Operating costs

Cost of sales principally comprise the direct store operating costs, including store staff salaries, utilities, business rates, insurance, a full allocation of the central marketing budget and repairs and maintenance. 

The table below shows the breakdown of both Big Yellow's and Armadillo's store operating costs compared to the prior year, with Armadillo's costs included in full in both years:

Store operating costs have increased by £2.3 million (5%). The one-off items in the current year relate to rates rebate on a number of stores, totalling £0.8 million, following appeals of the 2017 rating list assessment. Store operating costs before these one-off items have increased by £3.1 million (7%) compared to the prior year, of which £1.4 million (3%) is in relation to recently opened stores. The remaining increase of £1.7 million (4%) can be explained as follows:

Looking forward, we do see some inflationary pressures on our costs. Our store salary review for the year ending 31 March 2023 averaged 5%, with the lower paid staff seeing increases of on average 7%. The Rating Revaluation in 2023 is likely to result in an above inflationary increase to the Group's property rates for the year ending 31 March 2024, given the increase in industrial rents over the past few years. 

The table below reconciles store operating costs per the portfolio summary to cost of sales in the statement of comprehensive income:

Store EBITDA

Store EBITDA for the Big Yellow stores for the year was £110.8 million, an increase of £18.9 million (21%) from £91.9 million for the prior year (see Portfolio Summary).  The overall EBITDA margin for all Big Yellow stores during the year was 72.4%, up from 69.4% in 2021. 

The EBITDA for the Armadillo stores for the year was £13.1 million, an increase of £2.7 million (26%) from £10.4 million in 2021, with the margin increasing to 61.5% from 58.0%.

The store EBITDA in the year for Big Yellow stores and for the Armadillo stores from 1 July 2021 to 31 March 2022 was £120.9 million.

All stores are currently trading profitably at the Store EBITDA level, except for our recently opened stores in Hayes and Hove. 

Administrative expenses

Administrative expenses in the statement of comprehensive income of £14.4 million were up £2.2 million compared to the prior year. £0.4 million of this increase is due to the write-off of acquisition costs in relation to the purchase of the remaining interest in Armadillo in accordance with IFRS 3. This is an adjusting item in the calculation of the Group's adjusted profit before tax.

The remaining increase of £1.8 million is principally due an increase in the share-based payments charge (£0.5 million), an increase in national insurance on LTIPs (£0.5 million), both up due to the increase in the Company's share price during the year, with the balance of £0.8 million due to an increase in travel costs (with 2021's expense reduced by lockdowns), increased investment in IT, with the balance inflationary. 

The non-cash share-based payments charge represents £3.4 million of the overall £14.4 million expense (2021: £2.9 million of £12.2 million expense).

Interest expense on bank borrowings

The gross bank interest expense for the year was £11.8 million, an increase of £2.4 million from the prior year, due to higher average debt levels in the year, in part due to the acquisition of Armadillo and the consolidation of its debt from 1 July 2021. The average cost of borrowing during the year was 2.8% compared to 2.9% in the prior year. 

Capitalised interest on our construction programme was broadly in line with the prior year at £2.1 million.

Total finance costs in the statement of comprehensive income increased to £10.6 million from £8.2 million in the prior year.

Profit before tax

The Group made a profit before tax in the year of £698.9 million, compared to a profit of £265.8 million in the prior year. After adjusting for the gain on the revaluation of investment properties and other matters shown in the table below, the Group made an adjusted profit before tax in the year of £96.8 million, up 30% from £74.6 million in 2021.

The gain on disposal of investment property relates to an overage received from the previous sale of land adjacent to our Guildford Central store.

The movement in the adjusted profit before tax from the prior year is illustrated in the table below:

Basic earnings per share for the year was 385.4p (2021: 152.3p) and fully diluted earnings per share was 384.2p (2021: 151.8p). Diluted EPRA earnings per share based on adjusted profit after tax was up 24% to 52.5p (2021: 42.4p) (see note 12). EPRA earnings per share equates to the Company's adjusted earnings per share in the current year. 

REIT status

The Group converted to a Real Estate Investment Trust ("REIT") in January 2007. Since then, the Group has benefited from a zero tax rate on the Group's qualifying self storage earnings. The Group only pays tax on the profits attributable to our residual business, comprising primarily of the sale of packing materials and insurance.

REIT status gives the Group exemption from UK corporation tax on profits and gains from its qualifying portfolio of UK stores. Revaluation gains on developments and our existing open stores are exempt from corporation tax on chargeable gains, provided certain criteria are met. The Armadillo stores joined our REIT group on acquisition of the remaining interest, allowing us to write back the deferred tax that had been provided on previous revaluation uplifts.

The Group has a rigorous internal system in place for monitoring compliance with criteria set out in the REIT regulations. On a monthly basis, a report on compliance with these criteria is issued to the Executive. To date, the Group has complied with all REIT regulations, including forward looking tests. 

Taxation

There is a tax charge in the current year of £1.6 million. This compares to a charge in the prior year of £0.6 million. The increase in the current year tax charge reflects the significant increase in the Group's non-exempt taxable profits from the sale of insurance and packing materials over the year.

Dividends

The Board is recommending the payment of a final dividend of 21.4 pence per share in addition to the interim dividend of 20.6 pence, giving a total dividend for the year of 42.0 pence, an increase of 24% from the prior year, in line with our policy to distribute a minimum of 80% of our adjusted earnings per share in each reporting period. 

REIT regulatory requirements determine the level of Property Income Distribution ("PID") payable by the Group. On the basis of the full year distributable reserves for PID purposes, a PID of 42.0p pence per share is payable (31 March 2021: 32.0 pence). The PID for the year to 31 March 2022 accounts for all of the declared dividend. The table below summarises the declared dividend for the year:

Subject to approval by shareholders at the Annual General Meeting to be held on 21 July 2022, the final dividend will be paid on 29 July 2022. The ex-div date is 7 July 2022 and the record date is 8 July 2022.

Cash flow growth

The Group is strongly cash generative and draws down from its longer term committed facilities as required to meet its obligations. The Group's cash flow from operating activities for the year was £107.1 million, an increase of 40% from £76.7 million in the prior year. This reflects the Group's increase in profitability and also some favourable working capital movements in the year. 

These operating cash flows are after the ongoing maintenance costs of the stores, which for were on average approximately £40,000 per store. The Group's net debt has increased over the period to £411.8 million (March 2021: £325.0 million), with the majority of the increase due to the debt within Armadillo now being consolidated.

The Group's interest cover for the period (expressed as the ratio of cash generated from operations pre-working capital movements against interest paid) was 10.5 times (2021: 9.8 times). 

In the year capital expenditure outflows were £105.2 million, up from £73.0 million in the prior year. Of the capital expenditure in the year £51.0 million is for the acquisition of West Kensington, Kentish Town, and Epsom (including acquisition costs), with £54.2 million principally relating to build costs of the new stores.

The cash flow after investing activities was a net outflow of £63.4 million in the year, compared to an inflow of £4.7 million in 2021, with the difference largely explained by the purchase of the remaining interest in Armadillo during the year.

Balance sheet

Property

The Group's open stores and stores under development owned at 31 March 2022, which are classified as investment properties, have been valued individually by JLL. JLL were appointed as valuers during the year, with the Board taking heed of the recommendations of the Gray report, with the previous valuer having acted for the Group for more than the recommended nine-year term. JLL have previously been valuing the Armadillo stores prior to acquisition.

The external valuation has resulted in an investment property asset value of £2.628 billion, comprising £2.301 billion (87%) for the freehold (including nine long leaseholds) open stores, £41.2 million (2%) for the short leasehold open stores and £285.4 million (11%) for the freehold investment properties under construction.

Investment property

The valuations in the current year have increased significantly from the prior year, with a revaluation surplus of £529.7 million arising on the open stores (see note 15 for the detailed valuation methodology). This revaluation gain has been driven by a combination of cap rate compression and an improvement in the cash flow and operating metrics used in the valuation. This is reflective of the performance of both self storage generally and Big Yellow during the past 12 months. 

The average exit capitalisation rate used in the valuations was 5.5% in the current year, compared to 5.7% in the prior year.

The table below provides a further breakdown of the valuations:

The net initial year one yield is 5.2% (2021: 5.9%). Note 15 contains more detail on the assumptions underpinning the valuations. The difference between the valuation in the table above and the investment property valuation in the balance sheet is the valuation of non-self storage investment property at certain of the Group's sites.

Investment property under construction

The investment property under construction valuation has increased by £121.9 million in the year. Capital expenditure accounts for £95.5 million of this increase, notably on the site purchases of West Kensington and Kentish Town, and construction expenditure, principally on Uxbridge, Hayes, Hove, Harrow, Kingston North, and Kings Cross. This has been offset by Uxbridge, Hayes and Hove transferring to open stores. 

The valuation movement on the investment property under construction is a surplus of £67.5 million, driven by an improvement in the market view of development assets, coupled with a significant valuation uplift on the industrial units being developed adjacent to our Harrow store, which is due to open this Summer. 

Purchaser's cost adjustment

As in prior years, we have instructed an alternative valuation on our assets using a purchaser's cost assumption of 2.75% (see note 15 for further details) to be used in the calculation of our adjusted diluted net asset value. This Red Book valuation on the basis of the special assumption of 2.75% purchaser's costs, results in a higher property valuation at 31 March 2022 of £2,728.2 million (£100.6 million higher than the value recorded in the financial statements). This translates to 54.6 pence per share. This revised valuation translates into an adjusted net asset value per share of 1,239.7 pence (2021: 904.7 pence after adjusting for the placing) after the dilutive effect of outstanding share options. 

Cheadle fire

In February 2022 we experienced a fire at our Cheadle store, which resulted in a total loss to the store. The cause of the fire was arson.  This was a very difficult time for all our affected customers and some of the possessions stored with us can never be replaced, and we are very saddened that this incident occurred.

The store was a leasehold with five years remaining on the lease, and the balance sheet cost of this store was £4.3 million. Buildings all risk insurance is in place for the full reinstatement value with the landlord. We also have insurance cover in place for both our fit-out and four years loss of income. The first month's loss of income insurance has been recognised in revenue at the year end. 

The lease liability and right-of-use asset have been written off reflecting the lack of certainty as to when the Group's obligations to pay rent under the lease will resume. The balance sheet value of the store has also been impaired to nil.

Receivables

The Group's bad debt expense in the year represented 0.1% of store revenue compared to 0.1% in the prior year, with 81% of our customer base paying by direct debit.

At 31 March 2022 we have a receivable of £0.2 million in respect of payments due back to the Group under the Capital Goods Scheme, as a consequence of the introduction of VAT on self storage from 1 October 2012. The receivable relates to VAT to be recovered on historic store development expenditure. The Group has received £15.6 million to date under the Scheme, of which £0.4 million was received in the year. 

Net asset value

The adjusted net asset value is 1,239.7 pence per share (see note 13), up 37% from 904.7 pence per share at 31 March 2021 (after adjusting for the June 2021 share placing). The table below reconciles the movement:

Despite the significant revaluation gain during the year, the movement in the purchaser's cost adjustment is negative. This is due to a different treatment of purchaser's costs in the valuation model of JLL, who were appointed valuers in the year compared to that of their predecessor CBRE (see notes 13 and 15 for further detail).

Borrowings

Our financing policy is to fund our current needs through a mix of debt, equity, and cash flow to allow us to build out, and add to, our development pipeline and achieve our strategic growth objectives, which we believe improve returns for shareholders. We aim to ensure that there are sufficient medium-term facilities in place to finance our committed development programme, secured against the freehold portfolio, with debt serviced by our strong operational cash flows. We maintain a keen watch on medium and long-term rates and the Group's policy in respect of interest rates is to maintain a balance between flexibility and hedging of interest rate risk.

The table below summarises the Group's debt facilities at 31 March 2022. The average cost of debt is 3.1% (March 2021: 2.6%).

During the year, the Group signed an additional £50 million seven year debt facility with Aviva. As part of this refinancing the expiry of the existing loan was extended from April 2027 to September 2028. This reduced the fixed cost of the total Aviva loan facility from 4.0% to 3.5%.

Sustainability KPIs have been incorporated into this additional borrowing. These include the continued installation of solar panels across the security stores which will reduce emissions and running costs, and the business being on-track to achieve 'Net Renewable Energy Positive' status by 2030. The Group will benefit from a margin reduction on the new £50 million loan, conditional on achieving these targets. 

The total debt facilities from Aviva are now £161.9 million of which £16.9 million amortises to nil by April 2027.

The Group also increased the facilities of its M&G loan by £50 million to a total facility of £120 million. £35 million of the total M&G loan is fixed by a way of swap, with the balance floating. The average cost of the M&G loan is now 2.9%, with the loan expiring in June 2023. The Group intends to refinance this loan with M&G during the summer of 2022. 

The Group has credit approval from a new insurance lender to provide additional longer term debt facilities. These facilities would be used to repay the Armadillo bank loans which expire next year, and thereafter to increase the Group's overall debt capacity.

The Group has committed undrawn bank facilities of £154 million, which if drawn would carry a current marginal cost of debt of approximately 2.25%. 

The Group was comfortably in compliance with its banking covenants at 31 March 2022. Further details of the Group's covenants are provided in note 19 of the accounts. The Group's key financial ratios are shown in the table below:

At 31 March 2022, the fair value on the Group's interest rate derivatives was an asset of £0.9 million. The Group does not hedge account its interest rate derivatives. As recommended by EPRA, the fair value movements are eliminated from adjusted profit before tax, diluted EPRA earnings per share, and adjusted net assets per share.

Cash deposits are only placed with approved financial institutions in accordance with the Group's Treasury policy.

Share capital

The share capital of the Company totalled £18.4 million at 31 March 2022 (2021: £17.6 million), consisting of 183,967,378 ordinary shares of 10p each (2021: 175,880,470 shares). 7.8 million shares were issued in June 2021 in a placing to fund the strategic Armadillo and West Kensington acquisitions. 0.3 million shares were issued for the exercise of options during the year at an average exercise price of £14.84 (2021: 0.4 million shares at an average price of £10.64).

The Group holds 1.1 million shares within an Employee Benefit Trust ("EBT"). These shares are shown as a debit in reserves and are not included in calculating net asset value per share.

85.4 million shares were traded in the market during the year ended 31 March 2022 (2021: 86.8 million). The average mid-market price of shares traded during the year was £14.37 with a high of £17.24 and a low of £11.34.

Principal risks and uncertainties

The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency, or liquidity. The Group maintains a low appetite to risk, in line with our strategic objectives of providing a low volatility, high distribution business. 

The section below details the principal risks and uncertainties that are considered to have the most material impact on the Group's strategy and objectives. These key risks are monitored on an ongoing basis by the Executive Directors and considered fully by the Board in its annual risk review.

Internal audit

The Group employs a Head of Store Compliance responsible for reviewing store operational and financial controls. He reports to the Chief Financial Officer, and also meets with the Audit Committee at least once a year. This role is supported by three other team members, enabling additional work and support to be carried out across the Group's store portfolio. The Store Compliance team will visit each operational store twice per year to carry out a detailed store audit. These audits are unannounced, and the Store Compliance team carry out detailed tests on financial management, administrative standards, and operational standards within the stores. Part of the store staff's bonus is based on the scores they achieve in these audits. The results of each audit are reviewed by the Chief Financial Officer, the Financial Controller, and the Head of Store Operations. This is the equivalent of an internal audit function for the Group's store operations.

For the key business cycles conducted at the Group's head office, external consultants are used to review the Group's controls on a rotational basis. The consultants produce a report with recommendations which is discussed with management and reviewed by the Audit Committee. The cycles covered by this activity include construction expenditure, treasury, taxation, and facilities management. 

With the combination of the store internal audit process and the external assessment of the key business cycles, the Audit Committee considers that this provides a robust internal audit assessment for the Group. 

GOING CONCERN

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes to the financial statements. Further information concerning the Group's objectives, policies, and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk can be found in this Report and in the notes to the financial statements.

At 31 March 2022 the Group had available liquidity of approximately £163 million, from a combination of cash and undrawn bank debt facilities. The Group is cash generative and for the year ended 31 March 2022, had operational cash flow of £107.1 million, with capital commitments at the balance sheet date of £20.9 million.

The Directors have prepared cash flow forecasts for a period of 18 months from the date of approval of these financial statements, taking into account the Group's operating plan and budget for the year ending 31 March 2023 and projections contained in the longer-term business plan which cover the period to March 2026. After reviewing these projected cash flows together with the Group's and Company's cash balances, borrowing facilities and covenant requirements, and potential property valuation movements over that period, the Directors believe that, taking account of severe but plausible downsides, the Group and Company will have sufficient funds to meet their liabilities as they fall due for that period. 

The Group has total facilities of £52.7 million secured on the Armadillo portfolios with Lloyds Bank plc. These facilities expire in April 2023. The Group has received credit approval from a new insurance debt provider to refinance these loans and provide additional headroom on our facilities with longer duration fixed debt; this is currently being documented.

The Group has a £120 million loan with M&G Investments Limited, with a bullet repayment in June 2023. The Group intends to refinance this loan with M&G this summer.

In making their assessment, the Directors have carefully considered the outlook for the Group's trading performance and cash flows as a result of the current economic environment, taking into account the trading performance of the Group from the onset of the Covid-19 pandemic to the date of these financial statements. The Directors have also taken into account the performance of the business during the Global Financial Crisis. The Directors modelled a number of different scenarios, including material reductions in the Group's occupancy rates and property valuations, and assessed the impact of these scenarios against the Group's liquidity and the Group's banking covenants. The scenarios considered did not lead to breaching any of the banking covenants, and the Group retained sufficient liquidity to meet its financial obligations as they fall due. 

Consequently, the Directors continue to adopt the going concern basis in preparing the financial statements.

VIABILITY STATEMENT

The Directors have assessed the Group's viability over a four-year period to March 2026. This period is selected based on the Group's long-term strategic plan to give greater certainty over the forecasting assumptions used. As in the assessment of going concern, the Directors have modelled a number of different scenarios on the Group's future prospects.

In making their assessment, the Directors took account of the Group's current financial position, including committed capital expenditure. The Directors carried out a robust assessment of the principal risks and uncertainties facing the business, their potential financial impact on the Group's cash flows, REIT compliance and financial covenants and the likely effectiveness of the mitigating options detailed. The Directors have assumed that funding for the business in the form of equity, bank and insurance company debt will be available in all reasonably plausible market conditions. Whilst the eventual impact of the current economic environment on the Group is uncertain, and may not be known for some time, the Group has a highly cash generative business, good liquidity and has proved resilient in its trading since the onset of the pandemic.

Based on this assessment the Directors have a reasonable expectation that the Company and the Group will be able to continue operating and meeting all their liabilities as they fall due to March 2026.

Strategy and Investment Case

Our Strategy

Brand, platform, and customer service

Our strategy from the outset has been to develop Big Yellow into the market-leading self storage brand, delivering excellent customer service, investing in sustainability and our market-leading operating platform and digital channels, with a great culture and highly motivated employees. We concentrate on developing our stores in main road locations with high visibility, where our distinctive branding generates high awareness of Big Yellow. 

Creating shareholder value

We continue to believe that the medium-term opportunity to create shareholder value consists of driving revenue and cash flow from our existing portfolio through continued investment in sustainability, our people, culture, and digital operating and marketing platforms. In addition, we aim to deliver external growth as new stores open through continued investment in our development pipeline. As a REIT our key financial objective is to produce sustainable returns for shareholders through a relatively low leverage, low volatility, high distribution business. In addition, any successful business must have an effective sustainability strategy, particularly around climate change, and this continues to be a key strategic focus for our business.

We focus on the following key areas:

- leveraging our market-leading brand position to generate new prospects, principally from our digital, mobile and desktop platforms;

- focusing on training, selling skills, and customer satisfaction to maximise prospect conversion and referrals;

- growing occupancy and net rent to drive revenue optimally at each store;

- maintaining a focus on cost control, so revenue growth is transmitted through to earnings growth;

- increasing the footprint of the Big Yellow platform principally through new site development and where possible existing prime freehold stores that meet our quality criteria; 

- selectively acquiring existing self storage assets into the Armadillo platform;

- through our corporate social responsibility initiatives, aim to create a more sustainable business which will increase shareholder and customer value in both the medium and long-term;

- maintaining Big Yellow's culture as an accessible, apolitical, inclusive, non-hierarchical, socially responsible, and enjoyable place to work; and

- maintaining a conservative capital structure in the business with Group interest cover of a minimum of five times.

Real estate

The other main plank of our strategy has been to build a portfolio of large purpose-built freehold self storage centres, focussed on London, the South East and large metropolitan cities. We believe that by owning a predominantly freehold estate we are insulating ourselves against: economic downturns as we operate at higher margins; adverse rent reviews; and in the long-term possible redevelopment of key stores by the landlord. It also provides us financing flexibility as rent is a form of gearing. 

Approximately 58% of our current annualised store revenue derives from within the M25; for London and the South East, the proportion of current annualised store revenue is 74%. These proportions reduced in the current year following the acquisition of the remaining interest in Armadillo which we did not previously own, however with our store development pipeline largely in London and the South East, we would expect these proportions to increase over the medium term. 

New supply and competition is a key risk to our business model, hence our focus on London and its commuter towns, where barriers to entry in terms of competition for land and difficulty around obtaining planning are highest. We continue to see limited new supply growth in our key areas of operation. Looking back over the last five years, we estimate capacity growth in London of approximately 2-3% per annum. In 2021, there have been only seven store openings in London (including one Big Yellow store), and we anticipate five new stores in London in 2022, including three Big Yellow store openings.

Since April 2021, we have acquired development sites in Kentish Town and West Kensington. This increases our pipeline to 12 freehold development opportunities, totalling approximately 1.0 million sq ft (16% of MLA). 

Our stores are on average 60,000 sq ft, compared to an industry average of approximately 45,000 sq ft (source: UK Self Storage Association 2022 Annual Survey).  The upside from filling our larger than average sized stores is, in our view, only possible in large metropolitan markets. As our operating costs are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins.

Capital structure

Following the Global Financial Crisis and the ensuing economic recession, we have materially reduced the financial risk within the business and diversified our sources of debt, whilst at the same time, increasing our store platform by deploying significant capital investment. We measure leverage by looking at our interest cover and that has increased from 1.9 times in 2008 to 10.5 times for the year ended 31 March 2022. Our objective is to not let this fall below 5 times, compared to the consolidated EBITDA covenant of 1.5 times. We manage this business on the basis that an external economic shock could potentially happen at any time. This is reinforced by the performance of the business through the pandemic, where we have delivered a strong trading performance whilst at the same time continuing to invest and expand.

Self storage demand drivers

Economic activity and change are key drivers of self storage demand and are greatest in the larger urban conurbations, and in particular London and the South East. The structural changes consisting of the conversion of ex-industrial brownfield land to other uses, in particular residential; the reduction in home ownership and increased proportion of those choosing to rent; increasing density of living with new properties being built with optimised living space and very little provision for storage; will continue and are resulting in increased demand for our product. These changes have resulted in a significant shortage of available warehousing space, particularly in London, which has been accentuated by the current crisis. Self storage provides a convenient flexible solution to businesses such as online retailers, importers and exporters, service providers, the public sector, and marketing companies looking for mini-warehousing space.

In addition to domestic customers taking space to declutter their homes, our largest customer base is those using us short-term around an event, such as moving home, refurbishment, inheritance, household formation, separation, relocation, and students.

Resilience

The location of our stores, brand, security, and most importantly customer service, together with the diversity of use in our 73,000 occupied rooms, serve better than any lease contract in providing income security. 

The business proved to be relatively resilient, but not immune during the Global Financial Crisis and recession of 2007 to 2009, with London and the South East proving to be less volatile. During the current crisis the business has performed strongly with like-for-like occupancy growth of 6.2 ppts since 31 March 2020. 

81% of our customers pay by direct debit, and our cash collection has remained robust throughout the pandemic. 

Total shareholder return

In the twenty two years since flotation in May 2000, Big Yellow has delivered a Total Shareholder Return ("TSR"), including dividends reinvested, of 15.8% per annum, in aggregate 2,401% at the closing price of 1536p on 31 March 2022. This compares to 6.2% per annum for the FTSE Real Estate Index and 5.1% per annum for the FTSE All Share index over the same period. We feel this illustrates the power of compounding of consistent incremental returns over the longer term.

Our investment case

Consolidated Statement of Comprehensive Income

Year ended 31 March 2022

EPRA earnings per share are shown in Note 12.

All items in the statement of comprehensive income relate to continuing operations.

The accompanying notes form part of the financial statements.

Consolidated Balance Sheet

31 March 2022

The financial statements were approved by the Board of Directors and authorised for issue on 23 May 2022. They were signed on its behalf by:

Jim Gibson, Director John Trotman, Director

Company Registration No. 03625199

The accompanying notes form part of the financial statements.

Consolidated Statement of Changes in Equity

Year ended 31 March 2022

The other non-distributable reserve arose in the year ended 31 March 2015 following the placing of 14.35 million ordinary shares.

The issue of share capital is net of expenses.

Year ended 31 March 2021

The accompanying notes form part of the financial statements.