Safestore Regulatory News (SAFE)

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Select suitable accounting policies and then apply them consistently;

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Make judgements and accounting estimates that are reasonable and prudent;

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State whether IFRS as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; and

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Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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The Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

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The Strategic report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

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So far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

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He has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Risk

Current mitigation activities

Developments since 2014

Strategy

The Group develops business plans based on a wide range of variables. Incorrect assumptions about the self-storage market, or changes in the needs of customers, or the activities of customers may adversely affect the returns achieved by the Group, potentially resulting in loss of shareholder value.

· The strategy development process draws on internal and external analysis of the self-storage market, emerging customer trends and a range of other factors.

· Strengthened focus on yield management with regular review of demand levels and pricing at each individual store.

· The portfolio is geographically diversified with performance monitoring covering the personal and business customers by segments.

During the year, the Group has continued its programme of operational improvements and maintained good trading momentum.

The Group's strategy is regularly reviewed through the annual planning and budgeting process, and regular reforecasts during the year.

The level of this risk is broadly the same as last year.

Finance Risk

Lack of funding resulting in inability to meet business plans, satisfy liabilities or breach of covenants.

· Funding requirements for business plans and the timing for commitments are reviewed regularly as part of the monthly management accounts.

· The Group manages liquidity in accordance with Board approved policies designed to ensure that the Group has adequate funds for its ongoing needs.

· The Board regularly monitors financial covenant ratios and headroom.

· The refinanced banking facilities were extended to 30 June 2020 during FY15 and the US private placement notes mature in four and nine years.

In August 2015, the Group extended its bank borrowing facilities by a further two years, at lower rates of interest.

During the year, the Group has repaid £13 million of debt out of cash generated from operations. In addition, the strengthening of the Group's balance sheet, in particular from increases in the portfolio valuation, has resulted in reductions to both gearing and LTV.

The level of this risk has reduced since last year.

Treasury risk

Adverse currency or interest rate movements could see the cost of debt rise, or impact the Sterling value of income flows or investments.

· Guidelines are set for our exposure to fixed and floating interest rates and use of interest rate and currency swaps to manage this risk.

· Foreign currency denominated assets are financed by borrowings in the same currency where appropriate.

· Use of derivative contracts to fix the exchange rate applicable to principal and interest payments on the US private placement debt.

The Group has realigned its derivative contracts to correspond to maturity and quantum of the refinanced bank facilities.

Foreign currency hedging arrangements were historically in place to protect the headroom for interest cover covenant purposes. Following a review of these arrangements, it was concluded that forward currency hedging is no longer necessary.

The exposure to foreign currency fluctuations has increased as a result of the curtailment of hedging arrangements for trading items.

Property investment and development

Acquisition and development of properties that fail to meet

performance expectations or overexposure to developments within a short timeframe may have an adverse impact on the portfolio valuation, resulting in loss

of shareholder value.

· Thorough due diligence conducted and detailed analysis undertaken prior to Board approval for property investment and development.

· The Group's overall exposure to developments is monitored and projects phased.

· The performance of individual properties is benchmarked against target returns.

The Group's investment appraisal policy was reviewed and updated during the year.

For the three development projects announced during the year, advice was received from third party planning consultants and robust tendering processes were undertaken.

There has been no significant change to the risk since last year.

Valuation risk

Value of our properties declining as a result of external market or internal management factors.

In the absence of relevant transactional evidence, valuations can be inherently subjective leading to a degree of uncertainty.

Breach of our LTV borrowing covenant could arise in the event of declining property values, possibly triggering

default and/or repayment of the facilities.

· Independent valuations conducted by experienced, independent, professionally qualified valuers.

· A diversified portfolio let to a large number of customers should help to mitigate any negative impact arising from changing conditions in the financial and property market.

· Headroom of loan-to-value banking covenants is maintained and reviewed.

· The lowered gearing levels during FY15 provide enhanced headroom on valuations and significantly reduce the likelihood of covenants being endangered.

The Group's continuing operational improvements, which are generating increases to both rate and occupancy, and our ongoing lease re-gear programme are both contributing to increases in the Group's property valuation.

The level of this risk has reduced since last year.

Occupancy risk

A potential loss of income and increased vacancy due to falling demand, oversupply, or customer default, which could also adversely impact the portfolio valuation.

· Personal and business customers cover a wide range of segments, sectors and geographic territories with limited exposure to any single customer.

· Dedicated support for improved enquiry capture.

· Weekly monitoring of occupancy levels and close management of stores.

· Monitoring of reasons for customers vacating and exit interviews conducted.

· Independent feedback facility for customer experience.

· The occupancy rate across the portfolio has been grown through FY15 due to flexibility offered on deals by in-house marketing and the customer support centre.

Operational improvements, including focus on enquiry generation and conversion, marketing initiatives and yield management, have generated

increased occupancy during the year.

As a result of increases to occupancy, the level of this risk has reduced since last year.

Real estate investment trust ("REIT") risk

Failure to comply with the REIT legislation could expose the Group to potential tax penalties or loss of its REIT status.

· Internal monitoring procedures in place to ensure that the appropriate rules and legislation are complied with and this is formally reported to the Board.

The Group has remained compliant with all REIT legislation throughout the year.

There has been no significant change to this risk since last year.

Catastrophic event

Major events mean that the Group is unable to carry out its business for a sustained period, health and safety issues put customers, staff or property at risk, or the Group suffers a cyber-attack, hacking or malicious infiltration of websites. These may result in reputational damage, injury or property damage, or customer compensation, causing a loss of market share and income.

· Business continuity plans are in place and tested.

· Back-up systems at remote places and remote working capabilities.

· Reviews and assessments are undertaken periodically for enhancements to supplement the existing compliant aspects of buildings and processes.

· Monitoring and review by the Health and Safety Committee.

· Fire risk assessments in stores.

· Specialist advice and consultancy; dedicated in-house monitoring and security review.

· Limited retention of customer data.

Review of the Group's business continuity plans.

Updated IT policy, new firewalls and 24/7 monitoring of systems for vulnerabilities.

Ongoing focus from the newly formed Risk Committee.

This risk is seen to have increased over the year, primarily due to the number of well publicised cyber‑attacks suffered by UK companies in recent months.

Sam Ahmed, Company Secretary

Tel: 020 8732 1500