Safestore Regulatory News (SAFE)

17 January 2024

Safestore Holdings plc

("Safestore", "the Company" or "the Group")

Results for the year ended 31 October 2023

A year of significant strategic progress

Key measures

Highlights

Financial Performance

· Group revenue for the year up 5.5% (up 4.8% in CER1)

· Like-for-like8 Group revenue for the year in CER1 up 1.7%

· Underlying EBITDA2 up 4.5% in CER1 which, combined with a reduced gain on investment properties of £93.8 million (FY2022: £381.6 million), resulted in statutory operating profit9 of £230.4 million (FY2022: £514.5 million)

· Strong cost control with like-for-like costs increasing 0.3% on a CER basis

· Adjusted Diluted EPRA Earnings per Share6 up 0.8% at 47.9 pence (FY2022: 47.5 pence)

· 1% increase in the dividend for the year to 30.1 pence (FY2022: 29.8 pence) in line with our progressive policy

Strategic Progress

· New stores or acquisitions adding c. 500,000 sq ft of new MLA4 across thirteen projects in the financial year (five in the UK, six in Spain and two in Netherlands)

· Total Group development and extension pipeline increased to 30 projects and 1.5 million sq ft representing c. 18% of the existing portfolio providing £25-£30 million of future EBITDA at stabilisation

· Purchases of the freehold interests of two stores in Barcelona and West Birmingham

· Lease extensions completed for four stores in Edinburgh, London- Charlton, London- Slough and Burnley

· Successful integration of Benelux acquisition

· Entry into German market via a new Joint Venture15 ("JV") with Carlyle which has acquired the seven-store myStorage business with 326,000 sq ft of MLA4

Strong and Flexible Balance Sheet

· 9.3% increase in property valuation (including investment properties under construction)

· 4.8% increase in EPRA basic NTA per share to £9.52 (FY2022: £9.08)

· New ESG linked Revolving Credit Facilities (RCFs) completed in November 2022 with an increased £400 million unsecured multi-currency four-year facility (with two, one-year extension options, the first of which has been completed recently). Margins remain at 1.25% in line with previous RCFs and all facilities, including private placement notes, are unsecured

· Approximately £200 million of headroom under the RCF plus £100 million accordion facility

· 73% of debt at fixed interest rates with tenors from 2024 to 2033

· Group loan-to-value ratio ("LTV"11) at 25.4%, calculated on net debt (31 October 2022: 23.6%) and interest cover ratio ("ICR"12) at 6.7x (31 October 2022: 10.4x)

Frederic Vecchioli, Chief Executive Officer commented:

"I am pleased that 2023 has been a resilient year of significant strategic and operational progress building on two years of out-performance in which we delivered total like-for-like8 revenue growth of over 30.3% and Adjusted Diluted EPRA EPS growth of 57.3%.

The Group's industry leading REVPAF10 grew by 1.9% on a like-for-like8 basis whilst Total Group revenue grew by 5.5% reflecting recently added new stores and the annualisation effect of our acquisition of the Benelux business.

We have made excellent strategic progress during the year having opened, acquired, or extended thirteen stores across three countries adding c. 500,000 sq ft of MLA to the portfolio. In addition, we have grown the development pipeline to a further 1.5 million sq ft across 30 projects which represents 18% of the existing MLA of the business and will contribute £25-30 million upside to EBITDA upon stabilisation. Following our previous successful JV with Carlyle, we partnered again to facilitate the Group's entry into the under-penetrated German market and the integration of our Benelux business, acquired in 2022, is now complete.

Our strong and flexible balance sheet was significantly enhanced by the agreement of an unsecured four-year £400 million multi-currency RCF at the beginning of the year which increases funding capacity, allowing us to continue to consider strategic, value-accretive investments as and when they arise.

Importantly, the underlying fundamentals of the European self storage industry with limited supply, strong barriers to entry and a steadily growing product awareness are as strong as ever. We believe that the COVID period has acted as an accelerator of growth for the still relatively immature self storage industry. Whilst demand (as measured by enquiry growth) stabilised during the year at a level that is below 2022, we are still seeing enquiry levels that are ahead of the pre-COVID period.

Over the last ten years, Safestore has delivered an industry leading 16% CAGR of its adjusted diluted EPRA EPS. During that period, we expanded our geographical reach to six European countries leveraging and improving our platform and central functions while carefully managing investment risk. I'm confident that Safestore will continue to play a leading role in the development of the self storage industry across Europe, delivering significant further value to its stakeholders.

Our industry leading business model remains unchanged and we have substantial EPS growth to deliver both from filling the 1.9 million sq ft of fully invested, currently unlet space, and from the new sites and expansion of existing sites in our pipeline, across major cities in the UK and continental Europe. Safestore has a proven track record, and as the returns we deliver are significantly ahead of our cost of debt, we look to the future with confidence.

Finally, I would like to thank all our colleagues in the UK, France, Spain, the Netherlands and Belgium for their commitment and loyalty in 2023. We are appreciative of their efforts."

Notes

We prepare our financial statements using IFRS. However, we also use a number of adjusted measures in assessing and managing the performance of the business. These measures are not defined under IFRS and they may not be directly comparable with other companies' adjusted measures and are not intended to be a substitute for, or superior to, any IFRS measures of performance. These include like-for-like figures to aid in the comparability of the underlying business as they exclude the impact on results of purchased, sold, opened or closed stores and constant exchange rate ("CER") figures are provided in order to present results on a more comparable basis, removing FX movements. These metrics have been disclosed because management reviews and monitors performance of the business on this basis. We have also included a number of measures defined by EPRA, which are designed to enhance transparency and comparability across the European Real Estate sector; see notes 6 and 13 below and "Non-GAAP financial information" in the notes to the financial statements.

1 - CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the exchange rate effective for the comparative period. Euro denominated results for the comparative period are translated at the exchange rates effective in that period. This is performed in order to present the reported results for the current period on a more comparable basis).

2 - Underlying EBITDA is defined as Operating Profit before exceptional items, share-based payments, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties, variable lease payments, depreciation and the share of associate's depreciation, interest and tax. Underlying EBITDA therefore excludes all leasehold cost charges. Underlying profit before tax is defined as Underlying EBITDA less leasehold cost, depreciation charged on property, plant and equipment and net finance charges relating to bank loans and cash.

3 - Occupancy excludes offices but includes bulk tenancy. As at 31 October 2023, closing occupancy includes 18,000 sq ft of bulk tenancy (31 October 2022: 24,000 sq ft).

4 - MLA is Maximum Lettable Area. At 31 October 2023, Group MLA was c. 8.09 million sq ft (FY2022: c. 7.70 million sq ft).

5 - Average Storage Rate is calculated as the revenue generated from self storage revenues divided by the average square footage occupied during the period in question.

6 - Adjusted Diluted EPRA EPS is based on the European Public Real Estate Association's definition of Earnings and is defined as profit or loss for the period after tax but excluding corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties and the associated tax impacts. The Company then makes further adjustments for the impact of exceptional items, IFRS 2 share-based payment charges, exceptional tax items and deferred tax charges. This adjusted earnings is divided by the diluted number of shares. The IFRS 2 cost is excluded as it is written back to distributable reserves and is a non-cash item (with the exception of the associated National Insurance element). Therefore neither the Company's ability to distribute nor pay dividends is impacted (with the exception of the associated National Insurance element). The financial statements will disclose earnings on a statutory, EPRA and Adjusted Diluted EPRA basis and will provide a full reconciliation of the differences in the financial year in which any LTIP awards may vest.

7 - Free cash flow is defined as cash flow before investing and financing activities but after leasehold cost payments.

8 - Like-for-like adjustments remove the impact of the 2023 acquisition of Apeldoorn, the 2023 openings of Wigan, London-Morden, Ellesmere Port, North Barcelona, South Barcelona, Central Barcelona 3, South Madrid, North Madrid, East Madrid, Nijmegen, and Amersfoort, the 2022 acquisition of the Netherlands and Belgium Joint Venture, the 2022 acquisition of Christchurch, and the 2022 openings of London-Bow and Central Barcelona

9 - Operating profit decreased by £284.1 million to £230.4 million (FY2022: £514.5 million) principally as a result of a decrease in the gain on investment properties of £287.8 million to £93.8 million (FY2022: £381.6 million), as well as an increase of £7.1 million or 5.3% in Underlying EBITDA as a result of stronger trading performance. Profit before income tax in FY2022 additionally included exceptional items of £10.8m, being other exceptional gains. This included £5.5 million relating to the valuation gain of the 20% equity investment held in the Joint Venture with CERF, when the Group acquired the remaining 80% on 30 March 2022 and £5.1 million relating to the net gain on disposal of the Paris Nanterre site in November 2021.

10 - REVPAF is an alternative performance measure used by the business. REVPAF stands for Revenue per Available Square Foot and is calculated by dividing revenue for the period by weighted average available square feet for the same period 

11 - LTV ratio is Loan-to-Value ratio, which is defined as gross debt (excluding lease liabilities) as a proportion of the valuation of investment properties and investment properties under construction (excluding lease liabilities). At 31 October 2023, the Group LTV ratio was 25.4%, calculated on a net debt basis.

12 - ICR is interest cover ratio and is calculated as the ratio of Underlying EBITDA after leasehold costs to net interest payable.

13 - EPRA basic NAV was superseded and transitioned to three new measures: EPRA Net Reinstatement Value ("NRV"), EPRA Net Tangible Assets ("NTA") and EPRA Net Disposal Value ("NDV") for periods commencing 1 January 2020 or thereafter. Safestore considers EPRA NTA to be the most consistent with the nature of the Group's business. The basis of calculation, including a reconciliation to reported net assets, is set out in note 11 of the Financial Statements.

14 - In 2019, Safestore entered a strategic arrangement with Carlyle to enter the Benelux market, with an investment of 20%. This arrangement represented a joint venture and has been referred to as such. On 30 March 2022, the Group acquired the remaining 80% of the Joint Venture with CERF. Prior to acquiring the 80%, the Joint Venture with CERF, which represented a 20% investment, was accounted for as an associate using the equity method of accounting, as described in the "Investment in associates" note to the financial statements..

15 - On 1 December 2022, the Group made an initial investment into a new joint venture with Carlyle, to enter the German self storage market, of c. ?2.2 million for a 10% share. The Group will also earn a fee for providing management services to the joint venture.

16 - Store Protect has replaced our customer goods insurance programme from 1 November 2023, attracting VAT rather than Insurance Premium Tax (IPT). When comparing the first two months of the 2024 financial year, the 2023 comparative included revenue of £0.4 million representing 12% IPT on insurance sales for the two months. For 2024, VAT is not included in the revenue. The overall impact of these changes is neutral at EBITDA. With the LFL revenue figure adjusted to remove the IPT from the prior year, LFL revenue is down 0.6%. Including the IPT in revenue in the PY would result in a variance of -1.6%.

Summary

The Group has delivered a resilient performance in 2023 and has made significant strategic and operational progress.

In 2023, the Group delivered 0.8% growth in Adjusted Diluted EPRA Earnings per Share, which, if calculated on a like-for-like basis, grew by 3.3%. Total Group revenue increased by 5.5% (4.8% CER1) with the UK up 2.1%, Paris up 3.5%, Spain up 19.4%, Netherlands up 100% and Belgium up 78.3%. Resilient performances in the UK and Paris were complemented by new store driven growth in Spain and the annualisation of our ownership of the Netherlands and Belgium businesses. On a like-for-like8 basis in CER1, Group revenue increased by 1.7% with the UK up 1.2%, Paris up 3.5% and Spain flat. The Group's like-for-like average storage rate5 was up 5.0% at CER1 with average occupancy down 3.3%, whilst like-for-like8 closing occupancy decreased by 3.2ppts to 79.6%.

The Group has traded solidly over the year despite strong comparable performances in the record 2021 and 2022 financial years over which c. 25% like-for-like revenue growth was delivered. Our digital marketing platform has driven good enquiry generation and conversion despite a slightly weaker overall market such that enquiry levels remain ahead of the pre-COVID period.

The like-for-like average storage rate growth drove the UK revenue performance and increased by 5.1% in the year whilst average occupancy declined by 4.1% and closing occupancy was down 3.8ppts at 79.2%.

In Paris, our performance was resilient with like-for-like8 revenue growing by 3.5% at CER1 driven by a like-for-like growth in average storage rate of 3.9% with like-for-like average storage occupancy broadly flat. Like-for-like8 closing occupancy ended the year at a similar level to the prior year at 81.3% (FY2022: 81.7%). This is the 25th consecutive year of revenue growth in Paris with average growth over the last eight years of approximately 6.2%.

Our Spanish business saw flat like-for-like revenue for the year with an increase in the like-for-like average storage rate of 7.4% offsetting a decline in average occupancy of 7.4% which reflects the impact of opening new stores in catchment areas of existing stores increasing overall revenue but impacting like-for-like occupancy. Ancillary sales were also strong. Spain opened six stores in the year and now has eleven stores open and a pipeline of a further five sites. Total revenue growth was 19.4%.

Our Netherlands and Belgium businesses performed well in their first full financial years as fully owned subsidiaries of the Group. The businesses were not treated as like-for-like in the year but, over the two quarters (Q3 and Q4) for which comparable revenue figures are available, like-for-like growth would have been 11.0% and 9.7% respectively.

The Group's current pipeline of 30 new developments and store extensions has been replenished over the last year and now constitutes c. 1.5 million sq ft of future MLA (equivalent to 18% of the existing portfolio) with associated outstanding capital expenditure of £128 million. 29 of the 30 projects are in London, Paris, Spain, the Randstad region of the Netherlands and Brussels with just one in the UK outside of London, in the South-East of England.

Group Underlying EBITDA2 of £142.2 million increased by 4.5% at CER1 on the prior year. The Group's Underlying EBITDA2 performance, offset by a 9.6% increase in leasehold cost and a £5.0 million or 45.9% increase in finance costs, resulted in a 0.8% increase in Adjusted Diluted EPRA EPS6 in the period to 47.9 pence (FY2022: 47.5 pence). The increase in finance costs was driven by higher debt levels to fund the development pipeline and an increase in the marginal cost of borrowing. On a like-for-like basis the increase Adjusted Diluted EPRA EPS6 in the period, as mentioned above, would have been 3.3%. Statutory operating profit decreased by 55.2% to £230.4 million (FY2022: £514.5 million) as a result of the gain on investment properties of £93.8 million being lower than the record gain experienced in 2022 of £381.6 million.

Our property portfolio valuation, including investment properties under construction, increased in the year by 9.3%, driven by the underlying performance of the stores, new stores, acquisitions and exchange rate movements. After exchange rate movements, the portfolio valuation increased to £2,789.7 million with the UK portfolio up £118.6 million to a total UK value of £1,934.0 million and the French portfolio increasing by ?50.8 million to ?676.7 million.

Reflecting the Group's dividend policy, the Board is pleased to recommend a final dividend of 20.2 pence per share (FY2022: 20.4 pence) resulting in a full year dividend up 1.0% to 30.1 pence per share (FY2022: 29.8 pence). Over the last ten years, the Group has grown the annual dividend by 419% or 24.3 pence per share.

Outlook

We remain focused on further optimising the Group's operational performance and continuing to grow in all of our geographies. Our development pipeline represents 18% of our existing MLA and our balance sheet strength and flexibility provide us with the opportunity to consider further selective development and acquisition opportunities in all of our markets.

As disclosed in our 2023 half year results we expect the development pipeline and associated financing to be dilutive to earnings in the 2024 financial year before becoming highly accretive in future years as the stores stabilise. We believe that, on stabilisation, an incremental £25-£30 million of EBITDA will be added by the 30 projects in the pipeline.

For the first two months of the 2024 financial year total Group revenue is broadly flat with like-for-like revenue down 0.6%16 on the prior year. Regionally, we have seen strong like-for-like growth in the Netherlands and Belgium, solid improvements in Paris and Spain and a modest decline in the UK.

Further, in the first two months of the 2024 financial year, the Group took limited promotional actions that resulted in year-on-year UK like-for-like occupancy improving from -3.8ppts as at 31 October 2023 to -1.4ppts at 31 December 2023, and similarly from -0.4ppts to +0.3ppts in Paris. The immediate impact on rates is expected to gradually reduce over the next few months, particularly as the Group will annualise the discounting activity that took place later last year in spring.

Whilst we are fully aware of the current macro-economic environment, our business model has proven to be highly resilient with multiple drivers of demand. We believe the Group is strongly positioned to withstand pressures from challenging market conditions.

Enquiries

Analyst and investor presentation

A presentation will be held at 09:30am today at the offices of Instinctif Partners.

A live-webcast facility will also be available and to register please use the following link: https://storm-virtual-uk.zoom.us/webinar/register/WN_X5npmDXhTyilRoS8yh0qgA

Notes to Editors

· Safestore is the UK's largest self storage group with 190 stores on 31 October 2023, comprising 133 wholly owned stores in the UK (including 73 in London and the South East with the remainder in key metropolitan areas such as Manchester, Birmingham, Glasgow, Edinburgh, Liverpool, Sheffield, Leeds, Newcastle, and Bristol), 29 wholly owned stores in the Paris region, 11 stores in Spain, 11 stores in the Netherlands and 6 stores in Belgium. In addition, the Group operates 7 stores in Germany under a Joint Venture agreement with Carlyle.

· Safestore operates more self storage sites inside the M25 and in central Paris than any competitor providing more proximity to customers in the wealthiest and more densely populated UK and French markets.

· Safestore was founded in the UK in 1998. It acquired the French business "Une Pièce en Plus" ("UPP") in 2004 which was founded in 1998 by the current Safestore Group CEO Frederic Vecchioli.

· Safestore has been listed on the London Stock Exchange since 2007. It entered the FTSE 250 index in October 2015.

· The Group provides storage to around 90,000 personal and business customers.

· As of 31 October 2023, Safestore had a maximum lettable area ("MLA") of 8.090 million sq ft (excluding the expansion pipeline stores) of which 6.231 million sq ft was occupied.

· Safestore employs around 750 people in the UK, Paris, Spain, the Netherlands, and Belgium.

Chairman's Statement

Our purpose remains simple - to add stakeholder value by developing profitable and sustainable spaces that allow individuals, businesses and local communities to thrive.

The last year has demonstrated Safestore's resilience and significant strategic and operational progress, after two exceptional years over which the Group delivered 57% growth in Earnings per Share. After four years in the role, I continue to be impressed by the dedication and resilience of the store, property development and Head Office teams which have been instrumental in delivering this progress.

Our purpose remains simple, to continue to add stakeholder value by developing profitable and sustainable spaces that allow individuals, businesses and local communities to thrive. Our strategy is underpinned by our values, our behaviours and our governance structure which shape our culture and remain central to the way we conduct our business.

I would like to take this opportunity to congratulate all my colleagues throughout the Group for their exceptional contributions this year.

Strategic progress

Management's first priority remains to maximise the economic return on our existing store portfolio and its 1.9 million sq ft of fully invested unlet space, building on the significant operational improvements made over the current management team's tenure.

In addition to improving returns from our existing portfolio, the Group has continued to make significant strategic progress in expanding its presence across Europe through a combination of new store openings and acquisitions. The Group has now acquired 47 and opened 31 stores over the last seven years and all are performing in line with or better than their original business cases. Our Spanish business, acquired as a four store portfolio in 2019, now has eleven open stores and a further five in the pipeline. Our Benelux businesses which was acquired in 2022 is now fully integrated into the business and has a pipeline of a further five stores. Overall, we have a development property pipeline of an additional 1.5 million sq ft of MLA, which provides significant future opportunity for the business and underpins our continued growth.

Our joint venture15 with Carlyle in Germany provides us an exciting platform to gain exposure to a new attractive geography and I believe that Safestore's highly scalable platform will allow us to take advantage of further opportunities in due course.

The establishment, in November 2022, of a £400 million unsecured multi-currency RCF at attractive margins offers us significantly greater strategic flexibility to support these growth plans.

Financial results

Revenue for the year was £224.2 million, 5.5% ahead of last year (FY2022: £212.5 million), or 4.8% ahead on a constant currency basis. Like-for-like8 revenue was up 1.7% in constant currency.

The growth in like-for-like revenue, combined with strong cost control despite the challenging inflationary environment was particularly encouraging, delivering a further improvement in like-for-like margins. On a total basis, underlying EBITDA2 increased by 5.3% to £142.2 million (FY2022: £135.1 million) and on a constant currency basis by 4.5%.

Statutory operating profit reduced by £284.1 million to £230.4 million in 2023 (FY2022: £514.5 million), reflecting a lower investment property gain in 2023 combined with the increase in Underlying EBITDA2 and a reduction in the share-based payments charge.

Adjusted Diluted EPRA Earnings per Share6 grew by 0.8% to 47.9 pence (FY2022: 47.5 pence). Adjusted Diluted EPRA Earnings per Share6 has grown by 37.2 pence or 348% over the last ten years. Statutory diluted Earnings per Share decreased to 91.8 pence (FY2022: 212.4 pence) as a result of the reduced gain on valuation of investment properties, offset by an increase in Adjusted Diluted EPRA Earnings per Share6.

The Group's balance sheet remains robust with a Group LTV11 ratio of 25.4%, calculated on net debt (FY2022: 23.6%) and an ICR12 of 6.7x (FY2022: 10.4x) leaving considerable headroom against our banking covenants and internal thresholds. This represents a level of gearing we consider appropriate for the business to enable the Group to increase returns on equity, maintain financial flexibility and achieve our medium term strategic objectives.

Finally, this year's results consolidated a sustained period of excellent performance by the Group. Over the last ten years, the management and store teams have delivered a Total Shareholder Return of 607.9%, ranking at number one in the UK property sector. Since flotation in 2007, Safestore has also delivered the highest Total Shareholder Return of any UK listed self storage operator.

ESG (Environmental, Social and Governance)

Away from the financial results, I am pleased with the progress the Group has made with its ESG strategy.

Even though Safestore already has one of the lowest environmental impact profiles of any company within the overall property sector, we have continued to focus on our environmental agenda, with year-on-year reductions in greenhouse gas emissions and enhanced disclosures in recognition of the recommendations of the TCFD. I am pleased to report that we have retained a Silver rating in the 2023 EPRA sustainability awards, an 'A' rating for public disclosures by GRESB, an 'AA' rating for ESG by MSCI and the highest rating of five stars by Support the Goals.

In addition, we have demonstrated our commitment to our ESG agenda by linking the margin on our £400 million bank facility to ESG related KPIs agreed with our lending group. Details of these achievements are covered more fully in the Chief Executive's report and the sustainability section of our Annual Report.

Board changes

During the year, Ian Krieger, our Senior Independent Director and Audit Committee Chair, has confirmed his intention to step down at the 2024 AGM. I would like to thank Ian for his excellent contribution over the last ten years. Jane Bentall will take over as Chair of the Audit Committee.

I have also been pleased to welcome Avis Darzins to the Board in the period. Avis has over 20 years of senior executive level and management consulting experience in the retail, entertainment and media sectors, specialising in customer experience, strategy and business transformation and I look forward to working with her.

Finally, Andy Jones, our CFO, notified the Board of his intention to retire from his role as Chief Financial Officer and as a director of the Company. Andy will continue in his role until the transition to his successor is complete and an external search for Andy's replacement is underway. For over ten years, Andy has been instrumental in helping deliver the Company's strategy, significantly expanding its store portfolio and entering four additional geographies. During his career with Safestore, he has overseen a period of sector leading growth and shareholder returns and I'd like to thank Andy for his outstanding contribution and to wish him well for the future.

Dividend

Reflecting the Group's progressive dividend policy, the Board is pleased to recommend a final dividend of 20.2 pence per share (FY2022: 20.4 pence) resulting in a full year dividend up 1% to 30.1 pence per share (FY2022: 29.8 pence).

Over the last ten years, the Group has grown the dividend by 423% or 24.4 pence per share during which period the Group has returned to shareholders a total of 180.1 pence per share. The total dividend for the year is covered 1.59 times by Adjusted EPRA Diluted Earnings (1.59 times in 2022). Shareholders will be asked to approve the dividend at the Company's Annual General Meeting on 13 March 2024 and, if approved, the final dividend will be payable on 9 April 2024 to Shareholders on the register at close of business on 7 March 2024.

Summary

In conclusion, the Board remains confident in the future growth prospects for the Group and will continue its progressive dividend policy in 2024 and beyond. In the medium term it is anticipated that the Group's dividend will grow at least in line with Adjusted Diluted EPRA Earnings per Share6.

David Hearn

16 January 2024

Our Strategy

The Group intends to continue to deliver on its proven strategy of leveraging its well-located asset base, management expertise, infrastructure, scale and balance sheet strength and further increase its Earnings per Share by:

· Optimising the trading performance of the existing portfolio;

· Maintaining a strong and flexible capital structure; and

· Taking advantage of selective portfolio management and expansion opportunities in our existing markets and, if appropriate, in attractive new geographies either through a joint venture or in our own right.

In addition, the Group's strategy is pursued whilst maintaining a strong focus on Environmental, Social and Governance ("ESG") matters and a summary of our ESG strategy is provided further on.

Optimisation of Existing Portfolio

With the opening of 31 new stores since August 2016 in addition to the acquisitions of 47 existing trading stores we have established and strengthened our market-leading portfolio in the UK and Paris and have entered the Spanish, Netherlands and Belgium markets. We have a high quality, fully invested estate in all geographies and, of our 190 stores as at 31 October 2023, 102 are in London and the South East of England or in Paris, with 60 in the other major UK cities and 28 in Barcelona and the Benelux region. In the UK, we now operate 50 stores within the M25, which represents a higher number of stores than any other competitor.

Our MLA4 has increased to 8.1 million sq ft at 31 October 2023 (FY2022: 7.7 million sq ft). At the current occupancy level of 77% we have 1.9 million sq ft of fully invested unoccupied space (3.4 million sq ft including the development pipeline), of which 1.2 million sq ft is in our UK stores, 0.2 million sq ft is in Paris and 0.5 million sq ft is in Barcelona and Benelux. In total, unlet space at our existing stores is the equivalent of c. 47 empty stores located across the estate and provides the Group with significant opportunity to grow further. We have a proven track record of filling our vacant space so we view this availability of space with considerable optimism. We will also benefit from operational leverage from the fact that this available space is fully invested and the related operating costs are essentially fixed and already included in the Group cost base. Our continued focus will be on ensuring that we drive occupancy to utilise this capacity at carefully managed rates. Between the full financial years 2013 and 2023, occupancy of the stores in the portfolio in 2013 that remain in the Group today has increased from 63.1% to 80.7%, i.e. an average of 1.8ppts per year and equivalent to a total of 0.9 million sq ft.

One of the key measures of operational success for a self storage asset is the Revenue per available foot (REVPAF) and Safestore's priority will remain to maximise its leading REVPAF with a sustainable combination of occupancy and rate. Between the full financial years 2013 and 2023, the company's REVPAF has maintained industry leading levels increasing 46.5% for the Group, 66.4% for the UK (60.5% for London and the South East; and 84.2% for regional UK) and 32.1% for Paris.

There are three elements that are critical to the optimisation of our existing portfolio:

· Enquiry generation through an effective and efficient marketing operation;

· Strong conversion of enquiries into new lets; and

· Disciplined central revenue management and cost control.

Digital Marketing Expertise- UK Number 1 Self Storage Brand

Awareness of self storage remains relatively low with half of the UK population either knowing very little or nothing about the product (source: SSA Annual Report 2023). In the UK, many of our new customers are using self storage for the first time and it is largely a brand-blind purchase. Typically, customers requiring storage start their journey by conducting online research using generic keywords in their locality (e.g., "storage in Borehamwood", "self storage near me") which means that geographic coverage and search engine prominence remain key competitive advantages.

We believe there is a clear benefit of scale in digital capability in the generation of customer enquiries. The Group has continued to invest in technology and in-house expertise which has resulted in the development of a leading digital marketing platform that has generated 43% enquiry growth for the Group over the last five years, an annual growth of over 7%. Our in-house expertise and significant annual budget have enabled us to deliver strong results. Safestore is the UK number 1 self storage brand as it has more new lets per year than any other brand.

Online marketing remains the predominant channel for customer acquisition. Online enquiries made up 89% of all our enquiries in the UK (FY2022: 90%), with 84% in France (FY2022: 85%). The majority of our online enquiries now originate from a mobile device highlighting the need for continual investment in our responsive web platform for a "mobile-first" world. We continue to invest in activities that promote a strong search engine presence to grow enquiry volume whilst managing efficiency in terms of overall cost per enquiry and cost per new let. Group marketing costs for the full year as a percentage of revenue were broadly in line with the previous year at 3.8% (FY2022: 3.6%).

During 2023, the Group demonstrated its ability to integrate newly developed and acquired stores into its marketing platform with successful new openings in the UK (Morden, Wigan, Ellesmere Port), Spain (Barcelona, Madrid) and the Netherlands (Apeldoorn, Amersfoort). We have clearly demonstrated that our marketing platform is transferrable into multiple overseas geographies.

Motivated and effective store teams benefiting from investment in training and development

Training, People and Performance Management

Our enthusiastic, well-trained, and customer-centric sales team remains a key differentiator and a strength of our business. Understanding the needs of our customers and using this knowledge to develop trusted in-store advisors is a fundamental part of driving revenue growth and market share.

Safestore has been an Investors in People ("IIP") accredited organisation since 2003 and we passionately believe that our continued success is dependent on our highly motivated and well-trained colleagues. Following the award of a Bronze accreditation in 2015 and a Gold accreditation in 2018, we were delighted to be awarded the "we invest in people" Platinum accreditation in February 2021. This is the highest accolade in the Investors in People scale and positions us as an employer of choice. Shortly after our Platinum accreditation, we were shortlisted for the Platinum Employer of the Year (250+) category in the Investors in People Awards 2021. This further endorses the high standard of our teams and the people development programmes that drive our skill and talent retention.

We are committed to growing and rewarding our people and we tailor our development, reward and recognition programmes to reflect this. Our IIP recognised coaching programme, launched in 2018 and upgraded every year since, continues to be a driving force behind the continuous performance improvement demonstrated by our store colleagues.

Our online learning portal, combined with the energy and flexibility of our store colleagues, allows us to not only continue to deliver our award-winning development programmes but also to capitalise on the strength of our IT platforms. We have been able to combine our technology communication skills with our tried and tested face-to-face training sessions in a newly created "impact" sales refresher.

We have always aimed to recognise the changing needs and demands of our customers. Combining new, along with tried and tested, solutions and systems, we are further able to support our store colleagues, allowing them to fulfil the needs of our customers over and above that of our competitors. Our flexible contract types and enhanced digital contract completion further enhance our customer offer and experience.

All new recruits to the business benefit from enhanced induction and training tools that have been developed in-house and enable us to quickly identify high-potential individuals and increase their speed to competency. They receive individual performance targets within four weeks of joining the business and are placed on the "pay-for-skills" programme that allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. The key target of our programme remains that we grow our talent through our Store Manager Development programme, and we are pleased with our progress to date.

Our internal Store Manager Development programme has been in place since 2016 and is a key part of succession planning for future Store Managers. Funded by the Apprenticeship Levy this programme provides the opportunity to complete a Level 3 Management and Leadership apprenticeship, with the additional opportunity to complete an Institute of Leadership and Management ("ILM") qualification. In 2023, of the eleven delegates who successfully completed the program ten of them did so with distinction. 

Our Store Manager Development programme demonstrates the effectiveness of our learning tools. In a spirit of constant improvement, our content and delivery process is dynamically enhanced through our 360-degree feedback process utilising the learnings from not only the candidates but also from our training Store Managers and senior business leaders. This allows our people to be trained with the knowledge and skills to sell effectively in today's marketplace.

Further development opportunities are available through our Senior Manager Development programme ("LEAD") focusing on developing our high performing store managers. This program is aimed at preparing candidates for more senior roles within the business in addition to attaining a Level 5 Management and Leadership apprenticeship. The relaunch of our graduate program, in October 2022, provides an opportunity for newly qualified graduates to build their skillset and experience resulting in a career with Safestore.

Our performance dashboard allows our store and field teams to focus on the key operating metrics of the business providing an appropriate level of management information to enable swift decision making. Reporting performance down to individual colleague level enhances our competitive approach to team and individual performance. We continue to reward our people for their performance with bonuses of up to 50% of basic salary based on their achievements against individual targets for new lets, occupancy, and ancillary sales. In addition, our Values and Behaviours framework is overlaid on individuals' performance in order to assess performance and development needs on a quarterly basis.

Our "Make the Difference" people forum, launched in 2018, which is a formal workplace advisory panel, enables frequent opportunities for us to hear and respond to our colleagues. Our network of 15 "People Champions" collect questions and feedback from their peers across the business and put them to members of the Executive Committee. We drive change and continuous improvement in responding to the feedback we receive for "Our Business, Our Customers and Our Colleagues".

People Champions:

· Consult and collect the views and suggestions of all colleagues that they represent;

· Engage in the bi-annual "Make the Difference" people forum, raising and representing the views of their colleagues; and

· Consult with and discuss feedback with management and the leadership team at Safestore.

Our values are authentic, having been created by our people. They are core to the employment life cycle and bring consistency to our culture. Our leaders have high values alignment enabling us to make the right decisions for our colleagues and our customers.

Our customers continue to be at the heart of everything we do, whether it be in store, online or in their communities. Our commitment to our customers mirrors that of our commitment to our colleagues.

Technological Developments

After delivering the appropriate technology the Group recently opened its first fully automated, unmanned, satellite self storage centre in Christchurch shortly followed by its second in Eastleigh. Utilising industry leading automated technology, along with in-house created communication and control technologies, customers can securely enter the building and their storage unit from a simple app on their mobile phone Several additional unmanned satellite stores are currently under various stages of development in the UK.

Our customers also have the option to complete a booking and contract for a self storage unit online for any UK store location. The Group's belief is that its multi-channel sales strategy utilising, full automation, colleague interaction through our store sales teams or our specialist call centre and National Accounts team provide each type of customer with the most tailored and easy way to buy self storage at Safestore.

Customer Satisfaction

In February 2023, Safestore UK won the Feefo Platinum Trusted Service award for the fourth year running. The award is given to businesses which have achieved Gold standard for three consecutive years. It is an independent mark of excellence that recognises businesses for delivering exceptional experiences, as rated by real customers. In addition to using Feefo, Safestore invites customers to leave a review on a number of review platforms, including Google and Trustpilot. Our ratings for each of these three providers in the UK is 4.8 out of 5. In France, Une Pièce en Plus uses Trustpilot to obtain independent customer reviews with a "TrustScore" of 4.6 out of 5. In Spain, OMB collects customer feedback via Google reviews and has maintained a score of 4.8 out of 5.

Central Revenue Management and Cost Control

We continue to pursue a balanced approach to revenue management. We aim to optimise revenue by improving the utilisation of the available space in our portfolio at carefully managed rates. Our central pricing team is responsible for the management of our dynamic pricing policy, the implementation of promotional offers and the identification of additional ancillary revenue opportunities. Whilst price lists are managed centrally and are adjusted on a real-time basis, the store sales teams have, from time to time, the ability to offer a Lowest Price Guarantee in the event that a local competitor is offering a lower price, or the ability to offer discretionary discounts. The Lowest Price Guarantee and discretionary discount are centrally controlled and activated on a store by store and unit by unit basis.

Average rates are predominantly influenced by:

· The store location and catchment area;

· The volume of enquiries generated online;

· The store team skills at converting these enquiries into new lets at the expected price; and

· The very granular pricing policy and the confidence provided by analytical capabilities and systems that smaller players might lack.

We believe that Safestore has a very strong proposition in each of these areas.

Costs are managed centrally with a lean structure maintained at Head Office. Enhancements to cost control are continually considered and the cost base is challenged on an ongoing basis.

Strong and Flexible Capital Structure

Since 2014 we have refinanced the business on seven occasions, each time optimising our debt structure and improving terms; and believe we have maintained a capital structure that is appropriate for our business and which provides us with the flexibility to take advantage of carefully evaluated development and acquisition opportunities.

At 31 October 2023, based on the current level of borrowings and interest rates, the Group's weighted average cost of debt, after adjusting for capitalised interest costs, was 2.97% (FY2022: 2.23%). The weighted average maturity of the Group's drawn debt is 4.7 years at the current period end and the Group's LTV ratio is 25.4% as at 31 October 2023.

The Group has £528m of fixed rate US private placement notes which constitute 72% of the total drawn debt. The tenors of the notes are from 2024 to 2033 with ?51m of notes expiring in May 2024.

This LTV of 25.4% and interest cover ratio of 6.7x for the rolling twelve-month period ended 31 October 2023 provides us with significant headroom compared to our banking covenants (LTV of 60% and ICR of 2.4:1). The reduction in ICR12 reflects the increased interest costs from funding the development pipeline. We had c. £200 million of undrawn bank facilities at 31 October 2023 before taking into consideration the additional £100 million uncommitted accordion facility.

Taking into account the improvements we have made in the performance of the business, the Group is capable of generating free cash after dividends sufficient to fund the building of three to four new stores per annum depending on location and availability of land.

The Group evaluates development and acquisition opportunities in a careful and disciplined manner against rigorous investment criteria. Our investment policy requires certain Board-approved hurdle rates to be considered achievable prior to progressing an investment opportunity. In addition, the Group aims to maintain a Group LTV11 ratio below 40% which the Board considers to be appropriate for the Group.

November 2022 refinancing

In November 2022, the Group completed the refinancing of its Revolving Credit Facilities ("RCFs") which were due to expire in June 2023.

The previous £250 million Sterling and ?70 million Euro secured RCFs have been replaced with a single multi-currency unsecured £400 million facility. In addition, a further £100 million uncommitted accordion facility is incorporated into the facility agreement.

The facility is for a four-year term with two one-year extension options exercisable after the first and second years of the agreement. The first extension has recently been completed.

The Group pays interest at a margin of 1.25% plus SONIA or Euribor depending on whether the borrowings are drawn in Sterling or Euros. The margin is at the same level as the previous facility agreements.

Environmental, Social and Governance ("ESG") KPIs have been agreed with the Group's lenders. The margin under the facility is now linked to ESG targets, which could enable a reduction in the margin of up to 5bps to 120bps.

A commitment fee of 35% of the margin is payable on undrawn amounts under the facility. This has reduced from 40% under the previous facility agreements.

Reflecting the Group's improved credit profile, the banking group and existing US Private Placement Noteholders have agreed that all of the Group's previously secured borrowings move to an unsecured basis, thus reducing administrative and legal costs associated with the facilities.

ESG Strategy

ESG: Sustainable Self Storage

Our purpose - to add stakeholder value by developing profitable and sustainable spaces that allow individuals, businesses and local communities to thrive - is supported by the "pillars" of our sustainability strategy: our people, our customers, our community and our environment. In addition, the Group and its stakeholders recognise that its efforts are part of a broader movement and we have, therefore, aligned our objectives with the UN Sustainable Development Goals ("SDGs"). We reviewed the significance of each goal to our business and the importance of each goal to our stakeholders and assessed our ability to contribute to each goal. Following this materiality exercise, we have chosen to focus our efforts in the areas where we can have a meaningful impact. These are "Decent work and economic growth" (goal 8), "Sustainable cities and communities" (goal 11), "Responsible consumption and production" (goal 12) and "Climate action" (goal 13).

Sustainability is embedded into day-to-day responsibilities at Safestore and, accordingly, we have opted for a governance structure which reflects this. Two members of the Executive Management team co-chair a cross-functional sustainability group consisting of the functional leads responsible for each area of the business.

In 2018, the Group established medium-term targets in each of the "pillars" towards which the Group continued to progress in FY2023.

Our people: Safestore was awarded the prestigious Investors in People ("IIP") Platinum accreditation and was in the final top ten shortlist for Platinum Employer of the Year (250+) category in The Investors in People Awards 2021. The Group's response during the pandemic lockdowns and aftermath has had a profound impact on trust in leadership and colleague engagement and motivation.

Our customers: The Group's brands continue to deliver a high-quality experience, from online enquiry to move-in. This is reflected in customer satisfaction scores on independent review platforms (Trustpilot, Feefo, Google) of over 90% in each market. The introduction of digital contracts during the pandemic offers both customer convenience and a reduction in printing, saving an estimated 44,000 pieces of paper each month.

Our community: Safestore remains committed to being a responsible business by making a positive contribution within the local communities wherever our stores are based. We continue to do this by developing brownfield sites and actively engaging with local communities when we establish a new store, identifying and implementing greener approaches in the way we build and operate our stores, helping charities and communities to make better use of limited space, and creating and sustaining local employment opportunities directly and indirectly through the many small and medium-sized enterprises which use our space. During FY2023, the space occupied by local charities in 184 units across 104 stores was 21,000 sq ft and worth £0.9 million.

Our environment: Safestore is committed to ensuring our buildings are constructed responsibly and that their ongoing operation has a minimal impact on local communities and the environment. It should be noted that the self storage sector is not a significant consumer of energy when compared with other real estate sub-sectors. As a result, operational emissions intensity tends to be far lower. According to a 2023 report by KPMG and EPRA, self storage generates the lowest greenhouse gas emissions intensity (4 kg/m2 for scope 1 and 2) of all European real estate sub-sectors. Reflecting the considerable progress made on energy mix, efficiency measures and waste reduction to date, Safestore's emissions intensity (3.4 kg/m2 in 2022) is considerably lower than the self storage sub-sector average. In FY2023, the Group continued to progress with a further 17% decline in absolute market based emissions despite continued portfolio growth. Emissions intensity has reduced 19% to below 1.0 kgCO2e/ m2. Per our commitments, our new stores in the UK, Spain and Netherlands have all achieved a minimum energy performance rating of B. Moving forward, the Group has a commitment to be operationally carbon neutral by 2035 with a medium-term target to reduce operational emissions (market-based) by 34% compared to the level in FY2021 by 2025. The total investment to achieve carbon neutrality should be around £3 million.

In addition to the IIP award and the customer satisfaction ratings, the Group has received recognition for its sustainability progress and disclosures in the last twelve months. Safestore has been given a Silver rating in the 2023 EPRA Sustainability BPR awards. The Global ESG Benchmark for Real Assets ("GRESB") has once again awarded Safestore an "A" rating in its 2023 Public Disclosures assessment. MSCI has awarded Safestore its second-highest rating of "AA" for ESG in 2023. The Group has also been awarded the highest rating of five stars by "Support the Goals".

Finally, the Group has worked with its banking lenders to agree ESG related KPIs which are linked to the margin payable under its new £400 million facility. Two KPIs have been agreed, which, when achieved, result in a reduction in margin of up to 5bps.

Portfolio Management

Our approach to store development and acquisitions in the UK, Paris and Spain and now the Netherlands and Belgium, continues to be pragmatic, flexible and focused on the return on capital.

Our property teams continue to seek investment opportunities in new sites to add to the store pipeline. However, investments will only be made if they comply with our disciplined and strict investment criteria. Our preference is to acquire sites that are capable of being fully operational within 18-24 months from completion.

Since 2016, the Group has opened 31 new stores including seven in London, five in Paris, seven in Barcelona and Madrid, six in major UK cities, four in UK conurbations and two in the Netherlands adding 1,446,000 sq ft of MLA.

In addition, the Group has acquired 47 existing stores through the acquisitions of Space Maker, Alligator, Fort Box, Salus and Your Room in the UK, OhMyBox! in Barcelona, the Lokabox and M3 group from our Benelux JV acquisition and a store in Apeldoorn in the Netherlands. These acquisitions added a further 1,890,000 sq ft of MLA and revenue performance has been enhanced in all cases under the Group's ownership.

We have also completed the extensions and refurbishments of twelve stores across the portfolio adding a net 140,000 sq ft of fully invested space to the estate. All of these stores are performing in line with or ahead of their business plans.

Despite thirteen stores being opened, extended or acquired and c. 500,000 sq ft of new MLA in the period, the Group's current pipeline of new developments and store extensions (see below) has grown over the last year and now constitutes c. 1,454,000 sq ft of future MLA. The pipeline is equivalent to c. 18% of the existing portfolio. The outstanding capital expenditure of £128 million is expected to be funded from the Group's existing resources. The total capital expenditure on stores opened in the 2022/23 financial year-to-date as well as the outstanding pipeline is estimated to be c. £251 million. Our industry leading level of REVPAF typically allows us to deliver returns above our cash on cash hurdle of at least 10%. Our current average portfolio cash on cash return is 15%. On a 10% return basis, a further £25-£30m of EBITDA will be generated at stabilisation (c. four years after opening).

Property Pipeline

Openings of New Stores and Extensions in the period

Lease Extensions

During the period we completed the extensions of our leases at Edinburgh Fort Kinnaird, London- Charlton, London- Slough and Burnley stores.

The Edinburgh lease has been extended by a further 10 years to 2040.

At London- Charlton we have extended the lease term to 2038. In doing so we have agreed a three-month rent-free period.

In Burnley we have also extended the lease to 2038 with tenant break options every five years.

At London- Slough the lease was re-geared to extend by 15 years, the total lease length at the end of the current financial year is 18 years.

As part of our ongoing asset management programme, we have now extended the leases on 31 stores or 84% of our leased store portfolio in the UK since 2012. As a result, since 2012 the remaining lease length of our UK stores has remained at c. 11-13 years.

Freehold Purchases

In Barcelona, the Group has been leasing its Valencia store since 2013. During the period, the freehold of the site was acquired for ?3.6m.

In addition, the freehold of our Oldbury store in West Birmingham was acquired for £5.7m.

Property Pipeline Summary

Our pipeline of c. 1.5 million sq ft represents c. 18% of our existing property portfolio.

The pipeline of 1,454,000 sq ft of future MLA includes;

· ten projects with c. 456,000 sq ft of MLA in London (31% of the pipeline),

· one project with c. 54,000 sq ft of MLA in the South East of the UK (4% of the pipeline)

· nine projects with c. 414,000 sq ft of MLA in Paris (29% of the pipeline),

· five projects with c. 258,000 sq ft of MLA in Spain (18% of the pipeline),

· four projects with c. 225,000 sq ft of MLA in the Netherlands (15% of the pipeline)

· one project in Belgium with c. 47,000 sq ft of MLA (3% of the pipeline)

Since our fourth quarter announcement in November 2023, three sites have had planning granted. Of the 30 projects in the pipeline only six are now subject to planning.

Acquisitions

Acquisition of Apeldoorn Self Storage Facility in the Netherlands

During the period, the Group completed the acquisition of an existing 58,000 sq ft self storage facility in Apeldoorn in the Netherlands. The store was operating under the Stoor brand and is situated in an easily accessible commercial district on the north side of the city, which has a population of 165,000.

New Joint Venture with Carlyle and Investment in myStorage in Germany

In December 2022 Safestore entered the German self storage market via a new Joint Venture with Carlyle, which has acquired the myStorage business.

Safestore has developed a multi-country highly scalable platform with leading marketing and operational expertise in self storage, with a proven track record for developing its platform in new markets. 

The acquisition of myStorage represents an excellent opportunity to develop our platform into the attractive German self storage market. The Joint Venture builds upon our previous successful relationship with Carlyle having entered the Benelux market in 2019. Our common intention is to target development and acquisition opportunities through the Joint Venture, providing the opportunity to achieve operational scale and to develop local market knowledge, whilst also retaining the option for Safestore to develop its own wholly owned self storage sites in Germany. We look forward to continuing our working relationship with Carlyle, and to developing a long and mutually beneficial relationship.

The German market is one of Europe's more under-penetrated markets with just 0.21 sq ft of storage space per capita which compares to 0.82 sq ft in the UK, 0.35 sq ft in France, 0.32 sq ft in Spain, 0.50 sq ft in the Netherlands and 0.20 sq ft in Belgium. According to the 2023 FEDESSA report, there are just 530 facilities in Germany and 17.6 million sq ft of lettable space.

myStorage has seven medium to long-term leasehold stores and 326,000 sq ft of MLA in Berlin, Heidelburg, Mannheim, Fürth, Nuremburg, Neu-Ulm and Reutlingen.

Safestore's initial investment in the Joint Venture was a c. ?2.2 million equity investment for a 10% share of the Joint Venture. Safestore will also earn a fee for providing management services to the Joint Venture. The Group expects to earn an initial return on investment of c. 15% for the first full year before transaction related costs reflecting its share of expected Joint Venture profits and fees for management services.

Portfolio Summary

The self storage market has been growing consistently for over 20 years across many European countries but few regions offer the unique characteristics of London and Paris, both of which consist of large, wealthy and densely populated markets. In the London region, the population is 13 million inhabitants with a density of 5,200 inhabitants per square mile, 11,000 per square mile in Central London and up to 32,000 per square mile in the densest boroughs.

The population of the Paris urban area is 10.7 million inhabitants with a density of 9,300 inhabitants per square mile in the urban area but 54,000 per square mile in the City of Paris and first belt, where 69% of our French stores are located and which has one of the highest population densities in the western world. 85% of the Paris region population live in central parts of the city versus the rest of the urban area, which compares with 60% in the London region. There are currently c. 245 storage centres within the M25 as compared to only c. 122 in the Paris urban area.

In addition, barriers to entry in these two important city markets are high, due to land values and limited availability of sites as well as planning regulation. This is the case for Paris and its first belt in particular, which inhibits new development possibilities.

Over the last four years the Group has expanded into further attractive, under-penetrated markets in Spain, the Netherlands and Belgium with a focus on the conurbations of Barcelona, Madrid, the Randstad area and Brussels.

As at 31 October 2023, 97% of our Group Revenue, 94% of our stores and 95% of our available capacity are in London, Paris, South East England, major UK cities, Spain, Amsterdam and the Randstad area and Brussels. These major population areas deliver 97% of the Group's store EBITDA from 95% of our MLA, highlighting the attractiveness of being present in these major cities and conurbations. The current pipeline includes 30 further developments in these areas which will increase the number of stores to 95% of our portfolio.

We have a strong position in both the UK and Paris markets, operating 133 stores in the UK, 73 of which are in London and the South East, and 29 stores in Paris.

In the UK, 63% of our revenue is generated by our stores in London and the South East. On average, our stores in London and the South East are smaller than in the rest of the UK but the rental rates achieved are materially higher, enabling these stores to typically achieve similar or better margins than the larger stores. In London we operate 50 stores within the M25, more than any other competitor.

In France, we have a leading position in the heart of the affluent City of Paris market with ten stores branded as Une Pièce en Plus ("UPP") ("A spare room"). Over 60% of the UPP stores are located in a cluster within a five-mile radius of the city centre, which facilitates strong operational and marketing synergies as well as options to differentiate and channel customers to the right store subject to their preference for convenience or price affordability. The Parisian market has attractive socio-demographic characteristics for self storage and we believe that UPP enjoys unique strategic strength in such an attractive market.

In Spain the Group has eleven stores open in Barcelona and Madrid with a further five stores in the pipeline in these two cities and in Pamplona in the Basque Country, a region with a dynamic and healthy economy.

In the Benelux Region the Group has eleven stores open in the Netherlands and six in Belgium. The pipeline contains a further four stores in the Netherlands and one in Belgium.

In addition, Safestore has the benefit of a leading national presence in the UK outside of London where the stores are predominantly located in the centre of key metropolitan areas such as Birmingham, Manchester, Liverpool, Bristol, Newcastle, Glasgow and Edinburgh.

Market

The self storage market in the UK, France, Spain, the Netherlands and Belgium remains relatively immature compared to geographies such as the USA and Australia. The SSA Annual Survey (May 2023) confirmed that self storage capacity stands at 0.82 sq ft per head of population in the UK. The most recent report relating to Europe (FEDESSA's 2023 report) showed that capacity in France is 0.35 sq ft per capita. Whilst the Paris market density is greater than France, we estimate it to be significantly lower than the UK at around 0.4 sq ft per inhabitant. This compares with closer to 10 sq ft per inhabitant in the USA and 2 sq ft in Australia. In the UK, in order to reach the US density of supply, it would require the addition of around another 17,000 stores as compared to c. 1,500 currently. In the Paris region, it would require around 2,400 new facilities versus c. 122 currently opened.

In Spain, the Netherlands and Belgium, geographies the Group has recently entered, penetration is similarly low. In Spain capacity is around 0.32 sq ft per head of population and the consumer is serviced by just 585 stores. In the Netherlands penetration is 0.50 sq ft per head of population (320 stores) and in Belgium 0.20 sq ft per head of population (96 stores).

The Group recently entered a JV with Carlyle in Germany. The German market is one of Europe's more under-penetrated markets with just 0.21 sq ft of storage space per capita and, according to the 2023 FEDESSA report, there are just 530 facilities in the country and 17.4 million sq ft of lettable space.

Our interpretation of the most recent 2023 SSA report is that operators remain optimistic about expansion and the future growth of the industry. The level of development estimated for the next three years is similar to that witnessed in recent years and we do not consider this level of new supply growth to be of concern, especially as we believe new supply helps to create increased awareness of what is a relatively immature product on Europe. We estimate new supply to represent around 2% to 3% of the traditional self storage industry in the UK. These figures represent gross openings and do not consider storage facilities closing or being converted for alternative uses. We estimate that a small proportion of these sites compete with existing Safestore stores.

New supply in London and Paris is likely to continue to be limited in the short and medium term as a result of planning restrictions, competition from a variety of other uses and the availability of suitable land.

The supply in the UK market, according to the SSA Survey, remains relatively fragmented despite a number of acquisitions in the sector in recent years. The SSA's estimates of the scale of the UK industry are finessed each year and changes from one year to the next represent improved data in addition to new supply. In the 2023 report the SSA estimates that 2,231 self storage facilities exist in the UK market including around 739 container-based operations. At the point in time that the 2023 survey was written, Safestore is the industry leader by number of stores with 129 wholly owned sites followed by Big Yellow with 108 stores (including Armadillo), Access with 60 stores, Shurgard with 41 stores, Lok'n Store with 40 stores, Storage King with 38 stores and Ready Steady Store with 27 stores. In aggregate, the top seven leading operators account for around 20% of the UK store portfolio. The remaining c. 1,780 self storage outlets (including 739 container-based operations) are independently owned in small chains or single units. In total there are 1,086 storage brands operating in the UK.

Safestore's French business, UPP, is mainly present in the core wealthier and more densely populated inner Paris and first belt areas, whereas our two main competitors, Shurgard and Homebox, have a greater presence in the outskirts and second belt of Paris.

Our Spanish business currently operates in Barcelona and Madrid. The metropolitan areas of Barcelona and Madrid have combined growing high-density populations of twelve million inhabitants and significant barriers to entry.

Our focus in the Netherlands market is on the densely populated Amsterdam and Randstad conurbations. The Netherlands is the second most developed self storage market in Europe (after the UK) but still remains under-penetrated with approximately 320 stores and 0.50 sq ft per capita of storage space.

Belgium is one of the more under-penetrated markets in Europe with just 96 stores and 0.20 sq ft per capita of self storage space. In Belgium our presence is focused on Brussels and the significant urban conurbations of Liege, Charleroi and Nivelles.

Consumer awareness of self storage appears to be increasing but at a relatively slow rate, providing an opportunity for future industry growth. The SSA survey indicates that approximately half of consumers have low awareness about the service offered by self storage operators or had not heard of self storage at all. Since 2014, this statistic has only fallen 6ppts from 62%. Therefore, the opportunity to grow awareness, combined with limited new industry supply, makes for an attractive industry backdrop.

Self storage is a brand-blind product. 66% of respondents were unable to name a self storage business in their local area (64% in 2022). The lack of relevance of brand in the process of purchasing a self storage product emphasises the need for operators to have a strong online presence. This requirement for a strong online presence was also reiterated by the SSA Survey where 76% of those surveyed (73% in 2022) confirmed that an internet search would be their chosen means of finding a self storage unit to contact, whilst knowledge of a physical location of a store as reason for enquiry was only c. 30% of respondents (c. 26% in 2022).

There are numerous drivers of self storage growth. Most private and business customers need storage either temporarily or permanently for different reasons at any point in the economic cycle, resulting in a market depth that is, in our view, the reason for its exceptional resilience. The growth of the market is driven both by the fluctuation of economic conditions, which has an impact on the mix of demand, and by growing awareness of the product.

Safestore's domestic customers' need for storage is often driven by life events such as births, marriages, bereavements, divorces or by the housing market including house moves and developments and moves between rental properties. Safestore has estimated that UK owner-occupied housing transactions drive around 8-13% of the Group's new lets.

The Group's business customer base includes a range of businesses from start-up online retailers through to multi-national corporates utilising our national coverage to store in multiple locations while maintaining flexibility in their cost base.

Safestore's customer base is resilient and diverse and consists of around 90,000 domestic, business and National Accounts customers across London, Paris, Spain, major UK cities, the Netherlands and Belgium.

Business Model

The Group operates in a market with relatively low consumer awareness. It is anticipated that this will increase over time as the industry matures. To date, despite the financial crisis in 2007/08, the implementation of VAT in the UK on self storage in 2012, Brexit and the Covid-19 pandemic, the industry has been exceptionally resilient. In the context of uncertain economic conditions, driven by inflation and the war in Ukraine, the industry remains well positioned with limited new supply coming into the self storage market.

With more stores inside London's M25 than any other operator and a strong position in central Paris, Safestore has leading positions in the two most important and demographically favourable markets in Europe. In addition, our presence in major cities in the UK is unsurpassed and contributes to the success of our industry-leading National Accounts business. In the UK, Safestore is the leading operator by number of wholly owned stores. With 62% of customers travelling for less than 15 minutes to their storage facility (2023 SSA Survey) Safestore's national store footprint represents a competitive advantage.

The Group's capital-efficient portfolio of 190 wholly owned stores in the UK, Paris, Spain, the Netherlands and Belgium consists of a mix of freehold and leasehold stores. In order to grow the business and secure the best locations for our facilities we have maintained a flexible approach to leasehold and freehold developments as well as being comfortable with a range of building types, from new builds to conversions of warehouses and underground car parks.

Currently, around a quarter of our stores in the UK are leaseholds with an average remaining lease length at 31 October 2023 of 12.4 years (FY2022: 12.7 years). Although our property valuation for leaseholds is conservatively based on future cash flows until the next contractual lease renewal date, Safestore has a demonstrable track record of successfully re-gearing leases several years before renewal whilst at the same time achieving concessions from landlords.

In England, we benefit from the Landlord and Tenant Act that protects our rights for renewal except in case of redevelopment. The vast majority of our leasehold stores have building characteristics or locations in retail parks that make current usage either the optimal and best use of the property or the only one authorised by planning. We observe that our landlords, who are property investors, value the quality of Safestore as a tenant and typically prefer to extend the length of the leases that they have in their portfolio, enabling Safestore to maintain favourable terms.

In Paris, where 41% of stores are leaseholds, our leases typically benefit from the well-enshrined Commercial Lease statute that provides that tenants own the commercial property of the premises and that they are entitled to renew their lease at a rent that is indexed to the Indice des Loyers Commerciaux (Commercial Rental Index) published by the state. Taking into account this context, the valuer values the French leaseholds based on an indefinite property tenure, similar to freeholds but at a significantly higher exit cap rate.

The Group believes there is an opportunity to leverage its highly scalable marketing and operational expertise in new geographies outside the UK and Paris. During 2019, a Joint Venture14 was established with Carlyle, which acquired the M3 Self Storage business in the Netherlands which had six stores in Amsterdam and Haarlem. In June 2020, the Joint Venture14 added the Lokabox business, a portfolio of six stores in Brussels (2), Liege (2), Charleroi and Nivelles. In December 2020, the Joint Venture14 acquired the Opslag XL portfolio adding a further three stores in Amsterdam, The Hague and Hilversum and opened a store in Nijmegen in the Netherlands in January 2022. The Amsterdam store has subsequently been closed as planned following lease expiry. After three years of learning about and understanding these markets, the Group acquired the remaining 80% of equity in the Joint Venture14 owned by Carlyle in March 2022 and subsequently added a further two stores.

In 2019, the Group entered the Spanish market with the acquisition of OhMyBox. Our Spanish portfolio currently consists of eight stores in Barcelona, and three Madrid stores. We have a further five stores in our development pipeline situated in Madrid, Barcelona and Pamplona. We consider these cities to have attractive characteristics in relation to self storage and intend to continue to seek further expansion opportunities.

In late 2022, Safestore entered the German self storage market via a new Joint Venture15 with Carlyle, which has acquired the myStorage business. myStorage has seven medium to long-term leasehold stores and 326,000 sq ft of MLA in Berlin, Heidelburg, Mannheim, Fürth, Nuremburg, Neu-Ulm and Reutlingen.

Our experience is that being flexible in its approach has enabled Safestore to operate from properties and in markets that would have been otherwise unavailable and to generate strong cash-on-cash returns.

Safestore excels in the generation of customer enquiries which are received through a variety of channels including the internet, telephone and "walk-ins". In the early days of the industry, local directories and store visibility were key drivers of enquiries. However, the internet is now by far the dominant channel, accounting for 89% (FY2022: 90%) of our enquiries in the UK and 84% (FY2022: 85%) in France. This dynamic is a clear benefit to the leading national operators that possess the budget and the management skills necessary to generate a commanding presence in the major search engines. Safestore has developed and continues to invest in a leading digital marketing platform that has generated 43% enquiry growth over the last five years.

Although mostly generated online, our enquiries are predominantly handled directly by the stores and, in the UK, we have a Customer Support Centre ("CSC") which handles customer service issues in addition to enquiries, in particular when the store colleagues are busy handling calls or outside of normal store opening hours.

Our pricing platform provides the store and CSC colleagues with system-generated real-time prices managed by our centrally based yield-management team. Local colleagues have certain levels of discretion to flex the system-generated prices but this is continually monitored.

Customer service standards are high and customer satisfaction feedback is consistently very positive. Safestore invites customers to leave a review on a number of review platforms, including Feefo, Google and Trustpilot. Our ratings for each of these three providers in the UK is 4.8 out of 5. In France, Une Pièce en Plus uses Trustpilot to obtain independent customer reviews with a "TrustScore" of 4.6 out of 5. In Spain, OMB collects customer feedback via Google reviews and has maintained a score of 4.7 out of 5. The key drivers of sales success are the capacity to generate enquiries in a digital world, the capacity to provide storage locations that are conveniently located close to the customers' requirements and the ability to maintain a consistently high quality, motivated retail team that is able to secure customer sales at an appropriate storage rate, all of which can be better provided by larger, more efficient organisations.

We remain focused on business as well as domestic customers. Our national network means that we are uniquely placed to further grow the business customer market and in particular National Accounts. Business customers in the UK now constitute 42% of our total space let and have an average length of stay of 26 months. Within our business customer category, our National Accounts business represents around 487,000 sq ft of occupied space (around 8% of the UK's occupancy). Approximately two-thirds of the space occupied by National Accounts customers is outside London, demonstrating the importance and quality of our well invested national estate.

The business now has in excess of c. 90,000 business and domestic customers with an average length of stay of 27 months and 21 months respectively.

The cost base of the business is relatively fixed. Each store typically employs three staff. Our Group Head Office comprises business support functions such as Yield Management, Property, Marketing, HR, IT and Finance.

With the establishment of a £400 million unsecured multi-currency Revolving Credit Facility, Safestore has secure financing, a strong balance sheet and significant covenant headroom. This provides the Group with financial flexibility and the ability to grow organically and via carefully selected new development or acquisition opportunities.

At 31 October 2023, we had 1.2 million sq ft of unoccupied space in the UK, 0.2 million sq ft in France and 0.5 million sq ft in Spain and Benelux, equivalent to c. 47 full new stores. Our continued focus is on filling the spare capacity in our stores at optimally yield-managed rates. The operational leverage of our business model will ensure that the bulk of the incremental revenue converts to profit given the relatively fixed nature of our cost base.

Trading Performance

Trading Data- Total

Trading Data- Like-For-Like

Details of trading operating KPIs are included in the tables above.

UK

UK revenue was up 2.1% for the year in total and 1.2% on a like-for-like8 basis.

Demand, measured by enquiry levels, was down on the previous year but ahead of pre-COVID levels.

We believe that our REVPAF10, a measure of how effectively we yield manage our assets, is the strongest in the industry and materially above some of our competitors. REVPAF10 grew by 0.9% for the year on a like-for-like8 basis.

Like-for-like EBITDA2 grew by 2.4% with EBITDA margins improving by 0.8ppts to 64.1% reflecting strong cost control in the business. Like-for-like costs declined by 1.0% in the year.

Paris

Our Paris business did not experience the same surge in demand that we saw in the UK during the COVID period but continued to grow steadily.

Paris revenue grew 3.5% in total for the year on a total and like-for-like8 basis. Like-for-like8 revenue growth in the fourth quarter was 3.2%.

Our REVPAF10, which we believe is materially ahead of the local competition, grew by a further 3.6% for the year. 

Enquiry levels in Paris were marginally down compared to the same period last year but ahead of pre-COVID levels.

Like-for-like EBITDA grew by 6.1% with EBITDA margins improving by 1.7ppts to 64.1% reflecting tight cost control in the business. Like-for-like costs reduced by 2% in the year.

Spain

Since acquiring our Spanish business in 2019 we have opened a further seven stores. We now have eleven open stores and a pipeline of a further five stores in Madrid, Barcelona and one in Pamplona.

Over the year our Spanish business grew revenue by 19.4% and by 44.4% in the fourth quarter. Like-for-like8 revenue was flat over the year.

In line with our expectations, like-for-like8 occupancy in Barcelona has initially been diluted by the new Barcelona stores which have opened in close proximity and within the same catchment area as an existing store. Management believes that, given the limited supply in central Barcelona, once the absorption phase has been passed, the stores will generate higher revenue and profits and provide significant long-term value.

Like-for-like EBITDA was broadly flat at store level but declined by £0.4million after professional fees.

Netherlands

Our Netherlands business, acquired on 30 March 2022, contributed ?7.2 million revenue for the year and ?3.6 million of EBITDA.

During the year, a new store in Amersfoort has opened and an additional store in Apeldoorn was acquired. We now have eleven stores open in the Netherlands and a pipeline of a further four sites located in the Randstad area.

The Netherlands business is not treated as like-for-like8 during the 2023 financial year. However, the stores that were in the Group for the whole of the fourth quarter in 2022 delivered 10.7% growth in Q4 2023.

Belgium

Our Belgium business, acquired with our Netherlands business on 30 March 2022, contributed ?4.1 million revenue for the year and ?1.4 million of EBITDA.

We have six stores open in Belgium and a pipeline of one additional site located in Brussels.

The Belgian business is not treated as like-for-like8 during the 2023 financial year. However, the stores that were in the Group for the whole of the fourth quarter in 2022 delivered 10.0% growth in Q4 2023.

Frederic Vecchioli

16 January 2024

Financial Review

EPS1 has grown by 348% over the last ten years

Underlying income statement

The table below sets out the Group's underlying results of operations for the year ended 31 October 2023 and the year ended 31 October 2022. To calculate the underlying performance metrics, adjustments are made for the impact of exceptional items, share-based payments, corporate transaction costs, change in fair value of derivatives, gain or loss on investment properties and the associated tax impacts, as well as exceptional tax items and deferred tax. Although not superseding IFRS, management considers this presentation of earnings to be representative of the underlying performance of the business, as it removes the income statement impact of items not fully controllable by management, such as the revaluation of derivatives and investment properties, and the impact of exceptional credits, costs and finance charges.

Note:

1. Adjusted EPRA earnings excludes share-based payment charges and, accordingly, the Underlying EBITDA, Underlying EBITDA after leasehold costs and Underlying profit before tax measures have been adjusted to exclude share-based payment charges for consistency.

The table below reconciles statutory profit before tax in the income statement to underlying profit before tax in the previous table.

Underlying EBITDA increased by 5.3% to £142.2 million (FY2022: £135.1 million), reflecting a 5.5% increase in revenue and a 5.8% increase to the underlying cost base. This performance reflects the growth in average rate of 3.5% to £30.26 in 2023 from £29.25 in 2022 offset by a reduction in occupancy of 5.1ppts to 77.0% in 2023 from 82.1% in 2022, whilst maintaining control over costs. Like-for-like revenue grew by 2.2% with the like-for-like cost base broadly flat compared to 2022.

Leasehold costs increased by 9.6% from £13.6 million to £14.9 million, principally due to the impact of rent reviews across the portfolio in addition to the Netherlands leaseholds now forming part of the Group.

Underlying finance charges increased by 45.9% from £10.9 million to £15.9 million. This principally reflects interest charges which increased from £11.9 million in 2022 to £15.1 million in 2023 driven by higher debt levels and higher rates on borrowing to fund the Group's acquisition and development activity, offset by the gains made on financial instruments of £0.4 million in 2023 (FY2022: £1.3 million).

As a result, we achieved a 0.8% increase in underlying profit before tax of £110.1 million (FY2022: £109.2 million). The main movement in statutory profit before tax in the year is the £287.3 million decrease in the gain on investment and development property to £102.6 million (FY 2022: £389.9 million) partially offset by the reduction in the share-based payment charge of £7.7 million to £3.5 million (FY2022: £11.2 million).

Included within statutory profit before tax in 2022 were other exceptional gains of £10.7 million. £5.5 million related to the valuation gain of Safestore's 20% investment in the Joint Venture formed in 2019 with Carlyle that arose on acquisition of the remaining 80%, with £5.1 million related to the profit on the sale of the Nanterre land in Paris in November 2021.

Given the Group's REIT status in the UK, tax is normally only payable in France, Spain, the Netherlands and Belgium. The underlying tax charge for the year was £5.1 million (FY2022: £5.2 million), calculated by applying the effective underlying tax rate of 22.5% to the respective underlying profits earned by the non-UK businesses.

As explained in note 2 to the financial statements, management considers that the most representative Earnings per Share ("EPS") measure is Adjusted Diluted EPRA EPS which has increased by 0.8% to 47.9 pence (FY2022: 47.5 pence).

Reconciliation of Underlying EBITDA

The table below reconciles the operating profit included in the income statement to Underlying EBITDA.

The main reconciling items between statutory operating profit and Underlying EBITDA are the gain on investment properties as well as adjustments for depreciation, variable lease payments, share-based payment charges, exceptional gains and the share of associate's Underlying EBITDA. The gain on investment properties was £93.8 million, as compared to £381.6 million in 2022 primarily due to the stable performance of the stores over the period, against a period of outperformance in 2021 and 2022. The Group's approach to the valuation of its investment property portfolio at 31 October 2023 is discussed below.

Underlying profit by geographical region

The Group is organised and managed in four operating segments based on geographical region. The table below details the underlying profitability of each region.

Note: CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the exchange rate effective for the comparative period in order to present the reported results on a more comparable basis).

Underlying EBITDA in the UK increased by £2.6 million, or 2.5%, to £106.2 million (FY2022: £103.6 million), underpinned by a 2.1% or £3.5 million increase in revenue, which was driven by an increase in average rate of 5.1%, offset by a decrease in average occupancy of 3.3% and an increase of 1.5% n the underlying cost base, with like-for-like underlying costs decreasing 0.8%. The UK also reflected steady like-for-like revenue growth of 1.2%. The underlying UK EBITDA margin was slightly up at 63.8% compared to 2022 at 63.6% whilst the like-for-like EBITDA margin saw a 0.8ppt increase to 64.1% from 63.3% in 2022.

In Paris, underlying EBITDA increased by ?2.0m, or 6.1%, to ?35m (FY2022: ?33.0m), reflecting a ?1.7m increase in revenue, arising from a 3.9% increase in the average storage rate coupled with average occupancy remaining constant. The EBITDA after leasehold costs margin in Paris increased from 55.5% in 2022 to 56.8% in 2023, reflecting the control over the underlying cost base of the portfolio, with a reduction in underlying cost of sales of 0.8% and administrative costs of 5.6%, offset by underlying leasehold costs increasing by 6.8%. Underlying EBITDA after leasehold rent in Paris increased by 5.9% to ?28.7m (FY2022: ?27.1m).

In Spain, revenue increased to ?4.3m (FY2022: ?3.6m), arising from the opening of six new stores and a 7.4% increase in like-for-like average storage rate, offset by a decrease in like-for-like average occupancy of 7.4%. Underlying EBITDA decreased by ?0.6m to ?1.2m, due to an increase in the underlying cost base and administrative expenses resulting from additional employment costs to support the new stores as well as their dilutive impact whilst they achieve stabilisation.

On 30 March 2022, Safestore acquired the remaining 80% of the equity owned by Carlyle Europe Realty in the Joint Venture formed in 2019. The Joint Venture was set up in 2019 to acquire and develop assets in The Netherlands and Belgium in order to leverage Safestore's operating platform outside our core markets. The contribution to revenue for the period was ?11.3m and ?4.7m EBITDA after leasehold costs. In 2022, the businesses contributed seven months' revenue which equated to ?5.9 million.

The combined results of the UK, Paris, Spain and Benelux delivered a 4.2% increase in Underlying EBITDA after leasehold costs at constant exchange rates at Group level. Adjusting for a favourable exchange impact of £0.8 million, the combined results of the UK, Paris, Spain and Benelux reported an Underlying EBITDA after leasehold costs increase of 4.9% or £5.9 million to £127.3 million (FY2022: £121.4 million).

Revenue

Revenue for the Group is primarily derived from the rental of self storage space and the sale of ancillary products such as insurance and merchandise (e.g. packing materials and padlocks).

The split of the Group's revenues by geographical segment is set out below for 2023 and 2022.