Safestore Regulatory News (SAFE)

18 June 2020

Safestore Holdings plc

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

Interim results for the 6 months ended 30 April 2020

Resilient business model delivers strong H1 performance

Highlights

COVID-19

· Health, safety and well-being of our employees and customers of paramount importance

· No plans to access UK government's COVID-19 related support schemes

· Plans to revert to full operations implemented with full observation of social distancing rules and protective personal equipment provided to employees

Solid Financial Performance

· Group revenue up 8.5% (9.0% at CER2)

· Group like-for-like9 revenue at CER2 up 5.9% with UK up 5.8% and Paris up 5.9%

· Adjusted Diluted EPRA EPS7 up 7.4% at 14.5p

· 7.3% increase in the interim dividend to 5.9p (2019:5.5p)

· Statutory Profit before tax up to £99.7m from £38.2m in 2019 driven by increased gain on investment properties of £64.0m (2019: gain of £7.9m)

Operational and Strategic Progress

· Despite COVID-19 and the associated reduction in enquiries, move-in and move-out activity during lockdowns, our proven business model and balanced approach to revenue management drives resilient operational performance

o Like-for-like9 average occupancy for the period up 3.7%

o Like-for-like9 average storage rate for the period up 2.1% in CER2

o Like-for-like9 closing occupancy of 72.7% (down 0.3ppts on 2019)

· Since the easing of lockdowns in our various geographies:

o Enquiries, new lets and occupancy back above pre-lockdown levels and up year-on-year in Paris and Barcelona on a like-for-like basis

o Enquiries in the UK are now back to pre-lockdown levels and up year-on-year with occupancy improving since the period end

· As of 15 June 2020, 96.9% of our April 2020 and May 2020 revenue has been collected in the UK 97.5% in 2019), and 83.8% in Paris (84.4% in 2019)

· 40,000 sq ft freehold store at Carshalton and 38,000 sq ft long leasehold (130 years) store in Gateshead opened in the period

· Further new store openings scheduled in Sheffield in June 2020 and Paris Magenta in early 2021

· New 15 year lease signed on Notting Hill store

· Extensions of Bedford, Barking and Chingford stores, adding 37,000 sq ft, to be completed by September 2020

· Development site in Bermondsey acquired during the period

· Acquisition of Fort Box Self Storage (two London stores) on 5 November 2019 for £14.3m

· On 30 December 2019 the Group entered the Spanish self-storage market with the acquisition of OMB Self Storage SL trading as OhMyBox (4 stores in Barcelona) for €17.25m

· Acquired businesses in the Netherlands and Barcelona successfully transferred onto Safestore's global marketing platform with immediate cost and enquiries benefits

· Joint venture14 with Carlyle acquired Lokabox in Belgium (six prime locations in Brussels (2), Liege (2), Charleroi and Nivelles) in June 2020

Strong and Flexible Balance Sheet

· Group loan-to-value ratio ("LTV"11) at 30% and interest cover ratio ("ICR"12) at 8.6x

· Unutilised bank facilities of £158m at April 2020 and no borrowings to refinance before June 2023

Frederic Vecchioli, Safestore's Chief Executive Officer, commented:

"I am pleased to report a strong performance in a period which included the onset of the COVID-19 pandemic. Over the last three months, our priority has been the health and well-being of our customers and colleagues. We have continued to operate our stores in all geographies in line with government guidance with restricted opening hours and minimal contact between staff and customers. As lockdown measures have relaxed, we have moved towards fuller operational practices, providing personal protective equipment to employees and adhering to government guidance on social distancing measures. As expected, our business is demonstrating the inherent resilience of the model.

"We have made good strategic progress in the first half of the year including acquiring two stores in London and four in Barcelona along with a development site in Bermondsey (London). In addition, we have opened new stores in Carshalton London and Gateshead. During the coming months we expect to open new stores in Sheffield and Magenta (Paris) as well as complete store extensions in Barking, Bedford and Chingford. Our joint venture14 with Carlyle is progressing well and added the Lokabox portfolio of six stores in Belgium to its portfolio in June 2020.

"We believe the resilient characteristics of the self-storage industry, together with our leading market positions across the UK and Paris, place the business in a strong position to withstand the economic uncertainty arising from COVID-19. Safestore's scale continues to allow us to invest in our digital marketing platforms and service proposition, and this remains a key competitive advantage in a fragmented industry. Our balance sheet remains strong and efficient, with a low cost of debt, £158m of available bank facilities, significant covenant headroom and no imminent refinancing required. This financing capacity, combined with the strong free cash generation of the business, allows us to continue to target selected development and acquisition opportunities.

"Finally, I would like to thank all of our colleagues in the UK, Paris, Barcelona and the Netherlands, for their resilience, adaptability and positive response to the challenges presented by the COVID-19 crisis."

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 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. These metrics have been disclosed because management review and monitor 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 7 and 13 below and "Non-GAAP financial information" in the notes to the financial statements.

1 - Where reported amounts are presented either to the nearest £0.1m or to the nearest 10,000 sq ft, the effect of rounding may impact the reported percentage change.

2 - 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).

3 - 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, contingent rent and depreciation. Underlying EBITDA therefore excludes all leasehold rent charges. Underlying profit before tax is defined as underlying EBITDA less leasehold rent, depreciation charged on property, plant and equipment and net finance charges relating to bank loans and cash.

4 - Occupancy excludes offices but includes bulk tenancy. As at 30 April 2020, closing occupancy includes 14,000 sq ft of bulk tenancy (30 April 2019: 14,000 sq ft).

5 - MLA is Maximum Lettable Area. At 30 April 2020, Group MLA was 6.78m sq ft (30 April 2019: 6.37m sq ft).

6 - 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.

7 - 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 are impacted (with the exception of the associated National Insurance element). The financial statements will disclose earnings both 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.

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

9 - Like-for-like adjustments remove the impact of new store results at Pontoise, Peterborough, Merry Hill, Heathrow, Chelsea, St Johns Wood, Carshalton and Gateshead as well as consolidated results for Spain.

10 - Operating profit increased by £59.9m to £105.8m (30 April 2019: £45.9m) compared to last year, principally as a result of an increase in the gain on Investment properties of £56.1m to £64.0m (30 April 2019: £7.9m) and an increase of £4.5m in Underlying EBITDA as a result of stronger trading performance. Profit before tax additionally included an increase in the net gain/loss in fair value of derivatives of £2.8m compared to H1 2019, offset by an increase in net finance expense of £1.2m.

11 - LTV ratio is Loan-to-Value ratio, which is defined as gross debt (excluding finance leases) as a proportion of the valuation of investment properties and investment properties under construction (excluding finance leases).

12 - ICR is interest cover ratio, and is calculated as the ratio of underlying EBITDA after leasehold rent to underlying finance charges.

13 - EPRA basic NAV per share is an industry standard measure recommended by EPRA. The basis of calculation is set out in the "Earnings per share" note to the financial statements.

14 - The joint venture with CERF, which represents a 20% investment, has been accounted for as an associate using the equity method of accounting, as described in the "Investment in associates" note to the financial statements.

Reconciliations between underlying metrics and statutory metrics can be found in the financial review and financial statements sections of this announcement.

Summary

Safestore has delivered another strong financial performance in the first half of the financial year, driven by organic growth and two acquisitions that were completed at the start of the year. Reported Group revenue increased 9.0% at CER2 with like-for-like9 revenue growing by 5.9%. The Group's like-for-like average occupancy grew by 3.7% with the like-for-like average storage rate up 2.1% at CER2. Like-for-like EBITDA margin3, on a CER basis, grew by 1.6ppts to 58.2% (2019: 56.6%).

Our operational performance across all regions of the UK has been strong in the period resulting in a 5.8% increase in like-for-like revenue. Enquiry generation and store team conversion have both performed well across all regions of the UK, resulting in like-for-like average occupancy growing by 3.8% in the period whilst the UK like-for-like average rate grew by 1.9%. The UK experienced an occupancy outflow after the COVID-19 lockdown was announced on 23 March and like-for-like closing occupancy at the period end was down 0.3ppts at 71.6% (2019: 71.9%) but like-for-like revenue in April 2020 was still up 2.0% on the previous year in the month. The occupancy outflow was driven by larger units which typically pay a lower rate. Since the period end, which broadly coincided with some government relaxation of the lockdown, the occupancy performance of the business has improved and rate has remained strong such that like-for-like revenue for May 2020 was also up on the previous year.

In Paris, our trading performance has been strong with like-for-like revenue growing by 5.9%. This was driven by our average like-for-like occupancy performance which increased by 3.1% compared to the prior year and like-for-like average rate which grew by 3.1% as well. Paris experienced an occupancy outflow after the COVID-19 lockdown was announced in the middle of March 2020 and like-for-like closing occupancy at the period end was down 0.3ppts at 77.4% (2019: 77.7%) but like-for-like revenue in April 2020 was still up 4.7% on the previous year in the month. Since the period end, the occupancy performance of the business has improved significantly with net occupancy inflows during the month of May 2020, as compared to outflows in the prior year, and the rate has remained strong such that like-for-like revenue for May 2020 was also up on the previous year.

Group underlying EBITDA of £45.9m increased 11.4% at CER2 on the prior year and 10.9% on a reported basis, reflecting the impact of the 1.8% strengthening of the average Euro exchange rate, compared to the prior period, on the profit earned on our Paris business. Rent costs increased as a result of the acquisition of leasehold stores in Barcelona and London in the period and, as a result, adjusted diluted EPRA EPS7 grew by 7.4% in the period to 14.5p (2019: 13.5p).

Our property portfolio valuation (excluding investment properties under construction) has increased by £119.4m since October 2019 to £1,451.2m. The increase comprises £28.1m of additions and reclassifications, £18.8m of acquisitions, a positive currency impact of £3.9m and a £68.6m revaluation gain (equivalent to 5.2% of the valuation at October 2019) driven by the operational performance of the business, leasehold renewals and store extensions. The Group's external valuers, Cushman & Wakefield Debenham Tie Leung Limited ("C&W"), valued 53% of the portfolio at April 2020 with a Directors' valuation being carried out, with the assistance of C&W, on the remaining 47%. In the context of COVID-19, and consistent with other Real Estate companies, C&W have inserted a 'material valuation uncertainty' clause into its valuation report which is detailed in Note 15 of the Financial Statements.

Reflecting the Group's good trading performance, the Board is pleased to recommend a 7.3% increase in the interim dividend to 5.9p per share (2019: 5.5p).

Outlook

As we have entered into our third quarter, we have been monitoring closely the trading performance of all our geographies as COVID-19 lockdown restrictions have been relaxed to varying degrees. We are encouraged by what we have seen so far, with our Paris and Spanish businesses returning to normal levels of trading with enquiries, new lets and occupancy back above pre-lockdown levels and up year-on-year on a like-for-like basis. The UK trading performance has improved significantly since the period end with like-for-like enquires now back above last year and occupancy growing since the period end.

As of 15 June 2020, closing Group like-for-like occupancy is up 1.3% compared to April 2020 and Group like-for-like CER revenue for the period from 1 May 2020 to 15 June 2020 is up 0.4% year-on-year.

Work to complete our Sheffield site, which is due to open for business in the coming days, has recommenced as has work in Paris at our Magenta store. The delay to each of these stores will be under two months. In addition, our extensions at Bedford, Barking and Chingford are planned to open by early Autumn 2020.

Our strong and flexible balance sheet and healthy cash generation mean the business has significant liquidity and we will continue to look for opportunities to take advantage of further selective development and acquisition opportunities in our key markets, subject to our rigorous investment criteria.

We will continue to monitor carefully and closely any economic impact of COVID-19 on our internal forecasts over the coming months. However, our business model remains highly resilient with multiple drivers of demand and we believe the group, whilst not entirely immune, is strongly positioned to withstand any economic downturn. As it currently stands, the Board anticipates earnings for the full year being in line with its expectations.

For further information, please contact:

A conference call for analysts will be held at 09:30am today.

For dial-in details of the presentation please contact:

Guy Scarborough (guy.scarborough@instinctif.com or telephone on 07917 178920).

Notes to Editors

· Safestore is the UK's largest self-storage group with 158 stores at 30 April 2020, comprising 126 wholly owned stores in the UK (including 71 in London and the South East with the remainder in key metropolitan areas such as Manchester, Birmingham, Glasgow, Edinburgh, Liverpool and Bristol). In Paris, the Group has 28 wholly owned stores and recently acquired 4 stores in Barcelona. In addition, the Group operates 6 stores in the Netherlands and 6 stores in Belgium under a joint venture14 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 densest 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 c. 75,000 personal and business customers.

· As at 30 April 2020, Safestore had a maximum lettable area ("MLA") of 6.78 million sq ft (excluding the expansion pipeline stores) of which 4.82 million sq ft was occupied.

· Safestore employs around 680 people in the UK, Paris and Barcelona.

COVID-19

At Safestore, the health and well-being of our customers and colleagues is our absolute priority. Following governments' announcements regarding restrictions of movement, we implemented strict safeguarding measures across our portfolio, in line with government guidance in each geography, to maintain social distancing and ensure we can operate safely, protect our staff, and allow necessary access for our customers.

All our stores in the UK, Paris, Barcelona and the Netherlands remained open or accessible during the lockdowns but the reception areas were closed, the staffing and opening hours were reduced and we removed the provision of services that involve person-to-person contact. Access to our stores is largely automated and, in general, the premises have relatively low footfall. We are supporting our employees with alternative means of transport to work where public transport continues to be a challenge.

The process for new enquiries remained unchanged with customers able to enquire via our website or phone, and we adjusted the new let process so that contracts were concluded electronically. In addition, we intensified the daily cleaning levels of our stores, especially commonly touched areas.

It remains our intention to continue to pay all our employees' salaries throughout the crisis.

In line with UK government guidance relating to storage and points of delivery facilities, our UK stores remained open as they provide important support to small business customers and companies engaged in key supply chains including healthcare, food industry suppliers and infrastructure support such as electrical and mechanical repair providers.

Since lockdowns have been gradually relaxed across our geographies, operational processes have begun to revert to more normal practices. Employees have been provided with personal protective equipment and are adhering to the social distancing rules required in each geography.

While COVID-19 continues to create uncertainty, we are monitoring developments daily to ensure we adhere to government advice in each of our geographies and continue to ensure the safety of our staff and customers.

Our Strategy

The Group's proven strategy has evolved over the last year with the creation of our joint venture14 with Carlyle and our acquisition of OhMyBox in Barcelona, but otherwise remains largely unchanged. We believe that the Group has a well-located asset base, management expertise, infrastructure, scale and balance sheet strength and, as we look forward, we consider that the Group has the potential to 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 venture14 or in our own right.

Optimisation of Existing Portfolio

With the opening of fourteen new stores since August 2016, and the acquisitions of 31 stores through the purchases of Space Maker in July 2016, Alligator in November 2017, our Heathrow store, Fort Box in London and OMB in Barcelona in 2019, we have established and strengthened our market-leading portfolio in the UK and Paris and have entered the Spanish market. We have a high quality, fully invested estate in all geographies and, of our 158 stores as at 30 April 2020, 99 are in London and the South East of England or in Paris with 55 in the other major UK cities and four in Barcelona. We now operate 48 stores within the M25 which represents a higher number of stores than any other competitor.

Our MLA4 has increased to 6.78m sq ft at 30 April 2020 (2019: 6.37m sq ft). At the current occupancy level of 71.1% we have 1.96m sq ft of unoccupied space, of which 1.62m sq ft is in our UK stores and 0.32m sq ft in Paris. In total this unlet space is the equivalent of circa 45 empty stores located across the estate and provides the Company with significant opportunity to grow further. 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 2019, like-for-like9 occupancy has increased from 63.1% to 78.5% i.e. an average of 2.6% per year.

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.

Operational action taken across the Group in relation to Coronavirus (Covid-19) outbreak

Throughout the COVID-19 pandemic the safety of our colleagues and our customers has been paramount.

We have carefully considered the mental and financial wellbeing of our colleagues across all geographies at this time:

· All colleagues have received full salaries, even where their hours have been reduced.

· All colleagues who have been identified as vulnerable and are unable to work due to a requirement to "shield" have been fully supported by Safestore continuing to offer full pay throughout the 12-week shielding period.

In February 2020 we established a COVID-19 action group consisting of 8 key leaders across all geographies, meeting regularly to discuss updated government advice and agree internal actions, prioritising the safety of our colleagues, including:

· regular communication to colleagues of support and hygiene measures;

· supply of hand sanitizer gels and antibacterial spray to all sites from February 2020;

· temporary closure of head office site with all head office colleagues working from home;

· temporary closure of store reception areas to minimize customer contact and reduction of colleagues in store to one per site;

Plans to exit lockdown are being implemented, whilst continuing to maintain the safety of our colleagues across all geographies and customers, including:

· COVID-19 risk assessments in all stores

· Closed receptions and lone working until the end of May

· Further enhanced cleaning schedules of high touch areas

· Additional stocks of PPE for every store, including masks, visors, gloves and hand sanitizer

· Installation of protective screens and 2m social distancing floor markers and signage for all stores across the estate

· Provision of disposable gloves for customer use

· Introduction of electronic customer contracts and contact free payment methods

· Continuing to encourage home-working where possible for Head Office employees

· COVID-19 risk assessment of the head office site to identify appropriate measures required to facilitate a safe re-opening

Digital Marketing Expertise

Awareness of self-storage remains relatively low with 52% (2019: 52%) of the UK population either knowing very little or nothing about self-storage (source: 2020 SSA Annual Report). In the UK around 75% of our new customers are using self-storage for the first time. 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 the generation of customer enquiries. The Group has continued to invest in its consumer website as well as in-house expertise which has resulted in the development of a leading digital marketing platform that has generated over 41% enquiry growth for the Group over the last five years. Our increasing in-house expertise and significant annual budget has enabled us to deliver strong results.

Online enquiries now represent 87% of our enquiries in the UK (H1 2019: 82%) and 77% in France (HY2019: 74%). The significant jump in online share this year is in part due to a shift of customers who would otherwise have enquired in-person during Covid-19 lockdowns. 63% of our online enquiries in the UK now originate from a mobile device (excluding tablets), compared to 54% last year, 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.

During H1 2020, the Group invested significantly in its digital marketing platform to enable scalable, efficient growth. The underlying components of the Safestore UK website and customer data platform have been "globalised" to allow cost-effective and relatively straightforward adoption by other Group brands. MijnSafestore (formerly known as M3 Self Storage in the Netherlands which was acquired through our joint venture14 with Carlyle) became the first entity to be transitioned to this global platform and has immediately experienced a benefit in terms of search engine and enquiry performance. In addition, the performance (paid) marketing framework used in the UK and France was extended to the Spain and Netherlands with favourable outcomes in terms of enquiry growth and efficiency.

In 2020, Safestore in the UK once again achieved a Feefo customer service rating of 95% based on real customers who rated their experience as "Excellent" or "Good". Consequently, Safestore was recognised with a "Platinum Trusted Service" award earned only by companies that achieve a Gold rating in three consecutive years; Safestore has delivered this standard of service to its customers for six consecutive years.

During the COVID-19 lockdown period, enquiry volumes reduced in all territories and marketing expenditure was reduced accordingly. Since the lockdown has been relaxed we are seeing enquiries returning to normal levels.

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

In what is still a relatively immature and poorly understood product, customer service and selling skills at the point of sale remain essential in earning the trust of the customer and in driving the appropriate balance of volumes and unit price in order to optimise revenue growth in each store.

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

Safestore has been an Investors in People ("IIP") organisation since 2003 and our aim is to be an employer of choice in our sector as we passionately believe that our continued success is dependent on our highly motivated and well-trained colleagues. In April 2018, Safestore was awarded the Gold accreditation under the IIP programme, a significant improvement from the Bronze accreditation awarded in 2015. This puts Safestore as one of the top employers of 14,000 IIP accredited companies. In addition, Safestore was subsequently shortlisted as a finalist for the IIP Gold Employer of the Year in the 250+ employees category, putting us in the top ten of all companies that have achieved Gold accreditation. IIP is the international standard for people management, defining what it takes to lead, support and manage people effectively to achieve sustainable results. Underpinning the Standard is the Investors in People framework, reflecting the latest workplace trends, essential skills and effective structures required to outperform in any industry. Investors in People enables organisations to benchmark against the best in the business on an international scale. We are proud to have our colleagues recognised to such a high standard not only in our industry but across 14,000 organisations in 75 countries.

Wellbeing is becoming a well-established part of our organisational culture. Our 'My Wellbeing' website provides our colleagues with access to a broad range of wellbeing messages, self-help tools, offers and promotions to enable them to make informed choices around healthy eating, exercise, mental health and financial wellbeing.

In line with Safestore's wellbeing strategy, we continue to focus on personal growth and education of our colleagues. We are committed to growing and rewarding our people and tailor our development, reward and recognition programmes to this end. In light of the current COVID-19 challenges, we have adjusted our training and development platforms to ensure as much learning as possible is conducted remotely. Our IIP recognised coaching programme, launched in 2018, had a 2019 upgrade to reflect the increase in the calibre and performance of our teams and was well received by our colleagues. The QUEST sales framework "masterclass" was also adjusted to reflect our high expectations and formatted for multi-language use.

The training and development of our store and customer-facing colleagues is an essential part of our daily routines. In 2019, we delivered a further 30,000 hours of training through face-to-face sessions and via our internally developed online learning tool; this equates to over 46 hours per colleague. In 2020, we are committed to supporting our colleagues to keep their development goals on track while ensuring their safety and well-being during this challenging time. Whilst many of our programmes are already digital and utilise our e-learning platform, we are in the process of expanding this to enable our colleagues to learn and grow in a remote environment.

The roll out of our computer automated facilities management system was completed across all of our estate. SIMS (Safestore Intuitive Maintenance System) allows us to easily manage planned and reactive maintenance along with compliance and job allocation in real time using a multi-platform system accessible remotely by all of our colleagues and contractors in their home language.

All new recruits to the business benefit from enhanced induction and training tools which 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 which allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. The key target of our programme, to ensure that close to 100% of our Store Manager appointments are from within the business via our Store Manager Development programme, remains and we are pleased with our progress to date.

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 market place. It also offers the opportunity to gain a nationally recognised qualification from either the Institute of Leadership and Management ("ILM") or the Chartered Management Institute ("CMI") utilising the Apprenticeship Levy. We are also utilising the Levy to support the development of Head Office colleagues. Currently we have individuals working towards their professional qualification.

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 employee level enhances our competitive approach to team and individual performance. We continue to reward our people for their performances with bonuses of up to 50% of basic salary based on their achievements against individual new lets, occupancy, ancillary sales and pricing targets. In addition, a Values and Behaviours framework is overlaid on individuals' performance in order to assess team members' performance and development needs on a quarterly basis.

We continue to grow the success of our workforce advisory panel, the "Make The Difference Forum". Our 15 "people champions" have supported us with:

· Consulting and collecting the views and suggestions of all colleagues that they represent.

· Tracking engagement across the business to pinpoint potential issues and celebrate best practice.

· Promoting wellbeing 

Our Values and Behaviours framework concentrates our culture on our customers. Customers continue to be at the heart of everything we do whether it be in store, online or in their communities. Our Gold standard Feefo customer service score along with our "Excellent" Trustpilot rating, reflects our ongoing commitment to their satisfaction.

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 the ability to offer a Lowest Price Guarantee in the event that a local competitor is offering a lower price. The reduction in the level of discount offered over the last five years is linked to store team variable incentives and is monitored closely by the central pricing team.

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 the 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 four 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 30 April 2020, based on the current level of borrowings and interest swap rates, the Group's weighted average cost of debt was 2.2% and 84% of our debt facilities are at fixed rate or hedged. The weighted average maturity of the Group's drawn debt is 5.7 years at the current period end and the Group's LTV ratio is 30% as at 30 April 2020.

This LTV and interest cover ratio of 8.6x for the rolling twelve month period ended 30 April 2020 provide us with significant headroom compared to our banking covenants. We had £158m of undrawn bank facilities at 30 April 2020.

Given the recent volatility in the Sterling:Euro exchange rate, the Group has taken out average rate FX forward contracts to hedge the majority of the Group's exposure to the translation of Euro denominated earnings for the next three years. The value of the contracts are €6.5m for the second half of the 2020 financial year, €14.5m and €16m for the 2021 and 2022 financial years respectively and €8.5m for the first half of the 2023 financial year. These contracts have the effect of fixing the rate at which the majority of the Euro earnings are translated at a rate of €1.0751 to £1.

Taking into account the improvements we have made in the performance of the business and the reduction in underlying finance charges of c.£10m over the last six years, the Group is capable of generating free cash after dividends sufficient to fund the building of two to three 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 of between 30% and 40% which the Board considers to be appropriate for the Group.

Portfolio Management

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

Our property teams in both the UK and Paris 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 fourteen new stores; Chiswick, Wandsworth, Mitcham, Paddington Marble Arch, Carshalton (all in London), Birmingham Central, Birmingham Merry Hill, Altrincham, Peterborough and Gateshead in the UK, and Emerainville, Combs-la-Ville, Poissy and Pontoise in Paris, adding 715,000 sq ft.of MLA. We have also completed the extensions and refurbishments of our Acton and Longpont (Paris) stores adding a net 29,000 sq ft of fully invested space to the estate. All of these stores are performing in line with or ahead of their business plans.

New Stores

In the second half of 2018, we obtained planning for and completed the acquisition of a site in Carshalton in South London. This 40,000 sq ft freehold store opened in the first quarter of 2020.

In August 2019, we acquired a long leasehold 1.6 acre site with an existing building in Gateshead, North East England. The lease has 130 years remaining. Planning permission was obtained to convert the building into a 38,000 sq ft store and the store opened ahead of schedule in March 2020.

In September 2019, we acquired a freehold 1.5 acre site with an existing warehouse in Sheffield. The site is located in an accessible and prominent position on the northern side of the inner ring road (A61) which is close to the city centre in a densely populated catchment area. We have obtained planning permission for using the building for self-storage and creating external units. The Group was close to finalising the conversion of the existing building into a 47,000 sq ft store when the UK COVID-19 lockdown commenced. As a result, construction was paused but has now recommenced and it is anticipated that the store will open in June 2020, a delay of two months.

The Group has also acquired two additional sites in the UK in London at Morden and Bermondsey. Morden is a freehold 0.9 acre site in an established industrial location. Planning permission for a 43,000 sq ft self-storage facility has now been granted and we are considering the appropriate time to commence construction on this site. Bermondsey is a 0.5 acre freehold site with income from existing tenants and is adjacent to our existing leasehold store. Our medium term aim, subject to planning permission, is to extend our existing Bermondsey operations with the addition of a new self-storage facility to complement our existing store.

In Paris, where regulatory barriers are likely to continue to restrict meaningful new development inside the city, we will continue our policy of segmenting our demand and encouraging the customers who wish to reduce their storage costs to utilise our second belt stores. We will also manage occupancy and rates upwards in the more central stores and ensure that pricing recognises the value customers place on the convenience of physical proximity. The strong selling organisation and store network established by Une Pièce en Plus in Paris uniquely enables it to implement this commercial policy to complement the strong second belt markets in which we operate.

In April 2018, we agreed a lease on a site at Magenta in central Paris. Planning permission has been received for a 50,000 sq ft store and construction had commenced prior to the COVID-19 lockdown. During the lockdown construction was temporarily paused but has now recommenced and we anticipate the store opening in early 2021, a delay of around two months.

We believe there will be further opportunities to develop new stores in the outer suburbs of Paris and are actively reviewing the market for new opportunities.

Lease Extensions and Assignments

As part of our ongoing asset management programme, we have now extended the leases on 22 stores or 63% of our leased store portfolio in the UK since 2012 and our average lease length remaining now stands at 12.3 years as compared to 12.6 years at HY2019.

In the period we signed a new 15 year lease on our Notting Hill store in London expiring in March 2035. A three month rent free period was granted as part of the new lease.

Existing Store Extensions and Refurbishments

We are in the process of extending both our Bedford and Barking stores. Work has been recommenced after pausing during the early part of the COVID-19 lockdown.

Bedford has an existing MLA of 35,300 sq ft and occupancy peaked at 94% in 2018. We have now started construction of the additional storage building on land already in our ownership adjacent to the existing store. This will provide additional MLA of 26,000 sq ft which we expect to now open in June 2020.

Barking currently has an MLA of 47,900 sq ft and its occupancy also peaked at 94% in 2018. The extension, which should now be completed August 2020, will add another 5,000 sq ft of MLA. Both stores will remain open during the construction.

We have planning permission to extend our Chingford store. Occupancy in this 42,500 sq ft freehold store was at 85% in October 2019. We plan to add an additional 5,800 sq ft of MLA to this store with work commencing in June 2020 and concluding in September 2020. The exiting store will remain open throughout construction.

We continue to look at opportunities to add additional MLA to existing stores as we seek opportunities to enhance our return on invested capital.

Acquisitions

Fort Box

On 5 November 2019, Safestore acquired 100% of the shares of companies owning Fort Box Self Storage, which comprises two stores in London, for £14.3m including costs.

The stores, in the affluent areas of St John's Wood and Chelsea, have a total of 35,000 sq ft of MLA and were 79% and 69% occupied respectively at acquisition.

St John's Wood is a long leasehold store (999 years remaining) and Chelsea is a leasehold store with 20 years remaining on the lease.

The acquisition was immediately earnings accretive with the first-year initial yield anticipated at 4.4% rising to c.9% at stabilised occupancy levels.

The Group has rebranded the stores and, since acquiring the business and prior to the COVID-19 lockdown, the stores have been trading in line with expectations.

OhMyBox

On 30 December 2019 the Group completed the acquisition of OMB Self Storage SL ("OMB"), trading as OhMyBox, for total consideration of €17.25m on a debt-free and cash free basis, funded from the Group's existing debt facilities.

OMB operates four very well located leasehold properties in the centre of Barcelona with an average unexpired lease term of 16 years and one option to purchase the freehold for €4.2m. The company was 30% owned by the current management, who remain with the business, and 70% by a Spanish family office. The portfolio consists of four locations (Valencia, Calabria, Glorias and Marina) with an MLA totalling 104,000 sq ft. The occupancy of the business, at the end of the April 2020, was 89%.

Barcelona and Spain are attractive markets for self-storage. Spain has lower penetration of self-storage operators than the majority of European countries and less than half of the penetration of the UK and Barcelona is one of the most densely populated cities in Europe. Only 14% of facilities in the Spanish market are operated by large operators, which presents opportunities for consolidation and growth.

Pro forma first year EBITDA after rent is currently anticipated to be €0.9m on turnover of €2.5m. At the consideration price, the OMB portfolio has an implied first year net operating income yield of circa 5.2% and was immediately accretive to earnings.

Early trading in the business has been in line with our expectations prior to the COVID-19 lockdown.

Whilst our investments in the Netherlands, Belgium and Spain represent interesting long term growth opportunities, the investment in the three businesses currently represents less than 2% of Group assets.

Joint venture14 with Carlyle and Investment in Lokabox

Safestore is pleased to announce that its joint venture with Carlyle, established in August 2019, has acquired the six-store portfolio of Lokabox on 3 June 2020. Safetore's equity investment in the JV, relating to Lokabox, will amount to c. €2.8m funded from the Group's existing resources. Safestore will also earn a fee for providing management services to the JV. Safestore expects to earn an initial return on investment of 12% before transaction related costs for the first full year reflecting its share of expected JV profits and fees for management services.

Lokabox has six prime locations in Brussels (2), Liege (2), Charleroi and Nivelles. All six stores are freehold, with the two Brussels stores having opened in the last nine months. The business had 20,600 sq metres (222,000 sq ft) of MLA and an occupancy of 63%. This acquisition complements the six stores in Amsterdam and Haarlem in the Netherlands acquired in August 2019. In total the JV will own stores with 46,300 sq metres (499,000 sq ft) of MLA.

The Belgian self-storage market is the seventh largest in Europe with 90 stores and 2.2m sq ft of MLA. This represents 0.19 sq ft per head of population, which compares to 0.73 sq ft per head in the UK, 0.20 sq ft per head in France and 9.44 sq ft per head in the USA.

The Group's further investment in the JV is expected to be immediately accretive to Group earnings per share from completion and will support the Group's future dividend capacity.

Portfolio Summary

The self-storage market has been growing consistently for over 20 years across many European countries but few regions offer the unique characteristic 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 in the region, 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.95 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.

Our combined operations in London and Paris, with 76 stores, contributed £46.1m of revenue and £31.8m of store EBITDA in the first half of the financial year and offer a unique exposure to the two most attractive European self-storage markets.

We have a strong position in both the UK and Paris markets operating 126 stores in the UK, 71 of which are in London and the South East, and 28 stores in Paris.

In the UK, 64% 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 48 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 eight stores branded as Une Pièce en Plus ("UPP") ("A spare room") with more stores than our two major competitors combined. 58% 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.

Together, as at 30 April 2020 London, the South East and Paris represent 63% of our stores, 72% of our revenues, as well as 55% of our available capacity.

In addition, Safestore has the benefit of a leading national presence in the UK regions where the stores are predominantly located in the centre of key metropolitan areas such as Birmingham, Manchester, Liverpool, Bristol, Newcastle, Glasgow and Edinburgh. Our recent acquisition of OMB in Barcelona represents a platform into the Spanish market where we hope to take advantage of development and acquisition opportunities.

Market

The SSA stated in its 2020 report, issued in May 2020, that the self-storage industry "had a generally positive outlook" prior to the COVID-19 pandemic arriving in Europe. However, it also reported that most operators were seeing reductions in enquiry levels of between 30% and 50% in the early weeks of the lockdown. Looking forward, the report points out that previous downturns have presented opportunities for self-storage and speculates that increased working from home and online retailing as well as a potentially greater tendency for home improvements may complement the already broad range of demand drivers.

The self-storage market in the UK and France remains relatively immature compared to geographies such as the USA and Australia. The Self-Storage Association ("SSA") Annual Survey (May 2020) confirmed that self-storage capacity stands at 0.73 square feet per head of population in the UK and 0.20 square feet per capita in France. Whilst the Paris market density is greater than France, we estimate it to be significantly lower than the UK at around 0.36 square feet per inhabitant. This compares with 9.44 square feet per inhabitant in the USA and 1.89 square feet in Australia. In the UK, in order to reach the US density of supply would require the addition of around another 17,000 stores as compared to c.1,400 currently. In the Paris region, it would require around 2,400 new facilities versus c.95 currently opened.

While capacity increased significantly between 2007 and 2010 with respondents to the survey opening an average of 32 stores per annum, new additions were limited to an average of 19 stores per annum between 2011 and 2016 (including container storage openings).

The volume of new store openings increased in 2017 and 2018. In 2018, the SSA reported 70 stores as having been opened across the industry in 2017. However, our own analysis of these openings shows that many were container-based operators and only c.30 of the sites represent self-storage sites that are comparable with Safestore's own portfolio. In the 2019 SSA Survey, it was estimated that c. 40 traditional self-storage stores were opened in 2018 (excluding container storage) with less than half competing directly with Safestore. The 2020 report does not give indications of the level of openings in 2019 but own estimates are that also around 40 were opened in the period.

The 40 comparable sites represent around 2.9% of the traditional self-storage industry in the UK. These figures represent gross openings and do not take into account storage facilities closing or being converted for alternative uses. We estimate that around 25% of these sites compete with existing Safestore stores.

The SSA 2020 Survey also reported that operators' expectations in terms of new store openings and site acquisitions remained relatively consistent with previous years. For 2020, operators are estimating the completion of around 44 developments and around 48 in 2021. Traditionally, operators have opened or acquired far fewer stores than originally estimated. Based on these estimates, and adjusting for historical inaccuracy, we estimate that around 20-25 stores per annum will be developed over the coming years. If that supply is not within a relatively narrow radius of a Safestore store, it does not represent a competitive threat.

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 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 the last four 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 rather than new supply. In the 2020 report the SSA estimate that 1,900 self-storage facilities exist in the UK market including around 563 container based operations. Safestore is the industry leader by number of stores with 126 wholly owned sites followed by Big Yellow with 75 wholly owned stores (100 including Armadillo), Access with 58 stores, Lok'n Store with 34 stores, Shurgard with 31 stores and Storage King with 28 stores. In aggregate, the top ten leading operators account for 23% of the UK store portfolio. The remaining c.1,459 self-storage outlets (including 563 container-based operations) are independently owned in small chains or single units. In total there are 972 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.

Consumer awareness of self-storage is increasing but remains relatively low, providing an opportunity for future industry growth. The SSA survey indicated that 52% (52% in 2019) of consumers either knew nothing about the service offered by self-storage operators or had not heard of self-storage at all. Over the last 7 years this statistic has only fallen 12 percentage points from 64%. 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. 64% of respondents were unable to name a self-storage business in their local area (2019: 57%). 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 73% of those surveyed (67% in 2014) 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.26% of respondents (c.25% in 2014).

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 10-15% 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 76,000 domestic, business and National Accounts customers across London, Paris and the UK regions.

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 and the implementation of VAT on self-storage in 2012, the industry has been exceptionally resilient. In the context of uncertain economic conditions, driven by the COVID-19 pandemic and the approaching Brexit, 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 regional presence 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 86% of customers travelling for less than 30 minutes to their storage facility (2020 SSA Survey) Safestore's national store footprint represents a competitive advantage.

The Group's capital-efficient portfolio of 158 wholly owned stores in the UK, Paris and Barcelona 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.

Currently, around a third of our stores in the UK are leaseholds with an average remaining lease length at 30 April 2020 of 12.3 years (FY2019: 13.1 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 39% 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 National Construction 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 a limited number of 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 has 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. The Group earns a management fee and a share of the profits of the joint venture14. It is anticipated that the joint venture14 will investigate further opportunities in due course.

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 returns on capital invested.

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 87% (2019: 82%) of our enquiries in the UK and 77% (2019: 74%) in France. Telephone enquiries comprise 9% of the total (15% in France) and 'walk-ins' amount to only 4% (8% 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 a leading digital marketing platform that has generated 41% enquiry growth over the last five years. Towards the end of 2015, the Group launched a new dynamic and mobile-friendly UK website, which has achieved its aim of providing the customer with an even clearer, more efficient experience. A similar website was launched in our Paris business at the end of 2016.

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 now handles 13% of all 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. Over the last twelve months, we have achieved over 95% customer satisfaction, based on 'excellent' or 'good' ratings as collected by Feefo via our customer website.

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 44% of our total space let and have an average length of stay of 32 months. Within our business customer category, our National Accounts business represents around 447k sq ft of occupied space (around 12% 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. 75,000 business and domestic customers with an average length of stay of 32 months and 23 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.

Since the completion of the rebalancing of our capital structure in early 2014, the subsequent amendment and extension of our banking facilities in summer 2015, the refinancing of all facilities in May 2017 and the issuance of a further £125m of US Private Placement Notes in 2019, 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 30 April 2020 we had 1.6m sq ft of unoccupied space in the UK and 0.3m sq ft in France, equivalent to c.45 full new stores. Our main 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

UK - a strong performance despite COVID-19 lockdown impacting occupancy

Revenue in the UK has grown by 8.3% in the period, whilst, on a like-for-like basis, revenue grew by 5.8%. Performance was consistent across the UK. Like-for-like average occupancy grew by 3.8% in the period but like-for-like closing occupancy declined by 0.3ppts to 71.6% (2019: 71.9%) as a result of the COVID-19 lockdown impacting trading between the middle of March and the end of the period.

The like-for-like average rate grew by 1.9% in the six month period, partially offsetting the occupancy outflow.

Our total closing occupancy was down 2.1ppts at 69.8% (2019: 71.9%). Total occupancy is lower than like-for-like occupancy due to the impact of recently opened and acquired stores. Total rate grew by 2.0% to £24.72 (2019: £24.23).

We remain particularly focused on our cost base. During the period, our cost base increased by 2.0% or £0.6m on a like-for-like basis. However, since the COVID-19 lockdown period commenced, savings have been realised in the variable cost of sales of our ancillary products, employee costs, reduced maintenance activity and significant reductions in sales and marketing. In the month of April, c. £0.4m of like-for-like cost reductions were achieved in these areas compared to 2019.

As a result, underlying EBITDA after leasehold costs for the UK business was £29.1m (2019: £27.0m), an increase of £2.1m or 7.8%.

UK Lockdown Trading

During the lockdown period, enquiries, new lets and vacates were significantly below normal trading levels. Since the period end, and the beginning of the relaxation of the lockdown measures in the UK, enquiries have returned to normal levels and were above the prior year. As a result, occupancy has started to recover. From the beginning of May 2020 through to 15 June 2020 the business gained 42,000 sq ft of occupancy.

Consistent with our policy of balancing occupancy and rate, we held our rate well throughout the lockdown period. From the beginning of May 2020 to 15 June 2020, our storage rate was up 4.1% compared to the prior year on a like-for-like basis. Ancillary revenues have been negatively impacted by the closure of our reception areas during the lockdown but have recently started to recover. As a result, like-for-like storage revenues were up 2.3% in between 1 May 2020 and 15 June 2020 but overall like-for-like revenues were down 0.2% for the same period.

An analysis of revenue during the lockdown period and since the lockdown is as follows.

As of 15 June 2020, 96.9% of our April 2020 and May 2020 revenue has been collected in the UK (97.5% in 2019).

Paris - a strong and resilient performance

Our Paris business had a strong first half of the year growing like-for-like revenue by 5.9%. Our like-for-like average occupancy for the period was 3.1% ahead of 2019 but the like-for-like closing occupancy ended the half-year down 0.3ppts at 77.4% (2019: 77.7%). The occupancy performance was partially offset by a 3.1% improvement in the like-for-like average rate in the period.

Total revenue was up 6.3% in the period. We opened a new store at Pontoise in the summer of 2019 and its lower occupancy levels mean that our total occupancy was 75.1%, down 2.6 ppts on the first half of 2019. All our recently opened stores at Emerainville (2016), Combs-la-Ville (2017), Poissy (2018) and Pontoise are trading in line with or ahead of our initial expectations.

The impact of Sterling being 1.8% stronger than in the comparative period resulted in Sterling equivalent revenue growing by 4.5% for the period.

The like-for-like cost base in Paris remained well controlled during the period and was flat compared to the prior year. Since the COVID-19 lockdown period commenced, savings have been realised in the variable cost of sales of our ancillary products, employee costs, reduced maintenance activity and significant reductions in sales and marketing.

As a result, like-for-like EBITDA grew to €14.2m (2019: €13.0m), an improvement of €1.2m or 9.2% on 2019.

Paris Lockdown Trading

During the lockdown period, enquiries, new lets and vacates were significantly below normal trading levels. Since the period end, and the beginning of the relaxation of the lockdown measures in Paris, which took place before the UK, enquiries have returned to normal levels and were above the prior year. As a result, occupancy has recovered strongly. From the beginning of May through to 15 June the business gained 19,000 sq ft of occupancy.

Consistent with our policy of balancing occupancy and rate, we held our rate well throughout the lockdown period. Between 1 May 2020 and 15 June 2020, our storage rate was up 2.3% compared to the prior year on a like-for-like basis. Ancillary revenues were negatively impacted by the closure of our reception areas during May 2020 but recovered in June 2020. As a result, like-for-like storage revenues were up 2.6% between 1 May 2020 and 15 June 2020 and overall like-for-like revenues were up 2.4% for the same period.

An analysis of revenue during the lockdown period and since the lockdown has been relaxed shows an improvement in trading.

As of 15 June 2020, 83.8% of our April 2020 and May 2020 revenue has been collected in Paris (84.4% in 2019).

Spain- encouraging performance since acquisition

OMB was acquired on 30 December 2019 so has contributed four months of trading to the Group's results. In that period the business delivered €1.0m of revenue and €0.8m of Store EBITDA. After overheads and leasehold rent EBITDA was €0.4m.

At the end of April 2020, the closing occupancy of the four stores was 89.1%. The impact of the COVID-19 lockdown on the trading of the business between mid-March 2020 and the end of April 2020 was immaterial. Since the period end, the business has recovered the small amount of occupancy lost during the lockdown and at the end of May 2020 had occupancy of 91.3%.

Joint Venture14

M3 was acquired by the joint venture with Carlyle in August 2019. In the first half of the current financial year it has been performing well. Revenue has been growing strongly driven by the like-for-like stores in addition to the positive development of the two recently opened stores. In addition, the consolidation of the business onto the Safestore marketing platform has resulted in improved enquiry performance and reduced marketing cost which have contributed to a significant improvement in EBITDA.

Since the COVID-19 lockdown has been eased in the Netherlands, enquiries have returned to normal levels.

Frederic Vecchioli

17 June 2020

Financial Review

Underlying Income Statement

The table below sets out the Group's underlying results of operations for the six months ended 30 April 2020 and the six months ended 30 April 2019.

Notes:

1. Adjusted Diluted EPRA EPS is defined in note 2 to the financial statements.

2. Adjusted EPRA earnings excludes share-based payment charges and, accordingly, the underlying EBITDA, underlying EBITDA after leasehold rent and underlying profit before tax measures have been restated to exclude share-based payment charges for consistency.

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

Management considers the above presentation of earnings to be representative of the underlying performance of the business.

Underlying EBITDA increased by 10.9% to £45.9m (H1 2019: £41.4m) reflecting an 8.5% increase in revenue offset by a 6.3% increase in the underlying cost base (see below). The leasehold rent charge has increased by 18.9% from £5.3m in H1 2019 to £6.3m, reflecting leasehold stores acquired in Spain and London in the year to date as well as non-repeating benefits of favourable rent review settlements in the prior year.

Finance charges increased by 16.7% from £4.2m in H1 2019 to £4.9m in H1 2020. This principally reflects an increase in borrowings to finance acquisitions and construction works for our development sites.

Given the Group's REIT status in the UK, tax is normally only payable in France and Spain. The current tax charge for the period increased by 8.7% to £2.5m (H1 2019: £2.3m).

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 7.4% to 14.5 pence (H1 2019: 13.5 pence).

Reconciliation of Underlying EBITDA

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

The main reconciling item between operating profit and underlying EBITDA is the gain on investment properties, which was £64.0m in H1 2020 (H1 2019: £7.9m). The Group's approach to the valuation of its investment property portfolio at 30 April 2020 is discussed below.

Underlying Profit by geographical region

The Group is organised and managed in three 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 £3.0m, or 10.0%, to £33.0m (H1 2019: £30.0m), reflecting an 8.3% increase in revenue offset partially by 6.3% increase in the underlying cost base, driven by strong like-for-like revenue growth of 5.8% in addition to acquisitions and new store openings. The underlying UK EBITDA margin increased to 55.2% compared to 54.3% in H1 2019.

In Paris, underlying EBITDA increased by €1.0m, or 7.6%, to €14.1m (H1 2019: €13.1m), reflecting a €1.3m increase in revenue, arising from a 4.7% increase in average occupancy coupled with a 2.2% increase in the average storage rate. The EBITDA after leasehold costs margin in Paris grew from 51.2% in H1 2019 to 52.3% in H1 2020, reflecting the improving profitability of the newly opened Paris stores. Underlying EBITDA after leasehold rent in Paris increased by 8.6% to €11.4m (H1 2019: €10.5m).

On the 30 December 2019, Safestore purchased OhMyBox in Spain. For the 4 months since acquisition, OhMyBox contributed £0.3m of EBITDA.

The combined performance of the UK, Paris and Spain resulted in a 9.1% increase in underlying EBITDA after leasehold rent at constant exchange rates. Adjusting for an unfavourable exchange impact of £0.1m in the current year and share of associate's underlying EBITDA of £0.3m (H1 2019: £nil), Group reported underlying EBITDA after leasehold rent has increased by 9.7% or £3.5m to £39.6m (H1 2019: £36.1m).

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) in both the UK and Paris.

The split of the Group's revenues by geographical segment is set out below for H1 2020 and H1 2019.

The Group's reported revenue increased by 8.5% or £6.2m during the period. The Group's occupied space was 173,000 sq ft higher at 30 April 2020 (4.82 million sq ft) than at 30 April 2019 (4.65 million sq ft). Average occupancy during the period was 7.8% higher at 4.97 million sq ft (H1 2019: 4.61 million sq ft), and the reported average rental rate for the Group for the period was 0.8% higher at £26.52 than in H1 2019 (£26.30).

On a like-for-like basis, adjusting for the impact of new and closed stores, the Group's revenue has increased by 5.5% since H1 2019. Adjusting for an unfavourable exchange impact in the current year, revenue increased by 5.9% on a constant currency basis.

In the UK, reported revenue increased by £4.6m or 8.3%. Closing occupancy increased by 1.6% to 3.74 million sq ft at 30 April 2020 (H1 2019: 3.68 million sq ft) and the average rental rate increased by 2.0% to £24.72 (H1 2019: £24.23). The average space occupied during the period was up 6.0% compared with H1 2019 at 3.87 million sq ft (H1 2019: 3.65 million sq ft).

On a like-for-like basis, adjusting for new and closed stores, UK revenue increased by £3.2m or 5.8% arising from a 3.8% increase in average occupancy and a 1.9% increase in the average store rate.

In Paris, revenue increased by €1.3m or 6.3%. The average Euro exchange rate for H1 2020 was €1.162:£1 compared with €1.142:£1 in H1 2019 resulting in a negative impact on revenue of £0.3m. Further adjusting for the impact of new stores in Paris, like-for-like revenue in constant currency increased by £1.1m or 6.2% to £18.9m (H1 2019: £17.8m).

Paris closing occupancy at 30 April 2020 has increased by 2.1% compared to 30 April 2019 to 0.99 million sq ft and average occupancy for the period of 1.00 million sq ft is a 4.2% increase compared to H1 2019, primarily as a result of strong like-for-like trading and the opening of the Pontoise store. The average rental rate in Paris was €39.88 for the period, an increase of 2.2% on H1 2019 (€39.01).

Analysis of Cost Base

Cost of sales

The table below details the key movements in cost of sales between H1 2019 and H1 2020.

In order to arrive at underlying cost of sales, adjustments are made to remove the impact of depreciation and contingent rent.

Adjusting for the impact of new and closed stores, underlying cost of sales on a like-for-like basis decreased by 0.8% or £0.2m, to £25.5m (H1 2019: £25.7m) in constant currency, principally due to savings in enquiry generation.

The cost of sales attributable to new and acquired sites at Peterborough, Merry Hill, Heathrow, Chelsea, St Johns Wood, Carshalton and Gateshead in the UK, Pontoise in France and in consolidated results in Spain is £1.5m. Underlying cost of sales increased by £1.2m or 4.7% to £26.9m in H1 2020.

Administrative Expenses

The table below reconciles reported administrative expenses to underlying administrative expenses and details the key movements in underlying administrative expenses between H1 2019 and H1 2020.

In order to arrive at underlying administrative expenses, adjustments are made to remove the impact of exceptional items, corporate transaction costs and changes in the fair value of derivatives.

Underlying administrative expenses increased by 13.3% or £0.8m to £6.8m (H1 2019: £6.0m). The increase arose from an increase in employee remuneration (£0.6m) and professional fees and administration costs relating to our closed and new stores (£0.2m).

Investment Properties

A full external valuation of the store portfolio is undertaken by the Group on an annual, rather than a six monthly basis. At 30 April 2020, a sample of the Group's largest properties, representing approximately 53% of the value of the Group's investment property portfolio at 31 October 2019, has been valued by the Group's external valuers, Cushman & Wakefield LLP ("C&W"). In addition, at the same date, the Directors have prepared estimates of fair values for the remaining 47% of the Group's investment property portfolio, updating 31 October 2019 valuations to incorporate latest assumptions to reflect current market conditions and trading.

It should be noted, to serve as a precaution, not invalidating the valuation, C&W's valuation report, consistent with other Real Estate Companies, comments on valuation uncertainty resulting from low liquidity in the market for self-storage property. C&W states that due to the lack of comparable market information in the self-storage sector, there is greater uncertainty attached to its opinion of value than would be anticipated during more active market conditions The unknown future impact that COVID-19 might have on the real estate market led to the valuations to be reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty should be attached to the valuation than would normally be the case.

As a result of this exercise, the net gain or loss on investment properties during the period was as follows.

The movement on investment properties reflects the increased value of the Group's store portfolio as a result of the continuing strong trading performance and the impact of leasehold renewals and store extensions. The UK business contributed £41.3m of the £67.3m net revaluation gain (including investment properties under construction), with a £28.6m revaluation gain arising in Paris. The valuation gain has primarily arisen due to improving trading cash flow forecasts driven by a combination of storage rate and occupancy growth.

Operating profit

Reported operating profit increased by £59.9m from £45.9m in H1 2019 to £105.8m in H1 2020, primarily reflecting a £56.1m higher investment property gain as well as a £4.5m improvement in underlying EBITDA.

Net finance costs

Net finance costs includes interest payable, interest on obligations under finance leases, fair value movements on derivatives, exchange gains or losses, unwinding of discounts and exceptional refinancing costs. Net finance costs decreased by £1.6m to £6.1m in H1 2020 (H1 2019: £7.7m). The main driver of the decrease was the gain on fair value movement on derivatives of £1.6m (2019: loss of (£1.2m)).

Underlying finance charge

The underlying finance charge (net bank interest payable) increased to £4.9m, from £4.2m in H1 2019. The increase reflects interest arising from net borrowings in the year to fund acquisition and construction works on development sites. Net bank interest payable also includes the amortisation of debt issue costs of £0.2m as at 30 April 2020 (H1 2019: £0.1m).

Based on the drawn debt position as at 30 April 2020, the effective interest rate is analysed as follows:

As at 30 April 2020, £123.5m of the £250m UK revolver and €34m (£29.6m) of the €70m Euro revolver were drawn. The drawn amounts attract a bank margin of 1.25%, and the Group pays a non-utilisation fee of 0.50% on the undrawn balances of £126.5m and €36m respectively.

The Group has interest rate hedge agreements in place to June 2023, swapping LIBOR on £55m at a weighted average effective rate of 0.82% and EURIBOR on €30m at an effective rate of 0.17%.

The 2024, 2026 and 2027 US Private Placement Notes are denominated in Euros and attract fixed interest rates of 1.59% (on €50.9m), 2.00% (on €74.1m) and 1.26% (on €70.0m) respectively. The Euro denominated borrowings provide a natural hedge against the Group's investment in the Paris business.

The £35.0m 2026, £50.5m 2029 and £30.0m 2029 US Private Placement Notes are denominated in Sterling and attract a fixed interest rate of 2.59%, 2.92% and 2.69% respectively.

84% of the Group's drawn debt is effectively at fixed rates of interest, as a result of the hedging arrangements and fixed interest loan notes. Overall, the Group has an effective interest rate on its borrowings of 2.19% at 30 April 2020, compared to 2.30% at the previous year end, as a result of increased weighting of bank borrowing in the overall mix of debt.

Non-underlying finance charge

Interest on finance leases was £2.8m (H1 2019: £2.3m) and reflects part of the leasehold rental payment. The balance of the leasehold payment is charged through the gain or loss on investment properties line and contingent rent in the income statement. Overall, the leasehold rent charge increased from £5.3m in H1 2019 to £6.3m in H1 2020, predominantly as a result of the new leaseholds in London and Spain. A net gain of £1.6m was recognised on fair valuation of derivatives (H1 2019: net loss of £1.2m).

The Group undertakes net investment hedge accounting for its new Euro denominated loan notes, so the income statement is less exposed to fluctuations in the Euro exchange rate.

Tax

The tax credit for the period is analysed below: