Safestore : Interim Results

18 June 2015

Safestore Holdings plc

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

Interim Results for the 6 months ended 30 April 2015

Continued operational improvements and good trading momentum

Key measures

Highlights

Improving Operational Delivery

· Good performance across the UK with enquiry growth, increased conversion and continued strong new lets performance (up 31%)

· Closing occupancy up 3.4 ppts in the UK

· UK average rate growth of 7.5% in the period with improved move-in rates

· National Accounts UK business space grows 25%

· Continuing robust Paris performance growing occupancy, rate and revenue (CER1 basis)

· Acquisition of High Wycombe freehold and a further five leasehold extensions since the end of last financial year

· Planned redevelopment of Wandsworth store increasing MLA7 by 25,000 sq ft

Good Financial Performance

· Group like-for-like revenue (CER1 basis) up 11.2% and closing occupancy up 3.6 ppts

· Like-for-like revenue growth of 13.4% in the UK and 5.9% in Paris on CER1

· Cash Tax Adjusted Earnings per Share up 26.7% at 7.6p

· Interim dividend of 3.0p, increased by 40% since April 2014

· Full year Cash Tax Adjusted Earnings Per Share to be in line with Board expectations

Strong and Flexible Balance Sheet

· Group Loan to Value8 ('LTV') at c.35%, Interest Cover Ratio of 3.9x and available facilities of £68m

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

'The key initiatives taken over the last 18 months to enhance operational performance are now reflected in sustained and improved trading. Growing enquiries, stronger conversion and improved pricing has driven double digit like-for-like growth in the UK, while our strongly positioned Parisian business has delivered a robust performance and its seventeenth year of consecutive growth, reflecting its market leading position.

'Although it is still early in the second half of the financial year, I am confident that the progress we have made to date will be reflected in the financial results for the full year and that we will deliver cash tax adjusted earnings per share in line with Board expectations.

'As our positive momentum continues I look forward to the opening of our two London developments at Chiswick in 2016 and Wandsworth, announced today, in 2017 and to considering further selective development and acquisition opportunities in our key markets.'

Notes:

1 - Constant Exchange Rates.

2 - Adjusted to reflect the closure of St Denis Landy in France and the loss of tenancy income in the UK following the sale and short term leaseback of our Whitechapel site.

3 -Underlying EBITDA is defined as Operating Profit before exceptional items, change in fair value of derivatives, gain/loss on investment properties, contingent rent and depreciation. 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 - Free cash flow is defined as cash flow before investing and financing activities but after leasehold rent payments.

5 - Cash tax adjusted earnings per share is defined as Profit or Loss for the period before exceptional items, change in fair value of derivatives, gain/loss on investment properties and the associated tax impacts as well as exceptional tax items and deferred tax charges, divided by the weighted average number of shares in issue (excluding shares held by the Safestore Employee Benefit Trust).

6 - Closing occupancy excludes offices but includes 69,100 sq ft of bulk tenancy as at 30 April 2015 (30 April 2014: 74,100 sq ft).

7 - MLA is Maximum Lettable Area. Group MLA is currently 5.03m sq ft.

8 - Loan to Value is calculated as gross debt (excluding finance leases) as a proportion of the valuation of investment properties and properties under construction (excluding finance leases).

9 - Includes a gain on investment properties of £43.9m in 2015 and a loss on investment properties of £6.8m in 2014.

10 - Office of National Statistics - English housing survey 2013/2014

Summary

Safestore has delivered a good performance in the first half of the financial year. Group revenue increased 11.2% on a like-for-like basis with the UK growing by 13.4% and our Parisian business by 5.9% on a constant currency basis. The Group's occupancy increased by 3.6 percentage points (ppts) to 68.9% with the average storage rate up 5.8%1.

Our operational progress across the UK has continued in the period. Enquiry growth remains healthy and improvements in conversion have resulted in new lets growth of 31% across the half year. As a result, occupancy in the UK was up 3.4 ppts to 66.8%. At the same time our UK rate grew by 7.5%.

In Paris, despite a relatively tough economic environment, our market leading portfolio has delivered a robust performance resulting in increases in occupancy, rate and like-for-like revenue. Occupancy is now 77.2%, a 5.1 ppts increase compared to the prior year and rate grew by 2.9% (CER1) in the period. This is now the seventeenth consecutive year of revenue growth in Paris.

As a result, Group underlying EBITDA, at £26.9m, increased £1.8m on the prior year despite the negative impact of the weakening Euro on the profitability of our Paris business and an incremental investment in both our staff incentivisation programme and enquiry generation efforts. Cash tax adjusted EPS grew 26.7% in the period to 7.6p (2014: 6.0p) reflecting the strong EBITDA performance and the reduced finance costs following the rebalancing of the capital structure completed in January 2014.

Our property portfolio valuation increased by 4.8% since October 2014 to £743.5m despite the impact of the weakening of the Euro on the Paris valuation. On a CER basis the portfolio valuation increased by 7.1% with the UK portfolio up £47.5m to £579.8m and the French portfolio up €3.7m to €228.2m. This increase reflects an improved trading outlook, revised cap rate assumptions and the impact of a freehold purchase and a number of lease re-gears in the period.

As a result of the continued improvements to our business and the strong growth in earnings and free cash flow during the period, the Board is pleased to announce a 40% increase in the interim dividend to 3.0p per share (2014: 2.15p).

Outlook

We are pleased with the continued operational and financial progress achieved in the first half of the financial year. Early trading in the second half is encouraging and accordingly we are confident that the business will deliver earnings in line with Board expectations for the full year.

In keeping with our strategy we will continue to focus on leveraging our scale and strong market positions in both the UK and Paris to fill the 1.6m sq ft of currently unoccupied space. At the same time we will take advantage of selected development and acquisition opportunities that meet our strict investment criteria.

Industry participants in the recent Self Storage Association ('SSA') survey demonstrated an increasing level of confidence in the trading outlook for 2015 with 78% anticipating an increase in profitability, 80% expecting increasing rental rates and 96% expecting similar or reduced levels of customer incentives in the year ahead.

We continue to believe that, with more favourable economic conditions and limited new supply coming into the self-storage market, the industry is well positioned for growth.

For further information, please contact:

Safestore Holdings PLC

www.safestore.co.uk

Instinctif Partners

A presentation for analysts will be held at 9.30am today at:

Investec Bank plc, 2 Gresham Street, London, EC2V 7QP

For dial-in details of the presentation please contact:

Guy Scarborough (guy.scarborough@instinctif.com or telephone on Tel:020 7457 2020).

Notes to Editors

Strategy Update

In January 2014 we identified three phases to our future strategy:

· Establish a more appropriate capital structure for the business.

· Improve operational delivery.

· Selective portfolio management opportunities.

Capital Structure

Our capital structure was addressed in early 2014 and we now have a strong and flexible balance sheet to support further the growth of the business. Key balance sheet metrics at 30 April 2015 are:

· Group LTV of 35% (31 October 2014: 37%)

· Underlying interest charges covered 3.9 times by underlying EBITDA (after leasehold rent costs)

· Undrawn facilities of £68m

Whilst we are comfortable with the shape of our capital structure, we will continue to keep it under review.

Improved Operational Delivery

The key focus of senior management over the last 18 months has been to improve the operational performance of the UK business in generating enquiries and converting them into customers at an appropriate rate. We are pleased to report continued significant progress against this objective with enquiries increasing by 12% and our number of new lets by 31% while simultaneously growing the average rate by 7.5% compared to the prior period.

Self-storage is a relatively new product and many customers look for guidance and support when working out how best to store their property, where to store it and how to safeguard it. Our teams provide that support and we look to recruit, develop and reward a high quality team.

Since the recruitment of our operational leaders one year ago, we have made numerous improvements to energise the store team:

· An improved store recruitment and induction process has been implemented ensuring that we are attracting high calibre staff to the business and improving both the speed and quality of their induction;

· Three positions have been added to the Regional Management structure enabling closer management as well as improved development and training of the store teams;

· New management processes and ways of engaging with our store managers have been introduced in order to develop local leadership and results accountability;

· Enhanced incentivisation programmes have been introduced allowing staff to earn up to 50% of salary dependent on performance measured against four understandable and controllable key operational metrics;

· Our store team structure has been adjusted with the introduction of a sales consultant position which, over time, will replace the assistant manager and sales assistant positions to create a flatter store team hierarchy and a more efficient store operating model;

· An online Learning Management System has been introduced to the business. In conjunction with our Space Specialist training programme, staff have the development tools to rapidly and efficiently improve their technical and selling skills;

· As staff develop and demonstrate their increasing skills they will benefit from our Pay-for-Skills development programme and some will be considered for promotion to store management roles, ensuring internal management succession and career development;

· Reporting systems have been introduced to enable a greater focus on the consistency and comparability of the sales performance of individual staff members; and

· Our pricing policy has been adapted to ensure that each store trades competitively in its local market. Training and price discipline initiatives have been implemented to ensure that store level discounting is targeted and appropriate, and reflects the strength of our offer in the market.

Reflecting these investments, we are proud to announce the business was awarded with a silver Investors In People accreditation earlier in the year.

As a result of the dedication of our store team, our customer service remains unrivalled. Since 2013 when we integrated Feefo (an independent merchant review system), which allows customers to leave their feedback on the quality of our customer service on the site, our customer satisfaction score has remained in excess of 97%.

We complement our store teams in the UK with our central customer support centre that provides ongoing support to the UK stores, in addition to processing enquiries that fall outside store hours and overall handles 14% of all enquiries.

Portfolio management

Active and effective management of our property portfolio has always been a key priority. Since the end of the last financial year we have extended leases on a further five leasehold properties atGuildford, Swanley, Harlow, Preston, and Camden providing the business with long-term tenure on these properties. It is estimated that these lease re-gears will add approximately £5.0m to our asset valuation. We have now extended the leases on 16 stores or c.50% of our leased store portfolio in the UK since FY2012 and our average lease length remaining (excluding forthcoming store closures) now stands at 13.4 years as compared to 12.8 years at H1 2014.

As previously reported, we believe that the land we own on the A4 in London at Chiswick represents an attractive opportunity and we are proceeding with the development of a new store on this site. We anticipate the store, which will add 43,000 sq ft of capacity, opening during 2016.

In addition, since 2012 we have owned a 0.25 acre site in Wandsworth adjacent to our existing store. We have decided to redevelop our existing store and to build a purpose built store on the extended site which will add around 25,000 sq ft of storage capacity to our portfolio. We anticipate this new store opening in 2017.

We have also owned since May 2012 a prime property in Birmingham for a flagship store and have applied for a planning consent.

Where possible, we will consider purchasing the freeholds of our leasehold assets. In the first half of the year we acquired the freehold of our leasehold High Wycombe store for £1.8m, which added over £2.5m to our asset valuation.

As already reported, at New Malden our landlord has now obtained planning permission for the redevelopment of the site and, pursuant to the lease amendment signed with the company 3 years ago, has served its option to break the lease in return for a premium of £1.5m, which has been reflected in the store portfolio valuation. This is significantly higher than the asset valuation as an ongoing trading store. The store will close in H2 2015. We are in the process of relocating a significant proportion of the store's occupancy to other nearby stores in our portfolio.

We continue to seek asset management opportunities to develop our store portfolio. Further lease re-gearing and income generation opportunities will be explored on an ongoing basis. Looking forward, our approach to store development and potential acquisition opportunities in the future will be pragmatic, flexible and returns focused.

Trading Performance

Group

Group revenue was up 11.2% on a like-for-like basis (on a constant currency basis) and occupancy increased by 3.6 ppts compared with a year ago. Our average rate has performed strongly and is 5.8% ahead of the prior half year on a constant currency basis.

Whilst occupancy has improved by 3.6 ppts over the period, we still have 1.4 million sq ft of space that is currently unlet in the UK and 0.2 million sq ft in Paris. Our operational focus is on continuing to grow revenue by striking the right balance between occupancy and rates.

UK - a strong performance

Our UK revenue was up 13.4% on the prior year on a like-for-like basis.

EBITDA was £2.2m ahead of H1 2014 driven by the strong revenue performance.

Our UK business ended the period at closing occupancy of 2.69m sq ft or 66.8% of our Maximum Lettable Area which represented an increase on 2014 of 135,000 sq ft. During the second quarter of 2015 we increased occupancy by 61,000 sq ft, up 24% on the prior period.

In the first half of 2014 we changed our pricing strategy in the UK business. As a result of improved store selling skills, high quality customer service and reduced price lists, as well as a narrower range of discounting tools, our move-in rate increased significantly during the second half of 2014. This momentum has continued and, as a result, our average rate for the first half of 2015 is up 7.5% on H1 2014. In addition, the rate achieved in Q2 2015 was 1.3% higher than the Q1 2015 rate. We are encouraged by the positive quarter-on-quarter trends although we expect the rate of growth to slow as we pass the anniversary of our policy changes.

Paris - a robust performance in a challenging environment

Our Parisian business has performed well throughout the period. Euro denominated revenue has increased by 5.9% on a like-for-like basis over H1 2014 to €16.2m (2014: €15.3m). However, the significant weakening of the Euro in the period results in the Sterling equivalent like-for-like revenue being 3.9% behind H1 2014. This currency impact is partially offset by the benefits of our Euro hedging arrangements which benefit the EBITDA line when reported in Sterling.

The constant currency revenue improvements, combined with reduced leasehold rent costs subsequent to the closure of our St Denis Landy store in October 2014, resulted in a 4.0% improvement in underlying EBITDA (after leasehold rent costs), which increased to €7.8m prior to the benefit of the Euro hedging arrangements.

Closing occupancy was 0.78m sq ft, 2.6% ahead of the closing half year position in 2014 despite the closure of the St Denis Landy store. This represents 77.2% of MLA7at 30 April 2015, an increase of 5.1 ppts.

The average self-storage rate per sq ft for H1 2015 in Paris was €38.97, 2.9% higher than at 30 April 2014.

Business Model

Enquiry generation

There is a clear benefit of scale in the generation of customer enquiries, and the size of our organisation allows us to employ the appropriate skills and to dedicate a significant budget to achieve these results. In the current financial year we have increased our investment in this area and in the UK have an annual marketing budget of c£4m which is mainly directed towards the generation of enquiries through sponsored links as well as organic referencing in the search engines. In France, our marketing focus is also on the search engines and we budget around €1m per annum to this end.

Our priority is to constantly appear on the top rankings of searches made through the internet. This is achieved by managing around 0.5 million search keyword combinations on a daily basis.

Investing in optimised paid search results as well as Search Engine Optimisation ('SEO') to grow organic ranking is and will remain a critical priority for Safestore. In the last 18 months we have strengthened our marketing team and brought our SEO efforts in-house with the support of an external agency on a cost-neutral basis.

During the first half of the year we have continued to enhance our consumer website for desktop and mobile with richer content designed to assist online customers in establishing their storage requirements. We have an industry leading website in the UK and we continue to monitor all channels of enquiry generation and adapt our marketing strategy to optimise responses.

Although we already have a leading digital platform which has been built over a number of years, we have identified areas of further opportunities for technical improvement that will be implemented in due course with a redesigned website.

Online enquiries now represent 81% of our enquiries and 42% of our online enquiries originate from our mobile & tablet site, a figure which has increased by 25% in the last 12 months.

As a result of this progress, enquiries have grown by 12% compared to H1 14.

Pricing

Our team has also been instrumental in delivering strong rental rate improvements.

The management team's goal is to strike the right balance between occupancy growth and rate management which optimises revenue growth over the long term.

Despite the relative transparency of pricing, the relationship between pricing and sales volume is not straightforward and volumes depend on many factors including:

· The store location and proximity to customers;

· The sales skills of the staff and their capacity to sell using discounting tools in a disciplined manner;

· The level of customer service and the unique selling points of the store relative to each customer needs;

· The intensity of local competition;

· The number of enquiries; and

· The size of the store in relation to local demand as bigger facilities may need greater discount policies to attract customers from a wider catchment area.

In line with peers we offer industry standard introductory offers for the initial 8 weeks of stay and our lowest price guarantee for similar types of competing product. Self-storage is a demand driven market and pricing will be one of several elements in the customer selection process between the various storage suppliers.

Our central pricing team is responsible for the management of our dynamic pricing policy and the implementation of targeted promotional offers, as well as management of our existing customers' rates in both countries.

Our operational leaders are responsible for ensuring that our store teams have the skills to leverage their unique selling points to achieve a high conversion rate and limit their usage of discounts.

In the UK, new lets were 31% up on the prior half year despite our having already reached the anniversary of certain of the above initiatives. At the same time, the pricing momentum we witnessed throughout 2014 has continued into 2015. Our average rate for the half year was up 7.5% compared to the prior year and our second quarter rate was up 8.0%.

Customer segments

Demand for self-storage is fuelled by two principal customer groups:

Personal customers -individuals and families in the process of moving house, undertaking refurbishments or simply needing to free up more space at home as a result of lifestyle changes.

Business customers- companies storing stock and archiving materials as an alternative to having their own warehouse or office and large companies using self-storage for small scale logistics needs.

While the potential demand for our product is very broad, the awareness of the existence of self-storage as a solution to these needs is still limited and well below the more mature markets such as the US or Australia. The recent SSA UK Annual Survey (April 2015) indicated that 55% (2014: 62%) of consumers had limited or no knowledge of the service offered by self-storage operators. The vast majority of potential customers enquiring about self-storage has never used the product before and typically starts the discovery process online searching predominantly through generic terms for storage facilities located near where they live or work. The SSA survey showed that 69% of customers are likely to locate a self-storage facility via an internet search, a figure that had increased from 67% in the prior year. The initial email enquiry is followed by direct interaction with our store teams through telephone calls and store visits where the unit sale can then be closed.

We believe that the successful combination of a leading digital platform leveraging the scale of a large network of very centrally located stores staffed with sellers capable of converting enquiries into customers at the best possible price is the best formula at the current stage of the product maturity.

Enquiries for personal customers across the Group grew by 11% during the year with personal customers accounting for approximately 90% of enquiries.

Storage needs for this segment are principally driven by two factors: lifestyle events and the housing market. Demand created by lifestyle events, such as people moving in together, having children, becoming divorced or addressing the issues presented by bereavement are needs related and we believe remain largely unaffected by the economic environment.

Demand created by home moves is created by sales and purchases within the owner-occupied sector, moves in the rental sector as well as refurbishments in both. This segment of demand has been relatively resilient over the years and principally results from the large size of the rental market. According to a recent UK Office for National Statistics report10, approximately 1.5 million rental moves take place in England compared to 0.7m owner-occupied housing market transactions. The impact of the rental sector is even stronger in our Parisian business where the home ownership rate is below (33%).

Enquiries for business customers across the Group grew by 10% during the year with business customers accounting for approximately 10% of enquiries.

Storage needs for this segment are principally driven by the need for small and medium size enterprises ('SME') to store stock and for larger businesses to manage logistics.

Demand for business storage is fuelled by rising awareness of the benefits of self-storage and economic conditions. We have observed, with the economic recovery in the UK, a sustained demand for business needs.Our now well established business customer base benefits from our national network which means that we are uniquely placed to further grow the business customer market. Business customers in the UK now constitute 53% of our total space let and have an average length of stay of 31 months. Within our business customer category, our National Accounts business continues to grow with storage revenue increasing by 27% compared with 2014. Our centrally based National Accounts team is focused on driving growth in our base of business customers who store at multiple locations. The space let to National Accounts customers has increased by 25% compared with 2014 and, at 303,500 sq ft, constitutes 11% of our total occupied space in the UK business. Two-thirds of the space occupied by National Accounts customers is outside London, demonstrating the importance of our well invested national estate.

We also successfully continued our focus on serving SMEs, who account for the majority of business occupied space. In the UK, Safestore is an attractive solution for many small businesses. In addition to storage and office space, our store teams offer a range of value-added services that free up small businesses to focus on their core activities, including signing for deliveries, help with unloading, serviced fork-lift trucks and arranging for dispatch of stock. This has been particularly helpful in driving growth from online retailers, where businesses that would previously have had a traditional high street presence now choose a self-service solution which gives them a single bill for space, rates and utilities, provides greater flexibility over lease term as well as value added services.

We expect our business customers' demand to be positively correlated with national GDP in the UK and Parisian GDP for UPP.

Our current portfolio

Since the UK and Paris businesses were founded, our strategy has been to develop and operate high quality self-storage facilities located in unique central areas close to where our customers live and our business customers need storage solutions, predominantly in areas with very high barriers to entry.

As a result, we now have a strong, fully invested estate in both the UK and France of 121 stores, 82 of which are in London and the South East of England (58 stores) or in Paris (24 stores) and 39 in UK metropolitan areas. We operate more self-storage sites inside the M25 (43 stores) and inside Paris than any competitor providing greater proximity to customers in the wealthiest and densest UK and French markets.

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 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 75% of our French stores are located and which has one of the highest densities in the western world. 85% of the Paris region population live in the city centre which compares with 60% in the London region. There are currently c.200 storage centres within the M25 as compared to only c.85 in the Paris urban area. The GDPs generated in the London and Paris conurbations are roughly equivalent and are more than twice that of any other European equivalent.

The barriers to entry in these two 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 limits new development possibilities.

Together, London, the South East and Paris represent 68% of our stores, 77% of our revenue and 58% of our available capacity. Our combined operations in London and Paris, with 67 stores, £33.2m revenue and £19.0m EBITDA, offer a unique exposure to the two most attractive European self-storage markets.

In the UK, 69% 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 occupancy levels and rental rates achieved are higher.

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 than twice the number of stores of our two major competitors combined. 75% 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 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, Glasgow and Edinburgh.

Our competitors and density of supply

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 (April 2015) confirmed that, in the UK, self-storage capacity is at 0.56 square feet per head of population as compared with 7.3 square feet in the USA and 1.6 square feet in Australia. While capacity increased significantly between 2007 and 2010 in the UK with an average of 32 stores per annum being opened, new additions have been limited to an average of 9 stores per annum between 2011 and 2014.

In the Paris market, we estimate the density to be even lower at around 0.36 square feet per inhabitant.

New supply is likely to be limited in the short term as a result of planning restrictions and the availability of suitable land. Respondents to the SSA survey indicated an increasing desire to open new sites and it is anticipated that this will translate into around 17 new sites in the UK in 2015. We are not aware of any forthcoming new openings in Central Paris.

The supply in the UK market, according to the SSA survey, remains relatively fragmented. Safestore is the leader by number of stores with 97 wholly-owned sites, followed by Big Yellow with 69 wholly-owned stores, Access with 55 stores, Storage King and Lok'n Store with 24 stores each and Shurgard with 22 stores. In aggregate, the six leading brands account for less than 30% of the UK store supply. The remaining c.730 self-storage outlets (including 159 container based operations) are independently owned in small chains or single units.

The Paris market is significantly more concentrated with three main operators. Our 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.

The opportunity to grow consumer awareness of self-storage, combined with limited new industry supply and improving economic conditions, makes for an attractive industry backdrop.

Frederic Vecchioli

17 June 2015

Financial Review

Underlying Income Statement

The table below sets out the Group's underlying results of operations for the six months ended 30 April 2015 and the six months ended 30 April 2014.

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

Underlying EBITDA increased by 7.2% to £26.9m (H1 2014: £25.1m) reflecting a 7.5% increase in revenue less a broadly similar increase in the underlying cost base (see below). The leasehold rent charge has decreased by 10.0% from £5.0m in H1 2014 to £4.5m, principally reflecting reductions from the closure of the St Denis Landy store and from the freehold purchase of two previous leasehold properties (in High Wycombe and St Denis) since April 2014.

Finance charges reduced by 22.7% from £7.5m in H1 2014 to £5.8m in H1 2015 as the benefit of the Group's January 2014 refinancing is annualised, but also reflecting the repayment of €4.0m of borrowings in France.

Given the Group's REIT status in the UK, tax is only paid in France and the current tax charge for the period increased to £0.6m (H1 2014: £0.5m).

Management considers that the most representative earnings per share ('EPS') measure is cash tax adjusted EPS, which increased by 26.7% to 7.6p (H1 2014: 6.0p). EPRA EPS also reflects the deferred tax on underlying trading and increased by 32.1% to 7.0p from 5.3p in H1 2014.

Reconciliation of Underlying EBITDA

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

The main reconciling item between operating profit and underlying EBITDA is the gain or loss on investment properties, which moved from a £6.8m loss in H1 2014 to a £43.9m gain in H1 2015, reflecting the benefit of the improved cap rates and the continuing trading performance improvement of the Group's portfolio. The Group's approach to the valuation of its investment property portfolio at 30 April 2015 is discussed below.

Underlying Profit by geographical region

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

Underlying EBITDA after leasehold rent in the UK increased by £2.2m to £16.2m (H1 2014: £14.0m). A £4.3m increase in revenue was partly offset by cost increases totalling £2.1m including increased investment in store incentivisation and enquiry generation.

In Paris, underlying EBITDA after leasehold rent increased by £0.1m or to £6.2m (H1 2014: £6.1m), despite being impacted by the strengthening of Sterling against the Euro. In local currency, revenue improved by 3.2% to €16.2m (H1 2014: €15.7m), despite the loss of revenue following the closure of St Denis Landy in October 2014, and underlying EBITDA after leasehold rent, but before taking account of the Euro swap income, improved by 4.0% to €7.8m (H1 2014: €7.5m).

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 France.

The split of the Group's revenues by geographical segment is set out below for H1 2015 and H1 2014.

The Group's revenue increased by 7.5% or £3.5m during the period. The Group's occupied space was 150,000 sq ft higher at 30 April 2015 (3.47 million sq ft) than at 30 April 2014 (3.32 million sq ft), with average occupancy during the period 3.6% higher at 3.41 million sq ft (H1 2014: 3.29 million sq ft), and the average rental rate for the Group for the period was 3.0% higher at £24.86 than in H1 2014 (£24.14).

On a like-for-like basis, adjusting for the impact of store closures, the Group's revenue has increased by 8.6% since the comparative period. Adjusting further for the impact of Sterling strengthening against the Euro, revenue increased by 11.2%.

In the UK revenue increased by £4.3m or 12.7%, reflecting strong improvements in both occupancy and rental rates. UK occupancy was 135,000 sq ft higher at 30 April 2015 than at 30 April 2014. The average sq ft occupied during the period was up 4.7% compared with H1 2014 at 2.65 million sq ft (H1 2014: 2.53 million sq ft) and the average rental rate increased 7.5% to £23.51 (H1 2014: £21.87).

In Paris, H1 revenue increased by €0.5m or 3.2% on a constant currency basis, and on a like-for-like basis, adjusting for the closure of St Denis Landy, revenue was up €0.9m or 5.9%. There was a significant adverse currency impact during the period, compared with the same period last year, with an average Euro exchange rate in H1 2015 of €1.325:£1, 10% weaker than the average rate in H1 2014 of €1.204:£1, and this decline in the exchange rate has resulted in a £0.8m or 6.2% reduction in the revenues of the Paris business when reported in Sterling.

Paris closing occupancy at 30 April 2015 has increased by 2.6% since 30 April 2014 to 0.78 million sq ft and average occupancy for the period of 0.76 million sq ft is in line with H1 2014. The average rental rate in France was €38.97 for the period, an increase of 2.9% on H1 2014 (€37.86).

Analysis of Cost Base

Cost of sales

The table below details the key movements in cost of sales between H1 2014 and H1 2015.

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

The Group's cost base continues to benefit from the actions taken by management to reduce costs over the last two years. However, the underlying cost of sales has increased by £0.4m, to £15.8m (H1 2014: £15.4m) primarily due to increases in the cost of employee incentives which have underpinned the recent strong revenue performance of the business during the period.

Administrative Expenses

The table below reconciles reported administrative expenses to underlying administrative expenses and details the key movements in underlying administrative expenses between H1 2014 and H1 2015.

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

Exceptional items in the prior period, costs principally associated with the restructuring of the Group's senior management team, were not repeated in the current period.

Underlying administrative expenses increased by £1.3m to £7.7m (H1 2014: £6.4m). The increase of £1.3m arose primarily in the UK, and is due to investment in customer enquiry generation (£0.5m) and higher employee incentives (£0.7m), reflecting the strong revenue and profit performance of the business during the period.

Investment Properties

The directors made the decision in 2014 that a full external valuation of the store portfolio shall be undertaken on an annual rather than a bi-annual basis. Therefore, a sample of the Group's largest properties, representing approximately 45% of the value of the Group's investment property portfolio at 31 October 2014, have been valued by the Group's external valuers, Cushman & Wakefield LLP ('C&W'), as at 30 April 2015. In addition, at the same date, the directors have prepared estimates of fair values for the remaining 55% of the Group's investment property portfolio, updating 31 October 2014 valuations to incorporate latest assumptions for estimated absorption, revenue growth and capitalisation rates to reflect current market conditions and trading.

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

The movement on investment properties reflects the increased value of the Group's store portfolio as a result of the continuing trading performance improvement. The UK business contributed £44.2m of the £46.0m gain, with £1.8m arising in France.

Operating profit

Operating profit increased by £52.5m from £17.8m in H1 2014 to £70.3m in H1 2015. The movement principally reflects the swing in the movement on investment properties from a loss of £6.8m to a gain of £43.9m, as well as a £1.8m improvement in underlying EBITDA.

Net finance costs

Net finance costs consist of interest payable, interest on obligations under finance leases, fair value movements on derivatives and exchange gains or losses.

Bank interest payable continues to benefit from the lower blended interest rate and reduced borrowings following the capital restructuring undertaken by the Group in H1 2014, as well the benefit of the repayment of €4.0m of borrowings in France out of free cash flow.

Following the cessation of hedge accounting, net finance costs reflects £3.0m of exchange losses arising on the Group's US dollar denominated borrowings, which would previously have been reflected in the hedge reserve. This is largely offset by the net fair value gain on derivatives of £2.5m which includes a £3.1m gain in respect of cross currency swaps taken out by the Group to hedge against movements in the US dollar denominated borrowings.

Exceptional finance costs of £2.1m, incurred during the prior period in the rebalancing of the Group's capital structure in January 2014, have not been repeated in the current period.

Based on the drawn debt position as at 30 April 2015, the effective interest rate is analysed as follows:

The UK term loan of £156m is fully drawn as at 30 April 2015 and attracts a bank margin of 2.25%. The Group has interest rate hedge agreements in place to June 2018 swapping LIBOR on £80.0m at an effective rate of 1.64%.

The £50m UK revolver facility had remained undrawn throughout the period. The Group pays a non-utilisation fee of 1.0125% on undrawn balances.

The Euro revolver of €70m has €45m (£32.3m) drawn as at 30 April 2015 and attracts a bank margin of 2.25%. The Group has interest rate hedges in place to June 2018 swapping EURIBOR on €45m at an effective rate of 0.8085%. During the period, €4.0m of the revolver was repaid.

The US Private Placement Notes are fully hedged at 5.83% for the 2019 notes and 6.74% for the 2024 notes.

The hedge arrangements provide cover for 71% of the Group's drawn debt. Net interest payable includes a net fair value gain on derivatives of £2.5m (H1 2014: gain of £0.7m).

Overall, the Group had an effective interest rate on its outstanding borrowings of 4.38% at 30 April 2015.

Interest on finance leases was £1.9m (H1 2014: £2.2m) 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 is down from £5.0m in H1 2014 to £4.5m in H1 2015 reflecting the closure of the St Denis Landy store and the purchase of the freeholds of two previous leasehold properties (in High Wycombe and St Denis) since April 2014.

Tax

The tax charge for the period is analysed below: