LONDON (ShareCast) - Self-storage group Safestore held first-half earnings at the previous year’s level despite diminished sales and the new VAT charges on the industry.

Revenues fell 2.7% to £47.1m in the six months to April 30th while underlying earnings remained at £24.5m and the interim dividend was maintained at 1.85p.

The group paid its first property income dividend of 0.18p per share after it converted its company status to a real estate investment trust (REIT) on April 1st, allowing it to benefit from an exemption from UK corporation tax on its UK self-storage earnings and gains from its qualifying portfolio.

REITs are required to distribute at least 90% of their taxable income from each accounting period to investors as income, which for tax purposes is treated as property rental income rather than dividends.

Safestore's statutory reported profit after tax for the period was £74.7m, compared to a previous loss of £6.2m, reflecting a £61.9m tax credit that largely related to the write-back of deferred tax provisions due to the REIT conversion and a £3.1m gain from property revaluation.

Chief Executive Officer Peter Gowers said the company’s focus on delivering growth from business customers was bearing fruit.

“Strategic progress, together with the active cost management measures we implemented during the first half of the year, has mitigated the potential impact on underlying EBITDA from the imposition of VAT.”

The government began imposing VAT on the self-storage industry from October 1st last year.

So, while group revenues slipped 2.7% and UK gross transaction values, including VAT, were up 9.6% on the prior year, after the payment of output VAT revenues were down 5.2%.

The challenging UK position was somewhat counterbalanced by a 4.3% improvement in revenues from two new stores France, where the group’s ‘Une Pièce en Plus’ (One Room More) brand has 25 stores and is the leading operator in the Paris region.

Said Gowers: “Our market is demonstrating resilience and we have a unique competitive position. Our scale, strategy and ability to execute position us well to deliver further value for our shareholders in the future."

Broker Investec said the timing of the conversion "was astute" since the REIT regime entry charge, formerly 2% of gross assets, has been abolished by the Treasury, and from the time of the inception of the regime until now, Safestore has been utilising tax losses (now exhausted in the UK).

Analyst Alan Carter has upgraded his dividend-yield derived target price to 140p, from 125p, reflecting the belief that the company’s shares "should be at least equivalent to the noncentral London peer group", where the current average dividend yield is 4.0%.

Shares in Safestore were up 4.2% at 125p at 15:00 on Thursday.

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