Accountability and sustainability

Risk management report

Risk management is an integral component of our strategic management. We are committed to managing risk in a proactive manner with the purpose of remaining a competitive and sustainable business, enhancing our operational effectiveness and continuing to create value for the benefit of our employees, shareholders and other stakeholders in line with our growth strategy. The group’s risk management framework is overseen by the Audit and Risk Committee which has an ongoing responsibility to monitor risk management processes by:

Identifying risk
factors that may
have a material
impact on the
business

Formulating a
mitigating response
for each area of
impact

Monitoring
progress

Reviewing identified
risks on an
ongoing basis and
revising responses
accordingly

Identifying risk factors that may have a material impact on the business

Formulating a mitigating response for each area of impact

Monitoring progress

Reviewing identified risks on an ongoing basis and revising responses accordingly

Key risks and effective mitigators

1.	Weak/negative economic growth
	Macro environment weaknesses could inhibit the self storage market’s growth in line with our projections, resulting in reduced demand and lower income. A ’needs’ driven product for life-changing events which prevails in all economic cycles Prime portfolio of properties Focus on large metropolitan cities which are likely to be more resilient during a downturn and where growth drivers are strongest and barriers to competition at their highest Strength of operational management and platform Continuing innovation to deliver high levels of customer service Strong cash flow generation, high operating margins, low gearing and conservative hedging policies 14 000+ tenants spread across a geographically diversified footprint Tested strategy development processes drawing on internal analyses, independent research and global trends and best practice
2.	Treasury risk
	Adverse interest rate movements could result in the cost of debt increasing. The group’s policy is to fix approximately 80% of total borrowings and we use swap instruments to hedge our interest rate exposure. At 31 March 2016 84% of net borrowings were fixed for 2.8 years Gearing remains low at 8.7% on a net debt basis as at 31 March 2016. Our total undrawn borrowing facilities amount to R521 million Executive management reviews our current and forecast projections of cash flow, borrowings, interest cover and covenants on a monthly basis We are highly cash generative and debt is serviced by our strong operational cash flows
3.	Property investment and development
	An inability to acquire or develop new self storage properties which meet management’s criteria may impact the growth of the portfolio. The group has an acquisition pipeline through the Managed Portfolio We have a pre-emptive right of acquisition over properties in the Managed Portfolio We already earn management fees from eight trading properties in the Managed Portfolio We will further manage four properties being developed for trade in 2016 and 2017 in the Managed Portfolio Six additional development opportunities have been secured in the pipeline The fragmented South African self storage market provides potential acquisition opportunities
4.	Valuation risk
	The value of our properties may decline as a result of external market factors or the impact of performance. Independent valuations are conducted by experienced independent, professionally qualified valuers A diversified portfolio let to a large number of tenants across a broad national footprint Low levels of gearing provide enhanced headroom on valuations and significantly reduce the likelihood of covenant breach
5.	HR risk
	Our people are critical to our success. Failure to recruit and retain key staff with appropriate skills may lead to high staff turnover and the loss of key personnel and so impact performance. Competitive remuneration packages and financial rewards are in place Learning and development programme with performance reviews to develop staff to the highest potential A culture where management is accessible at all levels and staff are encouraged to improve and challenge the status quo Ongoing communication to ensure an engaged workforce A succession planning strategy including talent retention
6.	Utility costs
	Significant increases in utility costs, particularly property taxes and electricity, may put pressure on operating margins. Electricity and water usage is monitored monthly We use external professionals to assist with monitoring and objecting to valuation revisions where necessary The introduction of energy efficient lighting, use of solar power and collection and re-use of rain water for irrigation
7.	Credit risk
	The group is exposed to tenants’ credit risk which may result in a loss of income. Customers are required to pay a deposit on move-in Diversified tenant base of 14 000+ tenants mitigates any material exposure risk 80% of our current customers pay by debit order (certain commercial customers are permitted to pay monthly in advance by EFT and a segment of the customer base was inherited in previous acquisitions where payment by debit order was not required) Clearly defined policies and procedures are in place to collect arrear rentals Central team of collection specialists assists each store with arrears
8.	Compliance risk
	The group is exposed to tenants’ credit risk which may result in a loss of income. We engage with external specialists with appropriate skills where necessary Suitably skilled and experienced staff and executives are employed Finance and HR staff attend relevant training on a regular basis

Financial statements

Shareholder information

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