Lok’nStore, the AIM listed self-storage company, is pleased to announce its Preliminary Results for the year ended 31 July 2023.
Highlights
v Solid growth of Same Store Revenue
v Increase in Net Asset Value per share
v 10.1% increase in annual dividend
v Dynamic new store opening schedule driving future growth
§ Two new Landmark stores opened
§ Three further Landmark stores to open in FY24
v £20.5 million equity raise
v Low net debt and LTV
Reminder – We sold four stores on a sale and manage-back arrangement on 31 January 2022 adding circa £37 million to cash, reinforcing our strong financial footing. (‘the Sale’)
· Our Same Store analysis strips out the Sale and the new stores opened.
· Our Same Store Self Storage analysis also strips out the effect of this sale, new stores and management income from Managed Stores.
This Same Store analysis and all other Alternative Performance Measures (APM’s) denoted by superscripts are explained in the key performance indicators (KPIs) definitions below.
Strong revenue growth
Same Store14
ü Same Store Self Storage Revenue15 £25.30 million up 12.1% (2022: £22.57 million)
ü Same Store Self Storage Adjusted EBITDA1 £14.5 million up 4.0% (2022: £13.9 million)
Headline
ü Group Revenue £27.1 million up 0.9% (2022: £26.9 million)
ü Group Adjusted EBITDA1 £15.1 million down 7.9% (2022: £16.3 million)
Driven by solid operating metrics
ü Pricing up 6.8% to £27.37 per sq. ft (2022: £25.62 per sq. ft)
ü Closing occupancy in stores over 3 years old 80.6% (2022: 82.9%)
ü Move in’s up 4.9% year on year
ü Managed store recurring revenue £1.5 million up 11.9% (2022: £1.3 million)
Management of Costs
ü The external cost increases experienced in year, specifically in energy, insurance and interest charges – we expect the rate of these cost increases to abate
ü Same Store store15 EBITDA margins although lower remain robust at 57.2% (2022: 61.3%)
Twelfth consecutive year of dividend increase
ü Annual dividend increased by 1.75 pence to 19.00 pence per share up 10.1% (2022: 17.25 pence per share) – covered 1.5x by CAD
Net Asset Value up
ü Adjusted Net Asset Value5 per share up 1.4% to £9.86 per share (2022: £9.72 per share)
Disciplined capital allocation underpins our strong balance sheet and low net debt
ü £20.5 million (gross) equity raised in July 2023
ü £42.1 million cash at year-end (2022: £46.5 million)
ü Net debt (excluding lease liabilities and deferred finance costs) reduced to £12.3 million (2022: £20.3 million)
ü Loan to Value ratio6 (net of cash) down to 3.7% (2022: 6.6%)
Dynamic pipeline8 of new Landmark stores will deliver further growth
ü Two new Landmark stores opened – 108,890 sq.ft of new owned space added up 9.7%
ü Three new Landmark stores on site will add over 162,000 sq. ft of new trading space.
Well positioned for the future
ü Trading momentum continues post year end with stores revenue up 6.3% for August and September 2023 compared to the same corresponding two-month period last year.
ü Flexibility to respond to market circumstances
For all of the definitions of the terms used in the highlights above refer to the KPI notes section below.
Commenting on the Group’s results, Andrew Jacobs, Chair of Lok’nStore Group said,
“Lok’nStore’s business has once again moved ahead with Same Store Self Storage revenue up 12.1%. Demand for UK self-storage assets remains strong, and this, coupled with our new store openings, has driven our Net Asset Value up by 1.4% to £9.86 per share. We are proposing a 10.1% increase in the annual dividend, the twelfth year of increased dividends in a row. The net debt is low and LTV is only 3.7%.
“Trading since the year-end continues to be in line with expectations. We have opened two new Landmark stores and are on site at three more which will open within the next 12 months which can be completed using cash. These new stores will add further momentum to sales, earnings and net asset growth.”
Enquiries:
| Lok’nStore:Andrew Jacobs, ChairRay Davies, Finance DirectorNeil Newman-Shepherd, Managing Director | 01252 521 010 |
| Cavendish Capital Markets LtdJulian Blunt / Seamus Fricker, Corporate FinanceSunila de Silva, Corporate Broking | 020 7220 0500 |
| Peel HuntCapel Irwin / Carl Gough / Henry Nicholls | 020 7418 8900 |
| CamarcoBilly Clegg / Tom Huddart/ Letaba Rimell | 0203 757 4991 |
I am delighted to be reporting another year of good results for Lok’nStore, delivering a strong operating and financial performance.
These results can be summarised as:
· Solid growth of Same Store14 revenue
· Increase in Net Asset Value per share
· Rate of cost increases abating
· 10.1% increase in annual dividend
· Low net debt and LTV
· Dynamic new store opening schedule driving future growth
§ Two new Landmark stores opened
§ Three further Landmark stores to open in FY24
These results demonstrate Lok’nStore’s delivery of growth in long-term shareholder return through all stages of the economic cycle. The significant and continued investor interest in the UK self-storage sector demonstrated by market transactions underpins the increased value of our assets and our strategy to open more Landmark stores.
The detail behind these results is discussed further in our Financial Review.
Further Strengthening the Balance Sheet
On 7 July 2023, the Company raised total gross proceeds of approximately £20.5 million through the issue of 2,679,739 new Ordinary Shares via a Placing and REX Retail Offer, at a price of 765 pence per Ordinary Share. The Fundraising Shares represented approximately 8.9% of the Company’s issued share capital.
As a result, we have new shareholders as well as existing institutional shareholders who have increased their shareholdings. We are also particularly pleased that existing smaller retail shareholders participated via the REX offer. I would like to thank existing shareholders for their support and welcome our new shareholders to the Company.
In the previous financial year 2022, the Group completed the Sale. This transaction added sales proceeds of c. £37 million to cash balances.
These two strategic actions reinforced the Company’s excellent financial position with low net debt. A conservative capital structure and a strong Balance Sheet remain a key focus. We report a year-end LTV ratio (net of cash) of only 3.7% (2022: 6.6%) and a low level of net debt of only £12.3 million, down from £20.3 million in the previous year (refer to note 26b).
Continued revenue growth driven by strong demand
In the year we have replaced all the revenue generated from the four established stores sold last year which is a great performance and at a headline level we report a 0.9% increase in Group Revenue. Same-Store Group Revenue remains strong with growth of 6.6% over last year.
Customer demand remains significantly above levels seen pre-pandemic and this year has continued to move ahead with total move-ins up 4.9% compared to last year. This continuing strong demand from new customers combined with our dynamic pricing management has resulted in a total increase in pricing over the past three years of 31.2%. Our pricing moved forward by 6.8% in the last 12 months.
Management of cost increases
At a headline level, total Group Operating Costs amounted to £11.8 million for the period (2022: £10.4 million) up by 14.2%. On a Same Store basis costs have increased by 17.8% compared to last year.
As previously reported at the half year, we have seen significant external cost increases primarily through energy costs, which have risen in the year by £1.2 million compared to the same period last year, a trebling of the previous year’s energy costs. In the coming year we expect this major change in energy costs to abate and then decline in FY25.
Interest costs have also risen significantly. The cash costs of bank interest paid (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) in the year was £3.1 million compared to £1.3 million last year. The average costs of debt over the year was 4.77%. With rates rising throughout the year the Group’s current cost of debt at year-end was 6.19%. Currently, interest on our active drawn loans is 6.68%.
We now have clarity on future business rates, following the publishing of the revaluation listing which took effect from April 2023. This will result in our business rates increasing £0.49 million per annum from April 2023 and by a further £0.20 million per annum from April 2024.
We have robust EBITDA margins which provide a shelter to the business against these external cost increases. This is supported by our ability to move our own pricing forward.
We have a strong record of disciplined cost control. In FY24 we expect Same-Store operating costs to increase more modestly, driven mainly by revised business rates with other costs increases more muted. From FY25, we expect operating costs to increase more slowly with cost increases mainly being driven by the expansion of store numbers so revenue growth flows into earnings.
Increase in Net Asset Value
I am pleased to report an increase of 1.5% in the Adjusted Net Asset Value per share to £9.87 per share (2022: £9.72 per share) (31 January 2023 £9.15 per share).
Since the last year-end at 31 July 2022 we have seen significant changes in the debt markets. As a result, Jones Lang LaSalle (JLL), consider that the yields and discount rates which were applied at the July 2022 year-end have changed. On our owned freehold trading stores we have seen exit yields increase on average by 33 basis points to 5.79%, with discount rates increasing by 45 basis points to 7.47%.
These changes have been fully offset by improved cash flows and the extension of the lease at our Eastbourne store. This demonstrates the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing.
The Exit Yield and Discount Rates applied in the valuations are validated by transactional evidence. There is continued strong institutional investor appetite in the UK self-storage sector. JLL comment that “The self-storage market has had strong market activity since July 2022 which reflects the continued appetite for the sector but the higher cost of debt in the present finance market is having an impact. The sector’s operational resilience in the current climate is making it a popular asset class with investors – this is accentuated with its structural undersupply”.
Our new Bedford and Peterborough Landmark stores had their maiden external valuation in July 2023, which were accretive to asset value. We have two further Owned Stores in Staines and Basildon opening in FY24 and expect these to add momentum to Net Assets with their maiden external valuations at July 2024. More details on the valuation of our trading stores can be found on in note 12(a) of the financial statements.
Further Dividend Growth
The Directors are proposing a final dividend of 13.25 pence per share an increase of 8.2% (2022: 12.25 pence) following the interim dividend payment of 5.75 pence per share in June 2023, bringing the total distribution for the year to 19 pence per share, an increase of 1.75 pence per share up 10.1% (2022: 17.25 pence per share) and our twelfth year of increase in a row.
Subject to approval at the Company’s AGM on 7 December 2023 the final dividend will be paid on 5 January 2024 to shareholders on the register on 24 November 2023. The ex-dividend date will be 23 November 2023. The final deadline for Dividend Reinvestment Election by investors is 8 December 2023.
Investment in new Stores
This year we invested £17.3 million in new store development adding 12% to our owned stores trading space. We opened two new owned stores in Bedford and Peterborough. Trading at our new stores continues to meet expectations and this underpins our confidence that our pipeline will add further to sales and earnings growth.
We are on site at three Stores, in Staines, Basildon, and Kettering (managed) which will all open in the coming 12 months. The remaining capital expenditure required to complete the Staines and Basildon stores is £12.7 million, all of which can be paid out of cash. We are due to go on site shortly at Bromborough, Wirral on behalf of a third-party Managed Store client.
Self-storage generally benefits from the short lead time between breaking ground and store opening of around twelve months. We have only committed future capital expenditure at the two owned stores where we are on site, both of which will be open within the next 12 months. We have a high degree of flexibility regarding start dates for further building at other sites. We can therefore adapt our development programme quickly to react to changing economic circumstances.
The pipeline progress is discussed further in the Property Review.
Cash Flow, Debt and Bank Covenants
At 31 July 2023, the Group had cash balances of £42.1 million. Cash inflow from operating activities before investing and financing activities was £15.8 million in the year to 31 July 2023 (2022: £18.6 million).
The Group has a £100 million five-year revolving credit facility which, together with cash, provides all the financing needs for the current secured pipeline and runs until April 2026. The Group is not obliged to make any repayments on its loan facility prior to its expiration in April 2026.
The average cost of bank debt on drawn facilities for the year was 4.77% (2022: 1.71%). All of the Group’s total drawn bank debt of £54.4 million (2022: £66.8 million) is unhedged. At the date of this Report the Group’s current cost of debt is running at 6.68% as rates have moved higher since the year-end.
At the year-end senior interest cover was 4 times finance charges on gross debt tested on a 12-month rolling basis, against a bank covenant of 2.5 times. At the year-end our loan-to-value ratio based on net bank debt was 3.7% versus a bank covenant of 60% providing a large cushion of comfort.
Post Balance Sheet: On 11 August 2023, the Group paid down £19.02 million out of its recent equity placing proceeds reducing the balance on its revolving credit facility, pending redrawing over time for its future deployment on the Group’s pipeline stores.
Managed Stores
Our strategy includes growing the number of stores we manage for third party owners. This enables the Group to earn revenue without having to commit capital, to amortise fixed central costs over a wider operating base and drive further traffic to our website which benefits our entire operation.
During the year, we generated total Managed Store income of £1.66 million, with recurring fees of £1.47 million (2022: £1.31 million) up 11.9%. This was driven by increased revenues generated from the Managed Stores and also the four stores we sold on manage back contracts on 31 January 2022.
In the management fees table in the Managing Director’s Review, we separate recurring management fees from non-recurring fees. Non-recurring fees relate to one off fees generated from planning, store opening, construction and advisory and supplementary fees.
Lok’nStore manages 16 stores for third-party owners. Our current new store pipeline includes two Managed Stores, taking the total number to 18.
Our Team
We rely on our amazing people to deliver these impressive results and I would like to thank them for all of their hard work and dedication. I am delighted to say that all of our colleagues continue to benefit from the success of the business and we continue to promote equity ownership to our colleagues through our Shares in Partnership Equity Ownership scheme and the granting of share options.
I am proud that during the year we introduced a comprehensive non-contributory Employee Assistance Program which has a death in service life insurance for all colleagues combined with an associated package of benefits. These include direct access to a GP and availability of confidential counselling services, as well as access to a range of online tools covering tax and legal advice, childcare, fitness and personal coaching advice.
Board changes
The Board was delighted to announce the appointment of Tom Lampard, the Group’s Property Director, to the Board of Directors of the Group with effect from 6 February 2023.
Tom joined Lok’nStore in March 2012, and has worked in a variety of roles across the Group. Since July 2017, Tom has worked in the Group’s property acquisitions team, most recently as Director of Acquisitions, sourcing and securing land and buildings to expand the Group’s significant new store pipeline. Tom is an integral member of the management team significantly contributing to the Group’s growth over recent years.
As part of the board’s ongoing review of governance and with immediate effect, Jeff Woyda will become chair of the Audit Committee with Charles Peal becoming a member of the committee. I would like to thank Charles for his hard work and dedication as chair of the Audit Committee over the last few years.
Post Balance Sheet: The Board was delighted to announce the appointment of Bridget Barker to the Board of Directors of the Group with effect from 14 September 2023. Bridget is an experienced lawyer having gained over 35 years’ experience at Macfarlanes, a leading and well-established City of London law firm, where she specialised in investment funds, financial services and regulatory legal work with a focus on private equity and real estate funds. Latterly she was head of the Investment Management Group at Macfarlanes. Since leaving Macfarlanes, Bridget has pursued various non-executive roles and consulting appointments at organisations such as Praesidium, Mirabaud 1819 Advisory Group and Mainspring Fund Services. Bridget is currently the CEO of Race Against Dementia, a charity established to raise money to fund breakthrough and innovative dementia research.
Share trading volumes and liquidity
It has been a feature for some time that high shareholder concentration in our shares has contributed to lower share transaction volumes and has limited their market liquidity. In addition, prospective and existing investors have sometimes been unable to secure a meaningful sized holding.
In May 2023, I sold 1,250,000 Ordinary Shares of 1p each (“Ordinary Shares”) in the Company at a price of 800 pence per Ordinary Share.
As a result of this transaction and following the Placing in July 2023 I, along with persons closely associated with me, still own, in aggregate, 4,359,550 Ordinary Shares representing 14.5 per cent of the Company’s total voting rights.
In May 2023, Simon Thomas sold 100,000 Ordinary Shares at a price of 815 pence per Ordinary Share resulting in his beneficial interest in the Company decreasing to 1,292,800 Ordinary Shares representing 4.3 per cent of the Company’s total voting rights.
These transactions have broadened the Group’s institutional shareholder base and potentially increased the liquidity in the trading of the Groups ‘s shares. I remain the largest shareholder and Simon Thomas remains the fifth largest shareholder, demonstrating our continued support for the business.
Environmental, Social and Governance
We are committed to decarbonising our business with an Operational Net Zero target of 2040.
In recent years, the Lok’nStore Environmental committee, consisting of colleagues in various roles across the business, including four Board members, has been focused on practical improvements we can make to our environmental footprint.
We are working hard to create an environmentally sustainable business for all our customers, our colleagues, local communities and the wider environment. We have made good progress on all of our environmental targets this year and these are discussed in detail in our Environmental and Social Report.
Our Objectives
Our objectives are to:
· Fill existing stores and improve pricing
· Steadily increase the dividend from a strong asset base with conservative levels of debt
· Develop our pipeline into new Landmark stores
· Acquire more sites to build new Landmark stores
· Increase the number of stores we manage for third parties
Outlook
This year’s results are good and trading since the year-end remains in line with management expectations.
Lok’nStore continues to experience year to year revenue growth on a Same Store basis and this will be enhanced by the three stores opened in FY22 and two stores opened this year. The opening of another two new owned stores over the coming year will provide further momentum.
We expect the rate of external cost increases that we have experienced this year to abate and we expect operating costs to revert to a position where cost increases are mostly driven by the expansion of the number of stores meaning that revenue growth flows into earnings.
We have an exciting period of growth ahead. With Lok’nStore’s resilient and flexible business model enabling the business to manage its conservative debt structure the Board is confident the Group will continue to thrive. This strength enables Lok’nStore to look confidently through the current external market turbulence.