11 April 2024
RECOMMENDED CASH ACQUISITION
OF
LOK’N STORE GROUP PLC (“LOK’NSTORE”)
BY
SHURGARD SELF STORAGE LTD (“SHURGARD”)
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
Summary
· The boards of Shurgard and Lok’nStore are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by Shurgard to acquire the entire issued and to be issued share capital of Lok’nStore (the “Acquisition“).
· Under the terms of the Acquisition, Lok’nStore Shareholders will be entitled to receive:
for each Lok’nStore Share: 1,110 pence in cash
· The terms of the Acquisition value the entire issued and to be issued share capital of Lok’nStore at approximately £378 million and represent a premium of approximately:
· 15.9 per cent. to the Closing Price of 958 pence per Lok’nStore Share on 10 April 2024 (being the last Business Day before the date of this Announcement);
· 36.7 per cent. to the volume-weighted average price of 812 pence per Lok’nStore Share for the 3-month period ended 10 April 2024 (being the last Business Day before the date of this Announcement);
· 41.3 per cent. to the volume-weighted average price of 786 pence per Lok’nStore Share for the 6-month period ended 10 April 2024 (being the last Business Day before the date of this Announcement); and
· 2.3 per cent. to the all-time high Closing Price of 1,085 pence per Lok’nStore Share on 6 January 2022.
· The Acquisition is expected to be effected by means of a Court-sanctioned scheme of arrangement between Lok’nStore and Scheme Shareholders under Part 26 of the Companies Act 2006, although Shurgard reserves the right to effect the Acquisition by way of a Takeover Offer.
· If any dividend or other distribution is announced, declared, made or paid, or becomes payable, in respect of Lok’nStore Shares on or after the date of this Announcement and before the Effective Date, Shurgard reserves the right to reduce the consideration payable in respect of each Lok’nStore Share by the amount of all or part of any such dividend or other distribution. If Shurgard exercises this right or makes such a reduction in respect of a dividend, other distribution or return of capital that has not been paid, Lok’nStore Shareholders will be entitled to receive and retain that dividend, other distribution or return of capital.
Background to and reasons for the Acquisition
· The Acquisition represents an attractive opportunity for Shurgard to accelerate its growth strategy and create value for its shareholders.
· By combining Lok’nStore’s existing assets alongside its secured development pipeline, the Acquisition will allow Shurgard to increase its footprint in the two most attractive target markets outside of London. In the South East, Lok’nStore has 32 properties with five under development, whilst in Manchester Lok’nStore has five properties, three of which are under development.
· Lok’nStore’s portfolio of high-quality assets in major cities across the UK gives Shurgard immediate access to attractive underlying market dynamics with strong demographic trends. Entry to the market in the UK’s South East taps into a region as large as London with nine million inhabitants, boasting the second highest national income per inhabitant. Whilst in Manchester, Shurgard will have access to the second largest metropolitan area in the UK after London. As such, the Acquisition is in line with Shurgard’s strategy to enter new markets with immediate opportunity to achieve scale by applying Shurgard’s operating model.
· The Acquisition will enhance the growth profile of Shurgard, accelerating growth by taking the operating store portfolio of Lok’nStore from 67 per cent. to 90 per cent. occupied and the pipeline store portfolio of Lok’nStore from 0 per cent. to 90 per cent. occupied. This implies a blended starting occupancy between owned stores and secured development pipeline of 48 per cent. The secured development pipeline, which includes 50,000 sq. m. and 8 stores (excluding one managed pipeline store at Bromborough), representing 29 per cent. of Lok’nStore’s fully built-out MLA, materially increases Shurgard’s own development pipeline. In addition, the Acquisition will add two to three new stores per annum, and through owning this portfolio Shurgard expects to benefit from continued growth in the new development pipeline.
· As a result of the Acquisition, Shurgard will acquire an additional total MLA, of 171,000 sq. m. (including 121,000 sq. m. operating stores and 50,000 sq. m. secured development pipeline). In addition, 76 per cent. of the assets (including the secured development pipeline) are purpose built, with 43 per cent. of the portfolio built since January 2022. The Acquisition also brings with it income from 17 stores under management contract with one management contract store in the pipeline. This income includes £1.7 million in fees for the year ended 31 July 2023.
The total all-in cost of the Acquisition is expected to be €613 million, including acquisition of the issued and to be issued share capital of Lok’nStore of £378 million, secured development pipeline costs to be spent over the next 3 years of €83 million, refurbishment capex of €13 million and transaction costs of €32 million. Initially the Acquisition will be financed 100 per cent. through a bridge facility, where pro forma leverage will be 25 per cent. loan to value and 6.2 times net debt to underlying EBITDA. Shurgard intends to take out the bridge with a mix of debt and equity and maintain its financial policy.
· Shurgard believes the Acquisition will create value through broader platform effects, applying Shurgard’s operating model. The Acquisition is expected to deliver total estimated operating, G&A and tax synergies of c. €4-5 million in the first full year, with incremental tax savings as the business grows. The Acquisition is expected to have a future stabilised net operating income yield at maturity of c. 8 per cent. (within five to six years), inclusive of ramp up of existing sites and secured development pipeline. Post-acquisition, Shurgard expects accretion on its adjusted EPRA earnings per share to be mid-single digit dilutive in 2024, neutral in 2025 and accretive from 2026 onwards. As such, the Shurgard Board believes there is a strong strategic, operational and financial rationale for the Acquisition, providing a highly attractive investment case.
Information relating to Shurgard
· Shurgard is the largest developer, owner and operator of self-storage facilities in Europe, both by numbers of stores and rentable space. As at 31 December 2023, it operated 1.4 million sq. m. of space across 276 stores in seven countries where over 190,000 customers lease its storage units every year. Shurgard has built a portfolio of 93 per cent. freehold properties with a strategy focused on tier one and capital cities.
· Shurgard is a GRESB 5-star and Sector Leader, has an ‘AA’ ESG rating from MSCI, is rated Low risk by Sustainalytics and has a EPRA sBPR Gold medal. Shurgard is part of the BEL ESG index.
Information relating to Lok’nStore
· Lok’nStore is a leading company in the UK self-storage market, which opened its first store in February 1995 and which has grown consistently over the last 29 years with 43 stores (17 owned stores, 9 leased stores and 17 stores under management contract) operating across England and Wales. Lok’nStore has been listed on AIM since June 2000. Lok’nStore operates both owned stores and stores under management contract for third party owners, and serves both household and business customers at its highly branded and visually prominent buildings.
· The Scheme Document will contain a valuation in respect of Lok’nStore’s property portfolio in accordance with Rule 29 of the Code.
Irrevocable Undertakings
· Shurgard has received irrevocable undertakings to vote in favour (or procure a vote in favour) of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting from those Lok’nStore Directors who hold Lok’nStore Shares in respect of their own beneficial shareholdings, totalling 6,302,453 Lok’nStore Shares representing approximately 19 per cent. of the issued share capital of Lok’nStore as at 10 April 2024, being the last Business Day before the date of this Announcement.
· Further details of these irrevocable undertakings are set out in Appendix 3 to this Announcement.
Recommendation
· The Lok’nStore Directors, who have been so advised by Goldman Sachs and Cavendish as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the Lok’nStore Directors, Goldman Sachs and Cavendish have taken into account the commercial assessments of the Lok’nStore Directors. Goldman Sachs and Cavendish are providing independent financial advice to the Lok’nStore Directors. Cavendish is providing independent financial advice for the purposes of Rule 3 of the Code.
· Accordingly, the Lok’nStore Directors intend to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting and Lok’nStore Shareholders vote in favour of the resolutions to be proposed at the General Meeting (or in the event that the Acquisition is implemented by way of a Takeover Offer, that Lok’nStore Shareholders accept or procure acceptance of such Takeover Offer) as the Lok’nStore Directors who hold Lok’nStore Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of Lok’nStore Shares, amounting in aggregate to 6,302,453 Lok’nStore Shares representing approximately 19 per cent. of the issued share capital of Lok’nStore as at 10 April 2024 (being the last Business Day before the date of this Announcement).
Timetable and Conditions
· The Acquisition is subject to approval from the relevant Lok’nStore Shareholders and the sanction of the Scheme by the Court.
· The Acquisition is also subject to the other terms and Conditions set out in Appendix 1 to this Announcement, and to the full terms and conditions to be set out in the Scheme Document in due course. The Acquisition is conditional on Lok’n Store Limited, a subsidiary of Lok’nStore, amending its standard terms of business prior to the date of the Sanction Hearing (or, in the event that Shurgard elects to implement the Acquisition by way of a Takeover Offer, the date on which the Takeover Offer becomes unconditional), as further detailed in paragraph 13 of this Announcement and paragraph 3 of Appendix 1 to this Announcement. This is to bring Lok’nStore’s contractual structure on to a basis that is consistent with the REIT model operated by Shurgard. As a result of the significant adverse financial impact which Shurgard could suffer if the Acquisition were to become Effective without Lok’n Store Limited’s standard terms of business having been amended prior to the date of the Sanction Hearing, Shurgard would not intend that the Acquisition become Effective without the necessary amendments having been made, and would seek to lapse the Acquisition in those circumstances.
· The Acquisition will be put to Lok’nStore Shareholders at the Court Meeting and at the General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of the Lok’nStore Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the Lok’nStore Shares voted. In addition, a special resolution implementing the Scheme must be passed by Lok’nStore Shareholders representing at least 75 per cent. of votes cast at the General Meeting.
· The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the General Meeting and the expected timetable for the Acquisition, and will specify the actions to be taken by Lok’nStore Shareholders. The Scheme Document will be posted to Lok’nStore Shareholders within 28 days of this Announcement (unless a later date is agreed between Shurgard, Lok’nStore and the Panel).
· The Acquisition is expected to complete in July 2024, subject to the satisfaction (or, where applicable, waiver) of the Conditions set out in Appendix 1 to this Announcement.
Commenting on the Acquisition, Marc Oursin, Chief Executive Officer of Shurgard, said:
“Following several successful acquisitions over the past year, I am excited to disclose this new acquisition in the UK, which doubles our presence in the country, and accelerates our growth and expansion strategy. This milestone event for Shurgard adds an additional 171,000 sqm MLA, representing two full years of Shurgard’s targeted annual expansion, with new ramp-up and development opportunities to accelerate our growth in existing and new UK markets. The acquisition brings with it a strong pipeline and development team, which can be leveraged to accelerate new opportunities in London, the South East and Manchester. We are excited about our ability to acquire, develop, and expand in the UK alongside our other European markets.“
Commenting on the Acquisition, Andrew Jacobs, Chair of Lok’nStore, said:
“Lok’nStore’s board believes the offer represents significant value for Lok’nStore’s shareholders, recognising the quality of Lok’nStore’s real estate portfolio and operational strength. Over the years Lok’nStore has built a unique portfolio of purpose-built self-storage assets. We believe that integrating Lok’nStore’s assets and operations into Shurgard is highly complementary considering Lok’nStore’s asset locations and positioning in its markets. I would like to take the opportunity to highlight the contribution of Lok’nStore’s team over the years, whose commitment has enabled building the business to its high standards and unique asset quality it is recognised for today and ensuring leading positioning in the markets in which it operates.”