Lok’nStore Self Storage: Safe and secure

January 6, 2012

As some of you may have seen on Christmas Eve – we had a full-page spread in the financial section of a newspaper.

'Recession resilient' is how chief executive Andrew Jacobs describes his business, the self-storage group Lok’nStore.

‘We have shown we can thrive and survive in an economy that grows at only half a per cent or doesn’t grow at all,’ he said.

Indeed the company has proved its mettle in coming through the economic maelstrom of late 2008 and 2009 in better shape than when it went in.

LoknStore: Safe and secure.

Resilient: Lok’nStore has proved itself by coming through the downturn in better shape than when it went in

Certainly, costs are significantly lower. And its ability to turn off the capital-expenditure taps when the worst of the financial crisis struck has turned Lok’nStore into a huge cash generative business.

The latest set of results bear this out, as does the dividend payout which equates to an annualised yield of 2.9 per cent.

The company’s trademark orange-liveried stores – which make them easy to spot by customers and potential punters – began to sprout up in the mid-1990s.

In little, over a decade the group built up its impressive portfolio. It runs self-storage depots, many of them owned, while some are managed on behalf of another investor. A total of 11 stores are freehold, which means the business is asset-backed, while ten are leasehold.

Excess funds were always reinvested into the business as it expanded the estate of self-storage facilities, which tended to mask Lok’nStore’s underlying ability to generate substantial cash flow. The watershed in the strategy came in 2008 when it saw the first signs of recession.

In 2007 it had sold two stores for a large profit, which helped, and it was also able to ‘roll short’ the interest rates on its debt. This meant the group almost immediately felt the effects of the Bank of England’s cuts to borrowing costs as the financial crisis started to bite, saving further cash.

In the end, Lok’nStore seems to have sailed serenely through the recession to come out the other end in good financial shape. Turnover and profits fell 7 per cent and 10 per cent respectively in 2008/09, but have since recovered strongly.

Lok’nStore recently signed a new £40million revolving loan facility but has debts of about £25million, a modest 30 per cent loan-to-value ratio Of course, the economic climate has deteriorated once again with Europe in turmoil and the UK headed for what looks like a double-dip recession.

But Jacobs is confident that his company can cope. In fact, the warning signs just aren’t there this time around. ‘If I don’t read the papers, things are very comfortable at the moment,’ he added.

In June, the group acquired a document-storage business called SaracenDataStorefor £4million, which is expected to be immediately earnings accretive. And the company is looking at other potential acquisitions, both in self-storage and document storage.

Organic growth, meanwhile, is also back on the agenda, although Lok’nStore is becoming very savvy financially in the way it is rolling out new stores. Two projects – one in Reading, the other down the road in Maidenhead – have the potential to be self-funding.

The site of the current Lok’nStore in Reading now has planning permission for a block of flats. This could be sold to fund the switch to brand new premises across the road.

In Maidenhead, the group is looking to incorporate a 15,000 square foot supermarket. This project is yet to gain the green light from planners. It is also working on ‘various ideas’ to help mitigate the costs of setting up shop in Southampton and Portsmouth, Jacobs revealed.

The shares, currently changing hands at 105p each, trade at a huge discount to net asset value, which was 229p at the end of July.

Panmure Gordon, the group’s broker, suggested that this gap should narrow as it set a price target of 126p a share.

‘We believe self-storage is a resilient business model in the current climate, and the ability for Lok’nStore to deliver price increases for its storage space and make material progress in profitability, despite unhelpful macro conditions, should not be underestimated,’ said analyst Paul Jones

Posted in: Storage Miscellany