Lok N Store Regulatory News (LOK)

LOK'NSTORE GROUP PLC

("Lok'nStore" or "the Group")

Lok'nStore Group Plc, the AIM quoted self-storage Company announces interim results for the six months to 31 January 2023

Highlights:  

Reminder - We sold four stores on 31 January 2022 adding circa £37 million to cash, reinforcing our strong financial footing. Our Same Store analysis strips out the effect of this and of new stores opened

v Excellent growth of same store revenue

v 15% increase in interim dividend

v New store opening schedule driving future growth

v Strong balance sheet with low net debt and LTV

v Growth strategy flexible and adaptive

Strong revenue growth

 Same Store

· Same Store Group Revenue £13.22 million up 11.2 % (31.1.2022: £11.89 million)

· Same Store Group Adjusted EBITDA1 £7.79 million up 8.9% (31.1.2022: £7.16 million)

· Same Store Group Operating Profit before non-underlying2 items £5.33 million up 7.6% (31.1.2022: £4.95 million)

Headline

· Group Revenue £13.58 million up 1.5% (31.1.2022: £13.38 million)

· Group Adjusted EBITDA1 £7.93 million down 2.3% (31.1.2022: £8.12 million)

· Group Operating Profit before non-underlying2 items £5.24 million down 9.3% (31.1.2022: £5.78 million)

Driven by solid operating metrics

· Move-ins up 13.5% on corresponding period last year

· Same-Store occupied space up 2.6%

· Achieved rate on occupied space up 9.2% to £26.45 per sq. ft (31.1.2022: £24.22 per sq. ft)

· Managed store revenue £0.82 million up 21.8% (31.1.2022: £0.67 million)

· Trading momentum continues post year end with same-store revenue up 11.4% for February and March 2023 compared to the same period last year

Management of Costs

· External cost increases experienced in period, specifically in energy, local rates, and interest

· EBITDA margins remain robust at 60.3% despite these cost increases

Cash flow (CAD) supports interim dividend increase

· Cash available for Distribution 17.70 pence per share down 6.8% (31.1.2022: 19.00 pence)

· Interim dividend 5.75 pence per share up 15% (31.1.2022: 5.0 pence per share)  - Twelfth consecutive year of interim dividend increase

Operational resilience reflected in net asset value

· Adjusted Net Asset Value (NAV) per share up 8.6% year on year to £9.15 (31.1.2022: £8.43)  

and down 5.9% from 31 July 2022 (£9.72)

· Four new owned stores on site accretive to NAV when they open

Sale of four stores last year leads to strong balance sheet and low net debt  

· £40.3 million cash at period-end (31.7.2022: £44.4 million)

· Net debt (excluding lease liabilities and deferred financing costs) £26.5 million (31.7.2022: £20.3 million)

· Loan to value ratio6 8.9% (31.7.2022: 6.6%)

· £18.2 million capex required to complete store development on site covered by cash

· Bank facility runs until April 2026

New Landmark stores will deliver further growth

· Bedford store opened February 2023 - very early trading has been excellent

· Peterborough store opening in 2nd half

· A further three store openings in FY24

Commenting on the Group's results, Andrew Jacobs, Chair of Lok'nStore Group said,

"Lok'nStore is reporting excellent results with same-store sales rising 11.2%, operating margins remaining resilient at 60.3% and same-store EBITDA growth of 8.9%. This is against the background of a more challenging business environment with increased costs of energy, local rates and interest.  

"After the sale-and-manage back of 4 stores on 31 January 2022 for £37.9 million we are focused on same store growth. This transaction puts the Company in a strong financial position with only 8.9% net loan to value ratio. We are committed to continuing our disciplined approach to capital allocation.

"We have updated the valuation of our assets resulting in net asset value per share of £9.15, down 5.9% since July 2022 and 8.6% up from January 2022. This valuation reflects increased interest rates and our buoyant sales and robust margins. 

"We will open 5 new Landmark stores in the coming year. These will all be accretive to asset value, revenue and profits as they fill up. Trading since the period end has remained solid. Our flexible and adaptive business model gives us confidence about the future, and we are increasing the interim dividend by 15% to 5.75 pence per share, the twelfth consecutive increase of the interim dividend."

Key Performance Indicators (KPIs))

What we mean when we say… (and why we use these Key Performance Indicators)

In addition to IFRS accounting performance measures we use some Alternative Performance Measures (APMs) to help us explain how the underlying business is performing.

Here we identify those measures and explain what we mean when we use them and, importantly, why we use them: -

1. Group Adjusted Earnings before interest, tax, depreciation and amortisation - Adjusted EBITDA is defined as EBITDA before losses or profits on disposal, share-based payments, acquisition costs, non-underlying items and which demonstrates the cash generative qualities of the business.

2. Non-underlying items - Refers to one-off items of a non-operational nature which arose during the year, and which may relate to asset disposals, abortive site acquisition costs, or other costs and which are likely to be infrequent events. (Refer to note 4 of the Financial Statements).

3. Cash Available for Distribution (CAD) - Is calculated as Adjusted EBITDA less total net finance cost, less capitalised maintenance expenses, New Works Team costs and current tax. This measures the capacity of the business to pay dividends or pay down debt. The Cash Available for Distribution per share is CAD divided by the number of shares in issue less shares held in the Employee Benefit Trust (EBT). The calculation of the CAD and the CAD per share is set out in the Business and Financial Review.

4. Adjusted Total Group Assets - The value of adjusted total assets of £353.0 million (31.01.2022: £332.3 million) (31.07.2022: £370.9 million) is calculated by adding the independent valuation of the leasehold properties of £22.9 million (31.01.2022: £23.1 million) (31.07.2022: £24.2 million) less their corresponding net book value (NBV) £7.0 million (31.01.2022: £7.3 million) (31.07.2022: £7.2 million) to the total assets in the Statement of Financial Position of £337.1 million (31.01.2022: £316.5 million) (31.07.2022: £353.9 million). This provides clarity on the significant value of the leasehold stores as trading businesses which are only presented at their book values within the Statement of Financial Position.

5. Adjusted Net Asset Value per share (NAV per share) - Adjusted Net Asset Value per share is the net assets adjusted for the valuation of leasehold stores (properties held under leases) and deferred tax divided by the number of shares at the period-end. The shares held in the Group's Employee Benefits Trust are excluded from the number of shares. The calculation of the Net Asset Value per share is set out in the Business and Financial Review.

6. Loan to Value Ratio (LTV) - measures the debt of the business expressed as a percentage of total property assets giving a perspective on the gearing of the business. The LTV calculation of 8.9% is based on (excluding IFRS 16 lease liabilities) of £26.5 million as set out in note 24b (31.01.2022: £22.4 million) (31.07.2022: £20.3 million) as a percentage of the total properties independently valued by JLL, and at 31 January 2023 at Directors' Valuation and including development land assets all totalling £297.5 million (31.01.2022: £269.3 million) (31.07.2022: £308.2 million) as set out in the Business and Financial Review in the Analysis of Total Property Value table.

7. Average Cost of Debt - The average cost of debt is calculated by taking the total interest paid on the Group's Revolving Credit Facility in the monthly/weekly charging periods throughout the period and taking an average based on the whole financial period. Apart from the Group's Revolving Credit Facility the Group has no other debt. The average cost of debt in the period was 4.13% (31.7.2022: 1.71%). Average cost of debt on active loans not yet 'rolled over' is 4.96% (31.7.2022: 2.71%).

8. Pipeline Sites - means sites for new stores that we have either exchanged contracts on or have agreed heads of terms and are progressing with our lawyers towards completion. We now have 16 pipeline sites of which 11 are contracted and 5 are currently with lawyers. We currently have 24 owned stores trading with an additional 16 managed stores trading. When these 16 sites are fully developed, we will have a total of 56 stores. (Refer to table of Analysis of Stores in the Business and Financial Review).

9. Secured Pipeline Sites - means the 11 sites for new stores on which we have exchanged legal contracts. Of these 10 stores are Lok'nStore Owned Stores and 1 will be a Managed Store.

10. Adjusted Store EBITDA - is Group Adjusted EBITDA (see 1 above) before the deduction of central and head office costs. Unlike Group Adjusted EBITDA this measure excludes the impact of IFRS16 and includes leasing charges as normal operating costs of each store. The measure is designed to give clarity on the recurring operating cash flow of the business and provides important information on the underlying performance of the trading stores and shows the cash generating core of the business. Use of this metric enables us to provide additional information on store EBITDA contributions (after leasing costs) and the margins analysed between freehold and leasehold stores and according to the age of the stores. This analysis is set out in a table in the Business and Financial Review.

11. Gearing - refers to the level of a company's debt relative to its equity capital, usually expressed in percentage form. It is a measure of a company's financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. Gearing can be measured by a number of ratios, and we use the debt-to-equity ratio in this document. The calculation of the gearing percentage, also referred to as the net debt to equity ratio, is set out in Note 16 of the Interim Financial Statements.

12. Group Adjusted EBITDAR - EBITDAR is Earnings before interest, tax, depreciation amortisation and rent. The measure is designed to give clarity on the effect of the rent payable by leasehold stores and how its elimination enables an analytical comparison between freehold stores' operating performance (which do not pay rent) and leasehold stores' operating performance. This analysis is set out in a table in the Business and Financial Review on page.

13.  Cost Ratio - calculates the ratio of the total operating costs of the business as set out in the Business and Financial Review, expressed as a percentage of total Group Revenue (note 1), giving a perspective on the cost efficiency of the business when compared to the cost ratio of the previous year. Cost pressures around energy particularly has increased the Cost Ratio to 40.7% (31.1.2022: 38.7%)

14. Same Store Analysis - This measure is used to give transparency on improvements in the operating business in the period unrelated to the opening of new stores, closure of old stores, and more particularly in this financial period, the sale and manage-back of four stores which were sold on 31 January 2022, and reporting on stores that were open and trading at both financial period ends 31 January 2022 and 31 January 2023. This also eliminates two new stores from the 31 January 2023 calculation. The Same Store key performance measure helps to illustrate the performance of the underlying business.

Chairman's Statement

I am delighted to be reporting another period of great results for Lok'nStore, delivering a strong operating and financial performance.

These results can be summarised as:

· Sale of four stores last year reinforces strong balance sheet and low net debt - with capital released to invest in new stores

· 11.2% increase in Same Store Group Revenue

· Disciplined management of cost increases

· 8.9% growth in Same Store Group Adjusted EBITDA

· Adjusted Net Asset Value (NAV) per share up 8.6% year on year to £9.15 (31.1.2022: £8.43) and down 5.9% from 31 July 2022

· 15% Increase in interim dividend

· Dynamic new store opening schedule to drive future growth -

o  Bedford store opened February 2023

o Four more stores open in next 12 months

The detail behind these results is discussed further in our Business and Financial Review.

Strengthening the Balance Sheet

In the corresponding period last year to 31 January 2022, the Group completed the Sale and Manage-Back of four freehold stores. This transaction added sales proceeds of c. £37 million to cash balances and today puts the Company in an excellent financial position with low net debt. Our Same Store analysis strips out the effect of this and of the new stores in order to demonstrate the strength of the underlying operating performance.

Continued revenue growth driven by strong demand

In the period we have replaced all the revenue generated from the four stores sold last year which is a great performance and at a headline level we report a 1.5% increase in Group Revenue. Same-Store Group Revenue remains strong with growth of 11.2% over the same period last year.

Customer demand remains significantly above pre-pandemic levels with total move-ins up 13.5% on the corresponding period last year.

Management of costs

At a headline level, total Group Operating Costs amounted to £5.53 million for the period (31.1.2022: £5.18 million) up by 6.8%. On a Same Store basis costs have increased by 14.3% against the same period last year.

Historically, overall cost increases have been mainly driven by the expansion of the business. As previously reported at the full year, we are now seeing some short term but significant external cost pressures primarily through energy costs, which have increased in the period by £0.51 million compared to the same period last year. 

The cash costs of bank interest paid (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) in the period was £1.34 million compared to £0.53 million in the same period last year. The Group's current cost of debt is running at 4.96%. 

Looking forward, we now have clarity on the revised business rates from April 2023 which will result in our business rates increasing £0.49 million per annum from April 2023 and by a further £0.2 million per annum from the following year. This step change in business rates will be offset in part by the reduction in medium term energy costs we are already starting to see in the market.

We have robust EBITDA margins which shelter the business against these external cost increases and supported by our ability to move our own pricing forward.

Operational resilience reflected in net asset value

Since the year end at July 31st 2022 we have seen significant changes in the debt markets. After consulting with our external valuers Jones Lang LaSalle (JLL), the Directors consider that the yields and discount rates which were applied at the July 2022 year end had changed sufficiently that a directors' valuation was required to give investors clarity on movements in asset values. 

The directors, with the assistance of JLL, have applied a 6.4% reduction to the fair value of our freehold and leasehold stores which are now stated at £261.1 million (31.7.22: £279.0 million). Trading store values were 9.8% higher than at the corresponding period at the end of January 2022. 

This movement in asset values is driven by changes in both the Discount rates and Exit Yields. 

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".

Adjusted Total Group Assets4 of £353.0 moved upwards by 6.2% year on year (31.1.2022: £332.3 million) and down 4.8% measured against the 31 July 2022 figure of £370.9 million. This results in the Adjusted Net Asset Value (NAV) per share up 8.6% year on year to £9.15 and down 5.9% from 31 July 2022. 

The four new owned stores on site will be accretive to asset values when they open. Bedford and Peterborough will have their maiden external valuation in July 2023 with two further owned stores opening in FY24 with their maiden external valuations at July 2024.

Further details of the director valuation is set out in the Total Property Value table in the Business and Financial Review and in note 11 of the financial statements.

Further Dividend Growth 

I am pleased to report that the continuing strong cash flow allows us to continue to increase the dividend. 

At this interim stage we will pay one third of the previous year's total annual dividend which equates to 5.75 pence per share, up 15% on the 5.0 pence per share interim dividend last year. This is the twelfth year of interim dividend growth.

The increase in the interim dividend follows a consistent pattern reflecting the continued growth of the Group. The interim dividend will be paid on 9 June 2023 to shareholders on the register on 5 May 2023.  The ex-dividend date will be 4 May 2023. The final deadline for Dividend Reinvestment Election by investors is 19 May 2023.

Investment in our stores

In the period we invested £7.6 million (31.1.2022: £7.1 million) in sites and store development. Loan-to-value (LTV) ratio (net of cash) is only 8.9% (31.1.2022: 8.3%) (31.7.2022: 6.6%) and net debt is £26.5 million (31.1.2022: £22.4 million) (31.7.2022: £20.3 million).

Stores on site require capital expenditure over the coming twelve months of £18.2 million to complete. This will be drawn from the cash on hand at period-end of £40.3 million without the need to draw down further debt.

Self-storage benefits from the short lead time between breaking ground and store opening of only around twelve months. Beyond the stores currently on site, we have a high degree of flexibility regarding start dates for further building. We can therefore adapt our development programme quickly to react to changing economic circumstances.

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 period, we generated total Managed Store income of £0.82 million, with recurring fees of £0.76 million up 29.5% from the previous corresponding period. This increase was driven by the four stores we sold on manage back contracts at 31 January 2022.

Lok'nStore manages 16 stores for third-party owners. Our current new store pipeline includes one managed store which will take the total number to 17.

Our team

We always 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 our colleagues continue to benefit from the success of the business through bonuses as well as through our Shares in Partnership Equity Ownership scheme and the granting of options.

To support our colleagues with the rising cost of living we once again have brought forward annual pay reviews of our store teams and provided a one-off cost of living support payment over the winter. We have also recently introduced life insurance for all colleagues.

We will continue to invest in training to develop and deepen the skills of our team members through the Lok'nStore Academy and create internal succession as the business continues to expand.

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 Lampard 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 contributing to the Group's growth over recent years.

Liquidity and Cash Flow

At 31 January 2023, the Group had cash balances of £40.3 million (31.7.2022: £46.5 million) and a £100 million five-year revolving credit facility which runs until April 2026. This provides ample liquidity for the Group's current needs. Undrawn committed facilities at the period-end amounted to £33.2 million. The Group is not obliged to make any repayments prior to the facility's expiration in April 2026. 

Cash inflow from operating activities before investing and financing activities was £7.85 million in the period to 31 January up 5.4% on the same period last year (31.1.2022: £7.45 million).

Debt and Bank Covenants

The average cost of bank debt on drawn facilities for the period was 4.13% (2022: 1.55%). The Group's total drawn bank debt of £66.8 million is unhedged. The Board keeps the decision on interest rate hedging under regular review.

At the period-end interest cover was 4.7 times tested on a 12-month rolling basis, against a covenant of 2.5 times. At the period end our loan-to-value ratio (LTV) based on net bank debt was 8.9% versus a bank covenant limit of 60% providing a strong platform for us to develop our pipeline and open new stores.

Both the Loan to Value and Senior Interest covenants continue to be tested excluding the effects of IFRS 16.

For this purpose, debt / LTV will continue to exclude Right of Use Assets and corresponding lease liabilities accounted for under IFRS 16. Property lease costs (rents) will continue to be a deduction in the calculation of EBITDA, in accordance with the accounting principles in force prior to 1 January 2019, when testing the Senior Interest covenant.

Good progress on ESG targets

In recent years, the Lok'nStore Environmental committee, consisting of colleagues in various roles across the business, including 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 are on track to achieve all of our environmental targets for this year which as reported in our July 2022 Annual Report are;

· To obtain Energy Performance Certificates for all owned stores

· To complete a feasibility study on battery storage to complement future PV systems

· To increase the number of stores with PV systems

· Complete a feasibility study to retro fit all stores suitable for PV

· Review the benefit of swapping our vans from diesel to electric

· To trial the retro fitting of LED lighting in place of lower efficiency fittings

Lok'nStore has been reporting on ESG factors since 2005 and was the first listed UK self-storage company to do so. Since then, we have been continually active and our operational GHG emissions are 96.5% lower than if we had taken no action since 2005.

We will report in full at our year-end the details of our environmental performance along with our commitments and targets in our Environmental and Social Report.

Our Objectives

Our strategic and operational objectives remain to:

· Fill existing stores and improve achieved rates

· Steadily increase the dividend from a strong asset base with conservative levels of debt

· Develop our secured pipeline into new Landmark stores

· Acquire more sites to build new Landmark stores

· Increase the number of stores we manage for third parties

Positive Outlook 

After the period-end we opened a new Landmark owned store in Bedford. Early trading in this store has been excellent. This underpins our confidence that our pipeline of new stores will add further to sales and earnings growth. We are managing the current cost increases and expect the rate of growth of costs to recede in the medium term.

Lok'nStore continues to experience strong year-to-year revenue growth on a Same Store basis. This will be enhanced by the three stores opened last year, and immediately after the period-end the opening of our Bedford store. We have further new stores in Staines, Basildon and Peterborough all opening over the coming year. We have contracted on a new site in Milton Keynes and our secured store pipeline of new stores will add 32.5% more trading space over coming years. We have further sites progressing with lawyers.

Our robust margins, strong balance sheet and flexible business model enables Lok'nStore to confidently look through the current external market turbulence. We look to the future with confidence.

Andrew Jacobs

Chair

21 April 2023

Business and Financial Review

Lok'nStore Group has had another very good period successfully increasing our underlying revenue and profit.

The Performance of our Stores 

ü Total Same Store Self-storage revenue £12.34 million up 10.3% (31.1.2022: £11.19 million)

o  Total Self-storage revenue £12.7 million up 0.1% (31.1.2022: £12.69 million)

ü Same Store Adjusted Store EBITDA £7.54 million up 4.6% (31.1.2022: £7.21 million)

o  Adjusted Store EBITDA £7.66 million down 6.2% (31.1.2022: £8.17 million)

ü Achieved rate up 9.2%

ü Store EBITDA Margins 60.3% (31.1.2022: 64.4%)

ü Managed store revenue £0.82 million up 21.8%. 

Same Store Group Revenue for the six-month period was £13.22 million, up 11.2% year on year (31.1.2022: £11.88 million) driven by good occupancy and improved pricing across our stores. This revenue growth led to an increase in Same Store Group Adjusted EBITDA to £7.79 million up 8.9% (31.1.2022: £7.16 million).

Over the course of the year continued strong demand and higher than previous occupancy levels have allowed us to move pricing forward 9.2% compared to twelve months ago.

Performance - Same Store Analysis 14

Headline Performance Same Store Performance 31 January 2023 31 January 2023 31 January 2022

As a result of the external cost increases we have seen in the period, particularly around energy and local rates, the overall adjusted EBITDA margin across all stores decreased to 60.3% from 64.4%.  Adjusted Store EBITDA margins of the freehold stores decreased to 64.7% (31.1.2022: 68.9%).

On a Same Store basis, the overall adjusted EBITDA margin across all stores decreased to 61.2% from 64.4%. The leasehold stores decreased to 50.6% (31.1.2022: 53.1%). Going forwards, in the absence of more exogenous shocks, we expect margins to move ahead again over time as new landmark stores continue to fill and new stores open.

As the business develops the balance of the stores continues to shift towards landmark freehold stores and managed stores which have a higher-than-average adjusted store EBITDA margin at 64.7% and 100% respectively versus 60.3% across all stores. The medium-term impact of this will be to continue to increase the average EBITDA margin of the Group overall. This effect is accentuated by operating more stores from a relatively fixed central cost base. In this context the new stores in the pipeline will make a larger than average contribution to Group profits as they become established trading units.

Ancillary Sales

Ancillary sales consisting of boxes, packaging materials, insurance and other sales were £1.26 million (31.01.2022: £1.33 million) accounting for 9.9% (31.01.2022: 10.5%) of self-storage revenues.

Portfolio Analysis and Performance Breakdown

In the table below we show how the performance of the stores varies between freehold and leasehold stores. Currently 43.3% of Lok'nStore owned trading space is freehold, 20.5% is leasehold and 36.2% is in Managed Stores.

*Applies to the 11 contracted stores only.

The freehold stores produce 72.1% (31.1.2022: 74.1%) of the Adjusted store EBITDA and account for 92.3% (31.1.2022: 91.5%) of valuations (including secured pipeline stores). Leaseholds trade on lower margins due to the rent payable, but nevertheless the 50.6% margin achieved is substantial, and leads to a higher return on capital than the freehold stores which require much larger capital expenditure to buy the land and buildings.

Operating Performance at a glance (Lok'nStore freehold and leasehold stores only)

In the Operating Performance table below, we show how the performance breaks down across the stores, based on the age of store. Older stores have had more time to fill-up and produce higher EBITDA returns.

Director Valuation of Freehold and Leasehold Land and Buildings

Since the year end at July 31 2022 we have seen significant changes in the debt markets. After consulting with our external valuers Jones Lang LaSalle (JLL), the Directors considered that the yields and discount rates which were applied at the July 2022 year end had moved sufficiently that a Directors' Valuation was required to give investors clarity on movements in asset values. 

The Directors have applied a 6.4% reduction to the fair value of our freehold and leasehold stores which are now stated at £261.1 million (31.7.22: £279.0 million). Trading store values were still 9.8% higher than at the corresponding period end of January 2022. 

As part of the Directors' valuation process, we commissioned JLL to complete a review of a representative sample of the portfolio to reflect the key changes in current market activity, occupancy, achieved rate as well as costs. They undertook a desktop valuation of three stabilised stores and two stores in early fill up.

The Directors then prepared a management valuation of all remaining stores using the following assumptions which were driven by the JLL desktop valuations inputs consistent with the sample stabilised stores. Specifically;

· Exit Yield and Discount Rate increased by 50bpts on all freehold stores from the values applied by JLL at 31st July 2022

· Short term EBITDA assumptions were reduced to reflect the combined output of improved revenue offset by increased costs. 

· Longer term EBITDA has improved as JLL assume costs stabilisation and continued improved trading.

· Leasehold stores had the leasehold term adjusted to reflect the time passed (6 months) between July 2022 and Jan 2023

In our FY2022 Annual Report we provided some insight on how our stores values would be affected by a change in exit yields and discount rates and a reduction in valuation of 6.4% is broadly in line with this sensitivity analysis.

Further detail is set out in the Total Property Value table below and in note 11 of the financial statements.

It remains the Group's established policy to undertake a comprehensive external valuation at each year-end and will do so at the next year end at 31 July 2023. 

Total Assets and Net Asset Value

· Adjusted Total Assets £353.0 million4 up 6.2% on last year (31.1.2022: £332.3) (31.7.2022: £370.9 million)

· Adjusted Net Asset Value (NAV) per share5 January to January up 8.6% to £9.15 (31.1.2022: £8.43) 

· Adjusted Net Asset Value (NAV) per share down 5.9% from 31 July 2022 (£9.72)

· Investment in new stores £8.3 million (including capitalised interest) (31.1.2022: £7.1 million)

· Value of operating stores £261.1 million up 9.8% on last year (31.1.2022: £237.7) and down 6.4% from 31 July 2022 (£279.0 million).

· Total property assets £299.0 million up 10.4% on last year (31.1.2022: £270.8) and down 3.5% from 31 July 2022 (£309.7 million).

The value of adjusted total assets of £353.0 million (31.01.2022: £332.3 million) is calculated by adding the valuation of the leasehold properties less their corresponding net book value to the other assets in the business. This provides clarity on the significant value of the leasehold stores as trading businesses which under accounting rules on leases are only presented at their book values within the Statement of Financial Position.

At the period-end Lok'nStore had 40 stores trading. Of these, 24 stores are owned with 15 freeholds, 9 leasehold and 16 under management contracts.

The average unexpired term of the Group's operating leaseholds is approximately 10 years as at 31 January 2023. All of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong degree of security of tenure.

The valuations of our freehold property assets are included in the Statement of Financial Position at their fair value. The value of our leasehold stores in the valuation totals £22.95 million (31.1.2022: £23.1 million) but they are held at cost in the Statement of Financial Position. 

A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of some properties. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. 

We have reported by way of a note the underlying value of these leasehold stores in revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This ensures comparable NAV calculations. An analysis of the valuations achieved is set out in the table below.

1 Includes related fixtures and fittings (refer to note 11)

2 The nine leaseholds valued by JLL are all within the terms of the Landlord and Tenant Act (1954) giving a degree of security of tenure. The average length of the leases on the leasehold stores valued was 9 years and 7 months at the date of the 2023 valuation.

3 Includes £663,658 of capitalised interest during the period. (31.01.2022: £296,466) (31.07.2022: £440,522).

4 Loan to value calculation based on these property values.

Total freehold properties account for 92.5% of all property values (31.1.2022: 91.5%).

Growth from new stores and more new landmark stores to come

Post the period end our new store in Bedford opened. Early trading has been excellent.  Today we are on site at four stores, which require capital expenditure over the coming twelve months of £18.2 million to complete these projects. This will be drawn from the cash on hand at period end of £40.3 million without the need to draw further debt.

Our total secured pipeline of 10 stores adds 32.5% of extra trading space to the total portfolio, 48.7% to our owned portfolio and 5.9% to the managed portfolio. Beyond the secured pipeline we continue to see many exciting opportunities. 

We have invested £7.6 million (31.1.2022: £7.2 million) in new store development this period and we have a new store pipeline of 109 secured stores which will take the total to 51 stores. These will all be purpose-built landmark stores in highly prominent locations and will add substantially to the Group's capacity for revenue, profit and asset growth.

Acquisition of a development site in Milton Keynes

On 4th October 2022, we exchanged contracts on a freehold development site in Watling Street, Milton Keynes subject to planning. This highly visible roadside location in the north west of the city complements our existing leasehold store, 7 miles to the south east. Once developed the store will add c. 60,000 sq. ft. of lettable area.

Bolton Planning permission granted

In January 2023 we were granted planning consent to build a Landmark store in Bolton, Greater Manchester. We are now in the process of tendering for the construction of this store which will provide 57,578 sq. ft of new space.

Summary of our contracted pipeline at 31 January 2023:

Store and Portfolio Strategy

Our strategy is to continue to increase the number of stores we operate without over stretching our balance sheet. The core focus of this strategy is the acquisition of highly prominent freehold locations in busy towns and cities in England where we will build well-branded landmark stores.

Lok'nStore's operating cash flow, solid asset base, and tactical approach to its store property portfolio provide the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle.

Managed Stores

Lok'nStore manages an increasing number of stores for third-party owners. Under this model Lok'nStore can provide a turnkey package for investors wishing to own trading self-storage assets. The investor supplies the capital for the project which Lok'nStore manages. Lok'nStore will buy, build and operate the stores under the Lok'nStore brand and within our current management structure.

We also consider selling established stores on sale and manage-back contracts in order to recycle capital into new landmark stores. This allows us to carefully manage our balance sheet as part of our successful growth strategy and disciplined capital allocation. Indeed, some of our stores have been freehold, leasehold and managed stores during their operating life cycle.

For managed stores Lok'nStore receives a standard monthly management fee, a performance fee based on certain objectives and fees on a successful exit. We also charge acquisition, planning construction and advisory fees and branding fees.

Although these fees are irregular in nature, this demonstrates the contractually embedded value in the managed stores income stream.  This allows Lok'nStore to earn revenue from our expertise and knowledge of the self-storage industry without committing our capital. We can amortise various fixed central costs over a wider operating base and drive more visits to our website moving it up the internet search rankings and benefitting all of the stores we both own and manage.

This strategy improves the risk adjusted return of the business by increasing the operating footprint, revenues and profits without committing capital. There is a strong correlation between the total management fee income and the number of stores under management.

We generated managed store income of £821,607 in this period, compared to £674,545 for the same period last year driven by the sale-and-manage-back of four stores last January.

Recurring management fees generated £761,607 an increase of 29.5% over the same period last year (31.1.2022: £588,014). Non-recurring fees were £60,000 in the first half (31.01.2022: £86,531).

Managed store income is generated from our existing platform and central management, resulting in an effective margin from this activity of 100%. 

Financial results

· Same Store Group Revenue £13.22 million up 11.2% (31.1.2022: £11.89 million)

o  Group revenue £13.58 million up 1.5% (31.1.2022: £13.38 million)

· Same Store Group Adjusted EBITDA1 £7.79 million up 8.9% (31.1.2022: £7.16 million)

o  Group Adjusted EBITDA1 £7.93 million down 2.3% (31.1.2022: £8.12 million)

· Cash available for Distribution (CAD)3 £5.21 million down 6.6% (31.1.2022: £5.58 million)

· Cash available for Distribution (CAD) per share (Annualised) 17.70 pence down 6.8% (31.1.2022: 19.00 pence)

· Loan to Value (net of cash) 8.9% (31.1.2022: 8.3%) (31.7.2022: 6.6%)

· Interim dividend up 15% to 5.75 pence per share (31.1.2022: 5.0 pence per share) 

· Cash balance £40.3 million (31.1.2022: £44.4 million) (31.7.2022: £46.5 million)

Lok'nStore is a robust business which generates cash flow from its strong asset base with a low LTV net of cash of 8.9% and an average cost of debt of 4.13%. The value of the Group's assets underpins a flexible business model with stable cash flows and low credit risk giving the business a firm base for growth.

Operating Costs

· Group operating costs amounted to £5.53 million for the year (31.1.2022: £5.18 million) up by 6.8%

· Cost ratio13 40.7% (31.1.2022: 38.7%) (31.7.2022: 38.5%)

We have a strong record of disciplined control of our costs. Nevertheless, at a headline level, total Group Operating Costs amounted to £5.53 million for the period (31.1.2022: £5.18 million) up by 6.8%. On a Same Store basis costs have increased by 14.8% against the same period last year reflecting the current "cost of living crisis".

(Refer store analysis of Group operating costs in the table below).

Historically, overall cost increases have been mainly driven by the expansion of the business. As previously reported at the full year, we are now seeing some short term but significant external cost increases primarily through energy costs, which have increased in the period by £0.51 million compared to the same period last year. 

Looking forward, we now have clarity on the revised business rates from April 2023 which will result in our 2023-24 business rates increasing £0.49 million with transitional relief and by £0.69 million plus future inflationary increases as we move to a full charge. This step change in business rates will be offset in part by the reduction in medium term energy costs we are already starting to see in the market.

Property costs increased by 13.2%. These costs mainly constitute rents on our property leases, rates, energy and property maintenance and have risen in recent years as we felt the effects of higher rates and energy bills and as we opened our new Landmark stores which are generally larger and therefore incur higher rates bills.

Our largest cost area, staff costs, decreased by 4.3% in the period, driven by careful management and lower national insurance costs as fewer share options were exercised by management and staff in the period. 

The 11.9% increase in overhead costs is principally due to a stepped increase in audit fees as the audit profession adjusts its fee rates in response to higher regulatory and operating costs. Legal and professional costs related to work on rent reviews, corporate tax, increased valuation costs for additional work commissioned by the Group for valuation work completed by JLL, and general compliance work also increased.

Other administrative costs (computer support, telephones, PPS and marketing etc) show no material cost pressures.

Same Store Analysis - This measure is used to give transparency on improvements in the operating business in the period unrelated to the opening of new stores, closure of old stores, and more particularly in this financial period, the sale and manage-back of four owned stores which were sold on 31 January 2022, and reporting on stores that were open and trading at both financial year ends 31 January 2022 and 31 January 2023. This also eliminates the two new stores from the 31 January 2023 calculation.

The same store key performance measure helps to illustrate the performance of the underlying business and the same store costs are shown in the table below which shows the overall Group cost increased by 14.3%.

Strong Balance Sheet, Efficient Use of Capital, Low Debt

· Revolving Credit Facility £100 million runs to April 2026

· £8.3* million invested in new store pipeline (31.1.2022: £7.1 million)

· Net debt (excluding leases) £26.5 million (31.1.2022: £22.4 million)

· Loan to Value Ratio (LTV) net of cash 8.9% (31.1.2022: 8.3%) (31.7.2022: 6.6%)

· Cost of debt averaged 4.13% in the period (31.1.2022: 1.55%) on £66.8 million debt (31.1.2022: £66.8 million)

* Includes £0.66 million of capitalised interest

Cash flow and financing

At 31 January 2023 the Group had cash balances of £40.3 million (31.1.2022: £44.4 million) (31.7.2022: £46.5 million). Cash inflow from operating activities before investing and financing activities was £7.85 million (31.1.2022: £7.45 million).

As well as using cash generated from operations to fund some capital expenditure, the Group has a £100 million five-year revolving credit facility which runs until April 2026. This provides sufficient liquidity for the Group's current needs. Undrawn committed facilities at the period-end amounted to £33.2 million (31.1.2022: £33.2 million) (31.7.2022: £33.2 million).  Cash plus undrawn committed facilities amounts to £73.5 million leaving the business with plenty of headroom.

Strong Cash Flow Supports 15% Increase in Interim Dividend

· Interim dividend 5.75 pence per share up 15% (2022: 5.0 pence per share)

· Cash available for Distribution (CAD) per share (annualised) was down 6.8% to 17.70 pence compared to the corresponding period last year (31.1.2022: 19.00 pence)

At this interim stage we will pay one third of the previous year's total annual dividend which equates to 5.75 pence per share, up 15% on the 5.0 pence per share interim dividend paid last year. This is the twelfth year of interim dividend growth.

The table below shows the calculation of CAD.

Management of interest rate risk

With £66.8 million of gross debt currently drawn against the £100 million bank facility the Group is not committed to enter into hedging instruments but continues to keep the matter under review.

The gross bank interest expense (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) for the period was £1.34 million (31.01.2022: £0.53 million), due to higher average debt and higher average costs of borrowing. These average costs of borrowing have continued to rise after the period-end and the Group's current cost of debt is running at 4.96%.

The Group continues to monitor closely the effects of rising interest rates on its senior interest covenant, which is tested on a 12-month rolling basis, and the Group's flexible business model will enable it to take appropriate steps to mitigate its effects should it be required.

Capitalised interest in the period on our store development programme was £663,658 (31.1.2022: £296,466). Total finance costs in the Statement of Comprehensive income for the period increased to £1.01 million (31.1.2022: £0.54 million).

Lok'nStore will continue to report on the Cash available for Distribution (CAD) which aims to look through the statutory accounts and give a clear picture of the ongoing ability of the Company to generate cash flow from the operating business that can be used to pay dividends, make investments in new stores, or pay down debt.

As agreed with the banks, both the Loan to Value and Senior Interest covenants set out in our bank facility continue to be tested excluding the effects of IFRS 16. For covenant calculation purposes, debt / LTV will continue to exclude right of use assets and the corresponding lease liabilities created by IFRS 16. When testing the Senior Interest Covenant, property lease costs will continue to be a deduction in the calculation of EBITDA, in accordance with the accounting principles in force prior to 1 January 2019.

Taxation

The Group has made a current tax provision against earnings in this period of £0.67 million (31.1.2022: £0.90 million) based on a corporation tax rate of 19% (31.1.2022: 19%). With the increase in corporation tax rate to 25% effective 1 April 2023, the Group will pay a blended rate of 21% for year ended 31 July 2023. The deferred tax provision which is calculated at forward corporation tax rates of 25% is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past 'rolled over' gains and amounts to £59.5 million (31.1.2022: £54.2 million) (31.7.2022: £63.2 million).

The Directors' reconsideration of the valuations of the trading stores at the period-end has mainly contributed to the reduction in the total deferred tax provision at the period-end (See Note 19).

Analysis of the underlying business after adjustment for non-underlying items 

When comparing 31 January 2023 with the corresponding period last year, the Group benefited from a higher than usual level of exceptional gains principally resulting from the sale of the four sale and manage-back stores totalling £6.1 million in the prior period.

In the table below we separate these non-underlying items and non-recurring management fee income to show the performance of the underlying business.

1 Represents non-recurring management fees

2 Refer to note 4 of the notes to the financial statements for the analysis of non-underlying items

Earnings per share

Basic earnings per share were 12.38 pence (31.1.2022: 30.16 pence per share) and diluted earnings per share were 12.17 pence (31.1.2022: 29.64 pence per share).

623,212 shares (31.01.2022: 623,212) are held in the Employee Benefit Trust, and these are excluded from the above calculation.

The significant increase in earnings per share in the previous period is due in substantial part to the profits generated by the sale and manage-back of the four stores executed on 31 January 2022 (Refer Statement of Comprehensive Income).

Gearing11 (excluding IFRS16 lease liabilities)

At 31 January 2023 the Group had £66.8 million of gross bank borrowings (31.1.2022: £66.8 million) (31.7.2022: £66.8 million) representing gearing of 13.7% (31.1.2022: 12.6%) (31.7.2022: 9.9%) on net assets of £194 million (31.1.2022: £178 million) (31.7.2022: £205 million). 

After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 12.6% (31.1.2022: 11.6%) (31.7.2022: 9.9%).

Gearing11 (including IFRS16 lease liabilities)

At 31 January 2023 the Group had £66.8 million of gross bank borrowings (31.1.2022: £66.8 million) (31.7.2022: £66.8 million) and £10.1 million of lease liabilities (31.1.2022: £12.45 million) (31.7.2022: £10.9 million) representing gearing of 18.9% (31.1.2022: 19.7%) (31.7.2022:15.2%) on net assets of £194 million (31.1.2022: £178 million) (31.7.2022: £205 million). 

After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 17.5% (31.1.2022: 18.1%) (31.7.2022: 17%).

Capital expenditure

Capital expenditure during the period totalled £8.3 million (including capitalised interest during the period). This was primarily the purchase of the Milton Keynes site, together with ongoing construction and fit out works, as well as planning and pre-development.

Adjusted Net Asset Value per Share

· Adjusted Net Asset Value per share up 8.6% to £9.15 (31.1.2022: £8.43)

Adjusted Net Assets per Share are the net assets of the Group adjusted for the valuation of leasehold stores and deferred tax divided by the number of shares at the year-end. The shares currently held in the Group's employee benefits trust (own shares held) are excluded from the number of shares.

At 31 January 2023, the Adjusted Net Asset Value per share (before deferred tax) increased 8.6% to £9.15 from £8.43 last year. This increase is a result of higher property values on our existing stores as the strength of our Landmark stores is recognised, combined with cash generated from operations less dividend payments, offset in part by an increase in the shares in issue due to the exercise of a small number of share options during the period.

At 31 January 2023, the Adjusted Net Asset Value of £9.15 per share (before deferred tax) decreased 5.9% from £9.72 per share recorded at 31 July 22 last year.

1 A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included. Although this is a memorandum adjustment as leasehold properties are included in the Group's financial statements at cost and not at valuation, this deferred tax adjustment is included in the adjusted net asset value calculation in order to maintain a consistency of tax treatment between freehold and leasehold properties.

Outlook

Lok'nStore Group operates within the UK self-storage industry which is still an immature sector with strong growth prospects. With a low loan to value ratio and plenty of headroom on our bank facilities this market presents an excellent opportunity for further growth of Lok'nStore's business.

Recently opened Landmark stores and our ambitious new store pipeline demonstrate the Group's ability to use those strengths to exploit the opportunities available throughout the economic cycle.

Our high margins, strong balance sheet and flexible business model enables Lok'nStore to confidently look through the current external market turbulence. 

We look to the future with confidence.

Neil Newman Ray Davies

Group Managing Director Group Finance Director

Principal Risks and Uncertainties:

Principal Risks and Uncertainties in Operating our Business

Risk management has been a fundamental part of the successful development of Lok'nStore. The process is designed to improve the probability of achieving our strategic objectives, keeping our employees safe, protecting the interests of our shareholders and key stakeholders, and enhancing the quality of our decision-making through understanding the risks inherent in both the day-to-day operations and the strategic direction of the Group as well as their likely impact.

Management of our risks helps us protect our reputation, which is very important to the ability of the Group to attract customers, particularly with the growth of social media. We always try to communicate clearly with our customers, suppliers, local authorities, communities, employees, and shareholders, and to listen and take account of their views. We operate strict Health and Safety policies and procedures as part of our Risk Management Framework.

Our Risk Management Governance

The Board has overall responsibility for the management of the Group's risks. As the Group's strategic direction is reviewed and agreed the Board identifies the associated risks and works to reduce or mitigate them using an established risk management framework in conjunction with the executive management team. This is a continuing and evolving process as we review and monitor the underlying risk elements relevant to the business.

Risk Management Framework

The risk register covers all areas of the business including property, finance, employees, insurance, customers, strategy, governance, and disaster recovery. The risks are categorised by risk area and numerically rated based on a combination of 'likelihood' and 'consequences and impact' on the business. The combination of these two becomes the 'risk factor' and any factor with a rating over 15 is reported to the Board.

Risk Management Team

Ray Davies, Finance Director, is the Board member responsible for ensuring that the risk management and related control systems are effective, and that the communication channels between the Board and the Executive Management team are open and working correctly. The Executive Management Team is responsible for the day-to-day management of the risk factors. Responsibility for identifying, managing, and controlling the risk is assigned to an individual as shown on the risk register depending on the business area. Reporting against the risks forms part of the monthly executive management meeting and the risk factor may be amended if applicable. There are also sub-committees for particular risk areas which meet regularly. The Risk Management and Reporting Structure is shown below.

Our Risk Management and Reporting Structure

Principal Risks

The principal risks our business faces, and our key mitigations are outlined in the table below.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Attributable to owners of the Parent