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 2024

Revenue

Headline

ü Group Revenue £14.17 million up 4.3% (31.01.2023: £13.58 million)

ü Headline Self Storage Revenue up 4.9% to £13.33 million (31.01.2023: £12.70 million)

ü Group Adjusted EBITDA1 £7.65 million down 3.6% (31.01.2023: £7.93 million)

Same Store14

ü Same Store Group Revenue15 £13.93 million up 2.6% (31.01.2023: £13.58 million)

ü Same Store Self Storage Revenue15 £13.09 million up 3.1% (31.01.2023: £12.70 million)

ü Same Store Group Adjusted EBITDA1 £7.86 million down 0.9% (31.01.2023: £7.93 million)

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.

Operating Metrics

ü Pricing up 4.0% (31.01.2023: 9.2%) to £27.37 per sq. ft (31.01.2023: £26.45 per sq. ft)

ü Occupied unit space down by 2.9% to 22,639 sq. ft to 862,554 sq. ft

ü Same Store stores15 EBITDA margins 58.9% (31.01.2023: 60.3%)

Banking, net debt and liquidity

ü £15.0 million cash at period-end (31.07.2023: £42.1 million) (31.01.2023: £40.3 million)

ü Net debt (excluding lease liabilities and deferred finance costs) £28.8 million (31.07.2023: £12.3 million) (31.01.2023: £26.5 million)

ü Loan to Value ratio6 (net of cash) 8.3% (31.07.2023: 3.7%) (31.01.2023: 8.9%)

NAV per share

ü Adjusted Net Asset Value5 per share up 0.1% to £9.87 per share (31.07.2023: £9.86 per share)

(31.01.2023: £9.15 per share) (Refer Financial Results for detailed calculation)

New store Pipeline8

ü Two new Landmark stores opened.

- Basildon in period

- Kettering (managed) just after period-end (9 February 2024)

ü Two new Landmark stores on site in Staines and Bromborough (managed) will open in 2024

ü Sunbury leasehold store to be closed and customers moved to a new effective freehold store in Staines and other freeholds

ü Planning permission received at Barking, Cheshunt and Eastbourne.

o  Cheshunt expected to be on site by the end of 2024.

ü The Board is keeping under review when to go on site at the other pipeline stores dependent on the economic cycle.

Recommended Cash Offer of Lok'nStore Group Plc by Shurgard Self Storage Ltd "Shurgard") ("the Offer")

ü On 11 April 2024 the boards of Shurgard and Lok'nStore announced that they had reached agreement on the terms of a recommended cash offer to be made by Shurgard at 1,110 pence per share (the Offer).

ü The Directors intend to unanimously recommend the Offer.

ü The Offer contains a customary price adjustment in respect of any dividends declared, made or paid after 11 April 2024 and hence the Board is not recommending a dividend at this interim stage.

ü It is proposed that the Offer will be implemented by a Scheme of Arrangement ("the Scheme")

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 revenue has moved ahead with Group Revenue up 4.3% and headline self-storage revenue up by 4.9%. With this muted growth and some cost increases, Group Adjusted EBITDA of £7.65 million was down 3.6%.  Customer demand remains above levels seen pre-pandemic, although it has been lower compared to the same period 12 months ago."

"We have made progress on our new store pipeline with our new Landmark store in Basildon opened in December and Kettering opened in early February. We are on site at two locations in Staines and Bromborough, both of which will open in 2024."

Enquiries:

Chair's Statement

Trading

At a headline level we report a 4.3% increase in Group Revenue. Same-Store Group Revenue grew by 2.6% over the last year. 

Occupied unit space was down 2.9% in the first half compared with the same period last year. Our pricing moved forward by 4.0% when compared with 31 January 2023.

Customer demand remains above levels seen pre-pandemic, although it has been lower compared to the same period 12 months ago,

Our new stores in Bedford, Peterborough and Basildon accounted for £0.45 million of operating costs as we expand our portfolio of Landmark assets. On a Same Store basis, costs have increased by £0.43 million or 7.7%. £0.39 million of this relates to property cost increases from Rent, Energy and Business rates. 

The cash cost of bank interest paid (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) in the period was £1.27 million (31.01.2023: £1.34 million). This broadly unchanged position reflects the outcome of rising rates offset by the reduction in drawn debt (See below). 

Net Asset Value

In line with the Group's normal policy, we have not conducted an interim valuation of trading assets in this period, however following the Offer, the document relating to the Scheme ("the Scheme Document") will include an independent external valuation in respect of Lok'nStore's property portfolio commissioned in accordance with Rule 29 of the Takeover Code. The Scheme Document will be circulated to shareholders within the next few weeks.

Adjusted Net Asset Value per share has moved up 1 penny to £9.87 per share since last year-end (31 July 2023: £9.86 per share) (31 January 2023 £9.15 per share).

Since the last year-end at 31 July 2023 Jones Lang LaSalle (JLL), considers that the yields and discount rates which were applied at the July 2023 year-end have not materially changed.  

We have two new stores in Staines and Basildon which will have their maiden external valuation in July 2024,. More details on the valuation of our trading stores can be found in note 11 of the financial statements.

Investment in new Stores

In the period we invested £18.5 million in new store development. We opened two new stores in Basildon and Kettering (9 February 2024). The Basildon store is our first purpose built leasehold Landmark store. 

We are also on site in Staines and Bromborough. At Staines we are positioned above an Aldi supermarket and will open at the end of April 2024. We are on site at Bromborough on behalf of a third-party Managed Store client. 

At 31 January 2024, the remaining capital expenditure required to complete the Staines and Basildon stores is £2.63 million, all of which can be paid out of cash.

New Store pipeline

Beyond the stores currently on site, we have a further 7 stores in our pipeline. In the last few months, we have achieved planning at Barking, Cheshunt and Eastbourne. Bournemouth, Milton Keynes and Altrincham all have live planning applications submitted.

It is our intention to go on site at the Cheshunt store before the end of 2024. We will build a c.60,000 sq. ft. Landmark store along with retail space for a discount food retailer. The discount food retailer will pay a lease premium to Lok'nStore on completion of planning matters and make further payments to Lok'nStore through the building programme as work progresses.

We carefully evaluate the ongoing economic and trading position before making any further capital commitments and can reduce capex quickly if the market deteriorates.

Closure of Sunbury Leasehold Store

In line with our continuing strategy of recycling older stores into purpose-built Landmark stores and leases into freeholds, we will close the Sunbury leasehold store in early FY25. Our policy over many years has been that we are happy with leasehold stores which provide a higher return on capital than freeholds, but that we prefer freeholds if and when the opportunity arises. Over the years we have both bought out the freeholds of existing leasehold stores and also built new freehold stores elsewhere and moved the customers from the leasehold to the freehold store.

In this case the closure of the Sunbury store has been timed to coincide with the opening of our new store in Staines in Spring 2024, a few miles away. The Staines store is an effective freehold, being on a 250-year lease at peppercorn rent. We expect to move a number of the current Sunbury customers to the new Staines store and other local freehold stores. Therefore, we expect the new Staines store to be trading cash positively quickly. As the lease of the Sunbury store expired in August 2022, the store was valued at £0 in the July 2023 valuation. 

The move from an older building to a new purpose-built Landmark store improves our brand image to our customers, removes latent capital expenditure and further reduces our environmental impact. The move from a leasehold to an effective freehold also reduces operational gearing by removing the property rental charge.

The closure will result in a modest reduction in the expected Group Revenue in the coming years. In FY23, the Sunbury store generated £1.3 million in revenue and £0.6 million of EBITDA.

Managed Stores

Our strategy includes increasing 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 direct further traffic to our website which benefits our entire operation.

Lok'nStore manages 17 stores for third-party owners including the Kettering store which opened in February 2024. This will increase to 18 managed stores once the Bromborough store opens in Autumn 2024.

During the period, we generated total Managed Store income of £0.78 million, with recurring fees of £0.75 million (31.01.2023: £0.82 million), down 5.1%. While base management fees, calculated as a percentage of revenue, were higher, performance fees based on EBITDA were slightly lower due to the higher operating costs of the Managed Stores.

In the management fees table in the Business and Financial 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.

Cash Flow, Debt and Bank Covenants

The company continues to be in a strong financial position with low net debt.

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.

In December 2023, the Group entered into five-year interest rate swaps on £10.0 million of its floating rate debt. The two separate swaps of £5.0 million each were executed at a SONIA swap rate of 3.51%, providing an all-in effective rate payable on this swap of 5.2% and will result in estimated saving of c.£0.2 million of interest payable in the coming year.

A conservative capital structure and a strong Balance Sheet remain a key focus for the business. We report a period-end LTV ratio (net of cash) of 8.3% (31.07.2023: 3.7%) and a low level of net debt of £28.8 million, (31.07.2023: £12.3 million) (refer to note 24b). At 31 January 2024, the Group had cash balances of £14.97 million. Cash inflow from operating activities before investing and financing activities was £6.81 million in the year to 31 January 2024 (31.01.2023: £7.85 million).

The Group has a £100 million five-year Revolving Credit Facility. The Group is not obliged to make any repayments on its loan facility prior to its expiration in April 2026.

The floating average cost of bank debt on drawn facilities for the period was 6.72% (31.01.2023: 4.13%). as rates have moved higher. Except for the £10 million of fixed debt, the Group's remaining drawn bank debt of £33.7 million (31.01.2023: £66.8 million) is unhedged. At the date of this Report the Group's current cost of blended debt after including the positive effect of the hedging is running at 6.63%.

At the period-end senior interest cover was 3.8 times finance charges on gross debt tested on a 12-month rolling basis, against a bank covenant of 2.5 times. On a quarterly and a monthly testing at 31 January 2024, the cover had risen to over 4 times. At the period-end our loan-to-value ratio based on net bank debt was 8.3% versus a bank covenant of 60%.

Recommended Cash Offer of Lok'nStore Group Plc by Shurgard Self Storage Ltd ("Shurgard") ("The Offer")

On 11 April 2024, the Boards of Shurgard and Lok'nStore announced 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 Offer, Lok'nStore Shareholders will be entitled to receive 1,110 pence in cash for each Lok'nStore Share. The Directors intend to unanimously recommend the Offer.

The Offer 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.

The Offer contains a customary price adjustment in respect of any dividends declared, made or paid after 11 April 2024 and hence the Board are not recommending a dividend at this interim stage.

Environmental progress

Our Environmental targets for FY24 are:

· Decarbonise our business to be Net Zero in our operations by 2040

· Assess recommended improvements from current EPCs and action as appropriate

· Trial the installation of a battery at one store

· To increase the number of stores with PV systems

· Continue the roll out of LED lights for all stores

· Obtain BREEAM accreditation at one store

· Determine a route to eliminate waste destined for landfill

Our business Objectives

Our business objectives are to:

· Fill existing stores and improve pricing

· 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

In the short term our focus is to drive the operating performance of all of our existing stores. We have opened stores in Basildon and Kettering and will be opening shortly in Staines and Bromborough. We expect to go on site at Cheshunt before the end of 2024.  The Board are keeping under review when to go on site at the other pipeline stores.

Since 31 January 2024 Lok'nStore has continued to observe positive but muted revenue growth. Headline stores revenue in February and March 2024 was 4.2 per cent. up on the same period last year, compared to year-on-year growth of 13.7 per cent. in the same period in 2023.

Andrew Jacobs

Chair

19 April 2024

Notes - What we mean when we say … (and why we use these key performance indicators (KPIs))

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 EBITDA (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 and non-underlying items 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 material and 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) which do not attract a dividend. The calculation of the CAD and the CAD per share is set out in the Financial Review.

4. Adjusted Total Group Assets - The value of adjusted total assets of £384.2 million (31.07.2023: £392.9 million) (31.01.2023: £353.0 million) is calculated by adding the independent valuation of the leasehold properties of £27.2 million (31.07.2023: £27.2 million) (31.01.2023: £22.9 million) less their corresponding net book value (NBV) £6.9 million (31.07.2023: £6.9 million (31.01.2023: £7.0 million) to the total assets in the Statement of Financial Position of 363.9 million (31.07.2023 £372.6 million) (31.01.2023 £337.1 million).

This provides clarity on the significant value of the leasehold stores as trading businesses which, under the Group's accounting policy on leases, 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 and treasury shares are excluded from the number of shares. The calculation of the Net Asset Value per share is set out in the Financial Review.

6. Loan to Value ratio (LTV) - Measures the net debt of the business expressed as a percentage of total property assets giving a perspective on the gearing of the business. The calculation is based on net debt (excluding deferred finance costs) of £28.8 million expressed as a percentage of the total freehold and leasehold properties independently valued by JLL of £301.9 million (31.07.2023: £301.9 million) and development land assets of £45.2 million (31.07.2023: £30.6 million) totalling £347.1 million (31.07.2023: £332.5 million) (31.01.2023: £297.5 million) as set out in the 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 quarterly/weekly charging periods throughout the year and taking an average based on the whole financial year. Apart from the Group's Revolving Credit Facility, the Group has no other bank debt. The average cost of floating debt was 6.72% (31.07.2023: 4.77%) (31.01.2023: 4.13%%).

8. Pipeline Sites - Sites for new stores that either we have exchanged contracts on or have agreed heads of terms and are progressing with our lawyers towards a contract exchange. We have 9 pipeline sites of which 8 are contracted and one progressing with lawyers. At 31 January 2024, we have 26 Owned Stores trading with an additional 16 Managed Stores trading. When these 11 sites are fully developed, we will have a total of 54 stores - 36 will be owned by the Group and 18 will be Managed Stores managed on behalf of third-party owners. The Kettering store recently opened after the period-end in February 2024 making 17 Managed Stores trading, When the Bromborough site, which is currently being built opens in the Autumn, we will have 18 Managed Stores trading.

9. Secured Pipeline Sites - The ten sites for new stores on which we have exchanged legal contracts. Of these, eight stores are Lok'nStore Owned Stores and two will be Managed Stores.

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 IFRS 16 and includes property rentals payable 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 Financial Review.

11. Gearing refers to the level of debt compared to 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 Financial Statements.

12. Group Adjusted EBITDAR is Group Adjusted EBITDA before the deduction of rent. The measure is designed to give clarity on the effect of the rent payable by leasehold stores and how its elimination enables a comparison between the operating performance of freehold stores (which do not pay rent) and leasehold stores which pay rent. This analysis is set out in a table in the Financial Review.

13. Cost Ratio calculates the ratio of the total operating costs of the business as set out in the   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. The Cost Ratio has increased to 45.2% (31.07.2023: 43.6 %) (31.01.2023: 40.7 %)

14. Same Store Group - This measure is used to give transparency on the performance in the operating business in the period unrelated to the opening of new stores, and commenting on stores that were open and trading at both 31 January 2023 and 31 January 2024 financial period-ends. The Same Store key performance measure helps to illustrate the performance of the underlying business.

15. Same Store Self-Storage - This measure is the Same Store Group measures, but less management income received from the management of the Managed Store portfolio. This is used to give transparency on the underlying trading of the self-storage business.

See also the glossary

 Business and Financial Review:

The Performance of Our Stores 

Headline

ü Group Revenue £14.17 million up 4.3% (31.01.2023: £13.58 million)

ü Group Adjusted EBITDA1 £7.65 million down 3.6% (31.01.2023: £7.93 million)

ü Price up 4.0% (31.01.2023: 9.2%)

Same Store14

ü Same Store Self Storage Revenue15 £13.09 million up 3.1% (31.01.2023: £12.70 million)

ü Same Store Group Revenue15 £13.93 million up 2.6% (31.01.2023: £13.58 million)

ü Same Store Group Adjusted EBITDA1 £7.86 million down 0.9% (31.01.2023: £7.93 million)

ü Same Store EBITDA margin decreased to 58.9% from 60.3%

Revenue

Revenue growth in FY24 is muted with self-storage revenue up 4.3%. Same-store self-storage revenue was up 3.1% on the previous year.

Price per sq. ft of occupied space which was up 4.0% period to period (31.01.2023: 9.2%).Customer demand remains above levels seen pre-pandemic, although it has been lower compared to the same period 12 months ago. This resulted in occupied unit space down 2.9% in the first half compared with the same period last year.

Ancillary Sales

Ancillary sales consisting of boxes, packaging materials, insurance and other sales were up 2.2% to £1.29 million (31.01.2023: £1.26 million) accounting for 9.7% (31.01.2023: 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 46.0% of Lok'nStore owned trading space is freehold, 20.3% is leasehold and 33.7% is in Managed Stores.

The overall adjusted Same Store EBITDA margin across all stores decreased to 58.9% from 60.3%. Adjusted Same Store EBITDA margins of the freehold stores increased to 66.0% (31.1.2023: 64.7%).

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 62.8% and 100% respectively versus 55.3% across all stores. 

*Applies to the 10 contracted stores only.

The freehold stores produce 74.1% (31.1.2023: 72.1%) of the Adjusted store EBITDA and account for 93.0% (31.1.2023: 92.3%) of valuations (including secured pipeline stores).

Leaseholds trade on lower margins due to the rent payable, but nevertheless the 41.2% margin achieved is attractive 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.

Managed Store Revenue

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.

For Managed Stores Lok'nStore receives a standard monthly management fee, a performance fee based on certain return hurdles and fees on a successful exit. We also charge acquisition, planning and branding fees. 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 direct more visits to our website, moving it up the internet search rankings and benefitting all 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 now manage in excess of £150 million of assets under this structure on which we generated managed store income of £0.8 million this period (31.01.2023: £0.8 million). Within this, recurring fees were broadly flat, and we expect base management fees to increase steadily over the coming years as as the Managed Stores mature. As more Managed Stores are opened this will also increase base management fees.

Managed Store income is generated from our existing platform and central management, resulting in an effective margin from this activity of 100%. Non-recurring fees are positive for Lok'nStore but are irregular in their nature. Income from non-recurring fees was down in the period to £0.03 million (31.01.2023: £0.06 million).

At the period-end, we had 16 Managed Stores operating. The Kettering store recently opened after the period -end in February 2024 making 17 stores trading, When the Bromborough site, which is currently being built opens in the Autumn, we will have 18 Managed Stores trading..

Total Assets and Net Asset Value

· Adjusted Total Assets £384.2 million4 up 8.83% on last year (31.1.2023: £353.0) (31.7.2023: £392.9 million)

· Adjusted Net Asset Value (NAV) per share5 January to January up 7.87% to £9.87 (31.1.2023: £9.15)

· Adjusted Net Asset Value (NAV) per share up 0.1% from 31 July 2023 (£9.86)

· Investment in new stores £18.5 million (including capitalised interest) (31.1.2023: £8.3 million)

· Value of operating stores £305.4 million up 17.0% on last year (31.1.2023: £261.1)

The value of adjusted total assets of £384.2 million (31.01.2023: £353.0 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. For the detailed calculation refer to Note 4 on the Key Performance Indicator section.

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 12 years and 10 months at the date of the July 2023 valuation.

3 Basildon store now open and trading and will be valued in accordance with Group valuation policy at the next 31 July 2024 year-end valuation. Currently held at cost.

4 Includes £1.27 million of capitalised interest during the period. (31.01.2023: £0.66 million) (31.07.2023: £1.54 million).

5 Loan to value calculation based on these property values.

Total freehold properties account for 91.9% of all property values (31.1.2023: 92.5%).

Market Valuation of Freehold and Leasehold Land and Buildings

It is the Group's usual policy to commission an independent external valuation of its properties at each financial year-end. Our freehold and leasehold stores were independently valued by JLL at £301.9 million at 31 July 2023. 

Valuations

Except for the forthcoming closure of the Sunbury leasehold store, it is not the current intention of the Directors to make any further significant disposals of trading stores, although individual asset disposals may be considered where value can more easily be added by recycling the capital into new stores.

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 independently valued by JLL at 31 July 2023 totals £27.2 million (31.07.2023: £27.2 million) but they are held at cost less accumulated depreciation in the Statement of Financial Position.

Our freehold and leasehold stores were independently valued by JLL at £301.9 million at 31 July 2023. The value of adjusted total assets of £384.2 million4 (31.07.2023: £392.9 million) is calculated by adding the valuation of the leasehold properties of £27.2 million less their corresponding net book value of £6.9 million to the total assets in the Statement of Financial Position of £363.9 million. This provides clarity on the value of the leasehold stores as trading businesses which under the Group's accounting policy rules on leases are only presented at their book values within the Statement of Financial Position.

At the period-end, Lok'nStore had 43 stores trading. Of these, 27 stores are Owned with 17 freeholds, 10 leasehold and 16 stores under management contracts. After the period-end Kettering opened in early February, taking the total of Managed Stores to 17 and 44 stores trading.

The average unexpired term of the Group's operating leaseholds is approximately 12 years and 4 months at 31 January 2024.  All of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong degree of security of tenure.

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.

Investment in new stores

We have invested £18.5 million (31.01.2023: £8.25 million) in new store development in this period.

Landmark Store Pipeline

Our current pipeline of ten contracted stores will add 26.4% of extra trading space to the overall portfolio, 34.1% to our Owned portfolio and 12.3% to the Managed portfolio.

The Kettering managed store opened post period end on 9th February 2024. We are on-site at two further stores that will open during 2024. 

All 10 stores in our Secured Pipeline9 are in prominent locations with large catchment areas and demonstrate the Group's ability to source high-quality sites. These eye-catching buildings, with their distinctive orange Lok'nStore branded livery and prominent signage, create highly visible landmarks, which continue to be a big source of new customers.

Beyond the stores currently on site, we have a further 7 stores in our pipeline. In the period we received planning permission for our site at Barking. Post period-end we have achieved planning at Eastbourne and Cheshunt. Bournemouth, Milton Keynes and Altrincham all have live planning applications submitted.

Summary of our contracted pipeline at 31 January 2024:

Closure of Sunbury Leasehold Store

In line with our continuing strategy of recycling older stores into purpose-built Landmark stores and leases into freeholds, we will close the Sunbury leasehold store in early FY25. Our policy over many years has been that we are happy with leasehold stores which provide a higher return on capital than freeholds, but that we prefer freeholds. Over the years we have both bought out the freeholds of existing leasehold stores and also built new freehold stores elsewhere and moved the customers from the leasehold to the freehold store.

The move from an older building to a new purpose-built Landmark store improves our brand image to our customers, removes latent capital expenditure and further reduces our environmental impact. The move from a leasehold to an effective freehold also reduces operational gearing by removing the property rental charge.

In this case the closure of the Sunbury store has been timed to coincide with the opening of our new store in Staines a few miles away in Spring 2024. The Staines store is an effective freehold, being on a 250-year lease at peppercorn rent. We expect to move a number of the current Sunbury customers to the new Staines store and other local freehold stores. Therefore, we expect the new Staines store to be trading cash positively quickly. As the lease of the Sunbury store expired in August 2022, the store was valued at £0 in the July 2023 valuation.

The closure will result in a modest reduction in the expected Group Revenue in the coming years. In FY23, the Sunbury store generated £1.3 million in revenue and £0.6 million of EBITDA.

Environmental Targets. Commitments and Performance:

Lok'nStore remains committed to positively impacting the environment. At 31 July 23, Lok'nStore set targets in line with its Environmental Committee's objectives.

These targeted objectives are:

· Decarbonise our business to be Net Zero in our operations by 2040

· Assess recommended improvements from current EPCs and action as appropriate

· Trial the installation of a battery at one store

· To increase the number of stores with PV systems

· Continue the roll out of LED lights for all stores

· Obtain BREEAM accreditation at one store

· Determine a route to eliminate waste destined for landfill

Lok'nStore is pleased to announce progress on all of these targets. A comprehensive analysis of the remaining direct emissions is currently underway, with efforts directed towards establishing a pathway to lower the current target of being Net Zero in our operations by 2040.

Substantial progress has been made in enhancing the ratings across our existing Energy Performance Certificates (EPC's), with 89% of the freehold portfolio now achieving a rating of B or above.

We remain focused on advancing battery storage solutions and continue to work on defining implementation strategies. In the first half of the year, we have identified stores that are yet to benefit from LED lighting and have prioritised their conversion. Additionally, we maintain our initiative to install photovoltaic (PV) systems on all new buildings, with the addition of two new stores to our PV portfolio by year end.

As highlighted in the most recent Annual Report, Lok'nStore has diligently monitored waste management for several years, resulting in a noteworthy reduction in landfill waste during this period. The next phase of this initiative involves determining a viable route to eliminate waste destined for landfill.

Collaborative efforts with our suppliers have been initiated to enhance reporting on waste volumes and destinations. The identification of remaining stores in the portfolio where waste disposal still involves destination being landfill is underway, with a focus on rerouting waste. Further progress on this will be reported in full at 31 July 2024.

We are committed to environmental certification for our buildings and are progressing BREEAM accreditation at our Kettering store, on behalf of the managed store owner. We continue to make progress on this accreditation for our pipeline of new stores where appropriate.

Financial results:

Headline

ü Group Revenue £14.17 million up 4.3% (31.01.2023: £13.58 million)

ü Group Adjusted EBITDA1 £7.65 million down 3.6% (31.01.2023: £7.93 million)

ü Cash available for Distribution (CAD)3 £5.17 million down 1% (31.01.2023: £5.2 million) (31.07.2023: £9.13 million)

ü Cash available for Distribution of 16.0 pence per share (31.01.2023: 17.7 pence per share)

ü Cash balances £15.0 million (31.07.2023: £42.1 million)

ü £100 million Bank RCF runs to April 2026

Revenue

Total Group Revenue for the year was £14.17 million, an increase of £0.6 million and up 4.3% from £13.58 million in the prior period. Same Store Revenue for the year was £13.93 million, an increase of 2.6% (31.01.2023: £13.58 million). Same Store Self Storage Revenue was £13.09 million up 3.1% (31.01.2023: £12.70 million)

Operating Costs

Of the £0.87 million increase in operating costs in the period, £0.45 million relates to the operating costs of the new stores in Bedford, Peterborough and Basildon. The Basildon Store is a leasehold and therefore includes a rent of £0.1 million in the period.

On a Same Store basis, costs have increased by £0.43 million or 7.7%. Of this £0.39 million relates to property cost increases. More specifically:

· Rent costs increased by £93,417 (10.7%) following settled rent reviews at two existing leasehold stores over the last 12 months. These stores rents are now fixed for the next 5 years. In addition, the Basildon leasehold rent commenced during the period.

· Energy costs increased by £81,041 (10.6%). These will decline markedly in the coming year

· Business rates increased by £53,998 (5.7%)

· Insurance costs decreased by 10.2% period to period

Total staff costs, increased by 6.5% as we staffed the new stores which was offset by lower performance bonuses to our store colleagues. On a Same Store basis, total staff costs, increased by just 0.7%. There was also a lower national insurance cost because of the combined effects of lower bonuses paid and fewer share options exercised by management and staff in the year. 

From FY25, we expect operating costs to revert to a slower rate of growth with cost increases driven mainly by the expansion of the business.

Banking, net debt and liquidity

ü RCF of £100 million and runs to April 2026

ü £18.5* million invested in new store pipeline (31.07.2023: £17.3 million)

ü Net debt (excluding leases) £28.8 million (31.07.2023: £12.3 million)

ü Loan to Value ratio (LTV) net of cash 8.3% (31.07.2023: 3.7%)

ü Cost of floating debt averaged 6.72% in the period (31.07.2023: 4.8%) on £33.8 million debt

(31.07.2023: £54.4 million)

ü All-in cost of fixed (swap) on £10 million debt averaged 5.2% in the period

* Includes £1.27 million of capitalised interest

The Group's RCF of £100 million is a joint agreement with ABN AMRO NV and NatWest Bank plc participating equally and runs until April 2026 providing funding for more Landmark site acquisitions. The Group is fully compliant with the two principal bank covenants (LTV and Senior Interest).

Reduction of debt (RCF)

On 11 August 2023, the Group paid down £19.02 million out of its recent equity placing proceeds reducing the balance on its RCF, pending redrawing over time for its future deployment on the Group's pipeline stores.

Interest expense and bank borrowings

The Group pays a margin of 1.5% on its Interest and the all-in effective rate is calculated by reference to SONIA (Sterling Over Night Indexed Average) plus margin.

· Average cost of floating debt 6.72% (31.07.2023: 4.8%)

· Average cost of debt (on active revolving loans at 31 January 2024) 6.6% (31.07.2023: 6.2%)

· Current cost of debt at date of this Report 6.6%

Management of Interest Rate Risk

The Board's strategy has been to regularly review the Group's interest rate hedging position and to monitor prevailing SONIA and swap rates with a view to fixing a proportion of its floating debt when the time was considered opportune.

In December 2023, the Group entered into a £5.0 million interest rate swap with ABN Amro Bank effective from 21 December 2023 at a fixed 5-year SONIA swap rate of 3.51%. Also, in December 2023 the Group entered into a £5 million interest rate swap with Nat West Bank plc effective from 22 December 2023 at a fixed 5-year SONIA swap rate of 3.51%. This £10 million of aggregate swap instruments fixes the interest rate on £10.0 million of debt at an effective rate of 5.21% based on current 150 basis points (bps) margin and will result in estimated saving of c. £0.2 million of interest payable in the coming year compared to the company's current cost of floating debt of 6.72% on its Revolving Credit Facility.

Lok'nStore has £43.8 million currently drawn against its £100 million revolving credit facility of which £10 million is now at a fixed interest rate. This leaves a balance of £33.8 million floating at a current all-in rate of around 6.6%. The £10 million fixed rate is treated as an effective cash flow hedge and its fair value stated as a liability. (See Note 17b).

Lok'nStore generates its cash flow from its strong asset base with a low LTV net of cash of 8.3%. The value of the Group's assets underpins a resilient business model with stable and rising cash flows and low credit risk giving the business a firm base.

The gross bank interest expense (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) for the period was £1.27 million (31.1.2023: £1,34 million) (31.07.2023: £3.11 million), due to higher average debt and higher average costs of borrowing. These average costs of borrowing is currently running at 6.6%.

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 £1.27 million (31.1.2023: £0.66 million) (31.07.2023: £1.54 million). Total finance costs in the Statement of Comprehensive Income were £0.6 million (31.01.2023: £1.0 million) (31.07.2023: £2.56 million).

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.

Derivative financial instruments and hedge accounting

The Group's activities expose it to interest rate risk. The Group uses interest rate swap contracts to hedge these exposures. The Group does not use derivative financial instruments for speculative or for any other purposes.

The use of financial derivatives is governed by the Group's policies as approved by the board of directors. The Group documents its risk management objectives and strategy for undertaking hedging transactions within the Group's Risk Register. The Group also documents its assessment both at hedge inception and on an on-going basis to assess whether the derivatives that are used are effective in offsetting changes in fair value or cash flows of the hedged items.

Derivative financial instruments are measured at fair value and the fair values of the hedged derivative instruments are disclosed in note 17b. Movements on the hedging reserve in other comprehensive income are shown in note 24. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item has more than 12 months to run, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

Instruments quoted in an active market are measured at their current bid price. For instruments that are not quoted in an active market, the fair value is estimated using a valuation technique. Techniques that are used by the Group include comparisons to recent market transactions or reference to other instruments which are substantially the same, discounted cash flow analysis and option pricing models. Inputs to such techniques rely on market inputs where such information is readily available. 

Cash flow hedges

Hedges of exposures to variable cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss are accounted for as cash flow hedges when the hedging criteria has been achieved. The Group uses cash flow hedges to account for the hedging of variable rate borrowings. The effective portion of changes in the fair value is recognised in other comprehensive income whilst the gain or loss on the ineffective portion is recognised immediately in profit or loss.

Amounts accumulated in other comprehensive income are recycled to profit or loss in the periods when the hedged item affects profit or loss. However, when a forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred into other comprehensive income are transferred from other comprehensive income and included in the initial measurement of the cost of the asset.

Cash flow and financing

At 31 January 2024, the Group had cash balances of £15.0 million (31.07.2023: £42.1 million). Cash inflow from operating activities before investing and financing activities was £7.1 million (31.01.2023: £7.8 million). As well as using cash generated from operations to fund some capital expenditure, the Group's £100 million five-year Revolving Credit Facility provides sufficient liquidity for the Group's current needs. Undrawn committed facilities at the period-end amounted to £56.3 million (31.07.2023: £45.6 million).  Cash plus undrawn committed facilities amounts to £71.3 million, leaving the business with plenty of headroom.

Earnings per share

Basic earnings per share were 9.12 pence (31.1.2023: 12.38 pence per share) and diluted earnings per share were 9.06 pence (31.1.2023: 12.17 pence per share).

623,212 shares (31.01.2023: 623,212) are held in the Employee Benefit Trust, and these are excluded from the above calculation.

Cash Available for Distribution

ü Cash Available for Distribution of 16.0 pence per share (31.01.2023: 17.7 pence per share)

ü Cash Available for Distribution £5.17 million (31.01.2023: £5.21 million)

CAD provides a clear picture of ongoing cash flow available for dividends, new store development or debt repayment.

The table below shows the calculation of CAD

Taxation

The Group has made a current tax provision against earnings in this period of £0.6 million (31.07.2023: £1.2 million) based on a corporation tax rate of 25%. (31.07.2023: 8 months at 19%, 4 months at 25%).

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 £67.4 million (31.07.2023: £66.3 million).

Gearing11 (Excluding IFRS16 Lease Liabilities)

At 31 January 2024, the Group had £43.7 million of gross bank borrowings (31.07.2023: £54.4 million) and cash of £15.0 million (31.07.2023: £42.1 million) representing gearing of 12.5% (31.07.2023: 5.3%) on net assets of £230.9 million (31.07.2023: £230.5 million).

Capital Expenditure

The Group has an active new store development programme, and has grown through a combination of building new stores, existing store improvements and relocations.

Capital expenditure during the period totalled £18.5 million. This was primarily the contract exchange of the Milton Keynes site, the purchase of the Eastbourne site and the completion monies passing to the developer for completing the Staines building prior to its fit-out. There are ongoing construction and fit out works at our sites in Staines and Basildon, final costs on Bedford and Peterborough. Planning and pre-development works at our Bournemouth, Altrincham, Barking and Cheshunt sites also featured.

The Group has capital expenditure contracted but not provided for in the financial statements of £4.27 million (31.07.2023: £13.1 million).

We carefully evaluate the ongoing economic and trading position before making any further capital commitments and can reduce capex quickly if the market deteriorates.

Lok'nStore has a good credit model, with low debt and gearing and which is strongly cash generative from an increasing asset base. Increased bank facilities, on competitive margins, and extended to April 2026, positions the business well for the future.

Statement of Financial Position

Group net assets at the period-end were £230.9 million, up 0.2% (31.07.2023: £230.5 million)

Market Valuation of Freehold and Leasehold Land and Buildings

It remains the Group's usual policy to undertake a comprehensive external valuation at each year-end and we would normally do so at the next year-end at 31 July 2024, however following "the Offer" the Scheme Document will include a valuation in respect of Lok'nStore's property portfolio in accordance with Rule 29 of the code.

Adjusted Net Asset Value Per Share

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 period-end. The shares currently held in the Group's Employee Benefits Trust (own shares held) and in treasury (zero) are excluded from the number of shares.

At 31 January 2024, the Adjusted Net Asset Value per share (before deferred tax) increased 0.1% to £9.87 from £9.86 at 31 July 2023. last year. Adjusted Net Asset Value per share (before deferred tax) increased 78.7% compared to £9.15 at 31 January 2023.

This year-on-year 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.

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.

Neil Newman Ray Davies

Group Managing Director Group Finance Director

Environmental Targets. Commitments and Performance:

Lok'nStore remains committed to positively impacting the environment.  At 31 July 23, Lok'nStore set targets in line with its Environmental Committee's objectives.

These targeted objectives are:

· Decarbonise our business to be Net Zero in our operations by 2040

· Assess recommended improvements from current EPCs and action as appropriate

· Trial the installation of a battery at one store

· To increase the number of stores with PV systems

· Continue the roll out of LED lights for all stores

· Obtain BREEAM accreditation at one store

· Determine a route to eliminate waste destined for landfill

Lok'nStore is pleased to announce progress on all of these targets. A comprehensive analysis of the remaining direct emissions is currently underway, with efforts directed towards establishing a pathway to lower the current target of being Net Zero in our operations by 2040.

Substantial progress has been made in enhancing the ratings across our existing Energy Performance Certificates (EPC's), with 89% of the freehold portfolio now achieving a rating of B or above.

We remain focused on advancing battery storage solutions and continue to work on defining implementation strategies. In the first half of the year, we have identified stores that are yet to benefit from LED lighting and have prioritised their conversion. Additionally, we maintain our initiative to install photovoltaic (PV) systems on all new buildings, with the addition of two new stores to our PV portfolio by year end.

As highlighted in the most recent Annual Report, Lok'nStore has diligently monitored waste management for several years, resulting in a noteworthy reduction in landfill waste during this period. The next phase of this initiative involves determining a viable route to eliminate waste destined for landfill.

Collaborative efforts with our suppliers have been initiated to enhance reporting on waste volumes and destinations. The identification of remaining stores in the portfolio where waste disposal still involves destination being landfill is underway, with a focus on rerouting waste. Further progress on this will be reported in full at 31 July 2024.

We are committed to environmental certification for our buildings and are progressing BREEAM accreditation at our Kettering store, on behalf of the managed store owner. We continue to make progress on this accreditation for our pipeline of new stores where appropriate.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Attributable to owners of the Parent

Consolidated Statement of Financial Position

Approved by the Board of Directors and authorised for issue on 19 April 2024 and signed on its behalf by:

Andrew Jacobs Ray Davies

Chair Finance Director

Consolidated Statement of Cash Flows