Lok’n Store builds distribution cash flows

Self-storage company Lok’n Store (LOK) has promised to pursue a "more progressive" dividend policy as occupancy rises and it prepares to open more storage sites. In an upbeat set of annual results, including news that cash available for distribution was up by a third, management recommended an annual dividend of 15p a share – up from 13p in 2020 – marking the 10th consecutive yearly increase. Lok’n Store said it intends to accelerate the dividend growth as cash flows continue to build.

Unlike much of the real estate sector, self-storage has been relatively undamaged by repeated national lockdowns. Indeed, the group said demand for storage grew when families turned box rooms into home offices, and hospitality businesses were forced to stow away tables and chairs to comply with social distancing rules. Now people are moving house again, and companies are eying up new offices, demand for the steel units is likely to remain high.

According to the Self-Storage Association UK, there is a lack of self-storage supply in the UK compared with the US and Australia. While this may encourage competitors to enter the arena, new businesses can struggle to find suitable sites and to secure planning permission. In contrast, Lok'n Store has invested £26.9m in new storage facilities and has a strong pipeline of new sites, while it continues to boost the number of stores it manages for third-party owners.

The company’s expansion plan – combined with a 35 per cent annual surge in occupancy – makes it a promising option for investors even when you weigh up the growth expectations baked into a forward rating of 32 times consensus earnings. The long-term growth catalysts are still in place. Buy.   

Last IC view: Buy, 601p, 26 Apr 2021