Lok'n Store still going strong after self-storage boom

Self-storage operators benefit from life’s big events: migration, births, deaths, marriages, divorces and relocations all help keep things ticking over in the business of storing stuff. As such, it should come as no surprise that the last two years and everything they have brought with them have been a boon for Lok’n Store (LOK), which posted a healthy set of half-year results – with key comparators all up on its last interim results.

The company’s coffers are also flush with new cash following the sale of four sites for £39mn during the reporting period. Lok’n Store has made similar "sale-and-manage-back" deals in the past and says they are different from sale-and-leaseback deals. Instead of selling the building and leasing it back from the new owner, the company sells the building to a new operator from which it collects management and performance fees – effectively franchising the business.

The company said it would look to reinvest the cash made from the sale in paying off its debt pile and expanding the business. It noted in its results that it could rely on further sale-and-manage-backs in future if it needed to reduce debt in response to rising interest rates.

Rising construction costs and rising land costs are potential headwinds. Lok’n Store typically develops its units from scratch on industrial or retail land, the former of which is highly sought-after by the booming warehouse market. It is moving away from buying industrial sites and towards buying retail sites because it believes the latter are more prominent and potentially cheaper.

Lok’n Store is continuing to grow its profits, pay increased dividends and sale-and-manage-backs are a proven mitigation strategy for reducing debt. The pandemic-fuelled boom in self-storage may be over, but the company is still looking like a good bet. Buy.

Last IC View: Buy, 870p, 1 Nov 2021