Closing the Door on LOK'nSTORE

Updated: Mar 4

LOK’nSTORE, the UK small-cap storage unit company, has provided the market with a few updates recently; an acquisition of a new store, an update on the company pipeline and a pre-close trading update all within an 8-day period — it’s almost like they’re trying to hide something from us!

Well, the results for the half year up to January 31st seem impressive. Revenue is up 11% from the prior year and occupancy has grown by 25%, with an average lettable occupancy now touching 81.6%. Not a bad result given the nature of the pandemic. Commercial clients now account for 32% of LOK’nSTORE’s business, for the likes of storage of catering equipment or tools for construction businesses. Whilst these clients are likely smaller enterprises, the critical need for keeping their goods in storage for space and safety means sticky business for LOK’nSTORE. Another tailwind likely comes from the other 68% of their business: retail customers, who like many during the coronavirus pandemic are stuck at home for the foreseeable future. It is unlikely you are going to want to clear out your storage facility and bring all your junk home at the moment. With a continued pipeline for new stores charted for the medium term, LOK’nSTORE looks well placed to grow into the UK’s increasing need for storage space.

However, when you read into these updates a little closer, there is a caveat; an interesting set of events that questions the integrity of management. This can be found in their February 1st market update on ‘Acquisition of trading store and sale of Land’. In this public announcement, LOK’nSTORE indicated that it was acquiring a store in Chichester and selling a store in Wolverhampton. The transactions for both sites were between LOK’nSTORE and Gypsy Moth Storage Limited, who are the current owners of the Chichester site and the prospective buyer of the store in Wolverhampton. GMS, the company engaging in the transaction, is 20% owned by the CEO of LOK’nSTORE, and the finance director of LOK’nSTORE is also a director at GMS. The transaction seems equally confusing. The Chichester store (currently owned by GMS) was valued as recently as March 2020 by GMS at £2.3 million, whereas the net sum LOK’nSTORE intends to pay for the acquisition is £4.025 million — almost 100% more than the value on GMS’ books the prior year. At the Wolverhampton site, LOK’nSTORE is selling this store back to GMS for the value of £1.53m, which, as stated, reflects the original purchase price plus planning costs and other fees. Notably, LOK’nSTORE’s management haven’t been able to achieve a 100% premium on the sale of their assets back to GMS. The company’s nominated advisor finnCapp have deemed this transaction to be reasonable for LOK’nSTORE shareholders — I have to wonder if this is the case.

As a micro-entity, GMS directors will likely benefit handsomely from the steep appreciation in the value of their Chichester property. LOK’nSTORE has a value of £200 million on the London Stock Exchanges Aim market, which may seem large, however, I will remind shareholders that LOK’s operating profit in 2020 was £5.7 million, so there isn’t much wiggle room to get valuation wrong. All in all, LOK’nSTORE’s underlying business seems to be performing — but transactions like these tend to make informed shareholders uncomfortable.

(For disclosure: The Chichester property being acquired by LOK'nSTORE from GMS has been independently valued by Jones Lang LeSalle.)

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