Preliminary Results

LOK'NSTORE GROUP PLC("Lok'nStore" or "the Group")

Preliminary Results for the year ended 31 July 2021

Lok'nStore, the fast-growing AIM listed self-storage company, is pleased to announce its Preliminary Results for the year ended 31 July 2022.

Highlights

v Record revenue and profits

v Significant increase in net asset value per share

v 15% increase in dividend

v Dynamic new store opening schedule driving future growth

v Low debt and LTV

Strong revenue and profit growth

ü Group Revenue £26.9 million up 22.9% (2021: £21.9 million)

ü Group Adjusted EBITDA1 £16.4 million up 37.5% (2021: £11.9 million)

ü Operating Profit before non-underlying items £11.4 million up 49.8% (2021: £7.6 million)

ü Operating Profit after non-underlying items £17.2 million up 130.0% (2021: £7.5 million)

Driven by solid operating metrics

ü Achieved rate on occupied space up 13% to £25.6 per sq. ft (2021: £22.7 per sq. ft)

ü Managed store revenue £2.8 million up 107%

ü Cost Ratio13 reduced to 38.5% (2021: 44.9%)

Cash flow growth drives eleventh consecutive year of dividend increase

ü Cash Available for Distribution (CAD) 3 per share up 36.6% to 38.7 pence (2021: 28.4 pence)

ü Annual dividend increased by 2.25 pence to 17.25 pence per share up 15% (2021: 15 pence per share) - covered 2.24 times by CAD

Significant increase in net asset value

ü Adjusted Net Asset Value5 per share up 33% to £9.72 per share (2021: £7.31 per share)

Disciplined use of capital leads to strong balance sheet and low debt  

ü Sale and manage back of four stores at a 22.8% premium to 31 July 2021 valuations delivering £37.9 million of net sale proceeds in cash

ü £46.5 million cash at year-end (2021: £9.1 million)

ü Net debt (excluding lease liabilities and deferred finance costs) reduced to £20.3 million (2021: £56.3 million)

ü Loan to value ratio6 down to 6.6% (2021: 21.0%)

ü £25 million accordion executed - increases bank facility to £100 million

ü Bank facility extended by one year to April 2026

Dynamic pipeline8 of new Landmark stores will deliver further growth

ü 4 new stores currently on site will add over 218,000 sq. ft of new trading space

ü Secured store pipeline9 total of 10 sites will add 44.1% to owned new space over the coming years

Well positioned for the future

ü New store openings and rate increases will lead to further revenue and profit growth

ü Trading momentum continues post year end with same-store revenue up 13.6% for August and September 2022 compared to the same period last year.

ü Strategy unchanged - increase revenue from existing stores and open more new Landmark stores

ü Flexibility to respond to market circumstances

For all of the definitions of the terms used in the highlights above refer to the notes section below.

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

"Lok'nStore's business has moved ahead significantly with revenue up 22.9% and EBITDA up 37.5% on last year. Demand for UK self-storage assets remains strong, and this has driven our Net Asset Value per share up by 33% to £9.72. Trading since the year-end has been good.

"We are on site at four new Landmark stores which will open within the next 12 months and can be completed using cash on hand. At 31 July 2022, our secured pipeline of ten new sites increases owned space by 44.1%. This pipeline of new stores will add further momentum to sales and earnings growth. We have reduced our net debt to £20.3 million and our business model enables us to build out the pipeline as market circumstances dictate.

"We aim to build more Landmark stores in the under-supplied UK market. We are growing the business from a strong financial platform that gives us great flexibility to respond to market circumstances. We have multiple levers to allocate our capital in ways which are most accretive to our shareholders through the economic cycle, and we are confident that we will continue to increase net assets, cash flows and dividends."

Enquiries:

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 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 Financial Review.

4. Adjusted Total Group Assets - The value of adjusted total assets of £370.9 million (2021: £294.8 million) is calculated by adding the independent valuation of the leasehold properties of £24.2 million (2021: £22.1 million) less their corresponding net book value (NBV) £7.2 million (2021: £7.6 million) to the total assets in the Statement of Financial Position of £353.9 million (2021: £280.3 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 year-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 £20.3 million expressed as a percentage of the total properties independently valued by JLL of £279.0 million (2021: £234.9 million) and development land assets of £29.2 million (2021: £33.7 million) totalling £308.2 million (2021: £268.6 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 debt 1.71% (2021: 1.54%).

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 completion. We have 14 pipeline sites of which ten are contracted and four are progressing with lawyers. We currently have 24 owned stores trading with an additional 16 managed stores trading. When these 14 sites are fully developed, we will have a total of 54 stores.

9. Secured Pipeline Sites The ten sites for new stores on which we have exchanged legal contracts. Of these nine stores are Lok'nStore owned Stores and one will be a managed store. When these ten sites are fully developed, we will have a total of 50 stores.

10. Adjusted Store EBITDA is Group Adjusted EBITDA (see 1 over) before the deduction of central and head office costs. Unlike Group Adjusted EBITDA this measure excludes the impact of IFRS 16 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 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 17 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 been reduced further to 38.5% (2021: 44.9 %)

14. Same Store Analysis - This measure is used to give transparency on improvements in the operating business in the year unrelated to the opening of new stores, closure of old stores, and more particularly in this financial year, the sale and manage-back of previously owned stores (Basingstoke, Cardiff, Horsham and Portsmouth stores) commenting on stores that were open and trading at both financial year ends 31 July 2021 and 31 July 2022. The same store key performance measure helps to illustrate the performance of the underlying business.

See also the glossary

Chairman's Statement

I am delighted to be reporting another year of great results for Lok'nStore, delivering a strong operating and financial performance. We have seen significant growth in revenue, profits, and asset values, enabling the Group to increase the dividend.

These excellent results can be summarised as:

· 22.9% increase in Group Revenue

· 37.5% growth in Group Adjusted EBITDA

· Sale and manage back of four stores at a 22.8% premium to July 2021 valuations

· Low debt and LTV

· 33% increase in Adjusted Net Asset Value per share

· Dynamic new store opening schedule

· Increase of 15% in annual dividend

· Operational GHG emissions down 92.5% since 2005

These results demonstrate Lok'nStore's delivery of our commitment to deliver sustainable growth through all stages of the economic cycle. Continued investor interest in the UK self-storage sector demonstrated by market transactions underpins the increased value of our assets and our strategy to open more Landmark stores.

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

Significant Increase in Net Asset Value

Adjusted Total Group Assets4 have moved upwards sharply in the year by 27.3% to £375.2 million mainly due to the trading strength of our business, as well as investor interest in self-storage assets and our investment in new stores.

Our trading assets are independently valued by Jones Lang La Salle (JLL) on 31 July each year and this year produced a total valuation of £279.0 million (2021: £234.9 million), an uplift in the value of our freehold and leasehold trading stores of £44.1 million. £30 million of this uplift comes from the maiden valuations of our new stores in Warrington and Stevenage.

The Same Store uplift in the value of our freehold and leasehold trading stores (adjusting for the disposal of the four trading stores and the new stores in Warrington and Stevenage) is £45.9 million.

£15.5 million of the same store uplift comes from the impact of improved cash flows of the same store portfolio that was valued last year. This demonstrates the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing.

The balance of the same-store uplift of £30.4 million comes from improvements in the Discount Rate and Exit Yield applied to the valuations. On our owned freehold trading stores we have seen exit yields improving on average by 68 basis points, with discount rates improving by 116 basis points. This demonstrates that the UK Self-Storage Market is attracting significant interest from institutional investors.

The Exit Yield and Discount Rates applied in the valuations are validated by transactional evidence. We are well positioned to benefit from future changes with our high-quality portfolio of stores, and Landmark store development pipeline. As we enter a new interest rate cycle, rising yields and discount rates may reduce the value of the stores, but we expect any reductions will soon be offset by new store openings and the continued revenue growth of the business.

More details on the valuation of our trading stores can be found in the Property Review and in note 12(a) of the financial statements.

Further Dividend Growth 

The Directors are proposing a final dividend of 12.25 pence per share (2021: 10.67 pence) following the interim dividend payment of 5.0 pence per share in June 2022, bringing the total distribution for the year to 17.25 pence per share, an increase of 2.25 pence per share up 15% (2021: 15 pence per share) and our eleventh year of increase in a row.

As announced last year, the Board has reviewed the Company's dividend policy in the context of its disciplined approach to capital allocation. Considering the cash-generative qualities of the business and noting the requirement to invest in the Landmark store opening programme, Lok'nStore will pursue a progressive dividend policy which reflects the strong long-term underlying cash flow growth of the business.

Subject to approval at the Company's AGM on 8 December 2022 the final dividend will be paid on 6 January 2023 to shareholders on the register on 25 November 2022. The ex-dividend date will be 24 November 2022. The final deadline for Dividend Reinvestment Election by investors is 9 December 2022.

Sale and Manage-Back of four stores

On 31 January 2022, the Group completed the Sale and Manage-Back of four stores for a total gross consideration of £39.0 million representing a 22.8% uplift on the independent external valuation of the stores at 31 July 2021.

Sale and manage-back of stores, when appropriate, demonstrate how the Group can manage its cash generation and control its debt. At the same time, we can increase the quality of our portfolio by investing in new more environmentally efficient Landmark stores.

This transaction was immediately accretive to Group net asset value and has provided net sales proceeds of c.£37.9 million for reinvestment into new, faster growing Landmark stores. Further detail is set out in the Financial Review.

Due to the sale of four trading stores half-way through the financial year and the opening of two new stores it has been necessary this year to provide some 'Same Store Analysis'. This quantifies the improvement in the core business in the year unrelated to the opening of new stores, and more particularly in this financial year, the sale and manage-back of previously owned stores. The same store analysis is set out in the Managing Director's Report.

Investment in new Stores

This year we invested £12.2 million in new store development.

Following the receipt of £37.9 million from the Sale and Manage-Back transaction reported above we can report a year-end LTV ratio (net of cash) of only 6.6% (2021: 21.0%) and a very low level of net debt of only £20.3 million, down from £56.3 million in the previous year (Refer to note 29b).

During the year we opened two new owned stores in Warrington and Stevenage. Early trading in these two stores has been excellent. Trading at our new stores continues to exceed expectations and this underpins our confidence that our pipeline will add further to sales and earnings growth. The Group continues to find high-quality sites for new Landmark stores. The current secured pipeline adds 44.1% more trading space to our total owned portfolio.

We are on site at four Stores, in Basildon, Bedford, Staines and Peterborough which will all open in 2023. This will mean increased capital expenditure in the coming twelve months. We are also due to go on site shortly at Kettering on behalf of a third-party Managed Store client.

Capital Expenditure

It is generally our intention to commence the construction and fit out of all our pipeline stores as soon as all planning and enabling works have been completed. Self-storage benefits from the short lead time between breaking ground and store opening of only around twelve months. We have only committed future capital expenditure at the four stores where we are on site all of which will be open and producing cash within the next 18 months. We have a high degree of flexibility regarding start dates for further building at other sites. We can therefore adapt our development programme quickly to react to changing economic circumstances.

We are seeing material cost inflation in building costs which we continue to monitor closely, particularly for future buildouts as the four developments currently on site are on fixed cost contracts. Because our own pricing achieved increased at 13% over the past year, we are not seeing input costs increase at such a level that would impact the viability of the projects we have currently under review.

We report more generally on operating/trading costs in the Financial Review.

Planning permissions

The planning process remains challenging. The system is complex, successful outcomes can take considerable time to achieve, and the process consumes a significant amount of management time. Despite its challenges, during the year we secured planning consents on the Kettering and Peterborough sites.

Managed Stores

Our strategy to grow the number of stores we manage for third party owners, 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.

We had a particularly good year with managed stores generating managed store income of £2.79 million, up 107% from the previous year (2021: £1.35 million). In the management fees table in the Managing Director's Review, we separate recurring management fees from non-recurring fees. Recuring management fees increased by 49% in the year with non-recurring fees (planning, store opening and supplementary fees) increasing by a spectacular 217%.

Lok'nStore manages 16 trading stores for third-party owners with a property value approaching £150 million. Our current pipeline includes an additional managed store which will take the total number of managed stores to 17.

Our People

We always rely on our amazing people to deliver these impressive results. I am delighted to say that all of our colleagues continue to benefit from the success of the business with significant bonuses paid to all staff members.

We will continue to invest in training to develop and deepen the skills of our team members and create internal succession as the business continues to expand. To support our colleagues with the rising cost of living we brought forward annual pay reviews of our store teams and ensured all colleagues in the business received an annual salary review. We continue to keep salary levels under review to ensure that all of our employees are paid fairly, and we continue to promote equity ownership to our colleagues via our Share Investment Plan and the granting of options.

Board changes

At the Company Annual General Meeting in December 2021, Edward Luker retired from the board. I would like to personally thank Edward for his support, wisdom and challenge over many years.

Jeff Woyda joined the board as a Non-Executive Director in September 2021 and has now replaced Edward Luker as Senior Non-Executive Director. Jeff also now chairs the Remuneration Committee and is a member of the Audit Committee.

Liquidity and Cash Flow

At 31 July 2022, the Group had cash balances of £46.5 million, a significant increase on last year's £9.1 million following the sale-and-manage-back of four stores and strong operating cash generation. The Group has a £100 million five-year revolving credit facility which together with cash provides all the financing needs for the current secured pipeline. Following the execution of a one-year extension the facility now runs until April 2026. The Group is not obliged to make any repayments on its loan facility prior to its expiration in April 2026.

Cash inflow from operating activities before investing and financing activities was £18.6 million in the year to 31 July 2022 up 52.4% (2021: £12.2 million).

Debt and Bank Covenants

The average cost of bank debt on drawn facilities for the year was 1.71% (2021: 1.54%). All of the Group's total drawn bank debt of £66.8 million (2021: £65.4 million) is unhedged. At the date of this Report the Group's current cost of debt is running at 3.72% as rates have moved higher since the year-end.

At the year-end interest cover was ten times tested on a 12-month rolling basis, against a covenant of 2.5 times. At the year-end our loan-to-value ratio based on net bank debt was 6.6% versus a bank covenant of 60% providing a large cushion of comfort. Both the LTV and Interest covenants exclude the gearing effects of IFRS 16 as agreed with our banks.

Environmental, Social and Governance

We are working hard to create an environmentally sustainable business for all our customers, our colleagues, local communities and the wider environment. Lok'nStore have 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.

In recent years, the Lok'nStore Environmental committee, consisting of colleagues in various roles across the business and including three Board members have been focused on practical improvements we can make to our environmental footprint.

Details of our environmental performance along with our commitments and targets can be found in our ESG report.

Our business model provides strength and adapts quickly in an uncertain world

Looking forward during this period of economic and market uncertainty, it is worth emphasising Lok'nStore's robust business model.

We operate with a high EBITDA margin, sheltering the business from cost increases. Debt and leverage are low, and we have considerable cash on hand. Importantly the Company can pause capital expenditure quickly if market conditions dictate and the ongoing business requires little maintenance capital expenditure. At the year-end, we are onsite at four stores where the capex required to complete these projects is £22.3 million, compared to the £46.5 million of cash on hand.

The Company has 17,000 customers who come from a diverse social and economic background and whose reasons for storing are widely diverse. Customers pay on a rolling four weekly up front basis. As a result, bad debt continues to be low at 0.21% of revenue. Each customer is relatively small with no self-storage customer accounting for more than 0.3% of revenue. Additionally, the UK self-storage market remains under-supplied, and demand remains strong.

We are experiencing some cost increases in the short term, but these are largely or wholly balanced by our ability to increase our own achieved rate. We have also taken steps to mitigate the energy cost increases, for instance we now use 88% of the electricity generated in stores that have PV installed.

Our Objectives

Our objectives remain to:

· Steadily increase cash available for distribution (CAD) per share enabling a predictable growth of the dividend

· Fill existing stores and improve achieved rates

· Develop our secured pipeline of sites into new Landmark stores

· Acquire more sites and build more new Landmark stores

· Increase the number of stores we manage for third parties

Outlook

This year's results are excellent with all metrics sharply higher, and trading since the period end is good. The continued strong demand and high occupancy levels across our stores give us pricing opportunities in the coming year.

Lok'nStore continues to experience strong year to year revenue growth on a same store basis and this will be enhanced by the three stores opened this year and the opening of four new stores opening over the coming year. Our new secured store pipeline of new stores will add 44.1% more owned trading space over coming years. Over the medium to long term these factors will continue to increase revenue, profits and asset value substantially. This strength enables Lok'nStore to confidently look through the current external market turbulence.

We have an exciting period of growth ahead. With Lok'nStore's resilient and flexible business model enabling the business to manage its conservative debt structure the Board is confident the Group will continue to thrive.

Andrew Jacobs

Executive Chairman

28 October 2022 The UK Self-Storage Market

The UK Self-Storage Market at a Glance

The Self-Storage Association UK Annual Industry Survey 2022 reports that the UK self-storage industry is made up of 2050 sites offering 52 million sq. ft. of space.

Market Overview

As reported in the Self-Storage Association UK (SSA UK) Annual Industry Survey 2022 the UK self-storage market continues to grow but remains under-developed relative to Australia and the US. In the UK there are an estimated 1,429 self-storage facilities plus an additional 621 containerised sites, providing a total of 52 million sq. ft. of storage space. With a population of 68 million people in the UK this equates to only 0.76 sq. ft. per person. Occupancy rates across the UK industry at 31 December 2021 of built space was 83.3%. This has increased from 76.2% at the start of the pandemic.

The structure of the UK industry is changing. When the industry first emerged companies were predominately single owner sites often located in industrial areas, but larger operators (defined as operators managing ten or more sites), such as Lok'nStore, have recently been developing purpose-built stores in retail-facing locations offering customers a higher standard of product and service.

The main barriers to entry to the market remain the difficulty in finding and securing suitable sites as well as gaining the appropriate planning consents. As a result, larger operators now own or manage around a third of all facilities which translates to 45% of market share in terms of revenue and space. Currently Lok'nStore is the fifth largest operator in the UK by number of stores.

Drivers of Demand for Self-Storage

Demand for self-storage by both household and business customers is driven by a specific need based on changing circumstances as well as economic activity and business confidence.

For household customers their need is often linked to a life event where they will need space temporarily, for example, to turn a box room into a home office, but increasingly householders are using storage on a semi-permanent basis to free up space at home or store belongings they don't have room for.

Business customers use self-storage for a variety of purposes including storage of goods, excess or seasonal stock, document archiving or storage of equipment and tools. Businesses tend to store for longer than household customers and take larger units, although they also take advantage of self-storage for temporary periods to support seasonal sales or office moves or refurbishments.

During the pandemic many of our customers were providing critical services distributing medical and other essential supplies. We include the NHS, GP surgeries, care and home support services and government departments amongst our customers.

Lok'nStore's Opportunity in the Market

The SSA UK Annual Industry Survey 2022 notes that public awareness of and demand for self-storage is increasing. We know that on average customers chose a store within five miles of their home or business. With a secured pipeline of ten stores, a further four stores at lawyers and a continuing programme of evaluating further site opportunities, Lok'nStore is well placed to attract new customers and add further momentum to the growth of our sales and profits.

Combining the Group's competitive strengths (recognised brand, excellent customer service, rigorous cost control) and the attractive market dynamics of the storage sector (growing sector, under supply, resilience during economic downturn) with our strong balance sheet and flexible operating and ownership model (see our portfolio strategy), we believe Lok'nStore can take advantage of the opportunities presented and continue its growth without significantly increasing risk.

Our Business Model:

Our overriding objective is to increase the Cash Available for Distribution (CAD) enabling a predictable growth of the dividend from a rising asset base while maintaining a conservatively geared balance sheet.

Our strategy:

Managing Director's Review:

Lok'nStore Group has had another successful year delivering against all of our strategic objectives. Once again revenue, profits and asset values have all moved sharply ahead. In coming years our pipeline of new stores will substantially increase the proportion of our store space which is new or purpose-built and will add further momentum to the growth of sales and profits.

Trading

Group revenue for the year was £26.9 million, up 22.9% year on year (2021: £21.9 million) driven by occupancy increases and improved pricing across our stores. This revenue growth led to a 37.5% increase in Group Adjusted EBITDA.

ü Total self-storage revenue £24.1 million up 17.3%

ü Adjusted Store EBITDA £14.9 million up 23.7%

ü Unit pricing up 13.0%

ü Managed store revenue £2.8 million up 107%.

ü Recurring management revenue £1.31 million up 49%.

ü £12.2 million invested in our portfolio of stores this year

Total Adjusted Store EBITDA, a key performance indicator of profitability and cash flow of the business, increased 23.7% to £14.88 million (2021: £12.03 million). The overall Adjusted EBITDA margin across all stores was higher again at 61.6% (2021: 58.3%) with the Adjusted Store EBITDA margins of the freehold stores at 65.5% (2021: 63.1%) and the leasehold stores at 53.3% (2021: 46.5%).

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 65.5% and 100% respectively versus 61.6% across all stores. The impact of this will be to continue to increase the average Adjusted Store EBITDA margin of the Group overall, and 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 and asset values as they become established trading units.

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

The freehold stores produce 71.8% (2021: 76.9%) of the Adjusted Store EBITDA and account for 91.4% (2021: 91.8%) of valuations (including secured pipeline stores). Leaseholds trade on lower margins due to the rent payable, but nevertheless the 53.3% 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.

This mix of tenures with their different risk and return characteristics provides flexibility in the balance sheet and opportunities to create value throughout the property and economic cycle.

Performance - Same Store Analysis 14

Headline Store Performance Same Store Performance 31 July 2022 31 July 2022

Portfolio Analysis and Performance Breakdown

*Applies to the ten contracted stores only

In the table below we show how the performance breaks down across the stores based on age. Clearly older stores have had more time to fill up and produced 72.8% EBITDAR margins. Over time as new stores and pipeline sites go through their life cycle they will progress towards similar margins, adding substantially to revenues and profits.

Operating Performance by age of store (Lok'nStore owned stores only)

1 In respect of the Farnborough Store (over 250 weeks) the total store revenue includes a £100,000 contribution receivable from Group Head Office.

2 The 37 stores include performance of the four sale and manage-back stores up to 31 January 2022 prior to their disposal. At the year-end the total number of owned stores was 33.

Marketing

New customers are typically drawn to Lok'nStore by three key drivers:

Store visibility remains pivotal to our marketing efforts. With their prominent positions, distinctive design, and bright orange elevations our stores raise the profile of the Lok'nStore brand and help to generate a substantial proportion of our business. Our Landmark stores are in highly prominent locations, and we continually invest in new signage and lighting at our existing stores as well as creating striking designs for our new Landmark stores, to promote and enhance their visual prominence and engage the local community.

The internet continues to be the main media channel for our advertising. Our website at www.loknstore.co.uk is one of the most established self-storage websites in the UK. The website delivers a high level of customer experience across desktop and mobile devices. Any new development of the website begins with a mobile first focus. 60% of visits to the website in the year were from a mobile device, consistent with last year. This is a very dynamic area, and we are committed to its continued development. We believe the internet provides a strong competitive advantage for the major operators such as Lok'nStore with relatively large marketing budgets.

Pipeline of New Stores

Against this background of ever improving operating performance, we have invested £12.2 million (2021: £26.9 million) in new store development this year and we have a new store pipeline of ten secured stores by the reporting date, which will take the total to 50 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.

We believe that the UK self-storage market is still in its infancy with low penetration and increased consumer awareness leading to faster fill up rates.

Sale and Manage-Back of four of our freehold stores

On 31 January 2022, the Group executed the Sale and Manage-Back of four of its freehold stores for a total gross consideration of £39.0 million realising a significant premium of 22.8% to the stores valuation at 31 July 2021. The purchaser was an existing institutional managed-store client wholly independent of Lok'nStore and its Directors.

Lok'nStore continue to manage the stores located in Basingstoke, Cardiff, Horsham, and Portsmouth, as branded Lok'nStore operations maintaining the operational footprint of the business. Lok'nStore will receive management and performance fees for managing them on behalf of their new owner. The total consideration of £39 million receivable was subject to a £1.8 million downward adjustment in respect of certain committed works to be completed by Lok'nStore at two of the sites. The net proceeds of the sale will be recycled into new, fast-growing Landmark stores.

In the year to 31 July 2021, the four stores generated revenue of £2.54 million and contributed £1.54 million to Group EBITDA. In the six months to 31 January 2022, the four stores generated revenue of £1.50 million and contributed £0.97 million to Group EBITDA. In the six months post the sale in January 2022, the Group has received management fees of £0.151 million in respect of the manage-back arrangement which flow directly to Group EBITDA. The historic cost of the four stores was £13.75 million and their stated fair value at 31 July 2021 was £31.75 million. 

This transaction does not impact the Group's ability to grow its annual dividend in line with market expectations and which is well covered by projected CAD profit levels of the business going forward. 

Managed stores revenue increasing

Total managed store revenue in the year was up by 107% to £2.79 million.

Recurring management fees were up by 49% to £1.31 million as we increased the number of stores under management, including opening the new Landmark store in Wolverhampton in March 2022 as well as the four stores transacted to a managed store client in January 2022.  At the year-end we had 16 Managed Stores operating with the Kettering store due to go on site in the coming months.

Income from non-recurring fees was up dramatically in the year to £1.47 million. Although these fees are irregular in nature, this demonstrates the contractually embedded value in the managed stores income stream. Non-recurring fees come from various sources such as including planning success fees, construction and advisory fees and fees crystallised when an asset transaction occurs.

The graph below shows how our historical management fees have grown and indicates a strong correlation between the total management fee income and the number of stores under management.

Future

Lok'nStore has had an excellent year, with all our trading and financial metrics moving ahead briskly, demonstrating the strength of the self-storage business model throughout the economic cycle. Trading has remained good since the year-end.

We are currently experiencing some cost pressure, but the business is sheltered from this effect by high EBITDA margins and our ability to raise rates charged.

Against the background of a strong performance from our existing stores, we have a secured pipeline of ten new stores plus a further four at lawyers all of which will add considerable momentum to sales and earnings growth in the future. Our flexible model allows us to develop these new stores when market circumstances dictate.

Neil Newman-Shepherd

Managing Director

28 October 2022

Property review

Store and Portfolio Strategy

Our strategy is to continue to increase the number of stores we operate without 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 rising 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. Our focus on the trading business gives us many opportunities and our property decisions are always driven by the requirements of the trading business.

Flexible Approach to Site Acquisition

All the projects noted below are part of our strategy of actively managing our operating portfolio to ensure we are maximising both trading potential and value. This includes strengthening our distinctive brand, increasing the size and number of our stores, and replacing stores or sites where it will increase shareholder value. We are focused on allocating capital in the most efficient manner to achieve our objectives.

We prefer to own freeholds if possible, and where opportunities arise, we will seek to acquire the freehold of our leasehold stores. However, we are happy to take leases on appropriate terms and benefit from the advantages of a lower entry cost, with further options to create value later in the store's life cycle.

Sale and Manage-Back of Stores

We also consider selling established stores on sale and manage-back contracts in order to recycle the capital into the development of new Landmark stores and manage the 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.

In the period we successfully completed on the sale and manage back of four older stores which raised net proceeds of £37.9 million to be recycled into new Landmark stores.

Our most important consideration is always the trading potential of the store rather than the property tenure and sale and manage-backs have the additional advantages: -

i) The critical mass of store numbers benefits the business (e.g. through Google search and sharing of other marketing costs)

ii) It spreads the central management costs

iii) Through the performance and exit fees we are exposed to the trading and capital upside without committing capital

The table below illustrates the rapid growth of store numbers and the changing tenure mix over time including the growth of managed stores over recent years.

At 31 July 2022, Lok'nStore operated 24 of its own stores. Of these Lok'nStore owns 15 freehold and nine leasehold stores. All nine leasehold stores are all inside the Landlord and Tenant Act providing us with security of tenure. The average unexpired term of the Group's leaseholds is 10 years and one month as at 31 July 2022. We operate 16 further stores under management contracts.

The lease on the Sunbury store expired on the 30/07/2022. We are in dialogue with the landlord regarding a new lease on the existing site or in a new site. In the meantime, we continue to trade from the current store which benefits from being inside the Landlord and Tenant Act.

Our Exciting Landmark Store Pipeline

· We have ten stores in our current Secured Pipeline of which eight are freehold, one is leasehold and one managed

· We are on site at four stores that will open during 2023 with a fifth site due to commence shortly

· Four new store opportunities are progressing with lawyers

· Current Pipeline of ten contracted stores adds 29.6% of extra trading space to the overall portfolio, 44.1% to our owned portfolio and 5.9% to the managed portfolio

All ten stores in our Secured Pipeline9 are in prominent locations with large catchment areas and little established competition and demonstrate the Group's ability to source high-quality sites adding to future sales and earnings growth. 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.

Summary of our current pipeline at 31 July 2022:

During the year we opened three new stores in Warrington, Stevenage, and Wolverhampton. Early trading in all new stores has been very encouraging. We acquired one new site during the year and have a further four sites progressing with lawyers.

Store opening programme by year

Portfolio breakdown

When the contracted development pipeline of ten sites has been completed Lok'nStore will operate from 50 stores including 17 managed stores. In addition, four further new store opportunities are progressing with lawyers. The secured pipeline sites represent a combination of nine owned and one managed store. These will add 606,578 sq. ft. of new capacity adding 44.1% to freehold and leasehold owned trading space and 5.9% to the managed store portfolio delivering a 29.6% increase in overall trading space. 

Managed Stores

· Circa £150 million of Store assets under management

· 49% increase in recurring management fees earned

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.

During the period the Group opened the Wolverhampton Managed Store on 25 March 2022. The new Kettering store will be on site autumn 2022 and open in 2023.

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 drive 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 approaching £150 million of assets under this structure on which we generated managed store income of £2,785,056 this year, up 107% (2021: £1,346,264) from the previous year. We expect this to continue increasing steadily over the coming years as more managed stores are opened. Second half income was stronger and includes additional fees from store openings and non-recurring fees contributed to benefit additional supplementary fees (Initial branding fees etc). Managed store income is generated from our existing platform and central management, resulting in an effective margin from this activity of 100%.

Growing Store Property Assets and Net Asset Value

ü Adjusted Total Assets £370.9 million4 up 25.8% on last year (2021: £294.8 million)

ü Adjusted Net Asset Value of £9.72 pence per share up 33% on last year (2021: £7.31 per share)

ü Value of operating stores £279.0 million up 18.8% on last year (2021: £234.9 million)

ü Total property assets £309.7 million up 14.7% on last year (2021: £270.1 million)

Our freehold and leasehold stores have been independently valued by Jones Lang LaSalle (JLL) at £279.0 million as at 31 July 2022 (2021: £234.9 million).

Adding our stores under development at cost, and land and buildings held at director valuation, our total property valuation is up 14.7% to £309.7 million (2021: £270.1 million). The increase in the values of properties which were also valued by JLL last year was 22.6% (2021: 22.8%).

The significant change in property valuation is referred to further in the Financial Review section of the Strategic Report and is detailed in note 12(a) of the notes to the financial statements. The principal drivers for this increase are: -

· The trading stores have continued to trade at high occupancy. The stabilised occupancy assumed by JLL is materially unchanged at 88.23% (2021: 88.85%)

· Discount Rates and Exit Yields applied by JLL have also compressed this year

· Transactional activity in the UK and across Europe remains strong

· There is an increasing amount of capital looking to access the self-storage market, with a real step change in the interest in the sector, with major private equity and institutions either having entered the market, (Schroders, Legal and General and the Carlyle Group) or are looking to enter the market. More recently, Angelo Gordon, GIC and Heitman have committed significant capital to the sector, with other institutions looking to enter the market either through direct acquisition or by funding new store developments.

JLL reported in their 2022 Valuation report…."Self-storage is widely viewed as an inflation hedge. The sector has proved itself as a resilient asset class that generally performs well during economic stress events as was seen during the Global Financial Crisis and the COVID-19 pandemic".

Post year-end we have seen considerable market turbulence which may have an effect on the future valuations of our stores but which may be offset to some degree by improvements in trading and trading outlook. In note 11 we set out the likely effects of a 50 bps and a 100 bps increase / decrease in Discount Rate and Exit Yield.

Financial Review:

"Disciplined capital allocation and investment into fast-growing Landmark assets"

Ray Davies Finance Director

The Group has reported record revenue and profits with all KPi metrics up on the previous year.

Financial results

ü Group Revenue £26.9 million up 22.9% (2021: £21.9 million) 

ü Group Adjusted EBITDA1 £16.4 million up 37.5% (2021: £11.9 million)

ü Profit before Tax £15.9** million up 146.3% (2021: £6.5 million)

ü Operating Profit £17.2 million up 130.0% (2021: £7.5 million)

ü Cash available for Distribution (CAD) per share up 36.6% to 38.7 pence (2021: 28.4 pence)

ü Final dividend up 14.8% to 12.25 pence per share (2021: 10.67 pence per share) 

ü Cash balance £46.5 million (2021: £9.1 million)

ü Bank facility extended by one year to April 2026

** A significant part of this increase in profit before tax is due to the profit of £5.94 million arising on the sale of four trading stores, which is "non-recurring" and separately disclosed in the Income Statement below "adjusted EBITDA" and in note 4 to the financial statements (non-underlying costs). Operating profit is therefore increased by this amount.

On 20 October 2021, the Group executed the accordion arrangement embedded within the Revolving Credit Facility which increases the loan facilities available to the Group from £75 million to £100 million. In addition, the Group has also agreed a one-year extension on its existing joint banking facility. The facility is a joint agreement with ABN AMRO NV and NatWest Bank plc participating equally and is closely aligned to the terms of the Group's previous facility. ABN AMRO NV replaced Lloyds Bank plc in June 2021 as one of the Group's banking partners.

The facility, which was due to expire in April 2025, will now run until April 2026 providing funding for more Landmark site acquisitions. The two principal bank covenants (LTV and Senior Interest) and margin are unaffected by the execution of the accordion and this extension of term.

Amendments to the Facility Agreement dealing with the transition from LIBOR to SONIA (Sterling Over Night Indexed Average) have also been made, fulfilling the UK regulator's requirements ahead of LIBOR's phasing out after 31 December 2021.

Management of Interest Rate Risk

Lok'nStore generates an increasing cash flow from its strong asset base with a low LTV net of cash of 6.6% and a low average cost of debt of 1.71%. 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 to fund future growth.

Interest expense and bank borrowings

· Average cost of debt 1.71% (2021: 1.54%)

· Average cost of debt (on active revolving loans at 31 July 2022) 2.71% (2021: 1.55%)

With £66.8 million of gross debt currently drawn against the £100 million bank facility the Group is not committed to enter into interest rate hedged instruments but continues to keep the matter under review. It is not the current intention of the Group to do so at this time given our low level of net debt, low loan to value ratio and high interest cover. During the year the Group has continued to benefit from relatively low lending rates although it is recognised that interest rates are now rising.

The gross bank interest expense (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) for the year was £1.30 million (2021: £0.85 million), due to higher average debt and higher average costs of borrowing. These average costs of borrowing have continued to rise after the year-end and the Group's current cost of debt is running at 3.72%.

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 year on our store development programme was £589,983 (2021: £380,193). Total finance costs in the Statement of Comprehensive income increased to £1.33 million (2021: £1.02 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. CAD was up 38.1% for the year.

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.

Earnings Per Share

The calculations of earnings per share are based on the following profits and numbers of shares.

1 Further options that could potentially dilute EPS in the future are excluded from the above because they are not dilutive in the period presented. Full details of share options are included in notes 21 to 25.

Basic earnings per share were 41.24 pence (2021: 11.33 pence per share) and diluted earnings per share were 40.48 pence (2021: 11.10 pence per share).

Operating Costs

Cost Ratio

ü Group operating costs amounted to £10.4 million for the year (2021: £9.8 million) up by 5.4%

ü Cost ratio13 reduced further to 38.5% (2021: 44.9%)

We have a strong record of disciplined control of our Group operating costs with same store costs increasing by 7.5% (Refer to same store analysis of Group operating costs in the table below).

In the year Group operating costs at a headline level were up 5.4% year on year as we opened new Landmark stores in Warrington and Stevenage. We provide a breakdown below. Overall, the cost ratio continues to decrease as we grow revenue and continue to bear down on costs.

Future cost increases are likely to be driven by the expansion of the business in the areas of rates, staffing and marketing. Historically, overall cost increases have been mainly driven by the expansion of the business, however we are now seeing some other cost pressures through energy (significant) and some wage costs (moderate), and the insurance market has hardened considerably as it re-rates its risk/premium positions in the light of store fires in the wider self-storage sector.

Property costs increased by 10.9%. These costs mainly constitute rates, light and heat 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.

Staff costs increased by 1.9% as we staffed the new stores which was offset by lower performance bonuses to our store colleagues.

The 7.3% 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 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. Peel Hunt were appointed joint broker during the year adding to the overall brokerage costs.

Bank charges which now contain a full year amortisation charge (non-cash) in respect of bank fees charged for the £25 million accordion and the one-year RCF extension also increased. Amortisation charges for 2022 were £215,845 (2021: £158,216). Other administrative costs (computer support, telephones, PPS and marketing etc) show no material cost pressures.

On a same store basis, excluding the financial effects of the four trading stores sold and the new stores opened in Warrington and Stevenage, the table below shows the overall Group cost increased by 7.5%.

Cash Flow and Financing

At 31 July 2022, the Group had cash balances of £46.5 million (2021: £9.1 million) the large increase from the previous year was due to the successful sale-and-manage-back of four stores during the year for net cash proceeds of £37.9 million.

Cash inflow from operating activities before investing and financing activities was £18.57 million in the year to 31 July 2022 up 52.4% (2021: £12.19 million).

Increasing Cash Flow Supports 15% Annual Dividend Increase

ü Annual dividend 17.25 pence per share up 15% (2021: 15 pence per share)

ü Cash Available for Distribution (CAD) of 38.7 pence per share (2021: 28.4 pence per share)

ü Cash Available for Distribution (CAD) up 38.2%

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

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

During the year the Group has benefited from a higher than usual level of non-recurring management fees of £1.47 million and exceptional gains principally resulting from the sale of the four sale and manage-back stores totalling £5.74 million. 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 note 4 of the notes to the financial statements for the analysis of non-underlying items

Taxation

The Group has made a current tax provision against earnings in this period of £1.7 million (2021: £0.8 million) based on a corporation tax rate of 19% (2021: 19%). 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 £63.2 million (2021: £46.8 million).

The external revaluation of the trading stores and the rolled over gains made on the sale and manage-back of the four stores during the period have both contributed to the uplift in the total deferred tax provision at the year-end (See note 20).

Gearing11 (excluding IFRS16 lease liabilities)

At 31 July 2022 the Group had £66.8 million of gross bank borrowings (2021: £65.4 million) representing gearing of 9.9% (2021: 37.2%) on net debt of £20.3 million (2021: £56.3 million). After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position at £7.2 million (2021: £7.6 million), gearing is 9.1% (2021: 33.8%). After adjusting for the deferred tax liability carried at year-end of £54.2 million gearing drops to 7.1% (2021: 26.4%).

Gearing11 (including IFRS16 lease liabilities)

At 31 July 2022 the Group had £66.8 million of gross bank borrowings (2021: £65.4 million) and £10.9 million of lease liabilities (2021: £11.2 million) representing gearing of 15.2% (2021: 44.6%) on net debt of £35.5 million (2021: £67.5 million). After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position at £7.2 million (2021: £7.6 million), gearing is 17.0% (2021: 40.7%). After adjusting for the deferred tax liability carried at year-end of £63.2 million gearing drops to 12.6% (2021: 31.7%).

Capital expenditure

The Group has an active new store development programme. The Group has grown through a combination of building new stores, existing store improvements and relocations. We have concentrated on extracting value from existing assets and developing through collaborative projects and management contracts.

Capital expenditure during the period totalled £12.2 million. This was primarily the purchase of the Peterborough site, together with ongoing construction and fit out works at our sites in Stevenage, final costs on Warrington prior to opening, as well as planning and pre-development works at our Bedford, Bournemouth, Peterborough, Altrincham, Barking and Cheshunt sites.

The Group has capital expenditure contracted but not provided for in the financial statements of £11.21 million (2021: £6.16 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.

Strong Balance Sheet, Efficient Use of Capital, Low Debt

ü  Revolving Credit Facility (RCF) increased to £100 million

ü  £12.2 million invested in new store pipeline (2021: £26.9 million)

ü  Net debt (excluding leases) £20.3 million (2021: £56.3 million)

ü  Loan to Value Ratio (LTV) net of cash 6.6% (2021: 21.0%)

ü  Cost of debt averaged 1.71% in the year (2021: 1.54%) on £66.8 million debt (2021: £65.4 million)

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 year-end were £205.3 million, up 35.7% (2021: £151.3 million). Freehold properties were independently valued at 31 July 2022 at £254.8 million up 19.7% (2021: £212.8 million). Please refer to the table of property values below.

The Parent Company's net assets have increased because of the £6.0 million dividend paid up from Lok'nStore Limited, the principal operating business of the Group.

Market Valuation of Freehold and Leasehold Land and Buildings

It is the Group's policy to commission an independent external valuation of its properties at each financial year-end.

Our freehold stores have been independently valued by Jones Lang LaSalle (JLL) at £254.8 million (2021: £212.8 million).

Accordingly, Adjusted Total Group Assets4 have moved upwards sharply in the year to £370.9 million up 25.8% on 31 July (2021: £294.8 million). A significant contributor to this increase was the uplift from the external valuation at 31 July 2022 combined with the trading strength of our business, as well as our investment in new stores.

In this twelve-month period, we saw a same-store uplift in valuations of £43.7 million in our freehold and leasehold trading stores, a 24.1% increase. The like for like comparison excludes the Sale and Manage-Back of four stores located in Basingstoke, Cardiff, Horsham and Portsmouth, and the maiden valuations on our new stores in Warrington and Stevenage.

£30.4 million of this valuation uplift comes from improvements in both the Discount Rate and Exit Yield applied to the valuations. On our owned freehold trading stores, we have seen exit yields compress on average from 6.15% at 31 July 2021 to 5.47% at 31 July 2022, with Average Discount rates at 7.02% compared to an average of 8.18% at 31 July 2021. These improving metrics reflect the increasing investor demand for UK Self Storage assets.

The remaining £15.5 million of valuation uplift comes from the impact of improved cash flows of the same store portfolio that were valued last year. At the full year-end in July 2021, we saw significant improvements in the cash flow assumptions applied by JLL and these have been improved further in this 2022 valuation demonstrating the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing. We are well positioned to benefit from future changes with our high-quality portfolio of stores. The Exit Yield and Discount Rates applied are validated by transactional evidence.

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

Valuations

It is not the intention of the Directors to make any further significant disposals of trading stores, although individual 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 in the valuation totals £24.3 million (2021: £22.1 million) but they are held at cost less accumulated depreciation 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 £440,522 of capitalised interest during the year (2021: £314,891).

2 Includes related fixtures and fittings (refer note 12).

3 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 ten years and one month at the date of the 2022 valuation.

4 Loan to value calculation based on these property values.

Total freehold properties account for 92.2% of all property values (2021: 91.8%).

Increase in Adjusted Net Asset Value per Share 

ü Adjusted Net Asset Value per share up 33% to £9.72 (2021: £7.31)

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) and in treasury (zero) are excluded from the number of shares.

At July 2022, the Adjusted Net Asset Value per share (before deferred tax) increased 33% to £9.72 from £7.31 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 year.

1 A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included, calculated by applying the substantively enacted corporation tax rate of 25% (2021: 25%). 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.

Post Balance Sheet:

Acquisition of a development site in Milton Keynes

On 4th October 2022, we exchanged contracts on a freehold development opportunity 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.

Summary

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.

Ray Davies

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.

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

1  Adjusted EBITDA is defined in the accounting policies section of the notes to this Report.

Consolidated Statement of Changes in Equity

Attributable to owners of the Parent

Company Statement of Changes in Equity