Lok and Store (LOK)

[AndyPandy]

I'll get the disclosures out of the way to start with.
I rented a unit from LOK a few years back for a couple of years. It was newly built and I moved in soon after opening. As I was using it as a bit of a workshop I was there more often than most tenants I expect and got to know the staff and the Management team. I could see at first hand how regularly Regional and Head office were present, checking figures. The Unit Manager had real enthusiasm for his unit and built a good team around him.

Out of 27 Units that LOK operates, I have great insight into the operations of ooh, approximately...well, precisely one. Based on that wide sample, I started investing whilst there and have built up my position in LOK to a bit of a Farm bet (30% ish) within my otherwise diverse portfolio. So, I am hugely biased here and DYOR as usual.



I think that this is a fantastically well-run Company. The Boss, Andrew Jacobs has echoed someone else nameless (talking about SMS messaging using cellular dead bandwidth for free, but charging for them) that said it's a licence to print money. Buy/Lease some land, put up some boxes and rent them out.

LOK has 27 Units centred around London and the South East with Bristol to the West, Poole to the South and Northampton to the ...errr North being its limit so far. It is opening 2-3 a year and could easily expand to 4-5x its size before being in any danger of poaching from itself.

https://www.loknstore.co.uk/self-storage/

Following data pulled off the Self Storage Survey 2017
https://www.ssauk.com/media/1888/ssauka ... ey2017.pdf

The big three are Safestore (SAFE - none held), Big Yellow (BYG - which I have a small holding of) and Access Self Storage. LOK is fifth, only just behind Shurguard. There are 693 self storage businesses, so a long tail of individual/small qty units.

The UK is the leader in Europe with 0.6 sq ft per person, Australia is 1.8 and the USA 7.8 (where arguably land is cheaper, so storage rates are lower - hence the greater uptake). With that amount of storage, if the US want to expand, it could do worse than look at Europe and buy its way in.

LOK issued a pre-close trading statement today:

Trading in the first half of FY2018 continues to be strong with January 2018 delivering the highest ever level of new storage sales enquiries in a single month. In our core self-storage business, the first half like-for-like revenue was up 6.9% year-on-year. At 31 January 2018, self-storage unit occupancy was up 6.0% and price per let square foot was up 0.4% compared to the same date 12 months ago.

They have a pipeline of six stores, adding approx. 20% to existing capacity



The numbers (from ADVFN - DYOR!) after today's 6% rise

Mkt Cap £116M
NTAV £85M
PE 36
DY 2.5

LOK pursues an aggressive Dividend growth policy, having paid out 7,8,9,10p in the last 4 years. As long as the store rollout continues, I can see no reason for this to not continue. DY is not generous, but it's sustainable and growing and this is an industry protected from internet encroachment, with LOK still in Growth phase plus the frisson of the US gaining a foothold via a buy-in.

For balance, since I don't do this for a living, here is an analysis by Walbrock Research
viewtopic.php?f=33&t=8137

I don't agree with its conclusion that LOK relies on property growth to keep the share price high as it has rising income mainly due to the rollout of new stores, backed by the bricks and mortar value of its assets. But I would say that, wouldn't I?

(M)Andy (R.D.)

[westmoreland]

what is the competitive advantage they enjoy over big yellow / safestore? seems to be a commoditised service to me.

you lease a building, rent out units, and compete on price. if they manage to increase margins, high returns attract competition and there are minimal barriers to entry.

£4m operating profit on £117m of property gives a return on capital of 3.4%. they aren't earning an economic profit from what i can see.

[AndyPandy]

what is the competitive advantage they enjoy over big yellow / safestore? seems to be a commoditised service to me.

you lease a building, rent out units, and compete on price. if they manage to increase margins, high returns attract competition and there are minimal barriers to entry.

£4m operating profit on £117m of property gives a return on capital of 3.4%. they aren't earning an economic profit from what i can see.

Nothing wrong with selling commodities, s/h car dealerships, supermarkets, energy Companies and Mobile Operators all do it

I assume they choose their stores where the main competition is not too near, so the competitive advantage is their location. I wouldn't want to travel 5, 10 miles or more to my store. Yes, it's commoditised but, like Tesco / Sainsbury's et al, if you're the only one in Town, you have the advantage. My Town, for instance, only has LOK from the chains (and a couple of local single unit operations)

There is about £40M of Long-term debt, so the £117M of property is actually nearer to £77M skin in the game. Makes the ROCE better. As per Mortgages gearing up homeowners' returns.

There is a report in the paper about Segro benefiting from the increase in online sales as distributors need more boxes to store stuff. I saw this in action at my LOK where there were renters using the units to sell (e.g.) eBay shop goods. I believe that not only does LOK have a good moat against the encroachment of online shopping, it does, to some extent, benefit from it.

I'm happy to own a slice of something that has a decent level of assets to its name, PER above zero with a decently growing dividend that is likely to carry on growing for the forseeable future. Not all the shares in my portfolio seem to be achieving that.

[westmoreland]

what is the competitive advantage they enjoy over big yellow / safestore? seems to be a commoditised service to me.

you lease a building, rent out units, and compete on price. if they manage to increase margins, high returns attract competition and there are minimal barriers to entry.

£4m operating profit on £117m of property gives a return on capital of 3.4%. they aren't earning an economic profit from what i can see.

Nothing wrong with selling commodities, s/h car dealerships, supermarkets, energy Companies and Mobile Operators all do it

I assume they choose their stores where the main competition is not too near, so the competitive advantage is their location. I wouldn't want to travel 5, 10 miles or more to my store. Yes, it's commoditised but, like Tesco / Sainsbury's et al, if you're the only one in Town, you have the advantage. My Town, for instance, only has LOK from the chains (and a couple of local single unit operations)

There is about £40M of Long-term debt, so the £117M of property is actually nearer to £77M skin in the game. Makes the ROCE better. As per Mortgages gearing up homeowners' returns.

There is a report in the paper about Segro benefiting from the increase in online sales as distributors need more boxes to store stuff. I saw this in action at my LOK where there were renters using the units to sell (e.g.) eBay shop goods. I believe that not only does LOK have a good moat against the encroachment of online shopping, it does, to some extent, benefit from it.

I'm happy to own a slice of something that has a decent level of assets to its name, PER above zero with a decently growing dividend that is likely to carry on growing for the forseeable future. Not all the shares in my portfolio seem to be achieving that.

nothing wrong with selling a commodity, as long as you have a cost advantage. otherwise you will not earn excess returns. this largely explains why the sectors you mention have proven to be very poor investments in recent decades.

£4m profit on £77m of property is still a poor return. the bare minimum for me is 10% ROIC.