Is Shurgard paying enough for Lok’nStore?

Belgium-based Shurgard Self Storage has secured a recommendation from the board for its 1,110p/share cash bid for self-storage operator Lok’nStore (LON: LOK), which has been on AIM for nearly 24 years.

The bid values the company at £378m and transaction costs could be nearly £30m. Debt is low with loan-to-value of 3.7% at the end of July 2023 and it was not expected to peak at much more than 13.3% after investment in new capacity.

The share price has risen above the level of the bid. It moved 17.2% higher at 1122.5p. Cavendish previously set a target price of 1352p.

Both companies have been trading for three decades. Lok’nStore moved from Ofex (Aquis Stock Exchange) to AIM on 28 June 2000, when it was valued at £36.5m. There have been share issues since then, including last July’s placing and offer that raised £20.5m at 765p/share, which had a negative effect on the share price.  

First half revenues increased by 4.9%, helped by price rises and increased occupancy. There is a pipeline of new openings over the coming years, which will enhance longer-term growth.

Forecast net assets are 1021.4p/share, rising to 1091.9p/share in 2024-25. This could increase to 1,196.2p/share by the end of July 2026.

That makes the level of the bid seem reasonable, given that there was a large discount to NAV prior to the offer. This bid is certainly good for Shurgard, which will gain greater scale in south east England and the Manchester area. It is currently focused on London and Thames Valley sites. The deal will also accelerate its programme of new openings.

There is plenty of scope for more self-storage capacity in the UK. There is significant investment interest in the sector.

Lok’nStore directors owning 19% of the company have irrevocably accepted the offer. However, there are no acceptances by the major institutional shareholders mentioned in the announcement.

More than two-fifths of the shares are owned by eight investors. There is no indication whether the bid is acceptable to them. The rise in the share price to above the offer level suggests that some people believe that the bid is too low.

The original recommendation price in 2021 was 605p. The bid offers an attractive outcome, particularly as there are dividends on top, but it is not overly generous. There could be a rival bid or institutions could try to get more from Shurgard. Investors should await developments.

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