European Self-Storage Operator Less Mess Storage Refinances Debt

Less Mess Storage Inc. (LMS), which operates self-storage facilities in Prague as well as Warsaw, Poland, has refinanced €8.5 million, the majority of its debt, through Poland-based Bank Zachodini WBK S.A. (WBK), a lender that is part of the Santander Group, a banking group based in Spain.

Prior to closing the refinancing, LMS carried bonds and vendor financing of €3.5 million and €7 million, respectively, that were used to purchase five City Self-Storage properties earlier this year. The annual interest on the bonds was 18 percent, while the vendor financing had an interest rate of just below 4 percent, company officials said in a press release.

Under terms of the refinancing, €3.5 million was used to redeem all of the bonds, and €5 million was used to pay down the vendor financing. LMS now has €2 million remaining on the vendor financing. The interest cost on the refinancing loan is split into two equal tranches, with one the Polish equivalent of €4.25 million and the other the Czech Republic equivalent of €4.25 million. The former is a three-month Warsaw InterBank Offered Rate, and the latter is a three-month Prague InterBank Offered Rate. There is also a margin of 2.85 percent, officials said.

Seventy-five percent of each tranche is subject to a five-year interest rate swap transaction resulting in blended, fixed-interest cost of 4.43 percent. The 25 percent floating portions of each tranche currently have a blended cost of 4.04 percent. The remaining €2 million tranche of vendor financing currently costs 3.8 percent and is capped at 5 percent, according to the release.

The refinanced loan term is five years, with amortization of principal over 25 years, or 4 percent a year. The bank has also agreed to provide an additional €2 million of senior-debt financing if LMS can raise at least €5 million in financing, either as equity or subordinated debt, by Dec. 31, 2015. If LMS doesn’t raise an additional €5 million by the deadline, a cash sweep will be triggered, which would essentially allocate most of the company's free cash flow generated after Dec. 31, 2015, toward repayment of the principal.

"This long-term financingthe first time a bank has invested in self-storage in Poland and the Czech Republicis excellent news for the company, and speaks volumes about the positive economic environment in Poland and the Czech Republic,” said Guy Pinsent, CEO for Less Mess. “In replacing the bonds-bridge financing, we have halved our weighted average cost of debt to 4.2 percent. We have also hedged our exposure to interest rate fluctuations by concluding five-year interest rate swap transactions for 75 percent of the bank financing, effectively fixing most of our interest cost at the current low rates. Our bottom line is expected to improve significantly, and the company now has a stronger balance sheet from which to expand."

LMS last week announced the restructuring of its storage holdings from under six subsidiaries to two.

Less Mess owns and operates five self-storage properties—four freehold, one leasehold—encompassing more than 180,000 square feet of net rentable space. The company reported $4 million in revenue in 2013. Though its records office resides in Vancouver, British Columbia, Canada, it also has a headquarters in Warsaw and offices in Prague. Its common shares are listed on the TSX Venture Exchange under the stock symbol "LMS."