National Storage REIT (NSR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. On behalf of the Board of National Storage REIT, it is my pleasure to welcome you to the 2020 Annual General Meeting. My name is Laurence Brindle, and I am Chairman of National Storage Holdings Limited, the shares of which are stapled to units in the National Storage Property Trust and listed on the Australian Securities Exchange as National Storage REIT. I'm also Chairman of National Storage Financial Services Limited, the responsible entity of the National Storage Property Trust and have been appointed as Chairman for the meeting of unitholders of the trust, which will be run contemporaneously today. Today's meeting is being held via online via the Lumi platform. This allows security holders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, security holders and proxies have the ability to ask questions and submit votes. Questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will address them at the end of the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on the one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all of your questions. If this happens, we will answer them in due course by e-mail or posting responses on our website. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. The meeting has been called under the Notice of Meetings dated 25th of September 2020, the details of which were sent to all security holders. If there is no objection, I propose to take the notice as read. The copy of the notice can be found on the National Storage Investor web page, if required. So it is now just past 10:00, and I have been informed by our share registry, Computershare, that a quorum is present. So I formally declare the meetings open. The polling icon will soon appear. Please submit your votes at any time. I will give you a warning before I move to close the voting. I would now like to introduce the directors and senior executive team of the company. The non-executive directors: Anthony Keane, Chairman of the Audit and Risk Committee and a member of the Nomination and Remuneration Committees; Steven Leigh, a member of the Nomination and Remuneration Committees; Mr. Howard Brenchley, a member of the Audit and Risk Committees; the Managing Director, Andrew Catsoulis; Executive Director and Company Secretary, Claire Fidler; and the Chief Financial Officer, Stuart Owen. Representatives of our auditor, Ernst & Young; our share registry, Computershare; and our lawyers, Allens, are also present at the meeting today. This morning, I will provide a brief overview of our business and then hand to Andrew for an operational update. We will then turn to the formal part of the meeting as set out in the Notice of Meetings. The 2019-2020 year has been, by any measure, an extraordinary year for everyone across the globe, and no less for NSR. Despite the challenges presented and the disruption caused by COVID-19 and the highly publicized M&A activity earlier this year, NSR has continued deliver -- to deliver high-quality beneficial outcomes for its stakeholders. Our business continues to grow from strength to strength. I will briefly touch on the 4 key pillars of our growth strategy, which Andrew will talk about a little later. Revenue growth grew strongly from $159 million to $178 million for the financial year. Our occupancy, which suffered a small initial reduction at the outset of COVID-19 pandemic, has since rebounded strongly, with solid occupancy growth being experienced in almost all markets in which NSR operates. Our acquisition program continues to result in an ongoing pipeline of high-quality storage centers being identified and acquired by NSR, with over $200 million of acquisitions transacted in financial year '20. The fact that the vast majority of these acquisitions continue to be transacted on an off-market basis is a testament to the depth and strength of long-term relationships that our senior management team have developed over many years in the storage industry across Australia and New Zealand. The NSR development team continues to expand with a number of quality new recruits, a reflection of the increasing number of new development projects as well as expansions and refurbishments being undertaken. Financial year '20 saw the delivery of 4 new-builds comprising over 24,000 square meters of space with over 15 projects in the pipeline at present. Our business continues to embrace new technology and innovation, with financial year '20 witnessing the opening of Australia's first smart storage center at Robina in Queensland, a fully blue tooth-accessible NSR center with automated access to each individual storage unit. The rebuild of the NSR website, the internalization of our digital marketing team and the introduction of a COVID-safe, contact-free online move-in process are other illustrations of NSR's harnessing of technology to improve and streamline the customer experience for our 70,000 strong customer base, which continues to grow and flourish. These initiatives, combined with a strong focus on continuous improvement, have resulted in NSR being awarded the coveted Canstar Blue Award for Australia's most satisfied self-storage customers, receiving 5 stars across all measurement areas. During the year, we completed an institutional placement and associated security purchase plan, raising approximately $348 million, which enabled us to strengthen NSR's balance sheet, reduce gearing, maintain funding flexibility and support future growth. This record growth has seen assets under management climb more than 17% to $2.28 billion. An additional 77,900 square meters of net lettable area has been added to the portfolio through acquisition of another 20 centers during the financial year to June, with another 8 centers to date this year. Our market capitalization has risen 41% to approximately $1.92 billion since June 2019. Investors continue to enjoy stable returns, and this year, we delivered a distribution of $0.081 per stapled security. Over the past 3 years, we have delivered total shareholder returns in excess of 44%, and the market continues to show support for National Storage. This is at the top of the range of any of NSR's market comparators in the A-REIT sector. The Board is confident National Storage is well placed to continue to build upon the success to date, with the senior executive team remaining focused on driving growth across the 4 strategic pillars, developing multiple revenue streams to deliver stable and growing returns for our investors. We would like to thank you, our valued investors, for your continued support as we look forward to the year ahead. I would now like to introduce the Managing Director, Andrew Catsoulis, to report on the activities for the year.

Thank you, Laurence, and welcome, everyone. Might I add my own welcome to our first ever virtual AGM? And I'll start by providing a brief review of FY '20 results and then I'll move straight into an update of our FY '21 performance for Q1 of this year. Turning to our FY '20 results. You'll recall we announced an A-IFRS profit of $121.8 million, representing underlying earnings of $67.7 million, a 9% increase year-on-year. Underlying earnings per security of $0.083 per stapled security was achieved with our net tangible assets increasing by 1% to $1.65 per stapled security, and that represents an FY total return of 6.2%. Combined portfolio occupancy sat at 78.9%, impacted, as Laurence has mentioned, by a modest drop in occupancy at the onset of the COVID-19 pandemic in Q4 of FY '20. Our REVPAM finished the financial year '20 at $195. During our results presentation for FY '20, we provided an FY '21 outlook with estimated underlying earnings between $78 million and $84 million, and underlying EPS forecast to be $0.077 to $0.083 per stapled security as a range. I'll now turn to an operational update for Q1 of FY '21 on next slide, please. We have continued our very strong start to FY '21, which is extremely pleasing from the Board and senior management's perspective. A very, very strong recovery has been experienced with combined occupancy growth up 5.6% from July 1 to date to 84.5% occupancy at present. That represents in excess of 60,000 meters of occupancy, which has been added since the 1st of July, an extraordinary achievement by our team. Put that another way, that is the equivalent of 12 storage centers filled over a 4-month period from starting to 100%. And this is a testament to the hard work of the team across a number of key areas, which I'll touch on a little later. Our REVPAM has increased from $195 at 30 June to $200 at 30 September. Merchandise and insurance revenues continue to increase strongly, with almost 50% of our centers now sitting above 85% occupancy and 23% sitting above 90% occupancy. Our debt facilities have now been extended with that extended tenor sitting at 3.6 years. This has been achieved at no increase to our marginal cost of debt. We are continuing to pursue our investigations into the longer-dated debt markets, both domestically and internationally, and we will update the market in due course. From an acquisitions perspective, we have completed 8 acquisitions in Q1 of FY '21 to date, representing $139 million in total value and, importantly, adding 54,100 square meters of net lettable area to the portfolio. From a development perspective, we have 4 expansion projects underway and nearing completion, and a development pipeline, which remains very strong, with 7 projects expected to be completed during the remainder of FY '21. Our website continues to perform very strongly, and we are continuing to provide upgrades to the website as well as to build on the success of our contactless move-in process, which was introduced at the start of the COVID-19 pandemic. From an online marketing perspective, our marketing activities from our newly internalized digital marketing team continued to perform very successfully and drive business into storage, as you can see from the earlier announced strong increase in occupancy. Our focus overall is continuing to drive our revenue, and this is reflected in our improving REVPAM number. I'd like to acknowledge the very strong efforts of the senior management team, our state management teams and our executive as well as the Board in contributing to this very strong Q1 results. Next slide, please. We'll now look, in a little more detail, at the operational update in 4 key areas. You'll see from the next slide that our net lettable area continues to improve after an initial drop at the onset of the COVID-19 pandemic. In fact, the net lettable area and inquiry numbers are exceptionally strong, and that's being reflected across the business as a whole. Likewise, our move-ins continue to improve and are, in fact, running at a stronger level than they were at the comparative time in 2019. Importantly, our debt as a percentage of revenue remain very low, and we are still sitting well above 99% of total revenue collected. So there's been very little, if any, impact on our total revenue collection during the COVID-19 pandemic. Next slide, please. If we look at our active management of rate and occupancy, you'll see that our strong momentum is being maintained with REVPAM across the 2 measurement portfolios, the June 2019 centers and the June 2016 centers continuing to increase, with REVPAM sitting at $200 as at today's date. Next slide, please. If we look at our occupancy in a little more detail on a state-by-state basis, you will see that our combined New Zealand and Australian occupancy, as I mentioned, is 84.5%, up 5.6%; with the Australian portfolio sitting at 84.2%, up 6.5%; and the New Zealand portfolio sitting at 86%, up 1.3%. Now what's most pleasing about these very strong numbers is that growth has been achieved across every state and territory of Australia and throughout New Zealand. So you'll see from the breakdown that we've provided on that slide that every state, including Western Australia, is now sitting above 80% occupancy. And in the case of Victoria, notwithstanding over 100 days of lockdown, we've seen growth in Q1 of over 3% in occupancy during that period. I think by any measure, these are exceptional additional results from an occupancy perspective. I'll now provide a brief update, next slide, please, on the response to COVID-19. So the COVID-safe compliance plans that we implemented at the start of the COVID-19 pandemic remain in place, and we've had 0 staff infections to date across the group. That's a very pleasing result. This has really involved a head office-led approach to work flexibility, productivity and vigilance, both in terms of our staffing needs and our preparedness to act in relation to potential scenarios. Notwithstanding the high level of safety that has been provided to both our customers and staff, we've achieved very high levels of productivity and customer service throughout this period. Another important aspect of our response to COVID-19 was maintaining full staffing and wage rates, and we have received no JobKeeper support over this period. We have introduced a number of new incentive programs to continue to motivate and incentivize staff to achieve mutually beneficial outcomes for both the business and our customers. Importantly, over this time, in releasing our sustainability report, you will see some commentary on our new benchmark Parenting Policy, which has recently been introduced and very well -- has been very well received by our staff. It reflects our continued commitment to improving our staff conditions and engagement across the group. Next slide, please. I'll now provide a brief acquisition update. You'll see that we've had a -- notwithstanding the travel restrictions, we've had a busy and successful start to our acquisition activities in financial year '21, having completed 8 new acquisitions for the year-to-date, totaling $139 million in value and adding 54,100 square meters of net lettable area. The forward-looking acquisition pipeline remains strong, with over $100 million of acquisitions under active consideration. We expect to achieve our target of $200 million to $300 million of acquisitions in FY '21. Turning to our next slide, I'll briefly touch on our development and expansion activities. You'll see from that slide that our development and expansion activities remain a very important part of our business with 19 active projects; 7 projects under construction, which are intended to be completed during the FY '21 financial year; 2 shovel-ready projects about to commence; 6 projects being contracted or in due diligence; and 6 more projects under active investigation. This creates an aggregate NLA pipeline of circa 120,000 square meters. Our new developments are a combination of greenfield, turnkey and joint ventures and our expansion projects allow NSR to leverage its developed in-house expertise and provide maximum utilization of these sites which we currently own. We're targeting a double-digit 5-year internal rate of return on these projects and a better than 10% return on cost at stabilized. Focused -- our focus for our ongoing expansion and development activities is to cover the "black holes" in the portfolio coverage, and these key areas have been identified for future growth. We actively apply new technologies such as the Bluetooth Smart Access Laurence mentioned earlier, which has been incorporated in our Robina center on the Gold Coast to improve our efficiency and enhance our customer and employee experience at these centers. That concludes my presentation. However, in closing, as we head towards 200 centers, I would like to publicly acknowledge the strong contribution from all our staff from our senior management team, my fellow executive and the Board in achieving the outcomes that we've disclosed today. And I'd also like to thank you, our security holders, for your ongoing active support, without which our continuing growth trajectory would be much more difficult. I'll pass back to you, Laurence.

Okay. Thank you, Andrew. Let's move to a few procedural matters before we start the formal business of the meeting. In respect of voting at today's meeting, on a poll, each member voting through the portal in person or their proxy, attorney or corporate representative, has 1 vote for each security held. Only 1 vote is allowed per joint holding. If more than 1 joint holder tenders a vote, the vote of the member first named in the register will be accepted to the exclusion of the others. If a proxy has been directed to vote in a particular manner, if the proxy is entitled to vote, he or she must vote in accordance with that direction. And for some items of business, certain votes will be disregarded as explained in the voting exclusion statements in the Notice of Meetings. As Chair of this meeting, I advise that I intend to vote all undirected proxies in favor of the resolutions for item 2 to 6. I will now move to the formal business of the meeting. There are 6 items on the agenda. Item 1 relates to the financial statements and does not require a vote. Items 2 to 6 are resolutions for consideration today. Item 2 relates to the remuneration report and is a nonbinding advisory vote only. Items 3 to 6 are ordinary resolutions, which means that in order for each resolution to be passed, more than 50% of votes cast on the resolution must be in favor of it. The Notice of Meetings invited all security holders to submit questions electronically, either prior to today's meeting or through the portal during the meeting. As mentioned earlier, we will respond to questions at the end of the formal business of the meetings. The first item of ordinary business listed in the Notice of Meetings is to receive and consider the financial statements of the company and the trust for the year ended 2020, and the reports of the directors and the auditors. Mr. Ric Roach from Ernst & Young, the entity's auditor, is in attendance with us at this meeting, and questions may be directed to him through me relevant to the conduct of the audit and the preparation and contents of the auditor's report, also the accounting policies adopted by the company and the trust and the independence of the auditor. It is not necessary for the meeting to formally approve the financial statements or the reports. This item gives security holders the opportunity to ask questions about the company and the trust and the operational performance of the REIT. Please submit any questions or comments that you may have in relation to the financial report, the director's report, the auditor's report or on the operations of the company and the trust so that we can respond at the end of the meeting. I'll now move on to item 2. This item on the agenda today is to present security holders with the opportunity to participate in a nonbinding advisory vote for the adoption of the remuneration report for the financial year ended 2020. I'd like to make a few introductory comments and put the report in the context. The remuneration report looks back at the remuneration arrangements for the 2020 financial year and relates to the remuneration of key management personnel and fees paid to directors during the year. In the rem report contained in the FY 2020 annual report, we have endeavored to provide security holders with detailed disclosure regarding the terms of and the rationale behind the company's remuneration framework. We believe we have developed policies which balance the need to attract and retain senior executives with the need for providing value to shareholders. The objective of the remuneration policy is to ensure that the company's remuneration is competitive, reflects the responsibilities of the officers and ensures that the company is able to attract and retain directors and key management personnel with the skills and capabilities required to deliver the REIT's objectives. Our policies demonstrate the relationship between performance and remuneration and aim to motivate senior executives to pursue the long-term growth and success of the company. The Board believes it has a successful remuneration structure that creates incentives for high-performance executives and which [ delivers ] financial reward to them when the company increases earnings and value. Ladies and gentlemen, against that background, I now move that the remuneration report for the financial year ended 2020, as detailed in the company's annual report, be adopted. Details of valid proxies received by the company on this resolution are up here on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. There is a voting exclusion on this item, which means that no key management personnel or members of the senior management team or related parties may vote on this resolution. We move to the resolution, ordinary business, item 3, being the reelection of Claire Fidler as a director. In order for the company to meet the requirements of the ASX listing rules and the company's constitution, there must be an election of directors at each Annual General Meeting. Ms. Fidler has offered to retire as a director of the company and offers herself for reelection as a director of the company. The company accepts Ms. Fidler's retirement. In accordance with 11.3(b) of the constitution, the directors of the company, with the exception of Ms. Fidler, who is abstaining from this resolution, recommend that Ms. Fidler be reelected as a director of the company and recommend that shareholders vote in favor of this resolution. Details of valid proxies received by the company on this resolution appear on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. We now move to the resolution, ordinary business, item 4, being the reelection of Steven Leigh as a director. In order for the company to meet the requirements of the ASX listing rules and the company's constitution, there must be an election of directors at each Annual General Meeting. Mr. Leigh has offered to retire as a director of the company and offers himself for reelection as a director of the company. The company accepts Mr. Leigh's retirement. In accordance with 11.3(b) of the constitution, the directors of the company, with the exception of Mr. Leigh, who is abstaining from this resolution, recommend that Mr. Leigh be reelected as a director of the company and recommend that shareholders vote in favor of this resolution. Details of the valid proxies received by the company on this resolution appear on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. We now move to the resolution, ordinary business, item number 5, being the reelection of Howard Brenchley as a director. In order for the company to meet the requirements of the ASX listing rules and the company's constitution, there must be an election of directors at each Annual General Meeting. Mr. Brenchley has offered to retire as a director of the company and offers himself for reelection as a director of the company. The company accepts Mr. Brenchley's retirement. In accordance with 11.3(b) of the constitution, the directors of the company, with the exception of Mr. Brenchley, who is abstaining from this resolution, recommend that Mr. Brenchley be reelected as a director of the company and recommend that shareholders vote in favor of this resolution. Details of valid proxies received by the company on this resolution appear on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. Under the ASX listing rules, generally, a company must not issue more than 15% of the number of ordinary equity securities on issue during any 12-month period. However, if security holders subsequently approve the issue of securities, it allows National Storage REIT to issue up to the 15% of the number of ordinary security -- equity securities on issue over the following 12 months without a further security holder approval. On the 23rd of April 2020, the ASX issued a class waiver, which, among other things, temporarily increased the number of securities that NSR could issue without shareholder approval from 15% to 25%, subject to conditions. That extra 10% placement capacity could only be used once and cannot be refreshed by shareholder approval. On the 5th of May 2020, National Storage REIT announced it would be undertaking an equity raising by way of, in part, a placement to eligible security holders in reliance of the ASX Class Waiver. As a result of the equity raising, NSR issued 191,082,803 stapled securities in NSR to institutional and professional investors on the 11th of May 2020 at an issue price of $1.57 per stapled security. The purpose of the equity raising was to strengthen NSR's balance sheet, replenish investment capacity and provide additional funding flexibility for continued growth. Stapled security is issued under the placement ranked equally with those securities on issue. The placement represented approximately 24.13% of National Storage REIT's issued capital. Under this resolution, in accordance with the ASX Class Waiver, National Storage is seeking to ratify the issue of the first 15% of the placement, that is, 118,780,246 stapled securities, and to refresh National Storage's capacity to issue up to 15% of its issued capital without security holder approval. The directors of the company earnestly recommend the security holders' vote in favor of item 6. Details of valid proxies received by the company on this resolution appear on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. There is a voting exclusion on this item. The company and NSPT will disregard any votes cast on item 6 by any person that participated in the issue of stapled securities or an associate of any of those persons. Ladies and gentlemen, we will now move to answer questions that have been submitted throughout the meeting. I will first read the question and then provide the answer or invite the appropriate person to speak to the answer.

So the first one is both a comment and a question. The comment goes, "Congratulations on successfully negotiating a busy and difficult year. We see National Storage has been evaluated as the top-rated storage company in Australia by Canstar. What factors do you believe have been important in achieving that status?" Well, thank you for the question. NSR has continued to improve staff training and experience with a focus on customer service, with the aim of providing the most comprehensive and valued experience for our customers. The high quality of our centers, the convenience and accessibility of locations, and the continued training with a focus on reliability and quality assists our teams in engaging with customers. Next question. Are there any other questions? Okay. I think that was all the questions we have received. So ladies and gentlemen, that concludes our discussion on the items of business. In a couple of minutes, I will disclose -- I will close the voting system. Please ensure that you have cast your vote on all resolutions. I will now pause for a short time to enable you to finalize those votes. [Voting]

Thank you. The results of the poll on items 2 to 6 will be released to the ASX shortly and also made available on our website today. Ladies and gentlemen, thank you for your continued support and for your attendance today. Thank you, and good morning.