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 2021 Annual General Meeting. My name is Laurence Brindle, and I am the Chairperson 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 the Chairperson of National Storage Holdings -- National Storage Financial Services Limited, the responsible entity of the National Storage Property Trust, and have been appointed as Chairperson for the meeting of unitholders of the trust, which will be run contemporaneously today. Due to COVID-19 restrictions, we are holding this year's AGM as a virtual meeting via the Lumi online platform. This allows securityholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, securityholders and proxies can ask questions and submit those through the online platform. Written questions can be submitted online at any time through the online platform. [Operator Instructions] Please note that while you can submit written and verbal questions from now on, I will address them at the end of the meeting. Please note that your questions may be moderated, or if we receive multiple questions on 1 topic, they may be amalgamated together. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will ask 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 terms of business -- 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 with 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 Meeting dated 24th September 2021, the details of which were sent to all securityholders. If there is no objection, I propose to take the notice as read. A copy of the notice can be found on the National Storage Investor website if required. It is now past 10:00 a.m. Brisbane time, and I have been informed by our share registry, Computershare, that a quorum is present. So I formally declare the meeting is open. A 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 nonexecutive directors: Anthony Keane, Chairperson of the Audit and Risk Committees and a member of the Nomination and Remuneration Committees; Steven Leigh, Chairperson of the Remuneration Committee and a member of the Nomination Committee; Howard Brenchley, a member of the Audit and Risk committees. Managing Director, Mr. Andrew Catsoulis; Executive Director and the Company Secretary, Claire Fidler; and the Chief Financial Officer, Stuart Owen. Representatives of our auditor, Ernst and Young; our share registry, Computershare; and our lawyers are present at the meeting today. This morning, I will provide a brief overview of our business, and then we'll 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 Meeting. NSR has continued its solid growth trajectory throughout financial year '21, delivering very strong returns across all our business. Our group occupancy grew by 8.5% to over 86%. Rate per square meter increased by 8.3% to $260, and revenue per available meter, REVPAM, grew by an impressive 22.8% to $227. These results are testament to the resilience of our business model and the dedication of our entire team, who are relentless in their pursuit of business excellence and continuous performance improvement. Our 4-pillar growth strategy, which remains focused on achieving organic growth through progressively increasing rates and occupancy, undertaking accretive acquisitions, continuing to deliver development and expansion programs and harnessing new technology and innovation to achieve business efficiencies and economies of scale. This has continued to deliver excellent results, and Andrew will provide further insight on these specifics areas later in the meeting. NSR's commitment to achieving enhanced sustainability outcomes remain unwavering. I direct you to our latest sustainability report, which -- in this regard for details of our ongoing initiatives in this area. Total revenue grew from $178 million to $218 million for the financial year. Our operating profit was up 24%, and importantly, our EBITDA margin also increased to 62%, demonstrating the improving efficiency of our business model and the maturation of our business as a whole. Underlying earnings increased 28% to $86.5 million, and NSR's total assets increased by 23% to $3.25 billion. NSR's securityholders have seen revenue growth of over 300% and underlying earnings growth of 344% since its IPO in December of 2013. Macroeconomic tailwinds continue to support our business as industry awareness increases, dwelling sizes decrease and our workforce becomes more flexible with working from home likely to become a permanent fixture in our economic future. Likewise, the trends towards downsizing, our aging population, strong housing market and the proliferation of e-business activity have also created additional demand for secure and convenient self-storage in Australia and New Zealand as well as in many other markets around the world. NSR continues to be the #1 acquirer of third-party-owned self-storage centers in Australasia, with 25 high-quality acquisitions totaling $352 million transacted in financial year '21. The ownership of self-storage centers remains highly fragmented, and we are confident that this pipeline of high-quality storage centers will continue to create acquisition opportunities in the foreseeable future. The NSR development team remains fully engaged with 10 new builds comprising over 59,000 square meters of NLA completed in FY '21. We currently have 22 active projects in the pipeline at present with 7 centers under construction. Our activities extend across new greenfield and brownfield constructions, expansion of existing centers as well as our revive program, which targets optimization of mature centers from a functionality, sustainability and efficiency perspective. Our business automation and innovation initiatives continue as we roll out no-key technology to new construction and expansion projects as well as numerous other industry-leading initiatives. During the year, we completed a fully underwritten capital raise for $325 million by way of a rights issue, which enabled us to strengthen NSR's balance sheet, reduce gearing and maintain funding flexibility and support future growth. Investors continue to enjoy growing returns; and this year, we delivered underlying EPS of $0.085 per stapled security, above initial guidance, and made a distribution of $0.081 per stapled security. Over the past 3 years, we have delivered total shareholder returns of 23%, and the market continues to show support for National Storage. This is at the top range of any of NSR's comparators in the A-REIT sector. NSR's Board and senior management remain confident of National Storage's ability to continue to deliver superior returns for FY '22 and in years to come. As always, our staff are our greatest assets, and I wish to thank each of them today for their part in delivering these exceptional results. Our senior executive team remain focused on driving growth across our 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'd now like to introduce the Managing Director, Mr. Andrew Catsoulis, to report on activities during the year.

Thank you, Laurence. I'd like to add my personal welcome to the Laurence and the rest of the National Storage REIT Board to this year's Annual General Meeting for National Storage REIT. We'll dive straight into a quick review of the financial year '21 results for National Storage REIT, provide a snapshot as to the financial year '22 outlook and then look more closely at the results from the first quarter of financial year '22 to give us some great insight into the trajectory of the business in the financial year '22. So starting with our FY '21 results. In summary, we reported an A-IFRS profit of $309.7 million; underlying earnings of $86.5 million, which represents a 28% year-on-year increase; underlying earnings per share -- or earnings per security of $0.085 per stapled security, up 2.4%; net tangible assets of $1.89 per stapled security, up 15%; a financial year '21 total return of 19.5%; a group occupancy of 86.1%, up 8.5%; and group REVPAM of $227, up a significant 22.8%. In terms of our outlook for financial year '22, we forecast underlying earnings greater than $110 million and an underlying earnings per security of minimum 10% growth. Next page, please. We will now turn to a brief operational update based on our results from the first quarter of financial year '22. So financial year '22 has seen a continuation of the strong results that we reported for FY '21 with group occupancy up 1% for the year-to-date to 87.1%. I might point out that this occupancy is now based on 170 centers as the reportable standard data set up from 120 centers previously. That represents in excess of 20,000 square meters of occupancy growth added since the 1st of July 2021. Group REVPAM has increased to $228 as at 30 September 2021, up 2.8% from $221 at 30 June. Group rate has increased to $263 as at 30 September 2021, up 3.4% from $254 at 30 June. Our ancillary revenues have continued to increase during this period. We now have 67% of centers trading at above 85% occupancy and 31% above 90% occupancy. We have secured -- we have executed the transition from a secured to an unsecured debt platform. This has now been completed and will provide us greater debt funding flexibility in the future. We're continuing to pursue longer dated debt markets, both domestic and international. We've completed 9 acquisitions in Q1 FY '22, totaling $43 million and adding 18,600 meters of net lettable area. Our development pipeline remains very strong, with 7 projects expected to be completed during FY '22 and over 20 active development projects in the pipeline. We have continued to make ongoing enhancements to our website. Our contactless move-in process and our online marketing efforts are bearing fruit with increasing inquiries through our website and our online forums. Next page please. I'll now look a little more closely to some key operational metrics. Firstly REVPAM, sustained occupancy rate and REVPAM growth that was achieved through FY '21 is continuing into FY '22. Our revenue management strategies are delivering excellent results. As mentioned, group occupancy up 1% to 87.1%; group REVPAM, up 2.8% to $228. That represents an annualized increase of 11.2% in respect of REVPAM and in respect of group rate per square meter, up 3.4% to $263. That represents a 13.6% annualized rate. You'll see in the table at the bottom of the page that those increases have flowed through both Australia and New Zealand, with the Australian occupancy up 0.8% and New Zealand up an impressive 2.5% to 88.1% in the first quarter of FY '22. Likewise, you'll see largely the increases in both REVPAM and rate over the same period. Next page, please. I'll now turn to our operational metrics in respect of occupancy for FY '22 Q1. So as mentioned, both occupancy across the Australian and New Zealand portfolios have both increased. Interestingly, occupancy across the 18 let-up has grown by 7.2% to 63.6%, representing a 10,100 square meter increase over Q1 FY -- over the period of Q1 FY '22. Total occupancy across our 207 centers is actually up by 2% and now sits at 83.9%. These are some very strong occupancy growth increases that we've seen over Q1 continuing the strong trajectory from FY '21. We still have approximately 70,000 square meters of growth remaining in the current portfolio before we reach 90% occupancy, giving us continued runway to backfill with occupancy growth in oncoming months and years. In addition to this, we have 100,000 square meters of new net lettable area under development. And we expect economic activity to increase in the post-COVID lockdown period, which should enable us to deliver further occupancy growth. You'll see at the bottom of that page a state-by-state breakup of occupancy by state. And pleasingly, the occupancy across each of the states remains in very good shape and is very strong. Next page, please. I'll now turn to a brief update on the acquisition pipeline. So for the period of FY -- in FY '21, we acquired 22 centers and 3 development sites totaling $352 million. This included a major strategic portfolio acquisition in Melbourne of 9 centers. This portfolio has significant expansion potential, which we intend to unlock in future years. In terms of the year-to-date position for financial year '22 first quarter, our focus remains on value acquisitions. In this regard, we've made 6 acquisitions of centers and 3 development sites totaling $43 million of several acquisitions for financial year '22, which has added 18,600 square meters of net lettable area. We expect this acquisition run rate to gain momentum as COVID-19 restrictions ease and interstate and overseas travel to New Zealand resumes. We remain focused on transacting high-quality acquisitions across both Australia and New Zealand. And we'll use the scalability of the operating platform to continue to drive efficiencies across the business. Next page, please. I'll now touch briefly on the expansion program for the centers. Our expansion and revive projects are adding significant value to the portfolio. We use NSR owned land in proven locations to unlock this expansion potential with 6 projects completed during financial year '21 totaling 29,500 square meters of net lettable area. We have 7 active projects in the pipeline and an aggregate net lettable area pipeline of approximately 47,000 square meters. In terms of our expansion of existing centers, we undertake strategic expansion of existing sites where occupancy levels are consistently high and demand exceeds supply. We're looking to optimize land parcels acquired over time, such as hardstand and outdoor area conversions into more intensive storage users, and there is significant value-add potential with over 50 centers within the current portfolio having future expansion possibility; or the utilization of surplus land, building over existing single-level buildings or conversion of warehousing into higher density storage utilization. These projects all total -- are -- all target a 15%-plus 5-year internal rate of return and a 10%-plus return on cost at stabilized revenue. I'll now pass back to Laurence for the continued business of the meeting. Thank you.

Thank you, Andrew. In respect of voting at today's meeting, I uphold that each member voting through the portal in person or by proxy, attorney or corporate representative, has one vote for each security held. Only one vote is allowed per joint holding. If more than one joint holder tenders a vote, vote of the member that's first in the register must 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 the 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 resolutions in items 2 to 9. I'll now move on to the formal business of the meeting. There are 9 items on the agenda. Item 1 relates to the financial statements and does not require a vote. Items 2 to 9 are resolutions for consideration today. Items 2 to 9 are ordinary resolutions, which means that in order for each resolution to be passed, more than 50% of the votes cast on the resolution must be in favor. The Notice of Meetings invited all securityholders to submit any written questions electronically, either prior to today's meeting or through the portal during the meeting. As mentioned earlier, we will respond to written and verbal 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 2021, and the reports of the directors and the auditors. Ric Roach of 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 content of the auditor's report, 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 reports. This item gives securityholders the opportunity to ask questions about the company and the trust and the operational performance of the REIT. Please submit any comments or questions you may have in relation to the financial report, the directors' 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 now move on to item 2. The next item on the agenda today is to present securityholders with the remuneration report for the financial year ended 2021. I'd like to make a few quick comments to put the report in context. The remuneration report looks back at the remuneration arrangements for 2021 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 2021 annual report, we have endeavored to provide securityholders with a detailed disclosure regarding the terms of and the rationale behind the company's remuneration framework. I believe that we have developed policies which balance the need to attract and retain senior executives with value for securityholders. The objective of the remuneration policy is to ensure that the company's remuneration is competitive, reflects 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 executives to pursue 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 its earnings and value. Please note that a vote on item 2 is advisory only and is not binding. However, any discussion on this item and the outcome of the non-binding vote will be taken into account and considered by the Board. Ladies and gentlemen, against that background, I now move that the remuneration report for the financial year ended 30 June '21, as detailed in the company's annual report, be adopted. Details about the proxies received by the company on this resolution appear on the screen. Polling on this resolution will be conducted through the online voting system during the meeting. A voting exclusion applies to this item as set out in the Notice of Meetings. The voting exclusion means that no key management personnel and members of the senior management team or any of their closely related parties may vote on this resolution. We move to the resolution ordinary business item #3, being the election of myself as a director. As this item concerns my own reelection to the Board of the company, it's appropriate that I should step down as the Chair during this item. Therefore, with the [ leave ] of the other directors, I call upon Tony Keane, Chair of the Audit and Risk Committees, to assume the Chair for this item.

Thank you, Laurence, and good morning, everyone. We move to the resolution, ordinary business item 3, being the reelection of Mr. Laurence Brindle. Mr. Brindle's biography is set out in the Notice of Meetings. 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. Brindle 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. Brindle's retirement. In accordance with 11.3(b) of the constitution, the directors of the company, with the exception of Mr. Brindle, who is abstaining from this resolution, recommend that Mr. Laurence Brindle be reelected as a director of the company and recommend that securityholders vote in favor of this resolution. Details of valid proxies received by the company on this resolution appear on the screen. Polling for this resolution will be conducted through the online voting platform during the meeting. I will now hand back to Laurence to chair the remainder of the meeting.

Thank you, Tony. We move to the resolution, ordinary business item 4, being the approval to issue 344,340 stapled securities to Mr. Andrew Catsoulis on behalf of the company and the trust as payment to the equity component of the short-term incentive and long-term incentive payments awarded to Mr. Andrew Catsoulis for the remuneration of the financial year ended 30 June '21 on the terms set out in the explanatory notes of the Notice of Meetings. 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. A voting exclusion applies to this item as set out in the Notice of Meeting. Voting exclusion means that Mr. Catsoulis and any other person who will obtain a material benefit as a result of the issue of the securities, except to benefit solely by reason of being a holder of stapled securities, or any associate of those persons, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We move to the resolution of ordinary business item 5, being approval to issue 54,912 stapled securities to Ms. Claire Fidler on behalf of the company and the trust as payment for the equity component of the short-term incentive and the long-term incentive payments awarded to Ms. Claire Fidler for remuneration of the financial year ended 30 June '21 on the terms set out in the explanatory notes of the Notice of Meeting. Details of valid proxies received by the company on the resolution appear on the screen. Polling on this resolution will be conducted through the online voting platform during the meeting. A voting exclusion applies to this item as set out in the Notice of Meetings. The voting exclusion means that Ms. Fidler and any other person who will obtain a material benefit as a result of the issue of the securities except to the benefit solely by reason of being a holder of the stapled securities or any associate of those persons, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We move to the resolution, ordinary business item 6, being the approval to issue 359,600 FY '24 performance rights to Mr. Andrew Catsoulis on behalf of the company and the trust under the NSR equity incentive plan on the terms set out in the explanatory notes of the Notice of Meetings. 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. A voting exclusion applies to this item as set out in the Notice of Meeting. The voting exclusion means that Mr. Catsoulis and any other director who is eligible to participate in the NSR equity incentive scheme or plan and associated with any of those directors, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We move resolution ordinary business item 7, being the approval to issue 65,100 FY '24 performance rights to Ms. Claire Fidler on behalf of the company and the trust under the NSR equity incentive plan on the terms set out in the explanatory notes of the Notice of Meeting. Details of valid proxies received by the company on this resolution appear on the screen. Voting on this resolution will be conducted through the online voting platform during the meeting. A voting exclusion applies to this item as set out in the Notice of Meeting. Voting exclusion means that Ms. Fidler or any other director who is eligible to participate in the NSR equity incentive plan, an associate of any of those directors, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We move to the resolution ordinary business item 8, being approval to issue 359,600 transitional FY '23 performance rights to Mr. Andrew Catsoulis on behalf of the company and the trust under the NSR equity incentive plan on the terms set out in the explanatory notes of the Notice of Meetings. Details of valid proxies received by the company on this resolution appear on the screen. Voting on this resolution will be conducted through the online voting platform during the meeting. A voting exclusion applies to this item as set out in the Notice of Meetings. The voting exclusion means that Mr. Catsoulis, any other director who is eligible to participate in the NSR equity incentive plan, an associate of those directors, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We've move to the resolution ordinary business item 9, being the approval to issue 65,100 transitional FY '23 performance rights to Ms. Claire Fidler on behalf of the company and the trust under the NSR equity incentive plan on the terms set out in the explanatory notes of the Notice of Meetings. Details of valid proxies received by the company on this resolution appear on the screen. Voting on this resolution will be conducted through the online voting platform during the meeting. A voting exclusion applies to this item as set out in the Notice of Meetings. The voting exclusion means that Ms. Fidler or any other director who is eligible to participate in the NSR equity incentive plan, associate of any of those directors, any person who is a key management personnel or any of their closely related parties may not vote on this resolution. We will now answer questions that have been submitted throughout the meeting and welcome securityholders to ask additional questions. For audio questions, I'll first read the securityholder's name and invite them to ask questions. For written questions, I will read the question and then provide the answer or invite the appropriate person to speak to the answer.

So the first question is a written question and a statement, and I'll read it. It's from [ Mr. Sully Robert Malik ]. It reads, "Congratulations to the team for another solid year. Customers have told me they have a very positive view of the company's product and support. Technology, innovation seems to be an important aspect of this service. How is the company dealing with any potential security threats where online scams tend to become a regular part of any connected person today?" Well, the answer to the question is we have significant programs in place to deal with cybersecurity, including external security consultants, regular audit of our systems, and analysis of systems for PCI compliance. This is an ongoing matter that the Board and management monitor constantly. Thank you for your questions. The next question is from Mr. [ Kevin Charles Bailey ]. In the annual report, your fourth pillar of growth was technology and innovation. Can you give some examples of this? The answer to your question, Mr. [ Bailey ], is key business process improvement initiatives include automation of the customer quoting process, meaning an entirely self-service, digital and bookable in one click; enhancing our customer [indiscernible] capabilities on our website, enabling greater self-help and less human interaction for greater convenience and efficiency. There has also been optimization of the contact center process, improving the ability to close sales and service our customers. And there's been the introduction of front-facing business applications to streamline in-center booking process. Onboarding new National Storage sites and customers through our digital platform and [ one item on ] modernization project, including the purpose-built technology for seller management system together with a streamlined service offering across National Storage [indiscernible]. I hope that answers your question, and thank you for your question. Another question from Mr. [ Kevin Charles Bailey ]. For future acquisitions, are you likely to run into difficulties with ACCC who always have their own definition of market concentration. The answer to the question is NSR's current market share is approximately 10% to 15%. NSR is always mindful of its legal obligation and the requirement to consult with ACCC, if necessary, to ensure competition within the market. All acquisitions go through due diligence, which includes competition analysis. NSR is confident of being able to continue to deliver on its stated strategy. Thank you for your question. Another question from Mr. [ Kevin Charles Bailey ]. It reads, "Do you employ an external computer platform for IT and the internet?" The answer is NSR uses cloud-based operating platforms and several external IT support systems to ensure diversification of risk. Thank you for your question. Okay. It appears that there are no more questions. So that concludes our discussion on the items of business. In a couple of minutes, I will close the voting system. Please ensure that you have cast your vote on all resolutions. I will now pause to allow time -- to allow you time to finalize those votes. I'll just allow a few more seconds for voting. [Voting]

Thank you. The voting system is now closed. The results of the poll on items 2 to 9 will be released to the ASX shortly and made available on our website today. Thank you for your continued support and for your attendance today. Thank you, and good morning.