Shurgard Self Storage Ltd (SHUR.BR) Earnings Call Transcript & Summary

Welcome to the Shurgard Half Year Earnings Call. My name is Barbara and I'll be your Evercall coordinator. The format of the call includes prepared remarks from the company, followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Caroline Thirifay at Shurgard. Caroline, you may now begin.

Thank you, Barbara. Good morning, everyone. Thank you for joining us for the Shurgard H1 2025 results. I'm here with Marc Oursin and Thomas Oversberg. Before we begin, we want to remind you that all statements other than statements of historical fact included on this call are forward-looking statements. Forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected by the statements. These risk and other factors could adversely affect our business and future results that are described in our earnings release and in our publicly reported information. You can find our press release and an audio webcast replay of this conference call on shurgard.eu website. With that, I will turn the call over to Marc.

Thank you, Caroline. And good morning, everybody. So let's start with Page 2 of this presentation, if you don't mind, to call the highlights. So you can see that our portfolio has reached 338 properties with 1.7 million square meters. And the first half of the year 2025 has delivered strong results with a revenue growth also of 17.1% with high occupancy for our same stores reaching 89% across the 7 geographies. I would say that in addition, our platform efficiency has delivered a gain of 90 basis points of NOI margin rate over the period, which is very significant. Regarding some balance sheet metrics, our EPRA NTA per share reached EUR 51.4 and our leverage is as foreseen was less than 20% of LTV and 6x net debt over EBITDA. If you don't mind, let's flip to Page 3 and focusing on more granular results. On that page, you can see that the very significant growth of our revenue, as I said, 17.1% is combining the effect from the acquisitions of 2024 and in particular, outside London, plus the performance from our same-store pool, which is 82% of our revenues. The notable point is the growth of our EBITDA, 17.4% at the same time. That has been higher than the revenue growth despite new properties not yet matured and hampering the margins. This has been more than mitigated by our same-store platform efficiencies. And therefore, bottom line, our adjusted EPRA earnings grew by 2.7% after the anticipated impact of the new debt we borrowed in '24 to fund our same-store acquisition. If you flip to Page 4 to have a focus on the same-store. The revenue grew by 4.7% with a stable high occupancy of 89%, and our in-place rent did grow by 4.6%. Meanwhile, as mentioned previously, the cost management and platform efficiencies delivered a significant margin improvement of almost 1 percentage point over the half year. One thing to mention also, all the countries have been positive with the Netherlands and Germany leading the pack, plus 7% and plus 5.4%. Sweden is back on track with more than 4% and all other markets are between 3% and 4.5%, this kind of growth. And on this, I turn to Thomas.

Thank you, Marc. I will now walk you through our financial performance on Page 6, highlighting the main component of our NOI growth for the first half of 2025. Starting with our same-store portfolio, you can see the breakdown of the drivers contributing to NOI growth. Approximately EUR 300,000 of the increase is due to our ability to rent out more square meters than in the year before. Additionally, EUR 5.1 million came from higher in-place rents, reflecting our continued ability to increase prices across our market. Importantly and as already said by Marc, we increased our same-store NOI margin by 90 basis points, adding EUR 1.7 million to the absolute NOI. This remains remarkable as we see sustained cost pressures, particularly from continued rises of real estate taxes in the U.K. and France, as well as on the payroll side. Other cost headwinds include marketing expenses and to a lesser extent, increased payment processing fees on standardized payment platform. By contrast, repair and maintenance expenses remained stable year-on-year. The margin improvement reflects the impact of our realized synergies, cost benefits from our store clustering and overall cost management initiatives. Finally, our 40 nonsame-stores contribute an additional [ EUR 13 million ] to NOI compared to prior year. Moving on to the next slide. Here, we bridge the movement in our adjusted EPRA earnings per share. Compared to the first half of 2024, these earnings rose by EUR 0.01 per share, explained by the following components. Underlying EBITDA increased by 17.4% compared to prior year, driven by the already discussed increase in NOI by 16.7% and controlled 14.8% increase of G&A expenses. As a result, underlying EBITDA margin improved with 10 basis points to 56.1% versus same period in 2024. Main cost drivers in the first half of 2025 include besides other payroll expenses versus prior year EUR 0.9 million, reflecting the inflation impact on salary and selected investments in new positions to support future growth. Combined, the NOI and G&A impacts delivered a net EUR 0.20 per share uplift. As guided, higher interest expenses offset most of this gain. This is the result of our long-term financing strategy to support our portfolio growth. The increase in debt alongside with repayment of low interest rate debt moved our average cost of debt from 2.39% to 3.29% in June 2025. Finally and in line with expectations, our effective tax rate increased by 1.1 percentage points to 18.70%, reducing adjusted EPRA earnings per share by EUR 0.02. Together with the impact of the new shares issued and other adjustments, this results in an adjusted EPRA earnings per share of EUR 0.82, an increase of 1.3%. And with that, I hand it back to Marc.

Well, thank you, Thomas. So let's talk about now our portfolio expansion, which is Page 8 of the deck. So regarding our very large pipeline, you can see on this page that it is in line with our guidance for the coming 3 years, 2025, '26 and '27. I will not go through the details of all the numbers but a couple of points to highlight. First, the significant number of redevelopments with high returns and 14,000 square meters in total delivered, which is close to the equivalent of 3 standard properties. So very significant in this year 2025 and onwards. Second, our top 4 markets by revenue size, so the U.K., the Netherlands, France and Germany will benefit from that additional footage in the coming 3 years, meaning bringing additional scale and leverage on costs. Third, the EUR 0.5 billion total investment will generate an additional NOI of more than EUR 45 million at maturity. So let's have a look now on Page 9 with a couple of pictures. On this Page 9, I will take the example of the beautiful city of Stuttgart in Germany with a massive property of Wangen and its 7,000 square meter. This is the third picture on the top line from left to right. Stuttgart, is part of the so-called Big 7 cities in Germany. And we have decided a couple of years ago to enter this market and get scale quickly. And actually, this is what will happen this year and next. A second property will open in the district of Leinfelden in 2025 in Q4, so in a couple of months now. And the third one in the district of [indiscernible] will open in '26, which means that we'll get 3 properties over there within 2 years, giving us the leading position in that city of Stuttgart versus competition. So now let's flip to Page 10 with an update on ex-Lok'nStore. So we acquired Lok'nStore as a reminder, on August 1. So happy birthday. We are the 14th of August today and we are on track with our business plan. All teams of our company have done a tremendous job in many different fields. So I would like to take this opportunity to thank and congratulate them for their great achievements. So we are planning to have a dedicated property tour on October 9 this year in the morning. But I'm sure Caroline will come back to this later in the presentation with you. So regarding a couple of metrics and prospects behavior, for example, we are in line with all markets with 50% penetration of [ e-rental ], which is really confirmed after 1 year of trading over there. Occupancy continues to grow nicely and reaching 77% by the end of June and on track to get to 90% within 18 months, as we have already mentioned a couple of times, reaching 90% by December 2026. Regarding the synergies and they are with EUR 4 million to EUR 5 million and those ones will be delivered by 2025. And then on this, I will turn to Thomas.

Thanks Marc. Let me close out our half year performance review with a look at our financial positioning. As you will remember, our financing policy's purpose is to ensure that we can deliver our strategy under any market conditions. It remains a core pillar of our continued growth and long-term value creation. After our successful initial public bond market offering in 2024, we returned to the Eurobond market in the first half of 2025 with another well-perceived EUR 500 million issuance. The debt market clearly appreciated our BBB+ investment-grade rating from S&P and our overall value proposition as well as the fully unencumbered asset base. The bond was issued at a competitive 4% fixed interest rate and was used to long-term finance our floating rate bank facility as well as a EUR 130 million UBP tranche. This reduced our refinancing risk, moved our average cost of debt to 3.29% and extended our average debt maturity to 7.7 years. With net debt-to-EBITDA at 6x and LTV at 22.8%, we remain well within our targeted leverage range and continue to confirm our BBB+ rating commitment. Finally, our cash reserves of EUR 149 million and fully undrawn committed RCF of EUR 500 million provide additional liquidity, giving us ample capacity to fund future investments. Moving on to Slide 12. Looking ahead to the end of 2025, we are able to confirm our guidance. Key points to remember, the revenue NOI growth of approximately 11% across all stores, which takes into account the performance of the first half of the year and also the strong comparables for the second half of 2025 as it includes our U.K. and German acquisitions for the reference period. Our underlying EBITDA margin is assumed to improve by 50 basis points, of which 10 basis points were already achieved during the first half of the year. Net interest expenses are expected to increase to around EUR 50 million as a result of the long-term financing of our investments. We currently estimate our effective tax rate on adjusted EPRA earnings will move to approximately 18.5%. And for shareholders, our dividend remains stable at EUR 1.17 per share and with an optional scrip dividend. And with that, I hand it back to Marc for the summary of our half year results.

Thank you, Thomas. So now let's wrap up the presentation with Page 13, please. So all in all, a great half year for our company. I would say, combining strong revenue growth, significant margin rate improvements for same-store pool, massive pipeline. You've seen the pictures and the numbers. Our U.K. last year acquisition is on track and also a very solid balance sheet and therefore confirming our outlook '25. So on this, I turn to Caroline.

Thank you, Marc and Thomas. We are excited to invite all of you to join us for the visit to Farnborough and Aldershot on October 9 at 9 a.m. It will be a great opportunity to see our operations up close. With that, we are now pleased to open the line for your questions.

[Operator Instructions] We will proceed with our first question. It comes from Andrew at Green Street Advisors.

A few questions from me. Maybe we take them one by one. Firstly, on your same-store revenue growth. In the first quarter, this was trending at 5.7% year-on-year but now in 2Q, it's slowed down quite a bit. I'd just like to understand what are the main drivers there? And also, could you share some insight into seeing -- into how you're seeing 3Q so far?

Okay, sure. All right, Andrew. Thank you. This is Marc speaking. So first, as you mentioned, Q1 actually was with a very good performance. And to be very frank, we -- it was higher than our anticipation. We were anticipating for the whole year a same-store performance between 3% and 4% and this one was significantly higher. And Q2, it is in line with our expectation. And amongst the -- so the 3.8% that you have actually on Page 17, showing this. And the point where we have been actually surprised was the U.K., a bit softer with 1.7%, while the half year is at 3%. And this is due to the fact that our same-store pool in the U.K. is London, more or less exclusively. Out of the 40 stores that we have in this same-store pool, 37 are in London. So we can say -- and when I mean in London, I mean, within the [indiscernible]. And what we are seeing there is that a couple of competitors are more aggressive on their pricing and we answer that -- we answer to this, sorry, by having also good pricing and therefore, to keep our occupancy at the level we are looking for.

Okay. That's clear. And then just on Lok'nStore, the portfolio, as you mentioned, it seems to be on track for reaching 90% stabilized occupancy by 2026. Are you seeing any upside to that time line? Or is 1 percentage point per month be a sustainable pace?

Well, I think that this is clearly sustainable. Maybe some months will be 0.5 another month closer to 1 or above 1, clearly the season. By the way, what we have done also because we were doing pretty well there. We have taken the opportunity to remix some properties during the start of Q2. And actually, without this remixing with probably this the occupancy would have been even higher than what we have now. But it's good for the short and medium term because it means that we have a smaller unit size, more units and we're able to have a good pricing there. So -- but to make a long story short, you know that in the U.K., the season, which means from, let's say, June to August, early September is usually higher versus other countries. So there is a real -- let's say, a real -- a more significant seasonal effect than the continent. And so what I'm expecting to see is probably not the same kind of growth in terms of pace in Q4 because it will be the low season but nothing worrying. We are on track. So for the time being, there are some upside on certain stores. Others are more in line. So for the time being, let's be reasonable and I'd say, conservative. We stick to our, I would say, guidance there.

Okay. That's helpful. And just a follow-up there. Now that Lok has been fully rebranded and plugged into the Shurgard machine, are you seeing any improvement in pricing power or customer conversion compared to preintegration levels?

Well, in a way, indeed, because the gain of occupancy is the, let's say, tangible result of that. And that's why we mentioned during a couple -- already a couple of calls, I think, in this presentation that you have on this page regarding Lok'nStore, ex-Lok'nStore, the what we call e-rental, so which means that the fact that out of 100 new contracts, more than 50% of those are done through completely this seamless experience on the website. You go from the needed to your unit paid and contracted. And to be very frank, we have that in all the markets, even, I would say, in the Tier 1 cities and not only in the capital cities. We thought it could be the same for Lok'nStore, ex-Lok'nStore but it's better to see it in real, which is the case. So for us, in terms of demand, there is no specific behavior of prospects in Manchester, in Birmingham or in London.

And we're going to move to our next question. It comes from [ John Atkinson ].

I think you just referred to a 3% to 4% like-for-like expected same-store revenue growth essentially for your guidance in the 11%. But right now, it's already at 4.7%. So do you expect a deceleration in, say, the next 4 months in your like-for-like?

Indeed, John, that's the way we build up our, I would say, budget, therefore, business plan and therefore, guidance for you guys and then for the market. Absolutely, we expect to see a level of same-store revenue lower in H2 than in H1.

Okay. That's clear. And then just on the EBITDA margin improvement, I think you alluded to 0.1 percentage point improvement. But you reiterated guidance at 0.5. Why do you see further improvements for H2?

There are various points which we'll jump in. Some of them are related to the timing of one-off payments. For example, we have the real estate taxes coming in, in the first half of the year. So we should see improvements when we spread that over the full year. And we expect some other improvements still to come, some synergies, which will be a albeit coming through the second half of the year and then bring that to the complete level. So at the moment, we feel comfortable that we are achieving those margin improvements.

And our question next comes from Frederic at Kepler Cheuvreux.

Just maybe 2 question on my side. The first one will come back on the question on same-store growth that you expect to decelerate in H2. Can you give me a bit more granularity on why it is the case and specifically across some geography? That would be the first question. And then the second one on Lok'nStore, you did a very good improvement in Q1, boosting the occupancy rate by around 400 basis points but it was only 100 basis points in Q2. And I guess it's much -- I won't say easy but a bit more easy to fill that up when the occupancy rate is relatively low. And now that the occupancy is a bit higher, do you feel that it will be a bit more complicated or that you will have to give much more incentive?

Okay. So maybe let's start with the [indiscernible] to start with. You want to take it?

Yes, I'll take that. Actually, it's to a certain extent, the opposite. What we saw is that the -- we were able to fill up the stores quite successfully. So what we did actually, as Marc was mentioning before, we pulled forward the remixes of some of our stores, which meant we actually emptied some of our units and got -- terminated customers. And then we did the remix and that resulted in a drop in occupancy, which we are now filling up again. So what we have done is the value creation, which we foresaw a little bit later from that, will now be pulled forward. So we should see actually this coming in a little bit earlier than we initially saw. So that actually it's to the contrary. It's not that we feel it's being more difficult. We felt that it was very successful so that we were feeling very confident to do the remixes now already.

And regarding -- Frederic, the first question you had on the same-store growth for H2 and the granularity per country. So here, we expect, I would say, more or less the same reasons, the U.K. and Netherlands to slow down versus what we had in H1 or Q1, if you take it and this is what we start to see for different reasons. The U.K., it's clearly due to the fact that we have -- that's what we have seen. A couple of competitors that are more aggressive on pricing and one of them is private, without naming it and it's quite significant and it was in a sales process. And this is London because I repeat, our same-store is purely London. So that's what we expect to see and to continue. And secondly, the Netherlands. The Netherlands, don't forget that the starting point is super high. These guys have done 7% growth of revenue same-store on the year-to-date. So -- and clearly, we think that it's not sustainable at this level due to the comps. So that's why we anticipate to have a slowdown there. And if I take the other markets, France, Germany, Sweden, Belgium and Denmark, globally, all of them are between 3% and 4% and this should remain into this kind of range.

Our next question comes from Wim at KBC Securities.

Sorry, I'm in the car actually. I've got 2 questions. One is on the pipeline. I'll ask them one by one. So if I just add up all your projects in redevelopment and developments for '25, I have got a little gap with the -- like your provision on CapEx. So my question is now that the LTV is down a little bit, is there room for some M&A this year? If you can give an idea on how much and in which region?

So very well spotted, even from your car, wonderful. You are fully right because you know that for M&A, we do not disclose until we have a deal really signed with the sellers. So this gap, as you said, is actually coming from potential M&A that will take place before the end of the year.

Okay. All right. And my second question is regarding the fair value uplift, which I think increased significantly year-on-year to [ EUR 300 million ]. You say it's a mix of some operational improvement and maybe also some cap rate gains or gains from cap rates. Can you split that out a little bit? And maybe also if you can give some idea in which regions these gains or operational gains have been realized?

Yes. I think what we have been saying consistently over the last year or 2 is that the main reason for the improvement in our valuation is not the cap rate. The cap rate stays very, very stable since, I would say, 2 years on that. And it really adds a minor, minor part to the value uplift. The biggest part really by far and I would say around 70% comes from our trading performance. So where [indiscernible] Wakefield looks at our actual trading and feels very comfortable to write that forward. That's really the biggest impact. And then, of course, we have an impact of new stores. So those are the main drivers. The cap rate really, I mean, you can almost forget the movement this gives us to our value.

Our next question comes from Jonathan at Deutsche Bank.

On the development pipeline, I was just wondering how you're seeing construction costs currently trending relative to business plan, whether there's been any change there? And then secondly, whether you're seeing more supply coming on across your markets and particularly how you see the supply backdrop in London given your comments regarding the pricing environment?