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

Good day, everyone, and welcome to today's Shurgard Interim H1 2021 Conference Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn today's call over to Caroline Thirifay. Please go ahead.

Thank you, Ashley. Good morning, everyone. Thank you for joining us for the H1 2021 results. I'm here with Marc Oursin and Jean Kreusch. Before we begin, we want to remind you that all statements other than statements of historical facts included on this call are forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected by the statements. These risks 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 a press release and an audio webcast replay of this conference call on our shurgard.eu website. With that, I will turn the call over to Marc.

Thank you, Caroline. Good morning, everybody. So we are very happy to share with you this set of strong results for the quarter and half year. And starting with the half year at constant exchange rate, our revenues have grown up by 7.7%, which is, by the way, an acceleration between Q2 and Q1. We have been able to deliver growth also of 7.3% for our NOI for the same period of time. This has been actually fueled by a very strong growth of the revenue of our same-store pool, and we have been able to grow by 5.1% during this period of time for the half year. This growth of revenue for the same store has been also strongly positioned with the growth of the occupancy. We grew by 2.1%, which is also an acceleration between Q2 and Q1, so the volume effect. And we have been able to grow our NOI margin, so the rate of margin by 0.6 percentage points over the same period of last year. Regarding our rental collection, I would say, nothing particular, business as usual, a great performance with 98.4% of collection. And all in all, we have been able to deliver a growth of our adjusted earnings of 10.5% and reaching more than EUR 61 million for these earnings. The pipeline is pretty strong. It's representing for the current year '21 and the next year, '22 and starting '23 with 7% total footage, close to 87,000 square meters, which is a total CapEx value of a bit more than EUR 180 million. The Board have decided to go for a dividend of EUR 0.55 a share, which is more than 12% growth versus the same period of last year. The payment will be in October. Then if we have a look more specifically at Q2, which is actually an exceptional one in terms of performance. As I mentioned to you previously, the growth of Q2 is at 8.4% in terms of revenue for the old stores, while Q1 was at 7.1%, so you see the acceleration. And actually, amongst that performance, the U.K. have been tremendously increasing. Q2 old store, we increased by 16.2%. And while for the whole -- half year, sorry, it has been 12.3%. And the margin has been also increased significantly by 9.1%, while Q1 was at 5.2%. So you can see the acceleration. And again, if you focus more on the same store, which is around 95% of our portfolio, you see that the performance of Q2 in terms of revenue is very significant, 6.2%, while Q1 was at 4% with, again, the U.K. performing very well at 10% and 3 markets above 7% that are the Netherlands, Belgium and also Denmark. So good performance. All markets are positive and strongly positive. The occupancy has been the highest ever we got for the same store with 91.7% for Q2, which is a 2.6% growth versus last year. And as a reminder, Q1 was at 89.1%. And margin has been increased by 0.7%. So I will let Jean continuing the presentation and share with you the overview of the financing and also the more details regarding our performance. Thank you.

Thanks, Marc. So combined with the solid growth of our earnings in 2021, as Marc explained, we ended the first 6 months of the year with a very robust balance sheet. Our loan-to-value at 17.6% and our net debt-to-EBITDA at 3.8x were in line with what we reported at December 2020. Our cash position at June 30 was EUR 77 million. In July, we refinanced EUR 100 million tranche maturing with the proceeds of a EUR 300 million green USPP with a maturity in 2021 and a coupon at 1.24%. Our EPRA net tangible assets at EUR 2.8 billion, grew by 9.5% versus December 2020. Moving on to our financial performance for the first half of the year. Our real estate operating revenue for the second quarter and half year grew respectively by 8.6% and 7.8% at constant exchange rates. The increase is mainly driven by our same-store performance. Our net income from real estate operations in the first half of the year grew by 7.4% to EUR 88.1 million at constant exchange rate. A strong performance as we cut some costs last year, such as marketing expenses during lockdown. Our G&A expenses increased due to higher development costs as we build up our team, some one-off expenses relating to ESG certifications and VAT refunds received last year. Finally, our adjusted EPRA earnings grew by 10.4% at constant exchange rates to EUR 61.4 million. On Page 6, our income from property by segment at constant exchange rates demonstrate a strong growth of our same store and new stores. In our same-store segment, we had a very strong 6 months with a closing occupancy at 91.7%, up 2.6 percentage points versus last year. We had outstanding average same-store occupancy in the second quarter with Sweden at 92.8%, Denmark at 94.6% and U.K. at 89.1%, up by a stunning 6.4 percentage points year-on-year. Our same-store average in-place rent increased by 2.7% over 2020. Thus, both occupancy and rates contributed to the 5.1% increase year-on-year of our same-store revenue at constant exchange rate. Same-store NOI margin improved by 0.6 percentage points to 62.4%. On Page 7, our 3 levers of growth are contributing to the 8.4% increase in NOI with the same store growing by 6.1% at constant exchange rates and contributing EUR 4.9 million to the growth, while the acquisitions and development added another EUR 1 million of NOI. Moving on to our cash flow on Page 8. We invested EUR 46.6 million in developments of properties down versus last year, as we have not yet done any acquisitions in 2021. The cash outflow from financing of $64.8 million reflected our payments of dividends, interest, debt financing costs and the purchase of the lease of our first stores in Brussels. Finally, on Page 9, we continue to show a robust balance sheet geared for growth. Our EPRA NTA grew by 9.5% to EUR 2.8 billion, following positive fair value revaluation of our investment properties, mainly resulting from positive impact of higher rates and the compression of the cap rates. On the debt side, I mentioned earlier the drawdown of the EUR 300 million green USPP in July. In the first half of the year, we also extended our EUR 250 million undrawn revolving credit facility by 2 years to 2025. Marc will now take you through our development pipeline on Page 10.

Thank you, Jean. We're on Page 10. So strong pipeline, as I said originally. The good news are that for '21, everything is on track. So we have already opened all the redevelopments that we are foreseeing. Regarding the new developments out of the 7 that were supposed to be open, 3 have opened, and the remaining 4 are on track to be open before December, so for the remaining 4 months that we are facing. And regarding '22, we have already, I would say, fed the pipeline. We will open 5 properties next year. 4 will be in Paris area and 1 in Cologne in Germany. And on the top of that, we have already started to feed '23 with a new acquisition that we have done in the West in London recently. All in all, this pipeline is representing 87,000 square meters. As I said, again, globally, EUR 180 million, which is 7% of our total rentable footage of the company, so very significant. So now let's go to Page 11 and talking about the digitalization of the company with an example, which is what we call e-rental. Just a couple of words regarding e-rental. Again, you can make an analogy of that by thinking of airline companies, where from the need you arrive to a boarding pass on your smartphone. While here, it's the same logic from the need of storage and through Google, you end with a move-in in Shurgard. So that's the -- this full 100% experience for our prospect and then customers. So we actually get the benefit probably of the COVID, the fact that people were locked down and looking for storage and went on that process. We have been able during the whole half of this year to roll out in all markets at this technology for all our customers. And amazingly, we have been able to do 10,000 already e-rental contract at the end of June for all 7 countries. So very significant volume at the scale of the company and which means that these 10,000 move-ins through e-rental do represent now 20% to 25% of our total contracts done during the same period. So very significant. An interesting point is the fact that at least another 25% of the total e-rental are done outside the opening hours of the shops or properties, so which means early in the morning and late in the evening. And the other interesting point is that there is no difference in the way customers are, I would say, behaving later on. We don't see any change in the retention of our customers. They stay with the same length of stay. We don't see any variances there. And thirdly or lastly, the, of course, Generation Z and millennials are more in favor of technologies than the other ones, especially baby boomers and Generation X. So this is what you see. Proportionally, Generation Z and millennials do represent 56% of our e-rental versus a 40% when we look at the, what we call, walk-in customers that are majoritively Generation X and baby boomers. I will pass Slide 12, which is giving you the details of the different generations and the spread per hour of day of this e-rental, but happy to answer to your questions regarding that later on. And then to conclude, so Page 13, a couple of points. The first one is, yes, definitely, strong performance for H1 and Q2. The second one, we have a robust and growing pipeline, representing 7% of the footage of the company. We are very active and working hard in M&A. For the first month of Q3 are demonstrating an acceleration. So it means the acceleration continues after Q1 and Q2, which are good news. And last but not least, based on all this information and results, we have decided to raise up the guidance for specifically this year '21 from 4% to 6% growth of the total company revenue to 8% to 10%. So thank you, and I thank also our teams, of course, for their commitment and these great performances. And we are now happy to answer, Jean and I, to your questions.

Thank you, Marc and Jean. Now we open the line for your questions.

[Operator Instructions] We can take our first question from Frederic Renard with Kepler Cheuvreux.

Hello, can you hear me?

Yes, very well, Frederic.

Okay. Good. So well done with the results. I have just 4 small questions. Maybe the first one to start is that I see that the [indiscernible] margin at the same and non-same store level is going slightly down. Can you comment a bit on that? And the next question would be on the EUR 5.7 million recovery from proceeds from insurance company. Can you -- do you expect another one in H2? Or can we assess that it will not be the case going forward? Then the third question I would add is your view on occupancy rate going on in 2022 and 2023? And finally, a question on M&A. Are you still guiding for EUR 50 million acquisition this year?

So Jean will take number 1, number 2, and I will go for number 3 and number 4.

So yes, our margins are slightly down. I mean this is not expected -- unexpected, Frederic. If you recall, last year, we -- our expenses were down as we cut down on marketing largely. So that explains why this year, we are were slightly down on margin. We expect that to stabilize and be back on the margin compression once expense level are back to normal. 2020 was exceptionally low on operating expenses. As far as insurance recovery goes, we're not expecting any further amount coming through. So that was a one-off in the first half. And no, we don't expect that anymore.

So this is Marc speaking, Frederic. So regarding the occupancy rate for '22, '23, well, first of all, the current occupancy rate. And then what could happen for the next year. So starting with the situation today. It's true that the occupancy has grown up significantly in all markets. And this is mainly due to 2 things: the move-in and move-out, meaning that moving has been positive, if I'm taking the same-store pool, so very comparable perimeter of properties, so if we look at the half year. But also Q2, we have a very strong acceleration of the volumes of move-ins of people renting into our properties in Q2 by 9.7%, while the half year is at 2.8%. And at the same time, the move-outs were flat for the half year, 0.2%, which means that clearly, you get the benefit of filling up the properties. And this is globally the case for all markets. Then '22, '23, clearly, I don't have a crystal ball for '23. It's pretty far away. And at least, I can talk about the remaining 4 months, so September to December. And that's why, again, we have raised the guidance for this specific year due to the fact that what we have already done for the first half plus what we have seen, how this first half was built up this acceleration between Q2 and Q1. And we see the same trend in terms of acceleration in July and August. We think that we are comfortable by raising up the guidance. Then '22 is a different story. We don't know yet -- we don't have the view of how customers' prospect will behave. I simply can say that, and again, reiterate that for the time being, the volume of activity on the web is still pretty strong, is higher than 2019. And I take on purpose 2019, which was a stable year before the drama that the world went through in 2020 and early '21. So '22, Frederic, I cannot comment either. Regarding your fourth question, regarding the level of M&A. So I do confirm that we will be in a level that is in the range that you have mentioned.

[Operator Instructions] And we'll take our next question from Marios Pastou with Societe Generale.

Just a few questions from my side. So firstly, I just wanted to go into your revised guidance a little bit on your 8% to 10%. Are you able to split the site for what your expectations are for your same-store portfolio, which is included in that figure? And then secondly, just going back and circling back on to the trends you're seeing in July and August. Can you give a bit of a comment on whether this is occupancy-driven, rental-driven or a mixture of the 2? And then thirdly, I noticed there is a bit of a valuation loss on your investment properties under construction. I just wondered if you could give a bit more commentary around the details of the cash flows here? And I think there's a mention of regulatory requirements in the report itself. So any information there will be appreciated.