Shurgard Self Storage Ltd

XBRU:SHUR

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 results and update on COVID-19. [Operator Instructions] I would now like to hand the conference over to your speaker today, Caroline Thirifay. Thank you. Go ahead, please.

[Caroline Thirifay, Director of Investor Relations]

Thank you, Carlo. Good morning, everyone. Thank you for joining us for the first quarter 2020 results and update on COVID-19 earnings call. 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 in 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 I 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 our shurgard.eu website.With that, I will turn the floor over to Marc.

[Marc Oursin, CEO & Director]

Thank you, Caroline. So good morning to everybody. So I'm happy to share with you our numbers for Q1 2020 plus this COVID update. So I'm on Page 2 of the presentation for the ones who are following this document. So great Q1 for us, starting with the revenue. We had a good growth of 4 -- 5.4% versus the last year total company revenue growth. Secondly, with the good management of our costs, we have been able to grow the -- actually NOI by 6.6%, so higher than the speed of the revenue. And if you look at specifically the same-store pool, we have been able to grow the revenue by 4.6%. And this 4.6% is coming mainly from the in-place rent that grew by 3%. Meanwhile, the rented square meters grew by 1%. So the volume effect is more or less 1%, and the value effect is 3%. And this is what you can see on the occupancy, which is the result of that, where the occupancy grew by 0.7 percentage points to 87.7%.Meanwhile, as I mentioned to you regarding the cost, the NOI margin grew by 0.9% versus last year for the same period of the year, which is great. EBITDA grew by 9.3%. Our adjusted EPRA earnings grew by 8.4%, which is a pretty good performance and achieving EUR 24.1 million. And back to the pipeline, our 7%, so 78,300 square meters of our 19 projects ongoing that are acquired or under construction, actually, we will have 4 projects out of these 19 that will be moved from 2020 to '21. And I'll let Jean going through the rest of the coming slides.

[Jean Kreusch, Chief Financial Officer]

Thank you, Marc. Our resilient business model is backed by our very robust balance sheet. Our cash position remained stable at EUR 192 million at the end of March, and we still have not drawn our EUR 250 million revolving credit facility. We have a long-term U.S. private placement in place with maturity well scattered between 2020 and 2030. Our loan-to-value was at 17.2% and our net debt-to-EBITDA at 3.5x as of March 31, replacing our low leverage. In addition, the quality of our assets is a plus with 95% of our portfolio in 3-year-old and 92% located in capital cities and primary cities. This should enhance the resilient nature of the portfolio. Finally, our cost base, including lease expenses, is only around 35% of our revenue. We confirm the payment of the second half 2019 dividend of EUR 0.50 per share payable on or around May 15.Moving on to Slide 4. We report for the first quarter, a strong financial performance year-on-year. Real estate operating revenue rose by 5.2% at actual exchange rates and by 5.4% at constant exchange rate to EUR 66.2 million, mainly driven by our same-store performance. Our NOI continues to improve by 6.9% at constant exchange rates as we continue to work on the efficiency of our customers platform. Our EBITDA increased by 9.3% as the result of the above and lower G&E in Q1 2020. We incurred one-off cost related to the closure of a leasehold store in the Netherlands and the deductible relating to the fire in Zoetermeer in the Netherlands. Finally, our adjusted EPRA earnings at EUR 24.1 million is 8.4% higher than last year at constant exchange rates.Our current operating results on Slide 5, at constant exchange rate, continue to demonstrate our ability to grow the top line while leveraging economies of scale as we acquire and develop stores in our existing countries using the standardized IT and marketing platform to contain them. As a result, our income from property grew by 6.6% to $37.5 million for the quarter. Our same-stores are all developed stores in operations for at least 3 full years and all acquired stores we owned for at least 1 full year as of January 1. We report a strong revenue performance of our same-store, up 4.6% to EUR 64.3 million. The increase is driven by both occupancy and average in-place rate. Average occupancy at 87.7%, went up by 0.7 percentage point, while in-place rate grew by 3%.

[Marc Oursin, CEO & Director]

Okay. Thank you, Jean. Let's go back to Page 6, please, and talking about the update on the COVID-19 pandemia. So first, to understand the potential impact on the business, we have to go back to the different populations that are potentially impacting this business. And we have 3 kinds of population: we have our employees, of course; then we have our prospects, so people willing to rent and becoming customers so the ones who are renting a unit and paying for their rent and potentially also moving out and becoming a former customer. So if I start with the first group, our employees, actually, the main actions that we have taken are the following: the first one has been, well, to guarantee salary plus average bonus during the lockdown for the month of March, April, May and potentially June, in order for the people to be fully motivated and to keep also the people up to speed when we have to do some specific actions. The second thing in terms of protection is providing masks for all the employees. So we have actually got 100,000 masks. This has been delivered. And these 100,000 masks are corresponding to more or less 4 months of usage per person. So for all our employees across Europe, the 7 countries. Secondly, office equipment. So here, we are talking about sanitizers, plexi screens on the counters, social distance measures and of course, the organization of the staffing. And all of this in terms of office equipment is actually fully standardized across our [ 234 ] properties in the 7 countries and is actually ready by the end of this week except France and the Nordics, that will be done within 10 days. Then if we go back to customers and prospects. I will start with prospect because this is the beginning of the customer journey. First, you go -- you are at home and you check the website and you investigate if there is some units and what are the prices for that. So since 2012, actually, our websites are completely without any human interaction. You can book online completely if you wish. And the price you see is the price you pay. So the whole process is fully integrated. And this is like this now for almost 8 years in the 7 countries. So no problem for prospects to identify an option to rent and where they want to rent and the size they are looking for. The second thing that we have done specifically since actually the crisis of COVID is what we call contactless move-in, which is actually from the people who are interested in through the website to be able to physically do the move-in without being in contact of our people in the properties. And that has been a great success, in particular, in the Netherlands, where we did more than 3,000 of those during the period. The second population outside our employees is the customer. So here for the customers due to the fact that our storage buildings have automated access control without, of course, the need of any staff, it means that all the customers that were able to move were able to get access to our properties and their units. And the second thing for customers is paying, so payment. And here, we have different stuff as over the phone, web links and transfers. So allowing customers to simply pay without having the burden of going to the property and to pay in cash. So this is the situation that we have faced for these 3 categories. And what is important, if you go on Page 7, is to understand how these 3 categories of people living in 2 different situations, and here we have 2 groups of countries, have impacted our business. So with 3 group of people and then the 7 countries. Regarding the 7 countries, actually, we have faced and we are still facing partially 2 groups. One group on the right side of the page, which is, I would say, business as usual. Nothing has changed there. If you compare many aspects of the business between January, February and March and April, it has been the same. And these countries are the Netherlands, Sweden, Germany and Denmark, knowing that this is more or less 50% of our business. And if you look at the other 50% of 3 countries, France, U.K. and Belgium, that are in this situation since mid-March, actually, here with the potential lockdown exit of May 11 for France, May 7 for the U.K. and May 3 for Belgium. Here, we have seen impacts. The first one regarding the prospects. For the prospects, if you take France, for example, I'm interested in looking for storage, but I cannot move out of my home. So the impact of that has been clearly a lot of traffic on the website and a decline of move-ins. I will come back to that later. If you look at the customers, well, same dilemma, I have to stay home. Therefore, I cannot go to the property because I have to stay on. And the impact of that has been actually less move-outs. And secondly, in France specifically, it's clearly less of the fact in the U.K. and Belgium, but some people started to pay with some delays. And regarding our employees, well, our employees in France and Belgium had to stay home so we have organized the whole company because our network allowed us and our systems allowed us to do that. So people were able from home to work on our systems. And actually, the main actions were for them to chase the rental collection. And if I take, what we call, the ESC, which is our supporting center based in Brussels for Europe, and all the people are working from home without any problem. The remaining staff were -- some of them on vacation, mandatory vacation; some of them were sick and some of them were technically unemployed. And regarding our properties, well, if you go back to the countries where no impact here, well, the shops were actually closed, but we had staff there. And we have started to resume the opening of the shops from April 20 in Denmark and the other countries. And for France, Belgium and the U.K., France and Belgium are actually still unmanned. Belgium is resuming this week. And the U.K. was manned, but the shop is closed. So what to remember from that is that the company has 2 engines, I would say, 50%-50%. One engine full speed, no change: Netherlands, Sweden, Germany, Denmark. And the other engine, the purpose was to mitigate the impact. So talking about the impact, this is what you see on Page 8. And here, we're talking about the demand, so prospects behavior. So we have indexed this graph from the 1st of March till April 26, so it's almost 2 months. And what you see the index is actually what we call the weekly average SRP visits, so if you prefer, the number of clicks you have on a page. And this page is particular, it's a page where you have all the prices, the unit specification, which means that it's a qualified demand. It's not simply someone browsing and clicking on one page of Shurgard website. No. If someone went through at least 2 or 3 pages and has really showed a sense of interest. So it's really qualified demand. The interesting thing is the black line. The black line is the aggregate of the 4 countries: Netherlands, Sweden, Denmark, and Germany. And you see that this black line is more or less stable since March 1 and did increase significantly since, let's say, mid-April, which is logical. We are in the season also of moving. So it's not to us a -- let's say, a surprise. And if you look at the 3 other lines, the blue, the yellow and the red, the blue is France, the U.K. is in red and the yellow is Belgium. What do you see? You see clearly a steep decline of interest in customers in France, and this is due to the lockdown, these are the dotted -- vertical dotted line in France, Belgium and the U.K., you see that as soon as lockdown has been announced, we have lost in France 60% of interest versus what we were before. Belgium, we lost 40%; and U.K., the bottom, was more or less 30%. We were at 70%. What is interesting to look at is then what is happening these past 2 weeks? Since the different governments, in France, in the U.K., also in Belgium, have announced dates for the exit of the lockdown, you see clearly that the interest on the website is catching up. And now France is only minus 30% before the, let's say, -- sorry, while before it was around, as I said, 60% loss. Belgium is up to minus 17%, and the U.K. is flattening at minus 22%. And of course, this behavior on the web has been translated and this is what you see on the right side, into move-ins. So same logic, the 4 lines, the black line is the 4 countries where, I would say, business is as usual. And the 3 other countries, so France, Belgium and the U.K. And what do you see is clearly the fact that, well, people are changing their behavior and don't go on the website. Therefore, I don't book. Therefore, I don't move-in. And this started actually a bit before the lockdown and clearly with the lockdown. And France, for example, at the bottom, we have lost more than 90% of the move-ins that we were doing early March. Belgium at the bottom plateaued at more or less a loss of 70%, and the U.K. was around 50%. Again, interestingly, what you see since April 13, that these 3 countries, and specifically, I would say, Belgium a bit in the U.K. too, and France are catching up. So this is corresponding with a certain delay of what you see on the left side. So that's the situation for the demand. And of course, the closer we'll be to the formal exit of lockdown, we believe that these numbers will come back to the level where they were before.Then Page 9, if you go on the customer side. Customer side, so the first thing is to move-out. So here, something on the left side, you see the lines. So we have -- even in the countries with no impact on the demand, we have seen globally, let's say, a slowdown of the move-outs. Even though the past 2 weeks, they are coming back to the normal level, you see minus 15% for the black line. And then you see for the 3 countries, for France, Belgium and the U.K., a clear decline of the move-outs, minus 70% in France, minus 61% now in Belgium and minus 47% in the U.K. But what is important is this loss or, let's say, this decline of move-outs for these 3 countries, has been lower than the declines of the move-ins. So which means it's a flow. It's a variance of flow, if you prefer, that the impact, and this is what you see on the right side in terms of occupancy, if you have, in the end, a bit more move-outs than move-ins, mechanically, you are losing occupancy. So what is happening on the right side for the occupancy is that, well, first, starting with the black line, the 4 markets where business is as usual. Actually, it was not exactly as usual. We have pushed big time here also some discounts. And we spent a little bit more in the Netherlands on Google, and the result of that is actually an increase of occupancy of these 4 countries of 0.7% versus early March. And if you take the 3 other markets, again, France, Belgium and the U.K., more or less, we have lost 2 points since March 1. But since actually April 1, we have lost 0.3%. And total company, we are globally stable since April 1 and marginally positive, actually. So I think it was important for you to understand, again, these 3 populations. How the business is done, prospect, acting on demand. So website traffic move-ins and current customers acting on the occupancy with move-outs and then the third aspect coming to customers, Page 10, is rental collection. A key and very important topic in this moments. So here, the first Page 10, is actually explaining to you our principles. So we have a very standardized process that we are using now for many years for the rental collection. And how it goes. It's pretty simple. So day 1. People are supposed to pay their rents in advance, so at the end of the month before. So at the end of month, M minus 1, if you prefer, so people are starting to pay. And the day -- the first day of the month M, we're able to collect almost 80% or 78.6% of the rent because we have a lot of, what we call, direct debits that are allowing this score. And then it takes more or less 30 days to go from the 78.6% to more than 97.4%. So you have at the end of month M 2.6% of rent not collected. And then this 2.6% after another month, so 60 days since the beginning of month end, we have been able to get 50% of that because the 2.6% is becoming 1.3%. So what we do from day plus 61 is the following: you know that our customers do store stuff, but in the end, the leverage we have is limited when someone has not paid and that person has left. So what we do is we accrue in our P&L, 100% of this remaining 1.3% of this money not collected. And at the same time, we are applying different -- depending on the countries and the timing, foreclosures, getting some money from the sales of these foreclosures. We have also an external debt collector across Europe that is collecting the money potentially. It takes some time. But all in all, we are having in our P&L, on average, for all the countries between 1.3% and 1.5% of accrual every month. And this is very standard. And these numbers that you see on Page 10 are the ones of April 19, a year ago. So then as you go to Page 11, what is the situation now after 25 days in April? Well, actually, it's pretty good. We have been able to collect 93.4% instead of 96%, actually last year. So there's a gap of 2.6%, which is EUR 0.5 million. But don't forget, we still have -- these numbers are the 25th, so we have still 5 days in April to get them, plus the remaining 30 days of May, as we explained to you on the previous slide. And the money, I would say, missing, the EUR 0.5 million, is mainly France. U.K. to me is -- we have 92,000, but it's in a way, marginal at the company level. France, we are chasing the money, and we still have a repeat 30 days to chase the maximum we can from that amount. In any case, global company, it's a marginal impact. So to conclude on Page 12, great Q1 performance. I know the circumstances now to talk about it are quite odd, but it's really -- and I thank the teams across the countries and also in our supporting center for this fantastic achievement. Secondly, we're talking about resilience. Here we are -- I think it's a clear demonstration of the resilience of Shurgard in this situation. Same-store occupancy is at 87%. So as I said, 0.2% up versus last year at the same time and equal to March 31. Rental collection, we're in line, marginal impact due to France. And on the cost side, actually, we'll get some savings on Google in March and April.Regarding the pipeline, as I mentioned to you, out of the 19 projects that we are -- that we have, sorry, on track signed or under construction or for building permit approval, only 4 of them will be postponed to '21. We are also active in M&A. And then the key thing for us now is to prepare the company for the post lockdown in France, so 11th of May; in the U.K., the 7th up to now; and Belgium started already with actually 2 days ago with Monday the 4th. So we believe that we're in a strong position and clearly ready for the future quarters. And on Page 13, just to put some pictures, always better than words, you can see how the stores of Shurgard, the 234 stores would look like. And at the end of this, actually week, where you see our studies in Kensington in the U.K., I'll start with the masks that we provided. You can barely see, but there are 2 big plexi screens on the desk. They are very clear in this one, the transparency is so beautiful. And then you have all these boxes, let's be efficient. So we are using the boxes we are selling, wrapping them up, putting the tower in box, putting the terminal for the credit card and the sanitizer for customers. So all of that already by the end of this week, plus France and the Nordics within 10 days. So happy to now answer to your questions. If you have some.

[Caroline Thirifay, Director of Investor Relations]

Yes. Thank you, Marc and Jean. Well, now we open the line for your questions.

[Operator]

[Operator Instructions] We have a question from the line of Herman Van Der Loos of Degroof Petercam.

[Herman Van Der Loos, Senior Equity Analyst]

I found the picture on Page 13 lovely. I had a question on the people willing to moving out but not able to move out. Do you grant to these people some kind of incentives to stay on or free rent awaiting that they can actually move out? And if yes, is this part -- is that part of the delinquency figures? Or is it just some cost like marketing or whatever?

[Marc Oursin, CEO & Director]

Okay, Herman, thank you very much. So first answer regarding -- yes, clearly, we have done some discounts to retain the people and the discounts were going around 25% and up to 50% as a maximum. But the compound average was closer to 25%. And this is simply a discount cost in the revenue. So it's not at all related to any delinquent or late payments. So it's in the top line in the revenue. And secondly, regarding this, it means that, yes, these people at a certain moment, and we might have some questions about Q2, but as soon as the lockdown will be lifted up in France, the U.K. and Belgium, I'm not talking about the 4 others because the 4 others are business is as usual, so we don't face the situation. But for these 3 markets, clearly, all the people that have not been able to leave the majority of them, we believe will leave. When they we leave, we simply don't know, but they will.

[Herman Van Der Loos, Senior Equity Analyst]

And do you have an idea of the proportion of how would that affect the move-outs graph?

[Marc Oursin, CEO & Director]

Yes. So if you -- the differential between, I would say, the regular rate of move-out per month in these 3 countries, it's a difference of only 2% of the total rentable that we have. So what does it mean? It means that technically, if all these people were moving out, it will be 2% less. But of course, the situation will not be like this because if the lockdown has been lifted up, you will have also move-ins coming too, as I showed you on the graph, that will start to kick in to. But yes, technically, we are talking about potentially 2% for these 3 countries, so mainly a maximum of 1% of the total company, which is, in the end, when you are at 87% of occupancy, it's not, we believe, a big deal.

[Operator]

[Operator Instructions] We have a question from the line of Andrew Gill from Jefferies.

[Andrew James Gill, Equity Analyst]

I've just got another question on move-in and move-outs. Are you seeing any kind of difference between the typical kind of business customers and personal customers? So have you seen a lot of businesses moved out and maybe replaced by shorter-term income? Or has it been broadly in line with what you'd expect this sort of year -- this sort of time of the year, especially in the countries where it's business as usual?

[Marc Oursin, CEO & Director]

Thank you, Andrew, for that pretty good question, too. So here, actually, first, what we call business customers in the case of Shurgard is quite different than what our peers have, especially in the U.K. in the sense that our business customers for us are really very small companies or a dentist or a very small law firm. And their share in our business is a maximum of 20%. So it's significant, of course, but it's very different than our peers. And secondly, we have not seen any, let's say, a significant change or proportion variance in the behavior of these people in terms of move-outs and also payments. So more or less, the way they pay, the way they move out is in proportion the same that's in the residential.

[Operator]

[Operator Instructions] Our next question is from the line of Dae Levy of Societe Generale.

[Dae Patrice Levy]

Just a couple of questions. First one -- can you hear me?

[Marc Oursin, CEO & Director]

Yes, very well.

[Dae Patrice Levy]

Sorry. Yes. Any early signs of change in the profile of late payers? I'm just curious to know if late payments usually come from mostly small businesses or from power customers. And what effects this changes during the pandemic? And second question, you just mentioned that you are active M&A, have you noted any change in behavior from potential sellers, especially in those countries where you are more keen to expand? Are they more or less keen to sell or everything is suspended for now?

[Marc Oursin, CEO & Director]

Okay. Thank you, Dae. So regarding the first question, while the answer is more or less the same to Andrew, we don't see any real difference of profile for the late payers. And regarding M&A, when we say active, it means that we are always looking at the market. We have -- and we have not seen up to now a change in the way people are coming to us. I think it's a bit too early. So we don't see any differences.

[Operator]

[Operator Instructions] There are no more questions at this time. Presenters, please continue.

[Caroline Thirifay, Director of Investor Relations]

All right. Thank you all for joining us today. We look forward to reconnecting with you very soon. Thank you.

[Marc Oursin, CEO & Director]

Thank you, and goodbye. Take care of yourselves. And we'll be on the phone within 1 quarter.

[Caroline Thirifay, Director of Investor Relations]

Yes. Bye.