Shurgard Self Storage Ltd

XBRU:SHUR

Earnings Call Transcript 2018-Q3

[Operator]

Welcome to the Shurgard Self Storage Third Quarter Results for the period July 1, 2018 to September 30, 2018. [Operator Instructions] Thank you.I will now turn the call over to Caroline Thirifay to begin. Please go ahead.

[Caroline Thirifay, IR Manager]

Thank you, Maria. Good afternoon, good evening, everyone. Thank you for joining us for the third quarter 2018 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 fact 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 statement. These risks and other factors could adversely affect the 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 the website, shurgard.eu.With that, I will turn the call over to Marc.

[Marc Oursin, CEO & Director]

Thank you, Caroline. I'm very happy and proud to share with you our first earnings call for the Q3 numbers and update. And the main message is that our Q3 performance is in line with our guidance and we have seized acquisition opportunities. After a successful listing that took just place 2 weeks ago, the third quarter performance is in line with our expectations. Our revenue growth is positively impacted by the increased number of properties in our non same-store pool and the integration of the 5 former Pelican properties in Sweden is completed, and they are adding to the growth of the company.Building here in Stockholm opened in March 18, and is ramping up very fast, 75% in terms of occupancy square meter. Berlin Neukölln opened in early October, and we are strengthening our presence also in Central London, with the acquisition of 3 properties from ABC Selfstore. The acquisition of Kensington property that was under management contract adds further to our presence and revenue growth. Following these transactions, we will have 31 properties in the London area.If we focus a bit on the highlights of the quarter in terms of numbers, the total property operating revenue growth at constant exchange rate is 3.6% for the quarter, up from 3.3% for the first 9 months of the year. If you look at the same-store pool property operating revenue growth for the year in terms of constant exchange rate is at 1.4%, in line with the company expectations. And the all-store NOI margin is up by 0.8 points to 62% for the year, with 1.8 points growth for the quarter.In terms of adjusted earnings, they are in line with the company expectations at EUR 73.9 million for the first 9 months of the year. And Shurgard, by the way, joined EPRA index last week on October 24.Development and acquisitions, we have been pretty active. We are pleased to announce the acquisition of a store in London, Kensington, for GBP 33 million for over 5,000 square meter, and the opening of the store in Berlin, Neukölln, over 7,000 square meter in October. And furthermore, we have signed today the purchase contract to acquire 3 freehold self-storage facilities in Central London; the first one in Camden, which is North Central; Wandsworth, Southwest Central; and the third one, Southwark in Southeast Central from ABC Selfstore, and the pricing of the transaction has been GBP 50 million for a total of over 11,000 square meter. We expect these stores to be integrated into our operations before the end of the month of November, so next month, driving the number of our properties in the London area up to 31 and allowing us to create further synergies.We're also pleased to report that the construction of our site in Berlin, Oberschöneweide, is progressing on track with the scheduled opening in early 2019.And now I will hand over to Jean. Thank you.

[Jean Kreusch, Chief Financial Officer]

Hello. Let's first look at our all-store results. Our redevelopment, development and acquisitions contributed to our 4.6% increase in our net rentable square meters. At the end of September, we achieved a 3% increase in rent net square meter. As a result, our property operating revenue for the quarter at EUR 61.9 million increased by 2.2% at its total rate and by 3.6% at constant exchange rate when compared to Q3 of last year. On a year-to-date basis, our property operating revenue increased by 3% -- 3.3% at constant exchange rate.Our income from property or NOI increased by 6.7% for the quarter at constant exchange rate and by 4.9% for the year-to-date when compared to last year. The quarter was positively impacted by some release of accruals.The EBITDA was negatively impacted in Q3 by some costs relating to the IPO. Excluding these costs, we had an EBITDA growth of 6.7%, in line with NOI growth for the quarter.Finally, our adjusted EPRA earnings grew by 3.1% for the quarter. The tax is now stabilized as per our guidance of 18% to 20% of adjusted EPRA earnings before tax.Moving on to the same-store. Our same-store revenue grew by 0.4% for the quarter and by 1.4% year-to-date at constant exchange rate. We confirm our guidance of 1% to 1.5% for the same-store full year growth.

[Caroline Thirifay, IR Manager]

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

[Operator]

[Operator Instructions] Our first question comes from the line of Michel Larazo of Societe General.

[Michel Larazo]

I have 2 questions. The first one is concerning the last acquisition just signed, the GBP 50 million in London. Is it possible to have a little more color in terms of net shares, in terms of vacancy, for example? And my second question is about your guidance. You have a EUR 95 million guidance of EPRA earnings. You reached EUR 73.9 million during the first 9 months. That means that you expect to have a decline in recurring profit in the last quarter? Or is it fair to consider this? Or do you consider that the result of the last quarter would be in line with the first 3 quarters? Thank you.

[Marc Oursin, CEO & Director]

Okay. Michel, this is Marc speaking. So I will take the first one regarding the acquisition and Jean will answer regarding to you regarding the adjusted EPRA earnings guidance. So regarding the acquisition, I would say, first, it's a fantastic opportunity for us because the location are just amazing. If you know London, and when we're taking about Camden, Wandsworth and Southwark, it's really great. Secondly, in terms of giving you some indication regarding the all-store itself, so we are about freehold, the freehold one. We are talking about converted buildings and the buildings have been built between 70 and 1 -- and 80 years ago, the industry and the self-storage started between 20 and 25 years ago there with ABC Selfstore and with the Milton family. In terms of occupancy, currently today depending the property, but they are between 65% and 70% of occupancy. And that's why we believe it's an opportunity for us. As you know, we are targeting to be above 90%. We know how to do it in London. This is what we are doing with our older properties and the new development that are ramping nicely. And in terms of targeted yield at maturity, we are targeting to be between 6 -- a bit above 6% and close to 8% because, one of the property as [ widely ] French, one of the property has a possibility to be expanded in terms of building and, therefore, if we get the planning of it, mechanically, we'll have more revenues and, therefore, higher return. Jean?

[Jean Kreusch, Chief Financial Officer]

Yes. So in terms of EPRA earnings guidance, I mean, I remind you, Michel, that we said it would be at least EUR 95 million. Also as I mentioned, we have some release in our operating expenses, release of accrual in operating expenses for Q3. And also, our general and administration expense did not yet include the cost of being public. We'll expect those costs to start to arrive in Q4.

[Operator]

Our next question comes from the line of Michael Burt of Exane BNP Paribas.

[Michael James Burt, Stock Analyst & Analyst of Real Estate]

The first one is really just on whether you can give us any color on how you're trading at a country level. I know during the [ UK ] presses, you had mentioned slightly weaker growth in Netherlands and in Sweden, and I was wondering if there's any update there?

[Marc Oursin, CEO & Director]

Okay, Michael. This is Marc speaking. So actually, the update is as we have shared with you and other investors and during the roadshows. So we have seen Sweden and the Netherlands decelerating. And so here, we don't see any major change. On the other markets, they are in line with what we're expecting and that's why we are confirming our guidance that is for the same-store revenue between 1% and 1.5% of growth.

[Michael James Burt, Stock Analyst & Analyst of Real Estate]

Understood. Thank you. And then the second one is just on acquisition opportunities. I was just wondering, firstly, how long you've been working on this London acquisition? And then secondly, whether you're starting to see new opportunities arise? I appreciate it's only 2 weeks post-IPO. But you now have more acquisition capacities. Is that creating new opportunities for you? Thank you.

[Marc Oursin, CEO & Director]

Okay. So Marc speaking. So here actually, we had a, I would say as with many other, let's say, operators we talk and we exchange information. And regarding the transaction here, it has been quite recent and organized by a, actually a broker. So it was organized with a tender. And this is why it has been quite fast, to be frank; it was during the summer. So -- at the same time, we're working on the IPO, so we had an intense Q3, you can imagine. And in terms of opportunities, a bit early to talk about it. And let's first -- we need to digest and to integrate these guys, and that will take place before the end of November as we said.

[Operator]

[Operator Instructions] I'm showing no further questions at this time.

[Caroline Thirifay, IR Manager]

Thank you, all, for joining us today. We look forward to reconnecting in this venue the next quarter. Thank you, goodbye.

[Marc Oursin, CEO & Director]

Thank you. Goodbye.

[Operator]

Thank you, ladies and gentlemen. This does conclude Shurgard's quarterly call. You may now disconnect.