Good day, everyone, and welcome to today's Shurgard Self Storage half year 2023 results earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one key on your telephone keypad. Please note this call is being recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Caroline Thirifay. Ma'am, please begin.
Thank you, Chelsea. Good morning, everyone. Thank you for joining us for the H1 2023 results. I'm here with Marc Oursin, Jean Kreusch, and Thomas Oversberg. 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 our press release and an audio webcast replay of this conference call on our shurgard.eu website. The line is a little bit unstable, so if we disconnect, it will take a few minutes to reconnect, but we will reconnect in that case.
With that, I will turn the call over to Marc.
Thank you, Caroline. So happy to share with you the these results. Great results for H1 2023, starting with our revenues. The total company revenue grew by 10% from the period versus last year, with amazing countries like Germany, the Netherlands, and the U.K. U.K., which is for London. At the same time, this growth of the of the revenue triggered a growth of our NOI of 10.7%, which means that we have been able to increase our NOI margin the growth company by 0.4 percentage points versus last year. You know that the same store are very important and often include more than 90% of the total company. All of these numbers are mainly coming from, of course, the same store performance.
The same stores have been able to grow their, their revenue by almost 7%, 6.8%, precisely, for the half year. This is mainly due to two things. We have been able to increase slightly the occupancy. We, we have better than 90% with 90.4%, so it's a 0.2 percentage point increase. At the same time, of course, the main bulk of the growth of the revenue is coming from the interest rent, with our continued passing power, with a growth of 7.4%.
At the same time, I would say that we have been able to, to start to get the benefits of our digitalization strategy in being able to limit the growth of our OpEx, or cost, if you prefer. This growth has been only 4.4% over the period, so half year for the same store. We have been able to, to grow our margin of the same store pool by almost 1%, so by exactly 0.8 percentage points versus last year. As a reminder, we became a U.K. REIT as of March 1st, 2023. This has some consequences in the acceleration of total earnings in Q2.
Last but not least, we have been able to deliver almost EUR 70 million of earnings, adjusted earnings, precisely, which is representing a growth of almost 14% for the half-year versus 2022. If we go to the other elements regarding the balance sheet, of course, a very robust balance sheet. First, we will pay a dividend of EUR 0.58 per share, and this will take place early October. Secondly, our net tangible assets, the current year on EPRA per share, is at 42.2, which is actually an increase of almost 4% versus December 2022. This is mainly due to the fact that our existing cap rate has been stable over the period, plus the growth of the cash flows of the network.
If you look at the cash position, we are almost at EUR 60 million, EUR 67.2. Our LTV is low at 18%, with a net debt to EBITDA ratio of 4.1x, and the ICR increased at 10x. Let's talk about the future. Pipeline. The pipeline is confirmed, so we continue to grow at a pace, which is very significant.
You-- We have shared with you the documents, and that have been posted, the fact that for the period 2023-2026, up to now, we have already almost 10% of our total non-rentable square meter that should open in the, in the coming three years, representing more like 136,000 sq m for a value of investment of almost EUR 300 million of direct budget cost, with an expectation of return in terms of WACC between 8% and 9%. If you go to the next slide, actually, regarding the, the trend of this pipeline, I think it's pretty interesting to, to look at that, where you see the acceleration, especially since the investor day that we did two years ago. It was September 2021. What did we say?
We said that we're going to accelerate our growth based on our three levers of growth, which means organic growth, meaning opening new properties and increasing the size of existing, and doing M&A. You see on, on this chart that the, the first percentage, the red line, expression of the rentable number of square meters has increased significantly. We were a bit over 4%, and now we are at 6%. Of course, value-wise, much more, we are on track to deliver more than 70,000 sq m in 2023, 75,000 precisely, and we confirm the guidance of 90,000 sq m for the year 2024 and onward. If I look at specifically Q2 numbers and a quick snapshot on that.
Revenue-wise, we are still growing with a very high performance, 9.5%, with, again, a very strong market in Germany, the Netherlands, and the U.K., which is, by the way, quite different than that of peers. Our income, in terms of NOI growth, is also growing faster, 10.1%. The same store are decelerating, as foreseen, and the deceleration is under control, 6.2%, which is still very high. This acceleration or, let's say, deceleration in the growth, has been acquired with actually an increase on our occupancy, 0.2 percentage point. Again, the same logic than on the half year, which is a very significant increase on the interest rate of 6.8%.
In the end, as mentioned previously, we got the benefit for Q2 that due to the fact that we are now a U.K. REIT, Q2, three months out of three of the quarter were with the standard U.K. REIT, and you see that the growth of the earning has been 15.2, which is higher than the one on Q1. If you go to the outlook 2023, it is confirmed, we confirmed that the revenue growth for the whole year total company will be CAGR above 8%, versus 2022. That the gain on the margin will be 0.2 percentage points, total company. I will not come back on the property yield, I mean, this was mentioned already, and this has not changed. 8%-9% return on investment.
I think this tax rate below 8%, this is clearly due to the U.K. REIT, and of course, confirming the dividend payout of EUR 1.7 per share. Pretty confident for this rest of the year of 2023. Jean, the floor is yours.
Thank you very much, Marc. We continue to show our robust performance in the first half of this year, in line with our expectation. Our revenue, the third company, has mastered and grown by 9.4% at constant exchange rate for the second quarter, while we grew by 10% for the half year. Our NOI margin at 68.5% for Q2 is up 0.4 percentage points, and also by the same percentage point for the first six months, demonstrating once more the stability and continued digitization of operating platform, and that is leading to cost saving. Finally, our adjusted EBITDA earnings at EUR 71.8 million, grew by 13.9% for the half year constant exchange rate, and by 11.3% at actuals.
We are pleased with the first half of the year, which continue to show the resilience of the top line and confirm our ability to keep cost under control in a high inflation environment. On the next page, our same-store property operating revenue continues to show a strong and consistent growth at 6.8%, while with an average occupancy of 90.4% for the first six months, up 0.2 percentage points versus last year, and an average increase rate of 7.4% at constant exchange rate versus 2022, reflecting our ability to raise both rates for new customers as demand remains good and to increase rates for existing customers. On the country level, Scandinavia is experiencing difficult macroeconomy. In addition, Sweden is also facing an extremely competitive digital partner.
The Netherlands, the U.K., and Belgium are showing about 8% growth, while Germany continues to deliver double-digit growth. On the following page, our three levels of growth are contributing to the 10.7% increase in our NOI at constant exchange rate. Our same-store NOI grew by 8.1% at constant exchange rate and contributed EUR 7.9 million to the growth, while the development and acquisition added another EUR 2.8 million, reflecting the ramp-up stage in our development activity, combined with a digitalization initiative, which allowed us to absorb rising salary costs through natural attrition. We are increasingly able to operate our platform stores more efficiently, thanks to our e-rental service, which makes up 30% of our total new contract. Moving on to the cash flow on the next page.
We improved our operating cash flow. We are continuing-
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Okay, we're back. Sorry for that. Yeah, I apologize. We had a fire alarm test in the building, so I apologize for the pause here. Moving back onto the cash flow. I was about to say that we improved our operating cash flow, and we are continuing to expand our pipeline, reflected by a 14.7% increase in our cash spend on development and redevelopment, while we expect our acquisitions to fall in the second half of the year. In total, we invested EUR 60.3 million in the first 6 months of the year. We ended the year with a cash balance of EUR 57.2 million. We confirmed the payment of a dividend of EUR 1.17 per share for the year, with a half-year dividend of EUR 0.58 per share paid earlier.
On page 12, we continue to show a very strong balance sheet with a low and stable LTV at 18% and a net debt to EBITDA at 4.1x . Our debt has a weighted average interest rate of 2.36% for maturities that were spread, and 100% of our debt has a fixed rate. On our EPRA NTA per share increased by 3.8%, reflecting the growth of our NOI, while our Exit cap rate basically remained flat at 5.2%. To finish, on page 13, we continue to show a strong growth of our net tangible assets, combined with a stable and low leverage. I will now hand over to Marc for the conclusion.
Thank you, Jean. We are on slide 14 regarding ESG strategy. Our priorities, if you look at the three major segments of ESG, are the following. First, we have in E, we, we are rolling out completely our LED plan. By the end of this year, or year, sorry, all the properties will be fully covered with LED. Heat pumps have also started. It's a longer project, and we'll have replaced all our gas boilers by, with heat pumps by 2030. We have now a complete follow-up on the water consumption with an interesting reduction. Regarding the governance, a couple of things here that we pledge during this year, actually, actually on the first half. First, we have more independent directors, and by the way, our chairman is an independent director, our independent chairman.
We've also reduced the size of the board from 11 to nine members. Regarding the, actually, also the reporting and the assessment of the physical climate risk, this was done fully, and we know precisely what is the situation per property. All of that has actually delivered great ratings. I will talk of ratings we have, globally, we are, I would say, the leader of our industry, Shurgard in Europe, regarding ESG. The commitments have not changed. We do confirm that we'd like to be at net zero by 2030 for the operational side and material by 2040. As a conclusion, page 15, again, if you have to remember some takeaway, the first one is we believe we are the best performing platform with the runway in Europe that we have.
These numbers are clearly driven by the benefits from our significant geographical spread. Secondly, the acceleration of the setup of what we call the PropTech platform and the stability of it. Clearly, how we are able to manage better and more efficiently our platform, so driving the margin up. The future, indeed, in terms of physical square meters, you've seen the acceleration and the significancy of that, so more than 10%. Of course, some M&A with this. Last but not least, regarding the balance sheet. As Jean explained very clearly that we have a very disciplined capital allocation to get great returns with a low leverage. The fact that we became a U.K. REIT is clearly applied. As mentioned previously, we are the tech leader in terms of ESG credential.
Happy now to go back to open questions.
Yeah, thank you, Marc and Jean. Now we open the line for your questions.
At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star one to ask a question. Our first question will come from Marios Pastou with Societe Generale. Your line is open.
Great. Thank you very much. Good morning, everyone, and thanks for taking my questions. A few questions from my side. Firstly, maybe if you could comment on, on customer behaviors, as we are now kind of moving through Q3. I know there was a mention that nothing has changed in the period. I just wanted to check if that's also been the case as, as we move on into the second half. Thank you.
Okay. Thank you. Thank you, Marios Pastou. Regarding the customer behavior, actually, they are two aspects in, in your question. In your question, sorry, we have the, what we call the prospect, so someone who is willing to, to rent a space somewhere, and then our customers, meaning people who are already renting. If you look at these, these two types of population, for the first one, the prospect, what we see is that the interest in self-storage, and how do we measure that? It's pretty, pretty simple. We, we simply check every day property in all the, the websites that we have in Europe. The, the number of clicks that we have from people browsing on a qualified page. What is a qualified page? It's someone who is going to the page of a property and looking at the prices.
What we see here is that Q1, Q2 have demonstrated a positive number of clicks for the same number of store between the two periods. The interest from people to rent units or to find space is the same. We don't see any drop there, even the contrary, we can increase. What has changed is that, and this has changed, I think, at Q4 last year, is that, if the volume of interest is the same, the conversion requires more discount, promotion, so in order to make the people becoming customers. This is, by the way, what is explaining in the end, the deceleration of the store, the fact that you have customers getting in with a lower moving rate than before. That's the explanation. That's for the, for the, the prospect.
On the customer side, existing customers, which is, of course, something extremely important to look at. What we, we, we have shared with you already, during the different roadshows and meetings we had since the beginning of the year or even last year, Q4, is that what could change would be people are looking at their personal P&L. It's under pressure due to inflation, therefore, they decide to stop to rent and faster than what we have in the past. There is a, a key KPI that we're looking at called the move-out ratio. It's simply the number of move-outs, so people who are leaving us during a given period of time, versus the number of customers we have.
If this move-out ratio is starting to go up, it means that, of course, people versus the year before, people are starting to change their behavior. For the time being, we don't see any change. Even in markets like Sweden, where the macros and the competition is quite fierce, this ratio is going down. The second thing for existing customers that was important to look at is the rental collection. Of course, if inflation is high and people are under pressure for their, their, their personal P&L, then are they starting to have difficulties to pay? Here, not at all. We have this fully under control, and we don't see in any jurisdiction or countries, a change in the rental collection that we have, which is a bit above 1%.
Very clear. Thank you for, for that, for that answer. Just secondly, maybe onto the expansion targets for the year. You know, you, you've got 70,000 square meters targeted. You've achieved a fair portion of that through developments. There's been no acquisitions so far, so any comments on what you're looking at in your pipeline, and whether you're confident in, in sort of achieving this in the second half?
Yes, Marios, we are pretty confident to reach what we have said.
Maybe just a follow-up on the acquisitions pipeline. Are you seeing transactions starting to come to the market? Any sellers emerging, and any comments on pricing you're seeing versus your own portfolio? Thank you.
Yeah, yeah, sure. Well, again, the... What you see coming in, in this M&A pipeline, you can understand that we, we do not make public anything which is under discussion. We simply announce the M&A deals when they are signed and, and closed. We have quite a, I would say, a, a number in the pipe, but it's very heterogeneous in terms of situations. You can have one property, and the owner is turning 65 years old, and he was the founder and is, is willing actually to cash in and to have a, let's say, a different life. You have sometimes some also institutional owners, who are invested now for, let's say, five, six, seven years and, and willing to sell. The reason for these people, it's, it's, I mean, I'm talking about the institutional bodies.
It's very, let's say, difficult to know because they, they wanna say what they wanna say. For some of them, you know, it may be offsetting some losses that they have in, in, in other parts of their portfolio. For others, it's simply raising the cash because they think this is the right time to do, to reinvest this money, this capital, into other investments. That, that's what we are facing. Regarding pricing, for the time being, we don't see a major decrease of pricing. It's, it's more the other way around, which is more stabilization. You know, the, the supply of deals is clearly, I think, below the demand level, and, and therefore, it's keeping a pretty good level of bargaining on the side of the sellers.
Excellent. Thank you very much.
Thank you, Marios.
Thank you. As a reminder, that is star one to ask a question. Our next question will come from Rob Jones with BNP.
Hi, team. Good morning. Hope you can hear me okay. Apologies to Marios, actually, because I'm just following up on some of his questions that he asked. The first one just on the occupier market. Obviously, you touched on the fact that you said kind of volume of interest is still the same, or being in reality, obviously, conversions are down. I wonder if you can give any new-...implicitly, you're kind of giving them a rent-free by the reduced rent that they get in the early months of their tenancy. I guess what you're saying is that, that rent-free period, that, that discount has increased. I wonder what it means in terms of your rotation, effectively, you know, what the kind of net effective impact is. That was my first question.
Okay. All right, Rob. It's pretty simple. If I take the past nine months of last year, 2022, globally, the average discount share was roughly below 10%, between 5% and 10% of our, let's say, revenues. When I mean discounts, I mean all in, not simply the EUR 1, but price cuts and other things that we do. It was below 10% the first nine months of the year, with, I would say, a spread from five to a bit above 10, depending on the country. In Q4 last year, we started to see the fact that, yes, people are still willing to rent, and there's no problem with that, and that's great, by the way. That was also one main point from the many, from many of your, of your colleagues.
Of course, we, we had, in order to convert them, to keep the occupancy up, to distribute more discounts. This ratio that was below 10% since Q4 has reached more than 15%, so which is more or less more than 50% up. What is interesting? That's why the deceleration you see on the in-place rent is simply the mechanism of every month, 5%, 6% of new customers are getting in with a moving rate, which is actually lower than the moving rate we had last year due to this additional or this more intense level of promotion that took place in Q4. The good news are, to me, is that, we're gonna make the look of that Q4 2023.
For the time being, what is also interesting to notice is that we don't see an increase of further cuts in the prices on discount. I mean, the level of discount is stable since, I would say, at the beginning of the year, and therefore, it's what we said also a couple of times, the way we have built up our budget and the anticipation of the way was that Q1 would be lower than Q4 in terms of growth of revenue for the same store, and then you have a deceleration in Q2 versus Q1, Q3 versus Q2. Q4, we expect to see a certain stabilization in this growth of revenues due to the fact that we will be fully comparable with the level of discounts that we start to do in Q4 2022.
Okay, that's very clear. Thank you.
You're welcome.
My second question, thank you. My second question was just around acquisitions going forward. Obviously, you've given the, the guidance for, like, 90,000 square meters per annum after 2023, obviously, or after 2024. Obviously, part of that is reliant upon acquisitions, clearly. But I wonder if you can give us some insight into the volume of deals that you are seeing relative to the volume of deals going forward that you will need to transact on, on an annual basis. You know, a bad scenario would be, you know, you're transacting on five deals, but you only see 10. A good example would be you're transacting on five, but you see 50. If you want to make just some...
You know, how many are going in the top of the hopper, I guess, is the question.
Yeah. Okay, sure. So again, back to the, let's say, the numbers. What we have said is if you recall in 2021, at the investor day, it's more or less we doubled the pace of growth of this company. At that time, we were able to do, when you look at the IPOs, which means 2018, between 2018 and 2021, less than 40,000-45,000 every year, total, organic, so opening properties and M&A. We said-
Yeah.
we're gonna go to 90,000, so more than the double. In order to do that, we have, let's say, a ramp-up, because you need the teams, you need to make the deal. It takes time to get the deals down if you are talking about organic and getting the permits and then building these properties. So we said, "All right, we're gonna ramp up this number, and in 2023, we're gonna do 70,000, and as of 2024, we'll do 90,000 as a total, which is the 6% that you have seen on the chart." If you look at 2023, we are clearly with what we have disclosed, which is, I think, more than 55,000, and we said more than 70,000, so we're on target.
The missing part will be simply coming from deals, M&A deals that are in the pipe and that are, I would say, agreed with the sellers, but we're simply in final digi- due diligence, and this will take place before the end of the year. We will be above the 70,000 in 2023. 2024, what you see in the pipe is, I think, 35,000 for organic growth, and this 90,000 total company is spread between 70,000 for organic and 20,000 for M&A. I'm still very confident to be able to reach the 70,000 for 2024 because we put in our pipeline for organic growth, meaning buildings where we build a building or we convert an existing building, deals that we have signed with the CPA with the owners.
You should see before the end of this year, quite a number of deals in terms of organic feeding this pipeline 2024 and reaching the 70,000 for the year 2024. Regarding then the additional 20,000 to reach the 90,000 coming from M&A. Again, we have quite a number of discussions with potential sellers of assets, so that's why I'm confident to reach the 90,000 in 2024.
just to, just to follow up on that, I am also very confident that you will reach the 90,000 in 2024. My question is, to reach that 90,000, of which 20 is inorganic, how selective can you be when you're doing your deal screening, if you know what I mean? that, that's the question I'm trying to get, get an answer for.
Yeah, we, we, Rob, Jean, yeah. We, we remain very selective in, you know, selection, criteria. I mean, as you know, we have been focused on the countries where we are, in the cities where we are, present. We, we are not in a situation where, you know, in, in order to reach that, 90,000, we're gonna be, you know, less selective and, and, and start hiccupping in secondary or tertiary or, or four levels. I mean, that, that's really clearly not where we wanna go into.
Understood.
We, yeah, we remain focused on the key, you know, tier one capital cities. I mean, that's our focus.
Yeah. All right. No problem at all. Understood. All right, well, thank you very much for the answers.
Yeah. Thank you, Rob.
We have a question from the webcast, a question from Vincent, Could you give more information on the situation in Sweden?
Sure, yeah. Sweden is, is pretty simple. Sweden, you have the double pain, in the sense that you have the worst macro situation in Europe, and you know that households are, are borrowing money to buy their homes, fully variable bullet loans. You imagine the impact. Let's say two years ago, let's say I was paying EUR 500 for my mortgage in Stockholm for the apartment I bought, and now I'm paying EUR 2,000. Obviously, this does impact the situation in Sweden. Secondly, on the top of that, in Sweden, we have one competitor called Green, which is very aggressive, which is actually in a rent. Why Green is aggressive?
It's because this is the merger of 24 Storage and Green, and they are in a ramp-up situation, knowing that their properties are half of our site on average. We have 5,000 property in Sweden, they have 2,005, and they are renting up, which means they are very aggressive in order to fill up the property. Of course, in all the catchment areas that we shared with them, we do answer to our potential prospect and new customers on what we call board rate/street rate, in order to get the customers in. The perspective of Sweden from my point of view, is that if the macros are not changing, something will change.
It's the fact that at a certain moment, it might take a year or maybe more, but Green, will be close to the objectives of our occupancy, and then the pricing will be smoother from their side.
Thank you, Marc. We have a question of Benjamin Leblanc, Considering the current economic context, do you see any decrease of occupancy for Q3 and further?
Well, no. No. Why no? The question is, considering the current economical context, do you see any decrease of occupancy for Q3 and further? Q3, we already mid quarter, you know, we are mid-August, which is we have 60% of the quarter, and, and we are on the, on the same trend than what we had in Q2. We, we don't see for the time being any decrease. Q4 will be too interesting. Is Germany continuing to be in recession? How are, how are the markets going there? Are the Swedes able to fix their problems over there? For the time being, I would say, if you take, for example, Denmark, where the economy, also the macros are, are, are quite difficult versus the rest of the continent, we're, we're still doing pretty well there.
I would say Q3, fine, and Q4, let's see.
Thank you, Marc. Question from an investor: Do you have any comments to make online on the 2 very significant deals in the U.S. with storage recently, self-storage and Extra Space with self-storage?
It's great to consolidate. That's my only poi-- my only comment.
Thank you.
We will have another question from Celine Soo-Huynh with Barclays. Your line is open.
Hi, Marc. I just have a question for you, please. There was a large family-owned U.K. portfolio on the market at the start of the year. I think you looked at it. Do you know if it transacted, and if so, what can you give?
Celine, which one are you referring to? Which country?
U.K.
What?
In the U.K.
Sorry, I don't hear you so well. Which country?
U.K.
U.K.? Oh, you said a large, privately owned portfolio in the U.K.?
Yes, correct.
Yeah. No, no news.
Okay. Thank you.
You're welcome.
Thank you. As a reminder, that is star one to ask a question. All right, it appears that we have no further questions in the queue at this time.
Well, thank you all for joining us today. We look forward to reconnecting in the very soon.
Thank you, all of you. Have a good day.
Thank you, ladies and gentlemen. This does conclude today's program, and we appreciate your participation. You may disconnect at any time.