Earnings Call: H1 2021

Aug 19, 2021

Good day, everyone, and welcome to today's Shergar Interim H1 2021 Conference Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star then 1 today's call over to Caroline Therape. Please go ahead. Thank you, Ashley. Good morning, everyone. Thank you for joining us for the H1 2021 results. I'm here with Marc Ophthin and Jean Creusch. Before we begin, we want to remind you that all statements other than statements of Vertical 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 Thank you, Caroline. Good morning, everybody. So we are very happy to share with you this set of strong results for the quarter and our 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 7.6% 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 stores 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 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 percent and reaching more than €61,000,000 for these earnings. The pipeline is pretty strong. It's presenting for the current year 2021 and the next year 2022 and starting 2023 With 7% total footage close to 87,000 square meters, which is a total CapEx value of a bit more than €180,000,000 The Board have decided to go for a dividend of €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 All 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 great performance. All markets are positive and strongly positive. The occupancy has been the highest ever we got For the same store with 91.7 percent for Q2, which is a 2.6% growth versus last year. And as a reminder, Q1 was at 89.1 percent and margin has been increased by 0.7%. So I will let Jean continuing the presentation and share with you the overview on 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 1st 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 3.8 times, we're in line with what we reported at December 2020. Our cash position at June 30 was €77,000,000 In July, we refinanced €100,000,000 tranche maturing with the proceeds of €300,000,000 green USTP with a maturity in 20.31 and a coupon at 1.24 percent. Our EPRA net tangible asset at €2,800,000,000 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 2nd quarter and the 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% €88,100,000 at constant exchange rate, a strong performance as we cut some costs last year such as marketing expenses during lockdown. Our G and A expenses increased And VAT refunds received last year. Finally, our adjusted EPRA earnings Grew by 10.4 percent at constant exchange rate to €61,400,000 On Page 6, our income from property by segment that 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 point 7%, up 2.6 percentage pounds versus last year. We had outstanding average same store occupancy in the 2nd quarter With Sweden at 92.8 percent, Denmark at 94.6 percent and UK at 89.1 percent, Up by a stunning 6.4 percentage points year on year. Our same stores 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 annual margin improved by 0.6 percentage points to 62.4%. On Page 7, our three levels of growth are contributing to the 8.4% increase in NOI With the same store growing by 6.1 percent at constant exchange rate and contributing €4,900,000 to the growth, While the acquisitions and developments added another €1,000,000 of NOI. Moving on to our cash flow on page 8, We invested €46,600,000 in developments of properties done versus last year As we have not yet done any acquisitions in 2021, the cash outflow from financing Of €64,800,000 reflected our payments of dividends, interest, debt financing costs And the purchase of the lease of our 1st 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 percent to €2,800,000,000 following positive fair value revaluation of our investment mainly resulting from positive impact of higher rates and a compression of the cap rates. On the debt side, I mentioned earlier the drawdown of the 300,000,000 green USPP in July. In the first half of the year, We also extended our €250,000,000 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 2021, everything is on track. So we have already opened all the redevelopments that we're foreseeing. Regarding the new developments, out of the 7 that were supposed to be open, 3 have opened and the remaining four Are on track to be open before December, so for the remaining 4 months that we are facing. And regarding 2022, 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 inner London recently. All in all, this pipeline is representing 87,000 square meter. As I said, again, globally EUR 180,000,000 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 eRental. Just a couple of words regarding eRental. 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 is the same logic. From the need of storage and through Google, you end with a move in in Shorgard. So that's the this full 100% experience for our prospects 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 sorry, the whole half of this year to roll out in all markets this technology for all our customers. And amazingly, we have been able to do 10,000 already year rental contracts 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 eRental 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 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 40% when we look at the walk in what we call walk in customers that are majority Generation X and baby boomers. I will pass Slide 12, which is giving you the details of the different generations and the spread to hour 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 and A. For the 1st month Of Q3, 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 are deciding to raise up the guidance for specifically this year 2021 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. Thank you, Marc and Jean. Now we open the line for your questions. Thank you. We can take our first question from Frederic Renard with Kepler Cheuvreux. Please go ahead. Hello. Can you hear me? Yes, very well, Filipe. Okay, Good. So well done with the result. I have just 4 small questions. Maybe the first one to start is that I see that the annual margin at the same and non same store level is It's going slightly down. Can you comment a bit on that? And the next question would be on the €5,700,000 recovery From proceeds from the 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 have is your view on occupancy rates going on in 20222023. And finally, a question on M and A. Are you still guiding for €50,000,000 mark acquisition this year? Thank you. So Jean will take number 1, number 2, and I will go for number 3 and number 4. Yes, so and our margin are slightly down. This is not expected, Frederic. If you recall, last year, we our expenses We're done, as we cut down on marketing largely. So that explains why This year, we are slightly down on margin. We expect that to stabilize And be back on a margin compression once our 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 amounts coming through. So that was a one off in the first half. And no, we don't expect that anymore. Okay. Thank you. Okay. So this is Marc speaking, Fredrik. So regarding the occupancy rate for 2022, 2023, 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 move in have 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 So 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 2022, 2023, 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, We see the same trend in terms of acceleration in July August. We think that we are comfortable Then 2022, it's a different story. We don't know yet. We don't have the view of how customers' prospects 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. It's higher than 2019. And I take on purpose 2019, which was a stable year before the drama that the world went through in 2020 early 2021. So 22, Frederic, I cannot comment either. Regarding your 4th question, regarding the level of M and A, So I do confirm that we will be in a level that is in the range that you have mentioned. Thank you, Mark. Thank you. Thank you for answering my question. You're welcome. And we'll take our next question from Mario Casto with Societe Generale. Please go ahead. Hi there. Good morning. Thank you for this morning's update. Just a few questions from my side. So firstly, I just wanted to go into your revised guidance a little bit Your rate 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 onto the trends you're seeing in July 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 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. Thank you. Okay. Thank you, Mario. So I will talk about this is Marc I will answer you regarding the revenue and specifically the same store and the trend for the occupancy in July August. And Jean will come back to you regarding the Investment of the properties. So regarding the guidance, so obviously, We had given at the beginning of the year, I would say, like every year since the IPO, a guidance of 1.5% and 2.5% for the same store. And when you look at the performance of H1, the same store have down 5.1% at constant exchangers, which is much higher. So globally, what I can say is that the way we have raised up the proportionally On the old store should be more or less coming from the same store. So that's logical, knowing that same store are globally 95% around 95% of the total revenue of the company. So that's what we're expecting. Secondly and again, Thank you for that. The link is perfect with the trend of what we see in terms of the performance of July August. Where is it actually coming from? What is the volume effect? What are the rates also effects? And clearly, when we look at Q2, actually, As I said, we have a strong volume effect. So we have 9.7% growth of our move ins for Q2, specifically same store. At the same time, the move outs are higher by 6.1%. But globally, of course, we get Again of occupancy, which is very significant, 2.3 percentage points. And when I'm looking at the in place rent, same thing, in place rents are growing in all the markets. The total company is actually at 3.2%. So we have this volume effect and then we have the value effect, if you prefer. And the value effect is around 3.2%. And this is coming from a couple of things. Actually, first, we are having a move in rate. So if you prefer, our new customers Getting in are getting in with higher rates than last year. Last year, we did some discounts during this period of time, I mean, Q2, especially May, June in France, also in the Netherlands and in the U. K. And we have If I look at the so the global performance of Q2 in terms of rates, we get the benefit that we are not Overspending in discounts, so that's why these move in rates are going up, plus the fact that the existing customers are getting increases as usual, While last year, we postponed and we waived for a couple of months the increase of the existing customers. So the combination of Newcomers with a higher price and existing ones getting an increase as they should have is actually bringing this rate of revenue. So that's why we expect to see this effect also in the coming months before the year end. And I think the third question regarding the investment property valuation, I will let this to Jean. Yes. Regarding your question on the loss on Under construction, it's just a timing effect. We anticipated to catch that back once they are open. Very helpful. Thank you. Thank you, And we'll take our next question from Tim Luecky with JPMorgan. Please go ahead. Hi, good morning. Thanks for taking my question. Just one for me. Given the robust performance last year and now accelerating strong growth, seeing this year, Have you thought or had any conversations internally about perhaps carrying some more financial leverage? I appreciate there is development spend and potential acquisitions ahead, but does the recent performance give you increased confidence to carry some more debt to drive equity returns? Thanks. Thank you, Tim. We're still remaining on our guidance of 25% loan to value. That's what we are targeting. We're not there yet. So yes, we're expecting to gradually Increase of our leverage towards that conservative target of 25%. So we're expecting to go up, But we will not as we already communicated, we continue to stay on that conservative balance sheet of 25% loan to value as a target. Okay. Thanks, Birkhead. Thank you, Tim. And we'll take our next question from Max Nino with Kempen. Please go ahead. Hi, there. Good morning. Just to kind of follow-up on Tim's question there. We've kind of consistently been below that 25% LTV. And is that Because the valuation side of things has been stronger than perhaps you might have anticipated. Or is that Still building into the assumption that you're going to get there in the kind of medium term, because just noting, we've been below 20% for quite some time. I'm just wondering if that's because of the valuation side of the portfolio has been Stronger than you guys expected. Thanks. And that's correct, Max. We the valuation, It's obviously increasing as you have seen quite frankly and that's obviously helping us in a way keeping our LTV Where it is and as you've seen, I mean, it hasn't moved from December 2020, despite the We continue to invest and pay dividends. So you're right in your assumption. And as I mentioned to Tim, over time, we're planning to go to 25%, which gives us significant To our border to do acquisitions. Yes. So you can kind of increase your capacity. That way, If you see that, that trend of evaluation still going in that same direction, I guess? Indeed. Okay, great. Thank you. Thank you, And there appears to be no further questions at this time. I'll turn the call back over to Caroline for any additional and closing remarks. Yes. Thank you all for joining us today. We look forward to reconnecting in this venue soon. Yes. Thank you to all of you. Bye bye. Bye bye.