Earnings call transcript: Shurgard Self Storage Q4 2024 sees 13% revenue growth

Shurgard Self Storage (BS:SHURb) reported a strong financial performance for the fourth quarter of 2024, with a 13% increase in total revenue compared to the previous year. The company’s adjusted EPRA earnings grew by 5%, although earnings per share saw a slight decrease. The stock price reacted positively, with a 1.44% increase following the earnings announcement. According to InvestingPro analysis, Shurgard is currently trading at an attractive P/E ratio of 8.16, suggesting potential undervaluation relative to peers. The company maintains a healthy gross profit margin of 67.85% and has demonstrated consistent profitability over the last twelve months.

Key Takeaways

• Revenue grew by 13% in 2024 compared to 2023.
• Same-store revenue increased by 4.8%.
• Occupancy rates reached nearly 90%.
• The company expanded its storage capacity by over 400,000 square meters.
• Shurgard achieved a BBB+ rating from S&P, a first for a European self-storage company.

Company Performance

Shurgard Self Storage demonstrated robust growth in 2024, with significant increases across key financial metrics. The company’s revenue growth of 13% was driven by expansions in major European markets, including the UK, Germany, and the Netherlands. The acquisition of Lock n Store in the UK, alongside improvements in occupancy and operational efficiencies, contributed to this performance. Shurgard’s strategic focus on digitalization also helped mitigate inflationary pressures. InvestingPro data reveals the company maintains a moderate debt level with a debt-to-equity ratio of 0.28, while its cash flows sufficiently cover interest payments, indicating strong financial management.

Financial Highlights

• Total (EPA:TTEF) revenue: Increased by 13% year-over-year.
• Net Operating Income (NOI): Grew by 12.2%.
• Same-store revenue: Up 4.8%.
• In-place rent: Increased by 5.2%.
• Adjusted EPRA earnings: CHF 167.4 million, up 5%.
• Adjusted EPRA earnings per share: Decreased by 3% to €1.71.

Outlook & Guidance

Shurgard expects continued growth in 2025, with projections for revenue and NOI to increase by approximately 11%. The company plans to expand its network by an additional 90,000 square meters and anticipates capital investments in the coming year. Looking further ahead, Shurgard aims for annual revenue and NOI growth of around 8% from 2026 onwards, alongside mid-single-digit EBITDA growth. InvestingPro analysis shows the company maintains a "GOOD" overall financial health score of 2.87, with particularly strong scores in profitability (3.75) and cash flow management (3.46). For detailed insights and access to comprehensive financial metrics, investors can explore the full Pro Research Report available on InvestingPro, which offers in-depth analysis of over 1,400 stocks.

Executive Commentary

Marc, an executive at Shurgard, highlighted the company’s strategic alignment in 2024, stating, "2024 has seen the full alignment of Shergat Plans." Thomas, another executive, emphasized Shurgard’s achievement as "the first European self-storage operator to receive an investment grade BBB plus rating." This rating underscores the company’s strong financial structure, designed to support its growth ambitions.

Risks and Challenges

• Market Saturation: As Shurgard continues to expand, market saturation in key regions could pose a challenge.
• Inflationary Pressures: Rising costs could impact profitability if digitalization efforts do not fully offset them.
• Economic Uncertainty: Macroeconomic factors in Europe may affect consumer demand and occupancy rates.
• Competitive Landscape: Increasing competition in the self-storage sector may pressure pricing and margins.
• Regulatory Changes: Potential changes in European regulations could impact operations and expansion plans.

Shurgard Self Storage’s strong performance in Q4 2024, coupled with strategic expansions and digitalization efforts, positions the company well for future growth. However, it will need to navigate potential risks and challenges to sustain its momentum in the competitive European market.

Full transcript - Shurgard Self Storage SA (SHUR) Q4 2024:

Caroline, Moderator/Host, Shergat: thank you for joining us for the Surgat year end twenty twenty four results. I’m here with Marco Sain and Thomas Oversberg. Before we begin, we want to remind you that all statements other than statements of historical fact included in this call are forward looking statements. Forward looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected by the statements. This risk 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 sharegap.eu website. With that, I will turn the call over to Marc.

Marc, Executive (likely CEO), Shergat: Thank you, Caroline. So let’s start with our financial performance of the full year 2024, starting on Page two. Our total revenue grew significantly in 2024 versus 2023 due to the high performance from our same stores in all markets combined with the acquisitions realized during the course of the year in The UK with the Locust Store and Germany with Pickens and Prime portfolio. Therefore, we have been able to deliver over the guidance a growth of 13% for the full year with an acceleration in Q4 twenty twenty four. Our revenue growth of 4.8% for our same store pool has been driven by a significant increase of the in place rent in all markets of 5.2%.

And at the same time, the occupancy reached almost 90% over the year. This great performance of positive growth, around 5% for six consecutive quarters, is really different than our peers. As you can see on the next slide, Page three, the graphic shows our capacity of maintaining high occupancy with a high revenue growth of our same store pool. Moving on Page four, let’s go through the other key items of our P and L. The net operating income, so called NOI, grew at almost the same pace in our revenue with 12.2% for the year 2024 versus 2023.

This great achievement has been delivered with our same store pool margin increased of 0.4%, reflecting the scalability of our platform and the impact of our digitalization. The underlying EBITDA got the full benefit of our margin growth with a plus 12.2% over the full year. The amount of interest expenses increased significantly to million, driven by the additional debt to finance our major acquisition in The UK. The effective tax rate is in line with our outlook 24% at circa 17% of our adjusted IFRA earnings before tax. So despite these additional interest expenses and taxes, we’ve been able to grow our adjusted IFRA earnings by 5% and reaching more than million.

Regarding the adjusted EBITDA earning per share and after the dilution impact from the equity raise we did in November 2023, plus the scrip dividend, we stand at EUR 1.71 per share, which is 3% less than 2023. Turning to Page five for our perspectives of growth of footage with our secured pipeline. This year 2024 has been remarkable by the new secured capacity of square meters that have been added for the years 2024, ’20 ’20 ’5 and 2026. The team delivered a 30% increase in size or more than 400,000 square meters with billion of direct project costs for these three years. It means that this secured pipeline will deliver at maturity an extra million of NOI based on our hurdle rate of 8% to 9% return.

Moving to Page six. You will see on this graphic the breakdown per year with the relative importance of the pipeline versus our total size at the end of twenty twenty three. The major additional surface will come from Germany as we shared in September during the German deep dive session that we organized during the IPRA Conference in Berlin. The U. K.

Will benefit from the lock and store pipeline, and The Netherlands will continue to grow at a good pace. Paris Center will experience new redevelopments of underground car parks from Indigo Company, the European leader of this industry. Now let’s have a look at our balance sheet on Page seven. Our financial structure is designed to fund our growth ambitions, and the year 2024 has demonstrated this. We started with the first self storage company in Europe being granted an investment grade from S and P of BBB plus with a stable outlook.

Then we proposed for the first time an optional script dividend that was picked by more than 80% of our register. Then we issued our first bond of €500,000,000 in October with a fantastic performance of a fixed coupon of 3.625% for ten years maturity, securing our long term financing. As a result, we are in line with our guidance of leverage with an LTV of 23.3% and a debt debt versus EBITDA of 6.2 times with a cash position of more than EUR140 million. And now I will turn to Thomas.

Thomas, Executive (likely CFO), Shergat: Thank you, Marc. I will now walk you through our financial performance on Page eight, starting with an all stores view. The final quarter of the year was marked by strong momentum across our key markets, reflecting both organic growth and the impact of our recent acquisitions. All Star revenue increased by 19.3% in Q4. This growth was largely delivered by strong performance in The U.

K. And Germany, where revenue increased by 47.343.7%, respectively. We also see a double digit increase in The Netherlands and altogether resulting in an NOI growth of 17.8%. Let’s now focus on our same store basis. Q4 revenue grew by 5.2%, supported by a 5.1% increase in in place rents, underscoring our continued ability to manage our pricing efficiently, while maintaining high occupancy levels at 89.9% showing stable customer demand across markets.

Same store NOI margins improved by 0.6 percentage points, reaching 70.8% as our efficiency initiatives, digitalization effort and disciplined cost management offset ongoing inflationary pressures. One of the important topics this quarter was the relation between growing our network and related financing cost. With higher interest expenses linked to our recent acquisitions and expansion activities, we saw an increase in net financial cost. At the end, we kept adjusted EPRA earnings stable at CHF43.9 million for the quarter. These Q4 results highlight the strength of our operational execution, the benefits of our ongoing expansion and our ability to drive growth in a disciplined and sustainable manner.

Moving on to the next slide. As you will remember, our acquisition of Lock n Store in August 2024 marked a significant milestone in our U. K. Growth strategy, doubling our presence in the market with 28 acquired stores. The integration of this portfolio has been very smooth with operational processes fully aligned just two days after closing.

Since acquisition, we have already made meaningful progress in driving occupancy, increasing it from 67% at acquisition date to 72% by December 2024. This puts us on track to reach our target of 90% occupancy by December 2026. Additionally, we are seeing a slightly stronger than expected performance from an NOI perspective due to rate increases to existing customers and effective cost management. This combined with better long term financing condition means that the acquisition is earnings neutral in 2024 and accretive from 2025 onwards, both earlier than expected. Looking ahead to 2025 on Page 10.

We expect another year of strong performance supported by significant network expansion showing our continued confidence in our operating model. We plan to invest in our network expansion with around 90,000 square meters in 2025 and an estimated million in capital investments. Overall, we anticipate revenue and NOI to grow by approximately 11% across all stores. Our underlying EBITDA margin is assumed to improve by 0.5 percentage points, reflecting our ongoing efficiency gains and digitalization efforts. Interest expenses are expected to increase to around million as a result of the long term financing of our investments.

We currently estimate that our effective tax rate on adjusted EPRA earnings will move to approximately 18.5%. For shareholders, our dividends remain stable at per share with an optional scrip dividend. On Page 11, we provide our medium term guidance. Looking beyond 2025, our medium term growth expectation remains strong. As 2026 is having slightly different dynamics due to what we already know now, we will provide some specific guidance for that year.

We expect all store revenue and NOI growth of around 8% per year. In 2026, underlying EBITDA growth is likely to be mid single digit reflecting the impact of new store openings before returning to a higher trajectory in subsequent years, which we currently estimate to be double digit per annum. Our effective tax rate is expected to stabilize at around 19. Portfolio expansion remains a priority with 125,000 square meters in new storage capacity plant in 2026 and estimated million in investment. Beyond that year, we expect to continue expanding at a rate of approximately 90,000 square meters per year with annual investment of around million.

Financial discipline remains central to our strategy. Our LTV target of 25% allows for short to mid term flexibility of up to 35%. Importantly, we remain on track to bring our net debt to EBITDA ratio back to below five times by 2028, demonstrating our commitment to the BBB plus rating. Our dividend policy remains stable with a targeted payout of per share annually, and we expect to continue offer an optional scrip dividend. Let’s round up with a brief look at our full year performance on Page 12.

We ended 2024 with total Real Estate operating revenue increasing 12.9% to CHF406.5 million. The growth was across markets and as mentioned, particularly by the expansion in The U. K. And Germany and continued pricing strength across our portfolio. Net income from real estate operations grew 12% to million reflecting both the revenue gains and effective cost management, offsetting strong cost pressures on several cost lines.

Underlying EBITDA remains strong with an increase of 12.2% versus prior year. Despite the net interest expense increase to CHF 30,200,000.0 reflecting the financing for our major acquisitions and development project, adjusted EPRA earnings grew by 5% to CHF 167,400,000.0. After the dilutionary impact of the November 2023 equity raise and first scrip dividend offered in H2 of twenty twenty four, which together added 8.2% of new shares adjusted EPRA earnings per share stand at only 3% below per year. On page 13, we are looking at the performance of our various markets. Same store revenue grew 4.8% in 2024 with a 5.2 increase in in place rent as a key driver.

Occupancy remains strong, averaging 89.8% for the year with some minor fluctuation across markets. The Netherlands and Germany were the standout performers, followed by Belgium and Denmark, both delivering solid growth. We are particularly satisfied with the industry leading performance in The U. K. And the accelerating recovery in Sweden.

I conclude my commentary with a look at our balance sheet on Slide 14. Shogut’s financial position remains solid, providing a strong foundation for continued growth. We have a well diversified financing mix with a fully unencumbered asset base of billion. We are the first European self storage operator to receive an investment grade BBB plus rating from S and P. Our entrance to the public debt market with our euro500 million bond issuance was very well perceived by the market and provides long term financial security.

With net debt to EBITDA at $6,200,000 and LTV at $23,300,000 we remain well within our target leverage range and confirm our commitment to the BBB plus rating. Finally, our cash reserves of $1,426,000,000 undrawn bank facilities and the RCF provide additional liquidity, giving us ample capacity to fund future investment. With that, I will now hand back to Marc.

Marc, Executive (likely CEO), Shergat: Thank you, Thomas, and let’s go through the conclusion. Before wrapping up this exceptional year, I would like to thank our teams for their involvement and energy and our Board of Directors for its support. 2024 has seen the full alignment of Shor Got Planets. And I mean by this, first, an excellence in the operational execution second, a massive growth acceleration thirdly, a very significant future secured pipeline and last but not least, a strong balance sheet. With that, I will now hand it back to Caroline.

Caroline, Moderator/Host, Shergat: Thank you, Marc and Thomas. We invite you to join for a management presentation today at ten a. M. GMT on the execution of Shergards winning strategy, followed by a Q and A session regarding our full year 2024 results and the continued execution of our strategy. The presentation will be held in person in London and will also be streamed live via video webcast.

To attend the live webcast, please visit our website at chugat.com under Investor Relations, News, Events. Speak to you soon.

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