Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Abacus Storage King (ASX:ASK, Financial) achieved an FFO of 6.36cps per security, exceeding market forecasts.
- The company recorded a 4.6% RevPAR growth from its established stores, demonstrating strong operational performance.
- ASK's development pipeline is robust, with 18 new stores expected to add 103,000 square meters to the portfolio.
- The company has a conservative gearing ratio of 27.5%, providing significant funding capacity for growth initiatives.
- ASK's transition to an unsecured debt platform is expected to unlock significant value and reduce financing costs.
Negative Points
- Operating expenses rose by $10.1 million due to higher wages, statutory utilities, and insurance costs.
- The company will no longer receive distributions from a listed investment, impacting future income.
- RevPAM growth in the established portfolio showed a slowdown in the second half of the year.
- The self-storage market in Queensland and New Zealand is facing challenges due to increased supply and weak macroeconomic conditions.
- Building cost inflation is impacting the returns on new developments, requiring careful project-by-project evaluation.
Q & A Highlights
Q: Can you talk about yields on acquisitions or what you're generally seeing in the acquisition market, how competitive it is, and how many opportunities you see there?
A: It is market-specific, but we focus on suburban strong demographic locations, seeing cap rates in the 4% range, well below our average portfolio level. In regional areas, the cap rate is higher than our portfolio average of 5.55%. We see opportunities to apply our platform and achieve significant growth, particularly in rental yields by bringing businesses onto the ASK platform. (Stephanie Lai, Non-Executive Independent Director; Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
Q: In terms of the capital structure, any thoughts about partnerships or creating partnerships in the future to fund the attractive growth pipeline?
A: We have a strong balance sheet with over $350 million of liquidity. We have circa $100 million of developments committed and are mindful of cost inflation. We believe we have 18 to 24 months of activity without needing joint ventures or capital partnerships. (Stephanie Lai, Non-Executive Independent Director)
Q: You mentioned RevPAM growth into FY25. Could you comment on how the RevPAM was at the end of June relative to the average for the year?
A: The month of June and July were consistent period-on-period, with an uptick in July compared to the last quarter. (Evan Goodridge, Chief Financial Officer)
Q: What do you see margins getting to in the medium term, and what benefit are you expecting from dynamic pricing and a larger portfolio scale?
A: We aren't putting a number on it yet, but we see a significant gap between ourselves and similar-sized businesses in Europe and the US. We expect upside linked to top-line optimization and driving efficiencies through digital means. (Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
Q: What are your expected initial returns on developments, and how does that compare to acquisitions? Should more capital be allocated towards development?
A: Developments return more attractively over the long term, while acquisitions deliver immediate returns. We play both short and long-term games, balancing acquisitions and developments based on market conditions and opportunities. (Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
Q: Are you seeing a difference in consumer pressure between retail and corporate uses of self-storage space?
A: We see different reasons for storage within each sector, but demand remains strong from both. The pressure is more noticeable in mortgage belt areas with high competition, affecting price increases. (Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
Q: Can you provide color around the RevPAM growth in the established portfolio, given the slight increase from February to June?
A: We remain confident in our guidance. The slight difference between half-year and full-year results is due to portfolio changes and expansions affecting the number. The underlying growth remains strong. (Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
Q: Could you talk about your hedges and any incremental hedges taken out during or post-period, and whether there was any capital outlay for those?
A: No capital was outlaid for hedges post-period, and no new hedges were taken out. We will utilize the value of our hedge book when transitioning to an unsecured debt platform. (Evan Goodridge, Chief Financial Officer)
Q: What are the new margins and line fees for your top three debt facilities, and how do they compare with previous figures?
A: We won't disclose exact margins, but the savings compared to our previous facility are approximately 20 basis points. (Evan Goodridge, Chief Financial Officer)
Q: What is the expected margin for new stores compared to older stock, and how does RevPAM differ for stabilized assets?
A: New stores have higher margins and RevPAM compared to older stock, particularly once they reach maturity. The margins for new stores are significantly higher than the system average, often exceeding 70%. (Nikki Lawson, Group General Manager - Self Storage & Fund Manager ASK)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
