Shurgard Self Storage Ltd (SHUR) Earnings Call Transcript & Summary

Good day, and welcome to the Shurgard Half Year 2024 Report Announcement Call. At this time, all participants are in a listening mode. Later, you have the opportunity to ask questions during a question-and-answer session. [Operator instructions]. Please note, this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Ms. Caroline Thirifay. Please go ahead.

Thank you, Erica. Good morning, everyone. Thank you for joining us for the H1 2024 results. I'm here with Marc Oursin and Jean Kreusch. Before we begin, we want to remind you that all statements often 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 [Indiscernible] information. You can find our press release and in our webcast replay of this conference call on shurgard.eu website. With that, I will turn the call over to Marc.

Thank you, Caroline. Good morning, everybody. So I'm on Page 2, which is the agenda of our today call. This agenda is actually articulated around first, our continued strong execution. Secondly, our financial strength momentum Thirdly, the overview of acquired modern log and so portfolio, and last but not least, our growth potential. And again, demonstrating that Shurgard is a unique platform with significant runway.  Going to the H1 results, which is Page 3. Thank you. So we have a growth across all our markets, and this has been translated by a revenue increase of 8.2% in H1, supported by actually a continued strong growth in several countries as Germany, the U.K., the Netherlands and Belgium. And by the way, continuing the positive trends we had in Q4 '23 and Q1 '24, and we'll come back to that later. All of that has been supported by the same-store property revenue. You know that this same-store whole is roughly more than 90% of our revenue and the growth of this perimeter has been 4.5%, and this was mainly fueled by the increase of our pricing dynamics in terms of results, which is a 5.1% increase of the average rate -- rate increase. Occupancy wise, we have been able to keep it high at 89.5%, with an increase of 0.2% in the average net 20 square meter versus last year 2023. And as we were mentioning, the normalization of the revenue growth, and Q2 is the third quarter in a row with a stable positive growth rate between 4% and 5%. As a reminder, Q4 were at 4.2% in '23 versus Q4 '22, Q1, '24, 4% and this third quarter in a row at 4.9%, which is, by the way, significantly above our peers in Europe.  So operational execution excellent, driving strong top and bottom line growth. On the next slide, Page 4, you have simply the graphic of what I was just mentioning. So you see the red line, which is quarter-over-quarter, the revenue growth of the same store. And then the [Indiscernible], which is the split with the light blue between in-place rent growth and occupancy. So you can see that the deceleration that we're experiencing in '23 has stopped, it is the other way around. And this has been fueled by the average in-place rent for the same period of time.  If we go to Page 5, Talking about the growth of the revenue, it's also linked to digitalization and leading operational platform. We have been able to have a stable margin old store at 62.9% with an increase of our expenses of 4.4%. And of course, the digitalization has been able to mitigate globalization increase. And if you go to the same-store NOI margin, we have been able to have a margin stable at 64.7% versus the prior year. All of that revenue growth, good management of our bank due to digitalization has drawn up our NOI by 7.5% total company. And bottom line in terms of adjusted prior earnings, we have been able to reach a bit more than EUR 78 million, which is a growth of 7.7% over the period, with an adjusted earnings per share that is -- sorry, EUR 0.01 lower than last year due to the equity raise that we had in 2023.  Then some details regarding this digitalization. I mean, we have started to talk about that already a couple of years ago. So on that slide, we are showing you what we call the customer journey from left to right. So you start from the need and you end with the service and the satisfaction of customers. And on the left, the -- of course, the first, I would say, brief or starter of that is the website/the device, which is the mobile phone. And one of the key elements here is the pricing transparency. The price you see on the website through the phone is the price you're going to pay, and we have other features that are available to help the customers to find the right fit to the need they have. Secondly, in terms of lease execution, you remember that we launched what we call E-rental, which is a fast and secure and easy way for prospects to find a solution to their need and we did this in the year 2020 during the first year of the COVID. And since then, it has reached up to now 50% of all the move-ins we do across all the countries. And there is no major differences between the 7 geographies where we are. At the beginning, this tool or this, let's say, channel of conversion or making business was overdeveloped for millennials and Generation Z. The proportion of these generations were clearly higher than what they were doing historically in the company. And since then, we have a normalization here to all generations are using this tool more in the same way than the youngsters. So fantastic achievement and it continues to grow, by the way. We will see how we'll end the year '24 and then '25.  Second step has been also for us to develop comprehensive and develop mobile app. And here, what we can say, we have really enriched this mobile app with different features. And today, 40% of our customers are using it, which is, we believe, a great achievement. Thank you to the teams who have actually made this happening. And last but not least, I would say that in terms of customer satisfaction and easiness, we have equipped and this was 2 years ago, 100% of our properties with this device, what we call access control, this little red box you see on the picture. And customers are able to use their phone Bluetooth wise to access to the premises and the building and therefore, the floor where they are renting, and today, we can say that customers are happy. We have a Google review score of 4.8 on average per property across Europe or also on the 300 properties we have with 400 reviews last time per property. So clearly, this digital customer experience has been a key element of the transformation of the company in the past 2 years.  If we go then to now the next slide, which lets -- we will talk about the physical growth of the company, what we call the pipeline. We have a very large and attractive pipeline in the sense that today we have a capacity that could be delivered for the coming 3 years of '24, '25, '26, representing 365,000 square meter, by the way, close to 4 million square foot, which is very massive or as a percentage of the total existing square meters we had at the end of '23, more than a quarter, 26.2%, which is extremely significant. This pipeline of this future physical growth represents more than EUR 1 billion of direct project costs, exactly EUR 1.047 billion, and we expect a yield that maturity from this investment of 8% to 9%, which means EUR 1 million, actually an additional NOI maturity per year of EUR 90 million. So pretty strong and promising.  You have on the next slide, Page 8. Actually, the breakdown per year, what we have done is all the dark blue bars from 2022 till '23 in thousands of square meters. And you see the breakdown of the pipeline, the 365,000 sqm per year. So of course, Lok'nStore is a big chunk of the 200,000 UC for '24. But then 2025 and '26 already at very high level. And the red line is simply expressed as a percentage of what it is versus the existing side of the platform. So the message here is the largest square meter-wise or footage-wise expansion per annum in the industry and the coming 3 years are secured, and it is extremely significant.  Then if we go to Page 9. We have done here the zoom on the Q2 results specifically. Q2 are confirming what we have said for H1 and therefore, for Q1. The revenue growth has been able to reach 9.2%, again driven by Germany, Netherlands, Belgium and the U.K. Clearly, these 4 markets are high performance. Then this revenue growth has grown up the NOI revenue by 8.8%, also based on the cost management. And our same-store pool did 4.9% for the same period of time. This is spread or explained by still a high occupancy, almost 90%, 89.8% with an increase of the average square meter rented of 0.4%. And at the same time, our average rental growth did increase by 5.4% with this continued pricing power that we have. Bottom line, the adjusted EP earnings grew by 4.2% over the period of Q2. So again, solid virtual performance, high occupancy, significant rate growth and stable margin for the company.  If we go to the next page, sorry, on Page 10, so with the outlook, '24. So this outlook '24 excludes Lok'nStore acquisition. I remit this '24 outlook excludes Lok'nStore acquisition. So first, due to the good numbers we had in H1 and the good start of Q3, we have upgraded actually our revenue growth guidance. That was, if you remember, 7.5% at least for the year and now it is at least 8% for the total revenue growth for the year '24. All the other items regarding the guidance are the same. So that's why, again, this rate for us is simply the synonym of the confidence we have with our resilient operating model. And based on that, I turn to Jean for a part of the presentation. Thank you.

Thank you, Marc. As you saw, we continue to show a very robust performance in the first half of the year. Our revenue total company has grown by 8.2% at constant exchange rate for the half year and by 9.2% for the second quarter. We are pleased with the first half of the year, which has shown continued resilience and improved trends our top line, while we confirm our ability to keep costs under control through the stability, is continued digitization of our platform as Marc explained to you earlier on.  On the next page, our same-store property operating revenue continues to show a strong and stable growth of 4.5% for the 6 months with an occupancy at 89.5%, an increase of 0.4 percentage in average rented square meter over last year and an average in-place rent up by 5.1% at constant exchange rate versus 2022. At country level, Sweden has now turned with improved occupancy and some positive pricing dynamics in the second quarter. All the countries are reporting stable or improved year-on-year revenue growth in the second quarter compared to the first quarter. On Page 13, our EPRA NTA per share increased by 4.4%, reflecting the growth of our NOI while the EBITDA rate at 5.1%, improved value of 0.1%. We drew EUR 130 million on a bank loan facility in June to finance the repayment of EUR 100 million tranche and some acquisitions. We still have EUR 320 million available on this facility, plus EUR 250 million last year in addition to the EUR 500 million bridge loan to finance the Lok'nStore acquisition.  Moving on to Page 14. We continue to show a very strong balance sheet. We have a cash balance at the end of June of EUR 209.6 million, combined with a low LTV at 15.4% and net debt to underlying EBITDA of 3.8x and an LCR of 3x. Post Lok'nStore acquisition, we remain in a very strong position with an LTV around 24% and net debt to underlying EBITDA at around 6x. We confirm the payment of a half year dividend of $0.15 per share payable at September, and I will come back on this later. We will also offer an optional scrip dividend. Now moving to the next page. We are very pleased to be the first European self-storage operator to be awarded by S&P, BBB+, with Stable Outlook credit rating. The rating framework implies the following: LTV between 25% and 35%, debt to EBITDA between 4 to 7.5p, ICR 3.0x-3.8x, PSA support for the storage support execution of our funding SIM strategy. An immediate benefit of the rating will be a 20 basis point reduction of our credit spreads on our banking facility to 100 basis pounds of the next interest period in Q4. Our BBB+ rating clearly emphasizes our strong financial position and prudent financing strategy. This strong investment-grade rating will also further widen our access to take the market, such as rated [Indiscernible]. It clearly increased optionality to finance the contract.  And to finish on Page 16, I would like to come back on the scrip dividend. The Board indeed decided that it will offer the shareholders the option of getting cash in our shares for the payment of the €0.58 dividend end of September. The modalities will be communicated on September 1. Our largest shareholders confirm the intention to pump for shares in New of cash dividends, representing around 70% of the total dividend payouts. And now with a strong financial position in line, let's go back to Marc for an update on the Lok'nStore reach.

Thank you, Jean. So we're on Page 17. A couple of reminders regarding this acquisition. So the acquisition of Lok'nStore, a modern high-quality [Indiscernible] portfolio, an attractive pipeline and again, we have a couple of pictures on this slide, demonstrating what I'm telling you. This acquisition provides us 171,000 square meter of additional, let's say, yes, square meters. And this actually represents 2 full years of Shurgard's targeted annual expansion. Remember that we've always guided the market with 9,000 square meter per year [poly] and it's doubling our size also in the U.K. The total cost of this acquisition only including pipeline is a bit more than EUR 600 million, EUR 630 million precisely. And our expected yield at maturity is 8%.  Based on that, if you go to the next page and focusing a bit on key KPIs related to this portfolio in terms of characteristic also. And this is excluding management contract, but including pipeline. So first, we have 82% of that purchase, sorry, that are real. By the way, in the case of Shurgard, we are at 93% before the acquisition. In terms of the purpose build, the proportion is higher than Shurgard, 76%, almost 3 quarters, for us, it's less than two-third, 63%. Then the modernity of the portfolio, too. So 43% have been actually built since January '22. So a bit more than 2 years ago. While in the case of Shurgard, U.K., we are talking about only 13%. The good thing is that the average size of the assets also, we have very close numbers, 5,000 square meters for 5,100. And in terms of average unit size, a bit more than Shurgard 6.9 square meter in our case, it is 5%. And you have a couple of pictures again, demonstrating this. The good news, too, is that we have been able in the case of [Indiscernible], so the picture on the top left, great property in the East of London, facing close to the [Indiscernible]. We've been able to acquire the leasehold actually a couple of days ago. So again, high-quality, young portfolio, mainly freehold and purpose built.  If you go to the next page, regarding the, let's say, the geographies and the demographics, and you have a schematic map on the left. I would say what you need to remember, this is a highly concentrated portfolio. If you look at it, it's kind of triangle, which is all the dots that are the Lok'nStore or ex Lok'nStore properties into it around London, we have more than 80 properties into this area when you make the sum of former Shurgard plus Lok'nStore, which means that we have a leadership position on this territory. And secondly, the Greater Manchester as we have always said, is a great area by the population, 5 million people. And here, we start to have a footprint, which help us to continue the growth there. And in terms of demographics, if you compare actually London, Southeast and Manchester versus the rest of Shurgard, actually, we have a high level of penetration, 89% versus 94%. And if you look at even more in detail, actually, the composition of the catchment areas within 20 minutes driving time, why this number because usually, we have 80% of our customers within the driving time range, we have a very similar number of units per inhabitant, units, I mean, all the industry. So meaning that the supply is the same. So all in all, an attractive new market for us, highly complementary with the Shurgard and focused portfolio.  And then if you go to the next page, talking about returns. As we have said, we are looking at to do 8% through this acquisition in terms of NOI yield. And this is based on 2 major things. First, revenue increase and then I will talk about OpEx reduction and more than OpEx actually cost reduction. So the revenue increase will come from, I would say, 2 buckets. The first one is the open stores today where we own the business, obviously excluding third party. And obviously, the game here is to drive up the occupancy from 67% on August 1 to 90% within 2 years and having a 2% CAGR growth of the rate within 5 to 6 years. And at the same time, the pipeline that will be delivered in the coming 2 years, same thing, same logic occupancy will reach 90% after 2 years of operation and operation, sorry. And meanwhile, the CAGR rate should be 2% for the coming 5 to 6 years post opening. As a reminder, we have put on the right side, what we have done in the U.K., the past 5 years, which was 9% CAGR. So we feel quite confident about the numbers that we have put in our business plan.  Regarding the cost reductions, so these are the 2 boxes that you have on the right, we are looking for EUR 4 and EUR 5 million -- EUR 4 million to EUR 5 million, sorry, for the first full year in terms of cost reduction, meaning operating costs, G&A and tax synergies and all of that will be supported by, as you've understood, the digitalization of our platform in order to get to the 8% within 5 to 6 years.  So where are we? August 14 versus August 1, which was the closing of the deal Page 21. So great news. It is a successful integration. Why do we say successful? Because Day 1 all the data, customer data and all these property data were on our CRM system. We have been able to integrate also on the website day 1, all the properties, meaning that you go to Google Map on day plus 1, which was August 2, and you take Shurgard better than, you are right away with the regular page from the website. Then we have been able to integrate our pricing model also at the same time. So promotions are in place, and our systems are in place for the whole network. E-rental is available since day plus 2. And you remember that in the U.K., 50% of the move-ins are coming from E-rental and we have been able also to integrate all the calls to our phone systems and the sales goes through our contact center that we have in the U.K. Meanwhile, the training of the team started actually just before the closure of the deal and continues today to be the most efficient as we can. So I would like to take the opportunity here to thank all the Shurgard teams who have participated to this fantastic, I would say, achievements, which means that since August 2, we are doing advertising on the web for all the properties with our pricing systems. We do move in the way we usually do, e-rental calls, and we are able, therefore, to monitor the performance. So now the game is clearly focusing on growth. You understood that in the previous slide, let's go to 90% and cost reduction with the use of our platform.  Then if you go to Page 22 and here talking about the future Lok'nStore acquisition impact on our numbers. So Q3 '23 disclosure that is taking place on November, early November, Actually, we'll integrate in these Q3 numbers, 2/3 of the quarter, August and September, the consolidation of the Lok'nStore portfolio, that's one information. Secondly, here, the second bullet point is actually repeating what we have said regarding the accretion of this deal when we came to the market, which means that the accretion on our agile earning per share will be neutral in '25 and accretive as of '26 and onwards. Also, as a reminder, we maintain our financial, as Jean explain to you, our target to keep LTV below 25% and 4 to 5x net debt over EBITDA medium term and allowing us short to midterm, the ability to be actually up to 35% and above 5x. Knowing that, today, the pro forma leverage of this acquisition is at 24%. And in terms of multiple net debt over EBITDA, 6%.  So clearly for us, the growth accelerated in the U.K., a key target market, clearly, with the acquisition of Lok'nStore fitting completely our strategy. So if you go to the conclusion on Page 23. As a reminder, clearly, operational execution excellence is there, and that's why we have raised our full year revenue guidance with this growth across all markets and also based on our digitalization and leading commercial platform. The growth accelerated has come from, of course, this acquisition of Lok'nStore and you understood the quality of this portfolio and the importance of the size relatively to Shurgard and also in Germany, where we have done a couple of acquisitions and increased by 46% the size of this market basically; three, even more than that, the future growth secured for '24, '25 and '26. So more than 1/4 of the end of '23 footage to 365,000 square meters, so 4 million square foot, representing more than EUR 1 billion of investment with this 8% to 9% return, which brings us at maturity of more or less EUR 90 million a year. And all of that in a frame and supported by a strong balance sheet with a modest level of gearing and significant liquidity with these 2 major events and great news that our first European self-storage operator audit BBB+ with a Stable Outlook, and this optionality of scrip dividend offered to our shareholders. So clearly, all of that, demonstrating that we are the growing #1 platform and brand in Europe with an operational execution excellence. And on this, I turn to Caroline.

Thank you, Marc and Jean. Now I would like to remind you 2 points. First, we are organizing the German Market Day of September 17 during the EPRA conference in Berlin. We will host a [Indiscernible] tour followed by a presentation on Germany. It's open to all investors and analysts. You can register for our presentation via [Indiscernible]. Secondly, a conference call will be scheduled for Tuesday, November 5, to discuss our Q3 2024 results incorporating for the first time former Lok'nStore portfolio. Now we open the lines for your questions.

Thank you. [Operator instructions]. We'll go first to the line of Marios Pastou from Bernstein.

Should I go through your questions one by one or I ask them all in one go?

Yes, one by one is fine.

Okay. So firstly, around the revenue growth guidance, I suppose the tick up, what is your expectations for same-store revenues in the second half based on the trends you've already started to see through the third quarter? And can you provide any just high-level assumptions around what you expect the Lok'nStore acquisition to add on top of this in terms of the top line for 2024?

So if you look at the same store, I mean, the trends have been very stable over the last quarters. So we're expecting to remain around that trend for same-store occupancy. And yes, and then the Lok'nStore, I mean, as Caroline mentioned, I mean, we have a more detailed view in -- with our Q3 results. I mean, as Marc explained, we just integrated them, it can take us a couple of the next couple of months to have a better understanding exactly where we believe we will be landing.

Okay. Very clear. Sorry, in terms of the trends you're seeing through the third quarter, are you starting to see potential customers more willing to agree deals? And have you seen any stabilization in the level of discounting you've been required to offer -- to secure its occupiers?

Okay. Marios, the land is not that great, but what I understood from your point is regarding the same-store growth for the rest of the year. Yes, the start of Q3 is perfectly in line with H1 and therefore, that's why we were confident to increase the guidance. And again, I would say the dynamics behind this same-store rental growth are still the same. I mean we still have a good level of demand and with an occupancy which is high in all markets, and at the same time, being able to put through our pricing power, so to have a very good rental increase. We don't see any changes here. We continue to also have move-out ratio that are quite stable, which as Marc mentioned, is quite positive for rent increase as we continue to see more and more tenants staying a long time with us.

Okay. Sorry for the bad line. Hopefully, it's a bit of better up. But just finally, what are your current thoughts around the financing plans of Lok'nStore currently finance the bridge facility? Any comments around that would be helpful.

I didn't really get the start of the refinancing of the bridge loan. Well, so in terms of the Lok'nStore refinancing, I mean, we have done first. I mean it's a 2-year bridge loan. So we have plenty of time. I think one of the benefits we have now, I mean, as you see, we will be able to get a BBB+ rating, Stable Outlook from S&P. We are very pleased with the [ACO] outcome and clearly, this rating will increase optionalities in terms of way to refinance such a bridge loan. For example, we now have access to the rated public bond market, which would be a good way for us potentially to refinance that bridge loan, which was not available to us before. So quite -- quite -- we're very happy and we're very positive with a BBB plus rating because of analytes for refinancing are increased.

We will go next in the line of John Vuong from Joh. Berenberg.

Just on the scrip dividend, I think it's a new policy that you're bringing forward. Is this something that you're intending to keep for the future years? Also take into consideration that your pro forma leverage is above target. At the same time, you plan to continue to add projects to your pipeline.

I mean clearly, I mean, it will be up to the Board to decide, but it is an optionality we have that we can use in order to keep our leverage under control. If you look at the LTV there we are fine. I mean, from ACV point of view, we are below our guidance, Net debt-to-EBITDA slightly higher. But over time, with the scrip dividend, it's clearly something we can bring back under control and continue to grow as our 2 main shareholders with the scrip dividend declare the intention to participate through shares, so not to pay the cash, which means that 70% of our payout is already covered. So the cash -- we retain additional cash.

Okay. That's clear. And then on the Lok'nStore acquisition, you mentioned that it already has been integrated in your pricing model with the promotions in place. Given your platform, and I suppose also your philosophy on optimized pricing, I suppose that's a bit different from the previous owner. Did you already make large changes here in terms of approach Or does it take a pass a bit longer given the required training for the staff?

Actually, for the -- it will not take long. It's immediate. -- in the sense that because there are no system, 50% of the move-ins are coming from rental. So it's simply between the website and the prospect. There's no [Indiscernible] interaction here. And on the call side, we have a contact center in the U.K. that will work and assess the prospects therefore, it will be also very fast.

John, to be clear, it's already in place -- they do that after an integration, everything was on our system, on our platform with our methodology, with our people so we are firing on quite quickly and making sure that everything goes extremely quick from that point of view. So it is happening as we speak.

I suppose my question was more about the promotions that you're giving. Is that materially different from the previous owner?

Yes. Yes. The previous owners, I mean, you know very much that we have a very specific pricing handle working on occupancy. If we see that occupancy now, we will lower prices offer more promotions in order to boost that occupancy and increase the rent up as fast as we can because we believe that having a high occupancy level will give you more [Indiscernible] going forward because you have a larger base of customers that are going to stay long term. That's a methodology. Most of the players in Europe are not following that, as you know, and are keeping the prices high with lower even. So that was the case of the previous owner.

So in the industry in Europe, as Jean said, the players are using occupancy as a variable of adjustment. In our case, we manage activity. That's the key difference, which is, by the way, what the American operators are doing. We believe that methodology in the long term gives you more growth

And we'll take our next question from the line of Frederic Renard from Kepler Chevreux.

I have 3 questions. Maybe a first one on the performance. Your average occupancy rate is trending down, but you continue clearly, as you mentioned, to have a good pricing power. The question is how sustainable is it? And do you expect competition in some countries to limit your ability to continue to lift prices in order to maintain occupancy rate, as you mentioned, that it's a key driver of attention for you?

Okay. So again here, the occupancy is, well, to us, slightly decreased. When you see the -- we're in about a couple of basis points. So to us, it's platform even the other way around, we're able to keep the occupancy at a high level of almost 30% for the same store. And then again, the average increase of the rental rate is coming from mainly and Jean explained the existing customer base that we're able to increase. So it's a different thing. So for the time being, we have been able to keep high occupancy during also major negative macro events. So we don't see why we will not be able to continue so. And thirdly, with a -- for the time being, stable/given decreasing churn of our existing customers, which means that the customer base is still at the same kind of level, we are continuing to be able to increase the people the way we are looking for.

Then another question on NOI margin. You said during the presentation that you had flat NOI margin, but actually down 40 bps year-on-year. I just want to make sure on our guidance because you guide for flat NOI margin over the year. Is it flat, flat or is it slightly down?

It's that flat. I mean, if you -- we book most of our real estate tax according to [Indiscernible] in the beginning of the year. And if you recall, last year, we had significant increases in the U.K. for real estate taxes and real estate tax -- the timing is in April. So we got those increases last year in April. So we now fully comparable. But in the first quarter, we had still lower real estate taxes for first quarter to '23 versus '24. While now we are fully comparable year-on-year. So margin should be improved.

Okay. Understood. And last question I have, how do you a BBB rating and the rating framework provided by S&P? And I mean by that, that they said that to allow you to keep your BBB rating, you should have a net debt-to-EBITDA of 4 to 7.5x, for instance. And if I take that into account and the scrip dividend, how do you reconsider the way you will finance the Lok'nStore deal? It's a bit the same question on Marios, but rephrasing differently. Because clearly, for me, even post deal with Lok'nStore so you would still have your BBB rating and therefore, access to the bond market.

Good understanding. That's exactly the case. I mean the BBB+ rating takes into account the Lok'nStore acquisition and the scrip dividend.

And I mean by that, if you remember, you communicated to the market that you will finance by both a mix of equity and debt. Does the BBB rating change your way you see it basically that is [Indiscernible].

I would say the BBB+ rating, combined with the scrip dividend, it's clearly the way we are planning to finance opportunities to finance this acquisition. Frederic, BBB+, I do insist on the little plus.

I said BBB+, not? I meant BBB+ anyway. Great.

[Operator Instructions] We'll go next to the line of Rob Jones with BNP Paribas.

Great. So 3 questions. One on E-rentals. Obviously, really positive to see a significant ramp-up in the percentage of customers that are using your e-rental platform. And I wonder if you had a monetary figure in terms of the difference in customer acquisition costs for a customer going down the e-rental route and utilization of your digital technologies versus the traditional route, so we can get a bit of a flavor for the potential further upside if we go from, say, 50% to, I don't know, 85%, 90% over the next few years?

Thank you, Rob. So pretty ambitious, yes, 80%, 90% for a few years, but if you should have told me [Indiscernible].

It should be 100% right? If I move I'm 100% or if I missed it I'm 100%.

Rob, I mean, clearly, you would have told me 4 years ago, Marc is going to do 50% of e-rental, I would have said it's pretty impossible. So maybe the AT will be there within 3 or 4 years. We know we see that. But back to your question and the cost of acquisition, I would say that technically, yes, the cost of acquisition is lower because you don't have -- you know that we have on average around 2 people for properties. So of course, this cost of labor, which is roughly 8% of our revenue is actually safe in a way, if you go for e-rental. But I would say that more holistically, the e-rental combined to the density of properties that we have in certain geographies, let's take, for example, the Netherlands, Belgium, Sweden, Copenhagen have been able to help us to create what we call management with clusters, where you have remotely managed stores and service stores and they're remotely managed of course, get the benefit of that proportion of rental and the density of stores. So it's not purely specifically the cost of acquisition of a given customer who's choosing a way to be, let's say, converted to and get a move-in.  So for example, phone or what we call was on pushing the door and coming versus rental. More than that, the proportion, the very high proportion of rent in our total movie combined with the density of properties in certain areas have allowed us to change the way we are operating, I would say, the network. And this is driving the cost down. As Jean explained. If you look at what happened already in '23 and even in '24, we have been able to really mitigate the natural indexation of labor in short with a very significant way. And we will -- our strategy of development. So it's a self-feeding strategy in a way in the sense that we want to continue to open properties in areas where we are and in countries where we are and, therefore, to create more and more density of properties, which brings us the capacity due to the size of rent of the share at all to do, I would say, more and more clusters with remote managed priorities.

The second of 3 was on rate growth. So obviously, really strong rate growth in a number of your geographies, picking out in the U.K. is a good example. But when I look at Sweden, for example, the rate at, I think, was relatively close to 0. Any signs of that ramping up going forward or the reason why that remains lowering compassion to wider [Indiscernible]?

Let's be super positive about Sweden. Of course, the comps versus the other countries make the Sweden a bit behind the game, but I'm sorry, people really need it to work. I mean -- and Sweden was negative the past year. We are now positive, which is great. For 4 quarters in a row since '23 were negative, and this quarter is starting to be positive. So we expect Sweden to continue to grow I would say, positively in terms of sales store revenue. By how much? I don't know yet. It will depend on the intensity of the competition we are facing. But the good news, it looks like that it's softening in terms of aggressiveness from the competition.

Okay. And then the final one is just on guidance. Obviously, you've, at this stage, chosen to exclude Lok'nStore when you are giving your guidance for year-on-year growth through FY '24. I guess 2 parts. One, why still excludes Lok'nStore in that guidance and perhaps maybe more relevant when we get the Q3 update. And obviously, Lok'nStore will be consolidated as part of that, will you change your guidance to include Lok'nStore for FY '24?

Yes. So we decided to exclude it because obviously, we only have -- we place meets of operations here. So it's quite early for us to really understand and get a complete picture from revenue and bottom line from the view. So as Carolyn mentioned, we do that in Q2, Q3. And in Q3, clearly, our outlook for 24 will take into account Lok'nStore.

We have a question from the webcast. First one, do you plan to revamp Lok'nStore property to Shurgard?

Indeed, yes.

Another question. What will happen to the match store from Lok'nStore?

Okay. So here, there are 17, what we call third-party managed. And these third-party managed stores, well, are for us interesting for 2 reasons. The first one is these properties or some of them are in locations fitting very well, I would say, where we are ready and complementing the network and the second also interest is that this management brings us fees. If you recall, we think we shared this information. They are, on average, bringing GBP 100,000 per year of fees per store. So it is money, clearly. It's not a major amount of money versus the challenge that we have, which is to bring 8% return versus the EUR 600 million, which is roughly close to EUR 50 million within 5 to 6 years. But it's nice to have and it will give also opportunities to us.  So to make a long story short, we are first starting to -- have met the different owners. And in a couple of months, I would say, early 2025, we have a much better view of how this, let's say, line of business is delivering numbers and good potential to us.

And we have a question from Vance Komen from the Group Petercam. Congrats on the solid results and positive on negative surprises and Lok'nStore since the full takeover in August compared to your expectations?

Yes, a surprise to us, well, and John and Thomas was here -- more than me. But to me, the positive is that Shurgard again has demonstrated its capacity to roll out its system within a couple of days and day 1, day 2, so August 2, we're fully up to speed to do business the way we usually do business. So that's to me a fantastic achievement and demonstration. Secondly, regarding the properties and the people, I mean, I have recently done a complete -- almost complete to our older properties and I've met, I would say, good people motivated, happy to wear the Shurgard uniform, so our light blue shirt and black pants, and they're happy to wear that. I'm happy to also share with us for certain geographies and specificities and that's what it was good to see. So people are motivated, the systems are in place and working on.

Thank you, Marc. We have another question. What is the highest NPV that you are allowed to have?

In our guidance, we said that 25% is our target with the Lok'nStore, will be at 24%, so below the target. But guidance, we also say that we can go up to 35% if we do a major acquisition. So we were aware within the EBITDA guidance.

And once again, [Operator instructions]. Okay. I don't think we have any additional questions. Thank you all for joining us today, and we look forward to reconnecting in this venue soon.

Thank you. Have a good day of you. Thank you. Goodbye.

We'd like to thank everybody for their participation on today's conference. Please feel free to disconnect your line at any time.