The operator introduces the Extra Space Storage Fourth Quarter 2023 Earnings Conference Call and hands it over to Senior Vice President Jeff Norman. Norman reminds participants that the call is being recorded and that management's remarks may contain forward-looking statements. CEO Joe Margolis then discusses the company's focus on optimizing the performance of recently acquired assets and maximizing the performance of existing locations in the fourth quarter.

In the second quarter, the company saw growth in external acquisitions and bridge loans. They also experienced steady demand and maintained high occupancy, but faced challenges with negative new customer rates. The merger with Life Storage has proven successful, with customer acceptance of rent increases and improved occupancy and revenue growth. The occupancy gap between Life Storage and Extra Space has also decreased.

The company is experiencing lower-than-expected new customer rates at their Life Storage locations due to current market conditions. While they are confident in their ability to maintain occupancy and revenue levels, they do not anticipate a reacceleration in revenue growth until they regain pricing power with new customers. However, they are seeing some positive signs and are well positioned to increase rates quickly when pricing power returns. The company remains optimistic about the long-term outlook for the storage industry and their own company, citing factors such as moderating new supply and a strong third-party management and joint venture program.

The paragraph discusses the expected growth and synergies for the LSI assets in 2024, as well as the completion of the migration of Life Storage customers to the tenant insurance program. It also mentions the G&A savings and the completion of bond offerings to pay off a loan. The outlook for both Extra Space and legacy Life Storage same-store pools is also provided.

The company has provided wider revenue and NOI ranges for 2023 due to uncertainty about new customer pricing and interest rates. They do not expect a material improvement in the housing market during the summer leasing season. For the EXR same-store pool, they expect negative to positive revenue growth, while for the legacy LSI pool, they expect stronger growth. However, they anticipate higher expenses at LSI stores in 2024 due to increased staffing and other factors, resulting in a range of negative to positive NOI growth. Their core FFO range for 2024 assumes the impact of the Life Storage merger. During the Q&A, they were asked about their assumptions for new move-in rates and how that will impact their same-store revenue guidance.

Joe Margolis and Scott Stubbs discuss their company's revenue-based guidance for the upcoming leasing season. They are not expecting a strong rebound in the housing market and are seeing price sensitivity from new customers. The guidance assumes sequential rate growth, but not enough to close the current negative gap. They also discuss the assumption on the SOFR curve driving interest expense within their guidance, which was based on a point in time with an average of 4.75.

During a recent earnings call, Michael Goldsmith asked Joe Margolis about the company's strategy of increasing occupancy and cutting street rates while using ECRI to drive rent growth. Margolis explained that this strategy is designed to maximize long-term revenue and has been effective, with no change in customers' acceptance of ECRI. Goldsmith then asked about the Life Storage portfolio, and Margolis confirmed that while the integration process has been successful, external factors such as slower demand and pressure on rates have affected the ability to generate synergies. This may result in a longer timeline to reach the expected synergy number.

The company is working to control expenses and improve performance, but market conditions are slowing down the achievement of the targeted synergies. As a result, there will be a change in the mix of contributions to the synergies, with less near-term contribution from the properties and more from other aspects. This may affect the company's guidance, with the potential for falling short at the lower end and getting close at the higher end. In terms of same-store revenue growth, there is a difference between the EXR and LSI portfolios due to occupancy rates, with a 200 basis point difference currently.

The occupancy at Life Storage properties has increased in February despite a higher number of auctions during the fourth quarter. Customers have accepted ECRIs and moved out at a lower rate compared to Extra Space customers. However, market conditions have been a challenge and the occupancy gap is expected to close in the rental season. The occupancy for Extra Space same-store pool is currently at 93.1 and there has been a positive delta of 40 basis points. Rentals were strong in January, but rates have decreased by 17% compared to 10% in the fourth quarter. This is because rates were pushed harder last year and have still increased from December to February, just not as much as last year.

The paragraph discusses the positive direction of occupancy for Extra Space and Life Storage, but notes that it has come at the expense of new customer rates. The same-store pool for Extra Space has seen a 200 basis point increase in occupancy, with 30 basis points of that due to the change in pool. The Life Storage pool will remain the same. The expected impact on revenues for Extra Space is 40-50 basis points, with 30 basis points being generated by the change in pool. The question then shifts to expenses, with the midpoint being 4.75% and the biggest increase year-over-year being in marketing.

In the paragraph, the speaker discusses the property taxes and insurance costs associated with their business. They also mention a decline in revenue growth in the New York region, mainly due to Northern New Jersey. The speaker also discusses the expected move-in rates for the year, which they believe will follow a similar pattern to last year, with less negative churn in the summer months. They hope to have more rate power and flatten out the move-in rates.

During the Q&A portion of the earnings call, a question was asked about the $0.20 dilution from acquisitions and its impact on the overall number. Scott Stubbs clarified that it was the impact of last year's lease up assets and this year's, which are not included in the same-store pool. The next question was about expense management and the importance of marketing aggressively during a time of minimal new customer demand. Joe Margolis clarified that there is still a high volume of units being rented, but customers are price sensitive. He also mentioned that marketing spend is seen as an investment and they have a metric to ensure a good ROI.

The speaker is asked about the cost of marketing in terms of Google clicks and ad space compared to historical norms. They mention that it is slightly higher due to the use of Sparefoot and successful property tax appeals in the Chicago market. The speaker also discusses the LSI rates getting closer to the legacy EXR rates, but still 10% below. They mention that they expect rates to continue to increase throughout the year and that it is normal for rent per square foot to decrease in the fourth quarter.

In January and February, the rent gap is closing and moving in the right direction. 62% of customers are staying longer than 12 months, with 45% staying longer than two years. The ECRI for longer-term customers is typically smaller than for shorter-term customers. $0.20 of dilution from C of O value add acquisitions is from multiple years, not just 2024. This potential upside would occur if the company stopped adding to the portfolio.

The speaker discusses the current state of the transaction market and their confidence in their acquisition targets. They mention that most of their guidance towards acquisition is already identified and under contract. They also mention that transaction volume is low and it is difficult to determine a market cap rate. The speaker also mentions that they may see more changes in their Storage Express and Life Storage stores as they learn how to optimize revenue and NOI.

Joe Margolis, the speaker, is discussing how the company is trying to optimize their NOI (Net Operating Income) by looking at various factors such as store size, rent, population, and distance from other stores. He mentions that they are using this information to improve their existing stores and also guide their acquisition strategy. The speaker also mentions that they haven't made any significant changes in the frequency of their ECRIs (Employee Customer Relationship Index) but are constantly testing new ideas. The second question asked by the listener was about the cadence of the first half versus second half of the year, to which the speaker replies that it depends on their guidance.

The speaker explains that even though the company's guidance suggests they may have negative results for a period of time, they do not expect a rapid acceleration in their customer base. They also mention that different markets are in different stages and their diversified portfolio helps them navigate these changes.

The company's CEO discusses the benefits of having a diversified portfolio and the completion of the ECRI program for LSI customers. He also mentions that there are not many opportunities for busted developments and explains the dual brand strategy and its potential benefits.

The company expects to get more clicks and rentals by running two brands, which will pay for the incremental cost. They have seen more presence in the paid and local sections, but the SEO section takes more time to see results. The G&A guide of $180 million includes cost synergies, but they were not seen in the fourth quarter due to seasonality and timing. The company will continue to look for opportunities to reduce G&A costs.

During a conference call, Scott Stubbs and Joe Margolis were asked about street rates and bridge loans. Stubbs stated that they do not expect significant growth in street rates for the year, but do anticipate sequential increases. They were disappointed with last year's leasing season and do not want to make the same mistake this year. Margolis mentioned that the increase in bridge loan activity is due to their plan to hold more whole notes and not sell as many A notes. The whole bridge loan now has an interest rate of 8.5% to 9%.

The speaker discusses the expected new supply of storage units for the year and mentions a 30-40% decrease in affected Extra Space same-store pools. They also mention a larger drop for all wholly owned stores.

The speaker discusses the current state of new developments in the market and how they will impact the self-storage industry. They mention the importance of a strong economy and increased customer demand in driving pricing power for new customers. The speaker also notes that they focus on occupancy as well as move-in and move-out rates.

The speaker discusses the company's focus on managing occupancy and mentions their plans for growth through remote management and joint ventures. They also mention their readiness to take advantage of strategic and accretive growth opportunities. The speaker acknowledges that their assumptions about the current environment may be right or wrong.

The speaker expresses confidence in their company's ability to perform well in any market conditions and thanks listeners for their time and interest in Extra Space. The operator then concludes the conference call and thanks participants for their participation.

This summary was generated with AI and may contain some inaccuracies.