The First Quarter 2024 Extra Space Storage Earnings Conference Call is being held, with participants in a listen-only mode. Jared Conley, Vice President of Investor Relations, is leading the call and reminding listeners of the risks and uncertainties associated with the company's business. Joe Margolis, the Chief Executive Officer, thanks everyone for joining and acknowledges the transition of Jeff Norman into a new role within the organization.

The speaker introduces Jared Conley as the new Vice President of Investor Relations and mentions the company's improved performance in occupancy and rate since the last earnings call. They credit their revenue strategy for the increase in occupancy and average move-in rate. The speaker also notes that the company's legacy Life Storage properties have shown improvement in revenue and occupancy, narrowing the gap between their performance and the Extra Space properties.

Life Storage has maintained lower rates in order to increase occupancy and improve rate performance. Expenses increased due to investments in payroll and maintenance, but external growth has been strong with the addition of new bridge loans and third-party managed stores. The company has also seen savings in G&A expenses. A $600 million bond offering was also closed during the quarter.

The company used proceeds from an offering to repay a bridge loan and reduce exposure to variable interest rate debt. The balance sheet is in good shape and there is room for growth in the transactions market. No changes were made to property operations, but updates will be made after the second quarter. G&A savings and interest expense have been adjusted, and rental volume and occupancy are high. The company ended April with 93.7% occupancy and improved rates compared to the previous months.

The speaker asks about the company's current occupancy and street rates, and how they compare to previous years. The company responds that they are agnostic about maximizing revenue through different metrics and have not broken out street rates. They also mention that they did their budgets and forecasts based on revenue growth, and that street rates and occupancy are components of that. The speaker then asks for clarification on how the company feels about their current situation compared to previous years.

The speaker, Joe Margolis, is discussing the company's comfort level with the current leasing season. He mentions that they are more comfortable now that normal seasonality trends are kicking in. However, they are still cautious due to reduced housing activity and signs of consumer weakness. The company's systems have taken out much of the seasonality in occupancy, but the question remains about their rate power. They will have more data and a better feel at NAREIT and will keep shareholders updated.

Eric Wolfe from Citi asks about the deceleration in same-store revenue guidance and whether it is mainly driven by the 165 stores added to the same-store pool this year. Scott Stubbs responds that the deceleration is not due to those stores, and that the current expectation is for no major recovery in the housing market. He also mentions that the LSI guidance is for around 3.25% same-store revenue growth for the rest of the year.

The company's occupancy increased by 200 basis points at quarter end, which is expected to drive over 200 basis points of same-store revenue growth. The company expects to see the remaining growth to reach 3.25%, as they close the occupancy gap with Extra Space stores and see growth in the back half of the year. The ECRI program is trending similarly to the back half of last year, and the company is constantly testing and trying new strategies. The current pricing strategy includes discounted rates in web promotions, followed by attempts to raise rates quickly. The company has not received pushback from customers regarding this strategy.

The speaker discusses the company's strategy for pricing and promotions for web customers and in-store customers, stating that it is constantly evolving based on data and testing. They also mention that the transaction market for storage properties is currently quiet and there is a significant bid-ask spread.

The company has noticed a decrease in the number of large transactions on the market, but they were still able to close seven deals in the first quarter. However, only three transactions were approved in the first quarter. The company remains optimistic but does not expect a reacceleration in the second half. They have a diversified portfolio to mitigate any market fluctuations.

The speaker discusses the reasons why the market can act differently, such as new supply situations, job growth, and population. They mention that their wide exposure to different markets has helped smooth out volatility and they believe in having exposure to as many good growth markets as possible. They also address the lagging performance in Florida, but believe in the long-term potential of the Sunbelt markets due to population growth and business movement.

The company has increased its exposure to the life transaction market in Houston and Chicago, which are currently performing well. This diversification allows the company to benefit from different market movements. The existing tenant consumer is strong and price insensitive, while the new customer is more price sensitive. The company is experiencing weakness in pricing due to inflation outpacing wage growth and a decrease in consumer spending. Vacates were down.

Joe Margolis, a representative from a real estate company, clarifies that while length of stay at their properties is improving from pre-COVID levels, it is still worse than during the pandemic. He also mentions that they are seeing competition in the structured finance market, but they have not lost any loans yet. The company has the ability to sell off some of the loans to control how much of their balance sheet is dedicated to this business.

The speaker discusses the performance of LSI in the first quarter and explains that it has met expectations but there is still room for improvement. They mention a 90 basis point occupancy gap and an 8-12% rate gap, but state that the necessary tools and infrastructure are in place to close these gaps. They also highlight improvements in store manager performance, R&M and capital, and website speed. Overall, they believe there is still opportunity to capture and continue improving LSI's performance.

The speaker clarifies that their company has not cut rates more aggressively than their competitors, despite what may be seen in web scraping data. They offer promotions to less than 10% of their web customers, while their peers offer promotions to the majority of their customers. The goal is to get customers to street rate within a reasonable timeframe.

The speaker discusses the occupancy levels for the company's LSI assets and mentions that they do not have a specific target for occupancy, as it is just one factor in maximizing revenue. They also mention that the marketing spend is still a small component of expenses and has a high return on investment.

During a recent discussion, Scott Stubbs, a representative from a real estate company, was asked about the growth of rental rates over the past few years and what gives him confidence that there will continue to be upside to the rent per square foot number. Stubbs stated that while there have been positive signs in terms of month-over-month rate increases, they are still negative compared to last year. The leasing season will be a determining factor in whether it will be a great or good year for rental rates. As for housing, Stubbs revealed that about half of their customers are moving due to home sales, with 45% of those moving from apartment to apartment. However, there is not enough data to accurately predict how demand will change as rates continue to rise.

The speaker believes that fewer people are moving because they are buying a house, but more people are moving because they are renting or transitioning between homes. The company's guidance has not changed significantly from 60 days ago, and the recent updates were based on interest rates and other small factors. The speaker does not have enough information to confidently say if things are better or worse for the company's properties.

Eric Luebchow from Wells Fargo asks about the gap between Life Storage and Extra Space for both new and in-place customers, and the timeline for reaching revenue synergies. Joe Margolis explains that the gap is currently around 8% for comparable stores, and that they also looked at it at a portfolio and market level. When asked about supply, Joe Margolis says that they look at it by analyzing their same-store pool and 3% of those stores had new supply delivered in the first quarter.

The speaker discusses the estimated decline in self-storage development for the year, citing various factors such as construction costs and rent growth. They also mention specific markets with new supply issues. In a follow-up question, they clarify the timeline for closing the occupancy and rate gaps at LSI, stating that it will involve both resetting pricing and implementing rate increases over time. Another question is asked about ECRIs and their revenues per occupied unit.

The speaker disagrees with the idea that the cost of renting a unit will become too high for tenants to afford, as there are still affordable options available. They also mention the use of technology and AI in the industry, which has already been implemented and will continue to change things in the future.

The speaker discusses the company's plans to use technology to improve efficiency in their stores and customer service. They also mention their bridge loan program and how it has seen an increase in demand, particularly from customers with expensive equity partners and those looking to cash out. The recent merger with Life Storage has also brought in new relationships and opportunities for the company to expand their bridge loan and management contract business.

Extra Space, a self-storage company, has a strong start to the year and is optimistic about the rest of the year. They have a good platform and strong team to optimize external situations, although they cannot control all variables such as the housing market and customer behavior. They have a 100% management rate for their bridge loans and expect maintenance CapEx to be similar in 2024. The company is excited for the future and thanks everyone for their time.

The operator thanks the participant for their participation and informs them that the program has ended. They can now disconnect and are wished a great day.

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