The paragraph introduces the Second Quarter 2024 Extra Space Storage, Inc. Earnings Conference Call and reminds participants that the call is being recorded. The Vice President of Investor Relations, Jared Conley, then gives a disclaimer about forward-looking statements and encourages listeners to review the company's latest filings with the SEC. Chief Executive Officer Joe Margolis then thanks everyone for joining and discusses the company's strong performance in the second quarter, including exceeding FFO per share projections and increasing their 2024 FFO outlook. He also mentions steady improvement in occupancy for Extra Space same-store locations.

The second quarter occupancy for the company has improved compared to the first quarter and the same period last year, with a 12% increase in move-in rate. Same-store revenue has also increased by 0.6%, while expenses have increased by 6%. The Life Storage same-store pool has seen significant gains in occupancy, leading to a 1.8% increase in revenue. However, pricing improvement at Life Storage properties has been slower than expected, but the company is confident in their approach. Expenses for Life Storage properties have also been lower than projected.

In the third quarter, the company's external growth programs added 77 third-party managed stores and expanded their bridge loan program. They also saw gains in other areas such as G&A and tenant insurance. The company's occupancy and revenue growth has exceeded expectations, leading to improved property operating expenses and G&A savings. As a result, the company has raised their revenue guidance and lowered their expense guidance for the year. However, their Life Storage same-store pool has seen lower pricing power, resulting in a reduction in revenue expectations for the year.

The company has adjusted its guidance for Life Storage due to lower-than-expected expenses and increased demand for bridge loans. They have also adjusted their estimates for G&A, management fees, and interest and income tax expenses. This has led to an increase in the lower end of their FFO guidance. When the company took over the portfolio, there was a significant occupancy gap, but they have made progress by discounting rates at Life Storage stores.

The company's projected revenue for the year has been affected by the customers' price sensitivity and the merger with Life Storage, which has shifted their geographic exposure. California, an outperforming market, has a larger impact on Extra Space's revenue, while Florida, an underperforming market, has a larger impact on Life Storage's revenue. The company believes in the long-term potential of the Sunbelt and Florida, but is currently facing challenges in those markets. They are looking for a pickup in demand, potentially from the housing market, and a moderation of competition in order to regain pricing power and close the rate gap.

The speaker, Joe Margolis, discusses the housing market and how it will likely see a slow and steady improvement rather than a sudden spike. He believes that the moderation of new development is a positive factor and that their company's systems will optimize performance regardless of market conditions. He also mentions the occupancy rates for their Extra Space and Life Storage pools in July, with a slight increase in occupancy but a decrease in achieved rates for new customers. When asked about the pricing discrepancy between Extra Space and Life Storage, Margolis suggests that it could be due to a difference in customer mix.

The company is discussing the effects of the merger between LSI and EXR. They mention that before the merger, LSI had lower street rates and charged less, which attracted a certain type of customer. They also address concerns about pushing those customers out of the system by trying to bring LSI up to parity with EXR's pricing. However, they state that both LSI and EXR customers are behaving similarly and that the decrease in guidance is not due to pricing, but rather a decrease in new customers and occupancy.

The speaker is trying to understand the reasons behind a 200 basis point reduction in prices. The reduction is due to a pricing model that adjusts prices daily based on historic and projected data. The company has brought in new customers at lower prices, which will eventually lead to rate increases. There is also a gap between occupancy and net rents, which could be due to expansion or renovation activity.

The speaker is asking about the changes in new customer rates and how they have affected the company's thought process. The company had projected higher new customer rates, but the behavior of tenants has not allowed them to do so. They still need to be aggressive with rates to capture customers, especially web tenants. The speaker clarifies that the extra space customers are the same as the Life Storage customers and they have had to be equally aggressive with rates for both pools. The speaker is then asked about the expected exit run rate for same store revenue for both pools, to which he responds that the extra space pool will be fairly steady.

The speaker discusses the steady performance of Life Storage on a year-over-year basis, with a slight deceleration in the back half due to increased costs from rate increases. They also mention that marketing spend has increased compared to the low levels during COVID, and they expect it to remain consistent for the rest of the year. Demand for storage is similar to 2019 levels, but down from the elevated levels seen in the past two years.

During a Q&A session, an analyst asked about the year-over-year occupancy difference and how it will trend in the back half of the year. The company stated that they are more focused on revenue rather than occupancy and there have been no significant changes in their assumptions for the Extra Space pool. However, they did mention that the Life Storage pool is underperforming their internal projections due to geographical differences and weaker SEO strength. The company has increased marketing spend and paid search to make up for this, but they expected the Life Storage SEO to be stronger by now. The analyst asked if this will change the company's approach to SEO, but the company did not provide a clear answer.

Joe Margolis discusses the decision to test dual branding for Life Storage and Extra Space Storage, stating that the theory was that having more digital real estate would lead to more clicks and rentals, outweighing the cost of running two brands. While there has been progress in the paid and local sections, the organic section has been disappointing and they are analyzing the data before making a decision. In response to a question about the differences between the two pools, Scott Stubbs expects them to converge at some point, with Life Storage outperforming in revenue growth in 2025. The company also mentions increased competition and pricing in the market, potentially due to factors such as less housing market activity or more price-sensitive consumers.

Joe Margolis, CEO of Extra Space Storage, discusses the factors that have led to increased competition and pricing sensitivity in the housing market. He mentions the decline in customers who are in the moving process, which was at its peak in 2021 but has now decreased. He also notes the impact of new development supply and a weaker consumer, as seen in their shopping behavior. When asked about tracking this pricing sensitivity, Margolis says there are various ways to observe it, such as web traffic and customers jumping between different storage companies' websites.

The company conducts tests by adjusting prices in certain stores and measuring the consumer reaction to determine the optimal pricing strategy. Payroll expenses are expected to be slightly less in the second half of the year due to increased hours and wage increases, while utilities expenses have decreased due to the implementation of solar initiatives and other efficiency measures. The recent acquisition has also provided more opportunities for installing solar panels.

The speaker explains that the increase in acquisition guidance for the year is due to capturing three unexpected deals, rather than a significant change in the market. They note that the market is still muted and there is a bid-ask spread, but there may be a few more transactions in the second half of the year. They also mention that leverage buyers are still not active in the market and most storage owners are not in distress.

The speaker discusses the current state of the acquisition market and how it is affecting their bridge loan activity. They also mention the internalization of one of their prior customers and how it has impacted their third-party management. They do not see a strong catalyst for pricing power and do not expect significant changes in street rates throughout the rest of the year.

The speaker discusses solving for revenue and using tools such as occupancy and street rate. They clarify that they are solving for revenue and not occupancy. They also mention that the ECRI system is now used for both the EXL and LSI portfolios, resulting in no differences in rent increases. The speaker also addresses a question about changes in revenue growth guidance for EXR and LSI, stating that it was a result of taking the bottom end of the guidance off the table. They also address a question about structural differences in websites and banners, stating that there are no differences and the ECRI system is now used for both portfolios.

During a Q&A session, Joe Margolis was asked about any differences he has seen in website demand and customer acquisition between the LSI and EXR websites. He responded that they have addressed differences in website speed and other factors that Google looks at when determining SEO rankings. However, they are still working on improving their ranking to be in the top three results. The questioner also asked about when the LSI portfolio would be moved into the same-store segment, and Scott Stubbs responded that it would likely happen in 2025, but they would still provide previous year data for comparison.

The speaker is discussing the performance of LSI and ECRI portfolios. They expect the portfolios to continue performing differently due to different demographics and markets. The credit lending platform has seen significant growth this year due to few maturities and a muted acquisition market.

The company is holding more loans on its balance sheet due to a lack of acquisition opportunities, but this may change in the future. They have a viable business that serves multiple benefits and they expect to continue growing it. The move-in rate for July was 129 and the move-out rate was 180. The line of credit balance has increased due to bridge loan activity, but the company plans to bring it down through sales and potentially turn it into bonds in the near future.

Joe Margolis thanks everyone for their time and interest in Extra Space Storage. He addresses concerns about Life Storage's performance, stating that it is a timing issue and they are confident they will see improvement in rates. He also highlights the company's success in other areas such as expense control, G&A, and ancillary businesses. Margolis expresses confidence in the company's future performance. The operator then ends the call.

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