Extra Space Storage (EXR) 3 May 232023 Q1 Earnings call transcript

Thank you for all for standing by and welcome to the Extra Space Management First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded.

And now, I’d now like to introduce your host for today’s program Mr. Norman. Jeff sir. ahead, go Please

you, Jonathan. XXXX Storage’s quarter Extra Welcome call. to earnings Space first Thank

In press remember to may Private information remarks addition Securities our answers contain on supplemental furnished and Act. defined our financial forward-looking unaudited Litigation statements website. in your Reform Please to that as prepared release, management’s questions we the have

qualified associated SEC, Actual by filings forward-looking due to statements by our results could forward-looking contained These statements differ cautionary with encourage business. materially and the from listeners with uncertainties in those statements latest Company’s to review. are stated which or implied Company’s our the risks the we the

of statements management’s Forward-looking X, XXXX. today, estimates as represent May

other call. The to forward-looking or Company because any no date update revise obligation of this after circumstances the conditions conference of assumes or statements changing market

would to like Chief Officer. to the over Executive call now I Joe Margolis, turn

thank you, Jeff. for Thank call. And joining today’s you, everyone,

of since Operationally, earnings a an March had and of lot highest months, at have very XX.X%, remained occupancy in happened has first call result years. through our strong exciting quarter, We the outside quarter the ending quarter fourth late couple first our COVID February.

maintain the us sequentially existing expenses expense and as were winter repairs maintenance rates due normalizing occupancy strategy expected to to same-store and high well first payroll from customers growth, to of allowed new quarter, and the X.X%. savings Same-store Our increase through as driving to growth through property revenue taxes. lower year-over-year than

X.X%. our moderated comparable at was due an XXXX to growth projections expected and As quarter our of ahead exceptionally NOI sequentially from fourth rate the same-store modestly difficult internal

front. also been have busy We growth the external on

with we primarily our remote preferred stock Xrd, announced Storage of an of the originated platform in started management we to And growth the We three loans. amount We six our a phase continued affiliate are in million. with our structures. We additions closed model all our venture of April acquired Subsequent joint strategy, acquisitions, external investment storage SmartStop net approving merger to in XX primary on We markets. neutral in bridge $XXX grow deal. stores. Life second leverage strategic of quarter-end, which remote $XX of million with course third-party stores a through of two

We this even team believe have least produce this platform will states. anticipate created stores run formidable that over an transaction there own. portfolio, across company neither combination X,XXX $XXX and annual that could more synergies on million We with at rate are in with XX their

in successfully track stated synergies. that confident second achieve to on half far, the we are year. as least at of can we And merger integration the is So refine everything more the complete even continue to our plan, our we

potential offer opportunities, which These to to there and property of minimum larger million. a increase a and due and in XX% redevelopment, captured data, greater to industry additional scale, Further, our in the $XXX performance, synergies additional are relationships, properties installation savings cost and expansion, could target pool acquisition solar lower increased and expense services build provide further and products growth reach evaluate such improve not finally, potential drivers pipeline. will a as of broader include scale capital, which of

driving appreciate way busy enter they We pending the the complete we remained as the existing are and teams and have season. companies the merger the from working hard I leasing on of to both business efforts the focused

over would turn I time now the to Scott. like to

Joe, hello, everyone. Thank you, and

out customers other. income higher FFO improving $X.XX. have insurance. internal lower in generally As quarter, offsetting tenant good both modeled, beating management lower sequentially we since by expense beat been Interest Joe Achieved property expected driven and modestly each operating projections than by The was income, rates than another interest and mentioned, bottoming new March those rental in with to came better in XX%; our March net had X%. and and contributing algorithms fees G&A dropped were negative February, in average rates were they April, in We approximately April achieved negative year-over-year modestly negative rates. in January, X% to And pricing XX%; in negative rental closer year-over-year, in to they at volume our November. improved April. did In rates volumes to see lower rates higher

debt receivables. to of announcement revolver revolving we rating CreditWatch Global X.X%. of offering interest sheet, rate million capacity. view a We in quarter, synergy its balance to of total used the reduce the bond less to floating of $XXX XX% the $XXX to confirming variable the our rate reduced end and the of potential with proposed than is S&P given million We merger Life our coupon leaving positive, updated our that notes opportunities. $X net of transaction credit-enhancing, proposed increase scale billion at the with our exposure Shortly Turning in completed balances after five-year to proceeds Storage, the a over

modifications other insurance ranges which growth for delays and our do closings, core our investment, G&A. outlook guidance Life made merger bond We not the FFO, interest XXXX our Storage. in bridge loan capture same-store on to adjustments of of preferred impact to SmartStop the We include to reaffirmed with expectations deal expense, in tenant the proposed and impact the

was income modestly expectations. ahead net Property quarter in of the operating first our

customers, season, and guidance quarter. these leasing second monitor rates we after ranges and rental funnel progress before web of achieved the top new revisiting to through the trends, we vacate demand As traffic will

quickly offset non-stabilized in first rate exceptionally our same-store year. year, first $X.XX due growth in the and for our As comps, half the in our higher preferred modification the guidance Much of interest the NOI to NexPoint dilution, investment summer this by reaccelerates investment year moderates of modestly It of is properties, call, first throughout year. of approximately headwind carry mentioned and and growth our late rates. difficult fourth which of the revenue the troughs the full half on assumes quarter the more positive assumes growth in

believe of multiyear they each growth, a long-term growth While slows result stronger in over XXXX for rates shareholders. these will headwinds period we our

We’re resilient stronger space, in in well will most healthy, as is storage to believe great We for platform REIT among the Life growth. and moderating year. XXXX. start sector our portfolio the to diversified off become will that solid We and merger continue even the are the produce operating albeit an a class believe through positioned highly year-over-year asset and Storage another

operator, let’s With up that, open for questions. it

the of Instructions] our first Thomas from comes question KeyBanc. [Operator from line And Todd

ask April. about just I first to in occupancy wanted

a demand of a coming about any greater March where there, quarter you If and bit bit in year-over-year detail. you could talk talk rental out post little about just updates stand little

Yes.

increased of April, points. At basis of end were XX.X%. end the the at about occupancy April XX we Our

actually of We we moving into are activity the rental the So month rental in season. good during April. a position good saw

points you the you with within you’re terms was pleased quarter-end were was a if And where basis see expect about improvements guidance what it would the XX like standpoint. is occupancy about below just you little a that occupancy, Okay. of peak a the unusual in in expect seems seeing, quarter rental you kind the to peak season? anticipating? It talk average during what which bit the Are yes, you could occupancy And, little June, the framework, below of July? seasonal from

Yes.

year. year, two But we did to against less a the is pretty years, So, obviously negative with our than occupancy throughout the is a occupancy last entire X%, but guidance, revenue, It’s as negative that number, toughest that delta slight COVID in two you’re last of on we compared years assume up peaks. the focused with we the headwind do there consistent.

an from And related And last of guidance, terms updated value that of $X.XX you acquisitions for is guidance that and and or initially, that increased or driving that? the question, what’s of -- expect full decreased balance it’s -- -- the initial going you so the dilution dilution guidance? mean, in add forward that’s C improvement relative that year and the the actually $X.XX. was the to to is year is Is been O the I

it’s to couple the of it an filling a acquisitions Leased timing $X.XX the two up compared up is faster, properties that slightly. things. initial assumes O improvement of and of back guidance, then on and bumped from actually C and It’s are

Goldsmith have might comes And of our Michael Michael, next UBS. question from phone mute. you on from your line the

moment. one on, Moving

Our Juan BMO. from Sanabria from comes then of question the line next

question, Your please?

the you’re that recognizing seeing I what the bit remote you the early days and acquisitions. top think early in it’s storage And Life mentioned at how opportunity Storage, forward? Could with about days be what a there? thoughts little going Joe, there, could tie about could talk you just set any

I don’t know everyone’s problem. having this if

you We question, We the it a hear repeat bad very here. connection. couldn’t have Could please?

Sure. Is better? that

bit. A little Yes.

talked you first Just the remote about curious, quarter… storage the investments Joe, in

We can’t here.

remote first mentioned Just quarter. the acquisitions storage curious, in you Joe,

with bigger opportunity thoughts that or what transaction, curious opportunities any what Storage Life expansion early And that for to and picture what are learnings if represent Just is. curious just opportunity there’s on could you -- guys? tie-ins that on pending on set

a It’s question. great

model. with right, our opportunity huge. could for just manage the that their undertake management masked, we site be traditionally and would XXX% we small. is for which think to it’s of of but then, acquisition, in of this Life look stores only not effort through And different And portfolio space, turn not existing type the to Storage not So small this the vacant them because would will on management is can that go storage we number storage market candidates set, we I -- an respect see efficiently without it at stores permanent

we exciting opportunity an is it So, set at. look will that

different capable storage Is margin a generating? that are spaces remote there these of

managing the I the remote platforms by but efficiencies think them margin is the different, not through margins gained acceptable. make the

have to if because sense. you expenses, makes get right the can reduced margin, You that the

very maybe driving it a increased about being seemingly transaction pending was little synergies bit could announced? LSI does. curious, that you enthusiasm the you post confident and then what’s transaction. on I the talked hoping just are the from just And Yes, unpack

give synergies more opportunities learning up could portfolio need We’ve going we through now Storage have with we the example. end one simple four the by the In and just our gone regional within new underwriting, that I’ll offices. we’re Life combining assumed offices. gain six Well, to and ours. everything certainly we’re about to would you regional we portfolio, with

more the incremental just savings and learn that can So, of think And and synergies become achieve. as more. more example one also many on we we we we more confident revenue that’s

And comes of from our line the Samir from Evercore Khanal next question ISI.

implemented. Difficulty] you’ve [Technical

-- trying headline whether had the banks, you’ve with anything clearly regionally, there banks. risk the regional it’s out Just seen, we’ve the to markets,

wondering, you’re Just there is point? at seeing signs this any that all at

we half you question. of repeat Could the only picked your full about question? Samir, up second

make can whether the over issues. last on headlines comments lot asking occupancy few to seeing from it’s around markets don’t maybe see pickup? was sort of right, know if that -- I whether debt we’ve you banks on price you the of increases, customers any pushback any months, I side pushback have the some increases. having things you’re customers existing seen a where regional you getting Just see -- trying or drops been may from on or existing negative may about bad price that

of who our than trailed have answer didn’t. question. little normal, ECRIs higher good at stabilized down normal health-of-the-customer higher has but about basis back rate ECRIs And peaked We that number from and So, kind the who a greater that’s than to towards out out question, a a a not. in has your move more the it’s little those it points we are specifically normal. And customers receive XXX than

but But, manageable we of demand isn’t it of if bad good still very in strength number frankly X%, see as pre-COVID very willingness low COVID side. Demand the is this of sector. to in justifies our and a customers demand you is at debt years, statistics as years, during in it program. was customer look health comparable. and the which demand, The strong still compared also the the pretty under So signs on

Okay. guess, mean, could earnings I Scott, just the And maybe second in pressures expecting it. you for year. I Got about face as call, expense question, in the growth I through of this last of pressures? that for us you And know a about what kind what far year-to-date? Maybe so expense sort doing are you’re quarter. you seeing you’re first talk X.X% spoke

expected. you if as look expenses, progressing So, at our is payroll

go year. X.X% expect would the that we to to more move than we pace what and at moderate And we’ve quarter, moderate in continue the to it as to year. expected We a the past we throughout in that saw back first seen

be year. Moving to that an benefit that inflationary payroll in We would -- the taxes the other actually were expect to big would negative expense the quarter. property us the a to throughout and of items, We plus. not were remainder we expect

the The in never but had in removal, have other guessed snow a snow rest of in it one that was throughout the would quarter quarter. we the a actually the lower removal living we is benefit us benefit Utah, was which for U.S.,

that do think of terms forward, expect June, our we potential we everybody’s insurance that Xst our In renew property moving we of see other to expense some experiencing. and casualty bump to -- items I another would sizable property what we expect pressure similar and

And of it? follow-up, the quantify what’s size Can modeling as from a what’s just -- just we a think of as sort about you that perspective?

significant. the phases, still double We’re digits, be in definitely early it’s and but could

that the of expense that’s area XX% returns throughout the needed if find instead our the year, spend that as first in spend rates. marketing, find quarter positive look. on other that we and at item we’ll Obviously, we’ll we ran cutting The marketing that can we and is use

from line Carl comes of Keegan question Wolfe next from our the And Research.

pool on understand especially occupancy outperformance the pool? help to XXXX given you the Maybe that in better us Can of higher same-store pool first XXXX just the the breakouts. XXXX relative was your pool,

Yes.

Your came C from benefit stages acquisitions. of comes or O finishing of final the adding are properties properties lease-up those that and either properties from

as the outperform typically same-store pool. they to continue stabilize, And so rates

pool, definition for them and back our Our year. same-store own IPO a to goes have we XX% or our occupancy, of to that’s

see So, benefit. some do we

at each look and three slower. If in the you little gets our a year, pools subs, it

should cap guys to then, far bridge lending be Okay. your And market, I and program? thinking I how on of the of as as No, guess, the acquisition are what curious, just about is one rest the that’s kind we it helpful. mean, rates? volumes how an year? And And guess adjacent I as you seeing it impacting that,

Good question.

to the are want, sell. self-storage market don’t significantly they the in have market, not they if get volumes price sell. sellers So, don’t they so a And distress down. There’s in of the transaction don’t lot

some So, because everything all were volumes Not seem to first there’s market trade what to loan our spread. slower unique significant do sure expected. unique. a bridge of a see than are there’s And enough in quarter have The bid-ask you tell rates deals we we to story. seems unfortunately, the cap be

said, is being there to that seasonality Now, some business. this

most half back look we four in loans the at the proving the or years year. this, If been you three most closing end we’ve second always up doing loans of or the

slower pattern, we we hope we So, but same in expected follow the the first little were quarter. a than

comes question And from of our line Goldsmith from UBS. Michael the next

question, Your please?

Can anyone hear me?

you We can year now.

a first street of sounds down Okay, through about great. -- My your March question cadence talked March, is returning the to you X% this a was moving from month. X% of lot April. then kind like down XX% down back just about through in challenging It peers and rates the to that particularly quarter, January from

kind going translated overall So, demand that to versus environment I and into just was between wondering what in rates to able like of out seeing where on were you parse March April? what demand -- how was are you that the side relative you of set kind the

at and want which we little that rates resistance. difficulties maybe try some that and the do. minus harder level March, of we’re don’t I we the minus think things we February fine, to what see X% there that right? XX% than with all did systems pushed of is overstate point weakness the And They find way March, should brought That’s the we from in algorithm a I was should, in to and Yes. should back right? to went recovering.

months. good It’s month months in us. for the March four wasn’t been overall, last yes, best been four have But our So strong. last the

overperforming we’re our says, Scott expectations. As

provide program. the just is you would Can to more on bit of little why bridge be falling this a kind for environment color And think bridge the have lending. lending been reasoning may would related deals good out? follow-up my I a

of in sort there third-party related And a added. that to was stores pickup nice you net that, the management

for looking Thanks. kind bit players little in the environment? just for about independent this third-party So, a talk can appetite management you of

Sure.

on. So loans, couple a have have which of respect to bridge mentioned. things I One, with seasonality, you you going

of the get for on deals borrower had commitment were a delayed. fee. the we was a had The second deals fee, dropped, we a our couple a had then, walked in we And sheet, already signed is, numbers commitment collected and term couple that pipeline

I hope a normal, and So will we to in business, the think, volatility the it up year. in pick half of second

quarter and part business. With we picked in transaction And slow. XX those respect is NexPoint much X a from strategic a less bought one had them as JV. is so to relationship of stores stores market management of XX stores, with management, we We the the in the and We great quarter. because other only up the lost our into the churn

a we start great our So had business. to management

it’s more is great more multiple well. one allows little And might We advantages having expect that a one of us be growing another of little And be the one slowly, to always overall have to quickly. quarter as second it a drivers a could the growing -- grow growth when enterprise.

you factors deals to get specifics just Is self-storage the trying the lend? a of lending more others -- would surrounding dropped? be bridge for a loan environment, reflects the -- sense a I’m bit Can that program. around appetite to it provide some like why of the Are is of bridge environment? it lending kind reflection of they little

bridge So, the some when and it the if maybe not issued, the property construction, until or from loan fee and of their are he instead because have is some different plan, maybe has loans CO to walk property other of it owner take way, And sells finances a option commitments operational. loan. has commitment the the lend they gets is to the he borrowing of a upon completion the built and CO right, project won’t issue our we the

our the And comes Ki Bin line question from Kim next of from Truist.

bit Metro So deliveries average. York portfolio If can if I’m it same-store sure what pressures be your in Northern area additional share kind seeing new further the New in than first not revenue helpful. is a but little comp of supply Jersey, or your color question, issue, you City you’re cause. a would decelerated the New was any

both think that. to certainly important those are I factors

you’ve circled Ki think that I Bin.

a but from take terms the the talked And lot the a the it look in and about NOI can focus wondering a peer? different of LSI -- improving that the and was the LSI company perspective portfolio, about, you you’ve combined picture margin basis. gap and if merger is been from between you synergies of picture What at close maybe Okay. the synergy terms of the upside overall in has and larger from math getting combined the NOI I your maybe

What gap margin? terms in was of the

Yes.

I larger taking it’s thing your insurance different lower a not nor margin a their So but affect one will compare wrong, margin. has right apples, So, apples much to deductible is and if strategies but example, have because cost, is they’re more one program, may Neither they think risk. insurance right? for on just company that a difficult they’re

by affected level you what include at is you include margin Secondly, and level cost. a G&A store at what cost

just aren’t that apples-to-apples do wouldn’t number appreciate to -- we are we’ve given? there at I really overall underwritten our synergies portfolio and additional mean, is, that And like things densification, it’s an in largest I peers margin comparison. it’s I right? look So absolutely assume which true. the that the in question, your think our But compare

get of one, number we more more stores. become city of other managers coverage have and smaller, and footprints in more take the XX inefficient. If more in have footprint need; travel and those managers their impacts. And that’s there of just reduces district all, our stores stores the stores It we they another, stores, and But portfolio negative stores. a efficient XX managers of district cover costs we of district can district X because has which get on manager, about now and second in X as our those

that of So, of synergies achieve absolutely to numbers. our those not any types there’s a are lot that in of we expect

uplift going figure with cover the is brand cost optimistic than and one from thing second of second the we second are out The maintaining other more we’re as that and a to running that well. revenue brand, will the brand testing a hopeful whether the and

data about but talked to that XX% XX% you doesn’t Joe, having better. the you’re return data, mean there’s because of more more diminishing obviously benefit And, a this more

little just upside about you the can and bit tangible So, talk that looks a more more what like standpoint? a from

I’m can’t went can So if there but logically, They It’s think, not agree and But X:X, they’d you certain I is scientists, with yes, you’re benefit talk not it’s enough right. solution can implement data bigger the because in data speed the is significance a I you get to our a get certainly mean, right? results, that. data. We you -- sure -- nothing statistical quicker and just from get statistically in tests pool, quicker. else significant in then faster this with which more optimized run whatever

question from Stanley. next line our of from And Ronald Morgan comes Kamdem the

me. ones Just two quick for

one difference? any of So, that a through it of on COVID is of the learnings how sort in are versus noticeable after are Is sort terms tenants from of just same? some back coming the mobile, of a tenants the or years, couple they’re just behaving store? into couple sort there the now, Is any quarters coming online -- the of that the to of going

tenant the tenant is always factors. And what’s of what on differences observed in constantly differences of length is capture channel those their terms unit tool of depending behavior channels terms stay, they the and through, an learnings. refining different results that in come of other what So, effective in both that size, of we’ve behavior our we’re to

being negative. property what a happened tax give the can Thanks. touched know color then the it, on on the the the just back there growth I Great. of you little bit going on to expenses, more And negative but -- taxes? you property sort

won forward. we appeals that then primarily going That’s the during quarter numbers revised

prior periods. to as primarily win those relates periods So appeals it from prior really you

line comes [Operator Mueller JPMorgan. of Instructions] our from the from Michael question And next

a of questions. guess couple I

of think really completely up going bridge forward, of should loan thinking as be markets? program of about the going being as or regardless on based the acquisition we kind of balances we business down that First independent what and thinking opportunities, and you’re acquisition should all, about

think latter. I the

is a that can fund can because in that I do manner versa. so sell think the and and we good one loans and capital-light loans acquisition position A such, we ourselves not because our bridge feel good we from capital we’re opportunities are bridge notes restrict making vice deals

it. Got

it part years? a second percentage And was apologize over the question, two But garbled, Scott’s Okay. little have of I And discussed been ratio? before. degradation can seeing you if that But year if over at touch in that comments you’re my place of were I in end. think on least and a any customers on

Yes.

So, come That more with has been that low-XXs. than XX%. to if Customers that’s the at XX is for customers that XX now us actually in years, have the look months, number our upper-XXs, been that about some. down two in with number you us have

has midterm come So, long-term customers, beyond increasing. That years down two is customer actually bit. little a

program any conclude to Margolis And of the question-and-answer does this back hand today’s Joe session like to I’d for program. further the remarks.

everyone, you, have themselves, every impressed the your I LSI I’m over efforts great many your and Thank how with thank weeks. for we professionalism their individual to cooperation, interest. team and very time been handled past I’ve interacted they’ve the with, you. Thank grateful. for very want and

and a performance focused our at day. time hope we lot everyone has much. time business, a of fundamentals and preparing while spending I are in I which driving everyone a the on merger effort, significant our also Space consuming want of this Thank Extra our Storage that stores. very assure you good is it’s remains shareholders for to

participation does in This program. the you, ladies for conclude conference. Thank gentlemen, your and today’s

You may disconnect. Good day. now