Q3 2021 Extra Space Storage Inc Earnings Call

October 28, 2021

Good afternoon, ladies and gentlemen, and welcome to extra space storage third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if any once you do quite a few cents during the conference. Please.

Star then zero on your Touchtone telephone and as a reminder, this conference call may be recorded I would now like to turn the conference over to your host Mr. Jeff Norman Senior Vice President of capital markets, sorry, So long as yours.

Thank you Joanna welcome to extra space storage is third quarter 2021 earnings call.

In addition to our press release, we have furnished unaudited supplemental financial information on our website.

Please remember that management's prepared remarks and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act.

Actual results could differ materially from those stated or implied by our forward looking statements due to risks and uncertainties associated with the Companys business.

These forward looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review.

Forward looking statements represent managements estimates as of today October 28 2021.

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

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

Thanks, Jeff and thank you everyone for joining today's call.

While we had an exciting quarter I'm not sure how else to describe it.

Other accomplishments we celebrated the addition of store number 2000 to our portfolio.

We're recognized by inside self storage is the best third Party management company in the industry and we achieved some of the strongest operating results in our company's history.

Same store occupancy once again reached a new all time high during the quarter at over 97%.

With vacates, continuing at lower than historic levels.

Our strong occupancy resulted in exceptional pricing power.

Achieved rates to new customers in the quarter were 43% higher than 2020 levels and 41% greater than 2019 levels.

In addition to the benefit from new customer rates, we have continued to bring existing customers closer to current street rates has state of emergency rate restrictions continued to be lifted throughout the country.

Other income improved significantly year over year, primarily due to increased late fees contributing 30 basis points to revenue growth in the quarter.

We had modestly higher discounts due to higher street rates, but their impact was offset by lower bad debt.

These drivers produced same store revenue growth of 18, 4%, a 480 basis point acceleration from Q2.

And same store NOI growth of 27, 8%, an acceleration of 760 basis points.

In addition, our external growth initiatives produced steady returns outside of the same store pool, resulting in <unk> growth of 41, 2%.

Turning to external growth the acquisition market remains very active but expensive in our view.

Our investment team has never been busier and we have found the most success acquiring lease up properties and or acquiring stores with the joint venture partner.

While most of our transactions have been in relatively small bites. The total is adding up allowing us to increase our investment guidance to $700 million for the year.

Also our approach has resulted in better than market average yields.

But we are much more focused on <unk> per share accretion than total acquisition volume and we plan to continue to be selective in the current environment.

We continue to look at all material transactions in the market and we have plenty of capital to invest when we find opportunities to create long term value for our shareholders.

We had an incredibly strong quarter on the third party management front, adding 96 stores.

Our growth was partially offset by dispositions where owners sold their properties.

It is worth mentioning that oftentimes we are the buyers of these properties and there are simply moving from one ownership category to another.

In the quarter, we purchased 11 of our managed stores in the REIT are in a joint venture for a total of 30 stores purchased from our third party platform through September.

Fundamentals have remained even stronger than our already positive outlook, allowing us to raise our annual <unk> guidance by 28 cents at the midpoint.

While we still assume a seasonal occupancy moderation.

It has been less than our initial estimate of 300 basis points from this summer's peak.

Our revised guidance now assumes a 200 basis point moderation.

Which would result in 2021 year end occupancy generally similar to that of 2020.

We expect continued strong growth in the fourth quarter capped off what has been an incredible year for extra space storage.

I'd now like to turn the time over to Scott.

Thanks, Joe and Hello, everyone.

As Joe mentioned, we had an excellent quarter with accelerating same store revenue growth driven by all time high occupancy and strong rental rate growth to new and existing customers.

Core <unk> for the quarter was $1 85 per share a year over year increase of 41, 2%.

Property performance was the primary driver of the beat with additional contribution from growth in tenant insurance income and management fees.

As a result of our strong <unk> growth our board of directors raised our third quarter dividend and an additional 25% after already raising at 11% earlier. This year, a total increase of 38, 9% over the third quarter 2020 dividend.

We delivered a reduction in same store expenses in the quarter, including a 3% savings in payroll, 42% savings in marketing and a 4% decrease in property taxes due to some successful appeals.

Despite the payroll savings we've enjoyed this year like most companies, we have felt material wage pressure across all markets, including the including our corporate office.

Some of the payroll reduction has been the result of higher turnover and longer time to fill and longer time required to fill vacant positions.

We will experience continued payroll pressure in 2022, as we have raised wages to retain and recruit the best team in the storage industry. This will also impact our G&A expense.

In the second quarter, we completed our inaugural investment grade public bond offering and we completed a successful second offering in the third quarter issuing another $600 million 10 year bond at a rate of 235%.

We also re filed our ATM in the quarter and we have $800 million in availability.

Our access to capital has never been stronger and between net operating income and disposition proceeds our leverage continues to be reduced our quarter end net debt to EBITDA was four five times, giving us significant dry powder for investment opportunities, while maintaining our credit ratings.

Last night, we revised our 2021 guidance and annual assumptions, we raised our same store revenue range to 12 five to 13, 5%.

Same store expense growth was reduced to negative 1% to zero, resulting in same store NOI growth range of 18% to 19, 5%. These improvements in our same store expectations are due to better than expected rates higher occupancy and lower payroll.

Marketing expense.

We raised our full year core <unk> range to be $6 75 to $6 85 per share.

Due to stronger lease up performance, we dropped our anticipated dilution from value add acquisitions and C of O stores from 12 to 11 <unk>.

Even after adding a number of additional lease up properties to our acquisition pipeline.

We are excited by our strong performance year to date and the success of our team driving our growth strategies across our highly diversified portfolio.

As we often say, it's a great time to be in storage with that let's turn it over to Joanna to start our Q&A.

Thank you.

Ladies and gentlemen, once again, if you would like to ask a question you May Press Star then the number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the fountain.

Your first question is from one kind of <unk> of BMO capital markets.

Your line is open.

Hi, good morning, given the strength in the <unk> had year to date and exceeding expectations. Just curious if you could speak to.

The earn in as we start to think about 'twenty two.

So you can kind of occupancy hold steady versus what you've achieved year to date and how you guys think about that.

So it's always important to remember and we've talked about this before that occupancy is just one metric.

So we if occupancy does better than <unk>.

What we've assumed for our guidance I assume we'd also have good rate pressure of great power and we would be set up to have a strong 2022.

Okay.

But is there any way to estimate given the results you've had to date and how much of the portfolio.

Has had the rate increases and give you an average length of stay what whats kind of locked in to start the year next year given results to date.

So I mean, we will certainly make all of those estimates and come up with guidance for 2022 and talk about that.

Early in the early in the first quarter next year.

Okay, and then just a more strategic big picture question.

You guys talked about the acquisition environment being very heavy at this point.

Preferring to do you kind of singles and doubles and we're working with joint venture partners, but given the scale you are now.

2000 stores any interest in pursuing development on balance sheet and building out the capabilities in house.

So yes to the first part of that question were not adverse to pursuing development on balance sheet. We have a very small number of developments underway or that we're committed to.

We believe for us and I know other companies executed a different way, which makes sense for them.

The best way for Us to do development is with joint venture partners, where we can be.

Partner with the best local or regional developer, who brings their particular local skills.

Something that we don't have across the country.

And the other advantage that gives us is through structure, we can allocate the specific risks of development entitled.

Entitlement risk cost risk delay risks completion risk.

Fairly between the development partner not in ours. So we don't take all of those risks when those are frankly more in the development partners control.

So.

We believe development to great way to make money in any real estate business. We believe if its structured right you can control the risk.

And we believe it's very important to make sure you're in the right time in the market cycle to be heavy in the development business.

Thanks Chuck.

Thank you.

Your next question is from Michael called Smith of UBS. Your line is open.

Michael If you are on mute. Please <unk> your line is open.

Good morning, good afternoon, and thanks, a lot for taking my question same store revenue growth for the year is now expected to be 12, five to 13, 5% that implies something in the fourth quarter. That's above what you saw in the first half of the year, but may be slower than the third quarter.

The comparison from last year, and the fourth quarters may be 400 basis points for difficult. So how much of the implied slowdown in same store revenue growth is a reflection of starting to lap more difficult comparisons compared to.

Underlying trends and how much more how much of an impact should this.

Difficult comparisons to have going forward.

Yeah. So you hit it right on the head in the fourth quarter is a much more difficult comps. If you look at where you're looking back to 2020, I mean second quarter, we had negative rates third quarter, we moved to low to mid single digit.

<unk> great growth in the third quarter, we had.

Close to double digit rate growth and in the fourth quarter, we really started moving rates significantly so much more difficult comp in the fourth quarter. In addition, some of the occupancy goes away the occupancy benefit we're expecting occupancy at the end of the year to be flat, but to still have a positive occupancy benefit but not as strong in these.

As what we had in the second and third quarter, but most of it is from rate and the comp.

Got it and how much of your portfolio now is up near these kind of new market rates. So said another way.

How much upside is left.

From passing along ECR is marking your existing customer portfolio up to these market rates.

Yes.

Okay. So I.

I think we've made up most of the most of the room. There is still some states where were limited and as rates go up.

The gap continues but I would say most of it's in the rearview mirror.

Got it and if we could just touch on costs for.

Our second costs were well contained in the quarter same store expenses were down 4% diligence decline was driven primarily by lower marketing as we look forward.

Are there any expense items that could pressure the business you mentioned payroll insurance was up big can you kind of walk through kind of where you see expense pressure and kind of.

To the extent that you can talk about the magnitude of that that would be extremely helpful.

Let me maybe start with property taxes, I mean, we had a negative quarterly comp and that's not going to continue property taxes, we would expect to grow in the 5% to 6% range as we continue to see pressure.

I think thats, partly with lower cap rates higher valuations, we would expect municipalities to continue to assess we would expect that to continue into next year. Obviously, we're not ready to give guidance on property taxes, but that will continue the.

The second one I would point to is marketing.

We wouldn't expect it to be down 40% again. This year, we would expect next year to maybe be a little bit more normal and it's a lever we will use as we see opportunities to grow our revenues by using marketing.

Third one I would point to just because of the size of the expenses payroll. So this year, we've had a negative payroll comp and it's been <unk>.

<unk> been proactive partly so we've done things to decrease hours to optimize our payroll, but we've also had some what I would call a negative benefit and what I mean by that is we've seen.

Payroll go down because we've had higher turnover and we've had a longer time to fill so not necessarily a good thing we've had lower payroll as a result of that we continue to see pressure on wages. So thats at the stores. That's in our corporate office and we would expect that to be we would expect that to continue into next year I think every company in America.

<unk> is experiencing that.

The other thing I would point to on the expense side is it's a good thing to be in storage and what I mean by that is we're in a high margin business. So payroll for instance, even if we see significant payroll.

Payroll pressure youre still sub 6% as a percentage of revenues and so if you are an inflationary market. We do have the ability to push our rates as their month to month leases.

Very helpful. Thank you very much thanks, Michael.

Your next question is from Todd Thomas of Keybanc Capital. Your line is open.

Hi, Thanks, just first question following up on on rates in.

In place versus St. Joe You said your efforts in the quarter on rate increase has helped to bring in place customer rents closer to street whats the spread look like today and can you remind us what that spread between in place and street rates looked like.

Sort of back in 2019, maybe before the pandemic or or maybe on average over the 10 year period, perhaps heading heading into the pandemic.

Sure. So it is seasonal as you know in knits are our spread is the highest in the summer I think it was in the high teens, when we had our last call.

Closer to flat to slightly positive, 1% now and if you look historically, we would be negative now.

Okay.

Right. So so you've historically you've increased in place.

Customer rents.

<unk> Street rates.

So where does that sort of peak in the prior cycle.

Todd would you just repeat that please.

Youre, saying so.

You <unk> you.

You've increased in place customer rent above street, historically, right and which resulted in the negative.

Spread that you've historically had.

What was that spread like.

So where did that spread peak in the prior cycle I guess I'm trying to understand.

How much room, you might have on on the in place customer rent increase program to take.

Contractual rents higher.

Even so it asking rents are sort of flattish from here on a seasonally adjusted basis, yes.

Yes, so I think.

The other factor you may not be thinking of as street rates can go down so it's not on the increasing existing customers that causes the gap.

Street rates are the highest in the summer and they have a seasonal decline in that that causes some of the gap Scott do you know off the top of your head the percentage that he's looking for in prior years don't know that its a number we've ever given Todd we've always referred to in place versus street, we've talked about how there.

They go in a cycle, where you peak in the summer in terms of that gap. It's typically high single digits in the summer that gap and then it goes maybe high single digits in the winter. So you peak in July you bottom out in February this year, we peak, 19% as Joe mentioned, we're typically starting to go.

Negative now we we have is.

Our street rates are as strong as they've ever been.

Okay Alright.

Alright, and then.

Just with regards to the in place customer rent increases that you're passing through can you talk about the magnitude or rate growth that you are.

That you're that you're pushing through to customers and whether you've changed the frequency of those rent increases that eligible customers are receiving I think historically, it's been sort of month five and then maybe every nine months thereafter or something to that extent is that still the schedule or has that changed at all.

Yeah. So we are very unusual times right, we had significantly discounted rates during the height of Covid and brought in people that it's some really low rates and then we had government restrictions that prevented us from moving those folk.

To where we thought they should be.

And the third factor is we had.

Really impressive street rate growth, so that caused us to have some customers that had very very large gaps between where they were and what street plus and we've been trying to move those customers more towards street rate and as I said in the earlier question. We've done a lot of that most of that.

Is in the rearview mirror, but that's kind of led us to have.

Experience of numbers that are very different than our historical.

<unk>, because we are not in normal times.

Okay alright, thank you.

Thanks Todd.

Good talking to top right.

Thank you. Your next question is from Caitlin Burrows of Goldman Sachs. Your line is open.

Hi, Good morning team I guess first with rent per square foot continuing to rise how price sensitive are you finding customers and do you have an idea what portion of move outs today are due to price and how that compares versus history. Just wondering if it has gone up at all as rates have also increased.

Yes, very very very modestly.

Track move outs of customers, who did did not receive rate increase notices.

And.

As you can tell by our by our occupancy.

The customers are not very price sensitive and those are who are worried with the backfill very very quickly.

Got it okay.

And then.

On the cash flow growth side, it's obviously been very strong which is to reduce your leverage and you guys mentioned earlier that it is now four five times. So what's your view on being able to kind of redeploy capital and an attractive way of course to get leverage above five times is that something that you want to do.

Yes, I would love to be able to invest more and increase our leverage back towards our targeted rate.

But our targeted range, but not at the expense of doing deals. We don't think are good on term deals for for our investors. So we're going to remain disciplined we look at everything out there our investment teams as I said are really busy we have a lot of exciting things, where we're playing with.

But we're not we're not going to invest just to get our leverage up we're only going to invest when we think the risk reward is attractive to us.

Okay, I guess thats, a good position to be in thanks.

Thank you.

Your next question is from Smedes Rose of Citi. Your line is open.

Hi, Thanks.

I just wanted to ask you a little bit about the acquisition volumes and obviously they've come up a lot.

What your expectations were coming into the year and we've seen that across the industry in general and.

I mean, besides favorable pricing for sellers.

What do you think are a few things that are kind of driving more folks to come to market is there any sort of theme that you're seeing when you talk to the sellers.

Well clearly the.

The first and most important is what you mentioned is very favorable pricing very low cap rates that brings people.

Would work want to sell I think Theres also some concern that the tax regime is going to change and that maybe it's better to pay your taxes now than that in the future.

Okay. So just so I mean nothing else in particular I was just wondering if you felt like independents are losing there.

The competitive advantages of these larger portfolios that they get bigger and bigger it may be impacting it but you think it is probably more sort of tax and pricing that's driving that.

Smedes.

Okay.

I wanted to ask you as well just in terms of given that fundamentals are so strong.

Has it changed at all this sort of level of inbound inquiries into bringing you on as a third party manager I mean, there are other folks that are not part of these larger systems, Julian sort of similarly, as well and or maybe not as inclined to come to you for management or.

Are there any changes there I guess.

Yeah.

You hit it right on the head.

If you look at the consolidation in the industry.

Four five years ago.

Versus now it's up almost 50% maybe from the low <unk> to the low thirties.

<unk> of <unk>.

Stores in the country or are owned or managed by the big public companies and we've seen that.

Significantly and we brought on.

96 stores in our third party management platform in the third quarter of 196 through the year, there's been a lot of sales of which we bought a bunch, but were still over 100 net growth in our third party management platform and that's a mix of the single one off owner, who wants professional management or more.

Quasi institutional partners, who.

We have good relations with and keep growing their portfolio.

It's it's the growth in that business across all types of owners has been really really strong and I expect it to continue to be so.

Okay and then just final question from US you mentioned.

Your guidance underwrites about 200 basis points of occupancy declines through the fall I think or the winter have you started to see that moderation in October so far today.

So today, we're sitting at 96, 7% occupancy so we've had pretty modest.

Uh huh.

Vaca to a decline in occupancy.

Since June 30.

September 30th.

So that's where we are today.

Okay. Thank you guys.

Yeah.

Your next question is from Tim Neocon now of Evercore. Your line is open.

Good afternoon.

When I look at your occupancy for some of the major gateway markets.

It's not been impacted at the end of September.

We know their return to work factor in place so I'm just wondering.

How are you thinking about that dynamic a return to office and the impact it can have in your portfolio.

And some of the major markets, whether it's new York or Boston, or even kind of the la area, maybe in <unk> and into next year.

So.

I think it's a little early to really call that I mean.

The first thing I think it's important for everyone remembers all of our markets are doing phenomenally well. If you look at our bottom five markets for revenue growth. They are all above 13%. So.

There's no market that's really struggling.

But our bottom markets do include New York, and Boston, and La and San Francisco.

And there is a lot of.

Variables I think.

Tween, the stronger markets and weaker markets a couple of things that we think are consistent is.

Markets that.

State of emergencies in place longer and they're just coming out.

Are performing less well than other markets.

Yeah.

Okay, and then I guess my my.

Second question is I guess, Joe given the given where you are from an occupancy standpoint.

It's sort of that 96%, 87% how are you thinking about here.

Strategy in terms of pricing lets say going into the next six months right or how are you managing the business differently given the level of occupancy today versus sort of.

Pre COVID-19 here.

Okay.

Yeah. So we don't really look six months out our models our pricing.

Units in stores every day, and we will react on a daily basis to not only what's going on but what is projected to go on so.

So clearly.

Environment, where we're 96, 7%, we're going to reduce marketing expenses.

And we're going to.

Keep keep the gas pressure on rates.

Yes.

Okay. Thanks.

Sure.

Your next question is from keeping kin of Chewy. Your line is open.

Thanks, Congrats on a great quarter.

So when you look at where your rates are versus your micro sub market.

First of all your competitors.

Where are you today versus your competitors.

And has that changed a whole lot over the past year or so.

Okay.

I think everybody has higher rates today, we're on the higher end.

When we look at them compared to 2019 as Joe mentioned our rates are.

Up 40% of our achieved rates in the third quarter were 40% above where they were in 2019.

So I think everybody is pushing rates.

We are pushing rates as our occupancy stays strong and as that demand stays strong.

Got it and going back to the topic about sub market performance.

Hi.

I know you mentioned.

Some locations that had the saddle.

Kind of the governmental orders that restrict our rent growth, having a different impact on these markets, but how much of the performance difference between sub market is being driven by simply kind of population migration and do those Margaret that's all an influx in population and the agents have a longer tail than the New York San Francisco.

Yes, it's really hard for us to.

Divide performance to disaggregate performance between population movement and stay at home orders and new effect of new supply, it's really hard to figure out how much each of those variables.

<unk> and many many other variables contribute to.

To the performance of different markets.

Okay got it and if I can squeeze in a quick third one.

You talked about the payroll increases that we should expect going forward and what kind of magnitude are you thinking.

So I would say greater than inflation.

Okay. Thank you.

I don't want to give you a specific number because thats the range Scott will then asphalt.

Okay.

I would ask.

Thank you.

Your next question is from Elvis Rodriguez of Bank of America. Your line is open.

Hi, and thank you for taking the questions congratulations on the quarter.

What's your update on the supply outlook in your markets through 2022, now that we're an extra quarter from your last update.

So.

Our projections for 2021 from our last update is actually slightly higher.

I think the last quarter, we said three year Rolling 19 to 21 was about 70% of our same store pool is going to be affected or our stores and.

That's up to about 73%, so a little bit of an increase.

2022, we see a larger decline.

Two year roll in 2021, and 'twenty two we think about 64, 5% of our stores, it's going to be affected and we will continue to gather that data and get better, but we do see moderation in 2022.

My concern is given the great great performance of the sector the amount of capital once exposure to storage low interest rates.

That we are going to get ourselves back into a development cycle and the.

The line will start to go in the other direction, maybe in 2023 and beyond.

Not all bad REIT development creates bridge loan and management and acquisition and development participation opportunities for us, but it's also a challenge for the stores that have new.

Supply coming in their trade area, and we will manage through that just like we manage through the last cycle.

Great and then just a follow up question on the.

Bond deals so you got better pricing and longer term this time around.

Leverage is also lower quarter over quarter, how you're thinking about funding your business going forward you didn't issue any equity in the quarter. So just curious on how you think about using those levers specifically since you started using the bond market this year.

We're kind of in a unique market, where we have a lot of good options.

<unk>.

You have cheap debt you have stock price.

Holding up and we've always said we'd use equity if we have a place to put it in the near term so.

So far this year, we haven't had a great place to put equity and we've been Delevering is our NOI has grown and as we had some sales into joint ventures or outright sales. So I think.

Equity is always an option, but I think we will look to the debt markets first.

Okay.

Thank you.

Thanks Allison.

Your next question is from Spenser <unk> of Green Street. Your line is open.

Thank you.

In terms of the occupancy losses that youre, assuming for the full year can you just talk about which consumer segments, you expect could drive that.

Think of it call. It Didnt have recently contributed its occupancy news I'm just curious if you have a view on what Mike Kaufmann deterioration moving forward.

So.

Clearly as was mentioned earlier if returned to work picks up people come back to the major cities that could cause some.

Loss in occupancy.

Don't think that everyone, who established a home office or an extra room is going to automatically reverse that so.

I think it will be gradual.

Other than that.

I think it's kind of normal churn of storage right. Most of our customers are somewhere in the moving process.

And then at some point after they're done moving they don't need storage anymore. They eventually get around tempting their stuff out.

Other than that kind of return to office I returned to the Big City.

I don't think there'll be anything unusual.

Spencer the other thing I would maybe add is we have a 200 basis point assumption in there thats based somewhat off historical trends.

Trends were kind of in an odd year. This year. It seems like everything that's happened in the past hasn't necessarily happened. This year. So it's a number it's our assumption.

I think that we'll see how it plays out.

Okay. Thank you and then just given residential space is the closest substitute hit storage from a consumer standpoint, do you think that rising residential prices have contributed to your pricing power. Just curious if this is something that you want to pay attention to or have observed over the years.

So I think the theory is sound right.

It's more expensive to rent to larger apartment people may rent, the smaller apartment and use storage.

Okay.

It makes sense and we see anecdotal evidence of it we don't have a whole lot of data, where we can correlate.

Rising.

Real estate pricing and demand for storage.

And I think we need more time and more data before we be specific about that.

Okay. Thank you.

Sure.

Your next question is from Mike Mueller of J P. Morgan Your line is open.

Hi, Thanks, I'm curious, what's the pace of lease up that Youre seeing in your CFO properties.

And when you are underwriting new transactions today for those types of deals what sort of yields are you underwriting to.

So the pace of lease up is faster I mean, one of the things we pointed to in my comments was that we have less dilution. This year than we originally forecasted that's largely to do with the pace of lease up. It also has to do with rates being higher.

We continue to look at <unk>, I think that those vary wildly by market and by how far out they are.

Some of the recent things that we've approved this year have been seven and a half range but.

I think that we are also looking at where we are in a cycle and trying to make sure that we risk adjust for that too.

Got it.

So back to the pace so for thinking about underwriting tool stabilization is it.

Around a four year timeframe, you're thinking about and you are seeing.

We haven't changed our assumptions in terms of lease up so even though we benefited from shorter lease up we recognize that that can change. It can also change depending on new supply in the market. We try to look at what's coming in the specific market, we're looking at but.

Markets are dynamic and.

So we assume historical norms in terms of lease up of those properties.

Got it okay.

That was it thank you.

Thank you.

Your next question is from Rob Simone of hedge I risk management. Your line is open.

Hey, guys. Thanks for taking the question hope all is well.

What is the long term target if there is one and what's kind of the path to get there and the reason why I asked that if I were.

Looking at your property management fees as a percentage of your G&A, it's starting to trend back up over a longer timeframe towards like the 70% range, meaning youre getting closer to effectively pay for your corporate layer with fees and I guess.

From a.

Our structural premium standpoint, you guys have already had one I'm curious like how you guys think about like getting to that number eclipsing and I think it's like $63 million on 101 billion now and kind of how could that gap narrow over time.

Yes. So good question. Thank you. So we don't target a number of stores, we're not trying to get to 1000 or 2000 or whatever number you want to think of.

What's important for US is we maintain our profitability right, we can get a lot more stores.

<unk> reduced our fees, but.

But we want to maintain our profitability and we also want to have the right stores right.

Store with an owner that plans to hold for 10 years is a much more value to us than a store, where it's a developer and they are going to build it and flip it.

Our store in a $40 market is much more valuable to us than a store in a nine dollar market. So we're really focused on the economics and the relationships that this business brings to us as opposed to the outright number of stores.

And if keeping within that discipline of maintaining our margins. We can grow the management fee revenue that it covers our G&A or more than covers our G&A.

We're going to grow it as big as we can.

Yes, so it's kind of like a lifetime value of the customer concept as opposed to just straight growing the topline I think thats, what youre, saying.

Good to know.

Got it okay, yes, it makes sense and I don't know is there a time to ask one more I don't want to take so much you guys time.

Sure.

Okay sure, yes, so I guess as it.

Relates to an earlier question so I.

I mean, your rental rates are flying off the page here right, it's obvious to everybody.

How do you how do you guys internally think about your customers quote unquote like propensity or wherewithal to pay I mean, I know it's spread over thousands of leases are.

Tens of thousands of leases, even but do you guys look at like.

How income to rent ratio has changed or I'm. Just curious how you guys think about that like in terms of what's what's like the upside and longer customers wherewithal to like continue paying higher rates.

So couple of things one is we have over $1 2 million customers. So we're highly highly granular on this topic.

Secondly.

Storage gets more expenses and our tenants.

They can't afford our store managers are really good about talking to them about do you really need a 10 by 10 or can we get you into a 10 by five or maybe a unit thats upstairs further away. So we can have other tools to solve their problems.

Third is if it does get more expensive and they move out that's not a problem for us today, we have plenty of demand to backfill their space.

And then lastly, most of our customers don't think theyre staying very long.

Now they end up staying about 50% longer than they think theyre staying.

Most of them.

<unk> added cost.

I believe is temporary and they can swallow hard to only those real long long term tenants that you have you have that more of that problem.

Got it okay. Thanks, Joe appreciate it thanks for taking the question.

Sure. Thanks, Rob.

Yeah.

Your next question is from Kevin Stein of Stifel. Your line is open.

Hey, good morning, guys.

So.

Revenue accelerated in the same store quarter book.

Two two and I was just wondering is.

Theres any maybe like new demand drivers or if it's just.

The existing demand drivers that are increasing or if it's just more of your confidence in being able to increase rental rates more.

<unk>.

So I would tell you it's steady demand combined with low vacates. So people are staying longer today. The people to have rendered with us have been sticky. So I think we did see.

The increase in demand last year, we saw if we ask our customers why they said they were out of space. If you ask them today, that's moved back more towards I'm moving so those are kind of the reasons. They give for moving are for storing with us.

And vacates throughout this entire period have been very very low so we have less units that need to be rented each month.

Because people are staying longer and vacating list today.

Okay.

Oh, sorry.

So I guess like.

I'm not sure what your average length of stay but for the industry is maybe like.

15, 16 months, so I guess that implies.

Roughly 7% of customers will be moving out on average.

No.

How many do you give a number on how many what percentage of your portfolio turns over in a month.

We haven't and that's going to vary.

By property type so what I mean by that is a new property is going to have a much shorter length of stay than a property. That's 30 years old you have more and more long term customers that are much lower churn. What we have seen is churn has gone down through COVID-19. So that if you.

You're referring to 7%.

Lower than that and it continues to go lower as the vacates or lower.

Okay.

Thanks, Kevin.

Your next question is from Ronald Camden of Morgan Stanley. Your line is open.

Hey, just a quick question on just E rentals can you just remind us what.

What percentage is coming through that channel and maybe have you seen anything different from that customer relative to the.

The rest of the portfolio.

So we're at about 25% today, we were I think 'twenty or 'twenty, one at our last call. So we've seen a slight increase in.

Customers use of that channel.

Customers report very high satisfaction rates with it so that's that's good for us.

And there is really.

Yeah.

Not a very meaningful difference in the customer that I could describe to you.

Great. That's all my questions. Thank you.

Thanks, Ron.

Your next question is from Michael Goldsmith of UBS. Your line is open.

Hey, one more for me Youre going to get $100 million back of your preferred investment from Jacob maybe as early as next week, how do you go about replacing the investments, 4% return and what do you plan on doing with <unk>.

Yes, so we are going to continue.

<unk> doing what we've been doing which will continue to look for our bridge loan opportunities will continue to invest both on our wholly owned and <unk>.

Joint venture basis.

And when unique opportunities come up like that.

Preferred investment, we will consider those as well.

Okay.

Great. Thank you Greg.

Sure.

Hey, guys I am showing no further questions at this time I'd like to turn the call back to Mr. Joe Mccauley, Chief Executive Officer.

Great. Thank you everyone for participating today, we appreciate your interest in extra space storage, we are really happy to report.

The results that we've been able to report this quarter and the only reason we can do it is because of the hard work of all the folks at extra space, starting with the folks in the store who deal with the customers every day, but also all of the people in the call centre inherent corporate office, some extraordinarily proud of them and their dedication and hard work. So thank.

I Hope you and all your families are well take care.

Yeah.

Thank you speakers, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.

[music].

Yes.

Okay.

[music].

<unk> on your Touchtone telephone and as a reminder, this conference call may be recorded I would now.

Now like to turn the conference over to your host Mr. Jeff Norman Senior Vice President of capital markets. So I used the floor is yours.