Q2 2022 Extra Space Storage Inc Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Good day and thank you for standing by welcome to the Q2 2022 extra space Storage, Inc Earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
I'll ask a question during that session you will need to press star one on your phone. Please be advised that today's conference is being recorded and I would now like to handle conference over to your speaker today, Mr. Jeff Norman.
Please go ahead.
Thank you Chris.
To extra space storage is second quarter 2022 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 company's 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 August three 2022, 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.
That I would now like to turn time over to Joe Margolis, Chief Executive Officer.
Thanks, Jeff and thank you everyone for joining today's call.
Before I report on our performance I am happy to announce that we recently published our annual sustainability report.
We're proud to be a sector leader not only operationally, but also in sustainability.
Courage you to review our report, which is posted on our Investor Relations website.
Turning to results the strong trends, we experienced in the first quarter continued into the leasing season.
Year over year same store revenue growth in the quarter was 21, 7% matching our first quarter growth rate.
<unk> is an all time high for extra space storage.
Despite expense pressure on several line items NOI growth remained very strong at 26%.
This was achieved primarily through year over year rental rate growth.
Actually offset by a modest decrease in year over year occupancy due to elevated vacate activity.
With manageable new supply and durable customer demand, we continue to operate at high occupancy with strong rates.
Despite inflation and the potential effects of recession. We believe we are well positioned to continue to produce strong results.
Due to our resilient need based asset class diversified portfolio strong balance sheet and best in class team and platform.
We were active in each of our external growth channels during the quarter, we invested $289 million in property acquisitions, and we invested an additional $92 million in July .
Bringing year to date totals to $610 million we.
We have continued to focus on acquiring non stabilized properties and as we outlined last quarter have started closing more transactions and joint venture structures.
We started to see the market shift late in the quarter with increasing interest rates, reducing the number of bidders at the table and the bid ask spread widening between buyers and sellers.
We are being selective with our acquisitions and we are focused on transactions and structures it will be accretive for our shareholders.
In the quarter, we closed $70 million and bridge loans and we added 40 additional stores gross to our management platform.
We also made a creative storage investment purchasing an existing storage company named barcode storage solutions.
This company has a different model than traditional storage is focused on leasing space in apartment buildings, primarily in New York and sub leasing storage spaces to residential tenants.
The acquisition of <unk> added over 17000 units to our portfolio with an occupancy rate over 97%.
Due to the unique nature of its operations, we have retained their team and are keeping the entity running as a separate organization.
We view this transaction as another creative investment in the storage sector, which came to us to deep industry relationships.
Our strong property NOI plus our external growth efforts resulted in core <unk> growth of 29, 9%.
Our growth allowed us to raise our annual <unk> guidance for the second time this year.
It's been another great quarter, and we are well on our way to another strong year storage fundamentals remain solid.
While we expect our rate of growth to moderate in the back half of the year due to very difficult comps, we expect it to remain well over historical averages with model year over year revenue growth remaining in the double digits through 2022.
I would now like to turn the time over to Scott.
Thanks, Joe and Hello, everyone.
We had a strong second quarter ahead of our intent our own internal projections. Our outperformance was driven primarily by strong property performance, which benefited the same store pool joint ventures and management fees.
As Joe mentioned, we were active on the external growth front, our investments for capitalized primarily by draws on our revolving lines of credit we issued $22 million in operating partnership units as part of the bar gold transaction, bringing year to date issuance of equity to approximately $60 million.
In the second quarter, we repurchased approximately $63 million of shares in shares at an average price of $165 per share.
Due to the widespread in the investment grade bond market, we've been active with our banking relationships last week, we completed an accordion transaction in our credit facility, adding $600 million of unsecured debt within the facility across two tranches.
Our plan to term out debt using the investment grade bond market has not changed and we expect to utilize this market again once conditions normalize.
Our leverage remains low with net debt to EBITDA of four four times and our unencumbered pool is over $13 billion.
We continue to have access to many types of capital and we have significant debt capacity to support future growth and maturities, albeit at higher interest rates.
Due to our year to date outperformance and improved outlook for the second half of the year, we updated our 2022 full year guidance.
We have increased our same store revenue guidance to 16% to 18% driven primarily by rental rate growth.
We strive to be efficient with expenses.
And we believe our continued investment in our people and our properties are contributing to our topline growth.
Consequently, we experienced same store expense increases across several line items and we have increased our expense guidance to seven 5% to 9% for the full year or.
Our increased revenue far outweighs, our increased expenses given our high margin business as a result, our same store NOI growth range increased to $18 five to 21, 5% the highest NOI growth guidance in our history.
Given our total investment activity year to date of $790 million, we have increased our acquisition investment guidance to $1 2 billion only $250 million of which is on identified.
Our preferred investment in next point remains in place and bridge loan volume and interest rates are higher than anticipated as a result, we have increased our interest income guidance by approximately $3 million.
Due to the increase in interest rates as well as our higher acquisition volume, we have increased our interest expense guidance by $13 million at the midpoint.
The sum of these adjustments result in an increase in core <unk>, which is now estimated to be between $8 30, and $8 50 per share.
We anticipate 20 of dilution from value add acquisitions and CFO stores in line with last quarter's estimate.
We're having a great year and we are positioned for continued steady growth and with that operator, let's open it up for questions.
Thank you Sir.
To ask a question you will need to press star one one on your phone please.
Please standby as we compile the Q&A roster.
One moment.
Okay.
Our first question will come from Todd Thomas of Keybanc capital markets. Sir Your line is open.
Hi, Thanks, good morning.
First question I had a couple of questions I guess on the bar Gold acquisition I was wondering if you were able to share.
The initial yield on that $180 million investment or put some parameters around the anticipated return that youre expecting on your investment.
Sure Todd and thanks for your clever titled Tier note, we all got a chuckle out of that.
We underwrote the existing business, we didn't underwrite any extraordinary growth we didn't underwrite any synergies we to our G&A on top of it and just underwriting what exists today.
First year yields in the low fours and it grows to the mid to upper fives, so kind of similar.
Urban property investments I would say.
And then our hope is of course, we're going to first try to institutionalize the business introduced things that they haven't done in terms of technology. They don't charge administration fees, they don't offer insurance.
And Thats kind of the first step of the plan is to institutionalize, it and bring some extra spaces expertise and procedures processes to it.
And then we will see by growing it to try to grow it in New York City and if that works then we'll take it outside of New York City, but it's kind of one step at a time for us.
Okay and.
And can you speak to some of the I mean, you characterized it as <unk>.
<unk> investment.
But can you speak to some of the fundamental differences in in that business, maybe compared to the traditional storage business weather.
Price increases and maybe restrictions around raising rents to customers and the magnitude and frequency of increases.
Things of that nature as you have.
Continue to.
Potentially roll this out and look to grow the platform.
Sure Great question so.
The business is leasing space and apartment buildings and is primarily basements and garages building those spaces out. So if you walked into them. They would look exactly like the interior of one of our modern self storage facilities, and then leasing that only two tenants in the apartment building.
So.
Because of that your customer acquisition and marketing costs are almost nothing.
It's a.
Your incremental cost to grow the business is very very small because youre not buying any real estate. It's all leases. So we bought <unk>.
We bought the business, we bought the platform and now it's capital light going forward.
And the tenants are different they stay for a long time, the average length of stay of in place customers.
And this portfolio is eight years, the churn is less than 5% a month compared to our churn of 6% to 7%. So it's incredibly stable.
<unk> operate at occupancy of over 97% and they have over 1000 people on the waiting list. So that's a good example of synergies that we're going to experiment with is can we get those people on the waiting list and two an extra space store until our unit opens up for them.
It also tells me their pricing might not have been sophisticated as ours, yes.
But you are right.
Rate increases are.
Limited in some instances and coordinated with the landlord because the landlord doesn't want it tended to.
Be unhappy or be using.
Using money he could for increased department for increased storage right.
So there is a difference there as well.
Okay.
Okay. That's helpful. And then one last question if I can just switch over towards that.
The leasing environment and rental activity occupancies.
Occupancy is at a very healthy level, but rentals were up.
Pretty big year over year.
And we've seen the housing market co off a bit.
I wouldn't have thought that.
It would be.
Significant incremental demand I guess for some of the pandemic drivers that we saw earlier.
During the latter part of 'twenty and 2021.
Any sense, where the demand is coming from today and it seems to be fairly strong perhaps stronger than expected. So just curious if you have any.
Sort of information around where the customers are.
Coming from and where the demand is really coming from.
Yes, Todd if you look at kind of our surveys and questionnaires, we give our customers it's gone back to pre COVID-19.
Answers, it's largely coming from people moving lack of space, obviously is needed, but not what it was in COVID-19, our rentals and Vacates have moved much more to pre COVID-19 numbers are vacates are elevated slightly now partly due to the existing customer rate increases that have gone through over the last year as we move people quickly to St.
Because of these state of emergencies had been removed so while vacates have been elevated slightly.
Rental activity has been really good it's been strong so we've been able to backfill those.
Have moved people quickly to street rate.
Okay, Alright, great. Thank you.
Thanks Pat.
Thank you.
One moment please for our next question.
Our next question will come from Spenser <unk> of.
Green Street Advisors. Your line is open.
Thank you.
Maybe just one or two more just on the topic I know you mentioned the 97% occupancy just curious does this.
It's kind of in line with historic norms for this company or is this kind of like a peak occupancy level.
Then also are there other operators doing the same thing.
We're aware of and if so are they potential consolidation targets down the line.
Okay.
This company has historically operated at what we would consider very very high occupancy levels. So over 97% would be a normal.
Occupancy level.
Our goals.
I do not know of any other company that does this on the scale that barcode does and it's one one reason that.
As exciting to us is the potential growth without a lot of competitors.
Okay, Great and then maybe just one more just on the leasing front. We've recently heard from market participants that theres been a pull forward of peak leasing season, just curious if that was consistent with what you've seen in the portfolio.
Okay.
Yes, I'm not sure I fully understand the question a pull forward. So I'm not sure you know that until the future right. I mean that leasing has been strong and demand has been strong bone.
We haven't seen it.
Diminished to the extent, we could say it's leasing from a future period. That's been pulled forward so that seems a very theoretical.
Yes, no that kind of answers the question Ryan exactly have you guys aren't seeing a deceleration.
That's material than that.
Answers the question.
Recently attended a conference in which there is anecdotes in which some market participants had been seeing such deceleration. So the fact that you guys have not.
Answers My question like you said Joe.
Thank you.
For me.
Thank you Spencer.
Thank you.
One moment please for the next question.
Okay.
Our next question will come from Juan <unk> of BMO capital markets. Your line is open.
Hi, Good morning, just hoping we could delve a little onto the expectations built into occupancy.
What's assumed in the second half.
In terms of occupancy declines with the seasonality eventually waning and how does that compare to history.
And Joe maybe what what's the exit run rate, we should be thinking about with an eye towards the starting point for 2023.
Do you see any changes in the consumer behavior to make you think differently about how you are feeling about 'twenty three relative to where you were maybe at NAREIT or a couple of months ago.
Yeah. Juan this is Scott our occupancy has been pretty consistent over the last four months, where we brought in one to one 2% below prior year and we would expect that to continue throughout the remainder of the year and maybe fall off slightly more than that as we get towards the end of the year. So we expect to be below where we finished 2020.
One by one to one 5%.
I think your second question was on <unk> growth pattern.
We do.
Anticipate moderation as Scott said in his remarks.
But if you look at our guidance, we will end the year.
Low teens positive revenue growth, which is just a fantastic number set us up really really well that into 2023.
And then just the second question on expenses.
Normally the.
The point of contention that the point of stress with taxi, but thats actually.
A bright spot relative to some of the other increases, but just curious how youre thinking about various kind of more meaningful expense line items.
How sticky those could be into 'twenty, three and are you seeing any changes or differences across the regions, maybe more cost pressure in the sunbelt versus the coastal markets just curious a little more color on expenses.
So first on taxes, I mean taxes, we are seeing things get reassessed in that 5% to 7% higher we have been the beneficiary of some appeals, which has offset some of that increase so overall, we're seeing increases but the the appeals are clearly benefiting us those are more one time.
In terms of payroll, we continue to see wage pressure, our payroll wages are up as much as 10% and our hours are up this year year over year. So that is somewhat at comp from last year. So last year, we had negative expense growth in the first half of the year. So as we resumed more to normal hours as more normal staffing.
That is.
An increase year over year that we would not expect to go into next year.
Would expect some wage pressure, but not be our adjustment in terms of other things. We also continue to see.
Pressure inflationary pressure on utilities on repairs and maintenance and as your revenues grow your credit card fees grow but yes. This is the beauty of being in self storage, it's such a high margin business. So while inflation does impact. Your expenses. You also have some opportunities on the revenue front with month to month leases.
That shorter term lease really is a benefit to us.
And if maybe I could sneak in a super quick one what's the average lease duration that barcode has with the multifamily landlords.
To actually get the space.
So the initial lease terms of between 10 and 15 years.
Thanks, Jeff.
Sure. Thank you.
Thank you.
Okay.
And one moment for our next question.
And next we have Jeff Spector of Bank of America. Your line is open.
Great. Thank you and congratulations on the quarter.
Joe I, just I think I heard you comment quickly on.
Looks like a good set up for 'twenty, three and interestingly, that's kind of been the.
A key debate iPad today with some incoming calls.
Again strong results lots of skeptics out there concerns still about weakening demand coming I think it's interesting did I hear you.
The guidance if.
If you achieve the second half I guess can you talk about then that setup into 'twenty, three which I think I heard you may be comment on.
Sure so.
And the year.
<unk>.
Low teens.
Revenue growth and knowing how.
The increases and decreases take time to roll through the rent roll and storage.
It takes a while for any weakness if we see that people are looking for a downside scenario to roll into results.
No.
<unk> ending point right I mean storage has only gone negative in revenues during the great financial crisis and barely 1%.
During 2020.
So pick whatever ending point you asked for revenue and I think you'll we'll end up in 2023, I'm, not giving guidance and just doing math.
Above long term historical averages and revenue growth.
And expenses will continue to try to manage as well as we can but we're going to have.
We have really hard comps this year, we're going to have fairly easy comps next year.
And.
Moving out of the store.
Arena.
Everything else is growing really rapidly our bridge loan program is growing rapidly our management business is growing rapidly as the transaction market gets tougher people tend to seek other solutions and sale which are both.
Which could be bridge loans, we're seeing less exits from our management business due to sales.
Okay.
Some of our other things that we do.
R R.
Seem to be shaping up and hopefully we'll talk more about that later, so I'm pretty excited about 2023.
Great. Thank you very helpful and is it fair to say that the trends you've seen in the first half of the year Kantar.
Continued continued through July into August .
The amount of August if I could ask Jeff.
July continued from June rates were reasonably flat June to July last year like I mentioned the rates really peaked in June July of last year. So.
Last year right comp becomes easier we hope that August continues to go well, but two days into August it's all looking good Stokes.
Great and then my last question just to confirm again are there any signposts of issues. It seems like youre very comfortable continuing to push rate on the customer the customers, taking it but any sign post any of any issues.
And maybe in any markets.
Yes, so when we talk about the health of the customer we get a lot of questions about this we look at things like bad debt you look at your accounts receivable you look at.
The rates, where they are today versus where they were in terms of accounts receivable. They are pretty consistent with where they were last year with the historical norms bad debt is very close to the historical average haven't seen those elevated over the past quarter in terms of rate, we compared to 2019, our in place rents are up two.
<unk>, 627%, so while year over year looks really big like a really big jump. When you go back a few years, it's more affordable than maybe it doesn't not as extreme as people would think on the surface.
I would I would add.
We have stronger markets and we have markets that are less strong.
And we're always looking where performance isn't as good as elsewhere and seeing what tools. We can use to try to help those markets and it may be submarkets or individual stores, where we have to do certain things with marketing spend or different things.
We are always trying to maximize performance so not everything is as strong as the best performing assets in the company, but everything is good.
And.
We have the tools to address individual areas of stores or markets of weakness and we feel lucky to have a really broadly diversified portfolio.
Yeah.
Great. Thank you.
Okay.
Thank you.
One moment for our next question.
Okay.
Next we have kegan call of Damian Barrett capital market. Your line is open.
Hey, guys. Thanks for the time I noticed that addressed the debt early on in the call, but acquisitions guidance, obviously rates again, just curious if you could give us a little bit more color on how much competition are truly seeing for these assets held for the last quarter and kind of.
Any sort of color on cap rates really helpful.
So I think were seeing less competition I think there are fewer bidders folks who rely on leverage really heavily have.
Many of them have gone to the sidelines, but theres still bears until transactions are getting are getting done so.
It's not an open playing field by any means.
Cap rates is always a.
Hard thing to tell right because it's the data lags in.
Each transaction is kind of unique and on its own but I would say rehab seat expansion of cap rates.
Got it and as we think about.
Lots of the year, what percentage of the portfolio do you anticipate spending another rate increase too and how does that compare to years prior.
So we haven't made any change in what percent of the portfolio. We send a rate increase to every customer is eligible for a rate increase after a certain amount of time I'm not sure if I understood your question correctly, but.
Yes, just like the cadence of increases right.
Sure ended the increase that you just kind of curious at this point last year, what percentage of your portfolio was with do another increase and how does that compare to this year.
Okay, Yes, sorry misunderstand. The question. So I don't think we can make good year over year comparisons because last year, we were so constricted by government regulations, where we couldnt.
Even if we wanted to be concerned rate increase notices what I, what I would say is that.
Pre COVID-19, we had a pretty formulaic approach in terms of cadence and amount of rate increase we sent to customers and during COVID-19.
During the period of time, we voluntarily didn't send out rate increase notices and then when the governments of the various states told us.
We kind of were kicked off for that formulaic approach.
And.
Right.
We have not gone back to it we are much more tailored now and designed in terms of both cadence and amount of rate increase that will center.
Yes, Keegan about 63% of our tenants today are below street rate. So obviously, they're eligible we actually push people above street rates.
It's a large percentage of that 63% is actually higher than its been in the past.
Got it very helpful. Thanks for the time guys.
Sure. Thank you.
Thank you.
And one moment for our next.
Question.
And next we have Smedes rose of Citi. Your line is open.
Hi, Thanks, I just wanted to come back onto the acquisition activity for a moment you mentioned in your opening remarks, a continued focus on non stabilized assets and also working with joint ventures are you are you working kind of consistently with the same joint venture partners are you finding new capital that wants to come into the space.
So you can forge new relationships or just kind of interested in how about scaling.
Sure Smedes. Thanks for the question. So we have two new joint venture partners this year and 2022.
Also we're working with some of our older joint venture partners.
And the phone rings, a lot since lots and lots of people, who would like to be our partners in invest in self storage.
Yes.
On a non stabilized assets I'm, just wondering are are more folks coming to market because there.
Just like where the pricing is now or are they are you seeing deals where they're sort of unable maybe to get permanent financing or kind of there are underwater relative to their initial underwriting kind of what's bringing those assets to market in this environment.
It's certainly asset specific but I would say before the interest rate increases happen.
Pricing was so strong.
First let's back up a little bit 2021.
You had strong pricing you had fewer capital gains tax increase and you had a 10 31 going away.
Getting into 2022, you had strong pricing and low.
Hi.
Interest rates.
Now I think you have some people fearing.
Increased interest rates and further cap rate compression in the future. So time time to get out and then you always have the asset specific thing it to fund its coming to end of life. It's a family where there has been an issue or a death in the family.
But I think those reasons, probably wrap up most of the situations.
Okay, great. Thank you.
Sure.
Thank you.
And one moment our next question.
Our next question comes from Samir Khanal Evercore ISI Your line is open.
Hey, Scott just curious on the on the New York MSA The region is holding up quite well.
I'm looking at the numbers I think revenue growth, even accelerated meaningfully it kind of in the second quarter.
Maybe talk around sort of the drivers of that I'm trying to figure out if it's sort of.
Because of the New York MSA will include New Jersey, maybe there are some restrictions being.
Lifted on the rent side and.
And maybe if there's a way to even sort of looked at New York boroughs, Brooklyn, and Brian It's kind of what are you seeing in that sort of areas as well.
Yes, so when we break it out between the boroughs in New Jersey, our Northern New Jersey stores are performing better than our boroughs now we don't have a huge number of stores in the boroughs. So it might not be a great comparable but both markets are performing below the average of the portfolio, but new Jersey is definitely performing better than New York.
We did see rate increases.
The state of emergency is lifted late last year, and so that has benefited us throughout this year.
I think November December is when most of those went out so that's when you'll have a tougher comp, but we did implement many rate increases late last year that have benefited us this year in new Jersey.
And I guess at this point there is no more rent restrictions sort of in the portfolio that remains to be lifted correct or is there any more sort of.
Opportunities there as well.
Not material not material state of emergencies and effect anywhere.
Okay, and I guess, Joe just.
Maybe as a second question just provide maybe an updated view on kind of the supply picture kind of what your most recent thoughts are.
Sure pretty pretty similar very similar to what we talked about last quarter.
We continue to see and expect a moderation of new supply there are certainly headwinds in terms of interest rates cost entitlements.
But it's not going to zero there is still as new supply being delivered and there's still an awful lot of interest in people wanting to build new self storage I'll give you a stats it is interesting our management plus.
Team Underwrites about 215 deals a quarter for potential management contracts.
75% of those this year have been development.
There's still a lot of people out there interested in building self storage and you can understand what the results of the asset class has been phenomenal.
Got it thanks, so much.
Sure.
Thank you.
One moment for our next question.
Our next question will come from Hong Liang Zhang of Citi. Your line is open.
J P Morgan, but hey, guys.
First I'd say is.
As of current Bargo consumer.
Pretty excited for the opportunity presents you all but almost all apprehensive about what my mantra rents on all look like going forward.
But.
But I guess on the topic of rent increases would you be able to share what the average magnitude of rent increases are currently pushing in your portfolio and how that's changed compared to the first quarter.
So as I said.
Tied to reference earlier.
It's all over the board right, because we had this weird situation or unique situations excuse me.
<unk>.
Folks, whose rent was artificially suppressed by government regulation and at time when street rate was increasing so we had some larger than normal gaps between what people are paying in street rates and we were trying to catch up so there is a wide.
Variation in the amount of rent increased customers are getting and I'm not sure on average is meaningful because of that.
Got it but it sounds like Theres no significant areas where were the MSA the rent in the Msas.
<unk> lower than the average.
No no I think you saw some that were larger than the average is right restrictions were lifted and we move them quickly to the current market rates and that benefit as you move throughout this year, obviously decreases because youre doing many of those late last year and early this year.
Got it and then on the expense side.
How should we think about expense growth and personnel and property operating on a sequential basis is is kind of the level of spend in the second quarter representing of what's kind of looked like for us a year or is there a little bit more further to go from here.
So the wage pressure is obviously will be consistent throughout the year, so youre, probably around 10% wage inflation year over year, our should get better as we move throughout the year. So towards the end of last year, we were more appropriately staffed and second quarter was and into the third quarter was kind of the low <unk>.
In terms of staffing hours and being understaffed due to transition due to turnover.
Thanks, and if I could sneak one last question and I think in your prepared remarks, you talked a little about potentially.
Cross selling between Bargoed bark old users and your current extra space units is that should we take that as a sign that you'd be looking to expand further into Manhattan, and the New York MSA.
So.
We have lots of ideas for barco.
The first thing we're going to do is absorbed the existing business one of the ideas Youre right is they have such a long waiting list. This could we provide some.
Option.
The barco tenants on the waiting list to.
Store Theres stuff and extra space units, and then maybe give them.
Randy to get into a bar graph with that would that help extra space.
We have not instituted that yes, that's just one of many ideas that.
We're excited.
To get to.
And yes, we do.
Once we.
Digest. Our goal then we feel we have it running the way we want absolutely youre going to try to expand it first in Manhattan and other parts of New York.
No, possibly then afterwards other major cities in the country.
Got it thank you and great quarter.
Thanks very much appreciate it.
Thank you.
The next question.
Our next question will come from Ronald Camden of Morgan Stanley . Your line is open.
Hey, a couple of quick ones for me, just just going back to some of the bread crumbs.
The same store growth talking about the exit rate for 2023 are for 2022.
And thinking about that as a starting point for 2023 I think the earlier comments you suggested that.
It could be sort of a double digits for a second half of this year. Therefore, our 2023 double digits is on the table.
Wanted to make sure I understood that correctly or is there anything about the comp that we should be thinking about.
So.
I apologize if I implied.
Because we're going to end the year in double digits in revenue growth that means it can be double digit revenue growth throughout 2023, I think it means we're going to start 2023 with double digits and then everyone can have their own view of the market and how that will moderate or not moderate.
<unk>.
The balance of the year.
Sure.
Got it that's pretty clear.
My second question was just on the marking the some of the jurisdictions that had been under state of emergencies.
L a and so forth and you think about sort of the same store revenue growth year to date is there any way to quantify.
How much contribution came from backing those jurisdictions to market just from a high level.
So I think last quarter, we said, we expected lifting of the California state of emergencies that 50 basis points to the same store portfolio. We now think that's more like 70 basis points and the reason for the difference is we were overly conservative in.
Our length of stay assumption, we thought that when we increased rates to.
Street rates.
We would push more people out the door, but in fact.
We've been conservative in that assumption, so 70 basis points is the answer to your question.
Great and then my last one is just from Bargoed, if I could sneak it in.
Just you talked about a little bit of that is just the potential growth opportunity maybe.
Much more when youre thinking of the growth opportunity how much more capital over time could you provide to the company or is the capital commitment pretty much dawn from this standpoint.
So the capital to grow the business and I don't want to get in front of ourselves right I don't want to promise huge growth. We're taking this one step at a time and the first thing is to absorb what we have.
But we did buy this with the expectation that we will get to a growth phase.
Because these are leases and the rent is just a percentage of revenue. There is no fixed strength in these leases. It's very capital light you just have to build out the space. That's your capital now there also may be capital expanded in terms of systems.
We believe.
Our systems are better than theirs, and I'm, not saying anything negative about the company. Its a very successful well run family company. It was but we have more capabilities and then we have better systems and so we may also put some capital in there, but it's not a lot.
This should be generally capital light going forward.
Great. That's it from me. Thank you so much.
Sure. Thank you.
Thank you.
For the next question.
And next we have <unk> your line is open.
Thanks, Kevin.
Just a couple of follow ups here on the barcode can you just talk a little bit more about.
How that business is actually run in terms of like how many units per apartment building.
As the average.
And what happens when a tenant <unk> mobile.
The building manager handle it or do you have to handle it just a little more of a practical elements of running the type of business.
Sure. So the average number of units in a building is 25.
There's a pretty wide range that I think the largest building is 800 units, which is kind of similar to restore but theres also buildings that just have a handful of units.
The reason condo boards co op boards and building owners would do this and so they don't have to handle it.
No.
Our goals now extra space handles.
Getting the customer through new unit dealing with payments dealing with non payments and auctioning the units.
How does their 17000 over 17000 units.
They auctioned about 20, a month last year so.
The rate is very very small.
And it's storage it works just the largely.
Largely the same works just like storage.
And what was the cadence of their revenue growth over the past year I'm, just trying to get a sense off.
So it was a hyper growth type of company or more static that youre trying to improve.
Any kind of color you can provide around that.
Yes, I would say it was neither static nor hyper growth that they were a steady growth company growing in the single digits every year.
Okay and just last question on moving rates I think you mentioned it was flat in July year over year. It does get tricky looking at these kind of.
Statistics, because you have a tough comp last year and it's not like everyone moves.
You reprice everything single month so.
Just curious.
Given your commentary about moving rates, whereas there in place versus Morgan today, and as we get past. These tough comp period is your expectation that market rent growth.
As we get into the second half of it still goes back to positive year over year.
Yes, let me clarify one thing first keeping so the month of July we were about 5% to 7% negative and our achieved rate growth and that's.
Thats year over year. So if you compare to where tenants are moving in last year versus this year. We were slightly negative now we forecast all of that we expected that and so we're not surprised in terms of the roll down our in place leases today.
Our our achieved rates are.
About 7% below where they were where our achieved rate is today I'm sorry above our in place rents are higher by about <unk>.
7%, then our achieved rents and normally this time of the year, they're flat now.
In terms of cadence of where we expect our rates to go last year. They peaked in June and July and they came down in August so.
Depending on what happens in August with our current rates could could be flat again at the end of August .
Okay.
Okay. Thank you.
Thank you excuse me.
Thank you.
One moment.
And we have a follow up question from Juan Sanabria of BMO capital.
Capital markets.
Line is open.
Alright, just a couple of follow ups just on <unk> question on the in place or sorry, the achieved rates I apologize could you just give us a sense of how that trended throughout the quarter quarter I know, you'll get the July figures, but this the sensors.
How that trended in.
Sure.
Would be helpful.
Yes. So April may they were slightly positive June down about 6% average about negative 3% for the quarter July you were down that 5% to 7% range again.
That's year over year and again last year, you were pushing rates in June and July pretty hard.
Great and then just a quick follow up on.
Pete.
Relative to your expectations any any markets you call out is the largest source of upside this quarter.
Versus expectations.
So things have performed pretty close to our expectations I mean, the list of properties and what markets are outperforming Atlantic continues to be a standout market for us most of the sunbelt continues to be really strong south, Florida, Miami being exceptionally strong in Miami.
Atlanta.
It's a small market a charleston is one that has kind of jumped up.
Had a bunch of supply and wasn't on our list earlier.
And then one last quick one an incoming question can you can you estimate the impact to same store revenue.
I guess year to date.
Like you did for California, you separate rent restrictions coming off for 70 bps to given the higher length of stay for California.
Estimate for what the impact or benefit Western New Jersey restrictions rolling off.
I don't have that number Scott team now we don't have can we get that back to one.
Thank you.
Thanks Juan.
Thank you.
And one moment please.
Yes.
We also have a follow up from Smedes Rose of Citi. Your line is open.
Hey, it's Michael Bilerman Harris needs.
We said two topics. The first was just on length of stay.
<unk> had a really nice slide at NAREIT, which broke out length of stay between that is greater than 12 months in those greater than 24 months.
And that showed the data that showed that youre up to 66% greater than 12 months of up to 48% for greater than 24.
Up from about 60% and 40% respectively.
Covid okay.
As you dive into those numbers is there anything that's changed over the last couple of months with those length of stays and is there anything on a regional basis from a market perspective.
That's telling you anything or a customer perspective, just as you sort of disaggregate that aggregate data.
So we've had elevated vacates in response to.
Our increased rent increases to existing customers and we track that really carefully with every month.
Troll group, So we know exactly.
What percent increase in Vacates is being caused by our.
ECR rent increase program and that has caused a very slight.
Moderator and a dip in those numbers.
Did you referenced in terms of long term stay but there is still very high and an elevated from any historical period.
Does it reflect Joe do you think.
All of those interests.
Where you had a significant number of new customers that came to storage I think over COVID-19. It was like 50% of the customers were new.
Is that potentially.
Driving.
The higher length of stay and is there anything on a regional basis that.
That would be different.
So I guess in reverse order, we don't see anything on a regional basis, it's pretty consistent across all markets.
Our theory, which I think youre referencing your theory.
At the.
Customers, who came to us and COVID-19 for lack of space because they were doing home office or whatever those are the longer stay customers and we do lose some percentage of those they don't all state forever, but many of them are are sticky.
And then are you seeing at all with obviously, where rent apartment rents have gone but also.
Threat flows a recession, where typically you would see people start to double up or move back home, which would then increase your storage needs Ratchet recession does not necessarily totally bad for your business have you started to see that in any of the markets, where youre starting to see some of that demand at all.
Alright.
So I don't know if we can say, yes or no to that.
Some of that data is hard to.
Collect and you need you need a good period of time before you can be confident with it.
Alright, I didn't know if there was any early reads that you're excellent property managers are seeing from those that are walking in the door and the type of uses that they're bringing in.
Anything thats changed more recently.
I mean, there's always.
Anecdotes, but I don't think I would be comfortable saying that we see a trend or a movement or anything like that.
And then just.
Just wrapping up on bar gold.
You said the average lease length that bar gold has it was 10 to 15 years, how much remaining lease term on average do they have with the 17000 units and I would assume there's some extension options or I guess, if the co op, our Condor rental board.
<unk> then bardwell just removes.
It removes all the.
<unk> that they installed.
Just to better understand sort of what happens upon lease.
So on lease and.
There are several options.
Very very rare does the building owner asked for the steel to be removed.
You can purchase it or more frequently lease it. So there is a revenue kind of a residual revenue stream at the end of the lease term for the leasing of the steel.
Okay.
A portion at the end of the lease term the automatically convert to month to month leases.
And they have a portion of the we have a portion of the leases that are in that month to month category and in looking at the portfolio. We look hard at what is the churn rate and how.
How long do those last and when do they get.
Often do they get terminated took that into account in our in our underwriting.
And do you sort of see Joe this business as being.
Yes, it's hard to compare but do you want to put this into more.
Like co op condo buildings or are you sort of see this more as a rental building product.
And do you see it cannibalizing if youre able to do exactly what you want to do and grow this business nationally and leverage all the tools and skill sets with extra space.
Does it become a competitive storage product.
And I can understand at the same time with a waiting list. This company has it could also provide you.
While our customer acquisition cost too but.
What is your sort of mindset about where this product potentially could go.
So I think we have a lot to learn.
And one of the things we need to learn is.
Exactly what's the optimal building.
Is it what are the differences between putting units in one building or a rental building.
It works well in bulk and how many units per apartment unit is optimal and what's the best unit mix.
We will tend to take a very data oriented approach to that probably more so than.
The prior owner.
So a lot of the questions did you have a question that we have and we're going to learn about it.
Hi.
The best case, where we could grow this thing gigantic scale in optical.
Lots of apartment buildings.
Then that does become a competitor firm for traditional urban self storage.
But if that's the case I want to be the one to be the first mover in that.
Yes, I appreciate all the time, Jeff Thank you.
Thank you.
Thank you.
Our next question.
Yes.
And we have a follow up.
Okay.
Next we have Jeff Spector of Bank of America. Your line is open.
Hi, Thanks promise just one follow up.
Can you just confirm it.
Please first achieve difference and how you reconcile that with early <unk> I believe you commented 60 plus percent of our leases are below street rate. Please.
Yes, so our average in place rent.
Is about 7% above where our achieved rents are today now that's an average that's just comparing your average versus what the move in is today. So well you could still have slightly negative brands and you pushed tenants up.
Yeah.
Now the one thing that we.
We always look to his year churning, 5% of your customers every month. So a portion of that may move in at slightly lower rents. We then move.
Existing customers up fairly quickly. So we're probably one of the more consistent in our rate increases and how we do that more programmatic than others.
Okay, great. Thank you.
Thanks, Jeff.
Thank you.
Okay.
One moment please for the next question.
Okay.
And we have a follow up from Todd Thomas.
Keybanc capital markets. Your line is open.
Hi, Thanks appreciate taking the follow up hopefully a quick here also.
In terms of street rates.
Can you talk about those trends during the quarter by month, perhaps and then the July Scott like you provided.
Okay great.
Hi.
Street rates are not that different in terms of year over year growth or where they were then our achieved rates are.
Achieved your different areas, which channel they came from and that type of thing or discounts offered so fairly similar trend to our achieved rates.
Yes.
Yes.
Okay, and then on that 63% of customers, though that are that are currently paying.
A rate below.
Street rate today, you said that that is higher than it has been historically, what's more typical for that.
Metric.
Incrementally higher I think it was the low sixties earlier this year.
Okay. If you look back though over the last.
10 years.
Has that been generally.
I actually don't have this right we don't have it in front of US Todd just more recent numbers.
Okay.
Alright, Thats fine alright, thank you.
Thanks Todd.
Thank you.
And this ends the Q&A session for today I would now like to turn the conference back to the CEO Joe Margolis.
Any remarks.
Great. Thank you. Thank you everyone for your time and interest in extra space.
Take a big step back and kind of look at how the company is going.
It's really a good time here at extra space everything is clicking on all cylinders the growth front as we've talked about is really.
Strong we have a number of technological innovations underway that we're excited about you just cut back engagement surveys. Our scores are up very very much. This year, we are in great shape with our employees and you've all seen the numbers from the operations. There Theres My kids would say stupid. Good. So it's just a.
Right time for us at extra space and we appreciate everyone's support thank you.
Yes.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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