Q2 2022 Life Storage Inc Earnings Call

August 4, 2022

<unk> have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Alex grass.

Sir the floor is yours.

Good morning, and thank you for joining us today for our second quarter 2022 earnings conference call at life storage, leading today's discussion will be Joe Sapphire, Chief Executive officer of life storage and Andy Gregory Chief Financial Officer.

Following prepared remarks management will accept questions from registered financial analysts.

As a reminder, the following discussion and answers to your questions contain forward looking statements that are subject to risks and <unk>.

Good day, ladies and gentlemen, and welcome to the life storage second quarter earnings release Conference call.

Certainties and represent management's estimates as of today August four 2022.

This time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.

The company assumes no obligation to revise or update any forward looking statement because of the changing market conditions or other circumstances. After the date of this conference call additional information regarding these factors can be found in the Companys public SEC filings.

It is now my pleasure to turn the floor over to your host Alex grass.

Sir the floor is yours.

In addition to the press release distributed yesterday, we furnished our supplemental package with additional detail on our results, which may be found on the Investor Relations section on our website at life storage Dot com.

As a reminder, during today's question and answer session. We ask that you. Please limit yourself to two questions to allow time for everyone who wishes to participate please re queue with any follow up questions. Thereafter at this time I'll turn the call over to Joe.

Following prepared remarks management will accept questions from registered financial analysts.

As a reminder, the following discussion and answers to your questions contain forward looking statements are subject to risks uncertainties and represent management estimate as of today August four 2022, okay.

Thanks, Alex and good morning, everyone. I am pleased to report another outstanding quarter, I would like to acknowledge and thank each and every life storage team member that executes every day to help us achieve these outstanding results.

The company assumes no obligation to revise or update any forward looking statements because of the changing market conditions or other circumstances. After the date of this conference call additional information regarding these factors can be found in the company's public SEC filings.

Demand for self storage has remained strong allowing for the continuation of strong pricing power.

Asking rates remained at record levels through the quarter, helping us maintain 21 straight months of positive rent roll up.

Additionally, our focus on revenue optimization resulted in same store achieved rate growth of 20% over last year with occupancy accelerating through the second quarter to end with an average of 94%.

As a reminder, during today's question and answer session. We ask that you. Please limit yourselves to two questions to allow time for everyone who wishes to participate please re queue with any follow up questions. Thereafter at this time.

As a result of the strong operating fundamentals, we achieved core funds from operations of $1 65 per share for the quarter, which is a 37, 5% increase over last year.

I'll turn the call over to Joe.

With this strong performance, we increased our recently paid quarterly dividend by 8%, which is now 46% higher from one year ago.

In regard to external growth, we continue to add more scale to our existing markets through acquisitions and further growth through our third party management platform.

Demand for self storage has remained strong allowing for the continuation of strong pricing power asking rates remained at record levels through the quarter, helping us maintain 21 straight months of positive rent roll up.

In the second quarter, we acquired 13 wholly owned stores for $262 $6 million, while also adding 17 stores to our third party management platform.

Additionally, our focus on revenue optimization resulted in same store achieve rate growth of 20% over last year with occupancy accelerated through the second quarter, two and with an average of 94%.

We have remained focused on strategic growth, enabling us to grow our wholly owned portfolio close to 18% from one year ago.

As a result of the strong operating fundamentals, we achieved core funds from operations of $1 65 per share for the quarter, which is a 37, 5% increase over last year.

These acquisitions represent properties in top markets, including Sunbelt markets, such as Florida, California, Texas and Georgia.

Slightly over 75% of what we closed year to date, our stabilized properties, while the remaining 25% our lease up properties that will provide strong upside in future years.

With this strong performance, we increased our recently paid quarterly dividend by 8%, which is now 46% higher from one year ago.

In regard to external growth, we continue to add more scale to our existing markets through acquisitions and further growth through our third party management platform.

Looking forward, our current acquisition pipeline remains strong with an additional $258 million under contract.

Including joint Ventures, our third party management portfolio totaled 385 stores at the end of the second quarter growing 13% over last year and it continues to be a source of off market acquisition opportunities.

In the second quarter, we acquired 13 wholly owned stores for $262 $6 million, while also adding 17 stores to our third party management platform.

We have remained focused on strategic growth, enabling us to grow our wholly owned portfolio close to 18% from one year ago.

Year to date through July six of our wholly owned acquisitions came from our third party management platform.

As we look towards the full year, we now estimate our adjusted funds from operations per share to increase to a midpoint of $6 30 for the year, which would be over 24% growth from 2021 <unk>.

These acquisitions represent properties in top markets, including Sunbelt markets, such as Florida, California, Texas and Georgia.

Slightly over 75% of what we closed year to date, our stabilized properties, while the remaining 25% our lease up properties that will provide strong upside in future years.

Additionally, we also raised our wholly owned acquisition guidance to between $800 million to $1 billion.

Looking forward our current acquisition pipeline remained strong with an additional $258 million under contract and.

And with that I will hand, it over to Andy to provide further details on the quarter and our guidance.

Thanks, Joe.

Last night, we reported quarterly core funds from operations of $1 65 per share for the second quarter and.

An increase of 37, 5% over the same quarter last year and well above the high end of our guidance.

The continued sequential increase in <unk> was the result of excellent same store and acquisition performance.

Year to date through July six of our wholly owned acquisitions came from our third party manager platform.

As we look towards the full year, we now estimate our adjusted funds from operations per share to increase to a midpoint of $6 30 for the year, which would be over 24% growth from 2021.

Second quarter same store revenue increased 18, 9% over the second quarter of 2021.

Primarily driven by increased rental rates.

We remain highly occupied with occupancy averaging 94% during the quarter.

Additionally, we also raised our wholly owned acquisition guidance to between $800 million to $1 billion.

The 40 basis point increase over the first quarter's average occupancy.

Yeah.

And with that I will hand, it over to Andy to provide further details on the quarter and our guidance.

Occupancy growth was partially held back by our continuing to be aggressive with rates on new and existing customers leading to a significant increase in our achieved rates per square foot.

Thanks, Joe.

Last night, we reported quarterly core funds from operations of $1 65 per share for the second quarter.

Same store realized rent per square foot were up 20% year over year in the second quarter, representing the continuation of double digit rate growth for the last four quarters.

An increase of 37, 5% over the same quarter last year.

Well above the high end of our guidance.

The continued sequential increase in <unk> was the result of excellent same store and acquisition performance.

Our existing customer rate increase strategies continue to be effective with a weighted average increases above historical norms.

Second quarter same store revenue increased 18, 9% over the second quarter of 2021.

We also experienced another quarter of positive rent roll up.

Primarily driven by increased rental rates.

With same store move ins paying on average over 7% more per square foot than move outs.

We remain highly occupied with occupancy averaging 94% during the quarter.

A 40 basis point increase over the first quarter's average occupancy.

As Joe noted this represents 21 straight months of positive rent roll up with asking rates remaining at record levels during the second quarter.

The occupancy growth was partially held back by our continuing to be aggressive with rates on new and existing customers leading to a significant increase in our achieved rates per square foot.

Same store operating expenses grew only four 3% for the quarter versus last year's same quarter.

And were primarily driven by credit card fees.

Same store realized rent per square foot were up 20% year over year in the second quarter, representing the continuation of double digit rate growth for the last four quarters.

<unk> maintenance and utilities expense.

Payroll and benefits remained flat on a same store basis.

The net effect of that same store revenue and expense performance was 370 basis point expansion in quarterly same store net operating income margin to 73%.

Our existing customer rate increase strategies continue to be effective with a weighted average increases above historical norms.

We also experienced another quarter of positive rent roll up.

Again year over year growth in same store NOI of 25, 4% for the second quarter.

With same store move ins paying on average over 7% more per square foot than move outs.

This marks our fifth consecutive quarter of same store NOI growth over 20%.

As Joe noted this represents 21 straight months of positive rent roll up with asking rates remaining at record levels during the second quarter.

Turning to the balance sheet, we supported our acquisition activity by utilizing our credit facility and issuing equity securities during the quarter.

Same store operating expenses grew only four 3% for the quarter versus last year's same quarter.

Specifically, we drew $168 million from our credit facility and issued an additional $7 8 million of common stock via our ATM program during the quarter.

And were primarily driven by credit card fees.

<unk> maintenance and utilities expense.

Payroll and benefits remained flat on a same store basis.

Subsequent to quarter end, we closed on the refinancing of our existing credit facility that was scheduled to mature in March of 2023.

The net effect of that same store revenue and expense performance was 370 basis point expansion in quarterly same store net operating income margin to 73%.

With the refinancing we increased the facility from $500 million.

To $1 $25 billion.

Again year over year growth in same store NOI of 25, 4% for the second quarter.

Through a syndicate of 10 banks that included two new banks.

This marks our fifth consecutive quarter of same store NOI growth over 20%.

This new facility provides committed liquidity to life storage through January of 2027 with terms comparable to or improved from the terms of our existing facility.

Turning to the balance sheet, we supported our acquisition activity by utilizing our credit facility and issuing equity securities during the quarter.

On a pro forma basis accounting for the new credit facility at quarter end, we had significant capital available with $947 million available on our credit facility.

Specifically, we drove $168 million from our credit facility and issued an additional $7 $8 million of common stock via our ATM program during the quarter.

Our balance sheet remains strong with our net debt to recurring EBITDA ratio at four six times at quarter end.

Subsequent to quarter end, we closed on the refinancing of our existing credit facility that was scheduled to mature in March of 2023.

Down from 5.0 times, one year ago.

Our debt service coverage increased to a healthy five seven times at June 30.

With the refinancing we increased the facility from $500 million.

We have no significant debt maturities until April of 2024, when $175 million becomes due and our pro forma average debt maturity is six two years.

To $125 billion through a syndicate of 10 banks that included two new banks.

This new facility provides committed liquidity to life storage through January of 2027 with terms comparable to or improved from the terms of our existing facility.

In addition at June 30th just yes, just over 90% of our debt was fixed rate.

We are updating our 2022 guidance.

On a pro forma basis accounting for the new credit facility at quarter end, we had significant capital available with $947 million available on our credit facility.

We now expect same store revenue to grow between 13 in the quarter and 14 in the quarter percent.

Which will be driven by improved rental rates.

This increase should result in a 16 five to $17, 5% growth in same store NOI.

Our balance sheet remains strong with our net debt to recurring EBITDA ratio at four six times at quarter end.

The improved same store performance expected to be partially offset with the increased cost of capital.

Down from 5.0 times, one year ago.

Our debt service coverage increased to a healthy five seven times at June 30th.

Based on this outlook, we now anticipate core <unk> per share for 2022 to be between $6 27.

We have no significant debt maturities until April of 2024, when $175 million comes due in a pro forma average debt maturity is six two years.

And $6 33.

Or 24, 3% growth over the prior year at the midpoint.

In addition at June 30th just yeah, just over 90% of our debt was fixed rate.

And with that operator, we can now open the call for questions.

We are updating our 2022 guidance.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.

We now expect same store revenue to grow between 13 in the quarter and 14.25%.

It will be driven by improved rental rates.

We ask that while posing your question you. Please pickup your handset is listening on speaker phone to provide optimum sound quality.

This increase should result in a 16 five to $17, 5% growth in same store NOI.

Please hold while we poll for questions.

The improved same store performance is expected to be partially offset with the increased cost of capital.

Your first question for today is coming from Smedes Rose. Please announce your affiliation then pose your question.

Based on this outlook, we now anticipate core <unk> per share for 2022 to be between $6 27.

Yes.

Smedes that city.

I wanted to ask you just a couple of questions.

$6 33.

Or 24, 3% growth over the prior year at the midpoint.

<unk> the guidance would look for some slowdown in the back half of the year.

And with that operator, we can now open the call for questions.

The more difficult comps, but just wondering how youre thinking sort of specifically about how that might play out kind of the balance between rate and occupancy as we move through the year.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.

Good morning Smedes.

And then occupancy front, what we built into the guidance is a normal cyclical cyclical trend in occupancy so.

We ask that while posing your question you. Please pickup your handset listening on speaker phone to provide optimum sound quality.

Last year, we saw occupancy dropped about 190 bps from July to the end of the year. This year we saw in.

Please hold while we poll for questions.

And guidance, we've shown in at $2 50, So 250 basis points is typically what we would see prior to the pandemic. So that's what we built into guidance.

Your first question for today is coming from Smiddies Rose. Please announce your affiliation then pose your question.

Hi, it's smedes that city.

<unk> wise, we could see rates.

I wanted to ask you just a couple of questions. You know, it's no surprise that the guidance would look for some slowdown in that in the back half of the year given the more difficult comps.

We've got some tough comps here that would put rates street rates below where they were last year anywhere from.

Zero to 5% below where they were last year.

So wondering how you're thinking sort of specifically about how that might play out kind of the balance between rate and occupancy and so as we move through the year.

Okay, and then I just wanted to ask you you mentioned drawing down on the credit facility.

Good morning Smedes.

Would you look to term that out at some point.

And then occupancy front, what we built into the guidance is a normal cyclical cyclical trend in occupancy so.

Did you your guidance at all or.

We did not include terming that out in the guidance that would be our plan to term that out but the markets are a little disjointed at the moment when they when we feel better about those markets. We expect to go back to the public markets.

Last year, we saw occupancy dropped about 190 bps from July to the end of the year. This year, we have in guidance, we've shown it to 50, so 250 basis points.

With the tenure is typically what we do.

Typically what we would see prior to the pandemic. So that's what we built into the guidance.

Okay. Thank you guys. Thanks.

Thanks Smedes.

<unk> wise, we could see rates.

Okay.

Got some tough comps here.

Your next question for today is coming from Keegan, Carl at bearing Baron capital market.

That would put rates street rates below where they were last year anywhere from <unk>.

Zero to 5% below where they were last year.

Hey, guys. Thanks for taking the questions maybe just one more on occupancy obviously it was strong in the quarter are you guys seeing any changes in customer behavior relative to your expectations at the time of the year.

Okay.

Okay, and then I just wanted to ask you you mentioned drawing down on the on the credit facility.

Would you look to term that out at some point and is that included in your guidance at all or.

Not really keegan.

I think it's just a little bit of kind of back to a little bit of normalization.

We had elevated.

Auctions kind of catching up still from last year. So that was part of the reduction in occupancy and that really is.

With the tenure is typically what we do.

Not a regional thing it's pretty much in all our markets other than that no we're not seeing anything unusual.

Okay. Thank you guys. Thanks.

Thanks Smedes.

Got it and then you guys read the acquisition guidance again, just kind of curious how much competition are you guys seeing maybe particularly in the sunbelt relative to last quarter and then are you seeing any change in cap rates at all.

Yes.

Your next question for today is coming from Keegan Carl at bearing <unk> capital markets.

Hey, guys. Thanks for taking the questions maybe just one more on occupancy obviously it was strong in the quarter and are you guys seeing any changes in customer behavior relative to your expectations at the time of the year.

Yes, it's an interesting time I think.

Bit of a pause over the last few months in terms of sellers coming out with with product given that as Andy suggested.

Not really keegan.

Difficulty in the debt markets.

I think it's just a little bit of kind of back to a little bit of normalization.

So we actually had a pretty strong pipeline headed into the year and been focused on closing a lot of that.

We had elevated.

Auctions kind of catching up still from last year. So that was part of the reduction in occupancy in that.

We have seen some some portfolios out there that are actually re traded.

We're still active were doing mostly onesie twosies.

He is not.

Not a regional thing it's pretty much in all our markets other than that no we're not seeing anything unusual.

Not seen anything close to last year in terms of the scale of portfolios coming out again, it really probably a result of what's going on in the macro environment.

But things are getting a little bit better than I think.

Maybe we will see a little surprised in the second half of the year if markets cooperate, but we're really pleased with what we've been able to get under contract and we still have a lot of work to do to close on what's in the pipeline.

Yes, it's an interesting time I think.

There's a bit of a pause over the last few months in terms of sellers coming out with with product given that as Andy suggested the difficulty of the debt markets.

I think in terms of competition I think that I think there is probably a little bit less than a year ago just because of.

So we actually had a pretty strong pipeline headed into the year and been focused on closing a lot of that.

The cost of doing deals now in the cost of debt.

There's obviously a lot higher than last year.

And just on cap rates are you seeing any material movement.

We have seen some some portfolios out there that are actually re traded.

I wouldn't say material, but.

We're still active.

I think you can read into it that there is less deal flow because of the spread between.

Doing mostly onesie twosies, we're not seeing anything close to last year in terms of the scale of portfolios coming out again. It really is probably a result of what's going on in the macro environment.

Both buyers and sellers is widening.

So sellers in this in this sector as you know they don't need to sell its a great business, it's got great cash flow.

But things are getting a little bit better I think.

We all know the positives of it so sellers are really never needing to sell but if the prices. There. They will right now I think it's a bit of kind of.

What we saw two or three years ago. When there wasn't a lot going on in terms of sellers. So I think if things improve.

I think in terms of competition I think that I think there is probably a little bit less than a year ago just because of.

We could see some more activity later this year into next.

The cost of doing deals now in the cost of debt.

But I would suspect the deals that are closing today, maybe 25, 30 40 basis points.

It's obviously a lot higher than last year.

And just on cap rates are you seeing any material movement.

Higher than maybe six months ago.

I wouldn't say material, but.

Perfect. Thanks for the time guys really appreciate it thanks Steven.

I think you can read into it that there is less deal flow because of the spread between.

Both buyers and sellers is widening.

Your next question for today is coming from Juan Sanabria at BMO capital markets.

So you know that sellers in this in this sector as you know they don't need to sell its a great business, it's got great cash flow.

Hi, good morning.

We all know the positives of it so sellers are really never needing to sell but if the prices there they will but right now I think it's just a bit of kind of.

Just wanted to go back to the guidance question and.

Just.

Get a sense of what the exit.

Is assumed for the fourth quarter for same store revenue and if you have any thoughts about 'twenty three as it relates to where youre ending the year up and how you're thinking about.

What we saw two or three years ago. When there was a lot going on in terms of sellers. So I think if things improve.

You know we could see some more activity later this year or into next.

Maybe.

A range of outcomes for next year, given the strength that we have seen to date.

But I would suspect the deals that are closing today, maybe $25 $30 40 basis points.

Yes.

Hi, Good morning, one the second half we are still looking at if you look at the second half of the year double digit revenue growth, we do see deceleration as we go through the year that those are tough comps that we're looking at as you've seen from the the activity in the last few years when our revenue growth had been for the last five quarters at over 14%.

They are higher than maybe six months ago.

Perfect. Thanks for the time guys really appreciate it thanks Kian.

Your next question for today is coming from one <unk> at BMO capital markets.

Hi, good morning.

So we would see some deceleration again in second half in total will be still double digit revenue growth.

Just wanted to go back to the guidance question and.

<unk>.

Get a sense of what the exit.

But we see that T cell would set us up nicely, probably very close ending the year to double digits, our guidance of slightly below but I think it sets up nicely for next year I don't think we are.

Is assumed for the fourth quarter for same store revenue and if you have any thoughts about 'twenty three as it relates to where youre ending the year up and how you are thinking about.

Canada may be a range of outcomes for next year, given the strength that we have seen to date.

Prepared to talk about the rest of next year other than it starts out very strong.

Okay, and then just on the expense side, you guys had a fantastic quarter, particularly relative to some of the other prints youre seeing in stores it elsewhere.

Hi, Good morning, one the second half we're still looking at if you look at the second half of the year double digit revenue growth, we do see deceleration as we go through the year that those are tough comps that we're looking at as you've seen from the the activity in the last few years when our revenue growth had been for the last five quarters at over 14.

Just on the payroll side you guys have had very modest growth there.

Do you think that continues or is there something in the numbers that maybe gets normalized out as man hours, maybe increase or have you taken ftes out in that that's not as much of a pressure may be for you as others.

<unk>.

So we would see some deceleration again.

Half in total will be still double digit revenue growth, but.

But we see that D cell would set us up nicely, probably very close ending the year to double digits, our guidance of slightly below but I think it sets up nicely for next year I don't think we are.

Yeah, no. Thanks Juan.

For the.

For some time now we've been really focused on payroll and FTE per store embracing.

Technologies, and new technologies, and just generally finding ways to do more with less.

Prepared to talk about the rest of next year other than it starts out very strong.

So theres really nothing unusual in there except that we have been continue with our strategy for further efficiencies in <unk>.

Okay, and then just on the expense side, you guys had a fantastic quarter, particularly relative to some of the other prints youre seeing in storage it elsewhere.

<unk> has now been the head of operations for this year and he knows the strategy behind that he has been doing a great job of keeping control over payroll I know, it's quite tough in this environment.

Just on the payroll side you guys have had very modest growth there.

But yes, we're really pleased with the result, and we will.

Continue to look for ways to reduce hours at the store level.

And Fortunately we've been successful at it.

Thanks, guys.

Youre welcome.

Yeah, no. Thanks Juan.

Yes.

For.

Your next question for today is coming from Samir Khanal at Evercore ISI.

Some time now we've been really focused on payroll and FTE per store embracing.

Technologies, and new technologies, and just generally finding ways to do more with less.

Hey, Joe Good morning, I guess, just wanted to get your view on kind of the potential slowdown in the housing market with mortgage rates being higher here.

So theres really nothing unusual in there except that we have been continuing with our strategy for further efficiencies and Dave has now been the head of operations for this year and he knows the strategy behind that he's been doing a great job of keeping control over payroll I know, it's quite tough in this environment.

Clearly that had been sort of a big driver with sort of housing mobility in the storage.

Industry, how do you think about that.

The impact potentially maybe in the back half or even into 'twenty three.

But yes, we're really pleased with the result, and we continue to look for ways to reduce hours at the store level.

Yes, Hi, Samir.

Sure.

Obviously storage is used for a number of reasons and people who there has definitely been a slowdown in the sale of homes, but that sometimes is a good thing for storage and people decide not to buy.

And Fortunately we've been successful at it.

Thanks, guys.

Youre welcome.

The second bedroom or third bedroom or fourth bedroom, and we'll turn to storage instead same with apartments.

Your next question for today is coming from Samir Khanal at Evercore ISI.

With inflation people may have to deal with.

Being in a place that maybe isn't the perfect size for them and again turn to storage.

Hey, Joe Good morning, I guess, just wanted to get your view on kind of the potential slowdown in the housing market with mortgage rates being higher here.

Also what's interesting is what we haven't seen in a number of years is the staging.

Clearly that had been sort of a big driver with sort of housing mobility and the storage.

The sale process, where homeowners will have to stage their house, because it's not selling.

Industry, how do you think about that.

The impact potentially maybe in the back half or even into 'twenty three.

We haven't seen that awhile, because obviously things would sell pretty quickly. So we're seeing some of that come back where people are having to make a little bit more effort to sell their house.

Yeah, Hi, Samir.

You know obviously storage is used for a number of reasons and people who they are.

So right now we're not too concerned obviously.

We'll see how the rest of the year plays out, but we had a very good demand throughout the peak season, it's still we're still seeing some nice move in volumes.

It's definitely been a slowdown in the sale of homes, but that sometimes is a good thing for storage and people decided not to buy.

The second bedroom or third bedroom or a fourth bedroom and we'll turn to storage instead same with apartments.

So the demand is very strong and pre COVID-19.

<unk>.

With inflation people may have to deal with.

Maybe we wouldn't see as much demand, but today, there's so many more uses and needs for self storage that we're benefiting from and we don't see that slowing down.

Being in a place that maybe isn't the perfect size for them and again turn to storage.

Also what's interesting is what we haven't seen in a number of years is the staging.

And I guess my second question is around 2023, because thats, where sort of the investor focus is today.

And the sell process, where homeowners will have to stage their house, because it's not selling.

And I know you Havent provided guidance, but maybe walk us through how to think about.

We haven't seen that awhile, because obviously things would sell pretty quickly. So we're seeing some of that come back where people are having to make a little bit more effort to sell their house.

So the puts and takes to come up with a growth number for next year I mean do you feel.

Where you stand today do you feel better about growth for 'twenty, three maybe versus three months ago, just trying to kind of.

So right now we're not too concerned obviously.

Get your sense of how to think about 'twenty three at this point.

We'll see how the rest of the year plays out, but we had a very good demand throughout.

Throughout the peak season, it's still we're still seeing some nice move in volumes.

I think when you look at where we're going to end the year, it's stronger than we thought three months ago. So I think we're going to start the year stronger.

So demand is very strong and pre Covid you know.

How does the consumer react next year to rate increases versus this year.

Maybe we wouldn't see as much demand, but today, there's so many more uses and needs for self storage that we're benefiting from.

So we'll have to determine that as we go through we will see if there is any change as we go through the remainder of the year, but right now I would say, we're feeling a little better than we were three months ago on.

We don't see that slowing down.

And I guess my second question is around 2023, because thats, where sort of the investor focus is today.

2023.

And I know you Havent provided guidance, but maybe walk us through how to think about.

Sure.

Thanks, very much guys.

So the puts and takes to come up with a growth number for next year I mean do you feel.

Sure.

Your next question is coming from Jeff Spector with Bank of America.

Where do you stand today do you feel better about growth for 'twenty, three maybe versus three months ago, just trying to kind of.

Great Good morning, and congratulations on the quarter. My first question and I'm sorry, if you discussed this already but I didn't hear anything just to confirm are there any signposts of weakness, let's say by customer income levels across the markets or any signposts of weakness.

What's your sense of how to think about 2003 at this point.

I think when you look at where we're going to end the year, it's stronger than we thought three months ago. So I think we're going to start the year stronger.

How does the consumer react next year to rate increases versus this year.

On regions.

No I wouldn't say, Jeff that Theres any real real regional difference.

So we'll have to determine that as we go through it we'll see if there's any change as we go through the remainder of the year, but right now I would say, we're feeling a little better than we were three months ago on.

Obviously consumers are feeling it.

All walks of life with inflation and nice to see gas coming down.

2023 Wheeler.

We have seen some of our late fees go up which is kind of getting back to normal I think.

Yeah.

Thanks, very much guys.

Sure.

Pre COVID-19, that's kind of where we are now with <unk>.

Your next question is coming from Jeff Spector with Bank of America.

With late fees.

But other than that.

I think we're still in a good spot again this is on.

We needed product.

It's not something that can easily be canceled.

Netflix subscription.

This is something especially for those who are working from home.

I need to keep those items in storage.

So I think we're in a good spot and again, it's on average $160 a month.

On regions.

No I wouldn't say, Jeff that Theres any real real regional difference.

As an affordable.

Option for many folks so we feel very good about the consumer and obviously the employment is still very strong people have jobs and they're able to make their payments. So.

Obviously consumers are feeling it.

All walks of life with inflation and licensee gas coming down.

We have seen some of our late fees go up which is kind of getting back to normal I think.

Other than little late fees rising to kind of getting closer to pre COVID-19 levels.

We don't really see anything else.

Pre COVID-19, that's kind of where we are now with.

Thank you and then just one question on kind of on the transition from 'twenty two into 'twenty three I remember 'twenty one into 'twenty two.

With late.

Late fees.

But other than that.

I think we're still in a good spot again this is.

Needed product.

A key point was higher occupancy levels is that the assumption now at this point and how does that compare let's say versus historically.

It's not something that can easily be cancelled like a netflix subscription.

This is something especially for those who are working from home.

Your guidance, let's say ending 'twenty two into 'twenty three versus historically I assume that.

We need to keep those items in storage.

So I think we're in a good spot and again, it's on average $160 a month.

Occupancy in particular.

Is it affordable.

He is looking to be stronger than historically, but please confirm.

Option for many folks so we feel very good about the consumer and obviously the employment is still very strong people have jobs and they're able to make their payments. So.

Yes, Jeff we would think that hockey PC in our guidance would end the year above historical norms have been the 91 to 92 range and that range there would be below last year's record, but still above our historical typically at the end of the year would be about 90%. So are still above historical levels, we expect.

Other than a little late fees rising to kind of getting closer to pre COVID-19 levels.

We don't really see anything else.

Thank you and then just one question on kind of on the transition from 'twenty two into 'twenty three I remember 'twenty one into 'twenty two.

To be at the end of the year. So it does it.

It does help us out compared to historical levels.

The key point was higher occupancy levels is that the assumption now at this point and how does that compare let's say versus historically.

That occupancy will start 2023.

Great. Thank you. Thanks.

Thanks, Jeff.

Your guidance, let's say ending 'twenty two into 'twenty three versus historically I assume that.

Once again, if there are any questions or comments. Please press star one on your phone at this time.

Yes.

Your next question for today is coming from <unk> bin Kim at shortlist.

Occupancy in particular.

Is looking to be stronger than historically, but please confirm.

Thanks, Good morning.

Yes, Jeff So we would think that high occupancy in our guidance would end the year above historical norms to be in the 91 to 92 range and that range there would be below last year's record, but still above our historical typically at the end of the year would be about 90%. So we're still above historical levels, we expect.

Just wanted to go back to your comment about street rate did.

Did you give color on what it was during the quarter and how that progressed into July year over year.

We did not give the color yet keeping but street rates during the quarter on average were seven point, almost 8% higher than they were a year ago.

To be at the end of the year. So it does.

It does help us out compared to historical levels.

Subsequent to the quarter end slightly negative in July compared to last July , but very very high from a historical levels I think July is still.

That occupancy will start 2023.

Great. Thank you thank.

Thanks, Jeff.

In the top four months of rates are highest rates, so still very strong slightly below last year, which was incredible.

Once again, if there are any questions or comments. Please press star one on your phone at this time.

Your next question for today is coming from <unk> bin Kim at shortlist.

So slightly negative in July and I think earlier, you mentioned for the remainder of the year do you think it can be zero to negative 5% is that right.

Thanks, Good morning.

Just wanted to go back to your comment about street rate did.

That's what we embedded in guidance correct.

Yes.

Did you give color on what it was during the quarter and how that progressed into July year over year.

And on <unk> can you.

Describe what that program looks like today, and how that might have changed.

I remember at least pre Covid you guys used to concentrate your EPRI.

We did not give the color yet keeping but street rates during the quarter on average were seven point, almost 8% higher than they were a year ago.

More so in the summer than just programmatically pro ratably throughout the year I'm not sure if thats changed at all.

Subsequent to the quarter end slightly negative in July compared to last July , but very very high from a historical levels. I think July is still one of the top four months of rates are highest rates. So still very strong slightly below last year, which was incredible.

Trying to get a sense of what drove that.

Much better than expected sequential increase in same store NOI.

Yes, Hi, Kevin.

Obviously, our revenue management team does a great job.

Our cri.

So slightly negative in July and I think earlier, you mentioned kind of grid of remainder of the year you'd think it can be zero to negative 5% is that right.

<unk> strategy continues to evolve.

If you compare it to three years ago would be black and white completely different.

That's what we embedded in guidance correct.

We do a lot of testing we have more data today, we have a data science team.

Yes.

And on <unk> can you.

So we're trying to be smarter about the decisions we make.

And that continues to change so.

Thats different from it was the way we did it last year I think typically we'd like to do more of our rate increases during the peak season, because thats when your phones are ringing the most so.

That really has not changed.

Most of the sector does something similar to that you don't want to do a lot of your rate increases.

And the slow demand months of October November December .

So we are trying to do things a little bit different we use data to make smarter decisions.

And I think.

At this time next year, we are probably going to be doing something even more different than today. So we'll continue to work to do better.

And we're really proud of what our revenue management team has been doing they've been embracing different technologies and algorithms.

Data and I think the results show that they are doing a really good job.

And is it fair to say that.

There was a more pronounced contribution from E cri than even last year.

Our average customer increase was higher than it was last year. So we've been aggressive.

And continue to be aggressive.

Okay. Thank you.

Thanks, Kevin.

Okay.

Your next question for today is coming from Michael Mueller at Jpmorgan.

Yes, I kind of have a follow up to <unk> question here.

Have you seen over the past few months any changes in the level of ECR I that youre passing through.

Because of the evolving macro backdrop or have you seen any changes in terms of the level of customer pushback to those increases.

Well you always get pushed back whenever you do a rate increase.

We know that the more you do the more move outs are going to get and I think you've seen that.

The sector, given the strong pricing power and demand in and.

And high occupancy that.

The sector is able to push through more rate increases and you're seeing move out to start to pick up and thats across the sector.

We had enjoyed.

Several quarters of very unusual low move outs.

And that's kind of what we're seeing so some changes there obviously the more you push the more move outs youre going to get more pushback youre going to get but when there's still strong demand.

Our risk youre willing to take.

And for US we have we continue to have rent roll up so it's a very good trade for us and again, it's all about revenue optimization not necessarily occupancy, it's all things combined and thats kind of in our strategy and we will continue to be so.

Got it so it sounds like if we're thinking thinking about with the with the backdrop of the economic picture getting a little more challenging little more unclear over the past few months you haven't seen a direct change in any of the attributes in your business really tied to that thus far.

No other than the rise of move outs, which is a combination of increased auctions, which kind of still playing catch up there.

And then obviously the level of in place rate increases will drive more move outs. So.

Nothing that's not that wasn't expected at the beginning of the year with where with where we plan to be.

Got it okay. Thank you.

Okay.

Your next question is coming from Spencer alloy at Green Street.

Thank you.

Just wondering if you guys provide a little bit of color on development starts or just some color on supply in your markets.

Yes, Hi, Spencer.

You know again really nothing new from last quarter's call.

We still.

Our.

Feeling okay about the new supply that's coming on.

We haven't seen a significant rise in construction or planning I think theres still.

Some headwinds with with the development sector and the price of materials and the <unk>.

Timing to get entitlements.

Obviously interest rates are now going up.

I mean definitely there is new development. There is we're always dealing with that in most markets, but no single market.

Stands out.

So we still feel pretty good about the situation obviously.

We'll monitor it and we monitor every month.

But right now nothing unusual.

Okay, Great and then maybe I can just go back to that last question, but maybe just ask it slightly different.

Have you guys still have positive rent roll and your peers.

Moving and obviously to the third quarter or do you feel like you have outsized pricing power moving forward in the back half of the year.

I think we like to position.

Position, wherein spencer with the rent roll up.

I think we are unusual in the sector, but.

Does it give us more pricing power I think it gives us the ability to be aggressive with our in place customers Street rates are very competitive out there and we track the industry closely.

So I would think pricing power from a street rate, maybe not so from an in place customer increase.

I think we do have a little bit more room to run there.

Okay, great. Thank you.

Youre welcome.

There are no further questions in queue I would now like to turn the floor back over to Joe for closing remarks.

Moving and obviously to the third quarter or do you feel like you have outsized pricing power moving forward in the back half of the year.

Well. Thank you everyone for joining us. This morning, I hope everyone has a terrific August in the remainder of the summer and we'll talk to everyone. In a few months. Thank you.

I think we like to.

Position were in Spencer with the rent roll up.

I think we are unusual in the sector, but.

Okay.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Does it give us more pricing power I think it gives us the ability to be aggressive with our in place customers Street rates are very competitive out there and we track the industry closely.

So I would think pricing power from a street rate, maybe not so from an in place customer increase.

I think we do have a little bit more room to run there.

Okay, great. Thank you.

Youre welcome.

Yes.

There are no further questions in queue I would like to turn the floor back over to Joe for closing remarks.

Thank you everyone for joining us this morning, I hope everyone has a terrific August in the remainder of the summer and we'll talk to everyone. In a few months. Thank you.

Okay.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Q2 2022 Life Storage Inc Earnings Call

Request a DemoDemo

LSI

Life Storage

Earnings