Q3 2023 Extra Space Storage Inc Earnings Call
Good day, and thank you for standing by walking through the Q3 2023 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 to ask a question during the session need to press star one on your telephone you will then hear an automated message of Boston. Your hand is raised to withdraw your question.
Please press Star one again, please be advised today's conference is being recorded.
I turn the conference over to your Speaker today, Jeff Norman. Please go ahead.
Thank you Kevin.
Welcome to extra space storage is third quarter 2023 earnings call and.
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 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 November eight 2023.
The company assumes no obligation to revise or update any forward looking statements because of changing market conditions or other circumstances. After the date of this conference call I would now like to turn the call over to Joe Margolis, Chief Executive Officer.
Thanks, Jeff and thank you everyone for joining today's call.
We had a busy third quarter.
In July we successfully completed our merger with life storage, adding over 200 stores to our portfolio and over 2300, new members to team extra space.
The transition is going very smoothly and I'm proud of the teamwork and innovation our employees are demonstrating to the merger.
Our combined portfolio of 3651 stores provides greater diversification stability revenue opportunities and operational efficiencies that I believe will improve our property level and external growth for years to come.
From a performance standpoint, the third quarter was generally in line with expectations revenue growth moderation for the extra space same store pool flatten meaningfully during the third quarter and our one 9% same store revenue increase was modestly ahead of our expectations.
Yeah.
Revenue growth was driven by high average occupancy in the quarter of 94, 4%.
<unk> customer behavior continued to be strong with solid length of stay muted vacates and continued acceptance of rate increases.
Rental volume was also steady year over year, albeit at lower new customer rates.
Expenses came in higher than our estimates offsetting the revenue outperformance. This was driven by higher than expected property tax increases.
The higher than projected expenses resulted in a modest miss in our same store NOI, which was offset by a beat and G&A, resulting in core <unk> of $2 and two steps.
This was in line with our internal forecast.
Short term dilution from the merger with Dallas Si was consistent with our estimates for the third quarter.
We have achieved our target G&A synergy run rate of $23 million and we will continue to gain additional synergies as we further integrate the team platform and portfolio.
We have also started to realize property level revenue synergies as we move existing LSI customers to rates more consistent with the extra space portfolio.
The incremental <unk> contribution from these improvements as partially offset initially by lower occupancy at the LSI properties due to catch up auctions and lower new customer rates to drive rental demand.
However, once we achieve stronger new customer rates and build occupancy the benefit to <unk> will ramp up and we remain confident we will reach our total expected synergy run rate in the first quarter of 2024.
We have slowed our acquisition pace given the LSI merger, but we continue to be very active in third party management.
Adding 49, new stores gross in the third quarter, not including the LSI managed stores.
Year to date outside of the LSI merger, we have added 151 stores gross to the managed platform with only 17 departures.
We have also continued to have steady bridge loan volume despite the difficult interest rate environment.
In short property level performance is in line with expectations and the integration of the life storage properties is on track and we continue to be active in our capital light external growth channels.
As a result, we have tightened our annual core <unk> guidance for 2023, maintaining the same midpoint.
We will remain focused on maximizing performance at all of our stores and executing our integration plan in the fourth quarter.
Okay.
As we have interacted with our shareholders throughout the quarter and its been hard to Miss the serious concerns people have about wars.
The economy interest rates consumer health sector demand and our stock price.
We absolutely share those concerns.
That said I think it is important to step back and not lose sight of where we stand today.
Storage has consistently proven to be a remarkably durable asset class and extra space storage has the largest and most diverse portfolio in the industry.
Occupancy averaged over 94% in the quarter and it remains very healthy.
New customer rates, while not as strong as last year remained 12% higher than 2019 pre pandemic levels and customer health remains strong.
New supply continues to moderate and the headwinds to future new development are substantial and increasing.
Our external growth drivers continue to fire on all cylinders and I am confident in our ability to further scale our platform.
And finally, I believe we have the strongest team and operating platform in the industry.
It is still a great time to be in storage and I believe the future of extra space remains very bright.
I'll now turn the time over to Scott.
Thanks, Joe and Hello, everyone.
As Joe mentioned, we would characterize the third quarter as inline meeting our internal <unk> projections.
Modest Miss in property NOI due to higher non controllable expenses was offset by beats in interest income and G&A.
Achieved rates to new customers were down an average of 11, 8% year over year in the third quarter gapping widest in August and tightening modestly in September and further in October to a negative 10, 8%.
Given the easier September and October comps, we would have liked to have seen that gap narrow more but we continue to have a headwind from new customer rates.
Fortunately lower year over year, Vacates and strong existing customer health continues to more than offset the headwind in revenue performance as a whole continues to hold up.
Weighing these factors as we forecast revenue for the fourth quarter, new customer rate improvement hasnt been compelling enough for us to raise the high end of our same store revenue guidance range, but existing customer performance has been steady enough to remove our most cautious scenarios from our full year revenue Guy.
Good.
As a result, we increased the bottom end of our same store revenue by 25 basis points to a range of 275% to three 5% for the full year.
On the expense front, we felt greater than expected pressure from property taxes, primarily in Illinois, Georgia, and Florida. We also had significant increases in property insurance premiums. We updated our annual same store expense guidance to recognize actual Q3 expenses as well as a <unk>.
Higher run rate for property taxes, resulting in a revised same store expense range of 4% to 5% for the full year. This results in a tightening of the same store NOI range of 25 basis points at both the high end and the low end of the range maintaining a mid <unk>.
<unk> of 275%.
Turning to the balance sheet, we drew on our line of credit and an Undrawn term loan of $1 billion to pay closing cost and to retire life storage is debt that we did not assume.
With the merger, we assume $2 4 billion in life storage is publicly traded bonds at the same coupons and maturities with the assumption of these bonds, we mark the debt to market and we have broken out the noncash interest expense, which has been added back to core <unk>.
On completion of the merger and the assumption of debt S&P global upgraded <unk> credit rating on extra space to Triple B, plus which will drive future interest expense savings for the company details to our updated debt stack and revised interest rate spreads on our credit facility are included in our supplemental.
Last quarter, we provided freestanding guidance for extra space storage and then provided separate details related to the anticipated dilution associated with the merger in last Night's earnings release, we updated our 2023 <unk> guidance ranges for the combined portfolio.
The same store performance ranges I previously referenced apply to the extra space same store pool as we have not added the life store properties to the pool.
Life storage stores to the pool.
The disclosures related to the performance of the life storage stores are included in our supplemental financials.
Our core <unk> range, which includes the short term dilutive impact of Ellis of the LSI merger as well as an add back for transact transaction and transition expenses was tightened to $8 five to $8 20 per share maintaining the previous midpoint. We have also provided updates to <unk>.
Key assumptions for the combined company.
As Joe mentioned, our performance was in line with our expectations coming into the quarter and the integration of life storage remains on track. We continue to believe storage as an asset class is among the most resilient in the REIT in the REIT space, We believe our operating platform and highly diversified portfolio has become.
Even stronger through the life storage merger and it is positioned and it is positioned for outsized future growth.
And with that Kevin, let's open it up for questions.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone extra question has been answered you wishing was yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Michael Goldsmith with UBS. Your line is open.
Good afternoon, and thanks, a lot, particularly my question. Your updated same store revenue outlook implies positive fourth quarter same store revenue growth of 8% at the midpoint.
And you took the low end of our full year guidance range up slightly so should we interpret the increase in guidance is confidence that youll hit this range and what have you seen from street rates in October and expect in November and December to meet this range.
Yes, Michael your assumptions are correct. It does imply at the midpoint that is positive for the entire quarter and.
We obviously have October largely.
We know what October was and so we're confident that we should if those numbers.
Okay.
Got it.
<unk>.
My next question is about.
How the life storage.
Portfolio is responding to the extra space strategy, we had quite a bit the revenue synergies from the deal is based on the ability to rollout the extra space rental growth algorithm. So can you walk through how the life storage customer is responding to lower street rates and also how the life storage customer has.
Responding to the elevated ECR is thanks.
Yes. Thank you great question. So the short answer is everything is going as planned.
We have begun sending out the ECR I notices to the life storage customers and they are accepting them at the same rate or maybe even slightly better rate than <unk>.
Extra space customers, we have.
Headwinds of ketchup auctions.
And the slightly elevated vacates from these Shanghai notices to occupancy on the LSI portfolio. So we have discounted rates on the web in particular to protect that occupancy while we do that and that's been very successful and we've actually seen.
And a slight uptick in occupancy in the LSI portfolio. So we're really happy with how our.
The strategy is playing out and we continue to monitor it and make sure Theres no bumps in the road.
Thank you very much and see you guys next week.
Thank you Michael one of them before our next question.
Our next question comes from Jeffrey Spector with Bank of America. Your line is open.
Great. Thank you, Joe you mentioned, but that as you're integrating and now operating the LSI assets Youre using street rate to build up that occupancy how should we think about that over the coming months, how long will that take place and given the existing overlap with.
The ESR portfolio is that creating some of the drag let's say on street rate in Yormark and markets.
So I might describe it a little differently.
We're using right I think to protect occupancy more we don't really expect to make significant gains in occupancy until we're done correcting the rates.
And getting through the auctions so.
We gained.
Some occupancy, but it's certainly not spiking and we probably don't expect that until next rental season.
With respect to <unk>.
Fact on extra space storage Thats very market specific and I don't think very significant.
Okay. Thank you and then on the existing customer you mentioned again the strength there.
Can you characterize pricing power today versus let's say.
Six months ago, and then can you quantify the length of stay versus the Vacates. Thank you.
So I don't think pricing power to new customers is significantly different than six months ago.
And I guess I would say the same thing about pricing power to existing customers, which is very strong.
It is also the same right, we're not seeing a greater amount of ECR awry induced vacates.
And I'm sorry, what was the second part of the question.
If you were able to quantify the vacates versus the length of stay.
I'm not sure I understand the question.
As length of stay today, you had mentioned that I'm sure the length of stay remains strong and vacates or data.
So no I should understood. What you were saying so lots of different ways to measure length of stay.
Our average in place customer is about $34 four months, which is up.
A month year over year.
Our existing customers, who have been in the store for 12 months is 61% that's down a little bit as we continue to normalize from those COVID-19 highs at that metric.
We have also lost a little bit of our 24 month customers, that's about 45% now, but still higher than pre COVID-19 does that is that helpful. Yes.
Yes. Thank you.
Sure.
One moment for our next question.
Our next question comes from Cassandra Cyber with <unk> Securities. Your line is open.
Hi, Thanks for taking my question.
Quarter, you Sheldon in PE.
Same store revenue and same store NOI deceleration is that because.
Easier comps or do you think rates have somewhat stabilized at current levels.
Just trying to better understand if this includes deceleration and sustainable or if we should expect a steeper deceleration in 2024.
Yes, so comps throughout this year have gotten easier as we move through in terms of how it came out versus what we were expecting it was pretty similar to what we were expecting as we mentioned earlier, we don't expect things to go negative in the fourth quarter and that sets us up for what we hope to be a good 2024.
Our occupancy is holding up well and not going negative I think is a positive thing.
Okay got it and then shifting gears a little bit can you talk about.
Can you give us your thoughts around your balance sheet and your.
Variable rate debt right now approximately 70% of your debt is variable.
Do you have any plans to decrease your exposure there or are you planning on keeping the pushing up your bad debt.
We're at it.
Yes, so our variable rate debt actually ticked up slightly in the quarter as we completed the merger with the merger we had to pay off some fixed rate debt you had a private placement bonds on life storage that weren't allowed to be prepared.
To do that we've used a bridge loan of $1 billion bridge, that's a two year loan and we will be terming that out over the next one to two years. So.
So we will be bringing that down if you look at our variable rate debt net of the variable rate borrowings, it's about 75%, but again, we'll be bringing those down February received variable receivables sorry got it.
Sorry.
That's helpful. Thank you.
Thank you.
One moment for our next question.
Okay.
Our next question comes from Todd Thomas with Keybanc capital markets. Your line is open.
Hi, This is AJ on for Todd I appreciate taking my question.
Real quick could you just provide an occupancy update for October and what that looks like year over year.
Yes for the two portfolios.
Extra space. The same store portfolio ended October at 93, nine it's a 1% gap from where we were last year.
The life storage occupancy is 98 compared to last year and that has actually narrowed the gap slightly our occupancy calculation is slightly different than the way life storage calculated.
We're going with our occupancy calculation going forward as they excluded or made adjustments that we don't make on an ongoing basis.
And what is that year over year.
On your <unk>.
It's narrowing andi.
I actually don't have last year's in front of me right now.
We haven't we haven't adjusted last years life storage occupancy to reflect our methodology correct.
Okay. Good to know and then my second question.
So you provided a little color around the $100 million.
Synergies you noted that you have met the $23 million in G&A synergies.
We see some gains in tenant insurance, how should we think about the opportunity to meet or exceed the $100 million guidance over the next several months.
So.
<unk>.
I think we have a significant opportunity to exceed the G&A synergy of $23 million.
Our original guidance for that was a $140 million.
Our.
Original extra space guidance at the beginning of the year before this merger was contemplated.
Our current <unk>.
Midpoint guidance for G&A as a $150 million so.
It's not quite.
$10 million every six months of additional G&A, because we closed the merger on July 20th G&A is not smooth G&A is higher in the first quarter, it's not perfectly spread out two to four years and we still have four quarters and we still have some hiring to do to to fill in some spots.
But clearly we're going to be ahead of R. R.
Our $23 million run rate.
Okay, and then on the tenant tenant insurance synergies how much more upside do you.
See there and can you can as you continue to transition the LSI customer.
Sure.
Same pricing.
Sure. Thank you. So we've achieved very little of that synergy because the only extra space tenant insurance policies, we're selling now are to new customers existing.
Existing customers will not convert from the life storage insurance policy to the extra space insurance policy until starting January one of 2024 and that was for both regulatory and contractual.
But that will be somewhat of a light switch they will send out the noticed people get them and they'll beyond the extra space policy, which is.
As both more robust in terms of coverage, but also has a higher premium.
Okay perfect. Thank you.
One moment for our next question.
Yes.
Our next question comes from one set of Embraer with BMO capital markets. Your line is open.
Hi, Good morning, just wanted to kind of piggyback on a couple of questions that have already been asked I guess on the sequential deceleration that it moderated in the.
In the third quarter and is expected to moderate even further should we think that that continues into 2024 as you stand here today based on what you know and I'm not asking you to give 2000 forward guidance, but I guess, what the market is really wondering is every past the worst.
Particularly given where comps are as we look into 2004, just curious on your thoughts of where you could share there.
If you look at our deceleration through the year I mean, we've clearly moderated that deceleration our fourth quarter guidance implies that it continues fairly flat from where we are today.
2024.
We will be ready, obviously to give the full year guidance in February but I think we're set up to be we're in a good spot we'd like to see new customer rates get stronger, but existing customers are holding up very well.
2024 also has easier comps compared to what we had this year.
And then.
Can I just ask on the LSI occupancy described.
Is part of the synergies.
Guys are assuming that you are able to.
Make up the difference in occupancy between the ESR.
LSI portfolio.
I guess what.
If so what does that entail doing.
Close that gap.
Are you happy keeping the portfolio is running a different occupancy levels I'm just curious on how that should evolve.
So I'll tell you, how we underwrote the transaction to get too under it and synergies and really how we get there mix of occupancy and revenue.
We don't really care as much as long as we get the dollars.
So we at underwriting.
We observed on average at 2% GAAP and occupancy in about a 15% gap in rate.
And to get to our $65 million of property synergies, we underwrote zero improvement in occupancy in about a 7% improvement in rate.
So our opportunity to do better is to.
Okay.
<unk> better than those assumptions, sorry for stating the obvious.
So I guess this is a quick so what.
Or do you want to discount further at our side to close that gap or.
Or are you happy kind of running to different occupations across the different portfolios.
Hello, Geoffrey you still there.
Hello, Jeff.
Ladies and gentlemen, please standby.
One are you still there.
Yes, I'm still here okay. It looks like we've had had issue on there and so it should be back on momentarily, our ladies and gentlemen, please standby.
Once again, ladies and gentlemen, please standby your call will resume momentarily again, ladies and gentlemen, please standby.
Yeah.
Hello, Jeopardy back Omar or back okay.
Kevin if you'll just give us one thing I'm going to join US as we can see that the log in here, Okay sure thing and I've been on and after that I'll, let Juan to continue with those questions because we sold last year <unk>.
Okay sure. Thanks.
One second.
Jeff just as a heads up here <unk>.
Okay.
Perfect Alright. Thank you everybody for your patience, one I am not sure where you lost in the middle of Joe's response could you give us a re prompt and Phil will reenter the question.
Sure My addendum was.
Is the goal to close the eventually that occupancy gap or are you happy I guess running different levels of occupancy across the two portfolios.
So.
The portfolios will be run.
On the same platform. Despite the two brands, it's going to be the same customer acquisition systems. The same pricing algorithms the same sales process.
So <unk>.
Eventually the two.
Portfolio should should run very similarly, we don't have a strategy of running a higher occupancy extra space store and a lower occupancy life storage store everything is going to be run on one platform to maximize revenue.
Understood. Thank you.
Sure one of them for our next question.
Our next question comes from Spenser alloy with Green Street. Your line is open.
Thank you.
I know you commented in your European marks and that you're focused on your asset light initiatives right now, but can you just walk through where youre seeing specifically the best returns in terms of your use of capital right now.
Sure. So the best returns on our capital continues to be a redevelopment of existing stores.
Those returns are high single low double digit returns.
You can add units, where you already own the land Juruti MD office, you already have entitlements.
And.
We are very excited to now have 1200 more stores to look at and try to find additional opportunities to put storage and parking lots or make single stories storage multistory storage. The challenge with those are they're relatively small in terms of dollar investments where you have.
To do a lot of them, but we have a team in a process and a programming we expected to do a lot more of those in the future.
Another.
You know our bridge loan program also provides very high return on capital.
The whole note rate is 10% now averages, 10% now and when we sell the a note the rate on the B notes is into the teens.
That does not include the economic benefit of managing the property, which we learned that so that also is a very good use of capital, particularly because we can control the capital by selling or not selling DAA nodes.
Okay.
Okay. Thank you.
And then do you have a sense.
For <unk>, our assets that are now and competing radius at newly acquired LSI asset do you have a sense of what the average delta would be for the in place rents for the XR versus the legacy LSI asset.
So.
I think our best sense is.
One of the ways. We underwrote. This transaction is we identified 106 to 109 LSI stores that had one or more extra space store that was in a very tight geographical radius was a similar type store in terms of single story drive up our multi.
<unk> story.
And.
We felt was a truly competitive store.
And at the time of underwriting the Delta in rate was about 15% for those stores.
Alright, thank you so much.
Thanks, Spencer one moment for our next question.
Yes.
Our next question comes from Smedes Rose with Citi. Your line is open.
Hi, Thanks, I just wanted to ask you on the on the LSI portfolio you mentioned.
A number of catch up auctions I, just a little like I said, a little less familiar with that and just wondering is that a significant part of the portfolio will that make a significant difference like us as those customers are.
<unk> cleared out who are nonpaying and putting in new customers.
I mean, its a standard practice when we buy a store not to rely on the prior owners auction process, because we don't want to get caught up in a noncompliant auction. So we start there.
The auction process over again and that leads to a several month lag. So we have several months of units nonpaying units, we have to auction house recover their units and re <unk>.
We let them.
It.
It's temporary and in the overall scheme of things I think not significant although it does provide some occupancy pressure in the short run.
Yes, I mean as you absorb function of taking over.
Sorry, yeah excuse this means it doesn't really impact your bad debt, either because you've already accrued the bad debt reserve. So there's no impact there, but it does impact occupancy.
Okay.
And then I guess, you mentioned higher property taxes in the quarter and it just as you except for your larger expense lines is looking into next year and certain sort of a broad sense of how we might be thinking about wages and benefits the pace of growth slowing at all is it.
Maybe what are you thinking about for kind of the pace its tax property tax increases any sort of Scott's there you could share.
Yes, so we actually thought it had decreased some in the six month numbers that we were looking pretty good we'd won some appeals we were a little bit surprised on how our actuals came in for Florida, and Georgia, and Illinois versus the estimates we've made using property tax consultants, we hope that the worst of the property tax.
Re assessments are behind us but.
Every year is a new year with the local municipalities.
Yes.
Okay and on wages and benefits how is that pacing wage.
Wages and benefits, we've actually had its slow some we don't see the wage pressure that we saw the last couple of years are you know we saw the higher slightly earlier in the year as we had more hours compared to prior years when it was difficult to hire today, it's much easier to hire our applicant flow is significantly better and we're not seeing.
The wage pressure, we've seen over the last couple of years.
Okay. Thank you.
Thanks, Pete one moment for our next question.
Yes.
Our next question comes from Ronald Camden with Morgan Stanley. Your line is open.
Hey, just two quick ones from me just going back to the same store revenue number of close to 1% and <unk> is as the messaging and I think Scott asked earlier, but is the messaging that essentially.
Unless you sort of see things take a turn to the downside.
Wouldn't expect that number to get sort of worse going into next year or is it sort of still wait and see I'm just trying to figure out if <unk> sort of a good run rate looking forward from here without asking for guidance. Yes. So we think it's a good run rate we estimate we've given for the quarter. Obviously October is done it's it's too early to tell for next.
Chip.
Sure.
Great and then doubling back on the sort of the expense line items.
Obviously, you took the same store up for ESR I see sort of LSI at four and a half is Wow, maybe can you talk about.
Doubling down on.
Whether it's marketing expenses, our insurance is there anything either one timing in nature. This year that we should be mindful of or are these sort of a decent run rate.
So life storage the big increase year over year came from more personnel in the payroll line item our managers on average make more and we have more hours allocated to our stores and that's how we get the premium rates that we get so we are operating them more like we operate our stores.
The other thing thats different from their historical.
Same store numbers is we have allocated call center and a technology charged to the stores that they historically had in their G&A. So we went back to their historical numbers and added those into.
Okay.
Great. That's it for me thanks, so much.
Wrong.
One moment for our next question.
Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Hi, everyone. I was wondering maybe I don't think anybody has asked about supply yet so we've seen it fall off in other sectors. New starts I was wondering if you could comment on what Youre seeing now have you noticed any projects either getting taking longer getting pushed out or any new ones getting started just kind of what youre seeing on that new supply side.
Sure Great question. So we continue to see moderation in new supply. The peak was may be 2018, and every year. Since then it's moderated we expect deliveries in 2023 to be kind of similar to 2022, but after that.
Likely to be.
More moderation.
The headwinds to new supply in terms of interest rates and debt capital equity capital availability construction cost entitlement period underwriting.
Underwriting forward revenue growth.
Pretty significant and that dropout rates for projects that you can see on your already and all those other reports.
Are really high and a lot of projects we see in these reports end up not getting filled.
Yes.
And just to that last point would you say that that drop out rate is more significant today than it has been in like the past.
Because of maybe those factors you mentioned.
Many of US were at a conference in New York.
A couple of weeks ago, where.
One of the leading brokers in the industry said he thinks the dropout rate is 70% to 90%.
I have the statistics for that but that's an observation from someone who's.
Very very close to the industry got it.
And then maybe just a quick one on the transaction side, you mentioned that <unk> pulled out recently, especially to focus on the LSI merger, which makes sense I guess could you comment more broadly on the transaction market kind of our properties trading have cap rates stabilize has the bid ask spread close or is it still pretty quiet.
Storage also thanks.
Yes, I would characterize it is quiet.
There are very few transactions that we see end up making many transactions people bring up portfolios and they don't end up transacting, that's an indication of a bid ask spread.
And the transactions, we do see that happen there.
Seems to be some story either on the buyer side why buy it was a special buy for them are on the seller side, but.
I don't think there's enough of a market where I could tell you what market cap rates or it's just very quiet very circumstantial.
Makes sense. Thanks.
One moment for our next question.
Our next question comes from Samir Khanal Evercore Your line is open.
Hi, Joe when I look at some of your top markets, the Texas markets, Florida, they're holding up quite well this year and from a revenue growth perspective.
And I guess, how are you thinking about those sunbelt markets into next year.
Markets, which got a boost in the last few years, let me do they give back in 24 are you thinking about that.
So.
You know, there's there's two things I think to think about one is maybe three things one is job growth job growth is maybe the number one indicator of storage performance and those sunbelt markets still still have job growth and that's an important factor.
On the flip side.
When a market.
Has a couple of years of 20%, 30% plus revenue growth, it's really difficult to keep up so it may look like it's giving back because it's not growing as fast, but it's still a healthy market and it's just coming up against a tough comp.
And then lastly, you know.
Which is a little bit of the wildcard is the housing market.
Firmly believe the housing market will come back it's got two people can't stay in their houses forever life events happen just when and how quickly is is going to be.
Factor that will inform our performance next year.
Got it and then just as a follow up from prior questions. You mentioned, the 15% gap I think between rents for the LSI any XR portfolio on underwriting.
And just I want to clarify did you say the gap is about 7% today.
No I said, we underwrote, 7% to achieve our underwritten synergies. So we under wrote not closing the occupancy gap at all and only closing about half.
Of the rate gap and that if we can do those two things that will give us our $65 million synergies from the properties.
Yes.
Okay got it. Thank you for that and then and then finally on <unk>.
Maybe he see our eyes I mean, how much has that pace of I guess increases moderated at this point I mean, I'm just trying to think if you have macro conditions that sort of stay similar as it is I mean do you think.
That moderates further in 'twenty four how are you thinking about that.
Well, maybe not as much as might be.
We might assume because one of the big drivers of the Cri is the gap between the discounted web rate the customer comes in and the actual market rate for that unit. So while we're in a period of time now where we're offering significant discounts for.
Customers to come into the web that gives us the opportunity to catch them up Dewey Cri and get them to what the true market rate is.
Okay. Thank you.
One moment for our next question.
Our next question comes from Michael Mueller with Jpmorgan. Your line is open.
Yeah, Hi, I'm curious what are the early observations on operating two brands versus one brand so far.
So it's very early we don't have any firm conclusions I think the most important thing that we see is.
We have increased our digital footprint, so when you're in one of those saturated markets, where we're operating two brands and you.
Search for storage near me or whatever generic storage search you use you will find both extra space and life storage branded stores come up on the search sometimes also a storage express store. So we are getting more digital real estate, that's kind of the main assumption to the success of.
The program, but it's very early and we have we have.
Quite a ways to go before we can draw definitive conclusions.
Got it Okay, and then maybe maybe one one other quick expense question and I know this isn't a huge line item in the Grand scheme of things, but the growth in insurance expenses.
How should we think about that over the next few years in terms of how.
How outsized it could be or relative to the overall expense pool.
I think Europe band a little bit on claims you know you had a really rough year in Florida. This past year overall, if you had wind anything wind related in Florida.
100, plus percent increase in lots of areas. So I think it will depend some on events that happen, but you've also seen a rising interest rate caused those pools not to be as deep as they found other sources to put other places to put that money. So.
Making sure that we are competitive bids you know, adding the life storage properties will help us because we have a new group of insurers that we haven't used in the past and so hopefully we should be able to bring that down and not see the kind of increases we've seen this year.
Got it okay. Thank you.
Thanks, Mike one member for our next question.
Yeah.
Our next question comes from Keegan KRA with Wolfe Research Your line is open.
Yeah. Thanks for the time guys I guess, maybe first in occupancy where do you expect your year over year occupancy delta versus last year to trend for the balance of the year.
We're assuming about 100 basis point gap through this year and then obviously moving into 2024, I think that gap get.
It gets easier.
Got it and then shifting gears here I feel like these two platforms have kind of gotten lost in the shuffle just given the life storage children's curious if you can provide any update on the bar Golden surge Express platform sees what are you guys seeing as far as internal and external growth opportunities.
Sure so.
Bar gold.
I would say is glasses half full and half empty. The half full is we've done a really really good job of institutionalizing and integrating the operations there and we're significantly outperforming budget on the expense side.
Where I think we have more wood to chop is the growth side of that we are growing bar gold at historical rates at the rates that bar Gold group before we bought it and we really want to turn some attention to that and try to grow it at a faster rate.
Some of that I think is just us.
Getting to know the business getting know the people and.
Understanding it and some of it is frankly our attention on.
Storage Express and then life storage.
Our storage express is a I think we've made a lot of progress it was actually in some ways harder to integrate storage express because it was a different platform a different way of doing business. When we got all of the 1200 life stores on our operating prep form.
<unk> and 19 days it took us six months with this 107 storage express stores, because it's a different way of operating Theres just different software systems procedures.
So we're doing very well on the integration front, we have bought several.
Small.
Remotely managed stores in our traditional markets not in the more rural markets they operate in.
Very trade at 7% yield so.
We feel they're good purchases.
And we're learning a lot we're learning about exactly.
What should be a remote store, partially match and what are the variables.
Areas.
Attributes distance from an extra space store population rent per square foot saturation that makes it work can makes it doesn't work.
We have.
Opened up our third party management platform, we've just signed up a 16 property portfolio to be run remotely we have a large large pipeline of romo.
Remotely managed stores for our management plus platform. So I think similar to bar gold the growth of that platform was slowed by our attention to the life storage deal.
We use that time to learn things, which I think is good.
And.
As we move forward I expect that growth to accelerate.
Great. Thanks for the time, yes.
Sure.
And I'm not showing any further questions at this time I'd like to turn the call back over to Joe Margolis for any closing remarks.
Great. Thank you everyone for your time today I hope the message was clear that things are going as expected our integration and realization of synergies are proceeding.
Very well and we look forward to seeing many many of you in Los Angeles next week. Thank you very much.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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