Q1 2024 Extra Space Storage Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the first quarter 2024 Extra Space Storage earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would like to hand the call over to Jared Conley, Vice President of Investor Relations. Please go ahead.
Good day and thank you for standing by welcome to the first quarter 2020 for extra space storage earnings Conference call. At this time, all participants are listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Please be advised that today's conference is being recorded.
Again, the conference over to Gerry Connolly, Vice President of Investor Relations. Please go ahead.
Jared Conley: Thank you, Michelle. Welcome to Extra Space Storage's first quarter 2024 earnings call. In addition to our press release, we have provided 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.
Gerry Connolly: Thank you Michelle welcome to extra space storage is first quarter 2024 earnings call.
Gerry Connolly: In addition to our press release, we have furnished unaudited supplemental financial information on our website.
Speaker Change: Please remember that management's prepared remarks and answers to your questions may contain forward looking statements.
Gerry Connolly: As defined in the private Securities Litigation Reform Act actual results could differ materially from those stated or implied by our forward looking statements.
Speaker Change: Do you see 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.
Jared Conley: Forward-looking statements represent management's estimates as of today, May 1st, 2024. 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.
Which we encourage our listeners to review forward looking statements represent managements estimates as of today May one 2024, the company assumes no obligation to revise or update any forward looking statements because of changing market conditions or.
Speaker Change: 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.
Joseph Daniel Margolis: Thanks, Jared, and thank you, everyone, for joining today's call. As many of you know, Jeff Norman has transitioned into another role within the organization as the head of Treasury and Capital Markets. Many of you on this call have worked with Jeff and experienced his professionalism, responsiveness, vast knowledge, and good nature. I recognize and appreciate his efforts to make Extra Space a leader in the industry and look forward to his continued contribution to the company.
Joseph Daniel Margolis: Thanks, Terry and thank you everyone for joining today's call.
Joseph Daniel Margolis: As many of you know, Jeff Norman has transitioned into another role within the organization as the head of Treasury and capital markets.
Joseph Daniel Margolis: Many of you on this call would work with Jeff and experienced his professionalism responsiveness.
Joseph Daniel Margolis: Knowledge and good nature.
Joseph Daniel Margolis: I recognize and appreciate his efforts to make extra space a leader in the industry and look forward to his continued contribution to the company.
Joseph Daniel Margolis: I would also like to introduce Jared Conley, our new Vice President of Investor Relations. Jared has been with Extra Space since 2002 and has worked in various roles, most recently as our head of financial planning and analysis. We look forward to introducing him in person next month at NARES.
Joseph Daniel Margolis: I'd also like to introduce Jared <unk>, our new Vice President of Investor Relations.
Joseph Daniel Margolis: Jared has been with extra space since 2002 and has worked in various roles. Most recently as our head of financial planning and analysis.
Jared: We look forward to introducing him in person next month at NAREIT.
Joseph Daniel Margolis: Turning to this quarter's performance, we have seen sequential improvement in occupancy and rate since our fourth quarter earnings call in late February. Operationally, occupancy at the Extra Space Same Store Pool grew every month during a period normally recognized for seasonal decline, ending the quarter at 93.2%, a 50 basis point increase year over year. Our revenue strategy has allowed us to both improve occupancy and average movement rate in the quarter, with the latter growing sequentially by approximately 8% from the seasonal low in January. The combination of improving move-in rates, higher occupancy, and steady existing customer rate increases has provided a 1% lift in Extra Space same-store revenue performance, which is in line with our internal projection.
Joseph Daniel Margolis: Turning to this quarter's performance, we have seen sequential improvement in occupancy and rate since our fourth quarter earnings call in late February.
Joseph Daniel Margolis: Operationally occupancy at the extra space same store pool grew every months during a period normally recognized for seasonal declines ending the quarter at 93, 2%.
Joseph Daniel Margolis: 50 basis point increase year over year.
Joseph Daniel Margolis: Our revenue strategy has allowed us to both improve occupancy and average move in rate in the quarter with the latter growing sequentially by approximately 8% from the seasonal low in January.
Joseph Daniel Margolis: The combination of improving moving rate higher occupancy and steady existing customer rate increases I provided a 1% lift and extra space same store revenue performance, which is in line with our internal projections.
Joseph Daniel Margolis: Also, as expected, Extra Space's same store expense growth increased by 5.5% year over year. The legacy LifeStorage SameStore pool performance continues to improve, outpacing the Extra Space SameStore property; revenue gained 1.7% year over year, which was in line with internal projections and against the backdrop of a difficult comp, where prior management pushed hard on rates in 2023 at the expense of. Occupancy at our Life Stores has improved to 92%, a 220 basis point improvement over last year, narrowing the gap between pools to 120 At the end of April, this gap, which was over 400 basis points of closing, had further narrowed to 90 basis points on our platform.
Joseph Daniel Margolis: Also as expected extra space same store expense growth increased by five 5% year over year.
Joseph Daniel Margolis: The legacy life storage same store pool performance continues to improve outpacing the extra space same store properties.
Joseph Daniel Margolis: Revenue gained one 7% year over year, which was in line with internal projections and against the backdrop of a difficult comp where prior management pushed hard on rates in 2023 at the expense of occupancy.
Joseph Daniel Margolis: Occupancy at our life stores improved to 92% at 220 basis point improvement over last year.
Joseph Daniel Margolis: Growing the gap between pools to a 120 basis points at quarter end.
Joseph Daniel Margolis: At the end of April this gap, which was over 400 basis points closing has currency further narrowed to 90 basis points on our platform.
Joseph Daniel Margolis: To do so, we have maintained lower rates through the quarter with the strategy of higher occupancy leading to stronger new and existing customer rates through the remainder of the year. We believe improved rate performance will continue to lift these properties and ultimately bring them to parity with legacy extra space store rates and occupancy levels. Life Storage Same Store Expenses increased 6.7 year over year, also due to an exceptionally hard 2023 comparable, but below internal projections.
Joseph Daniel Margolis: To do so we have maintained lower rates during the quarter with the strategy of higher occupancy leading to stronger new and existing customer rates through the remainder of the year.
Joseph Daniel Margolis: We believe improved rate performance will continue to lift these properties and ultimately bring them to parity with legacy extra space store rate and occupancy levels.
Joseph Daniel Margolis: Life storage same store expenses increased $6 seven year over year also due to an exceptionally hard 2023 comparable but below internal projections.
Joseph Daniel Margolis: Spenses increased, particularly in the areas of payroll and repairs and maintenance, as we address areas that were underinvested at this time last year. On the external growth front, the transaction market continues to be muted. However, we expanded our capital light external growth activities, adding $164 million in new bridge loans, meaningfully ahead of our projections. In addition, we added 97 third-party managed stores gross and 72 stores net. We continue to have the fastest growing third party management platform in the industry. Overall, the year is unfolding as expected, with wind and capital like growth, and GNA and Expense Savings. We are working hard, and I am confident that our teams and infrastructure are well prepared to optimize performance during the important upcoming leasing. I'll now turn the time over to Scott.
Joseph Daniel Margolis: <unk> increased particularly in the areas of payroll and repairs and maintenance as we address areas. They were underinvested at this time last year.
Joseph Daniel Margolis: On the external growth front the transaction market continues to be muted. However.
Joseph Daniel Margolis: However, we expanded our capital light external growth activities, adding $164 million in new bridge loans meaningfully ahead of our projections.
Joseph Daniel Margolis: In addition, we added 97 third party managed stores gross and 72 stores net.
Joseph Daniel Margolis: We continue to have the fastest growing third party management platform in the industry.
Joseph Daniel Margolis: Overall, the year is unfolding as expected with wins in capital light growth.
Joseph Daniel Margolis: G&A and expense savings.
Joseph Daniel Margolis: We are working hard and I am confident of our teams and infrastructure are well prepared to optimize performance during the important upcoming leasing season I will.
Joseph Daniel Margolis: I'll now turn the time over to Scott.
Scott: Thanks, Joe. And hello, everyone.
Scott: Thanks, Joe and Hello, everyone.
Scott: As Joe mentioned, we had another good quarter driven by steady revenue, G&A savings, and better than expected property operating expenses, specifically property taxes. The GNA savings have been from a broad range of categories as we continue to seek efficiencies and capitalize on our greater scale. As mentioned in our prior call, we closed a $600 million bond offering in the quarter at a time when interest rates were more favorable than the current environment.
Scott: As Joe mentioned, we had another good quarter, driven by steady revenue G&A savings and better than expected property operating expenses, specifically property taxes.
Scott: The G&A savings have been from a broad range of categories as we continue to seek efficiencies and capitalize on our greater scale.
Scott: As mentioned in our prior call, we closed a $600 million bond offering in the quarter at a time when interest rates were more favorable than the current environment.
Scott: Proceeds were used to repay the bridge loan that we used to acquire life storage, and the offering helps reduce our exposure to variable interest rate debt. Our balance sheet is in great shape, and we have plenty of dry powder to capitalize on an improving transactions market. Due to the inline nature of same store performance, we are not making any revisions related to property operations. We will update our property guidance after the second quarter once we see how the leasing season progresses and how much pricing power we gain.
Scott: <unk> were used to repay the bridge loan that we used to acquire life storage and the offering helps reduce our exposure to variable interest rate debt.
Scott: Our balance sheet is in great shape, and we have plenty of dry powder to capitalize on an improving transactions market.
Scott: Due to the inline nature of same store performance, we are not making any revisions related to property operations.
Scott: Update our property guidance after the second quarter once we see how the oes leasing season progresses, and how much pricing power we gain.
Scott: We do expect to see continued savings in G&A and have adjusted our annual assumptions accordingly. We have also adjusted our annual average SOFR assumption, increasing interest expense, which is partially offset by increases in interest income from our bridge loan program. We are encouraged by the outsized rental volume year to date and the high occupancy at our stores, and we should be in a great position to maximize the performance at our properties as we move into the rental season. And with that, Michelle, we'll open it up to questions.
Scott: We do expect to see continued savings in G&A and have adjusted our annual assumptions. Accordingly, we have also adjusted our annual average sulfur assumption increasing interest expense, which is partially offset by increases in interest income from our bridge loan program.
Scott: We are encouraged by the outsized rental volume year to date and the high occupancy at our stores and we should be in a great position to maximize the performance at our properties as we move into the rental season.
Scott: And with that Michelle let's open it up for questions.
Operator: Thank you. If you'd like to ask a question, please press star 1 1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1 again. Our first question comes from Michael Goldsmith with UBS. Your line is open.
Michelle: Thank you if you'd like to ask a question. Please press star one one.
Michelle: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Michelle: Our first question comes from Michael Goldsmith with UBS. Your line is open.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. Can you talk a little bit about what the trend was in April and how that kind of compares with the last couple months at the end of the first quarter?
Michael Goldsmith: Good morning, Thanks, a lot for taking my question.
Michael Goldsmith: Can you talk a little bit about.
Michael Goldsmith: What the trend was in April and how that kind of compares for the last couple of months at the end of the first quarter.
Joseph Daniel Margolis: Yeah, Michael, so we ended the month of April at 93.7% occupied, which is still a 50-point delta over last year, and our rates improved sequentially month over month from the month of January. So what's happened in the quarter is we averaged about 14% negative achieved rates in the quarter. And in the month of April, that has moved to about negative 9% year over year. So that 92.
Speaker Change: Yes, Michael So we ended the month of April at 93, 7% occupied which is still a 50 basis point delta over last year and our rates improved sequentially month over month from the month of June.
Michael Goldsmith: January so what's happened in the quarter as we averaged about 14% negative achieved.
Michael Goldsmith: Rates in the quarter and in the month of April that has moved to about negative 9% year over year. So that 90 to 70 extra space same store pool. We're at 92 eight for the life storage same store pool.
Joseph Daniel Margolis: So that 92.7 is the extra space safe store pool. We're at 92.8 for the lights.
Michael Goldsmith: Got it. And then my thanks for that, guys.
Speaker Change: Got it and then Les.
Joseph Daniel Margolis: And my follow-up question is, you know, to reach the midpoint of the guidance. Yeah, you know, it seems like you've started to, you kind of hit your occupancy or have started to make some momentum there. I suspect that's going to translate to starting to push street rates to meet the midpoint of your guidance, how much the street rates need to increase from here in order to achieve that.
Les: Thanks for that guys and.
Speaker Change: My follow up question is.
Speaker Change: To reach the midpoint of the guidance.
Speaker Change: It seems like you started to.
Speaker Change: It kind of hit your occupancy or has started to make some momentum there I suspect that's going to translate to starting to push street rates.
Speaker Change: Meet the midpoint of our guidance how much the street rates to increase from here in order to achieve that midpoint level. Thanks.
Michael Goldsmith: So street rates are only one component, right? And we don't, we're kind of agnostic as to whether we can maximize our revenue through street rates, through occupancy, through discounts, through marketing spend, through ECRI. So there's no one number we're targeting for any one of those metrics; we're trying to mix and match them to maximize revenue.
Speaker Change: Yes, So street rates is only one component right and we don't we're kind of agnostic as to whether we can maximize.
Speaker Change: Revenue through street rates through occupancy through discounts through marketing spend.
Speaker Change: To re cri. So there's no one number we are targeting for any one of those metrics were.
Speaker Change: Trying to mix and match them.
Speaker Change: To maximize revenue.
Joseph Daniel Margolis: Maybe if I ask that in a slightly different way, if ECRIs kind of remain steady and you get kind of the normal seasonality within, you know, occupancy, then, you know, how much how much street rate gains do you need in order to kind of meet your kind of internal expectation?
Speaker Change: Maybe if I ask at a slightly different way.
Speaker Change: If if if.
Speaker Change: ECR is kind of remain steady and you get kind of the normal seasonality within occupancy then.
Speaker Change: Yeah.
Speaker Change: How much how much street rate gains do you need in order to kind of meet your kind of internal expectations.
Joseph Daniel Margolis: Michael, we actually have not broken out street rates. If you remember on the last call, we didn't actually break them out.
Speaker Change: Yes, Michael we actually have not broken out street rates. If you remember on the last call. We actually didn't break them out we said when we did our budgets when we did our estimates or forecast we did it based on revenue growth.
Joseph Daniel Margolis: We said when we did our budgets, when we did our estimates and forecasts, we did them based on revenue growth. And so, you know, street rate is a component of that, as is occupancy. And obviously, the better the street rates are, the better the occupancy, the higher we are going to be in that range.
Speaker Change: And so street rate is a component of that as is occupancy.
Speaker Change: And obviously the better the street rates are the better the occupancy the higher we are going to be in that range.
Michael Goldsmith: Thank you very much. Good luck in the second quarter.
Speaker Change: Got it. Thank you very much good luck in the second come back next Mike.
Operator: Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is open.
Speaker Change: Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is open.
Jeffrey Alan Spector: Great, thank you. I just want to confirm, you know, thinking about your comments and where we stand here. May 1st versus, let's say, the last couple years where there was a bit less visibility, and there was, you know, seasonality was a bit distorted. Or I guess, you know, can you just put the context of how you feel today versus the prior two years? Because it sounds like you're more comfortable, confident, maybe with, you know, that seasonality, normal seasonality is kicking in, and we should expect that to continue for the remainder of the year.
Jeffrey Alan Spector: Great. Thank you.
Jeffrey Alan Spector: Confirmed thinking.
Jeffrey Alan Spector: About your comments on where we stand here.
Jeffrey Alan Spector: May 1st versus let's say the last couple of years, where it was.
Jeffrey Alan Spector: It was a bit less visibility.
Jeffrey Alan Spector: Seasonality was a bit distorted or I guess can you just put the context of how you feel today versus the prior two years because it sounds like.
Jeffrey Alan Spector: We're more comfortable confident maybe with that seasonality normal seasonality trends are kicking in and we should expect that to continue for.
Jeffrey Alan Spector: The remainder of the year.
Joseph Daniel Margolis: So I think comfort is always greater as you get into and have some feeling as to how the leasing seasons work. So at this time of year, before we're into the leasing season, in a period where we have reduced housing activity, where we have signs of consumer weakness, we, you know, we have, Not, I'll say this, we have not enough comfort that we're going to change our
Jeffrey Alan Spector: So I think comfort is always greater as you get into and have some feeling as to how the leasing season is going to go.
Jeffrey Alan Spector: So at this time of year before we're into the leasing season.
Jeffrey Alan Spector: In a period, where we have reduced housing activity, where we have signs of consumer weakness.
Speaker Change: We have.
Jeffrey Alan Spector: Not I will say this we have not enough comfort that we're going to change our guidance.
Jeffrey Alan Spector: I understand that, Joe. I guess I'm just asking, though, again, part of the issue the last couple of years was pinning down seasonality trends, right? And So you know, and I feel like it's important to have a grasp on that seasonality trends are back to normal. So your operations and systems are running. Spoodling, you're confident in those systems. Is that not a fair way to think about it? Yeah, so
Speaker Change: I understand that Joe I guess, I'm, just asking though again part of the issue. The last couple of years was hitting.
Jeffrey Alan Spector: Hitting down seasonality trends right.
Jeffrey Alan Spector: So.
Jeffrey Alan Spector: And I feel like it's important to have a grasp on that seasonality trends are back normal. So your operations and systems are running smoothly and youre confident in those systems is that not a fair way to think about it.
Joseph Daniel Margolis: Yeah, so I think if you look at, say, occupancy seasonality, and you look at the annual occupancy curve pre-COVID compared to what we experienced last year and what we expect to experience this year, our system has taken a great deal of the seasonality in occupancy out of our performance. You know, we will keep our stores at higher occupancy levels at all times of the year. And I think you will see that in the first quarter this year, right? The bigger question is, how much rate power do we have? And can we push rates on those occupations?
Joe: Yes, So I think if you look at say occupancy seasonality and you look at the annual occupancy curve pre COVID-19.
Joe: To what we've experienced last year and what we expect to experience. This year. Our system has taken a great deal of the seasonality.
Jeffrey Alan Spector: Occupancy.
Jeffrey Alan Spector: Out of our performance.
Jeffrey Alan Spector: We'll keep our stores at higher occupancy levels at all times of the year and I think you'll see that in the first quarter. This year.
Jeffrey Alan Spector: The bigger question is how much rate power do we have and can we push rates at those occupancy levels.
Joseph Daniel Margolis: And do you think we'll have a better feel when we see you at NERI? Or again, would it be later in the summer like last year? I, you know, I think we will.
Jeffrey Alan Spector: And do you think we'll have a better feel when we see you at NAREIT or again, whether it be later in the summer like last year.
Joseph Daniel Margolis: I, you know, I think we get data every day, and we'll have more data in a better format at NARED, and we'll have even more in a better format at our next conference call. And we'll certainly keep all of our shareholders and interested parties up to date with what we know.
Jeffrey Alan Spector: I think we get data everyday and we will have more data and a better feel at NAREIT and we will have <unk>.
Jeffrey Alan Spector: Even more and a better feel on our next conference call and we will certainly.
Jeffrey Alan Spector: Keep all of our shareholders and interested parties up to date with what we know.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from Eric Wolfe with Citi. Your line is open.
Jeffrey Alan Spector: Thank you. Our next question comes from Eric Wolfe with Citi. Your line is open.
Eric Wolfe: Hey, thanks for taking questions. If I look at the 165 stores added to the same store pool this year, it looks like they're growing around 7%. And if you include the 2023 same store pool, it looks like the 216 stores combined are going around 5%. So I was just wondering if the deceleration that you're predicting in your same store revenue guidance is coming mainly from those stores, just as occupancy comps get tougher through the year?
Eric Wolfe: Hey, thanks for taking the questions.
Eric Wolfe: If I look at the 165 stores added to the same store pool. This year it looks like Theyre growing around 7%. If you include the 2023 things our pool it looks like the 216 stores combined are growing around 5%.
Eric Wolfe: So I was just wondering if the deceleration that youre predicting in your same store revenue guidance is coming mainly from those stores just as occupancy comps get tougher through the year or is there something else that would be driving the deceleration or or maybe you're just being conservative because it's early but just trying to understand what would drive the deceleration from call. It 1% same store revenue to get you down.
Eric Wolfe: Or is there something else that would be driving the deceleration? Or maybe you're just being conservative because it's early, but just trying to understand what would drive the deceleration so that we can call it 1% same store revenue to get you down to your midpoint.
Eric Wolfe: To your midpoint.
Joseph Daniel Margolis: Eric, so the main driver of that is not the 165 stores. I mean, those stores actually increased our performance in the quarter. I think they added about 40-fifths to our revenue growth in the quarter. Our revenue growth throughout the summer is impacted somewhat by our performance last year, obviously, where you're coming off higher numbers. Comps do get easier as you move throughout the year.
Eric Wolfe: Eric So the main driver of that is not the 165 stores I mean, those stores actually increased our performance in the quarter I think they added about 40 bps to our revenue growth in the quarter.
Eric Wolfe: Our.
Eric Wolfe: Revenue growth throughout the summer is impacted somewhat by our performance last year, obviously, where you are coming off higher numbers comps do get easier as you move throughout the year, but we are not see our current expectation similar to what we said when.
Joseph Daniel Margolis: But we are not seeing, you know, our current expectations, similar to what we said at the when we gave our annual guidance is that we're not expecting a major recovery from the housing market. We're expecting things to kind of perform as they are today and not seeing a major rebound. And I think that's maybe one difference from what some other people have projected or thought.
Eric Wolfe: When we gave our annual guidance as we are not expecting a major recovery from the housing market today, we're expecting things to kind of perform as they are today and not seeing a major rebound and I think thats, maybe one difference from what some other people have projected or forethought.
Eric Wolfe: That that's helpful. And then, conversely, on your LSI guidance, you're expecting it to look like around three and a quarter times the same for revenue growth for the rest of the year. Can you just talk about the timing of that acceleration from your 1Q numbers? Obviously, your occupancy did, you know, increase to, I think, 200 bps at quarter end. So that should drive over 200 bps of revenue growth. But just curious, what gets you the rest of the way there to that three and three quarters? And, you know, when would you expect to see that? Yeah, so obviously.
Eric Wolfe: Okay.
Speaker Change: That's helpful and then.
Speaker Change: Conversely on your on your LSI guidance Youre expecting it looks like around three in the quarter same store revenue growth for the rest of the year can you just talk about the timing of.
Speaker Change: That acceleration from your <unk> numbers, obviously your occupancy.
Speaker Change: <unk> increased 200 bps, a quarter and so that should drive over 200 same store revenue growth, but just curious what gets you the rest of the way there to that three <unk>.
Speaker Change: Three quarters I mean, when would you expect to see that.
Joseph Daniel Margolis: Yeah, so obviously, it's a range that we provided, so it'll depend a little bit on where you are in that range. But the way we view this is as occupancy becomes, goes, and moves up to parity with the extra space stores, those rates will move up. So today, our life storage stores have rates that are 5 to 10% below our extra space stores as they are growing faster.
Speaker Change: Yes, so obviously, it's a range that we provided so it'll depend a little bit on where you are in that range.
Speaker Change: The way we're viewing this as occupancy becomes goes moves up to parity with the extra space stores those rates will move up so today, our life storage stores have rates that are 5% to 10% below our extra space stores as they are growing faster. We saw very good run off in the first quarter. We have continued to close that.
Eric Wolfe: We saw very good rental in the 1st quarter. We've continued to close that occupancy gap. We would expect that occupancy gap to be closed at some point during this rental season and then see growth in the back half of the year.
Speaker Change: Occupancy gap, we would expect that occupancy gap to be closed some point during this rental season, and then see the growth in the back half of the year.
Eric Wolfe: All right. Thank you. Thanks for the detail.
Speaker Change: Okay.
Speaker Change: Great. Thank you thanks for the detail.
Speaker Change: Thanks, Eric.
Operator: Thank you. Our next question comes from Nick Yulico with Scotiabank. Your line is open.
Speaker Change: Thank you. Our next question comes from Nick <unk> with Scotiabank. Your line is open.
Nicholas Philip Yulico: Thanks. Hi. First question is just, can you give us a feel for how, you know, ECRI is trending, you know, year to date versus, let's say that, you know, back half of last year? Spanish Biz.
Nick: Thanks, Hi.
Nick: First question is just can you.
Nick: Can you give us a feel for how.
Nick: <unk> is trending year to date versus let's say the back half of last year.
Nick: <unk> basis.
Joseph Daniel Margolis: So I would say very similarly. We're, I mean, we're constantly testing and trying new things, but overall, the program is very similar to the back half of the last year. Customers are accepting ECRI at the same rates, and it's an effective tool for us to maximize.
Nick: So I would say very similarly.
Nick: Sure.
Nick: The testing and trying new things, but overall.
Nick: The program is very similar to the back half of last year.
Nick: Mers or accepting E cri at the same rates.
Nick: It's effective.
Nick: Tool for us to maximize revenue.
Nicholas Philip Yulico: And then in terms of, you know, maybe you could just elaborate a little bit further on that pricing strategy right now where, you know, it feels like it's been, you know, a discounted, heavily discounted, promotional move in the web rate in some cases, and then you're trying to get that customer back up to a more normalized rate in a pretty quick timeframe. You know, are you getting pushback from, you know, customers?
Speaker Change: Okay, and then in terms of.
Speaker Change: Maybe could you just elaborate a little bit further on on that pricing strategy right now where it feels like it's been.
Speaker Change: A discounted heavily discounted.
Nick: Promotional move than web rate in some cases.
Nick: And then youre trying to get that customer back up to a more normalized rate in a pretty quick timeframe.
Nick: Why are you getting pushback from customers I mean, whats what sort of the feeling for that and I guess Im wondering at some point.
Nicholas Philip Yulico: I mean, what's the sort of feeling for that? And I guess I'm wondering, you know, at some point, do you, you know, need to, move away from that strategy as you get more comfortable with occupancy, and then, you know, that'll help show improvement in moving rates? How should we think about that?
Nick: Do you do you need to do you move away from that strategy as you get more comfortable with occupancy and then that'll help show improvement in move in rates, how should we think about that.
Joseph Daniel Margolis: So, I mean, this strategy, you described it pretty well, right? On the web, for the web customer, they get a discounted rate but no promotion, right, which is different than our peers who offer many promotions on the web. So the discounted rate. We do that because the data tells us these are the longer-term and better customers, and that is the pricing package they react best to. We use ECRI to get them to street rate within a reasonable period of time.
Speaker Change: Yeah, So I.
Speaker Change: I mean, the strategy described it pretty well right on the web for the web customer.
Nick: So you get a discounted rate, but no promotion right, which is different than our peers who offer.
Nick: Many times promotions on the web so a discounted rate.
Nick: We do that because the data tells us these are the.
Nick: Longer term and better customers and that is the pricing package they react best too.
Nick: We use these cri to get them to street rate within a reasonable period of time.
Joseph Daniel Margolis: We have a different structure for the customer who walks in the store, and our data tells us, and our testing tells us this is a very effective strategy, and when the data tells us, and the testing tells us we should evolve it to something else, then we will. But we, you know, it's not in place for a fixed period of time or until we see something; we're constantly, we, one of the advantages of our scale is we can constantly have a few hundred stores here, and they're running different tests. And when we see something that tells us we need to evolve our strategy, we will.
Nick: We have a different structure for the customer who walks in the store.
Nick: And.
Nick: Our data tells US and are testing tells us this is a very effective strategy.
Nick: And when the data tells us and the testing tells US we should evolve it to something else then we will.
Nick: It's not in place for a fixed period of time or until we see something we're constantly.
Nick: One of the advantages of our scale as we can constantly have a few hundred stores here and they're running different tests and when we see something that tells us we need to evolve our strategy we will.
Nicholas Philip Yulico: Okay, thanks for that, Joe.
Speaker Change: Okay. Thanks for that Joe.
Speaker Change: Sure.
Operator: Thank you. Our next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.
Speaker Change: Thank you. Our next question comes from one Santa Maria with BMO capital markets. Your line is open.
Juan Carlos Sanabria: Hi, good morning. I'm just hoping you could talk a little bit about the transactions market. You guys have done some deals in the first quarter, and then they are expected to close over the balance of the year. So maybe you could give us a little flavor for what they're going in on and the stabilized yields that you're underwriting to.
Santa Maria: Hi, Good morning, just hoping you could talk a little bit about the transaction market you guys have done some deals in the first quarter and then expect it to closer to the balance of the year. So maybe you could give us a little flavor for what the going in.
Santa Maria: Stabilized yields that you are underwriting to.
Joseph Daniel Margolis: Sure. So the transaction market is pretty muted. There's still a significant bid-ask spread. There's not a lot of distress in storage, so sellers don't need to sell in general. We see a lot of transactions get put on the market and get pulled, particularly larger transactions. It seems there's less capital for big portfolios than there is for one-offs.
Nick: Sure.
Speaker Change: The transaction market is pretty muted.
Nick: There is still a significant bid ask spread.
Nick: A lot of distress in storage, so sellers don't need to sell in general.
Nick: We see a lot.
Nick: Lot of transactions get put on the market and get pulled particularly larger transactions. It seems theres less capital for big portfolios in there are for one offs. So the.
Joseph Daniel Margolis: So the transaction market is pretty quiet. We did close seven deals in the first quarter, but one of those was a joint venture development and one was a CO deal. So those were agreed to some time ago. We only approved, you know. I think that a better sense of the market is what's approved in a quarter because the ones that closed might have been baked, you know, many, many, many months before.
Nick: Transaction market is pretty quiet.
Nick: We did closed seven deals in the first quarter, but.
Nick: One of those was a.
Nick: Joint venture development and one was.
Nick: No deal. So those were agreed to some time ago.
Nick: We only approved.
Nick: I think a better sense of the market is what's approved in a corner because the ones that closed might've been baked.
Nick: Many many many months before.
Joseph Daniel Margolis: And we only approved three transactions in the first quarter. One was a remotely managed store, and the cap rate was in, you know, the initial cap was in the mid sixes. And then two developments where, The development yield at a property level was in the high eights and about 100 basis points higher to us because of the joint venture. So not, I mean, good deals will do good deals like that when we see them, but there's not a lot of them in the market.
Nick: Only approved three transactions in the first quarter, one was a remotely managed store.
Nick: And the cap rate was an initial cap was in the mid sixes and then two developments were.
Nick: The <unk>.
Nick: Development yield at a property level was in the high eights and about 100 basis points higher to us because of the joint venture structure.
Speaker Change: So not I.
Nick: I mean could deals will do good deals like that when we see them, but theres not a lot of them in the market right now.
Juan Carlos Sanabria: And then just a bigger picture question. Maybe a little bit to Jeff's question earlier that, you know, you guys sound fairly optimistic, but the guidance doesn't necessarily call for any necessary reacceleration in the second half. But I guess, are you seeing signs in the different markets that individual markets are starting to reaccelerate at all?
Nick: And then just.
Nick: A bigger picture question.
Nick: Maybe a little bit to Jeff's question earlier.
Nick: Yes.
Nick: Fairly optimistic, but the guidance doesn't necessarily call for any necessary reacceleration in the second half.
Nick: I guess are you seeing signs at the different markets that individual markets are starting to reaccelerate at all.
Joseph Daniel Margolis: So an advantage of our scale is how diversified we are and the exposure we have to many, many, many markets. And that's a purposeful portfolio construction because, you know, all of our data tells us that markets act differently. You know, not all markets move in the same direction. Even if you start to categorize markets by primary, secondary, tertiary, coastal, or whatever, they don't act with any correlation.
Nick: So.
Nick: The advantage of our scale.
Nick: <unk>.
Nick: How diversified we are and the exposure we have to many many many markets.
Nick: And that's purposeful portfolio construction because.
Nick: All of our data tells us that markets Act differently.
Nick: Not all markets move in the same direction, even if you start to categorize markets by primary secondary tertiary.
Nick: Coastal or whatever.
Nick: They don't act with any correlation.
Joseph Daniel Margolis: And the reasons markets act differently are because of new supply situations because of job growth and population. And because sometimes if a market does really well for a couple years, you know, as in revenue growth over 20%, like we experienced in Atlanta, then the next year, it's not going to be so. So, because we have this wide exposure.
Nick: And the reasons market Act differently is because of new supply.
Nick: Situations because of job growth and population and because sometimes if the market does really well for a couple of years.
Nick: Has revenue growth over 20% like we experienced in Atlanta, then next year, it's not going to be subject.
Joseph Daniel Margolis: We absolutely have markets that are reaccelerating, and we have markets that are flat, and we have markets that are not doing as well, and I think we'll always be in that position. But this broad diversification, you know, provides, you know, smooths our volatility, if you will. And we are big believers in having exposure to, you know, as many good growth markets as we possibly can.
Nick: Because we have this wide exposure, we absolutely are markets. They are re accelerating and we have markets that are flat and we have markets that are not doing as well.
Nick: And I think we'll always be in that position, but this broad diversification.
Nick: Provides smoothies or volatility if you will and we are big believers in having exposure to as many good growth markets as we possibly can.
Nick: Okay.
Speaker Change: Thanks, Joe.
Speaker Change: Sure.
Operator: Thank you. Our next question comes from Samir Khanal with Evercore ISI. Your line is open.
Speaker Change: Thank you. Our next question comes from Samir Khanal with Evercore ISI. Your line is open.
Samir Upadhyay Khanal: Hey, Joe, maybe sticking to the last question here on markets, you know, one market that sort of is lagging here is Florida. You know, look at Tampa, you look at Orlando. And I know that, you know, looking at the integration with LSI, LSI had a big exposure to Florida. So I mean, that occupancy gap is still about, I think, 180 to 200 base points. How do you think about your ability to sort of close that gap given some of the dynamics in Florida?
Samir Upadhyay Khanal: Hey, Joe maybe sticking to that last question here on markets and one market that sort of is lagging Harris, Florida.
Samir Upadhyay Khanal: Look at Tampa Orlando.
Samir Upadhyay Khanal: And I know that.
Samir Upadhyay Khanal: Looking at the integration of LSI LSI had a big exposure to Florida.
Samir Upadhyay Khanal: That occupancy gap is still about 180 to 200 basis call. It how do you think about your ability to sort of close that gap given.
Samir Upadhyay Khanal: Some of the dynamics inside of Florida.
Joseph Daniel Margolis: Yeah, so great question. So yeah, Florida. Some of the markets in Florida are some of our weaker markets today. That's a good observation.
Speaker Change: Yes, so great question, So, yes, Florida some of the markets in Florida, or some of our weaker markets today Thats a good observation, that's partially because they did so well during COVID-19 and that's partially because of supply issues in some of those markets.
Joseph Daniel Margolis: That's partially because they did so well during COVID. And that's partially because of supply issues in some of those markets. But, you know, we were in this and we did this merger for the long term. And over the long term, the Sunbelt markets, the Florida market, and the population growth, and the businesses that are moving there. We believe those are really good long term markets. So yes, this quarter, some of those markets, maybe this year, some of those markets might be on the weaker side, but long-term, we're really happy to have exposure, you know, market like Houston and Chicago, which we also increased our exposure to, to the life transaction, those markets are doing really well, they're kind of on the top of the, So again, it's great to have exposure to lots of different markets because they'll always be moving in different directions.
Speaker Change: But we're.
Speaker Change: In this and we did this merger for the long term.
Speaker Change: And over the long term.
Speaker Change: Sunbelt markets, the Florida markets and the population growth in the businesses that are moving there bill.
Speaker Change: I believe those are really good long term markets. So yes. This quarter some of those markets and maybe this year some of those markets might be on the weaker side, but long term, we're really happy to have exposure down there.
Speaker Change: Market like Houston, and Chicago, which we also.
Speaker Change: Increased our exposure to to the life transaction those markets are doing really well, they're kind of on the top of the heap now.
Speaker Change: So again.
Speaker Change: Great to have exposure to lots of different markets, because they will always be moving in different directions.
Samir Upadhyay Khanal: I guess my second question is around eCRIs. You know, that's still holding up. Clearly, I guess what it takes for consumer behavior to sort of shift? Is it job growth at this point? I mean, job growth with nonfarm payroll is still pretty strong, you know, month to month. I mean, is that really job growth that will sort of crack that? I mean, just kind of, you know. What are your thoughts? So you
Speaker Change: I guess I guess my second question is around ECL rise.
Speaker Change: But that's still holding up.
Speaker Change: Clearly I guess, what what does it take for the consumer behavior to sort of shift is it.
Speaker Change: Job growth at this point I mean job growth with nonfarm payroll is still pretty strong.
Speaker Change: Month to month I mean is that is that is it really job growth that will sort of crack that I mean.
Speaker Change: What your thoughts are.
Joseph Daniel Margolis: So, you know, when we talk about the consumer, I think we have to separate the existing tenant consumer and the new tenant. The existing tenant consumer is really strong and really price insensitive. They're not moving out in the face of ECRI, and bad debt is very low.
Speaker Change: So when we talk about the consumer I think we have to.
Speaker Change: Separate.
Speaker Change: The existing tenant consumer and a new tenant consumer.
Speaker Change: Existing tenant consumer.
Speaker Change: Is really strong and really price insensitive, but not moving out in the phase III Cri bad debt is very low length of stay are.
Joseph Daniel Margolis: Lengths of stay are incrementally improving. You know, the storage customer, once they become a storage customer, is really a strong, sticky customer. We see more weakness in the new customer, the customer looking for something different, And that's where we see more price sensitivity. There's enough demand out there for us to capture more than our share and keep our stores at optimal occupancy. But it's the pricing strength that is at issue now, and I think we're in a period of time where we've had, you know, several quarters where inflation outpaced wage growth. And the extra money that was pumped into the economy isn't there anymore. Savings rates are down. You have some weakness in the consumer, and that's what we're experiencing.
Speaker Change: Incrementally improving the storage customer once they become a storage customers is really a strong sticky customer.
Speaker Change: We see more weakness in the new customer the customer looking for storage and Thats, where we see more and.
Speaker Change: More price sensitivity there is enough demand out there for us to capture more than our share and keep our stores at optimal occupancy.
Speaker Change: But it's the pricing strength that is at issue now and I think we're at a period of time, where we've had.
Speaker Change: Several quarters, where inflation outpaced wage growth.
Speaker Change: The extra money that was pumped into the economy isn't there anymore.
Speaker Change: Savings rates are down.
Speaker Change: Have some weakness in the consumer and that's what we're experiencing.
Speaker Change: Okay. Thank you.
Operator: Thank you. Our next question comes from Todd Thomas with KeyBank Capital Markets. Your line is open.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Todd Thomas with Keybanc capital markets. Your line is open.
Todd Michael Thomas: Hi, this is AJ on behalf of Todd. I appreciate you guys taking the time to answer the question. But first, just to piggyback off that last question, so vacates were down, but one of your peers noted that they saw a slight uptick in vacate activity and noted that there might be a normalization in the length of stay. You just noted that length of stay is incrementally improving. I'm curious, though, if you expect that to continue, or do you see potential for vacancy activity in the length of stay trends to normalize a bit moving forward?
Speaker Change: Hi, This is ajay on for Todd.
Ajay: I appreciate you guys, taking the question, but first just to piggyback off that last question. So vacates were down and but one of your peers noted that they saw a slight uptick in vacate activity and noted that there might be a normalization in the length of stay you. Just noted that length of stay is incrementally improving I'm curious if you expect that to come.
Speaker Change: Or do you see potential for activity in the.
Speaker Change: A length of stay trends to normalize a bit moving forward.
Joseph Daniel Margolis: Yeah, so I probably explained that incorrectly. Length of stay is incrementally better than pre-COVID. But it's worse than during COVID, right? We had that period where people just weren't leaving the stores. Overall, I'm looking at a longer period of time, and we're saying length of stay is incrementally improving, but it is clearly normalizing from COVID levels. Sorry if I wasn't clear enough on that. Oh, yeah, yeah.
Speaker Change: Yeah, So I, probably explain that incorrectly length of stay is incrementally better than pre Covid gets worse then during COVID-19 right.
Speaker Change: We had that period, where people just werent, leaving this stores so.
Speaker Change: Overall I'm looking at a longer period of time, we're saying length of stay is incrementally improving but it is clearly normalizing from.
Speaker Change: Covid levels.
Todd Michael Thomas: Yeah, yeah, that clarification is helpful. And then just transitioning just over to the structured finance book as that kind of continues to grow. So it seems like the demand for that product definitely seems strong today. How big are you comfortable with growing that to? And are you starting to see competition from others creating a more competitive environment for the bridge loan and MES finance?
Speaker Change: Sorry, if I wasn't clear enough on that yeah, yeah that clarification is helpful.
Speaker Change: And then just transitioning over to the structured finance book is that kind of continues to grow.
Speaker Change: So it seems like the demand for that product definitely seems strong today, how big are you.
Speaker Change: Comfortable with growing that too and are you starting to see competition from others, creating a more competitive environment for the bridge loan in Mezz financing.
Joseph Daniel Margolis: Um, so we do see other people getting into the business. Some of our public peers have announced they want to get into this business. We on the ground, we don't see competition yet. We're not losing loans. We're not, you know, we don't hear people saying they're taking this to someone else to bid on. But there are other lenders, there's competition for this business, just like there's competition for the management business or any other business we're in. And our job is to compete well, and that's what we're trying to do, how big this can get.
Speaker Change: So we do see other people getting into the business.
Speaker Change: Some of our public peers have announced they want to get into this business.
Speaker Change: On the ground, we don't see competition, yet, we're not losing loans we're not.
Speaker Change: We don't hear people, saying theyre, taking this to someone else to bid, but theres. Other lenders. There is competition for this business just like Theres competition for the management business or any other business we're in.
Speaker Change: And our job is to compete well and Thats what were trying to do.
Speaker Change: How how big this can get.
Joseph Daniel Margolis: You know, we have the ability to sell off the notes in this structure, and that's a really good tool for us to be able to control how much of the balance sheet how many of these loans we keep on the balance sheet. So we've picked up our guidance a little bit as for this year as to what we expect to keep on the balance sheet. But, you know, we certainly have the flexibility to move that number one way.
Speaker Change: We have the ability to sell off the a notes in this structure and Thats a really good tool for us to be able to control how much of the balance sheet. How many of these loans, we keep on the balance sheet. So we picked up our guidance a little bit.
Speaker Change: This year as to what we expect to keep on the balance sheet.
Speaker Change: We certainly have flexibility to move that number one way or another.
Todd Michael Thomas: Perfect. I appreciate the time. Thanks.
Speaker Change: Yeah.
Speaker Change: Perfect I appreciate the time thanks.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from Keegan Carl with Wolfe Research. Your line is open. Yeah, thanks.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Keegan call with Wolfe Research. Your line is open.
Keegan Grant Carl: Yeah, thanks for the time, guys. Maybe first, just on LSI, I'd love to hear how the performance of the portfolio is trending relative to your expectations at the start of the year, and do you think you have fully realized your revenue synergies on this yet?
Keegan: Yeah. Thanks for the time guys, maybe first just on LSI I'd love to hear how the performance of the portfolio is trending relative to your expectations at the start of the year and do you think you fully realize revenue synergies in this in this yet.
Joseph Daniel Margolis: Um, so I think LSI performance in the first quarter was as expected and on target. So we're happy with And, you know, we still have, as of today, a 90 basis point occupancy gap. And depending on what metric you look at, what pool of stores you look at, anywhere from an 8 to 12% rate gap. So we still have wood to chop.
Keegan: So I think LSI performance in the first quarter was as expected on target. So we're happy with that.
Keegan: And we still have as of today, a 90 basis point occupancy gap.
Keegan: And depending on what metric you look at what pool of stores, you look at anywhere from 8% to 12% rate gap. So we still still have wood to chop I think the good news is the.
Joseph Daniel Margolis: I think the good news is that the tools we need, the infrastructure we need in place to close those gaps is largely there. So the LSI store manager is now performing close to or at the level of an extra space store manager in terms of conversion rates and all the metrics we use. And that took some time to get. You know, we've largely caught up on R&M and capital, and the stores look like an Extra Space store now in terms of, you know, cleanliness and repair, things like that. The LSI website is actually faster than the Extra Space website. It was much slower when we bought it.
Keegan: Tools, we need the infrastructure, we need in place to close those gaps is largely there.
Keegan: So the LSI store manager is now performing close to or at the level of an extra space store manager in terms of conversion rates and all the metrics, we use and that took some time to get there.
Keegan: We have largely caught up on R&M and capital in the stores look like an extra space store now in terms of.
Keegan: Cleanliness and repair things like that.
Keegan: LSI website is actually now faster than the extra space website. It was much slower when we bought it so a lot of the.
Keegan Grant Carl: So a lot of the customer acquisition metrics are improving. I'd say they're not all the way there yet for LSI, but they are improving. So we've made a lot of progress. We still have some wood to chop, and we still have some opportunity to capture.
Keegan: Customer acquisition metrics are improving I would say they are not all the way there yet for LSI.
Keegan: Improving so we've made a lot of progress we still have some wood to chop and we still have some opportunity to capture.
Joseph Daniel Margolis: Got it. It's really helpful. Thanks for the color, Joe. And then, I guess, just shifting gears here a little bit. I know you guys don't necessarily break it out, but it would be helpful to maybe just understand how you expect your year over year occupancy delta to trend throughout the rest of this year and if anything might have changed from a few months ago.
Speaker Change: Got it that's really helpful. Thanks for that color, Joe and then I guess, just shifting gears here a little bit.
Speaker Change: I know you guys don't necessarily break it out but it would be helpful to maybe just understand.
Speaker Change: How you expect your year over year occupancy delta to trend throughout the rest of this year and if anything might have changed from a few months ago.
Joseph Daniel Margolis: So we don't expect a significant occupancy delta for the entire year, you know, obviously it's a component of your revenue, but we would expect it to be flat for most of the year, although we were ahead some in the first quarter.
Joseph Daniel Margolis: So we don't expect a significant occupancy delta for the entire year.
Speaker Change: Obviously, it's a component of your revenue, but we would expect it to be flat for most of the year. Although we have been ahead some in the first quarter.
Keegan Grant Carl: Great. Thanks, guys. I really appreciate it.
Speaker Change: Great. Thanks, guys really appreciate it.
Speaker Change: Sure. Thank you.
Operator: Thank you. Our next question comes from Spenser Allaway on Green Street. Your line is open.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Spenser <unk> with Green Street. Your line is open.
Spenser Bowes Allaway: Thank you. You guys have been successful with your revenue management strategy. But just thinking about how you've had to cut move-in rents fairly aggressively, like peers, I'm just curious if you have a sense of how long, on average, based on the current cadence and magnitude of ECRIs, it would take you to get your new customer rents up to market levels.
Spenser: Thank you.
Spenser: We've been successful with your revenue management strategy, but just thinking about how you kind of cut moving fairly aggressively like Paris I'm. Just curious if you have a sense of how long on average based on the current cadence and magnitude of ECR is it would take you to get your new customer rents up to market level rents.
Joseph Daniel Margolis: Yes, so I think there's a little bit of a misunderstanding baked into that question that we've cut rents more aggressively than our peers, and I think that comes from the web scraping data that that is published and people see. But when you look at that data, that's not adjusted for promotion. And our, we offer promotions; under 10% of our web customers get a first month free or promotion like that, where at our peers, it's the vast majority of their customers.
Speaker Change: Yes, so I think theres, a little bit of a misunderstanding baked into that question that we've cut rents more aggressively than our peers and I think that comes from the web scraping data that is published and people see.
Keegan: When you look at that data, that's not adjusted for promotions and our.
Keegan: We offer promotions, it's under 10% of our web customers get a first month free or promotion like that we are at our peers.
Keegan: The vast majority of their customers so to compare our web rates to our peers web rates do you have to adjust for promotions and I think once you do that youll see we have not cut rates.
Joseph Daniel Margolis: So to compare our web rates to our peers' web rates, you have to adjust for promotions. And I think once you do that, you'll see we have not cut rates significantly more than our competitors. It's just not, That's just not true.
Keegan: Typically more than our competitors, it's just not it's just not true.
Joseph Daniel Margolis: And, you know, our goal is once someone comes in at a discounted rate to, you know, get them to street rate within a reasonable period of time, and that may vary based on different factors, but, you know, within a reasonable period of time, they need to get to street.
Keegan: And our goal is once someone comes in at a discounted rate too to get them to street rate.
Keegan: In a reasonable period of time and net net be vary based on different factors, but within a reasonable period of time, they need to get the street rate.
Spenser Bowes Allaway: Okay, and then you're supposed to know how much progress you've made in closing the occupancy gap on the legacy LSI assets, but based on your growing knowledge of the LSI markets, I'm just curious what you think is the sustainable long-term occupancy level for that portion of the portfolio. So we had an 80%
Keegan: Okay, and then you've spoken about the progress you've made in closing the occupancy gap in our legacy LSI asset.
Keegan: Based on your growing knowledge LSI markets I'm just curious what you think is the sustainable long term occupancy level for that portion of the portfolio.
Joseph Daniel Margolis: So we had an 80% market overlap with LSI and extra space stores. So for 80% of the portfolio, it's, it's the same. And we don't, we don't really target an occupancy level. Again, as we said earlier, it's just one factor that goes into the algorithm that is trying to maximize revenue. And it may be different in different types of markets based on customer behavior.
Keegan: And so we had an 80% market overlap with LSI and extra space stores, so for 80% of the portfolio.
Keegan: It's the same.
Keegan: And we don't we don't really target an occupancy level again as we said earlier is just one factor that goes into.
Keegan: The algorithm that is trying to maximize revenue and it may be different in different types different types of markets based on customer behavior.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you Spencer.
Operator: Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Speaker Change: Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Caitlin Burrows: Hi everyone. I don't think this has been talked about yet. I just wanted to touch on marketing spend. Can you talk about how you measure, maybe, the return on marketing spend and how long you expect this kind of level to
Caitlin Burrows: Hi, everyone. I don't think this has been talked about yet I just wanted to touch on the marketing spend. So can you talk about how you measure maybe the return on marketing spend and how long you expect this.
Caitlin Burrows: Just kind of level two.
Joseph Daniel Margolis: I think the first thing to look at here is really marketing spend as a percentage of your revenues. If you look at our marketing spend as a percentage of revenues, we're still about 2%, which is still a very small component. On a year over year perspective, we get that 23% looks like a big number, but there's still a very positive yield. We look at the return on that spend in several different ways. It depends on where you're spending money, whether it's pay per click, whether it's search engine optimization or other areas, but we continue to have a very high return on that marketing spend.
Caitlin Burrows: Sustain for.
Caitlin Burrows: Yeah, I think the first yes. The first thing to look at here is really a marketing spend as a percentage of your revenues. If you look at our marketing spend as a percentage of revenues, we're still about 2%, which is still a very small component on a year over year perspective.
Caitlin Burrows: The 23% looks like a big number but there is still a very positive yield we look at the return on that spend in several different ways. It depends on where youre spending money, whether it's paper quick whether it's search engine optimization or other areas, but we continue to have a very high return on that marketing spend in it.
Caitlin Burrows: A very small component of our expenses.
Caitlin Burrows: Okay, and then maybe just thinking, I know you guys maximize revenue through both rate and occupancy, but as you think about maybe absolute rental rates, how much they've grown over the past few years, I guess, what kind gives you confidence that there does continue to be upside to that rent per square foot number?
Speaker Change: Got it Okay, and then maybe just thinking I know you guys maximize revenues through both rate and occupancy, but as you think about maybe absolute rental rates how much they've grown over the past few years I guess, what kind of gives you confidence.
Caitlin Burrows: That there does continue to be upside too.
Caitlin Burrows: That rent per square foot number.
Joseph Daniel Margolis: So I think that, you know, what gives you confidence? You know, I think the question was asked earlier about your guide versus your tone and where you are.
Caitlin Burrows: So I think that.
Caitlin Burrows: What gives you confidence and I think the question was asked earlier your guide versus your talent and where you are I think we've seen positive things early in this year in terms of month over month rate increases now that's a positive. The negative is we're still negative to last year. So we are moving in the right direction I think the leasing season will kind of be the real.
Caitlin Burrows: I think we've seen positive things early in this year in terms of month over month rate increases. Now that's positive. The negative is we're still negative compared to last year, so we are moving in the right direction. I think the leasing season will kind of be the real catalyst to say it was a great year or, you know, a good year or, hey, maybe it's still a little bit slow. So I think that it's really that June, July timeframe when we're going to get a feel for that. But so far, occupancy is held up sequentially, and rates have improved, but it's still probably too early to say yes, it's been a good year so far.
Caitlin Burrows: Got it. Okay. Thanks.
Caitlin Burrows: Catalyst to say it was a great year or Goodyear or hey, maybe it's still a little bit slow. So I think that it's really that June July timeframe, when we're going to get a feel for that but so far occupancies held up sequentially rate has improved but it's still probably too early to really say, yes, it's been a good year so far.
Speaker Change: Got it okay. Thanks.
Speaker Change: Thanks, David.
Operator: Thank you. Our next question comes from Ronald Kamden with Morgan Stanley. Your line is open.
Speaker Change: Thank you. Our next question comes from Ronald Camden with Morgan Stanley. Your line is open.
Ronald Kamdem: Hey, just the first one is just on housing. Can you sort of remind us what percent of your customers are coming in because of sort of home sales or home activity and how you think demand is changing as rates have moved up?
Ronald Kamdem: Hey, just the first one is just on housing can you sort of remind us what percentage of your customers.
Ronald Kamdem: <unk> are coming in because of sort of home sales at the home activity and how youre thinking of demand is changing.
Ronald Kamdem: Rates have moved up.
Joseph Daniel Margolis: Sure. So, um, right now, about half of our customers, a little more 51% of our customers tell us that they're moving. That doesn't mean they're buying a home, right? 45% of those 51% are moving from apartment to apartment; the peak of that was 61% in the third quarter of 2012. So my gut tells me fewer people are moving because they're buying a house, but more people are moving because they're renting a house or because they're moving from apartment to apartment or for other home transition reasons. So, down somewhat from a peak, but still a meaningful portion of
Ronald Kamdem: Sure so.
Ronald Kamdem: Right now about half of our customers a little more 51% of our customers tell us that they are moving.
Ronald Kamdem: Does it mean there.
Ronald Kamdem: Oh, right, 45% of those 51% for moving from apartment to apartment.
Ronald Kamdem: That was the peak of that was 61% in the third quarter of 2021.
Speaker Change: So my we don't have enough data right. We can only asked so many questions and have the tenants answered the surveys.
Speaker Change: My gut tells me fewer people are moving because they are buying a house, but more people are moving because theyre renting house, because theyre moving apartment to apartment or other home transition reasons, so down somewhat from the peak, but still a meaningful portion of our customers.
Ronald Kamdem: Great. And then my second question was just about guidance. There were a lot of moving pieces from sort of the first quarter, the initial guidance, and the guidance that you gave today. I know you reiterated that interest costs are higher. You know, interest income is also higher, and so forth. And then if I think about where you are in 1Q at the same store and why, whether it's a legacy EXR or LSI, it seems like the EXR portfolio needs to decelerate to get to the middle of the NOI guidance while the LSI will accelerate.
Speaker Change: Great and then my second question was just on the guidance.
Speaker Change: There was a lot of moving pieces from sort of the first quarter. The initial guidance and the guidance that you gave today I know you reiterated but.
Speaker Change: Interest costs are higher.
Speaker Change: Interest income is also higher.
Speaker Change: And so forth and then if I think about where you are on <unk> on the same store NOI, whether it's a legacy ESR.
Speaker Change: Our LSI it seems like the ESR portfolio needs to decelerate to get to the middle of the NOI guidance, while the LSI will accelerate.
Ronald Kamdem: I guess the question really was the lack of the raise. Yeah, there's a peak leasing season aspect of it too, but is it just there's so many pieces that are changing right now that it's hard to, like the range of outcomes is still so wide that it's hard to have conviction in raising?
Speaker Change: Just I guess, one when you are.
Speaker Change: Question is really was the lack of the res yes. There is a peak leasing season aspect of it too but is it just there's so many pieces that are changing right now that it's hard to back the range of outcome is still so wide that it's hard to have conviction and raising.
Speaker Change: Thanks.
Speaker Change: So we have not seen anything.
Speaker Change: Is significantly different than what we saw 60 days ago. So that's really the catalyst for us not changing the guidance in terms of the items that we did change.
Speaker Change: They were interest rate based which we changed our so for assumption from $4 75 to $5. Two that's based on the forward curve and when you.
Speaker Change: Obviously lock in Nevada or update your guidance and then we updated it for volume of bridge loans and a small change in our management fees all of those netted to a very small delta, which caused <unk> to stay the same but we really don't have the information yet to be able to give strong conviction that things are.
Speaker Change: Better or worse than what we originally estimated for our properties.
Speaker Change: Thanks, so much.
Speaker Change: Sure.
Joseph Daniel Margolis: Thanks.
Speaker Change: Thank you. Our next question comes from Eric Webb, Joe with Wells Fargo. Your line is open.
Ronald Kamdem: So, we have not seen anything that is significantly different from what we saw 60 days ago. So, that's really the catalyst for us not changing the guidance. In terms of the items that we did change, they were interest rate based, so we changed our SOFR assumption from 4.75 to 5.2. That's based on the forward curve. And when you obviously lock into that or update your guidance, And then we updated it for the volume of bridge loans and a small change in our management fees.
Ronald Kamdem: All of those netted to a very small delta, which caused your FFO to stay the same. But, you know, we really don't have the information yet to be able to give strong conviction that things are better or worse than what we originally estimated for our property.
Ronald Kamdem: Thanks so much. Thanks, Ron. Thanks, Eric.
Eric Webb: Great. Thanks, Phil Thanks for the question.
Eric Webb: I know you talked about the current gap between LSI in ESR for new customers, but.
Eric Webb: Any color you can provide on the gap between the in place customer.
Eric Webb: At those two how far apart they are in.
Eric Webb: How long do you think it will take to get to kind of the target.
Eric Webb: To hit your revenue synergies.
Eric Webb: You are talking about GAAP on the specifically the life storage tenants been negative roll down or which gap I was talking about like the in place rental rental gate rental rate per square foot or.
Operator: Thank you. Our next question comes from Eric Luebchow. This is Wells Fargo. Your line is open.
Eric Webb: So when we underwrote this deal we looked at this in a number of different ways and I think the most meaningful way is we found 109 life storage stores that had an extra space competitor of like type alright.
Eric Webb: Multi story climate control or.
Eric Webb: Or whatever it was similar type within the trade area and we compared.
Eric Webb: Rates of those stores and.
Eric Webb: And right now that gaps about 8%.
Eric Webb: I mean those stores, we also looked at at a portfolio level and at a market level are different but I think that kind of like for like store is the best.
Eric Webb: Best comparison.
Speaker Change: Okay, Great that's helpful.
Speaker Change: I don't know if he touched on this in a few different questions, but as bill are generally at the supply picture across many of your markets do you think based on construction starts single things will improve even more into 2025 and are there any markets that you'd highlight that are still you think will continue to deal with elevated levels of supply whether that's like a Phoenix Atlanta Mark.
Eric Webb: What's in Florida, and you touched on as well that'd be helpful. Thanks.
Eric Thomas Luebchow: Great. Thanks, Philip. Thanks for the question. You talked about the current gap between LSI and EXR for new customers, but any color you could provide on the gap between the in-place customers at those two, how far apart they are, and how long you think it will take to get to kind of the target to hit your revenue synergy.
Eric Webb: Sure.
Eric Webb: So.
Eric Webb: We look at supply by looking at.
Eric Webb: Our same store pool, and how many stores within our same store pool.
Eric Webb: Well, we will have new supply delivered.
Eric Webb: In the first quarter, 3% of our same store pool stores had new supply delivered in their trade area and Thats kind of right on our <unk>.
Eric Webb: Estimate of 11 12, 13% for the year.
Eric Webb: That's down 30.
Eric Webb: And 30% from 2023 deliveries.
Eric Webb: I think the headwinds too.
Eric Webb: Development.
Eric Webb: Equity dollars that dollars debt cost construction cost entitlement periods, all the things that are making.
Eric Webb: The ability to to put together a pro forma with rent growth in it.
Eric Webb: I think all of those items are going to continue to provide a headwind.
Eric Webb: Two self storage development, there is certainly our markets Northern New Jersey, some of the Florida markets.
Eric Webb: That.
Eric Webb: You do have new supply issues, and we will have to work through those.
Speaker Change: Great. Thanks for the questions.
Eric Webb: Sure.
Eric Webb: Thank you. Our next question comes from Michael Mueller with Jpmorgan. Your line is open.
Eric Thomas Luebchow: You're talking about the gap between specifically the life storage tenants, the negative roll down or which gap? I was talking about the in place rental, rental gate, rental rate versus workflow gap.
Michael William Mueller: Yes, hi.
Michael William Mueller: Follow up question on LSI.
Michael William Mueller: Kind of a sequencing talked about potentially closing the occupancy gap. This summer and then kind of moving closing the rate cap.
Michael William Mueller: Maybe in the second half of the year and I guess the question is when.
Joseph Daniel Margolis: So we, when we underwrote this deal, we looked at this in a number of different ways. And I think the most meaningful way is that we found 109 life storage stores that had an extra space competitor of like type, right, you know, multi-story climate control, or, you know, whatever it was, similar type within the trade area. And we compared rates for those stores, and right now, that gap is about 8% between them. We also looked at it at a portfolio level and at a market level and different levels, but I think that kind of like for like store is the best. Best comparison
Michael William Mueller: When you were talking about closing that gap or are you talking about resetting pricing and then starting the process of letting them flow through the system or say by year end you could be at parity in <unk>.
Michael William Mueller: <unk> portfolio of in place portfolio.
Michael William Mueller: Mike its really a combination of both the first thing you're going to move as the street rates or your achieved rate coming in so it's at parity with the extra space. So the new customer would then be paying the same amount than the other differential in the achieved rate per hour I mean in your.
Michael William Mueller: Rent per square foot at the store that will come over time, as we do existing customer rate increases.
Mike: Got it okay.
Speaker Change: Thank you.
Speaker Change: Good morning.
Eric Thomas Luebchow: Okay, great. That's helpful. I know we touched on this in a few different questions, but as you look generally at the supply picture across many of your markets, do you think, based on construction starts, things will improve even more into 2025? And are there any markets that you'd highlight that are still, you think, will continue to deal with elevated levels of supply, whether that's like Phoenix, Atlanta, you know, a few markets in Florida you touched on as well?
Speaker Change: Thank you. Our next question comes from Amato Cusano with Deutsche Bank. Your line is open.
Joseph Daniel Margolis: That'd be helpful. Thanks. Sure.
Amato Cusano: Hi, yes.
Amato Cusano: Good good afternoon.
Amato Cusano: First question is just around.
Amato Cusano: I think if I look at your revenue per occupied square foot.
Amato Cusano: But kind of into 'twenty.
Amato Cusano: Thats difficult to come by 10 units someone's paying like two irons funding Bucks a month.
Amato Cusano: And significant bill.
Amato Cusano: I'll be outside of your mortgage and your card payments is probably one of the higher bills, one would be paying so when I looked at that I just kind of add.
Amato Cusano: What is that ability to keep pushing.
Amato Cusano: Hi.
Amato Cusano: No.
Amato Cusano: 10, 12, 15% without.
Amato Cusano: Is that becoming such a huge piece of someone's monthly payment, but they start to pushback.
Speaker Change: Yes, I'm not sure I agree with your thesis right.
Speaker Change: It may be 200 Bucks for that unit, but what is your alternative if it's.
Amato Cusano: It moved from a two bedroom two a three bedroom apartment that delta is.
Amato Cusano: <unk> is probably greater than what you're paying for the unit I also think it's important to realize that.
Amato Cusano: Our tenants.
Amato Cusano: Consistently underestimate how long theyre going to stay for.
Amato Cusano: So maybe 200 Bucks a month, but only staying six or seven months.
Amato Cusano: It's not a permanent.
Amato Cusano: Drag on your monthly budget and then they end up staying much longer but that's a different thing so.
Amato Cusano: I don't think quarter.
Amato Cusano: This is a.
Amato Cusano: Our flexible convenient important and relatively affordable option for people.
Speaker Change: I don't think we are.
Speaker Change: To that point, yet, where we're capped out on rate.
Speaker Change: Fair enough. That's helpful. And then my second question. If you would allow me again to pack 10 years technology has been such a big game changer in the industry.
Speaker Change: Could you help us think about the next 10 years, whether it's AI or kind of what are you seeing technology buys that helps lower customer acquisition cost that helps lower cost of operation.
Speaker Change: And how quickly can we kind of thought some of that stuff get implemented.
Speaker Change: You hit your overall number.
Speaker Change: Yes, so I mean, I think we're seeing it.
Speaker Change: Now and we will continue to see it because your thesis is right technology and AI are going to change things drastically.
Speaker Change: We used and tested AI and <unk>.
Speaker Change: Several parts of our business, sometimes it worked well sometimes it didn't you will continue to help us.
Speaker Change: The call center on the web.
Speaker Change: In.
Speaker Change: All sorts of data analytics.
Speaker Change: And.
Speaker Change: We are striving to find the right combination of <unk>.
Speaker Change: People and technology to run our stores and we think over time that that will help us.
Speaker Change: Optimize that expense.
Speaker Change: Okay.
Speaker Change: Youre right. The last 10 years have shown a lot of change and a lot of efficiencies through technology and I expect the next 10 years to be the same.
Speaker Change: Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you. Our next question comes from Keybanc, Kim with <unk>. Your line is open.
Kim: Thank you. Good morning, just wanted to go back to your bridge loan program, you, obviously announced a pretty major increase in the pipeline. Just curious if you can provide more color on where this demand is coming from and just high level I mean, the rates are a bit higher nine.
Speaker Change: 9%, so what is the kind of.
Speaker Change: Profiled a customer that would come to you guys for this type of loans.
Speaker Change: So I think it's customers that have expensive equity.
Speaker Change: Partners that wanted to get cashed out.
Speaker Change: Folks that.
Speaker Change: I don't think this is the greatest sales market.
Speaker Change: Theres been or where there's been value created one one we talk about the benefits of the life storage transaction. One benefit we don't really talk about is we were introduced to a whole new group of partners, we didn't have relationships with.
Speaker Change: So we.
Speaker Change: We've closed or have under term sheet $239 million with the bridge loans with della Si partners, we had no relationship with before closing.
Speaker Change: And we've got them off topic now, but we have signed 30 management contracts New management contracts with LSI partners you have relationships with so part of the increase in our bridge loan.
Speaker Change: Volume is.
Speaker Change: We have all these new relationships now we got through the merger and we're doing a lot of business with them.
Speaker Change: Okay.
Speaker Change: And that was actually part of my second question do the vast majority of these come with management contracts and.
Speaker Change: Imagine apologize can obviously be terminated but.
Speaker Change: Is there a sense that the management contracts lifetime can exceed the loan maturity.
Speaker Change: So 100% of our bridge loans, we managed the property, we will not make a loan on a property, we don't manage for for risk control and economic reasons. So yes, they all come with management contracts.
Speaker Change: Okay.
Speaker Change: The management contracts can be cancelled that hardly ever happens it hardly ever happens at someone cancels are public or acute contract and comes to us people don't move like that.
Speaker Change: We expect.
Speaker Change: If we're a good manager and we produced good results.
Speaker Change: These relationships and manage these properties after the bridge loan is gone.
Speaker Change: Unless we end up buying the property, which is also went up.
Speaker Change: And second question on Capex can you just.
Speaker Change: Provide some color I know you don't really disclose it on the maintenance Capex you spent on Duane Duane in 2023, and what we should expect in 2004, obviously, excluding development or whatever solar projects you might have.
Speaker Change: Keeping our maintenance Capex has typically been about 65, a square foot and we would expect it to be pretty similar in 2024.
Speaker Change: Okay. Thank you guys.
Speaker Change: Davidson.
Speaker Change: Thank you there are no further questions I'd like to turn the call back over to Joe Margolis for closing remarks.
Eric Thomas Luebchow: So, you know, we look at supply by looking at our same store pool and how many stores within our same store pool will have new supply delivered. In the first quarter, 3% of our same store pool stores had new supply delivered in their trading. And that's kind of right on our estimate of, you know, 11, 12, 13% for the year, that's down, you know, 30% from 2023 deliveries. I think the headwinds to development, you know, equity dollars, debt dollars, debt costs, construction costs, entitlement periods, all the things that are making the ability to put together a pro forma with rent growth in it difficult.
Eric Thomas Luebchow: I think all of those items are going to continue to provide a headwind to self storage development. There certainly are markets, northern New Jersey, some of the Florida markets, that, you know, do have new supply issues, and we'll have to work through them.
Joseph Daniel Margolis: Great. Thank you thanks, everyone for your time and your interest in extra space I Hope you can tell we are we're off to a good start we're really excited about the rest of the year.
Eric Thomas Luebchow: Okay, great. Thanks for the questions.
Operator: Thank you. Our next question comes from Michael Mueller with J.P. Morgan. Your line is open.
Michael William Mueller: Yeah, hi. I have a follow-up question on LSI and kind of a sequencing question. You talked about potentially closing the occupancy gap this summer and then kind of moving on, closing the rate gap maybe in the second half of the year. And I guess the question is, when you're talking about closing the rate gap, are you talking about resetting pricing and then starting the process of letting it flow through the system? Or say, by year end, you could be in parity, you know, in-place portfolio to in-place portfolio?
Speaker Change: We can't control all the variables, we don't we don't know.
Joseph Daniel Margolis: It's Mike, it's really a combination of both. The 1st thing you have to move is the street rates or your achieved rate coming in. So it's parity with the extra space. The new customer would then be paying the same amount. Then the other differential in the achieved rate or, I mean, in your rent per square foot that's at the store, that'll come over time as we do existing customer rate increases.
Michael William Mueller: Got it. Okay. I understand. Thank you.
Speaker Change: We can't control the housing market and the customer.
Operator: Thank you. Our next question comes from Amotayo Okusanya with Deutsche Bank. Your line is open.
Omotayo Tejumade Okusanya: Hi, yes, good afternoon. The first question is just about ECRIs.
Omotayo Tejumade Okusanya: I'm taking a look at your revenue per occupied square foot kind of in the 20s. Again, that means for a typical 10 by 10 unit, someone's paying like $220 a month, which isn't an insignificant bill. I mean, probably outside of, you know, your mortgage and your car payments, it's probably one of the higher bills one would be paying. So when I looked at that, I just kind of asked, what is the ability to keep pushing ECRIs at kind of 10, 12, 15% without that becoming such a huge piece of someone's monthly payment that they start to push back?
Speaker Change: But what we can't control, we do very well, we have the platform and the people to take advantage and optimize whatever the external situation is so I hope everyone has a great day and thank you for your time.
Joseph Daniel Margolis: Yeah, I'm not sure I agree with your thesis, right? It's it It may be 200 bucks for that unit, but what is your alternative if it, by, you know, moving from a two-bedroom to a three-bedroom apartment, that delta is, is probably greater than what you're paying for the unit. I also think it's important to realize that Art Penance consistently underestimates how long they're going to stay. So maybe 200 bucks a month, but you're only staying six or seven months.
Joseph Daniel Margolis: It's not a permanent drag on your monthly budget, and then they end up staying much longer, but that's a different thing. So I don't think we're... You know, this is a flexible, convenient, important, and relatively affordable option for people. And I don't think we're at that point yet where we're capped out on rates.
Omotayo Tejumade Okusanya: Fair enough. That's helpful.
Omotayo Tejumade Okusanya: And then my second question, if you would allow me, again, the past 10 years, technology has been such a big game changer in the industry. Can you help us think about the next 10 years, whether it's AI or some other technology that you are seeing that helps lower customer acquisition costs, that helps lower cost of operation? And how quickly can we kind of start to see some of that stuff get implemented and kind of hit your overall numbers? Yeah, so I mean, I think we're seeing
Joseph Daniel Margolis: Yeah, so I think we're seeing it now, and we'll continue to see it because your thesis is right, like technology and AI are going to change things drastically. We have used and tested AI in several parts of our business. Sometimes it worked well, sometimes it didn't.
Joseph Daniel Margolis: It will continue to help us at the call center, on the web, and in all sorts of data analytics. And, you know, we are striving to find the right combination of people and technology to run our stores. And we think over time that that will help us to Optimize That Expense. So. You're right, the last 10 years have shown a lot of change and a lot of efficiency through technology, and I expect the next 10 years to be the same.
Operator: Thank you. Our next question comes from Ki-Bin Kim with Truist. Your line is open. Thank you.
Ki Bin Kim: Thank you. Good morning.
Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Have a great day.
Speaker Change: Thank you for your participation. This does conclude the program you may now disconnect have a great day.
Ki Bin Kim: Just want to go back to your bridge loan program. You obviously announced a pretty major increase in the pipeline. Just curious if you can provide more color on, you know, where this demand is coming from and just at a high level. I mean, the rates are a bit higher, you know, 9%. So what is the kind of, profile of the customer that would come to you guys for this type of loan.
Joseph Daniel Margolis: So I think it's customers that have expensive equity, partners that want to get cashed out, folks that don't think this is the greatest sales market where there's been, or where there's been value created. One, one, you know, we talk about the benefits of the life storage transaction. One benefit we don't really talk about is we were introduced to a whole new group of partners; we didn't have relationships. So we've closed, or have under term sheet $239 million with the bridge loans to LSI partners we had no relationship with before; we've got, I'm off topic now, but we have signed 30 management contracts, new management contracts.
Joseph Daniel Margolis: LSI partners, we have a relationship. So, you know, part of the increase in our bridge loan volume is because we have all these new relationships now that we got through the merger, and we're doing a lot of business.
Ki Bin Kim: And that was actually part of my second question. Do the vast majority of these come with management contracts? And a management contract can obviously be terminated. But is there a sense that the management contract lifetime can exceed the, you know, pretty low maturity?
Joseph Daniel Margolis: So, 100% of our bridge loans we manage the property. We will not make a loan on a property we don't manage for risk, control, and economic reasons.
Ki Bin Kim: So, yes, they all come with management contracts, but the management contracts can be canceled. That hardly ever happens. It hardly ever happens that someone cancels a public or a cube contract; people don't move. We expect, you know, if we're a good manager and we produce good results, that we're gonna have these relationships and manage these properties after the bridge loan is gone, unless we end up buying the property, which is also an option.
Speaker Change: Okay.
Joseph Daniel Margolis: And second question on CapEx, can you just provide some color? I know you don't really disclose it on the maintenance CapEx you spent in 2023 and what we should expect in 2024, obviously excluding development or whatever solar projects you might have. Keegan, our maintenance capex.
Ki Bin Kim: Our maintenance capex has typically been about 65 cents a square foot, and we would expect it to be pretty similar in 2024.
Operator: Thank you. There are no further questions. I'd like to turn the call back over to Joe Margolis for closing remarks.
Joseph Daniel Margolis: Great. Thank you.
Joseph Daniel Margolis: Thanks, everyone, for your time and your interest in Extra Space. I hope you can tell we are off to a good start. We're really excited about the rest of the year. But we can't control all the variables. We don't know.
Operator: You know, we can't control the housing market and the customer, but what we can't control, we do very well. We have the platform and the people to take advantage of and optimize whatever the external situation is. So I hope everyone has a great day and thank you for your time.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.