Q3 2024 Extra Space Storage Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2024 extra space storage earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: and the speaker's presentation. There will be a question and answer session.
Speaker Change: To ask a question or in-discession you would need to press star 11 when you're telephone. You will then hear an automated message of vising your hand as raised.
Speaker Change: 2. Withdraw your question, please press star one more again.
Speaker Change: Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jared Conley, Vice President of Investor Relations. Sir, please go ahead.
Jared Conley: Thank you Michelle. Welcome to Extra Space Storage, is 3rd quarter 2024 earnings call.
Speaker Change: In addition to our press release, we have furnished unordered 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 as defined in the private securities litigation reform act.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: For looking statements represent management's estimates as of today, October 30, 2024.
Speaker Change: The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions.
Speaker Change: or other circumstances after the date of this conference call.
Speaker Change: I would now like to turn the call over to Joe Margolis, chief executive officer.
Joe Margolis: Thanks, Jared, and thank you everyone for joining today's call.
Joe Margolis: To begin the call today, I would first like to address the impact of Hurricane Milton on our people.
Joe Margolis: I am happy to report that all our teammates are safe, although a small number of individuals and their families were displaced and we have provided shelter assistance for them.
Joe Margolis: Scott will address the financial impacts of the hurricane in his comments.
Joe Margolis: Before we address the myriad of data points and moving pieces from the quarter, I want to make some overall big picture comments on our performance.
Joe Margolis: We had a good quarter.
Joe Margolis: Optimizing performance in the current market environment and our efforts allow us to increase the midpoint of our full year FFO guidance.
Joe Margolis: Let me start with the biggest contributor to FFO growth, which is store performance.
Joe Margolis: The Extrespace St. Paul performed consistently with our expectations.
Joe Margolis: with Quarter Ending and October occupancy of 94.3%.
Joe Margolis: This solid performance allows us to increase the bottom end of 2024's same store guidance.
Joe Margolis: Revenue for the LifeStore at St. Paul, came in slightly below our expectations. But this was generally offset by meaningful outperformance with respect to expenses.
Joe Margolis: Having completed the move to a single brand in a latter part of the quarter, we are just starting to see the benefits of a single brand.
Joe Margolis: We fully expect this group of stores to follow the same pattern of improvement into enduring 2025.
Joe Margolis: has the 143 live storage stores that we converted to the extra space brand at closing in 2023.
Joe Margolis: Our non-stameter properties are also outperforming our expectations and contributed to our FFOB.
Joe Margolis: Outside of store performance, our external growth initiatives are exceeding projections.
Joe Margolis: In the third quarter we added 63 third party managed stores gross, netting 38 stores.
Joe Margolis: You today we've added 124 net stores to the platform.
Joe Margolis: and we anticipate adding approximately 100 additional properties by year end.
Joe Margolis: This would make 2024 our best year for net additions to our management program outside of the Life Storage merger.
Joe Margolis: Our Britsland program expanded with $158 million in new loans originated in this quarter. And we have increased our expected average hold of such loans to $925 million per year.
Joe Margolis: On the acquisition front, we have deployed $334 million in wholly owned and joint venture acquisitions year to date and are seeing an encouraging increase in a creative opportunity.
Joe Margolis: Lastly, we continue to find efficiencies in the business and have again lowered our G&A guidance for the year.
Joe Margolis: Overall, I am very pleased with our performance and trajectory this year.
Joe Margolis: We continue to leverage our scale to find efficient season all areas of the business, optimize store performance and grow our ancillary businesses to drive FFO growth.
Joe Margolis: Our Higher Portfolio occupancy positions us well to capitalize on an improving new customer rate environmental environment when fundamentals recover.
Speaker Change: I will now turn the time over to Scott.
Scott: Thanks Joe and hello everyone. As Joe mentioned, we had a good quarter driven by occupancy gains, GNA savings, and external growth.
Scott: October to date, same store occupancy is 94.3% and 80 basis point improvement over last year. In the third quarter, the average new customer move in rate was negative 9% year over year.
Scott: Due to strong occupancy and performance today, we are raising the bottom end of the extra space same store revenue guidance by 75 basis points, bringing the midpoint to a positive 0.125%.
Scott: Despite meaningful savings and controlable expense categories, increases in property taxes have made it necessary for us to raise our expense guidance by 25 basis points.
We've also raised the bottom end of our NOI guidance by 75 basis points, bringing the midpoint to negative 1.375%.
Scott: The Livestore Edge, same store revenue, improved by 0.4% year over year, and we saw seasonal declines in occupancy for the Livestore Edge same store pool, finishing the quarter at 92.9%.
This represents an increase of 200 basis points year over year. October occupancy has increased to 93.2% 210 basis points over last year.
Scott: For the life storage same store pool, the sequential change in average moving rate from the second quarter to the third quarter was negative 1%. Much better than normal seasonal declines.
Scott: Lower than expected pricing power to new customers in the live storage same store pool has led to the reduction in our revenue expectations for the year.
Scott: We have reduced our annual St. Store revenue guidance by 50 basis points at the midpoint. This is partially offset by lower controllable expenses for these properties.
Scott: As a result.
We are revising our expense guidance downward by 100 basis points at the midpoint and consequently, we have adjusted life storage, same store NRI guidance to a range of negative 1.5% to positive 0.5% for the year.
Given the steady volume of bridge loans, we have raised the 2024 average outstanding loan guidance and increase our expected interest income.
Scott: We've also lowered our estimates for GNA and increased our tenant reinsurance guidance. Interest expense has been updated to account for higher, bridge-loan volume and an increase in our acquisition guidance.
Scott: As a result of these revisions, we've raised the lower end of our FFO guidance by five cents per share from $7.95 per share to $8 per share, a modest increase at the midpoint.
Scott: Our revisions to guidance exclude the impact of Hurricane Milton as we are still assessing the full extent of property damage and tenant insurance claims.
We've sustained damage at several reach and managed properties and three reach stores remain closed.
Scott: As of today, we are currently estimating total property damage and tenant insurance claims to be $10 million or more.
Scott: Major Hurricane Costs have historically been added back to our core FFO. Therefore, these amounts have not been contemplated in our guidance.
Scott: We've also seen an increase in rental activity and a pause existing customer rating increases in certain markets.
We will report full details related to Hurricane Milton with our fourth quarter earnings.
Scott: and with that Michelle, let's open things up for questions.
Thank you as a reminder to ask a question, please press star 11 on your telephone in way for your name to be announced.
2 withdrawal the question, please press star 11 again. And our first question will come from Michael Goldsmith, with UBS, your line is open.
Michael Goldsmith: Good afternoon, thanks all for taking my question. You know, I think in the opening remarks, you said that you're just starting to see the evidence of the benefit of being of a single brand. Can you provide a little bit more detail in terms of what you're seeing? You know, what have you accomplished so far? What you're seeing and what gives you confidence that you'll be able to, you know, continue to drive the benefit from this brand consolidation.
Speaker Change: are happy to Michael. Thank you for the question. So just to be clear, we're in very early stages here, right?
Speaker Change: We did the change to the ex-space brand late in the third quarter, so we're several weeks in.
But that being said, we see slightly better SEO performance from what was once the life-stored stores, some improvement in the low-polar map section, but less than the SEO.
The former LSI store, conversion rate is better on the extra space website that it was on the LSI website. And we're starting to see some modest savings in paid marketing spent.
Now what gives us confidence is when we close the merger in 2023 and decided to test two brands, we took a pool of 143 live stores and converted them to extra space.
and we watched the pattern of improvement of those stores over time.
Speaker Change: and we know that it doesn't happen immediately, but over a period of a number of months, you know, up to six months, we will see those converted to first perform as well as stores that have always been branded extra space.
Speaker Change: So we see no reason why the stores we just converted won't act just like those stores and follow the same pattern of improvement and we're encouraged that we're starting to see the green shoots.
Speaker Change: Thanks for that and my following question is you know
They're still a pretty wide range for the corf of low guidance and what's implied for the fourth quarter. But what is implied, you know, at the midpoint does suggest a material deceleration from the third to the fourth quarter. Now some of that, as soon as we're related to seasonality, but is there any other factors or...
and then I mixed up play, which would weigh on the results in the fourth quarter, while it took to the third quarter.
Speaker Change: Now Michael, the biggest difference is just property performance in the fourth quarter and then it'll obviously depend on where you are in that range.
Speaker Change: John, thank you very much. Good luck in the fourth quarter.
Thanks Michael.
Speaker Change: and our next question will come from Todd Thomas with Keybank Capital Market. Your line is open.
Todd Thomas: Hi, thanks. Good afternoon. I just wanted to stick with that line of questioning a little bit, but move to the same store pool. Just curious there, the guidance implies continued deceleration in the fourth quarter for both the EXR and LSI portfolios. Can you just talk a little bit about whether you have line of sight toward stabilization, just given the ability.
Todd Thomas: to drive customer traffic to the portfolio on the hierarchy. You've been seeing rates that you've been able to maintain across both portfolios.
Speaker Change: Yeah, you tell how this got. So it depends a bit on where you are on that range of guidance. Start with the extra space pool.
It does imply that it is slightly negative at the midpoint. If you're at the high end, it's obviously slightly positive at the low end. It's slightly negative, but there is some stabilization in there. It's fairly flat in the fourth quarter. The last storage pool.
Speaker Change: Again, depending on where you are on the range, at the midpoint slightly negative to
Lightly positive at the high end and more negative at the low end, but it does not show significant acceleration either. It's not dropping, it's way down, it's also not a Nike solution on its way up. Some of the life storage has a little noise in a month by a month.
Speaker Change: because it's a difficult, tough, calm, with October being our strongest month as that's when many of the ECRIs hit last year.
Okay, that's helpful, and then I just wanted to ask, you know, about the hurricanes.
I'm just given the comments that you made, I realize it's early and you know you're still.
Sorting through.
Speaker Change: You know what's happened and sort of the aftermath a little bit. Can you just talk about the uptick and rental activity that you mentioned that you're seeing in some of the impacted areas and sort of how that plays out with.
Speaker Change: You know, the pause and E.C.R.I.s in some of these markets or states given the state of emergencies and perhaps you can share some occupancies to test sticks.
Speaker Change: You know to help provide some some color around some of the changes, you know, in rental activity that you're seeing in some of those impacted MSAs.
So we have seen it up taken Reynolds, particularly in the last storage pool, the occupancy, these great sets of gowns from...
Speaker Change: The 92.93 to 96% of some of those stores. It's store by store. It's obviously going to be better on the West Coast. You see more of a benefit there than in Miami. Typical hurricane customers going to stay on average. I think about 10 months, so we would expect a benefit from that.
State emergencies, obviously we're following them. We are implementing those on a store by store level. So it's not monomarket level.
Speaker Change: So we would expect to see some benefit from hurricane occupancy, but that typically offsets the damage or partially offsets what we spend in the hurricane damage.
Speaker Change: Okay, understood, thank you.
Speaker Change: Start.
And our next question comes from Kate Numberos with Goldman Sachs, your line is open.
Hi everyone. Maybe on the acquisition side, it sounds like you're active and expecting to say active. I was wondering if you could give some more color on kind of who's selling and I know in the past a hurdle had been on the pricing expectation. So just kind of the volume that you're seeing and to the extent that the pricing is now being better agreed upon on the buyer and seller side.
Speaker Change: It's a good question, but I'm not sure I have a market wide answer, right? We see a lot more activity, but until...
Speaker Change: Transactions get actually closed and reported. It's hard to...
Speaker Change: to tell what's true and what's actually activity. I know from extra space side, we have a number of discussions on the way.
Selman Market, Selman Off Market, that we're very confident we'll end up as a creative transaction.
Okay, and then maybe as we think about moving rent, we know about the headwinds at the sectors and facing, but I guess if you consider properties where the move-in rate trends have been relatively stronger.
is there anything that you could point out that's different there as at less supply easier constant. We've talked about that in the past, like an urban versus not urban, some indication of like housing impacts or regional, but anything else you can mention on the stronger moving properties versus not a strong.
I think that two factors you mentioned are the most important factors. One is new supply in markets where there's been heavy supply deliveries. It's just harder.
and then secondly is the cops. If the market like Atlanta or Phoenix has had several years of very, very strong revenue growth, it's hard to have additional years of very strong revenue growth.
and particularly the markets and both of those factors are probably the topless markets.
But it's cyclical, right? Real estate cyclical, markets are cyclical and that's why we believe in a highly diversified portfolio. So we have exposure to some markets that are on different ends of the cycle.
Speaker Change: All right, thank you.
And our next question comes from Joshua Dinerline with Bank of America's security. He's your line is open.
Joshua, your line is now open.
Can you please pick up your handset on your phone?
K.R. Next question comes from Spencer Allaway with Green Street. Your line is open.
You may be just to give us a question. To do what's happened to provide the cap rate on the transactions you guys closed in the quarter, and sorry if you did.
Speaker Change: I don't think we did provide tap rates on the transactions we closed.
Speaker Change: I could tell you for all of the deals that we've approved this year.
Speaker Change: V.
Speaker Change: We've had 10 wholly owned operating deals with first year yields in the old five, it's about 13 months to stabilization and a six and a half average stabilized yield.
Speaker Change: Um...
The same thing with remote stores, we've done nine holy-on remote stores, very similar returns.
Speaker Change: and then our JV deals, we are at 8 JV deals, 5 operating stores.
First year yields at 10, stabilize yields at 12, and that's because of the economic benefit of the joint venture. And then we've approved three developments in a 8.6-development yield.
Great things, and then as it relates to the rebranding of the legacy LSI assets, can you just remind us of the cost of then to date for that endeavor?
Speaker Change: Gosh, I don't have cost to date numbers. It's probably pretty modest because what we've done today is put banners up at the stores and then the rest has been digital.
Speaker Change: We expect total cost of about $117 million, but that includes $20 million of non-branding capital cost that were delayed.
Speaker Change: pending the test and the decision which door to go. So a store needed to be repainted and we decided not to repaint it until we knew which color to repaint it.
We're meeting our engineers. Our underwriting for the deal. We assumed $75,000 a property or $90 million. So it was obviously in our returns when we announced the deal.
Excellent, okay, thank you guys.
Thank you.
And our next question will come from Juan Sanabria with BMO Capital Market. Your line is open.
Juan Sanabria: Thank you for just a quick one to start. I know you gave the October occupancy, but can you give us a sense of where the new customers came in the door at relative to last year?
Speaker Change: Trace that one.
So our average rate to new customers for the quarter was negative 9% year over year and our average new customer rate in October was negative 8%.
So I think some people have wondered, you know, are race getting stronger? Are they significantly better? We would tell you that...
October feels a lot like September and August and any kind of difference on a month by month basis is caused more by a comp than seen significant changes so far. And that's on the EXR pool.
Speaker Change: Okay.
Gardens this cut with more pricing powers. You just hope you can help square those two kind of...
different comments that you made previously.
Yats off, tell us I...
I mean, it has not performed as expected this year, right? We've caught revenue guidance now twice for those stores. And really, three things have contributed to that. One is that the markets in 2020, fours weaker than we projected in the beginning of the year. But just is.
and then secondly the markets that LSI has disproportionate concentration have performed disproportionately weaker. So think of Florida where LSI has...
a larger concentration than extra space proportionally.
Speaker Change: And then the third thing is we didn't get the benefit of...
The dual brand that we expected.
and that's why we made the decision this summer to move to the single brand and get the expected benefit from that. So to me, those are the three largest factors that led to us having to reduce revenue guidance for.
Speaker Change: Frue Allerside.
Speaker Change: Okay, so it sounds like maybe some of the overweight I slower to market, deteriorated a bit more than you expected in that cap of the summer early falls, that'd be very sad.
That's very fair to say yes.
Speaker Change: Fesher.
Speaker Change: Sure.
Speaker Change: [inaudible]
Speaker Change: Episode 2
Speaker Change: Shall we have a additional question, sir?
Speaker Change: Michelle?
Speaker Change: [inaudible]
Speaker Change: Episode 2
Speaker Change: The End
Speaker Change: [inaudible]
Speaker Change: The End
Speaker Change: Episode 2
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Speaker Change: Here. Yeah, we can.
Speaker Change: The
Speaker Change: [inaudible]
Speaker Change: Episode 2
Speaker Change: Episode 2
Secret Agra, wait a minute here.
Speaker Change: The New Year's Day,
Speaker Change: Thank you.
and our next question comes from the line of...
Nick Euliko with Scotion Bank.
Thanks. I guess first question is going back to the fourth quarter and what's assumed in guidance. He just gives us a feel for occupancy. How do you think about that in the fourth quarter?
Sir, who's this?
Speaker Change: This is Nick Eulico Scotch or Bank.
So Nick, we had technical difficulties and we couldn't hear anything so, but we're back now and if you would mind repeating the question, we can jump right back into it.
Sorry about that. Yes, sure, sure, thank you. So, this question is going back to the fourth quarter and what's assumed in guidance. Give us a feel for how occupancy is expected to trend.
Nick, so Scott, we, we keep going on model oxygen feed rate, it's more modeling revenue.
and so we would tell you that there's not extreme revenue drop off and not extreme revenue growth is all that we could really say there.
Speaker Change: I would expect we're going to continue to operate at higher than historical occupancy.
Speaker Change: Laples.
Speaker Change: Okay, all right, thanks. And then the other question is just going back to LSI and the synergies and you know you changed the revenue
Speaker Change: Outlook, but I guess going back to those, you know, the June non-revenue pieces on the synergies. Can you give us a feel for, you know, latest thoughts on how you're trending versus those expectations?
Sure, happy to. So we were targeting $100 million in synergies in three categories, a DNA, ten insurance and properties.
and we're doing very well in the ones that we control. So, GNA, we're now looking at about $53 million worth of synergies, well well in excess of our initial estimate.
Speaker Change: Ten Insurance, we're tart, we're looking at about $27 million.
Speaker Change: of Sinner G's.
Speaker Change: and then from the properties it depends on where you are in the range of guidance anywhere from zero to ten.
Speaker Change: So overall about 80 to 90 million of the hundredth and we believe we originally targeted $65 million.
Properties Energy, we do believe we can eventually get there, we just need some market improvement, move to the single brand and some time and we'll get there.
Speaker Change: and of course these $100 million synergies does include all the other benefits of the merger.
Value Ad Projects, and we've identified and started to execute it the life storage properties. So the 100 million relates to just those three categories, not the total benefit of the merger.
God, thanks for your attention.
Speaker Change: Thank you.
and our next question comes from the line of Eric Wolves with City.
Eric Wolves: Hey, thanks. Maybe just to follow up on an on the other side. I think last quarter you mentioned that you expected You'd like storage portfolio to outperform your legacy, the extarportfolio in 2025. I was just curious if that's the case or some of the recent weaknesses and the Sunbelt markets has changed that view.
Speaker Change: On, no, life storage portfolio is outperforming extra waste portfolio this year and I would expect it to do the same next year.
and that's not just across the same market, or at it's across, that's comparing one directly versus the other. Meaning, Ellis, I like the same store pool, or the same store pool, or the same store pool. So my right about, yeah, correct.
Speaker Change: and then you mentioned in...
Speaker Change: and then just a moment ago about occupancy being stronger than normally into the rest of the year. So I guess we'll...
Speaker Change: What are you looking for to try to dial up, move in rates? What would it take over the next three to six months, you have strong occupancy? What else are you looking for to try to get more aggressive on move rates?
So, I'm sorry if I'm going to say diabetes. You know, we talk about aggregate data here.
But every night, the algorithms look at every unit type in every building and adjust rates. So as we speak today, there are rates in certain unit sizes, in certain buildings, in certain markets that are moving up.
and the algorithm looks at many, many, very, very, very, very historical data, number of moving, number of vacates and a bunch of projected performance.
Speaker Change: To make those decisions. And...
Speaker Change: The aggregate of all of those decisions is what we report.
But it's not like any group of us sit here in Salt Lake City and look for a few macro things and decide we're going to increase rates 5% or decrease rates 2%.
Yeah, I'm not completely laying your stand at. I guess from our perspective, you're just looking at the alcance and see that it's relatively full and better than it normally is. And so I don't know if there's some kind of demand, I'm just trying to understand the algorithm, like, what demand indicators.
I don't know if you can list a couple that are maybe lower than normal or otherwise suggesting that you need to be cautious on moving rates. And I get that there's many factors you're looking at in their projections with the future. I'm just trying to understand.
Sharon, Joseph Margolis, James, one's are. Okay, let me give you a better answer then.
Speaker Change: Oofly of Editing. So one thing that we're constantly doing is the algorithms will produce a price for a unit type in a building.
Speaker Change: and we will always have a test running where a certain number of stores will add 5% to that algorithm number and a certain number of stores will subtract 5%.
Speaker Change: and that algorithm come.
So we'll be able to tell.
Speaker Change: It's these different price bands, right? The algorithm produced price bands, 5% higher, 5% lower, and you look at number of rentals, rate, cost to acquire that customer, ECRI, and length of stay, and come up with a customer value.
and that will tell us that...
You know, the algorithm produced number produces the best long-term revenue, or if we intervene, then when 5% lower or 5% higher, where we would do better.
and that's kind of an ongoing test we run to help us understand if the algorithm rhythmic produced prices is in fact reducing the best result for us.
Is that helpful? Yes, that's helpful, thank you.
Speaker Change: Thank you.
and our next question comes from the line of Joshua Dennerley with Bank of America.
Hi, this is Jeff Specter for Josh. Sorry, we had technical difficulty before. Apologies if I, if you already discussed this show, you know, you talked about, you know, occupancy in the, the strength and occupancy.
and just given the time of the year, I know we typically like to ask, you know, how are you feeling right now as we're entering November? You know, and how do you feel the year will end?
Speaker Change: and how does it build in heading into 25? Compared to, let's say, prior years. I know we had a number of years where there wasn't seasonality.
Speaker Change: But if you go back pre-COVID right, how does this compare in terms of now this high occupancy level and then, you know, thoughts into 25. Thank you.
So I feel good that our people and processes and systems are optimizing performance in a difficult market. I feel better if there was an difficult market but I can't control that.
Speaker Change: But I feel really good that everything was doing, the strategies were implementing, the tests that we're undertaking is...
You know, squeezing is much juice out of the fruit as we possibly can.
I also feel very good at a high level of occupancy when the market turns and the market will turn.
Speaker Change: We are in a really good position to benefit from that quickly.
I feel good that everything we see confirms moderation and new supply.
Speaker Change: So that makes me feel good as well.
Speaker Change: So I certainly feel better if we're having 6% revenue growth, but we're not going to have that this year and all we can do is make the best of it and position ourselves well for the future.
Okay, thanks, that's fair. And then my second question is again on LSI, you talked about the lack of pricing power there tonight.
You know, keep thinking about, you know, you want to, you know, again, use the EXR systems fully into the outside, portfolio and you're saying it's outperforming, but again, there seems to be some...
Weakness there, right? It feels like at least tell me if I'm wrong between that LSI customer possibly, first the EXR customer. So, you know, what gives confidence that you can really push on that LSI customer as we enter 25.
Speaker Change: So again, I think of those markets as more tertiary secondary markets, that consumer is more squeezed today than ever.
So we don't see that difference in consumer. We think the storage consumer is the storage consumer, whether regardless of what product they go to.
The, their behavior is very similar. We don't see significant difference in bad data or reaction to East or other behavior between markets.
Speaker Change: So I'm not trying to agree with the thesis there.
and Jeff, I'd maybe point to a couple of other things. One is, we went into this with a 400 basis point delta and occupancy that we had to make up. So we went in with softer rates partly to gain occupancy there.
Recently we switched our algorithm over time that'll even think about in addition you had a brand.
and a thesis going in where we thought the dual brand was going to compensate and we would actually have higher growth as a result of the dual brand. We haven't found that and we now believe it. It's going to do better on a single brand. That change just happened. So we're still optimistic and that.
You know, feel like it's been tough timing and we think that there's still a lot of good growth in that portfolio.
Speaker Change: Okay, thank you.
Speaker Change: Thanks, Jeff.
Thank you.
and our next question comes from the line of Eric Luka with Wells Fargo.
Appreciate you taking the question.
Eric Luka: But it could you comment a little bit on kind of the move in to move out spread. I think it's been kind of the negative 30% range maybe a little bit.
North of that. And then as you kind of look out over the next one to two years. I mean, where do you think that spread has to go to get back to what would be kind of a more typical same-store growth rate based on your current pace of UCRIs is a negative 20, negative 15, maybe any color there would be would be helpful.
Yeah, so for the quarter we average just over 30% moving into October, you're mid to upper 30s, which is, you know, the growth from the second to the third quarter is common at this time of year. You typically, that spread usually does get larger.
Eric Luka: I think it'll depend a little bit on how strong the market comes back and what we do with kind of pricing strategy.
Today we found the most effective way to attract new customers is with the lowest rate. It's possible that changes as the market strengthens, so it's hard to comment on that until we can't see it and have confidence on with pricing strategies going to work best.
Gotcha, appreciate that and just to follow up.
On Raid is between the LSI and EXR properties, they guess more for like for like markets.
How much of a spread you still have remaining there and kind of as you work through this new brand in strategy, you know, when you think that can continue to close or hit parody.
So I'm like for like properties.
are spread is about 6% today and it was close to the 16th closing.
and there's no reason that that shouldn't be zero at one point.
Eric Luka: When you look at like for like markets.
We haven't made as much progress. We've only closed about 2% of the rate gap, although we have closed the occupancy gap meaningfully for those stores.
and I don't think we'll ever get to parody there, but we will close some more of the rate gap.
Thank you. One moment please for our next question.
Now next question comes in line of hotling vang with JP Morgan.
Speaker Change: Yeah, hey guys. I guess my first question is, as you look toward next year, how do you think your pricing power and top of the phone demand would compare to this year and pre-COVID levels?
Speaker Change: Well, that's the crystal ball question, right? Yeah, particularly, you know, we need to understand, uh, interest rates. We need to understand the housing market. We need to understand the health of the economy and the consumer.
Eric Luka: and all of those things will drive into storage demand and our ability to push pricing.
So I wish I had a crystal ball, but I don't.
I do know that...
and sorry to repeat myself, whatever environment we're faced with.
We will be able to maximize performance.
and do well. And also that we have all of these other ancillary businesses and tools that can help support company performance in periods when perhaps the stores aren't doing as well.
Got it, and my second question is, with the EXR LSI, with LSI working on the same brand as EXR, are there any quantifiable cost savings you'll realize over the near term same marketing?
So the easiest cost they've been to quantify is we were spending an annual run rate based this $10 million more in paid search.
for the LSI stores to make up for the relative weakness in organic sections of the search.
Eric Luka: So, once we, you know, not immediately on day one, but once we get the LSI stores, the parity with the extra space stores, you know, we shouldn't have to spend that extra $10 million.
and then the second savings which is more difficult to quantify is...
with more stores on the extra space brands. The extra space brands should be stronger, leading to additional marketing savings.
Speaker Change: God help him, thank you.
Speaker Change: Thank you.
and our next question comes from the line of Ronald Camden with Morgan Stanley.
Hey, you have Johnny on for a long. I just have two quick questions.
The forces can you please comment on the magnitude of ECRI for Alasian EXR pool. I do push ECRI and a similar page for both pools, or you do EXR harder than the other one. Thank you.
So they're both on the same ECRI program now, so there's no difference in by by original brand of the store in a pace or amount of ECRI.
I think the second one actually we really curious about your field or commentary on the moving rate.
because we know like moving raises continue to be weak and do you think it's actually overcaracted by your model? Like going forward to use, like you give us a feeling that you prioritize occupancy overpricing, but if that's going to be continued, be your focus, going forward in Q4 and 25.
So we prioritize long-term revenue and whatever mix of occupancy.
and Ray and the other various factors produce the long-term revenue.
That's what we'll follow. Right now the data is showing us to lean a little heavier into occupancy than we did. But if the data ever tells us something differently, across the board or particular store or market, then we'll follow that.
Speaker Change: Next up, thank you.
Speaker Change: Thank you.
and our next question comes from the line of Samir Conal with Evercore ISI.
Hey, Jo, on your comments about ECRI, and you kind of talked about the magnitude being similar for Ota O'Sanie, EXR now, but...
I mean, has there been any sort of pushback at all that you're seeing from the customers at this point?
Speaker Change: So...
Speaker Change: This is always...
Speaker Change: You know, what you would call pushback from the customers, right? Some customers move out because the space got too expensive for them, or some customers move out because when we notify them, they're eight went up, they reminds them they have storage and they don't need it anymore.
But, you know, we track that very carefully what percentage of customers are moving out because they got an East Yara I notice and we do that because every month we keep a control group and track different behavior.
So we know...
Speaker Change: The excess move outs were causing by our ECRI program and it's within an acceptable range today and if it ever changes, then we can adjust our program accordingly.
Okay, got it. And I guess my second question is around your bridge loan program and you've been pretty active on that front this year as well, right?
Speaker Change: It's led to higher interest income in the financials. So help us think through kind of how to think about the volume or the program in the next year and kind of what is that opportunity set with life. Thanks.
Speaker Change: So we've had a very strong year in Bridge Lone Origination.
I think one of the reasons of that was we had a whole new group of Elliside partners that we got to know and made a lot of bridge loans to them. So that was helpful.
Another reason was the acquisition market was difficult. There was a bit of spread we talked about. So some...
Speaker Change: Owners decided instead of trying to sell in the current market, they'll get a bridge-lock and try again in three years.
Speaker Change: So, volumes work good. Next year we have some meaningful maturitys. Some of those will extend some will pay off and some will buy. So that will have...
Some downward pressure on our book of business, but we continue to remain, I expect we'll continue to remain active and make new loans.
Speaker Change: It all depends on opportunities. We're not going to make bad loans just to keep our book of business large and we're not going to pass by opportunities because we think we've made too many bridge loans because we can always sell a notes which we've done to manage our exposure.
Thank you.
Speaker Change: You're welcome, Schmer.
Speaker Change: Thank you.
and our next question comes from the line of Omoteo, Ocasania with Deutsche Bank.
Hi, yes, Good afternoon everyone. I just wanted to stay on the credit lending platform and the line of questioning there.
again the loan there was sold by this quarter. Could you just talk a little bit about the characteristic of those loans, why you decided it makes sense to sell it? And if we just kind of come from where you're doing this is your kind of selling AP search, but you're still holding on to our residual.
Speaker Change: um
Loans that are easy to sell. So for example, if we have a $20 million loan and $45 million loan, it may make more sense to sell the A on the $20 million, because it's one transaction is opposed to for separate transactions.
Also, our buyers have preferences for certain markets or where they have exposure, where they don't. So clearly, the buyers have input into this.
as well.
So there's no...
Formula, look up table, it's more business judgment on which loans to sell.
Speaker Change: and I'm sure go with this second part of the question that for the Lord, you actually tell the Holy Lord or are you holding on to a residual.
Yeah, I'm sorry. Yeah, we sell, we sell the APs and we keep the mess.
So we do keep residual. So you know, the whole capital stack is 100% we're selling 55 or 60 and keeping the balance up to 75 or 80.
That's helpful. And then just to talk a little bit about one of the other Bruce drivers, which is a third party asset management. Again, you're going to continue to go in that space when I know that each.
You know, each management agreement is kind of different and unique to each operator, but just kind of curious. Yeah, and if you just kind of talk thematically about anything that may be happening to kind of increase profitability of that business, as you continue to grow it.
So we're continuing to grow the business.
for a couple reasons. One is there's one less competitor out there, right? LSI was a competitor for the business and they don't, they, they're us now. We have developed relationships with all the owners who,
Speaker Change: Ellis, I used to manage for and for many of them we're growing that relationship.
Also the operating environment is harder and when the operating environment is harder, more non-institutional owners seek.
Speaker Change: Professional Management, right? If you look at our occupancies compared to the occupancies and performance of, you know, the small operators in general, we're significantly outperforming them.
and I also think we'll go on the business because we do an excellent job in running the properties, communicating with our owners and providing great customer service.
and because of that we have a great reputation so even though we are the most expensive in the business, more expensive and have very healthy margins, we're also growing the business faster than anyone else.
Speaker Change: Thank you.
and our next question comes from the line of...
Keybinkham with Truth.
Speaker Change: Thanks, good afternoon. Just a couple quick follow-ups here. Can you comment on LSI-3 rate trends in the quarter and into October?
Speaker Change: So, on a year over year basis, given we have a difficult time partly because on a year over year basis, we didn't manage them for the whole quarter, so we don't have perfect data on that. For the quarter quarter, their rates are down 1%.
Speaker Change: So just on a quarter over quarter basis, he didn't see as much of a seasonal decline as he saw on the extra space for both
Speaker Change: And you mentioned that there's a 6% spread on a life-threat-like basis. You know, in order for it as close, do you ultimately need kind of top-up on the demand to be better, or do you think on a single grants strategy? And whatever else you guys are working on, you think you can close that gap, you know, holding everything else constant.
I think the latter. I think on the stores that are, you know, like for like same quality store in the
Once we're on a single brand and have to stop sometime, we'll close that gap.
and the last question on the bridge loans of the 300 plus or minus maturity of an exterior roughly do you know what percent would extend.
So half of those loans aren't maturing until November and December last year, so we have.
You know, quite some time before we fully understand, you know, are they going to satisfy all the tests to extend or not? So it's hard to give a accurate percentage at this time.
Okay, but they all have additional decency and key bend to meet any of those requirements, so they still have a fair amount of time for form of curdy.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. Thank you. Now I'm showing over the questions, so with that, I'll hand the call back over to management for closing remarks.
Speaker Change: Great, thank you everyone for your interest in extra space and your time. I apologize for the technical difficulties we had today. We look forward to seeing everyone at the upcoming meetings. Have a great day.
Speaker Change: Ladies and gentlemen, thank you for participating. This does conclude today's program and you may now disconnect.