Extra Space Storage(EXR) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a core FFO of $2.02, which was in line with internal forecasts despite a modest miss in same-store NOI due to higher-than-expected property tax increases [4][5] - The annual core FFO guidance for 2023 was tightened to a range of$ 8.05 to $8.20 per share, maintaining the previous midpoint [8][19] - Same-store revenue increased by 1.9%, slightly ahead of expectations, driven by high average occupancy of 94.4% [15][35] Business Line Data and Key Metrics Changes - The integration of Life Storage properties is on track, with the company adding 49 new stores gross in the third quarter, totaling 151 year-to-date outside of the merger [16][5] - The same-store expense guidance was updated to a range of 4% to 5% for the full year, reflecting higher property taxes and insurance premiums [7][4] Market Data and Key Metrics Changes - Occupancy for Extra Space ended October at 93.9%, a 1% gap from the previous year, while Life Storage occupancy was at 90.8%, showing a slight narrowing of the gap [61][62] - New customer rates were down an average of 11.8% year-over-year in the third quarter, with a slight improvement noted in October [35][66] Company Strategy and Development Direction - The merger with Life Storage is expected to provide greater diversification, stability, and operational efficiencies, enhancing future growth opportunities [15][3] - The company is focused on capital-light external growth channels and has achieved a G&A synergy run rate of$ 23 million, with expectations to exceed the $100 million synergy target [5][31] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the economic environment, including wars, interest rates, and consumer health, but remains confident in the storage sector's resilience [5][34] - The company anticipates that new customer rates will improve, and existing customer performance remains strong, setting a positive outlook for 2024 [66][85] Other Important Information - S&P Global upgraded the company's credit rating to BBB+, which is expected to drive future interest expense savings [19] - The company has seen a moderation in new supply, with expectations for deliveries in 2023 to be similar to 2022, influenced by rising construction costs and interest rates [100] Q&A Session All Questions and Answers Question: How is the Life Storage portfolio responding to the Extra Space strategy? - The response is market-specific, with no significant impact observed [24] Question: Can you characterize pricing power today versus six months ago? - Pricing power for both new and existing customers remains strong, with no significant changes noted [25] Question: What is the current occupancy status? - Extra Space's occupancy is at 93.9%, while Life Storage is at 90.8% [61] Question: How do you expect the balance sheet and variable rate debt to evolve? - The company plans to reduce variable rate debt over the next 1 to 2 years [27] Question: What are the expectations for the Sunbelt markets into next year? - Job growth remains a key indicator, and while revenue growth may slow, the markets are still healthy [85] Question: How is the integration of the Life Storage properties progressing? - The integration is on track, with significant synergies expected to be realized [37] Question: What is the outlook for new supply in the storage sector? - New supply is expected to moderate due to various economic headwinds [100]