Extra Space Earnings Call - Q1 2025

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Extra Space Earnings Call - Q1 2025 Company / Call: Extra Space Storage Inc. (NYSE: EXR) — First Quarter 2025 Earnings Call. Company participants: Jared Conte (VP, Investor Relations); Joe Margolis (Chief Executive Officer); Scott Stubbs (Executive Vice President & Chief Financial Officer). Analysts: Michael Goldsmith (UBS); Samir Khanal (BofA Securities); Nick Yulico (Scotiabank); AJ, on for Todd Thomas, and Todd Thomas (KeyBanc Capital Markets); Ronald Kamdem (Morgan Stanley); Spencer Glimcher (Green Street); Eric Wolfe (Citi); Juan Sanabria (BMO Capital Markets); Brad Heffern (RBC Capital Markets); Eric Luebchow (Wells Fargo); Caitlin Burrows (Goldman Sachs); Michael Griffin (Evercore ISI); Ravi Vaidya (Mizuho); Ki Bin Kim (Truist); Mike Mueller (JP Morgan); Brendan Lynch (Barclays); Omotayo Okusanya (Deutsche Bank). Recorded: April 30, 2025 Video: https://www.youtube.com/watch?v=GqQqz2sYv3s Key topics: Core FFO of $2 per share, up 2% year-over-year; same store occupancy 93.4% at quarter end and 93.7% at the end of April; same store revenue growth of 0.3% and same store NOI down 1.2%; controllable expenses down 1.9% versus uncontrollable expenses up 8% on property tax and weather; $153.8 million of wholly owned acquisitions across 12 stores; dissolution of a 23-property JV with a $1.7 million promote; $53.2 million of bridge loans closed and roughly $1.4 billion of loans on the balance sheet; Management Plus adding 113 stores gross and 100 net to reach 1,675 third-party managed stores; two bond offerings — $350 million 5-year at 5.17% and $500 million 10-year at 5.4%; Life Storage rebranding progress, 500 stores re-signed and $1.3 million of paid search savings; street rates moving from -6% at year-end to flat in April; 2025 guidance maintained with a $17 million cut to equity in earnings tied to the SmartStop preferred repayment; two JV buyouts with $3.1 million and $4.2 million promotes at 7.7% and 7.4% first-year yields; Los Angeles wildfire price caps costing about 20 basis points of revenue; tariffs, immigration policy and slowing new development; a small post-quarter share buyback cut short by the tariff pause. Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— Operator: 2025. I would now like to turn the conference over to Jared Conte. Please go ahead. Jared Conte — VP, Investor Relations: Thank you, John, and welcome to Extra Space Storage's first quarter 2025 earnings call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risk and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, April 30th, 2025. The company assumes no obligation to revise or update any forward-looking statements because of the changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, chief executive officer. Joe Margolis — CEO: Thank you for joining us today. I am pleased to report a solid first quarter with performance exceeding our internal projections across several key metrics. Our core FFO of $2 per share represents a 2% increase year-over-year. Same store occupancy remained at historically high levels, ending the quarter at 93.4%. This represents an improvement of 100 basis points from the first quarter 2024 and 10 basis points from the previous quarter and drove positive same store revenue growth of 0.3%. Our positive revenue growth demonstrates the continued resilience of our portfolio and effective revenue management, customer acquisition, and operational strategies. We also expect to see additional benefit from the performance of the former Life Storage assets, which continue to see leasing and pricing improvements since being unified under the Extra Space Storage brand. Our external growth initiatives demonstrated strong momentum in the first quarter. We completed $153.8 million in wholly owned acquisitions, adding 12 high-quality stores to our portfolio. We also dissolved a 23-property joint venture and realized an embedded promote of $1.7 million. In this transaction, we exchanged our 25% ownership interest in 17 properties for a 100% ownership interest in 6 properties. Our bridge loan program remained active with the team closing $53.2 million in loans during the quarter. We sold $27.7 million in bridge loans as part of our capital allocation strategy and ended the quarter with approximately $1.4 billion in loans on our balance sheet. This program continues to provide attractive risk-adjusted returns while building and enhancing valuable relationships with owners across the storage sector. Our management plus platform showed remarkable growth, adding 113 stores gross and achieving a net addition of 100 properties. This brings our third-party managed portfolio to 1,675 stores, reinforcing our position as the leading third-party management provider in the industry. Our multi-channel approach to external growth, combining wholly owned acquisitions, joint ventures, bridge lending, and third-party management, continues to provide us with numerous opportunities to expand our footprint and enhance shareholder value. As we evaluate the current macro environment, we understand why investors across asset classes are concerned. We share the concerns about interest rates, volatility and economic uncertainty. However, we are also encouraged by many attributes of our sector portfolio and platform which have led us to maintain our 2025 guidance. First, the self-storage sector has historically demonstrated resilience during economic downturns due to its need-based demand drivers and broad customer base. Second, we have a highly diversified portfolio with exposure to markets in all stages of development and economic cycles, removing much of the market volatility experienced in smaller and more concentrated portfolios. And finally, our sophisticated systems, experienced team, economies of scale, and strong balance sheet position us well to optimize performance and to outperform the storage sector as a whole in the long run regardless of market conditions. We are encouraged by the strength of many key current operational metrics and have not seen any change in customer health or behavior to date. We have high same store occupancy, improvement in new customer rates, low moveout activity, and stable delinquency which all position us well for future growth. We remain confident in our ability to execute our diversified investment strategy as opportunities arise across our multiple growth channels. We remain focused on maximizing FFO by executing our proven operational strategies and maintaining our industry-leading platform. I will now turn the time over to Scott. Scott Stubbs — EVP & CFO: Thanks Joe and hello everyone. As Joe mentioned, our first quarter financial results were ahead of our internal expectations. Our core FFO of $2 per share represents a 2% increase from the prior year. This outperformance was driven by better than expected same store revenue, higher tenant insurance, and greater interest income. On the expense front, we saw a notable divergence between controllable and uncontrollable costs. Our operations team successfully reduced controllable expenses by 1.9% year-over-year through operational efficiencies and strategic cost management. However, uncontrollable expenses increased by 8% primarily due to continued property tax pressure and weather related expenses. This dynamic of controllable versus uncontrollable expenses resulted in a same store NOI decrease of 1.2% compared to the first quarter of 2024. We continued to strengthen our balance sheet as we executed 2 bond offerings in the quarter. One 5-year issuance of $350 million at an effective rate of 5.17% and a second 10-year issuance of $500 million at 5.4%. These offerings demonstrate our continued access to public debt markets and our ability to secure favorable terms despite the volatile interest rate environment. We continue to maintain a conservative leverage profile with almost 90% of our debt at fixed rates net of our bridge loans receivable. This helps insulate us from near-term interest rate fluctuations. Our weighted average interest rate stands at 4.4% reflecting our ability to secure competitive financing across market cycles. Based on our first quarter performance and current market conditions, we are maintaining our full-year 2025 FFO guidance. Same store revenue expense and NOI guidance also remains unchanged. This guidance assumes no significant recovery of the housing market and reflects our strong occupancy levels and stable new customer rates balanced against broader economic uncertainties. On the expense front, we anticipate continued pressure from property taxes and other uncontrollable costs. We have updated a few items in our guidance, including a $17 million reduction at the midpoint in equity in earnings. This reduction reflects the repayment of the SmartStop $200 million preferred investment and the expected buyout of certain JV partners. The income from the properties we have and will purchase from our JV partners is now reflected in non-same store NOI. We've also increased interest expense to account for these partners' buyouts and to reflect the change in the forward interest curve. Our annual acquisition guidance has also been increased to account for the JV buyouts that are currently under agreement. We are encouraged by our core business fundamentals and are confident that our diversified portfolio and systems will maximize performance in all economic scenarios. And with that, John, let's open it up for questions. Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speaker phone, please lift the handset before pressing any keys. Your first question comes from the line of Michael Goldsmith from UBS. Your line is now open. Michael Goldsmith — UBS: Good afternoon. and thanks a lot for taking my question. Uh look like street rates um closed the gap pretty materially in the first quarter. I was wondering, you know, what what's driving that? You know, it doesn't feel like demand is incrementally picking up, but I'd love to hear your comments there. And then also if you can provide an update on on just how the conditions played out so far in April. Scott Stubbs — EVP & CFO: Yeah, Michael. So, so far quarter to date, things have played out very similar to what we were expecting. So, no major surprises, maybe slightly ahead of what we originally expected. In terms of street rates, our street rates have gone from 9% in Q3 last year to year-end street rates of -6%. In the first quarter, our average was slightly negative and then by the end of the quarter and into April, we were uh we were flat. So street rates have improved. You know, we're encouraged by that improvement. A 6% movement in the quarter is encouraging, but it's still pretty early to say where those are going to go into our rental season. Michael Goldsmith — UBS: Got it. And as a followup, you know, uh during the first quarter, you had see revenue growth of 30 basis points. the gu the midpoint of the guidance range implies that you know that same store revenue remained in you know in that range through the year. I guess like is that a reasonable outcome for same revenue just to to kind of remain where it is through the year or you you know just trying to maintain some flexibility given some of the uncertainty out there. Thanks. Scott Stubbs — EVP & CFO: Yeah. So I think it depends on where you are in the range. I mean, you're assuming the midpoint in your comments here. We gave a fairly wide range for the year, and that had to do with not really knowing some of the economic conditions that we were going to see. So, I think we're now moving into the leasing season. You know, if we do see that rate power, I think that you'll see us above the midpoint of the range. And if we don't see much rate power, I think you, you know, you could see it below the midpoint. Michael Goldsmith — UBS: Thank you very much. Good luck in the second quarter. Scott Stubbs — EVP & CFO [attribution inferred]: Thanks, Michael. Operator: Your next question comes from the line of Jeffrey Spector from BofA Securities. Your line is now open. Samir Khanal — BofA Securities: Hi, actually it's it's Samir Khanal. Uh sorry about that. Um so good morning everybody. Uh so Joe, it looks like you had the the ability to raise guidance, but you didn't. And it doesn't look like uh you've seen any changes in customer behavior, but I guess what instructions are you giving your troops on the ground as it relates to leasing, right, this spring leasing season? Has there been a shift in strategy at all given the the uncertainty you you've kind of mentioned um in your opening remarks? Joe Margolis — CEO: Uh no, there's been no change in instruction or strategy. Our goal is to maximize revenue. We have, you know, systems and processes in place to do that. I don't need to give instructions on a day-to-day basis. The, you know, the the algorithms are pricing every unit in every building on a nightly basis, taking into account both our, you know, massive data set that we have and what's going on on the ground today. And uh we're I'm very very confident that our that our both our systems and our people are set up to take advantage of of whatever opportunities present themselves and react to to the uh environment as it unfolds. Samir Khanal — BofA Securities: Thank you for that. And then I guess my second question is I mean in your opening remarks you talked about the the sort of the positive impact from LSI that you you're seeing. Uh maybe expand on that. And you talked about improved leasing in that portfolio. Maybe just give a little bit more color. Thanks. Joe Margolis — CEO: Sure. Absolutely. Good question. So, um, overall the former LSI stores rebranded as Extra Space are progressing as expected. We're seeing improvement in both organic and local search results, although there's still uh further room to improve there. uh the occupancy gap between the former Life Storage same store pool and the former extra space same store pool is close to 30 basis points which is as tight as it's ever been. Uh if you look at the 3-month period prior to the conversion to a single brand and compare it to the 3-month first quarter 2025 period rentals at the former Life Storage stores are up 10.4%. uh the rate growth at the Life Storage stores is faster than the rate growth at the extra space stores. And on the expense side in the first quarter we saved $1.3 million in paid search at the Life Storage stores. Uh physically we have 500 stores that have their signage replaced, 350 offices complete. Uh we'll have the painting done by year end. So while we're well on our way there, we're not done and we hope to get further improvement as the physical part of the rebranding is completed as well. So overall h happy where we are, happy with the pace of progress and uh looking forward to it continuing. Samir Khanal — BofA Securities: Thank you for that. And and finally, Scott, just one last one on on this exchange of the 25% ownership interest for the properties um uh to the existing joint venture. Was there an impact in in 1Q from that at all? Scott Stubbs — EVP & CFO: There actually is no impact. It basically is moved from equity an equity pickup to uh it'll be wholly owned and that transaction actually happened on March 31st. So going forward it's reflected in uh same in non-same store NOI. Samir Khanal — BofA Securities: Okay, perfect. Thank you. Joe Margolis — CEO / Scott Stubbs — EVP & CFO [attribution inferred]: Thanks, Sam. Thanks, Sam. Operator: Your next question comes from the line of Nick Yulico from Scotiabank. Your line is now open. Nick Yulico — Scotiabank: Uh thanks. Uh I was hoping to just get a feel for the um you know the acquisition yields for what was done in the quarter and what's uh you know under contract right now. Joe Margolis — CEO: Sure. So we bought a wide variety of types of assets in the first quarter. The you know underwritten months to stabilization range from 1 month to 19 months. So that could that tells you they're at different stage of lease up. Initial yields range from 2.3% to 6.5%. And they stabilize in the the upper sixes to to 7%. So obviously, you know, high higher stabilized yields if you're further out on the uh stabilization projection. Nick Yulico — Scotiabank: Okay, great. Thank you. And then uh just second question is is um and I know Scott you know kind of framed out some of the um you know the change in moving rate growth uh in the fall versus the fourth quarter. And you know even if we looked at it like sequentially in terms of what the move in rents were in the first quarter versus um the fourth quarter it was you know there was a higher sequential jump in in that move in rate than there was a year ago uh during the during those similar periods. and you know at the same time you had you know occupancy up. So I guess is is the message here that you know you guys are feeling a little bit better about you know pushing rate and and uh removing some of the discounting on on the front end. How should we think about that? Thanks. Scott Stubbs — EVP & CFO: I think we're feeling good about things. I think it's still too early to say moving into the leasing season. you know, we have, you know, rates have moved up sequentially month over month, which is good, but on a year-over-year basis, they've, you know, and from the previous quarter, they moved up 6% and they continue to move, but we'll see how those move as we move into the leasing season. So, we would almost tell you it's really too early to tell. Nick Yulico — Scotiabank: Okay. Scott Stubbs — EVP & CFO [attribution inferred]: Thank you, Nick. Operator: Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is now open. AJ — KeyBanc Capital Markets (for Todd Thomas): Hi, this is AJ on for Todd. Um, quick question uh just real quick around the April data. Uh, could you quantify uh the occupancy for April thus far and what that looks like year-over-year? Scott Stubbs — EVP & CFO: Yeah, occupancy at the end of April is 93.7%. So, it's a slight increase from where we were at the end of Q1. So, you know, good movement in April. AJ — KeyBanc Capital Markets (for Todd Thomas): Okay. And then, um, real quick around, uh, kind of the 3PM growth, uh, kind of throughout the balance of the year and I guess just more broadly, uh, in this environment, um, how did how have the discussions changed around either the 3pm structured financing or even acquisitions um, with sellers? Joe Margolis — CEO: Uh, so 3PM growth was really strong. uh 100 net that includes uh the um the assets in the partnership that were um uh moved from managed to wholly owned. Sorry. So um very strong quarter you know 100 100 net is you know phenomenal growth. We continue to see strong demand from operators who are having trouble in the environment. We're seeing an increase in that demand and a significant decrease in demand from new developments as the development pipeline continues to slow down. Uh similarly on the bridge loan program we see demand kind of converse to the acquisition market. So as the acquisition market continues to be muted continued bid-ask spread we see a number of borrowers seeking to kind of get a bridge solution instead of selling and they'll try again in 3 years. So very good uh activity on both of those fronts. AJ — KeyBanc Capital Markets (for Todd Thomas): Okay, thank you. Operator: Your next question comes from the line of Ronald Kamdem from Morgan Stanley. Your line is now open. Ronald Kamdem — Morgan Stanley: Great. Just uh 2 quick ones from my end. Uh just uh would love some comments on the expense side. Um how you're sort of thinking about it. Obviously um you know taxes were higher as you expected but just any sort of relief as you go through the year. Scott Stubbs — EVP & CFO: Yeah. So property taxes and uh property and casualty insurance are the 2 areas that we kind of see pressure this year. So property taxes in the first quarter were higher. Some of that is a function of the bills that we received in the fourth quarter and we were effectively we had to catch up that accrual in the fourth quarter. So you had a harder comp from the first quarter of last year. So on an annual basis, we wouldn't expect them to increase at this rate, but on a quarterly basis, it was a tougher comp. So the expense pressure is coming more from what we, you know, we're doing what we can to control these expenses, whether it's, you know, appealing things on the property and casualty side. We've been very active in meeting with a lot of carriers, trying to make sure that we have as many people in the bid process as possible. But, you know, those are somewhat you're somewhat subject to market conditions on the property and casualty side. Ronald Kamdem — Morgan Stanley: Great. Uh my second question is just you know obviously the April sounds like it's going well but just from a macro perspective after April 2nd as you're sort of thinking about your business your markets you know um bad debt tenant feedback any sort of signs that tariffs are having an impact anywhere on your business you know business customer anything that that's coming up uh that you could share. Thanks. Joe Margolis — CEO: So from a customer standpoint, we're seeing no impact, you know, as of today in in any metric. So demand, which was mentioned earlier, is measured by Google search, generic Google search terms, is actually better now than it was last year at this time and better than 2019. So there is demand out there. We're not seeing any change in customer behavior in terms of acceptance of ECRI, defaults, bad debt. The the business is still is still good. No, with no change. Looking forward, we don't know. And and you know, we don't know what the effect of of tariffs are going to be uh on on customer and customer behavior. I do know that our systems and our uh ability to collect and react to data will optimize whatever comes comes to to fruition. So I feel good about that. I also think that tariffs and we don't even know what tariffs are going to mean in the long run are going to have an effect on pricing. immigration policy may have on on commodity pricing, steel pricing. Uh immigration policy is going to have an effect on labor pricing and I think those things will reduce further reduce new development in the future which is a good thing for our business. Ronald Kamdem — Morgan Stanley: Great. Thanks so much. That's it for me. Joe Margolis — CEO [attribution inferred]: Thanks, Ronald. Operator: Your next question comes from the line of Spencer Glimcher from Green Street. Your line is now open. Spencer Glimcher — Green Street: Yeah, thank you. Um, Joe, you commented on the sector's resiliency during economic downtimes. Um, with that in mind, have you guys started to see more capital looking to get into the space in recent months? Joe Margolis — CEO: Um, I don't know if we've seen more capital, Spencer. I think you know over the long term there's been an increase in institutional capital looking to get into the space you know when um withdrawal cues in the open-end funds started and there was uh you know other reallocations of capital it slowed down somewhat. We were certainly more busy with our joint venture partners in 2020 2021 and 22 than we were in 2024 and currently this year. But there still is a lot of capital that is interested in self storage. Spencer Glimcher — Green Street: Okay, that that's helpful. Thanks so much. Joe Margolis — CEO [attribution inferred]: Sure. Operator: Your next question comes from the line of Eric Wolfe from Citi. Your line is now open. Eric Wolfe — Citi: Hey, thanks. Uh, you mentioned that demand as measured by Google searches is stronger than than last year and I think 2019 is as well, but if you listen to the home builders, it seems like demand is pretty soft right now on affordability concerns. Apartments are seeing record low turnover. So, I'm just curious if there are other demand sources uh besides moving that are becoming a bit more important. um drivers of demand. Essentially just wondering why the Google searches look good right now at a time that the the sort of moving environment seems to be a bit weaker than normal. Joe Margolis — CEO: Yeah. So moving demand certainly has um declined. You know the peak for us was the third quarter of 2021 when 63% of our customers told us they were in the process of moving. And that's not only moving to a for sale house. That might be moving apartment to apartment or house to apartment or back home or to a dorm, but the peak was 63% of our customers and now it's about 54% in the first quarter. So there clearly is a decline, but people are still moving. There's still a substantial demand from that. The increase in demand has been in the lack of space customer and that's about 35% of our customers now are uh telling us that they are renting because they don't have enough space in their current situation. And the positive there is the length of stay of the lack of space customer is twice that of the moving customer. And one reason we see low vacates I think is because of this shift and it's helped increase our both our occupancy and our average length of stay Eric Wolfe — Citi: that's helpful and that that lack of space customer is that more pronounced in certain certain markets like I guess I would think you know New York you know big basically major urban markets where people tend to rent more than than buy but just curious case if it breaks down by market at all. Joe Margolis — CEO: Yeah, I think I think your rationale is is logical, right? New York has always been a market with less transition and more kind of lack of space, small living space tenants. And you see that in market performance, right? New York, both New York MSA and the New York boroughs, you know, outperformed our portfolio average by a significant amount. That that's a healthy market right now. Eric Wolfe — Citi: Thank you. Operator: Your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is now open. Juan Sanabria — BMO Capital Markets: Hi, good morning. Um, a question on the rates as it relates to guidance rates for new customers. You're flat now. Um, and you said that was kind of one of the main variables whether you're at the high or low end. If if rates are flat year-over-year on average or to for the balance of the year, what what would that mean in terms of where you'd be in within the guidance range all else equal? Scott Stubbs — EVP & CFO: Well, and we actually haven't, you know, guided using rates. We when we do our modeling, when we do all that, we're guiding using revenue dollars. And so when I when I'm speaking to rates and strength of that, it's more in generalities. So I would tell you obviously higher rates are going to produce more revenue and lower rates are going to produce less but we are guiding more on revenue versus rate. Juan Sanabria — BMO Capital Markets: Okay, fair enough. And then just uh a question on ECRI. We've heard from some that uh there's been maybe some moderation in in ECRI maybe the quantum that's asked for on average. Um, have you guys done any of that or seen that more broadly in the industry as you've kind of gotten more upfront or less paying up front and those rates have stabilized year-over-year, but is there any kind of offset in ECRIs as part of that give and take between the two street rates and ECRIs? Joe Margolis — CEO: I think broadly no. I think what changes ECRI for us, I'm not speaking about the industry, is street rate. Right? If we bring someone in at a discounted rate, an introductory rate, we'll try to get them through ECRI to street rate to to or close to street rate in a reasonable period of time. And if street rate is not growing, that gives us less of an opportunity to do that. And if street rate is growing, then you get a little larger ECRI. But I would think that's that's the variable is where street rate is going. Juan Sanabria — BMO Capital Markets: Thank you. Joe Margolis — CEO [attribution inferred]: Sure. Operator: Our next question comes from the line of Brad Heffern from RBC. Your line is now open. Brad Heffern — RBC Capital Markets: Yeah. Hey everyone. Um, you mentioned the Google search data having gotten a little better and the demand has finally sort of stabilized and also gotten a little better. What do you think is driving that? Have we finally just gotten to low enough pricing that that's stabilizing things? Um, obviously nothing's happened on the housing front. Supply is pretty slow moving. So, just wondering what you think's driving it. Joe Margolis — CEO: Uh, I don't think pricing has anything to do with it, right? people are searching for storage near me before they have any idea what the the price is. I think it's it's life events and uh you know just all the typical things in good economies in bad economies and in all economies that happen that drive people to to need storage. And it's one of the great great things about our business is these things happen during all economic periods, right? People are going to get divorced regardless of what the economy's going on, etc., etc. So, I I think it's just normal demand uh that that is created by life events. Brad Heffern — RBC Capital Markets: Okay, got it. Um, and then on the tariffs, are you expecting any direct impact on tenants like o away from, you know, losing your job or like the macroeconomic impacts? I know it's hard to quantify, but I'm just wondering if you have, you know, small businesses where there's they have an Amazon business and they have a unit full of imports from China, um, where it might be a headwind. Joe Margolis — CEO: So, if that's true, it's a really small part of our business to start with. And I also think to the extent there are negative impacts. So the tenant that has Amazon imports from China now is out of business, there'll be offsetting positive impacts of the business that ran out of a small flex space and their business is hurting and they have to downsize and operate out of a 10 by 20. So I o overall I don't think it's going to be a big I'm pretty sure it's not going to be a big mover to our business. Brad Heffern — RBC Capital Markets: Okay. Thank you. Joe Margolis — CEO [attribution inferred]: Sure. Operator: Your next question comes from the line of Eric Luebchow from Wells Fargo. Your line is now open. Eric Luebchow — Wells Fargo: Great. Thank you. Um I I know you don't guide to occupancy or move in rates, but I I think last call you had talked about maybe some of your occupancy burning off throughout the course of the year and that could give you a little bit more leverage in pricing. So just wondering, you know, those dynamics kind of still hold on in what you see in the market and how we should think about the next few quarters. Joe Margolis — CEO [attribution inferred]: The what what we've said in the past about occupancy is we expect less occupancy benefit in the middle and back half of the year than what we saw in the front half. And we still assume that to be true. Eric Luebchow — Wells Fargo: Okay, appreciate that. And then on the acquisition guide, the $600 million um in your updated guide, I guess, how should we think about the potential mix there between, you know, wholly owned acquisitions or JV investments and and I guess have you seen any real change in stabilized cap rates or bid-ask spreads in the market uh year to date versus last year? Scott Stubbs — EVP & CFO: Yeah, the best place to see this split is the table in the press release and you'll see a footnote over the column and the stuff that's to happen going forward. So, of those 28 properties, 27 of those are JVs. And then I'll have Joe comment on the market. Joe Margolis — CEO: Yeah, I I don't think I could accurately give you a market cap rate. I the transactions that we see close all seem to have some you know unique story or circumstances of of you know why the asset was sold at the price it was not sure there's enough volume that I'm comfortable to saying this is the the clearing price or the clearing yield for an asset of a particular quality and particular market. I think it's a very quiet and and uncertain market right now. Eric Luebchow — Wells Fargo: All right. Appreciate it. Thank you. Joe Margolis — CEO [attribution inferred]: Sure. Operator: Your next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is now open. Caitlin Burrows — Goldman Sachs: Hi. Uh, good morning there. I was wondering if you could just comment on your supply outlook for the year. Joe Margolis — CEO: So in the first quarter we saw deliveries in our the micro markets of our same store pool was as expected. You know we expected about 10% kind of on a square foot basis uh increase in uh those markets in 2025 and and we're in the first quarter we were tracking to that. I would not at all be surprised if the new deliveries goes down further just from what we're seeing in conversations with developers inquiries in our management plus platform. Uh it is it is difficult now to uh understand what your costs are going to be and understand what your returns are going to be and that it's significantly slowing down development. Caitlin Burrows — Goldman Sachs: Uh, got it. Makes sense. And then it looks like actually uh postquarter you guys did some buyback. So just wondering how you uh decided to do that and how you were thinking about that opportunity versus other uses of capital. Joe Margolis — CEO: It's a great way to ask the question because that that is the decision. It's a capital allocation decision and you know our stock price got to a point where we thought it was a a very easy decision to allocate capital to that. We put a program in place. We were hoping to to slowly buy a sizable amount of stock and without moving the market and two hours later the president put a pause on tariffs and the stock jumped and our program ended. So we we only ended up buying a little bit of stock. I think it was at a favorable price. I wish we had a greater opportunity to buy more and we'll continue going forward to to look at that as one of our many options of how to allocate capital. Caitlin Burrows — Goldman Sachs: Thanks. Joe Margolis — CEO [attribution inferred]: You're welcome. Operator: Your next question comes from the line of Michael Griffin from Evercore ISI. Your line is now open. Michael Griffin — Evercore ISI: Great. Thanks. um wondering if you could give a little more context and color on um you know, kind of these upcoming JV buyouts or acquisitions you have for the remainder of the year. Can can we get a sense, you know, are is it you approaching your partner? I I imagine you obviously own and probably manage these properties, so you have a good sense for, you know, how they're operating on the ground. I mean, are these capital partners more finite life vehicles that, you know, need to bring capital back to investors? like you know give give us a sense of you know what the kind of property mix is here and you know how this these deals came to be. Joe Margolis — CEO: Sure. So we have uh 2 joint venture buyouts that have been agreed to but not closed. Both situations the this is a uh a capital allocation decision for the partner. They'd like to take this capital and put it somewhere else. Uh one is a 2019 venture with 11 stores. One's a 2021 venture with 16 stores. We will um realize a $3.1 million promote in one and a $4.2 million promote in the other. The in the first one will invest about $100 million at a first year yield of 7.7%. And the second one we will uh have incremental capital of about $55 million at about 7.4%. So both, you know, accretive and good uses of capital. Scott Stubbs — EVP & CFO: Yeah. Maybe just one clarifying point there. That's the cash invested. We're also assuming debt on both of those JVs to get to the total purchase price that's in the tables in the press release. Michael Griffin — Evercore ISI: Yeah. Know that's uh that's certainly helpful context, Scott. Um and then you know Scott I know you laid out kind of in your prepared remarks um you know as it relates to guidance you're not expecting a recovery in the housing market but you know I imagine job growth is also you know relatively correlated with storage demand we've obviously got this um uh you know the jobs report coming out on Friday you know I I think if that you know really starts to fall off a cliff whether it's bigger declines that people expect or maybe job losses I mean have you done any analysis around that and and how that could impact your expectations for growth? Joe Margolis — CEO [attribution inferred]: We have we've looked for predictive factors you know over the years and uh job creation, job growth does impact it you know we clearly prefer strong job growth than uh shrinking jobs but uh at the same time change is what drives self storage and uh you know good times bad times there's going to be change and so even during the last downturn 2008 2009 we saw negative same store growth of 2.9%. So, you know, we feel like self storage is set up to not be recession res, you know, nothing's recession proof, but uh it does very well in a in a downturn. Michael Griffin — Evercore ISI: Also, great. That's it for me. Thanks for the time. Operator: Your next question comes from the line of Ravi Vaidya from Mizuho. Your line is now open. Ravi Vaidya — Mizuho: Hope you guys are doing well. Uh as we look ahead to the peak leasing season here, uh which markets do you expect to see strong and outsiz demand from and which may which ones may be a bit more concerning or something to monitor whether it be on weak pricing, lower demand or higher operating expenses? Thanks. Joe Margolis — CEO: I would think the answer to that question relates to supply really. So the markets that have you know are still absorbing supply you know Atlanta um some of the Florida markets on the southwest coast, Phoenix maybe will will have more difficulty than the markets that are have already absorbed supply or never really were in that type of supply situation. Ravi Vaidya — Mizuho: Got it. Thank you. Joe Margolis — CEO [attribution inferred]: You're welcome. Operator: Your next question comes from the line of Ki Bin Kim from Truist. Your line is now open. Ki Bin Kim — Truist: Thank you. Good morning. Uh just going back to the bridge loan topic, uh can you illustrate for us like how much more demand you might be seeing in that program given the volatility in the cost of capital market? Joe Margolis — CEO: I think we're seeing, you know, steady demand. I'm not sure we're seeing increasing demand. When you say more demand, I think we're seeing steady demand in that business. Um and it's a w kind of a wide variety of demand, fewer you know new development projects right now, more borrowers who are buying out an equity partner or you know tried to sell and couldn't or didn't want to the price they could sell so we're looking for a temporary solution and other you know if people who want to do additions to their property or other situations like that. Um but I I I think demand is more steady than increasing. Ki Bin Kim — Truist: Okay. And on the LSI assets, uh you mentioned improving rentals and occupancy uh for rate you know for the comparable properties to EXR like where is that gap today and how's it trended? Joe Margolis — CEO [attribution inferred]: Um, you know, overall the trend is positive. We're uh the LSI stores are improving their their rate growth is better than the uh extra space properties. We're not really looking at 2 separate pools anymore and reporting on that. we we will just report our our same store pool and you can you can look at prior pools where the the change is 95% LSI to to see the difference in performance. Ki Bin Kim — Truist: Okay, thank you. Operator: Your next question comes from the line of Mike Mueller from JP Morgan. Your line is now open. Mike Mueller — JP Morgan: Yeah. Hi. I guess first question. If a recession actually happens, can you talk about how you think you'd approach operating the portfolio, say to the playbook from the GFC? Joe Margolis — CEO: Yeah, really, really good question. I think we're in a much much better position than we were in 2009 to maximize performance in a downturn. We just didn't have the systems, the data, the the experience back then that we have now. And we did a bunch of things back then that in hindsight we didn't need to do, right? We we had a vacate problem in 2009, not a demand problem, which was interesting. Our problem was really on the vacate side. And we tried unilaterally lowering customers rates to get them not to vacate. And obviously that doesn't work when people don't need storage or don't they don't need storage. So I'm much more confident that our systems will react, you know, real time to what's going on to optimize performance. And you know what all we can do is do the best we can in the situation that's presented to us, but we are set up well to perform as best as we can regardless of the cards we're dealt. Mike Mueller — JP Morgan: Got it. Okay. May maybe one other quick one too. Do you have a sense as to what portion of I guess the bridge loans that you extend ultimately translate into some sort of acquisition? Has there has there been a consistent ratio in the conversion of say number of loans to acquisition transactions? Joe Margolis — CEO: So we've closed about $2.5 billion worth of bridge loans and we've bought about $595 million of collateral. So that's about 24% of all loans by dollars end up being acquisitions. It's lumpy though. I will tell you that it's not uh consistent uh quarter after quarter. It it's more situational. But it's one of the great attributes and you know in addition to the fees we get the interest the management economics the expansion of our relationships it's one of the other great benefits of this program is it's a it's a somewhat proprietary acquisition pipeline. Mike Mueller — JP Morgan: Got it. Thank you. Joe Margolis — CEO [attribution inferred]: Sure. Operator: Your next question comes from the line of Brendan Lynch from Barclays. Your line is now open. Brendan Lynch — Barclays: Great. Thanks for taking my questions. Um, we're a few months on from the fires in Los Angeles. Can you give us an an update on how it's impacting uh operations and customer behavior? Joe Margolis — CEO: So, um, we don't see the increase in demand from fires like we do from hurricanes. So, there's not a change in customer behavior that way. There's a demand. Obviously, our pricing has been been uh restricted by the state of emergency that's in place. We think that's going to affect overall portfolio performance by about 20 basis points in revenue this year. Um and and you know, it it kind of is what it is. There's uh you know, we we will sorry to repeat myself. we we will optimize given the situation that we're in. Brendan Lynch — Barclays: Uh that makes sense. Thank you. Um another question on uh the marketing spend. It was down 12.5% um year-over-year at a time when you're increasing occupancy. How should we think about that marketing spend going forward and what is changing um uh in your approach? Scott Stubbs — EVP & CFO [attribution inferred]: Yeah. So marketing spend we view as a tool to maximize revenue and so if we have opportunities to spend more to drive more demand to increase pricing we're going to do it uh now that should be offset by some of the savings from the LSI you know going to a single brand we we do expect savings there in terms of only bidding on one but uh we we absolutely view it as an opportunity and also an expense. Brendan Lynch — Barclays: Great. Thank you. Operator: Your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Your line is now open. Omotayo Okusanya — Deutsche Bank: Uh yes, good morning out there. Um quick one on guidance. Uh again, you you almost doubled your acquisition outlook but you know you still kind of kept guidance the same. Could you just you know walk us through a little bit of that that train of thought? Scott Stubbs — EVP & CFO: Yes. So act the the increase in guidance is offset by a portion of the decrease in equity in earnings. Equity in earnings is going down by about $17 million. Uh that decrease relates to 2 components. The first is the repayment of the SmartStop preferred which is about $10 million of the $17 million and the other $7 million is effectively moving into non-same store NOI. Omotayo Okusanya — Deutsche Bank: Okay, that's that's helpful. And then again, pardon me if I missed it, but uh ECRI trends in 1Q. Could you just talk a little bit about exactly how much you you know, you increased ECRI? And then I think there was a a prior question about, you know, how that could potentially be impacted uh by a slowdown in the economy or recession and how you're kind of thinking about it for the rest of the year. Joe Margolis — CEO: So really no change to our ECRI program in the first quarter other than with respect to Los Angeles and other states of emergencies where where we're legally restricted. Uh and also no change in customer behavior as as we've discussed previously. We track moveouts in response to ECRI every month and we see that that's been very steady with no increase in moveouts to the ECRI. Omotayo Okusanya — Deutsche Bank: Gotcha. Uh last one if I may ask, have any interest at all in doing anything internationally? Again, you have you have a pair that's doing things, you know, all the way in the UK, all the way in Australia. I'm just kind of curious how you kind of think about some of those markets where maybe the product itself is not quite as mature and there might be, you know, little little bit more opportunity for growth. Joe Margolis — CEO: Yeah, we we certainly look at international opportunities. We were invested in Mexico for a while. We've looked at lots of other opportunities. And there's really 2 big hurdles we want to jump over before we before we go outside the US. One is that we want to make at least and preferably more return on the dollar invested overseas as the dollar invested here net of taxes and currency and setting up systems and all the costs of going international. So it's got to be accretive net of all of those things. And then secondly, it's got to be scalable. We're not really interested in buying 2 assets in Toronto. it's not worth the headache. So if we can find something that's accretive for our shareholders and we can make it scalable over time, then we'd be very interested in it and we certainly look at a lot of opportunities and and we'll pull the trigger if we can ever satisfy those those conditions. Omotayo Okusanya — Deutsche Bank: Sounds good. Thank you. Operator: Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is now open. Todd Thomas — KeyBanc Capital Markets: Yeah. Hi. Um just a a couple quick follow-ups here. Uh first, um Joe, you noted that um there could be some instances of demand from tenants that might need to downsize from a flex space and look to a larger storage unit or multiple units. Are you are you seeing any use cases like that worth noting? anything to report along those lines or was that um just a point that you were making to you know sort of simply demonstrate the you know the business's you know various uh demand drivers. Joe Margolis — CEO: It's really the latter. It's you know we have seen that it's anecdotal. We don't we don't have enough volume of that to track over time. It's not a major part of our business. But the point that I was trying to make is that while you know positive economic growth, job growth creates storage demand and we prefer that there is also storage demand that's created by negative economic circumstances. And I was just trying to give an example. Todd Thomas — KeyBanc Capital Markets: Okay, got it. And then um you know I understand you're not breaking out the LSI portfolio uh going forward, but I'm just curious um you know the contribution to uh same store growth this year that that uh tailwind from the LSI portfolio. Do do you expect that to increase during the year or you know is the impact um you know sort of greatest you know early in the year to start the year here in in the first quarter for example Scott Stubbs — EVP & CFO [attribution inferred]: We would expect it to not increase to be flat to slightly moderating. Todd Thomas — KeyBanc Capital Markets: Okay. Um and then just one more um going back to the third-party management platform, you've seen, you know, pretty um sizable growth there over the last couple of years. Are there any constraints at all to growing that platform as as you look ahead? Any any sort of obstacles that you face? Um you know, or any or any plans to to do anything more strategic with the third party management business over time? Joe Margolis — CEO: Um well once we manage every store in the country we'll be done. That's the constraint. Uh I don't I don't I don't think so. I think we have a scalable platform. The the larger we get the more advantages we have of scale uh in terms of data and costs and uh efficiencies. So I I think we can continue to grow this platform. Maybe not 100 stores a quarter, but um certainly we can continue to grow it. We can as we expand into new markets that gives us more opportunities and it's a a you know integral part of our business that gives us benefits across lots of verticals. that, you know, helps our bridge loan business, helps our acquisition business, uh, helps us with data. So, I don't think we'd want to do something strategic. If you mean like carve it off and sell it, I don't think that's in the plans. Todd Thomas — KeyBanc Capital Markets: Okay. All right. Thank you. Operator: Your next question comes from the line of Michael Griffin from Evercore ISI. Your line is now open. Michael Griffin — Evercore ISI: Hey, thanks for taking the followup. Um, just wanted a little more clarity. I I noticed I think the uh the move-in volume quarter over or year-over-year in the same store pool looked like it was down about 12% uh 165,000 units this quarter versus 188,000 first quarter of last year. Is there anything to read into this? I mean, that seems like a pretty notable drop off, but any color you have here would be helpful. Thank you. Scott Stubbs — EVP & CFO: Some of that is a function on the comp from last year. We actually had a very good rental volume last year, but uh overall move in and move out volume are down, but probably the more important number here is occupancy. I mean, occupancy and revenue growth are are doing what we would expect. So, I wouldn't tell you there's anything to read into it. Michael Griffin — Evercore ISI: Great. Thank you so much. Scott Stubbs — EVP & CFO [attribution inferred]: Thanks, Michael. Operator: Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is now open. Caitlin Burrows — Goldman Sachs: Hi. Uh, quick followup on the business use realizing that it's a small part of your business. I'm just wondering if you have any idea if that's like 2% of your business or 6% or more or you don't know. Joe Margolis — CEO: So, um, we don't know exactly because it's easy to track a customer that, you know, signs their lease in the corporate name, but we also have lots of businesses that sign their lease in an individual name and they're a landscaper or a local business. So, we know about 5 or 6% of our tenants sign in business names. So, probably our o not probably our overall business use is is somewhere north of that. And it's gone down over time as a larger portion of our portfolio is you know multi-story uh — END OF TRANSCRIPT —