Yahoo Finance Extra Space Storage Inc (EXR) (Q1 2024) Earnings Call Transcript Highlights: Key Financial ...
Same-Store Revenue Growth: Extra Space same-store revenue increased by 1% year-over-year.
Occupancy Rate: Ended the quarter at 93.2%, a 50 basis point increase year-over-year.
Move-In Rate: Grew sequentially by approximately 8% from January.
Same-Store Expense Growth: Increased by 5.5% year-over-year.
Life Storage Revenue Growth: Increased by 1.7% year-over-year.
Life Storage Occupancy Improvement: Improved to 92%, a 220 basis point increase over the previous year.
Life Storage Expense Growth: Increased by 6.7% year-over-year.
External Growth: Added $164 million in new bridge loans and 97 third-party managed stores gross (72 stores net).
Bond Offering: Closed a $600 million bond offering, proceeds used to repay bridge loan for acquiring Life Storage.
G&A Savings: Achieved savings across various categories, contributing to financial efficiency.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Occupancy rates improved sequentially each month, ending the quarter at 93.2%, a 50 basis point increase year-over-year.
Average move-in rate grew by approximately 8% from January, contributing to a 1% lift in same-store revenue performance.
Life Storage same-store properties showed a revenue gain of 1.7% year-over-year, aligning with internal projections.
Extra Space Storage expanded its capital-light external growth activities, adding $164 million in new bridge loans, significantly ahead of projections.
The company successfully added 97 third-party managed stores gross and 72 stores net, maintaining the fastest-growing third-party management platform in the industry.
Negative Points
Same-store expense growth increased by 5.5% year-over-year, driven by higher costs in payroll and repairs and maintenance.
Life Storage same-store expenses rose by 6.7% year-over-year, although this was below internal projections.
The transaction market remains muted, with a significant bid-ask spread and limited distress in storage leading to fewer transactions.
Street rates for new customers are still negative compared to the previous year, indicating ongoing pricing challenges.
The company faces uncertainty in predicting the recovery of the housing market and its impact on storage demand.
Q & A Highlights
Q: Can you talk a little bit about what the trend was in April and how that compares from the last couple of months of the end of the first quarter? A: (P. Scott Stubbs - Executive VP & CFO) Yes, Michael. So we ended the month of April at 93.7% occupied, which is still a 50 basis point delta over last year, and our rates improved sequentially month-over-month from the month of January. So what's happened in the quarter is we averaged about 14% negative achieved rates in the quarter. And in the month of April, that has moved to about negative 9% year-over-year.
Q: To reach the midpoint of the guidance, how much do the street rates need to increase from here in order to achieve that midpoint level? A: (Joseph Daniel Margolis - CEO & Director) Street rates is only one component, right? And we're kind of agnostic as to whether we can maximize our revenue through street rates, through occupancy, through discounts, through marketing spend, through ECRI. So there's no one number we're targeting for any one of those metrics. We're trying to mix and match them to maximize revenue.
Q: Thinking about your comments and where we stand here, May 1 versus, let's say, the last couple of years, where there was a bit less visibility, seasonality was a bit distorted, can you put the context of how you feel today versus the prior 2 years? A: (Joseph Daniel Margolis - CEO & Director) So I think comfort is always greater as you get into and have some feeling as to how the leasing season is going to go. So at this time of year, before we're into the leasing season, in a period where we have reduced housing activity, where we have signs of consumer weakness, I'll say this, we have not enough comfort that we're going to change our guidance.
: If I look at the 165 stores added to the same-store pool this year, it looks like they're growing around 7%. And if you include the 2023 same-store pool, it looks like the 216 stores combined are going around 5%. So I was just wondering if the deceleration that you're predicting in your same-store revenue guidance is coming mainly from those stores just as occupancy comps get tougher through the year? A: (P. Scott Stubbs - Executive VP & CFO) Eric, so the main driver of that is not the 165 stores. I mean, those stores actually increased our performance in the quarter. I think they added about 40 bps to our revenue growth in the quarter. Our revenue growth throughout the summer is impacted somewhat by our performance last year. Obviously, where you're coming off higher numbers, comps do get easier as you move throughout the year. But we are not seeing -- our current expectation, similar to when we gave our annual guidance is we're not expecting a major recovery from the housing market today. We're expecting things to kind of perform as they are today and not seeing a major rebound.
Q: Just hoping you could talk a little bit about the transaction market. You guys have done some deals in the first quarter and then expected to close over the balance of the year. So maybe you could give us a little flavor for the going in and stabilized yields that you're underwriting to? A: (Joseph Daniel Margolis - CEO & Director) Sure. So the transaction market is pretty muted. There's still a significant bid-ask spread. There's not a lot of distress in storage, so sellers don't need to sell in general. We see a lot of transactions get put on the market and get pulled, particularly larger transactions. It seems there's less capital for big portfolios than there are for one-offs. So the transaction market is pretty quiet. We did close 7 deals in the first quarter, but one of those was a joint venture development and one was a CO deal. So those were agreed to some time ago.
Q: Maybe sticking to the last question here on markets. One market that sort of is lagging here is Florida. You look at Tampa, you look at Orlando. And I know that, looking at the integration of LSI, LSI had a big exposure to Florida. So I mean that occupancy gap is still about, I think, 180 to 200 basis points. How do you think about your ability to sort of close that gap given some of the dynamics in sort of Florida? A: (Joseph Daniel Margolis - CEO & Director) Yes. So great question. So yes, Florida, some of the markets in Florida are some of our weaker markets today. That's a good observation. That's partially because they did so well during COVID, and that's partially because of supply issues in some of those markets. But we're in this, and we did this merger for the long term. And over the long term, the Sunbelt markets, the Florida markets, and the population growth and the businesses that are moving there, we believe those are really good long-term markets. So yes, this quarter, some of those markets and maybe this year, some of those markets might be on the weaker side. But long term, we're really happy to have exposure down there.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
