Salil Mehta

Salil Mehta asked if Extra Space Storage has observed any tangible changes in customer behavior or patterns following California's Senate Bill 709, which mandated extra disclosure. He also inquired about macroeconomic drivers beyond home sales that could catalyze the storage industry, and if Extra Space Storage tracks anything specific at a market or national level.

Answer

CEO Joe Margolis stated that Extra Space Storage's pre-legislation disclosure was already robust, and the new requirements regarding font, color, and placement in the lease have not affected leasing activity in California. He identified job growth as highly correlated to self-storage performance, particularly in Sun Belt markets, and a continued incremental reduction in new supply deliveries as key macroeconomic drivers.

Salil Mehta asked if Extra Space Storage had observed any tangible changes in customer behavior or patterns due to California's Senate Bill 709, which mandated extra disclosure. He also inquired about the top macroeconomic drivers for the storage industry, beyond home sales, that could provide a catalyst, and if the company tracks anything specific at market or national levels.

Answer

Joe Margolis, CEO, stated that Extra Space Storage's pre-legislation disclosure was already robust, and the new requirements for specific placement and font had no effect on leasing activity, creating a more level playing field. For macroeconomic drivers, Joe Margolis highlighted job growth, noting its correlation to self-storage performance and the long-term benefit of Sun Belt market exposure. He also pointed to a continued incremental reduction in new supply as a key factor.

Salil Mehta asked about the drivers behind the decrease in net rental rate growth, questioning whether it was attributable to Existing Customer Rent Increases (ECRIs) or rent restrictions in Los Angeles, given that move-in rates were positive.

Answer

EVP & CFO Jeff Norman clarified that while Los Angeles rent restrictions are a minor headwind, the primary driver is the 'roll-down' effect from move-outs, which negatively impacts the overall in-place rent per square foot. He noted the impact from ECRIs has been relatively consistent year-over-year.

Salil Mehta asked for color on Existing Customer Rate Increase (ECRI) trends, questioning if they might become less aggressive as move-in rates improve, and whether there was any increased customer sensitivity to them in Q4.

Answer

CEO Joseph Margolis reported no change in customer behavior regarding ECRIs, noting that metrics like customer relief requests and vacate rates post-notice remain stable and low. He clarified that the size of an ECRI is determined by the gap between a customer's current rate and the prevailing market rate, rather than a predefined 'aggressiveness' level.

Salil Mehta from Green Street pointed out the substantial year-over-year increase in marketing spend and asked for the rationale, especially when peers are pulling back. He also questioned if this elevated level represents a new run rate for the year.

Answer

CEO Dave Cramer explained that the increase is relative to NSA's lower starting point and is necessary to build brand authority and search rankings for the newly consolidated nsastorage.com domain. He stated the spend is effective in driving top-of-funnel activity and conversions. CFO Brandon Togashi confirmed the Q1 growth rate of 20% was within expectations and is the right year-over-year growth rate to expect for the remainder of the year.

Salil Mehta of Green Street questioned the rationale for the substantial year-over-year increase in marketing spend, especially when peers are pulling back, and asked if the current level is the expected run rate for the year.

Answer

CEO Dave Cramer justified the spend by stating it's yielding results in top-of-funnel activity and conversions. He suggested NSA's starting point for marketing spend was different from peers, making the year-over-year comparison appear elevated. CFO Brandon Togashi added that the Q1 growth rate of 20% was within expectations and is a reasonable growth rate to expect for the remainder of the year.

Salil Mehta asked for more color on the company's optimism for a housing market recovery, questioning if this was baked into guidance given recent weak housing data. He also asked if they expect a return to a normal peak leasing season.

Answer

CFO Brandon Togashi clarified that the guidance midpoint assumes the housing market performs no worse than in 2024, with only modest improvement. He stressed that performance is not solely dependent on housing, but also on general mobility and the company-specific opportunity to close the 300-basis-point occupancy gap in the former PRO-managed portfolio during the upcoming leasing season.

Salil Mehta asked for color on the M&A pipeline's direction into 2025 and inquired about activity within the Heitman joint venture, including the potential for development.

Answer

CEO Dave Cramer stated that M&A activity has increased significantly since July and he expects the trend to continue into 2025 as buyer and seller expectations align. Regarding the Heitman JV, he confirmed they are actively underwriting deals for it, viewing it as a capital-light funding source. He specified the venture's focus is on acquiring seasoned assets, not on development.