LSI Underperformance Factors
Q: What's causing Life Storage to underperform expectations?
A: The Life Storage portfolio is underperforming due to several factors, including a lack of pricing power as customers remain price-sensitive, preventing rate increases as hoped. Geographic exposure also played a role; the merger increased our presence in underperforming Sunbelt markets like Florida and reduced exposure to outperforming markets like California. Additionally, we haven't achieved the improvement in Life Storage's organic SEO strength that we expected, impacting demand.

Pricing Power Challenges
Q: Why can't you increase rates as planned?
A: Customers remain highly price-sensitive, making it difficult to raise new customer rates at both Extra Space and Life Storage stores. Despite achieving occupancy parity, we found that new customers are not accepting higher rates, affecting revenue growth.

Revenue Growth Guidance
Q: How are you revising revenue growth guidance?
A: We reduced Life Storage's revenue growth guidance by 200 basis points due to lower-than-expected new customer rates and challenging market conditions. Conversely, we tightened Extra Space's revenue guidance by removing the lower end of our prior range, reflecting steady performance.

Marketing Spend and SEO
Q: How are marketing efforts impacting demand?
A: We've increased marketing spend by 20% year-over-year for the Extra Space portfolio, now at 2% of revenues, while Life Storage spends slightly higher at 3%. However, we're disappointed with Life Storage's organic SEO performance, which hasn't improved as much as expected, affecting demand.

Geographic Impact
Q: How is geography affecting results?
A: The merger reduced our exposure to California and increased it in Florida. This timing has worked against us, as California is outperforming while Florida is underperforming. Extra Space has 23% of same-store revenue from California, whereas Life Storage has 16% from Florida.

Dual-Brand Strategy Evaluation
Q: Will you keep operating two brands?
A: We're evaluating the dual-brand strategy. While having two brands was intended to increase digital presence, we're not seeing the expected benefits in organic SEO with Life Storage. We'll let the test run its course before making a decision.

Portfolio Convergence Timeline
Q: When will EXR and LSI perform similarly?
A: We expect the portfolios to converge over time. They are slightly different in demographics and markets, but should behave similarly. We anticipate Life Storage to outperform in year-over-year revenue growth in 2025.

Consumer Weakness and Competition
Q: What's driving increased competition?
A: A weaker consumer, with inflation outpacing wage growth and reduced savings, is leading to increased price sensitivity. The percentage of customers moving has dropped from 61% in 2021 to 51% now. Additionally, new supply from prior development cycles is impacting markets now that excess COVID demand has subsided.

Housing Market Effects
Q: How is the housing market affecting demand?
A: A slower housing market contributes to reduced demand, as fewer customers are moving. While we expect slow and steady improvement, it's not enough to significantly boost pricing power at this time.

Bridge Loan Activity and Debt
Q: How will bridge loans affect your debt levels?
A: We've increased bridge loan activity due to a quiet acquisition market, holding more loans on our balance sheet as a good use of capital. We'll manage debt levels by selling some loans and potentially accessing the bond market later this year or early next year.

Expense Management
Q: How are you managing payroll and utilities costs?
A: Payroll expenses were slightly elevated due to increased hours and wage growth but are expected to align more closely with inflation in the back half of the year. Utilities costs are decreasing thanks to aggressive solar investments, with about 50% of fully owned stores having solar installations.

Top-of-Funnel Demand
Q: How is marketing spend affecting demand?
A: Increased marketing spend has helped offset weaker organic SEO performance. Overall, demand measured by search terms is similar to 2019 levels but down from last year.

Rent Increase Practices
Q: Are you adjusting rent increase strategies?
A: Now that pricing is at parity, both Extra Space and Life Storage use the same systems for customer rate increases, and there are no differences in rent increase practices between the portfolios.

Third-Party Management Changes
Q: Why did you lose a third-party management client?
A: We lost 59 stores due to an owner inherited from Life Storage internalizing management after acquiring a self-storage company. This is part of usual business dynamics, and we continue to grow our third-party management platform, adding 174 stores gross this year.

Future Same-Store Reporting
Q: Will you combine EXR and LSI in same-store metrics?
A: Our plan is to move Life Storage into same-store reporting in 2025, but we'll provide previous year data to maintain transparency, allowing for before-and-after comparisons.