Q3 2024 Earnings Summary
- The integration and rebranding of Life Storage stores under the Extra Space brand are beginning to show positive results, including better SEO performance, improved conversion rates, and modest savings in paid marketing spend. This is expected to close the performance gap between the two brands over time.
- The company anticipates annual cost savings of $10 million in paid search expenses as Life Storage stores reach parity with Extra Space stores. Additionally, a stronger unified brand is expected to lead to further marketing savings.
- Extra Space is experiencing strong growth in its third-party asset management business, benefiting from the absorption of Life Storage's management clients and increased demand from non-institutional owners seeking professional management in a challenging operating environment. This business is growing faster than anyone else, despite being the most expensive in the business with very healthy margins.
- Life Storage (LSI) stores have underperformed expectations, leading to two revenue guidance cuts for those stores. The markets where LSI has higher concentration, such as Florida, have performed disproportionately weaker, and the company did not get the expected benefits from the dual-brand strategy, prompting a shift to a single-brand approach.
- Significant bridge loan maturities are approaching next year, with uncertainty about how many will extend or pay off. This could put downward pressure on the bridge loan business, potentially impacting interest income if loans are not extended or default.
- The company expresses uncertainty about future pricing power and storage demand, highlighting dependence on macroeconomic factors like interest rates, housing market, and consumer health, which they lack visibility on and could negatively affect their ability to push pricing.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +10% | Acquisitions throughout 2023 expanded store count, driving higher property rental and tenant reinsurance income. Market demand remained steady, allowing for incremental rate increases at stabilized stores. |
Self-Storage Operations | +9% | Merger synergies (particularly from Life Storage) and generally high occupancy fueled revenue gains. Company-specific initiatives to integrate recently acquired stores contributed to operating efficiencies. |
Tenant Reinsurance | +22% | Store expansions resulted in more insured customers, pushing reinsurance revenue up. External market conditions—steady demand for tenant insurance—further supported this growth. |
EPS (Diluted) | +11% | Higher operating income from acquisitions and modest rate improvements outpaced rising expenses, boosting EPS. Forward-looking implications include managing increased debt costs while capitalizing on expanded services. |
Interest Expense | +16% | Higher debt levels incurred to fund acquisitions combined with a slight uptick in interest rates. External rate environment and company financing decisions both contributed to the increase. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EXR same-store revenue | FY 2024 | Midpoint -0.25% | Midpoint +0.125% | raised |
Life Storage same-store revenue | FY 2024 | Reduced by 200 bps at midpoint | Reduced by 50 bps at midpoint | lowered |
EXR same-store expenses | FY 2024 | Midpoint 4.5% | Raised by 25 bps | raised |
Life Storage same-store expenses | FY 2024 | Reduced by 200 bps at midpoint | Revised downward by 100 bps | lowered |
EXR same-store NOI | FY 2024 | Midpoint -1.75% | Midpoint -1.375% | raised |
Life Storage same-store NOI | FY 2024 | Range -1.5% to +1% | Range -1.5% to +0.5% | lowered |
FFO per share | FY 2024 | Lower end raised to $7.95 | Lower end raised to $8.00 | raised |
Bridge loan guidance | FY 2024 | Raised average outstanding loan guidance; increased interest income | Further increased expected interest income | raised |
EXR occupancy | Q4 2024 | No prior guidance | 94.3% | no prior guidance |
Life Storage occupancy | Q4 2024 | No prior guidance | 93.2% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue YoY | Q3 2024 vs Q3 2023 | Midpoint at -0.25% | 824.804MIn Q3 2024 vs 748.034MIn Q3 2023 (≈ +10.3% YoY) | Beat |
NOI (approximated via Operating Income YoY) | Q3 2024 vs Q3 2023 | Midpoint at -1.75% | 302.739MIn Q3 2024 vs 299.792MIn Q3 2023 (≈ +1.0% YoY) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Life Storage integration and synergy realization | Q2: Emphasis on occupancy gains (93.8%), pricing power challenges, slow progress closing rate gap. Q1: 90 bps occupancy gap, 8–12% rate gap, with improved acquisition metrics. Q4: Strong G&A/tenant insurance wins but property-level synergies slow due to market conditions. | Achieved most synergies in G&A (53M) and tenant insurance (27M), but property synergies lag at 0–10M vs. 65M original target; overall mixed performance with cautious optimism. | Major recurring theme with shifting sentiment; synergy shortfalls recognized, timeline extended. |
Occupancy levels and pricing power | Q2: ~94.3% occupancy vs. 93.8% for Life Storage, still below expected pricing power ; Q1: ~93.2% occupancy for Extra Space, 92% for Life Storage with rate pressure ; Q4: ~93% occupancy was typical low point, limited new-customer pricing power. | Same-store occupancy ~94.3%, +80bps YoY; negative 9% new move-in rates YoY indicating weaker pricing power; leaning into occupancy given market conditions. | Recurring concern across calls; high occupancy maintained, but pricing remains under pressure. |
Third-party management platform growth | Q2: 77 additions, net 14, despite one large internalization. Q1: 97 added gross, 72 net; fastest-growing platform. Q4: 225 added in 2023, highest on record. | Added 63 third-party stores gross (net 38) in Q3; ~124 net YTD; anticipate 100 more by year-end, attributing success to reduced competition and brand reputation. | Consistent growth driver, benefiting from merger-related relationships and market demand for professional management. |
Bridge loan program expansions | Q2: $433M in new loans; capital allocated to loans with fewer acquisition opportunities. Q1: $239M pipeline, mostly with Life Storage (LSI) partners. Q4: 8.5–9% rates, strong outlook into 2025 maturity schedule. | $158M in new loans; average 2024 hold ~$925M; anticipate some maturities/extensions in 2025; remains disciplined in pursuit of quality deals. | Continued expansion with no sign of diminished focus; provides capital-light returns and potential acquisitions. |
Competition from new supply | Q2: Supply from 2018–20 now impacting pricing/occupancy ; Q1: 11–13% of same-store pool affected, though new development is down ~30% YoY ; Q4: 30–40% drop in new deliveries, but some prior supply still leasing up. | Select markets (Atlanta, Phoenix) face new supply pressure, challenging pricing; company underscores cyclicality and diversification. | Ongoing challenge but moderating supply suggests improvement over time; still acute in certain regions. |
Uncertainty over housing market conditions and consumer confidence | Q2: Reduced move-related demand (dropped from 61% to 51% of tenants), weaker consumer due to inflation ; Q1: No major housing rebound expected, ~51% of customers moving rentals vs. buying ; Q4: Less optimism on near-term housing recovery, price-sensitive new customers. | CEO cites housing/consumer factors as major demand drivers; difficult to predict, but focusing on revenue optimization. | Steady theme influencing cautious revenue forecasts; no near-term housing bounce assumed. |
Frequent guidance adjustments highlight volatility in same-store revenue | Q2: EXR modestly raised while LSI reduced ~200bps at midpoint ; Q1: No major changes due to stable performance vs. prior outlook ; Q4: Wide revenue ranges (-2% to +0.5% EXR; 2% to 4.5% LSI) given uncertainties. | EXR raised bottom-end by 75bps; LSI cut midpoint by 50bps due to weaker pricing. Reflects unexpected market shifts and brand transition. | Continued revisions underscore variable market and merger-driven complexities. |
Synergies from the Life Storage acquisition indicate a large potential impact on future growth | Q2: Slower-than-expected rate convergence, expected LSI outperformance in 2025. Q1: 8–12% rate gap, occupancy still catching up. Q4: Tenant insurance/G&A overperforming, property synergies lag. | Up to $100M in total synergies; $80–90M realized so far; significant property-level upside remains but hinges on market/brand consolidation. | High-impact opportunity, though exact timing remains uncertain; gradual ramp as markets normalize. |
Expectations for reduced new supply may bolster pricing power | Q2: Moderation expected to help long-term pricing ; Q1: Strong headwinds (debt, construction costs) limiting new development ; Q4: ~30–40% drop in deliveries could support eventual rate inflection. | Management optimistic that moderating deliveries will improve fundamentals, with EXR well-positioned if demand rebounds. | Consistent outlook on declining supply boosting future pricing; timeline depends on overall demand recovery. |
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Brand Consolidation Impact
Q: What benefits are you seeing from the brand consolidation?
A: We are in early stages since rebranding to Extra Space in late Q3, but we've seen slight improvements in SEO performance for former Life Storage stores, better conversion rates on the Extra Space website, and modest savings in paid marketing spend. We expect converted stores to perform like original Extra Space stores over time. -
Guidance Deceleration
Q: What's causing the deceleration in fourth-quarter guidance?
A: The deceleration is primarily due to property performance in the fourth quarter. It depends on where you are in our guidance range, but there's not an extreme revenue drop-off or growth expected. -
LSI Performance and Synergies
Q: Can you update us on Life Storage performance and merger synergies?
A: Life Storage has underperformed expectations, leading us to cut revenue guidance twice. Contributing factors include weaker markets in 2024, LSI's higher concentration in underperforming markets like Florida, and not realizing expected benefits from dual branding. We are targeting $100 million in synergies and have achieved $80–$90 million so far, exceeding initial estimates in G&A and tenant insurance savings. -
Acquisition Activity and Yields
Q: Can you provide details on recent acquisitions and their yields?
A: We've approved 10 wholly owned operating deals with first-year yields in the low 5% range and stabilized yields of 6.5%. Our joint venture deals have first-year yields at 10% and stabilized yields at 12% due to the economic benefits of the JV structure. We also approved three developments with an 8.6% development yield. -
Move-in Rate Trends
Q: How are move-in rates trending compared to last year?
A: Our average rate to new customers for the quarter was down 9% year-over-year, and in October, down 8%. October feels similar to September and August, with no significant changes month-to-month. -
Hurricane Impact on Occupancy
Q: What impact have hurricanes had on rental activity and occupancy?
A: We've seen an uptick in rentals, particularly in the Life Storage pool, with occupancies increasing from 92–93% to 96% at some stores. A typical hurricane customer stays around 10 months, which should benefit us, although these gains often offset hurricane-related expenses. -
Rebranding Costs for LSI Assets
Q: What are the costs associated with rebranding Life Storage assets?
A: We expect total rebranding costs of about $117 million, including $20 million of non-branding capital costs that were delayed. Our initial underwriting assumed $75,000 per property, or $90 million in total, which was included in our returns when we announced the deal. -
Bridge Loan Activity
Q: How is the bridge loan program performing and what's the outlook?
A: We've had a strong year in bridge loan originations, partly due to new LSI partners and owners opting for bridge loans in a difficult acquisition market. Next year, we'll see meaningful maturities; some will extend, pay off, or be acquisitions. We'll remain active but won't make bad loans just to maintain volume, and we'll manage exposure by selling A notes. -
Occupancy Trends and Pricing Strategy
Q: How are you balancing occupancy and pricing, and what's the outlook?
A: We prioritize long-term revenue by balancing occupancy and rates. Currently, data suggests leaning more into occupancy, offering lower rates to attract new customers. We expect to continue operating at higher than historical occupancy levels and are positioned to benefit quickly when the market turns.