Q3 2024 Earnings Summary
- Momentum Building in the Transaction Market for Acquisitions: After nearly two years of low transaction volumes, the company is seeing increased activity with more assets coming to market, both small and large, indicating potential growth opportunities through acquisitions.
- Improving Demand Trends and Strong Online Engagement: Industry-wide demand is improving, reaching parity in September and October. The company is experiencing positive year-over-year web visits and good conversion rates, supporting stabilizing operating fundamentals.
- Investment in Technology and Operational Optimization: The company is investing in technology and analytics to optimize operations, including hiring a new Chief Operating Officer with significant experience in technology and infrastructure. They are using advanced analytics to optimize staffing levels and have created specialized roles within property management, enhancing efficiency and customer service.
- Delayed Acquisition Activity May Impede Growth: The company has reduced its acquisition guidance for the year, with some deals slipping into 2025 rather than closing in 2024. This delay suggests that growth through acquisitions may be slower than anticipated. "Some of it will slip into '25."
- Continued Pressure on Move-In Rents and Declining Occupancy: Despite some markets showing stabilization, overall move-in rents remain under pressure, and occupancy is declining. In October, move-in rents were down 5% year-over-year, and occupancy was down about 90 basis points. This indicates ongoing challenges in improving revenue through pricing and occupancy gains. "Move-in rents again, down 5% for the month... Occupancy is down about 90 basis points."
- Weakness in Key Markets Due to Supply and Storm Impacts: Certain markets, particularly in Florida, are underperforming due to normalization, new supply, and the impact of recent hurricanes. Orlando's revenue was down 6.1% in the quarter, and the company anticipates a financial impact of about $7 million from storm-related expenses. This could continue to pressure performance in these markets. "Revenue was down 6.1%... Likely to have about a $7 million impact financially." ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3.8% | The $1,187.8 million total revenue increase was driven by continued growth in self-storage facilities and higher tenant reinsurance and third-party management revenues, partially offset by slightly lower same-store occupancy in some markets. |
Net Income | -30% | Net income at $433.1 million declined due to increased depreciation and interest expenses on new acquisitions and developments, as well as unfavorable currency impacts, overshadowing modest operational gains. |
EPS (Diluted) | -32% | The diluted EPS of $2.17 decreased largely due to higher financing costs and increased depreciation, reflecting new investments and expansions relative to prior-year levels, despite revenue growth. |
Self-Storage Operations | +2.9% | Revenues reached $1,110.1 million, aided by acquisitions and new developments filling up, offset partially by competitive pricing in select markets. This drove a smaller overall increase compared to prior periods. |
Ancillary Operations | +19% | At $77.6 million, growth stemmed from strong tenant reinsurance and merchandise sales, plus continued expansion of third-party property management income. This broad-based rise outpaced inflationary cost pressures. |
└─ Third Party Property Management | +87% | Revenues at $12.6 million soared due to adding new properties under management and increased fees from an enlarged portfolio, outperforming the same period last year. |
Key Geographic Revenue | +6.5% | Geographies generated $926.3 million collectively, reflecting higher realized rents in many markets; however, Orlando-Daytona lagged with a -6% drop amid softened local demand, contrasting with double-digit gains in Washington DC, Dallas-Ft. Worth, and Houston. |
Interest Expense | +27% | The $74.3 million expense rose due to new debt issuance for facility acquisitions and developments, as well as higher variable rates on existing notes, compared to prior-year financing levels. |
SG&A | -8% | At $26.2 million, SG&A dropped as share-based compensation and certain corporate costs decreased, reflecting efficiency initiatives undertaken since the previous year. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Core FFO per share | FY 2024 | $16.50–$16.85 | $16.50–$16.85 | no change |
Same-store revenue growth | Q4 2024 | no prior guidance | expected improvement in Q4 2024 | no prior guidance |
Non-same-store incremental NOI | 2025 and beyond | $110 million | $120 million | raised |
Land development visibility | multi-year | no prior guidance | $60 million | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Move-in Rents & YoY Fluctuations | Consistently mentioned as down double digits in Q1 and Q2, then improving by late Q2, with a decline of 18% YoY in Q4 2023. | Move-in rents down 9% YoY in Q3 and 5% in October, an improvement from being down 16% in Q1. | Gradual recovery, continues to stabilize |
Occupancy Trends & YoY Changes | Similarly discussed each quarter with smaller YoY occupancy gaps vs. 2023. Ended Q4 2023 down 70 bps; Q2 2024 indicated narrowing occupancy gaps. | Occupancy down 90 bps YoY at the end of October, with slight seasonal declines and market-specific growth (Seattle up 35 bps). | Stable with modest YoY declines, improving |
Shifts in Overall Demand | Referenced as down year-over-year in Q1 and Q2, but signs of stabilization appeared by Q2 and were expected to continue in Q4 2023. | Stabilizing demand, with industry-wide move-in activity reaching YoY parity by September/October. | Shift from decreasing to stabilizing |
Existing Customer Strength | Previously noted each quarter as better-than-pre-pandemic payment patterns, with strong retention and consistent ECRI contributions. | Strong existing tenant base: stable payment patterns, low vacate activity, and healthy length of stay. | Continues strong, no negative change |
Acquisition Activity | Acquisitions discussed every quarter, with mentions of $500 million planned in 2024 and potential closings shifting timelines. | Increased acquisition dialogue but some deals delayed into 2025; expecting stabilized yields in the 5–6% range. | Gaining momentum, some delays into next year |
Storm/Hurricane Impacts & Costs | No specific mention in prior quarters. | New topic this quarter: $7 million financial impact from storms; some occupancy benefit in Florida from rebuilding efforts. | Newly addressed, emerged in Q3 |
Expense Management & Efficiencies | Discussed across periods, focusing on digital leasing adoption, lowered payroll, and expanded solar installations to reduce utility expenses. | Emphasis on eRental (70–75% usage) and solar (plans for 1,300 solar-equipped properties by 2025), reducing costs and driving operational gains. | Ongoing improvements, accelerating efforts |
Supply Environment & Competitive Px | Cited every quarter as waning development and less aggressive competition, though certain markets still see new supply. | Favorable supply trajectory with fewer new deliveries expected; reducing competitive pressures. | Consistently tightening, supportive of rates |
Development & Non-Same-Store Exp. | Each quarter highlighted record or near-record development deliveries (around $450 million) and strong non-same-store pool contributions, driving future growth. | Record $430 million in 2024 deliveries plus growing non-same-store NOI outlook (additional $120 million). | High impact growth engine, sustained focus |
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2025 Outlook Improvement
Q: Do you expect improvement into 2025 regardless of housing?
A: Yes, we have confidence that 2024 is a year of stabilization , leading to improvement in 2025. We've seen better market improvement across more of the portfolio than at the beginning of the year. Factors like an improved housing market, interest rates, and economic growth could add positively. Overall, we're in a better position going into 2025 than we were going into 2024. -
Demand Stabilization and Growth
Q: Does steady demand tie into your thoughts on improvement?
A: Yes, we've seen stabilization of demand throughout this year. Markets like Seattle show consistent improvement , though overall growth isn't significant yet. Our outlook still calls for same-store revenue growth to be down just over 1% for the year. Stabilization is the first step, observed across many markets. -
Acquisition Timing and Guidance
Q: Is reduced acquisition guidance due to timing of deals?
A: Yes, it's a timing issue. The transaction market improved notably in the last 60 to 90 days. Much activity is expected to close in early 2025 rather than 2024. We have increased acquisition volumes under contract, with some deals slipping into 2025. -
Move-in Rent Trajectory
Q: How will move-in rates trend ahead?
A: We're seeking demand stabilization to stabilize move-in rents. We anticipated move-in rents down mid-single digits by year-end , and October performance aligns with this. After a seasonal trough, we expect improvement in spring. -
Acquisition Cap Rates
Q: What's your expectation for cap rates in acquisitions?
A: We're targeting stabilized yields around 6% , acquiring assets typically in the 5% range. This has been consistent over the past year. -
Labor Savings via Digital Platform
Q: Is payroll down due to e-rentals? Further savings ahead?
A: Yes, with 70–75% of customers using our digital leasing platform , we're optimizing staffing. This benefits customer interaction and employee engagement , leading to ongoing optimization. -
Demand Drivers
Q: What factors are driving demand improvement?
A: Demand shifted with softer home sales but strong apartment renter activity. Record usage from customers running out of space at home. Overall demand levels are consistent year-over-year. Length of stays remain longer than pre-pandemic. -
Market Performance
Q: Which markets are performing best or struggling?
A: Seattle, DC, and San Francisco are accelerating. Atlanta is normalizing with new supply. Some markets are improving even if they had strong performance in prior years. In Florida, increased move-ins relate to storm rebuilding. -
Existing Customer Rent Increases
Q: Is ECRI contribution higher this quarter? Year-end outlook?
A: Yes, third-quarter ECRI was better year-over-year. Driven by newer customers from the past 12–18 months contributing more. We expect strong trends to continue. -
Promotional Discounts
Q: What's driving higher promotions, and future impact?
A: Promotions were used more in Q3, with about 60% of customers receiving them. Still modest compared to 85–90% in 2019. Used tactically to optimize customer acquisition. October promotions were consistent year-over-year. -
Digital Adoption and Savings
Q: Is there more room for digital growth and cost savings?
A: Yes, 75% of customers now use digital channels. We're optimistic usage will grow, leading to further optimization. Our PS app has 2 million users , enhancing customer interaction. -
Development Outlook
Q: How do development deliveries in '24 compare to '25/'26?
A: 2024 will be a record with $430 million in deliveries. We'll see a slight drop in 2025 due to development challenges , but aim to increase in 2026. -
Transaction Landscape
Q: Seeing single assets or portfolios marketed?
A: Both. Individual and small assets remain, with larger portfolios starting to surface. -
Demand Elasticity and Pricing
Q: Is demand less elastic when adjusting pricing?
A: We continually test price elasticity. Customers are price-sensitive when moving in but value units highly after. We optimize revenue based on inventory and demand. -
Balancing Labor Savings
Q: How do you balance labor savings with service risk?
A: We use analytics to optimize staffing per property. Tools help us ensure effective customer service. Specialized roles and vibrant care centers enhance service. -
Occupancy Clarification
Q: Is October occupancy down 90 bps year-over-year?
A: Yes, down 90 basis points year-over-year. We anticipated this seasonal decline. Average occupancy expected to be down about 70 basis points for the year. -
Hurricane Impact
Q: What's the financial impact from hurricanes?
A: We anticipate about a $7 million financial impact. Increased move-ins due to storm rebuilding , but too early to quantify NOI impact. -
Accounting for Promotions
Q: How are promotional dollars accounted for?
A: Promotions like the dollar special are contra revenue in the first month. A customer pays $1 for the first month's rent. -
Land for Development
Q: How many years of development starts do you control?
A: We own about $60 million in land , providing visibility over the next couple of years. We often use contractual options until ready to build. -
COO Hiring Strategy
Q: What's behind the new COO hiring?
A: We're excited to have Chris Sambar join as COO , bringing over 20 years of AT&T experience in technology and infrastructure. -
Rent Trends Clarification
Q: Do sequential rent trends show improvement?
A: Yes, October rents are compared apples-to-apples. We're on track for move-in rents down single digits by year-end. -
Website Data Confirmation
Q: Does website data confirm stabilization?
A: Yes, industry-wide demand reached parity in September/October. Web visits are up year-over-year with good conversion rates. -
ECRI Trends
Q: Are rent bumps higher this quarter?
A: Yes, third-quarter contribution was better year-over-year. Driven by newer customers' contributions. -
Hurricane-Related Move-ins
Q: How much NOI benefit from hurricane move-ins?
A: Too early to tell. We have associated financial costs. -
Promotional Accounting
Q: How are promotions treated in accounting?
A: Promotions are contra revenue in the first month. Customer pays $1 under the dollar special.
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