EXR - Earnings call transcript Q2 2019 | Extra Space Storage Inc.

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Operator

Good afternoon. My name is Jason, and I'm your conference operator today. Welcome to the Extra Space Storage Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct question-and-answer session and instructions will follow at that time. reminder, call a being As Instructions] this is conference recorded. [Operator

Relations. the now the to Investor like would conference Vice to of Norman, I Jeff turn over Mr. your President host,

You may conference, begin sir. the

Jeff Norman

call. Welcome to Storage's XXXX Thank you, Extra Jason. second Space quarter earnings

to answers have unaudited Act. In as may forward-looking to information your our supplemental management's that defined release, Please Private statements Reform website. questions our remember press Securities in prepared financial we addition furnished on remarks Litigation the and contain

differ associated Actual stated forward-looking implied review. company's encourage could latest the those results materially to with company's or the by These filings by we from our due cautionary the statements listeners risks business. in which statements statements qualified to our with forward-looking are and contained uncertainties the SEC,

of conditions management's forward-looking after update other or today XX, represent to no market XXXX. any the assumes of statements conference estimates changing The or obligation of July call. company Forward-looking this revise date circumstances statements because as

to Officer. I'd now Executive Margolis, turn Joe to like Chief over call the

Joe Margolis

Jeff. Hello, everyone. call with us quarter rate quarter second interest a healthy you, for and in a had leasing for occupancy summer season. you growth your We our Extra and for in positive joining solid competitive Space Thank Storage. Thank

X.X% Same-store above $X.XX the outperformance by and FFO revenue NOI This X.X%, both guidance. which was top-end exceeding property growth estimates. our increased contributed our of to better-than-expected of

basis. this do supply. increased anytime the half order the the advertising we advertising from the performance, achieve best-in-class felt success in We and with a significantly have team spend on our first of expect platform impact results are we In abate year-over-year spend soon. mitigating our pleased And new to not increased and to our year had the

on anticipated, developments. have the slip deliveries many seen timing we expected of As

the delayed half moderation these up, the expect their and year. of lease begin deliver in we back projects As additional

systems and like with best are Extra large supply continue positioned be However, very the Space to sophisticated will portfolios while the diversified competitive navigate Storage operators to market cycle.

risk/reward that very expensive. opportunities We are continue external attractive to Widely actively acquisitions marketed growth present metrics. explore still

continue we acquisitions However, find to acquiring long-standing through relationships. off-market success

we quarter in structure portfolio property million. for venture the purchased non-marketed $XXX a During a XX joint

and Certificate investment a for one by $XX of the of acquired development Occupancy million. project also completed company one We total

We have to also to which enhance returns. transaction with first opportunities Carey, our lease we executed the closed York shareholder innovative are will assets quarter, total capital-light include City new net In platform. that five assets XX New W.P. including our

of third-party half platform We back manage program significant third-party are XXX pipeline year. JV bringing gaining our management traction XX stores. see we XX stores the we platform, strong continues our and added growth. total and In to the our for in our program quarter, the Between stores our bridge-lending six-month to with now managed the

the to I to time over would like now Scott. turn

Scott Stubbs

you, Thank and Joe everyone. hello,

core due Our the share and $X.XX. property per $X.XX FFO primarily stronger-than-expected The insurance a income. to tenant was exceeding by performance for our of high beat was guidance the quarter end

is declined occupancy driven approximately Year-over-year basis discounts back have providing XX points bounce this seen in but already year. street and expectations. marginally that was lower July growth with below our a increased our by last rates also Revenue is gap line today June, time occupancy tailwind. we with annual This in in

taxes to one view revenue property digital savings We expense. lever a payroll and offset were expenses spend were quarter in last mixed elevated with paid partially and which marketing same-store by drive spend growth. as bag search Like increases in our and utilities

However, click pay especially, expensive supply. advertising new in per is by impacted markets

to the turning Now balance sheet.

secured transaction we capital in and a we unsecured million equity. that $XXX accessed multiple debt quarter-end, Subsequent during the term. extended and access of have ATM to million the issued to to to and We our of quarter, debt converted completed continue $XXX sources approximately

many For Global balance step our by quality unencumbered strengthen rating. This sheet. the increasing in is pool been a assigned of sheet of our The another our and when have they flat laddering to recognized maturities was evolution. balance S&P recently size BBB our our years, we balance sheet overall

Due to the our have we half in same-store annual of the outperformance year, to guidance X.XX%. raised to X.X% first our

As of impact Joe as back moderation the in half supply. year feel additional mentioned, we new the still expect from the we

in of X%. an in raised to the These our to of NOI of increased X% X.XX% spend, marketing same-store also expense to bottom guidance annual X.XX%. end changes annual We due result elevated range resulting guidance

includes $X.XX guidance to our to which full beat core raised from quarter. share, $X.XX $X.XX per year the We FFO second the

portfolio. FFO C for of Our will $X.XX from initial from which of dilution total from acquisitions dilution We value-add is $X.XX includes additional O believe value our dilution unchanged of our core of acquisitions $X.XX, an long-term quality our provide guidance for the guidance. and of overall these improve significant stores and shareholders

turn Jason Q&A. start to to let's it that, over our With

Operator

Instructions] [Operator

Scott Stubbs

our with first have you do question Operator, you?

Operator

question first Wu. The Shirley from comes

You may now your ask question.

Shirley Wu

good Hey, guys. afternoon

do my first to has So question your options. guidance revised revenue with

at points in XX the half. second the a of that XX acceleration raised implies midpoint to revenues basis points and you So revenue XX basis

would just I'm curious to the guidance your the the it versus low take half. into the So, cadence of second to revenue And as of on high to thoughts your growth range? point what get

Scott Stubbs

Shirley it's Scott.

decelerated detail about much exact here, in quarter from points. getting quarter basis cadence too XX obviously we into to without one So, two the

year get as into math or where range, back I sort to guidance in continue are that We deceleration. that in it's giving we you're mean the to assume think depending cadence cadence where high -- on we and some are decelerate do the that there. of of and assuming the low, order to the half that where we continues simple I without But in pretty

Shirley Wu

a lot. Okay. Thanks

that in into the your were rates maybe and saw And you street so, on rates July? also increases. you quarter slight street mentioned achieved side, XQ What to-date

Scott Stubbs

Yes.

lower July, in we occupancy. in July, X% did are street in below they our as Our see achieved to see some But benefit that. our and slightly second in street we did a little back for quarter rates X% were rate with that model actually so occupancy adjust -- during bounce the slightly bit, between exchange

Shirley Wu

Thanks good Thank color. you.

Scott Stubbs

Thanks, Shirley.

Operator

next comes question Jeremy Metz. of line the from Our

You may question. now your ask

Jeremy Metz

guess to Hey, wanted that follow question. I on up just last I

has from a to half? a do you As going where here about are and occupancy you side? gap expecting, the the year-over-year You net rents a of do you the plan? expect have effect Or discounting rent ramp back Do coming talked think discounting in about the that's tailwind narrowing the you're on more deceleration mentioned into but more you been. bit, think to come basis -- you

Scott Stubbs

expect to did same year the the during in as back to half of Jeremy, discounts quarter. degree benefit the the we don't that it

points. the continue and about rates continue And if During to at year, to quarter, our our to street revenues. flow those XX over then, current XX by our benefited basis you look through rental soften past achieved into they street or it us the rates

Jeremy Metz

right. All

So it sounds like a little bit of both.

So that's fair?

Scott Stubbs

Correct.

Jeremy Metz

And if wondering about on then, seeing here. Okay. could you're was the front you I Joe, acquisition what talk

to much in you a just here, over to there. like You've feels been really curious look you contract, obviously have in first what big like the doesn't But it's it acquirer while. read anything under have It just a time the looking supp the years. at

Joe Margolis

Jeremy. Sure,

of million seeking perceive a XXXX. to modest And lots in about we function historically We have the self-storage. to pipeline for today. then the under of for $XX and assets of contract also a that's how for market see eight year, equity compared We there's pricing remainder the exposure

of economy. downturn performed the economy I in that downturn well in attracted are concerned the to it the people leverage. think Self-storage about asset class a easy potential and is

respect prices keeping metrics success growing this a we we quarter good That and marketed equity And remain being us, long-term will said, to and particular doesn't of accessing And without with disciplined. the high shareholder continues lots don't to deals. marketed trying certainly sit work on risk/reward and there's historically, So provides I in working we're it hope sideline deal the that had for value our think the if deals. we've that last future. in relationships

the long Sorry for answer.

Jeremy Metz

any the but about some does beyond bid about? on into you're some it in on talking just bid? change you York, that No, that appreciate one given dynamics those maybe that that. that I selling stuff you that mean, I capitalize mean, thoughts to had I New talked strong assets

Joe Margolis

we least and Certainly, at prospects year future lower reinvest have we we think look we we that at assets. in. occurs every our growth that can portfolio dispose assets situation try Yeah. off when to than find And will

Jeremy Metz

guys. Thanks,

Joe Margolis

Jeremy. Thanks,

Operator

question Capital Thomas from from Markets. next Your comes Todd KeyBanc

question. your now may ask You

Todd Thomas

Hi.

throughout I so prior you the moving you the achieved in street comment that this you touched if just as move – increase can sequential was quarter. you question And rates, in quarter was just how rates years this to on on move-in peak rates move-in season? First compared wondering

Scott Stubbs

slightly QX rates move-in terms QX of achieved So to in up were rate.

move average are rate achieved. they they is where customers the summer are look move to you an short-term mean are below customer by the roll rates, as average. our of there you in a below And I down, rate compared existing typically That's churn in-place is the in-place at we if we versus into that more terms to achieved in existing what not And is, the when In typically average odd. but that the that months. new have rates,

that move it there churn a necessarily as negative move and is in mean So always doesn't people out.

Todd Thomas

did achieved rates compare from move to Got what that in this years? you've the it. how to prior the in XQ Was seen year, increase XQ

Scott Stubbs

It a was was softer. up, but probably little it

think see rates to supply, the anyone. soften don't new that's with I As surprise we've any

Todd Thomas

you conversations similar with with is how announcing type Okay. W.P. appetite And net since transaction transactions? deal big Joe then just the to additional if lease other had for of these or I'm transactions? Carey And owners curious, company's the structure

Joe Margolis

It's good a question.

when release that as the press a starts and issued ring. we to usual phone So happens

risk other dynamics long in have this be more I may structure but And as within had we – happy the are We're sense. make our sense. can are target get with not can't our conversations to markets for any and is conversations to do we're big more. the right as type think as if that of returns of footprint the taking, we successfully, make as where in folks they going the have type doing deal and deals we'd of operational So underwrite appetite these we

Todd Thomas

you. great. right, Thank All Okay.

Scott Stubbs

Thanks, Todd.

Joe Margolis

Thanks.

Operator

Your next the Ronald comes Morgan of from question Stanley. Kamdem line from

your ask may You now question.

Ronald Kamdem

for Just of me. ones a quick couple

obviously spend – marketing on volumes. is a that big in just increase and move-in was there will first benefit The

sort back Thanks. move-ins? you use into of could returns that's more it good there a next? something color if of good is half the maybe and give that to millennial? – that spending? going well potentially if And discernible maybe that type moves it a trends the from getting change on expect you're any some that's the another us Just year still the tech-savvy? customers should – of property? As of way, Is said Is does as the into more we So

Joe Margolis

So, I'll it order. of take think the those don't changes I in reverse customers. type

almost for everyone somehow. searches in on services I computer goods and the think today society

algorithms keywords bid to and don't. go that don't because through acceptable spending that. keyword on this bid bid great on continued think produces And materially we the of don't the So elevated track return us, we that to millions And on keywords complicated rest how And to bid Yes, determine much year. of we're for and returns our a it see day, of we the particular throughout marketing any spend do changes the they and on results to us. customers. keywords type a algorithms systems produce money, it --

Ronald Kamdem

Helpful.

was looking getting in at all? the appreciation, fatigue question good where Thank is of -- you as markets, years any sense had there? just you've particularly your Or The several upside pricing Coast are sort other customers of pretty there some West some you're that as you. still through of of

Joe Margolis

moderation with I'm don't the anywhere. still for a we our demand demand fatigue, little there any customer product because in Yeah. uncomfortable strong and is word see

think agree to rents, respect with you. I with I

need three bump expensive gets right you at rate if But a by too by and you that markets. You're little like years some just a increase in Again, it point portfolio a market product still getting a increase amount. can't you we're in at a in Sacramento rents increases break. little the mid-teens those row, average

for a the to off extent, backs bit. fatigue you So raise so means prices little hard, it

that's think observation. fair I a

Ronald Kamdem

clarification. and for thanks Helpful, the

Operator

Citigroup. Your next Rose the from question Smedes line comes from of

question. You may now your ask

Smedes Rose

the is just wanted you ask said opportunities relationships for underperforming more I when facilities come some there to sort them looking lease-up? of off-market valuations that acquisition initial We what guess heard interesting that off-market there lease-up seeing versus for there and you of expectation. on Or relative between difference Hi. Thank and opportunities just of are I you're have through are but some deals, still any those at you're for properties pricing? that are stabilized any more you. become to in market like attractive much

Joe Margolis

if at initial have you X%. all yields those I'll you year, XX% occupied, four the are So, look of somewhere acquisition for They're tell unstabilized. between and we stores this and X.X% that between approved XX%

So, they of a X. type But It's are haven't low the at huge that stabilize rush stores those there will somewhere. or we some is to that believe we -- seen value-add acquisitions sense in volume not -- prices us. makes Xs

So...

Smedes Rose

fruition something quarters that or... over that's think several to the You next come could maybe

Joe Margolis

there I is Therefore, is in change of make capital going I'd self-storage to of next of surprised, exposure flood to all that that don't to sense think that be if amount these the opportunities a quarters. seeking few us. sudden is materially a the

to, going out the bidder our as opposed and foreseeable we're for is when growth some on future, these be capital there different high work and be of assets. for hard to go other think bidding have things lots do external I the innovative there lots

Smedes Rose

then are have on been interest the mentioned, you if wondering Thanks. maybe on of of or just And loans And program, you like? I'm could just just what's us that Joe, the kind how where level has Okay. level lending update many you made? you

Joe Margolis

Sure.

debt So, because that pieces expect of I the good. with partner think of about worth by we that year. that the sell-off The to And close Space we'll $XXX capital in will $XXX that determine, Extra our up we've million will the million is set interest structure loans of be we them. end to amount

we We're learning. good that gaining continue getting to disciplined a have We accelerate. in to like are opportunities pipeline. underwriting We're And But underwrite just I being We're these traction. acquisitions. program better. we expect

Smedes Rose

Great. Thank you.

Jeff Norman

Smedes. Thanks,

Operator

line the from question Eric Street from Advisors. comes Green next Mr. Your Frankel of

question. You may your now ask

Ryan Lumb

comments I has been just were on correctly of quarter, that Lumb. it to originally Ryan made the last topic from than value expected. circle and discounting. if discounting is understand you dollar I want prior of back This of the And like sounds sort had comments lower

online promotion is a two customer if heard just a the sort online there been operators if spent well. time, than today at has wondering trends spend marketing marketing to the from those events just higher. other rent. I'm month wondering we've related, that rather dollar same as I'm bit While large similar are quite because is better of first trying trade-off the a attract with a with a with

Scott Stubbs

a you Yeah. made rates. sum we better that's of lowering than that I would it's spend tell both meaning more choice to obviously. like conscious marketing on feel have We

effective. However, feel like we still are discounts

why reason were If down rentals of are lower you slightly. look part at the our because discounts year-over-year our is

so that And discounts your slightly. be causes down to

our at addition, that our in rental, policy occupancy. we not have then And discount do we changed levels discount of such certain

a on that. on for discount like last offer -- year instances not so we're a And going something to no

discounting be the on as And as has conscious volumes well decision down. spend also marketing. to lower rental also of caused in to policy tweaks small a some discounting kind more procedure then So or

Ryan Lumb

question more a Okay. guess then growth And acquisition That's external just helpful. of on I appetite. of kind or broader

If carry someone you one Or most be the debt capital think attractive just of environment in losing of on just to with Extra Extra who think the profile you competitive losing Space capitalized right would that appetite has much you the Who cost Are Space acquisition leverage higher or the now? the most are to acquisitions? among to? industry. of you is most in

Joe Margolis

different equity everyone's there. a variety got capital, So public to out different of different they're future and losing a different private capital, the types tolerance, that a maybe tolerance, We're some different And underwriting are the of other of in we and risk there leverage to companies. cases a cost rental view local than wide underwriting a greater growth different to. period is a hold capital

deals we But maybe as disciplined long-term to So at are capital and for creation, hard can for cost people logical provide our decisions all comfortable that only to long-term shareholders. long-term feel different value remain them. we're going looking do we making that as us, to and value very to are trying our

Ryan Lumb

Okay. you. Thank

Joe Margolis

Ryan. Thanks,

Operator

question comes Evercore. Sakwa Steve next from Your of from line the

your ask now question. may You

Joe Margolis

Steve, are you on?

Steve Sakwa

had mute sorry, sorry. Oh, the on, button

question. First

can loan business? how on you you on it the And big the think kind of in for closing year. will million said how there rates the be? of be? end you're Is book, a that by book you target On you're Or that what business looking $XXX total of charging business? Or size that do are that big

Joe Margolis

have don't we any So limitation.

different plenty risk-adjusted balance make to types that in And of have we of loans. earn as to as that continue loans can Our return, we good access is sheet shape a make capital. long we'll

we thing business don't And don't artificial know really about So an question. the on we're second get. of this is the curious the can that I answer to business. size one big how have cap just very

started when before we'll we we on walking. to time tell And this size. And kind debt going we're we -- also run allows And it's still will a going I it's us the -- walk we to see have big to and partner we're said, it, governor get. think that how

continue to to lay So capital put piece if off out of we a we but we can as make want not much loans, our decide to debt loan partner.

also last question and to then flexibility was a our returns. And good us pricing? provides on that So way increase your

Steve Sakwa

on loans. pricing the Just those

Joe Margolis

Yes.

in we're I'd I say think the market competitive that.

Steve Sakwa

question. Okay. guess second I

deliveries. expected the of And to somewhat of being half think you some elevated and the about that sort as see second the you're although talked we've about the still year. in delays Just supply you sort deceleration the in of seen

kind expectation would into still to begin a moderate even kind see of deceleration XXXX does and think is year? about peak we this next that continue your to if of year supply sort of you As industry, the

Joe Margolis

more the continue not that development won't cycle going continue -- that. we on end XXXX going it till to to will XX, a to the side answer So of The are into property stores we and we the and on XXXX markets the end right? budget the be to are every guidance. on There that deal be other December have supply markets of we're outweigh to is good with to individually may and of cycle provide the deliveries front cycle, development question XXXX, is have the

Steve Sakwa

for Okay. Thanks. me. That's it

Joe Margolis

Steve. you, Thank

Scott Stubbs

Steve. Thanks,

Operator

Your next Wells question comes from Fargo. from the Mr. Stender of Todd line

your may You ask question. now

Todd Stender

Hi, thanks.

of back the lease Carey. net W.P. kind to triple with circle Just with

Just general so I understand I guess the dynamics.

You and properties manage kind and the rent pay and all them a the cover the book collect cash of work? flow and expenses. does then How operating that

Joe Margolis

It's lease, operating So we're it's expenses collect get and every rent the the net all the where we responsible pay and of and we them the for -- three responsible revenue properties, components. a all traditional for return month. triple we're all has a we not And calculated sell NOI of at hopefully and kind It in differential that management to the properties. tenant fee, a time. rent insurance the our between the a And and management fee rent capital is fee, increases management it's but ability it's baked-in calculation. payment over it's

Todd Stender

That's Okay. helpful.

JV a mostly Carey's was did Why really W.P. You're you players. net take and triple a joint venture lease equity not call? or structure with other owner the that

Joe Margolis

right. Exactly Yeah.

a of manage. some lease which self-storage some REIT. So which there W.P. assets which Carey in of net we wholly-owned a manage They purchased vehicle called others triple CPA:XX, had is

needed do wholly-owned them. would them with to that JV an was have lease had to and them, option. REIT something buy that not triple they We loved assets Now they or in but net

five felt they're net a is with grade both long-term a lease, structure XX assets to on So we the us. Space for. looking triple We is it that a Extra we which And keep get And Space assets. with what came tenant investment this of we get lease control for that of They Extra weren't positive we believe a credit was win-win. get up additional assets. structure

Todd Stender

you. helpful All right. That's Thank color.

Joe Margolis

Todd. Thanks,

Operator

Ki SunTrust. from from Kim question line comes next the Bin of Your

You may question. now ask your

Ki Bin Kim

Thanks. Hey, guys.

of bridge cost? the program. like get follow-ups what a defaulted, to mode compared Just of to cost replacement Just look loan the couple the trying the on safety. would basis If of sense a loans

Joe Margolis

underwriting how are them a would Replacement XX% When And we land find these your to question, put But to because self-storage land your going XX% metric, been as component. underwrite basically to you underwriting of difficult -- them. something are value have what or of ring to assets things? zoned really these that to at. we cost. really replacement has happy think to So the of component. piece As the it's small not costs a land market a buy buy answer hard to lend in we're I have comparable if we we're we then in

Ki Bin Kim

sense collecting net -- the close to you're deals, trying sense NOI is or Okay. At it I'm get is to of tight compared nice a just Just And you're the triple onset is trying paying. for the how margin? very a that there the you're rent rent a of gap. the get to

Joe Margolis

billion you We is underwrite worth over five done we've years. $X the a tell nice that there acquisitions last would margin. discipline same underwrote of with We the these we the

track you of record if versus our is stats excellent actual the at underwriting look performance. Our

well. number XX assets And with We those between very it's knew I that assets we're gave we very, answer, the previous assets a Extra spread with NOI the comfortable underwriting in rent. very and by managed XX -- not my knew Space, bad and

Ki Bin Kim

you. Thank right. All

Joe Margolis

Ki Thanks Bin.

Operator

showing further [Operator like no I questions back conference Instructions] Margolis. turn to at would now this the I'm Joe time. to

Joe Margolis

systems able Extra everyone I of could performance are If better. Space. your continue a time do environment moderation, this gotten highlight solid in maximize new level you expect but to way we growth and Thank supply. despite experience some Great. we've NOI just to We we're and the happy in couple and teams interest property the with very the for things,

cycles, our I the get do we to that's and machines learn development systems As and in showing the better the deeper how think numbers. into

everyone we long-term. for in to as and continue Thank as And ways we I you sense it hope shareholders secondly, external can where makes our disciplined long but to very the growth good is be much. find grow will has day. now, to a innovative tough

Operator

Thank our That does in you today. your today's participation conclude for for conference conference.

You this may time. now disconnect at

Extra Space Storage (EXR) 31 Jul 192019 Q2 Earnings call transcript