Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage, Inc. Q1 2025 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is made recorded on Wednesday, April 30, 2025. I would now like to turn the conference over to Jared Condi. Please go ahead.

Thank you, John, and welcome to Extraspace Storage's first quarter 2025 earnings call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Actual results could differ materially from those stated or implied by our forward-looking statements due to risk and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, April 30th, 2025. The company assumes no obligation to revise or update any forward-looking statements because of the changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you for joining us today. I am pleased to report a solid first quarter with performance exceeding our internal projections across several key metrics. Our core FFO of $2 per share represents a 2% increase year over year. Same-store occupancy remained at historically high levels, ending the quarter at 93.4%. This represents an improvement of 100 basis points from the first quarter 2024 and 10 basis points from the previous quarter, and drove positive same-store revenue growth of 0.3%. Our positive revenue growth demonstrates the continued resilience of our portfolio and effective revenue management, customer acquisition, and operational strategies. We also expect to see additional benefit from the performance of the former life storage assets, which continue to see leasing and pricing improvements since being unified under the extra space storage brand. Our external growth initiatives demonstrated strong momentum in the first quarter. We completed $153.8 million in wholly owned acquisitions, adding 12 high-quality stores to our portfolio. We also dissolved a 23-property joint venture and realized an embedded promote of $1.7 million. In this transaction, we exchanged our 25% ownership interest in 17 properties for a 100% ownership interest in six properties. Our bridge loan program remained active, with the team closing $53.2 million in loans during the quarter. We sold $27.7 million in bridge loans as part of our capital allocation strategy and ended the quarter with approximately $1.4 billion in loans on our balance sheet. This program continues to provide attractive risk-adjusted returns while building and enhancing valuable relationships with owners across the storage sector. Our Management Plus platform showed remarkable growth, adding 113 stores gross and achieving a net addition of 100 properties. This brings our third-party managed portfolio to 1,675 stores, reinforcing our position as the leading third-party management provider in the industry. Our multi-channel approach to external growth, combining wholly owned acquisitions, joint ventures, bridge lending, and third-party management, continues to provide us with numerous opportunities to expand our footprint and enhance shareholder value. As we evaluate the current macro environment, we understand why investors across asset classes are concerned. We share the concerns about interest rates, volatility, and economic uncertainty. However, we are also encouraged by many attributes of our sector, portfolio, and platform, which have led us to maintain our 2025 guidance. First, the self-storage sector has historically demonstrated resilience during economic downturns due to its need-based demand drivers and broad customer base. Second, we have a highly diversified portfolio with exposure to markets in all stages of development and economic cycles, removing much of the market volatility experienced in smaller and more concentrated portfolios. And finally, our sophisticated systems, experienced team, economies of scale, and strong balance sheet position us well to optimize performance and to outperform the storage sector as a whole in the long run, regardless of market conditions. We are encouraged by the strength of many key current operational metrics and have not seen any change in customer health or behavior to date. We have high same-store occupancy, improvement in new customer rates, low move-out activity, and stable delinquency, which all position us well for future growth. We remain confident in our ability to execute our diversified investment strategy as opportunities arise across our multiple growth channels. We remain focused on maximizing FFO by executing our proven operational strategies and maintaining our industry-leading platform. I will now turn the time over to Scott.

Thanks, Joe, and hello, everyone. As Joe mentioned, our first quarter financial results were ahead of our internal expectations. Our core FFO of $2 per share represents a 2% increase from the prior year. This outperformance was driven by better than expected same-store revenue, higher tenant insurance, and greater interest income. On the expense front, we saw a notable divergence between controllable and uncontrollable costs. Our operations team successfully reduced controllable expenses by 1.9% year-over-year through operational efficiencies and strategic cost management. However, uncontrollable expenses increased by 8% primarily due to continued property tax pressure and weather-related expenses. This dynamic of controllable versus uncontrollable expenses resulted in a same-store NOI decrease of 1.2% compared to the first quarter of 2024. We continued to strengthen our balance sheet as we executed two bond offerings in the quarter, One five-year issuance of $350 million at an effective rate of 5.17% and a second 10-year issuance of $500 million at 5.4%. These offerings demonstrate our continued access to public debt markets and our ability to secure favorable terms despite the volatile interest rate environment. We continue to maintain a conservative leverage profile with almost 90% of our debt at fixed rates, net of our bridge loans receivable. This helps insulate us from near-term interest rate fluctuations. Our weighted average interest rate stands at 4.4%, reflecting our ability to secure competitive financing across market cycles. Based on our first quarter performance and current market conditions, we are maintaining our full year 2025 FFO guidance. Same-store revenue, expense, and NOI guidance also remains unchanged. This guidance assumes no significant recovery of the housing market and reflects our strong occupancy levels and stable new customer rates balanced against broader economic uncertainties. On the expense front, we anticipate continued pressure from property taxes and other uncontrollable costs. We have updated a few items in our guidance, including a $17 million reduction at the midpoint in equity and earnings. This reduction reflects the repayment of the Smart Stop $200 million preferred investment and the expected buyout of certain JV partners. partners. The income from the properties we have and will purchase from our JV partners is now reflected in non-same store NOI. We have also increased interest expense to account for these partners' buyouts and to reflect the change in the forward interest curve. Our annual acquisition guidance has also been increased to account for the JV buyouts that are currently under agreement. We are encouraged by our core business fundamentals and our confident that our diversified portfolio and systems will maximize performance in all economic scenarios. And with that, John, let's open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speaker phone, please lift the handset before pressing any keys. Your first question comes from the line of Michael Goldsmith from UBS. Your line is now open.

Good afternoon. Thanks a lot for taking my question. It looks like street rates closed the gap pretty materially in the first quarter. I was wondering, you know, what's driving that? You know, it doesn't feel like demand is incrementally picking up, but I'd love to hear your comments there. And then also if you can provide an update on just how the conditions played out so far in April.

Yeah, Michael, so, so far, quarter to date, things have played out very similar to what we were expecting. So no major surprises, maybe slightly ahead of what we originally expected. In terms of street rates, our street rates have gone from negative 9% in Q3 last year. to year-end street rates of negative 6%. In the first quarter, our average was slightly negative. And then by the end of the quarter and into April, we were flat. So street rates have improved. We're encouraged by that improvement. A 6% movement in the quarter is encouraging, but it's still pretty early to say where those are going to go into our rental season.

Got it. And as a follow-up, during the first quarter, you had Seamster revenue growth of 30 basis points. The midpoint of the guidance range implies that Seamster revenue remained in that range through the year. I guess, like, is that a reasonable outcome for a same sort of revenue just to kind of remain where it is through the year? Or are you just trying to maintain some flexibility given some of the uncertainty out there?

Yeah, so I think it depends on where you are in the range. I mean, you're assuming the midpoint in your comments here. We gave a fairly wide range for the year, and that had to do with not really knowing some of the economic conditions that we were going to see. So I think we're now moving into the leasing season. You know, if we do see that rate power, I think that you'll see is above the midpoint of the range. And if we don't see much rate power, I think you, you know, you could see it play out midpoint to below.

Thank you very much. Good luck in the second quarter. Thanks, Michael.

Your next question comes from the line of Jeffrey Spector from Bofa Securities. Your line is now open.

Hi, actually, it's Samir Canal. Sorry about that. So, good morning, everybody. So, Joe, it looks like you had the ability to raise guidance, but you didn't. And it doesn't look like you've seen any changes in customer behavior. But I guess what instructions are you giving your troops on the ground as it relates to leasing, right, this spring leasing season?

Has there been a shift in strategy at all, given the uncertainty you've kind of mentioned in your opening remarks? no there's been no change of instruction or strategy our goal is to maximize revenue we have you know systems and processes in place to do that i don't need to give instructions on a day-to-day basis the you know the the algorithms are pricing every unit in every building on a nightly basis taking into account both our massive data set that we have and what's going on on the ground today. And I'm very, very confident that both our systems and our people are set up to take advantage of whatever opportunities present themselves and react to the environment as it unfolds.

Thank you for that. And then I guess my second question is, I mean, in your opening remarks you talked about the sort of the positive impact from LSI that you're seeing. Maybe expand on that. And you talked about improved leasing in that portfolio. Maybe just give it a little bit more color. Thanks.

Sure. Absolutely. Good question. So overall, the former LSI stores rebranded as Extra Space are progressing as expected. We're seeing improvement in both organic and local search results although there's still still further room to improve there the occupancy gap between the former life storage same store pool and the former extra space same store pool is close to 30 basis points which is as tight as it's ever been if you look at the three month period prior to the conversion to a single brand and compare it to the three-month, first quarter, 2025 period, rentals at the former life storage stores are up 10.4%. The rate growth at the life storage stores is faster than the rate growth at the extra space stores. And on the expense side, in the first quarter, we saved $1.3 million in paid search at the life storage stores. Physically, we've had 500 stores that have their signage replaced, 350 offices complete. We'll have the painting done by year end. So while we're well on our way there, we're not done. And we hope to get further improvement as the physical part of the rebranding is completed as well. So overall, happy where we are, happy with the pace of progress, and looking forward to it continuing.

Thank you for that. And finally, Scott, just one last one on this exchange of the 25% ownership interest for the properties to the existing joint venture. Was there an impact in 1Q from that at all?

There actually is no impact. It basically has moved from equity and equity pickup to it'll be wholly owned. And that transaction actually happened on March 31st. So going forward, it's reflected in non-same-store NOI. Okay, perfect. Thanks, Samir. Thanks, Samir.

Your next question comes from the line of Nate Yulico from Scotiabank. Your line is now open.

Thanks. I was hoping to just get a feel for the acquisition yields, for what was done in the quarter and what's under contract right now.

Sure. So we bought a wide variety of types of assets in the first quarter. The underwritten months to stabilization range from one month to 19 months. So that tells you they're at a different stage of lease up. Initial yields range from 2.3% to 6.5%, and they stabilize in the upper sixes to 7%. So obviously, you know, higher stabilized yields if you're further out on the stabilization projection.

Okay, great. Thank you. And then just second question is, and I know Scott, you know, kind of framed out some of the, you know, the change in move-in rate growth in the fall versus the fourth quarter. And, you know, even if we looked at it like sequentially in terms of what the move-in rents were in the first quarter versus the fourth quarter, there was a higher sequential jump in that move-in rate than there was a year ago during those similar periods. And at the same time, you had occupancy up. So I guess is the message here that you guys are feeling a little bit better about pushing rate and removing some of the discounting on the front end? How should we think about that?

Thanks. i think we're feeling good about things i think it's still too early to say moving into the leasing season you know we have you know rates have moved up sequentially month over month which is good but on a year-over-year basis they've you know and from the previous quarter they moved up six percent and they continue to move but we'll see how those move as we move into the leasing season. So, we would almost tell you it's really too early to tell. Okay, thank you. Nick?

Your next question comes from the line of Todd Thomas from KeyBank Capital Markets. Your line is now open.

Hi, this is AJ on for Todd. Quick question, just real quick around the April data. Could you quantify the occupancy for April thus far and what that looks like year over year yeah occupancy at the end of april is 93.7 so it's a slight increase from where we were at the end of q1 so you know good movement in april okay and then um real quick around uh kind of the 3 p.m growth uh kind of throughout the balance of the year and i guess just more broadly uh in this environment um how do how have the discussions changed around either the 3 p.m structured financing, or even acquisitions with sellers?

So 3PM growth was really strong. 100 net, that includes the assets in the partnership that were moved from managed to only own. So very strong quarter. 100 net is phenomenal growth. We continue to see strong demand from operators who are having trouble in the environment. We're seeing an increase in that demand and a significant decrease in demand from new developments as the development pipeline continues to slow down. uh similarly on the bridge loan program we see demand kind of converse to the acquisition market so as the acquisition market continues to be muted continued bid-ask spread we see a number of borrowers seeking to kind of get a bridge solution instead of selling and they'll try again in three years. So, very good activity on both of those fronts. Okay.

Thank you.

Your next question comes from the line of Ronald Camden from Morgan Stanley. Your line is now open.

Great. Just two quick ones from my end. Just love some comments on the expense side, how you're sort of thinking about it. Obviously, taxes were higher as you expected, but just any sort of relief if you go through the year?

Yeah, so property taxes and property and casualty insurance are the two areas that we kind of see pressure this year. So property taxes in the first quarter were higher. Some of that is a function of the bills that we received in the fourth quarter and we were effectively, we had to catch up that accrual in the fourth quarter so you had a harder comp from the first quarter of last year. So on an annual basis, we wouldn't expect them to increase at this rate but on a quarterly basis it was a tougher comp so the expense pressure is coming more from what we you know we're doing what we can to control these expenses whether it's you know appealing things on the property and casualty side we've been very active in meeting with a lot of carriers trying to make sure that we have as many people in the bid process as possible but you know those are somewhat you're somewhat subject to market conditions on the property and casualty side.

Great. My second question is just, you know, obviously the April sounds like it's going well, but just from a macro perspective after April 2nd, as you're sort of thinking about your business, your markets, you know, bad debt, kind of feedback, any sort of signs that tariffs are having an impact anywhere on your business, you know, business customer, anything that's coming up that you could share? Thanks.

So from a customer standpoint, we're seeing no impact as of today in any metric. So demand, which was mentioned earlier, is measured by Google search, generic Google search terms, is actually better now than it was last year at this time and better than 2019. So there is demand out there. We're not seeing any change in customer behavior in terms of acceptance of ECRIs, defaults, bad debt. The business is still good with no change. Looking forward, we don't know. And, you know, we don't know what the effect of tariffs are going to be on customer and customer behavior. I do know that our systems and our ability to collect and react to data will optimize whatever comes to fruition. So I feel good about that. I also think that tariffs, and we don't even know what tariffs are going to mean in the long run, are going to have an effect on pricing. Immigration policy may have commodity pricing, steel pricing. Immigration policy is going to have an effect on labor pricing. And I think those things will further reduce new development in the future, which is a good thing for our business.

Great. Thanks so much. That's it for me.

Thanks, Ronald. So your next question comes from the line of Spencer Glimcher from Green Street. Your line is now open.

Yeah, thank you. Joe, you commented on the sector's resiliency during economic downtimes. With that in mind, have you guys started to see more capital looking to get into the space in recent months?

I don't know if we've seen more capital, Spencer. I think, you know, over the long term, there's been an increase in institutional capital looking to get into the space. You know, when withdrawal cues in the open end fund started and there was, you know, other reallocations of capital, it slowed down somewhat. We were certainly more busy with our joint venture partners in 2020, 21, and 22 than we were in 2024 and currently this year. But there still is a lot of capital that is interested in self-storage.

Okay. That's helpful. Thanks so much.

Sure. Your next question comes from the line of Eric Wolf from City. Your line is now open.

Hey, thanks. You mentioned that demand, as measured by Google searches, is stronger than last year, and I think 2019 is as well. But if you listen to the homebuilders, it seems like demand is pretty soft right now on affordability concerns. Apartments are seeing record low turnover. So I'm just curious if there are other demand sources besides moving that are becoming a bit more important drivers of demand. Essentially just wondering why the Google searches look good right now at a time that the sort of moving environment seems to be a bit weaker than normal.

Yeah, so moving demand certainly has declined. You know, the peak for us was the third quarter of 2021, when 63% of our customers told us they were in the process of moving. And that's not only moving to a for sale house that might be moving apartment to apartment or house to apartment or back home or to a dorm. but the peak was 63% of our customers. And now it's about 54% in the first quarter. So there clearly is a decline, but people are still moving. There's still a substantial demand from that. The increase in demand has been in the lack of space customer. And that's about 35% of our customers now are telling us that they are renting because they don't have enough space in their current situation. And the positive there is the length of stay of the lack of space customer is twice that of the moving customer. And one reason we see low vacates, I think, is because of this shift. And it's helped increase both our occupancy and our average length of stay.

That's helpful. And that lack of space customer, is that more pronounced in certain markets? Like, I guess I would think, you know, New York, you know, big major urban markets where people tend to rent more than buy. But I'm just curious if it breaks down by market at all.

Yeah, I think your rationale is logical, right? New York has always been a market with less transition and more kind of lack of space, small living space tenants. And you see that in market performance. Both New York MSA and the New York boroughs outperformed our portfolio average by a significant amount, but that's a healthy market right now.

Thank you.

Your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is now open.

Hi, good morning. Our question on the rates as it relates to guidance street rates for new customers, you're flat now, and you said that was kind of one of the main variables, whether you're at the high or low end. If rates are flat year-over-year on average or to the balance of the year, what would that mean in terms of where you'd be within the guidance range, all else equal?

Yeah, Juan, we actually haven't guided using rates. When we do our modeling, when we do all that we are guiding using revenue dollars. And so when I'm speaking to rates and strength of that, it's more in generalities. So I would tell you, obviously, higher rates are going to produce more revenue and lower rates are going to produce less. But we are guiding more on revenue versus rate.

Okay, fair enough. And then just a question on ECRIs. You've heard from some that there's been maybe some moderation in ECRIs, maybe the quantum that's asked for on average. Have you guys done any of that or seen that more broadly in the industry as you've kind of gotten more up front or less pain up front and those rates have stabilized year over year? But is there any kind of offset in ECRIs as part of that give and take between the two, street rates in ECRIs?

I think broadly, no. I think what changes ECRI for us, I'm not speaking about the industry, is street rate. If we bring someone in at a discounted rate, an introductory rate, we'll try to get them through ECRI to street rate, to or close to street rate in a reasonable period of time. And if street rate is not growing, that gives us less of an opportunity to do that. and if street rate is growing, then you get a little larger ECRI. But I would think that's the variable is where street rate is going.

Thank you.

Sure. Our next question comes from the line of Brad Heffern from RBC. Your line is now open.

Yeah. Hey, everyone. You mentioned the Google search data having gotten a little better and the demand has finally sort of stabilized and also gotten a little better. What do you think is driving that? Have we finally just gotten to low enough pricing that that's stabilizing things. Obviously, nothing's happened on the housing front. Supply is pretty slow moving. So just wondering what you think's driving it.

I don't think pricing has anything to do with it, right? People are searching for storage near me before they have any idea what the price is. I think it's life events and, you know, just all the typical things in good economies and bad economies and in all economies that happen that drive people to need storage. And it's one of the great, great things about our business is these things happen during all economic periods, right? People are going to get divorced regardless of what the economy is going on, et cetera, et cetera. So I think it's just normal demand that is created by life events.

Okay, got it. And then on the tariffs, are you expecting any direct impact on tenants, like away from losing your job or like the macroeconomic impacts? I know it's hard to quantify, but I'm just wondering if you have small businesses where they have an Amazon business and they have a unit full of imports from China, where it might be a headwind.

So if that's true, it's a really small part of our business to start with. And I also think to the extent there are negative impacts, so the tenant that has Amazon imports from China now is out of business, there'll be offsetting positive impacts of the business that ran out of a small flex space and their business is hurting and they have to downsize and operate out of a 10 by 20. So overall, I don't think it's going to be a big, I'm pretty sure it's not going to be a big mover to our business. Okay, thank you.

Your next question comes from the line of Eric Lubechow from Wells Fargo. Your line is now open.

I know you don't guide to occupancy or moving rates, but I think last call you had talked about maybe some of your occupancy burning off throughout the course of the year, and that could give you a little bit more leverage in pricing. So just wondering if those dynamics kind of still hold on what you see in the market and how we should think about the next few quarters.

What we've said in the past about occupancy is we expect less occupancy benefit in the middle and back half of the year than what we saw in the front half, and we still assume that to be true.

Okay, appreciate that. And then on the acquisition guide, the $600 million in your updated guide, I guess, how should we think about the potential mix there between, you know, wholly owned acquisitions or JV investments? And I guess, have you seen any real change in stabilized cap rates or bid-ask spreads in the market year-to-date versus last year?

Yeah, the best place to see the split is the table in the press release. And you'll see a footnote over the column and the stuff that's to happen going forward. So of those 28 properties, 27 of those are JVs. And then I'll have Joe comment on the market.

Yeah, I don't think I could accurately give you a market cap rate. The transactions that we see close all seem to have some unique story or circumstances of why the asset was sold at the price it was. I'm not sure there's enough volume that I'm comfortable saying this is the clearing price or the clearing yield for an asset of a particular quality in a particular market. I think it's a very quiet and uncertain market right now.

All right.

Sure.

Your next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is now open.

Hi. Good morning there. I was wondering if you could just comment on your supply outlook for the year.

So in the first quarter, we saw deliveries in the micro markets of our same store pool was as expected. We expected about 10% on a square foot basis increase in those markets in 2025. And in the first quarter, we were tracking to that. I would not at all be surprised if the new deliveries goes down further. Just from what we're seeing in conversations with developers, inquiries in our Management Plus platform, it is difficult now to understand what your costs are going to be and understand what your returns are going to be. And it's significantly slowing down development.

I got it. Makes sense. And then it looks like actually post-quarter you guys did some buyback. So just wondering how you decided to do that and how you were thinking about that opportunity versus other uses of capital.

It's a great way to ask the question because that is the decision. It's a capital allocation decision. And, you know, our stock price got to a point where we thought it was a very easy decision to allocate capital to that. We put a program in place. We were hoping to slowly buy a sizable amount of stock without moving the market, and two hours later, the president put a pause on tariffs, and the stock jumped, and our program So we only ended up buying a little bit of stock. I think it was at a favorable price. I wish we had a greater opportunity to buy more, and we'll continue going forward to look at that as one of our many options of how to allocate capital.

Thanks.

You're welcome. Your next question comes from the line of Michael Griffin from Evercore ISI. Your line is now open.

Great. I'm wondering if you could give a little more context and color on these upcoming JV buyouts or acquisitions you have for the remainder of the year. Can we get a sense, is it you approaching your partner? I imagine you obviously own and probably manage these properties, so you have a good sense for how they're operating on the ground. I mean, are these capital partners more finite life vehicles that, you know, need to bring capital back to investors? Like, you know, give us a sense of, you know, what the kind of property mix is here and how these deals came to be.

Sure. So we have two joint venture buyouts that have been agreed to but not closed. Both situations, this is a capital allocation decision for the partner. they'd like to take this capital and put it somewhere else. One is a 2019 venture with 11 stores. One's a 2021 venture with 16 stores. We will realize a $3.1 million promote in one and a $4.2 million promote in the other. In the first one, we'll invest about $100 million at a first yield of 7.7%. And the second one, we will have incremental capital about $55 million at about 7.4%. So both, you know, accretive and good uses of capital.

Yeah, maybe just one clarifying point there. That's the cash invested. We're also assuming debt on both of those JVs to get to the total purchase price that's in the tables in the press release.

Yeah, that's certainly helpful context, Scott. And then, you know, Scott, I know you laid out kind of in your prepared remarks, you know, as it relates to guidance, you're not expecting a recovery in the housing market. But I imagine job growth is also, you know, relatively correlated with storage demand. We've obviously got this, you know, the jobs report coming out on Friday, you know, I think if that, you know, really starts to fall off a cliff, whether it's bigger declines than people expect or maybe job losses, I mean, have you done any analysis around that and how that could impact your expectations for growth?

We have. We've looked for collective factors, you know, over the years and job creation, job growth does impact it. You know, we clearly prefer strong job growth than shrinking jobs. But at the same time, change is what drives self-storage. And, you know, good times, bad times, there's going to be change. And so even during the last downturn, 2008, 2009, we saw a negative same-store growth of 2.9%. So, you know, we feel like self-storage is set up to not be recession-resistant, you know, nothing's recession-proof, but it does very well in a downturn also.

Great. That's it for me. Thanks for the time.

Your next question comes from the line of Ravi Vajja from Mizuho. Your line is now open.

Hope you guys are doing well. As we look ahead to the peak leasing season here, which markets do you expect to see strong and outsized demand from, and which ones may be a bit more concerning or something to monitor, whether it be a weak pricing, lower demand, or higher operating expenses? Thanks.

I would think the answer to that question relates to supply, really. So the markets that have, you know, are still absorbing supply, you know, Atlanta, some of the Florida markets on the Southwest Coast, Phoenix, maybe, will have more difficulty than the markets that have already absorbed supply or never really were in that type of supply situation.

Thank you.

You're welcome. Your next question comes from the line of Keebin Kim from Truist. Your line is now open.

Thank you. Just going back to the bridge loan topic, can you illustrate for us how much more demand you might be seeing in that program given the volatility in the cost of the capital market?

I think we're seeing steady demand. I'm not sure we're seeing increasing demand when you say more demand. I think we're seeing steady demand in that business. And it's kind of a wide variety of demand. Fewer new development projects at CO, more borrowers who are buying out an equity partner or tried to sell and couldn't or didn't want to at the price they could sell, so are looking for a temporary solution. And other people who want to do additions to their property or other situations like that. But I think demand is more steady than increasing.

Okay. And on the LSIs, you mentioned improving rentals and occupancy. For rate, for the comparable properties to EXR, where is that gap today and how's the trend?

You know, overall, the trend is positive. The LSI stores are improving. Their rate growth is better than the extra space properties. We're not really looking at two separate pools anymore and reporting on that. We will just report our same-store pool, and you can look at prior pools where the change is 95% LSI to see the difference in performance.

Okay, thank you.

Your next question comes from the line of Mike Mueller from JP Morgan. Your line is now open.

Yeah, hi. I guess first question, if a recession actually happens, can you talk about how you think you'd approach operating the portfolio to the playbook from the GFC?

Yeah, really, really good question. I think we're in a much, much better position than we were in 2009 to maximize performance and a downturn. We just didn't have the systems, the data, the experience back then that we have now. And we did a bunch of things back then that in hindsight, we didn't need to do, right? We had a vacate problem in 2009, not a demand problem, which was interesting. Our problem was really on the vacate side. And we tried unilaterally lowering customers' rates to get them not to vacate. And obviously that doesn't work when people don't need storage or they don't need storage. So I'm much more confident that our systems will react real time to what's going on to optimize performance. And all we can do is do the best we can in the situation that's presented to us, but we are set up well to perform as best as we can, regardless of the cards we're dealt got it okay maybe maybe one other quick one too keep a sense as to what portion of i guess the bridge loans that you extend ultimately translate into some sort of acquisition has there has there been a consistent ratio in the conversion of say number of loans to acquisition transactions so we've we've closed about two and a half billion dollars worth of bridge loans and we bought about $595 million of collateral. So that's about 24% of all loans by dollars end up being acquisitions. It's lumpy though. I will tell you that it's not a consistent quarter after quarter. It's more situational, but it's one of the great attributes. And, in addition to the fees we get, the interest, the management and economics, the expansion of our relationships. It's one of the other great benefits of this program is it's a somewhat proprietary acquisition pipeline.

Got it. Thank you.

Your next question comes from the line of Brandon Lynch from Barclays. Your line is now open.

Great. Thanks for taking my questions. We're a few months on from the fires in Los Angeles. Can you give us an update on how it's impacting operations and customer behavior?

So we don't see the increase in demand from fires like we do from hurricanes. So there's not a change in customer behavior that way, which is a demand. Obviously, our pricing has been restricted by the state of emergency that's in place. We think that's going to affect overall portfolio performance by about 20 basis points in revenue this year. And it kind of is what it is. Sorry to repeat myself, we will optimize given the situation that we're in.

That makes sense. Thank you. Another question on the marketing spend, it was down 12 and a half percent year over year at a time when you're increasing occupancy. How should we think about that marketing spend going forward and what is changing in your approach?

Yeah, so marketing spend we view as a tool to maximize revenue. And so if we have opportunities to spend more, to drive more demand, to increase pricing, we're going to do it. Now, that should be offset by some of the savings from the LSI, You know, going to a single brand, we do expect savings there in terms of only bidding on one. But we absolutely view it as an opportunity and also an expense. Great. Thank you.

Your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Your line is now open.

Yes. Good morning out there. Quick one on guidance. Again, you almost doubled your acquisition outlook, but you still kind of kept guidance the same. Could you just walk us through a little bit of that train of thought?

Yes, so the increase in guidance is offset by a portion of a decrease in equity in earnings. Equity in earnings is going down by about $17 million. That decrease relates to two components. The first is the repayment of the SmartStop preferred, which is about $10 million of the $17 million. And the other $7 million is effectively moving into non-same store NOI. Okay, that's helpful.

And then again, pardon me if I missed this, but ECRI trends in one cube. Could you just talk a little bit about exactly how much you increased ECRIs? And then I think there was a prior question about, you know, how that could potentially be impacted by a slowdown in the economy or recession and how you're kind of thinking about it for the rest of the year.

So really no change to our ECRI program in the first quarter, other than with respect to Los Angeles and other states of emergencies where we're legally restricted. And also no change in customer behavior. As we've discussed previously, we track move-outs in response to ECRI every month, and we see that that's been very steady with no increase in move-outs to the ECRI.

Gotcha. Last one, if I may ask, any interest at all in doing anything internationally? Again, you have a pair that's doing things all the way in the UK, all the way in Australia. I'm just going to curious how you kind of think about some of those markets where maybe the product itself is not quite as mature and there might be a little bit more opportunity for growth.

Yeah, we certainly look at international opportunities. We were invested in Mexico for a while. We've looked at lots of other opportunities. And there's really two big hurdles we want to jump over before we go outside the US. One is that we want to make at least and preferably more return on the dollar invested overseas as the dollar invested here, net of taxes and currency and setting up systems and all the costs of going international. So it's got to be accretive net of all of those things. And then secondly, it's got to be scalable. We're not really interested in buying two assets in Toronto. It's not worth that. So if we can find something that's accretive for our shareholders and we can make it scalable over time, then we'd be very interested in it. And we certainly look at a lot of opportunities and we'll pull the trigger if we can ever satisfy those conditions.

Sounds good. Thank you.

Your next question comes from the line of Todd Thomas from KeyBank Capital Markets. Your line is now open.

Yeah, just a couple quick follow-ups here. First, Joe, you noted that there could be some instances of demand from tenants that might need to downsize from a flex space and look to a larger storage unit or multiple units. Are you seeing any use cases like that worth noting, anything to report along those lines, or was that just a point that you were making to, you know, sort of simply demonstrate the, you know, the business's, you know, various demand drivers?

It's really the latter. It's, you know, we have seen that. It's anecdotal. We don't have enough volume of that to track over time. It's not a major part of our business. But the point that I was trying to make is that while, you know, positive economic growth, job growth creates storage demand, and we prefer that, there is also storage demand that's created by negative economic circumstances. And I was just trying to give an example.

Okay. Got it. And then, you know, I understand you're not breaking out the LSI portfolio going forward, but I'm just curious, you know, the contribution to same-store growth this year, that tailwind from the LSI portfolio, do you expect that to increase during the year, or, you know, is the impact, you know, sort of greatest, you know, early in the year to to start the year here in the first quarter, for example?

We would expect it to not increase, to be flat to slightly moderating.

Okay. And then just one more, going back to the third-party management platform, you've seen pretty sizable growth there over the last couple of years. Are there any constraints at all to growing that platform as you look ahead? any sort of obstacles that you face, you know, or any plans to do anything more strategic with the third-party management business over time?

Well, once we manage every store in the country, we'll be done. That's the constraint. I don't think so. I think we have a scalable platform. The larger we get, the more advantages we have of scale in terms of data and costs and efficiencies. So I think we can continue to grow this platform, maybe not 100 stores a quarter, but certainly we can continue to grow it. We can, as we expand into new markets, that gives us more opportunities and it's a, you know, an integral part of our business that gives us benefits across lots of verticals. It, you know, helps our bridge loan business, helps our acquisition business, helps us with data. So I don't think we'd want to do something strategic if you mean like carve it off and sell it. I don't think that's in the plans.

All right. Thank you.

Your next question comes from the line of Michael Griffin from Evercore ISI. Your line is now open.

Hey, thanks for taking the follow-up. Just wanted a little more clarity. I noticed I think the move-in volume year-over-year in the same store pool looked like it was down about 12%, 165,000 units this quarter versus 188,000 first quarter of last year. Is there anything to read into this?

I mean, that seems like a pretty notable drop-off, but any color you have here would be helpful thank you some of that is a function on the comp from last year we actually had a very good rental volume last year but overall move in and move out volume are down but probably the more important number here is occupancy i mean occupancy and revenue growth are doing what we would expect so i wouldn't tell you there's anything to read into it great thank you so much thanks michael our next question comes from the line of caitlin Burrows from Goldman Sachs.

Your line is now open.

Hi. Quick follow-up on the business use, realizing that it's a small part of your business. I'm just wondering if you have any idea if that's like 2% of your business or 6% or more, or you don't know?

So we don't know exactly because it's easy to track a customer that, you know, signs their lease in the corporate name, but we also have lots of businesses that sign their lease in an individual name and they're a landscaper or a local business. So we know about five or 6% of our tenants sign in business names. So probably our, not probably, our overall business use is somewhere north of that. And it's gone down over time as a larger portion of our portfolio is, you know, multi-story buildings. where a fewer percentage of our units are the first floor 10 by 10s outside access that the businesses prefer, that most businesses prefer.

You got it. Thanks.

Sure. You're welcome.

There are no further questions at this time. I will now turn the call over to Joe Margolis, CEO. Please continue.

Yeah, thank you everyone for your interest in extra space and your good questions. We're encouraged by the start of the year, as we've tried to say, and we're prepared for whatever the future puts in front of us. I hope everyone has a great day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.