Extra Space Storage Inc

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Extra Space Storage, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the speaker's presentation, there will be a question and answer session. To ask a question via the telephone, please press star and the number one on your telephone keypad. I would now like to hand the conference over to your speaker today, Mr. Jeff Norman. Thank you. Please go ahead, sir.

Thank you, Oren. Welcome to Extra Space Storage's second quarter 2020 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 Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks 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, August 5, 2020. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. I'd now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jeff, and thank you everyone for joining us on today's call. The second quarter presented unique challenges to our country, our industry, and Extra Space. I am incredibly thankful to our employees who have continued to operate our stores, service our customers, grow our company, strengthen our balance sheet, and to do all the day-to-day blocking and tackling that allows us to optimize our performance. All this good work was done in unusual and sometimes difficult working situations, and often with added personal and family stress and uncertainty. It is said that crisis does not create character but reveals character, and I could not be prouder of the character the extra space team has shown during these past several months. This quarter also presented a stark reminder of racial injustice in our country. Approximately 40% of our teammates are black or other people of color. And I am proud that recruiting, developing and retaining diverse talent has been a focus of our company for many years, and is not a new initiative. However, The tragic events of the last two months reinforced to me that while Extra Space is a values-driven company with a great inclusive culture, we can do better. In response, we have enhanced our existing diversity and inclusion initiatives and have taken several concrete steps to improve as a company. These steps are consistent with our company values, and I am committed that our response will not be limited to making statements or temporary steps, but will be continuing and substantive. Turning to our performance in the second quarter, most importantly, we were able to grow FFO in the quarter on a year-over-year basis. We have started to see several positive trends, on which Scott will provide further detail. Our platform is able to find and capture high value customers. Rentals have normalized and vacates remain muted. As a result, our occupancy is at an all time high and prices have begun to move in the right direction. Where we can, we have resumed more normal pricing, operational practices and auctions. However, These positive trends should not obscure the macro and industry-specific risks we still face. There are still uncertainties with respect to the course and length of the virus, its economic impact, and its effect on consumers and their willingness to pay for storage. While our occupancy is at an all-time high, until recently we have not been allowed to initiate the auction process in several markets which represent approximately 47% of our same-store NOI. As a result, at the end of June, approximately 150 basis points of our occupancy is from non-paying tenants due to delays in auction. By the end of July, this inflated occupancy increased to approximately 200 basis points. We are now moving forward with auctions in most states, But due to notice periods, actual auctions in several states won't begin until September, which will be outside of the peak leasing season for re-tenanting these units. Occupancy has also benefited from lower than normal vacates. I do not personally believe that the moderation in vacates represents a permanent behavioral shift of our customers. Instead, at some point, more historically normal activity will resume and we will see vacates increase, putting further pressure on occupancy when we may not have our full set of tools available to optimize returns due to government state of emergency orders or regulations. Also, the non-COVID headwinds that we had coming into 2020 are still present. While we believe the pandemic has delayed new deliveries and may reduce new projects and planning, properties are still being delivered and there is still excess inventory leasing up in many markets, which is suppressing rate growth. So while we are encouraged by recent results, there are enough remaining uncertainties and risks that we are not in a position to reinstate guidance. The possible outcomes remain too broad for guidance to be meaningful, depending on how the risks I've outlined play out. We will continue to be transparent on all metrics and answer questions that you may have. And we will continue to work hard every day and remain laser-focused on maximizing shareholders' long-term value. And I'd like to wish Scott a happy birthday and turn the time over him to walk through some of the metrics that I mentioned.