Extra Space Storage Inc

Thank you for standing by and welcome to Extra Space Storage Inc's second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. I would now like to hand the call over to Jeff Norman, Investor Relations. Please go ahead.

Thank you, Lateef. Welcome to Extra Space Storage's second quarter 2023 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 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, August 4, 2023. 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. And I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thanks, Jeff, and thank you, everyone, for joining today's call. We have had a busy three months, and a lot has happened since our first quarter earnings call. Operationally, same-store occupancy remained high through the second quarter. Although rental volume was down year over year, vacates also remained muted, allowing us to improve occupancy sequentially each month through the quarter, ending June at a very healthy 94.5%. Existing customer health remains strong, with ARs and bad debt levels remaining low, and customer acceptance of rate increases remain steady. Our strategy coming into the year was to maintain high occupancy in order to enhance pricing power to new customers as we moved into the leasing season. This strategy was effective through May, and we improved rental rates sequentially and started to tighten the year-over-year negative delta and achieved rate growth to new customers. However, new customer rates have not improved meaningfully in June and July, both of which are typically high-volume rental months in a busy leasing season. The miss in same-store revenue in June was offset by lower than expected same-store expenses, allowing us to remain on budget for property NOI for the first half of the year. From an FFO perspective, we also met our internal budgets for the first and second quarter. As we look forward, we expect the impact of lower new customer rates in the summer months to weigh on revenue growth in the back half of the year. Our initial guidance assumed that we would fully close our negative year-over-year new customer rental rate growth gap by July, and that new customer rate growth would be positive through the end of the year. Year-to-date, we have not gained that pricing power and now believe new customer rate growth will remain negative year-over-year further into 2023. As a result, we have reduced our 2023 same-store revenue expectations. Our lower estimated property revenue, together with a higher forward interest rate curve, also reduced our full-year outlook for core FFO. Needless to say, we are disappointed that rental rate growth to new customers has been weaker this leasing season, and we never liked the idea of having to reduce our outlook. With that said, we are also careful to maintain perspective about where extra space and the storage industry actually sit today. First, occupancy levels remain just below 95%, which excluding the last couple of years, are as high as we have ever seen. Second, new customer rates, while not as strong as last year, remain 15% higher than 2019 pre-pandemic levels. Third, new supply continues to be manageable, and the headwinds to future new development are increasing. And finally, our external growth drivers continue to fire on all cylinders, with 54 additions to our third-party management platform in the quarter and 102 stores added through two quarters. On July 20th, we closed our merger with LifeStores. adding over 1,200 stores to our portfolio, which today has over 3,500 stores spanning 43 states. I am proud of both teams who have worked tirelessly to complete the merger to create a stronger portfolio, platform, and company. We are all focused in working hard to achieve a smooth integration. So far, I am very pleased with how seamlessly the integration is progressing and how we are already finding ways to create value and unlock synergies. Let me provide a couple examples. In the two weeks since we closed the transactions, we have onboarded and trained over 2,700 LSI employees and already transitioned over 900 stores to our point of sale system with the remaining stores to follow next week. This move to our point of sale system is critical because among other things, this platform allows us to implement our digital marketing and pricing strategies, which will allow us to begin to optimize performance at these stores. And second, last week, S&P Global raised our credit rating to a triple B plus to reflect our larger and stronger company which will have an immediate and future benefit on our cost of debt capital. So while we have just closed and we know it is still early, we are excited as we begin to realize the many future opportunities this merger creates for Extra Space and our shareholders. We will continue to give updates on the integration and performance of the life storage assets as well as our progress towards our 100 million in minimum estimated synergies. After some short-term dilution expected during the remainder of 2023, we believe we will be at least at our underwritten synergy run rate early in 2024, with additional upside beyond as we continue to optimize the performance of the combined company and capture additional synergies not quantified in the original underwriting. It is still a great time to be in storage, and I believe the future of extra space remains bright. I will now turn the time over to Scott.