Extra Space Storage Inc

Your questions may contain forward-looking statements as defined in the Private Security 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, February 26, 2025. 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 would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared, and thank you, everyone, for joining today's call. To begin the call, I would first like to address the impact the recent California wildfires have had on our people and properties. I am happy to report that all of our teammates are safe and that none of our properties suffered physical damage from these fires. I recognize that some of our peers in the industry were directly and personally impacted by the fires, and everyone at Extra Space wishes them and their families the best. Turning to the fourth quarter, results were slightly ahead of our internal expectations. Core FFO in the quarter was $2.03 per share, and full-year core FFO was $8.12 per share. Operationally, demand was steady, allowing us to maintain near record occupancy and to compress the year-over-year rate gap to new customers from negative 9% in the third quarter to negative 6% at year end. While we are still experiencing a headwind from lower new customer rates, we are seeing an improvement on a year-over-year basis, a trend that has continued into the first quarter. The net effect of occupancy growth left the headwind from lower rates, resulted in a same store revenue decrease of 0.4% in the quarter, which was in line with our expectations. Expenses exceeded our expectations, driven by higher than estimated property taxes, resulting in same store NOI of negative 3.5%. Revenues for the LSI same store pool finished the year slightly above the midpoint of our guidance, and like the Extra Space same-store pool, benefited from strong occupancy growth partially offset by lower rates. As previously announced, we have concluded our dual brand test and have moved all of our stores to the Extra Space brand. We are starting to see the positive and still developing benefits of this move. including savings in marketing and increased rental activity. We expect the former life storage stores to continue to outperform the legacy extra space properties in 2025. Turning to external growth, our diverse growth strategies and channels are firing on all cylinders. In 2024, we invested $950 million in various joint venture, structured, and wholly owned investments had attractive yields, with more than $610 million occurring in the fourth quarter. Nearly all these investments were generated off market through our existing industry relationships. We also originated $224 million in bridge loans in the fourth quarter, bringing total bridge loan origination to $980 million for the year. Our industry leading third party management program grew by 114 net new stores in the fourth quarter, bringing total net new managed stores for the year to 238, our best third party growth year ever, excluding managed store gains from the life storage merger. Overall, It was another solid year for extra space storage, and I would summarize our performance in 2024 as follows. We were able to maintain industry-leading occupancy and generate modest same-store revenue growth, despite an environment marked by new customer price sensitivity. Outsized, non-controllable expenses, particularly real estate taxes, were a headwind, leading to, excuse me, leading to modestly negative same-store NOI. Yet we were able to offset this through strong growth in our other storage-focused business lines of tenant insurance, bridge lending, and third-party management, allowing us to generate positive year-over-year FFO growth. This reinforces our strategy of growing diverse ancillary revenue streams as well as prudent expense control and capital allocation to supplement investors' returns during all cycles in the market. We expect these additional revenue streams to continue to supplement property returns in the future as the market recovers. We are confident that our higher portfolio occupancy positions us well to capitalize on the demand that is in the market and we are looking forward to improving core business fundamentals as we progress through 2025. We will continue to leverage our scale to find efficiencies in other areas of the business to drive outside FFO growth relative to our sector. I will now turn the time over to Scott.

Thanks, Joe, and hello, everyone. Our fourth quarter results were slightly ahead of our expectations with one uncontrollable exception. We had outsized increases in property taxes in Illinois, Georgia, and Indiana, causing extra space same-store expenses to come in at 9.5% for the quarter. These increases were partially offset by lower G&A, higher tenant insurance, and interest income. Turning to the balance sheet, We completed a $300 million reopening of an existing bond in the fourth quarter and another $350 million reopening in the first quarter of 2025. We have used the proceeds from these offerings to repay maturing loans and to fuel recent growth. We also initiated a $1 billion commercial paper program in the fourth quarter which enables us to borrow at interest rates that are 30 to 50 basis points less than our lines of credit. In last night's earnings release, we provided our 2025 outlook for the extra space same store pool. The pool is now 1,829 properties and includes the life storage same store properties from 2024 plus additional properties that now meet our same store definition. Our same store revenue guidance assumes a 50 basis point benefit from the change in pool. Our guidance does not assume a material improvement in the housing market during the summer leasing season and includes a 20 basis point headwind due to state of emergency restrictions in Los Angeles County. We are encouraged by our strong occupancy levels and the potential benefits of moderating new supply. We are confident that we can hold occupancy, but we believe it would be difficult to drive a meaningful re-acceleration on revenue growth until we regain pricing power with new customers. We are seeing some positive signs with new customer rates that indicate we are getting closer, but we still have not seen enough progress to date to feel confident that a forthcoming inflection point will have a significant impact on the 2025 leasing season. Therefore, we have not included a meaningful acceleration in pricing power in our guidance. For the same store pool, our revenue guidance is negative 0.75 to a positive 1.25%. Our expense growth range is positive 3.75 to 5.25%, driven by expected increases in property taxes and property insurance increases expected in the latter half of the year, resulting in an NOI range of negative 3% to positive 0.25%. Our core FFO range for 2025 is $8 to $8.30 per share, which implies a 2% growth rate at the top end and a 0.4% growth at the midpoint. We continue to find ways to expand our other lines of business and grow FFO per share. With our occupancy levels at near record highs, we are confident that we are very well positioned to push rates quickly when pricing power returns. With that, let's open it up for questions.