Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage Inc. Q4 2024 Earnings Conference Call. At this time, all lines are in 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 being recorded on Wednesday, February 26, 2025. I would now like to turn the conference over to Mr. Jared Conley. Thank you. Please go ahead.

Thank you, Rina. Welcome to Extra Space Storage's fourth quarter 2024 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 statement 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 less 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…

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 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 increase 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 $8.00 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.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. And should you wish to cancel the request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Ki Bin Kim from Truist. Please go ahead.

Thank you. Good morning. Just going back to your comments around guidance and assuming much pricing power acceleration, maybe you can just flesh that out for us a little bit more. For example, like, what were the rates year-to-date so far? And what are you assuming for the rest of the year? Thank you.

Yeah. So maybe just to give you a little more color on that. Our rates in the third quarter of last year were down about 9% average, and we ended the year closer to being down about 6%. And as of today, our rates are essentially flat. We have seen a sequential improvement in terms of assumptions for the remainder of the year. We would assume that rates continue to improve moderately as we move through the year. And we would assume a slight benefit from occupancy through the year, but we, you know, again, we do not assume a big improvement from the housing market or, you know, big recovery there. So kind of just more of the slow growth as we move through the year.

Okay. Great. And on the LA wildfire impact on guidance, can you just give some more details around how you got to that 20 basis points headwind?

Sure, Ki Bin. So we have 73 stores in our same-store pool in LA County. It accounts for about 7% of our new pool same-store revenue, so that's less than the old pool. And we believe we are modeling about a 20 basis point decrease in the same-store pool revenue from the state of emergencies, which we are assuming are in place for the entire year.

Okay. And is that—I know it's not your job to look at other people's other companies' conference calls, but it's different than your other peer. I'm just curious, like, what the difference is besides just market exposure.

Yeah. It's hard for me to comment on others' calculations. So I'm not sure I can give you an answer for that.

Okay. Thank you.

Thank you. And your next question comes from the line of Jeff Spector from Bufao. Please go ahead.

Great. Thank you. Joe, I thought it was interesting. I think in your opening remarks, you said you still expect LSI to outperform EXR in 2025. And, again, tell me if I'm wrong. When I think about the LSI portfolio, I think of maybe weaker demographics than the EXR portfolio. And we are starting to see, you know, some continued weakness, let's say, on the, you know, lower demographics. So it's interesting, your comment. What are you seeing? What gives you confidence that the LSI will continue to outperform? Maybe what lessons are you learning there? Thank you.

So store in a primary, secondary, tertiary market, weaker, stronger demographics, improvement is relative. Right? So we're not saying that the LSI stores in a $15 market are gonna get to $30. We're just gonna say they are going to improve in the market. So when we look at those markets and look at the performance of the LSI stores and the Extra Space stores in those markets, we still have some gap that we feel we can close.

Okay. That's fair. And then, I guess, just to summarize, you know, listening to both you and Scott's comments, it sounds like 2025 right now, the setup into peak leasing is very similar to last year. Is it fair to say laser focus still on housing as a key driver of demand? Anything you would add to that, or is that a raw, you know, incorrect summary? Thank you.

So I would say we're laser-focused on a lot of things. Housing is certainly an important component. You know, our customers who tell us they're in the process of moving, which is all moves, not just housing moves, apartment moves, moves back home, is at around 48%. That peaked out at 63% in the third quarter of 2021. So there certainly is some decline in housing demand, but our systems are able to capture more than our share of the demand, as evidenced by our very high occupancy, industry-leading occupancy, at very similar rates to our competitors. We're not capturing that demand by undercutting rates. We're doing it through our customer acquisition and pricing system. So housing is important. Supply is certainly something we're keeping an eye on. We're continuing to see a reduction in new deliveries, not to zero, but continuing year-over-year reduction. And we're also laser-focused on the consumer. And we see that the existing customer remains very strong, increasing lengths of stay, acceptance of rate increases, very low default rates. And we see price sensitivity in the new customer. But as Scott mentioned in our trends of year-over-year rates, that seems to be improving somewhat too. Sorry for the long answer.

Oh, thank you.

Thank you. And your next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my question. First question is on the dual-brand to single-brand strategy. Can you talk a little bit about sort of like the uplift that you're seeing from stores that have been converted? Is that tracking in line with your expectations, and is that kind of on track for the expected results as you head into the peak leasing season?

Yeah. So the first result we saw was a reduction in paid search spending. We had a reduction of $2 million in the fourth quarter in paid search spending for the LSI stores. That should continue throughout 2025. We're seeing an increase in conversions in those stores, better SEO rankings, somewhat better local rankings, not as good as the SEO, but also improving. And all of that is leading to a 5.5% increase in rentals in the LSI stores that are in the same markets as the Extra Space stores. So we're encouraged by what we've seen. We have not included in our forecast, in our guidance, any additional improvement other than what we've experienced to date. And, hopefully, if these trends can continue, we'll have some upside.

No. Thanks for that, Joe. And as a follow-up, I'd like to talk about the bridge loan book. It's gotten a little bit larger, and you're guiding for that to continue to increase. So can you just talk a little bit about, you know, how you envision how big he's gonna envision that getting and maybe the interplay between bridge loans and acquisitions and how that can support your earnings growth algorithm this year and in the future? Thanks.

Yeah. Thank you for that question and recognizing that the bridge loan program has interplay with both the acquisitions and the management business. Right? We manage all of these stores that we make loans on. So it helps increase that business. We bought almost $600 million worth of deals out of the bridge loans. And, frankly, this is a little softer benefit, but just the relationships, industry relationships we form with these new parties helps us do more business. Right? The more people you've done successful business with, the more future business you get. So that being said, you know, the bridge loan business is a capital allocation play. And in 2024, frankly, up until the fourth quarter, given our cost of capital and what we saw in the market, we thought a good place to put our capital was into the bridge loan program. And we did increase our balances. We've given guidance that we're gonna continue to increase our balance in 2025. But that's somewhat subject to properties being sold. And we may buy them or get a prepayment penalty. It's also subject to, you know, we have the flexibility to sell a note. So we can control the amount of capital we have allocated to this program. And if we have other or better uses of capital, we can certainly shift directions.

Thank you very much.

Thank you. And your next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Great. Thanks for taking my questions. It looks like vacates were down about 4.4% year-over-year. Maybe talk a little bit about what you're doing differently to improve that retention?

So it's mainly about trying to identify the type of customer, not the individual, who is more likely to be a long-term customer and make efforts to attract those customers and get them in the door. So our pricing and customer acquisition strategies are focused on attracting those customers even if we have to sacrifice a little revenue upfront to do so because over the long term, that will produce higher customer value, higher long-term revenue.

Maybe related to that, we look at the ECRI opportunity for the coming year, perhaps you have some fertile ground just because of the increase in new customers that you've brought in over the past couple of months or a couple of quarters. Can you talk about the opportunity that you see there?

I'm not—I think the opportunity is the same that we see in prior years where we want to have a fair and sustainable program where we get customers to the market rate, to the street rate, within a reasonable period of time.

Okay. Very good. Thank you for the call.

Thank you. And your next question comes from the line of Ronald Kamdem from Morgan Stanley. Please go ahead.

Hey. Just two quick ones for me. One, just on the Census, I know you mentioned in the opening comments a surprise, but can you sort of say a little bit more what sort of happened? Clearly, that's not being baked into the guidance for this year. Just a little bit more color there and would love some thoughts on insurance as well for this year?

Yeah. So property taxes in the fourth quarter were higher partly, you know, if we're at a state level, the one state that was consistently across the board was Georgia. We saw more aggressive reassessment there. We also saw individual properties in the states of Illinois, Indiana, New Jersey where you saw very large increases on specific properties that cause a large variance. Our assumption going into 2025 is that some of the property tax increased pressure is still there in 2025. We budgeted between 6% and 8% increase for 2025 per property taxes. We have not budgeted a lot of successful appeals, but that's to be seen. You know, we're gonna appeal many of these, and hopefully, we win. And hopefully, we're able to keep that lower than that. But I think based on the current environment, we think that it's the proper thing to do to budget at 6% to 8%. In terms of property and casualty insurance, you've seen a pretty heavy year in terms of natural disasters this past year. You saw the hurricanes in Florida, you saw the wildfires in California. And I think it's really a to-be-determined type item here. And so we felt like it was prudent to budget a higher number there. We budgeted close to 20% increase in our when we re-up our insurance in June.

Great. That's helpful. Then my second one, obviously, it's early to talk about AI, but you guys have always been sort of front-footed on the technology front. Just curious if there's any sort of low-hanging fruit opportunities, whether it's lease signing, whatever, that you guys are attacking or see as an opportunity in your term. Thanks.

So we want to be cautious with AI applications and, you know, not necessarily be a pioneer. There's certainly some applications around the office and with data analytics that are pretty straightforward and easy. With respect to customer-facing applications, you know, we are testing and walking into those to make sure that they are, you know, in fact, beneficial and do not hurt our overall operations.

That's it for me. Thank you.

Thank you. And your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please go ahead.

Hi. Thanks. First, I just wanted to go back to the topic of property tax increases you cited in Georgia, Illinois, Indiana. Sounds like that's recurring at least for the first three quarters. Is this a trend that you see becoming more widespread in other markets? And is there anything else in that 6% to 8% property tax budget outside of what you've mentioned and already experienced?

So we've seen states be aggressive over the past several years. You know, you've seen Florida, Texas, reassess. When we go back and compare revenue growth over the last five years to property tax growth, you know, the values of the properties have gone up. So states typically lag in terms of how they reassess, and so we're hoping this is the back half of that. But it's still somewhat what we're seeing as a result of the property revenue growth that we saw in these states and across the board for the last five years.

Okay. But it sounded like you commented that it was specific to individual properties. So it wasn't necessarily specific to certain counties or municipalities. It was on an individual property basis. Is that right?

It is. And then it also has to do with some of the LSI property reassessment. So if you look at growth in the two pools, which we're no longer gonna talk about in the upcoming year, we won't break them out separately. We have seen larger property tax increases in the pool as some of those stores were reassessed.

Okay. And then, Scott, you mentioned that you expect a slight contribution to revenue growth from occupancy throughout the year. The EXR portfolio ended the year about 120 basis points higher year-over-year. The LSI segment was a little over 200 basis points higher year-over-year. Can you just flesh that comment out a bit in terms of what the revenue growth forecast is including, you know, maybe at the high and low end of the range in terms of occupancy gains during the year and how we should think about the occupancy build during the height of the rental season, you know, whether you expect it to be similar to 2024, or do you expect a little bit more seasonality, you know, similar to, you know, longer sort of historical averages?

Yeah. Let me talk maybe a little bit on how we model and then come back a little bit to occupancy. You know, maybe we're a little different in that we're not giving assumptions on rates and exact assumptions on occupancy partly because those variables, you know, you push one and the other one moves. And so I think it's difficult to do. So we typically model an increase on a month-over-month basis based on the current economic conditions and what we're seeing at the property. Now that being said, we do recognize that the front half of this year is going to have an occupancy delta. So you're starting the year 120 basis points ahead. We are 120 basis points ahead on the new same-store pool as of the end of February. So we would expect that occupancy delta to burn off somewhat as you move throughout the year and become less important in the back half of the year.

Okay. Alright. Thank you.

Thanks, Todd.

Thank you. And your next question comes from the line of Juan Sanabria from BMO Capital. Please go ahead.

Hi. Good morning. Just hoping you could talk a little bit about pricing dynamics. You noted some early signs of an uptick, but nothing sustained quite as of yet. But at the same time, if I look at the move-in versus move-out spread, that hasn't necessarily compressed. So hoping you could flesh out why you think that's the case, that although the year-over-year move-in rates, that year-over-year decline is compressed, that move-in versus move-out hasn't necessarily moved. If anything, it's gotten slightly the other way.

Yeah. Some of that's the seasonality in the business one. So third quarter to fourth quarter, you're typically worse in the fourth quarter than you are in the third quarter. I think you've seen that with some of our peers, so that's not unexpected. You know, we would expect that roll down to be less in the summer months than it is right now. We would expect over time that should tighten up some as rates get better.

And then the incremental tidbits on the—you said earlier signs of improving pricing power, like, just hoping you could flesh that out a little bit.

That is based on our comment from, you know, you went from negative 9% in the third quarter to negative 6% at the end of the year to now being flat year-over-year. You know, you're seeing those as incremental increases, you know, just month over month it is getting better. And, you know, we would expect to see that as, you know, this is the time of year when rates start ramping up as you move into your leasing season. You know, when you go from January to July, you always see rate increases during that time period, and we would expect to, based on our occupancy and where it is today, to be in a position to move rates up again.

Okay. And then just as my second question, you noted a 50 basis point benefit in the same-store assumptions this year from the inclusion of a life portfolio. I'm just curious if you can give some context around that versus comments you've made historically that in a normal year, you get 100 to 120, and it's not too dissimilar of a benefit. Is it just a product of kind of a flattish at best market that's causing that benefit from the life inclusion to the pool? Or any more details would be appreciated.

So historically, we have seen improvement as we've changed the same-store pool, you know, typically, it's not all the way up to 50 basis points. This year, if you look at the performance in the fourth quarter of the Life Storage stores compared to the Extra Space stores, they're not that dissimilar in terms of performance at that point. However, as Joe mentioned, we do expect some upside there. We just haven't necessarily modeled really, really strong rate growth. And then also the fact that you're moving a large portion of properties in, we do see incremental increase, but it is weighted a bit to that group in terms of the increase.

Thank you.

Thanks, Juan.

Thank you. And your next question comes from the line of Eric Wolfe from Citi. Please go ahead.

Hey. Thanks. For the LA rent cap of 10%, I guess, what does that cap pertain to? Like, what's the initial rate from which you can only grow at 10%? Is that the existing rate that your customers are already paying? Is that the discounted rate that you offer on a move-in? Just trying to understand, you know, what that sort of rate is within a dynamic pricing model and how you determine that.

Yeah. It's an excellent question, and it is not—I'm not sure it's 100% clear in the state of emergency, but we are not increasing rates over existing rates. They're paid by the customers. So whether that's street rate, web rate, or whatever, those are the base rates we're using.

Okay. I think—so it's not—I can't just look at what's in the stuff and say, okay, this is what the average customer is paying right now, and it'll be 10% above that. It's a different process of looking at, you know, what the street rate, the web rate is, and some other things, and it's a bit more dynamic than just taking, you know, that average of what your customers are paying right now.

I think that's true, but I also think that will get you pretty close.

Got it. Okay. And then second question, you said that—I appreciate that you don't guide the rate and the occupancy and the dynamic. You know, one goes up, universally correlated, the other goes down. But I thought I heard you say that move-in rent growth was sort of, you know, flattish year-over-year. It's expected to turn positive, you know, get a little bit better as the year goes on. And then occupancy, to your point, is over year and probably should be a positive contributor. I was just curious how you're getting the kind of flattish revenue growth within that? Is there, like, an offset that I'm missing, whether it's higher churn, lower ECRIs? Like, what—I guess why wouldn't it be more positive if you're already flat on move-in rents and it's gonna get better, then your occupancy is a positive contributor.

So, obviously, it depends on where you are in the range. So you're making those assumptions on the midpoint there. As you move through the year, you get more benefit in the back half of the year than the front half. So, you know, we ended the—you know, in the fourth quarter, you were down 4%, but Life Storage stores were also down. So moving forward, you're starting on a lower number, and then it obviously gets better as you move through the year. So a lot of your assumptions are somewhat based on where you are in that range.

Got it. Alright. Thank you.

Thank you. And your next question comes from the line of Keegan Carl from Wolfe Research. Please go ahead.

Yeah. Thanks for the time, guys. I guess before I get into my questions, just a clarification, when you say street rate delta year-over-year, that commentary for both the Extra Space and LSI pools together, or would that hold true for both individual pools?

So I'm not sure I'm following where you're saying street rate delta. When we're giving rates here, giving assumptions, it's the average rate to our new customer. So it's the move-in rate.

Yeah. But you're saying, like, it was flat year-over-year. Right? Like, does that hold true for the combined same-store pool? Was that only for the Extra Space pool? Was that on—like, I guess I'm just trying to figure out how the Extra Space and Life Storage pools fit in that.

That is the new same-store pool.

Okay. No. It's super helpful. So I guess getting to the questions. First, just how should we think about, like, the curve of move-in rates versus typical seasonality? Like, are you expecting anything different in 2025 relative to what you normally would expect or what you experienced last year?

I think that's to be determined, kind of with the strength of what demand looks like as you move through the season here. You know, you would expect it to move up. It always does during the summer months. Those are our kind of that June time frame is really our peak rate time frame, and then you start moving them back down as rentals start slowing as you move through the summer. So we would expect that again this summer, and then the degree of those increases is gonna be depends on how rentals, vacates, turn out, and how your occupancy stands.

Got it. And then maybe one for Joe. Just how should we think about capital recycling this year just given your LSI portfolio becomes 1031 eligible?

So, you know, we sold a handful of properties last year. The majority of them were LSI properties. We have a modest list of properties that we're looking to bring to the market, which would be 1031 eligible. Some, we may offer to joint venture partners, but we, you know, constantly want to improve the overall quality and market exposure, market diversification of the portfolio through dispositions, and this year will be no different.

Great. Thanks for the time, guys.

Sure.

Thank you. And your next question comes from the line of Nicholas Yulico from Scotiabank.

Thanks. First question, I guess, for Scott. Can you just talk about why the G&A and guidance is up about 10% this year?

Yeah. So we've experienced a lot of growth over the past couple of years. You know, we had a very strong fourth quarter as we added properties. We're forecasting growth this year in terms of acquisitions as well as the third-party management. So our biggest increase really comes from the headcount that's required to manage those properties, both in the field as well as back office. If you think about the properties, they're managed by regional managers. It's not completely linear. This is one of those years when we have to take one of those stair steps up as we add additional support level that's supporting the regional managers. So that's the largest one. And then to a lesser degree, we've also gone back. We've increased our technology spend as we have focused the last couple of years on integrating the LSI properties and put a few things on hold. So we've really tried to move those items back up. So it's really to support the properties and support the technology spend.

Okay. Thanks. And then second question is just, you know, you think about the pricing strategy, which has been in place for, you know, a while now of, you know, some discounting on the front end and then, you know, getting ECRI benefit, you know, for the customer to get up to a street rate. You know, can you talk a little bit about whether you're seeing, you know, any differences in regions or maybe in testing on pricing strategies about, you know, where you feel you have ability to kind of get remove some of that discounting on the front end? And I guess, you know, the second question on that is, you know, at what point does, you know, is there maybe a risk here that, you know, the entire industry is moving to this, you know, heavily discounted front-end pricing, and it becomes hard to get the consumer, you know, to be untrained from that type of pricing.

Yeah. Good question. So to answer the first one, we really don't look at it by region or market. Our algorithms, our systems will reprice every unit type in every store every night. And to the extent that conditions in the market, rentals, vacates, whatever, dictate a change one way or another, that will automatically happen on a very, very granular basis. So different behavior in different buildings, not necessarily markets or regions or demographics. Different behavior in different buildings is addressed on a nightly basis. So I'm not overly concerned about what others do in the market for a couple of reasons. One is, you know, customers shop very, very few alternatives when they're looking for storage. It's not that important of a purchase. They're not buying a house or a car. So almost 85% of our customers shop two, one, or zero alternatives before they rent with us. What's most important is to be visible to that customer when they look. Most of them look online. To be in one of those top positions on the search page on the first page of the search page. So what others are doing who are not that visible to customers is not that much of a threat to us. But, again, we're gonna try to lead the industry in our pricing and customer acquisition strategies, and to the extent we need to change and adapt and innovate, we will.

Okay. Thanks, Joe.

Thank you. And your next question comes from the line of Michael Mueller from JPMorgan. Please go ahead.

Yeah. Hi. I guess, first, can you talk a little bit about acquisition price, you know, a lot more on balance sheet activity compared to JP activity?

Sure. So we try to be very faithful to our cost of capital analysis. And given where interest rates are, in our stock price, we have, you know, what we see as a cost of capital that is not too different than what things are trading for in the market, and therefore, on-market opportunities are few and far between to put on balance sheet. The heavy transaction load that we did in the fourth quarter was no structured off-market opportunities. We took advantage of a $74 million embedded promote in one deal that made it accretive. So I think until the market changes, you'll see us lean heavily into the joint venture structure where we can put in a minority of the capital in a very accretive fashion because of the benefit of the structure and the management fees and the tenant insurance. And not do a lot of on-balance sheet acquisitions.

Got it. Okay. And then, a second question. Going back to the comment about seeing a pickup in rental activity in the LSI portfolio, post moving back to one brand. What do you think is driving that? I mean, what was the drag from operating under the LSI banner, or are you doing something different on the rate side again? I mean, what's driving that pickup?

Sure. Good question. So the theory of having two brands was that we could get, you know, hopefully double the digital real estate. We could get two entries in the paid search section, two entries in the local or map section, and two entries in the organic or SEO section. And when we went to two brands, it was easy to get two entries in the paid section because we bought it. We were spending on an annual run rate $10 million more in paid search to have those two entries. And we had some improvement in the maps, but not as much as we anticipated. And we had significant improvement in the SEO where we went from LSI maybe had an average spot of seven or eight. We moved them up to closer to four or five. But 70% of the clicks are in the first three entries. You know, you gotta be on the first page of the organic section. So although theoretically, we were right, we were improving our position, we weren't improving it enough to pay for the cost of the second brand and move the needle. So now everything is branded Extra Space digitally, at least, and we are seeing the customers come to the Extra Space brand, and Extra Space almost always ranks in the top spots in all of those three categories. So we're seeing getting more clicks, more views, higher conversion rate, leading to more rentals. We're saving money because we don't have that extra.

Got it. Okay. That's super helpful. Appreciate it. Thank you.

Yeah.

Thank you. And your next question comes from the line of Sal Mita from Green Street. Please go ahead.

Hi, guys. Thanks for taking my question, and congratulations on the quarter. Got a quick one here kind of on the ECRI front, but can you guys provide some color on, you know, how ECRI has trended and, you know, where do you guys see them going into the future? You know, as move-in rates, as you said, look to improve in 2025, you know, could we expect to see maybe slightly less aggressive rent increases than what we saw in 2024? You know, has there been any increased sensitivity as well that you've seen as of the fourth quarter?

So I'll take those in reversed order. We haven't seen any change in customer behavior. Our NPS scores for departing customers are extraordinarily high. We do have some customers that will call the store manager or the call center and complain about a rent increase or want more information. And we give those teammates the authority within a range to address that customer concern. Don't want to lose that customer. We think it's good customer experience to have those concerns addressed right away. The number of customers who are getting that relief has not changed at all. A very small number. And it hasn't increased at all. The number of customers who are vacating stores based on getting an ECRI notice, you know, we keep a control group of folks who don't get an ECRI notice who are supposed to and compare their move-out rates to those who did get an ECRI notice. It's very steady. That hasn't increased at all. So we monitor this very closely, and there's nothing in what we see that would suggest a need for a change in the program.

Thank you. And can you just touch on, you know, if you see rents improve in 2025, you know, if you guys look to be pretty aggressive in 2024, you know, do we expect to see maybe slightly less aggressive ECRIs because of that?

I'm not sure I know what the word aggressive means, what an aggressive ECRI is. You know, the ECRI amount is going to be driven by what the market rate of the unit is and what the rate of that customer is and whether it's because they came in at a discount or whatever. And if street rates spike, that will give us the opportunity to send out, you know, incrementally larger ECRIs or if our strategy is to offer even greater discounts on introductory rates, the same thing, but it's, you know, the aggression, as you put it, is just to get the customer to what the current market rate is.

Alright. Thanks for that. That's all for me.

Thank you. And your next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Hi. This is Jeremy Kiel on for Caitlin. You guys touched on it briefly earlier in the call, but for incoming supply reduction, can that really help dramatically improve move-in rates while housing turnover remains low? I guess, can less competition be a catalyst to pricing while demand remains low? Is kind of what I'm getting at.

So it's a factor. I don't think it's the sole factor, but it's certainly a positive factor that helps. And I also would maybe disagree a little bit that demand is low. Right? Everything that we're seeing in terms of top-of-funnel activity indicates that maybe demand is low compared to COVID, but compared to historical periods, demand is healthy. Demand is steady. And if you look at our occupancy, we ended the year at Extra Space pool at 93.7%. You know, we're keeping our stores very full. There is price sensitivity in the customers that is leading that demand not to price at levels we want, but there's enough customers out there to keep the stores full.

Got it. Thanks for the clarification. That's all for me.

Thank you. And your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

Yes. Good morning, all. Quick question on interest expense. Again, understand you have the new CP line. You did some debt relief financing. But just your 2025 guidance relative to our expectations seems a little bit high. So curious if there's anything going on in regards to, like, swap maturities or any other kind of, you know, less capitalized interest. So how do we or anything else that might be in that interest expense line that maybe we're not fully accounting for.

Not in terms of swaps. We do have some loans coming due. And so some of the—and so I guess it is indirectly related to swaps where some of those loans are swapped. For instance, we had a $245 million loan come due in January that was swapped, and now you're refinancing it at market rates today. Those rates should be reflected in our swaps. In the debt detail, you should be able to see those. But, otherwise, what we've done to model interest is we follow model the forward curve and then we also have increased our debt to account for any investment activity, including the bridge loans.

Okay. That's helpful. And then in regards to the insurance program, just kind of given a lot of what we're seeing, whether it's again, hurricanes in Florida, you know, the unfortunate wildfires in LA. Just kind of curious, one, how you're underwriting that program, two, whether it changes your appetite to take some of that property risk on through your insurance program.

Yeah. So we continue to shop it as much as possible. So spent time in London, you know, in the exchanges there in Bermuda. Tried to make sure we have a lot of competition with the addition of the LSI stores. We actually added some additional vendors there. So we'll continue to do that. We will potentially take some risk. It's possible the vendors require you to take some of that risk. So I think that's to be seen. But we always have them price it multiple ways to see the price of that incremental risk that we're taking. And so it is something we're open to.

Thank you.

Thank you. And your next question comes from the line of John Peterson from Jefferies. Please go ahead.

Okay. Thank you. So on the year-over-year change in move-in rates, two questions on that. One, are you able to give us what that is on the LSI portfolio isolated out? I'm just curious about the cadence of that change because you said it was down 6% at the end of the year and we're flat today. Has closing that gap been something that's happened in the last, like, two or three weeks or something that's gradually happened given that we're already two-thirds of the way through the quarter?

Yeah. So, you know, we've combined the pool. We'll continue to report on the one pool. I can tell you they're not that different. In terms of cadence, it actually took place in January, and part of that is just the comparable for last year. The rates did go down last January. So it was an easier comp compared to December.

Okay. Alright. That's helpful. And then maybe shifting gears, another question. So there's obviously been some job losses in the DC market. Just curious if you guys are seeing anything in that portfolio. And then maybe bigger picture because it's, you know, it's been more than a decade since we've had a quote-unquote normal recession, I guess. Putting COVID aside. Maybe talk about what a job loss-driven recession might look like for the storage business. We haven't seen that in a while.

So way too soon to see anything in DC. We haven't seen any, you know, increase in vacates or move-outs, anything significant there. DC is one of those markets historically that's been incredibly steady. Doesn't have the ups and doesn't have the downs in other markets. But maybe we're in a new world. I don't know. A job loss-driven recession is a scary thing. Right? The number one kind of correlate factor for storage success is job growth, not housing market. And, you know, we would have to manage through that. That being said, storage is an asset class that has demand generators through all economic cycles. Not only good economic cycles, people need to move home, people need to move across the country. You know, people need to get roommates. People need to run their businesses out of a storage facility, not out of a flex space. So we do better than other property types during downturns, but we're certainly not immune.

Got it. Appreciate the color. Thank you.

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Joe Margolis for any closing remarks.

Thank you, everyone, for your interest in Extra Space. We, the team, look forward to continuing our conversations in the near future, and the team is also very excited to take advantage of improving market and some of the tailwinds that we anticipate in 2025. Thank you very much. Have a good day.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.