Eric Wolfe: Okay. And then in your January slide deck, you shared that 62% of customers are staying longer than 12 months, 45% longer than two years. Was just curious what type of ECRIs these customers are getting versus shorter duration customers. Obviously, as moving rates have gone down, the cost goes up. So trying to understand if the magnitude of difference between those longer duration versus short duration customers is changing.
Joe Margolis: So the shorter duration customers will typically get a larger ECRI if they came in on some type of promotional or introductory rate. And after that, the longer-term customers typically will get a smaller percentage increase because we’re just trying to get them to Street rate.
Eric Wolfe: Okay. And then maybe just one last clarification. Did you say in response to the prior question, that $0.20 of dilution from C of O value add acquisitions was really just from the prior year, because if you kind of just take your share count times that $0.20, it’s sort of like $45 million. Just try and understand how you’d get to that level of dilution based on the amount of acquisitions that you just referenced.
Scott Stubbs: Yes. So that actually comes from multiple years. So some of those C of Os are from 2022 C of Os, 2023 C of Os, 2024 C of Os, certificate of occupancy deals. It’s basically as they get up to the run rate of a stabilized property. And so it’s not just 2024 dilution and 2024 adds, it’s multiple year. All we’re trying to show there is the potential upside if we were to stop adding to that portfolio or to that pool of properties.
Eric Wolfe: Okay, got it. Thank you.
Scott Stubbs: Thanks, Eric.
Operator: Our next question will come from the line of Keegan Carl with Wolfe Research.
Keegan Carl: Yeah. Thanks for the time, guys. Maybe first, just what are you guys currently seeing in the transaction market that gives you confidence in your target? And where are you seeing stabilized cap rates at today?
Joe Margolis: So most of our guidance towards acquisition is already identified and under contract. I think we only have about $50 million in unidentified and I think between now and the end of the year, we’ll find $50 million. And if it makes sense, we’ll find more. And if it doesn’t make sense, we won’t do it, right? We have plenty of capital, but we’re only going to do things that are accretive to our shareholders. Market cap rate, I think, is a very difficult discussion. Transaction volume is very low, transactions that we see close seem to have a story to them. The last property in a closed-end fund or a family where something happened to the patriarch or matriarch on the property. There doesn’t seem to be enough transactions where you can really say this is a market cap rate. So it’s a very difficult thing, and I wouldn’t want to put a number on it.
Keegan Carl: Got it. That’s fair. And I’m going to sound like a broken record here on this one. I’m going to ask another question about the Storage Express deal. So I know when you guys initially mentioned you were going to swap some stores between that platform and your Extra Space platform. I’m just curious what you’ve learned so far and if we can expect some more assets, especially from the LSI portfolio to be added to this platform in 2024?
Joe Margolis: Yes. I think we will see more changes in Extra Space Storage Express and Life Storage stores as we learn how best to optimize revenue and then optimize NOI at these stores. And we’re really trying to learn what is the mix of size of the store, rent per square foot population saturation, distance from another one of our branded stores, prime rates in the area, lots and lot driving distances, lots and factors that we can optimize NOI with a store that has – is fully staffed, that is partially staffed or that is managerless if you will. And as we learn those lessons, we’ll apply it not only to our existing portfolio, but to our acquisition strategy.
Keegan Carl: Are you willing to share any sort of quantification of performance on stores you would have shifted from one platform to another? Is it too early to tell?
Joe Margolis: I mean the only thing I’m really willing to share because some of this, I think, is secret sauce. Is Storage Express had some stores that were fairly large, right? Their average store size was 36,000 square feet, half of our average store size. They had some stores that were 80,000 square feet. And we didn’t – those stores don’t make any sense to work on a manager list basis.
Keegan Carl: Got it. Fair enough. Thanks guys.
Joe Margolis: Sure.
Operator: Our next question will come from the line of Ronald Kamdem with Morgan Stanley. Ronald your line is now open.
Ronald Kamdem: Great. Two quick ones from me. So the first is, I just want to understand the comments on the ECRIs. So it sounds like there’s been sort of no change in magnitude for sort of frequency. Just want to make sure I understand that correctly. And then how should we think about the first half versus second half of the year cadence as you’re going through the same-store?
Joe Margolis: So there’s – in general, there’s no – we haven’t made any change in frequency for ECRI. Where – that being said, we’re always testing things. So there are outliers. And what was the second question?
Scott Stubbs: The cadence. And Ron, I think the best way to look at that is it depends a little bit on where you are in the guidance. So if you are at the bottom end of the guidance, that obviously is going to imply that you’re negative for longer – midpoint, you’re negative. Even at the top end of guidance, it does imply that you do stick slightly negative for a period of time. But I think in none of those scenarios do we have kind of the Nike Swoosh [ph], so to speak, where you see rapid acceleration. And the concept there is, we have so many customers moving in each month at lower rates that it does take some time to move those rates up and to really start seeing that accelerate. So even if you did get pricing power this summer, the benefit of those pricing – of those customers wouldn’t necessarily impact you until later in the year as they got rate increases and into next year.
Ronald Kamdem: Great. And then my second one, if I may. I think one of your competitors made an interesting comment that they’d actually already seen some of their markets start to accelerate and that maybe the markets that went up higher during COVID were taking a little bit sort of longer. And I guess I’m curious, as you’re thinking about your portfolio, you guys have been much more successful peers pushing pricing. Can you comment around is there a sort of are different markets in different stages? And have you seen some already maybe start to turn around and pick up? Thanks.
Joe Margolis: So, I think different markets are always in different stages, right? I commented earlier on New York being above portfolio performer in 2023, and it was below in 2021 and 2020. Florida was a great market for prior years, and Florida is having more difficulty now. And it’s one reason that we believe in a highly diversified portfolio because we want to have exposure to all sorts of markets, markets that are accelerating, decelerating, more flat. Markets that have no exposure to new development, have more exposure to new development or coming out of the development cycle. And by having a highly diversified portfolio, and our portfolio got more diversified with this merger, we think we’ll smooth out our returns. So I don’t know if I can identify a major market that’s accelerating. We certainly have markets like Los Angeles that are still doing very well. But I don’t know of a major market that’s accelerating.
Ronald Kamdem: Great. That’s it for me. And we appreciate the new move in disclosures. That was helpful.
Joe Margolis: Thanks, Ron.
Operator: Our next question will come from the line of Michael Mueller with JPMorgan.
Michael Mueller: Yes, hi. So hopefully two quick ones here. First, how far through the planned LSI, ECRIs are you? And then on the investment front for the COs [ph] and lease up acquisitions, are you seeing more opportunities on, I guess, maybe somewhat busted developments or on just new, brand new ground up investments?
Joe Margolis: So we’ve completed the ECRI program for all LSI customers who were customers at closing.
Michael Mueller: Okay.
Joe Margolis: So they’re now on the normal site. As new customers come in, they’ll be on the normal program. I don’t think we’ve seen many busted developments or developments that aren’t leasing up as well. They’re disappointed developments that look like really attractive opportunities to us, yet I don’t think that’s meaningful.
Michael Mueller: Got it. Okay. Thank you.
Joe Margolis: Thanks, Mike.
Operator: Our next question will come from the line of Eric Luebchow with Wells Fargo.
Eric Luebchow: Great. Thanks for taking the question. Could you comment a little bit on the dual brand strategy if you’re seeing any top of funnel benefits from operating LSI and EXR separately in some of your markets, or if extra operating expenses make that too complicated or costly in terms of operations?
Joe Margolis: Yes, sure. Thank you for the question. So the premise of the dual brand strategy was that by having more digital real estate. We would get more clicks and therefore more rentals, and that would pay for the incremental cost of running two brands. So if you think of the Google landscape in three pieces, there’s the paid section and we absolutely are having more digital real estate and more clicks there and that’s because we pay for it. So that’s easy. We knew that would happen. And then the local section in the map, where the map appears, we are seeing more presence there, and that’s continuing to improve over time. So that seems to be working as planned. And then the last section, the SEO [ph] section or the organic section, takes time, right.
When we buy an individual property, it takes time for us to get that property up to the Extra Space organic standards. So that’s moving in the right direction. But we really need more time to see where we’ll end up. And if that trade off of more clicks, more rentals, is revenue positive.
Eric Luebchow: Okay. I appreciate that. Just one follow-up on the guide, and I know Scott touched on this. So the G&A guide of 180 million plus, I know you had some seasonality in your Q4, but you were at a run rate of around 160 million annualized. And maybe you could just kind of help us bridge those two numbers when we’ll see kind of more of the G&A cost synergies that you touched on really flow into the P&L from the G&A side? Thank you.
Scott Stubbs: So the synergies are assuming that the $180 million and not the lower number, the number that you saw in the fourth quarter, they would have been even greater than the 39 million that we referred to if we were able to achieve the fourth quarter run rate. Now, that doesn’t mean we’re done there. I think that we’re going to continue to look for opportunities. That number in the fourth quarter was just a fair amount under due to some transition of employees and hiring and timing. And when we brought things on, as well know there is some seasonality to our G&A with the fourth quarter not being the highest quarter.
Eric Luebchow: All right. Thank you both.
Joe Margolis: Thank you.
Operator: Our next question will come from the line of Ki Bin Kim with Truist.
Ki Bin Kim: Thank you. Good morning. Just going back to the street rates, I know this is just one variable to the whole equation, but I was curious at the midpoint of your guidance, what you’re implying for street rates for the year in 2024?
Scott Stubbs: So it’s difficult to break it out exactly. I think that we are saying we don’t expect to get significant growth in street rates. They will be the midpoint. We do expect occupancy to be relatively flat. But we don’t feel like it’s helpful to necessarily break those out since there’s one component of the total model, but we are not expecting significant street rate power this year.
Ki Bin Kim: But I’m guessing you probably expect it to reach flat year-over-year at some point in the second half. Is that fair to assume?
Scott Stubbs: Sequentially, we do expect them to go up month-over-month. I think it will depend a little bit on how this leasing season goes. I think that we were disappointed last year. We were at a point last year where we raised rates significantly January through March. And then the leasing season came and the housing, the lack of home sales, I think, impacted last year. And so I think that we’re a little gun shy and don’t want to make that mistake again.
Ki Bin Kim: Okay. And the second question on your bridge loans, you guys are guiding for a pretty substantial increase in activity. Also curious if you can provide some color around kind of implied valuation cap rates or LTVs, just to get a better sense of what those deals look like?
Joe Margolis: Yes. So part of the increase in bridge loan balances is our plan to hold more of the whole notes and not sell as many A notes. Now that can change as the year unfolds. But the whole bridge loan now is 8.5% to 9%. So we don’t feel that’s a bad use of capital at this point. The fundamentals of the loans are unchanged. We still will end up to 80% of our underwritten value will take operating reserve and interest reserve that’s a recourse obligation to a creditworthy entity. So we know that there’s capital to pay the debt service and operate the property. We require that we manage the property. We require an interest rate cap, which is less important now than when we started the program. So the fundamentals of the loan program haven’t changed.
Ki Bin Kim: And you do have a pretty sizable maturity in the bridge loan program in 2025. What’s the base case scenario? Is that those become kind of rolled over and extended? Or do they truly mature and we should just model in some decreases in interest income?
