Participants

Jared Conley; Vice President, Investor Relations; Extra Space Storage Inc

Joseph Margolis; Chief Executive Officer, Director; Extra Space Storage Inc

Peter Stubbs; Chief Financial Officer, Executive Vice President; Extra Space Storage Inc

Ki Bin Kim; Analyst; Truist Securities

Jeff Spector; Analyst; Bank of America Merrill Lynch

Michael Goldsmith; Analyst; UBS

Brendan Lynch; Analyst; Barclays

Ron Kamdem; Analyst; Morgan Stanley

Todd Thomas; Analyst; KeyBanc Capital Markets

Juan Sanabria; Analyst; BMO Capital Markets

Eric Wolfe; Analyst; Citi

Keegan Carl; Analyst; Wolfe Research

Nick Yulico; Analyst; Scotiabank

Michael Mueller; Analyst; JPMorgan

Salil Mehta; Analyst; Green Street

Omotayo Okusanya; Analyst; Deutsche Bank

Jonathan Petersen; Analyst; Jefferies

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage, Inc., Q4 2024 earnings conference call. ( Instructions) 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.

Jared Conley

Thank you, Nina. 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 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.

Joseph Margolis

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'm 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 at 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 noncontrollable expenses, particularly real estate taxes were a headwind, 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 outsized FFO growth relative to our sector.
I will now turn the time over to Scott.

Peter Stubbs

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 on 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 will be difficult to drive a meaningful reacceleration of 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 are still -- 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.

Question and Answer Session

Operator

(Operator Instructions) Ki Bin Kim, Truist.

Ki Bin Kim

Just going back to your comments around guidance and not assuming much pricing power acceleration. Maybe you can just flush that out for us a little bit more. For example, like what were the rates year-to-date so far and what are you seeing for the rest of the year?

Joseph Margolis

Maybe just to give you a little more color on that. Our rates in the second -- in the third quarter of last year were down about 9% average for the and we ended the year closer to being down about 6%. And as of today, our rates are essentially flat. So 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 again, we don't assume a big improvement from the housing market or big recovery there. So kind of just more of the slow growth as we move through the year.

Ki Bin Kim

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

Joseph Margolis

Sure, Ki Bin. So we have 73 stores in our same-store pool in LA County and account about 7% of our new pool same-store revenue. So that's less than the old pool. And we believe we're 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.

Ki Bin Kim

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 just curious like what the differences besides to its market exposure?

Joseph Margolis

Yes, it's hard for me to comment on other calculations. So I'm not sure I can give you an answer for that.

Operator

Jeff Spector, Wolfe.

Jeff Spector

Joe, I thought it was interesting. I think in your opening remarks, you talked about -- 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, and I think of maybe weaker demographics than the EXR portfolio, and we are starting to see some continued weakness let's say, on the lower demographics. So it's interesting in your comment. What are you seeing?
What gives you confidence that the LSI will continue to outperform? Maybe what lessons are you learning there?

Joseph Margolis

So a 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 going to get to $30. We're just going to 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.

Jeff Spector

Okay. That's fair. And then, I guess, just to summarize, listening to both you and Scott's comments, it sounds like '25 right now, the setup into peak leasing is very similar to last year. Is it fair to say laser-focused still on housing as a key driver of demand? Anything you would add to that? Or is that incorrect summary?

Joseph Margolis

So I would say we're laser-focused on a lot of things. Housing is certainly an important component. Our customers who tell us they're in the process of moving, which is all moves, not just housing moves, apartment moves, move back home is at around 48% that peaked out at 63% in the third quarter of '21. 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 0, 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 length 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 trend of year-over-year rates, that seems to be improving somewhat, too. Sorry for the long answer.

Operator

Michael Goldsmith, UBS.

Michael Goldsmith

First question is on the dual brand strategy to a 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 -- and is that kind of on track for the expected results as you head into the peak leasing season?

Joseph Margolis

Yes. 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% increase in rental in the LSI stores that are in the same markets as the Extra Space stores.
So we've -- 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, these trends can continue, we'll have some upside.

Michael Goldsmith

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 how you envision -- how big are you going to 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?

Joseph Margolis

Yes. 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, 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 going to continue to increase our balances in 2025. And but that's somewhat subject to properties being sold and we may buy them or get a prepayment penalty also subject to -- we have the flexibility to sell A notes. 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.

Operator

Brendan Lynch, Barclays.

Brendan Lynch

Look like vacates were down about 4.4% year over year. Maybe you could talk a little bit about what you're doing differently to improve that retention?

Joseph Margolis

So it's mainly about trying to identify the customer, 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.

Brendan Lynch

Maybe related to that, when 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?

Joseph Margolis

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.

Operator

Ronald Kamdem, Morgan Stanley.

Ron Kamdem

Just two quick ones for me. One, just on the expenses. I know you mentioned in the opening comments a surprise. But can you start to say a little bit more like 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.

Peter Stubbs

Yes. So property taxes in the fourth quarter were higher, partly at a state level, the one state that was consistently higher across the board was Georgia. We saw more aggressive reassessments there. We also saw individual properties in the states of Illinois, Indiana, New Jersey, where you saw very large increases on specific properties that caused a large variance.
Our assumption going into 2025 is that some of the property tax increased pressure, it's still there in 2025. We budgeted between 6% and 8% increase for 2025 for property taxes. We have not budgeted a lot of successful appeals, but that's to be seen. We're going to 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 it 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.

Ron Kamdem

Great. That's helpful. And 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 mining, whatever that you guys are attacking or see as an opportunity near term?

Joseph Margolis

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

Operator

Todd Thomas, KeyBanc Capital Markets.

Todd Thomas

First, I just wanted to go back to the topic of property tax increases. You cited in Georgia, Illinois, Indiana. It 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?

Peter Stubbs

We've seen states be aggressive over the past several years. You've seen Florida, Texas, reassess. When we go back and compare revenue growth over the last five years to property tax growth, 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 revenue growth that we saw in these states and across the board for the last five years.

Todd Thomas

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 just on an individual property basis. Is that right?

Peter Stubbs

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 going to talk about in the upcoming year. We won't break them out separately. We have seen larger property tax increases in the LSI pool as some of those stores were reassessed.

Todd Thomas

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 LSI, 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 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, whether you expect it to be similar to 2024?
Or do you expect a little bit more seasonality similar to longer sort of historical averages?

Peter Stubbs

Yes. Let me talk maybe a little bit on how we model and then come back a little bit to occupancy. Maybe we're a little different in that we're not giving assumptions on rates and exact assumptions on occupancy, partly because those variables really -- you push one and the other one moves. And so I think it's difficult to do.
So we typically model revenue and then increase on a month-over-month basis. based on the current economic conditions and what we're seeing at the property level. 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.

Operator

Juan Sanabria, BMO Capital Markets.

Juan Sanabria

Just hoping you could talk a little bit about the pricing dynamic. 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 of 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 gone slightly the other way.

Peter Stubbs

Yes. Some of that is the seasonality in the business, Juan. So the 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.
We would expect that roll down to be less in the summer months than it is right now. So we would -- over time, that should tighten up some as rates get better.

Juan Sanabria

And any incremental tidbits on the -- you said early signs of improving pricing power, like just hoping you could flesh that a little bit.

Peter Stubbs

That is based on our comment from -- 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're seeing those as incremental increases, just month-over-month, it is getting better. And we would expect to see that as -- this is the time of year when rates start ramping up as you move into your leasing season 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.

Juan Sanabria

kay. And maybe just as a second question, you noted a 50-basis-point benefit the same-store assumptions this year from the inclusion of the 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, yet 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 incremental bots would be pursued?

Peter Stubbs

So historically, we have seen improvement as we've changed the same-store pool. 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 of properties in terms of the increase.

Operator

Eric Wolfe, Citi.

Eric Wolfe

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? I'm just trying to understand what that sort of rate is within a dynamic pricing model and how you determine that?

Joseph Margolis

Yes, 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 that are paid by the customers. So whether that's street rate, web rate or whatever, that those are the base rates we're using.

Eric Wolfe

Okay. I think. So it's not -- I can't just look at what's in the sup and say, okay, this is what the average customer is paying right now, and it will never be 10% above that. It's a different process of looking at what the street rate, the web rate is and other things, it's a bit more dynamic than just taking that average of what your customers are paying right now.

Joseph Margolis

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

Juan Sanabria

Got it. Okay. And then second question, you said and I appreciate that you don't guide to rate and occupancy and the dynamic. One goes up. The inversely correlated that goes down.
But I thought I heard you say that movement rent growth was sort of flattish year-over-year. It's expected to turn positive and gets a little bit better as the year goes on.
And then occupancy, to your point, is up year-over-year and probably should be a positive contributor -- so 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, little ECRIs? Like what I guess why wouldn't it be more positive if you're already flat on moving rents and it's going to get better and then your occupancy is a positive contributor.

Peter Stubbs

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 we ended the -- in the fourth quarter, you were down 4%. The 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.

Operator

Keegan Carl, Wolfe Research.

Keegan Carl

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 pull together? Or would that hold true for both individual pools?

Peter Stubbs

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.

Keegan Carl

Yes. 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 all like I guess I'm just trying to figure out how the extra space and Life Storage pools fit in that..

Peter Stubbs

That is the new same-store pool.

Keegan Carl

No, that's super helpful. So I guess getting 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 have expected or what you experienced last year?

Peter Stubbs

I think that's to be determined kind of the strength of what demand looks like as you move through the season here. You would expect it to move up. It always does during the summer months. Those are -- 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 going to depend on how rentals vacates turn out and how your occupancy stands?

Keegan Carl

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.

Joseph Margolis

So 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 some to bring to the market, which would be 1031 eligible, some we may offer to joint venture partners. But we constantly want to improve the overall quality and market exposure, market diversification of the portfolio through dispositions and this year will be no different.

Operator

Nick Yulico, Scotiabank.

Nick Yulico

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

Peter Stubbs

So we've experienced a lot of growth over the past couple of years. We had a very strong fourth quarter. 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 and we've increased our technology spend as we have focused the last couple of years on integrating the OSI properties and put a few things on hold. So we really tried to move those items back up. So it's really to support the properties and support the technology spend.

Juan Sanabria

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

Joseph Margolis

Yes. 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 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 chop to one or zero alternatives before they ramp with us. So what's most important is to be visible to that customer when they look and most of them look online to being one of those top positions on the search page, on the first page of the search page. So what others are doing, we're not that visible to customers is not that much of a threat to us.
But again, we're going to try to lead the industry in our pricing and customer acquisition strategies and to the extent we need to change and adapt and innovate well.

Operator

Michael Mueller, JPMorgan.

Michael Mueller

I guess, first, can you talk a little bit about acquisition pricing and where you think returns need to be to see a lot more on balance sheet activity compared to JV activity?

Joseph Margolis

Sure. So we try to be and are very faithful to our cost of capital analysis. And given where interest rates are and our stock price, we have 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 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.

Michael Mueller

Got it. Okay. And then I guess second question, going back to the comment about seeing a pickup in rental activity in the LSI portfolio post moving back to 1 brand. What's driving that, do you think? 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?

Joseph Margolis

Sure. Good question. So the theory having two brands was that we could get, 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 SEO section. And when we went to two brands, it was easy to get to entries in the paid section because we bought -- 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 where we went from LSI maybe had an average spot of seven or eight, and we moved them up to closer to four or five. But 70% of the clicks are in the first three entries. You have to 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, and we're saving money because we don't have that extra page search spend.

Operator

Salil Mehta, Green Street.

Salil Mehta

Congratulations on the quarter. I've got a quick one here kind of on the ECRI front. But can you guys provide some color on how trended and where do you guys see them going into the future? As moving risk, as you said, look to improve in '25, can we expect to see maybe slightly less aggressive rent increases than what we saw in '24? And has there been any increased sensitivity as well that you've seen as of the fourth quarter?

Joseph Margolis

So I'll take those in reverse 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. So I want to know more information.
And we give those teammates the authority within a range to address that customer concern. We don't want to lose that customer. We think it's a good customer experience to have those concerns addressed right away. The number of customers who are going -- who are getting that relief has not changed at all. It's 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, we keep a control group of folks who don't get an ECRI notice who were supposed to do and compare their move-out rates to those who did get ECRI notice is 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.

Salil Mehta

And could you just touch on -- if you see rents improve in '25, ECRIs look to be pretty aggressive in '24. Do we expect to see maybe see slightly less aggressive ECRIs because of that?

Joseph Margolis

So I'm not sure I know what more aggressive means, what an aggressive ECRI is. 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 incrementally larger ECRIs or if our strategy is to offer even greater discounts on introductory rates, the same thing. But it's the aggression as you put it, is just to get the customer to what the current market rate is.

Operator

Caitlin Burrows, Goldman Sachs.

This is Jeremy 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 call surprising while I mean the demand remains low is kind of what I'm getting at.

Joseph Margolis

So it's a factor I don't think it's a sole factor, but it's certainly a positive factor that helps. And I also would -- I would also maybe disagree a little bit that demand is low, right? Everything that we're seeing in terms of top of funnel activity in the case of 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%. 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.

Operator

Omotayo Okusanya, Deutsche Bank.

Omotayo Okusanya

Quick question on interest expense. Again, I understand you have the new CP line, you did some debt refinancing. But just your '25 guidance relative to our [indiscernible] seems a little bit high. So curious if there's anything going on in regards to like swap maturities or any other kind of less capitalized interest. So how do you -- or anything else that might be in that interest expense line, that maybe we're not fully accounting for.

Peter Stubbs

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 swaps. 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 subs, in the debt detail, you should be able to see those.
But otherwise, what we've done to model interest is we modeled the forward curve. And then we also have increased our debt to account for any investment activity, including the bridge loans.

Omotayo Okusanya

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 and Fido to hurricanes in Florida so the unfortunate wildfire in LA. Just kind of on how you're underwriting that program two, whether it changes your appetite to take some of that property risk on through your insurance program?

Peter Stubbs

Yes. So we continue to shop at as much as possible. So spent time in London 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.

Operator

Jon Petersen, Jefferies.

Jonathan Petersen

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. And I'm just curious about the cadence of that change because you said it was down 6% at the end of the year and were flat today. Has closing that gap been something that's happened in the last like two or three weeks or something that has gradually happened given that we're already 2/3 of the way through the quarter.

Peter Stubbs

Yes. So we've combined the pools. 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.
So rates did go down last January. So it was an easier comp compared to December.

Jonathan Petersen

Okay. All right. 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 been more than a decade since we have 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 since we haven't seen that in a while.

Joseph Margolis

Yes. So way too soon to see anything in DC. We haven't seen any vacate -- increase in vacates or move outs anything significant there. DC is one of those markets historically that's been incredibly steady, both does not the ups and doesn't have the downs in other markets, but maybe we're in a new world, I don't know.
Job loss driven recession is a scary thing, right? The number one kind of correlate a factor for storage success is job growth, not housing market, job growth. And 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, people need to get roommates, people need to run their businesses out of the storage facility, not out of a flex space.
So we do better than other property types during downturns, but we're certainly not immune.

Operator

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

Joseph Margolis

Thank you, everyone, for your interest in Extra Space. The team looks 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. .

Operator

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