Welcome to Salt Lake City, welcome to the 2019 Extra Space Storage Investor Day. We're happy to have you here. This event is also being streamed via webcast. The link to that webcast can be found on our IR site. There's also a press release sent out earlier this week that has the link and the login instructions. We're excited to have you here. We're grateful that you'd make the trek west, make the trip out to Utah to get to know our team better, learn more about Extra Space, we appreciate the interest and the support. We also recognize that some of you might have come because there's a skiing activity day tomorrow, that's great. We're happy that that got you here.
We also know that there might be some of our friends like Kevin, who came really just for Sundance to test out his new hat. We're excited to have him as well. Again, whatever got you here, we're excited to have you. In our 2018 annual report, we talked about four properties of success of Extra Space Storage. When we have our earnings calls, when we go out into conferences, meet with investors, we spend most of the time talking about performance, that fourth property. The goal for today is to focus on the other three. We hope that after you've met with us, you'll have a deeper understanding of our best-in-class portfolio. We hope that you'll have an appreciation for our diversified portfolio and how we maximize the revenue and the value of each and every property. Most importantly, we want you to know our people.
You'll see here in the room, we've got a lot of the team here from Extra Space who might be different folks than you typically see out at Nareit, for example. These are essential department leaders that really drive the business and can answer many questions in great depth about how we do things here at Extra Space. We're happy to have you here in our backyard. We're happy to have you meeting our team. I just want to walk through the agenda quickly for the day, as well as a few housekeeping items. We're going to start off with an executive presentation that'll be given by Joe Margolis, Scott Stubbs, Samrat Sondhi. After that presentation, we'll have a marketing section, followed by a 15-minute break. After the break, we'll continue with a presentation on revenue management and IT and innovation. We'll break for lunch.
Lunch will be out here in the foyer. After you've had a chance to get your plate, we invite you back into this room again. We'll have a lunch speaker from our people department talking about the culture here at Extra Space Storage, which is an important part of what we do. After that, we'll have a presentation by our acquisitions team, followed by our third-party management and asset management team. After the management presentations, that'll conclude the webcast portion of the event. Those here in attendance will be taken to a property tour at a local store here just a couple of miles away, followed by a tour of our call center, where you get to meet the leadership team out there, see the process of the call center. Between that and dinner, we do have some downtime.
We'll drop you off back here at the hotel, let you catch up on emails, any other work that you need to do. We'd also invite anyone who's interested to come tour and visit our corporate headquarters, which is actually just about a mile away, not even a mile, half a mile from where we're standing now. To the extent you'd like to see the corporate office, we'd love to have you come over, and we'll have some vans available to shuttle people over, if that's of interest. Just a couple of other housekeeping items. The Wi-Fi link to use is under hyattmeetings, and the password is hyatt, all lowercase, for anyone who needs to connect. Also, as I mentioned, since we're streaming this event, typically, as you know, we really like these to be informal meetings, and we want to keep a dialogue going.
Since we're streaming this and it's being done through the microphones, we'd actually ask that you hold all questions until the end of the session. At the end of each presentation, we've earmarked some time for Q&A. If you'll hold on to the questions till then, we have a roaming mic that we can pass around. Please just raise your hand or stand up. We'll have someone bring it to you. If you'll state your question into the microphone so our streaming audience can hear it as well, we'd appreciate that. With that, welcome again. Thank you for coming, and I'll turn the time over to Joe Margolis, Chief Executive Officer.
Thanks, Jeff. Good morning, everyone. Thank you all for coming out to Utah. I know it's a long trip and everyone's busy, particularly at this time of year, and we reward you by sticking you in a basement conference room and feeding you this fine Hyatt breakfast. At least we're not being profligate with shareholder dollars. We meet a lot. We meet at NAREIT and we meet at other times, and we thought what we'd do today is try to talk about some different topics or talk about the same topics, but in a little more detail to give you a better understanding of our platform and of our people and how we drive performance. I'm going to talk about three things today, and these are kind of the things that are most foremost on my mind right now.
First is: how do we grow in the current market? If that green circle was bigger, I would say, how do we grow accretively in the current market? How do we grow accretively without taking on too much risk in the current market, but limited by the size of the circle? How do we grow in the current market? I want to talk about new supply, but maybe in a little different way than we've talked about it in the past, and then talk about sustainability. Let's jump right into it. This is a chart of our historical FFO growth. You could see that by any measure, absolute comparative measure, we've done a really good job of growing FFO in the past. That's great, but we also realize that no one holds our stock for what we've done in the past.
Our challenge is to continue to create outsized FFO growth for our shareholders. But that's getting tougher. It's getting tougher because we've become a bigger company. Our same-store pool is bigger, and therefore, the contributions to FFO of our other businesses, our management business, our insurance business, our C of O program, make less of a contribution on that bigger base. Secondly, we're in a market environment of moderating revenue growth. Even the growth within our same-store pool is lesser than it has been in previous years. That's the challenge that we think about all the time. How can we continue to grow FFO while staying in our sandbox, not getting away from our core business, and not taking on too much risk?
I want to show you this chart, and I know you've seen this chart 100 times, and we always show it, but it is very important to our strategy of growing FFO. We have these three buckets or three alternatives of growth. We have our wholly owned, sleeve, joint ventures, and managed properties. This does a number of things for us. Firstly, it allows us to approach the market in any market environment and continue to grow. It gives us optionality and flexibility. It also gives us more scale across the market, where we can form more relationships and have a broader footprint. Because we don't have one price fits all. We don't rely on being the high bidder in a marketed deal to continue to grow.
We can address a certain economic climate, we can address a certain owner's situation and circumstances, and try to make a deal and continue to grow. If you look at what we've done in the past, and if you take out 2015, where we had the broker deals represented there is almost all the $1.3 billion SmartStop acquisition. You could see that very little of our growth in the past comes from being the high bidder in a marketed transaction. That most of the way we're growing is buying from our joint venture partners, buying from our Management Plus, or because we have this broad footprint in the market, we have lots of relationships. We're able to get the deals before they go in the market.
That's been very helpful for us, and I expect it's going to continue in the future to be the way that we continue to grow and move FFO. What are our strategies? What are things that we're going to do to try to maintain this superior FFO growth? Well, clearly, we're going to continue doing joint ventures. As a company, we've been doing joint ventures since 1998, and they've been a great vehicle for us. We can de-risk investments through joint ventures. We can enhance our yield because not only do we get our proportionate share of the real estate return, but we get management fees, we get tenant insurance, and we have the opportunity to earn a promoted return. We expand our relationships, and we have an acquisition pipeline, as we just showed you. Let me give you a recent example of this.
This is a deal that closed the first week of January 2019. This is 2.5 weeks old. This was an acquisition we made of 12 properties in California from a joint venture partner that owned 95%, almost 95% of the assets. It was a $280 million transaction, and at the property level, it was a sub five cap, forward sub five cap after-tax reassessments. We had within this venture, almost $73 million of embedded promote that we could not get to without a capital event. By buying the assets here, that was a capital event, which we could then realize the promote, apply it to the purchase price. Our first-year yield on these assets after-tax reassessment, but giving effect to the embedded promote, was a 6.3%. Let me show you where these assets are.
10 of them were in Los Angeles, and two of them were in San Francisco. These are infill assets in barrier-to-entry markets that are under no supply pressure. Our ability through this joint venture relationship to buy these assets at a 6.3% first yield before anyone else on the market sees them is a great example of the benefits of joint ventures. Another strategy is preferred equity. In 2018, for the first time that I'm aware of, we executed two preferred equity tranches in our joint ventures, where we were able to take the 53%-70% slice of the capital stack and provide a preferred equity tranche that yields 8%. For us to be in that risk position, 53%-70%, and get an 8% yield is a very attractive way to deploy capital.
We're able to address a prospective partner's need and execute a transaction. We also added 10% of the common equity, if you would, in this deal and manage the properties. Those two transactions were about $47 million. Another strategy deployed in 2018. OP units. We've been doing OP units for a number of years now, it's a great option for an owner who has a low tax basis and a tax problem, wants to dispose of his properties. Because we can offer this tax-efficient method of transacting, we are a preferred buyer, we don't necessarily have to pay full market price because we're bringing something else to the table. We're bringing tax deferral. Also in the last 18 months, we have executed a number of preferred equity, preferred OP unit transactions.
These transactions were with sellers who were uncomfortable taking the risk of volatility in our stock price, wanted to have a fixed OP unit with a fixed coupon. We executed a number of these transactions with the coupon, low of 3% and a high of 4%. Again, for us to be able to use that type of currency, which has a cheaper coupon than our dividend, cheaper than debt that we could get now, be able to get to transactions, provides us a great way to stay active. Noah Springer is going to talk about our third-party management business later, I won't say too much about that other than we all know that's been a very large and growing way for us to increase our revenue without making any capital investment.
It also does a lot of other things for us, expanding our relationships, more data, cost efficiencies, and an acquisition pipeline. Oh, missed one. Similarly, our captive insurance company has become a very large, profitable business for us. Unlike some of our competitors, we do not share insurance proceeds. We get 100% of insurance proceeds on all our wholly-owned properties, all our joint venture properties, and all our managed properties. We're very focused on maintaining this as a very profitable business. In 2018, we started a bridge loan program. This was a program we started because we perceived a void in the capital markets. That people were building self-storage facilities. They get a 60%-65% loan to cost recourse construction loan, build the property, and deliver it. Now that they've added value, the property is underlevered, but they don't have a good permanent loan solution.
They can't go out and get 10-year CMBS. They can't go get an insurance company loan because the building's empty. It has no cash flow. As you know, we have a very active C of O program. We've done about 75 C of Os that we've either bought or have committed to buy, and we've underwritten hundreds of others. We are very comfortable valuing an empty self-storage building and buying it at 100% of what we perceive the value to be. Therefore, we should also be comfortable lending 75%-80% of value against that. This does a number of things for us. One is it just gives us another product, another tool to offer people in the market. Again, expanding our relationships. We're going to manage all these buildings. It expands our management platform with the associated fees and tenant insurance.
We're basically spread lending, where we're borrowing off our line and lending to these partners and making a spread. We were concerned we didn't want to move our leverage too much by borrowing off our line to do this. We've set up a relationship with the debt fund where we can sell the A notes to them, keeping the B notes, thereby minimizing the amount of dollars, but increasing the return to the low teens. This is a new program for us. We have two loans done. We have one in the pipeline. We're going to walk before we run. Again, something that we saw a need for in the market that no one else was doing, that we jumped in and did. What's next? I can't tell you.
I can tell you we are working on new things, and we will continue to be innovative, to be flexible, to be creative, provided we're staying within our core business and we're keeping our eye on our risk profile. New supply. Let me turn to my second topic. Since I became CEO, this has been kind of the number one topic. It's the question everyone asks, and rightly so. We're in a development cycle. New development is impacting operations, and it's a very appropriate topic to question and talk about. That being said, we get questions like, how many properties were delivered in 2018? How many properties are going to be delivered in 2019? Is it more or less? How much is construction costs going up? All these macro questions. Oops, sorry about that.
We get asked, how many of your properties are impacted by new supply? We did some research and we came up with this stat that about 50% of our properties have new supply within a three-mile radius. These kind of macro questions are kind of interesting, but to be honest with you, they're not meaningful to us in terms of what does that mean for our properties? What is that going to mean in terms of guidance or budgets, or what does that mean in terms of how we have to operate in response? We also get questions that are a little less macro on markets. What are the good markets? What are the bad markets? Here, Smith Travel puts out some data that shows that Denver has 23.4% increase in supply in 2018, and you can see all the other markets.
In 2019, we see New York jump to the top, but we see the number of markets in double digits go from six to two. That's kind of interesting too, but that's too macro also. That doesn't really help us. That doesn't tell me that New York's a good or a bad market, or that Atlanta is a good or a bad market, because this is not that macro of a business. Let's look at one market, and I'll try to show you the way we would look at it, and maybe that would help you. Let's start with Atlanta. This is Atlanta in December 31st, 2015. The green rectangles, got to go back to kindergarten if I don't know my shapes.
The green rectangles are our stores, and the gray dots are every other self-storage property at the end of the year 2015. Sorry, guys, can you see? In 2016, the stores represented by the blue dots were delivered. In 2017, the stores represented by the red dots were delivered. In 2018, the stores represented by the yellow dots were delivered. This is about 12% of the stock was delivered, new stock. That sounds bad, right? Because Atlanta's population didn't grow by 12%, so that's a lot of new supply in the market. You could see, there's areas. Is that in here? Nope, sorry. There's areas on this map where we have stores where there is no new supply, that are not affected. There's other areas where our stores have a lot of new supply coming near it.
It's not a one-market situation. It depends more on the micro-market. Let's look at a couple of examples. This is our store on Mount Vernon Highway, and the orange-ish squares or diamonds are our customers. We know where all our customers are coming from for that store. The blue dot is a new development that was delivered in 2016, about 0.6 miles away from our store. The two yellow dots were delivered in 2018, one inside the three-mile radius, one right outside. All of these are public company competitors. The other thing you could see is that if you drew a vertical line right at the one-mile radius, we have almost no customers from the east of that. Our customers all come from the west. When we saw the new supply coming in 2018 to the west of us, we were not overly concerned.
We did not adjust our budgets that much in face of these new competitors because we felt, given where our customers come from, we out-positioned them. In fact, this store had 5.5% revenue growth in 2018, even in light of these new competitors. Let's look at a different situation. This is very similar, right? We have a new competitor almost across the street, delivered in 2018, which is a mom and pop, then a new competitor about maybe two miles away, also in 2018. We also had one in 2016. Coincidentally, we have the same dynamic, where if you drew that vertical line outside the one-mile radius, all our customers are from the west, virtually all our customers. Because of the location of this new supply, we were more worried about this, and we knew this would have a greater effect on us.
In fact, it did. We lost 200 basis points of occupancy here, down to 93%, and our projected rent went from six to 3.5 in the face of these new competitors. The point I'm trying to make is, for us, when we try to understand the impact of new supply, we'll look at a store-by-store level. We'll look at where the customers are, and how much market presence we have in that market, and how much digital presence we have in that market, and many other factors to try to understand what the impact is on our stores and use all that to produce our guidance going forward. It's not sufficient for us. I understand why it's what you have to do. But for us, just to look at macro statistics on number of stores or square footage added to a market.
Okay, my last topic is sustainability. Extra Space has been pursuing sustainability projects or activities for a number of years, but we haven't communicated it very well. Now, ESG is becoming a much more important issue, and we need to do a better job communicating what we're doing in this area. One thing we've done in that regard is we put on our website, under the IR tab, a description of some of our sustainability activities. We also took the GRESB survey in 2018, and we'll join GRESB in 2019, and we'll continue to add surveys and do more in that regard. What are some of the things we're doing? Well, on the environmental front, we've had a very active solar program for many years. We invest about $20 million ± a year in solar projects.
That's great for the environment and we're happy to do it, but it's also great for our investors. We get a very good return, and we choose projects where we do get a good return on our solar investments. Similarly, we've had a very active lighting retrofit program where we bring existing stores or require new stores to be at the highest standard, which again, is good for the environment but also saves us money on the expense side. I'm not going to talk too much about the social side because we have a lunch presentation about our people and our culture. One thing I will say that I am very proud of is we were ranked 73rd in 2018 by Glassdoor as the best place to work out of over 700,000 companies. Top one-10th of 1%. Frankly, that's because we value our employees.
We strive to treat everyone fairly and with respect and decently and provide them a career. Clint will talk more about that at lunch. Lastly, on the governance side, we have and will continue to adopt best practices on the governance side. We feel we have a good scorecard in this regard, and we will continue to strive to get better. One thing in 2018, one development is we appointed a new director. Ashley Dreier is our second female director on our board of directors, two out of seven. You may not be able to tell from this picture, but she is younger than me, so she also provides some age diversity. She is also an IT expert. She is the Chief Technology Officer at HealthEquity, and that is a good diverse skill set that we like to have on the board.
She kind of aided our diversity across three categories, if you will. I hope that was helpful. I am pretty sure today is going to be helpful as you get to meet some more of our people, understand in a little more depth our platform, and see how we drive performance. Jeff, are we taking questions?
Okay. Michael.
Thanks, Joe, for having us out here. One of the things you talked about from a challenge perspective was as you have grown in size, all the other businesses are less meaningful to that bigger base, moderating same store becomes a challenge on the growing base. The example you gave in terms of buying out your joint venture partner, good return because you were able to use the promote, that just enlarges the base further.
Correct.
How do you think about shrinking the size of enterprise value and leveraging your joint venture capital, institutional capital today to be able to get a higher octane return from all these other interesting things that you're doing? Is that something that's in the cards to sort of reset the size of the enterprise?
We have thought about that, and we've thought about that from let's drastically reduce the size to let's be more measured in that. We did it in, I guess it closed in the beginning of 2018. We did take 36 wholly owned properties and transfer them to a 90/10 venture and used those proceeds to 1031 into higher growth properties. We took one step in that direction. We in the future, but we don't currently have a plan to massively shrink the size of the company to try to maximize FFO growth. What we're going to try to do is find more things to move the needle. Importantly, we're not looking for the home run. Right? I'm not looking for something that is one big swing that's going to jack FFO because frankly, if that misses, you're in a bad spot.
We're going to find a lot of little things that just move the needle a little bit. Bridge loans are going to move the needle a little bit. These other things I talk about are all going to move the needle a little bit. That's our strategy.
You had that what next bucket.
Yep.
Can you give at least some broad strokes of what types of things are in there? Because a lot of the other boxes are capital-driven, right? OP units, preferred, bridge loans, leveraging the existing management platform and insurance platform. What other ideas are you thinking about? Are they more capital-driven, or are they more data analytics, management-driven? Just to give us a sense of what other things are in the kitchen.
Okay. I can tell you without any specificity-
No one's listening. You can shut off the webcast too if it's-
Cut off everyone from Malvern, Pennsylvania. We are working on another capital-light strategy that will involve no investment in capital but produce returns for us. If that closes, we'll be happy to tell you about that. We're working on a ton of things on the technology side, and we have a product development session, I think, right before lunch. Dayna's going to talk about marketing and pricing. We'll have a lot of today will focus on some other things we're doing. Hopefully, that will give you a good answer to that question.
Can you just talk a little bit more about the bridge loan program, what your expectations are in 2019 or maybe in the next couple of years in terms of how big that opportunity could be for the company?
Yeah. The question was how big could the bridge loan opportunity be for the company? The answer is we don't know. Right? When we first thought of the concept, we went out and tested the market and got tremendous response and a very large pipeline. We did work to set it up. Right? We don't have servicing. We had to arrange that. We didn't have the A-piece buy, we had to arrange that. We've approached the market, and we've started to get some traction. We're also finding that it's leading us to other stuff that we didn't anticipate. We thought these would all be empty buildings. Well, the first two loans we did, one was 30% occupied, one was 70%. It was just someone needed to buy out a partner, they wanted to do an expansion. There was different situations.
Again, we don't know how big it's going to be. We're going to walk before we run. It's going to lead us to other things. We find that the more we're in the market, talking to people about different things, trying to solve their problems, the more we're able to expand what we do. I don't really have a good answer for you, but that's it. Sure.
Hi, Joe.
No, we had the.
Thank you.
We had the mic, sorry.
Can you go through the deal you just pulled off this month in California? It's a sub five cap rate. I'm assuming it's fully occupied or maxed out. Can you speak to the growth rate you expect there?
Okay.
I can't imagine your cost of capital is below the five at this point. There had to be a capital event, like you said, to harvest this promoted interest. Can you go through your return as an IRR calculation? What's the upside here, for buying something in California-
Sure.
Like that sub five?
The yield to us is not sub five to start with. Our first yield would be about 6.3%. Right? We didn't pay any dollars out of our pocket for $73 million of the purchase price. We effectively cashed in our promote. Those markets in California have not had, and we don't anticipate them to have the supply pressure that we've seen in other markets. We have experienced and expect to continue to experience greater than portfolio average revenue growth in those markets. I'm sure Zach underwrote them at 3% revenue growth because that's the maximum he underwrites anything at. Our expectations in California and our history has been that we've achieved greater than that. These are very mature, very stable properties. There's not a lot of value add opportunities on them. It's really a revenue growth play.
There's also very, very little downside to these. We've been managing them for years. We know them. As you know, as storage gets older, it gets a higher percentage of longer-term tenants. They get more mature.
Thanks, Joe. Thank you for the presentation. Given the amount of supply that's in the market, and obviously you've done a good job of explaining how it's going to impact your portfolio on a much more micro level, but how much of those developments, let's call it a few billion dollars per year over the next few years, do you think will actually turn into some sort of investment opportunity? Do you think that all those developments are in long-term ownership hands?
Okay.
Is there a high likelihood that a lot of those will be transacted in some shape or form?
I think the latter. I think a lot of the developers that we see are more merchant developers, or they've raised private equity money that is IRR-driven. As these developments lease up and maybe don't meet the expectations of the bank or the investor or the developer, I think people are going to want to take their chips off the table, particularly if they can make a little bit of profit. We anticipate that there will be opportunities to take advantage of disappointed developers, if you will.
Let's take two more questions just to make sure we stay on time.
Hey, Joe. You guys talk about culture a lot, and when we've had conversations, you always say culture is what sets you apart from your peers. I'm sure there's a lot of employees that kind of shuffle around the industry. What is it about your culture that sets you apart from your peers, and what is it that your employees that have worked elsewhere, when they come to EXR, what are the few things they notice that are different?
We're a value-driven company. I think it's easy for people to say that. We have five corporate values that we talk about all the time and we try to live. I'm sure we're not perfect, and I'm sure we make mistakes, but people are encouraged in this company to, if they see something that is contrary to our values, to raise their hand and say, "This is not right." These values revolve around how we act, how we treat each other, what our goals are, what type of passion we bring to work every day. I think we do a number of things that exhibit these values, and I'll give you a couple examples. Twice a year, actually 3 times this year-Clint and myself and some of the other senior executives will go out, and we'll have 9 or 10 meetings in 3 days.
Breakfast, lunch, dinner, breakfast, lunch, dinner in 9 different cities or 10 different cities. We'll get in a room like this. We'll bring in 50-65 store managers. I'll give them a brief presentation, and then we'll do speed dating, where the senior executives go to each table for 15 minutes and move. The concept was, within a 2-year timeframe, every employee in this company had a chance to sit down and ask the CEO one-on-one or in small groups, ask questions. We listened. We got some great ideas. We had a great pricing idea 2 town halls ago that came out from a store manager. It benefits us in that, if I think I can understand how a store is being run by sitting in my office in Salt Lake City, I'm fooling myself.
To get out and talk to the store managers like that is very important, and it also makes the store managers feel like they're part of the team, and they are part of the team, and that they're heard and that they have this voice. That's one thing that we do. We do all sites calls. We have many benefits, we think. At the end of the day, if you look at our payroll, we pay our site managers 30% more than Public Storage pay scales. Why do we do that? Well, those are the people taking care of the stores and the customers. Those are the people going face-to-face with the customer at the end of the day. We think we get a better quality store manager out of that, and we think that it improves our performance at the stores.
Almost all our stores are closed on Sundays. We tell our store managers, we guarantee you will have one day with your family every week. That's very unusual in retail. We get a lot of people from the retail sales position. We attract better people because that's something we can offer them. Do we lose a couple leases every Sunday? Maybe, maybe not. Our performance would indicate not. Again, that's something we do differently that we think our employees value, and we get more out of them in return. Clint will talk some more about this later.
One last question, and then we'll move on to our next presenter.
Hey. You spent some time on supply. You've also touched on technology and some of the advancements you're working on. I'm wondering, as you think about supply and you look back historically, the impact supply has had, are you seeing anything, whether it's new technology to be able to better weather some of this supply storm and whether hold occupancy more or hold rent, because you can't necessarily go ahead and generate demand if it's just not there.
Yeah.
Are you seeing anything on the ground that leads us to think you're going to be able to better withstand what's coming here in the next year or two?
It's a great question. Dayna is next to come up and talk about marketing. One of the things is getting as many people into the funnel as possible. How do you make people aware of your store and get them onto your website or call in the call center, or walk into your store? That's the first step, getting as many people into the funnel as possible. Because as you said, there's only so much demand out there. Then once they're in the funnel, how do you convert them? How do you make sure you change that into a lease? Your pricing has to be right or right enough. Then you have to have the store manager that we just talked about, convert that opportunity into a sale.
Our store managers are taught to do six things for every single time someone walks in the office. Stand up, greet that person by name. If you call the call center, they'll say, "Jeremy, how's your move going? I understand you're moving." Have some personal connection with you and do some other things. We focus a lot on how do you fill the funnel, then how do you convert those opportunities to rentals. Dayna will talk some more about that.
I think our occupancy obviously has weathered this better than the last one. During the last building cycle, you saw occupancy fall. If you look at the big companies today that have a large presence on the Internet, they have weathered it much better, because while you may not be able to generate demand, you could potentially steal demand, and I think the big companies have done a good job at that.
Thank you, everyone.
Our next presenter will be Samrat Sondhi, continuing with the executive section, focusing on operations.
Thanks, Jeff. Is this on? Just want to do a quick raise of hand. How many of us are here for the first time in Salt Lake? Just a few. How many skiers in the group? Just a few. Okay, good. As Jeff said, my name is Samrat Sondhi. I think I know some of you. I work in operations. I've been here about 16 years now. In the interest of skiing, I love skiing, but I'm a horrible skier. I make everyone else look good, even if you're not a skier. We'll start off, like Joe said, we'll go down. Normally, when I talk with you, we'll talk high level, what's going on with numbers, what's going on in markets. Today, we peel the onion a little bit, and I'll give you a little taste of what goes on behind the scenes in the operations world.
Everything we do in operations is driven around these four pillars: people, efficiency, product, and customer. In the next five, 10 minutes, we'll take a couple of these pillars and give you examples of what we do in these pillars. Let's start with the efficiency pillar. Let's go here. Joe talked about how new supply is impacting us. We'll share with you a tool that we use to look at data, help us from an analytical standpoint, and be efficient in how we run the business. Here's a question, a business scenario. What's going on in Dallas? We hear a lot of new supply coming in and how is performance in Dallas? What do we do in Dallas because revenue growth is slowing down, occupancies are dropping. We will now jump into a tool. We have a tool, a Microsoft tool, called Power BI.
Anyone familiar with Power BI? Just 1%. I'm glad Scott raised his hands up. He should be. We'll give you a little tour of how we use Power BI to answer the question, what's going on in Dallas and why. It's a Microsoft tool. It's a home for all our data reporting, and we use it for analytics. As soon as we get over this. There's a dash, you'll see. I'll just talk while this comes up. There's a dashboard you will see. Actually, my dashboard that'll pop up here. We have a dashboard for different levels of organization. Our store managers have a version of Power BI, Joe has a version of it, and the dashboards are audience appropriate. It reflects the KPIs you want to show to different audiences. Oh, here it is. This is the tool here.
Let's go see what's going on in Dallas. We click one of the tiles here called Property Financials. Brett here is pushing the buttons here. We'll go to one of the tabs called Revenue Growth Map here. At the first glance, I'll just give a few things here. Is this And I'm pointing on the screen here. I would ignore the numbers. These numbers for the month— the data's for the month of September, but I would ignore these numbers. Don't pay too attention, just pay attention to the story. Let not the data come in the middle of that. That's a joke. This is the map of our country. This reflects all our stores, all our mature stores in the country. Brett, if we can go into Dallas. Right. Let's go more inside in Dallas. Let's go one more level, and that is good.
Just let me explain what this map is here. Each circle here is one of our mature stores. This is for year-over-year revenue growth. Dark red is bad, dark green is good. The size of the circle is the amount of revenue coming from that store. We'll take a couple examples here. We'll see here, this store in Dallas, this is Southwest Freeway, North Central. Its revenue growth is just 0.2%, almost flat. The revenue coming from it is about $220,000. A few things we learn from this map. One, when we hear about Dallas not performing well, lots of new supply coming in, what do we do in Dallas? We're thinking, should we drop rates? Should we have some promotion? Should we spend more? One, we can see it's not uniform.
I can almost draw a little circle here and see, look at all these green dots in South Dallas, Duncanville, DeSoto, all these are positive here. North Dallas Anyone from Dallas here? North Dallas, Plano, Lewisville, Northeast, little bit Northwest. There's a lot of red here, lot of new supply here. Even Fort Worth is mixed, some yellow, some red. This tells us, one, we cannot treat every store the same. We cannot treat every sub-market the same. Now, if you want to find out why is this diversity in the Dallas market, we go to another Power BI map. If we go here, there's a Power BI map here with competitive map here. This data is coming from Yardi and from what we gathered ourselves. It has all our competitors listed.
We will go and click here, there by market, we'll click Dallas North and the suburbs, we'll click for just ease of this discussion, we click this year right here. We can see by the year of opening. Let's say we want to see what are the markets stores that have opened the last 3 years in the Dallas market. You click those, now let's go into the Dallas market. We can see all the new supply that has opened in the last 3 years in just the market we just saw. Here, each of the dot is one competitor that has opened up, including our stores that have opened the last 3 years. The blue dot is Life Storage, orange is Public Storage, red is Cube, green is us, everyone else is gray.
We can see here, it highly correlates to the revenue growth map we saw. There's not much new supply here except the one here. I think it's an Assured Storage here. You can hover over this, and you can see who the competitor is, when they opened. You can see here why did we have those green dot circles there and why there was so much red out here. It's because we have a lot more supply up here than down here. That tells us that when we go into these markets and we want to decide what to do with stores that are underperforming, overperforming, we need to have different strategies for these stores. On this map, also, we can see the Let's go to this one Public Storage in Lewisville Hill here. Brett, if you can click here, just click that orange dot here.
If you don't mind clicking on that orange dot, we'll see here it's Public Storage. It's 124,000 square facility with some more data. This level of data goes, you can see it here, but also goes into a database on what do we do with the Dallas market. Thanks, Brett. You can go back to the presentation. Our number 2 example that I want to share with all of you on how we try to be efficient is, our District Managers have a number of stores they manage. This data is here is number of stores managed on average by our District Manager. Four years back, on an average, about 14 and a half stores were being managed by a District Manager. We have 109 DMs today. On average, they're managing 16.3. There are lots of ways we've achieved this over 10% efficiency growth.
Things like, one is by natural, but as we add more stores, density increases, so the drive time from one store to the other reduces, so we can ask our DMs to do a little more. Another example, when we foreclose on units and we sell the units in auction, we have to go through a process of auction, a checklist, and it has to be signed off by the District Manager. That process is outsourced. We have a third-party vendor that does it for us so that DMs can focus on more on what they do best, and therefore, we can increase number of stores that the DMs manage. The last thing we look at is on the people pillar, and what do we do on the people side. Here's an example of what we do in the people pillar. We have a sales process.
If you walk into our store as a customer, we'll follow a process. We'll stand up, greet you, if possible, open the door for you, we go through these steps. Greet, access needs, talk to the customer while you're walking, showing them the unit, talk about our rates, the discounts, sell the value. We'll see how we're doing. How do we get to all these different steps, and what actions do our managers take? We'll take it a step further. We shop our stores using a third-party vendor. We have a vendor that goes and shops multiple times a year, goes into a store as a customer and goes through a process, exact same process, on how we are doing the sales process. After the visit is over, they fill in a survey of 30, 40 questions, here's an example of one of the questions.
This is one of the first questions we ask, which is, how were you greeted when you first entered the location? This is the shopper answering it after that experience. This data is for a market. Again, I wouldn't pay attention to much data, but about 90% of the time in this survey, the shopper said they were greeted very enthusiastically, 10% not so much. We know, one, this is an area we need to focus on if this is not where we want it to be. How do we know whether this is an important part of our business? We'll take this, throw it to our scientists, then we'll try to correlate each of these questions with performance. Here's an example. Here's a plot.
We'll take that question, say, how many of the reservations that came in converted into a rental for us? Where the greeting was enthusiastic, what was the conversion ratio? Where the greeting was not so enthusiastic, what was the conversion ratio? In this example, you can see there's a 2.5% higher conversion ratio because of just how we are greeting our customers. We feed this data point back into the sales process to further fine-tune what do we focus on in the sales process? What do we have to do better so that we can improve the conversion ratios? There are some things we were asking in the past that had no correlation, that is not part of our sales process today. With that, we can now open up for questions.
You feel like Tom Brady with the laser pointer in your eyes.
One question here.
Who's got a question?
This third-party firm that you hire to shop your stores, are you shopping the competitors too and getting that data?
No. That's a good question. No, we don't use them. It's too expensive for us to shop them. We gather that kind of information ourselves. I'll go shop competitors. We'll ask people. We'll go and shop, but we have not used that for shopping competitors.
If you look at those six items, I don't know if you want to put them back, what do you think are EXR's competitive advantages in those relative to your public peer set? Where do you think when you shop the other stores, how you differentiate yourself relative to the other experiences a customer would get?
I can't tell you about what competitors are doing. What I will tell you is all the pieces there that drive the behavior for the manager is not just intuitive and gut-based. As we saw, it's very data-driven. Here's an example. When we saw in the sales process, what our data shows us is the better we do in the first couple of minutes in that interaction, and the last two minutes when we close the sale is what matters the most. The middle is not so critical. We realized that the first impression when the customer drives into the office or drives into the curb, walks into the office, has a couple of minutes interaction with the manager, has correlation with the conversion, and how do we close the sale?
How do we ask the customer, "What does it take you to sign the lease today, right now, right in front of me?" To have the sense of urgency. The middle does not have that high a correlation. The data behind this gives us comfort on where do we focus in the sales process.
Does it matter if they come through the call center, the web, or off the street? Does that have differences in terms of your close rate?
Does that have difference-
Where the customer is emanating from originally.
I don't think so. I don't think we have found correlation between where the opportunity is coming from. We do have a little more information on the customer if the customer's coming from the web or the call center because they've already had a reservation with us. When it's a purely walk-in, the interaction's a little different. There's not much difference in what our managers do when the opportunity comes from a different channel. Does that answer your question? Okay.
Let's just take one or two more, Scott is also available to take questions, in addition to Samrat.
The detailed analysis you do around each of the stores and the supply around them, I think is very interesting. I do appreciate what you're saying about almost on every single store basis, looking at the strategy based on that. How do you do the cost-benefit analysis of being so detailed on each store, the kind of the man-hours required for that, the administrative overhead, the infrastructure, the internal, all the costs associated with that relative to what you think you can actually get out of this idea of having very specific strategies around each store, rather than same strategy for a general area where you can just kind of get scale?
Sure. Actually, the person sitting on your right can answer that question really well. Chandra is our revenue manager, she drives a lot of our models. All this data we feed into our models. Once the model is built, the more the data we provide, the more we get out of it. The level of intelligence when we saw the map, it helps us create some hypothesis of what should we build the model around. It's not that complicated once you start peeling the onion and start putting all the pieces together. What we've seen here is actually not even It's a little small an iota of what we do. We can go further into the store also, and it's a different strategy for different units.
For example, we looked at new supply and said, "Even if when you have a new competitor open next to our store, it's going to impact us." Or one of the things we'll see sometimes, and we see it in Dallas also, is our non-climate controlled units are not getting severely impacted. Our climate-controlled units are, especially smaller ones, which makes intuitive sense because all the new supply is what? 5 by 5 climate control, four levels up. If you have a 10 by 20 drive up, those are more resilient. All that information is being gathered with the data and what we see, so it gives us output on terms of let's not drop rates in the big non-climate controlled units. If we have to drop rates, drop more in the small climate controlled units.
State your name before your question as well. That'll be helpful for the listening audience.
Jeremy Metz with BMO. You've talked a lot about the importance of people and interaction in this process, that all this data feeds into that. How does that play into the concept of a customer being able to fully lease a unit online and never have to interact or come to a store?
Right now, all our customers interact with our managers when they rent a unit or lease. We think we'll get to a phase where there will be a certain proportion of customers who may not want to interact with a customer, and we are working on solutions around that. We think we can provide Go ahead.
I was just going to say, in future presentations, there'll be additional discussion around some of the evolutions with sales process channels, et cetera. If you have more to add, you can, but we'll get to that.
I think when James talks, he'll be a good one to ask that question. I hate to point to your question.
No, I'll stay here.
Okay.
Perfect. Thank you, Samrat.
Thank you.
Our next presentation's going to be on marketing. Are you mic'd up, Dayna? It's coming up. Dayna will be our presenter. I'm going to have her introduce herself and give you a little more detail about her personally. Just one thing that I would say is, as we're out talking to people on the road, one of the things we commonly talk about is tenure at Extra Space and the ability to recruit talent from other industries and people who started somewhere very different than storage, but have now been with Extra Space for a long time. I'll let Dayna tell a little more about that, but Dayna Hathaway.
Thank you, Jeff. Good morning. Just a quick introduction. As Jeff mentioned, I've been with the company a little while. I'm celebrating my 20th anniversary in July. Prior to that, I had some time at advertising agency as well as 3Com, where a handful of us came from as part of former CEO's association. Really excited to be here. When I came to Extra Space 20 years ago, I wouldn't have told you I would've stayed for 20 years. I think it's a testament to what you heard Joe say when he talked about our culture. It's a place where you can grow, where you have strong values and a very good work-life balance. It's been a fun opportunity for me to be here, and I'm excited to be with you today.
I'm going to take you through what we do from a marketing perspective to help drive revenue for the company and make sure that we're producing shareholder value as we do that. We always try and do that while still making sure we take care of the customers because we believe those go hand in hand. One thing about customers that you may not know is that they're all not the same. Not surprised, right? Customers are different, and it's up to us to understand our customers and how they're different so we can maximize the customers that come into the funnel. We could bring customers in all day long into that funnel that you've heard us reference, but that doesn't mean we'll get the most revenue possible. We try and understand them as intimately as we can.
A lot of that has to do with the data and scale that we have, which gives us the ability to know our customers so well. As I go through this presentation, there's three things I'm going to hit on. That's how we drive traffic, how we convert that traffic, and then how we maximize that customer experience as much as possible. In order to do this, there's something that we take a lot of pride in understanding and knowing across the entire customer journey, and that is the different touch points that the customer experiences as they go through the journey with us. Even before they're a customer, in that pre-need phase, we're in touch with them and helping them understand who we are and why in the future they might want to interact with us. I like to call this brain share.
We try and get as much brain share with potential customers as we can. This goes all the way through the customer journey until they move out, where at each touch point, we're trying to understand what's relevant to the customers during this time that we should be sharing or interacting with them. Let's get started. First, on the drive traffic area. The first step of this is what we refer to as the pre-need. This is where we're trying to establish that brain share that I just referenced. We like to point out phones as an example here. I know everyone in here has a phone close by. If you were to pull that out, my guess would be the vast majority of them have the Apple symbol on the back. Am I wrong? I don't see many people nodding no.
BlackBerrys. Good, hold on to that. Very retro, right? This is the power of brand, right? It's very interesting when you look at these phones, they're a commodity product, much like storage. Something amazing has happened in this industry where they've made you think that you need to have one over the other. One of these is dramatically more expensive, but when you look at them side by side, they virtually do the same things. As I was reviewing this presentation the other night at home, my nine-year-old son saw this slide and I said, "Which one would you take?" He's like, "No question, the Apple." He didn't even hesitate. I said, "Why? You're nine years old. How do you know you want the Apple?" He said, "The logo's cool. I love going in the store. They treat me well.
I just love the experience." He's nine years old. He captured it perfectly for me, the power of the brand. How do we do this in storage? Well, we've invested a lot of time and energy over the last three or four years in trying to understand how we can differentiate ourselves, even down to the brand, the colors, the look, the feel, that experience that my nine-year-old son described. Let me tell you a few things we've done. First of all, we started with our property. Some of you may be aware of this, but we're going through and changing our color scheme to be more modern and relevant for our audience. We happen to know that the color that we chose is also one of the most visible colors to the eye. There's some science behind this color.
It attracts you without you even knowing that it's happening. By the way, you're seeing more and more of this color in the retail world, if you've noticed. We also have looked at our messaging and our tone. What are we saying? How are we communicating with our customers? Are we speaking only about the features and benefits that everybody in the industry is fighting for attention over? We're trying to push away from that, and we've done a pretty good job over the years. I want to talk about an example. This messaging and this tone is hard to do just at the properties, but luckily, we have a digital platform where most consumers are shopping today, so we can play around quickly, easily test, and then make adjustments as needed and test more and continually learn.
One thing that we learned during this research is that our customers care a lot more just about price, location, and these other features and benefits that most people are solely focusing on. While those are important, they're almost expected today. What they really want to know is much like that Apple experience, what are you going to do? What does your experience include that gives me a reason to come to you? What we found through all this research is that our storage unit, those walls with air, are a place that's really important during these life transitions that our customers are going through. They're looking for someone who cares enough to put that in a safe place and make them feel good about helping them get to that better tomorrow. They're in the middle of trying to get somewhere better.
We've spent some time and energy trying to develop content and messaging that appeals to them, again, to get that brain share. What we did is we started with the second largest search engine to test this. Anyone know who that is? YouTube, owned by Google, the first largest search engine, surprise. We went to YouTube with some video content to see if we could connect with our customers in a new and different way. I want to show you this couple minute video.
[Presentation]
Storage was mentioned very briefly when the reference to stuff came up, but it was much more about who we are as a brand, about life transitions, about recognizing our customers are going through those, showing optimism, showing hope that we can help them get to where they're going. Why does this matter? What did it do for us? It quickly, in 24 hours, had over 42 million views between social and organic. This is when a viral goes video. You can't plan for this other than to create good content that connects with your customers. What this does for us is takes that brain share that I'm talking about. Our brand becomes more meaningful to people, and when they have that need, they will look to us.
In addition, it gave us a platform of learning as a marketing department, an opportunity we realized that had been untapped in the industry. We continued to test videos, now partnering with Google to understand how to target the audiences and refine who we're really going after with more purpose of driving them into the funnel and seeing if we could create more rentals from that. Over the years, we've done tests. One of the tests we did was in four markets, and we looked at brand awareness in those markets before and after a video launch that we did. Different videos, same concept of trying to connect with our customers.
We saw almost a 200% increase in brand awareness in the before and after of those markets by executing videos that connect with our customers and then give them a call to action to interact with us. In addition, we took this same concept and applied it more broadly across all of our social channels, realizing we had an opportunity to drive traffic in a way we hadn't before. We deployed this concept across multiple life transitions, realizing everything from organization to understanding even the cities that we represent with enough concentration. There were opportunities to talk and write about these areas. By doing this, we've seen almost a 600% increase in sessions that we've driven from our social channels to our website. This is something that we're continuing to be very active in and has tremendous benefit on our organic search results.
This is the first part of the journey that I've talked about in driving traffic to our website. Now I want to take you over to what happens with that traffic. Once we have brain share, how do we turn that into traffic? This we can't talk about without talking about Google. Google is arguably the most complex algorithm in the world. It's responsible for two-thirds of all searches that happen. To understand Google, we have to understand how complex it's become, that it's no longer just about bidding for keywords and expecting that everyone sitting in this room is going to have the same result. It doesn't work like that anymore. In fact, it's gotten more complex because of multiple device formats, including mobile.
If a couple of you wouldn't mind, if you pull out your mobile phone, and I want to give you just a quick guidance on a search I want you to do. You're all here from out of town. Last night, you had free time, and you wanted to go out to dinner, and you wanted a local favorite. Go ahead, based on that criteria alone, and type in what you're going to search for. Raise your hand, just need two people, if you're willing to share quickly. Any takers? See a couple people up here on these front tables searching. Who's got a result up, or even put a search term in? Clint right here with the microphone. Thank you. Just tell me what you searched.
I searched local restaurants. It came up Frank's Restaurant, Spitz, and Café Trang.
Are those the paid ads? They have the-
I don't know. I didn't even look
Let me take a quick peek here. Okay, one other person that we can compare this to right here. Okay, real quick, he searched local restaurants. What was your search term, sir?
Local food favorites.
Local food favorites. Tell me some of those results.
I'm embarrassed to say Sonic Drive-In came up.
Sonic Drive-In.
Trader Joe's and P.F. Chang's.
Okay. We did not even have two that overlapped in your search results. Very similar search terms, but not any overlap. That's how complex it is. It has to do with the devices that you're using, your ISP, your search history, the search term, and several other, possibly 100 criteria that's being looked at. The reason for this is it's being very personalized on an individual basis. Why does this matter? As a marketer, we have to understand these complexities in order to connect with as many potential people as possible that might be the best audience for us. Let's take a look at the search layout. Most of you are probably familiar with this, but just as a quick reminder, there are three components to the search page as we look at it.
The top one is the paid ads, easy to know because it has the little ad symbol next to it. You have your local section, which is often referred to as the map pack, and then you have your organic below that. We treat these in two areas from our strategy perspective. We have the paid advertising and then the local section, organic, we refer to often as SEO, those two combined are handled by our SEO team. Let's dive into each of them a little bit deeper. On paid advertising, first thing I want to look at here is just the lay of the land. This is a basic auction for all intents and purposes when you look at it. Cost is certainly a factor.
When we look at this, in the basic auction, the person who bids the highest is at the top, and then so forth. Remember how complex Google is. They don't do anything in simple terms, so they don't treat it this way. There's another component that plays into how your search results will appear, and that's what we refer to as relevancy. This is just for example's sake, but there are some truths to this. First of all, it may really happen where the person who's on top, in this example, it's us, but may pay less than the people below them. How does that happen? It's because of what we hear is the quality score of your advertising. Google's sole job is to connect us as consumers with the products we're looking for as quickly as possible.
The better we do as advertisers as giving Google signals that, "Hey, we're the best option for you to display for this search term," the more they reward us. It's that simple on the surface, but there's hundreds of data points they're looking at. Some of those are your ad headline. How relevant is it? The content here, are you giving the information that's needed for the consumer to act? We have our phone number. We have some reviews listed. If you notice some differences here and down here at the bottom, indoor car storage, sure, that's storage, but I didn't type in car storage. I'm not as relevant as the two ads above, and this is lighter in terms of content. They're not taking advantage of as many pieces of that ad as they could. Google watches this and rewards you accordingly.
They also watch, once I click this ad and go to the landing page, is that a good, smooth experience for the consumer? Do they interact, or do they bounce? All of these pieces are being watched and play into actually how much you have to bid and pay for the various search terms. That's the first piece is understanding the complexity of the auction and making sure you have a team that has the depth and knowledge to be able to react, especially when you're bidding on potentially millions of keywords for 1,700 facilities. It gets pretty complex quickly. The second piece I want to hit on real quickly is that you have to have a tool that works for you and your complexities to feed Google your bids.
They'll take your bids, and they'll react to the data that they have, which is the click-through rates, cost per clicks, et cetera, Google's internal data. What about all your business data? You want that to be considered as well. As we looked at these tools and even tried several of them over the years, we realized that none of them could do what we wanted them to do in order to maximize revenue. This is where a great partnership comes in between marketing and the data science team, who you'll hear more from later. We went to them with this problem and said, "Nothing's out there that's working the way we want it to. We need to build it in-house." With their partnership, we built something called Optimus Prime, for anyone who's Transformer fans, and this has had tremendous results.
You'll hear more about it from the data science team, but what I want to hit on is that it's allowed us to decrease our cost per click while driving up our conversion rates, our click-through rates, by over 30%. This is a tremendous benefit when you're also dealing with Google inflation year-over-year. More on Optimus Prime from the data science team. The third thing I want to touch on quickly with Google and how we approach this is our partnership with them. You know that partnerships are one of the key foundations that we have as a company, and this is true in the marketing team as well. We have a strong partnership with Google. This is not because we're a top spender in advertising. There's companies that spend tremendously more. It is because of our level of sophistication and how we approach advertising.
They love to get in a room with us. We love to get in the room with them as well, and talk about different ways that we can advertise and different ways we can pull that lever, and how can we be more relevant to our consumers. Because of this relationship, over the years, they've invited us to be on their Performance Advertising Council. This is something we're proud of. It's a limited group. There's no more than a couple dozen people in the room, and it's the likes of Walmart, Airbnb, and those were two of the companies we were sitting next to in the last time we attended. This allows us to the inside story as much as possible with Google.
They talk to us about betas and where we can participate in betas and even throw out ideas that aren't even betas yet and help us flush those out. It's something that helps us understand what's coming and gives us a leg up. I'm going to switch gears now to the local and organic side of the business, and this is probably the hardest area to understand without really getting into it and being a part of this world. I've tried to paint this picture with you by showing you a few numbers. The first one is going to come up on screen is, yes, 3.5 billion. That is the number of average searches that happens on any given day on Google's platform. It's an astounding number. Couple more things that I want you to keep in mind.
Anyone want to guess how many dots are on this screen? Just shout it out.
100 x 2 . There's 200 dots on the screen. That represents the number of ranking factors that Google takes into consideration as they're trying to decide who to put where on the page or if to put you on the page. Of course, we don't know all those factors. They don't share that with you, but we know some, and we have to respond accordingly. A few of them we know is accuracy of our data, super critical, past standing with Google, your history with them, and then site load time. These are all pieces of data that give us an insight to how we can treat our platform and handle our data so that we rank well. That's not the end of the story. We also know that on any given year, there's likely to be more than 600 changes to their algorithm, which will impact ranking.
While we're trying to understand what those factors are, we also have to keep up with the changes, or else we quickly could be relevant one day and not relevant the next. One of my favorite pieces of data here is that every day, Google sees more than 500 million never-before-seen searches. Why is that? It's because of the different devices that you're seeing. It's because of mobile becoming prevalent. Voice search. We now drive down the road and can just speak to our phones, so we're saying more. I used to just type in storage, right? Now I can say, "Show me storage facilities in Sugar House with the best reviews." My searches are getting longer, more detailed. This gives organic a tremendous opportunity to go after and find the best customers, but also highly complex with all those search terms that are available.
It's that team's job to understand what are the best keywords for us to find the best customers, and then how do we create content that's meaningful and relevant to not only rank for those keywords, but also to get consumers to interact with us and choose us over the other options that are out there. In order to do this, in the past 12 months, our SEO team has done more than 500,000 changes to our data. This is everything from our listings to make sure that they're fully optimized, to our website content to make sure it's the right content to connect with customers in the search engines, as well as websites that are off our digital assets and where partnerships or influencers that we may be working with. I hope that paints the picture of how complex the organic space is.
It is a tremendous benefit for us in driving traffic, and we're really proud of our organic results. Once we have all this traffic, what's the next step? You heard me say at the beginning, once we have the traffic, we have to convert it, right? We have to have a website that connects with those customers as much as the traffic did. I want to talk quickly about how we do that. We have a three-step process. The first thing we do is use our data. This is a theme at Extra Space, and we take great pride in it. This here you're seeing, you're going to start to see a scrolling There it is. A scrolling flashlight on the screen. This is a tool we use called ClickTale, and it records every single session on our website.
No, we don't go through them one by one. That would be boring and monotonous, right? What we do is aggregate this data to give us meaningful insights. It shows us what's working well, we make sure if there's an opportunity to make it more prominent or do something else like that. It also shows us where our customers are getting hung up, what's stopping them from going to the next page. This gives us testing ideas so we can constantly test and improve our conversion rates. That's the next step, is we test. We do A/B testing based on learnings that we get from ClickTale and other insights we have available. Let me show you one example. This is our San Francisco city page. And these are individual facility pages that a customer can go to from that city page.
What we saw when looking at the data is our customers were going to, on average, 2.5 facility pages. We call this pogo-sticking. They were going back and forth. That's painful as a consumer, right? We likely were having a bounce rate that was big, and we were also not converting as many as we wanted to. From there, we come up with testing ideas. In this case, we came up with what we call a comparison shopping tool, much like you have on Amazon or other websites. We put this together so a customer can select up to four properties. They see them nicely laid out with all the information they need on the page to quickly make a decision and move forward in the funnel. We put this out there, and we test.
In the case of that one, we saw almost a 5% increase in opportunity to reservation. We're constantly putting these out. Over the last five years, because of this testing program, we've seen more than 100% increase in our conversion rate on our website. This is how we make sure that traffic is being fully maximized that comes to our website, and we're taking advantage of getting the most qualified customers into our facilities. It doesn't stop there, though. You heard Joe and even Samrat reference how important the facility and the store manager are in that conversion process. Well, in order to make sure that we still get as many opportunities or reservations to the facility, we continue to nurture that relationship through email, text marketing along the way. We've been doing this program for a while, and we used email marketing.
We realized, you know what? People are on mobile devices. We have to make sure those emails are optimized for their mobile screen and not the desktop. Believe it or not, a lot of companies still aren't doing that today. We added in text, we even said, "You know what? You have customers who are reserving different lengths out." I may reserve for two days from today; you may reserve for 14 days out. The emails that go during those time frames should be personalized based on the time that you know it's going to take me. Content is sent to help you get through that length of time you have until your move-in. These email campaigns have won a couple awards over the years for the personalized approach we've taken, and they're being entered to win additional awards right now.
We've nurtured them, the next step is they come to the facility. This is really important because we've done a lot of work to show our consumers how professional we are, how relevant we are, how easy we are. That can't break when they show up at the facility. We've done a lot of research with Forrester as a partner to understand what has to happen at that experience. What do we have to do to make sure that they pull up in their car and get out of the car and not just drive by? Our properties, we've invested a lot, as you heard me say earlier, to make sure they're clean, they're relevant, they're well-lit, they make you feel like you're in a safe place. We take a lot of pride in these pictures and how well they look.
We also know that today, the store manager is still a critical part of that experience. We're looking at how do we integrate that store manager. You heard Samrat talk about the sales process. We're also looking at, in the future, if that store manager doesn't need to be there, what is it that they're giving them that we can provide in other ways? A lot of research is being done there. In the research with Forrester, we came up with this conversion pyramid, we call it. These are factors that came out. Some of them will be no surprise as to what's important to have during that experience in order to make sure we convert the customers. What was a bit of a surprise or where we tried to do better is the ones highlighted in green.
While price and location and accessibility are expected, they're table stakes. We better be providing those is what the consumers think. These other ones, condition of building, filling, and staff, are what tip the scale in terms of getting a conversion or not oftentimes. Filling has always been interesting to me. That green new color that we put out there, we're being told over and over, "It makes me feel safe. It's brighter. It reflects the light differently." Some of these things we're doing are having a direct impact on how the consumers feel and whether they convert or not when they come in. You heard Samrat talk about our sales process. A lot of that stems from this research where we know we need to interact with our consumers in a positive, hopeful way to help them move forward with the journey that they're experiencing.
We finish this customer journey at the site with the store manager. Finally, the last piece of the puzzle that I've been talking about today, how do we maximize that relationship? It still is important to us to interact with our customers once they get in the door and take care of them. There is an opportunity for reviews. There is an opportunity for referrals. We want to make sure that we are there. There are three things I want to hit on quickly. We spent a lot of time trying to increase customer experience as a marketing initiative in our company. We want to make sure that every customer feels cared for, appreciated, and informed. These sound so basic and simple, but I know if I went around the room, we would all have stories of retail experiences that did not meet these needs.
We are making it a priority to make sure we do these things. A couple tools we use, we have customer surveys, which we've done for years, and those go out at different points of the customer life cycle, so we can see where we're doing well and where we need to improve. We also do what we call customer captures. We spend time on the property talking to the customers as we walk around. We do that here from Salt Lake when we're traveling as an executive team. We also have our district managers, our store managers do this as well.
Not only has it shown some really neat stories and ways that give you a lot of pride in how good our store managers are, we've also found things that are broken that they just have been dealing with because they didn't know any better to come tell the store manager. Because we find out, we can make their experience even better. Finally, community management. We do this through social, and this is primarily Facebook. Today, people don't call 1-800 numbers anymore to complain and wait to get through that IVR. They have a much faster avenue through Facebook, and they know that if I go post something on Facebook, all the world, anyone who's following, which is usually a big group, is going to see. That company is likely to respond a lot faster. This here is just an example.
I'm not going to go through it, but it's an example of how our community management team can now respond much faster than oftentimes a store manager or district manager, and we can do it with the same tone and same voice and either minimize or remove a barrier that a customer might be having with us. These are all tools that we use to help enhance and maximize that customer experience on the back end. Just in conclusion, it's through these three areas that I mentioned, our ability to drive, convert, and maximize the customer experience and traffic coming in, that we help produce revenue and drive shareholder value. Thank you. With that, James Overturf, our CMO, is going to come up, and we're available to answer questions.
Hi, Todd Thomas with KeyBanc. I was just curious with some of this discussion if you've been able to quantify some of the premium pricing or pricing in general that you've been able to command in terms of some of the search results, your organic search results, and if you sort of stratify where you shake out in certain markets, what that means for pricing if you're first, second or third, if you have that information or data.
How it impacts our ability to price at a higher level?
Correct, or does it? How does it impact pricing in general, depending on how your search results shake out in a market?
Sorry. It's a lever, I think, that we always look at. There's really three or four competitors, usually in the bid. Public Storage, Extra Space Storage, and SpareFoot are usually in that bid. It's a component that we use. What we're always is, we'll talk about in a minute with revenue management and data science, price still comes into play, okay? Big time. Especially with the ability for people to quickly look for another solution. That price has to be in the realm of possibility. It does help us. We're constantly experimenting with, do we fill the funnel as full as we possibly can and keep prices low, lower, or are we more selective in that way? It depends on the market and kind of those local market dynamics. It's not really a one-size-fits-all strategy.
I'm not sure if this is going to be in the next session, once you've been able to drive the traffic, convert the customer, bring them in, how do you keep them for longer and continue to get that increase? The example you showed, someone was pissed off that their price was going up. What sort of elements are you doing in that communication with the existing customer? I don't know if you have sort of average length of stay in a typical self-storage unit. How many times is a customer coming back and forth where you have that ability to physically interact with them? Maybe some of the tools or things that you're doing around there to sort of keep the customer for the longest period of time and drive as much revenue out of them as possible.
Yeah, sure. You'll hear on the revenue side from the data science team. On the how we get customers to stay, I think part of it is in how we drive the traffic to us. We talked about not all customers are equal. We try to get the right customers to us first. Then there's a couple of things. First of all, a good majority of the customers, once they get into that facility, they don't want to interact with you a lot, right? They want to get their stuff in there and then be out of your hair, out of your way. We try and respect that with balance of communications and information that can be relevant, if we have articles or different information that we communicate with them.
A lot of this is where the store managers are so critical, where they do the right thing at the right time. If those customers are coming by and interacting with our product, store managers have a relationship with most of those customers because they're there enough. That's why you can see sometimes when these rate increase questions come in, they're able to get through those in an easier way in a lot of cases because of that relationship with the store manager. Does that help?
Thanks. Ryan Lum from Green Street. If I go on Google, type in flight to New York, usually the top piece, I can actually get the flight directly on Google.
Yeah.
How long until that happens with storage?
To what extent are you preparing for that?
Sure, great question. That's the Google Shopping. It's something that we've been in conversation with Google for over a year now. We think it's a better experience for the customers to come directly to us because all of the variables involved in renting a storage unit. It's much easier to book a flight. You're familiar with that. 50% of consumers renting a storage unit haven't done that before, and there's actually a lot of intricacies and questions involved that couldn't be handled in that shopping nav bar. That doesn't mean it won't happen. They're still looking at our product, but they have a lot of other retail products that they think make a lot more sense to execute before ours. We're in conversations with them, and we'll be ready when it happens.
Hi, Shirley Wu from Bank of America. Considering how much mobile has changed and how much people are using it so much more now, how has your strategy adapted to that segment, and do you see opportunities to kind of capitalize on that segment as well?
Obviously, the mobile devices are our largest spend now, even though there's still quite a bit of volume on desktop. We have some strategies right now. We're trying to increase our site speeds. Google is indexing your mobile experience first in ranking factors. We have an advantage in that space just because of our technologies and some of the things we're doing behind the scenes. In the future, we don't know what. A lot of people are thinking it's going to be voice, like Alexas, Google Homes, and things like that. That's another thing we're looking at. Storage is one of those things that's a little further down the list for consumers when they're talking to their Alexa or their Google Home. They're not trying to shop for storage. They're ordering pizza, getting the weather, those sort of things.
It's on our radar definitely. Desktop, laptop is diminishing in importance, but it's still very important because there's a lot of volume there. You've got to play both sides.
Eric Frankel with Green Street. How should we think about property location now with the advent of marketing and online search?
Still very important. We want to be physically visible and digitally visible. If you have both those components, you're going to do very well. We can drive traffic to, I'd say, less than optimal locations. We've proven the ability to do that through our platform and our call center, as you'll see later today. It just makes it so much easier if you have a very visible product out there. People are inherently aware of that, and that's another reason we've moved to a more in-your-face color and presence with our properties. It makes our job a lot easier if it's physically visible.
We'll just take this question, plus one.
Hi, Holmes from JP Morgan. As you touched on, you mentioned SpareFoot, which I think is, I guess, an aggregator for self-storage. If so, do you do any special partnerships to make sure you rank a little higher on their searches?
Well, SpareFoot is the largest aggregator out there. We actually played in that space for a little while and decided it wasn't a great business for us. We use SpareFoot sparingly in markets where it may be a little tougher with the competition and such. Our volume is not huge. We'd rather do it on our own and build that brand, rather than kind of commoditize it through these aggregators. It is a useful tool, though, but especially with kind of like lease-up properties and such, where you don't have that history. As soon as we get that history, we're going to rank higher than them. SpareFoot also can't rank in the Google Maps because they don't have physical locations, that's another big advantage that we have in that space.
One more, if there is one.
I was just wondering, you spent obviously a lot of time on your internet presence, but do you ever consider television or advertising during sports on television, which is probably the one time people are watching live versus other-
The Super Bowl ad we're going to show?
Yeah.
Go ahead.
No, this has been a question as long as I've been at Extra Space, and it's being where the customers are, right, but at the best cost for us to get the most traffic. Yes, we're constantly looking at that stuff. We've done a lot of different things in the past. I would say the baby video that you saw, while that's not out there on mainstream television, it was on YouTube, which gets more traffic oftentimes than traditional television. This year, we're looking at potential new channels that consumers are interacting with. We're going to be where the most consumers are at the best price for us. Joseph. How much did the baby video cost? How much did the baby video cost is what Joe asked. That was under $10,000. You can't make a commercial for mainstream TV for that price.
You should have had Reagan sitting in the chair. We'll take that-
Good point
in advice for future videos.
Well, thank you. We now have a 15-minute break scheduled. We'd like to start promptly back up at 10:30 A.M. for our next section. Take a few minutes. Take the break you need. There's some snacks and drinks out here in the foyer. We'll fire it back up at 10:30 A.M. All right. Let's go ahead and continue. During the break, as we were visiting with folks, a couple of questions came up that I'll just offer some clarification because if one person asked, perhaps it was on other people's minds as well. The first one was related to our bridge loan program. Just one clarification, we aren't doing any construction lending. All of these loans are on completed properties where a Certificate of Occupancy has already been achieved and are in either lease-up, anywhere from lease-up to mature. Just one clarification there.
The second one is someone said, "Wow, that's a lot of red dots on that map Samrat showed. Do you have that many negative markets?" We should have clarified, in Samrat's dashboard, red in his case is below portfolio average. In some cases, you might have had a red or kind of an orange. That could be 3%, for example, growth. Just two clarifications there. Moving on to our next set of presenters. One of the most common questions that we get is related to revenue management and wanting to understand better some of the revenue models at Extra Space. We're going to have a presentation that will get into that as well as data science and how the two of those departments work together, both with pricing and revenue management, but other applications as well.
We'll turn the timer now to Chandra Maddukuri, Vice President of Data Science, and Scott Hansen, Senior Director of Revenue Management. Okay.
Thank you, Jeff. I am Chandra Maddukuri. I've been with Extra Space for over eight years now. Before joining Extra Space, I was working for a software company that did revenue management software for airlines and hotels, and I was first hired here to do something similar for Extra Space. Since I came in, we started building a revenue management system. We created a data science group. We will chat through the course of the presentation. Scott and I will walk you through some of the things that we do. You follow our revenue growth, and we are a strong performer in terms of our year-over-year revenue growth, and we have done a very good job of that over the last 10 years. A lot of groups at Extra Space are responsible for it. You just heard Dayna speak.
She and her team do a tremendous job in driving demand, and we also have very good store managers that convert this demand into rentals for us. All of these are important drivers when it comes to our revenue growth story. Over the next 30 minutes, we will walk you through what we do from a revenue management standpoint to drive revenue growth. Price is the most important lever that we control from a revenue management standpoint. Any day a unit is left open, without a customer, we are losing revenue. We cannot maximize revenues where we drop rates and get our units fully occupied either. We had to find that sweet spot. Sweet spot that generates maximum revenues. We have to do that at scale.
We are managing over 1,600 properties. Within these properties, there are several different products, 70,000 different products that we need to set prices and promotions for. To do an effective job of pricing, we have to understand the demand trends. We have to understand the churn that each of our products are seeing, and we also have to understand consumer preferences. This can get really complicated to do, and to do an effective job of this, we have invested a lot in our pricing platforms. Machines also alone cannot solve this pricing problem or cannot effectively drive the revenue. What we have at Extra Space is a mix of platform and people to drive our revenue strategy.
On the people side, we can imagine situations where, in Odessa, Texas, for example, there is a lot of new energy exploration, and that had a huge impact on the demand for storage, for example. That is not being picked up by the model. We have to make an adjustment with respect to price for that city and for that market. That's some of the things that the revenue managers do. They do pricing exceptions. In addition to that, because they look at a vast number of properties and review the pricing and see the performance, they also help us to connect the dots and identify areas where the machine can do better.
We have five revenue managers. They are responsible for different divisions, and driving revenue for their individual portfolios. The other group that rolls up to me is the data science group. This group is responsible for maintaining and enhancing our pricing platform. In addition to that, we also work closely with digital marketing. We work closely with paid search. We also work closely with our web optimization team. On the web optimization front, Dayna talked about a lot of A/B testing that happens. We help the web optimization team on that front. We help them figure out how long to run a test. When a test is executed, how do you call a test as a win or a loss.
In general, as a general rule at Extra Space, we try to rely on hard data rather than subjective judgments when making business decisions. Data science group plays an important role in that. We provide guidance on how to set up tests, what's the best strategy to set up a test. Do we need to randomize visitors? Do we need to randomize properties? What's the best test design to answer a particular business problem? Over the last eight years, we have spent a lot of effort in improving our pricing platforms. Scott will walk you through details of how some of our pricing models work. In addition to working with pricing and paid search teams, we also work with a call center. One of the differentiating factors within the way our data science team operates is the focus to collaborate.
It is common for a data scientist to go to the call center, listen to calls, we get over 1 million calls every year to our call center, and we have over 100 agents, and all these agents are different in terms of their skill level. Last year, we worked on a project where we tried to optimally route the calls that come to the call center to the right agent to maximize our portfolio performance, and we have seen some successes doing that, and there is potential for us to do more of that in 2019. To give you a better flavor of how the data science team works, the kinds of projects that we take up, I will walk you through a project that we did with paid search team. Everyone would have searched on Google, and Dayna talked about paid ads.
At Extra Space, we spend over $20 million on getting traffic from paid ads because this is an important channel for us. We get more than a third of our reservations from paid search. This is an important avenue for us to acquire customers. Unfortunately, the budget is not infinite, where we can just start to bid to the top and to the first position every single time, because Joe insists that we have to spend our money efficiently. For us, that means that we need to lower our cost for acquisition or our CPAs. We invested in developing a system. We call it Optimus Prime. Just by the name Optimus Prime, you can guess the inclination or interest of the people or the data scientists who build this product.
The way the paid search program works is, we have to be able to bid on a keyword level. There are millions of keywords, and all these keywords are different based on a variety of factors. The type of keyword, what location you are bidding on, the device that you are bidding on, the geography that you are bidding for. All of these have an influence on how the search results pans out. Let me go into details of four factors that influence the bidding decisions that we make on keywords. Keyword terms. There are several types of keywords. For example, someone can type self-storage, and that's an exact keyword. We bid on self-storage. On the other hand, someone could say cheap storage, downtown Houston for parking. We may not bid on that exact long keyword, but we bid on a phrase, cheap storage.
If we bid high enough on the cheap storage phrase, then we will show up when someone searches this long keyword. Broad keyword could be a term like storage. If storage shows up somewhere in the search, we will show up there. Why this is important is because each of these different categories of keyword are different in terms of the type of customers that we are going after, and they have a different intent, and potentially can have a different lifetime value associated with each of these different types of keywords. The platforms that we bid on, Google and Bing shows as if we have equal share in Google and Bing. That is not the case. Google by far dominates our paid search budget. Also device and location. We know when a keyword comes in.
In some cases, we know exactly the location that the keyword is coming from. In others, we do not. That would become a more generic keyword. The more targeted keyword, more likely the intent is higher. What we then do is we would identify keywords based on combination of all these different factors, and then determine whether this particular keyword is good for us in terms of the likelihood of conversion rate, in terms of does this keyword come in a location where our occupancies are lower, where we have room to add new customers. Is this keyword can potentially have high length of stay and higher LTV. That information would be used in our bidding process to then determine what is the optimal bid that we could put on this keyword.
We do that for millions of keywords at a time, and this model runs every single day with updated information and provides this information back to Google so we enhance our bid. There are actually plans to do this intra day, as we get information during the day. When we first rolled this out, this was a huge win for us in terms of our two main metrics that we were trying to drive here. Cost per acquisitions, we had a big impact of dropping the cost per acquisitions and also increasing our volume or the number of customers coming through our paid search program. As Jenna pointed out, these are the kinds of efficiencies that we are looking for as we try to keep our CPAs flat or even try to reduce them.
This is hard to do because the cost per click is always increasing in Google. When we first rolled this out a couple of years back, desktop was dominating. We got most of our reservations at that time from desktop. Things change so quickly in the digital marketing environment because within this short two-year timeframe, mobile now is the dominant place where we are getting reservations from. Last year, we changed how Optimus Prime works. We changed it to work in a more mobile-first world, and we have seen an improvement in that. We compared the latest version of Optimus Prime last year with the version before that, and we have seen a win there. Traditional marketing environment is dynamic, and it continues to change, and we have to continue to adapt to this changing environment.
The number of factors that drive the intent or conversion rate, we haven't figured out all the factors yet. There are a lot of things that we need to do to even optimize our performance even further. Our roadmap for this Optimus Prime product is filled for the next 12 months. There are a lot of tests that are lined up that can potentially improve the performance even further than this. For the next few slides, Scott Hansen, he is the Senior Director of Revenue Management. He will walk you through Revenue Management and how some of the models work and some of the testing that we do there.
Thanks, Chandra. Again, Scott Hansen. I have been with Extra Space for about five years. Prior to Extra Space was about 18 years of big box retail, the later half kind of in the pricing world. Extra Space has been awesome. One of the things I love about it is a larger company, so you have resources and data. It is like the size of a cruise ship, but we are able to still turn like a jet ski. A lot of the culture around testing and applying different things and be able to react quickly has been awesome. It is one of my favorite pieces about the company. We are going to talk a little bit more on how some of the pricing works. Like Chandra had said, there is a model behind this. There is actually several pricing models.
We are going to go into a little more detail on one of them that is more common in most of our stores. Pricing is not the whole thing. There is the ability to move pricing up or pricing down. Customers do not just convert on just the pricing number alone. There are other factors that come in. What promotion do you have in front of them that they are seeing? How long are you letting them reserve inventory? If you go to our website or our call center, you are going to reserve a unit, and it is going to say, "Yep, we will hold this price and promo and that piece of inventory for X amount of days." Sometimes it is 14, it could be as short as three, or it might be up to eight.
There is a variety of different factors that we will use to determine the right reservation window, and I will get into a little bit more with some testing we did around that as well. All of these factors are set on a daily basis. They can change on a daily basis. They do not always. It really depends on what activity is happening. All of these are set by our pricing model that is ran by the data science group. We will get into what the revenue manager is doing a little bit. To give you an idea of how one of these models work, we are going to explain the one that we have on probably about 1,200 of our facilities. This would be our mature pricing system. Now it uses a lot of data that we know about the facility.
As we have these stores year after year, we collect more on what happens with rentals, with vacates, what time of month it is, if there are students in the area. I mean, all of these variable factors come in and help us determine the right price to set. To give you one example of how that works, we can say that maybe we are at the end of August and we are looking at a group of units. Maybe these are 10 by 10s, and right now I have four of them vacant. I am at 96% occupancy out of 100 units that are there. Based on what we know about this property, we are likely to have 15 customers vacate in the near term. Our model is not just considering it has four vacant units.
It's really looking at, I've got 19 available pieces of inventory that I need to move in this near term. How it comes up with the price on it. It actually spits out more than three price points. That just fits nicely on the slide. There's a price sensitivity number that we have at a store level, even down to a unit level. This price elasticity tells us, for example, if we price the units at $146, I'm likely to get 12 rentals in the near future. That's going to get me to 92% occupancy. I'll make $1,752 in new customer revenue. That's option A.
If I lower the price, again, we have a lot of the data that says, "Here's what you're going to have vacate, and here's the price elasticity of that unit." If you drop it down to $121, in this scenario, I'm actually going to get 17 rentals, end up at 98% occupancy, a couple grand in new customer revenue. Continuing down this track, if I pull the price back to $99, here I'm going to get 22 rentals. Anyone maybe see a flaw in 22 rentals, though? Yeah. We don't have 22 available units. I've got 19 that I'm dealing with. In reality, what's going to happen in this scenario is we'd end up at 100% occupancy in this unit type, but I'm only making $1,881.
At some point, you're lowering your price so much that you either run up against you don't have the available supply, or maybe the discount doesn't offset how much you're giving away to every customer coming in. When our models go through and calculate what's the right price promo and all those variables in there, it's really looking at which one's going to make me the most amount of money based on what I know about this facility and this unit type. What's my available inventory today? What do I anticipate is going to be coming up in the future? What's the right price point that drives the highest amount of revenue? All of those factors, again, set daily basis by the pricing models that the data scientists team run. Now, Chandra mentioned one a little bit earlier of, when do the revenue managers come in?
He used Odessa, Texas, as an example. This was one where the facility's just running the normal course of business and such, the oil and energy industry had left a few years ago as oil prices went down. Our site managers started seeing a lot more customers come back in. They're talking to them and say, "Hey, what brings you in?" They're like, "Yeah, we're moving back into the area. I need to pack some stuff in here while we get moved in." In those conversation, it comes up, what industry you're in, and we find out they're in energy. As all of these sites start to see, hey, this is happening a lot more. We're getting more and more of these.
They're reaching out to their District Manager saying, "Hey, we've got a lot of people moving in, and it's all tied to this specific industry." That DM is reaching out to our team. My revenue manager team is the main interface between what the pricing model wants to do and the feedback that we get from the field. Taking that into account, like in this example here, my team would go in, and we may push the price up, remove promos, even adjust reservation windows down. The idea being, something's happening in that local market that our model can't anticipate because it's not like the oil industry moved in in September of every year after year. This is a one-time event that's causing a spike in demand. We see the demand coming in. What can we do to maximize revenue on that demand?
We get the input from the field. We make adjustments to the model. It produces a new price point, then we use that to just drive a higher revenue. Other examples that you'd see of this, if construction happens in front of a store and really impacts access to the site, it could have the reverse effect of this. If a lot of the walk-in traffic is getting cut down because it's just a lot harder to get to, we may have to make up for that with some more aggressive pricing to capture more online demand that's out there between the website and the call center. Sometimes it can be an entire market, new supply that comes in. Joe mentioned Atlanta or Samrat had Atlanta in there. Dallas has come up. Denver's been one for several years.
When you dump a lot of new supply in there, that's a different factor you have to consider this year that didn't exist maybe in the same store last year. The model using a forecast may not be the most accurate on its own, but we have different systems that we can put it on. There's more eyes with the revenue management team of what are the different steps we want to take to try to take advantage of all the demand we can or minimize the impact as much as we can for something that could pull down our occupancy. All of those pieces are set. Again, revenue management team and data science is the blend of how the two work together to try to drive the highest revenue. I'll give you an example of another test that our teams do.
As we look at the business, Chandra said that the revenue managers are very close to seeing what's happening on a property level with performance. Using the resource of the data science team, we're able to say, "Hey, we think we could do something better here and improve our models based on some factors that we see out there." One we had a couple of years ago had to do with managing our inventory more efficiently. If you hit our website now, you'd typically see some different things pop up on here around inventory. Maybe at the top of the screen here where it says, "Act fast, one unit left." That really does mean we have one unit. We get a lot of questions on this, like, "Is that a fake number? Are you just making that up?" It's really one unit that's left.
On the bottom of the screen, you would see it says, "Act fast, limited units." As the inventory gets constrained, we're able to make some call-outs to take advantage and create some urgency with that customer to move a little quicker of, "Yep, if you want it, you may want to get it right now." When we had gone into this testing, our previous reservation windows for how long we would let customers hold inventory was 14 days. They could always just book it up to 14 days out. Most people don't take 14 days to move in, but that's what we had out there, they'd book it and move in sometime within that range. We wanted to limit that down a little bit and test something different. As someone clicks on the inventory to reserve it, they see a screen like this.
It says, "Hold your unit price for 14 days." This is what we've always had up until a couple of years ago. What the team brought, the revenue manager said, "If you hold that inventory for two weeks," and we know not every person that books online actually moves in. There's some people that don't because their needs change or whatever it is. We don't get 100% conversion online yet. Dayna's still working on that piece. Because they don't, maybe we could do something different with our inventory and cut down this day. It's easy to throw out, well, let's just make them all three days or seven days, or whatever it is. We want it to be a lot more logical in how we apply it. We did a few things.
We started to look at what days people reserve and when they typically move in, and how can we be more efficient with managing the inventory. If you're hitting our website today, a couple of different things you could see. If you tried to reserve something on Monday, it may let you hold the inventory until Saturday. Saturday is one of the bigger move-in days. A lot of people look online during the week while they're at work or at home, and then they end up moving in on Saturday when they're off. On Monday, it may let you reserve the inventory until Saturday. Maybe if you're looking today, it might also let you reserve the inventory until Saturday. A lot of them can just be lined up to the next weekend, because that's when we know most people are going to move in.
Sometimes it can be longer. We actually have some that'll be up to 30 days. If I've got a lot of inventory available in a certain unit type and really not any chance of running out of that inventory in the near term, I may open up that window for longer, and that tends to capture some people that tend to be a little bit more planners. They're thinking two, three weeks out. They're really valuable customers, and it may capture in some of those as well. We also added another piece, overbooking, essentially. As we get down to that one unit left, when someone goes to click Reserve, they get a different message on the screen. What it's calling out here is, "This is the last one of its size." It's available on a first come, first served basis.
We do cut down the days that they can typically hold that out for. three, maybe four or five, but it's a lot more reduced than what you'd see in our typical inventory. Overbooking gave us another advantage. This allows me to take multiple reservations against the last unit left. Again, knowing not every single reservation is going to convert into a rental, if I'm down to one unit and I can take a couple opportunities against it, that dramatically increases the likelihood I'm going to have a customer in that unit within the next few days. If the customer sees this on the website, we're showing them the messaging here. What we're reserving for them is the price and the promotion, as long as the inventory is available. It's kind of like a Black Friday ad. You see the ad, here's the price on it.
You just have to get there and get it before everyone else does. In any scenario, when someone makes a reservation on our website or our call center, within 10 to 15 minutes, our store managers are typically calling them back saying, "Hey, saw your reservation. Welcome to Extra Space." Answer any questions. "I did see you reserved the last one of its size, so how soon can we get you down here?" They're trying to stress that urgency to get the customer down to the property. We'll occasionally have scenarios, and we found this in the testing of two people reserve the last unit. One of them shows up and rents, and the other one still wants a unit.
What we'll normally do there is the sites are going to call the customer that already Someone moved in, they're going to call the other person and say, "Hey, that five by 10 you reserved, someone else picked it up. I've got maybe a five by eight or a 10 by 12." They're going to try to bounce them into another size at our stores to make the customer happy. Occasionally, if we're completely out of a product, we'll try to bounce them to one of our sister stores. It's pretty rare that we'll run into a scenario where we can't fulfill or help that customer out. What overbooking did for us is turn our inventory a lot faster, and it increased the amount of rentals that we're getting in.
It was worth well over $1 million for us in the first year that we rolled this out. It was a great example of the revenue manager seeing kind of a business opportunity out there with how close they are to the properties, working with the data science team to apply some thought and logic behind what's the best way to execute this to drive a higher revenue. All right. Next we're going to run through, I heard some questions earlier on existing customer rate increases. This is how we're growing the revenues of the existing customer base with our facility. With our scale that we have now, we push out over 100,000 increases per month.
One of the big advantages here is we can do a lot of testing and have a large data set to determine what really works and what doesn't work. We can test out quite a bit of stuff. We can also learn very quickly because of the scale that we have in here. A couple of numbers behind it, or less numbers, I should say, more of ranges. Our average increase is somewhere in the high single-digit area. It's not a flat percentage that we throw out and just push across the board. There's a lot that goes into to determine what's the amount that we want to push on customer A and customer B. A lot of it's the great proprietary secret sauce that we don't share.
To kind of give you an example, if someone moves into a parking space and we give them a hefty rate increase, it's very easy for them to put their keys in their car and go somewhere else. At the same time, if someone's in a giant upstairs unit, it's going to take them three weekends and a lot of neighbors to go empty that thing out. I don't want you to think we just go push every upstairs unit a lot and every parking. There's several 20-something-odd attributes that go into determining what we do. None of which has to do with how a customer voted, what their income level is, or anything that's like a protected class.
It's all what we know about that rental and how sticky the. Within 90 days of receiving that notification, we see about 20 say, "Thanks for storing with Extra Space. We hope you come back if you need us again, and tell us a little bit about why you moved out." The biggest answer we get is, "I don't need storage anymore." They've moved in with someone else, or they've moved into their house. Whatever the need that caused them to get storage in the first place is now solved. If we can figure out how to get people just to stay in storage units, even with nothing in there, that would be awesome for us, but that's not the case that we're in right now. On the right side of the screen, we've got another 100 customers here.
Again, the numbers we use are a lot bigger. This just helps make the percentage and the math easy. On these 100 customers, they are due for a rent increase. We don't push them one. We look at how many of them move out within 90 days of when they would have received the increase if we actually sent them one. We find that about 18 of them still move out. We do the same survey. We ask them why. They say, "It's because I don't need storage anymore." It does vary a little bit through the year. We'll find that our existing customer rate increase program drives a churn percentage of maybe an additional churn of around 1%-3%. That's with the numbers we have.
I know if I throw in some mid upper teen or 20 or 30% increase number of go push everyone this month, I'm going to have a lot different result on this. I'm going to drive a lot more churn, that's probably not going to be worth the revenue we'd gain by pushing out massive increases. At the same time, if I pull that back and say I gave everyone a 1% increase once a year, it's not like I'm going to get a lot more people to stay longer, and I'll probably lose quite a bit of revenue and leave a lot of money on the table. This is something that we continue to do month after month of this holdback group to help us look at the various tests that we're running. What's the difference between the regular existing customer rate increase pool?
What does our holdback pool look like? With the scale and size that we have, we're able to come to some pretty good and quick solutions on different things that we want to try with maximizing revenue through rate increases. With that, go to questions.
Questions. James would you like to join us?
Whoa.
James.
Hi, Eric Frank from Green Street calling again. Do you layer in any macroeconomic fundamentals into your revenue management model?
We continuously look for correlations with the macroeconomic fundamentals into this. We have done some research with respect to things like unemployment rate or consumer confidence. At least for the last several years, there haven't been any major changes in those macroeconomic factors. Right now, we do not have them, but that is something that we continuously monitor them. Potentially, they could be added. We have flexibility to make those adjustments as we see fit.
Some of it, I'd say, is take into account a little bit in how we first initially set pricing. I mean, the rent rates in Santa Monica are far superior to the rent rates in El Paso, Texas. The income levels are also different, and housing is different. Some of that's already built into how you start the pricing at a store.
Thank you.
Yeah. I was wondering if you can expand a little more on Optimus Prime. You talked about how you saw a 25% increase in the page search cost reduction, 30% increase in traffic from it. It's been about five years. I assume a lot of that happened initially when you really started optimizing the first two, three years. How much opportunities are left to really drive that? Just thinking about the cost per click inflation from Google, can you comment on what you're seeing on that front as well?
James, can you take the cost per click question?
Sure. Cost per clicks continue to rise, but it's not Google doing it's us doing it to each other. It's an open bid. We're competing against other people in the space. We have seen, I think, depends on the seasonality. At certain points last year, it was up almost 40% year-over-year. The game is to convert the traffic that you're getting at a much higher rate. What we try to do is target the right people at the right time, and use pricing as a conversion tool. Pricing is not a demand creating tool. It is secondary to getting people into the site. The better we can target people, a higher converting, higher propensity to convert and a higher value over time and reduce that customer churn, that's going to come into play, too.
As Chandra said, we've been doing this for a while, but there's a ton of opportunity out there with Optimus Prime.
I think there is opportunity, especially around lifetime value, figuring that puzzle out. We are not completely there yet. For example, we have different types of customers coming in, and the lifetime value is anywhere from I mean, they stay anywhere from one month to 10 years. That is an extremely skewed curve, and even if you make slight shift to the right of that curve, increase the length of stay at the margins, we believe there is massive revenue benefits to be had. Acquiring the right customer, I think that's where a lot of effort is happening right now.
Before taking the next question, one other thing I would add on that point, going back to Dayna's presentation, has been pretty significant game changer is the quality score that's factored in for paid search. Even if the market as a whole, like James mentioned, inflated significantly, to the extent you have a better quality rating, you're not necessarily having to pay top, the same level as the top bid to still get that top position or second position. That's been another real benefit for those who are strong on the SEO side and getting that quality score helps curb some of that inflation because it's not equal across all participants.
Brandon Benjamin, American Century. Specifically for the current tenant rent increases, I guess, you mentioned protected classes. Aside from demographic and geographic data that are in the model to drive decisions, I guess I'm curious what other kind of data can you legally push the envelope, get from customers to start making that next level of revenue management decision? Whether it's 1 for divorce, 0 for not divorce or something like that. I guess, talk a little bit more about that next generation of data that will drive these decisions.
Sure. I think, there's a lot of data that we can collect from our tenants, and I'm going to talk about this in the next section when we talk about privacy. I think that's going to be a huge trend in not only our space, but the country in general over the next few years, that we've got to be very cognizant of that. When we look at segments of customers, we put them in segments based on certain factors. The number 1 factor we have of determining customer value right now is the date that they move in to the property, depending on the property. Real basic example, we have a property by Princeton University in New Jersey, and guess what happens around April and May?
The people that move in in April and May are going to be a less valued customer because they're students than someone that moves in, let's say, last week, the first couple weeks of January. That's simplistically how it works. Our customers are notorious. Storage customers in general, are notoriously bad at predicting how long they're going to stay. That's one of the data points that we collect is how long are you going to stay? How long do you plan to use storage? The length of stay is usually 2x what they say, but sometimes it's right on. To Chandra's point, it's noisy data right now, and it's directional, and we got to be very careful about the data that we consume and make big assumptions about that data.
We had a meeting yesterday, Chandra and I. I gave him three more data projects that we want to look at. It's mostly revolving around customer behavior once they become customers. I don't want to tell you what those are, there's some significant data points I think the whole industry is missing that we're starting to dive into. Getting away from segments and demographics and population, because we've tried to do this. We basically serve everyone in the U.S., every income class, every ethnicity, education level, apartment owners or apartment renters, homeowners, and it's really different for every location. You could go four miles in Salt Lake City and be in a completely different demographic area. There's not one customer we're after. People need to have money and a need, that's really it.
You spent some time talking about the churn rate when you give an increase and when you don't give an increase. I wonder if you can talk a little bit about what the impact of current pricing of the vacant units has on the existing customers, right? I got to assume today a consumer of self-storage is much more technologically savvy, that can figure out and go online, and know where you're offering current rate versus what they're paying. How has that evolved into your revenue capture rate, where people would come back and say, "God, you're giving Josh $100 for his 10 by 10, and I'm currently paying $150. That's out of whack.
Yeah. The current asking rates is one of the factors that's in there to determine how much of an increase we're going to push. We're not going to send someone an increase and put them at 2X or 3X the asking rates. There's some thresholds and caps in place to make sure that we're not putting people in scenarios that it's just like, "What on earth is going on here?" We also do give the ability for our site managers to work with customers. Let's say I do send out an increase and the customer looks at it and they think, "Hey, this is a little on the heftier side." Maybe they look online. "Hey, there's a difference here." A lot of them, okay, are you going to go move out? Most of them don't.
Some that might be a little bit more concerned with it, they can go talk to our site manager. Our site managers can work with the DM, they can make rate adjustments there if it's the right thing to do for both the customer and the business. Those considerations can be done.
More so where your current street rate that you're offering versus the in place and that divergence and how does that impact things?
If I looked at people that have been with us for about five years, typically the existing customer rate increase program is keeping them in check and around maybe somewhere in the mid-single digits of our current asking rates. It's growing that existing pool at the rates that our asking rates are moving.
Also, we have to remember that
Is an important part of our business. Our median length of stay is around six months. Which means that 50% of our customers move out. A lot of customers move out within one year. You're talking about a small portion of customers who will even see the divergence from the street rate, that they will have to have had to go through the rate increase program multiple cycles before we're even talking about it.
What percentage of customers take the store rate versus the web rate?
We did not disclose the percentage that gets street versus something sub-street.
I got to assume people, they would be able to go on the web, the dramatic difference was quite large. Is it 25% or 50%? Just some range of how many.
Again, we haven't given it, and there is a gap. What's, I think, surprising people as I talk to people is how many people still get street, both in walk-in customers, but as well as through the call center, and we'll see a little bit of kind of an example of how that sales process works. It's still a hefty range that get that street.
More than 50% are taking street versus the web rate?
Fewer.
I'm saying it's a hefty amount. I'm just trying to figure out.
Yeah.
You're going to take the microphone away, but I just don't know if that's a headwind, just as people, technology is so easy today, and it's only going to get easier.
Yeah
that I can't imagine a customer not going online just to check. It's a pretty wide gap.
Yeah.
I'm surprised that it's not.
I'll trim the range for you. It is sub 50 that get street rate.
The last one, just in terms of how do you combat against fraudulent reservations? All those people in Malvern and other places about holding your inventory offline.
They have that 100% free time. God bless them. If they want to get harassed on the phone and via email for the next year, they can feel free to do that. It is one of our big focuses, not the fraud, but let's say it's 50%. 50% of people make a reservation. They move in, 50% don't.
Is that the number?
It's close. Yeah. We have certain metrics that we follow and, because that traffic costs money, and the more we can convert, that's one of our key goals as a company. The higher we can get that number, the better. It always shocks me that people that take the time and effort to make a reservation don't move in. We're doing some research behind that of why they don't move in. Okay, two more.
All right, Jonathan Yau, Raymond James. How has the rev man system changed how you plan to address your rate strategy in the next inevitable economic downturn?
We are continuously looking at options to improve our revenue management system. There are several parameters within the revenue management model. To adjust to a new business environment would be, in part, adjusting some of the parameters in the platform. For example, we could make the system more reactive, more reactive to more recent information, more recent demand trends, and that will have an impact right there. There are also other things that we will be looking at. Samrat touched on supply data and some other features like that. There might be some opportunities to bring those informations inside the platform and automatically make some adjustments. We haven't fleshed out all the details, but we have a lot of ideas in mind on how to get there.
Jonathan, one comment that I'd add to that. I think many of you have heard us say this. In situations where we have a clear game changer in terms of what the environment is at that store, be it a new competitor right across the street or a closed road that's rerouting traffic, in those situations, we're going to pull it off the primary revenue model because there's just so much that's changed so quickly and go to more basic, more occupancy type driven models, earlier models that we use that are going to be a little more reactive more quickly.
Thanks. Todd Thomas, KeyBanc. You talked about how long customers stay versus their initial expectations, and a few other aspects around customer behavior. I was just wondering if you have any sense today. You also talked about the 20% that move out with a rate increase or the 18% that move out without a rate increase. It's usually because they don't need storage any longer. Do you have a sense today, if you think about your renter base or how much of your occupancy today is comprised of tenants or customers that no longer need storage today? How much of that renter base is maybe discretionary?
At some point, I think the vast majority of our customers, depending on the length of stay, are, it's a kind of momentum-based business. It's hard to know when that occurs. Our old, I shouldn't say old, our former CEO, Spencer Kirk, is a great example of this. He moved to Virginia for a couple of years, put some things in storage. It just gains momentum. Does he really need that still, or did that need go away? I do think there's a certain segment of our customers who are always going to need storage to some extent. When that kind of flips to more of a discretionary or momentum-based transaction for them, we don't know when that occurs, because at a personal level.
You've seen the average length of stay-
Increase
continue to edge out and increase over time. If you look back throughout history, throughout prior cycles.
What's caused that to pull back or to?
To pull back?
To contract?
Just a bunch of move-outs. 2008, I believe, in the fall, is when we saw probably the most predominant move-out. Move-in activity didn't change a whole lot. Move-out activity over a period of time spiked, then it ameliorated since then. If you look at a tenure, and I think you guys have seen this graph that Jeff shows, is move-out activity over time. It's in a very tight band. You kind of had a black swan event during that time frame, which we can't predict. That's something we got to potentially put in the model at some point because the year-over-year changes are going to be just so bizarre.
Has the average length of stay, since the financial crisis, since 2008, it hasn't pulled back at all during that time frame? It's continuously-
Yeah
edged out.
We're talking days kind of thing. It's not months, because what properties do you include in that pool? Do you include your core stores that are 20 years old or It's kind of hard to get to that number. That's one of our goals is to increase that length of stay marginally on a year-over-year basis.
We'll take Michael's question and then one from Jeremy and call it good there.
Michael Howell-Jones with BlackRock. Clearly with Dan and with you guys, there's just tremendous amount of information flow, right? A lot of it objective, some subjective. At the end of the day, somebody's got to make the call. Somebody's got to price a unit. Somebody's got to decide to spend that. Could you talk about the decision-making authority and how it's delegated so that where's the end decision made?
For pricing, there is no approval process. The way things work is we have our revenue management system consuming vast amount of data, which is demand trends, rent rules, vacates. You name it, lots of information gets consumed on a day-to-day basis and pushes out rates. These rates get executed on the website, on our call center for our stores. Now in the case of Odessa, Texas, for example, where there is this huge influx of storage demand, then there is an override process in that case where you have a district manager then reaching out to a revenue manager and say, "Hey, can we increase rates here?" A revenue manager puts an override at that point. Actually, the good thing about the way we are doing the business, there isn't much indecision.
The systems drive a lot of decision-making, then we have an override process to adjust things.
We'll have a quarterly meeting with the executives and the pricing teams. We'll discuss, are we still on strategy? Are we still good to go here? Joe's not coming down on a day-to-day basis with his green visor on saying, "We will now lower prices by 5%." That's not occurring. We're taking more and more control away from the field to a more centralized process because it takes a lot of the subjectivity out of it and the emotion out of it. We're going to win some and we're going to lose some. Over the long course of time, I'll bet on the machine rather than the human. We still need that interaction as a fail-safe and a guardrail.
Just quickly going back to earlier conversation about how many folks are taking the street rates. For the reservations that convert, what % is originated on your website versus the call center versus just walk-ins?
Again, we haven't given specifics there.
Right on
kind of general terms, you're approximately a third, a third, a third. There's a little bit of distinction there. It's relatively balanced right now.
Jeremy, I would say our goal is to get as many people to convert on the website as possible. Okay.
Even though that's a cheaper revenue for you?
Potentially, yeah. It could be.
If I walk in, I'm going to pay $190 versus $110 on the web.
Yes. At the same time, we're also testing things within the web environment, too. Keep that in mind also. The web is going to constantly increase, we think. Google could make an algorithm change tomorrow where it could increase our call center volumes a lot. It's about that conversion level and what levers that we pull. I will say that if you looked at us for the last 20 years and tried to come up with a strategy that we had, web versus call center versus walk-in, I don't think you'd be able to kind of connect the dots because we're always testing that. Literally, how many tests do we have going on? I don't know, dozens probably right now.
I do want to correct when I said there's no approval process for our pricing. There is, in a sense, an approval process, more at a strategy level. We bring in executors at that level, and they usually communicate to us at that level. The machines do most of the execution with the help of overrides from revenue managers.
To apply a little more detail to Michael, you also have to take conversion rates, move-in rates, length of stays, not just the price. That customer could be much more valuable than a call center customer who might take the first month free or a walk-in customer takes the street rate. We look at it as a blended solution. Tayo.
Let's take the last one here with Tayo.
Tayo Okusanya from Jefferies. I hear what you're saying about the situation's always kind of dynamic, how you kind of figure out all the different pieces to kind of maximize revenue. Are there any two or three bright lines where you say, this is always the rule of law that you always follow in the systems?
Sure. We hired Chandra, how many years ago? Eight years ago. He says to me after about two months, he says, "You know, James, the more customers we have, the better." Brilliant. That's something we've always espoused to is having as many customers as we can. You're not going to be able to raise rents to an empty unit. We probably have gone more in that direction into more of a high occupancy model because really it's the easiest thing to get, but it's also the hardest thing to maintain. More customers are better.
Thank you, gentlemen. We're going to have James stay up here for our next session. We're also going to invite up Bron McCall and James Hafen. Bron is our Senior Vice President of IT, and James Hafen is our Vice President of Product Innovation. The three of them are going to tag team this next section talking about IT and innovation at Extra Space Storage.
Great. Thanks, Jeff. Is everyone doing all right? As Jeff said, going to talk about kind of innovation and where we're headed, not only as a company, but I think as an industry. I think we're at a very interesting point in our industry and as a company, because there's a lot of macro factors affecting our business today. We talked about supply. I'm going to talk about changes to technology and the rapid changes in technology and also big changes in the consumer coming up. Our challenge is how do we respond to these macro changes going on? We got to be really careful because we have limited resources, limited time. Just because we can doesn't mean we should. I know we're also at a kind of a quandary because we want to invest in the future, but also maximize near-term shareholder performance.
Without investing in the future, it could put those cash flows at risk at some point. That's something that I spend a lot of time thinking about. I'm going to go through some of the macro changes. I'm going to send it over to James to talk about some of our innovation and then Bron about kind of the core infrastructure that we're constantly augmenting and building. I've been with the company for 20 years. Currently, the IT functions, pricing and revenue management, marketing. What am I missing? Call center reports into me. A lot of people have asked, "Well, why would a marketing person have all this under their control?" Well, I asked them, no one wants, I guess, the responsibility, I guess. We're the largest consumer, the marketing team is probably the largest consumer of data within our company.
We saw huge increases of efficiency on the web in our pricing, and I think our performance speaks for itself. This is, I think, a big competitive advantage for our company, and we want to keep it a competitive advantage. Let's talk about some of the macro changes going on. The first is competition. There's more competition, and the competition is getting more and more sophisticated, especially from the top players. These guys are all working on stuff that we are. I don't think there's a lot of secrets in the industry. It's a data-centric industry now. I think with Public Storage, they're going to probably make some inroads from the customer experience standpoint going forward.
Life Storage obviously gone through a big change with their name. CubeSmart does a very good job. These guys are getting more and more sophisticated as we are. It's kind of an arms race out there. We have kind of these disruptive forces going on in the industry, too. This is not a major threat today, but as consumers change, and maybe those needs change over time, storage needs, these companies may make more of a dent. Right now, we're not feeling it. We looked at this business several years ago. It hasn't changed a whole lot in terms of our view, but it's something we need to keep an eye on. Then we have SpareFoot. SpareFoot has been the leading aggregator in the space for several years now, and recently they've also acquired two software companies.
They've got a toehold in probably 20,000 properties throughout the country now through their software and through their aggregation business. They're someone that we need to consider also. Sophistication has come into our industry in terms of technology. Technology continues to accelerate. I don't know who has teenage children, but they have these phones that they do everything on it besides talk to people on the phone. This has just gone crazy over the last 10 years. I believe, who was here 10 years ago at our investor event? Todd. Stubbs was here. These are some technology changes that have just occurred in the last 10 years. These are products or services that weren't here 10 years ago. iPad, drones, VR, Lyft, Uber. Uber I might be cheating on. I think that was maybe 2008 or 2007. Airbnb, Instagram, Snapchat, WhatsApp, Google Chrome, Spotify, Venmo.
Look how fast things have changed. Let's just look at the last five years, how fast things have changed. Who uses Google Lens, Google Translate for shopping purposes, things like that? Face recognition, Apple Pay, Google Pay, autonomous vehicles, and probably the biggest contribution to technology is Snapchat filters. One that I didn't show is Google Home or Amazon Alexa, things like that at the home. This technology will continue to accelerate. Terms like augmentation, automation, digitization, disintermediation, and mobilization aren't just buzzwords. These things are going to change the way we work, how we interact with each other, and it's just going to accelerate quicker and quicker over time as technology and processing speed increases. What are the specific things we're looking at from a technology perspective that is going to impact us?
This is something we got to keep an eye on as our friends at Google. Public service announcement for everyone is Google is not a search engine. It is a monetization device. To take all this fairness out of it, these hearings on Capitol Hill, they could care less about being agnostic and secular. They want to make money. That's all they care about. It's about putting the right ad in front of you at the right time that you click on it and puts money in their pocket. That's their only consideration. Google wants to keep you on the internet all the time. I know in New York City, I think they've rolled out a Wi-Fi at Grand Central and Europe throughout.
The reason they're doing that is to keep you on the internet, to have you post things, to log your travel, to throw pins down, to buy things. This is enabling Google and other technology providers to have a more all-encompassing view of the customer. I don't know who's used Google Lens lately, but this is something that is going to have a big impact, and I think in storage at some point. Because being able to price things by looking at them via your phone. Mostly retail functions right now where you can look at items. People that have posted pictures of products and their transactions. Google's using that to, once again, put something in front of you that you're going to click on and transact with so they get paid.
This is something we could use in storage as people look at a storage property or drive by a storage property. Knowing their location, knowing what certain segments they're in. How can we, as an industry and as a company, capitalize on some of these innovations that Google is introducing? Another big impact of technology on Extra Space is going to be the Internet of Everything. Being able to digitally monitor and remotely monitor signage systems, HVAC systems, access and security systems, water penetration, lighting systems, and solar. It's going to have a big impact on Extra Space and the industry as a whole. 5G is going to have a massive impact. The increases between 3G and 4G were 10x. Between 4G and 5G, it's going to be about 1,000.
The ability for people to get high speed delivery of content data without getting on an unsecure Wi-Fi network is going to be huge, and this is going to have a major impact on our business. Privacy. GDPR, the General Data Protection Regulation, rolled out in Europe in May. Before Governor Jerry Brown left office, they instituted one in California. This is going to be huge. It's basically the right to know how your data is being used and shared at a moment's notice, and the right to be forgotten. From a consumer standpoint, this is great. As a consumer, I think it's great. As a business, it's going to suck. It's going to be really tough. Google just got fined, I think, last week, $62 million for violating this.
That's a drop in a bucket for Google, but imagine how that could impact a small business or a single self-storage operator. In California, businesses have to be above a certain size right now. The worry is that each state's going to have its own GDPR. If that's the case, it is going to be so complicated and such a burden for companies. Google is lobbying right now that we just do a nationwide thing. It's not in California, Nevada, it's nationwide, and we can address it from there. The last macro trend I'm going to talk about before I hand it over to James Hafen is changes to the consumer. Who knows what this means? Anyone? I want what I want when I want it. This is the new consumer.
They want to transact with businesses and interact with businesses how they want to do it. If we're not making our products easier to use, easier to interact with, easier to transact with, we're done. Customers today are more experimental, information savvy. They want a seamless digital physical integration. They don't want to have any drop-off in the experience they have from you between your website and your site that you go into, and vice versa. They're extremely device dependent. They do everything via their phones. I'm stereotyping here, mostly looking at Millennials and Gen Z, but it is in older generations too. They want to be patted on the back about making good decisions. So they want a relationship with the businesses they transact with and interact with. Demographic changes, this is huge. If you take a look at Where is it? Right in the middle. Okay.
This is the number of customers that moved in in 2018. This is their age, okay, as it compares to the overall percentage of the population. As you can see, we're very well represented with the baby boomers, Gen X, and millennials. Everyone thought the millennials weren't going to use storage. They're using it at a very high rate, okay? The question's going to be, is the Gen Z or Gen Touch, those between the ages of 15 and 23, are they going to use this product in the same way? Who has children this age? Children? They see the world differently than we did. Are they going to use the product in the same way, and does the product have to change? That's what we have to address.
The big question we have to answer is, what initiatives and investments are we going to pursue in 2019 and beyond that will allow Extra Space Storage to maximize shareholder value, while at the same time building a platform for future growth? Our answer is kind of the Wayne Gretzky quote, is, "We want to skate to where the puck's going to be, not where the puck is." We have to understand our customers. We got to understand how they're going to interact with this product in the future. What do they desire, okay? We got to make this an extremely frictionless experience for our customer. Right now, the vast majority of operators in our space, and we're guilty of this too, is we make it kind of hard. People are going through these life changes, and we don't make those life changes any less stressful oftentimes.
We actually sometimes make it more stressful, and we have to take away that stress. What James is going to talk about are some of these things that we're looking at. We're going to be purposely kind of vague on these, for several reasons. Bron's going to talk about kind of the infrastructure that's being augmented and improved over time.
Thanks. By way of introduction, my name is James Hafen. I am the newest member of the team you're going to hear from today. I've been back at Extra Space Storage for about six months now. I say back because I actually joined Extra Space Storage back in 1999, and I was part of that original team that came in here when the company had 40 or 50 properties, I believe, and they had ambitious goals to grow to about 400 in the portfolio. The technology at the time was constrained. There was just no way to do it efficiently. We built a technology platform to grow the company, and I think it was successful enough.
We ended up spinning that out in about 2002 to a company called CentreShip, where I spent the next 10, 11, 12 years, innovating and doing technology concerns specifically for the self-storage industry, until we finally sold that company to Yardi Systems, where I spent about 4 years after that. Back at Extra Space now. During my time away, I got to see a lot of storage operators. I got to work with some of the biggest vendors in the space, really got to know the industry, and I can tell you one thing, I'm really happy to be back at Extra Space. Just the class of the industries and proud to be here. Came back 6 months ago, and we started a product development group. What is product development at Extra Space?
Well, we'd like to say it's exactly like product development in any other retail company or technology company, and it's a shift, a reorientation of our focus. We don't want to be thought of as a pure REIT play necessarily. We want to be innovative. We want to ideate, and we want to push the envelope forward on what this company can do. We've been doing it for 20 years, starting back in 1999 when the direction changed and the company decided to grow, and we're trying to do that again and stay ahead of our competition. Our main charge and what we're working on more than anything is executing on this digital vision. We want to make it frictionless for our customers to do business with us wherever they want, wherever that makes sense, and to move the dial forward.
We're going to focus on this in my presentation exclusively. Starts with the customers. The customer experience is the key of everything we're focused on right now and driving product innovation forward. We're kind of that merge area between technology, customer, and the core business, the fundamentals that we've been successful on for the duration of our company's history. Not changing our core business, but building on it accretively with value add on new products, services, and technology. This is the role of product development. We're just getting started. We're 6 months into this. What are we talking about? We're talking about actual new products, things that don't exist today that can push us forward in how we're servicing our customers. They may be services, and they may be products that are enabling.
They are behind the scenes, things that aren't customer-facing, but they have downstream value on what they enable for us in other product sets. Enhancements to existing products that we offer today, then partnerships, even acquisitions. We're focused on all of those for the net benefit of driving new revenue streams, efficiencies, which can't be ignored. There are ways we can run our properties more efficiently, we've talked about that several times today. Product enablement, which I just hit on. More than anything, we're really focused on this customer experience lift and changing the way our customers do business with us today. Getting to some stats that kind of talk about this. 80% of customers, this is according to some research we have from Salesforce, 80% of customers believe that the experience they have with a vendor is as important as the product or services themselves.
67% say that their standards are rising. I would say rising, not higher than ever, but continuing to rise. Conversely, most companies are missing the boat on this. 51% say companies fall short of their expectations for great customer experience, and 54% say they don't believe companies have their best interest in mind. Not to throw more cold water on this, but there's other statistics we've seen that suggest younger generations, millennials, Gen Z, have increasing distrust in the largest players in a particular space. Extra Space obviously being one of the largest players in our space. We have to work hard to improve this experience and continue to gain the trust of the customers that are driving our business. 62% will share a bad experience online. Something that wasn't intuitive to me is to learn that 72% will share a great experience online.
This is critical, especially for the millennials and the Gen Z folks that are coming up and will be our customers in the future. They rely on references and referrals and reviews. This is where they're making their consumer decisions. 67%, and this is the big opportunity for us, say that they'll pay more for a better customer experience. As James talked about on the data privacy side, there's also increasing research that suggests they will trade their data for a good customer experience if they trust that you'll be a good steward of that data. As Chandra's team and Scott Hansen went over, that data's critical to what we're doing in other areas of the company. We want that data. Our business isn't changing very much, but customer expectations are, and rapidly.
I'm going to go through a couple of product examples that are kind of poster children for what we're trying to do. Kroger, if you're familiar with Kroger, anyone here ever use the ClickList product at their local Kroger supermarket? Order your stuff online, somebody goes through the supermarket for you, puts it into a cart. You pay online. You pull up, they deliver it to your car. Great customer experience. They don't stop there. If you're in the store, you obviously have the option of self-service checkout, go through the kiosk. These devices you can take through the store, scan everything as you're going along, as you're putting it into your bag, pay on the device, walk out the door. The experience is as you want it.
If this is your preferred way of doing business, if you still want to check out the old way, have someone bag your groceries, talk to the cashier at your checkout, you still have that option. There's even test pilots going on in Midwest Kroger stores where you can walk around with your shopping list on your phone, and they have digitized price tags, price labels on the shelves. As you walk down the aisle by the product you're looking for, that digital price tag will light up with an icon, your persona that you've programmed into the phone, to let you know where your product is and help your shopping experience be expedited and get you out of the store as fast as possible.
Of course, everybody, including Kroger, is working on autonomous vehicles for delivery and get groceries to you right to your home without having to leave. I have a question. How many ways can you order a Domino's pizza? Does anyone in the room know? Anyone? Just someone take a guess. 10. Scott, you're saying what? Four? 10. 10.
Six. You're all way off. 27 ways to order a pizza from Domino's. You can text a pizza emoji to them. You can ask your Alexa device to deliver your order. You can go online. You can walk in the store. 27 ways to order a mediocre pizza from Domino's. If you want a really good pizza, you're going to go somewhere else. They've made it so easy, and the experience can be so satisfying that it has increased their stock profits What were the number? 1,500%. 1,500% in the last five years. Was it five years? Which exceeds our growth. 27 ways. Do you know how many ways you can sign a lease to rent a property at Extra Space Storage? One. One. That's what we have to change, and we have to change that rapidly. In product development, a lot of words get thrown around.
We talk about automation, artificial intelligence, efficiencies, and they're all critical components of what we're doing in the product development team. These terms often get turned around as pejoratives, especially when you're talking to some of our field employees. It sounds like we're trying to save a buck as opposed to doing what's right for the customer or increase the experience of our customer. The words we'd rather talk about and the phrases we want to be the buzzwords from our team are things like omni-channel, making it able for our tenants to reach us however they want. A frictionless experience. Ecosystems that work together. Regardless of the channel I come through, I have a high quality, consistent experience. Going to the website does not feel different than actually walking into the property and dealing with the managers.
Of course, people, we've talked about this all day long, and I think it's critical. 85% of transactions today, retail transactions, still happen in a store, in a brick and mortar building. Even with the advent of Amazon and online shopping, 85% of those interactions are still happening in place. It doesn't matter how cool it was to order that pizza through your Alexa device. If it gets there late, if your driver is rude, if it's cold, if they mess up your order, all of the CX wins of having 27 ways to order that pizza are lost when the interaction happens at delivering the product. Our people continue to be the core component of what we're doing. Clean facilities, well-lit facilities, fantastic people are what kind of glue this digital experience together with the physical experience of coming on site, and that's what we're about.
We're a real estate play. When you come on our properties, we want you to feel safe, welcome, and secure.
That's where I'll stop and hand it over to Bron.
All right. Thanks, James. Just a reminder, I'm Bron McCall, Senior Vice President and Chief Technology Officer. I've been with Extra Space for eight years now. Prior to that, I was Chief Information Officer at Flying J for 10 years. I'm going to go quick here because I know we're coming up on the lunch hour here. A couple of things. You've heard Joe on earnings calls talk about how we're continuously improving our systems. What this chart shows is a few examples of those improvements over the last five years. What this has done is really provide us a modern and solid foundation for this digital transformation and all the solutions that James Hafen talked about. Not only that, though, all these solutions we've implemented have provided their own cost and process efficiencies to the business, as well as scalability for the future.
If we're going to deliver like a tech company, we need to be structured like a tech company. James alluded to this a little bit. One of the things we've done over the last couple of years is really organize the company to really deliver on innovation. We've got James Hafen's team, the Product Development team. On the left side of this chart is primarily product engineering. They work hand in hand with James' team in delivering these products. When we say products, just to make sure it's clear, those are those systems that primarily touch the customer. The website, point-of-sale, apps, call center, those types of things we call products. On the right-hand side over here is core IT, they're focused on delivering back-office systems and the infrastructure and network telecom.
We have over 90 people today that are really focused on technology in the organization. Utah is a very competitive tech market. Maybe you've heard the term before, Silicon Slopes. We are in the middle of that, we are competing with companies like Adobe and Pluralsight and Domo and Qualtrics. One of the things that we've done to really focus on attracting and retaining that great talent that we need to deliver on this innovation is culture. What you're seeing here is just one of the quarterly survey that we do to really monitor our culture. We publish these results and talk to our teams and identify ways that we can improve our culture. I believe it's having a big impact.
We've added a lot of team members to the IT department over the last year, the level of talent that we're attracting is just tremendous. I just really couldn't be more impressed. The last thing I'm going to talk about here that I think differentiates us is how we think about our technology work today. Everything we do falls into one of four categories. I'm going to cover these quickly. First, we're going to start on the left-hand side here of what we consider visible work. Feature work is delivering new features, new capabilities to the system. I want to use a car analogy because I think this will help you understand what I'm talking about. The same thing, if you're talking about a car, would be like fancy new wheels or a flashy paint job. Very visible, right?
The next type of work is bug work, that's exactly what you think it is, fixing bugs and errors within the systems. The same thing on the car would be fixing broken parts. Both of these are very visible type of work. You can see the business value very easily, right? Let's now go over to the invisible side. Architecture is upgrading major components. These aren't system overhaul, these are just upgrading components of your various systems. Same thing in a car would be like maybe upgrading the transmission or various components on the engine. The last one here is what we call technical debt. These are the things you just need to do to keep systems running efficiently. On a car, this would be oil changes and tire rotations.
Most companies today spend most of their time on the visible side because it's very easy to see the business value in those things, the stuff on the invisible side gets neglected. We have taken an approach to provide equal time to each of these types of work, the value in that is we always have systems that are operating at peak performance. Going forward, we should never have really disruptive major system overhauls that need to occur. It'll really help us deliver in this fast-paced world that we heard from both James Overturf and James Hafen. Last thing here to close, just back to the answer slide that James talked about earlier. How are we going to continue to win? It's by continuing to leverage this foundation that we've built, focusing on the customer, and building that frictionless customer experience.
It's going to be really important for us to continue to win in this new world. I want to thank you for your time today. Thank you for spending a couple of days with us. I don't know if we have a few minutes for questions. Sure. Okay.
Let's take a few questions. We got the microphone in the back. Everybody's hungry.
Jonathan, Raymond James. What's the biggest technological risk you see over the next five years?
Technological risks.
I think the biggest technological risk is not doing business with the customer the way they want to do business with us.
Like James said, we want to provide a solution, whether it be high tech or high touch. If someone wants to talk to someone on the phone, great, we've got to have that solution for them. We can't send everyone down the same path anymore. Much like Domino's, Kroger, just interacting with people how they want to be interacted with. That's the biggest risk. From a technology perspective, we've got privacy issues-
Yeah
data security issues, just like every other company. I think the biggest risk is you have an irrelevant product for how people want to interact with you.
What I would add to that, and James alluded to this, is in doing it well and doing it seamlessly. It's one thing to be able to do it's another to be able to do it in a way where the customer is having a smooth, positive experience that, in our case, maximizes revenue as well, and not compromising the experience or the profit generation just to do something.
Yeah.
Hi. Brian Jones from Neuberger Berman. Just a few thoughts on the pickup and delivery guys, Clutter and MakeSpace. I think you guys and Public Storage in the past have tried that business. It was difficult to scale, it was difficult to run profitably. Have these players figured out anything in terms of building out that business profitably, or are they kind of in startup, build a brand, find customers, and we'll worry about making money in the future?
I'm not privy to the performance. We have not seen them have a big impact on our business. Even in New York City, where I think it makes the most sense, we're not seeing a massive amount of vacancy in smaller units, let's say. I think what you've got to look at with those companies is they're not really real estate companies. They're a logistics company. That infrastructure that you need to build is vastly different from the infrastructure that we've built. I think at some point, especially Gen Z, this is a product that makes sense for them because of the on-demand ability to do this. There's also other startups, kind of where SpareFoot got started, where it's kind of a crowdsourced storage where you can offer your garage up or a space in a safe.
We've seen some really odd examples, we've talked to those companies, and they seem to be making progress, too. I think it speaks to, there is going to be a need for storage in the future. It's just how we provide it to them. I just don't see the form factor that we currently have and our industry has in place being as relevant as it is in the future as it is now. We've all got to move in that direction.
Brian, just additional color that I would add to that, while we don't have access to books and don't know profitability levels per se, I think one thing that's interesting to see is how the number of participants is shrinking. You're seeing that a lot of those companies don't have the staying power, presumably either because they weren't profitable or haven't been able to raise additional capital during that kind of infancy build customer or market share stage. We've definitely seen the number of competitors trimming, which perhaps is indicative of profitability. The other is how they've changed pricing strategies. The original proposition to the customer was, we can do this for the same cost as storage or less, and we've seen over the last couple of years that go from pricing parity to certainly at a premium.
To the extent that there is that demand there, at least today, it comes at a price and a premium.
More restrictive delivery options and things like that as they figure it out. I think it'll have a place. I'm just not sure how big of a place they're going to have.
Other questions? All right. Thank you, gentlemen. Appreciate it. We're now to our lunch break. Lunch is ready. It's here out in the foyer. Go ahead, serve up. You're welcome to bring it back in here. Let's plan on taking 30 minutes before a break on our webcast. We'll try to reconvene here at 12:30. You're certainly welcome to keep eating during the next presentation, which will be from our People Department. Can we make it like two or three degrees warmer in here?
That's amazing.
Bump up the temperature a little bit. All right. We're going to go ahead and get started with our lunch speaker now. As I mentioned before, please keep eating. There's more food out there. They mentioned there's also a little bit of dessert, some churros, and a few things. Feel free to cut in and out and refill your plates. Our lunch speaker, as I mentioned, is from our People department. This is Clint Halverson, Vice President of People. A lot of you probably recognize Clint. He's been the jack of all trades at Extra Space and has worked in a lot of different roles before People and IR. Should be a familiar face for many of you. With that, we'll turn it over to Clint.
Thanks, Jeff. James Overturf did IR before me, and then I did IR, and now Jeff. James and I just sit back and say, "Man, we were morons. We didn't know what we were doing." Jeff's doing a great job. It's always fun when you get up at People and you're watching the webcast and you can see the attendance just nosedive because everyone wants to hear about people. I want to talk a little bit about our culture and what we do to differentiate Extra Space from a people standpoint today. As Jeff said, I've been with Extra Space for 13 years. I've done operations, IR, and for the last five years, I've done People. We try and structure our team on the People side to do three main things. We want to attract, develop, and retain top talent. We want to have the best talent.
We want to make sure we're training them and that we're retaining them for the long haul. It's a lot easier to retain that amazing talent than to continuously have to refill the pipeline. Wanted to give you guys just some stats on our workforce. This isn't data that we put out there a lot, but this will give you a feel for the size of our workforce. If anything, here you see it's a balance for us with over 82% of our employees being in Samrat's world and being out in the field. Balancing getting great, strong operators out in the field with having sharp, dynamic talent in the store support center that's doing all these great things that we've talked about today.
We spend a lot of time trying to make sure that we're balancing that focus and getting the right talent to be at the right spot on the team. Kevin asked a question of Joe early on in the day, "Why is your culture a differentiator for you? Why does that really make a difference in your business?" For us, our culture is really everything. We try and balance an amazing employee experience with a wonderful customer experience when they come in the door. Then we try and take all those things that Dayna talked about, having that professional, consistent image and brand, and bake that all together for that overall view of our culture. This is our corporate compass, and we put this out in front of everybody. This is kind of what drives us and what we try and do.
I want to point out here at the middle are our five values. When Joe talked in response to Kevin's question earlier, he mentioned those values. As an HR guy, the best answer I could have to Kevin's question about culture is to have our CEO stand up here and share personal, meaningful experiences. Hopefully, you guys have seen that today, that from everybody that's been up here, that passion, that drive for excellence, that drive for innovation is something that we live every day, and that's really important for us. We're very selective when we hire. Our hiring process takes a little bit longer, but we want to make sure that they live those values and that they're just inherent in who they are when they join our team. Our culture becomes extremely important for us, and we like to get feedback.
Joe talked about our town halls. We love to get feedback from our people, and one of the ways that we try and do that is through Glassdoor. We feel our people are a little more honest when they go out online. We go to Glassdoor and look, and we feel pretty good about these results. We try not to put Joe's out there too much. We don't want him to be too excited about those ratings, but Joe does a great job of driving the team. Overall, we feel like we have a really good ranking. If you break these down in all these various areas, we stack up really well against the over 700,000 companies that are out on Glassdoor. We think we do a really nice job of having a well-balanced culture that attracts and retains people.
We're pretty proud of the fact we stack up well against our peers as well. We stack up well against our competitors. When you look at all the various aspects that define a culture, we feel we stack up really well in the storage industry, and I think that is a differentiator for us. We're not satisfied with this. We like to measure ourselves against larger retailers. We know we're a real estate business, but on the people side, we're a retail business, we like to stack our people up against other retailers. We're really proud of this, that we've got a culture that will stand against some of the largest brands known for great cultures out there, and we feel really good about that. We think our people love working here.
Like Joe mentioned, we won recognition for that, we're in the top 100 companies to work for in the country, and we think our people love working here, and that's huge for us. Kevin and I were talking over lunch about how people that join us from other storage operators or from other industries feel about the company and is it a big shock to them, is it the technology or what's the bigger shock? Really the biggest shock is that culture. We try and empower those people at the site level to engage with their customers, to make decisions, to manage their property, we try and grow them for the long haul. We also do internal polling of our people. We love to get feedback from our people on what we can do.
Every year, we do an engagement survey, and we ask our people, how are we doing? What can we do better? What should we focus on in the future? It helps us put a roadmap together that helps guide where we're going to go over the next year to three years. What are the cultural things that we're going to focus on to enhance that employee experience? The blue line up here is a benchmark. We use a tool through Bersin by Deloitte, a subsidiary of Deloitte & Touche that does culture and engagement. We use their tool, and this is how we stack up against all the companies that use their tool. We feel pretty good about that benchmark and how our people feel internally as well.
One of the biggest things we focus on as a people team is getting the right talent onto the team. If you look at the sheer volume of applications that we get in for a very small relative number of hires compared to the number of applications, we have to do a lot of work to keep that pipeline flowing. We're particularly proud that last year, during one of the toughest labor markets that we saw, the team did all they could to try and keep that pipeline full. We were able to come in with almost 10,000 more applicants in 2018 than we had in 2017, even though it was a tighter labor market. We were able to control our turnover.
Our turnover did tick up slightly year-over-year 2017 to 2018. We do feel that we were able to bring in good talent and to keep the pipeline full. We reduced our days to fill by five days, which I think is also critical for us. I think you have heard Joe talk about in the past, but we've been able to bring our days to fill down dramatically, which helps us save costs in the long run and keep positions full. We feel good about that. I think the other thing on this side that we try and do is use technology to help us identify who's great. We partnered with a company called Talent Plus. Talent Plus is a surveying tool. Everybody that applies to work at Extra Space is asked to take this survey. Excuse me.
It looks at whether or not employees have the inherent talent to be successful at that role. Do they find joy in doing those things that are going to make them successful in customer service at the site level? If they're going to be a leader in the company, do they have those inherent skills or talents that will make them successful as a leader? Their fallback traits, those things that just will make them successful in our culture. We've had that in place for about a year and seen really great success with that, helping us to identify great talent that will fit culturally at Extra Space. Hiring is important, but for us, we hire a lot of assistant managers. Out of those 1,400 hires, over 1,000 of those were assistant managers that came into our properties.
Over 85% of our store managers are promoted from within. That's important to us. We want to continue to promote and grow people from within. We build out advanced programs along the way. If you come in as an assistant manager, you get your job down, we'll put you into a development program that will take you through being a store manager. What do I need to learn? How do I look at the financials? How do I take that next role so that when we have an opening, that person's ready to step in and take that opportunity? Then we do that from store manager to district team lead, and from district team lead into our district manager and training program. We like to build and develop that store-level talent in-house because we think that's also a differentiator. It helps us to more effectively execute.
Samrat talked earlier about our customer-centered sales process. We do use a lot of analytics when we look at that, but it's training and getting people that can truly connect with that customer. We think if we can find the right people and we can help them understand that sales process, we don't want to let them go. We want to train and develop them in-house to continue to execute. Then on the leadership side, we try and build our leaders. Historically, we've always been really good at promoting from within. We would take a property accountant and say, "Hey, you're a great accountant. We're now going to put you over eight or nine other accountants. You're going to be a manager." We didn't give them any support to be a leader.
They were great at debits and credits, but they weren't great at leading people. Over the last few years, we've put what we call Launch in place. Launch is to take those people that are great contributors within the organization and help them be great leaders, and to set a clear expectation for them of what it means to be a leader at Extra Space. How do you emulate those values every day? How do you balance that compass in what you're doing every day? We do Launch for our managers of individual contributors. Then once they're ready and they're at that point in their career that they're going to maybe transition to being a leader of leaders, they're going to lead a team of managers, we'll put them through our leadership development program.
We pick a fairly small group every year to go through this program. We give them mentors, we give them guidance, we help them through this program so that when they're ready, they can step into that next role. Then from those leaders of leaders, we identify who are our next senior leaders in the company. How can we help them step from being in the tactical day-to-day to step more into a strategic role and to look at the business more strategically, to look at holistically of running a larger department. We take our high-potential people, we put them in to our executive development program. We keep that fairly small every year. We try not to force people in that just to keep the program full. If we don't have someone that's ready, we'll wait until they're ready and then launch a small program.
We have had huge success with that. About 65%-70% of the people that we put through our executive development program end up in senior leadership at Extra Space. We found huge success. We give them real-world problems to work on. We have them work in teams. We give them some time in their otherwise already full schedule to be a part of this program. It keeps a continuous focus on making sure we're growing our talent in-house, we're keeping our talent, we're building our talent. Because ultimately, it's like we said earlier, our culture is everything for us. Our people are everything for us. Clearly, as a real estate company, our most valuable asset is going to be our real estate, but our most important asset is our people.
We really believe that, and we live that every day to try and make sure that we're balancing our culture with the business, and that if we can keep good, talented people on the team, develop them, and retain them, then we're going to have that competitive advantage to do a little bit better. With that, we'll answer any questions that you guys might have.
You said 34% turnover. How does that compare to others?
He asked how does our 34% turnover compare to others in the industry? From the data that we can gather, we're on the lower end for the industry. For retail, in general, we're a little lower as well, but the easier data to get, as you know, is retail data. It's not readily published in the storage industry, but anecdotally, from what we hear, it's on the lower end.
Can you clarify corporate versus store?
Yeah. Scott asked that I clarify corporate versus store turnover. That's our overall turnover. Our store turnover last year was around 31%, 32%, Our corporate turnover last year was just over 20%. That's high for us at corporate. We typically run much lower at corporate, but that's a tight labor market and the types of positions we're looking for. The reason that 34 comes in higher is our call center comes in much higher. Our call center comes in around the 75% range on turnover.
What are the factors that's causing that turnover? Recognizing the fact that it's below peers and below retail, what are the common factors? I got to assume that some of it is probably forced turnover and some of it is voluntary turnover. Maybe if you can break that out. What are the things you can do to sort of retain, because the cost of-
Right.
Hiring in terms of time, 25 days to get someone in, just sucks up a lot of cost.
It does. Voluntary versus involuntary, I would tell you voluntary is much higher than involuntary. I would probably say 85/15. Voluntary turnover for a myriad of reasons, obviously, for our site managers, which accounts for a large portion of this, it's in a lot of cases an entry-level job, and as they grow in their careers and they want to move up and they want to develop, they're looking for other opportunities or looking for other industries or different things. We get a lot of reasons, better-paying jobs, same industry, different industry. We track all that data and we watch that. What we really try and look at, though, are we in line with the benefits package? Are we in line with compensation? Are we losing out for those things we can control?
Sometimes there's simply things we can't control, that they've gone to college, they've graduated, and now they're ready to do something different or things along those lines. In Salt Lake or at our store support center, we find huge competition right now for talent in James' world and Bron's world. As I'm sure you're all aware, we have an area here in Utah called Silicon Slopes. We have a lot of Silicon Valley competitors that have moved offices here, and that tech and marketing talent is at a premium right now, and we see a lot of turnover right now in those areas.
On the Glassdoor ratings, one thing stuck out where it said the percentage of current employees was very high in those rating scores relative to everybody else. Is that something that you're pushing down to try to, I'm not going to say bolster, but.
Yeah
Is there a deliberate activity for Glassdoor ratings?
What we do try and do on Glassdoor ratings, we try and highlight one of our departments or divisions out in the field every month. We try and put pictures out on Glassdoor to give those coming to Glassdoor a real view of what it's like to work at Extra Space. We know that a majority of our candidates check Glassdoor before they come work here. We want to give them that real-world view into what we're doing. We highlight a new division or department every month. When we do that, we ask that department, "Hey, if you wouldn't mind going out and giving a comment." That keeps our reviews fresh and current. Good questions.
One addition on that, Michael. I think with the award that we received, it kind of created visibility within the company as well, which sort of reinforced more participation.
Great.
Thanks, Clint.
Thanks, everybody.
We'll next move on to a presentation by our acquisitions group. Zach Dickens is walking to the front here. He's our Senior Vice President of Real Estate. Also just wanted to mention, sitting at the back table, our Chief Legal Officer slipped in during the lunch break, or I think right before the lunch break. This is Gwyn McNeal, who's joined us, not formally presenting today, but would certainly invite you to visit with her this afternoon. She'll also be with us at dinner tonight with any questions legal, but also much broader than that as a member of the executive team. With that, Zach, take it away.
Okay. Thank you. Pleased to be with you here today. We're going to take you through a couple of different things today. I first should introduce myself. I've been with the company now for 16 years. My background was actually with eBay early on in the Silicon Slopes era, right? Clint, you referenced that. It's kind of interesting, though, to come to this company where I felt like I was leaving high tech for low tech, but what I found was a marriage in this company of the bricks and mortar with the technology aspect. Our roadmap today that I'd like to take you through is talk you through a couple of examples, real life examples. Now, I chose these, so recognize I'm going to show you some nice properties that we acquired over the years.
I also want you to know that I'm going to give you a report card about what we've done in general through over a decade of acquisition activity. That gives you a little context, but a couple of these are very interesting. We're going to take you through this C of O example, which is our first group there, followed by a value add property that we picked up that was underperforming. Then finally, I'll give you my report card, which is really showing you the performance of how we've done since 2006. We'll take it from there. The certificate of occupancy stores is a big part of our growth as of late, but it started years ago. Now we have something around 70 stores that have gone through this process. I'll disclose to you and show you some of our track record associated with that.
Obviously, when you do the certificate of occupancy, you typically are committing to acquiring a turnkey type of project. These sometimes take a year or two of lead time when we actually are introduced to the project to when they deliver. What it does for us is brings in a beautiful looking building. Like here's one in Portland, Oregon. This was delivered to us by a group called Getspace, and Getspace wanted to have a partnership with us. They built the projects. They handled that aspect of it. As you can see, it's very modern looking design. It has all the bells and whistles of a modern storage facility, and we like that because it really augmented our properties in the area. It's really best in class.
What it does is, we really look to our partners and we together are a team when we do this. The partner obviously helps in the site selection. They have to work through the navigation of the entitlement process and dealing with all the building codes and all the hassles of development. They also incur the dead deal costs if deals aren't brought to us. We like that risk profile, that there's less risk associated with this, and we get a good product at the end of the day. Our construction team, and Noah will be here, he oversees a group of construction managers. He'll talk to this a little bit, but they make sure that they visit every month, that the construction is going according to plan, they're using the quality materials, and designing to the spec that we would have them design to.
That's part of the C of O. From our aspect, it really creates a win-win. The developer, again, assumes all that development risk. What we feel comfortable with, as you've seen the senior management team here talk about the different aspects of our company, is that we're able to navigate through the absorption process very efficiently. We're comfortable in that realm, and we view that as being worth the exchange of the risk profile for the upside of the properties. I brought you a great example. This one is a property in the Northeast. It sits in Dedham, Massachusetts, which is a suburb of Boston. It sits on the Dedham-Roxbury border, very difficult to develop in this market, high barriers to entry. We really relied on the local developer there to run through the paces of getting this project approved.
Like I said, high barrier to entry market, often it's the local individuals, the developers in the local markets that tend to know the zoning board. They tend to know the mayors. We don't have that grasp typically of how to do that in many markets, or it's not worth the effort. It was located in a high barrier to entry market, and we like the underlying demographics. I'm going to give you the three-mile radius demographics, but when I show you where our customers come from, you'll say, "Well, that three mile doesn't really apply." When I first started in the industry, they would draw rings around properties and say, "That's your trade area." When you go in through this process with me, you'll see how that's more nuanced. Good median household income.
The population density is higher than our portfolio average in this market. Average home values are very good. What I liked about this property, again, reiterating the high barrier to entry market, is there's only three and a half square feet per capita. Many of you know this metric, right? It's 8 right now, seven and a half to 8 in the U.S., square feet for every individual. The store is not a huge store. There's a lot of value in getting the right size of the property. It's not 120,000 net rentable, but very manageable, about 67,000 net rentable. The price per pound, which was $140 per square foot, is, I think, appropriately priced.
If you look at the cost of the land and the construction cost today, while that is maybe a little on the high end, it is very justified by what the valuation of this property is. When I break it down for you will see. I talked about the three-mile market as being kind of the go-to original type of market. When we mapped out, and by the way, the blue dots or the blue call-outs, those are our customers. Before we even got into looking at this project, we mapped all of our customers from our existing store, not the one we were targeting doing, right? We looked and we said, "Okay, where do our folks come from to our store?" The red is the three-mile radius that circles our store, and you can obviously see. Look at the market.
It is not Dedham, it is way up into Boston, up into Newton even. Up north, some up beyond Waltham. That for us is valuable, and this is where our data comes to bear and gives us better opportunities to research markets that others do not have. Obviously, the travel time will affect the markets, as well as other barriers. Think about this. There is probably even psychological barriers of where you live in a city, right? Here in Salt Lake, some people will not venture if they live on the east side of the valley to the west side, or vice versa. They just do not tend to cross a certain boundary. Sometimes there is man-made obstacles in the way. There may be a freeway that cuts through there. There may be a pond or a lake or something that prevents you. Obviously, we think about those.
Knowledge is key to making good business decisions, and this is where we excel, I think. I gave you a lot of information on this next slide, but when you look up, we have two existing stores in this market. One is in Dedham. That is the Allied Drive. I guess the other one is also in Dedham. It is on Milton Street. The red are the Milton Street customers, and then the blue, you can see, are the Allied Drive customers. The concept here is, well, we have covered a lot of that area. Is there a threat of cannibalization that could occur? When we looked at the three and a half square feet per capita, I think intuitively we felt like this is a market that we could run in and need supplies, undersupplied, and the rents reflect that. Here is our new business opportunity.
It is on the Providence Highway that sits out there with good traffic flows past it. We go and we look at our competitive map, and we want to be hypervigilant for any new development that is happening in the area. You can see there is a U-Haul, a Prime Storage, that is the key in the middle of the page there, a Life Storage, the Public Storage, and then the two aforementioned Extra Space.
We looked at that corridor, and we said, "This is good real estate." Intuitively, I think everyone would think, "Yeah, this might work, let's try it out." When we get into our underwriting, though, I apologize that the graphic's a little small, what helps us to do the valuation side of it is clearly to look at our, what we call sister stores or the other stores we manage or we own in the market and operate. Here you can see that we've got a couple of those stores that I pointed out earlier, the Milton Street and the Allied Drive, and they're not overly large. You can see that we were keeping occupancy in the very high 90s on the Allied Drive at 97%, and the Milton Street was right at 90.
We felt comfortable in underwriting ours to a 90% physical occupancy. We, of course, have a lot of add-on discounting and bad debt. We know what the write-offs are going to be. Finally, I think this rounds out kind of the revenue side, is that we know what rents we're commanding, it's a very straightforward process of getting this underwritten for us. We layer on other fees like late fees or admin fees, merchandise sales, those types of things that also augment the income that comes from the property. We go through this process, then we look at the expenses, I won't go through this and bore you with the details, we clearly know how it is to operate in those markets, our payroll should be set up right.
There's not a lot of risk, I think, in looking at the expense side of it. Typically, the expenses fall into big buckets. You sort of have a one-third payroll, one-third your property taxes, and one-third everything else. If you can get those right, you feel confident when you're underwriting this. Here's the little report on what happened there. This first month is actually a month and a half of operating. There's no way I underwrote a third of it being full by the end of the first month. What was kind of astounding to us is that we had the ability, it opened right into this sweet spot of the season, of the rental season, and we just felt like this was off to a great start.
We realized that we could keep the rents aggressively priced in this market and facilitate a lease-up. You can see the line below it in the gray. That was our original pro forma. We would've expected this property to take 3 to 3.5 years to lease up under normal conditions. This opened up in June of 2015. That gives you a little perspective. Now, you might say I cherry-picked this. The reason I gave you this one is because I wanted to give you enough operating history that you could get a sense of it is a good property, right? I want to make sure that I point that out to you. Here's the revenues. Typically, with that fast lease-up, you're obviously going to be above what we had forecasted for revenues, it painted a nice picture.
Here's the NOI. As you can see, it's a little staggered because operating expenses aren't always flat lined, straight lined throughout. We did well on this one. Here's the actual yields by year. You can see that we probably underwrote this to a high, where we kind of sit down and look at what we're underwriting to a stabilized cap rate. We wanted to achieve right around an 8%, and we were able to do that and go beyond in year 4. I've annualized the 7 months to give you the year 4. The real value creation I can see is obviously in the ongoing cash flow, but then the value of the real estate went up, too. We paid $12.5 million for something that's arguably worth more than $23 million today out of the cap rates there. That's a good-looking property, isn't it?
What I would share with you today is kind of the experience so that this is not an isolated experience. We have our wholly owned properties as well as managed and joint venture properties in this 161 properties and showing the lease-up that's occurred. Most properties reach physical stabilization north of 80%, somewhere in the 18-26-month period. I kind of thought during that time period of when these came online, the average is right around 24 months or thereabouts. The markets that tend to do the best early part of the cycle were Florida and the California stores. You can see that. The big blue line down the center is the middle of it. Those that are below it are Texas and the Midwest, where the supply became more of an issue later in the cycle.
That gives you a sense of our lease-up trajectory there. I'm just showing you here the layout, as Joe mentioned earlier, about 70 stores. As they populate here, you'll see that we're in certain markets where we hope to expand. One of which is the Minneapolis market. We like the rents in the Minneapolis area. We also went into Milwaukee, Wisconsin. For the map speaks to me is the beauty of what our program is. It's a lot of diverse markets. For example, we had one in Denver, Colorado. Denver, Colorado's had a lot of supply being delivered. We were concerned about that market, really, if you look at all of our new stores, they're really in different areas.
As Joe pointed out earlier, it's such a micro-market that it's still okay to be in Denver as long as you pick your good neighborhoods. You know what the supply is and who's coming in. That's something we're able to do on a large-scale basis. That's the one side of it. Now, I have another acquisition. This one's in Cherry Hill, New Jersey. If you know where this market is, it's just outside to the east of the Philadelphia market. It really had kind of average barriers to entry. When we looked at this, we were kind of intrigued because the original owner wasn't performing very well. We said, "This is a value-add opportunity." I wasn't too keen on the stripes at the time, neither was the team. The branding's a little different, right? This is Treasure Island.
They operate in that market. There's moderate underlying demographics, more like the national average. As you can see there, the median household income's just under $60,000. You can see the value of the homes is under $200,000. The bigger concern for me was at 6.8 sq ft per capita, but that's still better than the national average. We wanted to see how we did with this. The property's on the larger side at near 100,000 net rentable. The price entry point was much better here than it was in Dedham, right? $65 per sq ft. It has the makings of a really good property, but it wasn't any more than 70% leased when we took it over.
There's the location of the property just outside of Philadelphia, and then our store, which is just down the street that we managed for another group, and then bought in from the program through the acquisitions program. The blue, again, is the existing Extra Space customers of our store. Again, it's well beyond a 3-mile radius, and we know where these customers are coming from. We lay out on the map here the different competitors in the market. Public Storage is doing well in the market, CubeSmart, there's a Metro Self Storage, and U-Haul liked this market so much that they expanded. An expansion property obviously has ripple effects throughout the market, and I'll show you the differences in some of the numbers, is that we were able to, again, the pro forma. You can see our pro forma. I flipped the colors on you, sorry.
This is green is now our pro forma here, and the gray is the actual. It was off to a little slower of a start, but we moved it up to 90% full. We discounted on this one to get customers in as part of what we did. The effect of the U-Haul was real at the beginning, and you can see again, this is our revenues, and we lagged for the first 6 months. After that, the property rebounded. I really credit the team here as you talk to the technology side of it, the marketing side of it, the people side of it, all made the difference in this property. Here's our yields. Again, I picked a good store.
We spent a lot of money trying to upgrade the exterior of it and make the doors just pop at the property so you can see them. We still share a common line. There's an Ashley Furniture Industries and an Ollie's Bargain Outlet retail operator next door. What's encouraging here is obviously the results that we can drive. Again, arguably at a five cap, this is approaching $14 million in value, and we were in at $7.8 million just a few years ago. That's really how we create the value in our stores, is by implementing all of these systems, and we want to do accretive acquisitions. What I'm going to show you on the next slide is kind of my report card to what I give to senior management and the executive team to review what we do, but it's also to build credibility in our underwriting.
Are we able to predict with accuracy the outcome of these stores? I'll take you through this. This is by year, and the concept here is Again, this does not include lease-up properties. This is not our quote cap rate. This is our first-year yield of what we predicted on the store, versus what the actual performance was. It covers nearly 600 properties, $5.3 billion worth of acquisition activity. Again, there's not lease-up stores in this mix, per se. They have value add, so they're not turnkey. The idea would be like, let's pick a year. 2014. We projected on that year any deliveries we had at 6.3%, but we really only came in at a 5.9%. Likely that was due to property tax reassessments, and a certain area of the country that was sluggish in its growth.
You can see, though, that's where the years of the delivery and one year out, you could go back and look at our report card. We were basically over that period of 12 years, 11 basis points ahead of where we thought. That to me is a good report card, and my team's doing a good job there on that. Two years out, it becomes even more meaningful because this is the time in which the assets have been in our system longer. We're seeing real results, right? The same concept is those that came in, let's take 2016. Anything by two years out, that would be 2018, basically the time period of what the actual reporting is, 6.1% to 6.1%, and we're happy with that outcome.
Historically, we've had some wind in our sails, and our actual results have exceeded by 0.5% on the yields. We're happy with that outcome. We don't try to sandbag, but we want to do accretive and predictable types of acquisitions. There's my report card. You can see in the graph, though, they do mirror pretty well. Really, thank you for letting me take you through a couple of those transactions and show you what our thinking is. The point of my presentation was really to show you that you can leverage these data points and make good investments with what we do. I'd open it up for any questions. It can be about this or acquisitions in general.
I've got one for you, Zach.
Yes. Thank you, Jeff.
That I just jotted down as you were talking. You talked about physical occupancy.
Yes.
Generally stabilizing 18-26 months, which sounds great.
Yeah.
What about economic stabilization?
Economic is what pays the bills, right, at the end of the day. There's a couple of levers we can obviously use. We can use discounting. You can use other promotions. You can lighten up on the rent. What we find is that economic typically lags by about 12 months thereafter. We'll get the physical occupancy first, 24 months out on average, and then another 12 to kind of get to that stabilization. We'll push up on the rents. Our existing customer rate increases will take effect. Those two combined gets us the result we want after that.
Okay. Other questions?
Got one here, and then we'll come up to you.
Eric Frankel with Green Street. Do you ever see yourself opening up a development arm again?
Not today. I think today in the development aspect, we did this a few years ago. I'm glad you asked the question, right? Part of the genius of the C of O program is that we didn't have to do all the brain damage to get these things built. If you think about the time it takes to bring a product online. It's a two, three-year lead time. We feel like our resources are better served today in finding good acquisition opportunities, working with development partners who are local, getting product into the system, and that's been our preferred route today. I wouldn't take that off the table, I think in today's environment, being a developer for the next couple of years is going to be a hard thing to do. Joe might have a response as well here.
Just to add, we do have a handful of developments underway. Our preferred approach to development is to do it with a partner. Where someone who's local, whose uncle sits on the planning board, who's been through the process before, who knows the right attorney, and most importantly, where we can negotiate an allocation of risk, so we're not taking too much risk, right? The greatest risk in development, first, is land entitlement. We don't want to have anything to do with that risk. Then after that, you have cost risk, and you have time risk. The more we can partner with people and push those risks to their side of the table in return for development fees and potentially promote, we can still get in at cost without taking the full development risk.
As Zach says, this is not the time to go full board in a development program. The opportunities are few and far between.
Noah's going to be up here in a moment, Noah might talk to this, they're part of our growth strategy is also to take our select properties and where there's an opportunity to expand an existing property. Time's well spent in that regard of analyzing that, seeing if it's right for an opportunity there to expand. That might be a form of quasi development. It does add more product to our existing footprint.
Yes. Samir Khanal from Evercore. Can you just generally maybe talk about sort of the pipeline that you have from an acquisition standpoint, cap rates, what you've seen there?
Oh, yeah. No, I'd be happy to. As we enter into 2019 right now, we had some developments under the C of O program that were to have developed and delivered in the fourth quarter, those ended up not delivering on time. Again, it's back to the issues with development. Sometimes you're waiting on the city. Maybe labor's in tight demand right now, projects aren't always getting developed and delivered on time. That's pushed into 2019. Many of those fourth quarter's slated acquisitions, and we've disclosed all those on the C of O, have moved in. Joe also referenced a nice acquisition we did at the beginning of the year, which was the $280 million of gross value on an acquisition. This was a healthy year. We anticipate it'll be a lot like last year with our volume. We don't know.
That's the hard thing when we sit down and have to make a goal every year, is that we don't know what opportunities will present themselves. The best position we can be is to be nimble and have a good balance sheet that's ready to look for opportunities out there. If you noticed on the map, they just sort of appeared in certain regions because there were good opportunities in those specific cases, right? We anticipate that it will be a similar year to last year, and we'll wait to see where we are. The pipeline looks good.
What about from a pricing perspective?
You wanted pricing as well. As Joe pointed out earlier, I think that was in Joe's slides, the different donuts of where we see properties come from. Pricing's very aggressive today on the highly marketed deals. We're not the best competitors out there right now today because it wouldn't be accretive to our shareholders, right? That's the fundamental principle. I'm seeing pricing, though, in major cities getting very aggressive, right? There's a large range, and you as well as I know how that range can be based on quality and all those other things. There is, in the major urban corridors, under 5% cap rates that you're seeing today. Someone like Colliers or Marcus & Millichap could give you more specifics on it, I see a whole range.
What we really look for when we acquire properties is not how necessarily historically it's done, how our systems will apply to the property and do better. We'll see yields that'll be north of six and beyond, depending on the market. That's an internal number that we take, much like I just showed you there. Yeah, the pricing today is pretty aggressive. If we find a property that meets the threshold for our return expectations and fulfills a need in the market from a standpoint of being well-located and fits into our footprint, we'll look at those opportunities. You know that range of cap rates is out there today. Had a question here?
Yeah, sorry for the follow-up. I know it looks like you obviously use your internal data very effectively in underwriting new acquisitions.
Yes.
How do you think about property type? My observation is there's not much difference in quality as long as the location's good. It looks like there's a lot of construction in multi-story-
Climate-controlled units, that it seems like drive-up units just based on the economics, it's really hard to build. Is there any thought of pushing into that category and maybe paying a premium price for that, knowing that it's going to be really hard to add that type of supply in the future?
It's interesting that you do bring this up. The marketing people always want the best-looking properties. They all tend to lease. I don't know that there's a strategy that we have getting in a particular type other than the drive-up services a certain segment of the population that really likes the convenience. These typically are people who like larger units. Maybe they're small business operators and owners, right? Their landscaping crews. They seem to really like that aspect of it, and it's the convenience there. If you go into the climate control, obviously, there's the benefits of the climate control. People then have to go to an elevator. There's pluses and minuses. We don't have that outlook. We have the outlook of what services the needs the best in that community.
That's kind of a roundabout way of saying both service a certain segment of the population extremely well. If we have some vacancies, we tend to discount to the point where those lease, and it works all around. You're right about the evolution of this industry's gone more vertical. Yes.
One easier to add supply than the other.
That's true. Yeah, it's a good question, and each jurisdiction's a little bit different, but I think by and large, though, they both have a place in the current market. Was there another question out there?
No, he asked his question.
Oh, good. Yeah.
Mark.
Thank you, sir. It's Rupert Harrison, Johnson BlackRock again. Dispositions, should group handle that? If not, can we just hear, you've got 800 and some odd owned properties. Some of them have to be in demographic areas that aren't working, where you're looking forward sort of saying, certain numbers are going to be poor.
Yeah.
Are you culling your portfolio? If so, how much, and how do you think about it?
Today we go through an exercise. Noah, I don't know if this is part of your presentation, you might want to address it more head-on. Noah, actually, his group has looked at it for various asset management reasons. He looks at the asset management side of it. We, over time, have looked for opportunities, and we have sold for strategic reasons to partners that we wanted to be in with a partner, where then they wanted this type of asset. Noah, you can go into more of it, each year, Noah puts, or it's an ongoing process, he looks at the list and he ranks properties, and you can talk about the one you have on the market today, if you're interested. It really is through a whole process that we go through.
Currently, we don't have a large portfolio of properties that we would sell, but we're looking at those opportunities. Joe referenced earlier 36 properties that were sold into a strategic partnership with a JV partner. That really met our needs, I think, where we looked at that market, and we just said, "What are the growth opportunities in that market?" As Joe said, those were slower growing but stable properties and high performing along that lines of just being consistent. We took the money, and we reinvested it in other areas. There may be opportunities like that down the road. Noah, why don't you take a minute and just talk about that program, if you can. Other question up here. Clint, I don't know if we get him a microphone. Thank you.
Hi. You showed up some of the metrics, median household income-
Yes
Population, home values, square foot per capita, and then you married that with the data coming out of your existing assets in terms of what the trend line has been, what your occupancy is, what your rents are. Out of those sort of macro variables, which ones have the most predictive power.
Yes.
To how your store will ultimately perform?
The segments in which storage works is pretty universal, right? Typically, we look at, if you were to think about population densities and incomes, the market that tends to work the best, and there's quite a few, but it's the higher dense, more dense population areas, along with the income. Obviously, more people, more money, more disposable income, those are all good. We also find that if you're in a wealthier area and maybe the population's a little lighter, suburban markets, you still have a lot of people with toys and other belongings and couches and all that good stuff. If you think about the other end of the spectrum, if you're in a low area with low population and low wealth, that doesn't tend to work very well. That's kind of the area we steer clear of.
For me, the biggest guiding principle is how are our existing stores doing, right? For us, that's a way to really go out and use that data to our advantage and where we have stores in that market, that helps substantiate the rents. If we're going into a new market, we tend to go out and do a lot of market studies and surveys and figure out what the occupancies are, because we don't have that readily available, we do the homework, so to speak, and it paints a pretty easy picture. I'd like to say there's a silver bullet, if you look and see who our customers are, they really come from all segments of population. It's tough for us to narrow that down. As you know and I know, storage is working in all communities throughout America in certain aspects, right?
Has to do a little bit with supply as well.
How does the process about when you look in the acquisition, whether you want to do it wholly owned-
Yes.
Or with institutional capital?
It's kind of a question about what we think the growth prospects are for the property and the value that we get to. We'll often go and have those JV partners who have a lower cost of capital, because we're not always the lowest cost of capital out there competing in the market. If we were, we'd be even more acquisitive than we are. We want to look for those partnerships where we can get in and that the partner's very satisfied with it in a predictable way. It really comes down to the aspect of are we meeting their hurdle requirements for the return on the investment that they're looking for. What helps Extra Space in this is typically that we have a profit from our management company and the management fees and also tenant insurance that we sell.
That helps enhance our returns, and we like the partners where that makes sense.
Last one is, how do you think about your cost of capital, right?
What is that input that you have?
Okay.
How has it evolved, how does it sort of look out, in terms of where it will go?
Our cost of capital is obviously observable from our share price and that sort of thing. What we want to do, though, is obviously meet where I have plenty of cushion and a growth opportunity in a property, so it informs us where we get plenty of cushion, typically above the cost of capital that we would feel internally or talk about. It does inform our growth as long as we're feeling like we're getting an adequate return on that cost of capital down the road.
Just your inverse of where your multiple is for cost of equity for your current cost of debt.
Yes
A target leverage ratio.
Exactly.
It spits out a number.
It spits out a number, and then we use that to compare. All properties aren't created equal. Some have a lot more growth opportunity, and we like that growth opportunity. It's not a hard and fast rule. It's more nuanced. Where do we think we can take this property over the years and get above that hurdle? It might be in our best interest to take on a property that is growing into that higher yield.
Cost of equity will also change.
That's true.
Michael, the other thing I would add is we don't try to spot price equity.
Scott.
We don't try to spot price equity just because obviously that can change. How we capitalize a deal differs from how we underwrite a deal. We're always going to try to underwrite a deal to make sure we have plenty of cushion and make sure that all of our deals are accretive. Depending on the timing on when we close an acquisition, we may use all debt, or we may over-equitize a deal if we feel like our stock is trading at an appropriate price.
Question here.
Over the top.
Okay. Perfect.
I remember in the earlier days of the self-storage roll-up story.
Yes
You would be able to buy an asset at six. You would be able to overlay that with the kind of secret sauce from Extra Space.
Right
Make that a seven, outside of the normal market growth.
Yes.
Are you finding that opportunity harder to come by because a lot of the properties have been professionally managed through a joint venture or third-party management that you guys have done to yourselves, so that kind of additional pop and accretion is harder to come by going forward?
Well, yes, because it's already in the system, right? I would say there's obviously more opportunity for the pop that you're talking about, Kevin, on assets that haven't been in our system and haven't been professionally managed. That's been primarily a large source of our growth. Now, with the ones we manage, though, typically, what happens on those is, given our relationship with the folks that we've managed for, they give us a first look on the asset. Not everything comes down to pricing. You would think it would, right? Market exposure. What we can do with those folks is that we offer a fair price that's still accretive to our shareholders, but it gets them to a closing much quicker.
Where we feel very comfortable is we know the numbers through and through, so it de-risks sort of that proposition of buying a new property, right? For those reasons, we really like that. Quite frankly, a lot of folks want to deal with us because we're easy to deal with, we have a great reputation, and we don't go back and re-trade on pricing. Other things we can offer, and I'll just mention this, and Joe mentioned it earlier, is that the operating partnership units are a real good currency for these folks that are thinking about tax deferment, maybe even estate planning. Those are good areas that we are able to kind of have a leg up on the competition. It makes the difference. I wouldn't say that those are appreciably lesser on the returns.
They tend to be very good and perform long term, and we know what we're getting into, right?
Thanks.
Todd Thomas, KeyBanc.
Yeah, Todd.
In the charts that you showed, your report card.
Yes
In the first year, cash yields, the 17 acquisitions fell short by almost 20 basis points, right?
Yeah.
17 basis points.
on the 2-year, you have 16 at 3 basis points.
What happens here is that it levels off.
You outperform slightly, but it's thinned out considerably from the prior years.
Yeah
I guess, first, do you expect that trend to continue for the next one or two years as you build out the report card further? You have another year of acquisitions you're working through, right? Have you gone back and taken a look at what caused some of that?
Yes
spread to
I can speak specifically to that. In general, what I think happened here, Todd, is that also that we refined our underwriting. This is just a measurement against my underwriting, right? Obviously, you know where cap rates have gone in the last few years. Really, I think we've gotten a little bit more accurate in our second-year forecasting. Oops, let me go back. The reason we missed this, the 17 basis points here, was primarily driven by a couple of properties where our tax reassessments hit earlier in a cycle than we thought, and it really hurt our NOI numbers. This is based off NOI. If you look at our projections on revenues, they were within line of what we thought.
When I went back with the property taxes of a couple of assets that hit sooner in the reassessment cycle, some jurisdictions do it on a 3-year cycle. We guessed wrong. We're going to get caught up to that down the road. Your greater point is there new, maybe competition coming into the market that may be dampening our results? I think you're seeing some of that happen in areas of the country. Again, it's the micro market you have to look at. I would anticipate that in the cycle, we'll see a little bit more of that slowdown. I attribute this more to our tightness of underwriting and that we're being more realistic, honestly, about that, and we tend to have some above and some below, depending on the year.
Let's take one more question if there is. Jonathan.
How do you look at acquisitions relative to replacement cost? I know one of your peers won't buy if it's basically like 120% of cost per foot.
Yep.
Do you look at that when you evaluate acquisitions, or is it simply just a spread game?
For us, we do look at it. It's not the end-all be-all. It's more of a spread game. I think at the end of the day, that's an important kind of touchstone to go back to and say, "Is this making sense for the market?" Every property has a story, right? If we're getting the yield and the spread that makes sense, that's what the market's going to pay at the end of the day, right? To be beholden to a replacement cost is sometimes difficult. What the replacement cost doesn't always have in that number is the difficulty of getting storage built in that community.
If you can go into a high-barriered entry market, you'd be willing to pay the appropriate cap rate for that market, and you would look at the other number, but then recognize that that number doesn't reflect everything about the property and the difficulty of that. While we look at it's not the end-all be-all. It's more yield that we're more interested in.
Perfect. Thanks, Zach.
Thanks, Jeff. Appreciate it.
Our next and our final presenter here for this portion of our presentation, and the final presenter that'll be available on the webcast is Noah Springer. Noah does a number of things for us. He leads our third-party management efforts as well as our asset management group, as was mentioned.
With that, Noah, take it away.
Appreciate it. Thanks, guys. How many again did we say are going skiing or snowmobiling tomorrow? We have a few. I don't know what's wrong with the rest of you guys, but we got, I think, 70 inches of snow in the last six days, and I'm excited to maybe hear the report on your return flight back to New York when you sit down with whomever you sit next to on your flight and they'll ask you, "So you were in Utah. What did you do? Did you ski? Sundance Film Festival started today, did you guys do that? What did you do?" You're going to say, "I ate warm churros and nacho cheese in the basement of a Hilton and talked about storage." That's awesome. Welcome to Utah. It sounds great.
For you guys that are going with us tomorrow, I'm excited to do that. It's really fun. We've done this quite a few times. We did it with some analysts a few years ago, we've done it with a lot of different partners and management partners over the years, there has seemed to be a reputation of every time we go out, someone gets hurt. Good luck. It's always way more exciting when we do something like that. The worst injury we had was, I think a woman twisted her ankle when she stepped off of the snowmobile. It's usually user error, has nothing to do with the conditions of the snowmobiles. I'm not trying to make fun of anybody for coming to Utah and not doing anything but sitting here because we go to New York often.
The last time I was there, it was with Stubbs, actually, we were walking through the streets of New York, Scott thinks he knows everything. As we flew back, people asked us the same thing. "You guys were in New York, best restaurants in the whole world, where did you guys go?" Every single time, Stubbs has to answer P.F. Chang's. That's as far as we get, the lettuce wraps there are phenomenal. If you guys ever have a chance, it's really good. He goes unlimited breadsticks, too, is another big hit for him. Olive Garden is always a good one in New York when you guys have a chance. As Jeff mentioned, I oversee third-party management. I also oversee our construction development group and our asset management group.
In that, there's a lot of different things, we're going to talk mostly about third-party management because that's really been a hot topic for a lot of people lately. As we do that, I want to refer back to Joe's slides that he talked about at the very beginning, which were the three buckets. We're really going to be talking about the bucket that was on the far left. There's really owned properties within Extra Space, JV properties within Extra Space, managed properties in Extra Space. The bucket I'm going to talk about mostly for the managed side is the non-owned, fee managed properties that we have. There's about 536 of those stores that we have to date. Even though we talk about these partners as managed partners, we oftentimes call them partners.
I don't want you guys to confuse that with JV partners or anyone else, because we would talk about our managed partners the same way as we would with our JV partners. The important thing that we tell everyone that we manage for is that, while we call them partners, every single store that's in Extra Space Storage is managed the exact same. It's a really important thing to look at for anyone that's coming onto our platform. One of the first questions that anyone ever asks is, "I'm going to bring my property to you. You're going to manage it, but you have one in the same market, down the street, across the street. How do I know that I'm getting all those same rentals that I should be getting?" It's very easy. Every store is run the same.
What Dayna talked about with marketing, what Chandra talked about with revenue management, whatever we do in the system, it all runs the exact same. Something that we're really excited about and happy about is that we've been doing, really in its current form, third-party management for the last 10 years. We started this in 2008. Since then, we've added many stores, but we hit 500 stores in the system. You have to remember that within the managed pool, we bring on properties. At the same time, properties are going away, where people are selling. We might be buying those, or someone else might be buying those. The number always kind of goes up and down. It isn't just a gross add. That's what the number is. We look at the gross adds and also the net adds.
While we've added a lot of properties, we're at about 536 right now. As I said, it was an exciting thing for us to get to 10 years of third-party management in its current form. Why do we do third-party management? One of the big things for us is size and scale. It allows us, as Joe said, we have about, what, 1,600 stores. 500 and some of those are third-party managed. 220 of those are JVs. Over 700 stores, 750-something stores are in the system that we don't have ownership of at all or a large part of ownership of with the JVs. This allows us to round out markets. It allows us to be in states where we wouldn't be.
It allows us to spread our costs over a lot more stores and leverage the size and increase the buying power that we have in a lot of areas. The other reason, and I'm going to show you here kind of our growth trajectory, and we've also added our friends up there that we compete with. You can see where Extra Space Storage has been since 2011. Since then, we've really grown tremendously. We're really proud of that number. Something that's also interesting about this, and we'll talk about it in a second, is we like to do this because it's profitable for us. While acquisitions and what Zach is doing on buying stores is more profitable, every time we buy a store accretively, it adds a lot more money than a store that we manage.
We still make money on the tenant insurance and the management fees. This isn't a huge number, but it does allow us to run it where we can grow and grow profitably. I can't say this for every other management company. I don't know how their cost structure is, but I do know that it's a reason for us to continue in the business. Something that's inevitable and going to come up at some point with every owner that comes to us as well as you guys is, what about tenant insurance? We hear that our competitors give away tenant insurance, and we don't, and that's right. Whether that's with our managed partners or whether that's with the people that we have JVs with, Extra Space, as the management company, keeps all the tenant insurance.
We take on all the risk, and we keep all the reward from that and anything that comes with that. It's been a profitable thing for us, and that allows us to stay in the management business. If we weren't doing this for tenant insurance, or if we were doing this solely for the management fee, we really wouldn't be in the business as much as we are because it wouldn't be as profitable as it is for us. Another reason why we do third-party management, and there's kind of the numbers and the scale, and you can see that go along, and you guys have seen in our supplementals and our financials, you can see where we are. You can see here, the bottom number is actually the tenant insurance. I'm sorry, the bottom number is the management fee, and the top number is the tenant insurance.
At some point, tenant insurance really eclipsed where we are in management fees and interesting time for us. As we continue to do that, we continue to bring these stores on, it continues to get more and more profitable for us. Outside of size, scale, and management fees is really the data. This goes along with scale, but you can just imagine what James' team with revenue management, the call center, marketing can do with more numbers. If we only had 700 or 800 stores, it's not nearly what we could do with the data with 1,400, 1,500, 1,600 stores. Data is a very valuable thing for us in pricing and in marketing. Also, acquisitions. Joe showed at the very beginning, I think we call it the donut slide.
It's a slide with about six or seven circles, and those circles show where our properties came from as we did acquisitions. When you look at that slide, you can see that it comes from many different sources. A lot of those aren't broker deals. Many of those deals that we purchase are from joint ventures or the managed pool of properties. We continue to do that and will continue to do that. We don't have any right of first refusal, and we don't have anything that mandates that our partners have to sell to us in any of the managed groups. In some of the JVs, we might have that. In the managed pool, there are, I don't think any management agreements that we have that mandate that they have to sell to us at any point or at any time.
We really rely on being a good partner with our partners so that when they do want to sell, that we're the natural buyer for that, and they do come to us. Oftentimes, that happens. I could count on one hand the few number of times that a property has been sold when we haven't had a first shot at it to do that. That doesn't mean we're going to buy every single one. We want to make sure that we get it for a fair price, and sometimes, our partners aren't necessarily willing to sell for a fair price. They want more than we want to offer, then they can go somewhere else, and that's okay.
I've had a lot of questions from people in the audience here about, Noah, why would you guys manage for someone and increase the value of their property and then have to pay more money for it instead of just buying the property when it was doing less well before you guys brought it onto your system? The issue with that is before we brought the property on and the value was down here, and then we increased the value to up here and bought it's because there was no deal down here. The partner knows that his property is probably mismanaged, and he doesn't want to sell for this price. We're looking to increase the value, make money in tenant insurance and fees on the meantime, and actually buy it for a fair price here.
Not overpay and not underpay, but really do it for a fair price. As you can see what we did in 2018, we added about 149 stores. Those are the gross additions that we brought on. A lot of those stores were development properties. This really follows the industry as to what the industry is doing right now. In years past, when there was less development going on, we were adding a lot more existing stores. I would anticipate that as development yields go down and less people develop and properties may suffer a little bit in markets where a lot of development has happened, you'll see this number shift quite a bit. We'll bring in more existing stores and less development stores. Because what Extra Space can do from our management platform is really increase the operational efficiencies and bring owners more money.
As properties get more and more difficult to manage, we'll continue to do better for them as they come onto the platform. This is a quick chart, on the side, it's hard to see there, but you can see this is where the states are where we added these stores. Divided out the whole U.S., that's what it is, Florida, Texas, Colorado, California, Illinois, and the Carolinas. Everything else is a little less than half. That really follows where the development has been, and it shouldn't be a surprise that where we're bringing stores on is those areas. Who are our partners? You can see here, this makeup is very similar to the industry. 45% of our partners have one to four stores. It's about 2.8 stores per partner. There isn't one partner that really controls the whole management platform.
If anyone up and walks away, does this devastate anything? No. Is it fun? Not really, but it's not going to tear the platform apart because there isn't one partner that really has everything for us. This is tough. Managing for 167 different partnership groups is not super easy. Every single person has different wants and needs and desires. What's important about Extra Space is that we manage the stores in a box, and we manage it with our system. It's on our platform, and it runs like an Extra Space. Even though there's 167 partners with 2.8 stores, we make sure that they fit into how we run the store. They can't come back and say, "I want to do something vastly different with revenue management," or, "I want to try a different marketing system." We all keep it on the same platform and run it forward.
That's the only way that the system works. The pipeline that we have is about 500 properties, and those are stores that range from new developments that will be coming on to deals that we have in the system that are likely to come on in the next, I would say, up to the next 24 months or so. That pipeline, while it looks really nice at 500 stores, isn't going to be what we bring on. A lot of these developments fall out. A lot of these might even be duplicates. A lot of these might go somewhere else. While we look at that, I would say half of those will probably go away. We'll be somewhere around 250, the actual stores that we bring on, which will indicate that in 2019 and 2020, we'll be very similar to what we did in 2018.
We can't just bring on any property. We have to run this by people within Extra Space. One of the things that Scott asked me to talk about is our Management Plus approval committee. We actually sit down with a number of different disciplines within Extra Space every time that we bring a property on or before we bring a property on, actually, just like an investment committee, to sit down with operations and accounting and revenue management and legal to make sure that people understand this is the store that's coming on, and this is where we're going and what we're doing. The deal is looked at the same way that you would look at it in an investment committee and looked at from the standpoint of, do we want to be here and do we want to operate this store?
This also brings up the question of bringing on this many properties. Right now, I think it's about 1.3 or 1.4 business days that we bring on a store. It's often. Transitions are hard, and bringing on these stores has a lot of different things to do. There are dealing with the owner, there's dealing with the store, there's dealing with employees. A lot of things happen in these transitions. It's also one of the most important things that we do. As you can see, a few years ago, we looked at this graph, and this isn't going to give you any numbers, but it kind of gives you an idea as to what can happen with a store.
For some time, when we first started this program, we realized these transitions weren't going as well as we wanted them to because there might be something that happens. Maybe it's the phone lines are tough to transition over. Maybe we aren't getting signs up in the right amount of time. Maybe the employees left before they were hired and there was some issue. We've really focused on this. I think now we have a four- or five-person team, and their sole job is to bring stores on to Extra Space. You can see what happens is take that dollar line, and it doesn't really matter what it is. Maybe that's NOI or revenue or even occupancy. It doesn't really matter. As we looked at this, we said, there's probably a time frame of about six months that the store might be dropping and then coming back on.
What we need to do is look at that and say, "Transition team, let's take that, and how do we at least cut this in half?" Say, "Let's not take a store and have it go down over the first six months. Let's actually increase this and do really well." We challenged that team, and they're really able to get this to about three months and do much better than this. What we've been able to do recently is, this is very seamless transitions. It isn't perfect. It's still hard. There's a lot of things that happen with this. In fact, we have a slide that's going to show you. We did almost 200 transitions, 103-point task list on this.
As we did this, and sometimes made mistakes, we then went back and said, "What do we have to do to get better?" I just took a screenshot here. This is the kind of the reported issues of transitions as we brought them up. The tough one here, and the hardest thing for us has really been, I don't know how we do this, but is phone lines. I think this was from, it was November. I can't remember how many stores we brought on, but you can see there's a lot of things that happen with this. It isn't just bring on a store and everybody's happy. There's a lot of things that happen. As soon as people start asking us about our competitors, which we'll get into in just a second, and they say, "Oh, my gosh, a new competitor jumps into the market.
How are they going to do? They're just going to eat Extra Space's lunch." There's a lot more to it than just having a low fee and being able to bring on stores. Transitions are just a hard thing. Ask anyone in the business, how many stores did you bring on? How many stores do you bring on really well is a different question. How happy are those owners after you brought the store on is a different question. Why do people choose Extra Space? We've talked about this a lot. Culture is a really important thing here. People can feel it. Partners can understand that when we're running a store for them, that we run our store the same and we run their store the same. There's no question about it.
They can go to our call center and sit down and see how those stores are being rented from the call center. They can sit down with their revenue managers and say, "Exactly how is this being done so that everything is done fairly across the board?" Performance. You guys have all seen this slide. This is the average quarters. At the end of the day, people don't pick us because of Zach's toothy smile or Scott's great physique, but they really look at us and say, "How much money am I going to make over the timeframe that Extra Space is running this property?" If it's going to be less, they're either going to not come on or they're going to go somewhere else.
Every single time before we bring on a property, we do a pro forma. In that pro forma, we take three similar properties, as similar as we can possibly find in the market or very comparable properties in the area, and kind of rack and stack against their store and say, "This is what it's going to look like for the next three years were we to manage your property." As we put that up against it, you can almost see it every single time. It might not be in expenses. We might be paying our employees a little bit more, or we might be doing something else on the marketing side. When it comes down to NOI, we have to make them more money than they were receiving before.
If we don't, they go away. You can look at our platform and see how many people have left our system because of our performance is almost zero. It's very, very few. I'd also say that, as I said in the beginning, we've been doing this for 10 years. We have a track record. We've gone out, we actually survey our partners very often and say, "How is it? How are you feeling? Are we happy? Is everything good?" It comes back overwhelmingly positive. That was another question.
As we get into our competitors, there's one here that last year, at about the same time, everyone came to me and said, "Oh my gosh, Noah, there's this other company that's going to get into the business, all our business is going to go away." I said, "I don't think so." In fact, our partners are really pretty happy with us, we're doing really pretty well. We went out and talked to almost every single one of our partners and asked them this question, "You're with us. Are you going to go away?" Overwhelmingly, people said no. Now, we've had, oh, I think we've had two different partnership groups leave us and go to a different company in 2018. That was a total of four stores.
Like I said, we have about 200 different partnership groups, I think I have another seven or eight partnership groups that I'm happy to send over to another competitor. When those two came to us and they asked us, "Hey, I really want to renegotiate on my fee. I want some tenant insurance, or I might go somewhere else." I said, "You know what? I think that's a great idea." We can either have you guys go now or later, but let's kind of make that transition and go on. It's been a good thing for us to offload a few people. Cube is really our biggest competitor. As people come to us, it's really between us and them most of the time. They're a good operator. They're really good people. I like them a lot. They do well.
Partners pick us for different reasons that they pick Cube. I still think our performance is a lot better. I still think that the people that we have, the District Managers we have, the site managers we have, the training, the marketing, the revenue management is head and shoulders above any competitor out there. Cube's a good competitor. While they do a good job, they've really increased what they have, but they've done it at a price, and they've had to give away quite a bit in tenant insurance to get there, and that's been something that we haven't been willing to break. As we look at that, we would say, look, while Extra Space might not be the low-cost leader, we might be the Nordstrom of retail.
If you want to go with someone else, this is an asset that you've saved all your money for all your life and your retirement, you've decided to take that asset, you don't want to take the maybe a little more higher cost and get more performance, you want to go to the low-cost leader, well, that's up to you. There's many people that look at us and say, "I need the best in the business, and we go with Extra Space." Life Storage has really tried to do this, and these are the three REITs. They've done an okay job in the industry. Again, great operator, very good people. They do a good job. Just hasn't really been their focus.
They've been focused on a few other things, so they haven't brought on nearly the number of stores as the rest of us over time. Now, while us and these three get a lot of the attention on third-party management, you have to remember that the storage business is way bigger than just this. The number of management companies that are out there is tremendous compared to these other three that are on the board. You can see here, those first two really have over, let's see, 250, maybe 260 stores on their platform. There's quite a few other options. As other people come to us and analysts come to us and say, "What are we going to do? Someone entered the business." Well, there's always been a lot of people in the business. It hasn't just always been us.
We've just been able to take more of our fair share than everyone else. There's a lot of people that are doing this and a lot of people doing this that are cheaper than us. While there's a lot out there, you can see the industry puts out different awards, and since 2011, Extra Space has won Best Third-Party Management Company in that time frame. We're very happy with that and pleased with our company. Again, that isn't just bringing on stores, but it's everything that we do while the stores are on the system. As Jeff mentioned, I oversee the Third-Party Management side of the business as well as Asset Management, and I want to talk a little bit about that. I know there was a question about dispositions. We can talk about that as well.
The main thing for Asset Management, really for us is, how can we get more dollars out of the existing stores that we have? What can we do? This is outside of the realm of Operations. Operations is going to work on leasing the stores up and increasing the rates. In Asset Management, we're going to look at what can we do to bring on more units at a property? What can we do to maybe convert a parking lot and put it into storage? What can we do to transition from a piece of fallow ground into more storage, more units? You can see last year, we completed about 6 projects. While these aren't huge projects, it's not Zach's deals. We're not going to do a $1 billion worth of value add projects. We're still going to get some of these done.
What's interesting about these, even though they're small projects, it still takes a long time to do this. This is the entitlement process that it is in storage that no zoning board, no city council is super excited to hear from the storage guy. It takes a long time to get these through. When we do, it works out really well. In fact, you can see here it's a piece of land. This is in, I believe it's in Plainview, where here's our store. Here's just an extra piece of dirt that we had. It came along with an acquisition that we look at those and say, you know what? The occupancy and the rates are such that it allows us to do more buildings here, and we can add this and increase it.
Zach's buying deals at, oh, we'll call them 7 caps. We're looking at this and hopefully getting a lot better than a 7 cap on these deals because we already own this land. It's putting up the buildings, sometimes taking buildings out. In fact, we have one here. You can see in 2018, we added a lot of new projects, and in 2019, we anticipate completing about 20 more projects. The total construction amount is about $60 million on those 20 projects that we'll finish in 2019. This is another one of these projects that I was talking about. While it isn't always just empty pieces of dirt, this is in Miami. This is the Don Shula right here, right there, the Don Shula Expressway in Miami.
Our office currently is right here, that you come into the store, as we've looked at this, while everyone's looked at Miami and said, "Oh, my gosh, Miami is so oversupplied, and you should never put more storage there, and what are we going to do?" This is in Kendall, outside of Miami. It's allowed us to look at this property and say, this property has been occupied at over 95% for the last three years. We continue to push rates. There's no climate control of this property. We've gone at it and looked at it and said, "You know what? Let's put another building on top of this and take out those units, go up three stories, and actually make very visible property along the expressway there, add more units in." It works out really well for us.
There's not going to be tons of these projects. There's going to be some of these projects. It's tough to take out a store and put up more because the tenants continue to pay where it is. When we have these opportunities, we'll continue to look for them and do more. As of right now, like I said, we have about 20. We have 60, 70 or so in the pipeline, that'll probably get cut down tremendously as we move along. There are other questions about dispositions. When it comes to dispositions, as Extra Space is a long-term owner of self-storage, we look at our portfolio often and say, what ones would we take out? When it comes to very difficult-to-operate stores, we would sell those. In fact, there's one on the market right now in Ballston Spa. That's in New York.
I've never heard of it. I bet they have an Olive Garden, so Scott's probably been there. In Ballston Spa, it's three and a half or four hours away from any of our other properties. It makes it very difficult for us to manage. That came along in a very large portfolio that we purchased, when we brought that on, we said, at some point, we're probably going to have to dispose of this. That's kind of what the dispositions are. We do also have stores that we look at, and we don't keep, we would call them limbo properties. A limbo store would be somewhere in between, do we sell it? Do we scrape it? Do we rebuild it? Do we just do major CapEx?
We try to go through every single property and have a plan as to what we're going to be doing. There isn't any one store that's kind of wondering what we're going to do there. The other thing that we have is kind of dry powder of stores that if at some point we need to sell stores, maybe there's a JV that comes up that we want to put this into, similar to the one that we completed Q1 in 2018, that we have those at the ready. We leave those stores, and that's ready to go. If markets come up, and we have these in quite a few different markets where we say, "We're worried about this market, but we could sell it into a JV and maybe de-risk our position a little bit in this market," that's an option for us.
We do keep that list. I wouldn't say that it's something that we would be planning on doing a bunch of dispositions in the near future. That's what I have for you guys. Any other questions?
Hi, Eric Frankel from Green Street. Is there any concern with all this development coming online, and that's where most of your new additions are coming from? You obviously haven't lost a lot of stores, as you said, but do you have any concern that some of these merchant builders or private owners will use your services to lease up their property quickly, then dispose of you in a few years?
Yeah. It's a good question. I do think that that's going to happen sometimes. The difference of us and our competitors is that because we do cost more, I don't think people are willing to come to us and say It's a little easier for them to take a cheaper provider to do that quick in and out. We also have big termination fees, and we've since increased this quite a bit, that if someone does come on from signing the management agreement, so even before they open, they're going to pay a termination fee if they cancel within the first three years. By year three, a lot is burned off, but in year one, it hurts a little bit for them to go away. Sure.
Yeah. Great question. You talked about the competitive landscape in third-party management. Obviously, we know PSA is looking to get into in a big way, you mentioned a lot of them. Can you talk about the margin side of the business? Where is it? How has that trended? Do you see that narrowing a little bit here?
Yeah. The margin is in tenant insurance. Yeah. While we make money on the fees, your cost to manage is really eaten up by the management fees, and where you make money is the tenant insurance. For us, there's a lot more margin there than our competitors because we keep all of that. The other companies that are splitting tenant insurance have less margin to lose, and I think that's probably going to hurt a little bit. While it does hurt us, it hurts us a lot less because there's just more padding. Yeah.
What's the cost to an owner to switch managers, which could come with signage and all that? What would be the value as a percentage of asset, or to think about it that way if someone decided.
Never thought of it as a percent of the value of the asset. To come onto the platform, to come onto us, depends on where they're at and what they're doing. For us, we're going to work on different deals, and while we might flex on the fee that we would give them-We don't flex on the tenant insurance. We also might flex on paying for some of the upfront costs. That might be for resigning the property or repainting the property or something along those lines to bring it on to the platform. There's still a lot of things that go into it, and I would say the biggest cost to an owner in a transition, if a transition goes poorly.
Right
is the drop in occupancy.
Loss in the mind.
Exactly. That's not looked at a lot by a lot of owners, but by month four, five, six, they're looking back, and it can be a tough time. That's why the transition point of this is so important, that you can keep that and go forward from day one.
Once you get them in, you tend to keep them for a long time.
Once you get them in.
until there's a sale.
Yeah
of the asset.
Yeah.
Of that $500, what percentage is development and how early in that process? Because I would assume if they're building, they've got to figure out whether they're going to paint that orange, green, what sign they're going to use. That's.
Yeah
you know.
Yeah.
Hard.
Okay, so for our stores, the 536 I'm sorry, were you talking about the pipeline?
The future pipeline.
The future pipeline.
Yeah.
I would say it's probably a little more than half, 65% or so.
Where are they?
That would be developments that would be coming in.
Where are they in their life cycle?
It runs the gamut from, "I have an idea that I might want to put storage here," to, "We have a deal signed that's going to be coming up and come on in February." Yeah. People are coming to us pretty early, and we're consulting with them pretty early on because they want to come in and make sure that our operations is okay with how the store is being built. They want to make sure that it's our colors. They want to make sure that the paint is done the right way. It's tough to go into a city and say, "Hey, I'm going to use wasabi green," and then two months later, come in and say, "Guess what? I changed to orange and purple." You don't want to do that. People are trying to come to us pretty early.
Any other questions for Noah? All right, Noah. Thank you.
Thanks, guys.
I've got Scott there with the microphone. Scott, if you'll stay with me for a minute. Are there any last-minute questions related to any of the presentations that have been given that either Scott or myself can address before we take a little break and then move on to our property tour? All right. Looks like we're ready. With that, we'd like to thank our streaming audience. We're going to cut you off at this point. For the group here in Salt Lake City, please take 15 minutes or so to gather things. If you need to run back up to your room. We'll meet out front at about quarter after. Let's see, or maybe even quarter 20 after. We'll load up in vans. We've got about a 5 to 10-minute drive over to the property. Appreciate your attention. Thank you.