As you know, Public Storage is one of our leading operators, managing eight out of our 24 properties. These two metrics have a material impact on the ultimate sales value of our facility. However, one crucial assumption is that the revenue would be equal whether it is Public Storage or Extra Space.

Operationally, Public Storage is falling short, and we believe they are not maximizing revenue. Facilities are experiencing extensive repair delays, and critical functions to facility operations, such as an elevator, remain inoperable for weeks instead of days. Along with finding trash in the halls and units with broken locks, we’ve noted that DXD requested pricing changes have been slow to implement. While these are simple fixes for a quality management team, we suspect low wages for their onsite managers contribute to an apathetic staff within a very bureaucratic structure that is slow to take action. Making matters worse, Public Storage requested to cut labor hours by 40% at all facilities to boost short-time cash flow. This might work on a facility that is 95% leased, but not on our facilities that are still in lease-up. 

After thoughtful consideration, we will transition the Public Storage facilities to Extra Space, which has recently made the financial aspects of its management more attractive for DXD, unavailable without a significant portfolio. DXD also has the opportunity to secure insurance under the Extra Space coverage umbrella, which in some instances has decreased this cost by up to 50%. They are also a debt refinancing source for projects they operate and are one of the more aggressive lenders because they know the properties and their potential. 

Extra Space recently onboarded 1,200 facilities from Life Storage and has a proven track record for managing such transitions. We expect this to be a complicated effort, but remain hyper-focused on ensuring a smooth transition effective October 22, 2024. 

Despite these challenges, our facilities are exceeding budget on occupancy even though our rental rates are currently under budget.  Our revenue on most properties is higher than expected because of the faster lease-up. Extra Space will improve facility lease-up by applying deep new customer discounts and aggressively raising customer rental rates after 90 days of occupancy. As each location reaches 85% occupancy, these rental rate increases will positively impact revenue.

We are actively underwriting a strategy to refinance our expensive construction debt for cheaper mini-perm debt, potentially saving us 200 bps in interest. We expect to present this strategy to our investors within 60 days and be able to proceed in Q1-Q2 2025. While our expectations of being cash flow positive by the end of 2024 have been delayed until 2025, our lease-up performance to date encourages us and validates the markets we have chosen. As we increase efforts to perfect rents and improve customer experience, we will maximize values and NOI to command the highest disposition price, resulting in the best returns for our investors. 

Please let me know if you have any questions or want to discuss.

Best
Drew