Q3 2019 Earnings Call
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I'd now like turn the conference.
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Rick here with any follow up questions thereafter.
At this time I'll turn the call over to Jeff.
Require 22 stores, where our wholly owned portfolio for roughly 280 million all of which were discussed on our second quarter earnings call that includes the 12 pack of lease up stores are 135 million, which closed in July .
Entrance into two great strategic markets with a three back Oh stabilize stores in Seattle for 57 million in a fight back to Stabilise doors in Baltimore for 63 million as well at the store in Las Vegas for 13 million and in Austin store, which we were previously leasing for 14 billion.
We're pleased to be in Seattle in Baltimore, two markets, we like for a long time, given the demographics and rates.
Back to continue building our presence in both of those and in fact, we haven't seen about deal in Seattle under contract this quarter as a minority interest partner in a new joint venture.
We made a 1.8 million investment for 20% stake in that property, which we expect to open in the fourth quarter of 2019th.
During the quarter, we put two additional stores under contract for a wholly owned portfolio in the Greater New York City market for 37.1 million, one actually closed last week.
Greater New York is our third largest market, which has performed very well for us and we plan to continue growing our portfolio there.
As it relates to JV activity, we are a pace to achieve our minority investment guidance for the year and are pleased to established a strategic relationship with children's Klein properties, we acquired a 40% interest for 16.5 million and six class eight stores that were previously managed under this pace Max.
Brad.
We're also under contract for a minority investment and five stores and Tampa in Sarasota that we currently manage for 5.9 million and a 20% ownership interest.
And finally as it relates to portfolio transactions, we completed the sale of 32 mature stores to in real estate group for 100 foot sorry for 20 212 million in July also discussed on our second quarter earnings call.
We will continue to manage all 30 store 32 stores subject to terms of a long term management agreement.
So as a result of many of these exciting initiatives, we have been executing on this year, we decided to change protocol and provide 2020 guidance earlier than we have in the past.
And he's going to get into the details, but we expect to aggregate impact of all of our ongoing initiatives to generate adjusted EPS AFFO per share growth that is substantially higher than we have experience in recent years.
Specifically as a result of our portfolio transactions. This year, we expect to have a larger non same store pool by year end and we have had in recent quarters.
Expects that oil will have roughly 53 stores of which 27 are currently at lease up and strong markets with good grades and average occupancy, 67.1% providing significant opportunity for growth.
We remain excited by trends, we're seeing in right now, which is contributing to our ability to actively managed payroll and benefits.
And we're focused on driving cost savings and utilities management and repair and maintenance I reevaluating, how we manage those activities.
Many of these initiatives are already underway and we are already seeing the benefit of some of those actions.
Our third party management platform is having another strong year as we have grown the total number of managed stores by 75% year over year, and we continue to have a strong pipeline of opportunities.
We expect to finish this year at almost 300 stores.
We remain focused on growing our jvs portfolio and expect to finish the year with almost 25 million in investments and we expect a similar amount of investments next year.
And we have been very active with expansion in the happens as we are pleased to complete roughly 50 million this year compared to 25 to 35 and each of our previous three years we.
So 2019 has been a transition year as it relates to AFFO growth, but given the dilution we talked to reposition certain markets our portfolio I'm excited by the momentum we are building as we prepare to enter 2020, I'll now hand, it over to Andy.
Thanks, Joe as Joe mentioned, we reported adjusted quarterly funds from operations of $1.46 per share last night.
Our same store performance was highlighted by NOI growth of 2.6%.
We achieved by a combination of revenue growth and controlled expenses.
Specifically same store revenue rose, 1.8% or the same period last year, driven by realized rates per square foot that increased 2.8% over the third quarter 2018.
Great growth was partially offset by 110 basis point decline in average occupancy.
Third quarter same store expenses outside of property taxes continued to be extremely well controlled decreasing 270 basis points over the third quarter of 2018.
Decreases and payroll and benefits.
Repairs and maintenance and office and other operating expenses offset the increase in internet marketing spend.
Our investments in technology and are focused on efficiencies are producing great results and are evident in the 50 basis point improvement in our year over year same store NOI margin.
We're very pleased with the continued benefit of our transition transition to a captive program for our tenant insurance as net operating income associated with this program increased 16.6% over last year's third quarter.
In addition to the strong performance of our same store portfolio. We continue to see consistent growth trends at the properties that we purchased at certificate of occupancy or early in the least upstate.
As a result of our acquisition activity over the past 12 months, our lease up pool. Today consists of 27 stores with quarterly occupancy of 67% compared to 22 stores with quarterly occupancy of 85.7% at the end of the third quarter of 2018.
Our current lease up portfolio has significant room to grow.
Our balance sheet remains very solid and we continue to have significant flexibility to capitalize on attractive investment opportunities when they meet our return requirements.
At quarter end, we had cash on hand of 16.4 million and $475 million available on our line of credit.
Our debt service coverage was a healthy 4.5 times.
We have no debt maturities until 2021, our average debt maturity was 7.3 years and the percentage of our total debt that is fixed rate was 99% at September thirtyth.
Regarding 2019 guidance, we raised the low end of full year guidance and now expect adjusted FFO per share to be between 5059 cents.
Therefore, we expect adjusted FFO per share to be between $1.40 and $1.44 in the fourth quarter of 2019.
Keep in mind that our AFFO per share guidance introduced in February contemplated a debt offering late in 2019.
You will recall from our second quarter earnings comments that we opportunistically issued $350 million, a 10 year fixed rate senior unsecured notes in early June .
Which was earlier than planned.
Debt issuance resulted in four cents of additional interest expense that was not included an initial guidance.
We have not adjusted our guidance down to account for this additional cost since it was offset by favorable operating trends.
We expect same store revenues to grow between 1.25% and 2.25% part of the 2020 fiscal year.
Excluding property taxes, we expect other expenses did decrease between 1.75% and 2.75%.
As a result of continued discipline on our operating costs.
We do we do expect these reductions to more than offset the pressure from internet marketing cost increases.
The cumulative effect of these assumptions should result in 2% to 3% growth in same store NOI.
Similar to 2019, we anticipate DNA cost to be between 40 $850 million.
Expansion enhancements to be between 40 and 55 million.
In aggregate, we expect to adjust we expect adjusted FFO per share and 2020 to be between $5.93 and $6.07 per share.
With that operator, we can now open the call for questions.
Thank you we will now begin the question answer session to ask a question. You May proceed Star then one on your Touchtone phone.
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This time, we'll pause momentarily to assemble a roster.
Our first question comes from Shirley <unk> with Bank of America. Please go ahead.
Hey, good morning, guys landscaping recourse.
Cost about that you're expecting that to continue to come down.
Negative two did you ever stat and that significantly better than a lot of your peers.
Okay that sounds initiative that you mentioned earlier, that's creating efficiencies.
And also talk a little bit about right now.
Utilization and our financial impact Nineteena, We guide.
Wow.
Thanks for the question you know.
We've been talking for a while now how the company's them wanting to approve our margins and part of that was the.
The premise for the asset rotation, and obviously, having bigger stores and better markets will help us there, but at the same time, we've been really laser focused on how to improve our our margins at the store level and at the head office.
Part of it is right now right now has been Nevada over a year since we launched it and initially when we did it we expect to the you got some.
Fishing season, the payroll level and we're pleased to say that we've we've been recognizing them.
Sooner than we expected to think about it 10% of our breadth of our move ins are now directly handled by our comes customers are not going.
To the calendar, but are not calling account call center and so forth. So that is a big chunk of it but obviously we are not just focused on right now we're embracing other technologies to really improve efficiencies at the store level to really drive down the number FCB per store that we currently have and were play.
Currently have and how can we improve how can we make them more efficient at the store level, how can we reduced the need for double coverage things like this you know online auctions going paperless, how many bank runs a store manager has to do a week all of these things add up to efficiencies and fewer hours at the store. So we're really pleased with it.
These are real savings that we're seeing today and everything that we have.
Guided for in 2020 is what we see from what we are already achieving today, there will be new initiatives next year, new ideas that we come up with we haven't factored those into our guidance that's upside, but we continue to work hard the team has great ideas, a great experience and we're looking at everything that we do in the store level.
And that's really the premise of 2020.
Got it thanks for the color and for my second question.
Revenues for 19, so your current guidance would imply that Fourq you stabilize at that one eight similar to Q.
Thank you.
Okay. Your sense of the cadence of revenue growth moving forward revenue. If you feel as if revenues are allowed.
Sure surely yes, I think a few things that we like what we saw in Q3.
Net effective rates and an occupancy and you're right. So that fourth quarter, we see pretty consistent with what we saw in the third quarter.
Hey, Thanks, guys.
Hey.
Joe I guess I wanted to stick with that last point on the revenue front and go back to 2020 guidance I mean, if we look back you or your peers have never come out there is there anything given guidance just given the pullback in the seasonally slower season here, the more or less limited visibility in the sector you combine that with the current supply.
Sure and I guess Im just wondering what really gave you in the team the confidence to plan to stake in the ground at this point.
Any color on that.
Yes, thanks, Jeremy Thanks for the call.
Yes, we have changed protocol this year, but there's been a lot of moving parts as you know this year for US we took some dilution we sold a bunch of stores, we bought a bunch of stores, we launched a new technology. We've had a considerable amount of efficiencies and we saw somewhat of a disconnect with what was expected next year and what we really feel confident is what we're going to produce.
What about the efficiencies are ready, which were real which will be real on the revenue side I still believe you know.
You know that.
Same store projections is not only what we're going to see on the rates and what are our store level, but some other fee income that we're seeing this year from things like our captive and so forth, but we feel good about making that projection on Germany, you look at our top markets in particular, Chicago, New York, Houston, and then Youre greater market.
Chicago Houston in particular, if you look at you already his latest report those are the two markets on the top 30, I must say the at the lowest in terms of new supply.
We've already been hit with that supply, we don't see a lot of new construction coming on that gives us some comfort with those two markets in particular and then for sure in New York, We're not in the boroughs as much we have one store in long Island city, most of our stores long Island.
Up mid Hudson region, Northern New Jersey, we're not seen a ton of new supply affecting us we feel pretty good about our projections there.
Just in a particular you know we sought in the first quarter asking rates down pretty high double digits in 17, 18% and we've seen that got less negative over the year I think were mid single digits now correct any <unk>, 8% and we've seen occupancy kind of.
Improve a little bit and stabilize we feel really good that maybe you know the worst is behind us in Houston and then maybe the second half of next year, we'll see a positive.
And as a piece of the revenues side or that gives you some confidence still the push you're making on existing customers is that still one of the drivers here, you're you're seeing the results and you're seeing the confidence in and it's helping with that forecast at this point yes.
Exactly generally not only about two years of this oh, we feel very confident we're still testing some some different ideas with the play strategy. We have some different promotions out there that gives us a little bit more comfort to may be worked with occupancy where were lower than some of our larger competitors. We think we have a little room, there to improve that and what the more aggressive.
In play strategy, we think we can we can add a little there is not so much in our guidance I think we'll we'll see how that goes but we're excited about what we're seeing them, though in the last.
Six or seven weeks, we've been tweaking with our revenue management model. We've got some some new things that we're doing there were excited about that and that's that's kind of on the upside I think for next year, we'll see how it goes.
You know increase next year on the same store revenue.
Thanks you.
Yes.
What that looks like today versus before rollout of the right now platform.
Yes, I think the trends are similar what we saw yard.
Move ins are where the most struggle is right. So getting those move ins at the right rate and bringing them into maximize revenue. It's still in this part of supply cycle.
The challenge so we're seeing moving rates trend down and you see that quarter to quarter, but what we saw in September and October we like what the special is producing in that occupancy gap narrowing.
So we're comfortable with that.
On the the rate side, we like where our net effective is that gap is shrinking as well so you're right. It's the movements on the move outs. They continue to surprise us how aggressive we Ben we increased 73% of our customers during the year on a in play and are in place increases and the move outs have not ticked.
Up.
From last year, so that is spend the big surprises to move outs not ticking up based on how aggressively.
And Jonathan.
And then we spent really I would say efficiently on the paid side.
The real ideas I think that consumers are are a little bit more aware of options out there there's new supply. There's no stores that are being leased up theres. Some specials up there. So we're focused on improving that capture rate if somebody calls we do our best now we.
We've been doing some retraining in our and our call center and our sales team. We've got some new tactics that we've been experimenting with.
I think that bodes well for us heading into 2020 as we get into the peak season next year, I think we're going to be really well prepared to it.
We continue to improve our capture rate.
Third party platform growth in the quarter that saw 50 stores added where those mostly new deliveries or were there some flag transitions from from other third party operators.
Well, well 32 of them, where the stores that we sold the inland we kept added in the long term contracts.
We have no equity in that but.
They loved our platforms and that was a no brainer for them to to keep us as a manager we've since brought on a couple of more stores that they purchased and I would say the remainder 18 or so half are probably lease up and have for stabilized stores.
Okay.
Thats It for me thanks for the time appreciate it.
Thanks, Jonathan.
Our next question comes from Smits Rose with Citi. Please go ahead.
First I just wanted to ask you mentioned that 73% of cuts for Scott.
Rents increase since last or over the course at this here what is the average increase in rates that you've been able to push through.
Average increase Smedes this quarter was 10.4%, which is a little higher than it had been the previous quarter year to date it's.
999%.
Okay. Okay.
And then I did I just wanted to go back to your.
The fact that you think you can bring down cost at the property level in 2020, and I don't mean to undermine any of the things that you mentioned that none of them seeing.
All that sort of drastic in terms of cost savings and I'm just wondering if there's something maybe more sort of structural maybe.
Like the life storage platform that was acquired.
A while ago now or something that you that you've just been able to change more kind of holistically. That's.
Maybe sort of a catch up to just that's bringing more efficiencies to the system.
I don't think so speech I honestly, it's a number of initiatives that we're doing.
Right now is a big part of it that that is significant you know we brought on over 100 stores in the last year in our our call Center.
Ft is lower than it was despite bringing on 100 I mean that is part of right now.
Hours per store the FTC per store, you think about the number stores, we have and the number of people. We have an appeal. It adds up it provides significant savings if we can manage more efficiently we have different ideas, we have some multi store managers.
We do in a number of things like that repair maintenance is something where we've been focused on this year.
I think part of it is you know more discipline, we brought on a different software program to manage all of those projects last year and I think we're just starting to see the benefit of a better control better approval.
And that's a big part of it.
So there's a number of things going on a lot of it is again I'm trying to improve the efficiency at the store level.
And those dollars add up and we're very confident in what we have projected for 2020, because their savings that were already project that were already realizing.
Partly in the third quarter, we'll see it in the fourth quarter and we're going to carried on to into 2020.
Okay, and then just finally do you.
Sure.
Change in the same store pool for 2020 fat.
Some impact on the same store NOI protection.
[noise] you know, it's a minor change Redding 13 stores to our 504 star. So it's not a big change, but obviously normally those 13 starts would go higher than the rest, but the move the needle a whole lot they will.
Okay.
Thank you.
Thanks Mitch.
Our next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Hi, Thanks. Good morning, just first question so on.
For the 2020 guidance looks like the same store is expected to account for about 17 cents of growth from the 2019 mid points. Thats 578, you mentioned the non same store lease up some other initiatives.
Can you sort of decompose the other 22 cents a bit further help bridge that growth.
2019.
Sure.
Theres, a few things flowing through that right that the recycling is quite a bit in the pop right. So we sold those stores in the middle of the year that cost us about 16 cents an event a lie but the stores we bought on our adding 21 cents. So theres a positive five cents from that recycling.
The same store NOI with the initiatives I had a little bit more than nonetheless about 18 cents pop in ethanol from those the rest is the there's some see evolves. The the legacy Cmos that are leasing up nicely and had another six cents.
Management fees.
All writing another six cents or so so there's a few of those other things and warehouse anywhere and the insurance program, which we implemented on April one we have a full year next year and we'd like the results were seeing from that.
Okay. That's helpful. And then in terms of the same store can can you share what your forecast for for occupancy as throughout the year in 2020.
You know you're you clawed back a little bit of occupancy here, but you are still lower year over year or are you expecting to too.
To close that gap and and trend higher on the occupancy front.
Yeah, I think what we predicted and through the modeling is that we would close the gap through next year. So as we go through the year, we would expect that now 80 basis points to be flat to positive late in the year.
Okay and last question you just you just mentioned warehouse anywhere.
Amongst some of the initiatives there I know thats been in motion for some time.
You recently made a higher to help with that effort can you just provide.
Little bit more detailed there an update on on your efforts there overall and talk about.
So some of the income that you're you're starting to generate from from that initiative.
Yeah, Hi, Todd.
We're excited about warehouse anywhere we look at it as a tool for our business customers right. We have always been focused on business customers that come out with some technology that we think plays well into the whole idea over the last mile.
Generate some decent fee income for us obviously generate some rental income we haven't really forecasted in our in our 2020 got into big pop from warehouse anywhere you know, it's still too very young I mean, there could be some upside there we knew higher has been great Weve I think we brought on four or five new contracts in the last month of larger household names, but you know takes time.
For us to see what those really mean, they want to come in they want to we've got to work on a kind of a pilot we have a testings out and sometimes it works and sometimes it doesn't.
But the noise the.
I would say the at the visibility of this product is gaining speed were cut companies are finding us just through search now which is great, but we haven't really forecasted a big Spike I.
I think compared to this year.
Sense, maybe improvement from what we experienced this year into 2020, but not a time, but we're excited about it.
But it's still in its infancy.
Well, we'll see how it goes but again our customers love it it's a differentiator for US I think we're talking to third party clients and we show them are our warehouse anywhere in our rent now it come to our office. They get excited about anything is helping us win some business. So there's some intangibles to warehouse anywhere.
That don't equate to.
Specific dollars to that business, we are winning contracts from it and we're excited about it.
Okay, great. Thank you.
Our next question comes from Steve Sakwa with Evercore. Please go ahead.
Thanks, I know a lot of focus has been on 2020, just on the Internet marketing side, you know clearly youre trend is is very different than some of your larger peers, who maybe are focusing a bit more on maintaining occupancy in your occupancy as his dip more just help us think through sort of what you're doing to kind of close that gap if you're now.
Not spending it on internet marketing in a what exactly are you doing.
Well, we are we definitely are spending on marketing our marketing has been up Steve.
We have one benefit where we had a bucket of of funds that we had.
Spend even marketing that.
Last couple of years has been really building the brand for traditional marketing the new life brand and we really started decide about halfway this year to move those funds right into our Internet marketing. So there is an increase in internet marketing, but the overall marketing line is offset by that kind of moving from the right hand to the left hand, but in general you know obviously, we're watching move in.
Still got to show up on organic you still got to show up on maps and paid search is obviously, becoming more important.
You know, we kind of watch the clicks the hits that we're getting.
Making sure that were being found and as I said earlier, we are at record highs in terms of the clicks and then it really comes down to sales tactics revenue management promotions and so forth. So you know we don't feel we need to just spread out our internet speed and be number one and every market. We can be smart with it we are smart with it we have an in house marketing.
What was it was excellent they learned a time when we did the brand change from uncle Bobs to life storage and I think thats paying dividends today from what what they learn.
So I think it's being smart with the dollars. We're spending we want to make sure that we're not paying for an AD in Nashville them or not in Nashville, We do a lot of that and you do see some as if you're if you go around the country and yes, you do a search you might see a store pop up that's not even in that market, we really work hard to make sure that our dollars our spend to pro.
Obviously, we even look at the time of day, when we should be bidding on auction does not all the time. So I think we're very efficient were very smart with those dollars.
Well, we do expect them to go up next year, I think we budgeted 15, 15% growth minimal watches and see how it goes.
Okay, and just to come back to the kind of the Ft point, Joe I kind of appreciate your ability to sort of change the organization over the past year. So.
And I realize those are sort of sensitive discussions, but is there a way to sort of quantify for US you know what the change in may be ft. Ease has been that is effectively built into the guidance for next year just to help us understand maybe how much of those changes have already taken place and what the size of those are.
It is not going it is it is sensitive most of it Steve has been through attrition.
Part of the field for all of US is a high level turnover in the assistant manager roles you know, they're not typically full time.
Positions.
So thats, usually the highest turnover rate in an organization.
Less dependency on that workforce helps so are part of it is that a part of it is not rehiring positions and being smarter about double coverage and where we should have.
Stores with.
You know two persons and so forth.
We've tested some reduced hours because of right now we're going to continue to test that next year, but we havent built any of that into our our guidance. It really is kind of taken.
A certain number of ft per store in trying to bring that ratio down a bit.
Rather not talk about it but it's definitely trying to improve that number of up to 80 per store in general and we're making progress already and we're building that into our guidance and we feel comfortable with it and by the way we haven't.
You don't projected for example, right now being 15% of our Movings next year or 20% we've kept at a tad.
We're hoping that it goes up we don't know, but we haven't you know we haven't tried to be.
Aggressive or or whatever we have a pretty conservative there that will be a 10% of our movements next year I would expect it to go up but we havent built any growth in that in that channel because obviously any growth in the retinal channel will help us on payroll as well, obviously, if we had 30% of our movement going through right now that would be a considerable amount of savings.
We have not built in to our guidance.
Okay, and just to clarify letting somebody asked about average occupancy next year. So if I'm looking at this right your.
Your nine months occupancy weighted average is down about 110 basis points, just what you're assuming that maybe it's around that number to close out the year. What is the occupancy gain next year, then factored into guidance.
I can see Steve is that if it we match up next year. So we today's 80% goes to zero percent gap. So it's not like we growing occupancy we just expected to be the gap narrow that one tenant is now about eight we Steve we are going to be a little more focus on occupancy that hasn't really been one of our drivers of the past, but as we said earlier.
We got to.
Different in play strategy, we've got some ideas on revenue management, some things that I think are unique to the industry.
I believe that's going to help us close that gap and we're already seeing within a month and close about 2025 basis points. So we feel pretty comfortable with that and again.
Out of the supply in new construction in some of our top markets is behind us.
And you know, we're not face with some of the yes, we have some markets like Miami in Atlanta.
But you know we're not in some of those other hot markets, Denver, and Nashville, Portland, and so forth that you know are just getting hit hard now some of our larger markets you know that the New York region Buffalo.
Cargo Houston or kind of behind US Vegas. So we feel that's that's a pretty achievable I would like to be more than 110, but we'll start with that.
And we feel pretty good about achieving it.
Okay. Thanks.
Our next question comes from Ki bin Kim with Suntrust. Please go ahead.
Thanks, Good morning out there.
You guys talked about the reason for putting out 20 to 2020 guidance that you thought the market. Our investors just had a different opinion about your growth rate versus what you guys are seeing.
But you know it just feels like there there's probably some other reasons why you would want put out a flag like this I mean, especially given that we are in a a declining environment and maybe things are little bit hazy looking forward.
What was there any other reasons why you felt like you want to put out guidance.
[noise] fairly well I think yeah keep in the real real.
The real rationale is we've had a lot of moving parts right and then where we do talk to our investors at the conference is we do Mdrs and we wanted to get out and be more transparent about what we really are seeing we're seeing some real efficiencies hitting our books and will benefit us next year, we're going to name a couple of weeks.
We want to talk about it because these are real savings there are significant we had a lot of going on this year with the sale of several properties with the purchase a new properties the timing of those so for US. It just makes sense, but we do an extra this time I don't know we may not ever reason for it but we feel very good about a lot of things that gave us confidence to go out there in.
That's really that's that's the reason.
Okay, and you said net effective Street me for down 2.5% this quarter.
Implicit in that 2020 guidance. So what are you expecting for a net effective rate.
So they were down 2.2% during the quarter and we expect them to be down I think the occupancy as Joe just mentioned the occupancy is where some of the revenue growth will come from not from the rate side. We don't expect a whole lot of the traction on the rate side outside of some of our markets were seeing traction in Chicago in Houston It better on that the end of the cycle, we're starting to.
See houston's negative rate trend.
Lesson, so we'd like what we see trends in our top markets and I think but I think it's still going to be negative overall.
So just trying to think about the together if rates are going to be negative.
And how do you said it earlier because Steve thought was question occupancy will be you'll get a benefit but it's really zero. So it's a comp benefit.
And your thinks revenue for cats is 1.75% is that that's basically imply that the existing customer rate increase program is driving the growth.
Correct and will drive most of the growth yeah. That's what we saw this year and that's we're planning for next year. So we believe that's pretty you know that's the right thing to do.
Okay and just last question.
You know underlying that guidance it doesn't matter Oh, how your biggest markets perform next year.
So how much good news are you embedding in that guidance for some of your biggest markets like Chicago Houston.
Well, we're showing Houston has negative next year. So it's not a whole lot of good news there, but second half of the year it looks better than the first half we'll put it that way, but is still we expect to be negative Chicago, we expect to be steady it has been steady in the last three quarters.
At a mid twos, the three range and that's what we would expect Miami is another story that would be a negative mark and Thats what were predicting down 3%. So there's some markets that we're expecting to be down or some of the Florida markets Miami.
Orlando.
In Charlotte and your own there's some markets, we expect to go backwards, but theres lot of steady markets a lot of our markets are holding steady and that's what we are showing next year.
Okay. Thank you.
Sure.
Our next question comes from Ryan Levine with Green Street Advisors. Please go ahead.
Hi, Thanks, guys.
Just want to circle back on the 70% and it shows.
In place tenants got increases.
What does that number kind of on a year over year base or what was in past years for point of comparison.
See last year was 60% on the same store the year before that it was much lower I don't have calculated here, but it was much lower sorry, yeah. Yeah. There's about 30 has been a double 18 over 17. So again last year, we hit the what there's 60, almost 63% of our customers over a year, we hit them in 18 and 19 we.
A little more aggressive hitting earlier in the cycle after move and so it got we had more than thats customers that had been what this more than a year.
Sure do you think like 70% ish is kind of the high watermark or do you guys and go higher from there.
Well I think Theres always things you can tweak in that I think we think there's a little bit left there not a whole not it never changed from 60 to 70, but there's a there's some change there's some change there and proud to be more effective with us.
Sure and then in in the past you guys, who sort of commented on.
Right now in sort of the adoption rate or the or the pace of adoption can you would you define it as the pace of adoption is accelerating at this point because there's a lot of the optimism that seems like there is baked into 2020 does have this you know right now is a piece of that puzzle. It sounds like so just wondering if you guys were seeing some sort of accelerating adoption of that.
Program.
Well you know since we rolled it out fully Ryan it kind of went from seven eight to now we're seeing nine to 10, it's gotten only been a half a year. So.
So you know we're not seeing it just at this time of year, it's kind of the slower season, we're seeing that kind of at 10%.
We haven't baked in any any increase in our guidance.
We think as it becomes more known and repeat customers. These sort of things what expected to go up but.
Right now, we're seeing a 10%.
We don't really know how quickly or how far it will go up I think over overtime. It will go up I don't know when and how quickly.
Sure and then last question.
Now, let's sort of come out with a number of sort of Colm innovated programs.
In the past you know you're so.
Where else anywhere right now and it sounds like there's a handful of others in the Hopper just wondering I mean valet storage is out there in the news any interest in developing something along those lines.
We watch that space, we know we know some of the larger parties out there.
You know were our warehouse anywhere is.
Our business the business anyway, we have careers, we have pick pack and ship, we kind of provide dalai for businesses right now.
We're going to wash us pay I personally believe there's there are customers out there who want their stuff picked up you know on I think we should be aware of it and you know what we'll see where it goes.
But it's it's interesting one you know there's lot of money being spent on it they have the challenge is finding customers.
But then they want to know whether things are.
Right. They want to know they want to go get them when they want them.
And well see where it goes but.
You know I'm, we're keeping our eyes on that space, but we're not we don't feel threatened by you know your P.S. came out with something recently, there's been service you know we looked at our five by fives and our whole.
Franchise, it's a very small amount of our inventory.
And that's even bigger than the bids that there are selling I'm not sure if that will go well that really are cup of tea, but.
You know, there's some investment going in it so we'd be silly not to keep our eyes open in two years ago ears open.
Sure. Thanks, so much guys.
Right.
Our next question comes from Jon Petersen with Jefferies. Please go ahead.
Great. Thanks, a another 2020 guidance question if I can I'm curious what are the assumes in terms of capital recycling and you get an acquisition guidance. What are you guys thinking in terms of dispositions or.
Thank you gave some color on JV contributions and maybe how is how should we think about you guys can team to dispose of properties.
Yes, I mean, we've done a heck of a job this year with some acquisition some real nice acquisitions, 80% of them are kind of off market. We have a great in house team, we've got some visibility and some sums some pretty good pipeline. We feel confident we can get to 200 million next year I love. The Jvs you know we brought on some new strategic partners. This year.
I think it's a great way to just capital, it's a great way to get to get more scale, we're going to continue to focus on that dispositions, no where we're done with dispositions or maybe one or two with.
There's someone wants to put up a multifamily in a in a property and willing to pay a three cap, but other than that no. That's another reason for I'm kind of coming out with our guidance because there was some I guess some questions and thought that maybe take some more dilution next year and do more recaps wanted to be clear that that's not in the plans for 2020.
Okay, and then I think you mentioned you'd like to about 303rd Party management partners by the ended the year anyway. I think you stated just kind of generally with the guidance that you expect to continue to grow that platform next year, but I guess the do the FFO per share numbers include an assumption of of an increase than in the third.
Party management business and what is that yes, I think we built in about 50 stores, which is my view conservative given our run rate, but when we were conservative there was you know there's.
Some great players out there, there's some new competitors publix getting into the space.
But we built in 50 in and I think that that's not going good problem. I mean, obviously, we have so contracts already signed for deliveries in 2020. So we have an idea of how many where are you gonna get just because the stores are going to open next year. So we feel good about it the pipeline has never been stronger.
Technology in our platforms are getting a lot of attention in the industry. We are at the Vegas show a couple of months ago.
We didn't have enough time for to meet everybody everybody wants to hear about our our products our technology and its a great selling point and as you can see they're delivering real savings and real efficiencies to our business and owners do that so.
So we think that business is going to continue to grow nicely and John that obviously this started we bought on this year will be there for a hole in their full year next year. So it's about a 20% increase in that line built into the guidance.
Okay, Great Alright, nice job on the quarter. Thanks, guys.
Thanks, John .
Our next question is a follow up from Jeremy Metz with BMO capital markets. Please go ahead.
Hey, guys, just one quick follow up going back to the margin discussion.
Are there can you break down how much of that is right now versus other initiatives and then I guess looking further out what is it realistic goal as you see it in terms of where you expect margin so ultimately get.
And by what point thanks.
Okay, Jeremy the the right now in the personnel savings is a big part of that.
The efficiencies, we're getting what I might auction DSG and the are an m. also.
Add two we figured 50 basis point improvement in the same store margin next year, and we think theres another year after that where we can improve it obviously our market mix drive some of our margins when Chicago's your largest market. That's it that's a low margin a city, but the the other markets, where we see some margin improvement compared to others out there we.
Theres potential there to grow at 50 next year in 50 your after that.
Thanks.
Our next question is another follow up from Smedes Rose with Citi. Please go ahead.
It's Michael Bilerman here, It's me.
I'm, just wondering I'm sort of understand from just the guidance perspective.
Overall, what sort of level of conservatism you sort of built in 2020 guide in the sense of <unk>.
And I appreciate all the detail them wanting to get ahead of this and really demonstrate the street about all the changes that are going on some preface it by saying I think it's good that you're trying to do that.
I would assume Joe you want to being a position where you're going to beat and raise throughout the year into.
You know I want to understand sort of think comprising all the component.
Typically probably on the revenue side it sounds like it's pretty good handle on the expense initiatives that you haven't how that translates into next year and obviously the property taxes being a big chunk of it and knowing that that that piece you have a good handle on either going to handle on the new stores that have rolled into.
Form you have a good handle on.
The financing side of the business. So it really comes down to the revenue side.
And I really want to understand sort of what you know what sort of.
You've built in from a.
Conservatism on that front.
Yeah well.
Sure I think.
No. They are conservative obviously, it's a little earlier than we normally do it.
But there's some there's some fee income and improvements in fee that you talked about the captive insurance to some other things that we have there that we built into it I think those are our conservative and I don't think there's much upside to what we put in.
The revenue side, just the same store revenue I think you like we're looking at Houston for example.
So our gut is you know it will turn positive in the second half of the year, but we didnt, we didn't forecast for that so there could be some upside there.
I think in general we took a more cautious view on some of our markets, but again, we're cautiously optimistic about some of our markets. We see some of our larger markets. The new supply is not going to be as many deliveries in the past.
We're seeing for example in Houston, our Hakan occupancy.
Around and improve in the next thing I would expect would be rate, but again, we're conservative there. So you know as we get into the next earnings call. We'll have obviously, a little better view on it and maybe we'll adjusted or maybe not.
But I think overall, we were we were conservative Michael but that the whole ideas the efficiencies and the effects of the whole rotation program. You know, we really needed to spell that out better and that those these we feel very confident.
With what we put out there I don't have any as anything to add on that no. I think we went through the markets, where we definitely do see some pressure in markets, where we will be negative I mean, we've been surprised by Dallas year to date, but there's another market. We don't think holds positive next year. So you know when we look through in random models.
Comfortable that there's some conservative continued rate pressure.
Continue new supply in many markets, but a few of our top markets or feel very comfortable.
And then is there and then embedded view on street rate for 2020 embedded in that revenue outlook.
Yeah, I mean, we still expect street rates to be down year over year net effective.
With our specials and how we're handling those we think's less the street rates less less impactful and how quickly in the lifecycle of a new customer we raised the rents. We think street rates is less impact, but we have to get those customers in the door and then once they're in the door.
We treat them a little differently than we had passed.
And then and I apologize if I Miss this what percentage of embedded in.
2019, so you're going to 2% revenue growth what percentage of existing customers and the rate.
Increase that they talk versus what's now embedded in 2020 for the same thing. So just on an apples to apples basis. You know is that number increasing in terms of existing customer base that you're assuming it's a declining or is it remaining the same.
Oh, it's increasing slightly like say year to date, where we've had 73% of our customers. We see a slight increase in that just because of doing it a little earlier in the lifecycle.
So that that potentially poses some level of risk if you if some of the customers push back on the rate increases one or two you know decide to leave and you have to funnel them with a new customer with their rate probably being down rather than being up.
Yeah, I think we're in a better positioned than others and yeah. We had rent roll up in this quarter, which is not you know not a whole lot in the industry are seeing that we could do get rent roll down and we will see that in the fourth quarter, but I think we're in it and the good spot from a rate point of view of where our current customers are at were relatively new at pushing them above street right. So.
It's less of an issue in our portfolio.
And then from an occupancy youre, assuming year over year for the year to be flat.
You can see was correct to get to get to flat. It will start negatively expected to get to flat.
Right, but if on average for the full year, you're assuming an average occupancy in 2020 inline with what it was in 2019 to no deterioration in a pick up.
From a potential I would you know for the whole year would be slightly it's that we expected to be slightly down and 21.
Although that is you know initiative, we're dealing with and we think we have the most room there to move it higher yes.
Okay, all right thanks to the color.
Thanks, Mike.
That is all the questions we have I would like to turn the conference back over to justify the for any closing remarks.
Yeah, well thank you everyone.
First I wanted just congratulate all those national fans well done and then obviously wish everyone, a a happy and safe Halloween and we look forward to see many of you end up in a few weeks and a in L.A.. Thanks again for dialing in.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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