Q4 2020 Public Storage Earnings Call

Ladies and gentlemen, and thank you for standing by and welcome.

To the public storage fourth quarter and full year 2020 earnings call. At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. If you have a question at that time. Please press star one on your Touchtone phone, if you wish to remove yourself.

From the queue. Please press the pound key.

Now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations Ryan you may begin.

Thank you Erica Hello, everyone. Thank you for joining us for our fourth quarter 2020 earnings call I'm here with Joe Russell and Tom Boyle before we begin we want to remind you that aside from those of historical facts. All statements. On this call are forward looking in nature and are subject to risks and uncertainties that could cause actual results to differ materially from those statements. These rich.

<unk> and other factors could adversely affect our business and future results as described in yesterday's earnings release, and our reports filed with the SEC.

All forward looking statements speak only as of today February 25, 2021, we assume no obligation to update or revise any of the statements whether as a result of new information future events or otherwise.

Reconciliation to GAAP of the non-GAAP financial measures measures. We provide on this call is included in our earnings release, you can find our earnings release SEC reports earnings supplement and an audio replay of this conference call on our website public storage dot com with that I'll turn it over to Joe.

Thanks, Ryan Good morning, and thank you for joining us.

Before we begin and on behalf of the entire public storage team I Hope you and your families are well as we all navigate through this pandemic.

Looking back at the full range of events in 2020, it was clearly a year of historic extremes.

The year began with the predicted consequences from oversupply in several markets.

In Q2 full force at full focus shifted to managing a myriad of unknown issues tied to the virus.

This included judging impacts on our employees customers operations development approvals acquisition volume and full company revenue with an overarching effort to maintain a safe environment and keep properties open.

By Q3, we saw pronounced customer activity emerge as a result of both traditional and new drivers of demand.

In the fourth quarter and into this year, we have seen sustained demand that has lifted the traditional seasonal slowdown in our business, resulting in historic occupancy and move in rate growth.

I commend the public storage team on the numerous successes, we had in 2020 and their ability to be nimble and creative in an environment, we have never faced before.

Now I would like to highlight a specific areas of success as I reflect on the full year and on the fourth quarter.

First the integration of technology unlocked, a new contact less leasing channel, which we call E rental.

Which now accounts for nearly 50% of our move ins.

Approximately 300000 customers use this new offering in 2020.

Second moving rates grew by 12% in Q4.

Compared to negative 14% in Q2.

Third we reached fourth quarter occupancy of 95, 2% a record for this time of the year.

Fourth the robust lease up of our 32 million square foot non same store portfolio led to 26% NOI growth for both the quarter and the year.

Fifth after two full years, our third party management business has expanded to 120 properties with a growing backlog as we enter 2021.

Six our industry, leading development platform has produced a current pipeline of $560 million as we deliver generation five assets across the United States.

Seventh the acquisition team sourced nearly $800 million of assets in 2020 with over $500 million in Q4.

And we are entering 2021 with an equally vibrant pipeline of 500 $880 million.

And last our focus on the continued optimization of our balance sheet with record low issuances of preferred equity and debt.

As we begin 2021, we are well equipped and focused on driving company performance on several fronts.

Our advantages include a well prime capital structure.

Broad and growing benefits of the Digitization of our business.

Record occupancy and of course, the most commanding platform and brand in the self storage industry.

The public storage leadership team and I look forward to share more of these strategies and our upcoming Investor day on May 3rd.

Now I'll turn the call over to Tom.

Thanks, Joe.

Financial performance improved steadily through the second half of 2020 with a return to positive same store revenue NOI and full company core <unk> growth in the fourth quarter.

Our same store revenue increased 8% compared to the fourth quarter of 2019, which represents a sequential improvement in growth of three 5% from the third quarter.

There were two primary factors contributing to that improvement.

First and foremost move in rates as Joe highlighted were up double digits, while move out rates were roughly flat year over year, which led to improving in place rents.

To a lesser extent occupancy also increased with move in volume down, but move out volume down lower.

Now onto expenses the team did a great job driving same store cost of operations down in the fourth quarter.

Lower expenses were driven by property payroll taxes utilities and marketing.

The net result was a return to positive NOI growth of one 3% in the fourth quarter.

On the reporting front, we enhance the presentation of same store expenses this quarter.

We broke expenses into two categories first direct cost of operations and second indirect cost of operations.

This provides enhanced disclosure into property level profitability, which once again demonstrates our industry leading operating margins.

We also posted our first earnings supplement on our website last night, which we hope you found helpful along with our 10-K.

Next our balance sheet.

It's in great shape with two drivers of cash flow growth.

First as we have for the last five years, we have the capability to fund acquisitions and development activity with retained cash flow and unsecured debt.

Historically low financing costs and second we have the opportunity to redeem preferred stock as we move through the year.

As we enter 2021, we've seen continued strength in customer demand with Occupancies up 250 basis points and in place contract rent per occupied square foot turning into positive year over year territory in January.

The outlook for revenue growth is good with support from demand and moderating supply that.

That said, we do see risks to both move outs as well as lingering state of emergency pricing restrictions as we move through the year.

We expect continued strong expense control in 2021, we provide line by line commentary in our disclosure.

<unk> tax expense growth is expected to pick up.

With around a five 5% increase for the year anticipated.

But away from that better performance by utilizing technology to change operating processes and investing in energy efficiency, We anticipate continued savings on property payroll and utilities.

And a better marketing expense environment, as we're operating with lower vacancies.

In sum and improving revenue outlook and strong expense control as we start 2021.

With that I'll turn it back to Ryan.

Thanks, Tom we do ask that you initially limit yourself to two questions of course feel free to jump back in queue for follow up with that Erica, let's please open it up for Q&A.

As a reminder to ask a question you will need to press star one to withdraw your question press the pound key.

And while we compile the Q&A roster.

Your first question comes from Joseph Spak with Bank of America.

Great. Thank you here with my colleague Lula ask you back.

Yes. Thank you for the supplemental we thought it was excellent very helpful. Also appreciate the initial comments in 'twenty one outlook.

And we take those commentary cereal.

I guess can we just expand on that a little bit more.

I know, we know there's still risks out there, but it seems very clear that day.

Youre optimistic on 'twenty, one and that demand should remain stable strong.

Yes, Jeff.

One of the things, that's leading to a change in demand and consumer behavior to some degree is tied to the pandemic. We are seeing some interesting.

And new areas of customer behavior surfacing, you could point to the work from home environment. So that's pronounced widespread we're seeing it across literally all markets has provided an additive driver to the amount of activity that we're seeing one of the things that we do.

Do on a regular basis, a survey new customers coming into properties and in 2021 of the areas. It was more pronounced with customers needing more space at home so clearly ties to.

The entire work from home environment.

New and different through 2020 likely.

To stay through a good chunk of 2021 and beyond because frankly I think many components of work from home are here for a much longer period of time that we might have predicted another thing thats been additive home sales have been quite vibrant even from a seasonality standpoint, we're seeing much more activity. This time of the year that we normally would.

Do.

So that too is added to the amount of activity and the overall demand that we're seeing across many markets.

There's really been no distinction from activity in <unk>.