Q2 2021 Public Storage Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the public storage second quarter 2021 earnings call. At this time, all participants have been placed on a listen only mode and the.
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It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations Ryan you may begin.
Thank you Tamika and Hello, everyone. Thank you for joining us for our second quarter of 2021 on earnings call on here with Joe Russell and Tom Boyle before we began and we want to remind you that certain matters discussed during this call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties.
All forward looking statements speak only as of today August 4.2021, and we assume no obligation to update revise our supplement statements become untrue because of the subsequent events a reconciliation to GAAP of the non-GAAP financial measures. We provide on this call is included on our earnings release, you can find our press release supplemental report SEC <unk>.
<unk> and an audio replay of this conference call on our website at public storage Dot com.
We do ask that you initially limit yourself to the 2 questions of course after 2 if you have further questions. Please feel free to jump back in queue with that I will turn the call over to Joe.
Thanks, Ryan Good morning, and thank you for joining us Tom.
Tom and I will walk you through some highlights from Q2 as well as our perspective on the second half of the year and then we will open up the call for questions.
I'd like to start by stating the obvious business is excellent.
Moving rates are up 27% from where they were in 2019 and there is little evidence the pricing strength is abating.
A meaningful wave of new first time customers are using storage based on the combination of traditional and non traditional reasons.
And 2021, we have welcomed nearly 700000, new customers to our platform.
Having never use self storage before.
Demand has been strong for several quarters with upward pressure tied to vibrant home sales up 34% year over year.
In addition of hybrid work home environment is being planned by 68% of companies. According to a recent Deloitte survey.
This certainly gives us confidence that overall adoption of self storage will continue to grow and is looked upon favorably by consumers and businesses as a cost efficient alternative to storing goods and residential or commercial space.
I'd like to step back for a moment and reflect on a on may 3rd Investor day.
The public storage leadership team took you behind the orange door and outlined several strategic initiatives.
I am pleased to say many of these strategies are taking hold in 2021 and I'd like to highlight 3 areas that were particularly evident and our Q2 results.
First on.
The Gannett growth powered by innovation.
Our multi year and continued investment and technology has allowed us to give customers what they want.
And efficient and more consistent leasing and experience with the support of our knowledgeable and helpful property manager when needed.
Our industry, leading online rental platform opened up and entirely new channel for customers to rent a self storage unit and adoption has been impressive.
Nearly 50% of our customers now select this option.
It's fast intuitive and simple.
What's even better the quality of the customers using this option has been excellent and our employees have embraced it as well.
We are already seeing the impact of this new channel will have on labor utilization, while improving customer satisfaction.
This has clearly been a win win for customers and our operations team.
And 2021, we also launched the PFS storage App give.
Giving customers on new tool to access their property the smartphone along with the ability to manage their accounts, including automatic payment of rent.
Yeah.
Second our 4 factor of growth platform.
Public storage is uniquely positioned to drive growth through acquisitions and development redevelopment and third party management.
All areas took steps forward in Q2.
Acquisition volume is robust.
Year to date, we have closed or are under contract on nearly $3 billion of assets.
The $1.8 billion easy storage portfolio closed 90 days ago.
And the integration and performance of those assets has exceeded expectations.
Our development and redevelopment pipeline continues to grow up of $150 million. This quarter as we are seeing good opportunities to expand the largest development program and the industry.
And third party management is growing with assets under management to 131 properties, along with the deepening pipeline of assets under review.
Our goal is to reach 500 assets by 2025.
Overall, our non same store assets added 20 of <unk> this quarter with NOI up of 138%.
Driven by improving yields on both development redevelopment and acquisitions.
This 34 million square foot base of assets is now 86% occupied compared to the same store portfolio at 96, 5%.
And with strong momentum to drive additional shareholder value.
And third.
And the utilization of our exceptional balance sheet.
This quarter, we funded $2.3 billion and transactions through bond issuances.
The driving down our blended cost of leverage to 3.1%.
Public storage has the longest duration balance sheet and the REIT industry with 1 of the lowest cost profiles.
With room to fund significant additional growth.
Overall, we remain optimistic about the core drivers and our business along with the commanding capabilities tied to the public storage brand.
Our industry, leading ownership position and core national markets.
All led by a talented and committed team of professionals and every part of our business.
And I will hand, the call over to Tom.
Thanks, Joe.
Our financial performance accelerated into the second quarter, driven by both strong demand from customers and execution from the team our same store revenue increased 10, 8% compared to the second quarter of 2020.
That performance represented a sequential improvement and growth of 7.4% from the first quarter driven by rate.
2 factors led to the acceleration and realized rent per foot.
First about half came from strong demand and the limited inventory, which allowed us to achieve move in rates that were up 48% versus 2020, and as Joe mentioned, 27% versus pre pandemic 2019.
Secondly, the existing tenant rate increases also made up about half of the improvement comparing against the period. When we did not send increases at the onset of the pandemic and 2020.
Now on to expenses the team did a great job executing in this environment lower expenses were driven by property payroll utilities marketing and the timing benefit on property taxes on.
On property payroll, we discussed at our Investor day, the operating model transformation underway.
Half of the year over year decline and payroll expense was attributable to those initiatives that use technology and role of specialization to drive improvements and customer experience employee experience and our expense levels.
And the other half of the payroll decline is comparing against the onset of the pandemic last year. When we put in place of program that we called the PS cares program to provide additional support to our operations team including of $3 per hour incentive for property managers.
On property tax we will expense our annual estimate ratably through the year, leading to an approximately <unk> <unk> benefit and each of the first 3 quarters of the year and reversing 2 of 15 headwind and the fourth quarter. This will lead to a more stable quarter over quarter expense profile and the future.
And total net operating income for the same store pool of stabilized properties was up 21, 7% and the quarter.
In addition to the same store as Joe mentioned, the lease up and performance of recently acquired and developed the facilities was also a standout in the quarter, adding 35 million and the NOI or <unk> of <unk>.
As we sit here today at the peak of the leasing season customer demand remains robust and business is good so let's shift to the outlook.
We raised our core <unk> guidance by 55 cents at the midpoint or 4.8%.
Looking at the drivers we increased our outlook for same store revenue to grow from 7 to 8.5% and 2021.
That outlook implies a faster rate of growth and the second half compared to a 7.1% growth and the first half.
Our current expectations are for occupancy to moderate from here by about 300 basis points from peak now to trough at the end of the year. This would generally reflect a return to typical seasonal ality of the business, albeit at higher Occupancies and historically achieved.
But big picture the Baton has clearly been passed to rate growth and the second quarter, which will be the driver of performance in the second half.
We also expect continued strong expense control throughout 2021, our expectations are for zero to 1% same store expense growth.
And we also increased our guidance for non same store performance given the acceleration of acquisitions and the strong lease up of our own stabilized facilities.
The balance sheet as Joe mentioned is poised for incremental activity and the second half of this year.
To wrap up business is good and the strategies, we discussed at our Investor day in May are evident in this quarter.
With that I'll turn it over for questions.
At this time, if you would like to ask a question. Please press star 1 on your telephone keypad.
And if you'd like to ask the question Press Star 1.
Your first question is from the line of Jeff Spector with Bank of America.
Great Good afternoon, Mike.
My first question I guess I'm trying to tie a couple of the comments you mean.
Need I think Joe.
I know that you've been positive of course on the sector, but your opening remarks about the vibrant hope hope sales hybrid work environment.
Eddie Knits and overall adoption of the business to continue versus the.
The guidance of occupancy dropping through and your pits and in the slower months ahead, how do we tie those 2 comments together.
Yes, Jeff.
Business itself is as we noted quite strong we're seeing additive.
Momentum from different drivers and traditional drivers as I've mentioned.
The thing that's.
Questionable, but could play through as a reversion to some degree of what we would say normal.
Seasonality and some of the metrics that we've seen historically, which have gone into our guidance for the second half of the year now clearly if the momentum that we've seen for the last several quarters continues to be as strong as it has that could soften or not be as true.
As.
Typical as what we see from a seasonality standpoint, but that's to be determined.
We were very pleased by the continued level of demand that we're seeing from customers and our pricing abilities based on that demand clearly across all markets.
To some degree we're seeing a little bit of shifting and markets that may not have quite as pronounced.
And migration or overall movement, but still on a relative basis very healthy demand.
Thank you and then my follow up question is again on the opening remarks, Joe you commented on the adaption of business customers and.
I guess can you talk about that a little bit more are you are you.
Are you starting any new initiatives to grab that customer.
Sorry, and not as aware of that initiative.
PSA.
Is something changing here to try to do more with that business customer.
So Jeff we've always had a blended focus on both consumers and business customers property to property, we will see varying degree of demand that comes from either cohort.
Our business customers too are very active as you can imagine with the economy, starting to percolate and many different ways. Many businesses are coming back to properties that may have not use the space, 1 or 2 years ago with different economic drivers, but with the resurgence and the opening up of.
Many economies, we're just seeing again and elevated level of both consumer and business activity.
Our spaces catered of both we have good activity and we continue to cater to each type of customer whether again, it's a consumer or a business.
Okay, sorry, if I could just clarify so I knew that I am sorry, I should've been more clear.
Like you're not you don't have initiatives like 1 of your peers has micro fulfillment initiatives.
You are not are you moving in that direction, while I'm not speaking to that I'm speaking more to the holistic activity levels, we're seeing from both types of customers.
Okay.
Types of customer demand has been strong and we continue to see good activity and as I mentioned in some cases, depending on the location of the property you might have a higher degree of business oriented customers compared to another but very good activity from both types of customer base.
Okay. Thank you congrats on the quarter, great and thanks, Jeff.
Your next question is from the line of Juan Sanabria with BMO capital markets.
Good morning.
Wanted to follow up on the rate commentary about half of the increase you said came from.
Rate increases to existing customers I'm talking the same store revenue sorry, and.
And that was helped out by the easy comps with no real pumps being pass through the customers last year due to COVID-19.
So how should we think about that I guess and the second half of the year.
At what point, where I guess rate bumps reinstituted last year, if you could remind us.
And does that mean net rate growth and decelerates it that easy comp goes away or not necessarily because you're still having strong kind of great growth and new customers. You said youre nearly 30% above 2019 levels. So if you could just help us think about.
Those 2 components relative to your experience this year and how that plays out and the second half.
Yes, that's a good question 1 sort of last year, we did send those increases that we didn't send and the second quarter, we sent them and the third quarter.
But I wouldn't highlight that as a headwind and the second half of this year and the primary reason is it is driven by the fact that the magnitude of the increases that we can send this year are more elevated versus previous year and that goes back to.
Really 2 factors, 1 mood and rents being up as significantly as they are which gives us pricing power with existing tenants as well and then secondly last year, we were under pricing regulations and many many of our markets with this year. The majority of those having been expired. So those are both <unk>.
<unk> to existing tenant rate magnitude as we move to the second half. So we don't anticipate of big give back on existing tenants and the third quarter.
And just on the occupancy piece of the same store revenue guide the 300 bps that Youre assuming comes off of I am assuming the 630 number.
And the sequential deceleration could you just give us a sense of how that compares to ahead of the historical trend is that more or less and then the.
And your experiences and the past, yes, I want it is right and the ballpark of of the historical and generally speaking actually the the middle of July is our peak occupancy, we actually had occupancy of north of 97% and the middle of the July so theres, a little bit of incremental peaks there to be had from June 30 numbers, but overall generally.
And in line.
The real story and the second half as you highlighted is right, though and I think you can do.
Talk about occupancy a little bit here or there, but the driver will be how can we keep the pricing strength and play through the second half both from new customers and existing customers and that will drive performance more meaningfully through the second half.
And just to clarify use of typically your occupancy picks mid July but that hasn't necessarily come off this year that's.
Pretty sticky at least the date so early August.
No. It has started to come come off a little bit.
Very modestly I mean, we're still at the peak of the season here.
Got you. Thank you very much.
Thanks.
Your next question is from the line of Steve Butler with Evercore ISI.
Thanks.
First on just kind of the acquisition pipeline you guys have obviously been extremely busy this year.
Just curious what the kind of the forward pipeline looks like and how are kind of pricing expectations changing for sellers today.
And just given the amount of capital kind of chasing deals.
Sure Steve No question as I noted, yes, we've been busy we expect to continue to be busy there's a fair amount of product. That's in the market. If you step back and think about how much new products has been delivered to the sector over the last 4 of 5 years with <unk>.
Peak deliveries hitting in 2019.
Plus or -500, new assets being delivered to the market in 2019, and then tapering down a bit of 10% to 15% and 2020 and again and.
Other similar tapering down this year, but again, you take that whole pool of assets year by year that has been ranging of the last say 5 or 6 years from 3 years to 500 properties per year there is a.
Fair amount of very attractive good quality assets that we've been very pleased to go out and capture at what we feel are good values.
Any of which has been asset quality that we built 2 as well so from a value standpoint and of capital allocation standpoint, we've been very pleased with the pool of candidates that we've been able to acquire.
Much of this has also been.
Predicated on some of the unique tools that we have some of which we talked about and our investor day relative to the amount of data that we have market to market. The guides us to the targeted parts of markets or new markets that we're entering that may be underserved from a storage standpoint, so that to the different way in which that we're underwriting and choosing to acquire assets.
<unk>.
Valuations of competitive there's no doubt about it and to your point, we're seeing a fair amount of capital that's still anxious to get into self storage.
1 of the ways that we've been able to maneuver around that is buying assets that are not as stabilized more stabilized assets can typically attract far greater levels of competition tighter yields if on average you look at the pool of assets that we bought this year outside of easy storage average occupancies plus or -50.
The 60% and those have been great assets for us to put right into our platform.
Lease them up and see good revenue growth and very good returns by virtue of that so going forward. There is continued activity and many sellers are looking at this environment is a good time to bring product to market, whether it's on a 1 off basis or there is a few larger portfolio is likely to hit and the second half of 2021, our cash.
<unk> structure as well primed as I mentioned, we've been able to optimize the cost and efficiency of.
Our own leverage and we see very good opportunities to continue to allocate capital and we're continuing to underwrite a fair amount of assets.
But you sort of touched on capital structure, which kind of lead some of my second question.
You guys have clearly been willing to deploy leverage and take up and use the balance sheet capacity.
As pricing is rising and deals are offering lower yields I mean, how are you sort of balancing the use of the balance sheet today against the lower returns and maybe that means more development, but how are you sort of weighing the the point of capital and using the balance sheet with rising pricing.
Yes.
Maybe comment on a few of of your questions embedded there 1 we do view development is the continued good allocation of capital Joe mentioned that the pipeline increased by about $150 million this quarter, and we obviously outlined and the Investor day in May and plans to increase it a bit further from there.
In addition to that though we are finding good deals that will meet not just <unk>.
Marginal debt cost of capital, but ultimately our overall cost of capital and provide good returns based on our ability to take properties as Joe mentioned lease them up and earn a good return to stabilization and then rent growth from there. So overall, we're still finding good high quality deals that will exceed our cost of capital across the board.
And we have the balance sheet flexibility to use attractively priced unsecured debt to fund that.
Great. Thanks.
Thanks, Steve.
Your next question is from the line of Michael Goldsmith with UBS.
Hey, guys. Thanks, a lot for taking my question occupancy of the elevated the 97% average for the quarter. Obviously, the math suggests that some are above the average some are below so can you help frame how much of your same store pool is like 90, 899% of occupied are completely full.
Are you operating the stores differently.
And those where there is more upside and then as we think forward should we expect them all to experience seasonality of the same or or do you anticipate some differences between them.
Sure. So maybe looking at the market by market performance there is clear.
Differentiation and the market dynamics across the country. We do have many markets. If you look in the in the supplemental that highlight 96% to 98% Occupancies that are really strong versus historical and thats really being driven by the ability of.
Of us to attract new customers, but also the fact that our existing tenants are performing quite well and thats something we spent a lot of time talking about last year that has persisted into 2021. So that's allowed occupancies to creep higher but at this point with 97% of occupancy or even falling modestly from there it's about driving rate and.
As I mentioned that was really the story and the second quarter and through the second half.
Versus trying to drive incremental occupancy here, we're trying to balance that occupancy versus inventory, but clearly looking to drive rate.
In terms of strength within the markets.
There are some standouts.
And you look at what's going on for instance, and the <unk>.
State of Florida, we have particular strength there.
Population growth housing activity as Joe discussed, we're seeing really strong activity, there and really across the economy. There we view that as encouraging as we think about those strong pro cyclical demand drivers.
Driving our business, which is a counter to last year. When we did see some more counter cyclical drivers.
And we're driving the business at this point in time, so we're encouraged by that.
And we will see some some variation there by market in terms of of your question on occupancy, which markets will fall wishes, which will stay.
And there is.
Definitely trends and different markets.
That will influence that for instance, our colder markets tend to see of big healer seasonal swing and occupancy than our warmer markets, but it will vary.
Yes, Michael just to add our west coast markets from Seattle, all of the way down to see and San Diego.
Dealing with extremely high occupancy levels.
The amount of new supply coming on the those markets from the most parts of limited.
But on the other side of the barbell, which is really tight right now Houston, which has been a poster child for lower occupancy high supply I mean, Houston is at 95% that speaks to what Tom just talked about which is another added.
Driver that we're seeing and different parts of the country, primarily Texas and the southeast is.
Amplified levels of activity because of the migration.
And we're even looking for signals and some of that taper down and its not at all and even as many of those markets actually return to some level of normal.
And again activity from.
Opening up businesses et cetera, we really see no degradation and demand and or occupancy levels. So the continued fill up even higher supply markets has been quite pronounced and were pleased to see that and we're continuing to look for any signals if theres any reversion, but as we speak the band of very tight occupancy mark.
The market.
And is quite strong.
That's helpful and can you talk about the performance of the easy storage portfolio. Since you acquired it and get it at 86% of occupancy rate and are you can you share where it is now.
Maybe talk about how some of the lease up properties within of our performing and then.
If you can breakout kind of how.
How much of and.
The growth is reflective of the market versus what you've been able to to do with it and like what sort of initiatives you have kept and been able to put in to generate additional growth. Thanks sure. I mentioned, we're 90 days into the ownership of that portfolio. So.
We had about 115 properties in the Metro DC area and with the easy.
Portfolio now we're north of 160 so.
Very good activity from elevated occupancy growth the portfolio today, it's at about 94% occupied.
If you remember 1 of the things that we had talked about is the prior owner was very good operator, but also didn't have some of the sophisticated tools that we've been able to apply and of that portfolio and relation to.
Existing cuts customer tactics or strategies, we're starting to deploy those seeing of very good level of transition and integration, we inherited and about 43000 customers. We're seeing good continued tenancy good integration with our own existing portfolio.
And we've just begun the expansion process about 10% expansion is possible by.
Again, magnifying and some cases the.
Size of the properties in certain markets that had already been pre entitled So that too is taking place the properties of.
For the most part of gone through the first wave of rebranding.
They look great and Orange and we've also seen of very good integration from hiring a number of <unk>.
Very strong property managers and district managers that have come into our portfolio as well. So overall very pleased with what we've seen and we as I mentioned have a very strong presence and that market far beyond any other operator and the quality of these assets is very additive to what we've continued to do and see from a benefit standpoint and.
And Washington Metro market.
Thank you very much.
Thank you.
Your next question is from the line of Smedes Rose with Citi.
Hi, Thanks.
And I just wanted to ask you a little more about the.
And third party management platform and the path to get to 500 by I think year and 24, you said.
Mostly driven by new properties that are on deck to come on line or are you also adding just converting independent properties or maybe from other brands and the space.
Speeds the goals, it's 2025 so.
We're definitely.
On the path to continue driving the size of that program to your point it is.
A process, where there is of high level of activity tied to do development I mentioned that our backlog continues to grow and we've seen.
A number of 1 off developers and some with multiple properties come to our platform that are in various stages of development. It's a different lens clearly the points of the fact of the development part of our industries still active and were seeing the opportunity to grow the platform through that now.
Having said that we are also finding some good opportunities to bring existing assets into the program as well.
Many of the owners have started off let's say 1 or 2 assets and are now starting to give us multiple assets. So that's I think indicative of the.
Performance that we continue to show to the owners that have come into the platform and the benefits are seen by being within the public storage brand.
The other thing I'd point out is we've now actually acquire 10 assets that have come into the program as well. So it's another avenue of our channel for us to get closer to many owners, who actually are coming back to us and saying would we have interest and actually acquire of these assets. So there is.
Multiple drivers that we're going to continue to focus on as we build the program.
Got a team that's focused on nationally.
The assets that we've added and have on our backlog of literally widespread across the 39 states that we operate and so we're pleased by that as well and look forward to continue to grow the program.
Great. Thanks, and then just I wanted to ask last on your last call you talked a little bit about disappear.
On the supply outlook with the I think 2021, Youre looking from kind of a 10% to 15% leg down and the pace of deliveries relative to 'twenty and just.
And so over the past few months have you seen any.
Change and that are kind of any updated sort of thoughts on what the supply picture might look like going forward, yes, smedes the the.
Added color I'd give you and you're right that's a net.
That's the view that we've had looking at the amount of volume that is likely to come into 2021, 1 thing that we're seeing is.
Slow approval processes of multiple cities and.
And that coupled with the fact that component costs.
Our elevated whether it's steel labor.
Concrete et cetera. So that's I think stalling some of the development starts that might of been predicted either 2021.
And going into 2022, so we're keeping a close eye on it we're clearly very deep into the development cycle and our own portfolio and understand and see the various headwinds that are playing through right now Fortunately, we've got different ways to combat some of the cost pressures that are coming.
Through the 1 off developer might not have the advantage to do so whether it's the bulk buying alright, knowing and understanding how the pre bid certain assets or components of assets.
But.
With that we're likely to see.
And that leg down and you've talked to in 2021, 2022, I would be surprised of it.
Accelerates it could take either.
A moderate step down or could be flat line based on the amount of activity that we're seeing and 2021 and then what's more unclear is what could happen in 2023 and beyond so we'll see.
Okay. Thank you. Thank you.
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Next question is from the line of Keybanc, Kim with true list.
Thanks, Tom and good morning.
So you already touched on some of this but when you look at the.
The market by market performance, obviously, your portfolios being well, but some markets same store revenue was up a lot more than L. A San Francisco or New York is.
Is it really just.
Some markets are positive net migration, mark and that's driving the relative outperformance or are there other elements that you are noticing and between the east market.
Well I'd say overall key Ben No question, we're seeing broad based strength I mean, you look at all of our markets and the second quarter really strong growth and acceleration from the first quarter I think what you're highlighting is there is some variation which is something we see with the <unk>.
<unk> nationally diversified portfolio.
Portfolio.
What I highlighted earlier was the shift that I think I'll reiterate because we view it as pretty meaningfully internally where last year at this time some of our absolute strongest markets were experiencing some what I would consider pandemic related.
Dislocation and <unk>.
And put the New York or San Francisco's into that bucket and so they were our strongest markets and you fast forward a year and our strongest markets now.
Joe and I had mentioned earlier on the call, Florida, Texas Sunbelt markets.
Well as some others Chicago I would put in there as well.
But there's a clear relationship between some of the macro drivers in the Florida, and Texas and Sunbelt markets for instance that are driving demand housing clearly being 1 of them population and flows.
And we're seeing real strength to highlight 1 market as an example, Miami, which is our fifth largest market. We have about 90 stores, there and the same store pool.
Hi.
Moving rents up 43% versus 2019, so a big market being fuelled by macro drivers and real strength.
In terms of what we're seeing and some of the bigger.
Coastal markets, we're seeing good demand, there and still really strong occupancies and the ability to push rate the year over year comps frankly are tougher in those markets right now as we sit.
Compared to say on Miami for instance, but if you look at performance versus 2019 still quite good and.
We are encouraged by the demand trends, there and what we're seeing and Los Angeles is is really strong north of 98% occupancy here in Los Angeles and strong demand drivers across the board so.
Yes.
Generally pretty encouraged but there are some factors that are causing some differentiation and I would add that we're going to get continue to see new supply come into some of these markets and impact performance from here just like we have over the last 5 years.
Got it and.
And the second question.
And there's a little bit over a year now.
Are you noticing any difference and the lifetime value of the customers that customers that have moved and over the past year or length of stay versus what a typical customer pull public looked like pre COVID-19.
We spent a good bit of time talking about this through last year, we did see a shift towards longer length of stay.
And really strong existing tenant performance through the year last year. That's persisted so tenants that were in house or moved in last year of continued perform really really well and ahead of pre pandemic expectations customers that have moved in this year have behave more like our typical storage customers from 'twenty.
And 19 for instance.
Still performing really well.
But not at that market improvement that we saw last year. The 1 thing I would highlight from a lifetime value is clearly the right.
A portion of the equation. So if we're seeing good length of stays and significantly higher rates that clearly leads to higher lifetime values.
Okay. Thank you.
Thanks, Kevin.
Your next question is from the line of mine on Camden with Morgan Stanley.
Hey, a couple of quick questions. Congrats on the quarter. The first is just talked about potential restrictions and the portfolio on on rent increases and is there a way to sort of quantify that the magnitude of that is at 5% of the 10%.
Just big ballpark numbers and was curious as well.
But if there's still any sort of restrictions or on the late charges and administrative fees is there still some of you guys back to normal or is it still sort of hampered thanks.
Sure. So the first question around.
Rent regulations for the most part those of expired and there was a big push through the first half of this year and many local governments to to move past the state of emergency and pricing restrictions and.
And so for the most part they're no longer and place. The 1 I would highlight that is meaningful for us is the pricing restrictions from the state of emergency tied to wildfires here in Los Angeles, Los Angeles is our number 1 market with about 15% of our revenue and we continue to be constrained here on.
On the rental activity. So that's 1 I would highlight the others of largely expired of there are a few here and there.
That fact, as a tailwind as we move through the second half where last year, we were restricted on rent and and many many markets across the country, but.
But it will take time to move existing tenants back up to where they would have otherwise been.
Yes.
And then the second question was on late fees.
Did see some local jurisdictions put those in place some of the the restrictions as it relates to our delinquent tenant processes remain in place, but similar to rent regulations. Those are expiring and governments are looking to get back to regular business.
So nothing material and highlight there from a financial impact and the quarter.
And I would keep it and we've talked about this throughout last year.
Fees.
Ron sorry, the fees.
We're a big drag last year and we saw now for the first time, we've lapped that fee drag and don't anticipate that to continue to be a negative driver and as we move through the second half so that was a big shift and the second quarter.
Got it helpful and the second question was just going to be on just the digging in on the expenses a little bit obviously, the marketing makes a lot of sense, but could you just provide a little bit more color.
And whether it's the onsite property manager payroll sort of the 34% decline there what's driving that.
Is that he rentals is it less man hours, just a little bit more color on that big drop.
Sure Ron it's none.
The things that you just spoke to it points to the variety of things that we're doing from the infusion and the digitization of the business, we have a lot of analytics that help us.
And look to the optimized level of labor the rental as I mentioned is having a pronounced effect. If you kind of step back and think about the traditional operating model for the entire self storage industry. Historically has always been centered on.
And interaction necessary at the counter with the property manager and in our case.
<unk> per cent or so of our customers are choosing.
To do this electronically and self directed that typical 30 to 45 minute transaction process and it would happen out of counter.
And there's no longer necessary for again about half the customers that are at their own election, choosing that option. So it's giving us the opportunity to retool and re prioritize levels of labor utilization, while also not preserving but actually enhancing customer satisfaction. So is.
I mentioned, the that's working well both from a customer perspective and from an operations perspective, we continue to look at a variety of different tools through the amount of data that we collect at properties relative to activity light activity levels, whether it's timing of the week time of the month and again using those.
<unk>.
Again analytics to put people and the right places at the right times. So good things to come from that and we're continuing to see different levels of optimization as this.
Again plays out from a customer standpoint, and a much more optimized way.
Yeah.
Got it helpful. Thank you. Thank you.
Our next question is from the line of Mike Mueller with Jpmorgan.
Yes, Hi, I'm, just curious what would you.
It seems the longer term margin on the third party third party management business and what sort of property count do you have to scale up to to hit that.
Sure.
And that margin will vary based on geographic concentration and alike, but there.
And certainly a path for us to get that margin up to 25% to 30% I think at this 0.1 of the the drags to that margin as we look at our own performance of the fact that many of the properties that we've take on to manage or in lease up and that's going to continue as we look to grow this business. So I would anticipate that our margins are.
Good day below that for the next several years as we look to increase the size and scope and in particular with properties in lease up.
Got it okay that was the thank you.
Thanks, Mike.
And this at.
At this time there are no further questions I will now hand, the call of Mr. Burke for any closing remarks.
Thanks to Mika and thanks to all of you for joining US today, we look forward to interacting through the third quarter and enjoy the rest of your summers.
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