Q2 2023 Public Storage Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the public storage second quarter 2023 earnings call. At this time, all participants have been placed in a listen only mode.

Floor will be opened for your questions. Following the presentation.

If you have a question at that time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue. Please press star two and its now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations Ryan you may begin.

Thank you Shelby Hello, everyone. Thank you for joining us for second quarter 2023 earnings call I'm here with Joe Russell and Tom Boyle before we began 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.

And that report SEC reports and an audio replay of this conference call on our website public storage dotcom as usual, we ask that you keep your initial questions limited to two of course, if you want to ask additional questions. Please feel free to jump back in queue with that I'll turn the call over to Joe.

Thank you Ryan and thank you all for joining us today.

As demonstrated by our second quarter performance and raised outlook for the year public storage continues to maximize its competitive advantages across our platform with several key factors driving positive results, including a better than expected macro environment with higher odds of a soft landing.

Increased rental activity from our needs oriented customer base.

And execution across all aspects of our industry leading platform.

We are built to operate in all macro environments and we are proving just that.

Let me highlight three specific areas.

First we are driving record year over year growth and customer move in volumes.

We have the right team technologies and analytics to determine the appropriate mix of marketing promotions and rental rates to meet customer expectations and the current environment.

Drawn by our leading brand and enhanced digital customer experience self storage users are clearly choosing public storage.

These trends support our raised outlook, along with the easing of difficult year over year comps as we move through the second half of the year.

Second we are growing our portfolio amidst broader market dislocation.

Last Monday, we announced and fully funded the $2.2 billion simply self storage acquisition in a matter of a few hours.

This is something that very few companies can do today and separates public storage as the acquirer of choice within our industry.

We have the strongest balance sheet in the lowest cost of capital both of which were highlighted by a rapid execution on our simply self storage transaction.

With our simply self storage acquisition, we are excited to combine our respective strengths as we integrate their portfolio to ours and achieve significant operational enhancements immediately and into the future.

As an example under our platform. The one 8 billion dollar easy storage portfolio acquired in 2021 has seen significant operating margin improvement of 1100 basis points from 72% to 83%.

As we do with all of our acquisitions the entire simply self storage portfolio will be rebranded to public storage in order to maximize the benefits and value of our iconic brand and platform.

We expect to stabilize the portfolio at a mid 6% nominal yield by year three.

Third we are well positioned for continued strong execution and growth across the company.

From an operating perspective.

Our digital and operating model transformations are proving to be significant win win wins with results exceeding expectations.

Customers benefit from having robust digital options at their fingertips across the entire journey finally.

Finding a unit renting a unit moving in managing their account and navigating the property went on site.

Our proprietary digital ecosystem will continue to be a primary reason that customers choose us.

With more than 2 million P S app downloads and over 60% of customers renting through our online leasing platform today.

Additionally, public storage team members benefit from being able to place even more focus on our customers.

And for those that excel the transformation has enabled us to create new pathways for career advancement.

And our financial profile benefits as well.

We're putting these digital tools in the hands of our customers and employees for convenience combined with in person onsite customer service, when and where it's needed.

The result is a better customer and employee experience and a higher operating margin.

From an external growth perspective.

Our industry, leading NOI margins multifactor in house platform access and cost of capital and growth oriented balance sheet put us in a unique position.

So far this year, we have secured $2 $5 billion worth of properties.

We will have also delivered $375 million in development by year end and have a pipeline of more than 1 billion of development to be delivered over the next two years.

Our advantages enable us to acquire and develop when others can't.

We have a strong appetite for more with a matching ability to execute.

Now I'll turn the call over to Tom.

Thanks, Joe.

As Joe highlighted we sit here more than halfway through the year with both our year to date performance and updated outlook better than we expected.

Core <unk> per share was $4 28 for the second quarter, representing a 11, 5% growth year over year, excluding the contribution from PS business parks.

Looking at the key components for the quarter.

Same store revenues increased six 3% as we drove record move in growth.

Our existing tenant base continues to perform well.

And these trends continued into July with a year over year occupancy gap narrowing to 130 basis points at month end.

Same store cost of operations were up five 2% leading to six 6% stabilized same store net operating income growth at a direct operating margin exceeding 80%.

In addition to the same store the lease up and performance of recently acquired and developed facilities continues to be a standout with.

With net operating income increasing 20% year over year.

These 544 properties and more than 50 million square feet comprised 25% of our total portfolio and are an engine of growth.

And this pool will grow further with the addition of the simply self storage acquisition.

Shifting to guidance, we once again lifted our outlook for the year, primarily driven by a 50 basis point increase to the low end of our same store revenue growth guidance.

Reflecting our performance to date and an improved outlook for the remainder of the year.

We also lifted our non same store NOI expectation by $40 million at the midpoint.

Two primarily reflect outperformance and improved outlook and also to incorporate the impact of the simply acquisition.

Interest expense expectations increased accordingly.

Our outlook for the non same store pool beyond 2023 improved as well, we lifted our expectations for incremental NOI to stabilization from $80 million.

Two $190 million to reflect outperformance to date stronger future expectations and the simply acquisition.

And last but not least our capital and liquidity position remain rock solid.

We refinanced our untapped line of credit in June tripling its size to $1 $5 billion.

And as Joe mentioned fully funded the $2 2 billion simply acquisition in the unsecured bond market immediately following the announcement, we're well positioned with a strong appetite for growth coupled with the ability to execute upon the opportunity.

Now I will turn the call back to Shelby to open it up for questions.

Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue.

From Michael Goldsmith with UBS Your line is open.

Good morning, good afternoon. Thanks, a lot for taking my question the guidance for the full year implies a pretty material slowdown in the back half of the year with potential for same store revenue growth and same store NOI growth to turn negative in the fourth quarter. Two what would you have to see from the input to revenue growth occupancy.

Move in volumes Street rates in <unk>.

To hit the middle and bottom range of the guidance and if you see these as realistic work considerably scenarios. Thanks.

Sure. Thanks, Michael that's a good question with lots of components, So maybe taking a step back and we've been consistent throughout the year.

Dividing our investors and analysts with a range.

In terms of the different components of the outlook I've been consistent that.

At the upper end of that outlook encapsulates an environment where.

We experienced a soft landing.

And as we move through the year.

The probability of that soft landing is increased.

As we think about the assumptions that are baked into that lower end that is more of a tougher macroeconomic environment and in particular, we're assuming.

Think about it.

<unk>.

The same store growth moderates that starts to stabilize.

In that midpoint outcome doesn't capsulate.

<unk> outcome in the fourth quarter for same store revenue growth, but again easier comps helped and start to stabilize and from an overall <unk> standpoint, the midpoint.

Certainly aided by continued standout growth for the non same store pool of properties there as well.

So again a range of outcomes.

Bedded within art.

Okay.