Q4 2023 Public Storage Earnings Call
Operator: Thank you for watching! Greetings and welcome to the Public Storage fourth quarter 2023 earnings call. At this time, all participants are in a listen only mode.
Greetings and welcome to the public storage fourth quarter 2023 earnings call. At this time all participants are on a listen only mode. A brief question and answer session will follow the formal presentation, if you'd like to ask a question at that time. Please press star one on your telephone keypad.
Operator: A brief question and answer session will follow the formal presentation. If you'd like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
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Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ryan Burke, Vice President of Investor Relations and Strategic Partner, for Public Storage. Thank you, Mr. Burke.
Mind you This conference is being recorded.
It is now my pleasure to introduce your host Mr. Ryan Burke, Vice President of Investor Relations and strategic partnership for public storage. Thank you. Mr. Burke you may begin.
Ryan C. Burke: You may begin. Thanks, Rob. Hi, everyone. Thank you for joining us for our fourth quarter 2023 earnings call. I'm here with Joe Russell and Tom Boyle.
Ryan C. Burke: Thanks, Rob Hi, everyone. Thank you for joining us for our fourth quarter 2023 earnings call I'm here with Joe Russell and Tom Boyle before we begin 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.
Ryan C. Burke: Before we begin, 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 four forward-looking statements speak only as of today, February 21, 2024, and we assume no obligation to update, revise, or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports, and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourselves to two questions. Of course, if you have more, please feel free to jump back in the queue.
Ryan C. Burke: All forward looking statements speak only as of today February 21, 2024, and we assume no obligation to update revise our supplement statements that become untrue because of subsequent events.
Ryan C. Burke: A reconciliation to GAAP of the non-GAAP financial measures. We provide on this call is included in our earnings release, you can find our press release supplement report SEC reports and an audio replay of this conference call on our website public storage Dot com. We do ask that you initially limit yourself to two questions of course, if you have more please feel free to draw.
Ryan C. Burke: Back in Q with that I'll turn it over to Joe.
Ryan C. Burke: With that, I'll turn it over to Joe. Thank you, Ryan, and thank you for joining us today. Tom and I will walk you through our fourth quarter and full year 2023 performance, industry views, and 2024 outlook, then we'll open it up for Q&A. 2023 was a year of significant achievement for public storage amidst the competitive industry environment. The team elevated our customer experience and financial profile through digital and operating model transformations, and enhanced existing properties with over 500 solar installations and the Property of Tomorrow program.
Thank you Ryan and thank you for joining us today Tom.
Joseph D. Russell: Tom and I will walk you through our fourth quarter and full year 2023 performance industry views and 2024 outlook then we'll open it up for Q&A.
Joseph D. Russell: 2023 was a year of significant achievement for public storage amidst the competitive industry environment.
Joseph D. Russell: The team elevated our customer experience and financial profile through digital and operating model transformation.
Joseph D. Russell: Enhanced existing properties with over 500 solar installations and the property of Tomorrow program.
Joseph D. Russell: Advanced Complementary Business Lines, including Tenant Reinsurance and Third-Party Management, and grew the portfolio through acquisitions, development, and redevelopment. We did so while maintaining one of the real estate industry's best balance sheets, which is poised to fund growth moving forward in conjunction with significant retained cash flow. Just a few of our collective accomplishments include exceeding 3,000 owned properties and serving nearly 2 million in-place customers; and achieving an approximately 80% stabilized direct NOI margin through revenue generation and expense efficiency that only public storage is capable of. Acquiring and quickly integrating the $2.2 billion SimplyCell storage portfolio with approximately 90,000 customers across nearly 130 properties. This was the largest private acquisition in company history.
Joseph D. Russell: Advanced complementary business lines, including tenant reinsurance and third party management and.
Joseph D. Russell: And grew the portfolio through acquisitions development and redevelopment.
Joseph D. Russell: We did so while maintaining one of the real estate industry's best balance sheets, which is poised to fund growth moving forward in conjunction with significant retained cash flow.
Joseph D. Russell: Just a few of our collective accomplishments include.
Joseph D. Russell: Exceeding 3000 owned properties in serving nearly $2 million in place customers.
Joseph D. Russell: Achieving an approximately 80% stabilized direct NOI margin through revenue generation and expense efficiency that only public storage is capable of.
Joseph D. Russell: Acquiring and quickly integrating the $2 $2 billion simply self storage portfolio with approximately 90000 customers across nearly 130 properties.
Joseph D. Russell: This was the largest private acquisition in company history.
Joseph D. Russell: Increasing the size of our high-growth, non-same-store pool to 705 properties and 63 million square feet, now comprising nearly 30% of our overall portfolio. Generating Record Revenues, Net Operating Income, and Core Funds from Operations. Accelerating growth in third-party property management, adding 132 properties and reaching 324 properties in total, and receiving several accolades tied to sustainability, including NARIT's Leader in the Light Award, a second consecutive Great Place to Work Award, and achieving top scoring benchmarks among U.S. self-storage REITs. The strength of our team, platform, and brand was evident with move-in volumes up an impressive 9% in 2023, despite a backdrop of weaker customer demand during the year. The new customer environment remains challenging, but we have seen a degree of improvement in move-in rent trends recently. And our in-place customer base continues to perform well, with average lengths of stay that are longer than the historic norm.
Increasing the size of our high growth non same store pool to 705 properties and 63 million square feet now comprising nearly 30% of our overall portfolio.
Joseph D. Russell: Generating record revenues net operating income and core funds from operations.
Joseph D. Russell: Accelerating growth and third party property management, adding 132 properties and reaching 324 properties in total.
Joseph D. Russell: And receiving several accolades tied to sustainability, including NAREIT leader in the Light Award.
Joseph D. Russell: A second consecutive great place to work award.
Joseph D. Russell: And achieving top scoring benchmarks among U S self storage REIT.
Joseph D. Russell: The strength of our team platform and brand was evident with move in volumes up an impressive 9% in 2023, despite a backdrop of weaker customer demand during the year.
Joseph D. Russell: The new customer environment remains challenging, but we have seen a degree of improvement in move in rent trends recently.
Joseph D. Russell: And our in place customer base continues to perform well.
Joseph D. Russell: With average length of stay that are longer than the historic norm.
Joseph D. Russell: We expect demand from new customers to stabilize during 2024, and the behavior of existing customers, including our recent move-ins, to remain strong due to clear macro conditions, including the potential for a soft landing. The Potential for Easing Interest Rates, Resilient Consumers Leveling Home Sales, and Strong Home Renter Behavior. We also anticipate fewer completions of new self-storage facilities nationally, reducing the competitive impact of new supply in our local All in all, the industry is in a better position entering 2024 than it was entering 2023. The full Public Storage team is focused on exercising our competitive advantage. Which include...
Joseph D. Russell: We expect demand from new customers to stabilize during 2024 and the behavior of existing customers, including our recent move ins to remains strong due to clearer macro conditions.
Joseph D. Russell: Including the potential for a soft landing.
Joseph D. Russell: The potential for easing interest rates rise.
Joseph D. Russell: Brazilian consumers.
Joseph D. Russell: Leveling home sales and strong home renter behavior.
Joseph D. Russell: We also anticipate fewer completions of new self storage facilities nationally, reducing the competitive impact of new supply in our local markets.
Joseph D. Russell: All in the industry and has a better position entering 2024 than it was entering 2023.
Joseph D. Russell: The full.
Joseph D. Russell: <unk> team is focused on exercising our competitive advantages which include.
Tom Boyle: Advancing our Digital and Operating Model Transformation, Expanding Complementary Businesses, and Creating Partnerships Across the Broader Industry. Growing the portfolio through acquisitions, development, redevelopment, and third-party management, and funding innovation and growth today and into the future with the industry's best balance sheet. All of this adds to the growth of our business over the near, medium, and long term, and it comes at a time when there is the potential for further stabilization in the move-in environment. Existing customers are exhibiting strong behavior and an outlook for new competitive supply that is clearly in our favor. With good trends and customer demand, less pressure from new supply, and our numerous competitive advantages, we are well positioned for 2024 and beyond. Now, I'll turn the call over to Tom.
Joseph D. Russell: Advancing our digital and operating model transformation.
Expanding complementary businesses and creating partnerships across the broader industry.
Joseph D. Russell: Growing the portfolio through acquisitions development redevelopment and third party management.
Joseph D. Russell: And funding innovation and growth today and into the future with the industry's best balance sheet.
Joseph D. Russell: All of this adds to the growth of our business over the near medium and long term.
Joseph D. Russell: And it comes at a time with a potential for further stabilization in the move in environment exist.
Joseph D. Russell: Existing customers exhibiting strong behavior and an outlook for new competitive supply that is clearly in our favor.
Joseph D. Russell: With good trends in customer demand less pressure from new supply and our numerous competitive advantages, we are well positioned for 2024 and beyond.
Now I'll turn the call over to Tom.
Tom Boyle: Thanks, Joe. Now on to financial performance. We finished the year reporting core FFO of $4.20 for the quarter and $16.89 for the year, ahead of the upper end of our guidance range, representing 1% growth over the fourth quarter of 2022 and 8.3% growth for 2023 overall, excluding the impact of PSB. Looking at the same store portfolio, revenue increased 80 basis points compared to the fourth quarter of 2022 at the higher end of our expectation. That was driven by better move-in volume and move-in rate performance. On expenses, same store cost of operations was up 5.1% for the fourth quarter, largely driven by increases in marketing spend to support that move-in activity. In total, net operating income for the same store pool of stabilized properties declined 50 basis points in the quarter.
Tom Boyle: Thanks, Joe Honda Financial performance, we finished the year reporting core <unk> of $4 20 for the quarter and $16 89 for the year ahead of the upper end of our guidance range, representing 1% growth over the fourth quarter of 'twenty, two and eight 3% growth for 'twenty.
Tom Boyle: 23 overall, excluding the impact of PSP.
Tom Boyle: Looking at the same store portfolio revenue increased 80 basis points compared to the fourth quarter of 'twenty two at the higher end of our expectation that was driven by better move in volume and move in rate performance.
Tom Boyle: On expenses same store cost of operations were up five 1% for the fourth quarter, largely driven by increases in marketing spend to support that move in activity.
Tom Boyle: In total net operating income for the same store pool of stabilized properties declined 50 basis points in the quarter.
Tom Boyle: Meanwhile, the non-same-store NOI grew 31% and 25% for the fourth quarter and 23%, respectively, demonstrating the continued strength of our lease-up and non-stabilized assets. Now, turning to The Outlook for 24. We introduce 2024 core FFO guidance with a $16.90 midpoint, on par with 2023. As Joe mentioned, we enter the year more encouraged than we were last year. We've seen the industry work through declines in new customer demand from the peaks of 2021, and we're anticipating that new customer demand will stabilize in 2024 as the macroeconomic picture becomes clearer. That is paired with a consistently strong consumer and lower new competitive new supply. If we look at the same store outlook for 24 specifically, the midpoint calls for revenue on par with 23.
Tom Boyle: Meanwhile, the non same store NOI grew 31% and 25% for the fourth quarter and 23, respectively, demonstrating the continued strength of our lease up and non stabilized assets.
Tom Boyle: Now turning to the outlook for 'twenty four.
Tom Boyle: We introduced 2024 core F F O guidance of $16 90 midpoint on par with 2023.
Tom Boyle: As Joe mentioned, we entered the year more encouraged than we were last year. At this time, we have seen the industry worked through the declines in new customer demand from the peaks of 2021.
Tom Boyle: We're anticipating that new customer demand stabilizes in 2024 as the macroeconomic picture becomes clearer.
Tom Boyle: And that paired with a consistently strong consumer and the lower new competitive new supply.
Tom Boyle: If we look at the same store outlook for 2000 and for specifically the midpoint calls for revenue on par with 23.
Tom Boyle: Similar to last year, move-in rates continue to be the biggest variable in the forecast heading through 2024 as well. We're anticipating, in the midpoint case, that move-in rents will lap easier comps through the year and cross zero on a year-over-year basis towards the end of the summer. And occupancy results are down 80 basis points, which is roughly on top of 2019 occupancies as we sit here today. Our expectations are for two-and-three-quarters of same-store expense growth, driven primarily by property tax and marketing expenses.
Tom Boyle: Similar to last year move in rates continue to be the biggest variable in the forecast heading through 2024 as well.
Tom Boyle: We're anticipating at the midpoint case that move in rents lap easier comps through the year and crosses zero on a year over year basis towards the end of the summer.
Tom Boyle: And occupancy results down 80 basis points, which is roughly on top of 2019 occupancies as we sit here today.
Tom Boyle: Our expectations are for two and three quarters same store expense growth driven primarily by property tax and marketing expense.
Operator: That leads to same-store NOI growth at the midpoint of a decline of 90 basis. Our non-same-store acquisition and development properties are poised to be a strong contributor again in 2024, growing from $370 million of NOI contribution in 2023 to $505 million at the midpoint, and will grow from there in future years. In addition, embedded in the Outlook is incremental acquisition and development activity, $500 million in acquisitions, and we plan to deliver a record $450 million in development in 2014. Finally, our capital and liquidity position remains solid. Our leverage of 3.9 times net debt and preferred to EBITDA, combined with nearly $400 million of cash on hand at quarter end, puts us in a very strong position heading into 2024. With that, I'll turn it back to you, Ralph.
Tom Boyle: That leads to same store NOI growth at the mid point of a decline of 90 basis points.
Tom Boyle: Our non same store acquisition and development properties are poised to be a strong contributor again in 2024 growing from $370 million of NOI contribution in 'twenty $3 million to $505 million at the midpoint.
Tom Boyle: And we will grow from there in future years.
Tom Boyle: In addition embedded in the outlook is incremental acquisition and development activity $500 million of acquisitions, and we plan to deliver a record $450 million of development in 'twenty four.
Tom Boyle: Finally, our capital and liquidity position remains solid.
Tom Boyle: Our leverage of three nine times net debt and preferred to EBITDA combined with nearly $400 million of cash on hand at quarter end puts us in a very strong position heading into 2024.
Tom Boyle: With that I'll turn it back to you Rob.
Tom Boyle: Okay.
Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone. Please limit your question to one and one follow-up. A confirmation tone will indicate your line is in question. You may press star two if you'd like to remove your question.
Rob: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Rob: Please limit to one question and one follow up.
Rob: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Steve Sakwa: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. My first question comes from Steve Sakwa with Abercore ISI. Please proceed with your question. I was wondering, Tom, if you could talk a little bit about the ECRIs that are maybe embedded in the high and low ends of growth and how those may be compared to the ECRIs that you achieved in 2023. Sure. I'll be happy to add that color, Steve.
Rob: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Rob: My first question comes from Steve Sochua with Evercore ISI. Please proceed with your question.
Steve Sakwa: Thanks, and good afternoon good morning.
Steve Sakwa: I was wondering Tom if you could talk a little bit about the E. C. Our eyes that are maybe embedded in the high and low end of growth and how those may be compare to the E. T. Our eyes that you achieved in 'twenty three.
Tom Boyle: Sure happy to add that color, Steve I think it is.
Tom Boyle: I think, as you know, I like to speak about existing customer rent increases as a combination of customer price sensitivity as well as the cost to replace that customer if they vacate upon receiving a rental rate increase. And as we look at 2024, there are a couple of things at play here. One is as we enter the year, right, demand is a little weaker. We'll give you a January-February update here shortly where move-in rents are down year over year as we start the year, similar to how we finished in 2023. That's going to lead to higher replacement costs through the first part of this year, and that's going to be a little bit of a drag on ECRI performance.
Tom Boyle: As you know I like to speak about existing customer rent increases as a combination of customer price sensitivity as well as the cost to replace that customer if they vacate upon receiving a rental rate increase.
Tom Boyle: And as we look at 2024, there's a couple of things at play here. One is as we enter the year great demand is a little weaker we'll give you a January February update here here shortly we're.
Tom Boyle: Move in rents are down year over year as we start the year similar to how we finished in 2023, that's going to lead to higher replacement costs through the first part of this year.
Tom Boyle: That's going to be a little bit of a drag to ECR I performance. The flipside is Joe spoke to the strength in move in volumes that we experienced through 'twenty three those new customers are going to be eligible for rental rate increases, which will lead to more contribution from the volume increases that are sent this year such that at the mid.
Tom Boyle: The flip side is, Joe spoke to the strength in move-in volumes that we experienced through 2023. Those new customers are going to be eligible for rental rate increases, which will lead to more contribution from the volume of increases that are sent this year, such that at the midpoint case, we're looking at contribution overall pretty consistent with 2023 with those two pieces offsetting each other. In the high-end case and the low-end case, a little bit better price sensitivity in the high-end and a little bit worse in the low-end. Great, thanks.
Tom Boyle: Point case, we're looking at contribution overall.
Tom Boyle: Pretty consistent with 2023 with those two pieces offsetting each other and the high end case in law in case, a little bit better price sensitivity and the high end and a little bit worse than the low end.
Tom Boyle: Okay.
Speaker Change: Great. Thanks, and then on the expense growth can you, maybe just talk about what's embedded for marketing and sort of how you're thinking about that I guess, we were a little surprised that expense growth overall was coming in you know kind of a $2 75 at the midpoint, but just what do you have baked in for marketing just given there's still somewhat challenging demand environment.
Tom Boyle: And then on the expense growth, can you maybe just talk about what's embedded for marketing and sort of how you're thinking about that? I guess we were a little surprised that expense growth overall was coming in, you know, kind of at 275 at the midpoint, but just what do you have baked in for marketing, just given the still somewhat challenging demand environment?
Speaker Change: <unk>.
Speaker Change: Yeah. So as I noted in my prepared remarks that the key drivers of expense growth are property taxes and marketing. So I will note property taxes, our largest expense line item, we do anticipate to be up 4% plus or minus which is a contributor and then on marketing expense.
Tom Boyle: So, as I noted in my prepared remarks, the key drivers of expense growth are property taxes and marketing. So, I will note property taxes, our largest expense line item, we do anticipate to be up 4%, plus or minus, which is a contributor. And then on marketing expense, taking a step back, we increased marketing spend through the year in 2023 and saw very good returns associated with that. In the fourth quarter, our marketing expense as a percentage of revenue was 2.5%.
Speaker Change: <unk> a step back we increased marketing spend through the year in 2023.
Speaker Change: And saw very good returns associated with that the fourth quarter.
Speaker Change: Our marketing expense as a percentage of revenue was two 5% and as you've heard from me in the past being.
Tom Boyle: And as you've heard from me in the past, being in that 1% to 3%, 1% back in 2021 when demand was really, really strong, and back towards 3% when you go to a more typical operating environment pre-pandemic, is a comfortable place for us to be. And so, in the first part of 2024, we're going to be lapping comps that will lead to year-over-year growth levels that are higher, similar to what we experienced in the fourth quarter, and then we'll evaluate as we go from there. But we're comfortable in the zip code and continue to see a very strong return on that advertising dollar. Great, thanks.
Speaker Change: Being in that 1% to 3%, 1% back in 2021, when demand was really really strong and back towards 3%. When you go to a more typical operating environment pre pandemic.
Speaker Change: It is a comfortable place for us to be.
Speaker Change: And so the first part of 2024, we're going to be lapping comps that will lead to year over year growth levels that are higher similar to what we experienced in the fourth quarter.
Speaker Change: And then we'll evaluate as we go from there, but we're comfortable in this ipco and continue to see a very strong return on that advertising dollar.
Speaker Change: Great. Thanks.
Michael Goldsmith: Our next question is from Michael Goldsmith with UBS. Please proceed with your question. Thanks a lot for taking my question. You finished the year with 80 basis points of same-store revenue growth, and your guidance for the upcoming year ranges from down one to up one. So, presumably, same-store revenue growth is going to dip before it kind of rebounds, and that goes in line with, I think, some of what you've been saying with your expectations of street rates. How much of a dip are you expecting at the midpoint of your guidance, and when are you expecting trends to kind of inflect better through the year? Good question, Michael.
Speaker Change: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: It's a lot for taking my question.
Michael Goldsmith: You finished the year with 80 basis points of same store revenue growth in your guidance for the upcoming year ranges from down one to up one so.
Michael Goldsmith: <unk> same store revenue growth is going to dip before kind of rebounds in that that goes in line with the I think some of what you've been saying with the with your expectations of the street rate. So.
Speaker Change: Yes, how much how much of a.
Speaker Change: Mid 'twenty of guidance, how much of a dip are you expecting and when are you expecting trends to kind of inflect better through the year.
Speaker Change: Yeah. Good question, Michael So Theres a couple components to this question that I'll respond to the first is.
Tom Boyle: So there are a couple components to this question that I'll respond to. The first is... As we look at our operating metrics, our operating metrics are starting to improve, right? We talked about occupancy closing the gap as we moved through last year, and we finished the year with occupancy down 70 basis points compared to down 240 basis points when we started 23. However, if you look at move-in rent trends, move-in rents on a year-over-year basis decelerated through the year.
Speaker Change: As we look at our operating metrics, our operating metrics are starting to improve right we talked about.
Speaker Change: Occupancy closing the gap as we move through last year, and we finished the year with occupancy down 70 basis points compared to down 240 basis points. When we started 23, if you look at move in rent trends.
Speaker Change: Move in rents on a year over year basis decelerated through the year in the fourth quarter they were down 18%.
Tom Boyle: In the fourth quarter, they were down 18% throughout the quarter, but as we noted in our January update, they improved to down 11% in December. Looking at January and February, they're down in that same 10-11% sort of zip code, so that improvement has been lasting, and as you heard through our outlook, we anticipate that to continue to close as we move through this year. I highlight that because operating metrics tend to lead financial metrics, meaning that as we're talking about some of these operating metrics improving, it will take several quarters to see that in financial metrics.
Throughout the quarter, but as we noted in our January update they improved to down 11%.
Speaker Change: In December looking at January and February there down in that same 10, 11% sort of ZIP code. So that that improvement has been lasting and as you heard through our outlook, we anticipate that to continue to close as we move through this year.
Speaker Change: I highlight that because operating metrics tend to lead financial metrics, meaning that as were talking about some of these operating metrics improve it will take several quarters to see that in financial metrics.
Tom Boyle: And so if you think about the shape of the curve and the description of the midpoint case that I gave earlier, it would imply that, to your point, we're going to see some deceleration through the first couple quarters of this year. But then the second derivative, the rate of change in growth, is going to flip positive in that midpoint case in the second half, and you're going to see some re-acceleration in the financial metrics, again, lagging those operating metrics, in the second half. The second component of the question I just highlighted is that we're already seeing that in certain markets.
Speaker Change: And so you think about the shape of the curve and a description of the midpoint case that I gave earlier.
Speaker Change: It would imply that to your point, we're going to see some deceleration through the first couple of quarters of this year, but then the second derivative that the rate of change of growth is going to flip positive in that midpoint case in the second half and youre going to see some reacceleration in the financial metrics again, a lagging those opt.
Speaker Change: <unk> metrics in the second half.
Speaker Change: The second component the question that I, just highlight as we're already seeing that in certain markets and so if you look at the mid Atlantic for instance, or Seattle markets that maybe didn't have the high highs in 2021, but have been solid performers were.
Tom Boyle: And so if you look at the Mid-Atlantic, for instance, or Seattle, markets that maybe didn't have the high highs in 2021 but have been solid performers, we're actually seeing those accelerate as we sit here today in the first quarter. And I would expect those high, high markets, you know, the Floridas, the Atlantas, for instance, to take a little bit longer to find that turn given how high their high was. But we're already seeing some of that turnaround in some of our operating markets today. Thanks for that! And my second question: it's a multi-parter, but it shouldn't be too intimidating.
Speaker Change: Actually seeing those accelerate as we sit here today in the first quarter.
Speaker Change: And would expect those high high markets. The Florida is Atlanta's for instance to take a little bit longer to find that turn given how high their high was.
Speaker Change: But we're already seeing some of that that turnaround in some of our operating metrics today.
Speaker Change: Thanks for that and the second question, it's a multipart, but it shouldnt be too intimidating.
Tom Boyle: You comment in the SUP that you expect industry-wide demand from new customers to stabilize this year due to improving macroeconomic conditions. So, one, are you seeing that today? Two, can you kind of provide an update on where the move-in rents were in January? And to the extent that you're able to provide insight into, you know, you've talked about move-in rents crossing the zero line, how positive, you know, if that momentum is continued, how positive can move-in rents be as we kind of exit the year? Thank you and sorry.
You comment in the South East.
Speaker Change: Industry wide demand from new customers to stabilize this year due to improving macroeconomic conditions. So one are you are you seeing that today too can you kind of provide an update on where the move and last were in January and to the extent that you're able to provide insight into.
Speaker Change: February three.
Speaker Change: <unk>.
Speaker Change: You've talked about moving rents crossing the zero.
Speaker Change: How positive if that momentum has continued how positive move in rents.
Speaker Change: As we kind of exit the year. Thank you I'm sorry.
Joseph D. Russell: Okay, apology accepted, but yeah, you took some liberty there, Michael, but we'll address your question. All right, so let me start with consumer strength and what we continue to see in the portfolio that's been trending to a clear advantage, even with the performance we saw quarter by quarter in 2023. The consumer activity, first of all, on existing customers, as I've mentioned, has been quite strong, and we're really not seeing any on-the-margin evidence that that's likely to change, even going into what we've seen through almost two months of this year. Balance sheets are quite healthy.
Speaker Change: Okay apology accepted but yeah. You you took you took some liberty there Michael but we will address your question.
Speaker Change: Alright, So let me start with consumer.
Speaker Change: Strength and what we continue to see in a portfolio that's been trending to a clear advantage.
Speaker Change: Even with the.
Speaker Change: The performance, we saw a quarter by quarter in 2023.
Speaker Change: The consumer activity first of all in existing customers as I've mentioned has been quite strong and we're really not seeing any.
Speaker Change: On the margin evidence that that's likely to change even going into what we've seen through almost two months of this year.
Speaker Change: Balance sheets are quite healthy payment patterns are still better than they were pre pandemic, we're not seeing any undue our new stress evolving into customer.
Joseph D. Russell: Payment patterns are still better than they were pre-pandemic, and we're not seeing any undue or new stress evolving into customer activity. The acceptance of our ongoing revenue management tied to existing customer rate increases. We have a very active engagement process with existing customers that guides us, too, to the tolerance and the level of activity that we're pushing through on ECRIs. That, too, has not hit different levels in either area that we've become more concerned about.
Speaker Change: Activity.
Speaker Change: The acceptance of our ongoing revenue management tied to existing customer rate increases we have a very active engagement process with existing customers.
Speaker Change: Guides us to to the tolerance and the level of activity that we're pushing through on ECR is that too has not.
Speaker Change: He had different levels of either areas that we've become more concerned about in fact, it's validating many of the things that we've already talked about relative to the performance of existing customers and our confidence that that's likely to stay with us even coupled with what Tom just mentioned, indicating in certain markets, where even actually seem to see some good.
Joseph D. Russell: In fact, it's validating many of the things that we've already talked about relative to the performance of existing customers and our confidence that that's likely to stay with us, even coupled with what Tom just mentioned, indicating in certain markets we're even actually seeing some good percolation taking place. That ties clearly to the kind of activity from new customer demand activities. We're having to work harder, as we did all through 2023, with the variety of tools that we have. They're quite good.
Speaker Change: Percolation, taking place that ties clearly to the kind of activity from a new customer demand activity, we're having to work harder as we did all through 2023 with a variety of tools that we have there are quite good in fact, they continue to get much better we are very confident market to market with our scale and the knowledge we have.
Joseph D. Russell: In fact, they continue to get much better. We are very confident market to market with our scale and the knowledge we have. Market to market, we have the right tools. We have the right brand.
Speaker Change: Market to market, we have the right tools, we have the right brand we have the right technologies to continue to pull customers to our platform and we're going to continue to leverage leverage those going into the.
Joseph D. Russell: We have the right technologies to continue to pull customers to our platform, and we're going to continue to leverage those going into the next several months with the anticipation, as Tom mentioned, that by summer, late summer, we're going to start seeing the residual effects from all those efforts. And then, Tom, you can tackle, if you choose to, Michael's additional questions. So, Michael, I'll just maybe take a step back and talk a little bit about how we thought about the macro environment in our guidance. So, last year on this call, we spent a good bit of time talking about the macro environment, and we did couch the guidance range last year in macro terms, which we viewed as appropriate given the landscape at the time.
Speaker Change: The next several months with the anticipation as Tom mentioned that.
Speaker Change: By.
Summer late summer, we're going to start seeing the residual effects to the positive from all of those efforts.
Speaker Change: And then Tom you can tackle if you choose to Michael's additional questions.
Tom Boyle: So Michael I'll, just maybe take a step back and talk a little bit about how we thought about the macro environment and our guidance last year on this call. We spent a good bit of time talking about the macro environment and we did couch the guidance range last year.
Tom Boyle: In macro terms and now we viewed as appropriate given the landscape at the time at the time, 65% of Bloomberg Economists', we're expecting a recession during the calendar year.
Joseph D. Russell: At the time, 65% of Bloomberg economists were expecting a recession during the calendar year, for instance, and we thought it would make sense to provide the investment community with our assumptions of what that could potentially look like within our guidance range. Clearly, as we moved through 23, that recession outcome became less probable, and as such, our financial performance proved out to be towards the higher end of those expectations as we moved through the year. This year we are not couching the range in terms of macro, and as you think about the midpoint of the range, we're not assuming that the macro environment needs to improve at the midpoint of the range, but more along the lines of what Joe was speaking about and what we're seeing today. So I hope that's helpful in terms of how we've thought about the range. And then I will go.
Tom Boyle: For instance, and we thought it would make sense to provide the investment community our assumptions of what that could potentially look like within our guidance range and clearly as we move through 'twenty three that recession outcome became less probable.
Tom Boyle: And as such our financial performance proved out to be towards the higher end of those expectations as we move through the year.
Tom Boyle: This year, we are not couching the range in terms of macro.
Tom Boyle: As you think about the midpoint of the range, we're not assuming that the macro environment needs to improve at the mid point range, but more around the lines of what Joe was speaking to and what we're seeing today.
Tom Boyle: So hope that's helpful in terms of how we thought about the range.
Speaker Change: And then I will.
Tom Boyle: I want to hit on one of your comments just again, because you asked about what move-in rents were doing in January and February. I'll just reiterate that for the group. Move-in rents were down 10, 11 percent, so pretty consistent with December performance, which is what you'd anticipate, right? Because we're at kind of the trough of rental rates in the winter season here, and we'll be looking to March, April, and May to see some acceleration in move-in rents. Thank you very much.
Speaker Change: Hit on one of your comments just again, because you asked about what move in rents were doing in January and February I'll, just reiterate that for the group moving rents were down 10, 11%, so pretty consistent with with December performance, which is what you would anticipate right because we're at kind of the trough of rental rates.
Speaker Change: In the winter season here and we'll be looking to March April and May to see some acceleration in moving rents.
Speaker Change: Thank you very much and good luck in 2024.
Michael Goldsmith: Good luck in 2024. Michael Chang. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question. Hi, good morning.
Michael Goldsmith: Thanks, Michael It's Michael.
Michael Goldsmith: Our next question is from Juan Sanabria with BMO capital markets. Please proceed with your question.
Juan C. Sanabria: Hi, good morning.
Juan C. Sanabria: Maybe just piggybacking off of part of Michael's question. I guess what is assumed within the range of when Street rates break that year-over-year break-even point and if you have any color around changes in or differences in occupancy assumptions at the high or low end of the rate. Sure Juan, I'll give you some context around both the high and the low, and specifically, you're speaking to same-store revenues; that's where I'll focus my attention. So as I noted, in the midpoint case, that assumes that we cross that zero on a year-over-year basis for move-in rents at the end of the summer and occupancy is down about 80 basis points. Pretty similar to where we finished the year at 23.
Juan C. Sanabria: Maybe just piggybacking off those part of Michael's question.
I guess what is assumed within the range.
Juan C. Sanabria: When.
Juan C. Sanabria: Street rates break that year over year breakeven point, and if you have any color around that.
Juan C. Sanabria: Changes in or differences in occupancy assumptions up to higher low end of the range.
Speaker Change: Sure one I'll give you some context around both the high and the low end specifically.
Speaker Change: You are speaking the same store revenue, so that's where I'll focus my attention. So as I noted at the midpoint case that assumes that we cross that zero on a year over year basis for moving rents at the end of this summer.
Speaker Change: And occupancy being down about 80 basis points.
Speaker Change: Similar to where we finished the year in 'twenty three.
Tom Boyle: And I would note that, as we sit here today, year-to-date, we're down 70, 80 basis points in occupancy, so consistent with where we sit today. In terms of the high-end and the low-end, the low-end assumes that it takes a little bit longer for operating metrics to stabilize here, and as such, the assumption on when we cross zero on year-over-year move-in rents is at the end of the And in that case, we're assuming, right, it takes a little longer to stabilize. The move in environment is going to be a little bit tougher.
And I would note that thats as we sit here today year to date, we're down 70 80 basis points in occupancy so consistent with where we sit today.
Speaker Change: In terms of the high end and the low end the low end assumes that it takes a little bit longer for the operating metrics to stabilize here and as such.
Speaker Change: The assumption on when we cross zero on year over year move in rents is at the end of the year.
Speaker Change: And in that case, we're assuming right. It takes a little longer to stabilize the move in environment is going to be a little bit tougher occupancy is down about 120 basis points year over year.
Tom Boyle: Occupancy is down about 120 basis points year over year. On the high end, we're assuming a more vibrant spring leasing season, one which we see a little bit of a rebound in the housing market, something we spent a good bit of time talking about through the fall of last year. There are some indications that we could experience that this year. The high end of the range assumes that, and as such, that zero crossing point is at the beginning of the summer in that spring leasing season, and occupancy, as you'd expect, results in better performance down about 20 basis points throughout the year, with an acceleration in the summer and a higher peak seasonally. Thanks.
At the high end, we're assuming a more vibrant spring leasing season, one, which we see a little bit of a rebound in the housing market something we spent a good bit of time talking about through the fall of last year.
Speaker Change: There are some indications that we could experience that this year. The high end of the range assumes that and as such that zero crossing point is at the beginning of the summer in that spring leasing season.
Speaker Change: And occupancy as you would expect results in better performance down about 20% or 20 basis points, sorry, 20 basis points.
Speaker Change: Throughout the year with an acceleration in the summer and a higher peak seasonally.
Joseph D. Russell: And then for my follow-up. You're assuming acquisitions in the guidance, so just curious if you could speak to the investment environment, any color on where you see stabilized cap rates and just the quality and the quantum of opportunities out in the marketplace. Yeah, sure, Juan, I'll take that.
Speaker Change: And then for my follow up.
Speaker Change: Youre assuming acquisitions in the guidance. So just curious if you could speak to the investment environment.
Speaker Change: Any color on where youre seeing.
Speaker Change: Stabilized cap rates and just the quality and the.
Speaker Change: Quantum loads of opportunities out in the marketplace.
Speaker Change: Yes, sure Juan I'll take that.
Speaker Change: I would say at this point, we're continuing to see the same environment that we saw through most of 2023, so a lot of.
Joseph D. Russell: I would say at this point we're continuing to see the same environment that we saw through most of 2023. So a lot of owners are reluctant to put properties into the market knowing that they're going to potentially not achieve the cap rate or the valuation that they expected based on prior year inflated valuations, et cetera, when interest rates were at a much different price point. So the reluctance continues. The amount of activity going into the first part of this year, which is typically very light, is just that. We are getting a number of inbound discussions that are tied to properties that are not currently on the market to either test the water or judge whether or not we are ready to transact at a valuation that either meets or would be acceptable for that particular seller. However, we do not have anything, as noted in our release, currently under contract. The team's busy.
Juan C. Sanabria: Owners are reluctant to put properties into the market, knowing that theyre going to potentially not achieve the cap rate or the valuation that they expected based on prior year.
Juan C. Sanabria: Inflated valuations et cetera, when interest rates were at a much different price point. So the reluctance continues the amount of activity going into the first part of this year, which is typically very light is just that.
We are getting a number of inbound discussions that are tied to properties that are quote unquote not on the market to either test the water or judge whether or not.
Juan C. Sanabria: We are ready to transact at a valuation that either meets or would be acceptable for that particular seller.
Juan C. Sanabria: We do not have anything as noted in our release currently under contract. The team's busy we're engaged in a number of different conversations with a variety of different.
Joseph D. Russell: We're engaged in a number of different conversations with a variety of different-sized opportunities, whether single assets or larger portfolios. But, as we saw in 2023, the beginning of 2024 is likely to be very similar. And we'll see going into the next few months if there's either some pent-up demand or additional realization that cap rates have adjusted. And we'll just see if, in fact, there's going to be more trading. Clearly, one thing that could moderate that to some degree and push activity to a higher level is some activity by the Fed, reducing interest rates, potentially with some impact on cap rate adjustments, et cetera.
Juan C. Sanabria: Size opportunities, whether single assets or larger portfolios, but as we saw in 2023 at the beginning of 2024 is likely to be very similar and we will see going into the next few months, if there's either some pent up demand or additional.
Juan C. Sanabria: Realizations.
Cap rates have adjusted and we'll just see if in fact.
Juan C. Sanabria: There's going to be more trading.
Juan C. Sanabria: Clearly one thing that could moderate that to some degree and push activity to a higher level is.
Juan C. Sanabria: Some activity by the fed reducing interest rates potentially with some impact on cap rate adjustments et cetera, but frankly, there's just not a lot of trading going on right now to give you any really clear sense of how directly cap rates of change of the moment, but the gap continues meaning the level of seller expectations to what we feel are.
Joseph D. Russell: But frankly, there's just not a lot of trading going on right now to give you any really clear sense of how directly cap rates have changed at the moment. But the gap continues, meaning the level of seller expectations to what we feel are prudent ways for us to allocate capital. Many of the conversations just start with that.
Juan C. Sanabria: Prudent ways for us to allocate capital.
Many of the conversations just start with that and we'll see how that plays out here in the near term.
Joseph D. Russell: And we'll see how that plays out here in the near term. Thank you. Our next question is from Jeff Spector with Bank of America. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jeff Spector with Bank of America. Please proceed with your question.
Jeff Spector: Great. Thank you.
Jeff Spector: Just trying to, you know, think about all the comments, upper end to lower end assumptions. Skepticism, we continue to hear just some of the concerns. I mean, I guess to be clear, are you saying from the data you're seeing year to date that you finally feel there is more or greater visibility on how to forecast this year versus, let's say, last year? Yeah, Jeff, I think as we sit here today, we do have more visibility, we think, heading into this year. I mean, I just spoke earlier about how we couched the ranges last year in the macroeconomic environment. Our view is that the macroeconomic environment is clearer this year. We're not couching the ranges that way.
Jeff Spector: Just trying to think about all the comments upper and lower end assumptions.
Jeff Spector: Skepticism, we continue to hear just some of the concerns I mean, I guess to be clear are you, saying from the data you're seeing year to date that you. Finally feel there is more or greater visibility on how to forecast this year versus let's say last year.
Yeah, Jeff I think as we sit here today, we do have more visibility we think heading into this year I mean, I just spoke earlier around.
Jeff Spector: How we couched that range as last year in the macroeconomic environment. Our view is the macroeconomic environment is clear this year, we're not counting the range that way and as we sit here today right. It's very different than last year last year. We knew that demand was was weaker than we were going to see Rev.
Tom Boyle: And as we sit here today, right, it's very different than last year. Last year, we knew that demand was weaker, and we were going to see revenue growth decelerate through the year in a pretty meaningful way. This year, that pace of deceleration has really slowed.
Jeff Spector: Revenue growth decelerate through the year in a pretty meaningful way this year that pace of deceleration has really slowed and as I highlighted earlier theres actually some markets in our portfolio that are re accelerating already in the first quarter, which we view as a leading as we move through the year.
Tom Boyle: And as I highlighted earlier, there are actually some markets in our portfolio that are re-accelerating already in the first quarter, which we view as leading as we move through the year. And so from a range of variability less than last year, but that doesn't diminish the fact that we're still in an uncertain environment, we're still talking about move-in rents being down 10%, 11% to start the year. That's not like a typical pre-pandemic year where we'd be debating whether move-in rents are going to be up 3% or are they going to be up 5% in a very tight band. That's not the environment we've been operating through in the last several years.
Jeff Spector: And so from a <unk>.
Jeff Spector: A range of <unk>.
Jeff Spector: Variability less than last year now that's not to diminish the fact that we're still in an uncertain environment, we're still talking about move in rents being down 10%, 11% to start the year, that's not like a typical pre pandemic year, where we'd be debating our move in rent is going to be up 3% or are they going to be up 5%.
Jeff Spector: In a very tight band that's not the environment, we've been operating through in the last several years and as such we think we've couched our ranges.
Joseph D. Russell: And as such, we think we've couched the ranges appropriately to encapsulate that variability, but we do feel more confident in the range of outcomes this year than we did last year. And, you know, like many times, Jeff, it's never one single issue, but Tom, you know, just went through a number of the things that have given us more clarity and perspective going into this year that we think are, A, additive one by one. Another factor that's continuing to trend very favorably for the entire industry that we're seeing, particularly in nearly every market we operate in, is reduced levels of delivery. The development business has continued to be very, very difficult. Funding for new construction is either at a very high cost or, from an availability standpoint, very limited. The time to get through entitlements, even for our own processes, continues to be very difficult.
Jeff Spector: Appropriately to Capsulate that.
Jeff Spector: That variability.
Jeff Spector: But we do feel more confident in the range of outcomes. This year than we did last year.
Speaker Change: Like many times, Jeff It's never one single issue, but Tom just went through a number of the things that have given us more clarity and perspective going into this year that we think are a additive one by one another factor that's continuing to trend very favorably.
Jeff Spector: <unk> to the entire industry that we're seeing particularly.
Jeff Spector: In nearly every market we operate in are reduced levels of deliveries.
Jeff Spector: The development business has continued to be very very difficult funding for new construction.
As either at a very high cost or from an availability standpoint very limited.
Jeff Spector: The time to get through entitlements, even for our own processes are.
Jeff Spector: <unk> to be very difficult. So this two creates another additive element that we have even more perspective on now that we've been through a multiyear deceleration of new development deliveries.
Tom Boyle: So this, too, creates another additive element that we have even more perspective on now that we've been through a multiyear deceleration of new development deliveries, putting us in a very different position, even year by year, that we have more confidence to say this is, you know, a different environment, very different than where we were even a year ago. So with that, we think that we've got the right perspective, and we will continue to read the variety of tea leaves out there, but we are very confident that we've got the right tools to guide us and put the kind of perspective that we've got into our outlook for 2024. Great, thank you. And then my follow-up question is, can you discuss trends you're seeing in January and February, including move-ins and move-outs, and maybe, you know, which markets are doing better or worse, let's say, year-to-date? Thank you. Sure, Jeff.
Jeff Spector: Putting us in a very different position even year by year that we'd have more confidence to say this is.
Jeff Spector: A different environment very different than where we were even a year ago. So with that we think that we've got the right perspective continue to read the variety of tea leaves out there, but we are very confident that we've got the right tools to guide us and put them kind of perspective that we've got into or.
Jeff Spector: Outlook for 2024.
Speaker Change: Great. Thank you and then my follow up is can you discuss <unk>.
You are seeing in January and February including move in move outs.
And maybe which markets are doing better or worse, let's say year to date. Thank you.
Tom Boyle: I mean, I think I've already covered the move-in rate component, as well as the occupancy side, so maybe I'll just focus on the market part of the question, which is not too dissimilar to fourth-quarter performance. We continue to see strength in Southern California, for instance, as our strongest area of growth. And as we spoke about through 23, the markets that had the highest highs in 21 and 22 are giving back some of that. Appropriately so.
Speaker Change: Sure, Jeff I mean, I think I've already covered the move in rate component.
Speaker Change: And as well as the occupancy side, so maybe I'll just focus on the market part of the question, which is not too dissimilar to fourth quarter performance. We continue to see strength in southern California for instance.
Speaker Change: As our strongest area of growth and as we spoke about through 'twenty three.
Speaker Change: The markets that had the highest highs in 'twenty, one and 'twenty two are giving back some of that appropriately so and so the weaker markets on a growth rate basis to start the year are some of those southeastern markets, Florida, Atlanta et cetera.
Tom Boyle: And so the weaker markets on a growth rate basis to start the year are some of those Southeastern markets, Florida, Atlanta, et cetera. Thank you. Thanks, Jeff.
Speaker Change: Thank you.
Speaker Change: Thanks Roger.
Kagan Carl: Our next question comes from Kagan Carl with Wolf Research. Please proceed with your question. Yeah, thanks for the time, guys.
Speaker Change: Our next question comes from Kagan, Carl with Wolfe Research. Please proceed with your question.
Carl Kagan: Yeah. Thanks for the time guys maybe.
Tom Boyle: Um, maybe first just, you know, where's your development line or development pipeline start for the year? And where are you expecting it to end based on your anticipated deliveries in 24? Yeah.
Carl Kagan: Maybe first just where does your development or developing pipeline start for the year and where are you expecting to and based on your anticipated deliveries in 'twenty four.
Tom Boyle: Ki Kim, maybe I'll just talk a little bit about the development environment and then some of the sequencing of our deliveries. So as we've sat here today, we've been trying to grow our development business from where we were delivering more like 100 to 200 million in deliveries in 21 and 22. Last year, we delivered 360 million.
Carl Kagan: Yes, maybe I'll just talk a little bit about the development environment and then some of the sequencing of our deliveries so.
Carl Kagan: Yes.
Carl Kagan: Sat here today, we've been trying to grow our development business from where we were delivering more like $100 million to $200 million in deliveries in 'twenty, one and 22 last year, we delivered $360 million as I noted in my remarks, we're looking to deliver 450 this year. So.
Tom Boyle: As I noted in my remarks, we're looking to deliver 450 this year, so an acceleration when the industry overall is seeing deliveries slow down. So we're taking some share there and growing that business. We do so because we think it's the highest risk-adjusted return on capital.
Carl Kagan: An acceleration when the industry overall is seeing deliveries slowdown. So we're taking some share there and growing that business and we're doing so because we think it's the highest risk adjusted return on capital and you can see the returns that we've achieved on our development vintages in the sub.
Tom Boyle: And you can see the returns that we've achieved on our development vintages in the SUP. And we have an in-house team that's dedicated to this program, development, construction, design, that are all out working on growing that pipeline. This will be a record year.
Carl Kagan: And we have an in house team. That's dedicated this program development construction design that are all out working on growing that pipeline.
Carl Kagan: This will be a record year.
Joseph D. Russell: The team is out figuring out how we're going to backfill that development pipeline from here in a challenging development environment. But as we sit here today, that's a business we want to grow, and we'll be looking to backfill that pipeline and have deliveries next year, hopefully around the same levels that we have this year, and go from there. And yeah, just from a timing standpoint, Keegan, you know, a little lighter in Q1, but then pretty balanced deliveries in the subsequent three quarters, a little bit differently than what we saw in 2023, where we had a lot of deliveries hit more towards the second half of the year. So we've got a good combination of both ground-up new development and expansion and redevelopment opportunities, particularly tied to, you know, two unusually large projects that we'll complete in 2024.
Carl Kagan: The team is out figuring out how we're going to backfill that development pipeline from here.
Carl Kagan: In a challenging development environment.
Carl Kagan: But as we sit here today, that's a business we want to grow.
Carl Kagan: And we will be looking to backfill that pipeline and have deliveries next year hopefully around the same levels that we have this year and go from there.
Speaker Change: Yeah, just from a timing standpoint keegan.
Speaker Change: A little lighter in Q1.
Speaker Change: But then pretty balanced deliveries in the subsequent three quarters, a little bit differently than what we saw in 2023, where we had a lot of deliveries.
Speaker Change: More towards the second half of the year. So we've got a good combination of both ground up new development and we're a little over weighted on expansion and redevelopment opportunities, particularly tied to two.
Speaker Change: Unusually large projects that will complete in 2024 so.
Joseph D. Russell: So as Tom mentioned, the team's working hard not only to continue to grow the overall pipeline but to continue to put these Generation 5, Class A properties into a whole variety of markets. And we're continuing to see very good lease-up and, you know, again, returns tied to the development activity, both new development and redevelopment.
Speaker Change: As Tom mentioned team's working hard not only to continue to grow the overall pipeline, but to continue to put these generation five class a properties into a whole variety of markets and.
We're continuing to see very good lease up.
Speaker Change: And.
Speaker Change: Again returns tied to the development activity, both new development and redevelopment.
Tom Boyle: That's really helpful. And then, shifting gears here, I know Tom mentioned a little bit about SoCal demand. I'm just curious, have you seen a material change in storage demand in LA on the back of the flooding? And then could you just remind us of what the typical tailwind of a natural disaster is for demand in a given market? Sure, so I wouldn't call the rains that we've had in the winter here in Southern California a natural disaster.
Speaker Change: Got it that's really helpful. And then shifting gears here I know Tom mentioned, a little bit about socal demand I'm. Just curious have you seen a material change for storage demand in L. A on the back of the flooding and then can you just remind us of what the typical tailwind of a natural disaster is for demand in a given market.
Speaker Change: Sure. So I wouldn't call the range that we've had in the winter here in southern California natural disaster.
Tom Boyle: It's been raining this week, frankly, so we don't see a surge in demand. In fact, what we tend to see is Southern California residents and drivers tend to stay off the roads, and you don't see as much move-in activity or move-out activity, for instance, in periods of time when it's raining here in SoCal. But overall, I'd say demand remains healthy here. Occupancies are very healthy in L.A., San Diego, and Orange County, so we feel very good about how the portfolio is set up, and we'll work through the rains here in SoCal. Great, thanks for having us. It's fun shining today, so it'll be a busier day.
Speaker Change: Hey, David it's been raining this week frankly.
David: So we don't see a surge in demand in fact, what we tend to see is southern California resident.
David: Our residents and drivers tend to stay off the roads and you don't see as much move in activity or move out activity for instance in in.
David: Periods of time, when it's raining here in Socal, but overall I'd say demand remains healthy here.
David: Occupancies are very healthy in L. A San Diego Orange County, So we feel very good about how the portfolio setup and we'll work through the reins here in Socal.
Speaker Change: Great. Thanks, Hey, Scott Sun's shining today so.
Speaker Change: It'd be a busier day today.
Tom Boyle: Our next question comes from Spencer Allaway with Green Street Advisors. Please proceed with your question. Thank you.
Speaker Change: Our next question comes from Spencer Alloway with Green Street Advisors. Please proceed with your question.
Spencer Alloway: Thank you.
Spencer Allaway: Maybe just a more pointed question on the transaction market, and I know it's a small sample set here, but the 11 assets you closed in the fourth quarter, can you share the going in yield and then where you expect that to stabilize? Sure, getting into specifics, I'd say there's a range of going in yields depending on how stabilized the assets are. So of those 11 assets, some of them were CFO properties where the going in yield was zero or a little bit negative. And then you had some that were more stabilized, that going in yields were probably mid-fives to 6%, and we're going to seek to improve the operations on those portfolios and get them to, or those assets rather, get them to 6% plus as we think about the return profile of those assets.
Spencer Alloway: Maybe just a more pointed question on the transaction market.
Spencer Alloway: The small sample size here, but the 11 assets you close in the fourth quarter can you share the going in yield and then where you expect that stable.
Stabilized.
Spencer Alloway: Sure getting into specifics I would say the.
Spencer Alloway: There's a range of going in yields depending on how stabilized the assets or so of those 11 assets some of them.
Spencer Alloway: Our C of O properties, where the going in yield is zero or a little bit negative.
And then you had some that were more stabilize that going in yields are probably mid 5% to 6% and we're going to seek to improve the operations on those portfolios and get them to where those assets, rather and get them to 6% plus as we think about the return profile of those assets.
Spencer Allaway: And that's pretty consistent with what we saw through most of 2023. As Joe mentioned, we'll see how the interest rate and capital environment plays through into 24, but that hopefully gives you a guidepost on yields. And Spencer, from a strategy and appetite standpoint, we continue to look for properties that are potentially either lease-up opportunities or stabilization opportunities by putting those assets on our own platform. So not shy at all about taking on lease-up risk.
Spencer Alloway: That's pretty consistent with what we saw through most of 2023 as Joe mentioned, we'll see how the interest rate in capital environment plays through.
Spencer Alloway: Into.
Spencer Alloway: In the 'twenty four but that's hopefully it gives you a guidepost on on yields and Spencer from a strategy and appetite standpoint, we continue to.
Spencer Alloway: Look for properties that are potentially either lease up opportunities or stabilization opportunities by putting those assets on our own platform. So not shy at all about taking on lease up risk. In fact, you know many times, we see actual pretty sharp <unk>.
Tom Boyle: In fact, many times, we see a pretty sharp improvement once we put those assets onto our own platform. And we're confident that, again, those strategies will play well, you know, even going into this year and continue to look for a whole range of different types of assets, even based on age and maturity of the tenant base, et cetera. But clearly, no differentiation relative to the strategy we've deployed over the last few years, looking for opportunities when properties are far from stabilized and, again, buying the properties at the right price point, location, et cetera, continues to be very advantageous for us. Okay, great. And to that point, in regards to the Simply portfolio, can you provide an update on where the rent and occupancy stand today for those properties relative to, you know, the same store pool? Sure.
Spencer Alloway: <unk> once we put those assets onto our own platform and we're confident that again those stray.
Spencer Alloway: Strategies will play well, even going into this year and continue to look for a whole range of different type of assets, even based on age and maturity of the tenant base et cetera, but clearly no differentiation relative to the strategy. We've deployed over last few years looking for opportunities.
Spencer Alloway: Property are far from stabilized and again buying properties at the right price point location et cetera. It continues to be very advantageous for us.
Speaker Change: Okay, great and to that point in regards to the simply portfolio can you provide an update on where the rent and occupancy.
Speaker Change: <unk> today for those properties relative to.
Speaker Change: The same store pool.
Speaker Change: Sure.
Tom Boyle: So the rents of that portfolio have been improving as they've been added to our portfolio. So we've already seen some of the benefits of adding that portfolio in. The occupancy as it sits there, I think, is in the mid-80s today seasonally. I think when we took it over in the peak of the summer, it was towards the upper 80s.
Speaker Change: The rents of that portfolio have been improving as they've been added into our portfolio. So we've already seen some of the benefits of adding that portfolio in the occupancy as it sits there I think is in the mid eighties today seasonally I think when we took it over in the peak of the summer it was towards the upper eighties.
Tom Boyle: We'll obviously look to lease that back up into the spring leasing season and take the occupancy of there ultimately into the 90s on stabilization. So, seeing good trends as we've added that portfolio and those 90,000 customers to our portfolio, and on track for a good spring leasing season with that portfolio, with properties painted orange and public storage signage, which the customers are reacting well to. Okay, great. Thank you so much.
Speaker Change: We will obviously look to lease that backup into.
Speaker Change: Into the spring leasing season, and take the occupancy of their ultimately into the Ninety's on stabilization.
Speaker Change: So seeing good trends as we've added that portfolio in those 90000 customers into R. R.
Speaker Change: Portfolio and on track for a good.
Speaker Change: The spring leasing season with that portfolio with properties Orange painted in public storage signage, which.
Speaker Change: The customers are reacting well to.
Speaker Change: Okay, great. Thank you so much.
Spencer Allaway: Thank you. Our next question comes from Todd Thomas with KeyBank Capital Markets. Please proceed with your question. Hi guys, this is AJ on behalf of Todd.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Speaker Change: Hi, guys. This is AJ on for Todd I. Appreciate you guys, taking the time.
Todd M. Thomas: I appreciate you guys taking the time. Just the first one, as you've noted, you've made good progress on narrowing the occupancy gap year over year over the past few quarters. Why would you not expect to call back more occupancy throughout the year, given the easier comps and the broader stabilization that you're anticipating in your base case around the movement in rents and demand? Yeah, I think part of what you're seeing in that midpoint case is if you take a step back, right, we had really strong demands and occupancies in 21-22. And as those tenants cycled through, and we experienced weaker demand through 23, we're seeking to maximize revenue, ultimately, and a trade-off between rents and occupancies. And that's managed at a very granular level, you know, at the unit level across our properties based on the demand we're seeing, the customer price sensitivity, etc. And so that balance is real at the granular level.
AJ: First one as you've noted you've made good progress on narrowing the occupancy gap year over year over the past few quarters I guess.
AJ: Why would you not expect a call back more occupancy throughout the year, given the easier comps and the broader stabilization that you are anticipating your base case around move in rents and demand.
Speaker Change: Yes, I think part of what Youre seeing in that midpoint cases, and if you take a step back right. We had really strong demands in occupancies in 'twenty, one 'twenty, two and as those tenants cycled through and we experienced weaker demand through 'twenty three we're seeking to maximize <unk>.
Speaker Change: Revenue ultimately in a tradeoff between rents and Occupancies and that's managed at a very granular level.
Speaker Change: The unit level across our properties based on the demand, we're seeing the customer price sensitivity et cetera.
Speaker Change: And so that that balance is real at the granular level and what you see at the output is it made sense to give up in effect some of that.
Tom Boyle: And what you see at the output is it made sense to give up, in effect, some of that 2021 heightened level of occupancy to maximize revenues. And as we sit here today, our occupancies are down about 70-80 basis points compared to where we started in 2023. Again, that midpoint case doesn't assume that there's a big uplift in seasonal demand. And so you're kind of not getting a big lift there, similar to how we experienced last year. And so, you know, as we move through the year, you may see some closing towards the end of the year, but you're probably going to finish on average through the year about the same as where we're sitting today. Okay, that's helpful.
Speaker Change: 2021 heightened level of occupancy.
Speaker Change: To maximize revenues and as we sit here today, our occupancies are down about <unk> <unk>.
Speaker Change: 70, 80 basis points compared to where we started 2023 again that midpoint case doesn't assume that theres, a big uplift in seasonal demand and so.
Speaker Change: So youre kind of Youre not.
Speaker Change: Getting a big lift there similar to how we experienced last year and so as we move through the year you may see some closing towards the end of the year, but youre going to probably be finished on average through the year about the same as where we're sitting today.
Speaker Change: Okay. That's helpful and then just on the seasonality.
Tom Boyle: And then just on the seasonality, you know, you had software seasonality last year; what's embedded in the guidance for 2024? And I guess, really, looking at historical data, when do you expect to start seeing the pickup in rental demand for the peak rental season? Sure, so I'll couch seasonality in terms of the peak to trough change in occupancy. So last year we experienced, taking a step back even further, in 2015 to 2019, there was typically about a 280 basis point peak to trough change in occupancy. Let's call that from June 30th to December 31st. In 2022, we experienced about 240 basis points, so it was a little bit less seasonal than a typical year. In 2023, that fell all the way down to about 160 basis points peak to trough. And in 2024, our midpoint case is a touch over 200. So a little bit more seasonality, but not as much as we experienced in 22 and a far cry from what we experienced in the pre-pandemic time period. Great. I appreciate the color.
Speaker Change: You had software seasonality last year.
Speaker Change: Better than the guidance for 2024, and I guess really looking at historical data.
Speaker Change: Do you expect to start seeing the pickup in rental demand for the peak rental season.
Speaker Change: Sure so.
Speaker Change: Our couch seasonality in terms of the peak to trough change in occupancy.
Speaker Change: No.
Speaker Change: Last year, we are taking a step back even further in 2015 to 2019. There was typically about a 280 basis points peak to trough change in occupancy called out from June 30 to December 31.
Speaker Change: In 2022, we experienced about a 240 basis points. So it was a little bit less seasonal than than a typical year in 2023 that fell all the way down to about 160 basis points peak to trough and in 2024.
Speaker Change: Midpoint case is a touch over 200, so a little bit more seasonality, but not as much as we experienced in 'twenty, two and a far cry from what we experienced in our in the pre pandemic time period.
Speaker Change: Great I appreciate the color. Thank you.
Eric Wolf: Thank you, Great, thanks. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions. Our next question comes from Eric Wolf with Citi. Please proceed with your question. Hey, thanks.
Speaker Change: Great. Thanks.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Speaker Change: Our next question comes from Eric Wolfe with Citi. Please proceed with your question.
Eric Wolfe: Hey, Thanks, you talked about the move in rents crossing over into positive territory in late summer.
Tom Boyle: You talked about moving rents crossing over into positive territory in late summer. Just curious where moving rents will be at that time. So what's the annual contract rate that you expect to see in late summer? And how much of that improvement from current levels is just driven by seasonality versus a strengthening of your business? Thanks, Eric.
Eric Wolfe: Just curious where moving rents would be at that time. So what's the annual contract rate do you expect to see in late summer and how much of that improvement current levels is just driven by seasonality versus the strengthening of your business.
Speaker Change: Thanks, Eric So I think.
Tom Boyle: We'll have to dig up the details, and we can get to you exactly what our third quarter move-in rents were, for instance, but at the end of summer, we're expecting to cross zero, so I'd look at plus or minus our third quarter of 23 move-in rents, and I think the team's going to dig up the third quarter contract rents so you can have them. In terms of what we need to see to get there, there's seasonality every year. As the question earlier said, so even in the year last year where I'd call it an atypical year where we didn't see a lot of seasonal strength through your April, May, and June, the housing market has been very well publicized as resetting lower in terms of transaction volumes as being a driver there.
Speaker Change: We'll have to dig up and we can get to your exact I don't have in front of me what our third quarter move in rents were for instance, but end of summer.
Eric Wolfe: We're expecting across the euro so I'd look at plus or minus or third quarter of 2003 move in rents and I think the team is going to dig up third quarter.
Eric Wolfe: Contract rents you can have them.
Eric Wolfe: In terms of what we need to see to get there. There is there is seasonality every year. So as the question earlier, so even in a year last year, where I would call it an <unk>.
Eric Wolfe: <unk> atypical year, where we didn't see a lot of seasonal strength through your April amaze and june's the.
Eric Wolfe: Housing market has been very well publicized is resetting lower in terms of transaction volumes as being a driver there.
Tom Boyle: As we think about move-in rents, they're going to rise, and they rose last year; they're going to rise on an absolute basis into the summer. And then what you're going to see is a little bit more growth in rental rates this year to close that gap over the time between now and the end of the year last year or the end of the summer this upcoming year. Does that make sense? Yeah, no, but it makes sense.
Eric Wolfe: As we think about move in rents.
Theyre going to rise and they rose last year theyre going to rise on an absolute basis into the summer.
Eric Wolfe: And then what Youre going to see is a little bit more growth in rental rates. This year to close that gap over the time between now and the end of.
Eric Wolfe: The year last year or the end of the summer.
Eric Wolfe: This upcoming year.
Speaker Change: That makes sense.
Yeah, no that makes sense and I guess the question. Then really is just you talked about that extra gap that it needs to sort of close.
Tom Boyle: And I guess the question then really is just, you talked about that extra gap that it needs to sort of close to get the above and beyond seasonality. Can you put that in context? Like, is that the extra gap that it needs to close pretty large relative to history? Is it somewhat normal relative to other recovery periods, just trying to understand sort of, you know, whether it's unusual relative to what you've seen in the past? Yeah, I guess the way I'd characterize it is we saw less than what we would typically see last year in terms of a seasonal uplift in rents. And what we're saying is we're expecting stabilization in demand through this year, which means that we shouldn't continue to set new lows, seasonally adjusted on moving rents in the midpoint case.
Speaker Change: To get there.
Speaker Change: Above and beyond seasonality can you just put that in context like is that a is that extra gap that it needs to close pretty large relative to history is it somewhat normal relative to other recovery periods, just trying to understand sort of what.
Speaker Change: Whether it's unusual relative to what you've seen in the past.
Speaker Change: Yeah, I guess the way I'd characterize it is we saw less than what we would typically see last year in terms of a seasonal uplift in rents.
And what we're saying is we're expecting stabilization in demand through this year, which means that we shouldnt continue to set new lows seasonally adjusted on move in rents.
Tom Boyle: And, and so that's going to result in the closing of that gap. We're not suggesting that the environment needs to get significantly better but rather stabilize as we move through this year and not set fresh lows. And to follow up on your question, the team dug it up. We had a move in rents on a contract basis in the third quarter of about $16. Great. That's helpful.
Speaker Change: In the midpoint case.
Speaker Change: And so that's going to result in closing of that gap, we're not suggesting that the environment needs to get significantly better, but rather stabilize as we move through this year and not set fresh lows and to follow up on your question. The team dug it out, but we had move in rents on a contract basis in the third quarter about <unk>.
Speaker Change: $16.
Speaker Change: Great. That's helpful. Thank you.
Ki Bin Kim: Thank you. Our next question is from Ki Bin Kim with Truist Security. Please proceed with your question. Thanks, and good morning. A quick question on ECRIs.
Speaker Change: Our next question is from Keybank, Kim with <unk> Securities. Please proceed with your questions.
Kim: Thanks, Dan and good morning.
Kim: Quick question on ECR is as you look ahead are you projecting to be more aggressive in terms of magnitude or frequency, what youre ECR program compared to 2023.
Tom Boyle: As you look ahead, are you projecting to be a bit more aggressive in terms of magnitude or frequency with your ECRI program compared to 2023? So Ki-Bin, we spoke about this a little earlier. There's a little bit of a give and take this year. We're expecting that, on the one hand, the consumer remains strong, as Joe highlighted in his remarks, and that we don't see a significant shift in customer price sensitivity, which we've been very encouraged by experiencing through 22 and 23. So that's one side of the story.
Kim: Yeah.
Kim: So Keith you spoke about this a little earlier there is a little bit of a given take this year, we're expecting that on the one side the consumer remains strong as Joe highlighted in his remarks.
Keith: And that we don't see a significant shift in customer price sensitivity, which we've been very encouraged and experiencing $3 22 and 23. So that's one side.
Tom Boyle: On the other hand, on replacement costs, move-in rents are still down 10%, 11%. So replacement cost is higher at the start of this year than it was at the start of last year, on average. And so that's going to have a detriment on overall contribution. But the flip side of that, which I highlighted earlier, was the fact that we moved in a lot more new customers last year. Move-in rents were strong, up about 9%.
Keith: The other side on replacement costs moving rents are still down 10, 11%. So replacement cost is higher at the start of this year than it was at the start of last year on average and so that's going to have a detriment to overall contribution.
Keith: But the flip side of that that I highlighted earlier was the fact that we.
Keith: <unk> moved into a lot more new customers last year move in rents were strong up about 9% and that will have a positive impact on that.
Tom Boyle: And that will have a positive impact on not just the magnitude but the number of increases that we send throughout the year. And those things largely will be offset such that the contribution of ECRIs as we sit here today in the midpoint case is pretty consistent year-over-year. Okay, and I'm not sure how you internally gauge this, but can you provide any color on changes that you notice in your customer conversion rate or your market share win of customers? Yeah, so Joe spoke about a lot of the tools that we were using last year, advertising, promotions, rental rates, and the power of our advertising platform online. So we saw better-than-industry, top-of-funnel demand for our system, which ultimately led to good move-ins. But we also saw stronger conversion associated with both pricing and promotion, which are more conversion-related items, such that conversion rates, both through, well, through all the channels that we operate in, both the website, the call center, and folks walking in, are higher in 23 compared to 22, and we're seeing good trends into 24 as well.
Keith: Not the magnitude, but the number of increases that we send throughout the year and those things largely will offset such that the contribution of <unk> as we sit here today in the midpoint case is pretty consistent year over year.
Speaker Change: Okay, and I'm not sure how you internally engaged us but.
Speaker Change: Can you provide any color on changes that you've noticed on your customer conversion rate.
Speaker Change: Or your market share win of customers.
Speaker Change: Yes, so Joe spoke to a lot of the tools that we were using through last year advertising promotions rental rates and the power of our advertising platform online. So we saw better than industry top of funnel demand into our system, which ultimately led to good move ins.
Speaker Change: We also saw stronger conversion associated with both pricing and promotion, which are more conversion related to items.
Speaker Change: Such that conversion rates, both through well through all the channels that we that we operate in both our website call center and folks walking in or higher.
Speaker Change: In 2003 compared to 22, and we're seeing good trends into 24 as well.
Tom Boyle: And yeah, on top of that, Keebin, as we've talked about, our digital platform continues to give customers the ability to, again, transact with us through not only our digital platform but, you know, now even through our care center, et cetera. So we're making that conversion activity even that much more effective relative to, again, consumer intent with all the tools that we have to get them, you know, to the top of the funnel activity, but then actually to the conversion itself from a speed efficiency point of view... End of Audio. Time of day, you know, Frankly, many of our customers transact with us in off-business hours now. So all very good tools that continue to lead to very strong conversions that, to Tom's point, we feel like we've got good industry-leading capabilities that we're going to continue to invest in and optimize going forward. Okay, thank you, guys. Thank you.
Speaker Change: Yeah on top of that Kevin you know as we've talked about our digital platform continues to give customers the ability to again transact with us through not only digital platform, but.
Kevin: Now even throw arc care center et cetera, So, we're making that conversion activity even that much more effective relative to.
Kevin: Again consumer intent.
Kevin: With all the tools that we have to get them to the top of funnel activity, but then actually to the conversion itself.
Kevin: From a speed efficiency.
Kevin: Time of day.
Kevin: Frankly, many of our customers transact with us and off business hours now so.
Kevin: All very good tools that continue to lead to very strong conversion that to Tom's point, we feel like we've got good industry, leading capabilities or we're going to continue to invest and optimize going forward.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thank you.
Joseph D. Russell: Our next question comes from Hong Hang with J.P. Morgan. Please proceed with your question. Yeah, hey, guys. I guess first off, I'm glad you're fair. I'm better.
Speaker Change: Our next question comes from Hong Hang with J P. Morgan. Please proceed with your question.
Speaker Change: Yes.
Hong Zhang: I guess first off thank you Sir.
Hong Zhang: Sputter and Frank Atkins.
Hong Zhang: And so calc is definitely a little bit more of, I guess my first question is just, is it safe to think about the low end of the range as basically there being no return, no seasonal demand, or are you expecting higher seasonal demand compared to last year even at the low end? We're assuming less seasonal demand at the low end. I agree with that. I think that's something I mentioned earlier.
Morgan.
Hong Zhang: Northern California.
Speaker Change: I guess I guess my first question is yes.
Speaker Change: Is it safe to think about the low end of the range basically.
Speaker Change: No return no seasonal demand or are you expecting higher seasonal bump last year, even at the low end.
Speaker Change: We're assuming less seasonal demand in the low end.
Speaker Change: I agree with that I think that's something I mentioned earlier, so agree with that and more seasonal demand in the high end.
Tom Boyle: So, I agree with that and with more seasonal demand in the high-end. My second question is, you've grown your management platform pretty well. Have you had any success in sourcing acquisitions from there yet?
Speaker Change: Okay, and then I guess.
Speaker Change: Question, you've grown your management platform pretty well.
Speaker Change: Success in sourcing acquisitions from there yet.
Joseph D. Russell: And how big of a potential source of acquisitions do you think that could represent in the future? Yeah, that's a key component of the growth of the platform itself. You know, it's a very relationship-oriented business. Thus far, we've acquired close to 40 assets out of the program. But over the last few quarters, it's been on the light side.
Speaker Change: Megan.
Speaker Change: Sourcing.
Speaker Change: Acquisitions, you think back on the present and future.
Megan: Yeah, that's a key component of the growth of the platform itself, it's a very relationship oriented business.
Megan: Thus far we've acquired close to 40 assets out of the program.
Megan: Over the last few quarters, it's been on the light side again is I think indicative of the environment that we've been seeing in acquisitions in general with.
Joseph D. Russell: Again, it's indicative of the environment that we've been seeing in acquisitions in general, with many owners not of the mindset that this is the right time necessarily to do a transaction or a trade. But with the growing platform itself, again, we saw very good traction in 2023. We've got, you know, good momentum going into this year as well.
Megan: Many owners not.
Megan: Of a mindset that this is the right time necessarily to do a transaction or a trade, but with the growing platform itself again, we saw very good traction in 2023, we've got good momentum going into this year as well those additive relationships knowledge of the assets their comfort level with her.
Joseph D. Russell: Those additive relationships, knowledge of the assets, their comfort level with our own ability to transact very efficiently will continue to be a good source of not only relationships but acquisition activity over time. So I noted that, you know, now the program's at about 325 assets, and we still see good momentum to continue to grow to our ultimate goal of optimizing the platform. So we'll likely see that in the next year to two, and with that, more acquisition opportunities. Thank you.
Megan: Our own ability to transact very efficiently, we will continue to be a good source of not only relationships, but acquisition activity over time. So I noted that the other programs at about 325 assets and we still see good momentum to continue to grow to our ultimate goal.
Megan: And optimization of the platform. So we will likely see that in the next year to two.
And with that more acquisition opportunities.
Speaker Change: Oh, thank you.
Eric Lubchow: Our next question is from Eric Lubchow with Wells Fargo. Please proceed with your question. Okay.
Speaker Change: Our next question is from Eric <unk> with Wells Fargo. Please proceed with your question.
Tom Boyle: Thanks for taking the question. Maybe you could talk a little bit about the spread between move-in and move-out rents. I assume that gap should start to narrow by mid-year just based on the move-in rent improvement you talked about, but should we expect any change in the average rents of customers moving out based on average length of stay or any other variables that we should consider there? Eric, it sounds like you have a pretty good handle on that. We're sitting here in the winter months of Q4 and Q1.
Eric Wolfe: Great. Thanks for taking the question.
Eric Wolfe: Maybe you could talk a little bit about the spread between move in and move out rents I assume that gap should start to narrow by mid year just based on the move in rent improvement you talked about but should we expect any change in the average rents of customers moving out based on average length of stay or any other variables that we should consider there.
Eric Wolfe: Eric It sounds like you have a pretty good handle on that we're sitting here in the winter Q4, and Q1 youre going to have that differential between move ins and move outs be higher.
Tom Boyle: You're going to have that differential between move-ins and move-outs be higher. That's going to then narrow as we move into Q2 and Q3, and then rewiden again in the fourth quarter. Obviously, the comments that I made around move-in rents getting to a point where they're not declining on a year-over-year basis through the fourth quarter will be helpful in that regard, but you're still probably going to end up in a similar territory on the gap there between move-in and move-outs in the midpoint case, and we're very comfortable with that and managing to achieve those higher revenues from our in-place customers Great, thank you.
Eric Wolfe: That's going to then narrow as we move into Q2 and Q3.
Eric Wolfe: Then re widen again in the fourth quarter, obviously, the comments that I made around move in rents.
Eric Wolfe: Getting to a point, where they're not declining on a year over year basis through the fourth quarter will be helpful on that but you're still probably going to end in a similar territory on gap there between move in and move outs in the midpoint case, and we're very comfortable with that.
Eric Wolfe: And managing to achieve those higher revenues from our in place customers, who are placing a lot of value on on our space.
Speaker Change: Great. Thank you and just my follow up you touched on this several times, but the newer customers you've loaded at much lower move in rates the past year.
Ronald Kamdem: And just my follow-up, you touched on this several times, but the newer customers you've loaded at much lower moving rates in the past year, you talked about increasing the frequency and the magnitude of rate increases for that cohort. So, have you seen those large rate increases kind of perform within expectations as you've started to push those through kind of toward the end of 23 and early 2024 in terms of either retention or customer receptivity? Yeah, I'd say that I reiterate something that Joe mentioned earlier, which is that the customers continue to behave as expected and with some strength, and we continue to see good momentum within that program, and that includes both newer customers as well as longer-term customers in the program.
You talked about increasing the frequency and magnitude of rate increases for that cohort. So have you seen those large rate increases kind of performed within expectations.
Speaker Change: As you've started to push those through kind of towards the end of 'twenty three in early 2024 in terms of either retention or customer receptivity.
Yes, I'd say that reiterate something that Joe mentioned earlier, which is that the customers continue to behave as expected and with some strength.
Speaker Change: And we continue to see good good momentum within that program.
Speaker Change: And that includes both newer customers as well as longer term customers in the program.
Ronald Kamdem: Great, thank you. Our next question is from Ronald Kamden with Morgan Stanley. Please proceed with your question. The first is on the same-store revenue guidance of flat. I guess I'm trying to tie your comments about a first-half and second-half dynamic, where the first half maybe is a little bit slower and you have a pickup in the second half. So should we be bracing for sort of negative same-store sales as you start the year before you end the year somewhere sort of well above zero to get to the midpoint of the guidance? Yeah, that's a good question, Ron.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from Ronald Camden with Morgan Stanley. Please proceed with your question.
Ronald Kamdem: The first is just on the same store revenue guidance of flat I guess I'm trying to tie your comments about a first half and second half.
<unk> were in the first half maybe it's a little bit slower and you have a pickup in the second half. So should we be bracing for sort of negative same store as you start the year before you end the year somewhere sort of well above zero.
Ronald Kamdem: To get to the midpoint of the guidance.
Speaker Change: Yeah, that's a good question Ron.
Tom Boyle: I hope that everyone's not bracing, but I would anticipate that we see deceleration through the first part of the year. And yes, that likely involves a negative performance on a year-over-year basis through the first half. And then, yes, reacceleration as the lag between operating metric improvement and financial metric performance starts to show in the second half of the year.
Speaker Change: Hope that everyone's not embracing but I would anticipate that we see deceleration through the first part of the year and yes.
Speaker Change: And.
Speaker Change: Involves a negative performance on a year over year basis through the first half and then yes reacceleration as those the lag between operating metric improvement and financial metric performance starts to show in the second half of the year.
Speaker Change: Great.
Tom Boyle: And then, look, my second question is just, I guess we're trying to figure out how aggressive or conservative the guidance is because, on the one hand, you talked about, you know, last year, there were a lot more macro concerns. So maybe that was a reason to be a little bit more conservative versus this year. But you also sort of mentioned that the move in volumes, you know, at 9%, was basically 2x what you did in sort of 2022, which should presumably set up well for pricing power. So maybe, when you're putting all that together, maybe you could talk about how much conservatism there is?
Speaker Change: And that look my second question is just I guess, we're trying to figure out how aggressive or conservative.
Speaker Change: The guidance says because on the one hand, you talked about last year. There were a lot more macro concerns. So maybe that was the reason to be a little bit more conservative versus this year, but you also sort of mentioned that the move in volumes at 9% was basically to ask what you did in <unk> and in sort of.
Speaker Change: 2022, which should presumably set up well for pricing power. So maybe you could you when you are putting all of that together.
Speaker Change: Maybe can you talk about how much conservatism.
Tom Boyle: or not is built into the guidance this year and how we think about that. So I guess the way I'd couch it is we did cover a macro series of scenarios for our guidance ranges last year. The range on same-store revenue was about 250 basis points.
Speaker Change: Or not is built into the guidance this year and how do we think about that.
Speaker Change: Sure so.
Speaker Change: I guess the way I would couch it as we did.
Cover a macro a series of scenarios for our guidance range as last year. The range on same store revenue was about 250 basis points.
Tom Boyle: This year, as we sit here, there's still uncertainty, as I highlighted, maybe a little bit less than what we experienced last year, what we were expecting last year, and so the range is 200 basis points this year, so not too far different. Our core FFO range was about $0.70 last year. I think the range this year is $0.60, so we're still talking about similar levels of range. As a reminder, we operate a month-to-month lease business, and so there is some variability that could play out through the year. I've tried to be very transparent on what the range of potential outcomes is on a number of the key metrics, both at the high and the low end, and we'll look to execute on our plan this year, and I'll leave judging conservatism or aggressiveness to the investment community, but we want to try to be transparent around what our assumptions are and how we plan on navigating through the year. Thanks so much.
Speaker Change: This year as we sit here there is still uncertainty as I highlighted maybe a little bit less than what we experienced last year, what we were expecting last year and so the range is 200 basis points. This year, so not too far different our core <unk> range.
Speaker Change: It was about 70 cents last year I think the range. This year is 60.
Speaker Change: So we're still talking about similar levels of range and as a reminder, we operate a month to month lease business.
Speaker Change: And so there is some variability that could play out through the year I've tried to be very transparent on what the the range of potential outcomes on a number of the key metrics both at the high and the low end.
Speaker Change: And we'll look on to executing through our plan this year and I'll leave judging conservatism or aggressiveness to the investment community, but we want to try to be transparent around what our assumptions are.
And how we plan on navigating through the year.
Speaker Change: Thanks, so much.
Steve Sakwa: Our next question is from Steve Sakwa with Evercore ISI. Please proceed with your question. Yeah, thanks. Just one quick follow-up, Tom. It sounds like your contractual rent for move-ins will still be negative in the first half of the year. I think you said it was running down about 11 in the first quarter.
Speaker Change: Our next question is from Steve Issaquah with Evercore ISI. Please proceed with your question.
Yes. Thanks, just one quick follow up Tom It sounds like your contractual rent for move ins will still be negative in the first half of the year. I think you said it was running down about 11 in the first quarter. I think you said you expect it to get to about a breakeven in the third quarter.
Tom Boyle: I think you said you expected that to get to about break-even in the third quarter. I guess, what is the overall expectation for the year? I mean, I presume the fourth quarter might be up, fourth quarter over fourth quarter, but that still leaves you kind of negative for the year. Is that kind of the right way to think about it?
Speaker Change: I guess what is the overall expectation for the year, I mean, I presume fourth quarter might be up fourth quarter over fourth quarter, but that still leaves you kind of negative for the year is that kind of the right way to think about it.
Tom Boyle: Yep, that's the right way to think about it, Steve. In the midpoint case, I think move-in rents are down 3% on average through the year. Thanks. That's it.
Speaker Change: Yes, that's the right way to think about it Steve the midpoint case, I think move in rents were down 3%.
Speaker Change: On average through the year.
Speaker Change: Great. Thanks, that's it.
Michael Goldsmith: Our next question is from Michael Goldsmith with UBS. Please proceed with your question. Okay, just one quick follow-up for me. You know, from our conversation with investors, I think they were expecting seamstress revenue growth at kind of like the low end of your seamstress revenue guidance. So what do you need to see or believe about the consumer or the length of stay to get ECRIs to drive kind of that seamstress revenue growth at that low end of the guidance, all else being equal? And I know it's kind of like, there's a lot of moving parts there, but just what do we need to get ECRIs to the low end of the seamstress revenue? Well, I would start with... It's not just ECRIs, right?
Speaker Change: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
Speaker Change: Okay.
Michael Goldsmith: Hey, just one quick follow up for me.
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Michael Goldsmith: Thank you.
Michael Goldsmith: Our conversations with investors I think they were expecting same store revenue growth I'd kind of like the low end of your seems to of your same store revenue guidance. So what do you need to see or believe about the consumer or the length of stay to get ECR is to drive kind of that same store revenue growth.
Michael Goldsmith: And does the guidance all else being equal and I know, it's kind of like there's a lot of moving parts there, but just what would need to get the <unk> to the low end of the same store revenue guidance.
Speaker Change: Well I would suggest ECR is I mean, we gave you a lot of different metrics at the low end. It gets you get you there.
Tom Boyle: Yeah. I mean, we gave you a lot of different metrics at the low end that will get you there. You know, I gave you the perspective that demand, new customer demand, in that lower end case, doesn't stabilize till later in the year, and you don't cross year-over-year move-in rents until the fourth quarter, really towards the end of the year. ECRIs, we're assuming in that case that there's a little bit more price sensitivity than what we're experiencing right now, to directly answer your question. Move-out churn, we're anticipating is really centered around in the midpoint case the same levels of churn we saw last year, which is very consistent with what we saw in 2019. Churn levels are up a little bit in that low-end case, but not materially. That's what gets you there to the..., gets you there to the lawn.
I gave you the perspective that demand new customer demand in that lower end case doesn't stabilize til.
Speaker Change: <unk>.
Speaker Change: Later in the year and you don't cross year over year move in rents until the fourth quarter.
Speaker Change: Really towards the end of the year.
Speaker Change: ECR is we're assuming in that case that there is a little bit more price sensitivity than what we're experiencing right now.
Speaker Change: To directly answer your question move out churn we're.
We're anticipating really in.
Speaker Change: Is centered around in the midpoint case, the same levels of churn we saw last year, which is very consistent with what we saw in 2019 churn levels are up a little bit in that low end case, but but not materially so.
Speaker Change: So that's what gets you gets you there to the.
Speaker Change: It gets you into the low end.
Speaker Change: And then again, Michael as you know we've been speaking to.
Speaker Change: We're seeing again continued validation of a.
Speaker Change: I would say healthy economy, very consumer oriented economy, where the.
Speaker Change: The pressure points of a year ago or beyond relative to whether it was inflation.
Speaker Change: Interest rates.
Joseph D. Russell: Employment, et cetera, is at a better place today with more clarity today than they were certainly at the beginning of 2023. That continues to play through relative to our own month-by-month operating metrics that we're seeing going even into 2024, so something would have to shift pretty materially away from that to give us a different low-end view as well. Yeah, and we'll obviously update you on that as we go through the year. I'd maybe reiterate something I said in my prepared remarks, that I would focus more on move-in rents. That has been the big area of variability over the last year or two in same-store revenue performance.
Speaker Change: Employment et cetera.
Speaker Change: At a better place today with more clarity today than they were certainly at the beginning of 2023.
That continues to play through relative her own.
Speaker Change: Month by month operating metrics that we're seeing going even into 2024 so.
Speaker Change: Something would have to shift pretty materially away from that to give us a different low end view.
Speaker Change: As well and we'll obviously update you on that as we go through the year I would maybe reiterate something I said in my prepared remarks.
Speaker Change: That I would focus more on move in rents that has been the big area of variability over the last year or two on same store revenue performance I've tried to give the investment community. Some guideposts in terms of how we think about that going through the year.
Tom Boyle: I've tried to give the investment community some guideposts in terms of how we think about that going through the year, but we operate a month-to-month business where we're going to be adding about 6% to 8% of our tenant base every month, and the rate with which we add those customers is going to be very impactful on where we end up in this range. We'll update you on what we're seeing in operating trends as we move through the year. Thanks again. Thank you. Thanks, Michael. We have reached the end of the question and answer session. I'd now like to turn the call back over to Ryan Burke for closing comments. Thanks, Rob, and thanks to all of you for joining us today. We'll talk to you soon. Take care. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Speaker Change: But we operate a month to month lease business, where we're going to be adding about 6% to 8% of our tenant base every month and the rate with which we add those customers is going to be very impactful on where we end up through this range.
Speaker Change: And.
Speaker Change: We will update you on what we're seeing on operating trends as we move through the year.
Speaker Change: Thanks again.
Speaker Change: Thank you thanks, Michael.
Speaker Change: We have reached the end of the question and answer session I would now like to turn the call back over to Ryan Burke for closing comments.
Ryan C. Burke: Thanks, Rob and thanks to all of you for joining US today, we'll talk to you soon take care.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.