Q2 2024 Public Storage Earnings Call
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ryan Burke. Thank you. You may begin.
Operator: As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ryan Burke.
Ryan C. Burke: Thank you. Thank you, Rob. Hello, everyone. Thank you for joining us for our second quarter 2024 earnings call. I'm here with Joe Russell and Tom Boyle.
Ryan C. Burke: Thank you, Rob. Hello, everyone. Thank you for joining us for our second quarter 2024 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.
Joseph D. Russell: 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. Such forward-looking statements are subject to certain economic risks and uncertainty. All forward-looking statements speak only as of today, July 31st, 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.
Joseph D. Russell: 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, after that, feel free to jump in the queue with more.
Ryan C. Burke: These forward-looking statements are subject to certain economic risks and uncertainties.
All forward-looking statements speak only as of today, July 31st, 2024, and we assume no obligation to update, revise, or 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, publicstorage.com.
Ryan C. Burke: We do ask that you initially limit yourselves to two questions. Of course, after that, feel free to jump in queue with more. With that, I'll turn the call over to Joe.
Joseph D. Russell: With that, I'll turn the call over to Joe. Thank you, Ryan, and thank you all for joining us today. Tom and I will walk you through our recent performance and updated views, then we'll open it up for Q&A. Our second quarter performance exceeded our expectations regarding existing customer behavior and occupancy levels, but fell short on rents charged to new move-in customers. Move-in rents were down 14% due to competitive pricing dynamics in many markets.
Joseph D. Russell: That compares to down 6% in our original forecast. Accordingly, we have adjusted our guidance ranges to reflect more competitive market move-in rent conditions for the remainder of the year, which Tom will cover in a moment. Overall, we are encouraged by positive momentum in our business, including new customer activity, supported by a healthy consumer with a sustained need for more space at home, and the effectiveness of our broad-based customer acquisition strategy. Occupancy Trends Outpacing Expectations with Positive Net Move-ins Year-to-Date, Our in-place customers are behaving well with good payment patterns, reduced vacate activity on a year-over-year basis, Our high-growth, non-same-store pool, which comprises 542 properties and 22% of total portfolio square footage, is leasing up quickly, with NOI growing nearly 50% during the second quarter.
Joe: Thank you, Ryan, and thank you all for joining us today. Tom and I will walk you through our recent performance and updated views. Then we'll open it up for Q&A.
Tom: Our second quarter performance exceeded our expectations regarding existing customer behavior and occupancy levels, but fell short on rents charged to new move-in customers.
Speaker Change: Move-in rents were down 14% with competitive pricing dynamics in many markets.
Ryan C. Burke: That compares to down 6% in our original forecast.
Ryan C. Burke: Accordingly, we have adjusted our guidance ranges to reflect more competitive market move-in rent conditions for the remainder of the year, which Tom will cover in a moment.
Tom: Overall, we are encouraged by positive momentum in our business, including new customer activity supported by a healthy consumer with a sustained need for more space at home.
Tom: and the effectiveness of our broad-based customer acquisition strategies.
Tom: Occupancy Trends Outpacing Expectations with Positive Net Move-ins Year-to-Date
Tom: Our in-place customers are behaving well with good payment patterns, reduced vacate activity on a year-over-year basis, and strong length of stays.
Tom: Our high-growth, non-same-store pool, which comprises 542 properties and 22% of total portfolio square footage, is leasing up quickly, with NOI growing nearly 50% during the second quarter.
Joseph D. Russell: Several markets within our portfolio are seeing month-over-month revenue growth improvements and waning development of new competitive supply, which will be supportive of accelerating operating fundamentals. And the acquisition market, while still quiet, is showing some signs of broader activity. Based on these favorable trends and our strong capital position, we also repurchased $200 million in public storage common shares during the quarter.
Tom: Several markets within our portfolio are seeing month-over-month revenue growth improvement.
Tom: Waning development of new competitive supply which will be supportive to accelerating operating fundamentals.
Tom: And the acquisition market, while still quiet, is showing some signs of broader activity.
Tom: Based on these favorable trends and our strong capital position, we also repurchased $200 million in public storage common shares during the quarter.
Tom Boyle: We continue to view 2024 as a year of stabilization across our portfolio, and we are excited about our trajectory over the near, medium, and long term. Now Tom will provide additional details. Thanks, Joe. We reported second quarter core FFO of $4.23 per share, representing a 1.2% decline compared to the same period in 2023, in line with the same 1.2% experience during the first quarter. Looking at the same store portfolio of stabilized properties, revenues declined 1% compared to the second quarter of 2023.
Tom: We continue to view 2024 as a year of stabilization across our portfolio.
Tom: We are excited about our trajectory over the near, medium, and long term.
Tom: Now Tom will provide additional detail.
Tom: Thanks, Joe.
Tom: We reported second quarter core FFO of $4.23 per share, representing a 1.2% decline compared to the same period in 2023.
Tom: and in line with the same 1.2% experience during the first quarter.
Tom: Looking at the same store portfolio of stabilized properties, revenues declined 1% compared to the second quarter of 2023.
Tom Boyle: A relatively even mix of lower occupancy and rents drove that decline. The rent decline was primarily driven by lower market move-in rents, which were partially offset by better-than-expected behavior of our in-place customers. Our occupancy gap compared to 2023 narrowed to down 30 basis points at quarter end. Outperforming Our Expectation on Positive Net Moving, On expenses, same store cost of operations was up 90 basis points in the second quarter. As our operating model transformation and solar power generation strategic initiatives reduce payroll, utilities, and indirect costs, helping offset other lineups. In total, net operating income for the same store pool declined 1.6% in the quarter.
Tom: A relatively even mix of lower occupancy and rents drove that decline.
Tom: The rent decline was primarily driven by lower market move-in rents, which were partially offset by better-than-expected behavior of our in-place customers.
Tom: Our occupancy gap compared to 2023 narrowed to down 30 basis points at quarter-end.
Tom: Outperforming our expectation on positive net move-ins.
Tom: On expenses, same store cost of operations were up 90 basis points in the second quarter.
Tom: As our operating model transformation and solar power generation strategic initiatives reduce payroll, utilities, and indirect costs, helping offset other line items.
Tom: In total, net operating income for the same store pool declined 1.6% in the quarter.
Tom Boyle: Our operating margin remained healthy at an industry-leading 79%. The strong performance of our non-same-store pool continues, as Joe mentioned, with this pool at 83% occupancy and comprising 22% of our total square footage. It will be an engine of growth for the remainder of this year and into the future, which is a good segue into our updated outlook for 2014. We revised our same-store revenue assumptions and core FFO per share guidance to reflect lower move-in rents during our busy season, namely in May, June, and into July.
Tom: Our operating margin remained healthy at an industry-leading 79%.
Tom: The strong performance of our non-same-store pool continues, as Joe mentioned.
Joe: With this pool at 83% occupancy and comprising 22% of our total square footage, it will be an engine of growth for a remainder of this year and into the future, which is a good segue into our updated outlook for 2024.
Joe: We revised our same-store revenue assumptions and core FFO per share guidance to reflect lower move-in rents during our busy season.
Tom Boyle: We removed the more optimistic scenarios within our revenue growth range, which reflected the possibility of move-in rents reaching parity with last year during 2024. The assumptions underpinning the negative 1% growth scenario at our new midpoint are as follows. Move-in rents are, on average, down 12% for the full year, finishing in December with move-in rents down mid-single-digit. Our other assumptions are unchanged.
Tom: namely in May, June , and into July .
Tom: We removed the more optimistic scenarios within our revenue growth range, which reflected the possibility of move-in rents reaching parity with last year during 2024.
Tom: The assumptions underpinning the negative 1% growth scenario at our new midpoint are as follows.
Tom: Move-in rents, on average, down 12% for the full year, finishing in December with move-in rents down mid-single digits.
Tom Boyle: Occupancy averaging down 80 basis points for the year, and a consistent contribution from existing customer rent increases compared to last year. We also adjusted our 2024 non-same store NOI outlook by $17 million at the midpoint to reflect the later timing of acquisition closing, and lower move-in rents similar to the same store. Our outlook for the non-same-store pool is for a strong 32% growth this year at the midpoint. That strong growth is expected to continue with an additional 110 million of incremental NOI in 2025 and beyond from this pool.
Tom: Our other assumptions are unchanged. Occupancy averaging down 80 basis points for the year.
Tom: and a consistent contribution from existing customer rent increases compared to last year.
Tom: We also adjusted our 2024 non-same-store NOI outlook by $17 million at the midpoint to reflect later timing of acquisition closings and lower move-in rents similar to the same-store pool.
Tom: Our outlook for the non-same-store pool is for a strong 32% growth this year at the midpoint.
Tom: That strong growth is expected to continue with an additional 110 million of incremental NOI in 2025 and beyond from this pool.
Tom Boyle: Based on those assumption changes, we have revised our core FFO guidance to a range of $16.50 to $16.85 per share, an approximate 1% reduction compared to the midpoint of our prior guidance range. Our outlook for capital allocation in 2024 is unchanged.
Tom: Based on those assumption changes, we have revised our core FFO guidance to a range of $16.50 to $16.85 per share.
Tom: An approximate 1% reduction compared to the midpoint of our prior guidance range.
Operator: We will deliver 450 million in new development activity this year, a record year for public storage. We're seeing signs of activity in the acquisition transaction market, and we're both eager and well positioned when pent-up activity surfaces there. Our capital and liquidity position remains strong. We refinanced our 2024 maturities in April, and leverage of 3.9 times net debt and preferred to EBITDA puts us in a very strong position. As Joe highlighted earlier, we are encouraged by positive momentum in many aspects of the business.
Tom: Our outlook for capital allocation in 2024 is unchanged. We will deliver $450 million in new development activity this year, a record year for public storage.
Tom: We're seeing signs of activity in the acquisition transaction market and we're both eager and well positioned when pent-up activity surfaces there.
Tom: Our capital and liquidity position remains strong. We refinanced our 2024 maturities in April , and leverage of 3.9 times net debt and preferred to EBITDA puts us in a very strong position.
Tom: As Joe highlighted earlier, we are encouraged by positive momentum in many aspects of the business.
Joe: We're confident in our trajectory as we move through this year of stabilization in 2024.
Operator: We're confident in our trajectory as we move through this year of stabilization in 2024. So with that, I'll turn the call back to Rob to open it up for Q&A. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask that you please limit your questions to two. A confirmation tone will indicate your line is in the question. You may press star 2 if you'd like to remove your question from the queue.
Tom: So with that, I'll turn the call back to Rob to open it up for Q&A.
Rob: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question please press star 1 on your telephone keypad.
Speaker Change: As a reminder, we ask that you please limit to two questions.
Tom: A confirmation tone will indicate your line is in the question queue.
Operator: 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. Our first question comes from Steve Sakwa with Evercore ISI. Please proceed with your question. Thanks, and good morning out there.
Tom: You may press star 2 if you'd like to remove your question from the queue. 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.
Tom Boyle: Maybe, Tom, just sort of following up on the sort of guidance changes and the down 12% that you and Joe sort of spoke about, maybe just talk about, you know, either the market mix or, you know, how you thought about that, and I guess under what economic conditions or housing scenarios could that possibly get better in the back half of the year, and I guess what are the risks that, excuse me, that down 12% could maybe be worse than you're currently Yes, sure, Steve.
Tom: Our first question comes from Steve Sakwa with Evercore ISI. Please proceed with your question.
Stephen Thomas Sakwa: Thanks, I guess good morning out there. Maybe Tom, just sort of following up on the sort of the guidance changes and the down 12% that you and Joe sort of spoke about.
Stephen Thomas Sakwa: You know, maybe just talk about, you know, either the market mix or, you know, how you thought about that. And I guess under what economic conditions or housing scenarios, you know, could that possibly get better in the back half of the year? And I guess, what are the risks that, excuse me, that down 12% could maybe be worse than that.
Tom Boyle: So there are a couple components there. I'll start with the first piece that you highlighted, which is, you know, what are we seeing in markets? And, you know, we are seeing continued positive momentum in many of the markets that we've highlighted to date, you know, the markets like the Mid-Atlantic, Seattle, San Francisco, and we can reiterate those if helpful. But we're seeing improvements in move-in rents in those markets as well. So a market like Seattle, for instance, was, you know, nearly flat on move-in rents for the second quarter already with improving trends there.
Speaker Change: You're currently forecasting.
Tom: Yes, sure, Steve. So there's a couple components there. I'll start with the first piece that you highlighted, which is, you know, what are we seeing in markets? And, you know, we are seeing a continued positive momentum in many of the markets.
Tom: that we've highlighted to date, you know, the markets like the Mid-Atlantic, Seattle, San Francisco, and we can reiterate those if helpful.
Tom: But we're seeing improvements in move-in rents in those markets as well. So a market like Seattle, for instance, was nearly flat on move-in rents for the second quarter already, with improving trends there.
Tom Boyle: The flip side, and we've spoken about this a good bit, is that markets that were maybe more high flyers during the last several years have tougher comps and continue to have move-in rent growth that is more like down in the 20%, even higher than down 20% in many instances. Those markets are still in very good shape compared to pre-pandemic in terms of their demand fundamentals, population inflows, and the like, but they are going to take a little bit longer to stabilize.
Tom: The flip side, and we've spoken about this.
Tom: A good bet is that markets that were maybe more high flyers
Tom: during the last several years.
Tom: have tougher comps and continue to have moving rent growth that is more like down in the 20%, even higher than down 20% in many instances.
Tom: Those markets are still in very good shape versus pre-pandemic in terms of their demand fundamentals, population inflows, and the like.
Tom Boyle: And I'd say, you know, big picture for move-in rents, we've seen modest improvement year to date, right? If you look at the first quarter move-in rents for us, we're down 16%, and the second quarter was down 14%. As we sit here in July, they're down 12%, so the improvement is there, it's just more modest in terms of pace than what we had originally outlined in our February call. And as we sit here today, we're still calling for modest improvements here, but we've recalibrated that pace into the second half as well.
Speaker Change: but are going to take a little bit longer to stabilize. And I'd say, you know, big picture for move-in rents, we've seen a modest improvement year-to-date, right? If you look at the first quarter move-in rents for us, we're down 16%, the second quarter down 14%.
Speaker Change: As we sit here in July , they're down 12%, so the improvement is there, it's just more modest in terms of pace than what we had originally outlined in our February call.
Speaker Change: And as we sit here today, we're still calling for modest improvements here, but we've recalibrated that pace into the second half as well.
Tom Boyle: Okay, and maybe just touching on capital allocation. It was, you know, interesting to see that the share buybacks, and I assume that that's partly a function of, you know, capital activity on the acquisition side, just not really being there. I guess, what are you seeing on the acquisition front? And I think you mentioned maybe things were picking up a bit, but, you know, what are the opportunity sets? And, you know, how do you sort of measure away the buybacks against either development spend or acquisition? Okay, sure. I'll start, Steve.
Speaker Change: Okay, and maybe just touching on the capital allocation, it was, you know, interesting to see that the share buybacks, and I assume that that's, you know, partly a function of a...
Speaker Change: Capital Activity on the Acquisition side just not really being there I guess what are you seeing on the acquisition front and I think you mentioned maybe things were picking up a bit But you know what are the opportunity sets? And you know how do you sort of measure away the buybacks against either development spend and or acquisition?
Tom Boyle: From an acquisition opportunity standpoint, for the last two or three quarters, we pointed to the fact that there was a relatively active amount of inbound calls where we were in dialogue with a whole host of different types of owners, whether individual, small, and in some cases, somewhat larger portfolios. That type of activity is still present. What typically happens on an annual basis is that you'll see more activity start to percolate in the second half of a year.
Tom: Okay, sure. I'll start, Steve.
Speaker Change: From an acquisition opportunity standpoint,
Speaker Change: For the last two or three quarters, we pointed to the fact that there was a relatively active amount of inbound calls that we were in dialogue with a whole host of different types of owners, whether individual, small, and in some cases, somewhat larger portfolios.
Tom: That type of activity is still at hand. What typically happens on an annual basis, you'll see more activity start to percolate in the second half of a year.
Tom Boyle: We think that there is likely that type of activity ahead of us. There are a number of, or there are a number of different owners that, for a variety of reasons, are in a position to transact, whether it's capital constraints related or the need for recapitalizing either existing assets or pivoting out of any asset for any particular reason.
Tom: We think that there is likely that type of activity ahead of us. There is a number of, or there are a number of different owners that, for a variety of reasons, are in a position to transact.
Tom: Whether it's capital...
Tom: Constraint-related or need for recapitalizing either existing assets or pivoting out of any asset for any particular reason. So we have you know a fair amount of activity.
Tom Boyle: So, we have a fair amount of activity that gives us a level of confidence that we're likely to meet the number that we guided to at the beginning of the year. Clearly, we'll see how that continues to play out, but we're encouraged by the amount of activity that's going on as we speak. Now, from an alternative standpoint, your question around how we think about the timing, the size, and the efficacy of actually buying back our own stock is typically something that we look at from a capital alternative investment standpoint.
Tom: That gives us a level of confidence that we're likely to meet the number that we guided to at the beginning of the year. Clearly, we'll see how that continues to play out.
Tom: But we're encouraged by the amount of activity that's playing through as we speak.
Tom: Now from an alternative standpoint, your question around how do we think about the timing, the size, and the efficacy of actually buying back our own stock, that's typically, you know, something that we look at from a capital alternative investment standpoint.
Tom Boyle: We felt, for a variety of reasons, we had a good opportunity in the quarter to buy back shares. Obviously, we've got plenty of capital to deploy. We felt it was a good opportunity for us to extract the value that we see in our shares. And as we go forward, we'll continue to look at that alternative as we always do. And with that, we'll see what plays through as we go forward. Thanks.
Tom: For a variety of reasons, we had a good opportunity in the quarter to buy back shares. Obviously, we've got plenty of capital to deploy. We felt it was a good opportunity for us to extract the value that we see in our shares. And as we go forward, we'll continue to look at that alternative, as we always do.
Tom: And with that, we'll see what plays through as we go forward.
Tom: Thanks.
Tom Boyle: Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Tom Boyle: Just with the revised same store revenue range, just hoping you could speak a little bit about the cadence or, said differently, the exit run rate that you guys are thinking will come out at 24 at. Just to think about, early days, I know, but how 25 at least may start. Yeah, sure, Juan. So obviously, implied in the revised outlook is a number for the second half, right? And I think as you look at the first half, our same-store revenue growth was down about 50 basis points. The implied inflation rate in the second half is down about 1.5%.
Juan Carlos Sanabria: Hi, good morning. Just with the revised same store revenue range, just hoping you could speak a little bit about the cadence or, said differently, the exit run rate that you guys are thinking will come out of 24 at, just to think about
Speaker Change: Early days I know, but how 25 at least may start.
Juan Carlos Sanabria: Yeah, sure, Juan. So obviously implied in the revised outlook.
Speaker Change: is a number for the second half, right? And I think as you look at the first half, our same-store revenue growth was down about 50 basis points implied, and the second half is down about one and a half percent.
Tom Boyle: So I wouldn't get any more specific in terms of where exactly we're going to be the month of December or otherwise, and obviously, we'll give you a 25 percent outlook as we get into February. The one set of points that I would share is that we continue to be positive around the trajectory of both industry fundamentals as well as our own fundamentals as we sit here today. We've spoken about how this year is a year of stability and stabilization for the sector.
Speaker Change: So I wouldn't get any more specific in terms of where exactly we're going to be the month of December or otherwise, and obviously we'll give you 25 outlook as we get into February .
Speaker Change: A set of points that I would share is that we continue to be positive around the trajectory of both industry fundamentals as well as our own fundamentals as we sit here today. We've spoken about
Speaker Change: How this year is a year of stability and stabilization for the sector. There's reasons to be optimistic around future demand growth as we get through 2025-2027.
Tom Boyle: There are reasons to be optimistic about future demand growth as we get through 2025 to 2027. But at the same time, that's going to be counterbalanced with declining deliveries of new competitive supply given the challenges in new construction today. So we continue to be optimistic about the outlook for the business in future years without getting into any 2025 specifics. Fair enough.
Speaker Change: And at the same time, that's going to be counterbalanced with.
Speaker Change: Declining deliveries of new competitive supply.
Speaker Change: given the challenges in new construction today. So we continue to be optimistic around the outlook for the business in future years without getting into any 2025 specifics.
Tom Boyle: And then just to follow up to Steve's question, hoping to talk a little bit about tap rates, maybe where you're looking to, by assets where they're stabilized or still leasing up, and kind of maybe where assets are transacting, recognizing there's not a huge amount of volume changing hands, but just a commentary on asset pricing, please. Yeah, I think, first of all, there's no question we need more transaction activity to stabilize or reinforce where cap rates have trended to if you look at the progression of cap rate change over the last two years or so. You know, say two plus years ago, we were probably looking at plus or minus 4% handles, and it transitioned to 5%. Today, we're probably looking at 6 handles for, again, transaction activity.
Speaker Change: And then just to follow up to Steve's question, I'm hoping you could talk a little bit about cap rates, maybe where you're looking to...
Speaker Change: buy assets where they're stabilized or still leasing up and kind of maybe where assets are transacting, recognizing there's not a huge amount of volume changing hands, but just a commentary on asset pricing, please.
Speaker Change: Yeah, I think, first of all, you know, there's no question we need more transaction activity
Speaker Change: to stabilize or reinforce where cap rates have trended to.
Speaker Change: progression on cap rate change over the last two years or so. You know, say two plus years ago, we were probably looking at plus or minus four percent.
Speaker Change: Handles, and it transitioned to five. Today, we're probably looking at six handles for, again,
Tom Boyle: But to your point, Juan, we need to see and realize a fair amount of trading volume for those to stabilize. We clearly, you know, see the value from our standpoint based on our cost of capital to transact, plus or minus in that 6% range, but we're keeping a very close eye on what's coming to the market and what value creation you can extract, whether it's a stabilized asset or, you know, something that's unstabilized that clearly is going to have, you know, some lease up activity tied to it as well.
Speaker Change: Transaction Activity, but to your point Juan, we need to see and realize you know a fair amount of trading volume for those to stabilize. We clearly you know see the value from our standpoint based on our cost capital to transact you know plus or minus.
Juan: In that 6% range, but we're keeping a very close eye on what's coming to the market and what value creation you can extract, whether it's a stabilized asset or, you know, something that's unstabilized that clearly is going to have, you know, some lease-up activity tied to it as well.
Tom Boyle: But again, we're well positioned relative to our own cost of capital, the size and the magnitude of capital that we can deploy, and we'll confidently go forward with any opportunity that we see that makes sense, again, based on the value creation that we're seeing. Thank you.
Juan: But, again, we're well positioned relative to our own cost of capital, the size and the magnitude of capital that we can deploy, and we'll confidently go forward with any opportunity that we see that makes sense, again, based on the value creation that we're seeing.
Tom Boyle: Our next question comes from Nick Ulico with Scotiabank. Please proceed with your question. Thank you. Sorry if I missed this. Did you give any commentary yet or are able to on the July occupancy and moving rates? Yeah, sure, Nick, I can provide some commentary there.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Nick Ulico with Scotiabank. Please proceed with your question.
Nick Ulico: Thank you. Sorry if I missed this. Did you did you give any commentary yet or able to on the July occupancy and move-in rates?
Tom Boyle: I did highlight that July moving rents are down about 12% as we sit here today. So again, sequential improvement from the first and second quarters. On occupancy, we're closing the month down circa 40 basis points in occupancy, so a touch below where we finished June, but in a narrower gap than where we started the year. Okay, thanks for that, Tom. And then, in terms of the question on ECRI, what are you seeing in terms of trends with your tenants? I mean, is there any, you know, signs of fatigue or, you know, pushback that you're getting on ECRI?
Nick Ulico: Yeah, sure, Nick, I can provide some commentary there. I did highlight that July moving rents are down about 12% as we sit here today. So again, sequential improvement from the first and second quarters there.
Speaker Change: On occupancy, we're closing the month down circa 40 basis points in occupancy, so a touch below where we finished June , but in a narrower gap than where we started the year.
Nick Ulico: Okay, thanks for that, Tom. And then in terms of a question on ECRI, what are you seeing in trends with your tenants? I mean, is there any, you know, signs of fatigue or...
Tom Boyle: I just want to be clear as well on the same store guidance change. Were there any assumptions that were, you know, changed on ECRI? Or is it all just moving rents? Yeah, thanks.
Speaker Change: You know push back that you're you're getting on ECRI. I just want to be clear as well on the the SAMHSA guidance change Was there any assumptions that were you know changed on ECRI or is it all just moving rents?
Tom Boyle: We continue to be encouraged by behavior from our existing tenants. And you think about the existing tenant base in storage, right? A lot of the existing tenants we're speaking to today were move-in customers last year and the year before, and we continue to be encouraged by the performance of those tenants as they age with us and find value in our product in their marketplace. And what we've seen from a trend standpoint is very consistent price sensitivity from that customer base.
Speaker Change: Yeah, thanks.
Speaker Change: We continue to be encouraged by behavior from our existing tenants. And you think about the existing tenant base in storage, right?
Speaker Change: A lot of the existing tenants we're speaking to today were move-in customers last year and the year before, and we continue to be encouraged by the performance of those tenants as they age with us and find value in our product in their marketplaces.
Speaker Change: and what we've seen from a trend standpoint is very consistent price sensitivity from that customer base.
Tom Boyle: And at the same time, we've got an environment where we moved a lot more customers in last year than we had in the prior year. And frankly, we've largely matched that sort of volume in the first half of the year to date, such that the contribution from more recent move-ins has been quite strong. And so we've been pointing to a relatively consistent overall contribution from that program to revenue growth of 24 compared to 23. And that, to your point, is unchanged from our original outlook. We continue to be encouraged by that customer base. All right, thanks, Tom.
Speaker Change: And at the same time, we've got an environment where we moved a lot more customers in last year than we had in the prior year. And frankly, we've largely matched that sort of volume in the first half year to date.
Speaker Change: such that the contribution from more recent move-ins has been quite strong. And so we've been pointing to a relatively consistent overall contribution from that program to revenue growth in 24 compared to 23.
Speaker Change: And that, to your point, is unchanged from our original outlook. We continue to be encouraged by that customer base.
Tom: All right, thanks, Tom.
Tom Boyle: Our next question comes from Jeff Spector with Bank of America. Please proceed with your question. Great, thank you.
Tom: Thanks.
Speaker Change: Our next question comes from Jeff Spector with Bank of America. Please proceed with your question.
Joseph D. Russell: My first question is, can you provide more color on the move ins given? You know, you've said a few times that the net move in has been better than expected. Can you, you know, discuss that a little bit more? And I know we all focus on housing as a key driver, you know, but I'd be curious to see if anything has changed on why people are moving in. I don't know if you do surveys. Sure, Jeff.
Jeffrey Alan Spector: Great, thank you. My first question, can you provide more color on the move-ins given, you know, you've said a few times that the net move-ins has been better than expected?
Jeffrey Alan Spector: Can you, you know, discuss that a little bit more? I know we all focus on housing as a key driver, you know, but just curious to see if anything has changed on why people are moving in. I don't know if you do surveys.
Joseph D. Russell: Yeah, we definitely keep a very close eye on the variety of demand factors that bring customers to us. Housing, in general, obviously, is an important part of that overall acquisition opportunity. What has continued to be quite strong, I mentioned in my opening comments that the need for more space, whether you're an owner or a renter, continues to be, again, a very active rationale or active reason to come to self-storage. Clearly, this was coming out through the pandemic. We're far past that now.
Tom: Sure, Jeff. Yeah, we definitely.
Jeffrey Alan Spector: Keep a very close eye on the variety of demand factors that bring customers to us.
Jeff: Housing in general obviously is an important part of that overall.
Speaker Change: Acquisition Opportunity, what has...
Speaker Change: continue to be quite strong. I mentioned in my opening comments that need for more space, whether you're an owner or a renter, continues to be again a
Joseph D. Russell: The different dynamic tied to needing more space and needing more space at home is the affordability factor, whether you're a renter or an owner. There's clearly less activity going on in existing home sale activity. The counter to that, and actually the driver that's two-plus-er times larger than home sale activity, is renter activity. Those customer types continue to be quite good relative to length of stay, commitment to the space, affordability factors, et cetera. We're really not seeing any erosion relative to that kind of activity, which has been quite beneficial to the acquisition opportunity because we've been able to keep move-in activity quite vibrant. There's no real change there.
Speaker Change: a very active rationale or active reason to come to self-storage. Clearly, it was.
Speaker Change: surfacing through the pandemic. We're far past that now.
Jeff: Burp
Jeff: Different dynamic tied to needing more space and needing more space at home is the affordability factor whether you're a renter or an owner.
Jeff: There's clearly less activity going on in existing home sale activity. The counter to that, and actually the driver that's two-plus-er times larger than
Jeff: Home sale activity is renter activity, and those customer types continue to be quite good relative to length of stay, commitment to the space, affordability factors, etc.
Jeff: And we're really not seeing any erosion relative to that kind of activity, which has been quite beneficial to the acquisition opportunity that we've been able to keep moving activity quite vibrant.
Joseph D. Russell: Actually, as Tom and I have spoken about, we look at that as, again, a very key driver relative to the vibrancy of the business overall. We're just in a more competitive environment relative to what those initial move-in rates are, but the stabilization and the behavior of existing customers is quite good. Thanks, Joe.
Tom: So, no real change there, and actually, as Tom and I have spoken to, we look at that as, again, a very key driver relative to the vibrancy of the business overall. We're just in a more competitive environment relative to what those initial move-in rates are.
Tom: But the stabilization and the behavior of existing customers is quite good.
Joseph D. Russell: And then my second question, I think you said in your opening remarks that you talked about waning development and, in new supply, lower supply. Can you quantify that? Or, more importantly, can you elaborate on that comment, please?
Tom: Thanks Joe. And then my second question, I think you said in your opening remarks you talked about waning development and new supply, lower supply. Can you quantify that or I guess elaborate on that comment please?
Joseph D. Russell: Yeah, sure. Again, I wouldn't say there's any sea change in the consistent view that we've had on, you know, national development deliveries, meaning, you know, on an increase on an existing stock basis, we're kind of in that mid 2% range or so. So the development activity that's hitting any particular market has been quite positive, meaning it's not the same volume that we've seen certainly in prior cycles. And we don't really see any momentum coming back to the amount of volume that's likely to happen nationally.
Speaker Change: Yeah, sure. Again, I wouldn't say there's any sea change in the consistent view that we've had on, you know, national development deliveries, meaning, you know, on a
Tom: Increase on an existing stock basis, we're kind of in that mid 2% range or so. So the development activity that's hitting any particular market has been quite
Tom: Positive, meaning it's not the same volume that we've seen certainly in prior cycles and we don't really see
Tom: Any momentum coming back to the amount of volume that's likely to happen nationally.
Joseph D. Russell: Like always, we're keeping a close eye on a handful of markets that might be a little too active relative to development activity. One example might be, for instance, the West Coast of Florida; there's quite a bit of activity going on there.
Tom: Like always, we're keeping a close eye on a handful of markets that might be a little too active relative to development activity. One example might be, for instance, the West Coast of Florida. There's quite a bit of activity going on there. Phoenix and Las Vegas, on a percentage of existing stock, have a little bit more activity than we'd like to see. But frankly, beyond that, we're very happy with the lack of new development activity coming into most markets.
Joseph D. Russell: You know, Phoenix and Las Vegas, on a percentage of existing stock, have a little bit more activity than we'd like to see. But, frankly, beyond that, we're, you know, very happy with the lack of new development activity coming into most markets. The headwinds around development activity are very consistent with what we've spoken about over the last several quarters.
Tom: The headwinds around development activity are very consistent to what we've spoken about over the last several quarters, cost of capital.
Joseph D. Russell: The cost of capital, timing for entitlements, risk around component costs, and then, again, the amount of time and projections that are going into rent levels and stabilization need to be factored in as well. So with all that, we basically have a backdrop of very low development activity. On the flip side, for our own development team, it's given us a good opportunity to jump into a number of markets, which is fueling the amount of development activity.
Tom: Timing for Entitlements
Tom: Risk around component costs and then again the amount of time and projections that are going into rent levels and stabilization need to be factored in as well.
Tom: So with all that, we basically have a backdrop of very low development activity.
Tom: On the flip side, for our own development team, it's given us a good opportunity to jump into a number of markets that's fueling the amount of development activity we particularly
Joseph D. Russell: We particularly continue to drive, as Tom mentioned, we're looking at a record level of development activity in 2024, and the team's working hard to look for additional opportunities into 2025, 2026, and 2027. Thank you.
Tom: continue to drive.
Tom: As Tom mentioned, we're looking at a record level of development activity in 2024, and the team's working hard to look for additional opportunities into 2025, 2026, and 2027.
Speaker Change: Thank you.
Joseph D. Russell: Our next question is from Ronald Kamden with Morgan Stanley. Please proceed with your question. Hey, just two quick ones.
Tom: Thanks, Jeff.
Tom: Our next question is from Ronald Kamden with Morgan Stanley . Please proceed with your question.
Tom Boyle: One, just starting off with the expenses, maybe just a little bit more commentary on both the property taxes as well as sort of the payroll reductions and how much has being able to get a lot of tenants moving in digitally sort of helped with that, and how much more is there to go? Yeah, so the first question on property taxes is for the quarter up 3.9 percent, year-to-date up 5.6. I think our outlook is plus or minus 5 percent up 5 percent for the year in property taxes.
Ronald Kamdem: Hey, just two quick ones. One, just starting off with the expenses, maybe just a little bit more commentary on both the property taxes as well as sort of the payroll.
Ronald Kamdem: Productions and you know how much has you know being able to get a lot of tenants moving in digitally sort of help with that and how much more is there to go?
Speaker Change: Yeah, so the first question around property taxes for the quarter, up 3.9%, year-to-date up 5.6%. I think our outlook is plus or minus up 5% for the year in property taxes. So right around what we're anticipating there. And really that's...
Tom Boyle: So right around what we're anticipating there, and really that's working through assessments that are still catching up to both NOI as well as property value increases over the last several years based on assessment cycles. What's more interesting is your question around property payroll.
Ronald Kamdem: Working through assessments that are still catching up to both NOI as well as property value increases over the last several years based on assessment cycles.
Tom Boyle: I highlighted earlier around some of the operating model transformation that we've continued to embark upon over the last several years, and we've talked to in some more specifics around our investor day going back several years. Our initial expectations at that time were to utilize one of the elements that you highlighted, which is our digital leasing platform, which we call eRental, which today about 70 percent of our new lease transactions are coming to us being signed digitally before a customer arrives at the property, and that's powerful, but that's allowed us to put a digital ecosystem around that that has enabled us to think differently around both operational roles and staffing levels, and you can see that in the P&L.
Tom: More interesting is your question around property payroll. I highlighted earlier around the operating model transformation.
Tom: that we've continued to to embark upon over the last several years and we've talked to in some more specifics around our investor day going back several years. Our initial expectations at that time were to utilize one of the elements that you highlighted, which is our digital leasing platform, which we call uRental.
Tom: which today about 70% of our new lease transactions.
Tom: are coming to us, being signed digitally before a customer arrives at the property. And that's powerful, but that's allowed us to put a digital ecosystem around that that has enabled us to think differently around both operational roles and staffing levels.
Tom Boyle: Previously, we had shared a target of reducing property hours by about 25 percent. We achieved that at the end of last year, and so you can see here through this year we've got continued optimization that's taking place, and we're not done talking about this. We think there's opportunity from here, so we continue to be encouraged by that activity, providing a digital and consistent customer experience. And while I've got the mic on expenses, I might as well highlight our solar power initiatives as well.
Tom: and you can see that in the P&L.
Tom: Initially, we had shared a target of reducing property hours by about 25 percent.
Tom: We achieved that at the end of last year, and so you can see here through this year we've got continued optimization that's taking place. And we're not done talking about this. We think there's opportunity from here. So we continue to be encouraged by that activity, providing a digital and consistent customer experience.
Tom: While I've got the mic on expenses, I might as well highlight our solar power initiatives as well. And I highlighted in my prepared remarks.
Tom Boyle: And I highlighted in my prepared remarks, you can see utilities down 8% in the quarter also. We're on a path of putting solar panels on over 1,000 of our properties over the next several years, and you're starting to see that benefit in utilities as well. That obviously benefits both our utility expenses and also our carbon footprint and the like. So we continue to be encouraged by that initiative as well.
Speaker Change: You can see utilities down 8% in the quarter also.
Speaker Change: We're on a path of putting solar on over a thousand of our properties.
Speaker Change: Over the next several years, and you're starting to see that benefit in utilities as well, that obviously benefits both our utility expenses, also our carbon footprint and the like. So we continue to be encouraged by that initiative as well.
Tom Boyle: And then my second question was just going to be, you know, going back to sort of the guidance changes on the new tenants' pricing. You know, I think when you think about the environment, whether it's website visits or bad debt, I think the commentary has actually been pretty good. So I guess what we're trying to figure out is, like, what do you think is causing more competition? Is it just a more cost-conscious consumer? Is it housing?
Speaker Change: Great. And then my second question was just going to be, you know, going back to sort of the guidance changes on the new tenants.
Speaker Change: Pricing
Speaker Change: I think when you think about the environment, whether it's website visits or bad debt, I think the commentary has been, that's actually been pretty good. So I guess what we're trying to figure out is...
Speaker Change: What do you think is causing more competition? Is it just a more cost-conscious consumer? Is it housing? If the demand sort of indicators still look pretty good, supply presumably is coming down, what's at the heart of the more competitive environment that's driving this? Thanks.
Tom Boyle: Like, if the demand sort of indicators still look pretty good, supply presumably is coming down, what's at the heart of the more competitive environment that's driving this? Thanks. Yeah, that's a good question, Ron.
Tom Boyle: I think there's a couple components to talk through there. One is what Joe mentioned earlier about our own move-in traffic being pretty consistent with last year, which was a very strong year. So we continue to see good traffic on our side, but we're using tools in order to attract those customers, including increased advertising, etc. Looking at the industry overall, as we think about the impact on the competitive landscape in our local markets, demand is down year-over-year.
Speaker Change: Yeah, that's a good good question Ron. I think there's
Speaker Change: A couple components to talk through there. One is, what Joe mentioned earlier around our own move-in traffic, has been pretty consistent with last year, which was a very strong year. So we continue to see good traffic on our side.
Speaker Change: But we're using tools in order to attract those customers, including increased advertising, etc.
Speaker Change: Looking at the industry overall as we think about the impact to the competitive landscape in our local markets.
Tom Boyle: You know, one of the metrics that we can share with you is around Google keyword search volumes for storage-related terms. We've highlighted that in the past as being down year-over-year. We started the year down year-over-year. We continue to be, and the encouraging thing there is that the year-over-year decline is half today what it was at the start of the year, so we're continuing to see signs of stabilization there. But I think that's contributed to the competitive move in dynamic For new customers in many of our markets. That's it for me. Thanks so much.
Speaker Change: Demand is down year over year. One of the metrics that we can share with you is around Google keyword search volumes for storage-related terms.
Speaker Change: And we've highlighted that in the past as being down year over year. We started the year down year over year. We continue to be.
Speaker Change: Now, the encouraging thing there is that the year-over-year decline is half today what it was at the start of the year. So we're continuing to see...
Speaker Change: Science of Stabilization there, but I think that's contributed to
Speaker Change: The competitive move-in dynamic for new customers in many of our markets.
Speaker Change: That's it for me. Thanks so much.
Tom Boyle: Thanks, Ron. Our next question comes from Michael Goldsmith with UBS. Please proceed with your question. Good morning, thanks a lot for taking my question.
Ron: Thanks, Ron.
Speaker Change: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.
Tom Boyle: On market rent growth, you said it was down 14% in the second quarter and down 12% in July. So can you just provide context on what happened in June, just to see the most recent sequential improvement? And then, you know, what are your expectations for improvement in the second half of the year? Is it the same magnitude of improvement, just like with a different starting point? Yeah, so there are a couple components there.
Michael Goldsmith: Good morning, thanks for taking my question. On the market rent growth, you said it was down 14% in the second quarter and down 12% in July , so can you just provide context on what happened in June just to see like the most recent sequential improvement and then
Speaker Change: You know, are your expectations for the improvement in the back half of the year, is it the same magnitude of improvement, just like with a different starting point? Thanks.
Tom Boyle: One, June was pretty similar, down about 12%. So we saw a pretty good improvement from April and May into June and July, but nowhere near the pace or the magnitude of improvement that we were anticipating. And as you get into June and July, you're at the peak of the rents.
Speaker Change: Yeah, so a couple of components there. One, June was pretty similar, down about 12%. So we saw a pretty good improvement from April and May into June and July , but nowhere near the pace or the magnitude of improvement that we were anticipating.
Speaker Change: And as you get into June and July , you're at the peak of the rents. And so that is a very important guidepost as you think about the rents through the remainder of the year. And it's also why, you know, those several months are so important as it relates to setting market rents for the year.
Tom Boyle: And so that is a very important guidepost as you think about the rents through the remainder of the year. And it's also why those several months are so important as it relates to setting market rents for the year. In terms of the pace of improvement, we are anticipating moderation in that decline as we move through the second half of the year, but we have recalibrated that based on the June and July performance. And so, yeah, we're starting from a different place than what we had originally assumed, but for modest improvement here. I got it.
Speaker Change: In terms of the pace of improvement, we are anticipating
Speaker Change: moderation in that decline as we move through the second half of the year but we have recalibrated that based on the June and July performance.
Speaker Change: And so, yeah, we're starting from a different place than what we had originally assumed, but for modest improvement here.
Tom Boyle: And then my follow-up question is just like, you know, when things, it's going to be a little bit speculative, but when things start to get better, like, how quickly can things unwind, right? Like, it seems that a lot of, you know, the independents and the privates kind of took their time recutting street rates as street rates moved down. Like, is there an expectation that, you know, when demand starts to come back, the other players and the rest of the industry will kind of more rapidly bring rates up?
Speaker Change: Got it. And thanks for that. And then my follow-up question is just like, you know, when things, you know, it's going to be a little bit speculative, but when things start to get better, like,
Speaker Change: How quickly can things unwind? It seems that a lot of the independents and the privates kind of took their...
Speaker Change: Time recutting street rate as street rates move down. Like, is there an expectation that, you know, when demand starts to come back?
Tom Boyle: So, like, when it does get better, it should improve a lot quicker than maybe this kind of slow grind down that we've kind of experienced. Thanks. But I think that still remains to be seen in terms of the ultimate pace, right?
Speaker Change: The other players and the rest of the industry will kind of more rapidly bring the rate up. So like when it does get better, it should improve a lot quicker than maybe this kind of slow grind down that we've kind of experienced. Thanks.
Tom Boyle: We've given you guideposts in terms of what our assumptions are through the remainder of the year. We've highlighted the fact that this is a variable and competitive dynamic for new customer rates. I'm not going to speculate specifically on private operators and how they'll react. Thank you very much.
Speaker Change: I think that still remained to be seen in terms of the ultimate pace, right? We've given you guideposts in terms of what our assumptions are through the remainder of the year. We've highlighted about the fact that this is a variable and competitive dynamic for new customer rates. I'm not going to speculate specifically around private operators and how they'll react.
Speaker Change: Thank you very much.
Tom Boyle: Our next question comes from Nick Joseph with Citi. Please proceed with your question. Thanks.
Michael Goldsmith: Thanks, Michael.
Speaker Change: Our next question comes from Nick Joseph with Citi. Please proceed with your question.
Tom Boyle: I just want to touch on occupancy. You mentioned July being down 40 basis points year over year. You know, it seems like implied in guidance is for that gap to widen in the back half of the year at about 100 basis points. So can you talk about kind of what's underpinning that assumption? Yeah, that's a good question.
Joseph D. Russell: Thanks. I just want to touch on occupancy. You mentioned July being down 40 basis points year over year. You know, it seems like implied in guidance is for that gap to widen in the back half of the year at about 100 basis points. So can you talk about kind of what's underpinning that assumption?
Tom Boyle: So, we did see improvements in occupancy and more of an upward slope in occupancy through the spring here, based on the move-in activity that Joe was highlighting, and frankly, really strong performance from the existing tenant base through the first part of the year as well. Heading into the back half, we're anticipating, like we did last year, from an assumption standpoint, that as you go up in the spring, you're likely to come down in the fall. And so, you know, that's what's underpinning some of that activity.
Speaker Change: Yeah, that's a good question. So, we did see improvements in occupancy and more of an upward slope to occupancy through the spring here, based on the move-in activity that Joe was highlighting, and frankly, really strong performance from the existing tenant base.
Tom Boyle: And recall, you know, seasonal moves in occupancy that are much less than what we had experienced in the pre-pandemic time period, so while we're talking about a little bit more decline in occupancy this year versus last year because of the rise in occupancy we saw in the first half, still nowhere near that seasonal decline that we saw in a typical year. Thank you. And then just for the 110 million in incremental non-same store NOI, is there any additional capital that needs to be spent on that? Or is that all basically just dropping to the NOI as it flows through?
Speaker Change: through the first part of the year as well.
Speaker Change: Heading into the back half.
Joe: We're anticipating, like we did last year, from an assumption standpoint, that as you go up in the spring, you're likely to come down in the fall.
Joe: And so, you know, that's what's underpinning.
Joe: Some of that activity. And recall, you know, we're talking about
Joe: Seasonal moves in occupancy that are much less than what we had experienced in the pre-pandemic time period.
Speaker Change: While we're talking about a little bit more decline in occupancy this year versus last year because of the rise in occupancy we saw on the first half Still nowhere near that that seasonal decline that we saw in a typical year
Speaker Change: Thank you. And then just for the $110 million of incremental non-same-store NOI, is there any additional capital that needs to be spent for that, or is that all basically just dropping to the NOI as it flows through?
Tom Boyle: Yeah, that's a good clarification. So, that is on the in-place assets. And so, as we think about the in-place NOI for 24, you can add that $110 million to that to get to, in effect, our expectation for stabilization of that in-place pool. No additional capital required there.
Speaker Change: Yeah, that's a good clarification. So that is on the in-place...
Speaker Change: Assets.
Speaker Change: And so as we think about the in-place NOI for 24, you can add that $110 million to that to get to, in effect, our expectation for stabilization of that in-place pool.
Tom Boyle: But as we invest capital into the second half of this year, we'll adjust that number, and frankly, that will only be incremental upside from here. Thanks. And then some of that will be within the same stroke pool in 2025.
Speaker Change: No additional capital required there. As we invest capital into the second half of this year, we'll adjust that number, and frankly that will only be incremental upside from here.
Speaker Change: Thanks and then some of that will become within the same stroke pool in 2025.
Tom Boyle: Well, the upside isn't likely to come into the same store pool, right? As you think about it, we add properties to our same store pool that are stabilized for both occupancy, rents, and operating expenses. And so as we think about upside destabilization, that will remain in our non-same store pool, but the stabilized properties, over time, will cycle into the same store pool. Perfect. Thank you very much.
Speaker Change #114: Well, the upside isn't likely to come into the same store pool, right? As you think about it, we add properties into our same store pool.
Speaker Change: that are stabilized for both occupancy, rents, and operating expenses. And so, as we think about upside destabilization, that will remain in our non-same-store pool, but the stabilized properties, over time, will cycle into the same-store pool.
Speaker Change #112: Perfect. Thank you very much.
Joseph D. Russell: Thank you. Our next question is from Keegan Carl with Wolf Research. Please proceed with your question. Yeah, thanks for the time, guys.
Speaker Change: Thank you.
Speaker Change: Our next question is from Keegan Carl with Wolf Research. Please proceed with your question.
Joseph D. Russell: I guess just first, maybe, broad commentary on what you're seeing with the consumer and whether you are seeing any material softness that has sort of impacted your outlook for the rest of the year? Yeah, Keegan, I wouldn't highlight any particular new or evolving level of stress and or change in the pattern of both behavior from a payment standpoint, length of stay, the amount of activity that we're just seeing relative to even movement that we can assess based on any particular stress that's playing through on our own customer base.
Keegan Grant Carl: Yeah, thanks for the time guys. I guess just first, maybe broad commentary on what you're seeing with the consumer and are you seeing any material softness that sort of impounded or impacted your outlook for the rest of the year?
Speaker Change: Yeah, Keegan, I wouldn't highlight any particular new or evolving level of stress and or
Speaker Change: Pattern of both behavior from a payment standpoint, length of stay.
Speaker Change: The amount of...
Keegan: activity that we're just seeing relative to even movement that we can assess based on any particular stress that's playing through on our own customer base.
Joseph D. Russell: We've been pleasantly surprised that all the tools that we're using to keep, again, delinquency in good shape or continue to serve well, and we're not seeing any new and changing risk factors tied to the, you know, consumer payment patterns that have been relatively consistent now for a number of quarters.
Speaker Change: We've been pleasantly surprised that...
Speaker Change: All the tools that we're using to keep, again, delinquency in good shape or continue to serve us well, and we're not seeing any new and changing risk factor tied to the consumer payment patterns that have been relatively consistent now for a number of quarters.
Joseph D. Russell: And then just shifting gears, I'm just curious how your third party management platform's trending and if there are any changes in the pipeline versus last year. Yeah, sure. So, you know, frankly, we've had a pretty good run for the last few quarters with the improved size and complexion of our third-party management platform. So today we have approximately 375 assets in that program, 260 of them are open, and we have another 115 that are in a variety of different stages relative to development that will be opening over the next year or so. This quarter, we added 17.
Speaker Change #101: Got it. And then just shifting gears, I'm just curious for how your third-party management platform's trending and if there are any changes in the pipeline versus last quarter.
Speaker Change #126: Yeah, sure. So, you know, frankly we've had a pretty good run for the last few quarters with the improved size and complexion of our third-party management platform. So today we have approximately 375 assets in that program, 260 of them are open, and we have another 115 that are in a variety of different stages relative to development that will be opening over the next year or so. At this quarter we added 17.
Joseph D. Russell: That puts us at year-to-date over 60 additional additions to the program. So, again, we're seeing a good amount of activity, both small and, frankly, some larger portfolios where we've got a number of existing clients that are actually expanding the number of assets they're putting into our program. So it's continuing to serve us well relative to additional scale in many markets, different things that can be very advantageous not only to our clients but ourselves.
Keegan Grant Carl: That puts us at year-to-date, over 60 additional additions to the program.
Keegan Grant Carl: So, again, seeing a good amount of activity, both small and, frankly, some larger portfolios where we've got a number of existing clients that are actually expanding the number of assets they're putting into our program.
Keegan Grant Carl: It's continued to serve us well relative to additional scale in many markets.
Speaker Change: Different things that can be very advantageous, not only to our clients, but ourselves, so we're continuing to see good growth in the program and putting, you know, a fair amount of resource into it as well with the
Joseph D. Russell: So we're continuing to see good growth in the program and putting a fair amount of resources into it as well with the public storage team that's wholly dedicated to that platform as well. So, again, good traction, and we see some good activity going into the second half of this year. Very helpful.
Speaker Change: The Public Storage team that's wholly dedicated to that platform as well, so again, good traction and we see some good activity going into the second half of this year.
Speaker Change: Super helpful, thanks for the time guys.
Joseph D. Russell: Thanks for your time, guys. You bet, thank you. Our next question is from Todd Thomas with KeyBank Capital Markets. Please proceed with your question. Hi, thanks.
Speaker Change: You bet. Thank you.
Speaker Change #104: Our next question is from Todd Thomas with KeyBank Capital Markets. Please proceed with your question.
Tom Boyle: I just wanted to follow up on the ECRIs and pricing a bit. Tom, I understand the contribution to revenue growth has not changed with the revised guidance, but just given the softer demand environment and the lack of pricing power that you experienced during the quarter and into July versus your prior expectations, is there an effort to preserve occupancy a little bit more ahead of and into the back half of the off-peak rental season just to provide a little bit of a better potential setup into the fourth quarter when demand might recover? Okay, there's a lot there, Todd.
Todd Michael Thomas: Hi, thanks. I just wanted to follow up on the ECRIs and pricing a bit. Tom, I understand
Todd Michael Thomas: The contribution to revenue growth has not changed with the revised guidance, but just given the softer demand environment and the lack of pricing power that
Speaker Change #139: You experienced during the quarter and into July versus your prior expectations. Is there an effort to preserve occupancy a little bit more ahead of and into the back half of the off-peak rental season just to provide a little bit of a better potential set up into 25 when demand might recover?
Tom Boyle: So maybe I can take a step back and talk through how we think about the program, because I think that that will reinforce the drivers as we think about where we're going from here. So I've consistently spoken about really two components to the existing customer rent increase side. I've already spoken on this call about the customer price sensitivity side of the equation, which has been very consistent. The other side that I will speak to is around the cost to replace the tenants.
Speaker Change #110: Okay, there's a lot there, Todd. So maybe let me take a step back and talk through how we think about the program, because I think that that will reinforce the drivers as we think about where we're going from here.
Todd Michael Thomas: So, I've consistently spoken about really two components to...
Todd Michael Thomas: The existing customer rent increase side, I've already spoken on this call around the customer price sensitivity side of the equation, which has been very consistent.
Tom Boyle: And that component, right, the cost to replace a tenant is influenced by the market movement of rents, how long the space will remain vacant, marketing expenses, all those sorts of things play into that side. And over the last several years, that has been the component that has been more variable, both on the upside and then on the downside over the past two years. And so there isn't an overt focus internally around preserving occupancy or otherwise, but as the cost to replace increases, the frequency and magnitude of increases will moderate.
Todd Michael Thomas: The other side that I speak to is around the cost to replace the tenants.
Todd Michael Thomas: In that component, the cost to replace a tenant is influenced by the market move in rent, how long the space will remain vacant, marketing expenses, all those sorts of things play into that side.
Speaker Change: And over the last several years, that has been the component that has been more variable, both on the upside and then on the downside over the past two years.
Speaker Change: And so there isn't an overt focus internally around preserving occupancy or otherwise, but as the cost to replace increases, the frequency and magnitude of increases will moderate.
Tom Boyle: I might as well add a third component, which is the volume of tenants that are eligible for the program. And that's the piece that's been additive as we moved into 24 around more recent tenants that have moved in that have been a positive offset. But there are no overt decisions around protecting or not protecting occupancy. It's more of an optimization around the rents that we can charge from our existing customers who are placing a lot of value on their units.
Speaker Change: And then I'd add a third component because I've been speaking to it over the past year or so. I might as well add as a third component, which is the volume of tenants that are eligible for the program. And that's the piece that's been additive as we moved into 24 around more recent tenants that have moved in that have been a positive offset. But there's no overt decisions around protecting or not protecting occupancy. It's a more of an optimization around the rents that we can charge from our existing customers who are placing a lot of value on their units.
Tom Boyle: Okay, got it. So the percent of tenants eligible for rent increases is higher today than it was last year. And, and the prior year. It sounds like Yeah, yeah, there are more near-term tenants that are in the program. Right, okay. That's helpful.
Speaker Change: Okay, got it. So the percent of tenants eligible for rent increases is higher today than it was last year and the prior year, it sounds. Yeah, yeah, and there's more nearer term tenants that are in the program.
Joseph D. Russell: And then my second question was just around the latest board appointment, Maria Hawthorne. I was just curious if you could speak to that announcement and the process the board went through to make that decision. You know, the PSB transaction closed in 22 days. So I'm just curious about the timing and the decision to expand the board today. Yeah, sure.
Speaker Change: Right, okay, that's helpful. And then my second question was just around the latest board appointment, Maria Hawthorne. I was just curious...
Speaker Change #113: If you could speak to that announcement and the process the board went through to make that decision. You know, the PSP transaction closed in in 22. So I'm just curious about the timing and the decision to expand the board today.
Joseph D. Russell: The, you know, board itself has a very committed and vibrant process relative to board composition, skill, and the, you know, collective amount of knowledge and wisdom that, you know, any phase of our board configuration continues to serve the company as a whole. So Maria's a great addition to that in many ways, not only based on her experience as a CEO of another public REIT but also her knowledge of real estate. She sits on two other public boards as well.
Speaker Change: Yes, sure. The...
Speaker Change: The board itself has a very committed and vibrant process relative to board composition, skill, and
Speaker Change: The collective amount of knowledge and wisdom that any phase of our board configuration continues to serve the company as a whole. So Maria is a great addition to that in many ways, not only based on her experience as a standing CEO of another public REIT.
Speaker Change: But also her knowledge relative to real estate. She sits on two other public boards as well. She's got very strong financial acumen, coupled with very strong history of delivering great shareholder value, etcetera. So overall we feel she's a great addition to the
Joseph D. Russell: She's got very strong financial acumen, coupled with a very strong history of delivering great shareholder value, etc. So overall, we feel she's a great addition to the board and look forward to her contributions with the rest of the board as it stands today. Okay.
Speaker Change: The board and look forward to her contributions with the rest of the board as it stands today.
Speaker Change #119: Okay. All right. Thank you.
Joseph D. Russell: Thank you. Thank you. Our next question comes from Keebin Kim with Truist Securities. Please proceed with your question. Thanks. Good morning. So when I look at your combined marketing spend and promotions as a percent of the new contract rates you brought into the company, it was a little bit more percentage-wise than last year. When you look at that, how do you digest that?
Speaker Change #103: Thank you.
Speaker Change #116: Our next question comes from Ki-Min Kim with Truist Securities. Please proceed with your question.
Speaker Change: Thanks, good morning. So, when I look at your combined marketing spend and promotions as a percent of the new contract rates you brought into the company, it was a little bit more
Tom Boyle: Do you think maybe you could have spent more to optimize revenue, or are you more of the mindset that, you know, just given that maybe slightly weaker demand, that wouldn't have had great efficacy? To increase, Yeah, Keegan, you're highlighting both promotions as well as marketing spend. Let me maybe take the two apart.
Speaker Change: percentage-wise than last year. When you look at that, how do you digest that? Do you think maybe you could have spent more to optimize revenue or are you more of the mindset that, you know, just the lack of demand, just given that maybe slightly weaker demand, that wouldn't have had great efficacy?
Speaker Change #106: to increase it.
Tom Boyle: Those are two of the levers, in addition, obviously, to the move in rents, that we are toggling back and forth in a competitive move-in environment. And we've been very active utilizing, frankly, both over the last several years. On marketing specifically, we've increased our marketing spend consistently over the last couple of years because we're seeing very good returns, and we speak regularly about the advantages of our scale and marketplace, providing customers a rich inventory set, and the power of our brand that customers are increasingly aware of in our markets. And that effectiveness continues today.
Speaker Change: Yeah, Keegan, you're highlighting both promotions as well as marketing spend. Let me maybe take the two independent.
Speaker Change #130: Those are two of the levers in addition, obviously, to move-in rents that we are toggling back and forth in a competitive move-in environment. We've been very active utilizing, frankly, both over the last several years.
Speaker Change: On marketing specifically.
Speaker Change: We've increased our marketing spend.
Speaker Change: Consistently over the last couple of years because we're seeing very good returns. We speak regularly around the advantages of our scale and marketplace, providing customers a rich inventory set, the power of our brand that customers are increasingly aware of in our markets.
Tom Boyle: And so as you look at the spend increase in the second quarter and year-to-date, those have been very good returns associated with those investments and new customer acquisition, and we'll continue to use that lever as we move forward, given the good returns associated with it, and we anticipate that to continue into the second half. On promotional activity...
Speaker Change: and that efficacy continues today and so as you look at
Speaker Change: The spend increase in the second quarter.
Speaker Change: And year-to-date, those have been very good returns associated with those investments and new customer acquisition. And we'll continue to use that lever as we move forward, given the good returns associated with it. And we anticipate that to continue into the second half.
Tom Boyle: There are a couple things going on with that particular metric that you're looking at. One is, I'd highlight that about the same number of customers year over year have received promotions, maybe a touch more. But the reason you're seeing a decline in that metric is it's a promotional activity versus our move-in rents. And as we've discussed, our move-in rents themselves were down 14%. And so just nominally, the discount dollars and promotional dollars associated with giving, for instance, the first month for a dollar are less on a nominal basis year over year.
Speaker Change: on promotional activity.
Speaker Change: There's a couple of things going on with that particular metric that you're looking at.
Speaker Change: I'd highlight that about the same number of customers year over year have received promotions, maybe a touch more.
Speaker Change: But the reason you're seeing a decline in that metric is it's a promotional activity versus our move-in rents. And as we've discussed, our move-in rents themselves were down 14 percent.
Speaker Change: And so just nominally, the discount dollars and promotional dollars associated with giving, for instance, the first month for a dollar is less on a nominal basis year over year. But that continues to be a vibrant tool we're using.
Tom Boyle: But that continues to be a vibrant tool we're using. Okay, and second question: where do you think your rents are today versus, let's say, 2019? Movement.
Speaker Change: Okay, and second question, where do you think your rents are today versus, let's say, 2019?
Tom Boyle: Yeah, our rents today are in similar territory to where they were in 2019, but depending on the market, right, we've got some markets that are a good bit above 2019. And we have some markets that are below 2019 as well. You know, we've highlighted in the past around some markets that we feel like have overcorrected in terms of moving rents. And I'd reiterate that as it relates to 2019, yeah? So that's the part I'm trying to understand better, right?
Speaker Change: Movement.
Speaker Change #139: Yeah, our rents today are in a similar territory to where they were in 2019, depending on the market, right? We've got some markets that are a good bit above 2019, and we have some markets that are below 2019 as well.
Speaker Change: Highlighted in the past around some markets that we feel like have over corrected in terms of move-in rents and I'd reiterate that as it relates to 2019.
Tom Boyle: Since 2019, we've probably had about 20% cumulative inflation, but rents are relatively flat versus that time period, so we've definitely given back more than just the COVID surge in rents. So I was just curious on your take on what accounts for the additional weakness? Is it absorbed through additional supply?
Speaker Change: Yeah, so that's the part I'm trying to understand better, right? Since 2019, we've probably had about...
Kumud: 20% Kumud Inflation
Speaker Change #105: But rents are relatively flat for that time period.
Speaker Change: So, we've definitely given back more than just the COVID surge in rents. So, I was just curious on your take, you know, I guess what accounts for the additional weakness? Is it absorbed through additional supply or is there something else about the consumer that's changed over that time frame, just trying to understand where that demand has
Tom Boyle: Or is there something else about the consumer that's changed over that timeframe? Just trying to understand where that demand has abated. Yeah, I would characterize it that way, and Joe, you can chime in here too.
Tom Boyle: I would characterize it as we've had a sharp number of years in movement and demand, right? We had a sharp move higher and a sharp move lower. And as I said, that metric is pretty variable depending on the marketplace that you're looking at. Some of the markets that Joe highlighted are impacted by new supply, and so you have some of that competitive dynamic. But overall, I'd say that the shift in demand lower and the tough comps of 21 and 22 have led to pretty competitive pricing activity amongst operators in the sector. And in many cases, that may have led to an overcorrection in marketplaces.
Speaker Change: abated.
Speaker Change: Yeah, I would characterize it, and Joe, you can chime in here too, I would characterize it as we've had a sharp number of years in movement and demand, right? We had a sharp move higher and sharp move lower, and as I said, that metric is pretty variable depending on the marketplace that you're looking at.
Speaker Change: Some of the markets that Joe highlighted are impacted by new supply, and so you have some of that competitive dynamic. But overall, I'd say that the shift in demand lower and the tough comps.
Speaker Change: of 21 and 22 have led to pretty competitive pricing activity amongst operators in the sector, and in many cases that may have led to an overcorrection in marketplaces.
Tom Boyle: But I think that the positive component that you're highlighting is if you think about the move in rents today that we're charging versus discretionary income or consumers' monthly budget, it's frankly even more attractive today than it was in the past. And so as you think about the potential opportunity for that number through a cycle to move higher, I think it's more encouraging, frankly, given it's more affordable today than it was in the past.
Speaker Change: But I think that the positive component that you're highlighting is if you think about
Speaker Change: The move in rents today that we're charging versus discretionary income or consumers' monthly budget is frankly even more attractive today.
Speaker Change: than what it was in the past. And so as you think about potential opportunity for that number through a cycle to move higher, I think it's more encouraging, frankly, given it's more affordable today than it was in the past.
Tom Boyle: And we're working through that stabilization of demand, and as an industry, we will get to the other side. Okay, thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions.
Speaker Change: And, you know, we're working through that stabilization of demand, and as an industry, we will get to the other side.
Speaker Change: Okay, thank you.
Speaker Change: Thanks.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.
Operator: Our next question comes from Eric Luebchow with Wells Fargo. Please proceed with your question. Thanks for taking the question. Could you talk about any changes you've seen year to date and, more recently, on the length of stay of the in place space in terms of, you know, the type of customers that are moving out? Are they coming from more of the lower replacement cost customers that are at lower rates versus the longer tenured customers that are materially above current moving rates? Yes, sure, Eric.
Speaker Change #108: Our next question comes from Eric Luebchow with Wells Fargo. Please proceed with your question.
Eric Thomas Luebchow: Thanks for taking the question.
Eric Thomas Luebchow: Could you talk about any changes you've seen year-to-date and more recently on length of stay of the in-place space in terms of...
Eric Thomas Luebchow: You know, the type of customers that are moving out, are they coming from more of the lower replacement cost customers that are at lower rates versus the longer tenured customers that are materially above current moving rates?
Tom Boyle: Stepping back and looking at the last several years, you know, we've spoken a lot about how length of stay really extended from 2020 to 2022. And that was a combination of longer-term stay tenants staying for longer, as well as the need to replace those tenants with fewer new customers. So from a mixed standpoint, length of stay grew pretty sharply over that time period and was a big contributor to some of the pricing power and financial performance we had over that time period. But really, since then, we've been seeing moderation, and we've been really encouraged at the pace of that moderation. Right?
Eric: Yes, sure, Eric.
Speaker Change: Stepping back.
Speaker Change: In looking at the last several years, you know, we've spoken a lot around how length of stay.
Eric: really extended.
Eric: from 2020 to 2022. And that was a combination of.
Eric: Longer length-of-stay tenants staying for longer as well as the need to replace those tenants with fewer new customers so from a mixed standpoint length-of-stay
Eric: This group grew pretty sharply over that time period and was a big contributor to some of the pricing power and financial performance we had over that time period. Really since then, we've been seeing moderation and we've been really encouraged.
Tom Boyle: I think if I were to go back and listen to myself on these calls, probably a couple of years ago, I maybe was anticipating a more rapid return to the pre-pandemic sort of length of stays. And we've been encouraged by the fact that it has been several years of moderation in those numbers. And as we sit here today, the length of stays on average continues to be longer than what they were in 2019.
Eric: at the pace of that moderation, right? I think if I were to go back and listen to myself on these calls, probably a couple years ago, I maybe was anticipating a more rapid return to quote unquote, pre pandemic sort of length of stays.
Speaker Change: And we've been encouraged by the fact that it has been several years of moderation in those numbers. And as we sit here today, length of stays on average continue to be longer than what they were in 2019.
Tom Boyle: So some encouraging trends there. The second component of your question was just around vacant levels. And I'd highlight that our longer-term tenants tend to be stickier. They've gotten comfortable using their space. They have goods in there that have a use case of sitting in the unit for a long time versus maybe an apartment renter that's moving between one apartment and another and is using the space for a short period of time, for instance, as an example use case.
Speaker Change: So some encouraging trends there.
Speaker Change: The second component of your question was just around vacate levels and I'd highlight that our longer term tenants
Speaker Change: They tend to be stickier, they've gotten comfortable using their space, they have goods in there that have a use case of sitting in the unit for a long time versus maybe an apartment renter that's moving between one apartment and another and is using the space for a short period of time, for instance, as an example use case.
Speaker Change: And so the vacate frequency from those longer term tenants is less. And so as you look at our vacate activity, really in any given quarter.
Tom Boyle: And so the vacate frequency from those longer-term tenants is less. And so as you look at our vacate activity, really, in any given month, it's more concentrated within those customers that have more recently joined the public storage customer base. Great. Appreciate that commentary.
Speaker Change: It's more concentrated within those customers that have been more recently joined the public storage customer base.
Tom Boyle: And just to follow up, sorry to harp about move-in rents, but as we think about what you've assumed for the second half of this year, you said the guide assumes we exit the year down about mid-single digits. Does that assume a relatively normal amount of seasonality from kind of the peak summer months into the fall and winter? Because I know that from a comp perspective, things do get a lot easier in September and October, given there were some more aggressive pricing actions made last year. So just thinking about how seasonality compares to what would be a normal year.
Speaker Change: Great, appreciate that commentary. And just to follow up, sorry to harp about move-in rents, but as we think about what you've assumed in second half of this year, you said the guide assumes we exit the year down about mid-single digits.
Speaker Change #111: Does that assume a relatively normal amount of seasonality from
Speaker Change #135: the peak summer months into the fall and winter. Because I know that from a comp perspective, things do get a lot easier.
Speaker Change #117: In September and October , given there were some more aggressive pricing actions made last year. So just thinking about how seasonality compares to what would be, you know, a normal year. And I realized we haven't had a normal year in quite some time.
Tom Boyle: And I realize we haven't had a normal year in quite some time. Yeah, I think that last point is probably the most important one, which is that we haven't had a quote, unquote, normal year for a number of years. But clearly, we recognize and have taken into consideration what you highlighted last year as a very competitive move-in environment where move-in rents for the industry did decline on a more accelerated path last fall.
Speaker Change: Yeah, I think that last point is probably the operable one, which is we haven't had a quote-unquote normal year.
Speaker Change: For a number of years, but clearly we recognize and have taken into consideration what you highlighted around last year being a very competitive move-in environment where move-in rents for the industry
Speaker Change: did decline on a more accelerated path.
Tom Boyle: And our assumptions, clearly based on a narrowing in the year-over-year gap, are that we don't face that same sort of decline. But we're continuing to expect that it's a competitive move-in environment in the second half and that move-in rents are below where they were last year. Okay, thank you. Appreciate it. Thanks, Eric.
Speaker Change: last fall.
Speaker Change: And our assumptions, clearly based on a narrowing in the year over year gap, is that we don't face that same sort of decline, but we're continuing to expect that it's a competitive moving environment in the second half, and that moving rents are below where they were last year.
Speaker Change #115: Okay. Thank you. Appreciate it.
Tom Boyle: Our next question comes from Jonathan Hughes with Raymond James. Please proceed with your question. Hi, good morning out there.
Eric: Thanks Eric.
Speaker Change #129: Our next question comes from Jonathan Hughes with Raymond James. Please proceed with your question.
Tom Boyle: The predictive revenue growth metric, when I combine contract rent and occupancy for the next quarter, has been pretty accurate lately. And when I do that for a third quarter and combine it with the full-year guide, it implies revenue growth actually accelerates or gets less negative in the fourth quarter. And the only time in the last decade that revenue growth improved from 3Q to 4Q was in 4Q20 when we were coming out of COVID lockdown. So does that sequential improvement into the fourth quarter sound like what's embedded in guidance? And if so, what gives you the confidence that we'll see?
Jonathan Hughes: Hi, good morning out there.
Speaker Change #109: The predictive revenue growth metric when I combine contract rent and occupancy for the next quarter has been pretty accurate lately. And when I do that for a third quarter and combine it with a full year guide, it implies revenue growth.
Speaker Change: actually accelerates or gets less negative in the fourth quarter and the only time in the last decade that revenue growth improved from 3Q to 4Q was 4Q20 when we were coming out of COVID lockdowns.
Speaker Change #120: So does that sequential improvement into the fourth quarter sound like what's embedded in guidance? And if so, what gives you the confidence? We'll see.
Tom Boyle: You know, that improvement since it is so. Well, one of the things that I've highlighted over the last couple of years around that forward metric based on period and numbers is that when things are moving around quite a bit, it loses some of its efficacy, and certainly, we've started to provide more robust transparency related to our outlook for the year on financial terms with our guidance. And so I'd point you more towards the implied outlook from guidance than using any particular period and metrics, one quarter versus the other, given how things have been moving around. But specifically, I'm not going to get into quarter-by-quarter guidance, right?
Speaker Change #141: You know, that improvement, since it is so unique.
Speaker Change #100: Well, one of the things that I've highlighted over the last couple years around that forward metric based on period end numbers is that when things are moving around quite a bit, it loses some of its efficacy.
Speaker Change: Yes, certainly.
Speaker Change: We've started to provide more robust transparency related to our outlook for the year on a financial terms with our guidance.
Speaker Change: And so I'd point you more towards.
Speaker Change: The implied outlook from guidance than, you know, using any particular period and metrics, one quarter versus the other, given how things have been moving around.
Tom Boyle: We're giving you an annual outlook, and as I noted earlier, the second half is implied to be down 1.5% on same-store revenue specifically, and we do have confidence in improving trends in many of our markets that are going to lead to stabilization and then ultimately re-acceleration across those markets over time. Okay, my second question, just looking at LA, I noticed that the revenue growth premium there did, it did slow to call it 60 basis points from an average of 500 basis points in the prior five quarters. I know comps are tough.
Speaker Change: But specifically, I'm not going to get into quarter-by-quarter guidance, right? We're giving you...
Speaker Change: Annual Outlook, and as I noted earlier, you know, the second half.
Speaker Change: is implied to be down one-and-a-half percent on same-store revenues specifically, and we do have confidence in improving trends in many of our markets that is going to lead to stabilization and then ultimately re-acceleration across those markets over time.
Speaker Change #118: My second question, just looking at L.A., I noticed that the revenue growth premium there, it did slow to call it 60 basis points from an average of 500 basis points.
Speaker Change #140: the prior five quarters. I know comps are tough but yesterday Equity Residential kind of talked about some affordability and supply headwinds in LA so maybe there's a
Speaker Change #107: You know, a broader economic slowdown in that specific market. But can we expect a more modest revenue growth premium in L.A. going forward?
Speaker Change: Could that even turn negative as rents and occupancy there are the highest in the portfolio? Thanks.
Joseph D. Russell: But yesterday, Equity Residential kind of talked about some affordability and supply headwinds in LA. So maybe there's, you know, a broader economic slowdown in that specific market. But can we expect a more modest revenue growth premium in LA going forward? Could that even turn negative as rents and occupancy there are the highest in the portfolio? Yeah, first of all, just the overall health of that market continues to be very good, Jonathan. It's a market where we're not going to see any meaningful additions of supply.
Speaker Change: Yeah, first of all, just the overall health of that market continues to be very good, Jonathan. It's a market that we're not going to see any meaningful additions of supply. It's just the trend that you're pointing to relative to the
Joseph D. Russell: It's just the trend that you're pointing to relative to the outstripped revenue growth that we saw in that market for a sustained period of time, and it's leveling off. We hope that we'll continue to see a very good trajectory going into future periods. But we don't see some of the issues, certainly in Los Angeles, that you might in other markets that have been more impacted by either supply or a material shift in overall demand. I would just say it's relatively stable at this point, and we'll continue to see how it performs. We're in very good shape relative to the quality of those assets, and we see very strong occupancy rates.
Speaker Change: You know, outstripped revenue growth that we saw in that market for a sustained period of time, and it's leveling off.
Speaker Change: We...
Speaker Change: Hope that, you know, we'll continue to see very good trajectory, you know, going into future periods. But, you know, we don't see some of the issues, certainly in Los Angeles that you might in other markets that have been more impacted by either supply or a material shift in overall demand. I would just say it's relatively stable at this point, and we'll continue to see how it performs. We're in very good shape relative to the quality of those assets. We see very strong occupancies.
Joseph D. Russell: As I mentioned, no new and concerning dynamics from new supply. So the other thing that supports LA over time is that it is a high cost of living market, which again supports the inherent demand for storage relative to our particular portfolio there. Because again, great locations, great scale overall in the market, and we see good inherent customer demand playing through. All right. Thanks for the time.
Speaker Change: As I mentioned, no new and concerning dynamics from new supply. So the other thing that supports L.A. over time is it is a high-cost-of-living market, which again supports the inherent demand for storage relative to our particular portfolio there because, again, great locations, great...
Speaker Change: Scale overall in the market and we see good inherent customer demand playing through.
Speaker Change #139: Alright, thanks for the time.
Tom Boyle: Thank you. Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question is from Mike Mueller with J.P. Morgan. Please proceed with your question.
Tom Boyle: Yeah, hi, just a quick follow-up on move-in rates. Is the guidance and assumption of move-in rates improving to down mid-single digits by year-end being driven, I guess, by improvement in the spot rates, or just the comp issue, or some sort of combination of both? Well, I guess, I'm trying to think about the right way to think about this.
Michael William Mueller: Yeah, hi, just a quick follow-up on move-in rates. Is the guidance and assumption of move-in rates improving to down mid-single digits by year-end, is that being driven, I guess, by improvement in the spot rates, or just the comp issue, or some sort of combination of both?
Speaker Change #102: Well, it, I guess.
Tom Boyle: I mean, there's no question that seasonally we're at the peak of rental rates. So as we talk about what's going to play out through the second half and what's assumed in the outlook, The level of rents in the fourth quarter is going to be lower than where they are now, right? But as you think about the year-over-year differential, we did have a pretty significant move-in rent decline as we moved through last year.
Speaker Change #127: I'm trying to think about the right way to think about this. There's no question that seasonally we're at the peaks of rental rates, so as we talk about what's going to play out through the second half and what's assumed in the outlook.
Speaker Change #135: The level of rents.
Speaker Change #102: than where they are now, right? But as you think about the year-over-year differential, we did have a pretty significant.
Tom Boyle: And just a reminder, last year's fourth-quarter move-ins for us were down about 18 percent year-over-year. And so the comps do ease on a year-over-year basis, and so while we're expecting, as we do every year, that rents will decline between here and where they are in December, the level of decline between now and December will be more modest than what we experienced last year, which was really, frankly, Got it. So it seems like you're making some improvement in there. Just ignoring the comp dynamic.
Speaker Change #102: move-in rent decline as we moved through last year. And just a reminder, last year's fourth quarter move-ins for us were down about 18% year-over-year.
Speaker Change: And so the comps do ease on a year-over-year basis, and so while we're expecting, as we do every year, that rents decline between here and where they are in December , the level of decline between now and December we're anticipating to be more modest.
Speaker Change: than what we experienced last year, which was really, frankly, a very sharp decline.
Speaker Change #123: got it so it seems like you're baking some improvement in there just ignoring the cop dynamic
Tom Boyle: I would say it's primarily the comp dynamic, and we're expecting rents to decline as we typically would between a summer and a winter in storage. Okay, yeah, I was thinking a little bit more outside of seasonality about the overall environment getting better from that front, but okay. That was it.
Speaker Change: I would say it's primarily the comp dynamic and we're expecting rents to decline as we typically would between a summer and winter in storage.
Speaker Change #121: Okay, yeah, I was thinking a little bit more outside of seasonality, the overall environment getting better from that front, but okay, that was it, thank you.
Tom Boyle: Our next question is from Spenser Allaway with Green Street Advisors. Please proceed with your question. Thank you. Maybe just one more in the non-same-store pool?
Speaker Change: Our next question is from Spenser Allaway with Green Street Advisors. Please proceed with your question.
Tom Boyle: You guys have had great success on the lease-up front, but are you able to provide additional color on markets where you're seeing either above-average lease-up trends or maybe, conversely, where you're seeing some slower activity here on the leasing front? I'd say overall leasing activity has been very strong across the board within the non-same-store pool. One of the things I highlighted, right, is obviously the lower move-in rents impact the whole portfolio, not just the same store, but as we think about actual lease-up pace, you can see a strong lease-up pace in our development, redevelopment, and vintages, which are probably the easiest place to see that lease-up pace.
Spenser Bowes Allaway: Thank you. Maybe just one more on the non-same store pool. You guys have had great success on the lease-up front, but are you able to provide additional color on markets where you're seeing either above-average lease-up trends or maybe conversely where you're seeing some slower activity here on the leasing front?
Speaker Change #128: You know, I'd say overall, leasing activity has been very strong, really, across the board within the non-same-store pool. You know, one of the things I highlighted, right, is obviously the lower move-in rents.
Speaker Change #124: impacts the whole portfolio, not just the same store.
Speaker Change #122: But as we think about actual Lisa Pace...
Speaker Change: You can see a strong lease up pace in our development, redevelopment vintages, which are probably the easiest place to see that lease up pace.
Tom Boyle: We continue to be encouraged by that, and as Joe mentioned, I think that's being supplemented by the fact that there isn't an overwhelming amount of new supply in these markets that we're delivering into, and because of that, the new activity that we are delivering is being well-received in the marketplace, absorbed efficiently, and we think that that helps both our non-same-store pool and the dynamics of the industry and Yeah, and maybe, Spencer, just on a headline portfolio standpoint, if you look at the larger portfolios that we've taken down over the last couple of years, I'd say they're all kind of in a similar range relative to either meeting or exceeding not only our underwriting, but we've seen good traction, particularly in markets where we've been able to increase scale, and then most recently, the Simply portfolio, which touched 18 different Again, I wouldn't point out or call out any unusual negative trends.
Speaker Change: We continue to be encouraged by that.
Speaker Change: And, as Joe mentioned, I think that's being supplemented by the fact that there isn't
Joe: An overwhelming amount of new supply in these markets that we're delivering into.
Joe: And because of that, the new activity that we are delivering is being well-received in the marketplace, absorbed.
Joe: efficiently, and we think that that helps both our non-same-store pool but also the dynamics for the industry and the local marketplace of our same-store assets in those marketplaces as well.
Spenser Bowes Allaway: Spenser, just on a headline portfolio standpoint, if you look at the larger portfolios that we've taken down over the last couple of years, I'd say they're all kind of in a similar range relative to either meeting or exceeding not only our underwriting, but we've seen good traction, particularly in markets where we've been able to increase scale.
Speaker Change: And then, you know, most recently, the Simply portfolio, which touched 18 different states. Again, I wouldn't point out or call out any unusual negative trends. In fact, we're seeing, you know, continued outperformance relative to our own underwriting even in that portfolio that was, you know, multi-market based.
Joseph D. Russell: In fact, we're seeing continued outperformance relative to our own underwriting, even in that portfolio that was multi-market-based. So just to reinforce what Tom was speaking about, we're continuing to see good traction and stabilization throughout that entire portfolio, and definitely look at it as being a continued driver of growth going into future periods. Okay, great. Thank you both for the color. And Tom, you kind of alluded to this, but how does time destabilization for redos and new developments today compare to historic averages in your portfolio?
Speaker Change #141: So, you know, just to reinforce what Tom was speaking to, we're continuing to see good traction and stabilization throughout that entire portfolio and definitely look at it as being a continued driver of growth going into future periods.
Joseph D. Russell: Yeah, we typically underwrite three to four years to get to a level of stabilization of the earnings profile of the asset. And then, frankly, there are another couple years of continued strong growth from there, depending on the size of the asset, etc. There have certainly been time periods where we've seen much faster growth than that over the last several years, in particular, but kind of year in, year out, that's what we're looking for.
Joseph D. Russell: So typically, three or four years is a long period of time; you're going to have demand and supply drivers within individual markets that are going to shift that for one in particular asset or otherwise, but I'd still point you to that kind of three to four year time period.
Tom Boyle: Great. Thank you. Thank you. Thanks, Rob. And thanks to all of you for joining us. Have a great day. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your time.