Q1 2025 Public Storage Earnings Call
Greetings and welcome to the public storage first quarter 2025 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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Speaker Change: I would now like to turn the conference over to your host, Brian Burke, Vice President Investor Relations and strategic partnerships.
Speaker Change: Thank you Rob Hello, everyone. Thank you for joining us for our first quarter 2025 earnings call I'm here with Joe Russell and Tom Boyle before we began we want to remind you that certain matters discussed during this call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and.
Speaker Change: All forward looking statements speak only as of today May one 2025, and we assume no obligation to update revise our supplement statements that become untrue because of subsequent events.
Speaker Change: 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 supplemental report SEC reports and an audio replay of this conference call on our website public storage Dot com. We do ask that you initially limit yourself to two questions of course after that if you have more feel free to jump back in.
Joe Russell: Q with that I'll turn the call over to Joe.
Joe Russell: Thank you Ryan and thank you for joining us today.
Speaker Change: Tom and I will walk you through our Q1 performance industry views and outlook then we'll open it up for Q&A.
Speaker Change: Our performance during the quarter was in line with our expectations as we continued to drive stabilization across our portfolio.
Speaker Change: Move in volumes increased over 2% as we drove more people to our website and increased customer conversion.
Speaker Change: With move ins up and strong in place customer behavior. The same store occupancy grout gap to last year closed from down 80 basis points on December 31st two down 30 basis points on March 31st.
Speaker Change: Revenue growth in our same store pool turned positive and improved sequentially again after more than two years of deceleration from record growth in 2021 and 2022.
Speaker Change: Revenue growth in our non same store pool, which comprises 520 properties and 21% of our portfolio accelerated to nearly 11% as it continues to be an engine of growth.
Speaker Change: And all of this helped drive core <unk> per share growth of more than 2% for the quarter, a 200 basis point improvement sequentially versus last quarter.
Speaker Change: We are well positioned due to our high quality portfolio innovative platform and companywide competitive advantages.
Speaker Change: These include our industry, leading revenue management consistently achieves the highest revenues per square foot in our markets.
Speaker Change: We are advancing the industry's most comprehensive digital transformation with customers choosing digital options for 85% of interactions and a new more efficient operating model that includes using AI to staff our field more efficiently.
Speaker Change: Coupled with additional advantages across the public storage operating platform. This drives same store operating margins meaningfully higher than the rest of our industry.
Speaker Change: And we have a broad ancillary and external growth avenues, including acquisitions development redevelopment domestic and international expansion.
Speaker Change: Tenant insurance third party management and lending.
Speaker Change: Our experienced acquisition and development teams are actively growing the portfolio.
Speaker Change: The 184 million, we have acquired or under contract.
Speaker Change: Today is ahead of the $35 million achieved at this time last year.
Speaker Change: In total our sizable non same store pool will deliver an additional $80 million of NOI through stabilization and two in 2026 and beyond.
Speaker Change: Our recently announced proposal to acquire abacus storage King one of the leading owner operators in Australia, and New Zealand is a great example of our capabilities at play.
Speaker Change: As we demonstrated with shurgard in Europe, we are uniquely positioned to execute on in Internet.
Speaker Change: International growth.
Speaker Change: Yeah.
Speaker Change: And all of this is enhanced by the industry's best balance sheet, which provides public storage, both stability and the ability to execute on growth across economic cycles.
Speaker Change: Favorable industry dynamics benefit us as well.
Speaker Change: This is a needs based business that is largely driven by customer events that happen in all economic conditions.
Speaker Change: Additionally, an evolving economy creates new customers as our demand drivers shift.
Speaker Change: With low nominal dollar rents we are also affordable relative to the other space alternatives.
Speaker Change: This coupled with the customer need tend to make self storage more resilient to changing economic conditions than many other industries.
Speaker Change: And it's important to keep in mind that our industry is already being normalized over the past three years.
Speaker Change: Moving rents have declined significantly due to softening demand and competitive market behavior.
Speaker Change: Our new customers are moving in at very affordable rents that are in line with levels not seen since 2013.
Speaker Change: We are in a good position to benefit from both rising rents and occupancy and an improving demand environment.
Tom Boyle: Now I'll turn the call over to Tom.
Tom Boyle: Thanks, Joe.
Tom Boyle: We are driving growth across our broad set of capital allocation opportunities.
Tom Boyle: We delivered $144 million of development during the quarter and have a robust pipeline of about $650 million.
Tom Boyle: That we will deliver over the next two years, while industry delivery volume is declining overall, we continue to both grow and enhance the quality of our portfolio through our best in class development team.
Tom Boyle: As Joe mentioned acquisition activity also picked up in the first quarter with 14 properties acquired were under contract for $184 million through today.
Tom Boyle: In Australia, and New Zealand, we are excited about the potential to partner with advocate storage King and Kai Corporation, they're major shareholder to help enhance the companys customer experience.
Tom Boyle: Operating performance and portfolio growth.
Tom Boyle: Given where we are in that process. We're very limited what we can say on this call, but we will continue to keep everyone updated as appropriate.
Tom Boyle: Okay.
Tom Boyle: Our capital and liquidity positions are very strong.
Tom Boyle: In fact, they're getting even stronger this year with retained cash flow expected to increase by 50% to approximately $600 million.
Tom Boyle: Industry, leading leverage balance sheet capacity and cost of capital allow us to execute and scale across our broad channels coupled.
Tom Boyle: Coupled with improving fundamentals and the less competitive new supply, we're poised to increase our portfolio of growth activity moving forward.
Tom Boyle: Now shifting to financial performance for the first quarter.
Tom Boyle: Led by higher rental rates same store revenues turn positive following three consecutive quarters of revenue declines.
Tom Boyle: Same store expenses were well controlled at 30 basis points of growth driven by our operating model initiatives and moderated advertising spend. Meanwhile, we drove good move in volume in the quarter.
Tom Boyle: Core <unk> per share was up two 2% year over year to $4 12 per share.
Tom Boyle: Representing a strong 200 basis points acceleration from the growth level achieved in the prior quarter.
Tom Boyle: Our guidance for 2025 is unchanged.
Tom Boyle: One note regarding the first quarter relative to the rest of the year as expected there was minimal impact from the fire related pricing restrictions in Los Angeles during the first quarter.
Tom Boyle: However, we do anticipate it will grow and ultimately have 100 basis point impact on same store revenue growth for the year.
Tom Boyle: All in public storage is very well positioned today.
Tom Boyle: The self storage industry is very resilient, our leading operating platform is driving peer leading performance and acceleration across our portfolio.
Tom Boyle: We are further enhancing the platform through digital and operating model transformation.
Tom Boyle: And our balance sheet, while providing stability is also allowing us to grow across our multiple channels in combination with significant retained cash flow.
Tom Boyle: With that Rob, let's open it up for questions.
Tom Boyle: Thank you.
Tom Boyle: At this time, we'll be conducting a question and answer session.
Tom Boyle: If you'd like to ask a question. Please press star one on your telephone keypad.
Tom Boyle: As a reminder, we ask that you please limit to one question and one follow up.
Tom Boyle: A.
Speaker Change: <unk> Com will indicate your line is in the question queue. You May Press Star two if you 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.
Speaker Change: Our first question comes from Nick you look out with Scotiabank. Please proceed with your question.
Great. Thank you it's standard Chicago on with Nick I'm trying to gauge the level of conservatism in the guide can you help us square away. The the increase in confidence in fundamentals bottoming with you know the rate gap staying down 5% through the year, implying we're just bouncing sideways along the bottom and at what point do do comps become easy enough or demand picks up enough to see a lift off that bottom because.
Speaker Change: Now theoretically you don't stand Stuart's Robert So yeah sure I can only get you so far in the long run.
Speaker Change: Okay. Thanks, Dan I think a couple of things to highlight there we did have a good quarter in the first quarter in line with our expectations as Joe noted.
Speaker Change: In terms of the guide overall.
Speaker Change: Our performance was in line with expectations as you highlighted move in volume was strong in the quarter in positive territory move.
Speaker Change: Move in rates were down circa 5%.
Speaker Change: A little bit better than 5%.
We look at April which is maybe another indicator for you in terms of trends overall.
Speaker Change: We are monitoring customer behavior very closely in this environment given the volatility in capital markets and certainly trade policy news flow through the month of April.
Speaker Change: And overall I would categorize customer behavior in April as very good payment patterns and delinquency were solid move.
Speaker Change: Move out volumes were actually down a percent.
Speaker Change: Longer term tenants remained strong through the period.
Speaker Change: And in terms of move in activity, which is I think where you were going in.
Speaker Change: And your question move in volumes up a good 3% in the month of April.
Speaker Change: The move in rate was down 8% in April.
Speaker Change: If you look at our year to date move in rates down to right around that 5% number which is in line with the midpoint of our outlook for the year.
Speaker Change: So trending right there.
Speaker Change: Occupancy did improve given the stronger move in volumes and the decline in move out volumes.
Speaker Change: Through the month.
Speaker Change: Such that the start of the month occupancy was down 30 basis points occupancy finished April down 10 basis points.
Speaker Change: And to your point, we are seeing demand overall for storage bouncing off that bottom and thats, leading to some stabilization in many of the metrics I just spoke to so some encouraging trends year to date.
Speaker Change: And.
Speaker Change: And overall, we'll keep you updated as where we go from here.
Speaker Change: Okay. Thanks, Tom and then as a follow up can you can you comment on the private capital raising environment for storage you know how has it evolved.
Speaker Change: Competitively the past few years as fundamentals that softened and have you seen a pick up at all in anticipation of a recovery.
Speaker Change: Well, if you're speaking to the overall acquisition environment again, Theres a lot of things are key off of the commitment that any given platform is going to make into storage clearly over the last several years, we've seen far more institutional capital come into the sector for obvious reasons relative to the inherent benefit.
Speaker Change: That's that we're even speaking to in an environment like this where we can seize still the ability to perform drive customers to the platform.
Speaker Change: We're coming off a number of.
Speaker Change: Quarters, now that Tom just spoke to relative to our confidence going into 2025, even with the choppy environment has evolved over the last 30 plus days.
Speaker Change: With all that there is still a fair amount of institutional capital that's interested in coming into the sector with that said however transaction volumes in 2024 were abnormally light.
Speaker Change: And going into 2020 for 2025, they are actually just as light, even though we've seen a few indications of a bit more transaction opportunities evolving. So we're going to have to see how this plays out relative to the commitment that.
Speaker Change: Other capital sources are putting into the sector, but overall, we're confident that we've got very good tentacles into a whole range of different users and owners that.
Speaker Change: Are likely to trade even in this environment and we'll keep you posted on our progress.
Joe Russell: Great. Thanks, Joe.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ron Ron Camden with Morgan Stanley. Please proceed with your question.
Speaker Change: Hey, just two quick ones starting on the revenue side.
Speaker Change: Thank you talked about sort of Google trends in advertising and top of funnel demand just love to get an update of some of what those other indicators you're saying.
Speaker Change: In April and and and and what they mean.
Speaker Change: Yeah, I'd say consistent trends through April which is we've seen.
Speaker Change: Industry wide search trends being positive territory year over year as I noted kind of bouncing off the bottom here in.
Speaker Change: In terms of our own.
Speaker Change: Indicators in our system.
Speaker Change: Cross the country seeing good trends, there too with higher web visits sales calls.
Speaker Change: And the like so we're seeing that level of demand had a bounce off the lows of the trough maybe of 2024, but certainly nowhere near what they were in 'twenty, one or 'twenty two maybe looking more like 2023 in terms of overall levels of interest coming into the system, which is encouraging given the trajectory we have.
Speaker Change: Over the last several quarters.
Speaker Change: Great and then my second one is just on.
Speaker Change: And when you sort of dissect the business, whether it's the business customer.
Speaker Change: You know whether it's specific regions like have you seen any sort of trends that are to the good to the bad sort of post tariff as well would be helpful. Thanks.
Speaker Change: So again, yeah, Ron there's not a lot of I would say trending data yet relative to what's happened over the last 30 days as Tom mentioned, we've not seen any inherent.
Speaker Change: Inherent change relative to both the trend we've seen from top of funnel demand from new customers as well as the behavior of existing customers.
Speaker Change: Across the entire portfolio regionally, we actually we were pleased to see.
Speaker Change: Another progression in certain markets positive, Florida for example, we're starting to see actually returning.
Speaker Change: Demand factors across the entire state where it was far.
Speaker Change: Far less so over the last year or so with the deceleration out of the peaks at that market in particular saw during the pandemic.
Speaker Change: We've now got a dozen plus major markets that are continuing to trend well that we've been speaking to now for the last few quarters. So nothing that I would say has gone a different direction based on the events over the last 30 days.
Speaker Change: The benefit that we have as we run our day to day business, we move in over 100000 customers a month and we've got very good reconnaissance relative to how that's trending market to market, but thus far we've been encouraged by the lack of disruption and overall tenant behavior and tenant demand.
Speaker Change: Helpful. That's it for me thank you.
Ron: Thank you thanks Ron.
Speaker Change: Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Todd Thomas: Hi. Thank you first question, Tom you mentioned move in rate was down 8% in April it seems like you picked up.
Todd Thomas: Little bit of occupancy that so I'm just curious why the system pulled back on rate. If you can provide a little bit more detail whether that was a strategic decision or what that was attributable to.
Tom Boyle: Yeah. Thanks, Todd I mean, I think youre going to see move in rates bounce around a little bit by market by months, all those sorts of things as we move through the year. So.
Tom Boyle: In March for instance, move in rates were only down 2% April down 8%. So as you highlighted there's going to be some movement, there, but ultimately trying to optimize towards revenue.
Tom Boyle: And we saw good move in volumes through the month of April.
Tom Boyle: And sets us up well here as we head into May and June which tend to be a little bit busier time period as well so.
Tom Boyle: To your point.
Tom Boyle: April was down 8%, a little bit lower on rate, but good volume trends and.
Tom Boyle: We will continue to manage the overall rate volume picture ultimately to optimize towards longer term revenue.
Tom Boyle: The customer base.
Tom Boyle: From here.
Tom Boyle: Okay and then.
Tom Boyle: In terms of development.
Tom Boyle: And how that landscape may change or be poised to change as a result of.
Tom Boyle: Cost increases around tariffs and other policy uncertainty.
Tom Boyle: First what are you seeing in terms of development activity more broadly and second.
Tom Boyle: What does that mean for public storage.
Tom Boyle: In your effort to maintain the pace of starts and deliveries and returns that you target.
Tom Boyle: Yeah, Todd the multi year deceleration of development completions continues so year by year from the peaks that we saw in 2019.
Tom Boyle: We've spoken to that.
Again continued decline of developments nationally.
Tom Boyle: Certainly there have and continue to be.
Tom Boyle: A limited number of markets that are seeing outsize outstretched development deliberate but frankly.
Tom Boyle: That trend is very healthy for the industry as a whole as we've spoken to and we're really not seeing any change going into 2025, meaning that deceleration is going to continue.
Tom Boyle: I would say from an overall supply standpoint, it has a two handle on it being it's plus or minus 2% national delivery growth in 2025, so that compares to plus or minus 5% going back to 2019. So the things that we will continue to potentially.
Tom Boyle: <unk> maintained that deceleration or what youre speaking to more risk tied to potential costs, the availability and cost of land labor and other component costs and the the things that that continues to do.
Tom Boyle: Counterintuitively for us it's a good window for us to come into many markets that we've been reticent.
Tom Boyle: To actually deploy capital into from a development standpoint, because of some of those competitive factors multiple years ago.
Tom Boyle: Including Ashley other markets that we've actually put stronger emphasis to grow deeply so it's a very good window for our development team to go out and find that.
Tom Boyle: Or opportunities in an environment, where we've got fewer competitors theyre doing just that but we're keeping a very close eye on every component costs, including what may or may not play through on tariffs, whether it's steel.
Tom Boyle: Whether again, we're going to see any labor pressure in particular markets because of immigration.
Tom Boyle: Priorities et cetera, So we're going to continue to monitor that but for us. It continues to be a very good window and we've got a deep sea. The team we've got the capital structure to continue to fuel our development growth and we're getting very strong returns that were every bit if not confident we're going to continue to see.
Tom Boyle: Okay. Thank you.
Tom Boyle: Thank you.
Speaker Change: Our next question comes from so little meter with Green Street. Please proceed with your question.
Speaker Change: Hi, guys. Thanks for taking my call and congratulations on the quarter just a quick one here, but do you guys have any updates on the rent restrictions that we're seeing in L. A I think the last one it looks like there was an executive order signed by the Governor Ige extended till July, but perhaps you guys have in telephone there is likely to be extended and or maybe it's all funded.
Speaker Change: Thompson.
Speaker Change: Yeah sure happy to take that the fire related state of emergencies. They were declared by the Governor earlier this year.
Speaker Change: Last until the beginning of 2026 and so those are the relevant ones.
Speaker Change: And we're certainly complying with those as we go here as we get through this year and the beginning of next year I will see ultimately what the governor.
<unk> intends to do with those emergencies I E letting them expire, we're extending them or or something in between so we'll know more as it relates to the impact to us as we've spoken about and we anticipate that the impact of those restrictions will result in about 100 basis point impact to same store revenue, which will be.
Speaker Change: Back half weighted.
Speaker Change: Okay.
Speaker Change: Awesome, Thanks for that and just another follow up here as far as peak leasing season, but can you guys give us any color on what we can expect given that fundamentals really haven't changed much since what we saw last year.
Speaker Change: Do you guys have any optimism it'll be like some return to normalcy for peak leasing this year or is 24 and kind of the base case that we're looking at.
Speaker Change: Yeah, our base case for 2025 does not assume we would see an uptick in what you might have seen.
Speaker Change: As seen in more traditional environments, where you see more of a peak leasing leasing season, so that's not embedded in our.
Speaker Change: Our base outlook for 2025, a month by month, we're going to see how that's trending.
Speaker Change: The demand factors that continue to drive customers to the portfolio are still broad based so we're encouraged by that but.
Speaker Change: What typically you would see this time of year is an uptick, particularly tied to existing home sale activity movement across national markets et cetera, and that's been muted as we saw in 2024 as well. So we'll see how that plays out as we go through the next three or four months.
Speaker Change: Awesome, Thanks for taking my questions. Thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good afternoon, and thanks, a lot for taking my question, maybe just a follow up on the headwind from the fire restrictions you've guided to 100 basis points for the year. It sounds like it's back half weighted is that does that imply that.
Michael Goldsmith: It'd be about a 200 basically had been in the back half and little impact in the first half or should that kind of ramp up slowly through.
Michael Goldsmith: Through the year, how should we think about the cadence of that headwind.
Michael Goldsmith: Yeah, Michael it's going to ramp up as we go from here.
Michael Goldsmith: Okay.
Speaker Change: Got it and then my second question is there feels like there's been a little bit more.
Speaker Change: Just sale activity within the self storage space.
Speaker Change: Lately.
Speaker Change: When you run a sale is that.
Speaker Change: Is that a reaction to the market environment.
Speaker Change: What are you looking to where you're looking to drive drive move ins is it more of a function of an opportunity where.
Speaker Change: You think you can capture market share I'm, just trying to get understand understanding of how youre using sales these days.
Speaker Change: And then maybe if you can tie that into.
Speaker Change: Youre platform, which you've talked.
Speaker Change: I think you talked more highly about on this call than you have in the past so any sort of connection with that would be great. Thanks.
Michael Goldsmith: Sure Michael a lot of components, there I guess I would say sale activity.
Michael Goldsmith: Yeah, it's probably a combination of all of the things that you highlighted there.
Michael Goldsmith: Public storage in the industry have been running promotional sales for four decades.
Michael Goldsmith: And we will continue to do so through this year as we did last year and years. Prior so there are some benefits to doing that at certain points of the year.
Michael Goldsmith: And certainly and ability to drive volume into the system.
Michael Goldsmith: And ultimately fits within our strategy to manage for longer term revenue optimization.
Michael Goldsmith: Combined with advertising and promotional activities. So.
Michael Goldsmith: Big picture I'd agree with you, it's a whole host of things that drive into it we did run a little bit of a sale in April will intend to run.
Michael Goldsmith: Bill at Memorial day, like we typically do but I wouldn't point you to any strategy shift there more.
Michael Goldsmith: As usual.
Michael Goldsmith: Okay.
Michael Goldsmith: Okay.
Michael Goldsmith: Okay.
Michael Goldsmith: Rob let's move on to the.
Speaker Change: Sure. Our next question comes from Michael Griffin with Evercore. Please proceed with your question.
Michael Griffin: Great. Thanks.
Speaker Change: The color on the dynamic staffing model and how that's been benefiting us kind of your payroll expense can you give us a sense of number one.
Speaker Change: How much of this has been rolled out into the existing platform and and then how we should think about incremental benefits from this going forward.
Speaker Change: Sure the <unk>.
Speaker Change: Thing that we've been doing step by step is with the robust level of data and knowledge that we have literally right down to each and every property relative to historic and then predictable levels of not only demand the.
Speaker Change: Coincides with the way staffing models can be optimized meaning.
Speaker Change: Using our very effective in person labor hours to match customer demand factors has given us very strong.
Speaker Change: Guidance into the way that we very differently staff our properties now on a very dynamic day by day basis.
Speaker Change: Predictability of this data continues to evolve and become more robust and with that we've taken iterative steps in optimizing those labor hours with the results thus far.
Speaker Change: We've spoken to and Youre seeing come through our P&L.
Speaker Change: You saw a nice change in optimization, even in the first quarter of 2025 or labor hours were down approximately 12%.
Speaker Change: That continued optimization knowledge and ability on our behalf is unique to the industry as a whole we're seeing very good receptivity not only relative to how those labor hours match again customer demand, putting our own very skilled people in front of customers when customers are.
Speaker Change: Looking for that level of human interaction.
Speaker Change: That's counterbalanced by something very effective that we're doing on our digital platform as I mentioned, 85% of all customer ash interactions are now digital again, that's customer directed meaning they are self selecting whether they're doing an initial lease transaction their own account management through our <unk>.
Speaker Change: Rod based P.
Speaker Change: P S app.
Speaker Change: To actually go ahead and use.
Speaker Change: Use those tools at their election and with that we're seeing very good.
Speaker Change: <unk> receptivity, so with all that said we have a very good runway to continue to look for next level.
Labor optimization as we're doing that we're also retooling the skill set and the priorities that our field team is able to deploy.
Speaker Change: Deploy into their own day to day environment, that's creating different levels of promotion capabilities skill capabilities. So this has been a win win all the way around good for customers. Good for our employees and good for continued development of our cost structure. So we're very committed to continue to making additional investments that have been.
Speaker Change: Very effective thus far and we're excited about what what's still out there to achieve.
Speaker Change: Thanks, Joe appreciate the context, there and then maybe from a more macro perspective I acknowledge you guys had a strong quarter, but maintained guidance clearly theres. Some some market volatility and uncertainty out there, but can you give us a little color on maybe what your expectations are whether it's.
Speaker Change: The housing market remains muted job growth might not be as robust as we would have thought a couple of months ago. How are you overlaying, maybe your macro assumptions as it relates to your guidance. Thank you.
Speaker Change: Yes, sure I think there's a number of components there.
Speaker Change: I'll speak to it as you noted we had a good quarter.
Speaker Change: As I highlighted earlier, we do have la headwinds that are coming at us and we're watching the consumer very closely here.
Speaker Change: Noted that through April we've seen strong consumer trends at this point.
Speaker Change: And are encouraged by that but it is something we're watching closely because as the macro environment can shift so can demand and customer behavior.
Speaker Change: We haven't shifted our assumptions that underpin our outlook.
Speaker Change: But no question the assumptions that underpin the lower end of the range do have some of the characteristics that you might see in macro weakness I E softer new customer demand more move out activity softer <unk> contribution and the like.
Speaker Change: Again, it's something we're watching closely have been encouraged by what we've seen through April.
Speaker Change: But we'll have to see how the macro environment plays out from here.
Speaker Change: To be able to to adjust and tweak from here.
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: Thanks.
Speaker Change: Our next question comes from one Santa Maria with BMO Capital markets. Please proceed with your question.
Santa Maria: Hi, just a.
Speaker Change: Theoretical question I guess to start.
Speaker Change: Clearly housing has come off as a demand driver, but decluttering or an alternative space solution storage is a nice low cost option, but just curious how you think about looking at the data and surveys how things may change if housing comes back I'm not sure when or if but if housing comes back.
Speaker Change: Is that would that be additive necessarily or do you think some of the.
Speaker Change: Customers that had been using it as a space solution may be no longer need that just curious on.
Speaker Change: Those two variables and how they may interplay going forward.
Speaker Change: Yes, sure one I think you're highlighting on a.
Speaker Change: The shift that we've seen over the last couple of years in particular, we've seen a reduction in new home sale, driven or existing home sale driven.
Speaker Change: Activity for new customers at the same time, we have seen that increase in customers that have ran out of space at home and some longer tenure there.
Speaker Change: Overall that shift has been.
Speaker Change: And impact to demand.
And we think that <unk>.
Speaker Change: Celebrating new home sales, while you may have some customers that are no longer using space because they ran out of space at home because they've.
Speaker Change: Upgraded their home and have bought some new space overall that increased level of activity will be a net positive as we think about the demand picture overall.
Speaker Change: We're not anticipating that that takes place this year, but as we look at the existing home sale activity. It does feel like we're bouncing around the bottom in terms of that level of activity does that come back in 26 or 27, I think it's hard to predict.
Speaker Change: If you look back at prior housing downturns. It typically takes several years for the housing market to recover.
Speaker Change: But in aggregate I would consider that a net positive to demand, even if you'd give back a little bit of the folks that have run out of space at home.
Speaker Change: And I just ask.
Speaker Change: Yeah, one what other overarching issue as you know the cost of shelter again, whether you own rent or even are going through that transition from again ownership to rental or vice versa. It's the cost of shelter that also has an inherent driver because as we've spoken to.
Speaker Change: Self storage is a very sensible financial alternative to not have to commit to that exercise either home that youre acquiring and or apartment that you're renting so again inherent good.
Speaker Change: Baseline demand just from a cost structure as sell itself.
Speaker Change: Thank you and then just as a follow up on the third party management business. How are you feeling about.
Speaker Change: The demand for that.
Speaker Change: That service and.
Speaker Change: Just how successful or not you feel like you've been to the ADP and.
Speaker Change: They met expectations or how are you feeling about your efforts in that business.
Speaker Change: Yeah. Good question, one that is a business that we continue to to invest in and have seen good good adoption really over the last several years, it's a business that.
Speaker Change: It takes time to grow and we knew that when we were getting in it's about forming relationships demonstrating our track record on properties that were there.
Speaker Change: And that we're managing for owners and broadening those relationships over time and so over the last several years, we have seen a good uptick in demand for that business I think part of that can be the tougher operating environment, frankly that we've been living through over the past several years.
Speaker Change: And have taken some assets for four new customers demonstrated our capabilities in that business and continue to grow the the groups that were then theyre managing four so in line with expectations and would anticipate that that business.
Speaker Change: We'll grow from here.
Speaker Change: In terms of the strategic components for US no question it and further enhances our scale on our marketplaces grows our brand and again detail some of those relationships with owner groups that we can have dialogue around working together in different manners, including potentially acquisitions over time, so we feel good about that.
Business and the trajectory that it's on.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Eric Wolfe with Citi. Please proceed with your question.
Speaker Change: Thanks, just to follow up on Michael Goldsmith question. It does seem like your guidance is implying that the.
Speaker Change: There are restrictions in L. A lower your same store revenue by 200 basis points at least at some point.
Speaker Change: In the back half and I think you said earlier this year that the impacted stores or about 10% of your overall same store.
Speaker Change: I guess that would imply that the restrictions or lowering your revenue by around 20%.
Speaker Change: For those impacted stores is that the right way to think about it.
Speaker Change: I think the way I would think about it is the impact I don't want to minimize the fact that we did see an impact in the first quarter I. We're complying with these rents were a restrictions. They they are they impact both new customers and existing customers that impact will grow over time as we move through the year.
Speaker Change: And in aggregate will be 100 basis points, So I don't.
Speaker Change: I don't want to communicate that the impact will be.
Speaker Change: So weighted into the back half, which I think what youre getting to you are going to see some impact in the first quarter second quarter and through the fourth quarter and ultimately some into the first quarter of next year.
Speaker Change: Obviously in that 100 basis points number, but before that state of emergency is.
Speaker Change: Expires or extended.
Speaker Change: Okay, and then apologies if you answered this before but I didn't hear your extensive came in pretty low.
Speaker Change: In the quarter.
Speaker Change: Can you just talk about where they are trending relative to expectations and then just based on.
Speaker Change: Reaffirming your guidance you would obviously imply that it comes up somewhat meaningfully over the over the next couple of quarters, I guess why would that happen.
Given some of the expense initiatives that you just mentioned.
Speaker Change: Yes, there's a.
Speaker Change: A few pieces there one we did obviously reaffirm our overall expense outlook for 3.25% at the midpoint for the year within the same store.
Speaker Change: We did have good expense control through the first quarter I would expect that to continue in future quarters, but there were some.
Speaker Change: <unk> elements in the first quarter that are unlikely to persist there were some <unk>.
Speaker Change: <unk> comps and property payroll for instance related to PM health.
Plant costs that was kind of an easy comp compared to last year on advertising, we had advertising down 10%.
Speaker Change: We'll manage that dynamically through the year and see where that ultimately plays out.
Speaker Change: But big picture.
Speaker Change: We continue to drive operational efficiency through the payroll optimizations that Joe spoken to the other one I would highlight is solar power generation, where we continue to invest in solar.
Speaker Change: And we will continue to receive the benefits of less utility electric utility usage through the year as well.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, everyone. Maybe I was just wondering if you could talk a little bit more about what youre seeing on the <unk> side today, whether there's been any changes or kind of modifications to the strategy recently, how aggressive you are.
Speaker Change: Maybe that's not the right word but yes.
Speaker Change: Yeah sure Caitlin.
Speaker Change: E Cri program is.
Speaker Change: Generally in line with our expectations and very much similar to how we've managed it over the last couple of years, which is we're focused on understanding customer price sensitivity.
As well as the cost to replace that tenant to the extent that they they leave us.
Speaker Change: And what we've seen.
Speaker Change: The first part of this year is very consistent price sensitivity and so that's encouraging and that holds through April as well.
Speaker Change: And a relatively stable cost to replace and so the program continues to to perform well.
And.
Speaker Change: We will continue to optimize that as we move through the year.
Speaker Change: Got it and then I guess of.
Speaker Change: Of course, each situation ends up being different but at this point how would you expect the portfolio to perform in a downturn, where the customer might be constrained or are there any certain.
Speaker Change: I don't know things, we should look out for or technologists risks.
Speaker Change: Yeah. That's a good question Caitlin I think I rattled off some of the areas that we're focused on day to day and monitoring the customer behavior.
Speaker Change: We would expect in a downturn.
Speaker Change: That we start to see some shifts in customer payment patterns and delinquency.
Speaker Change: You go all the way back to the financial crisis in that downturn, we saw us longer term tenants vacate at a higher frequency.
Speaker Change: Again, that's something we're watching very carefully and actually saw the opposite in April with a decline in longer term tenant vacate activity, which is encouraging.
Speaker Change: And likely a shift in new customer behavior, as well, meaning youre going to see some of the demand drivers shift back and forth.
Speaker Change: Youre going to see some counter cyclical demand drivers driven by dislocation in a weaker macro environment.
Speaker Change: Help buffer some of the pro cyclical drivers that may soften.
Big picture storage tends to be very resilient in times of downturn because of some of the those counter cyclical demand drivers as well as the fact that we have month to month leases and can recover quickly.
Speaker Change: When demand does does turnaround.
Speaker Change: And as it relates to new customers I'd just highlight.
Speaker Change: We're already coming off a time period, where we've seen a significant move in new customer pricing and so where maybe with a little bit of a different setup than we may have other times been in before a downturn. So we feel pretty good about where the industry is set up heading into whatever may come in 2025.
Speaker Change: I've given trade policy shifts.
Speaker Change: And we feel public storage is also very well positioned.
Speaker Change: In that backdrop.
Thanks.
Speaker Change: 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: Our next question comes from Ravi Valera with Mizuho. Please proceed with your question.
Hope you guys are all doing well I wanted to ask about acquisitions.
Speaker Change: It appears that the acquisitions actually get it on the quarter on average in the earlier stages of lease up do you expect stabilization to take longer today than it may have in the past given lower demand levels and what is your stabilized cap rate assumption.
Speaker Change: These acquisitions. Thank you.
Speaker Change: Yeah sure. So we did have.
Speaker Change: Increased activity in the first quarter as Joe mentioned on on acquisition volumes.
Speaker Change: The dialogue with sellers that we're having is across a variety of different property types, including lease up assets.
Speaker Change: And the lease up behavior that we saw through the first quarter was encouraging frankly and in line with some of the commentary I made around the same store in move in volumes and the like so we've seen good lease up trends year to date.
Speaker Change: And so we're not shifting our underwriting methodology or otherwise as it relates to lease up assumptions from.
Speaker Change: From here.
Speaker Change: But big picture.
Speaker Change: What we're interested in acquiring the full swath of potential opportunities, obviously, depending on market and submarket and physical asset.
Speaker Change: And so we were more active in some of the lease up assets and have confidence in that lease up trajectory, but we're also interested in more stabilized properties as well.
Speaker Change: And some of what we have under contract is some of that so we will see a good mix here throughout 2025.
Speaker Change: As we go further in terms of return expectations and cap rates.
Speaker Change: I would point you to pretty consistent playing field as it relates to cap rates, which is kind of going in yields in the in.
Speaker Change: In the fives to low sixes, and then stabilizing at a higher level under our platform.
Speaker Change: But that's been pretty consistent now for a number of quarters.
Speaker Change: We've had obviously some capital markets volatility over the month of April.
Speaker Change: And we'll see where we're ultimately cost of capital shakes out, but as it relates to what's trading today I'd point you to those same sorts of guideposts.
Speaker Change: Okay.
Speaker Change: Thank you I appreciate the color.
Speaker Change: Sure.
Speaker Change: Our next question comes from Keybanc, Kim with true with Securities. Please proceed with your question. Thank you. Good morning, I just wanted to go back to the topic of how storage would perform in a downturn.
Speaker Change: And I know, it's probably a loaded question because what kind of downturn, we have but if pricing is already back to I think you said 2013, but at least 2019 levels and if housing demand is already not in the numbers as much.
Speaker Change: And then looking backwards.
Speaker Change: Self storage outperform.
Speaker Change: Past down cycles.
Speaker Change: Yeah, No I think that there's an argument that it could obviously it depends on the flavor in the context of what the downturn is ultimately.
Speaker Change: But you are pointing to a couple of reasons that would suggest that.
Speaker Change: Self storage could do even better in the past, we wouldnt disagree with that.
Speaker Change: Okay and on your retained cash flow, you said $600 million up 50%.
Speaker Change: How does that actually manifest to shareholders is it higher dividends or debt.
Speaker Change: Debt pay downs.
Speaker Change: Or more acquisitions, but does it change anything at all.
Yeah, no that's a.
Speaker Change: Great question.
Speaker Change: What we typically think of as reinvesting that cash flow into the business. We just spoke about the acquisition environment and some of the sign that we've seen through through that but I'd say.
Speaker Change: Most prominently internally the way, we think about it is reinvesting that into our development business, which as Joe highlighted.
As good return profile.
Speaker Change: And generally.
Speaker Change: As we look at at the highest risk adjusted return profile of our capital allocation alternatives. So we can pick the site Submarket design the building.
Speaker Change: Assign the unit mix put it into our national operating platform.
Speaker Change: And construct it with.
Speaker Change: International bidding processes and our in house construction team. So we feel very good about reinvesting that retained cash flow into developments and acquisitions from here and that will evidence itself in terms of <unk> growth.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Jeff Becker Spector with Bank of America. Please proceed with your question.
Speaker Change: Great. Thank you my first question I just wanted to ask I don't think you discuss specifically your business customer I just wanted to confirm have you seen any recent changes with that customer can you remind us the percent overall in the portfolio.
Speaker Change: Business customers.
Speaker Change: If that's possible thanks.
Speaker Change: Yeah, Jeff the.
The approximate range of our business to consumer business, So consumers makeup plus or minus 85%.
Speaker Change: <unk> of our customer base.
Speaker Change: And then business related customers are about 15%.
Speaker Change: The number is not precise because some customers don't necessarily identify as businesses, but.
Speaker Change: The range that we see is typically about that some properties actually may have a higher percentage of business customers based on location trade area.
Speaker Change: Proximity the other types of economic centers in any particular submarket.
Speaker Change: We really have not seen anything meaningfully different between the two groups. They are both typically very.
Speaker Change: Good customers, particularly once they become aged we have a number of business customers to my point around the benefits of a particular location may be inherent to why they continue to store with us in and out of multiple year periods.
Speaker Change: And we service our overall customer base in very similar ways, some business customers required different access hours etcetera, and we can be accommodative on that front too, but overall, a good percentage of the portfolio plus or minus about 15% and haven't seen any degradation at all in this environment.
Speaker Change: <unk>.
Speaker Change: Great. Thank you Joe and then my second question I just want to confirm.
Speaker Change: It sounds like Youre seeing strength across the portfolio, but but please confirm I guess, we're talk about markets with stronger income versus lower income or stronger higher density versus lower density.
Speaker Change: Are you seeing any differences in the month of April Thank you.
Speaker Change: I would be able to point to any differences in this short term period.
Speaker Change: Jeff again, very broad based you know most of the markets that we operate in we have a combination of both dense and maybe more suburban orientation.
Speaker Change: As well as a whole host of different customer economic type space again based on the trade area that any particular properties in but frankly, we really haven't seen a differentiation come through at all.
Speaker Change: So the overall health and resiliency of the business and the variety of ways customers continue to gravitate toward using self storage, whether it's first time and or.
Speaker Change: Customers that continue to keep their space with us.
Speaker Change: Okay. Thanks, if I could just ask one more this April how does it compare typically to what you see in April from a historical seasonality standpoint.
Okay.
Speaker Change: Yes, yes.
Speaker Change: Point back to the comments that Joe made earlier around we're not anticipating to see a typical seasonal pattern. This year and I would say that that's consistent with what we've seen year to date I think we've seen some closing of the occupancy gap, but I think thats more just broad based demand bouncing off the bottom than it is anything that you would point to see.
Speaker Change: <unk>.
Speaker Change: And so I'd say generally speaking similar to last year in terms of seasonal trends.
Speaker Change: But overall, a little bit better demand trends year to date.
Speaker Change: Thank you.
Speaker Change: Thank you thanks John.
Speaker Change: Our next question comes from Eric Lube Chow with Wells Fargo. Please proceed with your question.
Great. Thanks for taking the question so.
Speaker Change: I wanted to ask about M&A, I know youre not going to comment directly on the abacus deal, but as you think more broadly are there opportunities out there another developed international markets.
Speaker Change: Given your experience with share guard, whether it's more broad than Europe, and Canada or in the APAC region, just thinking about.
Speaker Change: How you can export the PSA operated model into other countries.
Speaker Change: Yeah, Eric I mean, clearly we've proven that we are capable of doing just that meaning exporting many of the things that we've learned over our 50 plus years here in the U S and how that may or may not be transportable into certain international markets to your point Europe and the experience we've had with shurgard there has been.
Speaker Change: A great opportunity for us to learn as they've adopted at their election, a whole host of things that we've been able to.
Speaker Change: <unk> them to if in fact, it suited the particular level of optimization theyre looking for and whatever particular country may or may not be applicable and we continue to study different.
Speaker Change: Markets outside the U S.
Speaker Change: Certainly we've gotten to know the Australian market well over the last several years based on.
Speaker Change: The experience, we had five plus years ago with an early interaction there and as Tom mentioned, we are very encouraged and like the opportunity that we see with the abacus storage King portfolio in Australia, and New Zealand.
Speaker Change: There are other markets out there that we're going to continue to study and look for potential opportunities what makes sense for us more typically than not is going into a new market.
Speaker Change: Outside of U S borders that may have many of the things that we can more immediately impact which would be scale.
Speaker Change: Some kind of an operating platform that again has some proven attributes and the way that we can infuse our own.
Speaker Change: Capabilities and platform optimization.
Speaker Change: We do hear day to day into those kinds of platforms outside of orders. So the abacus opportunity is just that and hopefully we'll continue to find more over time.
Speaker Change: I appreciate that and just one follow up on the guidance side I think last call you talked about occupancy being down about 10 basis points by the end of the year and just wanted to confirm that and I guess based on the trajectory of how this year has played out so far through April.
Speaker Change: You're kind of in line are running ahead of internal expectations at this point on occupancy.
Speaker Change: Okay.
Speaker Change: Yes, Eric just to clarify what I communicated in February was the midpoint assumes that occupancy on average would be down 10 basis points.
Speaker Change: And so we're tracking right along with that based on year to date performance.
Speaker Change: Okay I appreciate it thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Tayo Okusanya with Deutsche Bank. Please proceed with your question.
Tayo Okusanya: Hi, yes, good good morning out there.
Tayo Okusanya: Quick one on street rates down 5% in one queued down 8% in April.
Tayo Okusanya: Trying to understand relative to one of your peers where are the <unk>.
Tayo Okusanya: So somewhat flat relative to the Yodlee data, where are you going to kind of flattish maybe down a little bit you know you guys seem to still be.
Tayo Okusanya: Using street rates or.
Tayo Okusanya: You can see at least in a different way to maximize <unk>. Finally, if I may use those words versus what some of your peers apparently seem to be doing now just wondering if you could talk a little bit about that.
Tayo Okusanya: In terms of why this is a better strategy versus kind of what the industry seems to be moving towards those street rates kind of flatten year over year at this point.
Speaker Change: Sure I think there's a number of components there.
Speaker Change: I won't speak to what others are doing I'd just highlight.
Speaker Change: We consistently are looking to to optimize towards revenue over time, and that's a combination of both occupancy and rate or do you think about it on on move ins move in volume and move in rates.
Speaker Change: Obviously paired with advertising as well as promotional discounts as well so.
Speaker Change: That's a dynamic process that occurs at the unit and property level.
Speaker Change: One that we have a lot of confidence in in terms of our ability to execute on that objective over time, given the breadth of data and experience that we have.
Speaker Change: In operating in our markets I think looking at the first quarter for instance, our rates move in rates were down.
Speaker Change: Four 6%.
Speaker Change: Yes.
Speaker Change: Our move in rent just to be clear not a street rents. So that's an actual rent that our customers paying.
Speaker Change: And the volume that we picked up in the quarter.
Speaker Change: Was healthy such that the net so the the contract revenue or contract rents gained from move ins.
Speaker Change: Was down two 3% and so that's an improvement from where we were in the fourth quarter, which demonstrates the stable.
Speaker Change: Stabilization that we're seeing on move ins, but to us it's not really.
Speaker Change: Our rate discussion or a volume discussion, it's really both as we're looking to optimize revenue overtime.
Speaker Change: That's helpful and if I may ask one more question again.
They can how tough overall Halloween the markets remain and if that's not going to be a real big driver. Just curious are you guys pulling your tenants about why they are moving in.
Speaker Change: Any sense just as regards to all the other typical drivers if any of those are kind of.
Speaker Change: Higher than usual or something to kind of give a sense of if housing doesn't come back. They may be these other drivers that may actually be.
Speaker Change: Absorb some of that demand that we're not getting from housing.
Speaker Change: The kind of thing anything like that that kind of makes it a little bit better that listen I have decent demand, even if housing doesn't come back this year.
Speaker Change: Yeah, No I think our expectation is not that 2025 is a year of strong housing recoveries I think youre right that.
Speaker Change: Not likely to be a big driver, but I think what we've seen year to date is more broad based demand across the other factors, which again existing home sale driven move ins are about 15% of our activities. So the other 85% is driven by a whole host of other demand drivers.
Speaker Change: And we've seen that that that level of demand has bounced across the bottom.
Speaker Change: Bounce off the bottom I wouldn't highlight one particular driver there more broad based improvement off the bottom here.
Speaker Change: Thank you.
Mike Mueller: Our next question comes from Mike Mueller with Jpmorgan. Please proceed with your question.
Mike Mueller: Yes, Hi, real quick just going back to development for a second can you tie together I guess the comments that.
Mike Mueller: Little bit earlier, when you talked about the lowest move in rents you've seen since 2013.
Mike Mueller: And kind of tied to developing economics today, considering that costs have moved up and I guess are you running into more and more situations, where the math just doesn't pencil out.
Mike Mueller: Or you.
Mike Mueller: You are more accepting of lower going in yields because you see longer term growth I mean, how do we think about tying those two together.
Speaker Change: Yes, no question Youre, highlighting what's been a challenging development environment and that's what Joe was highlighting earlier I think industry wide, we are expecting that.
Speaker Change: Overall levels of supply are likely to continue to come down because of some of the factors that you highlighted and Joe highlighted earlier I think against that backdrop.
Speaker Change: Challenged our team and they have been executing on a plan to to find those submarkets where there.
There's a good mix of of new demand, that's coming in where it makes sense for us to plant a new public storage flag.
Speaker Change: And again.
Speaker Change: That sub market design that building and ultimately.
Speaker Change: Construct that building.
Speaker Change: A good cost.
Speaker Change: Given our national buying platforms and plug it into our operating platform in terms of the.
Speaker Change: Underwriting or otherwise, we're not lowering our return expectations or targets in this environment.
Speaker Change: But we certainly are.
Speaker Change: Experiencing some of the challenges that that others are as well, but we certainly have the balance sheet and retained cash flow and deep team to execute against some of those challenges.
Speaker Change: Mike just one other.
Part of the equation that goes into development in our sector I mean, the vast majority of it's done on a one off very localized basis and.
Speaker Change: To the point, Tom just made the constraints that developers now have is dealing with not only what rate level. They may or may not be able to achieve in this environment, but the cost structure et cetera, and they're playing fields, probably not very far and wide. I mean, there are going to be very focused on the individual.
Speaker Change: Market that they are operating and are trying to develop and so what we have very differently as the opportunities.
Speaker Change: Go in and out of different markets, where we see these pockets of opportunities that with our own data and our own level of confidence and underwriting capabilities, we're still seeing.
Speaker Change: Good opportunities with far less competition to look for attractive development opportunities.
Speaker Change: Opportunity so that continues to play forth and frankly, we continue to be more encouraged that we can expand our development capabilities based on that.
Speaker Change: Got it okay. That's helpful. Thank you.
Speaker Change: Okay. Thanks.
Speaker Change: We have reached the end of the question and answer session I would now like to turn the call back over to Ryan Burke for closing comments.
Speaker Change: Thank you, Rob and thanks to all of you for joining us have a great day.
Speaker Change: Sure.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.