The operator introduces the Public Storage First Quarter 2024 Earnings Conference Call and hands it over to Ryan Burke, Vice President of Investor Relations and Strategic Partnerships. Ryan reminds the participants that certain matters discussed may constitute forward-looking statements and provides information on where to find the earnings release and other relevant documents. Joe Russell and Tom Boyle will discuss the company's recent performance and industry views before opening it up for questions. The first quarter performance was as expected, with the new move-in customer environment remaining challenging.

Positive trends in the business include increased customer demand, higher move-in rates, strong customer behavior, improving occupancy, and a decrease in competitive supply. Revenue growth has accelerated in certain markets and is expected to continue in others. These trends are in contrast to the previous year and are expected to lead to improved financial performance in the second half of the year. Non-same store assets are also contributing to growth. First quarter core FFO declined slightly compared to the same period in 2023.

In the third paragraph, the speaker discusses the performance of the same store portfolio, noting a 0.1% increase in revenue due to rent growth but offset by occupancy declines. Move-in rates were down 11%, but net move-in volumes led to a slight closing of the occupancy gap. Expenses were up 4.8%, primarily due to increases in property tax and marketing spend. Overall, net operating income for the same store pool declined 1.5%. However, the non-same store pool saw strong growth and is expected to continue to do so. The company reaffirmed their core FFO guidance for the year and anticipates deceleration in the second quarter with improvement in the second half. They also plan to continue with their capital allocation strategy, including $450 million in development deliveries and $500 million in acquisitions. The company's capital and liquidity position remains strong, with recent refinancing of 2024 maturities.

In the fourth paragraph, the speaker discusses the company's strong financial position and then hands the call over for a Q&A session. The first question asks about the company's performance in April and the speaker confirms that it has been in line with expectations and is showing sequential improvement. The company is seeing expected demand and move-in activity and is pleased with the reacceleration in certain markets. The second question asks about the transaction market and the speaker mentions that it has been subdued due to rising interest rates, but they are confident that there will be more opportunities in the second half of the year.

Joe Russell and Tom Boyle discuss the range of motivations that may bring sellers to the market in 2024. They anticipate some pending trading activity and are confident in their outlook for acquisition activity. The housing market expectations embedded in their guidance have not changed since their initial guidance in February. The first quarter played out as expected and the range of outcomes remains intact.

The speaker states that they are not expecting a strong housing market and that their focus is on renters and other demand factors. They also mention that they hope to see more markets reaccelerating in the future, which would give them a more positive outlook.

The speaker highlights two important things in the self-storage industry: more dialogue with sellers and a reacceleration of revenue growth in certain markets. This reacceleration refers to a month-over-month improvement in year-over-year revenue growth, not just a seasonal increase in revenue due to higher occupancy. The decrease in competition and waning supply also contribute to this opportunity in many markets.

The company is experiencing a reacceleration in demand for rentals due to low supply and is using promotional tactics to drive customer activity. The sales activity has been successful in the past and will likely continue throughout the year. In certain markets, there has been a noticeable increase in demand, but new move-ins remain challenging overall.

The speaker discusses the positive trend in the company's performance and confidence in continued growth throughout the year, particularly in markets that were not heavily impacted by the pandemic. They also mention that they are not yet seeing this trend in Florida and that they expect to add more markets to the list as the year progresses. The speaker also mentions that these markets are not dealing with a lot of new supply. In response to a follow-up question about supply, the speaker mentions that they have revised their numbers multiple times and are seeing a decrease in supply for next year.

Joe Russell, speaking on behalf of his company, Yardi, discusses the current state of development activity and the challenges that developers are facing. He believes that there is a decrease in supply and that this trend will continue into 2024. He also mentions the difficulties and uncertainties that come with development, such as timing delays and market unpredictability. According to Russell, their company has a more accurate understanding of the development landscape compared to others. Todd Thomas from KeyBanc Capital Markets asks the next question.

Todd Thomas asks Tom Boyle about the company's guidance for the quarter and whether there have been any changes in the assumptions for move-in rents and occupancy. Boyle affirms that the guidance given in the February call is still intact and that the next three months will be important in determining the direction of certain metrics. Thomas asks if there is a scenario where move-in rents remain weak but occupancy improves, and how that would affect the company's guidance. Boyle acknowledges that there is a range of outcomes and assumptions that could affect revenue modeling. Thomas also mentions that one of the company's peers saw an uptick in vacate activity, but Boyle states that their vacate activity was lower in the quarter compared to last year.

Tom Boyle and Joe Russell discuss the potential for vacate activity and length of stay trends in the self-storage industry. They are pleasantly surprised by the stickiness of length of stay, which has remained longer compared to pre-pandemic levels. Factors such as customers using storage due to lack of space in their homes and less housing turnover contribute to longer stays. They anticipate move-out activity to be flat year-over-year and note that the macro health of customers is strong, with employment and payment patterns remaining in a good zone.

The speaker is confident in the stability of their customer base and expects operating expenses to improve throughout the year. They anticipate property taxes and marketing expenses to moderate, and attribute the higher expenses in the first quarter to reassessments and seasonal trends. They also mention investments in solar power as a factor in lowering utility expenses.

The company has seen growth in customer interactions and is utilizing technology to improve efficiency and reduce payroll expenses. They are also confident in their ability to achieve an 8% NOI yield in the next few years, despite potential risks in development such as longer lead times and higher costs. They have a good understanding of submarkets and are confident in their ability to manage any potential risks.

The speaker agrees that there are various factors that go into underwriting and finding good sites for development, but they are confident in their ability to continue growing in many markets. They also mention having a competitive advantage in finding land sites that are further along in the entitlement process. The question is then asked about the potential impact of market momentum on existing customer rent increases, to which the speaker responds that it could lead to higher increases. The second question is about the type of customer acquired through the recent sale process.

During a recent earnings call, Tom Boyle, CEO of a company, discussed how different pricing, promotion, and advertising tactics can attract different types of customers to their stores. They constantly adjust these strategies to maximize their net operating income (NOI). When asked about the health of their commercial tenants, Joe Russell, the company's CFO, stated that they have not seen any major issues or challenges from this customer segment. While there is a wide range of businesses with varying industries and locations, overall, they have not observed any significant stress or difficulties.

The company is seeing good demand from business customers, and there are no indications of elevated stress or concern. They are utilizing local marketing strategies to drive traffic and conversion rates. The ECRIs are a combination of price sensitivity and cost to replace, with the latter being elevated in relation to the discounted pricing strategy.

The speaker is asked about how the move-in rate needs to improve in order to offset the cost to replace and reaccelerate revenue growth. He explains that the cost to replace is managed at the individual unit level and that the mix of the tenant base also plays a role in overall contribution. He declines to give specific percentages for different demand segments but mentions that job and home movers and longer-term business customers are likely significant portions of demand.

Tom Boyle, speaking on the company's internal data, expects demand contribution this year to be similar to last year. The contribution from customers moving due to an existing home sale is down to 15%, while renters make up 40-45% of the tenant base. Another group that has consistently contributed is customers who have run out of space at home, making up 15-20%. The rest is made up of various use cases and commercial tenants. The company has seen good mov-in activity at their stores and is encouraged by this year's performance. When asked about acquisitions, the company has projected $500 million for 2024, with a larger portion expected in the later part of the year. There is also potential for expansion into Canada, as the Hughes family, who owns assets there, may be looking to monetize their stake.

The speaker discusses the potential for future acquisitions and investments in the Canadian market, stating that there are no conflicts preventing this. They also mention their success in reducing labor costs and FTEs through digital tools, and their continued efforts to optimize their operating model. They have rolled out a customer support app with 1.5 million customers.

The speaker discusses how their direct account management system saves labor hours and improves efficiency for customers. They are also investing in digital tools and data optimization to further reduce labor hours and increase customer satisfaction. Southern California remains a strong market for them.

The company was impacted by storm activity and state of emergency restrictions during the quarter, but still saw strong customer activity in those markets. The Southern California market has the most development activity nationally and the company is finding opportunities to expand its portfolio there. Marketing spend was at a higher level in the first quarter compared to the second and third quarters, but consistent with previous years.

The speaker mentions that their revenue is managed based on local demand and supporting the business, and expects a decline in the next few quarters before increasing again in the fourth quarter. They also discuss recent acquisitions and the types of sellers they have been in dialogue with. When asked about the move-in, move-out spread, they anticipate it to narrow in the second and third quarters before widening again in the fourth quarter. The next question is about advertising, and the speaker mentions a similar seasonal trend.

In the paragraph, Ki Bin Kim asks for an update on April move-in rate trends and how they compare to a normal seasonal pattern. Tom Boyle responds that on a year-over-year basis, the trends have been consistent and slightly better than last year. He also mentions that the CapEx for the Property of Tomorrow program will go to zero, but there may be some cash payments continuing into the first quarter of next year. Tayo Okusanya then asks about improving trends in more markets and how street rates have been improving throughout the quarter. Tom Boyle explains that the accelerating markets are driven by various factors and not just move-in rents.

The speaker discusses the improving trends in certain markets, which were highlighted on the previous call. They mention that move-in rates were down in January and February but have remained consistent throughout the quarter. They also mention that there have been increases in ECRI, with more newer tenants added to the program. The speaker attributes the improvement in certain markets to a variety of factors, such as less supply and increased traffic.

The speaker discusses various factors that contribute to the performance of different markets, including supply, demand, rent trends, and move-in and move-out activity. They categorize the markets into those with strong growth in recent years and those with more moderate growth. They also mention that Florida has been a strong performer but may take longer to normalize. In response to a question about delinquency rates, the speaker notes that they have a healthy consumer base and do not see any significant risk or stress points. They attribute this to the overall strength of the economy and employment levels.

The company is closely monitoring customer delinquency and there has been no significant increase since before the pandemic, indicating a healthy consumer environment. They also used TV advertising during the quarter to promote their promotional activity and saw a good reaction. The call is now concluded.

This summary was generated with AI and may contain some inaccuracies.