The paragraph is the introduction to Public Storage's Third Quarter 2024 Earnings Conference Call. The operator initiates the call by welcoming participants and explaining the format, which includes a formal presentation followed by a Q&A session. Ryan Burke, the host, introduces the call, mentioning the presence of Joe Russell and Tom Boyle. He notes the discussion may include forward-looking statements subject to risks and uncertainties and refers to their earnings release for reconciliations with GAAP measures. Joe Russell then begins discussing the company's performance, noting that their operating fundamentals are stabilizing, with revenue growth accelerating in most markets.

Public Storage is experiencing positive trends, with new customer pricing stabilizing as move-in rents decrease and in-place customers showing strong payment patterns and longer stays. This has enhanced affordability relative to alternatives like larger homes. The supply of new competitive properties is slowing, which, combined with increasing demand, benefits operating fundamentals. The company is focusing on growth by offering a comprehensive hybrid digital model that allows customers to interact digitally or in-person, enhancing the customer experience and connecting teams across operations.

The company is advancing its digital transformation with 75% of move-ins via eRental, has nearly two million app users, and offers remote digital services. This transformation has created specialized roles and career paths, earning it a Great Place to Work designation for the third year. They've also cut utility usage by 30% through LED and solar implementations, with plans to expand solar to 1,300 properties by 2025. The acquisition market is improving, with the company positioned to capitalize on potential deals due to its strong financial profile. Although core FFO per share declined by 3% compared to last year, Tom Boyle is optimistic about their strategic initiatives and financial strength.

The paragraph discusses the performance and outlook of a company's same-store and non-same-store properties. It notes a 1.3% decline in revenues for stabilized same-store properties compared to the previous year, but highlights that revenue growth deceleration has improved significantly. The company's guidance suggests that revenue growth will begin improving, potentially marking the first sequential growth improvement in over two years. The core funds from operations (FFO) guidance remains unchanged. Meanwhile, their non-same-store property portfolio continues to perform strongly, with expectations of generating $120 million in incremental net operating income (NOI) by 2025 from this pool, which constitutes 23% of the total square footage. Joe Russell commends the company's achievements in various operational and financial facets.

The paragraph discusses Public Storage's optimistic outlook for the near, medium, and long term, highlighting improvements in operating fundamentals, ongoing transformation efforts, and a revitalized transaction market. The company credits its operations and asset management teams for their preparedness during recent hurricanes, resulting in minimal impact. During the Q&A session, Jeff Spector from Bank of America questions the company's positive comments about year-end performance and expectations for 2025. Joe Russell responds by expressing confidence in 2024 being a stabilization year, noting ongoing market improvements throughout their portfolio.

The paragraph discusses the stabilization and potential improvement of market conditions leading into 2025. Despite current challenges, there is optimism due to the positive trajectory observed throughout 2024. Demand stabilization is highlighted, with specific markets like Seattle showing quarter-by-quarter improvements, although overall growth remains modest. The outlook suggests a slight decline in same-store revenue growth for the year, but there's a sense of optimism for better positioning in 2025. Jeff Spector and Tom Boyle emphasize the significance of steady demand against a backdrop of potentially lower supply pressure in 2025.

In the discussion, Joe mentions that financial stabilization will take time, but it's underway in several markets. During a call, Michael Goldsmith from UBS asks about the improvement in move-in rents, which have decreased less significantly from the third quarter to October, and requests an October occupancy update. Tom Boyle responds, noting the positive trend in move-in rents due to improving demand trends, acknowledging that although industry-wide demand was initially down 20%, it has now stabilized. Moreover, some markets are experiencing rent growth, although others are still hitting lows. As of October, occupancy is down 90 basis points, move-in rents are down 5%, but existing customers are performing well with move-outs decreasing year-over-year, indicating a strengthening consumer base.

In the discussion, Michael Goldsmith inquires about the factors driving demand for storage facilities. Tom Boyle explains that while demand driven by existing home sales has softened, apartment renter activity remains strong. Additionally, more customers are using storage due to running out of space at home, maintaining consistent demand year-over-year. Encouraging home sales data suggest stabilization in the housing market. Joe Russell adds that customers are retaining storage for longer durations than pre-pandemic, with stable metrics like delinquency and payment patterns at Public Storage. The conversation expresses optimism for the fourth quarter.

In this segment of the call, Samir Khanal from Evercore ISI asks Tom Boyle about the trajectory of move-in rates, which dropped by 5% in October. Boyle explains that stabilization in demand is key for move-in rents and customer activity to stabilize, with expectations for mid-single-digit decreases by year-end. Seasonal demand in the spring may improve these numbers, though specific 2025 assumptions are not discussed. Khanal then shifts to the topic of expenses, noting a drop in payroll costs, potentially due to an increase in digital rentals. Joe Russell highlights the company's leadership in digital leasing, specifically mentioning their e-rental platform as a significant factor.

The paragraph features a Q&A session where Eric Wolfe from Citi asks about the relationship between occupancy rates and move-in pricing, questioning if increased occupancy might predict pricing trends or if other factors are involved. Tom Boyle responds by stating that improving demand trends and balancing occupancy with rental rates are key for maximizing revenue. He uses Seattle as an example, noting that although occupancy increased and move-in rent growth was positive, it's not solely based on occupancy. Wolfe further inquires about algorithm adjustments to test pricing elasticity, implying a focus on understanding customer response to price changes.

In the paragraph, Tom Boyle discusses how Public Storage optimizes revenue by understanding their inventory, local demand, and customer price sensitivity to adjust pricing effectively. They aim to maximize revenue by balancing these factors, noting that while customers are price-sensitive initially, they value their units once moved in. Eric Luebchow then asks about the transaction market, specifically regarding bid-ask spreads and stabilized yields in current underwriting, to which Joe Russell notes that while there has been interest from sellers, actual transactions have been limited.

The paragraph discusses the current state of industry transaction volumes, indicating that they've been historically low for nearly two years. However, there is growing momentum as inquiries and asset availability increase, suggesting a possible change as 2024 ends and 2025 begins. The exact bid/ask spread is still uncertain since many transactions are incomplete, but there's optimism, particularly as owners adjust their price expectations. Eric Luebchow asks about improved customer activity, specifically regarding Enhanced Customer Rent Increases (ECRIs), and Tom Boyle suggests it results from a mix of factors, including better receptivity from both new and long-term customers to adjusted rent strategies.

The paragraph discusses the strong and stable existing tenant pool and its positive impact on revenue outlook for the year. Key factors include favorable payment patterns, low delinquency, and customer price sensitivity. The stability in the tenant base has been the main driver of revenue growth. Furthermore, the transition of newer customers from the past year and a half contributes positively to the existing customer rent increase program. Nicholas Yulico from Scotiabank raises a question about the rise in promotional discounts in the third quarter and their future impact. Tom Boyle responds by indicating that promotional discounts fluctuate based on unit-level analysis and pricing strategies.

The paragraph discusses the company's use of promotional strategies in acquiring customers. They have increased promotions more in the third quarter, with around 60% of customers receiving a first month promotion, compared to 85-90% in 2019. The most popular promotion is a dollar special for the first month's rent, recorded as a contra revenue account. A question from Nicholas Yulico seeks clarity on the accounting treatment of promotions, and Tom Boyle explains it's recognized as a discount in the first month. Additionally, the transaction landscape is discussed, with Joe Russell mentioning that both individual/small asset activities and larger portfolios are being marketed, although overall activity is still muted.

The paragraph features a discussion involving Tom Boyle and Spenser Allaway about market trends and financial performance. They discuss private inquiries and some larger portfolios entering the market through traditional and off-market processes. Spenser Allaway inquires about rent increases and ECRI (Enhanced Customer Revenue Initiatives) projections for the year. Tom Boyle confirms better performance in the third quarter, attributing it to newer customers rather than a change in strategy. Subsequently, Juan Sanabria asks about the acquisitions market and expectations for cap rates, noting a potential decrease in cap rates due to improved general market conditions and lower rates on the unsecured side, to which Tom Boyle responds.

The paragraph discusses the consistent strategy of targeting stabilized yields in the 6% range, with acquisitions typically in the 5% range, as demonstrated by previous transactions like Simply. Joe Russell explains the significance of hiring COO Chris Sambar, who has extensive experience from his 20-year career at AT&T, particularly in technology and managing large teams. Russell expresses confidence in Sambar's ability to positively impact business operations. The conversation also signals anticipation of future transactions and their influence on cap rates.

In this conversation, Todd Thomas and Tom Boyle discuss promotional strategies and occupancy rates. Todd inquires about the impact of promotions in October, particularly concerning the 5% decrease in move-in rent and whether the type of customers attracted by these promotions has changed. Tom explains that October's promotions were similar to the previous year, with a shift from "50% off" to "dollar special" promotions to optimize revenue based on local market conditions and inventory. Todd also seeks clarification on occupancy rates, and Tom confirms a 90 basis points decrease year-over-year.

The paragraph discusses occupancy trends and performance indicators for the company. Over the summer, there was a slight increase in occupancy, which was expected to decline in the fall. The year-end forecast was initially a decline of 80 basis points on average, but now it's projected to be closer to 70 basis points. There's an observation of seasonal variations, but the overall annual decline is expected to narrow. The end-of-month occupancy rates for October are predicted to be slightly lower than September's. Additionally, industry-wide demand has reached parity, with positive year-over-year web traffic and good online conversion rates. A specific statistic mentioned is a 70% to 75% conversion rate through their channels.

The paragraph discusses the growing trend of customers using digital channels to complete rental agreements, with about 75% of customers currently doing so without any incentives. Tom Boyle expresses optimism that this trend will continue, leading to benefits for customers, employees, and the company. Joe Russell highlights the impact and effectiveness of their digital platform and the PS app, which now has around 2 million users. The digital tools are enhancing customer interaction and account management, and customers are adopting these tools willingly, indicating their preference for digital solutions.

The paragraph discusses the company's outlook on property transactions and development plans. They anticipate that while acquisitions for the year are reduced, there has been increased dialogue with sellers, leading to expectations of more activity extending into 2025. Regarding development, 2024 will be a record year with $430 million in development deliveries, including new constructions and redevelopments, but the comparison with 2025 and 2026 in terms of pace was not specified.

The paragraph discusses challenges in maintaining consistent delivery levels year-to-year due to various development hurdles across multiple markets, such as longer entitlement times and complicated improvement processes. Despite a record amount of deliveries in the current year, a slight decrease is expected in 2025. However, efforts will continue to increase deliveries in 2026 and beyond. The conversation shifts to labor concerns, where Brendan Lynch asks about balancing cost savings and reducing on-site staff. Joe Russell explains their diligent approach in using analytical tools to optimize staffing levels by property, accounting for factors like busy periods and seasonal variations.

The paragraph discusses the use of advanced analytics in optimizing property management and customer service, highlighting the effectiveness of specialized roles and tools. It notes the strength of certain markets, such as Seattle, Washington D.C., and San Francisco, while acknowledging challenges and normalization in others like Atlanta and Orlando. Despite some markets facing difficulties, there is a noted improvement in year-over-year same-store revenue growth in areas like Orlando.

The paragraph discusses the impact of storms on the West Coast of Florida, noting a $7 million financial impact from hurricane damage. Despite this setback, there has been increased move-in activity and occupancy as people rebuild, leading to some signs of market stabilization. In a related Q&A, Ki Bin Kim asks about the impact of past rent rate cuts on current stabilization efforts. Tom Boyle responds that rent trends are improving, with move-in rents expected to decline slightly by year-end. He notes that while there has been increased move-in activity due to the storms, it is too early to determine the overall impact on net operating income, but cleanup efforts at affected properties are underway.

The paragraph is a conversation between executives discussing their strategy for land development. Joe Russell explains that, instead of holding a substantial inventory of land on their balance sheet, they typically secure contractual options on parcels of land. They take ownership only after necessary entitlements and permits are obtained, usually right before construction begins. Tom Boyle adds that the company owns about $60 million worth of land, which includes both new development sites and redevelopment projects. Mike Mueller inquires about the potential investment and buildable capacity on this land, to which Tom indicates it supports their strategy, including redevelopment activities.

In the paragraph, it is discussed that there is visibility over $60 million for the next couple of years, with additional long-term potential based on agreements with landowners. Mike Mueller acknowledges this information, and the conversation transitions to closing comments by Ryan Burke, who thanks the participants and wishes them a great Halloween. The operator concludes the call, thanking everyone for their participation.

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