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Public Storage (NYSE:PSA) Q3 2023 Earnings Call Transcript

Public Storage (NYSE:PSA) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Greetings and welcome to the Public Storage Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Burke, Vice President of Investor Relations for Public Storage. Thank you. Mr. Burke, you may begin.

Ryan Burke: Thank you, Ron. Hello, everyone. Thank you for joining us for our third quarter 2023 earnings call. I am here with Joe Russell and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 31, 2023 and we assume no obligation to update, revise or supplement statements to become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release.

You can find our press release, supplemental report, SEC reports and an audio replay of this conference call on our website at We do ask that you initially keep your questions to two. Of course, after that, feel free to jump back in the queue. With that, I will turn the call over to Joe.

A storage facility with boxes and shelves to store records, representing the company's secure records storage.

Joe Russell: Thank you, Ryan and thank you all for joining us today. Tom and I will walk you through a few highlights for Q3 and then open up the call for questions. Each team at Public Storage is successfully exercising our platform-wide advantages in a more competitive environment as demonstrated by third quarter performance and our raised outlook for the remainder of 2023. As we entered this year and expectedly, we saw new move-in customer demand for the sector shift lower, particularly with softening existing home sales due to the rapid rise in home mortgage rates. On the flipside, there has been solid and increased demand from new customers that are renters. They have proven to be very good customers as well, particularly from a length of stay perspective.

We have the right team, technologies and analytics to determine the appropriate mix of marketing, promotions and rental rates. Drawn by these top-of-funnel tools, along with our leading brand, self-storage users are clearly choosing public storage. Our strong move-in volume, coupled with healthy in-place customer behavior has led to better-than-expected occupancy trends with our same-store occupancy gap narrowing from 250 basis points at the beginning of the year to 120 basis points at the end of September and to 60 basis points as of today. Our digital and operating model transformation continues to be a significant enhancement to customer experience and our financial profile. Customers benefit from having digital options at their fingertips across their entire journey.

Our proprietary digital ecosystem is a compelling reason to choose us with over 60% of our customers running through our online leasing platform. And today, we have more than 1.4 million PS app users. And our financial profile benefits as well. We are putting these digital tools in the hands of our customers and employees for convenience combined with in-person on-site customer service when and where it is needed. The result is a better customer experience and enhanced margins, particularly in regard to labor efficiencies. We are also growing our portfolio amidst broader market dislocation. Our industry-leading NOI margins, multifactor in-house operating platform, access and cost of capital and growth-oriented balance sheet put us in a very unique position.

So far this year, we have acquired more than $2.6 billion worth of properties, including the $2.2 billion Simply Self Storage portfolio comprising 127 properties. As is our regular practice, every property was fully integrated into the public storage platform on day 1 and we welcomed over 250 new associates and approximately 90,000 customers. We are also ahead of schedule on reimaging the entire portfolio to public storage to ensure the maximum benefit from our industry-leading brand. We will have also delivered $375 million in development by year end and have a pipeline of nearly $1 billion of development to be delivered over the next 2 years. Since we updated you last quarter, the sharp move in interest rates has backed up the acquisition market with fewer deals likely to trade by year end, typically a busy time of year for asset closings.

We are actively engaged with a full range of owners that give us confidence that some sellers’ expectations will adjust as the cost of capital has clearly increased. Our advantages enable us to acquire and develop when others can’t. We have a strong appetite to grow our portfolio as seller expectations continue to correct and we have a matching ability to execute. Now, I will turn the call over to Tom.

Tom Boyle: Thanks, Joe. We reported core FFO of $4.33 per share for the third quarter, representing 5.6% growth year-over-year, excluding the contribution from PS Business Parks. Looking at the key components for the quarter, same-store revenues increased 2.5%. As Joe mentioned, move-in rental rates continue to be lower for us and the industry, but we are seeing strong move-in volume along with the right mix of marketing spend and promotions. Our existing customer base continues to perform well with move-out volumes further moderating this quarter. These trends largely continued in October with the year-over-year occupancy gap narrowing to 60 basis points as of today, as Joe mentioned. On expenses, same-store cost of operations were up 2.8%, leading to 2.4% stabilized same-store NOI growth at an industry leading operating margin of 80%.

Our largest market, Los Angeles, continues to lead our portfolio. The 214 properties in the same-store pool grew NOI by 6% on steady demand and limited new supply of facilities. In addition to the same-store, the lease-up and performance of recently acquired and developed facilities continues to be a standout, with NOI increasing nearly 20% year-over-year in the quarter. This pool of 685 properties and more than 60 million square feet comprises nearly 30% of our total portfolio today and is the strong contributor to FFO growth today and into the future. Shifting toward the outlook, we sit here in October, raising our core FFO range once again, increasing both the low and high-ends to $16.60 at the low end to $16.85 at the high end. Last but not least, our capital and liquidity position remained rock solid.

We are well positioned with a strong appetite for growth, coupled with the ability to execute in a dynamic capital markets environment. Rob, with that, let’s please open it up to Q&A.

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