Public Storage Earnings Call - 10.31.24

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Public Storage Earnings Call - 10.31.24 Company / Call: Public Storage (NYSE: PSA) — Third Quarter 2024 Earnings Conference Call Executives: Joe Russell — President & Chief Executive Officer; Tom Boyle — Executive Vice President & Chief Financial Officer; Ryan Burke — Vice President, Investor Relations Analysts: Jeff Spector — Bank of America; Michael Goldsmith — UBS; Samir Khanal — Evercore ISI; Eric Wolfe — Citi; Eric Luebchow — Wells Fargo; Nicholas Yulico — Scotiabank; Spencer Allaway — Green Street Advisors; Juan Sanabria — BMO Capital Markets; Todd Thomas — KeyBanc Capital Markets; Ronald Kamdem — Morgan Stanley; Caitlin Burrows — Goldman Sachs; Brandon Lynch — Barclays; Ki Bin Kim — Truist Securities; Michael Mueller — JP Morgan Recorded: October 31, 2024 Video: https://www.youtube.com/watch?v=3DP8iOxw1-M Key topics: 2024 as the year of stabilization heading into 2025; move-in rents down 9% in Q3 and down 5% in October; occupancy down 90 basis points year-over-year; same-store revenue guided down just over 1%; Seattle, San Francisco and DC recovering while Atlanta and Orlando (revenue down 6.1%) still normalize; roughly $7 million hurricane impact and rebuild-driven move-ins on Florida's west coast; promotions on 40-60% of move-ins versus 85-90% in 2019 and the $1 first-month special as contra revenue; eRental digital leasing at 70-75% of rentals and about 2 million app users; stabilized acquisition yields in the 6% zip code with going-in cap rates in the 5s; $430 million of 2024 development deliveries with a slight 2025 decline; about $60 million of land held, mostly under option; new senior operations hire from AT&T Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— Joe Russell: [Recording begins part-way through prepared remarks] ...quality portfolio, best revenue, NOI, and NOI margin, leading acquisition, development, and integration platforms, the lowest leverage and best cost of capital, the highest free cash flow conversion, and strongest FFO and dividend growth over the past few years. With many things moving in the right direction, including improving operating fundamentals, transformation efforts that are further enhancing our advantages, and a reinvigorated transaction market, we are excited about Public Storage's trajectory over the near, medium, and long term. And finally, I'd like to make a call out to the full operations and asset management teams at Public Storage during the 2 significant hurricanes. Fortunately, our employees and properties were well prepared, with safety as the top priority, and we are grateful to have had relatively minor impact. With that, I'll turn the call back to Rob to open it up for Q&A. Operator: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask that you please limit to one question and one follow-up and re-queue if necessary. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment please while we poll for questions. Our first question comes from Jeff Spector with Bank of America. Please proceed with your question. Jeff Spector: Great, thank you. Maybe I'll start just big picture. I consider you guys to be conservative, especially with your outlook, so just given the time of the year, November, you've made a few comments here not just about stabilization but actually improvement, which means it seems like you're saying you're going to end the year strong and, again, bodes well for '25. I guess, can you talk about that a little bit more, the decision not just to talk about, okay, it's, as you said, it's clear you see signs of stabilization, but it does seem like you're messaging strongly here that you expect improvement into '25. And I guess, is that regardless of improving housing, etc.? Joe Russell: So yeah, Jeff, there's a few things obviously that give us confidence that 2024 has become the year, as we predicted, of stabilization, where we've seen, as Tom and I noted in our opening comments, the progression of better and higher degrees of market improvement that we're seeing across more of the portfolio than we've certainly seen at the beginning of the year. That continues to trend. Now we're in the fourth quarter of 2024. Stabilization should fundamentally lead to improvement, so we're pleased by the continued trajectory we're seeing. As we've spoken, the stabilization — and with that we're going to be in a better position going into 2025 than we were going into 2024. Many things are trending well additively, and then we'll see what impacts other effects could have too, whether it's an improved housing market, change in interest rates, continued growth in the economy, etc. But again, we're very pleased by what we continue to see through 2024. Jeff Spector: Thanks. And just to clarify, I mean, again, improvement — you don't really need to, if demand just continues as is, where you talked about improving demand, or that demand has improved, if it stays as is versus the backdrop you described, including lower supply pressure in '25, that ties into your thoughts on improvement? Tom Boyle: Yeah, I mean, I think there's a couple things there, Jeff. I mean, we've been talking about stabilization of demand throughout this year, and in Joe's prepared remarks he commented on that, including industrywide demand. But we've been speaking all year to the fact we've actually seen some improvement in a number of different markets. So some of the early markets we called out, like Seattle for instance, is still actually negative on revenue growth for the third quarter but has consistently improved quarter by quarter throughout this year. And so that's been a leading market that we've been observing, and there are other markets like that, and frankly more. That doesn't mean that overall we're seeing significant growth. Obviously our outlook is still calling for same-store revenue growth to be down for the year, just a touch better than 1%. So as Joe spoke to in his remarks, the stabilization will take a little bit of time to roll through our financial metrics, but stabilization is the first step, and we've seen that across a number of markets, and we'll obviously update you on a path to recovery as we move from here. Jeff Spector: Great, thank you. Tom Boyle: [attribution inferred] Thank you, Jeff. Operator: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Seems like there's been an improvement in the move-in rents, down 9% in the third quarter, down 5% in October. Is there any — what do you think is driving that? And then also, can you provide the October occupancy, just to provide a little bit more context around the influence on street rates? Tom Boyle: Yeah, sure, happy to. So as you noted, we've continued to see improvements on move-in rents through the year. The October number is encouraging, and I would call out that it's driven by improving demand trends. Right, when we started this year, industrywide demand was down still 20%, and we're at a point now, in September, October, where it's roughly flat year-over-year. And so some may call that comps, but again, you need to lap those comps without setting fresh new lows to stabilize, and that's what we're starting to see here. We've got some markets, as I highlighted earlier, that have move-in rent growth as we sit here today, but some are certainly still setting fresh lows. So the dynamic there is a stabilization trend, as we've been anticipating, heading in through the fourth quarter of this year. In terms of further October updates, occupancy is down about 90 basis points as we sit here today. The move-in rents, again, down 5% for the month. Existing customers are performing well; move-outs are again down year-over-year in the month. So continued encouraging trajectory from the existing customer base and really strength of the consumer overall. Michael Goldsmith: Got it. And you talked a little bit about demand improving, and I think you kind of recognize some of it is comparisons, but is there any other factors that are just driving demand in particular, whether it's — are you seeing a better, like, housing turnover, are you seeing better demand from apartment renters? Just trying to get a sense of who is using the facilities more. Thanks. Tom Boyle: Yeah, that's a great question, Michael. I think the demand picture has shifted over the last several years, right. We've talked about how the existing home sales driven demand has softened. The apartment renter activity has continued to be strong, and at the same time we've seen more customers that are using storage that have run out of space at home — frankly record usage of that through this year — and overall levels of demand pretty consistent year-over-year as we sit here entering into the fourth quarter. Speaking to housing specifically, there is some encouraging pending home sales numbers that came out yesterday. We watch that all closely, but at this point what we're looking for again is stabilization, and we're looking for not setting fresh lows, i.e. not demand going lower from here, and that's what we're starting to see across the portfolio. Joe Russell: And maybe, Michael, add on one other thing. Again, no different but consistent and very encouraging trend: length of stays are still longer than pre-pandemic levels. We've seen, with many of the things that Tom just spoke to, customers continuing to retain space on average higher than what we saw certainly pre-pandemic. And again, with the stabilized set of metrics around delinquency and payment patterns, etc., no different view relative to the stable customer base that we are very pleased to have here at Public Storage. Michael Goldsmith: Thank you very much. Good luck in the fourth quarter. Joe Russell: [attribution inferred] Great, thank you, Michael. Operator: Our next question comes from Samir Khanal with Evercore ISI. Please proceed with your question. Samir Khanal: Hi. Hi, Tom. As it relates to the move-in rates, you mentioned down 5% in October. I mean, is there a way to kind of think about the trajectory of that rate over the next — I don't know, let's call it the next several quarters? I mean, do we need the housing market to pick up to see that trend turn positive, or help us think through that a little bit more, please? Tom Boyle: Sure. So as we've noted a number of times on the call already, really what we're looking for is a stabilization in level of demand. As that stabilization occurs, you should see a stabilization in things like move-in rents and customer activity. And so in our outlook for the year we've expected that move-in rents are down mid-single digits at the end of the year, so it feels like we're heading that direction based on October performance. But then we're likely to hit the trough of the year just seasonally. And so, without getting into specifics around assumptions for 2025, would expect that we probably would start the year clearly at that sort of zip code and would take the lift of demand seasonally in the spring to meaningfully improve that number from that point. Samir Khanal: Okay. And then just, shifting gears a little bit, on the expense side, you know, payroll has been down this year in the quarter and even for the nine months in September. Is that just a function of sort of higher eRentals you're doing, that dynamic? Just trying to see how much further in terms of savings there is kind of into next year. Thanks. Joe Russell: Yeah, Samir, I talked about the many advantages that we continue to lead in the industry relative to our digital platform, one key being the one you noted, our eRental, our digital leasing platform. So now, with 70 to 75% of our customers using that channel, we continue to use that as one way of optimizing the way in which we're using employees at properties relative to their optimization and skill sets and the things that they can do even on a more focused basis. So it's worked well not only for customer interaction but employee engagement and employee opportunities relative to, as I mentioned, different specializations that we're putting through in different career paths, etc., property management levels as well. So the great news is that that leads to our levels of optimization that continues to work well not only for customers but for employees as well. Samir Khanal: Okay, thank you. Tom Boyle: [attribution inferred] Thank you. Operator: Our next question is from Eric Wolfe with Citi. Please proceed with your question. Eric Wolfe: Hey, thanks. I was just curious, in the markets where you've seen the biggest occupancy uplift, are you seeing any greater signs of improved move-in pricing there, or is the customer still just very elastic to that move-in price? I'm effectively just wondering if improving occupancy should be viewed as a leading indicator of pricing, or if there are other dynamics that's preventing that from happening. Tom Boyle: Sure. I would say it's improving demand trends overall, right. We're trying to balance both occupancy as well as rental rate to maximize revenue. So occupancy is certainly one thing you can look at, but — and just using Seattle as an example, as a market I highlighted earlier — occupancy there was up 35 basis points year-over-year and has positive move-in rent growth. So there's certainly some momentum in that market, but it's not purely occupancy based. Eric Wolfe: And I guess, based on the tests that you're doing, I'm assuming that you're adjusting your algorithms to test various price points and seeing how the customer's responding. Are you seeing any decrease in that sort of elasticity of demand, or when you adjust pricing, like, you see a big shift in revenue potential from potential changes in occupancy? Tom Boyle: Yeah, so I guess taking a step back, we're looking to try to optimize the revenue associated with customers that come in the door, and that based on our understanding of what our inventory is likely to be. And so we understand what likely rental units we have to offer our customers, and so we offer those online and in the store. At the same time we have an understanding about what demand is for that sort of unit at the local trade area level. And to your point around price sensitivity, we're consistently testing and augmenting our understanding of what that customer price elasticity is. But if you have an understanding of what your inventory is to sell and what the demand is for the unit and the price sensitivity, we're trying to optimize that equation to lead to the maximum revenue opportunity for Public Storage given the amount of inventory we have there to rent. And what we continue to see is customers are competitive and price sensitive as new customers but place a lot of value on those units once they move in, and that's been pretty consistent over time. Eric Wolfe: Got it, thank you. Operator: Our next question comes from Eric Luebchow with Wells Fargo. Please proceed with your question. Eric Luebchow: Oh great, appreciate you taking the question. You touched on this a little bit about how you were encouraged by the transaction market picking up. It sounds like that's more likely into 2025, so maybe you could give us some color on where bid-ask spreads are and what kind of stabilized yields you're seeing on the transaction activity you're underwriting today. Joe Russell: Yeah, yeah, sure, Eric. We've spoken to this for the last few quarters, which — there's been a lot of interest on sellers' behalf to potentially trade, but factually very few have indeed done so. And we've got almost now a 2-year track record where, again, industry transaction volumes have been quite low, even on a historic level. So now, rounding out 2024 differently even than we've seen in prior quarters, the volume of not only those inquiries but, again, even some additional assets coming through traditional brokerage channels and otherwise — there's momentum building. Again, it's tough to say yet what the bid-ask spread's going to be, because a lot of those transactions haven't been completed yet. We've had a lot of inbound calls, both, again, from owners that are looking to us even on a private basis to potentially transact. So we're encouraged by the fact that, again, after 2 years there's, I think, a landscape of different opportunities rounding out this year and going into 2025. We'll see how that plays out, but I would say it'd be unusual for us to go into a third year of the low volumes that we've seen, and with that we're encouraged by the type of assets that are coming to market, both small and large, and the receptivity in a different way that owners, I think, have settled out relative to their price expectations, etc. Eric Luebchow: Gotcha, that's helpful. And then I guess, secondly, I think you touched on existing customer activity being a little bit better in terms of ECRIs than you previously expected. So maybe you could provide a little more color on that. Is that your ability to push rents to the newer customers coming in at lower rates, or your longer duration customers that are more receptive to that? Any color there would be helpful. Thanks. Tom Boyle: Sure. Yeah, I think it's a number of those factors you highlighted. The existing tenant pool continues to be strong, as Joe mentioned, really across the metrics that we monitor, be it payment patterns and delinquency, length of stays, vacate activity, customer price sensitivity to rental rate increase — all point to a very stable and strong existing customer base, which is encouraging. And we've been pleasantly surprised as we moved through this year, and really that was the primary driver of the lift in revenue outlook for the remainder of the year, is just continued strong trends there. In terms of the rental rate program in particular, it's a combination of the price sensitivity being very strong and frankly a touch better than we expected, as well as the continued follow-through, as you mentioned, of those newer customers that we've moved in over the past year, year and a half, given our strong move-in volumes over that time period, that give us more contribution really to the existing customer rent increase program. Eric Luebchow: Thank you. Tom Boyle: [attribution inferred] Thanks. Operator: Our next question comes from Nicholas Yulico with Scotiabank. Please proceed with your question. Nicholas Yulico: Thanks. Turning back to the move-in pricing, if we look at the promotional discounts, they were up in the third quarter year-over-year. They also look like, as a percentage of revenue, or percentage of move-in rents, one of the higher numbers the last year or so. So can you just talk a little bit about what's driving that higher promotional discount in the third quarter, and how we should think about that impact going forward, maybe in the fourth quarter? Because then you talk about move-in rents, the delta improving, but I'm not sure how we should think about the promotional discounts in the fourth quarter. Tom Boyle: Sure. Yeah, promotional discounts obviously ebb and flow throughout the year based on really the unit level analysis and pricing strategies. We did use promotions a little bit more into the third quarter, but again pretty modest still relative to historical trends. And so throughout the year, between 40 and 60% of our customers have received some sort of first month promotion. In the third quarter it was closer to that 60% number. The comparison period in, say, 2019 for instance would have been closer to 85 or 90%. So there's no question that there continues to be an ability for us to utilize promotions, as well as advertising and move-in rents, to optimize that customer acquisition plan. Nicholas Yulico: Okay, that's helpful. Tom, I guess just following up on that, can you just remind us how that works for the promotional dollars, like the timing and just the accounting treatment? Is that just all the money literally being sort of spent, and it's a contra revenue account in the quarter, or is there some sort of, like, amortization of the promotions? Tom Boyle: Sure. Yeah, our most popular promotion is the $1 special for the first month's rent, and as you just highlighted, that's a contra revenue, a discount that would be applied in that first month. And so if we move a customer in on September 1st, we're going to recognize $1 of revenue from that customer in rent. Nicholas Yulico: Thanks, appreciate it. Tom Boyle: [attribution inferred] Thanks. Operator: Our next question comes from Spencer Allaway with Green Street Advisors. Please proceed with your question. Spencer Allaway: Yeah, thank you. Maybe just a follow-up on the transaction landscape. In terms of what you're seeing marketed today, is it predominantly still the single asset deals, or are there any portfolios being marketed today? Joe Russell: Yeah, Spencer, it's a combination. The traditional smaller deal activity's been with us and, again, that's been still muted overall, as I mentioned, but there's still a fair amount of individual or small asset activity in the market. But there are larger portfolios that are starting to surface. Again, that's no different than what we've spoken to over the last couple years, where we had a lot of private inquiries, particularly on some larger portfolios, but there are now a few that are starting to come into the market through, I would say, both traditional processes, and then still some of the off-market conversations we're continuing to have as well. Spencer Allaway: Okay, thanks. And then just on the ECRI front, if we do rough back-of-the-envelope math, just given where move-in rents were for the quarter, it does appear that bumps were maybe a little bit higher in the quarter. Is that fair to say? And are you able to just give us an idea of where you see ECRIs ending the year on an annual basis? Tom Boyle: Yeah, just given what I had spoken to in terms of them performing better in the third quarter, I would agree the contribution in the third quarter was a little bit better year-over-year, but would go back to the commentary I just made around a lot of that driven by those newer customers that we moved in over the last 12 to 18 months and their contribution to that program really driving it versus a change in strategy or otherwise. Spencer Allaway: Okay, sorry, I missed that. Thank you so much. Tom Boyle: [attribution inferred] Thanks, Spencer. Operator: Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question. Juan Sanabria: All right, thanks for the time. Just on the acquisitions market, recognizing there hasn't been a ton of actual deals closing, but just curious on your expectations for cap rates. I believe earlier in the year you were kind of looking for 6%-plus initial yields or stabilized yields, so just curious if that's moved down as the general market has improved from a REIT cost of capital perspective and rates have come down, at least on the unsecured side. So just curious on your latest expectations on pricing and cap rates where you'd be willing to do deals. Tom Boyle: Yeah, thanks, Juan, good question. And I would generally say that the way you characterize it is pretty consistent and has been for some time, meaning that we're still looking for stabilized yields that are in the 6% sort of zip code. And what that typically means is we're acquiring things in the 5s, and obviously that was the case for Simply last year, probably the largest private transaction that we've been speaking to. But that's been consistent for the last year or so, and that's the current state of play. Obviously as more transactions occur here over the next couple quarters we'll have more to talk about on cap rates, but that's the right sort of zip code to be thinking about. Juan Sanabria: Okay, great. And then just curious if you could talk a little bit about the strategy you're thinking behind the hire, and what you expect the seat to bring, or the person to bring as a result of the addition. Joe Russell: Yeah, sure. Obviously, without question, as you've seen and tracked the things that we're doing relative to our investment in all the tools, digital optimization, the advantages that we're continuing to deploy through our scale, our brand, and everything that drives operations day-to-day — the leadership tied to that is incredibly critical as well. So we're excited about Chris Sar joining us. Great experience with a very solid career at AT&T for over 20 years. Certainly understands many of the components of what drives our business, particularly technology and infrastructure related. Great experience with running large teams within the AT&T platform. In his last role he had over 25,000 employees reporting to him. So these are all key attributes that we're excited to bring into the senior leadership ranks, and we're very confident he's going to be able to put a strong mark on the business, operations and otherwise. Juan Sanabria: Thank you. Tom Boyle: [attribution inferred] Thank you. Operator: Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question. Todd Thomas: Yeah, hi, thanks. I wanted to go back to the promotions in the quarter and some of the commentary there, and ask about the use of promotions in October as we think about the down 5% move-in rent and the improvement that you saw there relative to the third quarter. And then I think in the past you've previously indicated that the use of promotions on some level may have attracted a slightly lower lifetime value customer. Has that changed? Are you seeing a better response and sort of a stronger customer entering the portfolio with the use of promotions? Tom Boyle: Sure. That's a multi-part question there, we'll get into. So in October, I'd say year-over-year promotions pretty consistent to prior year. The driver of the promotions in the third quarter was just a different mix of promotions, so we used a little bit less of the 50% off and a little bit more of the $1 special. So that's just more tactically on the ground. In terms of the promotions, you're right, different promotions have different profiles, they attract customers, and ultimately are used based on the amount of inventory we have to sell, the pricing dynamics in the local market, and are tuned to try to maximize revenue over the medium term, in conjunction again with advertising and move-in rental rates. Todd Thomas: Okay. And then my second question, I wanted to just ask or try to clarify the occupancy update that you provided for October. Was that — did you mean a decrease from September, so down 90 basis points, or do you mean that the year-over-year decrease at the end of October is down 90 basis points? Can you just clarify, and maybe just provide an occupancy rate for where the portfolio sits today? Tom Boyle: Yeah, that's a good clarification there, Todd. What I was speaking to was 90 basis points year-over-year. And as we've talked about through this year, we had a little bit more occupancy uptick through the summer and I've anticipated a little bit more occupancy decline into the fall, and we've seen that play out kind of as anticipated. And we're anticipating through the year — at our last outlook update we said down 80 basis points on average; given the increase in the outlook it's probably down closer to 70 basis points on average through the year. From here we continue to see a closing of that gap overall on a year-over-year basis, but some different seasonal patterns through the year. And then in terms of quarter-end occupancy or month-end occupancy, obviously we haven't closed the month of October, but it'll be pretty similar to where we ended September. But obviously that's not a number that you often see, so — but just seasonally you don't see a big move there, so just a touch lower than where we finished September. Todd Thomas: Okay, thank you. Operator: 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 additional questions. Our next question comes from Ron Kamdem with Morgan Stanley. Please proceed with your question. Ronald Kamdem: Hey, just following up on the stabilization comments. I think you talked about different markets and obviously move-in rents sort of improving, but anything on sort of the website data and the website visits, any other sort of data points that are sort of confirming that story would be helpful. Tom Boyle: Yeah, so we've talked about industrywide demand and that really reaching par as we moved into September and October. That's been really encouraging, and we've continued to see good traction from web visits through our platform as well — really a combination of strong web visits that are in positive territory year-over-year as well as good conversion rates, frankly, online and through our different channels to the store. Ronald Kamdem: And then just my second one was, I think you had an interesting thought on 70 to 75%, I think I heard that right, through the channel. Just wondering, as you're thinking about over the next 3 to 5 years, is that sort of optimal, is there more room there, and what the implication could be on cost savings? Thanks. Tom Boyle: Yeah, no, I think that's right. So about 75% of our customers are utilizing a digital channel to complete their rental, and that's a number that's grown pretty steadily over the last several years. And just a reminder, we're not providing any sort of incentive for customers to utilize that as their way to complete their rental agreement, but customers continue to embrace it, and frankly more and more year-over-year. And so we're optimistic that more customers will choose that channel to complete their rental agreement before they arrive at the property over the next several years, and that will lead to continued optimization alternatives that Joe spoke to earlier, in terms of providing that win-win-win both for customers and how they choose to complete their rentals, our employees and how we think about their career opportunities, specialization and centralization that we've utilized, as well as the financial impact. Joe Russell: Yeah, and Ron, I'd add to that, it's certainly a very impactful channel, and the infrastructure and the effectiveness of our digital platforms certainly playing through relative to speed, effectiveness, etc., that customers are embracing. We also, as I noted in my opening comments, now have about 2 million users on our PSA app as well. Again, it's additive to the way customers are interacting with us. It's much easier from an account management standpoint, communication standpoint, etc. So we're bolting on and building a very robust environment that customers, as Tom mentioned, are not being incentivized by us to use these tools. They're telling us these are tools they want, and they're gravitating to them very aggressively. So we'll still provide, when customers require it, face-to-face interaction with, again, our skilled property managers at properties, but this is one additional way for them to have that much more of an effective transaction with us, and from an ongoing relationship standpoint it's a different level of service we can provide them through the PSA app as well. Ronald Kamdem: Great, that's it for me. Thank you. Tom Boyle: [attribution inferred] Okay, thank you. Operator: Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi everyone. I don't think this has been talked about yet, but we talked about acquisitions and the volume. It looks like guidance was reduced for the year, but you mentioned the pent-up seller dialogue. So is that just timing and you expect an above-average January, or have some deals fallen off, or some mixture? Tom Boyle: Yeah, you hit it. It's just a timing element, which is, we have been anticipating that the transaction market would improve throughout the year and it has, but just in terms of the level of dialogue it's really picked up over the last 60 to 90 days. And so a good bit of the activity that we're speaking about as likely to fall is in the start of 2025 versus finishing out, closing in '24. But obviously you saw we had under contract a pickup in acquisition volumes, and we have more to come on that front as we close out the year, but some of it will slip into '25. Caitlin Burrows: Got it. And then maybe just on your own development, I was wondering if you could give a sense of your own pace of development deliveries in '24, and how you think that'll end up comparing to '25 and '26 — is it pretty consistent, increasing, decreasing for your goal? Joe Russell: So yeah, Caitlin, this will be a record year of deliveries for us from a development standpoint, so we'll finish out 2024 with about $430 million of development deliveries. That includes both ground-up new construction as well as redevelopment. The work and the timing of consistent level of deliveries year-to-year can be somewhat challenging, particularly with many of the hurdles that we're facing with development across multiple markets — longer entitlement times, more complicated improvement processes, different areas of the business from a development standpoint that create more risk, and much of that's time related. So we're going to see a bit of a drop going into 2025, and with that we'll continue to work to elevate the amount of deliveries we'll see in 2026 and beyond. So the team's doing a great job developing and redeveloping great new assets, giving us more scale in markets, and with a record amount of deliveries this year it was a great bar to hit, and we're going to challenge ourselves to match if not exceed that in subsequent years. But 2025 we'll see a slight decrease in deliveries. Caitlin Burrows: Thanks. Tom Boyle: [attribution inferred] Thank you. Operator: Our next question comes from Brandon Lynch with Barclays. Please proceed with your question. Brandon Lynch: Great, thanks for taking my questions. Maybe on the labor front, how do you balance the labor cost savings versus the risk of reducing on-site staff too much? I'm sure you're cognizant of this risk — just how you monitor it and how you think about it. Joe Russell: Yeah, that's part of what we've been very diligent about, making sure that we're using a variety of different tools, analytically and otherwise, to not only, property by property, understand the impacts of the way that we've been changing our operating model that may give us the opportunities, as I've spoken about, to reset the type of skills and labor that we have with properties, property to property. But we've got growing sets of analytics that help to predictively look at staffing levels, because sometimes properties are busy, for instance, beginning, end of the month, or it could be because of some seasonality issues that may be different times of the month, different times of a week. So we've got a lot of very interesting and growing analytics that are helping us optimize the ability to put our own people where we know they're going to be able to serve customers even more effectively. Part of that also relates to the specialized roles that our platform's been able to create within our property management ranks. So a lot of great tools that give us the confidence that we've got a very good balance, and as I mentioned earlier, customers are gravitating to this quite effectively as well. We've got a vibrant back channel that's become more and more effective through our Care Center as well. So we've got many tools even beyond just the amount of labor that's resident at a particular property that actually enhances the amount of service that we can provide customers. Brandon Lynch: Great, thank you, that's helpful. And my other question is just on market strength. Tom, you called out Seattle as being particularly strong. I think Florida has been weaker in some of the past quarters. Maybe just give us an update on which ones are performing best, which ones are still struggling a bit. Tom Boyle: Yeah, so we've provided a good list of markets that have started to accelerate earlier in the year, so I mentioned Seattle, but DC and San Francisco as well. The markets that we've highlighted that are still working through normalization continue to be those that were really the highest flyers through the 2021 and 2022 time period. So a market like Atlanta, for instance, has that normalization but also some new supply to work through. And so that's how I would characterize the performance. That said, even those markets that maybe are having a tougher go at it, if you look at overall changes in same-store revenue growth year-over-year, you're starting to see some improvement in some of those markets, like in Orlando for instance — for the quarter revenue was down 6.1%, but that's frankly starting to improve from there. And so some of those initial indications of stabilization are occurring in a few of those markets as well, even those that had really strong performance in '21 and '22. On the west coast of Florida — you highlighted Florida specifically — Joe highlighted the hurricane impact. We disclosed that that's likely to have about a $7 million impact financially, but at the same time the customer traffic on the west coast of Florida has been impacted and we want to be there to help serve those customer bases as they seek to rebuild on the west coast of Florida. And so we've seen an increase in move-in activity and occupancy there related to the storm activity and really the storm rebuilding. Brandon Lynch: Great, thank you. Operator: Our next question comes from Ki Bin Kim with Truist Securities. Please proceed with your question. Ki Bin Kim: Thank you, good morning. Just going back to some of the comments on stabilization — correct me if I'm wrong, but last October I thought you guys cut rates pretty deeply. So when you talk about stabilization, how do you take that into account, and when you look at rent trends sequentially, does that paint a similar story of improvement? Tom Boyle: Yeah, I think there's a few things there. One, I'm giving you a rent number in October that is kind of an apples-to-apples rent number, and again we're looking for move-in rents to be in the kind of down single digits towards the end of the year, and I think we're on track for that. Ki Bin Kim: Okay. And on the hurricane impact, how much NOI benefit did you get on the portfolio level from people maybe moving in? Tom Boyle: Well, I just highlighted the fact that actually we'll have a financial cost associated with the storms, and as I noted, we are seeing some move-in activity, but I think it's too early to tell, to talk about NOI impact overall. But no question we've had some cleanup work to do at a few of our properties that were impacted, and those are getting right back online — frankly, most of them are back online serving customers as we sit right here. And as Joe mentioned, relatively modest impact overall, and relatively fortunate given where the storm came through. Ki Bin Kim: Okay, thank you. Tom Boyle: [attribution inferred] Thanks. Operator: Our next question is from Mike Mueller with JP Morgan. Please proceed with your question. Michael Mueller: Yeah, hi. Going back to development, can you talk a little bit about your land positioning and the visibility to kind of keep the development engine going? You know, for example, how many years of development starts do you control? Joe Russell: I'll speak in general terms, Mike, as far as our strategy around land holdings, and then we can give you a little bit more color more specifically to your question. But what we more often than not do in a vast majority of the development transactions is we'll take control of a parcel. Depending on the timing for entitlements and other permitted processes you have to go through, we have a contractual option on the land, we don't own the property itself. So that's far more typical than just putting a big land inventory onto our balance sheet. So we'll typically acquire a property — and again, this will be a vacant parcel — once we've gotten through what we feel are necessary and any risk related improvements. So once we get to that point we'll go ahead and take ownership of the land site, but frankly more often than not we're literally ready to build as we do that. Tom, I don't know if you've got a specific number to point to relative to overall holdings. Tom Boyle: Yeah, we own about $60 million worth of land, given that strategy that Joe just highlighted. Michael Mueller: And for that $60 million of land, that gives you about what in terms of a total expected investment, what's buildable on that? Tom Boyle: Yeah, that's going to give you — obviously part of our activity is redevelopment as well, so as you think about that $60 million, that gives us visibility over the next couple years, and as Joe mentioned, we've got an ability to see further than that based on the agreements we have in place with land owners. Michael Mueller: Got it, okay, thank you. Tom Boyle: [attribution inferred] Great, thanks, Mike. Operator: We have reached the end of the question and answer session. I'd now like to turn the call back over to Ryan Burke for closing comments. Ryan Burke: Thank you, Rob. Thanks to all of you for joining us today. Have a great Halloween, and we'll talk to you soon. — END OF TRANSCRIPT —