Public Storage Earnings Call - Q1 2025

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Public Storage Earnings Call - Q1 2025 Company / Call: Public Storage (NYSE: PSA) — First Quarter 2025 Earnings Conference Call. Company participants: Ryan Burke, Vice President, Investor Relations; Joe Russell, President and Chief Executive Officer; Tom Boyle, Chief Financial Officer. Conference operator: Rob. Analysts: Daniel Tracco (on for Nick Yulico), Scotiabank; Ron Kamden, Morgan Stanley; Todd Thomas, KeyBanc Capital Markets; Salil Mehta, Green Street; Michael Goldsmith, UBS; Michael Griffin, Evercore ISI; Juan Sanabria, BMO Capital Markets; Eric Wolfe, Citi; Caitlin Burrows, Goldman Sachs; Ravi Vaidya, Mizuho; Ki Bin Kim, Truist Securities; Jeff Spector, Bank of America; Eric Luebchow, Wells Fargo; Tayo Okusanya, Deutsche Bank; Mike Mueller, JP Morgan. Recorded: May 1, 2025 Video: https://www.youtube.com/watch?v=kuMWfuifQPU Key topics: Q1 2025 core FFO per share of $4.12, up 2.2%; same store revenue turning positive after 3 quarters of declines; same store occupancy gap narrowing from down 80 bps to down 30 bps; move-in volumes up over 2% in Q1 and 3% in April; move-in rents down 4.6% in Q1 and 8% in April, at levels last seen in 2013; the non-same store pool of 520 properties growing nearly 11% with $80 million of NOI still to come; $184 million of acquisitions closed or under contract versus $35 million a year earlier; $144 million of development delivered and a $650 million pipeline; the proposed acquisition of Abacus Storage King in Australia and New Zealand with Ki Corporation; Los Angeles wildfire rent restrictions costing roughly 100 bps of same store revenue, back half weighted; retained cash flow rising 50% to about $600 million; property labor hours down 12% under the dynamic staffing model and 85% of customer interactions now digital; advertising down 10% and same store expenses up just 30 bps; national supply deliveries running around 2% versus 5% in 2019; ECRI price sensitivity, tariffs, and downturn resilience. 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. ————————————————————————————— Ryan Burke: 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 Bole. 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, May 1st, 2025, 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, supplement report, SEC reports, and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourselves to 2 questions. Of course, after that, if you have more, feel free to jump back in queue. With that, I'll turn the call over to Joe. Joe Russell: Thank you, Ryan, and thank you for joining us today. Tom and I will walk you through our Q1 performance, industry views, and outlook. Then, we'll open it up for Q&A. Our performance during the quarter was in line with our expectations as we continued to drive stabilization across our portfolio. Move-in volumes increased over 2% as we drove more people to our website and increased customer conversion. With moveins up and strong in place customer behavior, the same store occupancy gap to last year closed from down 80 basis points on December 31st to down 30 basis points on March 31st. Revenue growth in our same store pool turned positive and improved sequentially again after more than 2 years of deceleration from record growth in 2021 and 2022. 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. And all of this helped drive core FFO per share growth of more than 2% for the quarter, a 200 basis point improvement sequentially versus last quarter. We are well positioned due to our highquality portfolio, innovative platform, and companywide competitive advantages. These include our industry-leading revenue management consistently achieves the highest revenues per square foot in our markets. 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. coupled with additional advantages across the public storage operating platform. This drives same store operating margins meaningfully higher than the rest of our industry. And we have broad ancillary and external growth avenues including acquisitions, development, redevelopment, domestic and international expansion, tenant insurance, thirdparty management and lending. Our experienced acquisition and development teams are actively growing the portfolio. The 184 million we have acquired or under contract as of today is ahead of the $35 million achieved at this time last year. In total, our sizable non-same store pool will deliver an additional $80 million of NOI through stabilization in 2026 and beyond. A 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. As we demonstrated with Shurgard in Europe, we are uniquely positioned to execute on in international growth. 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. Favorable industry dynamics benefit us as well. This is a needs-based business that is largely driven by customer events that happen in all economic conditions. Additionally, an evolving economy creates new customers as our demand drivers shift. With low nominal dollar rents, we are also affordable relative to the other space alternatives. This coupled with the customer need tend to make self- storage more resilient to changing economic conditions than many other industries. And it's important to keep in mind that our industry is already being normalized over the past three years. Move in rents have declined significantly due to softening demand and competitive market behavior. Our new customers are moving in at very affordable rents that are in line with levels not seen since 2013. We are in a good position to benefit from both rising rents and occupancy in an improving demand environment. Now I'll turn the call over to Tom. Tom Boyle: Thanks Joe. We are driving growth across our broad set of capital allocation opportunities. We delivered 144 million of development during the quarter and have a robust pipeline of about 650 million that we will deliver over the next 2 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. As Joe mentioned, acquisition activity also picked up in the first quarter with 14 properties acquired or under contract for 184 million through today. In Australia and New Zealand, we are excited about the potential to partner with Abacus Storage King and Kai Corporation, their major shareholder, to help enhance the company's customer experience, operating performance, and portfolio growth. Given where we are in that process, we're very limited in what we can say on this call, but we'll continue to keep everyone updated as appropriate. Our capital and liquidity positions are very strong. In fact, they are getting even stronger this year with retained cash flow expected to increase by 50% to approximately 600 million. Industry-leading leverage, balance sheet capacity, and cost of capital allow us to execute in scale across our growth channels. Coupled with improving fundamentals and less competitive new supply, we're poised to increase our portfolio growth activity moving forward. Now shifting to financial performance for the first quarter, led by higher rental rates, same store revenues turned positive following 3 consecutive quarters of revenue declines. Same store expenses were well controlled at 30 basis points of growth driven by our operating model initiatives and moderated advertising spend. Uh meanwhile, we drove good move in volume in the quarter. Core FFO per share was up 2.2% year-over-year to $4.12 per share, representing a strong 200 basis points acceleration from the growth level achieved in the prior quarter. Our guidance for 2025 is unchanged. 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. However, we do anticipate it will grow and ultimately have a 100 basis point impact on same store revenue growth for the year. All in public storage is very well positioned today. The self- storage industry is very resilient. Our leading operating platform is driving peer-leading performance and acceleration across our portfolio. We are further enhancing the platform through digital and operating model transformation and our balance sheet while providing stability is also allowing us to grow across our multiple channels in combination with significant retain cash flow. With that, Rob, let's open it up for questions. 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 1 on your telephone keypad. As a reminder, we ask that you please limit to 1 question and 1 followup. Confirmation tone will indicate your line is in the question queue. You may press star 2 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. Our first question comes from Nick Ulico with Scotia Bank. Please proceed with your question. Daniel Tracco (Scotiabank): Uh, great. Thank you. It's Daniel Traco on with Nick. I'm trying to gauge the level of conservatism in the guide. You can you help us square away the, you know, the increasing confidence in fundamentals bottoming with, you know, the rate gap staying down 5% through the year implying we're just, you know, bouncing sideways along the bottom. You know, at what point do do comps become easy enough or or demand picks up enough to see a lift off that bottom? because you know theoretically you don't stay in storage forever. So you know ECRI can only get you so far in the long run. Tom Boyle: Okay. Thanks Dan. I I think a couple things to to highlight there. You we did have a a good quarter in the first quarter in line with our expectations as as Joe noted. Um in terms of the guide overall, you know, our performance was in line with expectations as you highlighted. Move in volume uh was strong in the quarter in positive territory. um move in rates were down circa uh 5% um a little bit better than 5%. uh as we look at April which is maybe another indicator for you in terms of trends overall. Um you know we are monitoring customer behavior very closely in this environment uh given the volatility in capital markets and certainly trade policy uh news flow through the month of April and overall I'd categorize customer behavior in April as very good. Payment patterns and delinquency were solid. uh moveout volumes were actually down a percent. Uh longerterm tenants uh remained strong through the period. And in terms of movein activity, which is I think where you were going um in your question, move in volumes up a good 3% uh in the month of April. The um movein rate was down 8% in April. Again, if you look at uh year-to- date movein rates, uh down right around that 5% number, which is in line with the midpoint of our outlook for the year. Uh so trending uh right there. Uh occupancy did improve uh given the stronger movein volumes and the decline in moveout volumes uh through the month uh such that uh the start of the month occupancy was down 30 basis points. Occupancy finished April down 10 basis points. Um and uh to your point you we are seeing demand overall for storage bouncing off that bottom and that's leading to some stabilization in in many of the metrics I just spoke to. So some encouraging trends yearto date and um and overall you know we'll keep you updated as as where we go from here. Daniel Tracco (Scotiabank): Okay. Thanks Tom. Um and then as a followup can you can you comment on the uh private capital raising environment for storage? you know, how has it evolved um competitively the past few years as fundamentals have softened and you know, have you seen it pick up at all in anticipation of a recovery? Joe Russell: Well, if you're speaking to the overall acquisition environment, again, there's a lot of things that 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 benefits that we're even speaking to in an environment like this where we can cease still the ability uh to you know perform draw customers to the platform. uh you know we're coming off you know a number of um uh quarters now that Tom just spoke to relative to our confidence going into 2025 even with the choppy environment that's evolved over the last 30 plus days. Um with all that there is still a fair amount of institution capital that's interested in coming into the sector. Um, with that said, however, transaction volumes in 2024 were abnormally light. Um, and going into 2024, 2025, uh, they are, um, actually just as light. Uh, 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 other capital sources are putting into the sector. Um but overall we're confident that we've got very good tentacles into a whole range of different users and owners that um are likely to trade even in this environment and we'll keep you posted on our progress. Daniel Tracco (Scotiabank): Great. Thanks Joe. Operator: Thank you. Our next question comes from Ron Ron Camden with Morgan Stanley. Please proceed with your question. Ron Kamden (Morgan Stanley): Hey, just two quick ones starting on the uh the revenue side. um think you've talked about sort of Google trends and and advertising and top of funnel demand. Just we'll love to get an update of some of what those other indicators are saying uh in April and and and and what they mean. Tom Boyle: Yeah, I'd say consistent trends uh through April, which is, you know, we've seen uh industrywide search trends being in positive territory year-over-year, as I noted, kind of bouncing off the bottom here. uh in terms of our own uh indicators and our system uh across the country seeing good trends there too with higher web visits, sales calls uh and the like. So we're seeing that level of demand kind of bounce off the lows or the trough maybe of of 2024. Uh but certainly nowhere near what they were in 21 or 22. Uh maybe looking more like uh 2023 in terms of overall levels of of of interest coming into the system, which is encouraging. uh given the trajectory we've had over the last several quarters. Ron Kamden (Morgan Stanley): Great. And then my second one is just um on and when you sort of dissect the business whether it's the business customer um you know whether it's specific regions like have you seen any sort of trends that are you know to the good to the bad sort of post tariff as well would be helpful. Thanks. Joe Russell: So again, yeah, Ron, there's not, you know, a lot of um I would say trending data yet relative to what's happened over the last 30 days. As Tom mentioned, um we've not seen any uh inherent change relative to um both the trend we've seen from top of funnel demand from new customers as well as the behavior of existing customers um across the entire portfolio regionally. Actually, we were pleased to see um another um progression in certain markets positive. Uh Florida, for example, we're starting to see actually uh returning uh demand factors across the entire state where it was um far less so over the last year or so with the deceleration out of the peaks that that market in particular saw during the pandemic. um we've now got, you know, 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. Uh the benefit that we have is, you know, we run a day-to-day business. We move in over 100,000 customers a month and we've got very good reconnaissance relative to how that's trending markettomarket. But thus far, we've been encouraged by the lack of disruption in overall tenant behavior and tenant demand. Ron Kamden (Morgan Stanley): Helpful. That's it for me. Thank you. Operator: Thank you. Joe Russell [attribution inferred]: Thanks, Ron. Operator: Our next question comes from Todd Thomas with Key Bank Capital Markets. Please proceed with your question. Todd Thomas (KeyBanc Capital Markets): Hi, thank you. Um, first question Tom, you mentioned movein rate was down 8% in April. Um, seems like you picked up a a little bit of occupancy though. 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 or what that was um attributable to. Tom Boyle: Yeah, thanks Todd. I mean, I think you're going to see movein rates bounce around a little bit by market, by month, all those sorts of things as we move through uh the year. So um you know in in March for instance move in rates were only down 2% April down 8%. So as you highlighted there's going to be uh some movement there but uh ultimately trying to optimize towards revenue and and we saw good movein volumes uh through the month of April uh and sets us up well here as we head into to May and June which tend to be a little bit busier uh time period as well. So, uh, to your point, um, April was down 8%, a little bit lower on rate, but good volume trends and, um, and we'll continue to to manage the overall rate volume picture ultimately to optimize towards longer term revenue uh, of the customer base uh, from here. Todd Thomas (KeyBanc Capital Markets): Okay. And then um in terms of development um and how that landscape may may change or be uh poised to change as a result of um of cost increases around tariffs and other policy uncertainty. Um first what what are you seeing in terms of development activity more broadly? And second, uh, what does that mean for for public storage, um, in in in your effort to, you know, maintain the pace of starts and and deliveries and returns that you target? Joe Russell: Yeah, Todd, the multi-year deceleration of development completions continues. So year by year from the peaks that we saw at 2019, you know, we've spoken to the again continued decline of developments nationally. Um certainly there have and continue to be you know a limited number of markets that they're seeing out outstretched um development deliveries but frankly uh 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's going to continue. Um it h 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 you know will continue to potentially um maintain that deceleration are what you're 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. Um, counterintuitively for us, it's a good window for us to come into many markets that we've been reticent um to actually deploy capital into from a development standpoint because of some of those competitive factors multiple years ago. Um, including actually 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 uh better uh opportunities in an environment where we've got fewer competitors. Uh they're doing just that. But we're keeping a very close eye on every component cost including what may or may not play through on tariffs whether it's steel um whether again we're going to see any labor pressure in particular markets because of immigration um priorities uh etc. 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-seated team. We've got the capital structure to continue to fuel our development growth and we're getting very strong returns that we're every bit if not confident we're going to continue to see. Todd Thomas (KeyBanc Capital Markets): Okay, thank you. Operator: Thank you. Our next question comes from Salil Mita with Green Street. Please proceed with your question. Salil Mehta (Green Street): Hi guys. Uh thanks for taking my call and congratulations on on the quarter. Uh just a quick one here, but do you guys have any updates on the rent restrictions that we're seeing in LA? I think the last one was like there was an executive order signed by the governor to extend it until July, but perhaps you guys have intel of whether it's likely to be extended or maybe suspended sometime soon. Tom Boyle: Yeah, sure. Happy to take that. you know, the the fire related state of emergencies that were declared by the governor earlier this year uh last until the beginning of 2026. And so th those are the the relevant ones. Um and you know, we're certainly complying with those as we go here. As we get through this year and the beginning of next year, we'll see ultimately what the governor ex intends to do with those emergencies, i.e. letting them expire or extending them or or something in between. So, uh, we'll know more as it relates to the impact to us. As we've spoken about, we anticipate that the impact of those restrictions will result in about a 100 basis point impact to same store revenue, which will be back half weighted. Salil Mehta (Green Street): Awesome. Thanks for that. And, uh, just another followup here as far as peak leasing season, but can you guys give my any color on what what we can expect, you know, given that fundamentals really haven't changed much since what we saw last year? Do you guys have any optimism there'll be like some uh return to normaly for peak leasing this year or is 24 kind of the base case that we're looking at? Joe Russell: Yeah, our uh base case for 2025 um does not assume we would see an uptick in what you might have um you know seen in more traditional environments where you see more of a peak leasing leasing season. So, uh, that's not embedded in our, um, you know, our base outlook for 2025. Um, month by month, we're going to see how that's trending. Um, the demand factors that continue to drive customers, you know, to the portfolio are still broad-based. Um, so we're encouraged by that. But, um, what typically, you know, you would see this time of year is an uptick, particularly tied to existing home sale activity, movement across national markets, etc. and that's been muted as we saw in 2024 as well. So, we'll see how that plays out as uh we go through the next 3 or 4 months. Salil Mehta (Green Street): Awesome. Thanks for taking my questions. That's it for Operator: Thank you. Our next question comes from Michael Goldmith with UBS. Please proceed with your question. Michael Goldsmith (UBS): Good afternoon. Thanks a lot for taking my question. Maybe just to follow up on the headwind from the fire restrictions. You you you've got it to 100 basis points for the year. It sounds like it's back half weighted. Is that does that imply that you know it should be you know about a 200 basis point headwind in the back half and little impact in the first half or or should that kind of ramp up slowly uh through the year? Like how should we think about the cadence of that headwind? Tom Boyle: Yeah, Michael, it's going to ramp up as as we go from here. Michael Goldsmith (UBS): Got it. And and then my my second question is there there feels like there's been a little bit more um just sale activity within the self- storage space um lately? like when when you run a sale is is that you know is that a reaction to the market environment um where you're looking to you know where you're looking to drive drive moveins is it more of a function of an opportunity where um you think you can capture market share I'm just trying to get an understanding of of how you're using sales these days um and then maybe if you can tie that into um you know your platform which which you've talked uh I think you talked more highly about uh on this call than you have in the past. So any sort of connection with that would be great. Thanks. Tom Boyle: Sure, Michael. A lot of components there. I guess I would say sale activity um you know is probably a combination of all the things that that you highlighted there. Um you know public storage in the industry have been running promotional sales for for decades. uh and we we'll continue to do so uh through this year as we did last year uh and years prior. So uh there there are uh some benefits to doing that at certain points of the year um and and certainly an ability to drive volume into the system. um and ultimately uh fits within our uh strategy to to manage for longer term revenue optimization um in combined with advertising and and promotional activities. So um you know big picture I'd agree with you it's a whole host of things that that drive into it. We did run a little bit of a sale in April. We'll intend to run a sale at Memorial Day like we uh typically do. Uh but I wouldn't point you to any strategy shift there. more um business as usual. Rob, let's move on to the uh Operator: Sure. Our next question comes from Michael Griffin with Evercore. Please proceed with your question. Michael Griffin (Evercore ISI): Great. Thanks. um you appreciate the color on the dynamic staffing model and and how that's been benefiting uh kind of your payroll expense. Can can you give us a sense of number one you know 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. Joe Russell: Sure. The 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 that um coincides with the way staffing models can be optimized. meaning um using our very effective in-person labor hours to match customer demand factors um has given us very strong guidance into the way that we very differently staff our properties now on a very dynamic day-by-day basis. Um the predictability of this data continues to evolve and become more robust. And with that, we've taken iterative steps in optimizing those labor hours. Uh with the results that thus far, um we've spoken to and you're seeing come through our P&L. Um you saw, you know, a nice uh change um in optimization even in the first quarter of 2025 where labor hours are down approximately 12%. um that um continued optimization, knowledge and ability on our behalf is unique to the industry as a whole. Um 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 um looking for that level of human interaction. Um but that's counterbalanced by something you know very effective that we're doing on our digital platform. As I mentioned 85% of all customer a um interactions are now digital. Uh again that's customerdirected meaning they're self- selecting whether they're doing um an initial lease transaction their own account management through our um broad-based um PS app um to actually go ahead and um use those tools at their election. Um and with that, we're seeing very good um continued receptivity. So with all that said, we have a very good runway to continue to look for next level labor optimization. Uh as we're doing that, we're also retooling the skill set and the priorities that our field team um is able to um deploy into their own um 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 um of our cost structure. So, we're very committed to continue to making additional investments uh that have been very effective thus far and uh we're excited about what uh what's still out there to achieve. Michael Griffin (Evercore ISI): Thanks, uh Joe. Appreciate the uh context there. Um, and then maybe from a a more macro perspective, I you know, I acknowledge you guys had a strong quarter of a but maintained guidance. Clearly there's some some market volatility and uncertainty out there, but can you give us a little color on, you know, maybe what your expectations are, whether it's, you know, the housing market remains muted. You know, job growth might not be as as robust as we'd have thought a couple of months ago. You know, how are you overlaying maybe your macro assumptions as it relates to your guidance? Thank you. Tom Boyle: Yeah, sure. I think there's a number of components there that I'll I'll I'll speak to. As you noted, we had a good quarter. Um, as I highlighted earlier, you know, we do have LA headwinds that are uh coming at us and and we're watching the consumer, you know, very closely here. Uh I noted that through April we've seen strong consumer trends uh at this point um and are encouraged by that but it is something we're watching closely because as the macro environment can shift so can demand and and customer behavior. Um you know we haven't shifted our assumptions that that underpin our outlook. Uh but no question the the assumptions that underpin the lower uh end of the range uh do have some of the characteristics that you might see in macro weakness i.e. softer new customer demand uh more moveout activity uh softer ECRI contribution and the like. Uh and so um again it's something we're we're watching closely have been encouraged by what we've seen through April. Uh but we'll have to see how the macro environment plays out from here um to be able to to adjust and and tweak from here. Michael Griffin (Evercore ISI): Great. That's it for me. Thanks for the time. Tom Boyle [attribution inferred]: Thanks. Operator: Our next question comes from Juan Sanabria with Capital Markets. Please proceed with your question. Juan Sanabria (BMO Capital Markets): Hi. Uh just a a a theoretical question I guess to start just clearly housing has come off as a demand driver but uh decluttering or an alternative space solution storage is is a nice lowcost option but just curious how you think about looking at the data in the surveys how things may change if housing comes back. Not sure when or if, but if housing comes back, does is that would that be additive necessarily or do you think some of the uh customers that have been using it as a space solution maybe no longer need that? Just curious on on those two variables and how they may interplay going forward. Tom Boyle: Yeah, sure. Juan, I think you're highlighting on a shift that we've seen over the last couple years and and in particular, we've seen a reduction in new home sale driven or existing home sale driven um uh activity for new customers. At the same time, we have seen that increase in customers that have ran out of space in home and and some longer tenure there. Um overall that shift has been um an impact to demand. Um and we'd think that accelerating 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 uh upgraded their home and and have bought some new space, uh overall that increased level of activity uh will be a net positive as we think about the the demand picture overall. Um, 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 we're bouncing around the bottom in terms of that level of activity. Uh, does that come back in 26 or 27? I think it's hard to predict. Um, if you look back at at prior housing uh downturns, it typically takes several years for uh the housing market to recover. Uh but um in aggregate I'd consider that a net positive to demand uh even if you give back a little bit of the folks that have ran out of space at home. Joe Russell: Yeah. And I I just add one over one Yeah. one one other overarching issue is 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 is an inherent driver because as we've spoken to um self storage is a very sensible financial alternative you know to not have to commit to that exercise either home that you're acquiring andor apartment that you're renting. So again inherent good um you know baseline demand just from a cost structure itself itself. Juan Sanabria (BMO Capital Markets): Thanks. And and then just as a followup on the third party management business, how are you feeling about um the demand for that um that service and uh just how how successful or not you feel like you've been to date? Have you kind of met expectations or or how are you feeling about your efforts in that business? Tom Boyle: Yeah, know good question, Juan. that that's a business that we continue to to invest in and and have seen good good adoption really over the last several years. It's a business that um takes time to grow and we knew that when we were getting in. It's about forming relationship, demonstrating uh track record on uh properties that were um that were managing for owners and 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 living through over the past several years. Uh, and have taken some assets for for new customers, uh, demonstrated our our capabilities in that business and continue to grow the the the groups that were that we're managing for. So, uh, in line with expectations and we anticipate that that business, uh, will will grow from here. Um, in terms of the the strategic components for us, no question it it it further enhances our scale and our marketplaces, uh, grows our brand and again deepens some of those relationships uh, with owner groups um, 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. Operator: Thank you. Our next question comes from Eric Wolf with City. Please proceed with your question. Eric Wolfe (Citi): Thanks. Um, just to follow up on Michael Goldmith's question, it does seem like your guidance is implying that uh that the restrictions in LA lower your same store revenue by 200 basis points at least at some point um in the back half. And I think you you said earlier this year that that the impacted stores are about 10% of your overall same store. So, I guess that would imply that the restrictions are lowering your revenue by around 20% um for those impacted stores. Is that the right way to think about it? Tom Boyle: I think the way I would think about it is the impact we I don't want to minimize the fact that we we did see an impact in the first quarter, right? We're complying with these rental rate restrictions. They they are um they impact both new customers and existing customers. That impact will grow over time as we move through the year. uh and in aggregate will be 100 basis points. So I don't uh I don't want to communicate that the impact will be uh so uh weighted uh into the back half which I think what what you're getting to. You are going to see some impact in the first quarter, second quarter and in through the fourth quarter and ultimately some into the first quarter of next year. Uh that's not obviously in that 100 basis points number uh but before that state of emergency is um expires or extended. Eric Wolfe (Citi): Okay. And then apologies if you answered this before, but I didn't hear it. Your expenses came in pretty low um in the quarter. Uh can you just talk about where they're trending relative to expectations and and just based on, you know, re reaffirming your guidance, it would obviously imply that it comes up somewhat meaningfully over the over the next couple quarters, I guess, why would that happen? Um you know, given some of the expense initiatives that you just mentioned. Tom Boyle: Yeah, there's there's a a few pieces there. one, we did uh obviously reaffirm our overall expense outlook for 3.25 uh percent at the midpoint uh for the year within the same store. Um we did have good expense control through the first quarter. Would expect that to continue in future quarters, but there were some uh elements in the first quarter that are unlikely to persist. there were some um easier comps in in property payroll for instance related to PM health uh plan costs uh that was kind of an easy compared to last year. Uh on advertising we had advertising down 10%. Um we'll we'll manage that dynamically through the year and see where that ultimately plays out. Um uh but big picture, you know, we continue to drive uh operational efficiency through the payroll optimizations that Joe spoken to. The other one I would highlight is is solar power generation where we continue to invest in in solar uh and we'll continue to to receive the benefits of less utility uh electric utility usage uh through the year as well. Operator: Thank you. Our next question comes from Caitlyn Burroughs with Goldman Sachs. Please proceed with your question. Caitlin Burrows (Goldman Sachs): Hi everyone. Uh maybe I was just wondering if you could talk a little bit more about what you're seeing on the ECRI side uh today, whether there's been any any changes or kind of modifications to the strategy recently, how aggressive you are. Um maybe that's not the right word, but yeah. Tom Boyle: Yeah, sure, Caitlyn. The the ECRI program is um uh generally in line with our expectations and and very much similar to how we've managed it over the last couple years, which is we're focused on understanding customer price sensitivity uh as well as the cost to replace the tenant to the extent that they they leave us. Uh and and what we've seen uh over the the first part of this year is very uh consistent price sensitivity. And so that's encouraging and that that holds through April as well. uh and a relatively stable cost to replace and so that the the program continues to to perform well um and um you know we'll continue to optimize that as we move through the year. Caitlin Burrows (Goldman Sachs): Got it. And then um I guess 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 um I don't know things we should be on the lookout for or acknowledge as risks? Tom Boyle: Yeah know that's a good question. I think I rattled off some of the areas that we're focused on uh daytoday and monitoring the customer behavior. uh we'd expect in a downturn uh that we start to see some shifts in uh customer payment patterns and delinquency. Uh if you go all the way back to the financial crisis in that downturn, we saw longerterm tenants vacate at a higher frequency. Uh again, that's something we're watching very carefully and and actually saw the opposite in April um with a decline in longerterm tenant uh vacate activity. So, which is encouraging um and likely a shift in new customer behavior as well, meaning you're going to see some of the demand drivers shift back and forth. Uh you're going to see some countercyclical demand drivers driven by dislocation in a weaker macro environment uh help buffer some of the procyclical drivers uh that may soften. big picture, you know, storage tends to be very resilient uh in times of of downturn because of some of the those countercyclical demand drivers as well as the fact that we have month-to-month leases and can recover quickly u when demand does does turn around. Um and as it relates to new customers, I'd just highlight we're already coming off a time period where we've seen a significant move in new customer pricing. And so we're maybe with a little bit of a different setup than uh we we may have other times been in before uh downturns. So we feel pretty good about where the industry is set up heading into whatever uh may come in in 2025 given uh trade policy shifts. Uh and we feel public storage is also very well positioned uh in that backdrop. Caitlin Burrows (Goldman Sachs): Thanks. Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Robbie Vada with Mazuo. Please proceed with your question. Ravi Vaidya (Mizuho): Uh hope you guys are all doing well. I wanted to ask about acquisitions. Uh it appears that the acquisitions executed on the quarter were 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 or IR target for these acquisitions? Thank you. Tom Boyle: Yeah, sure. So, we did have um you know, increased activity in the first quarter as as Joe mentioned on on acquisition volumes and you know, the dialogue with sellers that we're having is across a variety of different property types including uh lease up assets. uh and the lease up behavior that we saw through the first quarter was encouraging frankly um and in line with you know some of the commentary I made around the same store and move in volumes and the like. So we've seen uh good lease up trends year-to- date. Um and so we're not shifting our underwriting methodology or otherwise as it relates to lease up assumptions uh from here. Uh but big picture um we're interested in acquiring the the full swath of of potential opportunities obviously depending on market and submarket and and uh and physical asset. Um and so um we were more active in some of the lease up assets and have confidence in that lease up trajectory. Uh but we're also interested in more stabilized uh properties as well. Um and some of what we have under contract is is some of that. So, we'll see a good mix here throughout 2025. Uh, as we go further in terms of return expectations and cap rates, you know, I would I would point you to pretty consistent uh playing field as it relates to cap rates, which is kind of going in yields in the in the 5s to low 6s and then stabilizing at a higher level under our platform. Uh, but that's been pretty consistent now for for a number of quarters. Um, we've had obviously some capital markets volatility uh over the month of April. Uh, and we'll see where where ultimately cost of capital shakes out. But, uh, as it relates to what's trading today, I'd point you to those same sorts of guideposts. Ravi Vaidya (Mizuho): Thank you. Appreciate the call. Tom Boyle [attribution inferred]: Sure. Operator: Our ne our next question comes from Key Ben Kim with Truist Securities. Please proceed with your question. Ki Bin Kim (Truist Securities): Thank you. Good morning. I just want to go back to the topic of how storage would perform in a downturn, you know, uh, and I know it's a probably a loaded question cuz what kind of downturn would 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 uh, you know, in looking backwards, you know, why wouldn't self storage outperform past down cycles? Tom Boyle: Yeah. You know, I I think that there's an argument that it could. Obviously, it depends on the flavor and the context of what the downturn is ultimately. Um, but, you know, you're pointing to a couple reasons that would suggest that uh that that uh self storage could do even better in the past and we wouldn't disagree with that. Ki Bin Kim (Truist Securities): Okay. And on your retained cash flow, uh you said 600 million up 50%. You know, what does how does that actually manifest to shareholders? Is it higher dividends or, you know, debt payowns um or more acquisitions or does it change anything at all? Tom Boyle: Yeah. No, that's a a great question. You know, what we typically think of is reinvesting that cash flow into the business. Um, we just spoke about the acquisition environment and some of the thawing that we've seen through through that. Um but I'd say um most prominently internally the way we think about it is reinvesting that into our development business which is Joe highlighted um has good return profile uh and and generally um as we look at it the highest risk adjusted uh return profile of our capital allocation alternatives. So we can pick the site subm market, design the building, uh design the unit mix, put it into our national operating platform, uh and and construct it with um you know, national bidding processes and our our in-house construction team. So we feel very good about uh reinvesting that retained cash flow into uh developments and and acquisitions from here and that will evidence itself in terms of um higher FFO growth. Ki Bin Kim (Truist Securities): Okay. Thank you. Operator: Our next question comes from Jeff Specker Spectre with Bank of America. Please proceed with your question. Jeff Spector (Bank of America): Great. Thank you. Uh my first question I just wanted to ask I don't think you you discussed specifically your business customer. I just want to confirm have you seen any recent changes with that customer. Can you remind us the percent overall in the portfolio? you know, business customers um if that's possible. Thanks. Joe Russell: Yeah, Jeeoff. The um approximate range of our uh business to consumer business. So, consumers make up plus or minus 85% um of our customer base. Um and then uh business related customers are about 15%. Uh the number is not precise because um some customers don't necessarily identify as businesses but the range that we see is uh typically about that. Uh some properties actually may have a higher percentage of business customers based on location, trade area, uh pro proximity to other types of um economic centers in any particular submarket. We really have not seen um anything meaningfully different between the two groups. Um they're both typically you know very um good customers particularly once they become aged. Uh we have a number of you know business customers to my point around the benefits of a particular location may be inherent to why they continue to store with us uh in and out of you know multiple year periods. Um and you know we service our overall customer base you know in very similar ways. Some business customers require different access hours etc and we can be accommodative on that front too but um overall you know a good percentage of the portfolio um plus or minus about 15% and haven't seen any degradation at all in this environment. Jeff Spector (Bank of America): Great. Thank you Joe. And then my second question, I just want to confirm. Uh it sounds like you're seeing strength across the portfolio, but but please confirm. I guess you know we're talk about markets with stronger income versus lower income or stronger higher density versus lower density. You know, are you seeing any differences uh in the month of April? Thank you. Joe Russell: I would be able to point to any differences in this shortterm period. Uh Jeff, you know, again, very broad-based. You know, most of the markets that uh we operate in, we have a combination of both dense and maybe more suburban orientation. Um as well as, you know, a whole host of different customer uh economic uh types again based on the trade area that any particular properties in. But frankly, we really haven't seen a differentiation come through at all. Um, it points to the overall health and resiliency of the business and the variety of ways customers, you know, continue to gravitate toward using self storage, whether it's first time andor, uh, customers that continue to um, keep their space with us. Jeff Spector (Bank of America): Okay. Thanks. You know, 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? Tom Boyle: Yeah. Yeah. Would point back to the comments that Joe made earlier around, you know, we're not anticipating to see a a typical uh seasonal pattern this year. And I would say that that's consistent what we've seen year-to- date. I I think we we've seen some closing of the occupancy gap, but I think that's more just broad-based demand bouncing off the bottom than it is anything that you would point to seasonally. Uh and and so I'd say generally speaking, similar to last year in terms of seasonal trends, um but overall a little bit better demand trends year to date. Jeff Spector (Bank of America): Okay. Thank you. Operator: Thank you. Tom Boyle [attribution inferred]: Thanks, Jeff. Operator: Our next question comes from Eric Lubchow with Wells Fargo. Please proceed with your question. Eric Luebchow (Wells Fargo): Uh great. Uh thanks for taking the question. So um I wanted to ask about M&A. I know you you're not going to comment directly on on the Abocus deal, but you know, as you think more broadly, you know, are there opportunities out there in other developed international markets, uh, given your experience with Shgard, whether it's, you know, more broad in Europe and Canada or in the APAC region? Just thinking about, um, how you can export the, uh, the PSA operating model into other countries. Joe Russell: Yeah, Eric. I mean, clearly we've proven that we 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 US. Uh, and how that may or may not be transportable into certain international markets. uh to your point, you know, Europe and the experience we've had with Shard there has been a great opportunity for us to learn as they've adopted at their election a whole host of things that um we've been able to uh guide them to if in fact it suited the particular level of optimization they're looking for in whatever particular country may or may not be applicable. And we've continued to study different markets outside the US. Um certainly, you know, we've gotten to know the Australian market well over the last several years based on um the experience we had five plus years ago um with an early uh 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. Um 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, you know, a new market um outside of US borders that may have many of the things that we can more immediately impact, which would be scale, um some kind of an operating platform that again has some proven attributes and the way that we can infuse our own uh capabilities and platform optimization um that we do here day-to-day into those kinds of platforms outside of borders. So the abocus opportunity is just that and hopefully we'll continue to find more over time. Eric Luebchow (Wells Fargo): Appreciate that. And and just one followup on on the guidance. I 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 and I guess based on on the trajectory of how this year has played out so far through April, you know, are you kind of in line or running ahead of of internal expectations at this point on on occupancy? Thank you. Tom Boyle: Yeah, Eric, just to clarify, what I communicated in February was the the midpoint assumes that occupancy on average would be down 10 basis points. Uh and so we're we're tracking uh right along with that uh based on year-to- date performance. Eric Luebchow (Wells Fargo): Okay, appreciate it. Thank you. Tom Boyle [attribution inferred]: Thanks. Operator: Our next question comes from Tayo Akasana with Deutsche Bank. Please proceed with your question. Tayo Okusanya (Deutsche Bank): Uh yes. Uh good uh good morning out there. Just quick one on street rates. So we get down 5% in one queue, down 8% in April. I'm just trying to understand like in relative to one of your peers where in one Q street rates were somewhat flat relative to the YI data where again kind of flattish maybe down a little bit. you know, you guys seem to still be, you know, using street rates or or or you know, or using street rates in a different way to maximize revenue, if I may use those words versus what some of your peers apparently seem to be doing. Now, I just wondered if you could talk a little bit about that, you know, in terms of why this is a better strategy versus kind of what the industry seems to be moving towards of street rates kind of flattening year-over-year at this point. Tom Boyle: Yeah, sure. I think there's a number of components there. You you know, I I won't speak to what others are doing. I just highlight, you know, we we consistently are looking to to optimize towards revenue over time. And that's a combination of both occupancy and rate or as you think about it on on moveins, move in volume and move in rates. um and obviously paired with advertising as well as uh promotional discounts as well. So uh that's a dynamic process that occurs at the unit and and property level uh and one that that we have a lot of confidence in uh in terms of our ability to to execute on that objective over time given the the breadth of data and experience that we have um in operating in our markets. I think, you know, looking at the first quarter for instance, our our rates move in rates were down uh 4.6%. Um, you know, that's a move in rent, just to be clear, not a street rent. So, that's an actual rent that a a customer is paying. Um and the volume uh that we we picked up in the quarter uh was healthy such that the net so the the the contract revenue or contract rents gained from moveins uh was down 2.3%. Uh and so that's an improvement from where we were in the fourth quarter which you know demonstrates the the stabilization that we're seeing on moveins. But to us it's not really a a rate discussion or uh a volume discussion. It's really both uh as we're looking to to optimize revenue over time. Tayo Okusanya (Deutsche Bank): That's helpful. And if I may ask one more question again just given again how tough overall housing market remain and if that's not going to be a real big driver. Just curious as you guys you know pull your tenants about why they're moving in. you know, any sense just in regards to all the other typical drivers? If if any of those are kind of higher than usual or something to kind of give us a sense of if housing doesn't come back, there may be these other drivers that may actually absorb some of that demand that we're not getting from housing. It's just kind of curious if you're kind of seeing anything like that that kind of makes you feel a little bit better that you could still have decent demand even if housing doesn't come back this year. Tom Boyle: Yeah. No, I I think our expectation is not that uh 2025 is a year of strong housing recovery. I think you're right that uh not likely to to be a big driver. But I think what we've seen yearto date is more broad-based demand across the other factors which again existing home salriven moveins were about 15% of our activity. So the other 85% is driven by a whole host of other demand drivers. uh and we've seen that that that level of demand has bounced across the bottom I and bounced off the bottom. I wouldn't highlight one particular driver there. More broad-based uh improvement off the bottom here. Operator: Thank you. Our next question comes from Mike Mueller with JP Morgan. Please proceed with your question. Mike Mueller (JP Morgan): Yeah. Hi. Real quick, just going back to development for a second. Can you tie together I guess the comments that took out a little bit earlier where you talked about the lowest move in rents you've seen since 2013 and you know kind of tie it to developing economics today um 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 or you you're more accepting of lower going in yields because you see longer term growth. I mean how how do we think about tying those two together? Tom Boyle: Yeah, no, no question. You're highlighting what's been a challenging development environment and that's what Joe was highlighting earlier. I think industrywide we're expecting that uh overall levels of supply are are likely to continue to come down because of some of the factors that you highlighted and and Joe highlighted earlier. I think against that backdrop, you know, we've challenged our team and they've been executing on a plan to to find those subm markets uh where uh there there's a good mix of of new demand that's coming in where it makes sense for us to to plant a a new public storage flag. Um and again uh pick that subm market, design that building and ultimately um you know construct that building at at at a good cost uh given our national buying platforms and plug it into our operating platform. Terms of the uh underwriting or otherwise we're not lowering our return expectations or or targets uh in this environment. Um but we we certainly are um experiencing some of the challenges that that others are as well but we certainly have the balance sheet retain cash flow and a deep team to execute against some of those challenges. Joe Russell: Yeah Mike just one other you know um 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, you know, to the points Tom just made, you know, 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, etc. And their playing field's probably not very far and wide. I mean they're going to be very focused on the individual market that they they are operating in or trying to develop in. So what we have very differently is the opportunity to um go in and out of different markets where we see these pockets of opportunities that with our own data and our own level of competence and underwriting capabilities. We're still seeing you know good opportunities uh with far less competition to look for attractive development um opportunities. So that continues to play forth and frankly we continue to be more encouraged that we can expand our development capabilities based on that. Mike Mueller (JP Morgan): Got it. Okay, that's helpful. Thank you. Tom Boyle [attribution inferred]: Okay, thanks. 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, — END OF TRANSCRIPT —