Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Occupancy trends outpaced expectations with positive net move-ins year-to-date.
- High-growth non-same-store pool, comprising 22% of total portfolio square footage, is leasing up quickly with NOI growing nearly 50% during the second quarter.
- Several markets within the portfolio are seeing month-over-month revenue growth improvement.
- Waning development of new competitive supply, which will be supportive to accelerating operating fundamentals.
- Repurchased $200 million in Public Storage common shares during the quarter, reflecting strong capital position.
Negative Points
- Move-in rents were down 14% due to competitive pricing dynamics in many markets.
- Second quarter core FFO of $4.23 per share represented a 1.2% decline compared to the same period in 2023.
- Same-store revenues declined 1% compared to the second quarter of 2023, driven by lower occupancy and rents.
- Same-store cost of operations were up 90 basis points in the second quarter.
- Revised core FFO guidance to a range of $16.50 to $16.85 per share, an approximate 1% reduction compared to the midpoint of prior guidance.
Q & A Highlights
Q: Maybe, Tom, just sort of following up on the sort of the guidance changes in the down 12% that you and Joe sort of spoke about. Maybe just talk about either the market mix or how you thought about that? And I guess under what economic conditions or housing scenarios, could that possibly get better in the back half of the year? And I guess, what are the risks that, that down 12% could maybe be worse than you're currently forecasting?
A: Yes. Sure, Steve. So there's a couple of components there. I'll start with the first piece that you highlighted, which is, what are we seeing in markets? And we are seeing continued positive momentum in many of the markets that we've highlighted to date, the markets like the Mid-Atlantic, Seattle, San Francisco and we can reiterate those if helpful. But we're seeing improvements in move-in rents in those markets as well. So a market like Seattle, for instance, was nearly flat on move-in rents for the second quarter already with improving trends there. The flip side, and we've spoken about this a good bit is that markets that were maybe more high flyers during the last several years have tougher comps and continue to have move-in rent growth that is more like down in the 20%, even higher than down 20% in many instances. Those markets are still in very good shape versus pre-pandemic in terms of their demand fundamentals, population inflows and the like, but are going to take a little bit longer to stabilize. And I'd say big picture, for move-in rents. We've seen a modest improvement year-to-date, right. If you look at the first quarter, move-in rents for us were down 16%, the second quarter down 14%. As we sit here in July, they're down 12%. So the improvement is there. It's just more modest in terms of pace than what we had originally outlined in our February call. And as we sit here today, we're still calling for modest improvements here, but we've recalibrated that pace into the second half as well.
Q: Okay. And maybe just touching on the capital allocation. It was interesting to see that the share buybacks -- and I assume that, that's partly a function of capital activity on the acquisition side, just not really being there. I guess, what are you seeing on the acquisition front? And I think you mentioned maybe things were picking up a bit, but what are the opportunity sets and how do you sort of measure away the buybacks against either development spend and/or acquisitions?
A: Okay. Sure. I'll start, Steve. From an acquisition opportunity standpoint, for the last two or three quarters, we pointed to the fact that there was a relatively active amount of inbound calls that we were in dialogue with a whole host of different types of owners, whether individual, small and in some cases, somewhat larger portfolios. That type of activities still at hand. What typically happens on an annual basis, you'll see more activity start to percolate in the second half of the year. We think that there is likely that type of activity ahead of us. There is a number of -- or there are a number of different owners that, for a variety of reasons, are in a position to transact, whether it's capital constraint related or need for recapitalizing either existing assets or pivoting out of any asset for any particular reason. So we have a fair amount of activity that gives us a level of confidence that we're likely to meet the number that we guided to at the beginning of the year. Clearly, we'll see how that continues to play out. But we're encouraged by the amount of activity that's playing through as we speak. Now, from an alternative standpoint, your question around how do we think about the timing, the size, and the efficacy of actually buying back our own stock, that's typically something that we look at from a capital alternative investment standpoint. We felt for a variety of reasons, we had a good opportunity in the quarter. to buy back shares. Obviously, we've got plenty of capital to deploy. We felt it was a good opportunity for us to extract the value that we see in our shares. And as we go forward, we'll continue to look at that alternative as we always do. And with that, we'll see what plays through as we go forward.
Q: Just with the revised same-store revenue range, just hoping you could speak a little bit about the cadence or said differently, the exit run rate that you guys are thinking will come out of 2024 at, just to think about early days, I know, but how 2025 at least may start?
A: Yes, sure, Juan. So obviously, implied in the revised outlook is a number for the second half, right? And I think as you look at the first half, our same-store revenue growth was down about 50 basis points implied in the second half is down about 1.5%. So I wouldn't get any more specific in terms of where exactly we're going to be the month of December or otherwise. And obviously, we'll give you 2025 outlook as we get into February. The one set of points that I would share is that we continue to be positive around the trajectory of both industry fundamentals as well as our own fundamentals as we sit here today. We've spoken about how this year is a year of stability and stabilization for the sector. There's reasons to be optimistic around future demand growth as we get through 2025 to 2027. And at the same time, that's going to be counterbalanced with declining deliveries of new competitive supply given the challenges in new construction today. So we continue to be optimistic around the outlook for the business in future years without getting into any 2025 specifics.
Q: Sorry if I missed this. Did you give any commentary yet, or are you able to, on the July occupancy and move-in rates?
A: Yes. Sure, Nick. I can provide some commentary there. I did highlight that July move-in rents are down about 12% as we sit here today. So again, sequential improvement from the first and second quarters there. On occupancy, we're closing the month down circa 40 basis points in occupancy. So a touch below where we finished June, but in a narrower gap than where we started the year.
Q: Okay. Thanks for that Tom. And then in terms of a question on ECRI, what are you seeing in trends with tenants? I mean, is there any signs of fatigue or pushback that you're getting on ECRI? I just wanted to be clear as well on the same-store guidance change. Was there any assumptions that were change on ECRIs? Or is it all just moving rents?
A: Yes. Thanks. So we continue to be encouraged by behavior from our existing tenants. And if you think about the existing tenant base and storage, right, a lot of the existing tenants we're speaking to today were move-in customers last year and the year before. And we continue to be encouraged by the performance of those
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
