Public Storage (NYSE:PSA) Q1 2024 Earnings Call Transcript May 1, 2024
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Operator: Greeting, and welcome to Public Storage First Quarter 2024 Earnings Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Burke, Vice President of Investor Relations and Strategic Partnerships. Thank you. You may begin.
Ryan Burke: Thank you, Rob. Hello, everyone. Thank you for joining us for our first quarter 2024 earnings call. I’m here with Joe Russell and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, May 1, 2024, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplemental report, SEC reports and an audio replay of this conference call on our Web site at publicstorage.com.
We do ask that you initially limit yourself to two questions. Of course, if you have additional questions after those two, feel free to jump back in queue. With that, I’ll turn it over to Joe.
Joe Russell: Thank you, Ryan, and thank you all for joining us today. Tom and I will walk you through our recent performance and updated industry views. Then we’ll open it up for Q&A. Our first quarter performance was in line with our expectations. As we anticipated, the new move-in customer environment remains challenging. However, we are encouraged by positive trends across our business, which include industry wide customer demand improved sequentially through the quarter; the ability to raise our move-in rates as we enter the peak leasing season; strong in-place customer behavior, including longer than normal length of stay and lower delinquency rates; moderating move-out volume; improving occupancy; and waning development of new competitive supply, a trend we expect will continue.
As mentioned on last quarter’s call, we were encouraged by month-over-month revenue growth reacceleration in certain markets, including Washington, D.C., Baltimore and Seattle. That momentum has continued. And additionally, we see accelerating trends in markets, including San Francisco, New York, Chicago, Philadelphia, Detroit and Minneapolis. We anticipate more markets will be added to this list across our portfolio over the next few quarters. These bottoming to improving trends are particularly important for two reasons: first, they are in stark contrast to 2023 when all markets were decelerating as we normalize from record performance in 2021 and 2022; and second, they put us on track for improving company wide financial performance in the back half of this year as embedded in our guidance.
Additionally, our high growth non-same store pool assets comprises 538 properties and 22% of our overall portfolio square footage. With NOI growth approaching nearly 50% during the first quarter, these properties remain a strong engine of growth. Overall, we are encouraged by what we are seeing on the ground. The team is very focused on capturing new customer activity as we approach the busy season, which will help drive our performance for the remainder of 2024 and into 2025. With that, I’ll turn the call over to Tom to provide additional detail.
Tom Boyle: Thanks, Joe. Shifting to financial performance. We reported first quarter core FFO of $4.03, representing a 1.2% decline compared to the first quarter of 2023. Looking at the same store portfolio, revenue increased 0.1% compared to the first quarter of ’23. That was driven by rent growth, offset by modest occupancy declines. Move-in rates, adjusting out our winter promotional sale activity were down 11% in the quarter. Positive net move-in volumes led to modest closing of the occupancy gap at quarter end to down 60 basis points. On expenses, same store cost of operations were up 4.8% for the first quarter, largely driven by increases in property tax and marketing spend to drive move-in activity. In total, net operating income for the same store pool of stabilized properties declined 1.5% in the quarter.
Our performance in the stabilized same store pool was supplemented by very strong growth in our non-same store pool, as Joe highlighted. With the non-same store assets at 81% occupancy in the quarter, we have confidence in outsized growth from that pool to come this year and into the future, which is a segue to our outlook for ’24. We reaffirmed our core FFO guidance for the year with a $16.90 midpoint on par with 2023. The first quarter was in line with our internal expectations. And as we discussed on our last quarterly call, we anticipate deceleration of financial performance into the second quarter and with improvement in the second half. Outlook for capital allocation remains intact with $450 million of development deliveries anticipated, which will be a record year for Public Storage and $500 million of acquisitions in the second half.
The transaction market for acquisitions remains subdued with limited volumes given a volatile cost of capital environment year-to-date. We’re optimistic that there’s a pent-up level of transaction activity likely to come, and we’re eager to participate when that does occur. Finally, our capital and liquidity position remains strong. We refinanced our 2024 maturities in April with a combination of a three year floating rate note, a 15 year euro note and a 30 year reopening. Our leverage of 3.9 times net debt and preferred to EBITDA puts us in a very strong position heading through the year. So with that, I’ll turn the call back to Rob to open it up for a Q&A session.
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