Public Storage Q4 FY2024 earnings call

• Ended 2024 with nearly all markets inflecting and broad operational stabilization, leading to the first sequential improvement in same-store revenue growth in over two years.
• Proud of the team for keeping properties secure in Los Angeles following fires, with new customers welcomed.
• Completed the Property of Tomorrow program, a multi-year $600 million investment, expected to increase annual retained cash flow from $400 million in 2024 to $600 million in 2025.
• Digital transformation advancing, with a 30% increase in self-selected digital customer interactions, reducing on-property labor hours by nearly 30% while boosting customer satisfaction.
• Active solar program with nearly 900 properties, resulting in a 30% reduction in utility use.

In the fourth quarter, core FFO per share was $4.21, a 20 basis point year-over-year increase. Same-store revenues declined 60 basis points year-over-year but improved sequentially. The non-same-store pool of over 500 properties is poised to be a strong contributor in 2025, with $454 million of NOI assumed at the midpoint of guidance. Core FFO per share growth was positive, marking the first sequential improvement in more than two years. Same-store expenses increased 90 basis points year-over-year, with growth in property taxes offset by staffing optimization and expense controls.

• Core FFO per share guidance is $16.35 to $17, with a midpoint consistent with 2024, including a $0.23 per share impact from California fire-related pricing restrictions. Excluding this impact, the midpoint would show a 140 basis point year-over-year increase.
• Same-store revenues midpoint is slightly down year-over-year, with an estimated 100 basis point impact from Los Angeles restrictions. Move-in rents are assumed to be down 5% on average, occupancy down 10 basis points on average. Same-store NOI is expected to decline 1.4% at the midpoint.
• Anticipate higher acquisition volumes in 2025, with $140 million of closed and under contract volume identified. The non-same-store portfolio is expected to contribute $454 million of NOI at the midpoint and has $80 million of additional NOI upside beyond 2025 through stabilization.

• Competitive customer move-in dynamics.
• Impact of California fire-related pricing restrictions on same-store revenue.
• Potential impacts from immigration policies on labor costs and environmental policies on solar initiatives.

Q: Tom, can you talk a little bit more about the assumptions on street rate?

A: Tom Boyle discussed year-to-date performance, noting move-in volumes up 5%, move-in rates down 8%, net improvement, occupancy down 40 basis points year-over-year, and midpoint assumptions.

Q: Todd Thomas asked about Los Angeles impact on same-store revenue and Sunbelt vs. coastal markets.

A: Tom Boyle and Joe Russell discussed Los Angeles impact on same-store revenue and Sunbelt market improvements, including Sunbelt markets like Miami and Orlando inflecting into positive second derivative territory.

Q: Michael Goldsmith asked about transaction market and cap rates.

A: Joe Russell and Tom Boyle discussed transaction activity levels, noting 2024 was a low sector transaction year, cap rates in fives to sixes for stabilized properties, and demand stabilization.

Q: Juan Sanabria asked about expenses and pricing dynamics.

A: Tom Boyle and Joe Russell discussed expense drivers, solar program returns, and pricing tools like promotions, advertising, and move-in rents.

Q: Nick Joseph asked about LA rent restrictions and capital allocation.

A: Tom Boyle discussed LA rent restriction impact on same-store revenue and capital allocation framework, including repurchasing shares and introducing an ATM program.

Q: Spencer Glimcher asked about LA rent restriction duration and development pipeline.

A: Joe Russell discussed LA rent restriction duration through January 2026 and development pipeline risks, including labor and immigration policy impacts.

Q: Samir Khanal asked about ECRI's and moving rents.

A: Tom Boyle discussed ECRI's strong performance from existing customers and moving rent assumptions of down 5% at midpoint, with 3% decline at high end.

Q: Ki Bin Kim asked about ECRI increases and capital allocation.

A: Tom Boyle discussed ECRI's and capital allocation framework, including net leverage at 3.9 times and long-term target of 4-5 times.

Q: Ronald Kamdem asked about AI impact and CapEx.

A: Joe Russell discussed AI impact on customer interaction, margins, and employee satisfaction, and CapEx on property enhancements as a multi-year investment.

Q: Mike Mueller asked about LA headwinds and move-in rates.

A: Tom Boyle discussed LA headwinds on existing customer rent increases and move-in rate assumptions outside LA.

Q: Brendan Lynch asked about acquisitions and property characteristics.

A: Tom Boyle discussed acquisition targets focusing on individual asset quality and value creation across urban, suburban, and geographic markets.

Q: Omotayo Okusanya asked about consumer sentiment and demand.

A: Tom Boyle discussed consumer sentiment and demand stabilization, noting storage customers have been resilient.

Q: Caitlin Burrows asked about development yields.

A: Tom Boyle discussed development yields targeting 8% plus or minus, with lease-up pace expected to take 3-4 years to reach stabilization.