Q2 2024 Earnings Summary
- Non-same-store portfolio is an engine of growth: The company expects an additional $110 million of incremental NOI in 2025 and beyond from its non-same-store pool, which is leasing up quickly and contributing strongly to growth.
- Positive momentum in key markets: The company is seeing continued positive momentum in markets like Seattle, San Francisco, and the Mid-Atlantic, with some markets experiencing move-in rents nearly flat year-over-year, suggesting improvements and stabilization.
- Effective cost management through digital and solar initiatives: Implementation of the digital leasing platform (eRental), with 70% of new lease transactions signed digitally, has allowed for reduced staffing levels and operational efficiencies. Additionally, utilities expenses are down 8% due to the company's solar power initiatives, with plans to install solar on over 1,000 properties over the next several years.
- PSA revised its guidance downward due to lower-than-expected move-in rents and increased competitive pressures. Move-in rents were down 14% in the second quarter, compared to an original forecast of down 6%. As a result, core FFO guidance has been reduced to a range of $16.50 to $16.85 per share, an approximate 1% reduction compared to the midpoint of prior guidance.
- Same-store revenues declined by 1% in the second quarter, driven by lower occupancy and rents. The company expects further pressure on occupancy, with an implied decline of 1.5% in same-store revenues in the second half. Lower market move-in rents are expected to persist due to a competitive pricing environment, impacting revenue growth.
- Demand is down year-over-year, contributing to the competitive environment and declining move-in rents. Google keyword search volumes for storage-related terms are down year-over-year, which impacts the competitive move-in dynamic. This decreased demand may lead to continued pressure on move-in rents and occupancy levels.
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Guidance Changes
Q: What impacts revised revenue guidance?
A: Management stated same-store revenue growth was down 0.5% in the first half and is expected to be down 1.5% in the second half, reflecting modest improvements but at a recalibrated pace due to slower-than-anticipated move-in rent improvements. -
Move-in Rent Trends
Q: How are move-in rents performing?
A: Move-in rents were down 16% in Q1, 14% in Q2, and now down 12% in July, showing modest sequential improvement, though not at the pace originally outlined. -
Acquisitions and Cap Rates
Q: What's the outlook for acquisitions and cap rates?
A: Cap rates have increased from around 4% two years ago to about 6% today; management is confident in pursuing opportunities at these levels but notes more transaction activity is needed to stabilize rates. -
Capital Allocation
Q: Why were shares repurchased?
A: With limited acquisition opportunities, management saw a good opportunity to buy back shares, extracting value from their stock while remaining well-capitalized to deploy capital when opportunities arise. -
Demand and Competition
Q: What's driving competitive move-in environment?
A: While the company's move-in traffic remains strong, overall industry demand is down year-over-year, with Google search volumes for storage terms decreasing, leading to increased competition and aggressive pricing. -
Expenses and Operational Efficiencies
Q: How are expenses trending?
A: Property taxes are up around 5% as expected, while property payroll expenses are reduced through digital initiatives like eRental, with 70% of leases signed digitally, enabling cost savings and further optimization. -
Supply and Development Activity
Q: What's the status of new supply?
A: Development activity remains low nationally at about a mid-2% increase in existing stock, due to factors like cost of capital and entitlement timing; this allows the company to pursue record development in 2024. -
Existing Customer Rent Increases
Q: Any changes in ECRIs?
A: Price sensitivity among existing tenants remains consistent, with no change to ECRIs' contribution to revenue growth; an increased volume of recent move-ins is positively impacting the program. -
Consumer Trends
Q: Seeing any consumer stress?
A: No signs of new or evolving consumer stress; payment behaviors and delinquency remain consistent, with no risk factors emerging. -
Third-Party Management Growth
Q: How is the third-party management platform performing?
A: The platform has grown to approximately 375 assets, with ongoing additions and increased activity, enhancing scale and benefiting both clients and the company.
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