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    PSA
    Earnings call· Dec 2024(Q4 FY24)

    Public Storage PSA

    Feb 25, 2025 Source

    Executive summary

    Public Storage Q4 FY24 — Operational Stabilization and Strategic Growth Initiatives

    Public Storage concluded FY24 on a positive note, achieving sequential improvements in same-store revenue and core FFO per share, driven by broad operational stabilization across most markets. The company is leveraging significant investments in portfolio enhancement and digital transformation to drive efficiency and customer satisfaction. Despite ongoing competitive dynamics in customer move-in rates and specific headwinds in Los Angeles due to pricing restrictions, management is optimistic about increased acquisition activity and continued operational enhancements in FY25, positioning the company for improving fundamentals.

    Highlights

    5

    • Core FFO per share increased 20 basis points year-over-year in Q4 FY24, marking the first sequential improvement in over two years.

    • Quarterly same-store revenue growth improved sequentially for the first time in over two years, with nearly all markets inflecting positively.

    • Digital transformation has led to self-selected digital options comprising 85% of customer interactions, up from 30% in 2019.

    • On-property labor hours reduced by nearly 30% due to new operating model and AI utilization.

    • Solar program reached nearly 900 properties, resulting in a 30% reduction in utility use.

    Concerns

    5

    • Same-store revenues declined 60 basis points year-over-year in Q4 FY24.

    • Core FFO per share guidance for FY25 includes an estimated $0.23 per share impact from pricing restrictions in Los Angeles due to fires.

    • Same-store revenue guidance for FY25 includes an estimated 100 basis point impact from Los Angeles restrictions.

    • Move-in rents are assumed to be down 5% year-over-year on average for FY25, reflecting continued competitive dynamics.

    • Same-store NOI is projected to decline 1.4% at the midpoint for FY25.

    Guidance & targets

    10
    CategoryTargetConfidence
    Core FFO per share
    $16.35 to $17.00
    high materiality
    High
    Same-store revenue growth
    down slightly year-over-year
    high materiality
    Medium
    Move-in rents
    down 5% year-over-year on average
    medium materiality
    Medium
    Occupancy
    down 10 basis points on average
    medium materiality
    Medium
    Same-store expense growth
    3.25% at the midpoint
    medium materiality
    Medium
    Same-store NOI
    declining 1.4% at the midpoint
    high materiality
    Medium
    Acquisition volumes
    higher in 2025 than in 2024
    medium materiality
    Medium
    Non-same-store NOI
    $454 million
    medium materiality
    High
    New supply as % of existing stock
    decline to circa 2.5%
    medium materiality
    Medium
    Move-in rents (high end of guidance)
    down 3% on average
    low materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Same-Store Portfolio
    Same-store revenue growth improved sequentially for the first time in over two years. Expenses increased primarily due to property taxes, offset by staffing optimization. FY25 guidance anticipates a slight revenue decline and 1.4% NOI decline at the midpoint.
    Revenue growth (YoY): -0.6%Revenue growth (QoQ): sequential improvement from -1.3% in Q3Expenses growth (YoY): +0.9%NOI decline (YoY): -1.4% (midpoint FY25 guidance)
    		—-0.6%sequential improvement—
    Non-Same-Store Portfolio
    This sizable portfolio is expected to be a strong contributor in 2025, with significant NOI upside as properties stabilize beyond the current fiscal year.
    NOI (FY25 midpoint): $454MProperties: over 500Additional NOI upside beyond FY25: $80M
    		———$454M NOI (FY25 midpoint)

    Operational metrics

    15
    Core FFO per share
    $4.21+0.2% YoY
    Q4 FY24

    First sequential improvement in over two years, following a 300 basis point decline in Q3.

    Move-in volumes
    +5%
    YTD 2025

    Reflects continued levels of activity and demand stabilization.

    Move-in rates
    -8%
    YTD 2025

    As of start of 2025.

    Move-outs
    flat
    YTD 2025

    Leading occupancy to be down about 40 basis points year-over-year as of today.

    Occupancy
    down 40 bpsYoY
    YTD 2025

    Compared to year-end 2024, which was down 80 basis points.

    Retained cash flow increase from Property of Tomorrow program
    $600Mfrom $400M in FY24
    FY25

    Expected annual retained cash flow increase providing additional liquidity.

    Digital options customer interactions
    85%up from 30% in 2019
    Q4 FY24

    Self-selected digital options comprising customer interactions and transactions.

    On-property labor hours reduction
    nearly 30%
    Q4 FY24

    Result of new operating model and AI utilization.

    Utility use reduction (solar program)
    30%
    Q4 FY24

    Achieved through solar program reaching nearly 900 properties.

    Net leverage
    3.9x
    FY24

    Below long-term target of 4x to 5x, providing capacity for additional leverage.

    Marketing spend
    2.4%roughly consistent with prior year
    Q4 FY24

    Remains below historical averages.

    Promotions
    1.7%
    Q4 FY24

    Utilized some near-term first month promotions, remains below historical averages.

    Development yields target
    8% plus or minus
    ongoing

    Company continues to underwrite and target these yields, meeting or exceeding them in prior vintages.

    Development lease-up pace
    3 to 4 years
    ongoing

    Consistent underwriting for time to reach stabilization from 0 occupancy.

    Solar program unlevered IRR
    10% to 15%
    ongoing

    Viewed as attractive investments with strong returns.

    Industry KPIs

    2
    MetricValueDetails
    Move in rate growth churn-8%%
    Self storage same store revenue noi growth-0.6%%

    Orderbook & backlog

    2
    Development pipeline$740MQ4 FY24

    To be delivered over the next 2 years.

    Acquisitions closed or under contract$140MQ1 FY25 YTD

    Identified volume included in FY25 guidance. Total of $400M in Q4 FY24 and Q1 FY25 YTD.

    Deals & partnerships

    1
    Multiple sellersAcquisition of self-storage properties$361M

    26 properties acquired or under contract from Q4 2024 through today (Q1 2025). Leaning towards one-off transactions.

    Capital programs

    2
    Property of Tomorrow programcompleted$600M
    Spent to date: completed
    Start: 5+ years ago

    Benefit: Holistically rebranded entire portfolio nationwide; increased annual retained cash flow from $400M (FY24) to ~$600M (FY25)

    Multi-year investment to holistically rebrand the entire portfolio, completed in Q4 FY24.

    Solar programunderway
    Spent to date: nearly 900 properties reached

    Benefit: 30% reduction in utility use; 10-15% unlevered IRRs

    Actively rolling out, with more growth ahead in 2025. Investments provide strong returns and benefit the environment.

    Risks & headwinds

    6
    Los Angeles pricing restrictionsFY25, technically through January 2026

    $0.23 per share impact on Core FFO for FY25; 100 basis point impact on same-store revenue for FY25

    Mitigation: Driving operational stabilization across the rest of the portfolio; expecting sequential improvement outside of Los Angeles.

    Competitive customer move-in dynamicsFY25

    Move-in rents down 5% YoY on average for FY25 (midpoint assumption)

    Mitigation: Team and strategies calibrated appropriately; utilizing promotions, advertising, and move-in rents as levers; optimized conversion techniques.

    Sunbelt market volatilityNear term

    Not quantified, but Phoenix, Las Vegas, parts of Florida, and Atlanta are specifically mentioned as markets to watch.

    Mitigation: Monitoring these markets closely; overall benefit from fewer new deliveries nationally.

    Development business challengesOngoing, 2025 and 2026

    Not quantified, but includes entitlement, timing, and cost standpoints.

    Mitigation: National scale and buying power for component costs; skills to manage risk factors; creates additional discipline in the market.

    Potential impact of immigration policy on labor costsToo soon to tell

    Not quantified

    Mitigation: Keeping a very close eye on this across the board; ability to maneuver due to national scale.

    Consumer sentiment and economic headwindsNear-term basis in H1 FY25

    Not quantified, but retailers are reporting a softer consumer.

    Mitigation: Storage customers have shown resilience; demand stabilization observed; not seeing the same impact as other retailers.

    What to watch in Q1 FY25

    5

    Sequential improvement in same-store revenue

    next quarter
    CurrentImproved sequentially in Q4 FY24
    TargetContinued sequential improvement outside of Los Angeles

    Why it matters

    This indicates the underlying health and recovery of the core business, excluding specific regional headwinds.

    As Joe mentioned, we expect the sequential improvement to continue across the portfolio outside of Los Angeles.

    Q&A highlights

    6

    Clarification on the 5% down assumption for street rates in FY25 guidance and what's driving the broader market stabilization.

    Management confirmed the 5% down assumption for move-in rents in FY25, noting current year-to-date move-in rates are down 8% but move-in volumes are up 5%. They attribute stabilization to moderate but improving market-to-market demand, increased top-of-funnel activity (e.g., Google searches), and optimized conversion techniques. They do not anticipate a significant uptick in demand in FY25, expecting trends similar to FY24.

    “The moderate but improving market-to-market demand factor is a positive trend. We spoke to that quarter-by-quarter through 2024. And as Tom noted, that's carrying us into 2025 as we start.”

    asked by Jeffrey Spector · answered by Joseph Russell

    2 min read6 chapters

    Detailed Narrative

    01

    Operational Stabilization and Market Inflection

    Public Storage reported a positive end to 2024, with sequential improvements in same-store revenue growth and core FFO per share, marking the first such improvements in over two years. This stabilization is attributed to nearly all markets inflecting positively, driven by moderate but improving market-to-market demand and effective conversion techniques. The company noted increased top-of-funnel demand, including higher Google search activity for storage-related keywords, contributing to this broad operational recovery.

    02

    Los Angeles Fire Impact and Response

    The company acknowledged the tragic fires in Los Angeles, which led to a state of emergency and pricing restrictions in Los Angeles and Ventura counties. These restrictions are expected to result in a 100 basis point negative impact on same-store revenue for FY25, primarily affecting existing customer rent increases. Management expressed pride in their team's response and their ability to serve new customers affected by the fires, while expecting sequential improvement to continue across the portfolio outside of Los Angeles in 2025.

    03

    Portfolio Enhancement and Digital Transformation

    Public Storage completed its multi-year 'Property of Tomorrow' program, a $600 million investment to rebrand its portfolio, enhancing brand positioning. This initiative is projected to increase annual retained cash flow from $400 million in 2024 to approximately $600 million in 2025. Concurrently, the company's digital transformation has seen self-selected digital options grow to 85% of customer interactions, up from 30% in 2019, enabling a more efficient operating model and a nearly 30% reduction in on-property labor hours.

    04

    Capital Allocation and Acquisition Strategy

    The company has a $740 million development pipeline slated for delivery over the next two years. Acquisition activity has accelerated, with 26 properties acquired or under contract for $361 million since Q4 2024. Management anticipates higher acquisition volumes in 2025 compared to 2024, leveraging its strong balance sheet, industry-leading leverage (3.9x net debt and preferred to EBITDA), and cost of capital. Cap rates for stabilized properties are noted to be in the 5s to 6s range.

    05

    Expense Management and Solar Initiatives

    Same-store expenses increased 90 basis points year-over-year in Q4 FY24, primarily due to property taxes, partially offset by staffing optimization and expense controls. For FY25, same-store expense growth is guided at 3.25%, driven by property taxes and indirect operating costs, mitigated by payroll efficiencies and solar program benefits. The solar program, now at nearly 900 properties, has achieved a 30% reduction in utility use, with unlevered IRRs of 10-15% on these investments.

    06

    Customer Behavior and Pricing Dynamics

    Move-in volumes were up 5% to start 2025, while move-in rates were down 8%. Existing customer behavior remains strong, with consistent performance in delinquency and move-out trends. The company uses a combination of promotions, advertising, and move-in rents to manage performance at a local level. Marketing spend as a percentage of revenue was 2.4% in Q4, and promotions were 1.7% of revenue, both below historical averages, indicating disciplined pricing strategies in a competitive environment.

    AI-generated summary of the company’s earnings call. Not investment advice.