Public Storage Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage First Quarter 2023 Earnings Call. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations. Ryan, you may begin.

Speaker 1

Thank you, Britney. Hello, everyone. Thank you for joining us for our Q1 2023 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.

Speaker 1

These forward looking statements are subject to certain economic risks and uncertainties. All forward looking statements speak only as of today, May 4, 2023, 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, supplement report, SEC reports and an audio replay of this conference call on our website at publicstorage.com. We do ask that you initially keep your questions limited to 2.

Speaker 1

Of course, if you have additional questions, feel free to jump back in queue. With that, I'll turn the call over to Joe.

Speaker 2

Thank you, Ryan, and thank you for joining us today. Public Storage had a very good start to 2023. We remain focused on leading the self storage industry's digital evolution, transforming our own operating model and enhancing and growing the portfolio. In the quarter, we achieved new milestones on several of our key initiatives, which included Exceeding 60% of customers choosing to move in through our eRental online lease, Eclipsing 2,000,000 downloads of the Public Storage mobile app. Reaching 400 properties on our customer demand driven digital operating platform, installing solar at more than 200 properties, Putting us on track to complete at least 1,000 property installations within the next 3 years.

Speaker 2

Completion of over 70% of the Property of Tomorrow enhancement program, growing NOI by 29% Across the 529 acquisition and development properties in our non same store pool and driving the industry's largest development pipeline to an excess of $1,000,000,000 to be delivered over the next 24 months. We had a strong operating performance in the Q1, Particularly with existing customers performing well and same store move in volume up nearly 13%. Length of stays are strong and same store revenues were up nearly 10% year over year. Our exceptionally large Non same store acquisition and development pool, now nearly 25% of the overall portfolio, continues to outperform as well. Fundamentally, self storage is a needs based business with demand drivers that are multidimensional and fluid throughout economic cycles.

Speaker 2

We also continue to benefit from people spending more time at home, which has increasing permanence with remote and hybrid work here to stay. Additionally, with the return to more seasonal patterns of demand, we are currently also seeing an uptick in movement activity that has We also continue to find good opportunity in development and redevelopment as well With a vibrant pipeline poised to generate growth for years to come, our unique ability to weather economic cycles serves us well, Particularly while other developers have slowed their activity due to higher interest rates, cost pressures, difficult municipal processes and concern over the near macro term landscape. Now I'll turn the call over to Tom to discuss Acquisition market and financial performance.

Speaker 3

Thanks, Joe. The transaction market has been relatively quiet to start the year as That said, we have closed or are under contract to acquire nearly $200,000,000 right on track for our $750,000,000 outlook for the year. The vast majority of our acquisitions this year have been done off market quietly. More recently, we've been encouraged by an increase in inbounds, which are primarily small to medium sized portfolios. We're in a great position to acquire today given our cost and access to capital advantages paired with our industry leading NOI margins.

Speaker 3

Now on to financial performance. As Joe mentioned, we started the year strong reporting core FFO of $4.08 for the quarter, representing 16.2% growth over the Q1 of 'twenty 2, excluding the contribution from PSB. Looking at the components, in the same store, our revenue increased 9.8% compared to the Q1 of 2022. We drove strong move in volumes up 13% during the quarter heading into our peak leasing season. And the existing tenant base Remain strong with length of stays sitting at records.

Speaker 3

Same store cost of operations were up 5.6%, leading to total net operating income for the same store pool of stabilized properties growing 11.2% for the quarter. In addition to the same store, the lease up and performance The recently acquired and developed facilities remained a standout in the quarter growing 29% compared to last year. Shifting to the outlook. We lifted our outlook for the year driven by increasing our same store revenue assumptions. While the macro environment remains uncertain, performance to date has been encouraging.

Speaker 3

We're set up well heading into the 2nd quarter. Last but not least, our capital and liquidity position remains rock solid. Our net leverage of 3.3 times Combined with $700,000,000 of cash on hand at quarter end puts us in a very strong position for capital allocation as we move through the year. Now I'll turn it back to Joe.

Speaker 2

Thanks, Tom. Our people, technologies, platforms, balance sheet and brand Have and will be continually enhanced to create and strengthen the competitive advantages we have across The entire Public Storage enterprise. We see opportunity in the current environment and are poised to execute with focus on delivering growth and value for our shareholders. Let's go ahead and open the call up for questions.

Operator

Will take our first question from Juan Sabaria with BMO Capital Markets.

Speaker 4

Hi, good morning. Joe or Tom, I was just hoping you could speak to April trends and what you're seeing in terms of demand and or price sensitivity From customers out there, any some of your peers have talked to some softness in March or April, depending on their market exposure. So just curious what you guys are seeing across your platform?

Speaker 3

Yes. Thanks for the question, Juan. As we move through the quarter and you could hear it in the prepared remarks, we saw continued strength In move in volumes and interest into our system. And so as we move through March and into April, that trend continued. I wouldn't characterize March is weak, but I would characterize April as strong.

Speaker 3

And so we've seen accelerating move in volume growth We move through what was a strong March and into a stronger April. The one of the things you highlighted there was existing customer sensitivity To price, and I'd also note that we haven't seen anything concerning there. Price sensitivity has been very in line with our expectations. And so against that backdrop, seeing good move in volumes, which is encouraging in particular as we head into the next several months.

Speaker 4

Thanks. And then just for my second question, just on the property of tomorrow spend, you guys have made excellent progress Deploying that capital, just curious on the types of returns you're generating as you look at the CapEx that you've spent And how that's augmenting growth either in the same store or non same store pool?

Speaker 2

So, yes, the step back one, The program has been quite well received by both customers, our employees. And Now that we're at a point where we're actually getting to full market completion in several of our key markets as we Finish up and round out the program over the next couple of years, we're actually seeing very good response and overall lift just to the Again, the image and the power of the brand, particularly where we've got meaningful scale in many, many markets. So we continue to track and See the benefits from that. It's continuing to enhance our presence market to market. And with that, we continue to be very excited about getting the program completed.

Speaker 2

The team has done a very nice job figuring out Any and all ways to optimize the amount of volume we're actually going to pull it in plus or minus a year earlier than we intended to. And with that, we'll be in a very good Positioned nationally to have elevated the crisp and enhanced brand attributes that play well in many parts of our business.

Speaker 4

Appreciate the time. Thank you.

Speaker 5

Thank you. Thanks, Juan.

Operator

We will take our next question from Michael Goldsmith with UBS.

Speaker 6

Good afternoon. Thanks a lot for taking my question. My first question is on the guidance. You brought up the low end. Is that a reflection Of the trends that you've already experienced in the Q1 or that guided the low end of your range was based on a Full recession scenario, is the increasing guidance more reflective of that outcome is Less likely to occur.

Speaker 6

And then within this, you've included this quote In your supplemental that suggests that the potential of revenue growth rates is wide and including the potential for year over year Lines in revenue in the second half of the year. Is there anything that you saw in the Q1 that changes your view on that? Thanks.

Speaker 3

Sure. Thanks for that question, Michael. I would characterize the Q1 as a strong quarter and that is really what's leading To the lift in the low end of that revenue assumption component. And so we've talked to the strength in the Q1. You're highlighting how we characterize the wide range of potential outcomes Embedded within our outlook for the year, there's still certainly macro uncertainty in the back half of the year.

Speaker 3

That hasn't changed, but performance to date has been quite encouraging, which is leading to the increase in the outlook for the year.

Speaker 6

And my follow-up question is about the strength and the sustainability of the LA market. Same store NOI growth was up 20% in the quarter, which added 300 basis points to the overall number. Presumably, this is reflecting The rate restrictions that were lifted in February of 2022, which you lapped during the quarter, Is there kind of like a second is there a second year of growth coming from the LA market or have we kind of You kind of used up all the gain there and the gain should be more modest going forward. Thanks.

Speaker 2

Yes, Michael. First of all, LA being our largest market, we've been very pleased by the performance we've been able to achieve over the last year or so To your point where the owner's restrictions have been lifted, but it is also a market where we have a commanding presence. We've got very good inherent demand. We've got very good occupancies and very little new competitive product coming literally to any of The submarkets that we're competing in, so the inherent demand in the market is quite good. We think we've got against Some good traction ahead of us certainly going into the rest of 2023 and we'll continue to see where we go from there.

Speaker 2

But we've been very pleased by the performance

Speaker 1

of that portfolio. It is

Speaker 2

one of the It is one of the markets that we to go back to my comment about property tomorrow, we put about $75,000,000 into Portfolio to lift it from a brand awareness standpoint, finished that a little over a year and a half ago. And again, good timing and tie To that being that much more prominent in the market and one of the ways we measure the receptivity of that too is Net promoter scores, again, getting very good reaction from customers and the brand itself is playing through quite well. So with that good demand and good continued performance.

Speaker 6

Thank you very much.

Speaker 5

Thank you.

Operator

We'll take our next question from Smedes Rose with Citi. Your line is open.

Speaker 4

Hi, thank you. You mentioned the almost 13% move in volume across the Q1, but move out volume Was lower, but kind of almost kept pace with the move in volume. I was just wondering if you saw similar trends in April as well.

Speaker 3

That's a great question, Smedes. So one of the things that took place during the quarter was We did gain occupancy as you'd anticipate. And so occupancy from the end of the year through March was up 50 basis points. And in April, we gained another 20 basis points. So starting to see that seasonal uplift in occupancy that will really continue here into May.

Speaker 3

And I'd characterize the trajectories of year over year move in and move out growth as being favorable, I. E, As we move through the quarter, the move out volume growth has modestly lowered And the move in volume growth has modestly increased into April, I. E. So April was actually our best month in terms of gaining occupancy And in closing the year over year occupancy gap on an incremental basis. So Again, encouraging trends here as we head into the peak leasing season.

Speaker 4

Thanks. And then I noticed that the late charges, the pace of growth picked up at a faster pace since it's rental income. I'm just wondering if there's anything kind of to read into that and An uptick in kind of non payments or anything that would suggest some customers are under economic duress?

Speaker 3

Sure. Yes, there's 2 components to that line item. The one is what you're highlighting, which is that there are more customers That are making late payments this year than last year. But if you frame it over a multi year time period, we're coming off of Really, really low delinquency time periods over the last several years and remain well below 2019 levels of delinquency. But you're seeing an uptick there in late payments.

Speaker 3

And then I think more interestingly, The fact that we had significant move in volume growth also contributed there with our administrative fee that's charged to new customers when they move in Leading to a year over year increase in that line item as well.

Speaker 5

Great. Thank you. Thanks, Pete.

Operator

We'll take our next question from Todd Thomas with KeyBanc Capital Markets.

Speaker 7

Hi, thanks. Good morning out there. First question just related to Investments, Tom, the balance sheet is in great shape. I think you commented that you're seeing an increase in inbound Call volume from owners. Are you seeing the pipeline build?

Speaker 7

And can you speak a little bit to pricing, whether pricing seems to be Moving in your favor such that we should expect to see deal flow pick up in the quarters ahead?

Speaker 3

Sure. So we have started to see Or started to receive more inbounds more recently. And I do think that that's healthy. And as you know, Todd, It's traditional to have a busier second half for storage transaction volumes in the first half, and we're encouraged to start to see that inbound activity. And We suspect it is going to lead to a pickup in volume as we move into the second half this year.

Speaker 3

And in terms of Valuation, as you think about the assets and where things have traded, transaction volumes have been Relatively light to start the year. So I wouldn't point to a significant amount of data for us to sit here and say that cap rates are an X or Y with Significant precision. We're continuing to find good value in many of the assets and are closing that buyer and seller gap in many instances, but it remains wide in others. And so we're still working through that and anticipate to work through that Through the rest of the year given what's played out with interest rates and the macro environment. To put some numbers on it, I think in the last call, we said the cap rates had moved up About 100 to 125 basis points from the lows.

Speaker 3

And I would say we haven't seen anything over the last 3 months that would have us direct Any differently than that.

Speaker 2

Yes, Mike. Okay. And then

Speaker 4

And then Yes.

Speaker 7

Okay. And then

Speaker 2

Yes. Just a little bit more To the complexion of the activity so far, so Tom mentioned that we've been doing a number of deals off market. So as always, we are looking for those kinds of opportunities as well. There are still owners out there that are looking for an efficient, Clean transaction, the average occupancy of the $186,000,000 that we've done, so far has been about 50%. So thematically, Very similar objective on our part where and if we can acquire properties that have upside once we put them on our platform, that's going to make sense Relative to the ultimate yields that we're likely to achieve from those assets.

Speaker 2

So, we're confident we're going to continue to see those kind of opportunities going into the rest of the year.

Speaker 7

Okay. And then, how would you sort of compare and contrast the U. S. First, Non U. S.

Speaker 7

Opportunity set today. And then, also would you just given the amount of Development activity that's taken place over the last several years and some of the tighter lending The entire lending environment that we're seeing today, would you consider building out a structured finance program at all to be a financing solution for borrowers, but Also as a way to maybe expand the platform through 3rd party management and build a future investment pipeline.

Speaker 2

Okay. So yes, a couple of questions or more on that statement. So first of all, from an international standpoint, I would Consistent with what we've spoken to for some time, which is we're well equipped to consider and evaluate Outside border opportunities, we continue to do that, nothing to speak to as we are here today. But again, that's part of the overall mining that we're doing, both inside and outside borders. But We'll see how that plays out over time.

Speaker 2

Clearly, there's been far more in border opportunities over the last 3 or 4 years. And maybe to a tie to another part of your question is the fact that part of the reason for that is the amount of development that's coming into the cycle has been done by owners that have no intention of being long term holders of those assets. So that continues to be a good breeding ground for us to find deals. I'll let Tom talk about thoughts around going into any kind of lending platform, etcetera.

Speaker 3

Well, yes, I'd maybe Take a step back and comment on your question around the lending environment because I do think stepping back the lending environment has certainly gotten more challenged For many developers at this point, it could lead to lower new supply heading forward. And so we'll have to see how that plays out. In terms of our participation in other parts of the capital stack, we continue to find very good value in the equity portion of the capital stack and have been Capital there consistently over the last several years and have found that to be a good risk adjusted return. And I'd note in addition to that, we have made Some lending investments with some of our partners on a smaller scale. So something that we're considering and is part of our wheelhouse as we move forward.

Speaker 3

All right. Thank you.

Speaker 5

Thank you. Thanks.

Speaker 4

We'll take

Operator

our next question from Kegan Carroll with Wolfe Research. Your line is open.

Speaker 8

Hey guys, thanks for the time. Maybe first here, just any more color on your development pipeline, particularly those assets that are completed from 2018 to 2020? It seems that occupancy levels are below your portfolio average by a decent margin, but yes, they should have stabilized at this point based on your press release commentary. So just Any sort of color on what's driving and if it's maybe market specific would be helpful.

Speaker 3

Yes, I'd characterize the performance of those assets to be Pretty strong, right. I mean anything we delivered over that time period has benefited from really strong demand drivers and frankly They've been exceeding our expectations. Your comments around occupancies, I think some of those vintages are a touch under 90%, But they'll certainly stabilize above 90%. One of the things that I'd remind you is that occupancy is only one part of the equation of stabilization and rental rates Certainly the other and we're seeking to maximize revenue from those pools of assets the same way we do our same store pool. So occupancy will Ultimately, get over 90%, but I think more importantly, the rate growth there has been exceptionally strong and likely has several more years of strong rate growth compared to the same store pool from that group of assets.

Speaker 3

And you can see the yields that we're achieving there continues to reinforce the strong risk adjusted return of that program And it leads to our increase in desire to continue to build moving forward. So the development pipeline now sitting over $1,000,000,000 as we seek to grow that program.

Speaker 8

That's helpful. And then one thing I noticed in the supplement, just your commentary on credit card fees stood out. Just kind of curious, is there a way for you guys to charge a higher rate on those using credit cards Offset that or do you just now want to take the risk of them bulking given those people on autopay tend to be better customers?

Speaker 3

Yes, I'd say for the most part, the increase in credit card fees relates to the increase in revenues and that's By far and away the contribution, so as revenues increase, you're going to see those payment processing fees go higher. From an operational standpoint, we do spend time thinking about ways to incentivize our customers to use Attractive payment patterns for them, but also ones that may be cheaper for us to process. And so that's an ongoing kind of year in and year out Attempt through different operational methods. But to your point, we love to move people in and That autopay and ultimately it's much more important to achieve that move in than it is to focus on the payments process.

Speaker 8

Got it. Super helpful. Thanks for the time guys.

Operator

We'll take our next question from Steve Sakwa with Evercore ISI. Your line is now open.

Speaker 9

Great. Thanks. Good morning. I'm sure you guys are disappointed in the outcome with Life Storage. But does that sort of change Kind of your view at all about kind of large scale M and A or do you feel like this kind of puts pressure for you to find other transactions of size Kind of keep your lead in the industry?

Speaker 2

Yes, Steve. Clearly, we are well positioned to continue to grow in all different And we feel every bit, if not more confident that opportunities will continue to arise going forward. So we're very focused on that. We are looking at many different alternatives Going into future opportunity scenarios, but we feel that, again, the reset To whatever degree happens in the sector by virtue of the LSI and EXR combination, at the end of the day, doesn't change the landscape from Competitive standpoint, one of the things that we've learned over time, scale is one part of efficiency and optimization, but many other things play through as well That we continue to invest in that lead to our industry leading margins, the things that we've done to enhance our own brand, the effectiveness of the presence we have market to market and we feel very confident we're in good shape going forward and we'll continue to make those investments.

Speaker 9

Great. And then I guess secondly on development, we continue to hear that development should be coming down given all the challenges In the lending environment, you guys have remained, I think, active. I'm just curious, are you sort of changing kind of how you guys underwrite development today? Have you Changed your hurdles, are you changing anything in the, I guess, the framework and the way you evaluate new development projects?

Speaker 2

Yes. First of all, development is a long game, right? So we're typically looking at scenarios that Without question, go in and out of all kinds of different ranges of economic cycles, etcetera, when you're thinking about Total time periods actually put a property to a point of not only opening, but stabilization. I mean, you can Easily be at a 5 year plus mark, asset to asset. So that I think is a good headwind, particularly in this environment where again many owners are seeing different headwinds around Cost of capital, availability of capital, component costs, I mentioned the amount of timing it takes to get, approval city to city, and we've been talking about this For some time, it's far more difficult today than it's ever been on that front and literally almost everywhere.

Speaker 2

I can't even name a market where It's easier to develop today than it was 1, 2 or 3 years ago. So you've got to be, again, ready to Work through those kinds of demands or those kinds of factors, those kinds of risk components, we feel very well suited to do that. In this environment, we're actually seeing the opportunity to pull more interesting properties into our own pipeline that Potentially have far less competition from a land standpoint or even a repurposing standpoint. So The team is working hard and we're finding some good opportunities. I'll let Tom talk a little bit about how our underwriting process plays through as well.

Speaker 2

But that's something that always is reflective not only the current environment, but the long term environment.

Speaker 3

Yes. And just to piggyback on that, I think we're consistently looking to try to improve our underwriting process And if you recall at Investor Day, our data science leader talked about some of the tools that That team has helped develop with for use with our development and acquisitions team. Those processes continue to be underway. We try to use our wealth of data internally to give us advantages on picking those sites and adding in new development. So the underwriting process is Consistently evolving in a positive way.

Speaker 3

In terms of hurdles and the like, obviously, We do with acquisitions as well as development think about what our cost of capital is and evaluate that in the context of the returns that we expect on new capital allocation. But I'd point you to a relatively consistent trend, which we've said that we're seeking Build new sites that will generate a yield on cost of circa 8% plus at delivery and that's not significantly changed over the last several years.

Speaker 9

Great. Thanks.

Speaker 5

Thanks, Steve. Thanks, Steve.

Operator

We will take our next Question from Ki Bin Kim with Trulist. Your line is open.

Speaker 5

Thanks. Good morning. Did you guys provide an update on April move in rates? Sorry if I missed it.

Speaker 3

No, we didn't. The way I'd characterize move in rents and I think this is the first question on move in rents on the call, Which may be a record in terms of depth before we get that question. But move in rates across the sector have been lower. And I think that's been pretty Well documented. In move in rents in the first half of the year, we anticipate to be down More significantly than maybe the back half of the year given the comp scenario that we've been discussing with the first half really tough comps versus last year and the second half Easier comps.

Speaker 3

And so as we move into the Q2, we anticipate move in rents and we're seeing that in April To be down in that kind of upper single digits to low double digit type zip code.

Speaker 5

Okay, great. And how many stores do you have right now that are managed fully remotely without people? And are those any kind of shared characteristics? Are those usually just smaller stores in tertiary markets or in different places as well?

Speaker 2

Yes, Ki Bin. I would tell you there's a broader context of the way we're approaching the whole concept of Remote. One of the things I mentioned in my opening comments is we've now got 400 properties on what we call customer driven technological platforms, which includes a piece of what you might consider a property to be remotely managed. A misnomer on remote is Remote also requires and every property still requires some level of on-site personnel. What We have done on a broader context is continue to test and now deploy pretty effective technological, Predictive and data sources that we have to put people in the right places based on property activity, The amount of demand that's likely to come through the patterns, both on a weekly, daily and monthly and even quarterly basis.

Speaker 2

So With that, we can really take even that baseline concept of remote to a far different level, which can work in Suburban or remote areas, it can work in more dense areas. It can help us optimize the amount of necessary on-site Labor and this is all built around something that's 1st and foremost, which is actually maintaining or improving customer service. So there's a whole range of different components to that platform, some of which include Kiosks for instance, some of which include, the way that we interact with customers through our customer care center. And then another leg of that whole puzzle is our very effective time and presence from a face to face Public Storage employee. So all of those things are being optimized piece by piece and we've Done some very interesting things and we have a lot more to come.

Speaker 2

Very excited about that part of the business.

Speaker 5

And so you said 400 properties, you have about 2,900. I guess, what can you apply to all? And if you do, like does the FTE go from 2 to 1 I'm just trying to understand the impact overall.

Speaker 2

Yes, yes. It's the roadmap we're on. I wouldn't say it's Sure enough to say each and every one of the 2,900 properties have the same impact from the platform, but the great part about Our overall strategy is there are components to this. So you can optimize FTE based on, again, what Size of property you're dealing with, what historic level of either staffing or presence you have from an employee standpoint. And then, Tom, you can talk a little bit about some of the economic benefits that we're likely to continue to see.

Speaker 2

But the great thing about this, It's like I said, far deeper than just remote because it can apply to many different types of assets and we're excited about deploying in that many more parts of the business.

Speaker 3

Yes. The only thing I'd add to that Ki Bin is in our Investor Day presentation, we did highlight our objective to reduce Labor hours and get more efficient with labor hours through the specialization and centralization that Joe is speaking to in reacting to customer demand. And the target we set was for a reduction in labor hours of 25%. We'll achieve that this year. In fact, we think that there is more upside from here.

Speaker 3

So just another component of how we're seeking to get more efficient and drive our industry leading margins higher. Thank you.

Speaker 5

Great. Thank you.

Operator

We'll take our next question from Mike Mueller with JPMorgan. Your line is open.

Speaker 5

Yes. Hi. I was wondering, are you seeing any signs of like degradation of length of stay for your longer term customers that have been there Over a year or

Speaker 3

2? Yes. I mean, we characterized length of stay as sitting at records In our prepared remarks earlier and so generally speaking, while we have seen move outs increase and Trend back towards 2019 levels, the length of stay of the overall platform continues to be really strong. The portfolio now, the average length of stay The tenant base today is over 36 months and has been sitting around that sort of zip code for the last several quarters. In terms of the longer length of stay customers themselves and how they're behaving, they continue to behave quite well.

Speaker 3

And on a Year over year basis, the percentage of customers greater than 2 years is actually higher than where it was last year. So continuing to demonstrate The strength of that component of the tenant base.

Speaker 8

Got it. Okay. Thank you.

Operator

We'll take our next question from Spenser Allaway with Green Street. Your line is open.

Speaker 10

Thank you. Maybe just another one similar to the development topic, but can you just remind us what percent of the portfolio would you say has true expansion opportunity?

Speaker 2

Yes, Spencer, I don't think we've ever characterized that as a specific number. What leads to those kinds of expansion opportunities are several factors. We have hundreds of properties that have been developed, say, 30, 40 or 50 years ago that in those periods of time, a Traditional property might have a much larger amount of acreage and would typically have What we would call our Gen 1 product, simple single story drive up product, there are many opportunities within the portfolio to Potentially, acquire different and higher levels of FAR, to magnify the size of Properties and frankly many of them are in great locations, some of which we get far better customer demand once we actually even make the property that much bigger. So, there's a sizable set of those types of assets, The time and the effort that goes into that can be quite complex. Many cities won't allow us to do certain expansions of that magnitude.

Speaker 2

Some that may open the door to that, actually they'll put you through a multi year process, that again you've got to work through very diligently. So we've got A number of those efforts in play as we speak. Another thing that we have at hand in many assets, For instance, there's either some additional excess land or parking area that too can be Developed or expanded into again a more modern facility as an extension of what's already on the property. So there's a whole range of things that we're continuing to evaluate on that front. But the good news is By virtue of our very consistent investment processes now for several decades, we've got amazing sites.

Speaker 2

And with that, In many areas, properties that have far different demand and better demand dynamics when they originally built, That could fit very well to, again, the opportunity going forward. Today, the $1,000,000,000 development pipeline, Plus or minus about 50% of that is actually tied to the kinds of sites I'm speaking to. And the team is going to continue to work To monetize and unlock those opportunities as we go forward. One of the great things about our development team is, they can wear both hats. They can work on ground up development as well as expansion development.

Speaker 2

We're doing that like for like, clearly in many of the markets that we're looking for expansion.

Speaker 10

Okay. That was really helpful color. And

Operator

I was also just wondering, so just given the

Speaker 10

fact that there has been a lack of larger portfolios in the market, Has there been any increase to the personnel dedicated to sourcing or underwriting acquisitions? Just as I would imagine, the deals are a little bit more granular than normal. But it sounds like from what you just said, your personnel are very dynamic and perhaps can wear multiple hats.

Speaker 2

Yes. To that point, maybe just to give you a little context, 2021, to your point, it was an unusual year where we did A couple of very large unusual transactions. And again, but flip side of that though is That was only half of our volume of the $5,100,000,000 that we did. The other half was dedicated to what's very traditional, either single asset acquisitions or Much smaller portfolios. We've got a deep seated team, very knowledgeable, very well placed relative to knowledge of markets, knowledge of owners And the kind of dialogue that comes with that, from a relationship standpoint, it has been and will continue to be very important for our efforts to grow the portfolio.

Speaker 2

Tom mentioned, about half or more than half, excuse me, a lion's share of the Acquisition volume that we've done in 2023 has come from off market transactions. So part of that's just again, as I think you're alluding to, we've got the right Team in place to go out and engage. We've got a great reputation as a preferred buyer and we're going to continue to leverage that.

Operator

Thank you.

Speaker 3

Great. Thank you.

Operator

It appears we have no further questions on the line at this time. I will turn the program back over to Ryan Burke

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Earnings Conference Call
Public Storage Q1 2023
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