Public Storage Q1 2023 Earnings Call Transcript

Participants

Corporate Executives

• Ryan Burke, Vice President, Investor Relations
• Joe Russell, President and Chief Executive Officer
• Tom Boyle, Senior Vice President and Chief Financial Officer

Analysts

• Juan Sanabria, BMO Capital Markets
• Michael Goldsmith, UBS Group AG
• Todd Thomas, KeyBanc Capital Markets
• Keegan Carl, Wolfe Research
• Steve Sakwa, Evercore ISI
• Ki Bin Kim, Truist Financial Co.
• Mike Mueller, JPMorgan Chase & Co.
• Spenser Allaway, Green Street

Presentation

[Operator]

Ladies and gentlemen, thank you for standing-by and welcome to the Public Storage First Quarter 2023 Earnings Call. [Operator Instructions].

It is now my pleasure to turn the floor over to Ryan Burke, Vice-President of Investor Relations. Ryan, you may begin.

[Ryan Burke, Vice President, Investor Relations at Public Storage]

Thank you, Brittany. Hello everyone. Thank you for joining us for our first-quarter 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. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, May 4, 2023, 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, 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 two. Of course, if you have additional questions, feel free to jump back in queue.

With that. I'll turn the call over to Joe.

[Joe Russell, President and Chief Executive Officer at Public Storage]

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, 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 e-rental online lease. Eclipsing 2 million 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 a 1,000 property installations within the next three years. 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 billion to be delivered over the next 24 months.

We had a strong operating performance in the first-quarter, 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 need-based business with demand drivers that are multi-dimensional and fluid throughout economic cycles. 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 a return to more seasonal patterns of demand, we are currently also seeing an uptick in move-in activity that has continued into the second-quarter.

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.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Thanks Joe. The transaction market has been relatively quiet to start the year as potential sellers feel out the macro-environment, higher interest rates and the spread between buyer and seller expectations. That said, we have closed or are under contract to acquire nearly $200 million right on-track for our $750 million 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.

Now on the 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 first-quarter of 2022, excluding the contribution from PSB. Looking at the components, in the same-store, our revenue increased 9.8% compared to the first-quarter of 2022. We drove strong move-in volumes, up 13% during the quarter, heading into our peak leasing season. And the existing tenant base remains strong with length of stays sitting at record.

Same-store cost of operations were up five 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 of 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. We're set up well heading into the second-quarter. Last but not least, our capital and liquidity position remains rock-solid.

Our net leverage of 3.3 times combined with $700 million 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 will turn it back to Joe.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thanks Tom. Our people, technology, 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.

Questions and Answers

[Operator]

[Operator Instructions] And we'll take our first question from Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, Analyst at BMO Capital Markets]

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. Just curious what you guys are seeing across your platform?

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, thanks for the question, Juan. As we move through the quarter, and you could can 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 as weak, but I would characterize April is strong.

And so, we've seen accelerating move-in volume growth as we move through what was a strong margin 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.

[Juan Sanabria, Analyst at BMO Capital Markets]

Thanks. And then just for my second question, just on the Property of Tomorrow spend, you guys have made excellent progress on deploying that capital. Just curious on the types of returns you're generating as you look at the capex you spent and how that's augmenting growth in the same-store and non-same store pool?

[Joe Russell, President and Chief Executive Officer at Public Storage]

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

[Juan Sanabria, Analyst at BMO Capital Markets]

I appreciate the time. Thank you.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thank you. Thanks a lot.

[Operator]

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

[Michael Goldsmith, Analyst at UBS Group]

Good afternoon, and thanks for taking my question. My first question is on the guidance. You brought up the low-end. Is that a reflection, the trends that you've already experienced in the first-quarter or that guidance -- the low-end of your range was based on a full recession scenario. Is the increase in guidance more reflective of that that outcome is less likely to occur. And then within this, you've included this quote in your -- in the supplemental that suggests that the potential of revenue growth rate is wide and including the potential for Year-over-Year declines in revenue in the second-half of the year. Is there anything that you saw in the first-quarter that changes your view on that? Thanks.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Sure, thanks for that question, Michael. I would characterize the first-quarter 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 first-quarter. You're highlighting how we characterize the wide range of potential outcomes embedded within our outlook for the year. There still certainly macro uncertainty in the back-half of the year. That hasn't changed. But the performance to date has been quite encouraging, which is leading to the increase in the outlook for the year.

[Michael Goldsmith, Analyst at UBS Group]

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 have lifted in February of 2012, which you lap during the quarter. But is there -- is there kind of like a second -- is there a second year of growth coming from the LA market or have we kind of -- we kind of used up all of the game there and the gain should be more modest going-forward? Thanks.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, 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 onerous 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 products coming literally to any of the sub-markets that we're competing in.

So the inherent demand in the market is quite good. We think we've got again some good traction ahead of us certainly going into the rest of 2023 and we'll continue to see where we go from there. But we've been very pleased by the performance of that portfolio. It is one of the markets that we -- go back to my comment about Property of Tomorrow, we put about $75 million in that portfolio to lift it from a brand awareness standpoint, finished that 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 then continued performance.

[Michael Goldsmith, Analyst at UBS Group]

Thank you very much.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thank you.

[Operator]

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

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Hi, thank you. And you mentioned almost 30% move-in volume across the first-quarter. But move-out volume was lower, but kind of almost kept pace with the move-in volume. I was just wondering if you saw a similar trends in April as well.

[Joe Russell, President and Chief Executive Officer at Public Storage]

That's a great question, Smedes. So one of the things that took place during the quarter was, we did gain occupancy as you 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. 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 in 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 a incremental basis.

So again, encouraging trends here as we head into the peak leasing season.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Thanks. And then I just -- I noticed that the late charges, the pace of growth picked-up at a faster pace in this rental income. I am just wondering if there's anything kind of to read into that and we've seen an uptick in kind of non payments or anything that would suggest some customers are under economic duress.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Sure, yeah, there's two components to that line item. 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 are seeing an uptick there in late payments.

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

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Great. Thank you.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thanks. Smedes.

[Operator]

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

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Hi, thanks, good morning out there. First question just related to investments. Tom, the balance sheet's 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. And can you speak a little bit the 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?

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Sure, so we have started to see or started to receive more inbound more recently. And I do think that that's healthy. As you know, Todd, its traditional to have a busier second-half for storage transaction volumes than 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 of this year.

And in terms of the 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 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 have moved up about 100 to 125 basis-points from the lows. And I would say we haven't seen anything over the last three months that would have us direct you any differently than that.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Yeah, [Speech Overlap]

[Joe Russell, President and Chief Executive Officer at Public Storage]

Todd, just a little bit more relative 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 million 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. So we're confident we're going to continue to see those kind of opportunities going into the rest of the year.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Okay and then, how would you sort of pair and contrast the U.S. versus non-U.S. 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 tighter lending environment that we're seeing today, would you consider building out a structured finance program at all to be financing solution for borrowers, but also as a way to maybe expand the platform through third-party management and build a future investment pipeline.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Okay, so, yeah, a couple of questions are more on that statement. So first of all, from an international standpoint, I would say, consistent with what we've spoken to for some time, which is, we are 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. Clearly, there has been far more in-border opportunities over the last three or four years. And maybe to tie it -- another part of your question is the fact that part of the reason for that is the amount of development that's come 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, etc.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Yeah, 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 and could lead to lower new supply heading forward. And so, we will have to see how that place 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 deploying 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 as part of our wheelhouse as we move forward.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

All right. Thank you.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thank you. Thanks.

[Operator]

We'll take our next question from Keegan Carl with Wolfe Research. Your line is open.

[Keegan Carl, Analyst at Wolfe Research]

Hi 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 decent margin, but this should stabilize at this point based on your press release commentary. So just any any sort of color on what's driving and if it's maybe market-specific would be helpful.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, I'd characterize the performance of those assets to be pretty strong. All 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 is 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. And you can see the yields that we're achieving there continues to reinforce the strong risk-adjusted return of that program and leads to our increase in desire to continue to build moving forward. So the development pipeline now sitting over $1 billion as we seek to grow that program.

[Keegan Carl, Analyst at Wolfe Research]

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 to offset that or you just now want to take the risk them bulking given those people on auto pay tend to be better customers.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, I'd say for the most part, the increase in credit card fee is related to the increase in revenues and that's by far and away the contribution. So as revenues increase, you're going to see the 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 one that may be cheaper for us to process and 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 achieve that auto pay and ultimately it's much more important to achieve that move-in than it is to focus on their payment process.

[Keegan Carl, Analyst at Wolfe Research]

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

[Operator]

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

[Steve Sakwa, Analyst at Evercore ISI]

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&A or do you feel like this kind of puts pressure for you to find other transactions of size to Kind of keep your lead in the industry?

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, Steve, clearly, we are well-positioned to continue to grow in all different shapes and sizes and we feel every bit, if not more, confident that opportunities will continue to rise 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 ESR combination at the end of the day doesn't change the landscape from a 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.

[Steve Sakwa, Analyst at Evercore ISI]

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 in the way you evaluate new development projects?

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, first of all, development is a long game, right. So, we're typically looking at scenarios that will, without question, go in and out of all kinds of different ranges of economic cycles, etc., when you're thinking about total time periods to actually put a property to a point of not only opening but stabilization. I mean, you can easily be at a five-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 cost. 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. I can't even name a market where it's easier to develop today than it was one. two or three years ago.

So you 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 play through as well. But that's something that always is reflective, not only of the current environment, but the long-term environment.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Yeah, and just to piggyback on that, I think we're consistently looking to try to improve our underwriting processes year-in and year-out. And if you recall, at Investor Day, our data science leader talked about some of the tools that team has helped develop with -- for use with our development and acquisition 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 developments. So, the underwriting process is consistently evolving in a positive way. In terms of hurdles and the like, obviously we do with acquisitions, as well as development and 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 you said that we're seeking to 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.

[Steve Sakwa, Analyst at Evercore ISI]

Great, thanks.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Thanks, Steve.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thanks, Steve.

[Operator]

We will take our next question from Ki Bin Kim with Truist. Your line is open.

[Ki Bin Kim, Analyst at Truist Financial]

Thanks, good morning. Did you guys provide an update on April moving rates. Sorry, if i missed it.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

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.

And so, as we move into the second-quarter, we anticipate moving rents and we're seeing that in April to be down. In that kind of upper single digits to low-double-digit types of quotes.

[Ki Bin Kim, Analyst at Truist Financial]

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

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, Ki Bin, there, I would tell you there's a broader context the way we're approaching the whole concept of "remote." One of the things I mentioned in my opening comments, as 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 pn remote is remote also requires every property still require some level of onsite personnel. What we have done in 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. 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 that can work in more dense areas, it can help us optimize the amount necessary on-site labor and this is all built around something that's first and foremost, which is actually maintaining or improving customer service.

So there is 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 very effective time and presence from 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. Very excited about that part of the business.

[Ki Bin Kim, Analyst at Truist Financial]

And so, you said 400 properties. You have about 2,900 I guess. What it -- can you apply to all and if you do, like does the FTE go from two to one or I am just trying to understand the impact overall. Yeah, yean, it's the roadmap we're on. I wouldn't say it's pure 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 as there are components to this. So you can optimize FTE-based on again what size of property you're dealing with, what historic level, 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. 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 that in many more parts of the business.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Yeah, 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 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 and frankly, we think that there is more upside from here. So just another component of how we are seeking to get more efficient and drive our industry-leading margins higher.

[Ki Bin Kim, Analyst at Truist Financial]

Thank you.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Great, thank you.

[Operator]

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

[Mike Mueller, Analyst at JPMorgan Chase & Co.]

Yeah, hi. I was wondering, are you seeing any signs of like the degradation of length of stay for your longer-term customers that have been there over a year or two?

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah. I mean we characterize length of stay is 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 of 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 and on a Year-over-Year basis, the percentage of customers greater than two years is actually higher than where it was last year. So, continuing to demonstrate the strength of that component of the tenant base. Got it, okay, thank you.

[Operator]

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

[Spenser Allaway, Analyst at Green Street]

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?

[Joe Russell, President and Chief Executive Officer at Public Storage]

Well, yeah, Spenser, 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 one 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 those 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 is 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. Some that may open the door to that actually though 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 is, 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. And with that, in many areas, properties that have far different demand and better demand dynamics when they're originally built, that could fit very well to again the opportunity going-forward. Today of the $1 billion development pipeline plus or minus about 50% of that is actually tied to the kinds of sites I'm speaking 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. We're doing that like-for-like clearly in many of the markets that we're looking for expansion.

[Spenser Allaway, Analyst at Green Street]

Okay, that was really helpful color. And I'd also just wondering, just given the fact that there has been a lack of larger portfolios on the market, has there been any increase to the personnel dedicated to sourcing or underwriting acquisitions, just I would imagine the deals are a little bit more granular -- excuse me -- than normal. But it sounds like from what you just said, your personnel are very dynamic and perhaps can wear multiple hats.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Yeah, to that point, maybe just to give you a little context, in our 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 $5.1 billion 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 dialog 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.

Tom mentioned about half or more than half -- excuse me -- a lion 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 got the right team in place to go out, engage. We've got a great reputation as a preferred buyer. And we're going to continue to leverage that.

[Spenser Allaway, Analyst at Green Street]

Thank you.

[Joe Russell, President and Chief Executive Officer at Public Storage]

Thank you.

[Operator]

It appears we have no further questions on the line at this time. I would turn the program back over to Ryan Burke for any additional or closing remarks.

[Tom Boyle, Senior Vice President and Chief Financial Officer at Public Storage]

Thanks. Brittany and thanks to all of you for joining us. Have a great day.

[Operator]

[Operator Closing Remarks]