Public Storage (PSA) 2013 Q2 法說會逐字稿

Good afternoon, my name is Jackie and I will be your conference operator today. At this time I would like to welcome everyone to the Public Storage second-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session.

(Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Clem Teng. Mr. Teng, please go ahead.

Good morning, thank you, Jackie. Thank you all for joining us this morning for our second-quarter earnings call. Here with me today are Ron Havner and John Reyes.

As a reminder, all statements other than statements of historical facts included in this conference call are forward-looking statements, subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in today's earnings press release and in our reports filed with the SEC. All forward-looking statements speak only as of August 2, 2013, and we assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, SEC reports, and an audio webcast replay of this conference call on our website at www.publicstorage.com. Now, I'll turn the call over to Ron.

Thank you, Clem. We put out our press release last night. I think we had a pretty good quarter, so we're just can open it up for questions right away here. So operator, let's tee up the first questions.

(Operator Instructions)

Christy McElroy, UBS.

Good morning, guys. John, on last quarter's call, you talked at length about the difficulty of achieving occupancy above the 93% level at -- within the portfolio because of the 7% churn per month that causes frictional vacancy of 6% to 7%. Here you sit three months later at 95% occupancy. You also changed up your strategy through the winter where you offered some different promotions like the 50% off rent deals that you could boost occupancy in the seasonally slow quarters. And so I actually have two questions about all of that.

Have you changed your views around frictional occupancy for your portfolio? And then the second question is -- have you tried to jack up the rents back to market on those 50%-off customers, and how did that impact move-outs in Q2?

I guess, first, Christy, I was wrong in what I had said about the frictional occupancy and our difficulties getting beyond the 93% occupancy, because obviously we did that, so I stand corrected. We were able to do that. That was mostly done because demand was exceptionally strong, notwithstanding the fact that we kept our -- rates were a little bit higher, but not much higher, but we significantly reduced our discounting during the second quarter. But fortunately for us, demand continued to press into the system, and we continued to gain occupancy throughout the quarter. But I do think though that over the course of a full year, I would not expect us to maintain occupancy levels of 95% through the remainder of the year. That, I think, is just not likely.

In terms of churn, and the promotional -- the 50%-off thing -- promotions that we were doing, we have done those. As you mentioned, we did it during the winter. We also did it around the Memorial Day timeframe, which does help boost demand for our product and occupancy. We like doing that because, notwithstanding the fact that you're giving away 50% of rent, we more than make up for it with improved demand coming into the system. Not only is that demand sufficient to offset the reduction in the rate, but that demand is also customers that typically stay here longer because their rates are low, they're not -- and we also turn off the dollar for those folks. And they typically stay here longer, which gives us another pool of customers to eventually increase their rates in the future. Because remember it's month-to-month lease, and we're just giving 50% off, it's not 50% off for a year, it's not 50% off for a month, it's 50% off until we decide to raise their rents.

Just a follow-up on that, can you quantify the year-over-year change in discounts? You mentioned they were down significantly. And then also if you could talk about the -- (multiple speakers)

In terms of percentage -- year-over-year percentage change -- they were down about 13% during the quarter.

And do you also have the year-over-year percentage change in move-ins and move-outs, just to get a sense for traffic?

Move-ins were about flat. And I'll tell you what the move-in rates were. Move-in rates were roughly about 1.5% higher; move-outs were down about 0.7%.

Okay, thank you.

Christy, I would just add that John and his team do the pricing and marketing strategies, but our field operations people did a great job this quarter executing. So, you don't get to 95% without great execution in the field.

Okay, thanks for the color.

Jordan Sadler, KeyBanc.

Thank you, good morning. A couple of questions -- similar line on the occupancy. What percent are now considered your long-term customers? And is that one of the drivers here?

Jordan, our customers greater than a year here, let's see, they were -- the pool of those was up 5,000 year over year, so we're at just about 55% -- 55% in the pool greater than a year. Not much change in the percentage, but the number of customers has gone up because the overall occupancy in the portfolio has gone up.

Okay. You maintained the ratio.

In terms of customer acquisition costs, I think last quarter you mentioned $2 versus $31 in 1Q. Did that actually go negative this quarter, or what happened?

Yes, actually, net-net, Jordan, between initial rate and all that, we actually went positive. So our net acquisition cost was $28 positive per customer, and that's due to -- we were able to reduce our acquisition costs by about $7 million, and hold volumes constant or up slightly, as John mentioned earlier -- hold rate up about 1%, 1.2%. So net-net we actually went positive, which is the first time -- I've only got like the last three, four years of data, but that's the first time in the last four years we've been positive.

Do you happen to know what it was 2Q of '12?

Q2 of 2012 -- yes, it was negative $24.

Negative $24. Okay, last question is just on the acquisition pipe. You've got quite a bit teed up here, and I'm just curious about what's driving the activity? Is it a portfolio, pricing --

I think I've said a couple times this year, it's a sellers market, there's lots of capital, lots of financing, and what we're seeing is higher quality portfolios come to the market as a result of that.

Where are these relative to replacement cost?

It varies by transaction. Some are above, some are at, some are below.

Okay. Thank you.

Ki Bin Kim, SunTrust Robinson.

Thank you. Going back to your occupancy of 95% -- did you change -- besides changing discount, which you guys do frequently, did you change anything about the way you advertise on the internet, or how you acquire customers, fundamentally, to drive that 95%. And with occupancy being so high, do you plan to change at all the amount of -- or level of frequency of increasing rate customer increases -- or using increase in customers?

Well, Ki, I'll let John talk about internet strategy. For the last two years though, our customer acquisition costs have been going down. Jordan just kind of touched on that. So, if you look at Q2 this year, we spent about $5.5 million on internet and media, and that compares to $8.3 million last year. So we're spending less on internet and media, and we've basically extricated ourselves from the Yellow Pages, combined with lower promotional discounts, meaning lower upfront dollar specials. And yet we're able to hold move-in volume relatively constant year over year.

With respect to Internet strategies --

Yes, Ki, our internet strategy -- I would tell you this -- really hasn't changed other than we've cut back the spend because we simply don't need as much volume coming to our website as we used to, given our occupancy levels. So what that's enabled us to do is basically cut back on our positioning and our bid, so that we don't view it necessary to necessarily be in the number-one position on certain keyword searches. So we're not bidding as aggressively as we used to. And again, it's simply because we don't really need as much volume coming to the website. The volume that is coming to the website is more than sufficient to maintain the move-in levels that we need to maintain our occupancy levels and grow the occupancy levels.

So it seems like you're spending less, yet maintaining or increasing your success rate. Have you shifted the dollars to maybe more mobile versus just generic Google searches, and that you find more success in? Does that explain any of it at all?

Well, we are spending more on mobile, just because mobile is gaining in popularity, and we're getting more traffic through the mobile. So that's naturally coming -- causing us to spend more on mobile. But it's more of a shift from the desktop to the mobile. And if you look at it overall, the overall cost is actually coming down. But yes, we are spending more on mobile, but it's being more than offset by the decrease that we're spending in on the desktop.

And last quick question, a follow-up on Jordan's --

Ki, you need to get back in the queue, okay?

Neil Malkin, RBC Capital Markets.

Guys, how you doing? Just two questions. One, I guess going back to the whole occupancy and business model strategy, I mean, with occupancy at record levels, are you kind of looking at it differently, whereas just because street rates can be so volatile and the cost can be higher, just having a higher occupancy, reducing volatility throughout the year, and just hitting people with those larger renewal increases. And then, if the incremental renter does come in, you can give less discounting, and that will also help with expenses as well, because you're not marketing to as many people? Is that something, I guess, rhetorically you're thinking about? Or is it just a function of demand for the quarter?

That's kind of what's been going on. I think that's what's historically that you've been seeing is that with the high occupancies, we've been able to cut back on marketing spend, because we don't need the volume coming into the system. So you're seeing our expense structure and marketing, as Ron mentioned, coming down. With the high occupancies we're able to now start turning down the discounting that we're giving away, which is a good thing because obviously it drops to the revenue -- it helps the revenue line. And it's also a good thing because you start filtering out those customers who are simply coming for one month because you're giving $1, and they're churning on you constantly. So that's good, too. Because we're not experiencing as much churn as we used to experience, and you're getting a better length of stay from the customer base, which, again, all of that stuff is just good stuff.

Sure. That makes sense. And then, on the acquisition front, you guys have a pretty sizable acquisition lined up relative to what you've done in the last several quarters. Is the rationale for that is you're just seeing, I guess, first of all, cap rates -- are they looking more attractive to you, even though the market has a lot more competition just because of fundamentals? Is it pressure from various investors or sell side analysts, which I doubt? And then also, on the one that Extra Space has, did you look at that at all? Were you bidding on them -- on that one against them?

Well, let me just comment on the acquisition market, and I touched on this earlier -- I think Jordan asked this question. It's a sellers market, there's lots of capital out there, whether it's public REITs, private capital, there's plenty of financing, especially on stabilized properties. Unstabilized properties, or properties [that fill up] a little more challenging for people to get financing. We have found that typically to be the better opportunities. But it is a sellers market generally, and I think that's bringing out -- for the right sellers, that's bringing out higher quality portfolios than we've seen in some time. And so we're actively looking at those, and obviously acquiring some of them.

Okay. So then, I guess, then going forward, would you look at more the value, like the lease up type of thing or core?

We're flexible. We by properties that are 0% occupied and fill-up, we're buying stabilized properties, we're buying properties that have been under-managed, so it's across the board, as well as deploying capital in redevelopments and our development program. So it's really, we're almost market agnostic. If the right opportunity is there, we will undertake it, the right pricing, and we're not really concerned about -- okay, what does it do for next quarter's earnings. We're really trying to create value here long term.

Okay. Can you say what the cap rate was or is going to be on that transaction?

They're all over the board. We've got stuff from 0% cap rate, because one property is still being built -- to 7% or 8% on a stabilized property. So it's all over the board.

Okay, thank you.

Tayo Okusanya, Jefferies.

Yes, good afternoon, everyone. Congrats on a great quarter. Just wanted to focus on Europe a little bit, if you could just give us some commentary about why same-store NOI got worse, and what operating trends look like there? And in which particular markets you're seeing a worsening outlook?

Well, Tayo, it's really the same two culprits. Holland continues to decline in occupancy and rate, and its NOI for the quarter was down 16%. The other market was the UK, where the VAT was implemented last October 1, and we effectively took down the existing customer base by 20%. So, new customers are rolling in at higher rates, so we're in rent roll up in the market. But it's going to take time for that to roll up. So our UK topline revenue was down 11% this quarter, and NOI in the UK market was down 18%.

So those are the two big drivers for the negative performance in Europe. And I would expect another challenging quarter in Q3. What it comes in at, I don't know, but I don't think Q3 is going to be much better. When we get to Q4, at least in the UK, recall we implemented the VAT rolldown October 1, so hopefully we'll be positive comping in the UK in Q4. Whether that's enough to offset Holland, I don't know, but Q4, UK should be positive.

Got it. Just about the UK real quick, were you the only ones in that market that implemented a VAT rolldown, or do you think generally across the industry that happened?

Different operators did different things. One operator already had been passing through the VAT, so it was basically a non-event for them. I think Big Yellow, who is the other large operator, did half rolldown. So they took a 10% rolldown, and they have, I think -- I don't know the exact percentage, but I think Big Yellow has a higher percentage of commercial customers than we do, so it impacted them a little less. But it varied by operator.

Thank you very much.

Michael Knott, Green Street Advisors.

I'm going to ask you about acquisitions one more time. Just curious if this is a sign that you've got your foot on the gas now on this part of your business, or was this sort of a compilation of one-off type transactions?

Well, Michael, I know we've disappointed you in terms of our acquisition volume, but really not much has changed. As I said, we see better product coming to market, pricing is aggressive, it's a sellers market. So I don't think substantively much has changed here. There's just more flow -- more seller flow into the market.

-- on potential new supply across your markets?

Michael, the first part of whatever you were saying -- could you repeat what you said?

Sure, sorry, I was asking about your perspective on potential new supply in your markets, and whether that's going to degrade the operating environment anytime soon?

What we're seeing across the markets -- we don't see a lot of development. Dave Doll is here with me -- we don't see much development in the latest data sources that we've seen; it's pretty nascent. I would say in terms of just dollar value, probably the New York, the boroughs is probably the biggest market in the US where development is going on. But relative to the density there versus the amount of product, that's still somewhat of an underserved market.

(Operator Instructions)

Michael Bilerman, Citigroup.

Hi, good morning out there. Just curious, just in terms of July, where did occupancy trend and where you were sending out renewals?

Michael, in terms of the end of July, we ended at 94.4% versus 93.1% last year, and in-place rents were up $0.02 a foot in July versus last year.

And was there anything noticeable as you sort of went through July in terms of the length of stay from your existing customers? It didn't sound like there was much change move-in, move-out in the second quarter. Did that shift at all as you've been pushing rate and getting more people in?

No, our move-outs, year over year, changed I think by -- yes, less than 1%.

Okay. And then just lastly, the $374 million of acquisitions, and I think you're getting a lot of questions just because you've done $570 million over the last 3.5 years, so to do $370 million in one quarter, certainly a lot of light bulbs went off. And so, and I know you've talked about it being a sellers market -- can you at least break down the $374 million? If there was any major transactions in there or any big pieces.

And then maybe just in aggregate -- I assume you have the numbers, right, $1.63 a foot is the average price. Do you have sort of the average in-place rents, the average occupancy, the average margin, just so we get a sense of that $374 million, once it comes in, and then work the PSA magic on them to getting them up to par?

Well, Michael, we've got everything from stabilized properties, we've got a mixed-use property in West LA that's 90%-plus full, and it's got a 10-year triple-net lease in it that is, I don't know, trailing 6%, 6.5%, to a property that's still under construction that we won't buy until September or October, so it's all over the board. I would assume that on a go-forward basis, we will attempt to work our magic -- actually not attempt, we will work our magic, and we'll use the pricing strategies that John's talked about, and our field will execute.

So, I don't think you should expect much material difference in kind of the returns we're going to get then historical. Are they as good as the 2010 acquisitions? No, but they're really good properties, and we're really happy with them.

And once you draw down all your cash, because this will chew up most of your cash, should we expect effective preferred raise in the fourth quarter to boost up that cash? Or you'll wait till you see the opportunities come in?

John's pretty good about being opportunistic in terms of the capital markets, so we've got plenty of capacity to do whatever we need to do. And we'll just wait for the right time in terms of the capital markets.

Okay. That wasn't an answer, but I'll take it, thank you. (laughter)

Michael Mueller, JPMorgan.

Hi. For the non-same-store portfolio, can you talk about what was the occupancy at June 30 for that?

Same-store -- hold on, Mike, we'll get that here for you.

Mike, it was about 90.2% -- that was an average for the quarter.

Got it.

Or actually, I'm sorry, Mike that was 90.2% at June 30, not an average for the quarter.

Okay, great. And then, just going back to the $374 million again, Ron, understanding that there's a property in development, there's something that's a little bit more of not a self-storage property. Can you ballpark the average occupancy for the 29 properties, or 27 of them then? I mean, is it in the 80%s or -- ?

Mike, I don't have that here in front of me, so if you wanted me to give you that off-line, I could.

Okay. Great. Thanks.

Jordan Sadler, KeyBanc.

Hi. Not trying to beat a dead horse here on the acquisition, but I did want to follow up. You said it's a little bit more of a sellers market, which traditionally would not be a time when PSA would be hitting the bids in the market, based on your historical discipline. And so, I guess, Michael Bilerman used the word light bulbs going off. I think I'm a little curious about why now, why all of this is sort of coming together, and obviously, product is coming to market given the bid, I understand. But historically you've been a little less inclined. So I'm curious, why do you appear to be more inclined to make acquisitions today?

Jordan, I can't elaborate any more than -- there is more product coming to market, and there's much better product coming to market. And one of the things that we've commented on in the past is that the quality of assets in terms of -- that we've seen come to market has been stuff that for the most part we have not been interested in.

We've lost some transactions that we would have liked the portfolios, but a number of them we weren't even bidders or we weren't interested. So, the stuff that we've got under contract today we think is pretty high-quality product, and it's a sellers market, so people that have high-quality portfolios are bringing them to market. We're seeing more of that than we have in the last couple of years.

So, I mean, any change in your underwriting whatsoever? Are you a little less sensitive to cap rate today given sort of the amount of capital you have available?

Well, as I've said before, we're not on a day one a cap rate buyer, and I mean, that's evident in the fact that we're buying properties that are newly developed or still underdeveloped. What we look at is -- okay, when this thing is stabilized, what kind of return are we going to get, what are the barriers to entry in that market, what does it look like relative to replacement cost -- a variety of factors. And so, in a market with very high barrier to entry, that is going to get a different cap rate than a market where there's a lot of competition and low barrier to entries. And it varies by property, and these $390 million of property are across the board in terms of high barrier, low barrier, stabilized, unstabilized properties.

When you look at the pipeline, do you think we could continue to see some good volume here on the investment side?

Jordan, we're not bit commentators on transactions that haven't been consummated. So again, I think it's a sellers market, so my guess is the back half of the year we'll see continued product flow, and at least I hope there is. And so, we hope to be an active participant.

Thank you.

Paula Poskon, Robert W Baird.

Thanks, good day out there. So I'm going to try and ask the acquisition topic in a slightly different way, and obviously, hindsight is always 20/20, Ron. But just looking back over the last three years among your competitors in the public realm, Extra Space stock is up 180%, CubeSmart's up 103%, Sovran's up a little over 90%, and Public Storage is up 64%. And yet, Cube and Extra Space have done, in that 2010 to 2012 timeframe, about $1 billion each -- Sovran slightly less than PSA in terms of acquisition volume.

So two questions there. In retrospect, given the relative strength of PSA's balance sheet coming out of the credit crisis, do you wish you had been more aggressive during that time period? And secondly, is there something different about either the way you are underwriting or perhaps the brokers that you're dealing with that you're seeing different product? Is there something different that you're doing now that you wish you would've done three years ago?

Well, Paula, I don't know how to answer that other than how I responded to Jordan and Michael Knott, so you can go back, and I'm not going to repeat myself. I will say this though that, as I just mentioned, are there transactions that over this period of time we would've liked to have gotten? Yes, but there's a lot that, we're fine, we weren't interested in them, and we weren't interested in the quality of the product or the markets where they were located, given the competition or low barriers to entry.

Overall, I think we've done a pretty good job, and we got some pretty good assets. And if you look at the returns on the stuff that we've done, it's pretty darn good. So, I don't have much more to comment than that.

Thanks, Ron, I appreciate that.

Christy McElroy, UBS.

It's Ross Nussbaum here with Christy. So, Ron, when I popped in [at NIRI] and suggested that on the next earnings call you say good quarter, any questions, I wasn't actually expecting you to take me so literally with that suggestion. But I do love it.

Here is the question I have for you. I have always thought about Public Storage -- when I think about -- I'm driving down the street, and looking at one of your properties, and I think about who your neighbors are. Whether it's a McDonald's or a Jiffy Lube or -- and I think about the slowdown in consumer spending that appears to have taken a bit of hold this summer, whether it's temporary or not. How are you viewing consumer spending right now?

And how are you thinking about the pricing power in your business now that your occupancy is at record levels? Relative to how you're seeing pricing power in same-store sales growth at the McDonald's and the Starbucks and the Jiffy Lubes of the world?

Okay. Ross, I'll try to start answering that question, and let John Reyes finish up since he's in charge of pricing. If you look at our business, and it's really across the platform. We've had pretty robust demand; we've been able to dial down the marketing spend here for the last two years. I went through the customer acquisition costs -- they continue to decline. In fact, they went positive this quarter.

Move-in volumes, despite reduction in television, reduction in internet spend, and reduction in dollar specials, move-in volume held steady and rates were up. So, for our product type, we're feeling pretty good about the robustness of demand. We don't monitor our pricing versus McDonald's or Starbucks or any of those guys. I think, in part, the uptick in the economy, the consumers, whether their incomes are up, but the activity in the economy is positive, homebuilding is positive, and that activity is a good thing for our business, combined with the absence of new supply.

We're fortunate that there's not a lot of construction going on, I touched on that earlier. And what we're seeing across the country, we don't see a lot of development going on. And for the most part on our development sites, we're not seeing a lot of competition on the stuff that we're doing today. So, those are all positive things in terms of continued absence of supply.

I was at the Self Storage Association a couple weeks ago, and if you take the US population, I don't know, 320 million, 330 million people, and add 1%, 1.5% population growth, and then you apply 7 square feet per person, I think there's plenty of capacity, or plenty net new demand from that population growth, and yet it's not being met with new supply. So overall, our business is pretty good, you're seeing it across the public competitors, and demand is fairly robust.

In terms of pricing --

I would say this, Ross. When we send out increases to our existing tenant base, I mean, we just don't haphazardly do it. We do it on a basis of understanding each and every property's demographic, and we put that into the mix when we decide Joe Schmo at this property is going to get a 7%, and somebody else at a different property may get a 5%, and somebody else at a third property may get a 10%.

It's really -- I would like to say it's scientific, maybe it's more of an art than science, I don't know. But we do look at demographic, and we monitor demographic, we monitor what happens, what these customers do. So we get -- we're pretty comfortable when we send out these increases in understanding what the reaction to the customer is going to be when we do these things. So, yes, it's a little more scientific than just throwing darts at the wall.

Sure, I appreciate that. Last question -- Europe, given the improvement in the capital markets, that appears to be a bit of a steady improvement of late. How does that influence how you strategically think about Shurgard, whether it's from a financing perspective, whether it's from a financing perspective in terms of -- do you ever revisit the IPO, thoughts there at some point? Can you just give us sort of some updated thoughts on that?

Sure. I think the capital markets in Europe are a little more buoyant than they were a couple years ago. But before we undertook anything like an IPO, we would definitely need some positive same-store growth. Undertaking an IPO when we posted negative 7% for the quarter -- probably wouldn't get the value that we perceive in Europe today with those kinds of numbers. So we need some positive momentum in Europe, and some good year-over-year comps before we would entertain something like that.

Appreciate it, thanks.

Michael Knott, Green Street Advisors.

No questions on acquisitions this time. I did want to ask about just your philosophy on the revenue maximization trade-off between occupancy and rent growth? Just looking at the -- the realized rent growth, I think was in the mid-3%s this quarter, and then when I look at the in-place at the end of the quarter versus last year, I think it's a little over 2%. So just curious if you are leaning even more toward the occupancy side of this, in terms of maximizing revenues, and if so, why?

Michael, no, we're not leaning more toward the occupancy, just happened to end up that way. Given the high occupancy levels, we obviously have to really put more focus on the rate side of the equation, which is what we spend a lot of time doing internally. So, what you're seeing -- that 2.2% -- keep in mind that is at a point in time when the calendar flips to the next day, a lot of rent increases become effective on July 1. So, that 2.2% -- immediately, I could tell you popped up a little bit more than 2.2% on July 1.

Out of curiosity, the 3.4% for the quarter, is it possible to --

Michael, you're breaking up.

Sorry about that. Just curious, on the 3.4% realized rent for the quarter, is it possible to decompose that between lower discounts, existing customers, and street rents? Is that something you have?

I don't have it calculated by per square foot, but let me give you the numbers. The discounts -- need to do the math on your own. I can tell you the discount part of the equation; I don't have the other components with me, but discounts for the quarter, this quarter 2013 was about $19.4 million versus $22.3 million for the same quarter last year. So, it was about a 13% reduction or about $2.9 million reduction.

-- cross-selling opportunities with Wayne single-family housing company?

Sorry, what was the first part, Michael, of your question? I'm sorry --

I apologize for my phone. I was asking -- have you thought about any cross-selling opportunities with Wayne single-family housing company; is there anything that can benefit you there?

Well, I don't know if there is, but we haven't thought about it.

Michael Bilerman, Citigroup.

Just on the development and expansion pipeline, the $200 million, it's up $30 million sequentially from the first quarter. How should we think about how much of that $200 million is ground-up new development, how much of that is expansion? So, you're adding about 1.4 million square feet. And then, how should we think about what the sort of forward pipe may increase to -- how aggressively are you going to seek to add to that as another driver of potential growth over the next little while as you put out capital?

Yes, in terms of the pipeline, expansions are 14 of the projects, $96 million. Ground-up development is two properties as of June 30, about $17 million. And conversions of existing structures, three properties, about $85 million. And those are new acquisitions. And those, like the Gerard property that we're doing in the Bronx, that's a conversion -- that's in the conversion bucket. We've got a couple other industrial buildings that we bought that we're also going to convert to self storage. So, I kind of think of those as almost developments, although it's not bare land, we're just taking the existing building and decking it out or whatever, and turning it into self storage.

And then, how quickly will you add to this pipeline in terms of acceleration? So if it went up $30 million this quarter, should we expect that pace to continue? Could you see having -- once this $200 million delivers, but another $200 million pipeline next year -- how much is in the hopper?

Michael, we have probably $200 million in what we would refer to as our shadow pipeline -- stuff we're looking at trying to figure out the zoning, see if it make sense, and that's both on the development and the redevelopment side. As we get close to that, we go through approval process, it makes sense to us, then it goes into what you're seeing as the development pipeline, which is still subject to some contingencies in terms of making that happen.

I can't tell you what it's going to be next quarter or the quarter after, per se. But our target is to get to a $300 million-plus kind of run rate on the development side. So, that's going to take us a couple years probably to get to -- a total run rate where we're putting $300 million to $350 million into the ground each year. And that means there's another $200 million in the development pipeline at any one time.

Okay, thanks.

That was our final question. I would like to turn the floor back over to Clem Teng for any closing comments.

Appreciate everybody attending this morning on our call, and we look forward to talking to you next quarter. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.