Public Storage (PSA) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage First Quarter 2018 Earnings Call. (Operator Instructions)

It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Lori. Good morning. Good afternoon, everyone. Thank you for joining us for the first quarter 2018 earnings call. I'm here with Joe Russell and Tom Boyle.

Before we begin, we want to remind you that all statements, other than statements of historical fact included on this call, are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected by the statements. These risks and other factors could adversely affect our business and future results that are described in yesterday's earnings release and in our reports filed with the SEC. All forward-looking statements speak only as of today, April 26, 2018, 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 provide on this call is included on our earnings release. You can find that press release, SEC report and an audio webcast replay of this conference call on our website at www.publicstorage.com.

With that, we'll turn the call over to Joe.

Great. Thank you, Ryan. Good morning, everybody, and thank you for joining us. We had a good quarter, and I'd like to open the call up for questions.

(Operator Instructions) Your first question comes from the line of Juan Sanabria of Bank of America Merrill Lynch.

Just curious on how you see the forward trajectory of same-store revenue growth, what the kind of latest beat is on the spring leasing season. I know it's still early, but are you seeing any changes in your ability to price new tenants? Or is it still a heavy concessionary environment?

Thanks, Juan. This is Tom Boyle. In looking at performance on move-ins in the first quarter, what we saw -- I'm sure we'll get the question on street rates. Street rates were down in the quarter. Take rates, which we view as more meaningful, those that actually rent with us, were also down for the quarter and move-in -- the move-in environment remains challenging. So while revenue deceleration has slowed, as you could see in the report, we continue to have a tougher time on move-ins. The flip side is our existing tenant base remains stable, and we're entering a period now where we're going to send out more existing tenant rate increases, and that will be a nice component of revenue growth for the year. So we continue to see move-in challenges, but a stable existing tenant base.

And on top of that, a reduction in move-outs as well that came through in the first quarter.

That's right.

Could you just put some numbers around the take rates, the net effect of take rates? And any incremental details you can provide on ramp-ups to existing kind of what you're going from and to, and/or if it's more often or quicker in sort of the link to lease-up or -- that you've previously done?

Sure. The take rates were down about 4% in the quarter. As Joe mentioned, move-outs were down about 3%. Move-ins were down about 2%. So there's the net gain in occupancy differential that we saw in the quarter. In terms of promotions, pretty consistent promotion strategy through the quarter. In terms of our existing tenant rate plan, nothing changed there from prior years. So we'll plan to continue to send those out. As I mentioned, the months of May, June and July that we're entering into are some of our larger months for existing tenant rate increases, and our tenant base has been stable. So all systems are go from that standpoint.

Yes, and again, on that note, Juan, as Tom mentioned, I mean, we're really seeing little change in tenant behavior, which is very encouraging to us. So that's been consistent now for the last several quarters, and it continues to be a vibrant part of the way that we're able to manage revenue.

And then I was hoping, just my last question, if you can give us any sense of spot trends. You kind of flagged the last quarter that the period-end numbers weren't necessarily indicative of what you expected the forward quarter to do. Any color you can provide on kind of the period-end trends and if those are a good readthrough to kind of expectations for the second quarter? Or if the spot numbers would give you a different viewpoint?

Yes, I guess, what I would say is the period-end numbers are one indicator, and they're certainly a spot indicator. And what you've seen over prior quarters is that some of the maybe historical relationship there has not held closely. I'm not sure that it ever was really close in the past either. But indicators there, if you look at period-end occupancy and contract rent, contract rent up, 2.7% in the quarter; period-end occupancy, down 1.2%, would obviously point to 1.5% if you want to do that math. Using period average occupancy of negative 0.9%, that gets you to 1.8%. So there's obviously a range there, and we'll see what plays out. The spring quarter is obviously a meaningful quarter for move-ins and move-in trends, so we'll need to monitor that as we go through the quarter.

Okay. So we shouldn't read into kind of period-end being lower than the average versus kind of the historical first quarter numbers? Is it down? Is it negative data point or...

Those indicators, I clearly walked through.

Your next question comes from Todd Thomas of KeyBanc Capital Markets.

Just first question, looking at the occupancy at the end of the quarter versus the occupancy during the quarter's average, historically, since 2005, when the company first began publishing same-store data, the ending occupancy in the first quarter has always been higher than the average occupancy in the quarter just from a seasonal standpoint. This was the first time, I think, it ever was lower on an absolute basis. I'm just curious if you can comment on that. Maybe you can share where occupancy is through this point in April.

Sure. So I think John described a little bit of what we're seeing in move-out trends that are impacting occupancy on the last call. We are seeing modestly more move-outs at the end of every month than what we've seen in prior years. And so what that's doing is the period-end occupancy numbers are lower than what they are through the rest of the months. So that's what's driving the differential between weighted average and period-end.

Okay. So yes, in terms of those comments, I guess, about that month-end decrease that you've been experiencing, can you just comment on that and maybe describe a little bit about what's happening there, what you're doing to sort of encourage that type of month-end move-out activity?

Yes, well, I guess, I would just say we're seeing customer trends move-out more at the end of the month. We view that actually as a positive as we look at when we get our inventory back to release, getting our inventory back at the end of the month before you see month-end, and then beginning of month move-in activity is a positive.

Okay. Are you able to share where occupancy is today for the same-store and what that is on a year-over-year basis?

No.

Okay. And then just lastly, I just had a question on construction cost. You guys are obviously in the market with -- you have a fairly sizable pipeline in processing. You've committed to maintaining a few hundred million dollars per year or so for the next few years. Can you just talk about what you're seeing in construction cost increases from materials and labor? And is that having an impact on your expected returns? And if so, how are you mitigating those rising costs?

Todd, not anything I could point to specifically relative to any meaningful inflation. We've talked about it from quarter-to-quarter, where in certain markets, from time to time, you might have acceleration, whether it's tied to labor or certain material costs like steel, et cetera. But at the moment, we're not seeing any meaningful change in construction cost. So again, we've got an active development pipeline, as you mentioned. We're developing product in multiple markets, and we're really not seeing any meaningful inflation at the moment.

Your next question comes from Smedes Rose of Citi.

I wanted to ask on the cost side as well. The on-site property manager versus the supervisory payroll cost were going in different directions. I was just wondering, is there anything specific maybe to the quarter? Or could you maybe just talk about those trends over the course of the year, and why they were kind of in opposite directions?

Yes, Smedes. We've had the opportunity to continue to optimize our field leadership across the system. So with that, we've had the opportunity to, again, look for economies of scale and optimizing cost structure on that front. At the property level, we continue to see a multitude of pressure that's tied, not only to basically the impact from minimum wage increases, market-to-market, in some cases even city-to-city within markets. But there's growing pressure there that we continue to react to and does create headwinds relative to overall pay levels at the property level. But we've got a strong deep team out in our leadership ranks that, again, we're pleased by their ability to run properties' efficiency. We're continuing to look at any and all ways to magnify their own oversight. As we continue to actually even put additional properties into certain districts, whether it's through development or acquisitions, we continue to find, again, good opportunities for economies of scale. So we're going to use that as frequently as we can, but overall, it's a tough job environment. Unemployment, as a whole, is very low, and we're out there competing for talent. So, pleased again, though, by the level of commitment and lower turnover levels, particularly, in our management ranks, and then, again, we're definitely seeing more pressure on property level employee wage, and then to some degree, turnover.

Okay. And then I know it's only been a couple of months since you at least publicly announced your entrance into the third-party management platform. But maybe you could just talk about sort of the initial reaction, thus far, and kind of where you are on launching that initiative.

Sure. So yes, we're obviously just no more than a couple of months into our formal entrant into the business. But we've definitely been very pleased by the reaction that we've gotten. We're in the early stages of rolling out, not only our marketing plans, level of contracts, materials, website, et cetera, but we've been seeing a higher-than-we-initially-expected level of reverse inquiries, lots of discussions from a variety of different type of operators, whether those that are actually delivering new product to markets and/or those that have existing properties that are looking for a different type of third-party management. So overall, I'd tell you that we've been pleased by the fact that there's no question, we have a commanding brand. If you could even take that to another level, the only brand in the industry. So it's a strong draw. We've got good market knowledge, history in operating scale market-to-market. So the offering, as a whole, is getting very good reception. Now, again, we're early into it, and it's likely to take some amount of time to see the actual transition to owners that are going to come in to our third-party management program. But again, early indications are we're off to a very good start.

Your next question comes from the line of Ki Bin Kim of SunTrust.

Is there any kind of visible relationships where properties have the same decreases in take rates? Is it as simple as more supply? Or are there other dynamics at play?

It's certainly driven by the market environment around the individual properties. So we operate a very local business, where the customers of each individual property are around a 3- to 5-mile radius of that property. So it is a pretty distinct. In terms of market trends, there's no question that some of our markets are performing better than others. And one of the drivers of the markets that are performing less well is certainly new supply, as we're competing for move-ins with new product that's opening, and those new properties take their 3 years or so of lease-up before they're stabilized.

Okay. And just quickly, did you mention the take rates for month-to-date in April?

I did not.

All right. Do you mind providing that?

No.

Okay. Well, so, I guess, my second question is, really, your same-store revenue seems to have bottomed out. I know it's only one quarter, and things can move around, and you said a couple of interesting things. I mean, as take rates are down 4.5%, sounds like you're still sticking with the same program in terms of the existing customer rate increases. Your same-store revenues looks like it's bottom. So if I try to put everything together, does this mean even though take rates are down a little bit, but does this still mean that same-store revenue shouldn't be a little much lower than this kind of 1% to 2% range?

Obviously, as we look forward, lots of things will impact same-store revenue growth as we go through the year. As you look at rent roll down, I'll give you just a little bit more information around what rent roll down in the quarter was versus prior quarters. So take rates for the quarter were $119 per unit. That compared to $124 per unit in the first quarter of 2017. Move-out rate in the first quarter of 2018 was a little over $137, and the move-out rate in 2017 in the first quarter was $136. So we've seen a gap between move-in rate and move-out rate in the first quarter of around $18. That has deteriorated from last year's first quarter. But if you compare that to the fourth quarter of 2017, it's actually a modest sequential improvement. The fourth quarter of 2017, for context, was around $19.

Your next question comes from the line of Vikram Malhotra of Morgan Stanley.

Could you maybe give us the same-store revenue growth across maybe your top 5 markets for the quarter?

Sure. So looking at our top 5 markets, Los Angeles had same-store revenue growth of 4.5%. San Francisco had 3.4% revenue growth; New York, 2.9%; Chicago, negative 2.3%; and Washington, D.C., negative 0.1%.

Okay. And just sort of maybe stepping back. Obviously, supply was -- has continued to be a big topic with last year as well. What sort of visibility do you have today into 2019 in terms of deliveries and potential lease starts?

Yes, Vikram. 2019, I would say, is still a bit cloudy. We've talked about the level of deliveries that we anticipated through this year, which is likely to hover somewhere around $4 billion. Now that's compared to the $3.5 billion or so that was delivered in 2017. What's not unusual in our business, and we're actually seeing this from time to time with some reverse inquiries that we're getting, is sites might get entitled, a developer might have owned a piece of property for a period of time, and then has basically changed direction relative to their own development and intent to actually build a property. So we are seeing a little bit of that coming to us. And again, I think there's an unknown impact relative to the amount of volume that we're likely to see coming into 2019. The one thing that -- you step back and you take a look at our business, and there's no question that we've been pleasantly surprised with the amount of resiliency that we've seen with the deliveries that have continued to take place, not only in our own portfolio, but what we're seeing in a number of markets. So in our case, take Jersey City. We've talked about that development a number of times, but that's our largest property. We opened it just a little over a year ago, a little over 4,000 units. And we just hit another milestone, where we've now got 2,000 units leased. Now that's the equivalent of 4 properties, where when we built the property, we thought it was going to take us up to 4 years to stabilize it. We're only a year into it. We're beyond 50%, and we've got very good traction and vibrancy. So we've also seen, again, good absorption in a number of our other developments. We started our development program in 2013. And with that, we've delivered about 6.5 million square feet, 3/4 of $1 billion of investment. We've seen very good traction and absorption. So the development cycle's here. It makes sense for us in many of our markets to continue to source and look for development opportunities. And there are developers out there too that are going to continue to monetize opportunities. Ron talked about it, I think, on the last call where, again, when you're able to build to an 8 or 9 return, and monetize it for something like a 5, that's 180% margin. So I mean, that's something that's going to continue to fuel the development business. I wouldn't say we've seen anything that necessarily is going to change that. But just tying back to the resiliency and the things that our business and our product type can create, it's an amazing opportunity for us to continue to see the benefits of doing development where we see it well placed.

Your next question comes from the line of Jeremy Metz of BMO Capital Markets.

So Joe, I mean, just to kind of stick with supply, I mean, just given the fundamentals, you're seeing, revenues growing, high occupancy, the margins are still good, financing's still available. I mean, there's really no reason to -- that you could see right now out there that it would slow down from these levels. Is that fair?

Well, again, Jeremy, it's a market-by-market dynamic. On the West Coast, for the most part, outside of Portland, I mean, we're seeing very little dynamic or very little development. And frankly, we don't anticipate any. It's very tough to find land sites. It's tough to get entitlements. And again, we don't see that level of new product coming to our West Coast markets. It's going to be more prone to certain markets that we talked to over the last several quarters, like a Miami or a Raleigh, a Charlotte, an Atlanta. New York's got its fair share, so -- and then obviously, Dallas and Houston. But again, it's tough to peg and see what kind of discipline continues to play through relative to the amount of funding that comes from banks and other sources of the capital. But again, it goes right back to, I think, the barometer and the governor here is going to be the amount of development return that these developers are going to see with their own developments. So we've got to see how it plays out. But again, to counterbalance all that, particularly our own portfolio, we're seeing actually good traction, so good traction relative to meeting or exceeding our lease-up and rental assumptions. And we continue to see good reasons to continue developing where we're finding the right land sites and we're finding the right economic returns.

Appreciate that. And have you seen the supply, though, spread out into smaller markets? At this point I know you tend to focus on a lot of the bigger ones. But has it pushed on any of those smaller markets? Are you even -- have you seen any pullback in the certificate of occupancy activity that's been out there?

Jeremy, at this point, I really couldn't say there's been a shift there yet. So we'll continue to track it. But no, I couldn't tell you right now there's been any material shift yet.

Okay. And then last one for me. Just in terms of transactions, are you seeing cap rates move at all in the market, whether it did a higher capital cost or even just revised revenue expectations at this point?

Well, unfortunately not. At some point, you would think it would have that kind of an impact. But again, in the private markets, we're seeing a fair amount of, again, activity, where again, there's trading activity of cap rates that we, in many cases, can't make sense of. And in the tertiary markets, in particular, right now, we're seeing some valuations that, again, in our view, make no sense. So we're, again, not seeing any shift there at the moment.

Your next question comes from the line of George Hoglund of Jefferies.

Just continuing along those lines of acquisition market, I mean, what are you seeing in terms of the deal flow stuff out there, like how much product is actually coming to market? And are you seeing portfolios out there for sale? And then also, how much of the stuff you are seeing is kind of recently developed product or stuff that's still in lease-up?

Yes, George, the first quarter is typically not a busy quarter. So we bought 3 or 2 assets, and then going to this quarter, we've got our eyes on another 3. But there's very little portfolio product out there. We've been focused more on 1- and 2-type opportunities, and we're really not seeing anything pending coming into the market at the moment. Now, again, it's not unusual that the first quarter, in particular, is slow. We'll see what plays through relative to additional product coming into the market over the next quarter or 2. The theme over the last few quarters, however, has been that the level of quality has been lower than we'd typically like to see. And then coupled with the fact, as Jeremy was just asking, just the valuations have been beyond ranges that we think are reasonable. So again, nothing really new to talk to relative to the amount of product and/or volume coming in at the moment.

Okay. And then just next one for me. Just can you provide an update on Shurgard's performance?

Sure. So Shurgard, overall, had a good quarter. Revenue was up 3%. Expenses, flat. They had an NOI of 4.8% for the quarter, so overall, very good quarter. Not unlike us, they've been continuing to put development and acquisitions in other non-same-store pool. At the moment, they've got 50 properties, again, seeing good traction relative to lease-up, and overall activity and trend relative to, again, the stabilization of the 50 properties. In the quarter, they had a little bit of slippage in 3 of their markets, from an occupancy standpoint, very minor, but it was France, Sweden and the U.K. But overall, they had a very good quarter.

Your next question comes from the line of Steve Sakwa of Evercore ISI.

Just a couple quick questions. The non-same-store pool, I know it's not a huge component of the overall company, but it's still only about 82% leased. Can you just maybe share some thoughts on the timing to maybe get that to a more stabilized level?

So again, Steve, we've got, to your point, a growing, and we think, very opportunistic number of properties and opportunities in our non-same-store pool, both through what we've developed and what we've acquired. So year-by-year, on the development side, those properties that we developed back into the 2013 to '15 cycle are relatively stable at this point. We're seeing good returns in the range of, say, 8, 9 and 10 plus. So again, those are trending well now that they've had enough time to go through a complete lease-up cycle. And then the generation of product that we've delivered in '16 and '17 needs more time to mature. All told, the pool of those assets, which again is about 3/4 of $1 billion and 6.5 million square feet, is currently generating just north of a 4% return when we are relatively confident that we're going to continue to see opportunity just to take it to that 8, 9-plus level. So it's definitely something that is a vibrant part of our forward opportunity relative to revenue growth. And not to state the obvious, but we are the only company that has a development pipeline, and we have a full and talented team out there looking for great properties, not only on the development front. But again, we've had good level of discipline in and out of cycles to go out and find good product that we can acquire as well. So we're very confident about the forward view relative to the earnings power of this portfolio.

And not to get too specific on time frame, but do you think that's a sort of a 24 to 36 months sort of reasonable time frame to (inaudible)?

Well, yes, I mean, if you kind of think about just again cyclically how it would typically work, and again, if you point to the 2015 and '16 pool -- or excuse me, the 2013 to '15 pool that I talked about, it has taken, plus or minus, about 3 years to get it up to that level. So that wouldn't be unusual.

And this is Tom. I would just add that we added some disclosure into the press release that we hope you find helpful in breaking out the development vintages into groups. And you can see the performance of the 2013 to '15 vintage there. Certainly, getting to stabilized occupancies, as Joe highlighted, but seeing strong rental rate growth in that group as well.

Yes, I did. I guess, just quickly switching back to the third-party business, I'm just curious what you guys have done in terms of staffing, either internally or externally, to either bring new people in or transition people into that business, and just kind of give us a little more flavor for how that's unfolding.

So Steve, yes, again, I'd just point to we're in the early stages. Pete Panos, who has been with us for 20-plus years, knows the operational side of the business cold. So he is leading the team. He's out sourcing a number of individuals that are going to join his group relative to their focus on third-party management. So he's actively working through that process to get the right sized team built. The great news, as we speak as well, is that he's got a lot of resources here in the company that he can key off as well. So we've got a great operational team out there that can, in the interim, answer specific questions any particular owner might have about market rents or other things that they're going to want to have more clarity on coming into our system versus another. So we're confident that the team will get well-rounded as we build that business. It's going to take us a bit of time just to get it completely staffed, but he's got good activity on that front as well.

Okay. And I guess, last question, just any comments on Europe and just kind of the performance there and kind of your expectations for deploying capital there?

Well, yes, I just went through how Shurgard did for the first quarter. So I don't know if you were able to hear that or not, but...

Okay. I'll circle back.

Okay, perfect.

(Operator Instructions) Your next question comes from the line of Nick Yulico of UBS.

This is Trent Trujillo, on with Nick. I appreciate the commentary that you had earlier on the call about move-in in that environment. But I'm curious if you could classify how you perceive the ability to attract new customers and which markets you're seeing the most difficult time with absorption since it doesn't always just simply correlate to new supply.

Sure. So just to give you a little bit of snapshot. There's clearly market differential in move-in, move-in rate, and we're dynamically adjusting both rental rates, promotions and advertising by market, by property, by unit site type, et cetera, so certainly have tools in the toolkit for that. To give you a sense of properties or rather markets that are seeing better trends versus weaker trends, Houston is a market where we've seen continued benefits from the hurricanes last fall, where move-in trends there have been good. As an example, there are other markets as well, even some smaller markets, thinking of a market like Boston. The bottom performers on move-ins tend to be the bottom performers on revenue growth, so some of the weaker markets there, Chicago, Denver, Dallas and some of the markets that we highlighted.

Good. And I guess, as a quick follow-up, your advertising and selling expense was down year-over-year. So do you, at any point, anticipate spending more to attract customers? And how effective has your marketing been in terms of customer acquisition cost?

Sure. So the marketing spend, in aggregate, was down for the quarter. As we've talked about in prior quarters, we did not advertise on television this quarter, and we did last quarter last -- in the prior comparable quarter, such that television advertising expense was down. Counterbalancing that was we did spend more on the Internet, and so that was a meaningful increase in Internet spending. To give you a sense, our Internet spending was up about 40% in the quarter. So we are using that channel, and that is a channel that we have advantages on, given our brand name. So we get a lot of traction on that channel, and it's working well for us in the first quarter and into the second quarter.

Your next question comes from the line of Jason Belcher of Wells Fargo.

Just a question on your customer mix. I know the business mix -- business customer mix has been growing with some of your competitors over the past couple of years. Can you share with us where that business customer mix is for you all and how that's trending?

Yes, Jason. We really don't track that specifically nor define it. There's no question, we have a sizable number of customers that are businesses of a whole variety that can, property-to-property, be different types of businesses, whether it's somebody who might have a pharmaceutical rep business or a construction firm that needs extra support storage, or again, there's a whole range of different types of businesses, but frankly, we just don't have data that we could share with you that would track and put it in any kind of proportion. So there's really nothing I can guide you to there.

Sure, no problem. Then one other question back on marketing, and sorry if I missed this, but can you just remind us what you're doing on TV ad spending?

We did not advertise on television in the quarter, and we haven't the past several quarters either.

Yes. I think that this is the third quarter in a row we've had 0 TV spend.

There's obviously transition going on in television and the way people watch TV. So that's something that we're monitoring closely, but we did not advertise on television in the quarter.

Your next question comes from the line of Eric Frankel of Green Street Advisors.

I understand the sector, the definition of full occupancy has evolved the last few years with fairly strong fundamentals, and I think this quarter's occupancy is now down to a 5-year low. Can you comment on what you think stabilized occupancy is for the portfolio and whether you would be more willing to take in lower move-in rates to get to a little more fuller occupancy?

Yes. So occupancy is clearly a component of revenue growth, and we're constantly seeking to maximize revenue growth. So occupancy, as well as rental rate in the different markets, have different dynamics, both from a demand, nature of customer, nature of use case, et cetera, that drive different behaviors. We generally think about stabilized occupancies as north of 90%. There are some same-store markets that are below 90% today. But generally, think about circa 90% as a stabilized occupancy. And we're looking at ways constantly of optimizing both occupancy and rental rate to maximize revenue, so not focused purely on occupancy, clearly, at this point.

And Eric, just to add to that, again, if you look at our history over the last, say, 4 or 5 years, I mean, again, the sector and ourselves, I mean, we were able to generate occupancy levels that we have never seen before, meaning, you could take certain markets and/or properties specifically to 95, 96 or even higher seasonally that, again, prior to this cycle, we haven't seen before. And as we speak, we have both markets and properties that continue to operate in those occupancy ranges. So again, it goes back to part of the attraction to this business in general. On a month-to-month lease basis, I mean, we're still able to capture and drive occupancies to levels that, until recently, weren't thought were possible. So it talks to, again, not only the benefits or the vibrancy of the business, but some of our own capabilities relative to the way we're attracting customers, duration of customer stay and in many markets where we frankly don't have additional competition, and we've got great opportunities to keep our properties very full.

Okay, I appreciate the context. Just one last question. Joe, obviously, you have a fairly long career in the commercial real estate industry, especially with PS Business Parks, and more generally, in the office industrial sectors. Obviously, Public Storage is one of the founders of the self-storage industry and is obviously probably has pretty good operating chops. But have you found, from your past experience, any way that you think you could enhance value to the platform?

Well, again, Eric, yes. I've been in the family here at Public Storage for about 16 years, and it's -- you and I got to know each other in my prior role at PS Business Parks. A lot of similarities culturally, and then even the way we approach the business relative to the level of focus, intensity and drive that's necessary to run a business that does have a commanding level of day-to-day customer involvement. In our case here at Public Storage, we got 1.5 million customers, but we've got a great strong team. And there is a lot of rigor that goes into keeping the portfolios optimized each and every day. And John and Ron have crafted and put a lot of great metrics and techniques and processes into the business that frankly has led the industry to levels, as I was just talking about, that many thought weren't possible. So with Tom and I coming in now, again, it's not to come in and re-craft or reset that at all. It's really to find and continue to enhance ways to continue to optimize the business. So a lot of things that, frankly, we don't want to change. We have the best balance sheet in the industry. We've got the only brand in the industry, great scale out in our markets. We're the only public entity that's got a development program, and it's thriving. We're now entering third-party management. So we're going to continue to be creative and focused, and Tom and I are excited about the future here.

Your next question comes from the line of Mike Mueller of JPMorgan.

I was wondering, can you talk a little bit about some of the basics of on-boarding for the new third-party management business? Specifically, when you bring a property onboard, to what extent do you reflag it? Who bears those costs and basic stuff like that?

So yes, Mike, those are good questions, a little premature for us to actually talk to the specifics yet, but those are many of the elements that, as we speak, we are basically structuring the business around, so not only taking a look at how the industry has done this, but what new and different elements will be part of our on-boarding process, as we again look at either properties that come out into the portfolio on a one-off or a portfolio basis. So those are all things that we're working through right now. And give us a little bit more time, we'll be able to go into those details in the future.

Your next question is a follow-up from Smedes Rose of Citi.

It's Michael Bilerman with Smedes. I just had a couple of follow-up questions. Joe, in terms of Ron and John's involvement through the retirement at the end of the year, I take it -- public quarterly conference calls is out at this point?

Well, based on what's happening today, yes. But again, the transition that has been evolving, Michael, over the last, literally now, almost a couple of years. Tom and I came into Public Storage almost at the same time, so basically, the mid-point of 2016. So Ron and John are here. They're highly engaged in the company. They're great resources for both Tom and I to ping and get advice and input. And their retirement is that, but it's also one where we clearly have no exposure relative to losing their institutional knowledge because they're going to be active trustees. And Tom and I will be able to continue to rely on them for all kinds of things that we're excited to go out and tackle.

And how are you think about investor communications? And I don't know if Ryan has a different view on this as well. I take it there wasn't a lot of change this quarter with no opening comments, not that I do appreciate breaking out the development NOI between the peers, but really no added disclosure in your press release. The 10-K includes a bunch of your information, but clearly, PSA is well behind its peer set from a disclosure perspective. Do you and/or Ryan have a different view, going forward, about disclosure and what you're going to give to The Street?

Yes. I mean, Mike, we'll continue to solicit feedback and when and where we think additional disclosures are helpful. And as Tom mentioned earlier, we did put additional information even into the press release. So we're going to be open and fluid with any dialogue that we would like to hear from you and others. So let us know. But we'll see how things play forth.

But I guess, coming in, you decided to go out and hire a sell side analyst that certainly has got a different viewpoint, I would assume, than prior leadership, perhaps. Do you have a desire -- I mean, you can print up everyone's supplemental. There is volumes of detail that others put out that you don't...

Well, I would just point to the fact that, again, we've -- even with disclosures over time, those continue to change, and we'll be receptive. But it's not -- and I wouldn't take Ryan's add to the team as some new and very different strategy tied to, again, the way that we continue to provide information. We definitely want to be as transparent as we have been historically, and we'll continue to solicit feedback.

You mentioned, on the development specifically, 3/4 to $1 billion of capital. Can you break out, if you were to look in your press release, the NOI for the '18, '17, '16 acquisitions and then the 2 levels of development? And then the other facilities, which I think are the ones where you've embarked on redevelopment, how much capital has been spent for each of those, so that we can better understand in-place yield? And then how much NOIs on the come, so that as we remodel, we can model that upturn over the next few years? You obviously don't give guidance, so having that information would be helpful.

Again, Michael, we'll look to the level of information that we think is appropriate, and best suited to give guys the amount of information you need. So I'm not going to specifically answer those direct elements, but we'll take the feedback and see what we can do, going forward.

Right. But you have the '16 and '17 details in your K. So I can pull those out, $280 million and $430 million. How much money have you spent on the 13 to 18 developments that are currently producing the $3 million and $4.3 million of annualized -- of quarterly NOI? Should be an easy number to have.

Yes, and again, I think some of that information will play through in the 10-Q as well. So the 10-Q is going to be out in the next week or so, so I would look to that as well.

Your next question is a follow-up from Vikram Malhotra of Morgan Stanley.

Just 2 quick questions. One, as sort of the quarter progressed and particularly towards the end of the quarter, it seemed like sort of rate and occupancy decelerated. I'm wondering if, tactically, you dropped rate to try to get occupancy up. And tied to that, you had -- I think it was an effort maybe a couple of quarters ago to select certain markets and drop rate quite dramatically. Anything like that on the cards for this year?

Sure. So on your first question, we actually saw modestly better trends in March compared to February. So as I spoke about take rates being down 4%, takes rates were down 5% in February, down 4% in March. And actually, while I'd describe move-ins being down in aggregate, for the quarter, March was positive for move-ins. So if anything trends, we're better in March than earlier in the quarter, which obviously is a good thing as we prep for the rental rates or the rental season here in the next several months. Your next question was on whether we're doing anything specific market-to-market in terms of lowering rates dramatically, and there's been no recent strategies to dramatically lower rates, although, obviously, we are dynamically changing rental rates as we go on a day-to-day basis.

Okay. And then just one last one. From a -- I think, maybe 1 year ago, maybe 1.5 years ago, there was a view that stabilization would be sort of defined by same-store revenue trending towards long-run average, and we're certainly below that now. I'm just sort of wondering if you look out, whether it's 6 months to 12 months, sort of what is stabilization from here on? And are there any -- is there a view that you could see some re-acceleration towards the year end?

Well, if we have a busy season, and rental season goes here, and we could talk about that more as we go through 2018.

Your next question is a follow-up from Kim Bin Kim of SunTrust.

Just want to clarify something. You guys send you were sending out more rent increase letters. Does that mean just seasonally that you're sending out more now or going to send out more? Or did you mean on a year-over-year basis, and also [obviously..]?

I meant seasonally. So as we get into May, June and July, we send out more during that time period. Obviously, rental rates are up, and there's strong demand for backfilling any vacancies. So a good time to be sending out rental rate increases, and those are our largest months.

Okay. And just following up on that, do you expect the percentage of customers that would receive one this year, would that look similar to what you've done historically or better or worse?

Very consistent.

At this time, there are no further questions. I'll now return the call to Ryan Burke for any additional or closing remarks.

Thank you, Lori, and thanks to all of you for joining us today. We'll look forward to catching up again on the next quarter call.

Thank you. That does conclude the Public Storage First Quarter 2018 Earnings Conference Call. You may now disconnect.