Public Storage

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage first quarter of 2020 earnings call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you have a question at that time, please press star 1 on your touchtone phone. If you wish to remove yourself from the queue, please press the pound key. It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations. Brian, you may begin.

Thank you, Erica. Good day, everyone. Thank you for joining us for our first quarter 2020 earnings call. I'm here on the line with Joe Russell and Tom Boyle. Before we begin, we want to remind you that all statements other than statements of historical fact, including 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, May 1, 2020. We assume no obligation to update or revise any of the 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 in the earnings release. You can find our press release, SEC reports, and an audio replay of this conference call on our website, publicstorage.com. As usual, we do ask that you keep your questions limited to two initially. Of course, after that, please feel free to jump back and queue if you have additional questions. With that, I'll turn it over to Joe.

Thank you, Ryan, and thank you for joining us. We wish the best for all of you listening in today. particularly those that have been personally impacted by the pandemic. I want to begin by thanking our employees, customers, and business partners for their extraordinary efforts and flexibility as we adapt to this environment. Our focus is simple. Safety is the top priority in everything we do, protecting our employees and customers. We are operating our entire 2500 plus portfolio in all markets as we are an essential business. The need for self storage even in disruptive times like these is yet again being validated. In that regard, our priorities beyond safety include servicing new and existing customers as our communities navigate through these challenging times. To do so, we are supporting our frontline employees in several ways to optimize customer service. Protocols are in place that reinforce social distancing, keeping properties clean, and offering customers multiple avenues to rent or access their space in a contact-less way. At the start of the pandemic, we also established the PS Cares Fund, which provides child care coverage, extended paid time off, and additional hourly compensation to our entire team of property managers. I can't overstate how valuable their commitment to public storage has been and will continue to be as they serve our 1.5 million customers. As public storage approaches its 50th year, we have clearly weathered significant economic cycles, and this one will likely rank as one of the most extreme. We have a proven playbook to maneuver through severe economic and natural disasters, Our teams are battle tested, our product is resilient, and we have intentionally crafted a fortress balance sheet to not only survive, but thrive in times like these. At its core, the full public storage team is well equipped to not only face whatever challenges arise in the near term, but confidently we will find new ways of applying our unique strength and fortitude to find opportunities. Now I will hand the call over to the operator for questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes in the line of Jeff Spector with Bank of America.

Thank you. Good afternoon and hope all of you are doing okay. First question is, Just trying to tie some of the comments, Joe, you made on, you know, the, I guess, fundamentals or what you're seeing in the market validates the stability of the sector, resilience in the past versus some of the, you know, I guess the color around COVID-19 in your press release, which seemed to be much more cautious. Can you just, I guess, discuss that as my first question?

Yeah, sure, Jeff. So, you know, again, we're obviously in an environment that is new and different for everybody. You know, we've all been through, you know, a number of economic cycles of different degrees, as I mentioned. We, in particular, from time to time go through what we call natural disasters, hurricanes and otherwise. You know, this is clearly even different than those because it's health and science related. You know, the predictability of this environment is to be determined at best with a lot of information none of us have dealt with before. When we do look back at prior cycles, again, our product type has played through very well, and even the Great Recession, we were pleasantly surprised by, again, the resiliency and the adaptability and relevance of the property type itself. On one hand, we clearly know that there continues to be a high degree of need and usage of the product. This month, or last month, April, we moved in 82,000 customers into our portfolio. Now, again, that's down, but on the flip side, there's vibrancy there. There's need there. We see it also with the amount of activity at our properties that we can now track holistically because we have a centralized access system. So, again, whether it's at a raw consumer level and or anything that tears into service-oriented from a business that may or may not be supporting even the type of activity that's going on with this COVID economy, there is a true and, I think, valid need for the product itself. So we are, you know, looking at the future with, you know, a fair degree of caution because, frankly, we just don't know what's going to play through, and I don't know how realistic you can predict anything because we're six weeks into this, and there's just going to be a number of things as we're discovering, you know, day-to-day, week-to-week, that this environment will create even additional types of pressure points that we haven't seen before. Now, again, other things, though, are somewhat similar so far to what we've seen with, you know, extreme economic cycles. So, in the Great Recession, our delinquency, you know, hovered around, you know, again, a 2% factor or so through the month of April. Very similar. So, our customer base, even through the month of April, from a collection and payment standpoint, was consistent, even on a year-over-year basis. So it's a mixture, and it's just something that we're going to, again, continue to react to. We've got great tools to be nimble. We've got great analytics to continue to address, you know, again, whatever continues to surface or does surface that we need to address and, you know, address through different tactics, strategies, et cetera. So that would – basically be, you know, an overview of how, again, we're looking at, you know, this environment and clearly in a position that the predictability of it is still unknown.

Thank you. That's very helpful. My second question then, if we could talk about, you know, the strength of the balance sheet and opportunities. I think you discussed this quickly in your opening remarks. You know, are you seeing – what are you seeing today and how should we think about this and how can PSA – take advantage, you know, during this downturn versus I think one of the regrets was not being a bit more aggressive during the, you know, world financial crisis.

Sure. Well, you know, Tom can talk a little bit more specifically about the balance sheet of the stamps today, so I'll let him do that in a sec. But, again, looking at – extreme cycles like this one is likely to be. There is evidence, it's very early, but it won't be surprising if, again, a number of owners that have come into the sector, particularly over the last three or four years where we've seen an abundance of new supply come into the market, particularly with owners and ownership structures that may not be well-suited to deal with something like this. there could be, again, a predictable effect, which would be more ability to capture assets at, again, a price point that we think is very different and much more attractive than it's been over the last, say, three or four years. We're starting to hear, again, some rumblings around assets that I would say are underwater, where they've been funded through a certain level of debt, and the valuations are below that value, and so we're starting again to hear some of that out in the market. Again, it's early, but it wouldn't be surprising to us, and the ability for us to, in particular, take advantage of an environment that could create that additional level of transaction activity, the balance sheet's ready for it, and it's ready in a meaningful way. So we'll see how that plays through, and I'll hand it over to Tom. He can give you a little bit more color on where the balance sheet stands today. Thanks, Joe.

The balance sheet's in great shape, as we've discussed on previous quarterly calls. We're sitting right now with debt to EBITDA, just to touch over one time, fixed charge coverage around eight times, and over $700 million in cash on the balance sheet. So we feel very good about our financial and liquidity position to take advantage of potential opportunity should it arise. As Joe mentioned, we're starting to see the early signs of that.

Thank you. I wish everyone well. Appreciate it, Jeff. You too. Thank you. Thank you.

Your next question is from Jeremy Metz with BMO Capital Markets.

Hey, guys. You know, Joe, Tom, I was wondering if you could just give a little more color on the trends and what happened in April in terms of occupancy and where you ended, turnover, moving rents, and then it sounded like delinquencies were 2% for April, and that was in line with last year's ad. Was that right as well?

Sure, Jeremy. I'll walk through a number of those points. It's Tom. So stepping back, looking at activity through the quarter and then into April, we had a pretty good quarter on move-ins, which really began in January, February. We were up, call it, 5%, 10% on move-ins in January. In March, we saw a meaningful increase in demand as customers pulled forward activity that would typically occur later in the second quarter, most notably college students. and others ahead of stay-at-home orders. One week in March, for instance, move-ins were up about 20% to give you a context. But then that volume started to decline significantly as folks were encouraged to stay home. Overall search volumes have come down. Inbound sales calls are down about 25% in April. Web visits are down about 7% in April. Overall move-in activity through the month of April It was down 17% despite decreases in rental rates of circa 20% to drive volume across the country. So for those customers that have a storage need, we're providing space with enhanced precautions in our properties and utilizing our e-rental online lease. Somewhat encouraging, as Joe mentioned, over 80% of last year's seasonal activity we experienced in April, which speaks to demand for the product even in tough times. Trends modestly improved as we moved through April. So the last week of April, for instance, move-in volumes were down about 11%, but again, it reduced rental rates. Somewhat offsetting the decline in move-ins was an anticipated decline in move-outs. So move-out volumes not take into account auction. home orders are lifted, we may see an increase in pent-up move-out volume. We've talked about in the past that in 2009 there was a shift in consumer behavior with longer length of stay customers moving out. We have not seen that to date. Our existing tenants continue to perform well and move-outs remain down. As Jill mentioned, we have seen less overall activity of property, so not just move-ins and move-outs, but just customer visits to the property. Our new centralized access system gives us insights into what's going on at the properties, and April activity was down about 20% versus March. In terms of occupancy, we ended the first quarter up about 60, 70 basis points in occupancy, As we disclosed, part of that was attributable to the fact that we had postponed auctions of delinquent customers. We've continued to do that through the month of April. So our occupancy at the end of April was up about 30 basis points. But if you take into account the fact that we have some customers with us that we may have otherwise auctioned in prior years, our occupancy would be down on a year-over-year basis. Still up seasonally on an absolute basis, but down on a year-over-year basis. Moving to collections, which is the third prong of your commentary, as noted in the press release and as Joe just highlighted, April rent collections are very consistent with prior year, and that is consistent with what we saw in 2009. We've collected about 95% of our April rent at this point, which is right in line with where we were last year at this time. So if the duration of this pandemic elongates and we react to where we go from here, it could very likely put more pressure on the consumer, and we'll have to monitor that as we go forward. But at this point, collections are very much in line.

That's a great color. And for my second question, I'm going to double up a little bit here. I just wanted to see, Tom, if you could – expand a little more from, you know, what you're seeing in April, but kind of talk about it from a regional perspective. You know, how is Texas performing just given the fall off in energy? You know, Southern California given the closures. Florida, you know, what about areas that are starting to reopen? You know, what are you starting to see there? And then just if I could add on is just on the business customer side, It sounds like, you know, they're pretty steady right now, but, you know, when do you expect to start hearing from them, and what sort of trajectory are you seeing there? Where do you foresee them?

Thanks. Yeah, thanks, Jeremy. So there are regional trends that are worth speaking to. You know, I think the high-level takeaway is that the Northeast has been more impacted, and we've seen slower rates of move-ins. in the Northeast. Also, slow rates of move-outs, but slow rates of move-ins. And so, as you look at New York or Boston or Philadelphia, and really, you can expand that up and down the East Coast, because I would put Miami probably in that category as well. Along the West Coast, move-in volumes have been more similar with prior years, still down, but down more in the a 5% to 10% range in many of those markets versus higher in the Northeast. And then that extends through the Southwest and into Texas. Houston is a market that certainly with the combination of the pandemic as well as with what's going on with oil prices, one that we and we suspect others are watching closely, we have seen move-in volumes hold up reasonably well in Houston, but we have cut rate in order to drive that volume up. more meaningfully in Houston than we have in other markets in Texas and the West Coast that I highlight.

Your next question is from Steve Sackler with Evercore.

Thanks. Good morning. I know that the industry has kind of gone to a temporary hold on existing customer rent increases, which has really been kind of the single driver of revenue growth for the industry. I'm just curious, you know, what is the timetable on that? I assume that that's still in place for May, and how long do you think that that might be on hold for?

Sure. So we thought it made sense, and it was appropriate to pause that program as we moved through March. And we did not send existing tenant rate increases out for June 1st billing, and so that will continue through the second quarter. Stepping back, existing tenant rate increases in a more normal time are managed at a very granular level using data analytics to drive what we send, when we send it, and the magnitude. That will be an important part of where we go from here and how we restart at the appropriate time. Recognizing that... consumer behavior could be a little bit different post this event than what it was before, but we'll be using the same tools that we have in the past in order to determine those rental rate increases and the appropriate time with which to send them.

Yeah, Tom, just as a follow-up, is there something, is there a guidepost? Is it about the amount of country that's open? I mean, what sort of guidepost should we be looking for to kind of determine when those may be appropriate.

Yeah, I'd say a number of different things. Certainly the situations that are going on in the local economies, consumer behavior that we're seeing, and we'll react to a number of those things as we see them. At this point, we thought it prudent not to send them out at the end of April for June 1 effective.

Okay, thanks. And you mentioned in the press release, you know, increasing kind of hourly wages by $3, at least it sounded like at least for the second quarter. Maybe just talk about expenses overall. I think maybe online marketing costs, you know, were still up. But just how are those trending, and how do you expect employee costs to kind of trend through the balance of the year?

Yeah, Steve, first on, you know, personnel-related expense, that'll be elevated through Q2 by virtue of the things that we've discussed about. We put some information on that in the queue as well. And again, we'll continue to moderate and understand, again, how we need to react to the overall environment going forward into the second half of the year. And we're looking at all expense levels across You know, the company as a whole, you know, the burden of, you know, tax increases is still with us. We don't really have a way to predict that going one direction or another at the moment other than it's just continuing to be elevated. And Tom can give you a little bit more color on, you know, another component of our expense tied to advertising. So, again, that's been a vibrant tool for us. We're going to continue to use it aggressively. But, again, it's going to be a factor in the mix as well. We continue to look at all of our operational expenses, whether, again, it's tied to vendor contracts, the amount of maintenance capital that we're putting into the portfolio, et cetera. So it's definitely something that we continue to focus on and look for ways of, you know, in this environment to optimizing overall cost levels. And Tom, if you want to give a little bit more color on what we're doing with advertising and marketing spend.

Sure, thanks, Joe. I'll just briefly touch on that because that's a lever that we've pulled pretty hard through 2019 and the first quarter. And in the first quarter, like we saw last year, we saw pretty good demand response from that. And that's continued through in April, so we're going to continue pushing pretty hard on advertising as we continue to see a great response to the public storage brand online. And so we'd anticipate that that's been – remains somewhat elevated as we seek to drive volume to our website, call center, and the properties.

Thanks. That's it for me. Thanks, Steve.

Thanks, Deanne. Our next question is from Todd Thomas with KeyBank.

Hi. Thanks. Good morning. Thanks for the April trends. That information is helpful. It sounds like you haven't yet seen an increase in move-outs, though, and I'm just curious, if you look back at prior cycles, and I realize this is a different environment than what you've seen in prior cycles, but any sense what kind of lag you might expect to see between job loss and move outs?

Sure. Todd, I think, you know, looking back at 2009 as a guidepost, but 2009 was a different environment. And, you know, as I look at move in, move out trends in 2009, they were more gradual changes. as they came on than what we've seen to date. So to give you a context, we did see a material increase in move-outs, but as you look at the quarters in which they took place in the fourth quarter of 2008 and the first quarter of 2009, the magnitude of those were in the mid-single digits, which as you compare that to the orders of magnitude that we're seeing and the sharp decrease in move-ins and move-outs already, At this juncture, given the pandemic, it's a different reaction, given the fact that folks are being encouraged to stay at home and we're all kind of awaiting scientific research and development. So I think it's hard to point back at that and say it's a perfect analog, to be honest. But it did happen with increased move-outs pretty quickly on the back of declines in in employment in the fourth quarter of 2008. I think one of the biggest drivers now is not just job loss as it relates to move outs, but it's also the fact that there are customers who are staying at home and maybe don't want to come visit our properties to move out right now because they feel good about the safety and security of their goods at our properties. So we'll see where we go from here, but your point that you made is the right one, which is we have not seen any noticeable shift to date, and in fact move-ins, move-outs are down.

Okay, that's helpful. And then the rent reductions for new move-in customers that you mentioned, Tom, I think 20%. Is that across the platform? on average, and can you talk about whether or not you anticipate needing to change pricing going forward here based on, you know, either call volumes or, you know, site visits and just, I guess, rentals and conversions overall?

Yeah, sure. You know, we do actively manage our pricing on a day-to-day basis across the country at a unit size and property level basis. And so, as you would expect, my comments around volumes being different by region and pricing strategy is different by region as well. And so there's some regions in the country where pricing is only down, call it 5% year over year, and there's others where pricing is down 30%. And so there's a good mix there, and we're managing that dynamically in order to drive both volume as well as revenue outcomes.

Okay, but normally in the peak leasing season, which there'd be a few large net move-in months in a row, you'd be raising rates, right? So you're discounting and lowering rent here. Do you expect to be able to – begin to take that pressure off a little bit and be able to move rents higher on a seasonal basis at all throughout the spring and summer months?

Well, I think looking at last year as a guidepost is probably thrown out the window. We manage our pricing, advertising, promotion strategies on a real-time basis at all times, regardless of what's going on, and certainly we're reacting to different signals that are coming in this year than what we saw last year. Your point on seasonality, you know, we've already seen an impact to the seasonality to date, which is the college students that with colleges going to e-learning and shutting down physical presence in the month of March, we saw that activity pull forward. You know, as we move into the month of May and June, you'd have other seasonal use cases that would – come up. Whether we see those this year I think is to be determined and may very well differ materially by region and jurisdiction given how things are managed with stay-at-home orders this year. So I think it's too early to comment too much on what seasonality may play out through the second and third quarters but we'll be managing real time as we always do.

Okay. Thank you.

Our next question is from with Citi.

Hi. Thanks. I wanted to just ask you, going back to the compensation increases that you put in place for the second quarter, and you noted that you might extend them. And I was just wondering if the decision around potentially extending them to do with shutdowns and disruption from this pandemic, Or is it more just a reflection of kind of competition for that level of work or the property level? Or, you know, kind of I guess what are the issues that would help you make that decision?

Yeah, Smead. Yeah, I wouldn't take that as we intend to do any of the things you're talking about. It's really we felt comfortable in the near term that the range of issues that our employee base was facing, we thought the right thing to do was to elevate that. their level of overall compensation and other tools they had at their disposal that we could help fund, whether it was child care or extended time off, et cetera. So, you know, again, because of the unpredictability going into the second half of this year and, frankly, even for the rest of this quarter, I mean, we'll see how things go. I'll tell you, though, that, you know, the variety of wage rates we have nationally is something that we – constantly do evaluate. We look at, again, the relative pay for the scope and the applicability of skill for the type of compensation that we have, and we think we're aligned in that regard. And again, that's just something that will continue to be fluid. Clearly, one of the things that we have the ability to do, and we clearly thought it was the right thing to do, was to, again, give additional support to our frontline workers in particular. As I mentioned in my opening comments, a critical part of our overall operational strategies and taking care of customers, et cetera. So it's just something that we'll continue to evaluate, again, in an environment that has a lot of unpredictability, even around the way even some of the stimulus packages are working and other things that everybody's potential access, but at the same time knowing that we have the ability to give additional support and we thought it was the right thing to do.

Yeah, no, it makes sense. Thank you. The other thing I just wanted to ask you for, the behavior or pricing behavior of facilities that are still in lease up, has PSA taken a more aggressive approach on rates there just to kind of gain whatever kind of market share there is available or, you know, what's happening, I guess, specifically at those properties versus your stabilized assets?

Yeah, Smead, those properties continue to lease up. We have reacted to the new pricing environment and have lowered pricing on many of those as well. But, again, depending on the level of volume and interest going on in those individual markets that surround the trade areas of those properties, But they've continued to lease up through the month of April, which we're encouraged by, albeit at lower pricing.

Thank you.

Thank you. Thank you.

Your next question is from Jonathan Hughes with Raymond James.

Hey, good morning out there. First off, thanks for the outlook commentary and yesterday's release. I found it to be very helpful. Could you just remind us of your average length of stay, which I believe is a bit higher than your peers, and do you think that makes them more or less price sensitive to renewal rate increases whenever those are, of course, related to resume?

Sure. Our average length of stay is right around 10 months, and that's really a barbell between some customers that have use cases for storage that are very short-term in nature, be it between apartments, et cetera, and those customers that are using the space for longer-term needs, be it storing seasonal goods, businesses, an extension of folks' homes, et cetera. And in terms of sensitivity to rate increases, there's lots of different factors that play into that. The stickiness of customers, once you get past really that one-year mark, is quite sticky, and that's remained the case through the month of April. And we'll have to evaluate what consumer behavior may change and business behavior may change as we move through navigating this pandemic. But at this point, no changes.

Maybe a similar question. I mean, what percentage of your customers have been there for over a year and over two years?

Yeah, about 60% of our customers, a little less than 60% of our customers have been with us for longer than a year, and a little over 40% of our customers have been with us for longer than two.

Okay. And what percentage of those are on auto pay? Okay.

A good percentage, you know, auto pay for us is around 50% of the tenant base. And we haven't seen any change in auto pay signups or any cancellation trends. Very consistent.

Got it. All right, I'm going to think of one more. Have you looked at expanding, you know, the size of your credit facility to be able to take advantage of acquisition opportunities? Or do you feel you have enough capacity to you know, with free cash flow and with your cash and revolver capacity for any opportunities you pursue?

Yeah, sure. I think we feel very good about our current liquidity with over $700 million in cash on the balance sheet, entirely undrawn revolver, and, you know, access to capital markets given our uniquely low leverage and high coverage. And so, you know, we feel very good about the firepower we have in order to fund potential opportunities and we await that opportunity in the next several quarters.

All right, got it. Thanks for your time. Stay healthy.

You too.

Your next question is from Ronald Camden with Morgan Stanley.

Hey, just a couple quick ones. Thanks for the disclosure. I thought that was very helpful. The first is just can you talk about maybe sort of the small business tenant in the portfolio, just high level, sort of what are the exposure and how are they faring in this environment to the extent that you can?

Sure. So, you know, small business customers are a component of our tenant base. You know, they typically are good paying customers as it relates to collections, and that's continued through the month of April. And the one notable trend I would highlight is we have seen a decrease in move-in volume more pronounced for business customers than we have for individual consumers, particularly over the last four weeks. So that's not surprising in this environment, given the fact that many businesses are not open and operational anymore. and folks are being encouraged to stay at home. So I wouldn't point to anything concerning there, but we have seen a decline in move-in volume more so.

And what percent is the business customer of the portfolio?

Yeah, so there's a variety of different businesses that use our space. You know, we have about 5%, 6% of customers that are true businesses that sign business leases with us. And then we have appreciably more customers that are business users that, you know, by survey indicates something more like 15%, 20% of our customer base, which is, you know, sales reps and others that use our space. And those customers, so, you know, that gives you a sense of the composition.

Very helpful. Just another quick one, just looking at late charges and administrative fees. just saw it was down 3.5% year over year. Is there a thought, either this go-around, or did you do this last cycle as well, in terms of trying to deal with customers and potentially waiving some late fees, or is there sort of no change in strategy there?

Yeah, sure. So one of the things that we did was provide some incremental customer accommodation for those impacted by the pandemic. I would highlight that our operational teams have dealt with crisis situations over the past several years and are well equipped to deal with situations that materially impact local communities. And so while that's historically happened in very tight geographies, in this case, it really happened across the country. But our operational team pivoted to that stance very quickly and effectively And so we are waiving fees, reducing rent in some instances, and working with delinquent customers across the country for those impacted by the COVID pandemic. We already talked about the fact that we've paused auctions and existing tenant rate increases as well, but have been really impressed by our operations team's ability to move into crisis mode and to help those that have been impacted to date. And that is a driver of of some of the fees that you highlight and would expect that to be the case as we move through the second quarter as well.

Great. One more, if I may. I just was noticing that I think Minneapolis looked like it was added in the queue this quarter in terms of markets. You called out the supply. Hopefully, I got that right. just maybe provide a little bit more color or maybe what's happening there to warrant that call out?

Yeah, sure, Ronald. You know, Minneapolis is a market that, first of all, we have significant market share and presence. So over the last two years, we've boosted that by doing three things. We've added to our own portfolio through acquisitions, ground-up development and redevelopment in a market that we hadn't actually had a lot of investment activity in for some time. We like and see, I think, very good long-term traction relative to the market itself and the additional inventory and new properties that we put into that market. All told, for us directly, it's about 10,000 units and Lease up there is going well on the new properties. We're not seeing a like-for-like additional magnitude of new development going in the market, but there's some. But we felt it was relevant to call it out because, again, our same store is not progressing as well as some other markets have been in the near term. But we feel like the stabilization that will take place over the next one to two years as, again, we see good absorption of the new product and any things that are happening in our existing properties correct as well. So, again, the market's, I think, well-placed for future growth, and we're really pleased with the additive scale and the range of new assets, either directly built and or acquired, that we put into that market.

All right, everyone, it's Ryan Burke. We do have a number of analysts left that want to ask questions, so please do try to keep it to two and then feel free to jump back in queue.

Sure thing.

Thank you. Thanks, Ronald.

Your next question is from Todd Sinder with Wells Fargo.

Hi, thanks. Just to flesh out that rent relief question that you may offer tenants if they ask, is it deferred? Is it the expectation that you'll receive it later on? Maybe just trying to flesh that out. Is it a maintenance ability to maintain occupancy so you'll give a rent holiday? How are you looking at that?

Yeah, I would say, first off, it's been a relatively modest amount of requests that have come in for things like that. You know, we have a little bit of a different business than many other real estate companies. asset types that may have long-term leases and may be talking about blend and extend and things like that, we have month-to-month leases. So as we think about customers and their rent and navigating this environment, obviously one of the choices that customers have is they have the ability to move out. And so, you know, extending payment plans or otherwise are a little bit less applicable for our for our product type than others, but we have a variety of different tools to work with customers impacted by this pandemic.

All right, understood. And then how about your stance on share buybacks? As you look at the stock come inside of maybe our NAV estimate, are you looking at putting cash to work should the stock decline?

Sure. You know, Stock buybacks are something that, one, we have authorization from the board to undertake, and two, is part of our regular capital allocation dialogue. We are hopeful and optimistic that this pandemic could create a different business environment and different acquisition pricing environment, which could allow us to use our balance sheet to grow the portfolio in an attractive manner. and we will see how that plays out. And in addition to that, stock buybacks are another tool that we have to allocate capital. At this point, we have not bought back any stock.

Okay, that's helpful. Thank you.

Thanks.

And as a reminder, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. Your next question is from Kaibin Kim with SunTrust.

Thanks. I just wanted to clarify a couple of comments you guys made earlier. You said April, at the end of April, occupancy was about 30 basis points, but that included some units that haven't been auctioned off yet. So if you look at it maybe from a paying occupancy standpoint, how does April look year-over-year?

Well, we finished April down about 40, 50 basis points in occupancy if you take out those units that may have been auctioned in the previous year.

Okay. And in terms of move-in rates, you ended the first quarter down 4.2%. How did that trend in April?

Yeah, Keith, I've already commented on that in terms of the range of different move-in rates by different markets. On average, it's down around 20%.

Okay, sorry, I was confused about volume versus rate. All right, that's it for me. Thank you. Great. Thank you.

Your next question is from Mike Mueller with J.P. Morgan.

Yeah, hi. In terms of the planned capital spending that you talked about, the K for property upgrades and everything, is there going to be any disruption to that or any notable change to the budget that you're announcing?

So, yeah, Mike, we obviously reset that from what we spoke to a quarter ago, where we were looking at something along the lines of $250 million or so, and we have reset that to about $175 million. So there's some things in the mix there that have led to the reduction. One is A number of the capital projects that we launched into 2019 carried into this year, along with some of our strategic investments around what we call our Property of Tomorrow initiative, we've tapered that down, knowing that we're going to be looking at delays from an approval and or permitting basis in one regard through the next – few months based on what we're seeing at the moment as cities have shut down many of their own staffing levels and or sets of approvals that come through when you're doing work along those lines, coupled with the fact that we think we're going to go into a much more beneficial arena even for bidding and continuing from a scale standpoint the transition of properties to our Gen 5 standard that the Property of Tomorrow programs align with. So, that was one component. A number of other things that also we were intending to do through this year, not in any way related to functionality of properties or anything else, but it just makes sense based on availability and predictability of not only vendor effectiveness, but even from a cost standpoint, we think we're going to be much better suited to do more of that going into 2021. On the flip side of that, we still are anticipating about $175 million that will happen this year, and it ties to things that we will continue to do as we always do, keeping our properties highly functional, doing repairs, doing everything that we can to facilitate, you know, high degree of customer move-ins and high occupancy. We also still are doing a few things that, you know, vendor friction aside, that we think we can still do in this environment that would also relate to upgrades to LED and energy efficiency. We're putting solar on a number of properties. So that's really what's led to the reset on our expectation for 2020.

Got it. Okay, that was it. Thank you.

Thanks, Mike. Thanks.

Your next question is from Spencer Alloway with Green Street Advisor. Oh, actually, all of my questions have been asked. Thank you.

Great. Thank you.

Your next question is from Parker Dufresne with Citi.

Hey, it's Michael Billerman here. So just a couple questions. The first is, you know, more strategic. You know, this pandemic is going to change the way we live, work, and play, both in the near term but certainly, you know, for a longer term. Have you given thought about the live part of it and if there is going to be a shift of population out of urban dense cities into more suburban house living? even a modest shift, but it could certainly accelerate. How does that change the dynamics of demand for your product?

Yeah, Michael, we'll see how that does play through. Obviously, we have the benefit with 2,500 locations, 38 states. We've got a sizable portfolio, both urban and suburban related. It's too soon to tell yet if, you know, one's being benefited versus the other. So, you know, we'll assess that and see, you know, what kinds of trends might play through just on, again, how the population shifts one direction or another from, as you mentioned, you know, a pure urban desirability to something that may be more desirable from a suburban standpoint. But... don't know yet, but we've got plenty of tentacles out there as we continue to see the type of impact that this environment may create in that regard. It's not coming through yet meaningful other than Tom mentioned that we have seen a little bit more of an impact in the northeast, and I think you can make sense of that really more from a health standpoint and a science standpoint because that's frankly where you know, the most dramatic impact to the COVID virus has been so far. And, you know, again, many of those communities are, you know, in major lockdowns. So we'll see. And, you know, we play in both arenas very actively, continually as we speak. You know, we're making development decisions both in suburban and urban markets. We use a lot of demographic data to point us even further on a very micro basis, where to locate and invest in properties where we think we can continue to see good demand.

I think about the shift that you made into some extraordinarily larger facilities and more urban markets. Is there anything you can glean from those during this pandemic yet?

No, it's tough to, Michael, it's really tough to isolate what longer-term trends will be based on the last six weeks that we've been navigating this pandemic, because I think that the bigger driver of activity over the past six weeks has been people dealing with this crisis and navigating it both for their personal use as well as for their business. And I'm not sure that that's indicative of what the longer-term impacts that you're pointing to that could be three, four, five, 10, 15 years down the road as it relates to customers' affinity towards urban living versus suburban or exurb living. You know, the last six weeks wouldn't point to anything notable, and they've been a very unique six weeks in our history.

Yeah, and I think the other thing is, you know, again, the reason, you know, we think through and design and either build or invest in our larger assets, whether, again, they're in urban or suburban markets, is it's highly correlated to you know, again, demographic data, which is both population-based and it's competitive-based. So, you know, some of our very largest properties, even through the last few weeks, are doing just as well as they've done historically. So it's way too soon to tell.

And then the second question, just in terms of operations, and thank you for the detail in the queue and the press release, And you talked about same-store NOI being negative for the rest of the year, given the pressures on revenues and certainly the investments you're making in your employee base and to keep your facilities safe and clean, and so both the revenue and expense impact. If you look to the last two recessions that we've gone through, you know, in the early 2000s, same-store NOI across the self-storage sector was down, you know, high single digits. year-over-year on a quarterly basis. You go back to the 2009-10 timeframe, it was down 4% to 6% on a quarterly year-over-year basis. What type of goalposts should investors think about in terms of the rate of decline? I think you talked about it will be a much quicker impact to your business than the prior recessions, just given all these stay-at-home orders and a complete halt in the economy. Should we be gearing up for a high single-digit, maybe even a double-digit decline given the expense drag? Is that where our minds should be at by the end of the year?

Well, Michael, first of all, you know well we don't guide, even in quote-unquote normal times. And it's the crystal ball. I mean, we clearly don't know what direction this could play through. you're right. I mean, it has been a severe and very dramatic change. Jobless claims are now at 30 million. I mean, that's a massive shock to the entire economy. I don't know how long it's going to take for that to correct. I don't know how long it will play through, what kind of impact it could have on our broad customer base. GDP growth is going to be ugly from a predictability standpoint this quarter in particular. So, We'll see.

Yeah, and Michael, you're obviously pointing to the right historical benchmarks, but I'm not sure that they're really analogous to my points earlier and to Joe's comments. So, you know, we provided some line-by-line detail as to what we're seeing at this point. As we move forward through 2020, a lot of what we see will be driven by science and political decisions, of which is difficult to underwrite. And You know, we try to provide you the color and the context around what the drivers are, but we'll see as we go here.

Yeah, no, and I know you don't provide guidance, and that's why I said I appreciate the details and taking all the questions on the call about impacts. You know, you did put out there a negative number. I just didn't know whether you could at least goalpost a little bit about how negative it is. Well, that's where I was just trying to – That's what I'm trying to phrase.

Between 1% and 2%.

Right. Yeah, theme store revenue growth is between 1% and 2% for the last eight quarters. And I think over that last eight quarters, theme store NOI has probably been, with maybe the exception of third quarter of last year, between 0% and 1%. Yeah. So, you know, certainly we're not in that environment that we were in over the last eight quarters. We're seeing a decline in move-in volumes. Our existing tenants are performing well at this point, but we'll remain to see where they go from here, and collections have been solid in April.

All right. Thanks for the time.

Great. Thank you.

Thank you. Our next question is from Jeremy Metz with BMO Capital Markets.

Hey, just one quick follow-up. Joe and Tom, you guys both commented earlier on capital allocations. You mentioned acquisitions. You had a question about stock buybacks in there somewhere. I'm just wondering how you're thinking about the marginal dollar there versus reinvesting in your existing portfolio, just given the pullback that we saw outlined in the queue for the CapEx program.

Yeah, Jeremy, like always, as Tom alluded to, stock buybacks, in and of itself, from a capital allocation decision, something that, you know, again, has always been an alternative. We'll continue to assess it. I couldn't, at this point, guide you to, okay, where's its SAC rank or how are we benchmarking it against, you know, other uses of capital at the moment. The thing that's on the horizon likely, though, that we've already talked to, is with the potential impact to a number of owners that have put anywhere from, say, 1,500 to 2,000 properties collectively into our sector over the last three to four years, a lot of those investments are not going to come close to the pro forma requirements expectations or underwriting hurdles that they had put forth. So we would anticipate, but we'll see, that like other big corrections, that this too will lead to an opportunity for us to allocate capital that direction, but to be determined. So we've got a variety of different cap allocation options, and we'll continue to assess them as this thing plays through.

Yeah, no, that's right. I think it was just trying to think through, you know, hydrating the portfolio externally versus focusing on the internal, which you guys have made a big priority in recent years. So, appreciate it. Thanks, guys. Yeah. Thanks, Jeremy.

And there are no further questions at this time. I'll turn the call back over to Mr. Ryan Burke for any closing remarks.

Thanks to all of you for joining us today. We certainly hope the best for everyone as we continue to managed through this interesting environment.

Thanks all. Stay safe. Thank you.