Public Storage

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage Third Quarter 2021 Earnings Call. At this time, all participants have been placed in the 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 telephone keypad. 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. Ryan, you may begin.

thank you emma hello everyone thank you for joining us for a third quarter 2021 earnings call i'm here with joe russell ceo tom boyle cfo and mike mcgowan senior vice president of acquisitions before we begin we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meeting of the federal securities laws these forward-looking statements are subject to certain economic risks and uncertainties all forward-looking statements speak only as of today November 2nd, 2021, and we assume no obligation to update, revise, or supplement statements become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports, and an audio replay of this conference call on our website, publicstorage.com. As usual, we do ask that you keep yourself limited to two questions to begin with. Of course, if you have more, feel free to jump back in queue With that, I'll turn the call over to Joe.

Thanks, Ryan. Good morning, and thank you for joining us. I'd like to begin with the obvious. Overall, business is excellent. I do want to thank the entire team at Public Storage for their efforts. Our team members from our properties to the corporate office and back are focused on driving this level of performance. Across our industry and consistently throughout our markets, More customers than ever before have been drawn to the benefits of using self-storage. We have often characterized additive demand coming from life events, which we refer to as the four Ds, divorce, death, dislocation, and disasters. For the last several quarters, a fifth D has emerged, decluttering. Customers need more space at home due to the shifts in working and living environments across all markets. And fortunately, the customers that have come to us during the pandemic are now behaving more like traditional customers, meaning they are staying in place as they have come to appreciate the convenience and cost benefit of using self storage, particularly as residential and commercial spaces become more expensive. With that said, demand remains historically strong. In the third quarter, our revenue, NOI, and cash flow per share foot reached record levels once again. As we wrap up 2021, the outlook for 2022 and beyond is favorable as well. The utilization rate of self-storage continues to climb as it has for decades, which is now at 11% of the U.S. population. Millennials and Gen Zs, Two big user groups are aging into our core customer life stage, driven once again by the five Ds. And public storage is leading the self-storage industry's transformation towards a customer experience that provides digital as well as traditional options across the entire customer journey. We have a deep-seated commitment to listen to what our customers want, and they are giving us vibrant input that directs our priorities. This has led to some exciting changes in our customer offerings. One example we have spoken to is our industry-leading eRental platform. Today, nearly 50% of our customers are renting with us through the eRental online lease. Year to date, nearly 500,000 customers have chosen eRental to secure a unit. It's fast, intuitive, and self-directed, taking just a few minutes to complete a rental, an option many customers have been anxious to use. And the quality of this customer has been impressive. In early 2021, we also introduced the PS app, which nearly 1 million customers have now downloaded, allowing easy tools to manage your account and navigate our properties digitally and hands-free. These are two great examples of how our investment in technology is transforming our operating model, and it's a win-win for both customers and our operating efficiencies. Daily headlines across multiple industries, however, remind us there are challenging consequences impacting the economy in terms of labor pressure, and self-storage is not immune. We are actively investing in our team through increased wages and new, more specialized positions that are providing even greater upward mobility for our skilled property teammates. On the leadership front, we have also strengthened our ranks and announced yesterday that David Lee has joined public storage as chief operating officer. David previously served as senior vice president of operations for the UPS store. with responsibility for more than 5,200 retail locations in the US and Canada. We are excited to have him on board. Now to another area I'm pleased to share with you, our external growth initiatives. Our four-factor external growth platform is centered on acquisitions, development, redevelopment, and third-party management. All areas are seeing strong growth. Starting with acquisitions, in 2021, the self-storage industry will likely see approximately $18 billion or more of assets trade. This is a tremendous amount of volume and opportunity. Owners have been motivated to bring assets to market to monetize their investments, while some also plan for potential tax changes. Year-to-date, we have acquired or under contract on $5.1 billion of acquisitions, or about 30% of the industry volume this year. This is comprised of 233 properties across 21.1 million square feet, with average occupancy of 56%, which is providing a significant embedded growth opportunity once we place these assets onto the public storage platforms. The transactions span a wide spectrum of geographies, portfolios, and one-off purchases with both market and off-market deals. We continue to be looked at as a preferred buyer based on our knowledge, transaction efficiency, and ability to easily fund transactions. Of note, 65% of this quarter's volume is tied to the all-storage portfolio. which we are acquiring for $1.5 billion. All storage is a high-quality portfolio of 56 properties, primarily located in Dallas-Fort Worth. Dallas-Fort Worth has been one of the best self-storage markets over the past 15 years, with population growth nearly two times that of the national average. Our own portfolio in Dallas-Fort Worth produced annual NOI growth of 150 basis points higher than our national average. The all storage properties also give us additional exposure to new, higher growth submarkets, particularly in and around Fort Worth. Many of the properties were recently developed, resulting in the current 75% occupancy level which provides significant upside as we move them on to our industry-leading platform. The transaction is immediately accretive to FFO, and accretion will accelerate through to stabilization at nearly 6% direct NOI yield. And combined with owned and other assets under contract, we are expanding our already significant platform in this vibrant market to approximately 200 assets or by 64%. The remaining 35%, or $1.1 billion, of the acquisitions closed or under contract will provide significant growth as well. These assets are geographically diversified across the country, comprised of single acquisitions to smaller portfolios ranging in size from $40 million to $200 million, totaling 3.9 million square feet with average occupancy of 50% at $179 per square foot. Now to development and redevelopment, where our pipeline has grown by $70 million to $731 million this quarter. We are seeing good opportunity to build new properties from the ground up in addition to expanding our existing assets. Nationally, our development team is underwriting well-located land sites as we continue to leverage our expertise as the largest developer in the self-storage industry. This quarter, we also added 28 properties to our third-party management platform, increasing properties under management to 145. We plan to reach 500 assets by 2025. Of note, we have also acquired 14 assets from our third-party management platform as well. In summary, since the beginning of 2019, we have expanded our portfolio square footage by 22% with a total investment of approximately $7 billion, equaling 36 million square feet for an average $193 per square foot, which has clearly produced strong growth and value creation that we expect will continue. Now we'll turn the call over to Tom.