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H. Thomas Boyle

Thanks, Joe. On the capital allocation front, we have a $740 million development pipeline to be delivered over the next two years through our in-house team as we continue to invest while industry volumes decline.
Acquisition activity has picked up with 26 properties acquired or under contract for $361 million in the fourth quarter through to today. We expect greater acquisition activity in 2025 than we had in 2024.
With fundamentals improving in a multi-year period of declining competitive new supply, we are poised to increase activity. As always, our capital and liquidity positions are strong. Industry leading leverage, balance sheet capacity, and cost of capital have us positioned to execute across our growth channels.
Now shifting to our financial performance. We achieved core FFO of $4.21 per share in the fourth quarter, a 20 basis point increase year over year.
This was strong sequential improvement from the 300 basis point decline experienced during the 3rd quarter. Same store revenues declined 60 basis points year over year in the fourth quarter, also improving sequentially from the 130-basis-point decline experienced in the prior quarter.
Move-in trends are improving. Existing customers are behaving well, and occupancy is at a level that puts us in a good position as fundamentals inflect.
As Joe mentioned, we expect the sequential improvement to continue across the portfolio outside of Los Angeles. Same store expenses increased 90 basis points year over year, with growth in property taxes offset by staffing optimization and additional expense controls.
Now turning to the outlook for 2025.
We introduced core FFO per share guidance of $16.35 to $17 with a midpoint that is consistent with 2024.
This includes an estimated $0.23 per share impact from pricing restrictions resulting from a state of emergency declared by the governor of California in response to the fires.
Excluding the impact, the midpoint would have called for a 140 basis point increase in core FFO per share year over year. Looking at the same store, the midpoint calls for revenues to be down slightly year over year. This includes an estimated 100 basis point impact from the restrictions in Los Angeles.
At the midpoint, we are assuming that move-in rents are down 5% year over year on average.
We are also assuming that occupancy is down 10 basis points on average in improvement from where we finished 2024.
And as we've consistently seen, we believe existing customer behavior will remain steady.
We expect 3.25% seems to expense growth at the midpoint, primarily driven by property taxes and offset by the initiatives that Joe spoke to.
This leads us to same store NOY declining 1.4% at the midpoint. As I noted earlier, we anticipate higher acquisition volumes in 2025. We've included the identified $140 million of closed and under contract volume, but we did not include any unidentified acquisition volumes in the range.
Our outsized non-seem store portfolio of over 500 properties is poised to be a strong contributor again in 2025, with $454 million of NOI assumed at the midpoint.
They will continue to be an engine of growth with additional NLI outside of $80 million beyond 2025 through stabilization. As we enter 2025, public storage is on solid footing following two years of demand and growth normalization. Our completed property of Tomorrow enhancement program, industry leading transformation initiatives, sizable and high growth non-sam store pool properties, and growth-oriented balance sheet will have us positioned for improving fundamentals and increased transaction market activity moving forward.
Rob, let's open it up for Q&A.

Question and Answer Session

Rob, this is Ryan. Are you there with us?

Operator

Yes, I'm here.

Let's go ahead and open it up for Q&A.

Operator

At this time we'll be conducting a question and answer session. (Operator Instructions)
Jeff Spektor, Bank of America.

Jeff Spektor

Great, thank you. Thanks for the additional information in your opening remarks. Tom, can you talk a little bit more about the assumptions on street rate? I think you said you're assuming on average during '25 down 5% and occupancy down on average slightly I think you said 10 bits, so most, specifically the street rate assumption. How do you derive that? Thank you.

H. Thomas Boyle

Yeah, sure, thanks, Jeff. So why don't I start with an update on year-to-date performance and speak to what we've seen to start the year. And we've seen continued levels of activity demand stabilization that we talked through 2024 play out at the start of 2025 as well.
Giving some snapshot stats, the move-in volumes are up a strong 5% to start the year. Move-in rates down about 8%. So on a net basis, continued improvement through moving in activity. Move outs are flat, leading occupancy to be down about 40 basis points year over year. As we sit here today, comparing to where we finished the year down 80 basis points, but we did start the year with moving rents down 8% or so.
As we think about the full year, I highlighted a couple of the operational metrics to note. You've seized on one of them, moving rents down 5%. So that's obviously an improvement from where we're starting the year today, and we expect a continued competitive dynamics for new customer move in rents through the year at the midpoint.
We are anticipating that with demand stabilizing that we do see occupancy at a down 10 basis points level on average, so improvement in occupancy through the year. We're already seeing some of that year-to-date.
Obviously the high and low end of the range capture better or worse trends on those metrics as well. But we thought that was an appropriate midpoint for our outlook for the year.

Jeff Spektor

Great, thank you. And then my second question is on your comments around stabilization. Joe, you started saying that the, almost all markets inflected broader stabilization. What's driving that? Is it simply less supply? I mean, are you actually starting to see an improvement in demand top of the (technical difficulty) about that more. Thank you.

H. Thomas Boyle

Sure, yeah, the moderate but improving market to market demand factor is a positive trend. We spoke to that quarter by quarter through 2024. And as Tom noted, that's carrying us into 2025 as we start. So we have seen as I noted in my opening comments, a number of markets that continue to infect positive. That's a good trend. It's not a jump dramatically forward. But it's clearly not reversing. And we're seeing top of funnel demand by more Google search, for instance, industry wide.
We're seeing again moderate levels of improved activity again top of funnel. And then the thing that we continue to be very encouraged by are all the things we're doing from a conversion standpoint where customers are coming to us with a degree of higher interest in retaining or attaining self storage space. But our conversion techniques are continuing to be highly optimized and very competitive. So with all those factors, Jeff, we're encouraged by this moderate but improving market-by-market growth.
We're obviously pointing out some of the challenges, as I noted here in Los Angeles. But holistically the portfolio at large, we're still seeing the level of improvement I spoke to and we're going to continue to diligently capture as much as our fair share of market activities we can.

Operator

Todd Thomas, Key Bank Capital Markets.

Todd Thomas

Yeah, hi, thanks. I wanted to ask about Los Angeles specifically the impact that you're estimating there amounts to the 100 basis point negative impact on the same store revenue. Can you just discuss the underlying assumptions there around occupancy and rate growth. And are you assuming that impact is is fairly consistent throughout the year or is the impact, expected to be, maybe a little bit greater earlier in the year than you would expect it to be as the year progresses?

H. Thomas Boyle

Yeah, hi, thanks. I wanted to ask about Los Angeles specifically the impact that you're estimating there amounts to the 100 basis point negative impact on the same store revenue. Can you just discuss the underlying assumptions there around occupancy and rate growth. And are you assuming that impact is is fairly consistent throughout the year or is the impact, expected to be, maybe a little bit greater earlier in the year than you would expect it to be as the year progresses?
Yeah, Todd, that's a good question. So we did provide an estimate for the impact the sea to revenue that clearly flows directly down to core FFO of 100 basis points. As we think about the impact there, the primary driver of the impact is going to be rate. Occupancy remains healthy. Los Angeles continues to be a strong market for us really in and out of cycles given the demand and supply dynamics within Los Angeles.
And so the 100 basis points that we're speaking to is really a rent restriction and pricing restriction impact. And that will have less of an impact in the first quarter obviously as we're starting here than it will as we move through the year. And so that that 100-basis-point impact will accumulate as we move through 2025, but you can think about that 100 basis points is the right guidepost for for modeling purpose

Todd Thomas

Okay. And then just stepping back and thinking about the portfolio, more broadly, can you just discuss within the the context of your remarks around, continued stabilization and recovery and in terms of fundamentals. Can you discuss, trends across the Sun Belt. And compare and contrast that to some of the coastal and more urban markets, clearly the Sun Belt normalized more or experienced a greater deceleration from a higher peak growth rate looked like some of those markets stabilized a bit more this quarter and led the way as you look at '25, does the Sun Belt recover more quickly, or do you see, some continued volatility there in the near term?

H. Thomas Boyle

Yeah, I can start Todd and then Tom can add additional commentary. One of the things that you've pointed to is, yeah. We still are dealing with some of the high flying markets, through the, extraordinary demand that we saw through the pandemic, et cetera.
We are encouraged by that continuing to progress in the right direction off of again those pretty dramatic events and the demand that we saw. The other factor is supply itself. So in markets nationally we continue to see declines more often than not in supply and deliveries of new products.
There are still two or three markets we're keeping a particularly close eye on that would include Phoenix, Las Vegas, parts of Florida that we're, continuing to monitor. Atlanta's another one. But those are the markets that still are not adjusting as effectively as the nationwide portfolio as a whole.
We've been talking about it now for the last couple of years,but. We continue to see the holistic benefit of fewer and fewer deliveries taking place. The development business continues to be very challenging from an entitlement, timing and cost standpoint, coupled with the fact that pro formas often are not matching investment hurdles by many market developers, so that too has been a positive trend that we continue to see that we're going to see through 2025 and frankly into 2026.
Tom, you can add any other.
The only thing I'd add is some specific market commentary in the last year at this time we were highlighting Seattle, San Francisco, and DC's markets that we're starting to see some improvement that played out through the fourth quarter. Continue to see good trends there, but as you're highlighting and Joe just noted related to the Sun Belt, some encouraging trends in some of the Florida markets, for instance. Miami and Orlando, both inflecting into positive second derivative territory in the fourth quarter. So we are starting to see some improvements further into the Sun Belt, which is encouraging.

Todd Thomas

Alright thank you.

Operator

Michael Goldsmith, UBS.

Michael Goldsmith

Good morning. Thanks a lot for taking my questions. First, on the transaction market, sounds like you have greater visibility into more activity in 2025 than last year. So what, what's driving a more liquid market and where are acquisition cap rates, settling in right now?

H. Thomas Boyle

Yeah, Michael, a couple of things there. So 2024 as a stage setter ended up being a multi-year low sector transaction year. Very few large portfolios traded hands. And you know the bulk of the activity was one-off transactions, but all told there was plus or minus about $4 billion of transaction activity in the sector at large.
Going into the fourth quarter of 2024, we did see a bit of an uptick on the latter half of that activity level, meaning the one-off smaller transactions. So we were able to capture a number of attractive opportunities in the fourth quarter that carried into so far the activity we've seen early into 2025. Tom mentioned we've either closed or have under contract approximately $140 million of activity again highly leaning toward these one-off transactions, no different than Q4. But between Q4 and Q1 now we've taken down about $400 million worth of acquisition activity. It's hard to tell if in 2025 we're going to see a different level of bigger portfolios coming to the market.
Through last year we talked to from time to time some of the inbound activity we were getting on some of these larger portfolios. Frankly, almost none of them ended up trading hands. Very few of them did, in fact, and we'll see how different 2025 plays out. There's still a level of activity that could come through on these larger portfolios. But very hard to predict at this point.

Michael Goldsmith

And just to clarify where it operates right now?

H. Thomas Boyle

Yeah, sure, on cap rates I'd point you to a similar zip code that we've been indicating really for the last year and a half or so. And obviously cost of capital interest rates, they've moved around a little bit, through the year, but I'd still be pointing to kind of, 5s cap rates, getting into 6s as as the right guideposts for for cap rates and obviously lease up assets are going to be a little bit different than that. I'm speaking more to stabilize properties.

Michael Goldsmith

Thanks for that. And and then as a as a follow up here. It sounds like demand is stabilizing, moving volumes are up slightly. But it's not necessarily translating to pricing power for new customers. So is the missing ingredient just for for demand to pick up for pricing power to return or or is there something else that that can help generate that the the move and rents to the move higher? Thanks.

H. Thomas Boyle

Sure, thanks, Michael. So I think stepping back, the level of demand that the industry is seeing has come off the highs of several years ago. But last year we were specific in highlighting that we viewed it as the year of stabilization. And if you look at Google search activity for storage-related keywords or other metrics, we did experience that stabilization through last year and we're starting the year in a similar place.
To where we started last year, so that's encouraging the demand is not falling. So that's the first step in the ingredients that you're speaking to. In terms of the year this year, we are not anticipating that we see a significant uptick in demand through this year, so pretty similar trends as we think about our demand drivers in '25 compared to '24, so we're not expecting a big seasonal uptick, for instance, or a sharp return in housing transaction volumes. It feels like '25 is going to feel pretty similar to '24 across many of those demand dynamics and and so we're not anticipating that that that there are big shifts there obviously to the extent that demand does pick up for any number of reasons which we can speak to that should lead to better pricing power across the industry. And better financial performance that would flow through thereafter.

Michael Goldsmith

Thank you very much. Good luck in 2025.

H. Thomas Boyle

Thanks, Michael.

Operator

Juan Sanabria, BMO Capital Markets.

Juan Sanabria

Hi, good morning, thanks for the time just hoping you could talk a little bit about expenses and some of the assumptions behind some of the individual line items and as part of that, if you wouldn't mind talking about your views on any potential risks to changes in immigration policy impacting labor costs or less environmentally friendly administration maybe removing some of the benefits of solar initiatives you you put past or through?

H. Thomas Boyle

All right, that's a lot, Juan, so take through those. So in terms of expenses for '25, ticking through some of them, the biggest driver of expenses will once again likely be property taxes. Another increase is likely to be indirect cost of operations. Some of the investments we're making on the team there will lead to increases. Those will be offset by payroll efficiencies that Joe spoke to earlier. And continued improvements in our digital platform that will enable of that. And so that will be a mittigant.
And then solar, the properties that we added in '24 will get full year benefit of those that reduce utility usage in '25, and then we're going to have another active year of additions this year in terms of policies towards solar and whatnot, we'll obviously navigate those as we as we go. But the investments that we've made in solar to date have been very strong returns call it 10% to 15% unlevered IRRs on those investments. So we view those as attractive investments, and we're seeing that utility savings as we sit here today and we think that that has a big opportunity for us over the longer term given the sizable nature of our roof presence across the country. And the likelihood that utility rates continue to rise and solar panel prices come down. So more opportunity there kind of regardless of policies over the medium to longer term.

Juan Sanabria

Thanks Tom and then just hoping you could speak a little bit about the pricing dynamics for new customers and any sort of impacts from the comp period of last year with the achieved rates going up a bit to start the year I think you said fourth quarter was 5% and a year-to-date is down 8%.
And then kind of weaving in what you're doing on the promotion side, which increased a bit in the fourth quarter and and just how we should think about the interplay there between promotions and achieved rates, et cetera.

H. Thomas Boyle

Yeah, sure, happy to go into some of those dynamics, I always like to highlight that we really have 3 tools that we're pulling at really at local level markets opportunities with both promotions, advertising, and move in rents. They each drive different performance amongst customers. Some are helping top a funnel, some conversion, et cetera.
And so you did see some variability year over year in some of those metrics, but I would point you to the fact that those are relatively modest changes over time. If you look at our marketing spend as a percentage of revenue as a guidepost, for instance, 2.4% of revenue in the fourth quarter. And roughly consistent with prior year, we continue to see very strong returns on our advertising spend given our strong brand presence and our digital platform investments that we've made over the last several years.
On promotions, we utilize some of the more near term it first month promotions through the fourth quarter. But again those promotions as a percentage of revenue at about 1.7% of revenue remain below historical averages and frankly is a tool that we'll consider using in 2025 as well.
And then move in rates, as you highlight has been a notable area of competition amongst storage operators over the last several years. It continues to be a very competitive moving in environment today and we'll use that lever also.

Juan Sanabria

Thank you.

H. Thomas Boyle

Thanks, Juan.

Operator

Nick Joseph Citi.

Nick Joseph

Thanks, I was to go back to LA and just understand the moving parts. I think if I look here, rev off is about $36 right now. So where's market rent in LA for the purpose of the emergency restrictions and then how does that impact kind of new move in as well as ECRIs?

H. Thomas Boyle

Yeah, sure. So the the state of emergency triggers price restrictions within Los Angeles and Ventura Counties that results in a 10% pricing restriction. And overall we've estimated and rolled that through our models that results in about 100-basis-point impact for same store revenue in 2025. So I would point you to that 100 basis points of same store revenue impact from Los Angeles.

Nick Joseph

Right, I mean, I guess the question is how is market rent defined, right? So if you're at $36 right now, what does that do to ECRIs and what does that do as, kind of new people move in?

H. Thomas Boyle

Yeah, it has an impact to both. And so we'll take that into consideration and we obviously did that in terms of forecasting the impact on same store revenue to arrive at that about 100-basis-point impact to same store revenue, Eric.

Nick Joseph

Alright, thank you. And then just on capital allocation, I think last year you were repurchasing some shares this year you more recently issued. So just curious on the framework you're using for kind of the decisions to buybacks versus equity issuance?

H. Thomas Boyle

Yeah, sure. So as we've consistently noted, the stock is one of the things that we evaluate as we think through capital allocation as we evaluate development, acquisition activity as well. And as we move through the second quarter of last year, acquisition volumes were quite low and seller dialogue was lower, as Joe mentioned.
One of the lowest transaction volume years that we've seen over the last six or seven years and at the same time our stock was at a place that we viewed value and we didn't think it was reflective of the improving fundamentals that we were seeing on the ground. And so we did repurchase $200 million in stock in the second quarter.
At the same time, we are anticipating and expecting that 2025 will be a busier year for acquisition activity. And we're hopeful that more ultimately comes to market and we're poised to participate in that. And we thought it was prudent to add an ATM program to our tool kit, which is consistently included retained cash flow, unsecured debt preferreds to fund acquisition activity. And so we did introduce our first ATM program in the fall. We took that for a test drive in the fourth quarter.

Nick Joseph

Thank you very much.

H. Thomas Boyle

Thanks.

Operator

Spencer Glibsher, Green Street.

Spencer Glibsher

Thank you, I just have one more on the LA rent restrictions and I apologize as I realize it's a very sensitive topic. But how much transparency do you guys on the state in terms of the duration of these restrictions and do you have any sense of when you get an update on a potential extension of the rent cap?
Yeah, Spencer. It can vary depending on a circumstances and then b the latitude that either the governor or frankly even going down to certain municipalities ultimately decide when and where to issue a state of emergency. Clearly the impact from the LA fires was significant directly into LA, maybe in our view less so in the Ventura County, but the Governor took that opportunity to actually extend the state of emergency for a full year.
That's somewhat unusual, meaning that you know out of the gate he would use the statute to do something for that duration. But it is in place now technically through January of 2026, and you know from that point forward we'll have to see what transpires.
Okay, thank you. And you provided some helpful comments earlier on your robust development pipeline. And I know you slightly touched on, labor and immigration policy. But anything you can share as it relates to the development pipeline in terms of how input and our labor prices have changed in recent months and how confident you feel about hitting development yields just in light of these fluctuating input prices?
Yeah, it's too soon to tell Spencer if in fact market to market we're going to see immediate or some transition to either labor pressure, whether it's availability and or cost. We're keeping a very close eye on that, but with the multi-state development activity that we've got going on. Nothing yet has surfaced that would indicate that immigration policy in and of itself may change that very directly in the near term.
But again we're keeping a very close eye on that across the board. Same thing for anything that may or may not be impacted by tariffs, etc. I think it overall just points to the fact that development continues to be a business that you need to know very well right down to a local area, the dynamics that play through, the cost structure, the risks, etc.
In a reverse way that's actually something that I think is going to create additional discipline relative to the volume of development activity that will likely play through in the coming year or two. So we, as we have had in the past, can.

On the property enhancements, being over, is that something that happens every every couple of years, and so forth and then the energy efficiency spending, is that something we should expect to also sort of go away at some point.

H. Thomas Boyle

So there's some deep areas there that you know with a 250 million square foot portfolio we've got a lot of great things to do with efficiencies relative to the infrastructure of our properties, whether it's HVAC related, whether it's solar related, whether we can continue to invest in the right long term.
Tools that whether again we see cost savings and or optimizations from an energy efficiency standpoint. The Property of Tomorrow program was frankly that was about a 20-year cycle where we stepped back five plus years ago and made the commitment to holistically change the entire branding of the portfolio which we hadn't done in the last 15 or 20 years in one fell swoop. So that's not anything that we do every couple of years. We hope to get a very good long term usage out of that investment. On top of that though, the day to day environment of Either optimization, whether it's lighting, whether it's energy efficiency, new tools around solars, we continue to talk about and other ways that we will make investments in the properties and make them that much more optimized or things that we take on a case by case basis, and I think we continue to see good returns where and when we make those investment decisions.

Great thanks so much.

H. Thomas Boyle

Thank you.

Operator

Mike Muller, JP Morgan.

Mike Muller

Yeah, hi, sorry, two more LA questions, I guess. First, are the headwinds in the forecast coming only from lower ECRI potential? Or are you not able to have a kind of a normal seasonal lift in move-in rates as you move into the spring? And then the second question was can you give us a sense as to how different your year-to-year move-in rate assumption of down 5% would be if you strip LA out?

H. Thomas Boyle

Sure, so two components there. One is the first one around what are the the primary drivers of the 100 basis points. And I would point you to existing customer rent increases as bringing the primary driver of that impact. And that goes then to the second question around. What a move in rents look like. I would say move in rents in LA are a little bit better than the the company average was before the state of emergency. And continues to be and that speaks to the strength of overall fundamentals in Los Angeles kind of in and out of cycles through last year and and anticipated improvements over time there. And so on that, the rest of the country was probably a little bit worse than LA going into the state of emergency, and the state of emergency pricing restrictions aren't likely to have a significant impact on move-in rents and more the impact being felt on existing customer rent increases.

Mike Muller

Got it. Okay, thank you.

H. Thomas Boyle

Thanks.

Operator

Brandon Lynch, Barclays.

Brandon Lynch

Great, thanks for taking my question. Wanted to ask about acquisitions and any particular markets that you might be targeting or an urban versus suburban skew or any other property characteristics that you're aiming for.

H. Thomas Boyle

Yeah, Brendan, I wouldn't say one. Focus puts us in a different priority whether it's urban, suburban, or geographic, it comes right down to the quality of the individual asset and how we see value creation relative to the position we may already have in the market and or with larger portfolios how.
Benefited we might be from multiple assets going into multiple markets, so it's a combination of all of those things, but our underwriting process goes right down to an individual asset and the value that we see from that asset, the contribution it makes to the scale and the effect of this we may have on the market. So we aren't.
Limiting ourselves to either specific geographies and or urban versus suburban characteristics, and we'll continue to see opportunities across the whole spectrum.

Brandon Lynch

Great thanks that's helpful you're also guiding to lower street rates here every year, but maybe not giving up so much on occupancy or don't anticipate doing so can you just walk us through your thought process on these components and where you're planning to be more stern versus more flexible.

Operator

Sure, so we've already spoken a good bit about the move and run assumptions as it relates to the occupancy assumptions. It relates to the expectation that we are experiencing stabilization and demand, and we'll continue to navigate through that. So we've seen over the last several years.
A declines in occupancy, but less so each year and anticipate that that's the case this year. Ultimately we're looking to maximize revenues overall, not looking specifically to occupancy or rental rates, and that's how we think about, day to day the pricing algorithms and optimization processes that take place day in and day out in terms of the range there, right, occupancy is expected to be better on the higher end and a little softer on the lower end as you'd anticipate, but generally speaking, a relatively flat occupancy year against the demand backdrop that we're expecting to be relatively consistent.

Joseph Russell

Great.Thanks, Rob, and as always, thanks to all of you for joining us. Have a great day.
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