Ladies and gentlemen, thank you for standing by. Welcome to the Public Storage First Quarter 2019 Earnings Conference 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. It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations. Ryan, you may begin.
Thank you, Laurie. Good day, everyone. Thank you for joining us for the Q1 2019 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, May 2, 2019, 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 financial measures we provide on this call is included in our earnings release. You can find our earnings release, SEC reports and an audio webcast replay of this conference call on our website at publicstorage.com. With that, I'll turn the call over to Joe.
Great. Thanks, Ryan, and thank you all for joining us. We had a good quarter and I'd like to open the call for questions.
Thank you. Your first question comes from the line of Shirley Wu of Bank of America Merrill Lynch.
Hey, good afternoon guys. Thanks for taking the question. So my first question is in regards to revenue growth. Over the last few quarters, you've ranged in between 1.2 to 1.5 for revenue growth and your period end data would suggest that revenues stay in that range for 2Q. So it seems like things have been fairly steady in the midst of all this new supply.
And so given the resilience of demand, how do you feel revenue growth is going to play out in 2019? And any thoughts on when revenues could drop?
Great. Thanks, Shirley. I can comment on that. I think you gave a pretty good summary of what our historical revenue growths have been over previous quarters. And you do point to the period end occupancy and contract rent growth, which do suggest we ended the quarter in a place where contract rents would be growing at the start of April at a similar level.
So I think we have been encouraged by customer trends, like we spoke about on our last call, really a combination of a tougher move in environment, balanced really by continued good performance by existing tenant base and our existing tenants. We see move outs down and length of stay modestly increasing and they're all being supported by a strong labor market out there in the broader macro economy. So we've seen good operating trends and consistent with what we discussed on the last call, reasonably steady contract rent growth and occupancy through the quarter. In terms of where we go from here, we're obviously at the end of the Q1. We're about to enter into our seasonally busy move in time as we get into May June.
And that will be a big determinant of overall 2019 revenue trends. And we'll certainly update you on those trends on our next quarterly call.
And Shirley, I'd just add, the other thing that we've been seeing and we're pleased to see is we're maneuvering through and navigating through what continues to be a commanding arena of new supply in certain markets. Some of that's been shifting out of markets that have been more heavily burdened, say, over the last 2 or 3 years. We've still got other markets ahead of us that are likely to see somewhat similar impact going into '19 2020. But again, to Tom's point, we're feeling better and like what we're seeing relative to the traction and the capabilities that we're putting into many parts of the business to maneuver through this environment.
Okay. So moving to street rates, how has 1Q trended and even into 2Q and also your moving rates as well?
Great. So as you know, we've spoken on in previous calls, we don't tend to watch street rates too closely. Street rates were actually up a little over 1% in the quarter, but we focus on move in rates as they are actually the rates that customers will be paying us. Move in rates as we disclosed in our 10 Q last night were down for the quarter, down 1%. That's the best move in rate performance we've seen in some time.
And we did see moving volume down modestly in the quarter, but again offset by move out volumes being down as well. Terms of rent roll down, this is seasonally one of the bigger rent roll down quarters given the slower move in season and the fact that folks have moved in and higher rates through the summer. And so we did continue to see rent roll down in the quarter, which deteriorated modestly. But again, one of the better performances in rent roll down deceleration.
Got it. So would you say move in rates have persisted negative 1% into April as well?
Yes, we've seen consistent trends in April. And that's really a balance of all the markets in which we have operations. So you look at certain markets like an LA on the West Coast or some of our stronger East Coast markets, which have good positive move in rent performance. And then as Joe highlighted, the markets were being impacted by new supply. We do see negative move in rates continuing into 2019.
So markets like Houston, which were lapping, hurricane benefit in prior year, I would lump into that group as well.
Got it. Thanks for the color, guys.
You bet. Thank you.
Your next question comes from the line of Jerry Nemitz of BMO.
Hey, guys.
Joe, you touched on navigating supply just a minute ago, but can you just give your broader views on supply here as we look in 2019 and any early read on 2020 and whether those views have changed or how they've changed at all as we've moved a little further into the year?
Yes, sure, Jeremy. I would say there's really no change on what, again, our outlook is from even 60 days ago from our last call. So everything we're tracking points to 2019 to be yet again another pretty commanding year of deliveries, plus or minus in that $5,000,000,000 range, say 400 to 500 properties, plus or minus 30,000,000 square feet. So the one thing as I noted a few minutes ago, it is shifting somewhat. So if it's encouraging at all, which we like to see, fewer deliveries are taking place in Denver, Charlotte, Houston, Austin and Tampa, for instance.
So there's been a pullback there. That's good news. But some developers are starting to get more active in Portland, Boston, Seattle, Miami and New York. So we're keeping a close eye on any residual impact that the supply is likely to have this year and going into next year. The same drivers are out there that has fueled this level of supply over the last 2 or 3 years in particular, which is a lot of new entrants are still coming into the sector.
You've got developers that like the potential yields are likely to derive from new development and funding is out there. So we're keeping a close eye on it. We're looking at 2020 as potentially a year that things could start shifting down. But again, we've got to track it and see what's at hand. I'll tell you and maybe even to shift a little bit into how that's affecting the acquisition environment.
There are a number of are laced around the theme of I want out. Now again, not out because it's a stressful situation or it's one that necessarily is commanding that decision at a level that I've got to get out, but it's a realization that maybe returns aren't going to be met. They may have some lender pressure, maybe expectations from a revenue or performance standpoint aren't there. So that is a residual effect and potentially a good thing that we're going to continue to see. So if you even look at, as you saw through the Q1 and what we reported relative to what we have under contract, we've now even through the early part of this year exceeded the acquisition volume we did in all of 2018.
And there's some interesting things as part of that collection of acquisitions. 1, for instance, is for the first time in several years, we a property that we're acquiring out of bankruptcy. So I've talked about that a little bit over the last few quarters, meaning that we think some of that kind of acquisition opportunity could surface and we've got one again under contract. We bought a portfolio in the Q1, 9 properties, great assets, long term ownership and the deal came to us on an off market basis. But again, the owners decided it was for them the right time to exit the sector entirely.
And it was a good negotiation, meaning it was a deal that was fair priced. It wasn't one that they looked at was one that had to meet or get a top level evaluation, but it was a deal they wanted to do on a very efficient and clean basis, and we were an ideal candidate to do that. So there's more of that in the mix as we speak and we're encouraged by that and we'll see how the rest of the year plays out.
And is some of that driving just maybe the price per pound here we're seeing just in terms of some of the pipeline? I mean, just because looking at the market mix, it wouldn't appear those are high cost markets like, say, in New York, but looks like some of the stuff you have under contract, it would equate to around 100 and call it $60 or $70 a foot. And I know replacement cost is core to your buying philosophy. So is any of that factoring into that?
Well, a little bit of the mix in what on average is driving that a little higher than maybe what you've seen us do in a few prior quarters is some of our acquisitions in the pipeline right now are in more urban markets and higher finished assets, newer assets that we think not only are very well located, but very hard to duplicate. Again, with the same theme that owners are coming to us and saying, okay, we may not meet or exceed the type of returns we expected 2 or 3 years ago when we put these properties into development. They're not by any means failed assets, but again, actual expectations are not being met. So we've got a few of those in our pipeline right now under contract that are extremely well located, great assets, a handful of them might be a little bit higher on average than you've seen us do in some of the other markets that we bought assets in, but still feel great replacement cost deals. We're going to get very good returns.
And again, we hope to see more of that kind of activity throughout this year.
Definitely appreciate that. Last one for me is just wondering if you could give a quick update on your 3rd party management initiative. And on that front, are you actually seeing anyone out there jumping platforms between the bigger operators who do 3rd party? I know historically that really haven't heard much of that happening, but are you seeing any of that at least on the margin?
In the quarter, we signed 11 properties into the platform. Our backlog continues to grow. It's heavily weighted by development deals that will take a number of quarters to actually come to completion and be pulled directly into the program itself. We're seeing and learning a lot of interesting things through the platform. And yes, I would tell you some of that includes, which I don't think at the end of the day is maybe new to the business, but there are certain owners that do change flags.
So whether they're coming to us through either private or another public third party platform. We're seeing some of that, but I wouldn't tell you that's the dominant part of the activity in our backlog. It's still highly correlated to deals that are in various forms of development. But we like what we see relative to the type of assets that are coming to us. We've actually, at the end of the day, passed on as many properties as we've decided to pull in to the platform for a number of reasons.
So I think we've got the ability to continue to be particularly cautious about what markets that some of these assets come to us in, whether or not we choose to go into those or other factors. But again, we feel like over time we'll be able to grow the scale of the business and keep good momentum around it itself. So that's where we stand as we speak.
Your next question comes from the line of Smedes Rose of Citi.
Hi, thanks. I just I wanted to ask you just a little bit about marketing expenses in the quarter, 2nd quarter, pretty big increases year over year. Do you expect that pace to kind of continue through the balance of the year? And I guess along with that, it sounds like you are seeing some stabilization throughout your system a little bit. And I mean, do you attribute it to maybe changes in the way that you're marketing on the Internet versus other ways or maybe just some color around that?
Sure. So let me take that in some different components. So the marketing spend that we saw in the quarter was pretty consistent rate of increase from the Q4. And as we discussed last time, we did that in the Q4 really throughout 2018 and increased our spend as we saw good demand response online and a great reaction to our brand in online paid search. That's combined with a more competitive environment on paid search, as you'd expect in many markets impacted by new supply, the cost of acquiring customers is increasing as that supply is getting absorbed.
And so there is some market cost per click increases in there as well. Ultimately, our decision making around that is very dynamic based on keywords and local market dynamics and traffic. So I'm not going to call a rate of increase for the rest of the year, but it's a tool that we're seeing good returns on today and we're continuing as we get into the Q2 to use that tool. That's the second part of your question was, is that benefiting the overall level of move in activity? And certainly, the answer to that is yes.
We do like the demand response we're seeing from that channel, but we're using a combination of advertising rates, which again our rates were down about 1% for move ins for the quarter and promotions to drive traffic to our stores. In terms of the 3rd component of your question, which was around contributing to stabilization of the portfolio in aggregate, I guess I would say we're seeing good trends in advertising helping move ins, but move ins remain challenging in many markets. And so that's where our increased spend is concentrated in other markets where move in trends are quite good and healthy. In terms of the stabilization point, we have seen some good trends in some of the early markets that were hit by new supply. So you'll see markets like Washington DC or Chicago improving.
DC is up 180 basis points in occupancy for us year over year. Chicago is up 160 basis points. So we are seeing some improved trends there.
Okay. Thanks a lot. Appreciate that.
Your next question comes from the line of Todd Thomas of KeyBanc Capital Markets.
Hi, thanks. I just wanted to circle back to development. It looks your development and expansion pipeline decreased specifically. And I know you delivered a few stores in the quarter, but how's activity looking to backfill the pipeline? Is Publix pipeline slowing down here?
Or is it just more timing related?
Yes, Todd. First of all, we had an active Q1. So a lot of the pipeline delivered in the quarter. We had about 137,000,000 of deliveries for new builds, but what really drove the volume was a number of redevelopments heavily tied to the remaining scrape and rebuilds we did in Houston specifically. So we had an elevated level of 1st quarter volume.
So to a degree, some of that impacted the pipeline. The pipeline did shift down close to $100,000,000 or so, but that can ebb and flow. I wouldn't take that as an indication that overall we've intentionally tapered that down on a just 1 or 2 quarter basis. We're seeing a lot of good continued potential activity out there. It has shifted intentionally more to our redevelopment activity where we're taking properties and putting a lot of the attributes from what we call our Gen 5 new product into properties that are extremely well located, where we can expand and increase not only performance, but scale in certain markets where otherwise you'd never be able to get to those great land sites.
So we see continued very activity on that front. Today, about 60% plus of our development pipeline is tied to that. And the teams are out looking for land sites in a variety of different markets. In some markets, land is becoming more expensive. So we're keeping a close eye on the impact to that.
The other thing that is happening is the time to entitle seems to be in certainly a number of markets getting more commanding. Now the reverse of that, which kind of ties to some of the impact with some of the either developers or entrants that have come into the market over the last 2 or 3 years, we are getting reverse inquiries more than we've seen recently for close to our fully entitled land sites. So again, we've got a healthy collection of different opportunities there and the teams every bit is focused on out driving that kind of opportunity and we continue to see very good returns from our investments into the development pipeline.
Okay. And then, and Tom, you mentioned the cost to acquire a customer continues to rise. Can you share with us what that cost is today and maybe discuss how that's trended?
Sure. The cost has modestly increased. I mean, certainly the advertising spend is a component of it. It's another component you can track in our $1 for the 1st month rent for Public Storage, which is a great way to drive traffic to our stores. Those are the 2 large components of customer acquisition costs.
So you can take a look at those in our filings.
Okay. That's fine. And then just lastly, can you just talk about your plans to run, I think, what previously was what was the Memorial Day sale this month in May, whether you're planning to and I think for the busy season in general?
Sure. So we typically do run some sales as we go through the summer months and we've seen good returns on that in the past. It's something that we'll dynamically assess as we go through the quarter and we'll update you as to where we go. In terms of promotional trends, you see promotional dollars were down in the quarter. That's really driven by volume and rate decreases, not a strategy change there.
So we continue to use that dollar special to drive traffic into our stores. I would expect consistent strategies this year as last year, but obviously if anything changes, we will let you know.
Okay. Thank you.
Your next question comes from the line of Ronald Kamdem of Morgan Stanley.
Hey, if I could go back to the marketing spend, just curious, obviously, it's pretty local, but is there any kind of high level discernible themes in terms of where these dollars are going? So said another way, more West Coast markets versus East Coast, maybe more supply challenge or is sort of the increased spend all across the board and hard to pick out?
Sure. In terms of where it's located geographically, the increase in spend is across the board. I think there are certain markets, as I highlighted, that spend is more increased more than others. And that's really driven by the competitive dynamic as customers are competed for on Google and other online platforms. So the overall spend costs are higher across the board, but it is concentrated in markets where the competitive dynamics are more intense.
Great. Other question was, because I think I believe there was a website refresh for the company set to be delivered this quarter. I think the idea was hopefully it would kind of tie into your ability to market line. Maybe can you give us an update on that and how that's been received and what you're seeing there?
Sure, Ronald. I'll start and Tom can add to this too. So yes, we delivered what I would label our generation, our 5th generation website in the Q1. So, it's a project that has gone through a variety of different testing, etcetera, as we rolled it out through the entire platform. So we're pleased thus far by what we're seeing.
It's going to give us additional capabilities that we've been able to add, not from a need standpoint, but from an opportunity standpoint. All indications are the tools that's going to provide us are going to be quite commanding in a number of ways. So we're anxious to continue to roll those out as we go through the rest of this year. And Tom, you can give some additional color on it.
Yes, I think you covered it well, Joe. I think it's built to be mobile centric as customers continue to move to transact with us on their phones as we pull up the new publicstorage.com, but we're pleased with it. And, so you'll see that as you pull up the new publicstorage.com. But we are pleased with it and team worked hard on it and we are happy to have it delivered in the Q1.
Yes. My last question was that I think you made some interesting comments about sort of the environment and opportunities out there. Just curious on just thinking about lease up and lease up times. Obviously, you're in the market looking at properties and you've got a few that's delivered. How is that how are you guys thinking about that?
How has that trended over the last year or so? When you're running the pro form a, are you assuming longer lease up times? And just what can you quantify that for us? Thank you.
Yes. I wouldn't
say there's been any shift at all. I mean, again, you go back to the fundamental way that a lease up can typically happen on a property and frankly, it can range anywhere from 2 to 3 years on an average basis. So not really seeing any different time frames tied to that. In certain markets where supply may be more pronounced, you may have elongated lease up or some impact from that and alternatively, some markets that do have a fair amount of suppliers still doing quite well because there's an inherent need and the market itself may be underserved and that frankly is the reason why we just chose to develop a specific asset there in the first place. And then another part of the mix that we have out there is that we've got other assets that are clearly well ahead of our expectations.
And we're seeing very good traction in a number of properties that are again ahead from that standpoint as well. The thing that is a natural part of our business as a whole is that not only is it a factor of lease up, but then it's the maturity of the lease, it's the lease property itself. And what I mean by that, the inventory leases that are at hand take a fair amount of time to mature and stabilize, because you're going to see good growth and you're going to see good factors tied to that, but that time needs to mature so that again you've got a highly stabilized asset and you're able to evaluate its ultimate success.
And so this is Tom. You can see that in our 2013 to 2015 development vintages that as Joe highlighted, they leased up well and they continue to stabilize. And so you could see the growth in the quarter 10%, 11% for that group as that continues to season. And we certainly provide that disclosure so you can evaluate the performance of those stores as well as the other development and expansion vintages that we've been active in delivering.
Your next question comes from the Your next question comes from the line of Steve Sakwa of Evercore ISI.
I guess a number of my operating questions have been asked, but I wanted to touch on the balance sheet quickly, Tom. Obviously, you guys recently did a longer term bond issuance and historically you've used preferreds to kind of fund the company. Just trying to get an update on sort of your thought process there. You do have a couple of preferred issuances that are callable later this year
And I'm just kind of wondering
what your thought process is longer term about using more debt?
Sure. Thanks, Steve. So we have issued both preferred and bonds throughout the year. We continue to remain committed to both markets as good financing tools. As we've talked about in the past, the preferred market is a great long term permanent source of capital with lots of great features, including the call feature and the permanent life.
With our balance sheet, we also have the ability to add incremental long term debt to finance our external growth pipelines, both the acquisition activity as well as the development pipeline. So we'll look to use both sources of capital going forward. You highlighted that we do have some callable preferreds outstanding. We also have some new callable preferreds later in the year that we'll evaluate. In the month of March, we did execute a preferred financing as well as a redemption that lowered our aggregate preferred cost to 5.3%, which is a continued improvement.
So it's a long winded way of saying we like both markets and the balance sheet is in great shape here today with if you deduct the $120,000,000 ish of acquisitions under contract from the 220,000,000 dollars of cash we had at year end and the pro form a for the $500,000,000 bond issuance, we're sitting on about $600,000,000 in cash today, which gives us good liquidity to fund external growth as we get through the rest of the year.
Okay. And then I guess just second question about real estate taxes. I know in the MD and A section here, the 10 Q, you sort of talked about real estate taxes staying relatively consistent, up kind of about 5%. But are you just seeing any relief in any markets? And as you kind of look forward, when might that start to tail off a bit?
Relief is not what I would consider what we're seeing in real estate taxes today. So we do expect property taxes to grow around 5% this year. If you look back over prior years, that's reasonably consistent with what we've seen. I do think that there is an element of catch up to cash flow earlier in the cycle associated with the real estate values that we're seeing. And so in certain markets, could we see a benefit going forward as incomes have maybe come down in some of our more supply impacted markets?
It's certainly possible, but we're not seeing that in any real quantity at this point.
Your next question comes from the line of Hong Jiang of JPMorgan.
Hi, guys. Just another question on the marketing expense. This is the 3rd quarter that you started ramping up your marketing spend. Are you seeing your competitors respond at all by increasing their marketing spend, maybe driving up the cost of the same impressions at all?
Yes. So I touched on this a little bit. There's no question that the overall Internet paid search environment continues to get more competitive. So we're certainly part of that as we increase our spend and have liked what we've seen and others are doing something similar. So the competitive environment is driving cost per clicks up year over year.
But like I said earlier, we're seeing good demand response for our brand term online and we've continued to push there and like what we're seeing.
Would you know roughly how much the cost per click has gone up for you guys?
Cost per click is up in the double digits.
Double. Thank you.
Our next question comes from the line of Eric Frankel of Green Street.
This is Ryan Lumb. So just circling back sort of on the 5th generation reinvestment program, are you able to quantify for us the total capital investment we can anticipate in 2019 and maybe the number of stores that are involved in that program alone?
So again, it's a rollout that we've now been testing, say, for the last year and a half to 2 years. So through 2018, we began to test in a number of different markets, what we call our Property Tomorrow platform, which is taking a number of key elements from our 5th generation product and overlaying it into existing assets. Some of it's somewhat straightforward, meaning it's enhanced signage, updated painting schemes. We're also optimizing things like water usage through landscaping improvements, utilities around LEDs, changing the office environment because in today's world environment with our new Web Champ 2 platform, we've gone completely paperless. We don't need filing cabinets anymore.
We've got more space to create a better customer environment. So all those things have played through quite well, in the properties that we've tested thus far, which totals, say, less than 75 or so assets that we tested in a number of different markets through 2018. So this year, we're mainlining the rollout all the feedback and the reaction that we've gotten from customers, employees, etcetera. And it's starting here on the West Coast. We're likely to touch anywhere from say 100 to 150 properties in the next 2 to 3 quarters here in California specifically, and then we'll be rolling it into a number of different markets literally for the next few years as we touch the entire portfolio.
In 2019, the cost tied to this is plus or minus about $100,000,000 and it wouldn't be surprising over the next few years we spend $500,000,000 or more as we roll this entire plan out. And we like what we're seeing so far. So the properties that have been retooled to this new standard are seeing some residual benefit in a number of ways. It's still early in that regard, but we like what we're seeing. And we think it's really another way to amplify and enhance not only the curb appeal and the brand itself that resonates incredibly well to consumers, but it matches all the things that we're doing on an online basis as well.
So again, it's a program we've got a lot of focus on and we're likely to see amount of capital in subsequent years that it's going to be dedicated to this effort.
That's helpful color. Can you maybe translate what have you in your test markets spent on a per square foot basis or what do you anticipate spending on a per square foot basis?
Yes, it's too I wouldn't point you that direction yet because it can vary. In some properties, it can be what I would call a lighter rebranding because it may not need as many components. And then in other properties, it could be more thorough or we're touching a number of different components of the asset itself. So I wouldn't point you to a specific number on a per asset basis yet.
Okay. And then I mean, obviously, you have some very new assets you recently developed and you're not going to be reinvesting in those. What is the total percentage
of your portfolio that you would like to touch, roughly speaking? Well, ultimately in its purest form, we would mainline or lift the entire portfolio to elements of, again, this new standard that we're rolling out as we speak. So that's why I mentioned this could take several years. So we do have what we would characterize as 5 generations of product. So 2,400 locations, some of which have been in our hands for 30, 40 plus years.
So those may need in some cases heavier levels of, again, elements of the program that I talked to and some may not. But it's going to be on a case by case basis, the amount of enhancement that we're going to do property to property. So again, what we'll continue to do is moderate and choose assets that make sense to do in the early phases of the program and then we'll roll it out over time. And ultimately, at a certain point we'll get to most of the portfolio. Okay, thanks.
Sure.
Your next question comes from the line of Ki Bin Kim of SunTrust.
Hey, guys. This is Ian on with Ki Bin. I just wanted to go back to Shirley's line of questioning. The last couple of quarters you've seen gains in occupancy and I'm just curious if that's going to be a meaningful driver the next few quarters or if you kind of expect that to more be on the rate side?
Sure. As we've talked about consistently, we manage for revenue and revenue per available foot. So we're not focused on either occupancy or rate. I will tell you, at the end of April, we were sitting with occupancy up about 25 basis points. So we've continued to hold the occupancy gains that we saw starting with the end of Q4 through April.
But we're about to get into the busier summer leasing season and we'll update you on our next call as to where we go from here.
Okay. And then on the expense side, on-site payroll has been down the last, call it, 3 quarters. Are you feeling any pressure in any of your markets on payroll? Or should we see an uptick in payroll going forward? Kind of what are your thoughts around that?
Yes. Again, part of the benefit of our rollout of Web Champ 2 at the property level has included a number of property efficiencies and optimization strategies we've been able to deploy as we rolled Web Champ II throughout the system in 2017 2018. And I would say going forward and we highlighted this to a degree in the Q, we're likely to see more normalized pressure. And what I mean by that is some level of increase along the lines of inflationary cost increases tied to property payroll. There's no question we're in the most commanding employment arena that we've seen over the last decade.
So we're assessing that on a market by market basis. We've got a number of very vibrant strategies around that. We're looking for not only cost efficiencies, but ways to make our full team as productive as possible. So we're seeing a lot we've seen a lot of good traction around that, particularly in the way that we're using a number of technology opportunities. But I would say, I would look to something more along the lines of inflationary pressure as we go forward.
Okay. That's all for me. Thank you. Sure.
Your next question comes from the line of Andrew Rosovac of Goldman Sachs.
Hey, thanks for taking my call. It seems like industry wide revenue growth is hung in there and I don't think this is just public storage. Even without a lot of pricing power on the front end, it looks like the makeup has been because the in place increases are either larger, they're coming faster or there's a combination of the 2. Am I right with that premise?
Well, I think we've seen good trends with existing tenants overall. I think some of that is tactics that we and others in the industry are using to attract good customers that will stay with us. I think part of that probably relates to the mix of customers that we've seen. If you look at things like housing sales in many of our markets across the country, deceleration in housing transaction activity, which has meant fewer movers as a percentage of our customer base on the margin, all those types of things. And the reason I highlight that is movers tend to be shorter length of stay customers.
All of those things have resulted in more tenants staying longer and the lower move out volumes that we've been reporting. That is certainly helpful to our existing tenant rate increase program. As they stay longer, they are eligible for rate increases. I do think the other thing that's happening in some markets is you're seeing real resilience in demand for the sector. And I highlighted earlier on the call markets like Washington, D.
C. Or development cycle, we're seeing real occupancy gains there, which is certainly supporting revenue growth as we get through 2019. So a mix of factors, but you're right that the existing tenant piece has been helpful both in terms of move outs as well as rate increases.
But it doesn't sound like you've either increased the rate increases or reduced the term at which you start to increase rate like rather than doing a 1 year anniversary, you're now doing 6 months?
I would say we've used consistent tactics year over year in how we're managing our rate increases. I would say we are sending more volume this year versus last year, which is driven by some of the factors I highlighted earlier.
Got it. I would
also maybe just highlight on the revenue trends. We did roll in a new same store portfolio this quarter and the those properties were all stabilized as we disclosed at the beginning of 2017 when they were rolled in. So all the operating metrics, the rates of growth of revenue, NOI were not impacted by the rolling of those new properties in the Q1.
Got it. I just my only concern for really the entire industry is if it gets too dependent upon rate increases, does the customer know it, right? And when does that impact the industry or if you have somebody who's in place rents go up really, really fast relative to where they got in and what it could do to the reputation of storage. But that doesn't sound like that. It sounds like it's your mix that's changing.
Yes. We haven't seen anything concerning from a trend standpoint. As I've said that the behavior of that tenant base has been very solid year to date and really solid throughout 2018.
Great. Thanks guys.
Your next question comes from the line of Jonathan Hughes of Raymond James.
Hey, good afternoon. Just one from me. And going back to Ryan's question on the property of tomorrow initiative. Joe, you mentioned signage and pain and what sound like standard maintenance items as part of that program. My question is how much of that $500,000,000 spend over the next 5 years on that program is deferred CapEx, if any?
I mean this year's CapEx budget is triple the 2015 spend, but square footage is only up, say, 10% since then and a lot of that's new construction. So I'm just trying to determine if that initiative is essentially making up for underinvestment over the past few years.
Yes, it's not. The run rate and the amount of traditional CapEx that we've been putting into the portfolio, it has been in that $0.50 to $0.75 a square foot range and that's going to continue. What I'm talking about is, again, in the elements that go into the property tomorrow is, again, beyond just the simple paint and those kind of simple upgrades. It also will include additional enhancements that we're making to LED, landscaping, mechanical systems, other things that are again longer term good drivers relative to efficiency and utilization from a water or electrical standpoint, those a program that will consistently keep in place and this isn't in any way some kind of a catch up for that. It's really the noted benefit of matching what we have, which is a very commanding brand that we can amplify through some of the, again, the successes that we've seen through our Gen 5 product as well as the testing that I mentioned that we've done over the last couple of years.
Okay, fair enough. Thanks for the time.
You bet.
Your next question comes from the line of Todd Stender of Wells Fargo.
Thanks. Just to go back to the balance sheet discussion, you guys addressed some of the longer term financing. But when we see some of the other larger REITs using commercial paper for the first time, I just want to give your impression of maybe some alternative sources of short term debt. That would be, I guess, part 1. And then part 2, can you touch on your free cash flow expectations for the full year?
You're likely more of a self funder than some of the other larger REITs. Just your thoughts there. Thanks.
Sure. So the question around commercial paper, we have started to add long term debt to our balance sheet. We have no immediate plans to add short term debt. We really like the long term nature of preferred as part of our balance sheet. We in the public markets more recently.
So we're sitting on cash right now with no plans for short term borrowing needs. In terms of your question around free cash flow, we disclosed in our 10 Q last night. We continue to expect something like $200,000,000 to $250,000,000 of retained cash flow for 2019, and that's been a reasonably stable number over the past several years.
Okay. Thank you.
Thank you. I will now return the call to Ryan Burke for any additional or closing comments.
Thank you, Laurie, and thanks to all of you for joining us today. We look forward to seeing many of you next month at the NAREIT conference. Take care.
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