Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage Second Quarter 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.

Thank you, Maria. And thanks to all of you for joining us for our second 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 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, August 6, 2020. We assume no obligation to update or revise any of these 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 the call is included in our earnings release. You can find our press release, SEC reports and an audio replay of this conference call on our website at publicstorage.com. As usual, we do ask that you keep your questions limited to two. After you ask two, please feel free to jump back in the queue. With that, I’ll turn it over to Joe.

Thank you, Ryan. And thanks for joining us today. Before I open the call for questions, I would first like to acknowledge and thank the full Public Storage team along with our customers and business partners as we have come together to ensure a safe environment. In the last four months during this pandemic, we have moved in over 400,000 new customers, as we continue to operate our entire 2,500 property portfolio. Clearly, this volume of activity has been a validation of the strength of our platform and the resiliency of self-storage. With that, I would now like to open the call for questions.

[Operator Instructions] Our first question comes from the line of Jeff Spector from Bank of America.

Great. Thank you. Joe, maybe I’ll start the first question just on that point, as you mentioned, the volume is very strong and the results were better in the quarter I think than initially expected, if we compare comments to the last call. But, at the same time, I know your team is cautious on the second half of the year. I guess, can you tie those comments together?

Sure, Jeff. Yes. There’s no question, as I noted, that we’ve been very determined and focused on the amount of volume we’ve been able to pull into the portfolio, coupled with obviously a number of crosscurrents. So, if you step back and think about the last four months during the pandemic, we kind of think of going through four different phases. And the early part of the pandemic, March and April, we did a number of things to ensure all the right safety protocols, we suspended auctions and really made sure that our entire environment was safe and secure as we were able to continue to operate all of our properties. We saw a little bit of degradation in demand, after an initial rush that came to us through primarily college and university shutting down early. So, we saw a bit of a rush. But then, not long after that, we started to see a bit of degradation. But then, going into the next phase, the second phase, we began to put even more focus on customer service. We again suspended auctions and we opened up to a degree some of the customer accommodation practices again to be reflective of the environment. And we became more focused on different tools around top-of-funnel demand through advertising and other initiatives that were proving to be actually quite effective. So, we started to see the residual benefit of that, and again a lift in demand and move-in volume. In that phase, again, we continued along those same lines but continued to put even more focus on the ways in which we were able to draw new customers to the portfolio while month after month seeing a very positive impact from far fewer move outs. And then finally, the most recent phase as we stand through the month of July, we’ve actually now gone back to auctions. We have reinstituted rent increases in many parts of the portfolio. And again, we’re starting to see a very good reaction to the amount of activity, both on move-ins and lower move-outs. So, speaking to the second half of the year, yes, we do see a number of different pressures that I’ll have Tom walk you through in a little bit more detail. But overall, as I noted, we’ve been very pleased with the overall resiliency and our ability to continue to drive this level of demand, and literally we are dealing with in many markets record high levels of occupancy. Tom, why don’t you give a little bit more color on the second half of the year?

Yes. Thanks, Joe. So, as Joe mentioned, operating metrics started to improve as we moved through the second quarter and have continued that post-quarter. So, we can spend more time there, if you like. But, I think part of your question was around the discussion of same-store revenue trends. So, how do those operating metrics translate to financial metrics? While operating metrics improved throughout the second quarter, financial metrics showed that revenue growth in the same-store pool deteriorated. If you think about the second quarter in aggregate into components, same-store occupancy was up about 20 basis points, while same-store rents were down 2%. So, that leads to a negative 1.8% performance for rental income in the same-store pool in the second quarter. Fee collections were down 32% in the quarter. Those fee collections were down for two primary reasons. Earlier in the quarter, it related to customer accommodations and customers requesting fee relief. And so, we did grant the vast majority of those requests. However, collections were actually quite good through the quarter. As we moved through the second quarter, our fee collections were lower year-over-year due to customers paying us sooner. We anticipate that this trend is likely to continue. At least we’ve seen it continue through July at this point, which is leading to lower fee collections. So, that was the second quarter. As we think about the other component of your question around the second half, I just highlighted that rents were down 2% in the second quarter on average. We ended the quarter down 3.1% on contract rents. So, clearly, we’re starting the third quarter in a lower year-over-year rent growth position. And we’re still observing lower fee collections because of good collections.

Thank you. Very helpful. I guess my one follow-up then, just to confirm, are we seeing that the second half you think could be worse than 2Q? I think that’s where I’m a bit confused.

We highlighted in the MD&A and the 10-Q, which is we think it’s likely that the second half will have same-store revenue performance worse than the second quarter.

Our next question comes from line of Smedes Rose of Citi.

I just wanted to -- I was interested that you talked about in your Q that bad debt expense was in line to historic levels. Does that just tie into what you just talked about or are you granting fee relief, so customers don’t necessarily fall into a bad debt category, or is there just something maybe I’m just not understanding correctly?

No. I think it’s really pretty simple. Collection trends through the quarter were good. We had customers who were paying us earlier. We did have customers that while we had auctions paused for a period of time, stayed with us for a longer period. We’ve begun to work through that during the quarter. And so, right now, we’re sitting with about 20 basis points of occupancy that is delayed auction activities. But, as you think about bad debt through the quarter, it was pretty consistent year-over-year. And frankly, as we sit here today, away from what was written off in the second quarter, the receivable, as we ended the quarter, was actually down a little year-over-year.

Okay.

Stepping back, it’s obviously a focus of the team to focus on basics through the quarter, rent spaces and collecting rent. And I think you saw a good customer reaction and validation that our spaces are important to them. We saw good team activity and rental activity. I think there are also broader factors at work. There’s no question that government stimulus or government support for many individuals throughout the economy, we suspect helped our collection trends through the quarter. As we look across industries, credit cards or otherwise, many other industries are seeing similar collection trends as the government has done a good bit to support individuals’ finances.

Okay, thanks. And then, just as a follow-up. You continue to make acquisitions and see things that you’ve -- that you’re purchasing. Just wondering if you could just speak to what’s compelling about the opportunities, is it cap rates, is it just the ability to manage it better, or kind of what are you sort of seeing now maybe versus kind of pre-pandemic, I guess, on your acquisition activity?

Yes. Sure, Smedes. There’s no question, at the beginning of the pandemic, the investment market on many fronts basically went into pause mode. We had, again, in the March and April timeframe, a handful of assets that had been already under agreement, we still thought they were very attractive investments for us to make. We closed on those deals toward the earlier part of the quarter. And then, things settled down. We actually began to see and continue through today a bit of an elevation of return to market and/or just conversations that we had in motion prior to the pandemic, a variety of different deals that continue to be particularly attractive. So, for the most part, the types of assets that are commanding normal or consistent cap rates, pre-pandemic, would be stabilized assets. There’s still a lot of capital on the sidelines that’s looking for those types of investments. What we’ve done alternatively is look for, again, value opportunities, particularly around assets that may not be stabilized or in parts of our markets that we think round out our presence. So, we are seeing a little bit more opening up of owners that are coming back to the market, some of which do not see a way to basically get out of some of the constraints they may be under for either lending reasons or not making the yields that they had expected. And those conversations are becoming more vibrant, I’ll tell you that. With that, we’ve got a few assets that are in motion. We’re confident that we’ll probably see more. There are still very few bigger portfolios on the market today. We are also seeing, maybe no surprise, a few more land holding opportunities coming up as well, where again, owners that have taken down positions in land may have taken them through various stages of entitlements that are not again seeing the pro forma and return expectations come through, particularly with what’s going on with rates across most markets, and are looking for a way to come out of those positions. So, the acquisition team is busy looking at many different types of opportunities. We’ll see how this continues to play for us in the coming quarters.

Great. Thank you. I appreciate it.

Our next question comes from the line of Spenser Allaway of Green Street Advisors.

Thank you. Maybe just a follow-up on the resumed rate increases. Can you perhaps just quantify or provide more color around what percent of the portfolio has now seen rate increases and whether they have been to the same degree that you would have sent out to existing customers pre-COVID?

Sure. Thanks, Spenser. This is Tom. As Joe mentioned, we did pause existing tenant rate increases for the second quarter. They did resume on July 1st and we resumed it really on a test basis on July 1st and have since more broadly resumed on August 1st and expect to on September 1st as well. In terms of the breadth of it across the country, those increases are broadly spread throughout the country. In the vast majority of the country, we’re able to send existing tenant rate increases. The magnitude of them compared to prior years though is lower. We did that on a test basis on July 1st to try to understand consumer behavior during the pandemic, and we saw encouraging trends there. However, as we look forward, there are headwinds to sending the same sorts of increases as we did in prior years, really related to state and local jurisdictions and the price-related regulations there. We would anticipate that the magnitude of the increases will be lower on a year-over-year basis for the next several months or longer, depending on how long those regulations stay in place.

Perfect. Thank you.

Thank you.

Our next question comes from the line of John Kim of BMO Capital Markets.

Good morning. Thank you. Can I just ask a follow-up on that rate increase? What percentage were accepted, and if you could maybe provide some ground there around the average increase?

Yes, sure. In terms of the percentage of those accepted, I’m not going to get into details there. But I would say on a year-over-year basis, we saw good trends there as it relates to acceptance and continued rental activity with Public Storage. In terms of the magnitudes, typically I’ve highlighted that upper single-digit to 10% type increases, this year, we’re averaging a little bit below that because of the things I just highlighted for Spenser. So, on average, a little bit lower than that.

And then, you mentioned, the revenue decline being more pronounced in the second half of the year. I’m wondering if you could also provide commentary on the expenses side, and if you can, any potential savings from either marketing or other variable costs?

Yes. I’ll begin with part of what you saw in the second quarter, we had elevated payroll costs that were tied to our PS Cares Fund where we were again boosting pay rate within our hourly employee ranks as well as providing a number of different accommodations reflective of the environment to support costs tied to childcare, more opportunity to take PTO, and again, look at the different opportunities or challenges that the workforce at large was dealing with. So, the pay rate increase did end at the end of the second quarter. So, you’ll see some moderation down and the elevated cost of payroll, which was about 20% in the second quarter. Then we’ll also, as you see, be looking at lower taxes potentially because we saw property taxes come in lower at about 3.6% in the second quarter. The other thing that we’re going to keep an eye on is the cost of advertising and promotions with the remainder of the year.

Yes. And I’d just highlight that there’s pretty good line-by-line details in the MD&A and our 10-Q. But we would anticipate the growth moderates from the second quarter.

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

Just going back to the existing customer rate increase program, I mean, it’s my understanding that if you stop that program for three months, it really doesn’t make a big impact, right? If you stop it for a prolonged period of time, that’s when it starts to bleed into results and you start to see a bigger impact. So, I’m just curious, like, what was the lack of contribution, if you will, in the second quarter from stopping that program, and how should that change going forward?

Sure. Taking a step back, pausing on existing tenants for any month will have a meaningful impact on in-place rents. As we paused throughout the second quarter, there was a cumulative impact of several months of not sending existing tenant increases. As I highlighted, not only did we not send those during the second quarter, when we resent them and are sending increases in the second half, they are at lower magnitudes, given some of the regulations and things that we’re doing to be mindful of the environment. So, as you think about the contribution to second quarter rental rate trends that you saw, the average rent per occupied square foot was down 2% in the second quarter, the largest component of that decline from the end of the first quarter to the end of the second quarter was really no or very little contribution from existing tenant rate increases. The rest of it was rent roll down, which we disclosed our move-in and move-out trends throughout the second quarter, which also were clearly contributing factors, particularly early on in the quarter.

And in terms of looking forward, that should moderate, I’m assuming, because you’re sending letters out again, even though at a lower rate?

Yes. We shouldn’t have the same level of rental rate declines from existing tenants, because we will be sending them out.

And just going back to the late fees and admin charges that were down, I think 30% or so year-over-year. Can you just give a little more color on what those fees are? Is it just late fees? And I’m assuming if operations start to return back to normal, that segment probably should normalize pretty quickly, or am I missing something?

Sure. So, the different components of the late charges and administrative fees break down into several components. One is administrative fees that are charged at move-in. So, that line item will trend based on move-in volumes. You’ve seen that over time; if move-in volumes are down, you’re going to see those admin fees be a little bit down. We did see that in the second quarter. The other charges are related to late fees and lien and lien sale fees, the largest component of it being late fees. If a customer doesn’t pay their rent on time, a fee is charged to their account. That’s where we saw improving collection trends reduced the amount of fees collected as we move through the quarter. I would say that down 32% in fees collected actually remained somewhat consistent through the second quarter and into July. But the composition of the driver changed as we moved through the quarter. In the month of April, in the first part of May, the majority of the driver there was fee accommodation, customers requesting fee relief. I shared on the last call that during the month of April, we had about 7% of our customers request some sort of customer accommodation, either rent or fee relief. The majority of that was fee relief and the majority of that was granted. As we moved through the quarter, the amount of requests that we received diminished and collection trends improved, such that by the time we got into June that down 30% in fee collections was driven primarily by better collection trends. This trend has continued through July. As for how much we can anticipate the fee trends will remain this way into the future, it’s hard to call. You would have asked us in March whether collections would be meaningfully better year-over-year as we move through the quarter. I don’t think I would have sat here and told you that. But now, having seen it for a number of months and seen it through the month of July with good trends, even as we get into August here, it does feel like it’s part of the environment. As I highlighted, there are no question; there are broader factors at work. There’s also no question that government stimulus or government support for many individuals throughout the economy likely helped our collection trends through the quarter. Looking across industries, credit cards or otherwise, many other industries are seeing similar collection trends as the government has done a good bit to support individuals’ finances.

And just even again a little bit more perspective, Ki Bin, as Tom said, through the quarter and even through July that level of customer requests has continued to diminish, coupled with the fact that customers are paying on time. So, the customer behavior through the pandemic has actually been quite strong. It validates the way in which our platform has been well-tuned to not only address an environment like this but it’s been able to optimize the collection process as a whole.

Yes. I think clearly, lower fee collections isn’t great from a same-store revenue standpoint, but it’s a great thing for the shape of our customers in the business and validates the demand for self-storage as well as the customers’ value in using our space.

Right? I mean, no one can argue that people are paying on time, and yes, less late fees as a bad thing. So, I’m assuming then -- that’s a good thing, right? So, I’m assuming that there is kind of the mix of that fee structure that lower year-over-year is now the signup fee, the administrative fee, that’s probably lower, right, or making a bigger impact?

It’s that late fee, it is customers paying us on time, and we’re seeing that in through July and August.

One other thing to add is auction activity. As I mentioned through the phases, we had paused auction activity for a chunk of the second quarter. We are doing auctions again. We do have a few municipalities where we’re being held back. But, our auction overhang is actually quite limited. It accounts for only about 20 basis points of our overall occupancy. So that too talks to the way that we continue to be optimized around our entire collection process, our customer engagement process. We’ve been able to calibrate that very efficiently, even in an environment where there’s been a number of hurdles that had limited us, particularly at the beginning of the pandemic, to do auctions. We are basically back in the auction business in many parts of the portfolio. We’re certainly abiding by areas where we’re unable to do auctions, but a meaningful chunk of that part of our business has returned.

And maybe Ki Bin, I'll just grasp onto that to provide with the real benefit of that is as we move through the quarter, it really allowed us to re-rent that space as we got it back. As we moved through the quarter, we spoke about previously around how average occupancy was up about 20 basis points. We ended the quarter up 50 basis points and again, that aged delinquency really represented about 20 basis points there. So call it up 30 basis points on a net basis. That's really continued to improve and by July 31, our occupancy was up 140 basis points. Again, about 20 basis points of impact from delayed auction activity. So net, we were up about 120 basis points in occupancy. That’s really related to the operating trends that Joe highlighted as we moved through the different phases and improving trends in move-ins and continuing lower move-outs, coupled with the fact that our delinquency process was underway, allowing us to re-rent that space and move occupancy higher as we move through July.

Our next question comes from line of Ronald Kamdem of Morgan Stanley.

Just two quick ones from me. One is just trying to get a better understanding. We're hearing a lot about migration out of urban into sort of the suburban areas with the pandemic, whereas a little bit less density. The question is really, are you seeing sort of anything in your portfolio that would suggest that's true? So our properties are maybe better in sort of more suburban markets and they’re seeing better activity than say your New York, or California, or something like that?

Ron, it's too soon to really tell if there's going to be a material and longstanding shift around suburban versus urban. We track by both areas. We look at density from a population standpoint how our properties are performing. You mentioned New York. Ironically, at the moment, New York has actually been a huge beneficiary of the amount of demand that we've seen over the last quarter or so. San Francisco is the same. But again, we are not stepping back and basically putting any kind of a label on suburban versus urban; it's way too soon to tell. We have good diversification across all of our markets, whether they're in suburban or urban markets. We will continue to track and see the lingering impact from the pandemic. Again, just the shift in overall patterns about where people choose to live, it's way too soon to tell. One thing that has been pronounced that we see from a demand standpoint in both markets is the work from home impact. We see many more of our customers coming to us because they are not going to a traditional office; they need more space at home. By virtue of that, they're putting more stuff in our facilities. So that's been a meaningful additional demand factor that we've seen, both in urban and suburban markets.

And then the second question was just on the July operating trends. I don’t know if you've mentioned it already. But just what occupancy is sitting at and what the change in pricing? Thank you.

So I hit on that just a moment ago, but I'll get a little bit more context on operating trends in July. Move-in volumes were better in the month of July. Move-in volumes were down about 2%. Move-out volumes were actually down about 15%, which led to an increase in occupancy through the months. I just highlighted July 30th, our occupancy was up around 140 basis points year-over-year. I would note that about 20 basis points of that is related to delayed auction activity. Overall, July, we saw continued improving operating trends, as Joe mentioned earlier.

One area I would also add on is our non same-store portfolio, in particular has been quite vibrant. We have a fair amount of both new development and acquisition opportunities for customers to move in. We’ve seen an inordinate amount of move-in activity, which has been quite a good surprise or a good benefit based on a number of things we're seeing from a trend standpoint. I mentioned that we’ve moved in about 400,000 customers in the last four months. If you just look at Q2 of the 300,000 or so customers that moved in, 60,000 of those move-ins came into our non same-store portfolio. The non same-store portfolio continues to do quite well from an occupancy growth standpoint and were up about 11%. We continue to see very good trends and traction relative to both new builds, redevelopment, and acquisitions that we've added into the portfolio. That total pool is 13.5 million square feet and we continue to see very good performance and fill-ups across all markets. Frankly, we haven't seen any of our acquisitions and developments going backwards in this environment. They have done the absolute opposite where they're filling up pretty dramatically.

Our next question comes from line of Rick Skidmore of Goldman Sachs.

Joe, just to follow up on a previous question on the external growth fronts. It sounded like your focus has been more domestic versus international. Is that the right way we should be thinking about your comments on the acquisition front?

So Rick, we're going to continue as we always have to look in many markets, both within and outside the U.S. I wouldn't say that our focus has changed over the long-term any differently. There's no question over the last few months. We've put particular focus on everything that's going on right here in the United States. But over time, we will continue to assess and look at opportunities beyond the United States.

And then one bigger picture question, Joe. In the past, you've talked about supply growth and supply growth fading in 2020. Can you just talk about what you're seeing from a supply growth standpoint as the pandemic slowed developments or financing for new projects? And are you starting to see that manifest itself in your markets? Thank you.

There is still a healthy amount of supply that continues to be delivered into 2020. Last quarter, we talked about the likelihood that it would be anywhere, say 15% to 20% or so less than what was predicted, which would point to plus or minus at a $5 billion or so level of deliveries in 2020. We think that's probably closer to $4 billion or less. There doesn't appear to be any slowdown this year anyway relative to those deliveries taking place, although some of them are taking longer. No surprise, many cities have slowed down their own approval processes, whether through inspections or final occupancy permits, etc. We still think that there's a healthy amount of supply. It kind of goes into the level of supply you saw in the 2017 or so era. Now looking out to '21 and beyond, I would expect, based again, on what I mentioned earlier. There will likely be more constraints around funding that many of these developers look for relative to construction loans. Again, the investment hurdles that either they and/or their partners are going to require to move forward on any particular acquisition or development. So, we're likely to see, again, another leg down. I don't know how hard and dramatic that might be. But it would be a welcome relief, particularly in the markets that we've been pointing to over the last couple of years that have been a bit heavy with new supply. So, it's too soon to tell yet the lingering impact into '21 and beyond, but we're likely to see again another leg down.

Our next question comes from the line of Mike Mueller of J.P. Morgan.

Just wondering, how are the year-over-year move-in rate comps in July versus 2Q is down 14%?

So move-in rate change in the month of July was down a little over 4%, move-in volumes down about 2%, and move-in rate down about 4%.

And I’m curious the expansion of the third-party management business. How's that trended over the past four months or so with the pandemic?

The number of properties we added to the platform in the quarter was nine. We have 106 properties now. The platform continues to grow. It's still dominated by properties that are going through various phases of construction. However, we are also seeing stabilized and/or lease-up assets coming into the portfolio and the platform as well. Not unlike what we saw in the acquisition arena, it was a bit quieter for a month or two on the early part of the pandemic. But as things have settled down, we're seeing good activity. We continue to bring new properties into the platform, whether they're new and we're actually opening them or we opened again several in the quarter and we're bringing more into the portfolio as we’re going through different phases of completion and development. The backlog is healthy and we're continuing to add to it.

[Operator Instructions] Our next question comes from line of Steve Sakwa of Evercore ISI.

I don't know if you can answer this, or maybe talk a little bit about the differences. But you said that your occupancy was effectively only inflated, if you will, by 20 to 30 basis points from the lack of auctions. One of your peers yesterday talked about that number being closer to 150 basis points to maybe 200 basis points. I'm just really trying to figure out if there are differences, or what the differences are that would cause such a large delta. Then is there anything around maybe the unemployment insurance payments that came into folks over the last four months, providing them with more income that might have helped on the collection front and therefore, your fees are down as you talked about and that helps kind of keep the delinquencies and the auction process down. That just seems to be a very wide difference between you and your peer.

I think we've spoken about this. I'll reiterate some of the comments. I obviously can't speak to what others are seeing in the industry. But I'll comment on what we're seeing, which we did see better collection trends and that's driving lower fees. It's also, as we move back to conducting auctions, that's reduced the amount of backlog. So, combination of conducting lien sales, as well as better collections leading to 20 basis points of aged delinquency. I would highlight that we obviously worked with customers throughout the second quarter on different ways. As I highlighted, about 7% of our customers requested some form of relief in the second quarter, and we're very receptive to those sorts of requests as we helped customers that were having a tough time. Those requests really started to moderate as we moved through the quarter. As Joe highlighted, as we moved through the different phases of the second quarter, we started to see better trends. I think your comment around government support is a good one. I do think that be it unemployment benefits or $1,200 checks. There's no question that across the country folks got some support through the second quarter, which likely helped collections in our business and in many businesses. I don't think we're alone to highlight the fact that collections were good through the second quarter. I think if you were to listen to banks or to credit card companies, they would likely say something similar. So, I think that there are some support factors at work. Ultimately, we'll see what the trajectory is of that support going forward, and that could certainly have an impact on our collection trends and others in the industry as well. But we generally covered most of the different components of it. Maybe one more stat as we just disclosed stats around, specifically on this topic. I highlighted that customers are paying us earlier and that has resulted in, if you just look at the snapshot at June 30, our rent receivable from customers who are less than 60 days is down about 35%. So, customers are paying for their storage space and finding good value in it. We're working with them and obviously working with those that have been impacted by the pandemic to make sure that they receive the appropriate accommodations as well.

And then maybe a twist on Mike Mueller's question. I think he asked about the move-in rate, you said it was down 4%. But if you look at the July move-in rate against the July move-out rate, which I know you provide those quarterly in the 10-Qs. Do you have an idea, or do you know what that spread was in July?

I don't have that number right in front of me. I could tell you that the move-out rate was down 6% year-over-year and the move-in rate was down 4%. So good trends as it relates to year-over-year comps. I don't, at my fingertips, have the rate per square foot but we can follow up with that if that's important to you, Steve.

Our next question comes from the line of Todd Stender of Wells Fargo.

Just as we look at your two newly developed properties that you opened in the quarter with the backdrop that you're looking, potentially it’s slowing trends for the second half of the year. Can you just kind of compare your forecasted lease-up period to a stabilized occupancy, maybe your current expectations to how they were originally underwritten?

Well, Todd, I would just back up and give you maybe a little bit perspective on how we traditionally look at lease-up periods to begin with, which frankly is, at the end of the day, no different now than it might have been pre-pandemic. It's typical for a property to take three or four years to go through, not only occupancy but lease up to the level of stability and stabilization that you're going to see from the maturing of the customer base, etc. So if anything, as I've mentioned, we've actually been seeing an accelerated lease-up in properties that we put into development, redevelopment, or even acquisition. Again, just because we've seen that acceleration right now, we're not stepping back and retooling or resetting expectations. We'll have to see over time how this demand continues to trend. But it begins with the same premise, which is it takes up to that three to four years typically for a property to get to that level of stabilization. We're going to look at that time period typically to decide whether or not to put the property in the same store and again, look at the stability that it typically plays out across different markets, etc. So no real change yet in the way that we're modeling and looking at the timeframe for stabilization.

Our next question comes from the line of Todd Thomas of Capital Markets.

Joe, maybe Tom, you've talked now about improving trends throughout the second quarter and into July a couple of times, including the improvements in move-in rates down just 4% year over year in July. I understand that the in-place contract rents are lower at 3.1% at quarter end versus the down 2% for the second quarter on average. So the financial impact will continue to get worse in the second half. But how much of a lag would you expect there to be before the in-place contractual rents on a year-over-year basis begin to stabilize and maybe begin to improve if trends in general remain consistent?

Sure, that's a good question. Unfortunately, I don't have a crystal ball in terms of exactly how the environment is going to play out from here. We're absolutely in an uncertain environment and one that none of us have lived through in the past to be able to understand what the healthcare impact and what the government policy impact will be. Where we go from here is hard to predict. It's no question starting the quarter with contract rents down 3.1% is a much worse place than where we started the second quarter from a year-over-year standpoint. The benefits we have going into the third and fourth quarter are that right now, we are sending existing tenant rate increases but we're also being mindful of what the local jurisdictions regulations are around that and also the impact of our customer base in what is a tough healthcare environment. I think it's hard to project going forward right now the magnitude of those increases is lower year-over-year. That’s not going to be a meaningful contributor to the upside of rental rate growth. Move-in and move-out trends: we're seeing good demand trends now and lower move outs. We’ve highlighted in the past that in the last downturn, we did see elevated move outs. However, we’ve seen the exact opposite this time to date. We are also mindful that the healthcare situation could be having a significant impact on those trends. As we move through this year and into next year, the developments on those fronts will likely impact our move in and move out trends as well. I know that’s a long-winded way of saying I don’t really know when things would change materially. But I gave you a sense of what some of the drivers would be that would move in place rents.

As we move further throughout the year here into the back half of the year, and we're looking at potentially a more elongated leasing season. Do you expect to have a little bit more seasonal pricing power in August, September, maybe October on a year-over-year basis than you would ordinarily in prior years?

I think the one thing I'd remind you there is that we're still facing an environment that we were in the first quarter of significant new supply being delivered into many of our markets, in addition to navigating through this unique pandemic environment. I think Joe highlighted the improving operating trends. If you looked at it on a market-by-market basis, I would say the healthcare environment and situation was the biggest driver of market variance of operating trends in April. As we moved through the quarter into June and July, the biggest differentials from a market standpoint on operating trends, like move-in to move-out has been more the typical things that we would have been talking about, the impact of new supply in many of our sub-markets. I think that's likely to persist here, as Joe mentioned, future deliveries. So, I don't think the operating environment is such that while we've seen improving trends that it's going to get materially better in any sort of base case. But ultimately, we'll see where we go. We're still dealing with a lot of the headwinds that we spoke about earlier in the year.

And just a follow-up on a prior question, just regarding population trends and work-from-home trends. I know Public's footprints are national in scope and you're diversified, but you do have larger concentrations in some markets like LA and San Fran, New York. Are you having any discussions, or strategic discussions around reallocating capital or thinking about investing differently in sort of a post-pandemic environment, or is it too soon to think about those strategies?

It's still too soon, Todd. We will obviously continue to assess the variety of different impacts this kind of environment puts into different markets and sub-markets. The business is still very dominated by that very small trade area that three to five miles zone and in an urban environment even much smaller. So again, the portfolio is highly diversified. We enjoy the benefits of the diversification and we'll continue to assess that on an ongoing basis, just like we always have.

And ladies and gentlemen, that was our final question. I'd like to turn the floor back over to Ryan Burke for any additional closing remarks.

Thank you, Maria, and thanks to all of you for joining us today. Take care.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.