Public Storage (PSA) Earnings Call Transcript & Summary

Welcome to Public Storage's 2021 Investor Day. I'm Ryan Burke, Vice President of Investor Relations. And on behalf of the entire Public Storage team, I want to thank you for joining us today. This Investor Day presentation is available on the SEC website and in the Investor Relations section of publicstorage.com. Of course, we want to remind you that certain matters discussed during the presentation, including the Q&A sessions, may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, May 3, 2021, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. We have a lot to share today. We also want to make sure we answer all of your questions, and we'll do so through 3 separate Q&A sections. Please feel free to submit your questions through the webcast interface. Now it's time to get started. I'm happy to introduce Joe Russell, Chief Executive Officer of Public Storage.

Hello. I'm Joe Russell. Welcome to Public Storage. For nearly 50 years, those 4 words have greeted the tens of millions of customers we've had the privilege of serving. And although it's been a long time coming, today, we welcome you, our shareholders and the investment community to our 2021 Investor Day. We are holding our Investor Day virtually to provide our team and our investors a safe experience. We hope you and yours continue to remain safe and healthy. Today, we are pleased to be able to take you behind the orange door at Public Storage. In doing so, we will detail our exciting plans to grow sustainable revenues from the best brand and the best portfolio of self-storage assets in the industry. We have a comprehensive agenda for you today and appreciate your ability to spend the next few hours with us. First, we'll talk about Public Storage today, including our people, who are without question, our most important asset. As a team, they unlock the power of our strategic initiatives critical to the future growth we are committed to deliver at Public Storage. Next, we'll discuss how we're driving NOI growth through innovation and investments in the customer experience, technology and the transformation of our operating model. Third, we'll show you how we'll accelerate portfolio expansion through the power of our unique four-factor growth platform and our unrivaled real estate capabilities. Then we'll talk about complementary growth engines and value drivers, including PS Advantage, our third-party management platform, our storage insurance program as well as our ownership interest in Shurgard Self-Storage and PS Business Parks. Next, we'll talk about our balance sheet strategy and our long-term business forecast. Finally, we want to make sure we have an opportunity to engage with you, so we'll have 3 separate Q&A sessions throughout the day, so we can answer your questions. So let's get started on today's journey as we take you behind the orange door. Public Storage has been the leading owner, operator, acquirer and developer of self-storage facilities in the world for several decades. You know us. But let me take a few moments to share some highlights of our leading position in the self-storage industry. We now have over 180 million square feet of storage space at over 2,600 facilities in 39 states, with a team of 5,600 employees that delivered nearly $3 billion of revenue in 2020. Altogether, today, we serve over 1.6 million customers with their storage needs. Our leadership position comes from a powerful combination of having an iconic brand with unquestionably the best customer recognition, unmatched scale in the best markets which gives us operating efficiencies as well as access to tremendous amounts of data and the best portfolio with the largest number of A locations in the industry. And our portfolio keeps getting bigger. In fact, we have added as much storage space in the last 2 years as all of our public competitors combined, including our recent acquisition of the ezStorage portfolio, and there's more ahead. But we're not just the biggest. We also extract the highest rental revenue and NOI per available square foot and have the highest operating margin among the public self-storage REITs. Simply put, we know how to make more money on our properties than our public competitors. And we're encouraged by the opportunities the future holds with increasing adoption of self-storage. And as the 2 most populous generations in history age, they are becoming prime consumers, creating another wave of new generational demand, and we're well positioned to lead the industry going forward. How are we going to do that? By having more properties in the best locations than anyone. By having a diverse, high-integrity team that's focused on driving operational excellence and organic and external growth, by deploying our unique acquisition, development and redevelopment expertise to grow and create value through all economic cycles. By having the strongest balance sheet that's ready to fund further accretive growth. By continuing to drive innovation in our operating platform, including our industry-leading revenue optimization strategies. All of these contribute to the strongest brand in the industry, the one more people recognize and seek out than any other brand. And as Public Storage continues to grow, we're committed to creating value responsibly for our shareholders and other stakeholders for the next 5 years and the next 50 years. That includes being mindful of our environmental stewardship responsibilities, our continued obligations to our people, and the ongoing improvement of our governance to foster principled actions informed and effective decision-making and appropriate monitoring of performance, risk and compliance. As you may know, we have added 7 new trustees to our Board in the last 2 years, significantly increasing diversity and reducing average tenure to less than 5 years. We've made improvements to our executive compensation plan design. And we're making a commitment to enhance investor communications. I'm particularly excited to introduce you to the best leadership team in the industry. As we take you behind the orange door today, the team I lead will share with you the specific strategies and initiatives they are driving throughout our business and the roles they play in creating value for our shareholders. Like we do on many fronts, we have challenged ourselves to share a robust level of content in this presentation to give you a deep perspective on the Public Storage of today and even more importantly, the Public Storage of tomorrow. With that, our simple objective is to give you an even stronger appreciation for our broad foundation for growth. This includes 3 core components that will drive shareholder value. First, leveraging our leadership position through the Public Storage brand, our properties, our people and our balance sheet; second, embedding innovation in everything we do, whether it's the customer experience or marketing, from revenue optimization and data analytics to transformation of our operating model; third, accelerating organic and external growth. In short, today, my plan is to show you how I will lead Public Storage forward to make the strongest brand even stronger. So let's get going. Now I'm happy to introduce you to Natalia Johnson, our Chief Administrative Officer, who will talk about our most important asset and what makes everything at Public Storage possible: our people.

Thank you, Joe. As you said, our people power everything we do. They drive innovation, take care of our customers, manage our properties and serve as brand ambassadors. At PSA, our culture is built on 4 pillars. First is integrity and accountability. doing the right thing and telling it like it is, guide us every day. And these core values ensure we act in the best interest of our customers, employees and shareholders. Innovation is core to who we are. PSA created the storage industry, but we don't take our leadership position for granted. We encourage new ideas and experimentation to constantly innovate and improve our business. Today, you will hear how our team is driving innovation throughout the company. Development and advancement is a key part of our commitment. We believe in hiring the right people and then helping them grow. Last but not least, is diversity and inclusion, is very important to us. We foster a culture where everyone is valued and feels welcomed and heard. It is an environment where anyone can succeed. We are proud to have a diverse workforce that reflects the communities we serve. It is our commitment to hiring the best without biases that has resulted in a very diverse and inclusive workforce at all levels. Our workforce is almost 70% female, and people of color are the majority of our team. And we are committed to increasing the healthy diversity we have in our management ranks. We want everyone to feel comfortable bringing their whole selves to work. And we foster inclusion so that we benefit from the different perspectives we have on our team. We have a great team of industry experts, from corporate to our properties, where our team has been with us an average of 4 years. We have a strong employee loyalty, especially in corporate and management teams, where we have some true pioneers who have been with us since the early days of self-storage. This is why we believe that succession planning is key to our success. Therefore, we promote from within and bringing new skills by hiring from outside. That allows us to achieve the right balance between deep industry expertise and fresh ideas to fuel innovation and growth. We are committed to investing in our people. The COVID-19 pandemic has been the strongest test of that commitment. We established the PS Cares Fund with over $10 million to help our people during the pandemic to ensure they had the financial and social support they needed to navigate uncertain times. We also invest in training and development. We have the right training programs and tools to ensure that our employees are successful and advanced in their careers. We strongly believe in listening to our employees, which is why we conduct annual employee engagement surveys to take actions on ways we can improve. And I'm proud to share that in the most recent independent survey this year, 80% of our employees participated. Best of all, our overall engagement score improved to 76%, and we are committed to continuing on that positive trend. Finally, we offer comprehensive benefits to all of our employees to support them through various life events. That includes our childcare program, which was designed with our property teammates in mind. We also architected our medical plans to have progressive premiums, where executives pay more so the health care is more affordable for our property managers. Most of our new hires don't have storage experience. So we train them in their role. We're able to do so, because we have a strong operating system with workflows that guide them through their daily functions. We ensure that our employees' wages are competitive within the markets where they work and that our wages are in sync with the retail medium in each market. We do so by using market analytics to adjust pay when we need to. Using this approach within the last year, we increased the starting rate by 9%. We also want our teams to feel their contributions make a difference. That is why we have an incentive plan. The focus is on engaging employees and motivating performance throughout each district. To see how these investments in our people come together, I'd like to highlight the careers of 3 team members at our company. First is Roger. Roger joined the company as a district manager in Houston 11 years ago. Roger showed a talent for solving problems. He was promoted several times up to regional manager. Most recently, Roger was promoted to Vice President of Process Improvement. He works with technology and operations to drive innovation. Next is Brandy. She started as a relief manager in Dallas, 14 years ago. Since then, she was promoted 4 times. Today, Brandy is a Delinquent Tenant Specialist, a role in charge of all delinquent tenants for approximately 30 stores. Brandy is a great leader in her market and has driven great results. Finally, let's talk about Tony. Tony joined the company 23 years ago as a call center agent. He's now the Divisional Vice President for all of Southern California, where he's responsible for $340 million in annual revenue and 600 people, one of our top markets. We will continue to provide opportunities behind the orange door. In summary, that is why we invest in our people. They power our brand. Now we'll transition to the second section of our agenda, organic growth powered by innovation. We believe innovation will drive net operating income growth. Today, our team will cover the 3 pillars of our strategy: first, enhance the customer experience, which includes the journey from digital all the way to visiting our properties. Our second objective is to transform the operating model through technology. And last, we intend to maximize revenue growth. Now, before I turn it over to David Collins, Vice President of Marketing, let's take a look at one customer's journey. We love how these 3 pillars worked together to deliver a great customer experience. [Presentation]

Like Margaux's story in the video you just saw, self-storage is a life event product with millions of people every year finding themselves in a place where Public Storage is the perfect solution. Our approach to marketing is simple. We want to be everywhere someone may be looking for us when that life event occurs, but with a minimal amount of waste, which is simple in concept, but complex in execution. We do this with a three-part formula to drive move-ins. The first is the scale of our operating platform and Internet placement. We have more places in more spaces than any self-storage provider. And our footprint virtually guarantees any search online or around town will prominently reveal a Public Storage being in your neighborhood. Second, is our commanding technology, technology that optimizes the way customers find us, what we know about them and efficiencies in our marketing operations. Third, is the brand awareness from our physical and online presence. Our orange doors and buildings as billboards approach provides high visibility physical recognition, and the name Public Storage is the most recognized in our category. It's the #1 search term for our industry and the only brand in the top 5 search terms. But our brand recognition goes deeper than orange doors, high visibility buildings and top volume search terms. Our brand is ingrained in the fabric of the American consumer. In an independently-run blind study, thousands of people were asked what self-storage companies they were aware of and 73% specifically mentioned Public Storage, the highest of any self-storage provider by a significant margin. And it's no wonder everyone knows our name. Our customers do a great job of letting everyone know the public storage name is one worth knowing. Take a look at the reviews they leave us, and you'll experience an overwhelmingly positive story. Our satisfaction scores are excellent. And we're proud of every member of the Public Storage team, who helps us earn this kind of recognition from the people who are most important to Public Storage and our investors, the Public Storage customer. For most of our customers, the delightful experience of becoming part of the Public Storage family begins in search. With search and digital marketing, our three-part formula of scale, brand and technology is a winning recipe. With paid search, it's our brand that is most critical in maximizing our efficiency. Our brand name is the highest volume search term in our industry according to Google and the only brand name in the top 5, where the largest amount of search volume is. In fact, our brand term is so influential on Google that we're able to enjoy over 40% of our paid search traffic from our brand name at 1/3 the cost of non-brand terms. This is a critical benefit when you consider our competition is spending 3x the money to get this kind of volume. And when it comes to nonbrand terms, we employ an advanced data-driven bidding approach to maximize the return we achieve by leveraging our best-in-class scale and relevancy. While brand plays the same important role with SEO as a dozen paid search, its scale and technology and specifically the technology of our sophisticated website that helps us manage and influence the visibility of our listings to get 2/3 of our search traffic at no media cost. And when it comes to maps, our scale and brand, combined with good SEO to create a great search experience. Customers like Margaux can easily find us, along with key brand attributes like good reviews and attractive property photos. All this culminates an incredible visibility in search, with publicstorage.com showing as an unpaid search result, 93% of the time for the top 20 self-storage industry terms. And when our potential customers are not searching for us, we're searching for them using sophisticated algorithms and data modeling, employing hundreds of different data points to efficiently target the right prospects at the right, time in the right place. And we recognize that life events where Public Storage as a solution may not happen to everyone every day. But when they do happen, the visibility and brand recognition that our digital marketing provides helps people to think Public Storage first when the time is right. In order to give the Public Storage customer what they want, Public Storage has invested heavily to ensure we can maximize our revenue and the customer's experience with minimal waste. And we create each step of this customer experience using the best talent in the industry. The Public Storage digital team employs a sophisticated approach to web design optimization. And our capabilities in brand marketing and search along with social media are cut from the same mold, ensuring the highest revenue return to the Public Storage brands, so many know and trust. And all of this intelligent marketing activity is done incredibly efficiently, freeing up more cash for other areas of the business and providing first-class visibility to attract our customers. And that's why we're #1. Our brand, our scale and our technology, combined with world-class expertise offers an unparalleled amount of value to our customer and shareholder alike, which just goes to show, no one else has the power of our orange doors. And now I'd like to introduce Steven Lentin, our EVP of Field Operations.

Thank you, David. I'd like to give you a view from the front lines. Public Storage strives to maximize shareholder value by providing customers like Margaux, a best-in-class customer experience by combining the best locations, outstanding service and a great digital experience. We own and operate high-quality and well-diversified portfolio in the U.S. with presence in all major markets in 39 states. Our largest markets are coastal on the West Coast, Southeast and Northeast. We are where the people and incomes are. Over 50% of the U.S. population lives within our property trade areas, and that is growing. Properties are supported by knowledgeable and experienced leaders that focus on the coaching and development of the 4,000-plus property managers we have to deliver a great customer experience moving in approximately 1.2 million customers a year. We want to ensure customers have options to interact with our product to serve them when and how they want it. To that end, we have an omnichannel approach enabled by a strong technology platform. This ensures each customer receives a consistent experience no matter how they choose to engage with us. Our proprietary centralized operating system is called Web Champ 2. It is the foundation that enables this to be possible. We have 5 different channels for customers to make reservations. And we optimize each one of those through an industry-leading website strategy and our well-defined sales process training. Each rental method is designed to make the rental experience frictionless, easy and contactless. Customers can move in in-person with a property manager helping or they can take advantage of self-service methods using eRental or one of the new kiosks. Kiosks are self-service and customers use them to rent a unit and manage their account without the assistance from an on-site manager. The investments we made in eRental are paying off. As you can see, it has been a huge success. Just as Margaux did in the video, nearly 50% of our customers are choosing eRental and over 0.5 million customers will choose this method this year. Customers like the benefits of completing a rental online because they do it at their own time then skip the rental counter and head right to their space. So to summarize, as we think about the customer experience, we have 3 dimensions or layers. First, the digital experience is key and is becoming more important every day. Therefore, we are constantly investing here. At the beginning of this year, we released the PS app and since have had over 350,000 downloads and our customers are using the app to enhance their storage experience. Our app is the highest-rated and utilized in the self-storage industry, and it gives us yet another way to interact with our customers. Second, when customers do choose to interact at the property, managers are ready to help them as they have been developed through a comprehensive training program to follow standardized processes to delight the customers. Our customer service department is also on call 24 hours a day. The teams take great pride in helping our customers. And in addition, they're able to offer merchandise and other goods to assist them through their journey. And lastly, the property and the space are the product. And while we have the best brand and locations in the industry, we are dedicated to taking the brand to even newer heights as the properties are going through enhancements, which we call our Property of Tomorrow program. To take you through the Property of Tomorrow program, I'd like to introduce John Sambuco, President of Asset Management.

Thanks, Steven. I'm incredibly excited to share with you our rebranding initiative called Property of Tomorrow. We began the program in late 2018 with an overarching goal of taking the latest generation 5 branding to our existing stores. With our wide range of assets, we've adapted the program to fit various types of buildings, from single-story-row rows to multistory. The overlay of the dominant use of orange on our buildings and the simple signage with larger formats is very impactful and fits well with our initiatives to leverage our commanding brand. So far, we've completed over 300 stores across the country, signage, paint, office remodels, enhanced security as well as low water use and low maintenance landscaping positively impact our customer experience. Our business model is straightforward, but it has significant complexity when you consider the sheer number of assets, each with our own unique maintenance requirements and specific life cycle. One of the most transformational investments we have made is the implementation of our centralized access control system. 65,000 people visit our properties every day. And we're the only self-storage company that has a unified, integrated and cloud-based access control system in use by our entire portfolio. We continue to make investments in sustainability with a goal to provide the majority of our energy needs with clean energy production. We have already converted all external lighting to LED, and we have completed interior LED upgrades and retrofits at over 600 stores, resulting in a reduction in power usage in a 23% ROI. In addition, we're under contract on 700 stores that will be completed by the end of Q2, with plans to complete the entire portfolio based on ROI returns. Solar power generation is currently at 30 properties, and we are working to add solar to as many properties as we can. Right now, we have 395 properties that are under contract and in some stage of solar installation. This is great for the environment, and it's great for our investors. Our California stores under contract have a blended ROI exceeding 20%. With over 30,000 HVAC units and over 2,400 elevators, we're provided with additional use cases for automation. We'll either utilize a control system for humidity and temperature variations for HVAC or real-time maintenance indicators for elevators and then proactively dispatch or where warranted, deploy full system automation. We have a diversity of video capabilities and use at our properties, from monitor and alarm systems to 24/7 remote monitoring. We see a real value in the use of AI-triggered alerts to expand the feasibility of real-time monitoring, enhancing the overall effectiveness of our security programs. Collecting data that both identifies our assets and how we service and maintain them is required to enable predictive and preventative maintenance and repair. We are investing in an asset management system to provide a central platform from which to optimize the asset life, where real-time data will materially influence repair and maintenance spend or operational efficiency. We'll be looking at adding additional IoT investments. An important consideration is that many of our initiatives continue to reduce our environmental impact. Given our customers don't live or work at our locations, energy, water and waste are considerably lower than other real estate types. And as a result, we have a very small carbon footprint. Additional solar installations, LED and low water use landscaping will reduce our carbon footprint even more. Our properties also retain their functional and physical usefulness for decades and are resilient and built to withstand the test of time. We are prioritizing the highest revenue per square foot markets as we work our way through our entire portfolio. For 2021, our team will finish 450 properties, and by 2022, we'll have completed more than half our portfolio. Our team of 75 people are executing projects daily, and we will complete the entire portfolio by 2025. In total, our investment in Property of Tomorrow will be approximately $600 million. Our Property of Tomorrow initiatives encompass several work streams that lead to more efficient properties. These upgrades as well as those mentioned earlier, all lead to further strengthening our industry-leading brand, higher customer and employee satisfaction and drive our sustainability initiatives. You can see now why we're so incredibly excited to bring these upgrades to our existing portfolio and raise the bar even higher on our brand. With that, I will turn it over to Mike Braine, our Chief Technology Officer.

Thank you, John. You just heard about our plans to continue to digitize the customer experience, along with the investments we're making in the Property of Tomorrow program. These initiatives are components of an overarching strategy architected and under execution for several years now. We envision a digital company where each customer and employee touch point is digitized, and every real estate asset component is network connected. Let's take a look at how this comes together. At the center is the property. First, we take a customer-centric view of our business. Self-service is a key enabler for our customers to move in how and when they want to. We have 2 self-service options, eRental and kiosks. Next, the customer enters the property using their phone for access, just as you saw Margaux do on the video. Digital access for gates, doors and elevators and in the future, our customers could use their own device to monitor and access their individual space. Our facility assets, elevators, cameras and HVAC systems are inventoried and monitored in the asset management system. Predictive maintenance drives improved customer and employee experience and optimal cost effectiveness. The key here is not in each component independently, but how it's all brought together in a cohesive vision. This integrated digital landscape enables us to extract valuable data, allowing us to centrally monitor activity at our properties, run sophisticated analytics to gain unique insights, improve customer experiences, improve our operations and streamline costs. Ultimately, this all delivers exponential value to our stakeholders. Let's talk about how we see our technology stacking up. At the foundation, Public Storage has a digital core made up of world-class capabilities, software vendors and partners that provide a stable, secure and scalable technology foundation. Layered on that foundation, we have chosen best-in-class and predominantly Software-as-a-Service solutions to fulfill the technology needs of our enterprise functions. Our core operating systems that support our property management and customer service center are made to purpose automated and integrated proprietary systems. The extent of automation and integration, combined with the full end-to-end capability of these systems, delivers industry-leading process standardization, efficiency and control. Our revenue management and expanded data-driven decision-making capabilities will be highlighted later today. At the top of the stack, we have invested in our systems of differentiation and customer engagement. David and Steven highlighted our customer acquisition and omnichannel capability, while John spoke to our leading investments in a digital smart property. Taken in aggregate, our current platform of technology reflects a coherent prioritization of multiyear investments. We are making our vision for a digital company and a digital self-storage experience real. Digital company is broader than properties and more than technology. It is about enterprise-wide enhancements and transformation of our operating model, the way we work, the way we interact with each other and the way we engage our customer. Sustainability, centralization, automation are key levers of our vision for a digital company. Our customer-driven demand model will be the basis for our centralized labor management system. We are transitioning from fixed standard hours to predictive customer-driven and activity-based labor scheduling. This is about aligning labor to the customer needs in an optimized fashion. Our customer service center handles in excess of 2.5 million customer contacts annually. We expanded the way we can service our customers with online chat capability, adding an additional method for our customer to choose to engage with us. Additionally, we augmented that capability with the use of robotic process automation for both improving speed to resolution and agent efficiency. We have also implemented an advanced quality assurance program, utilizing AI-enabled customer sentiment analysis, expanding the breadth and the effectiveness of our quality control effort. We spoke about digital leases in the context of the consumer when we spoke about eRental. But digitizing the lease process from a public storage perspective is also significant. By automating and digitizing the signing of a Public Storage lease, the resulting process is more customer friendly, better labor optimized, minimizes compliance risk and is environmentally sustainable. Finally, our delinquent tenant management process is fully automated through workflow, which coupled with our online auction process, enables a level of efficiency without compare. Not only are online auction's contactless, they also bring greater transparency to the activity and an increase in diversity of bidders. So far, this is increasing net proceeds. As we continue to digitize the various aspects of our company, we are adding a wealth of new digital touch points to our repository of transactional data. Our strong, integrated and centralized systems allow us to take advantage of the significant scale of our operations, providing us with a unique opportunity to leverage data as an asset. With the depth and the breadth of our underlying proprietary data, we are singularly positioned to continue to identify and create the best assets in the market, while providing differentiated customer-centric experiences, both while optimizing our operations. We're excited about this transformation. And every function of our business continues to evaluate how we can be more data driven to produce better decisions faster. We are continuing to invest in our data platform and advanced decision-making capability. I will now hand you over to Natalia Johnson, our Chief Administrative Officer, to discuss how our digital company is enabling a whole new operating model for Public Storage.

Thank you, Mike. Now that you have seen the different components, let's summarize how it all comes together to deliver a new operating model. This new model will redefine the industry. First, customers are choosing how they want to move in. eRental now approaches 50% of the volume. Customers are letting us know this is what they want and we believe this trend will continue. What used to be a 45-minute moving transaction can now be a 6-minute experience. Second, we digitized all the data we had at the properties. That means we can help customers from anywhere. We can also run sophisticated analytics to power everything from asset management to revenue optimization. Third, while call centers used to be staffed with only people at offices, now our call center is virtual. We're using artificial intelligence and bots to increase the scale and provide better customer service. Fourth, staffing has historically been at a minimum of one person per property. While this is still the case for most of the industry, it may not be the case for us because our digital operating model gives us the flexibility to staff properties based on what the data tell us. We will have the right people at the right time, in the right place. As you can see, this model delivers the most optimized operations and is already delivering value with property payroll in Q1, 13% down from last year. In summary, the transformation of our operating model will have many benefits including a better experience for our customers who will have a smooth frictionless storage experience, a better experience for our employees who will be deployed optimally with more opportunities for specialization and career advancement and better operating efficiency as we use the best data that we have for greater process optimization. We have made the technology investments which will result in operating margin improvements. And now to talk about revenue management, I'm going to turn it over to Tom Boyle and his team.

I'm glad you could join us today for our data science and revenue management discussion. This is an area we have not historically shared much about outside the organization. We're now going to spend a little time behind the orange door with the leaders of 2 teams that drive this PS competitive advantage. We have the industry's largest portfolio and have owned our assets for many decades. This results in the industry's largest data stockpile, which is also growing exponentially. It's fertile ground for data science applications. We're now going to chat about what that means and how we use the stockpile to our advantage. An area of particular focus will be on revenue management. We use our advantages there to maximize our revenue from our square footage. In other words, REVPAF or revenue per available square foot, is the metric we look to drive each year. And we earn more revenue from our square footage in our markets than our competitors. With me today is Richard Craig, Vice President and Head of Revenue Management; and Philip Kim, Vice President and Chief Data and Analytics Officer. So with that, let's get going. Philip, why don't you give us an overview of our data environment?

Thanks, Tom. As you mentioned, we have a significant data store, which contains a deep repository or stockpile of data from all aspects of our business. Very importantly, we have the key customer touch points across online assets like 2,600 properties and our call center.

There's a lot to unpack here.

A bit of an eye chart. And this is just a snapshot of the data that we collect and just a few of the use cases. We actually capture news much more than on this list. In retrospect, our data collection is really a broadened reaction to the changes in the customer experience. For example, customer shopping habits have changed. And much of this is due to product innovation for the customers' behalf.

Customers like Margaux on the video, use our mobile app now to interact with our properties, and that's a new set of data that's being generated. And I'd add John Sambuco mentioned that we're putting solar panels on our roofs, which also send data on solar efficiency and how each property is consuming electricity.

And both of those use cases are so different and yet it reflects our strategy of working backward from the customer and also our strategy to centralize the data capture and data science to support scale. Probably the most important takeaway from this view is that we collect this data because it helps with our most important use cases.

And Richard, I know we have a few cases we'll walk through later. But what are some high-level examples of how you use this data?

Sure. Well, on my team, we use data to test and optimize a variety of activities, ranging from ad campaign optimization to machine learning-based pricing. So with these types of use cases, what types of volumes are we talking about?

When you take the growing scale of public storage with this customer base and multiply it by the frequency of customer-driven search, website visits, mobile app interactions and the 100,000-plus customer calls to our call center and add the millions of customer visits to our properties, you get an enormous number. I took a look and calculated over 1 billion relevant data points with just customer engagement every year.

So where do you store over 1 billion customer engagement data points?

Data science requires: one, a clear data strategy; and two, custom advanced data engineering. On the strategy front, we prioritize fast, simple and scalable. So we decided to vary it on the building a centralized system in the cloud was our best option. With cloud, our data's secure, centralized and for performance, we can scale for horizontally. So we have, practically speaking, infinite storage capacity. On the engineering front, we built high-performance data pipelines that ingest the raw data from our many sources. These pipelines also preprocess the data for quality and perform any required transform until the data is validated, prepped and ready for many use cases. Likewise to storage, we have, practically speaking, infinite compute capacity.

All right. So you've described how we store the information, what do we do with it?

Short answer is, we do quite a bit. We have dozens of use cases across public storage. The reason we can do so many is because we've collected all this data; and two, our systems are integrated. The last point is key since the system integration enables the key business functions, including cases that span the customer omnichannel.

All right. So what does customer omnichannel mean from an analytics perspective?

So customers live in an omnichannel world. In other words, they demand choice for how they want to engage with us. They want the capability to make the reservations in person, online or just calling us. Since we provide the customer their choice, that means we have to support data ingestion across multiple processes and multiple data streams. And normally, integration can be incredibly challenging. Fortunately, we have a system, Web Champ 2, that operationalizes that customer omnichannel environment.

So what happens if a customer starts their engagement with us on the phone, but then completes their rental online?

Because we have a centralized data lake, it is as simple as pulling the data from one table. We can use this data to look for an overall trend or we can analyze the online rental in much greater detail as needed.

Okay. That's interesting. So greater detail would be like analyzing how an eRental customer chooses to interact with us?

Absolutely. Here's a view that we built for David, our VP of Marketing. Before building this, we had a data scientist analyze the first 9 months of data for eRental and then connected that analysis to a dashboard that we deployed. On the right is a map of where our customers are located. And after a bit of geospatial clustering, we decided to use both color and size of the circles to provide both overall context and highlight intensity or volume so we can guide the user to specific regions. On the left are the program's KPIs, which includes conversion rate along with the breakdown of the eRental 6-stage customer journey. Lastly, the data scientists provided statistical confirmation that the customer's device is a relevant driver during certain stages. We built the last section to highlight the differences between desktop and mobile customers based on his analysis so we can guide the user to data-driven insight.

We all know that the volume and success was really strong last year, and we're always looking to the data for improvement.

And to that, we use a view to drill down to Houston, 1 of the 4 top markets. We display the differences in the conversion rate between mobile and desktop behavior. Specifically, desktop is performing 10% better at the second stage and 2% better at the sixth stage. There's a lot going on behind the scenes yet the simple dashboard is really the translation of our data into an actionable insight.

And a good opportunity for a deep dive and performance testing for user experience to drive better conversion.

That's correct. We use this data to come up with our experimentation backlog for mobile user experience.

All right. So building on that view of the customer experience through the funnel, let's segue to you, Richard. Can you share an overview for the audience of our pricing philosophy and process?

Sure. Our pricing models and strategies seek to maximize revenues across multiple dimensions. The volume of move-ins we receive, the price we charge both new and existing tenants and the length of stay or how long a customer rents from us. As you may expect, these dimensions are related and in some cases, move in an inversely correlated manner. For example, a lower price tends to attract more move-in volume and a higher length of stay.

So can you describe for us some of the different models you use to optimize price?

Sure. Our approach to maximizing revenue leverages a number of chained optimization models, all working together to optimize revenue. Each component deals with a different aspect of the pricing problem. Our systems predict inventory availability and marry that with a demand forecast that is generated for each discrete property and unit size or floor plan. This estimate of inventory availability and demand is then fed into a price optimization that leverages our understanding of consumer price elasticity, which measures the relationship between price and move-in conversion. The output of this optimization is a set of move-in prices designed to produce the best revenue outcome.

You mentioned different aspects. Does this mean that our pricing varies by sales channel?

Yes, the optimization that's performed within each of our sales channels, our walk-in, call center and our mobile and desktop websites. For this reason, it's not uncommon for us to deploy differentiated pricing across each of our sales channels, locations and unit floor plans.

So many have said that we optimize towards occupancy. What is your target optimization?

Our target's revenue. We are focused on earning the most revenue from our square footage.

So what other tools do you have to manage your inventory?

In order to support maximizing revenue, we have built an advanced overbooking model and integrated into our transaction system Web Champ 2. The component leverages our ability to predict both our inventory availability and anticipated reservation move-in conversion. And the final model in the chain is existing tenant rate management, raising the price to existing tenants is a key part of our revenue growth strategy, and we are constantly testing and innovating around rate increase frequency and magnitude.

So Richard, is there a common thread across all these different models?

Well, Philip, the comment thread is that we utilize terabytes of data, spanning hundreds of data sets, including demography, psychographics, demand signals, competitive data, both quantitative and qualitative and web and off-line behavioral data.

That's a great overview, Richard. Can you go a little deeper into price optimization specifically?

Sure. A key aspect of the pricing model is the optimization of rate volume to the maximum revenue outcome. And in order to do that, We need to understand consumer price elasticity and leverage conversion curves. So what I'm showing you here is a representation of 2 sample curves, one that is elastic and one that is relatively inelastic.

So how do you go about creating curves like these?

Well, our understanding of conversion has been built over time via evaluation of pricing history as well as conducting thousands of price tests over time. In fact, price testing is a key ingredient in our pricing discipline for both new and existing customers. It's the best way to validate our assumptions and models and ensure we achieve our ultimate goal of enhancing revenues. A good conceptual way to think about these conversion curves is that there was one for each type of consumer. And some consumers are more or less sensitive to price than others.

And how are these customized curves applied in business terms?

Well, ultimately, these curves are utilized in conjunction with expected inventory availability and predicted top-of-funnel demand to derive a price in each of our locations unit floor plans and sales channels meant to deliver the maximum revenue outcome. As you can see in this optimization example, as the price rises, move-in volume declines.

So at what point on that conversion curve do we generate the best combination of move-in volume, price and length of stay?

Let's walk through a quick example. As the price rises, move-in conversion and volume declines. In this scenario, $135 wins as a combination of rate, volume and length of stay produce the best revenue outcome. This price optimization is a constant and dynamic process occurring for all of our 1.7 million storage units and across each of our sales channels.

All right. Well, let's take a step back. Philip, can you talk to us about our technology stack and how we support the functions that Richard was describing?

Absolutely. There are several key trends outside of Public Storage that we leverage. In fact, we've aligned our strategy and investment around some of the biggest changes in the economy since the industrial revolution. First, cloud computing is following the early stages of desktop. So performance relative to cost is doubling roughly every 18 months. Vendors are spending billions in R&D that show up as new features and functions for us to leverage.

So what does that mean for Public Storage?

We primarily use technology to speed development. We achieved state-of-the-art capabilities at a fraction of the development time it would otherwise take. In real terms, we built something that might have taken years and instead deliver applications in months or even weeks.

And we've talked about big data when we started this conversation. Can you expand on what big data means?

Well, as mentioned, customers are omnichannel. And every one of those touch points creates more data, especially mobile users who generate enormous data. Public Storage is seeing a doubling of the rate of data collection every year and storing, retrieving and analyzing customer data is entirely different when you move into that exponential scale of big data.

So in other words, managing a customer across omnichannel is managing big data?

Absolutely. And finally, we come to the third trend that we leverage, machine learning. Specifically, we use the industry's largest data set to build the custom algorithms that Richard mentioned. And machine learning is a critical tool to providing value from our data. We combine technology and augment our internal capabilities for speed, but the most important element is really our proprietary data. In other words, we use technology like machine learning to translate our data into a competitive advantage.

That's a good overview, Philip. Can you give the audience an example of how we apply machine learning at Public Storage?

Sure. Let's take a deeper look into the pricing example that Richard mentioned earlier. We know we have a high-quality asset in our pricing data. So we need to unlock that value by using machine learning. We split the proprietary data into randomized groupings, and we use those groupings or trees to build our machine learning algorithms. The trees vary by all those features that Richard mentioned as well as leveraging the historical or temporal and our 2,600 locations or geospatial features. That explodes the number of combinations from hundreds to millions of trees. We use the power of the cloud to try as many of these combinations in order to find the right mix of features and parameters. And we take the best combinations in order to recommend the optimized price that maximizes revenue. But this approach is a start and not the end of what we do. An enormous tree like this is very good at explaining the past, but it has limited capability to forecast the future if it is different than the past.

Phil, in other words, trees don't extrapolate or predict very well if the market conditions are changing.

And let's be honest. The real world changes all the time. So what do you guys do?

Well, the optimal solution is to combine data and insight to drive expert intuition and continuously test, which we do and at scale.

And Richard's continuous testing becomes part of the data set that we use to retrain and update our machine learning models.

We have a test-and-learn mindset, whether it be our websites or the prices we deliver to consumers, testing and iteration are an ingrained part of the PS culture.

Great. Okay, Richard, let's go back to your core models. How do those customers behave once they are moved in with us?

Well, customer behavior varies widely. One of the differentiators is how long they've been with us. Newer customers, say, customers with a tenure less than 6 months exhibit much higher rates of churn than our longer-tenured tenants. And over time, this population of longer-tenured customers has grown.

Why is that important?

Well, as we have reduced our rate of customer churn over time, the need to replace vacating tenants with new tenants is reduced. This ultimately translates to a lower need for external marketing and advertising. It also supports higher market pricing. And finally, having a large population of longer-tenured tenants allows us to extend a higher volume of rent increases to our tenant base.

So shouldn't you leave those longer length of stay customers alone?

No. They are a source of incremental revenue. We look to optimize our revenues, not occupancy.

So some of them are going to leave us then?

Unfortunately, yes.

All right. So give us a little bit more color on the existing tenant rate program at Public Storage.

Well, one of the aspects of our business is that our longer-term tenants are less sensitive to price than our newer tenants. We have, over time, leveraged our extensive historical data set, coupled with constant price increase to derive the optimal rate increase and frequency to deliver to each of our existing tenants. As is the case with the new customers, we also use a variety of data sets ranging from third-party data appends, competitive data and various customer behavioral characteristics, including its historical facility access patterns.

And Richard, what do we do with this information?

Well, this information on our existing customers is fed into a custom algorithm that considers a host of factors, including our customers' expected response. Given our industry-leading data set and expertise, coupled with data-driven analysis, We are well positioned to optimize our existing tenant revenue streams now and in the future.

Okay. Now let's take a step back again. How have the big data trends that Philip highlighted earlier impacted our pricing at public storage over time?

20 years ago, we were the first self-storage operator to centralize pricing and implement a data-driven pricing strategy. Back then, the approach was largely rules-based and price updates were of a low frequency. If we contrast those early beginnings with where we are now, it's a revolutionary leap in capability. Today, we leverage the industry's largest data set augmented with high-quality external data. Our approach is rooted in big data and machine learning. Pricing is adjusted at a much higher frequency, and we often deliver differentiated pricing in each of our sales channels. We have a road map of continued improvement. And as we look to the future, having the capability to deliver more optimized pricing to smaller and smaller groups of consumers will be a continued area of focus.

All right. Thank you for that, Richard. So Philip, can you give us a different example where we use this data to our advantage in decision-making?

Of course. We also use data science to support site selection for the Public Storage real estate team. We use data science, starting with the proprietary data, of course. The end result is that for each property, we can identify the unique characteristics that contribute positively or negatively to business performance. This would be impossible without the many years of data we have collected and stored from our thousands of locations. Here's a real visualization of one of our models that we use to assist in property site selection. Each dot represents an attractiveness score. And the chart to the left is part of the model that scores each dot.

And the map shows which features are important for each location and how strong or weak they are?

Yes. And behind the scene, the model is actually using millions of data points and an advanced algorithm to make that recommendation. The user experience is simple because we wanted to present the recommendation in a simple, very visual way, which aligns to our internal data-driven culture.

So is this another one of your trees?

Yes. And for this particular algorithm, we use XGBoost, that's a popular ensemble model that combines random for us with some advanced features. We scored many different models, but we like XGBoost after customizing it for our data and found that it does a great job of balancing performance and reliability.

Okay. How many people do you have working on these problems?

We have, on our development team right now, 30 data scientists, engineers and developers, and we're hiring.

We have roughly the same number of individuals in my pricing team, and we're also hiring.

Thanks, Richard. We have a strong team dedicated to working on data science applications and revenue management. Thank you for joining us today. I'm sure the audience will have additional questions for these gentlemen, when we open it up for Q&A here in a few moments. But before I do that, I want to shift gears and provide an outlook for same-store growth, including the impact of the initiatives the teams discussed today. As I noted earlier, we drive the highest revenue per square foot across the country driven by the significant data advantage, brand awareness and high-quality locations. Market by market, we punch above competition. If you look on the right-hand side of the page, you can see our revenue efficiency through the last cycle compared to our competitors. Public Storage is the orange line. You can see our revenue growth over the last decade was driven by rent growth. We're starting the next decade with similar occupancies and a PS premium in rent. Our focus will again be on driving revenue with our strong competitive advantages. Moving down the P&L, let's go to margins. Public Storage's economies of scale, brand awareness and operational excellence drive the industry's best margins. Our investments over the past several years provide an opportunity to continue to improve. You heard from John Sambuco about our investments going forward in energy efficiency. We're seeking to reduce electric utility costs by 30% by investing in solar and LED lighting. And then you heard from Natalia Johnson on how we're building on our technology investments and evolving our operating model with the specialization of roles, on-demand customer engagement and ultimately, fewer labor hours. We're targeting a 25% reduction on payroll costs over the next 3 years. You saw in the first quarter, we're well on our way with a 13% reduction in on-site property payroll. The combination of these 2 initiatives will lead to a 2% margin expansion. This is an advantage, not only for our same-store operations, it also gives us an advantage in adding properties to our portfolio. Now let's bring it together for an outlook. Over the past 5 years, same-store net operating income grew at a 1.7% CAGR. We anticipate the longer-term outlook is better. The drivers will be strong, customer demand and adoption, moderating supply over the next several years with a pickup in supply thereafter. It ultimately leads to a 3% long-term outlook. The initiatives we've outlined will add 50 to 100 basis points of NOI growth per year by driving efficiencies in our operations. I'm now going to bring back the rest of the team for our first Q&A session today.

Welcome back. We hope you enjoyed the first session and learned a little bit more about the company, our people and our operations. We're back with our first live Q&A session to address those topics. As you can see, I've got Joe, Tom, Natalia and Richard to my right, and the entire team is standing ready to take your questions. Our first question comes for Dave Collins. It is from an investor. Dave, Google and Apple are emphasizing consumer privacy. Google specifically eliminates cookies. How does this impact your ROI on finding new customers, not including those who proactively search?

Thanks for that question. The deprecation of cookies is actually an environment that we've been operating within for a number of years now and we've been able to do that very successfully as the ROI efficiency on marketing spend that we've already shared with you today reflects that. Our brand and our scale further enhance our ability to really make our targeted messaging very effective, and we're very happy with where the future is going with that. So we're pleased with what's coming.

Thanks, Dave. Next question is for Tom Boyle, and it comes from Smedes Rose at Citi. Tom, the same-store pool of assets for 2021 increased by 5.2 million square feet. Can you provide what the pool did in NOI for 2020 in order for us to drive the 4.8% to 7.3% same-store forecast for 2021?

Great. Thanks, Ryan, and thanks, Smedes. If you look at our same-store definition, and we talked about this in the past, we look to add properties to our same-store pool when they're stabilized for both occupancy and rents. And so what that means is when we add them to our pool, it doesn't change our outlook for the upcoming year. That said, we recognize that the entire industry takes different approaches. And so we're supportive of an industry-wide same-store definition and have had some preliminary discussions with some of our peers in the industry going forward. And we'll see if that can be done for 2022.

Thanks, Tom. Next question is for Richard Craig, and I'm going to actually combine 2 different investor questions on this one. Richard, in terms of revenue management, how does the team calibrate to ensure you are maximizing revenue at any given time? And how long have your systems been in place?

Sure. The self-storage category is a highly competitive and dynamic marketplace. We focus on continuous improvement and experimentation is a key aspect of that. We're constantly conducting price tests and validating the efficacy of models. Our industry-leading REVPAF is a testament to that. With respect to how long we've been doing these activities, it's been going on for years now.

Thank you, Richard. Next question is for Philip Kim and it comes from an investor. Philip, I'm curious to hear what your perception of the company's data capabilities were when you joined Public Storage. It looks like that was about 1 year ago.

Thanks for the question. And actually, data was one of the reasons why I joined public storage. We have such a strong foundation based on the years of testing, collection and experimentation. And so it's just been an exciting time for us to look at what we can do with this data and some of the examples we've shared already before.

Thanks, Philip. Next question is for Tom Boyle, and it also comes from an investor. Tom, you were the first mover in most markets, so you have plenty of older properties in your portfolio. Have those older properties been a headwind to your performance?

Thanks, Ryan. So as you highlighted in the question, we have been a first mover in many of the markets and some of those properties are our best-performing properties. You heard from John Sambuco about the capital we're spending to further upgrade those properties and you're going to hear from the real estate team shortly about potential redevelopment opportunities as well. One of the great aspects of self-storage is that the product itself doesn't become obsolete over time. And those older properties are great performers in the system.

Thanks, Tom. Next question, I'm going to give to either Joe or Tom or both. It comes from Jeff Spector of Bank of America. Do you believe tech initiatives are a key reason why storage utilization rates are higher and why customers are staying longer?

So I'll take that, Ryan, and Tom, you can add on as well. But yes, thanks, Jeff. One of the things I spoke to was the fact that generationally we're very pleased by the further adoption of self-storage as new generations become prime customers for us. To Tom's point, you go around resilience and the ability for us to cater to growing numbers of generations is quite vibrant. Clearly, one of the things that we're also doing to tap into that vibrancy is using technology in many ways that you've already learned about this morning. The things that we can do very differently with the amount of data, the amount of technological capabilities that we uniquely bring to the self-storage industry, also adds a completely different wave of demand that we're really excited about continuing to unlock. Tom, I don't know if you want to add anything to that?

The only thing I'd add to that is there was a lot of discussion of targeted advertising. And certainly, we have an ability to utilize those capabilities to find good customers for storage. I think the other thing, as Joe mentioned, some of the use cases, particularly during the pandemic were longer-term use cases. And so we saw customers coming to us at a higher frequency when they ran out of space in their home, things like work from home, learn from home, et cetera. And those tend to be longer length of stay, good customers, and we've seen that play out over the last year.

Thanks, Joe. Thanks, Tom. We'll go back to Dave Collins. This question comes from Ron Kamdem at Morgan Stanley. David, the 50% of customers using eRental, is it demographically skewed by age or geography? Any insight if their length of stay differs from the average?

Thanks for that question, Ron. eRental definitely does skew younger. About 50% of the users of eRental are in the millennial generation and certainly heavy utilization within Gen X as well. We have good information on how the customers perform. But one of the things we're most pleased about is certainly the show-up rate of an eRental customer. It's very strong. And so far, they've demonstrated themselves to be excellent customers for us.

Thanks, Dave. Next question is for Tom Boyle. This question comes from Rob Simone at Hedgeye Risk Management. Tom, what is the ROI on the Property of Tomorrow investment thus far?

Thanks, Rob. So as I highlighted earlier, and you heard from John Sambuco, one of the key drivers of some of the efficiency returns that we're going to see is some of the solar and LED investments driving about a 30% reduction in utility costs over the next several years. In addition to that, the other component of the return is really driven by the return on the brand. And the fact that we're painting the facilities with brighter orange turning them more so into billboards that demonstrate the power of the brand, which feeds back into Dave's initiatives online and in-store.

And yes, I'd add to that as well. We continue to survey our customers. We're getting very good responses, not only from customers but from our employees as well because this generation 5 set of attributes that we're putting into our tomorrow Property of Tomorrow program has been studied and tested over the last 3 or 4 years as we've now begin to deploy it. And frankly, we've been using it on all of our new builds as well. So we're really excited about the additional benefits that we're going to get from the program. And as John Sambuco said, we hope to have it completely done no later than 2025.

That's a nice little segue into our next question, which is for John Sambuco, also from an investor. John, the company initially said Property of Tomorrow would be completed in about 5 years. Looks like it's going to take about 7 years. What was the delay there?

Thanks for the question. Well, we started Property of Tomorrow in late 2018. And 2019 was really all about figuring out what the scope, what the design was, working with our vendors to really refine the program. And as you know, 2020 was a bit of a delay due to COVID. And we kicked it off again in late 2020 in Q4. We've already done over 300 facilities, and this year, we're going to complete 450. With 450 done each of the subsequent years coming up. So super excited about the program. The process is moving forward. We're going to get it done very quickly here. Great, great program to be involved with.

Great. Thank you, John. And we're going to take one last question here in this Q&A session. This one will go to Mike Braine. Mike, the company hasn't talked much about technology in the past. Can you summarize why Public Storage's technology platform is best-in-class?

Sure. Thank you for the question. I think a lot of my colleagues have spoken to the power of our Web Champ application. And this application is a one-stop shop for our property managers. Our property managers are not asked to work in a disparate number of systems. We don't have one-off documents. We don't have manual processes in our locations. In addition to the Web Champ application, our website and our mobile app offers a wide range of features for our customers that are industry-leading. We've spoken about our digital access management and the fact that we're the only operator that has digital access management at our entire portfolio of properties, not a select few properties. So I think we can say very comfortably that going forward, our investments are 100% about the customer and about operational efficiency, not about catching up to anyone.

Thanks, Mike, and thanks to all of you for your questions. That will wrap this Q&A session. We look forward to 2 more Q&A sessions throughout the day. We'll now move on to a discussion of portfolio enhancement and growth.

We hope you enjoyed our session on growth powered by innovation, especially hearing for the first time from the leaders who are responsible for investments in the customer experience, our operating model transformation and data science-driven revenue growth. Now let's switch to external growth, a powerful part of our ability to grow and create long-term value for our shareholders. We are uniquely positioned to drive portfolio growth by being the only self-storage REIT with a four-factor growth platform that includes the industry's only development program, as well as a deeply experienced acquisitions team and our entree into third-party management. These growth levers are powered by our unrivaled capabilities, including our unparalleled in-house development, construction, design and acquisition teams, with deep industry experience and relationships. Our proprietary use of data science and analytics in our site selection and underwriting and our well-earned reputation for being the buyer of choice with deal certainty, and minimal execution risk. So what's our scorecard? We've driven great investment yields through these platforms. Since 2010, we have invested $6.2 billion in acquisitions, development and redevelopment, and have realized a 7.7% stabilized NOI yield and created value for our shareholders. And there's more to come. As our team is poised to grow and expand value creation, we have accelerated capital deployment through acquisitions of existing properties and land sites. We're poised to have an outstanding year, pushing toward $3 billion in investments in 2021 alone, and we're not done. We see tremendous opportunity for us to acquire assets in a highly fragmented industry. And with our unique ability to source, develop and extract value through development and redevelopment, we have the right tools to grow externally. So before I turn it over to Andres Friedman, VP of Development, let us show you the power of our development platform. [Presentation]

That video just gave you a glimpse into Public Storage's unique capabilities. But now let me tell you more about our development program. With our unparalleled in-house development expertise, we have been able to proactively adjust our investment strategy through real estate cycles. This allows to grow our portfolio of both new land development and redevelopment opportunities based on specific market conditions in order to maximize investments and returns over time. Since deciding to increase our development activity a decade ago, we have developed approximately 180 projects consisting of over 70 million net rentable square feet. Geographically, this has occurred in more than 16 states, delivering 8.6% stabilized yield. Public Storage is unique among storage companies as we have the largest national in-house development, construction and design team in the industry, with over 50 professionals as well as long-standing relationship with certified vendors and consultants. Our ability to support our growing pipeline of projects is unsurpassed. Our infrastructure provides for the optimal balance of cost to execute, value creation and the timely delivery of product that maximizes property size, design and unit mix. A key value driver is our utilization of both internal and local market data and demographics to establish appropriate allocation of unit sizes and rates to maximize efficiency and income creation that delivers the highest stabilized revenue, NOI and cash flow generation in the industry, with an expected average yield of 8% yield. With our development team capabilities, we have been able to respond to the real estate cycles and adjust portfolio growth through 3 different project types. New land development delivery ground-up construction, redevelopment of older public storage facilities in superior infill locations enabling us to expand and increase density of our footprint in desirable markets, where entitlements for new projects are scarce. We are uniquely positioned to do this. An industrial, retail and office conversion that allow for the repurposing of existing real estate to lock opportunities in desirable markets. So let me walk you through 3 examples. This is our Dearborn project in Downtown Seattle, where we're able to acquire an obsolete industrial building and work closely with the city and community to obtain new entitlements that pave the way for us to build a state-of-the-art, 6-story climate-controlled building totaling 148,000 net rentable square feet, resulting in an 8.3% stabilized yield. Los Angeles is a great market, but also one where land values are high and undeveloped land and entitlements to build self-storage are limited. In order to combat this issue, we looked at our existing portfolio and identify an underutilized infill property in Los Angeles for redevelopment. Phase 1 of this project opened in June of 2020 and in less than a year, we have achieved 90% occupancy. When the expansion is completed this summer, the facility will have 260,000 net rentable square feet with a 10.4% stabilized yield. Our last project to share today is in the San Francisco Bay Area. Public Storage owns a self-storage facility and 2 adjacent industrial buildings in the Bay Area. We decided to convert the 2 industrial buildings into 2 storage facilities by adding an internal mezzanine. This enabled us to double the size of the building and increase our presence with 320,000 net rentable square feet in an attractive market that lacked opportunity for land development. Phase 1, with 194,000 net rentable square feet, was completed in the summer of 2016 and stabilized within 24 months. Phase 2 is currently under construction, and we project a 12.3% stabilized yield. Deliveries of self-storage projects peaked in the U.S. in 2019. And since then, we have seen a decline of new deliveries that we anticipate to continue through 2022. Less competition for land coupled with our robust network and infrastructure places Public Storage in the perfect position to capitalize on sourcing new deals. The development outlook is increasingly favorable for Public Storage due to our unique competitive advantages and in-house development platform. With advanced data analytics in our strategic plan, we are uniquely positioned to capture the ongoing demand of the self-storage industry. We are poised to increase the development pipeline, execute in more deal-sourcing activities and facilitate the growth and delivery of developments to $700 million by 2026 at desirable returns. Now I would like to introduce Mike McGowan, our Senior VP of Acquisitions.

Thank you, Andres. Over the past 10 years, we have invested over $4.4 billion, creating $2.4 billion in value creation. Now how have we been able to do this? Our largest advantage is our national footprint. We have the unique ability to acquire in any market that is growing or we can gain scale and enhance our portfolio with new product. We have the most knowledgeable team in the business, with 36 years of combined experience, which no other REIT has. With that in-depth knowledge of markets and ownership structures across the country, we have cultivated relationships that give us an edge in the ability to purchase off-market real estate. Using this knowledge of the markets and ownerships, we are able to make prudent and opportunistic acquisitions. With the most recognizable name in the business, we can take individual properties or portfolios, rebrand them to our Public Storage name and significantly move the income up on the properties once in our platform. Let me walk you through some examples In our first case study of an individual property, this property is in Pensacola, Florida. And with just a simple reimage of the property using the brand and advertising that we have in the market, we were able to move the revenue up over 60%. This is a market where we have a strong presence, where occupancy is high and we were able to benefit from adding a newer property with climate control space. If you take note of what we do in the first months after reimaging a property, how strong our results are. Our strongest attribute is when we can purchase a portfolio. We acquired 9 properties in the Mid-Atlantic market from a very good regional developer and operator that have reached a plateau with his growth. This was an area where we had significant scale, but older properties. And in purchasing this newer portfolio, it elevated our existing portfolio with the addition of the new properties. This was a great example of a long-term relationship we had with the owners where he knew he had grown as much as he could in the market, and we were able to talk about a sale to maximize his profits. We were able, again, with our marketing and brand, move the revenue up 15% in the first 6 months. One of the latest opportunities we were able to acquire was the ezStorage portfolio which we closed on last week. It's located in Northern Virginia, Washington, D.C. and Baltimore markets. This is a one-of-a-kind portfolio in a very desirable high-income market and difficult timeframes to build properties in these municipalities. The portfolio is a legacy generational acquisition that will change the landscape of what types of product we have in these markets. This acquisition will transform our existing portfolio with the addition of these Class A properties that are irreplaceable, that our entire portfolio in this market will benefit from. One of the most important factors in this environment of acquisitions was our ability to underwrite this deal in 30 days, do our due diligence in 30 days and have the ability to close in 20 days on an FFO accretive acquisition. By acquiring this best-in-class portfolio, it immediately upgrades our portfolio quality because we will rebrand them all Public Storage. It is a simple process to rebrand these properties. They are all purpose-built, so it will be easy to reimage them at a nominal cost, and we have the opportunity to increase the square footage by 10% with the expansion of 8 properties that we can start immediately. There is no one in the business that can execute on the scale that we can to realize the upside in this portfolio. Just as important, we will invest to upgrade our existing portfolio with all new Property of Tomorrow features to supplement the 48 properties. We are in a position like no one else in the business with the ability to redevelop, expand or develop new properties, knowing the markets and having the expertise to build in this market. The acquisition market is favorable at the moment, and we are in a position at this time where we are in the right position to take advantage of market conditions. We have many sellers who are willing to sell due to low cap rates in the market. They have endured a tough last few years with the oversupply and lack of rental rate growth and see it as a time to sell at what we think are reasonable prices. With our balance sheet, we are able to take advantage of opportunities like the ez portfolio, which are once-in-a-generation opportunities. With our strong team and relationships in the industry and being a best-in-class buyer, we are seeing more opportunities than ever. We have the balance sheet to take advantage of the markets. We have the best team in the business to execute quickly, quietly with no re-trades, and our reputation is the best in the business for a transaction. I'll now turn it back to Tom Boyle.

Our initiatives to increase portfolio growth will drive FFO growth from here in 2 components: first, the continued lease-up of our recent acquisitions and developments; and second, increased future activity funded by our growth-oriented balance sheet. The 3 legs of our capital deployment each have significant embedded growth to our projected NOIs and stabilization. In aggregate, it's a meaningful contribution. Now let's move to talk about future capital deployment. The power of the cash flows of our business are such that we have 2 additive funding and delevering tools each year, retained cash flow and EBITDA growth. We expect retained cash flow to increase to $300 million to $500 million annual run rate over the next 5 years, a strong tool to fund our growth. We can then use unsecured debt to fund the remainder in an aggregate, deploy $900 million of acquisitions and development activity to grow the portfolio. That $900 million of portfolio expansion on a leverage-neutral basis leads to approximately 2% FFO growth per year without any need to raise equity capital. But we are more ambitious over the next 5 years. We are projecting circa $800 million of run rate acquisition activity consistent with last year's volume. And as Andres described, we plan on increasing the size of our development capital deployment. It's a strategic advantage to be able to build properties on the street corners we select with a building design we've refined at a size and unit mix driven by our proprietary analytics. We then build nationally distributing the lease-up risk while plugging the properties into the industry's most efficient operating platform, deploying $1.5 billion in financing with retained cash flow and unsecured debt would grow FFO nearly 4% on a stabilized basis with only modest leveraging of our growth-oriented balance sheet. In summary, we can use our competitive advantages in acquiring, developing and financing storage real estate to drive approximately 2% to 4% annual FFO growth contribution while using our growth-oriented balance sheet. I'm now going to bring the rest of the team back up for our second Q&A session.

Welcome back again. We'll now move into a live Q&A in regards to our portfolio growth strategies. As you can see, I've got Joe, Tom, Andres and Mike here. Our first question will go to Mike. Mike, can the strong recent acquisition volume continue over the near to medium term here?

We've looked at over the past 4 years, 5 years at inventorying all the new supply that's been built across the country. It's been significant, as everyone knows, as much supply has come into the marketplace. We know the ownership side of the properties. We know the structure of them. We kind of know the time frames a lot of the merchant builders have now that will be bringing the properties to market. So yes, we think there's definitely, in our opinion, a really good, strong chance for more acquisitions here in the next 3 to 4 years, knowing what's coming forward. Again, the environment has changed quite a bit, so we have a lot of willing sellers now. So this gives us a great opportunity to look at different types of investments, whether it's in a fill-up phase, whether it's in a stabilized phase or whether it's in a market. Again, we've looked at these markets over the last years, which markets we're targeting, so that's a big process that we go through to move forward with these.

And Mike, I would say the team that you lead has such deep and, I would say, very significant relationships with so many different owners in literally every part of the country that we've been investing in. You can't underscore how important that is. Reputationally, I talked about that. But also, what, about 50% of the acquisitions that we've done in the last year or so have been off-market deals...

That's right.

And that, again, speaks to the fact that relationships are very important. We are a buyer of choice. We've got the capital structure to continue to fund and be very efficient, not only in our underwriting, but in our closing mechanisms. So we're well-suited to continue to look for and source additional acquisitions.

Yes. That's a good point. I mean it's really the fact that we can get these in the process and through the process to get it done. The surety of close, very important in today's markets.

Thanks, Mike. Thanks, Joe. Joe, we'll go back to you with the next question. This one from Juan Sanabria at BMO. Where do you see the best returns, development, redevelopment or conversions? And do you see significant opportunities to repurpose malls?

So yes, Juan, on the first part of your question, whether it is a development, redevelopment or a conversion opportunity, there can be a range of different opportunities from a success or a yield opportunity, all very good, actually. As we noted, our development activities as a whole continue to generate our highest returns on invested capital. It points to the fact that we have, very uniquely, a development team that can do all 3, and we've been leveraging their skills in many of those areas over the last few years. We've got a great sized team, as you heard Andres talked about earlier, and they're out sourcing and looking for all of those type of opportunities in many, many parts of the United States that we think are well suited for our own investment activity. Andres, maybe you can talk a little bit about the conversion from a mall standpoint? Because that's another area we've been looking at as well.

Yes, absolutely. I think -- over the last, I would say, 12 months, maybe longer, we've seen more and more opportunities in the retail space. I think developers, retail developers have come to reinvent themselves and try to figure out how to reposition their centers, and we see those opportunities. With the beauty of our team and what we've done over the past, we understand how to do it and how to do it efficiently and how to make them functional for these centers. So we are poised to continue to look at them. We will continue to look at across the board, like Joe was saying, in development, redevelopment and conversions. And retail, definitely, is an area that we're also looking into.

I would say that's an area, too, that could be somewhat risky because we've seen a lot of unsuited retail assets be converted. And Mike, you've looked at a lot of them to acquire, and many of them functionally are not built for success, right?

And that's the bigger part, for a lot of the newer builders in the marketplace today don't understand that, that aspect of how to make the business work. So it seems like a great deal of face value to it, but really, unless you know what you're doing or get into that process to get that done, very important on that side of us to look at that to do it. So a lot of things don't work.

Yes. The building's not the right size, not the right configuration. And staging, all those kinds of things, can be very complicated, right?

Yes. Very much so.

Great. Next question, we'll go back to Andres. This question is from Mike Mueller at JPMorgan. Andres, in terms of increasing development deliveries from $215 million in 2021 to $700 million by 2026, are you saying that ongoing annual deliveries will ramp up to a pace of about $700 million annually by that time in 2026?

Yes. That's the goal, and that's where we're focused. Since we started our development program 10 years ago, we've been growing our pipeline year-over-year. We currently have built a pipeline that is about $500 million in place, and we continue to -- with our expertise, with our in-house construction, design and development team, we're poised to continue to grow it and to get to $700 million by year 2026.

And another part of that as well, Andres, that helps us is your team's nationally distributed, so everybody is not sourced in the same facility here on the West Coast. We've got teams out literally in every metropolitan market regionally. They're out developing the kind of relationships that Mike spoke to that's been very additive to our acquisition volume. It helps to know the local communities relative to land sites, the kind of process you go through from an entitlement standpoint that our teams engage. And we're excited about the fact that we're actually seeing more opportunities as we speak.

Absolutely. Real estate is a local market, and what Joe just said is absolutely true. Having it in regional offices with local presence give us an edge, and we're poised to continue to grow.

Great. Thank you. We'll go back to Mike McGowan with a question from an investor. Mike, can you please describe in more detail on how you achieve the upside on acquisitions that were shown in the case studies?

Okay. Great point -- a great question. We focus very strong on the acquisition side of it more than anyone else in the business, and there's no one else that I know of that can convert a property as quickly as we can and put it in the system as fast as we can. We start from Day 1. Once we get these properties literally under contract, Day 1, we have, in the next week, our audit team comes in, our facilities team comes in, we start the planning for the conversion right from Day 1. So when we get to take the property over, we've had the facilities look at it to rebrand the property, to get it up to our standards or to fit into our portfolio. We do the same with our unit audit side of it, so we know exactly what the inventory that we have. So we put it right into our revenue management system Day 1. We move the rates right to the marketplace immediately to do it. And then in the next phase of it, we actually put it on to our platform with our ops team who starts just like it's one of our own properties right way to do it. So it's a very, very efficient process. And the first week after we close on a property, we try and have it rebranded, up and going as a Public Storage. So we waste not a minute on that side of it to do it. Very focused effort on our part to do that. So -- and we see the results when that happens.

Yes. Live example is what we're doing as we speak with ezStorage. So haven't owned that portfolio for more than about a week, we're already in the process of rebranding. We've got the ops team fully immersed. We're seeing good move in volume even as we speak, converting it to the Public Storage brand. So this is something that we can do on a larger portfolio basis and on a very small portfolio basis or individual asset basis as well. So we've got the right toolkit, and it continues to be very vibrant for us to make that turnover very efficient.

And we treat them all the same. Like you said, we do the same thing on a larger portfolio that we have and the individual ones that we have throughout the country, we do the exact same way to do it, which makes it great for us which we can buy anywhere in the country. It's not like we have to be in only a market that we're in, we've got a strong concentration to do it. So it's a big help. Very big.

Great. The next question, we're going to go to Joe first. This one comes from Todd Thomas at KeyBanc. With regard to development, it will be about 5 full years before the 2016 deliveries achieve an 8% stabilized yield. Do you see an opportunity to accelerate the stabilization time frame for more recent deliveries based on the improving demand outlook and decreased outlook for new supply?

Yes, Todd, it's a good question. And clearly, this is a unique environment that we're dealing with right now. Frankly, our lease-up properties, whether they're at the very beginning of lease-up or even 1, 2 or 3 years downstream, are doing phenomenally well with the demand environment we're experiencing that's been in play now the last year or so. We're confident that we can continue to see very good vibrancy. As far as lease-up, we'll see how long standing that might be. Again, as different impacts from either the pandemic itself or other areas of business may turn in some way back to "normal". But for now, we're seeing very good projected lease-up and amazing demand across the portfolio. Frankly, we wish we had more vacant space because we have plenty of customers that are coming to us that we need to serve their storage needs.

Which is why we can look at properties that aren't completely stabilized to buy, which is a huge -- I mean, we're buying across the board to do that. So we've got that opportunity now, we're taking full advantage of it right now.

Yes. Great point. Yes.

Great. Next question is for Andres. This comes from Steve Sakwa at Evercore ISI. Andres, how are changes in material prices impacting your projected yields on new development?

Thank you for the question. We are closely tracking construction material increases. The biggest impact probably we've tracked so far has been steel, increasing steel. Though at the end of the day, the total project cost is a small fraction of it, so -- also another thing that we have going for us is our purchasing power. We are, at any given time, probably building 30, 40 projects. So we have relationships with vendors, providers that we can negotiate upfront certain pricing to secure them for our development. So we're constantly tracking and we're monitoring currently it's not affecting our pipeline, and we hope to continue to monitor and adjust accordingly.

Thanks, Andres. And the last question of this session will go to Joe. This one is from an investor. Joe, you have clearly accelerated growth as CEO. In hindsight, should the company have bought and built more over the past 10 or so years?

What I'm focused on is continuing to use all the very unique benefits that we have to continue to drive the growth of the company. As you've learned so far today, we've got amazing capabilities. My clear objective is to continue to find ways of very accretively finding new and different ways of growing the portfolio. In and out of economic cycles and in and out of particular opportunities, we'll continue to vet and see hopefully a very wide range and a vibrant range of new acquisition opportunities. We've also got our development platform that's very unique as you learned about today. So all cylinders are humming, and we're continuing to focus and drive accretive growth for the benefit of our shareholders.

Thanks, Joe, and thanks to all of you for your questions. We're going to wrap this session up. We will now move on to a discussion of our complementary growth engines, third-party management and storage insurance.

Hello. I'm Pete Panos, and I lead the third-party management platform here at Public Storage. Third-party management has many mutual advantages for our partners as well as for Public Storage. From a Public Storage perspective, our third-party platform provides long-term brand and scale benefits for our owned portfolio and operating and overhead cost efficiencies as well as allows us to build numerous industry relationships that have already led to acquisition opportunities. For our partners, in simple terms, they will see stronger growth and higher profitability at the best offering in the industry. They will enjoy all the benefits that come with the Public Storage brand. The potential addressable market is very large, with approximately 46,000 self-storage facilities in the United States that are not owned or managed by the large public companies. As you can see, our managed portfolio is geographically spread across the country. Effectively, we are looking to manage properties in markets where we own. We truly have our net cast very wide. Once a property has been added to our third-party platform, it will then be branded as a Public Storage, operate with Public Storage associates, and most importantly, it is treated in the same fashion as our wholly-owned properties. Our interests are in full alignment with that of the owners. So when they're successful, we are successful. As you can see from these pictures, these properties are effectively Public Storage properties once we take over management. Our partners also know that we can provide a great and easy exit for them should they make the decision to sell. In a relatively new program, we've already purchased 7 properties from our managed portfolio at a $78 million investment. Earlier, I spoke to some of the benefits of utilizing Public Storage to manage someone's asset. Here's an excellent example of what Public Storage has done for our partners from a revenue growth perspective. In this example, you'll see a property in Austin, Texas that was managed by another REIT. As you can see, the property's performance grew at a tremendous rate after it switched flags. The power of the Public Storage brand, marketing superiority and operational excellence all worked in chorus to deliver significant revenue growth. This example is quite common and frankly, is one of the main reasons owners are drawn to the Public Storage platform. Recently, we conducted a partner survey, and the results were overwhelmingly positive. When asked the question, "Has your partnership with Public Storage property management been a good thing in helping you achieve your business goals?" A resounding 95% of the responses were yes. We consistently listened to our customers in an effort to see how we can continue to exceed their expectations. Here are some of the feedback we are receiving from our partners. They are describing the third-party management platform as second to none, unmatched, record performance and outperforming our previous management group in all areas of the business, just to mention a few. We feel the same way about our partners. We're fortunate to be able to work with some of the best names in the development and acquisition arena. Last year, we grew the program by nearly 70%. But building a third-party platform takes time. You need to build a team, develop and cultivate relationships and most importantly, you need to develop a pipeline. We've seen our pipeline grow exponentially this last year as we really pick up steam. We believe that our team is poised to grow the third-party platform. We have solid momentum, a multi-market approach, and we're focused on adding quality properties to the platform. Our future has never looked brighter. We are estimating that by 2025, we should be in the 500-plus property range. And now to discuss storage insurance, I'd like to turn to Capri Haga, Senior Vice President of Risk Management.

Storage Insurance is a great business. Offering insurance to our customers allows us to manage our risk, but our primary goal is to provide good customer service and give customers peace of mind. Having insurance is a requirement of the rental agreement. Public Storage offers a proprietary insurance option called the Orange Door Storage Insurance Program. It's customized to provide protection for our customers' goods. The enrollment process is streamlined with no decision necessary at move-in. Customers in most states are automatically enrolled, and the premium is waived by the insurance company for the first 30 days. This allows customers time to review their options. Customers do not need to guess the limit they require because the program automatically provides $5,000 of coverage at $15 per month. Coverages are far reaching and comprehensive, including vermin, mold and flood, which are coverages that are difficult to find anywhere else. We have a dedicated team of over 30 experienced claims adjusters in Portland, Oregon to handle claims. Most claims are resolved satisfactorily within 60 days. While this program is insured by a nationally recognized and licensed insurance company, a subsidiary of Public Storage reinsures the program. This allows us flexibility to implement new ideas to continue to add value to this unique program. Over the years, we've led the way and revolutionized the idea of storage insurance. The Orange Door Storage Insurance Program is the industry leader in size, customer service and innovation, with over 1 million customers currently insured and total insured values over $4 billion. You can see this is a successful and popular customer product. Total annual premium has grown exponentially over the last 15 years. We ended last year at $148 million in total annual premium. With our primary focus on customer satisfaction as well as Public Storage's growth plans and our history of industry innovation, we anticipate that we will see total annual premium rise by additional 40% over the next 5 years. And as I said in the beginning, storage insurance is a great business. And now I'd like to reintroduce Joe Russell.

Let's now turn to our ownership interest in 2 outstanding public companies, Shurgard Self Storage and PS Business Parks and why we own these companies. Public Storage's FFO is derived from 5 primary areas. Same-store assets comprise nearly 81%, with non-same-store at 6.5% which is nearly equal to ancillary operations. With our stakes in PS Business Parks and Shurgard, they respectively represent 4.2% and 2.3% of FFO. Shurgard is the largest owner and operator in Western Europe. Today, it has a market cap of approximately $4 billion, launching its IPO in 2018. We are encouraged by a significant stake in Europe along with a self-funding growth-oriented balance sheet and an excellent management team, led by CEO, Marc Oursin. Our stake is now worth $1.4 billion against a roughly $550 million tax basis. PS Business Parks has grown to 28 million square feet of commercial properties and has been public since 1998 and today has a market cap of approximately $5.5 billion. It has a decades-long track record of value creation for its shareholders with a primary focus on industrial small tenant assets. It too is well positioned for growth with an excellent balance sheet and is led by Mac Chandler, who recently joined the company as CEO. Our stake is now worth $2.3 billion against a roughly $325 million tax basis. Both PS Business Parks and Shurgard have proven to be additive to Public Storage's valuation and returns over time. Public Storage's ownership in both companies provides our shareholders the benefit from the transparency tied to each investment, and they are both additive to our growth profile. Both investments are assessed by Public Storage's management team and Board of Trustees regularly. With that, I'd like to turn it back to Tom who will discuss our balance sheet and outlook.

Thanks, Joe. As I noted earlier, when discussing the accelerating pace and contribution of our portfolio expansion, our balance sheet is an engine for sustainable growth in the portfolio and our FFO. We seek to maintain a balance sheet that provides the company with strong access and cost of capital through cycles, allowing us to navigate and swiftly invest when strategically important. We are built to fund strategic opportunities, both big and small, as we demonstrated with the ezStorage acquisition last month. We have a cornerstone of preferred stock with interest rate optionality as well. We have the industry's strongest balance sheet and have for decades. It is uniquely positioned for continued growth. Since 2015, we've been increasing leverage to fund acquisitions and developments and have further capability to do so. We have a 4 to 5x long-term leverage target to provide that strong access, cost of capital and the ability to use the balance sheet for strategic opportunities. We would be comfortable moving above the high end in support of those strategic opportunities, but with the plan to return to this ZIP code over time as we think it best positions the company longer term for capital cost and strategic flexibility. Zeroing in on the financing strategies that underlie the previous chart, we've been busy executing on a plan to: number one, diversify; and number two, lower the cost of our in-place capital. Again, since 2015, we've issued in the private placement market and then in 2017, entered the institutional public bond market, a deep and durable financing source. And we've added both U.S. dollar-denominated and euro-denominated notes. Last year, we issued our first euro public offering as a hedge of our equity interest in Shurgard. And in doing so, we added another deep institutional bond market to our toolkit. At the same time, we've refinanced all the preferred stock that was in place in 2015, lowering its cost by 100 basis points. We have another opportunity to continue to refinance later this year. A like-for-like refinancing would add circa 40 basis points to FFO growth on a run rate basis with current market conditions. In aggregate, we both diversified and lowered the cost. Let's now look at how we compare to the rest of the industry. You can see here the net effect of the activity over recent years is that we have the longest weighted average maturity, if you consider preferred stock similar in maturity to 30-year debt. And at the same time, we've achieved one of the lowest cost balance sheets in the industry positioned to fund our growth. Let's now discuss dividends and retain cash flow. The Board's dividend policy is to set the dividend to approximately match our taxable income. That has allowed for retained cash flow to fund our business. And given taxable income growth over time, has led to increasing dividends for our shareholders. More recently, the 2017 Tax Cuts and Jobs Act allowed for bonus depreciation, lowering our taxable income in recent years. Our dividend will increase as taxable income increases in the coming years. But our retained cash flow will as well, given higher depreciation from recent capital deployment. And as we spoke about earlier, retained cash flow is a powerful driver of FFO growth and provides the company with financing flexibility. So to summarize our financing strategy, on an ongoing basis, we plan to fund the accelerated portfolio growth that Joe, Andres and Mike spoke about with retained cash flow and unsecured debt. For strategic opportunities, I would add to that common equity and institutional equity in the form of JV partners to our toolkit. And we have that strong cornerstone with perpetual preferred equity. It's permanent capital whose cost can be lowered in decreasing interest rate environments and will be a rock of stability in a higher interest rate or inflationary environment. The balance sheet is in a strong position to support the company's growth initiatives for years to come, offering both flexibility of a long-duration capital structure to match the durability of our properties and a low cost. We have the financial strength for future opportunity with low leverage level and supportive annual retained cash flow. I'd now like to shift gears and talk about the impact of the strategic initiatives and our outlook for sustainable long-term growth. The drivers of our growth are outlined here: we plan to increase the cash flow from our industry-leading portfolio; grow the highest REVPAF and optimize the best margins; accelerate capital deployment to expand the portfolio, funded with retained cash flow and debt; and lastly, increase the scale of our complementary businesses of third-party management and tenant reinsurance. I'd now like to walk through how those engines contribute to long-term FFO growth. At the top of the page, our longer-term outlook for same-store net operating income growth is a building block at plus or minus 3% per year depending on the cyclical drivers at play. As I summarized earlier, we have an opportunity to drive outsized NOI growth from our operating model innovations and efficiency investments that will add to our annual growth rate. Our portfolio expansion contribution of 2% to 4%, particularly as we increase the scale of our development business, can reach towards the higher end over time or if paired with opportunistic acquisition activity. Our complementary businesses will add 50 to 100 basis points of FFO growth as they scale. In a combination of PS Business Parks, Shurgard and financial leverage, offset by general and administrative expenses, will add another 50 basis points, plus or minus. In aggregate, it results in an annual illustrative FFO growth with an 8% midpoint. Our dividend yield of 3% will provide current return to shareholders and grow with taxable income over time, which leads to a longer-term illustrative annual total return of 11% at the midpoint. Our engines of growth are poised to deliver sustainable growth for our shareholders over time. Looking now at valuation. On a levered multiple basis, this sometimes can be lost. At our current trading price, our business is being valued towards the low end of the peer group. We have a strong portfolio, leading operating scale and capability, the best brand and strong initiatives to drive sustainable FFO and accelerating EBITDA growth. So with that, I'll turn it back to Joe.

Thanks, Tom. Thank you for your time today. We enjoyed showing you the many exciting things going on behind the orange door at Public Storage. We hope you are as excited about the Public Storage of today and tomorrow as we are. I'm proud to lead Public Storage forward. And as you have seen today, we have a team that is exceptionally talented and dedicated to driving long-term growth for our shareholders. As promised, we covered the many critical strategic components of our business and our commitment to unlock shareholder value. Let's take a quick review of these commitments and our ongoing plans to communicate them with you. First is our commitment to corporate resilience and sustainable growth creation. We will continue to run our company for the decades to come in a responsible manner that aligns with our long-term strategies. Public Storage has been the industry self-storage leader for nearly 50 years, and our goal is to make the best brand even better. That includes a strong commitment to responsible environmental stewardship; a strong commitment to stakeholders, including our people, customers, communities, investors and suppliers; and a commitment to strong governance that provides oversight and accountability, promotes fairness and compliance and proactively manages risk. Next, the 3 core components that drive our brand are centered upon leadership, innovation and growth. Within each of these areas, we are committed to leveraging the best brand, the best located properties and the best people. Our balance sheet has been intentionally crafted to access the capital markets efficiently with optimized cost, and we will use it in a variety of strategic investments going forward, driving innovation in everything we do, including the digital customer experience, harnessing the power of our data and revenue optimization, while transforming the self-storage operating model and to using the many tools at our disposal to grow cash flow, increase the scale of our portfolio, and expand our complementary growth drivers. Finally, from your feedback, we understand the benefits of instituting a stronger commitment to enhancing the level of communications with you. This will include proactively discussing the business drivers and our company outlook during both quarterly earnings calls and supplemental reports; publishing ongoing investor presentations, providing company and industry updates; and even more proactive engagement with our shareholders and the investment community; and as announced last week, our inaugural annual earnings guidance. We hope you enjoy today's journey behind the orange door. Thank you once again for joining us and for your continued support of Public Storage. And now we look forward to hearing from you during our Q&A session.

Welcome back. It's time to close out the day, and we thank you for your questions, and we thank you for joining us. The entire team stands ready to answer questions for the next 15-or-so minutes. The first question is go to Joe from an investor. Joe, we've talked about a lot today, what excites you most?

Yes. Thanks, Ryan. We have shared a lot with you today, and one of the things that I am most excited about is what I've been able to share with you today relative to the skill and capability of my executive management team. I couldn't be more excited about what they're focused on doing to drive shareholder value, and I can't wait to continue to put more real estate under their wings. We've got a great opportunity to continue to grow and drive the business and deliver excellent shareholder returns. And hopefully, today, you've seen the deep skills that we have here at Public Storage and look forward to continuing to drive that growth going forward.

Great, Joe. Next question is for Richard Craig. This comes from Ki Bin Kim at Truist. One of the biggest hidden costs to the business is days of inventory lost stemming from downtime from when a customer moves out without notification, and it takes time for you to recognize it in the market and space again and then time it takes for a new rental to take hold. How has predictive analytics or overbooking methodology allow you to cut the downtime?

Sure. Well, it's definitely, in fact, true that overbooking has helped us more effectively leverage our available inventory. It allows us to take more reservations, generates more move-ins and reduces the average vacancy time. And so that time that you were referring to with which we do not gather revenue that has been reduced as a result of overbooking. Definitely.

Great. Thanks, Richard. Next question is for Natalia from an investor. Natalia, please comment on the hiring environment, how store employee turnover has during the pandemic and any changes in terms of other industries from which you hire or to whom you lose employees.

Thank you, Ryan. I would say the hiring environment continues to be as competitive as it's ever been. And as restrictions lift, it will get more competitive. The good thing is we have the team very focused on the different areas, and they're targeting different new tactics to remain very competitive in the environment. Turnover actually has stabilized. During the pandemic, we did a lot of things with PS Cares and other things to help everyone, and that worked really well and helped us continue with the downward trend in turnover, which continues to this day. As far as where people go, usually it's the service industry or retail. But I think we'll continue to have good experiences for our people. Thank you.

Thanks, Natalia. Next question is for Pete Panos. And this question comes from Smedes Rose at Citi. Pete, would you anticipate this platform reaching the 1,000 property range seen from some of your peers? And would you consider joint ventures as a way of getting there?

Thank you for the question. So the storage industry is a fractional industry. We're very happy with our start and the properties that we've already put into our platform, but we will continue to grow the platform. We've already told you that we are planning to achieve the 500 property range by 2025. But with the power of the Public Storage brand behind us and our net cast very wide, the sky is the limit for us. We've never seen the type of a brighter future than we're in right now.

Thanks, Pete. We'll go back to Natalia Johnson here with a question from Mike Mueller at JPMorgan. Natalia, can you give some more color on the 25% lower payroll costs? Is it more reducing overlap at various parts of the day? Or is it something else?

Thank you, Mike, for the question. What I would tell you is, this reduction comes from the operating model transformation that we talked about. And that is really driven by customer preferences. They want something that is seamless, frictionless and very quick. Now based on the data, well, that will manifest itself in different ways. In some cases, as you said in your question, it will be about reducing number of people at certain timing days. In some other cases, it might be by not having some property if the demand in person is not there. So different things that we'll be testing into over time and definitely based on the customer -- what the customer is telling us and the customer data. Thank you.

Thanks, Natalia. Next question is for Tom Boyle. This question is from Jonathan Hughes at Raymond James. Tom, as leverage increases from a low basis, would you use common equity or units -- do the use of common equity or units become more attractive for external growth? And what's the upper leverage target?

Sure. Great question. So as we spoke about earlier, the balance sheet is in a great place to fund growth from here. The 4 to 5x range gives us a lot of flexibility to fund run rate levels of acquisition and development activity, circa $900 million a year on a leverage-neutral basis. And so we feel like we're poised to continue to use the balance sheet to grow. I mentioned earlier that we'd be comfortable having leverage to be above that 4x to 5x range for strategic opportunities with the objective to get down to the 4x to 5x which we think affords the company the best cost and access to capital along with that strategic flexibility over time. But certainly, common equity, JV equity capital, units, all part of the toolkit. But right now, we've got a growth-oriented balance sheet and ability to continue to fund with unsecured debt and retained cash flow.

Thanks, Tom. And at the beginning of the session, I neglected to introduce a new face on the stage, Nathan Vitan, our Chief Legal Officer. A question for Nathan from an investor. Nathan, there's been some corporate governance changes at the company not only over the last few months, but over the last couple of years, could you please provide your perspective on those changes?

Yes. Thanks for the question. Our Board is focused on continuously improving our governance profile and over the last several years has implemented some enhancements, including adoption of proxy access for our shareholders, enhancing oversight over cybersecurity and sustainability and increasing the diversity and independence of our Board. So what I'll say is, our Board is very focused on our governance and continuously improving our profile going forward. Thank you.

Great. Thank you, Nathan. And I'm going to go to Joe with the next question, and this one is from Jeff Spector at Bank of America. I assume the industry is facing issues which is leading to less supply. How is PSA able to do the opposite?

Yes. Thanks, Jeff. As both Mike and Andres talked to, we've seen fewer deliveries coming into markets with a peak in 2019 and in 2020, about 10% to 15% fewer properties were delivered where you expect the same this year. There's no question that there's very good demand for self-storage, but it's creating a very good window because we have the skills and the coverage market to go out and vet and compete for land sites with a different level of competition that we've seen over the last few years as that delivery schedule is building year by year, and again, peaking in 2019. So it continues to be cyclically something that we can do very differently than any of the other developers out there, we've got, by far, the largest development platform in the self-storage industry as a whole, and our team's deep-seated, looking at lots of different opportunities, and we're vetting them in markets all across the United States. So we continue to see this as a very good window. As Andres also talked about, it can take many years depending on the entitlement process that you go through to actually capture a land site and get it re-entitled, so you have to have the fortitude to go through, sometimes, those types of cycle, and we're clearly meant to do that. Our balance sheet, as Tom's mentioned is well-suited to continue to fund that growth. And we can, as we have seen, deliver very strong returns on invested capital from our development activities.

Thanks, Joe. Next question is for Tom. Tom, how did your current credit rating factor into your leverage target? Has your commitment to your credit rating changed?

Sure. So the 4x to 5x leverage target we spoke about gives the company the capability to fund the growth initiatives you heard about today through unsecured debt and retained cash flow, and it gives us great cost and access of capital through cycles, which ultimately, we believe, will lead to higher returns on invested capital. And it positions us in a place where we have strategic flexibility for larger transactions like we funded last month with ezStorage. So that is consistent with a single A rating today, and we think it's the right long-term leverage target.

Thanks, Tom. Next question, we'll go back to Natalia. This one is from an investor. Natalia, please discuss the recent changes to executive compensation.

Thank you. When we did this last year, the compensation committee decided to add a total shareholder return to the executive compensation package, and that enhanced the alignment that we already had with the shareholders, which is basically all variable long-term and a large portion at rest, so with this total shareholder metric further drives that alignment and, that was the most significant change they did.

Thanks, Natalia. For this one, we'll go back to Joe again, this one from an investor as well. Joe, does the company have any plans to sell any properties?

So Ryan, that's something that we've constantly looked at over time relative to not only looking at a per-asset, but on a per-market basis, when and where it may make sense for us to sell assets. If and when we come to those decisions, we would certainly make you aware of that over time. And it's a vibrant and fluid part of the overall evaluation that we make relative to the way that we allocate capital. And if and when those kinds circumstances arise, we'll be sure to let you know.

Great. Thanks, Joe. And actually, another question for you. This one from an investor. What is your appetite and outlook for further international expansion?

Okay. Yes. Thanks, Ryan. I mentioned we've been very pleased with our platform investment into Shurgard Self Storage in Western Europe. That's given us a different perspective from making investments outside of borders, so it's one of the things that we'll continue to look at very uniquely with the skills and the knowledge that we've gained by having that involvement with Shurgard Self Storage over the last decade or so. We continue to look at different international markets. We've certainly got the scale and the skill set to go out into a market outside of the U.S. And when those opportunities arise, we certainly also have the capital structure to fund that kind of expansion as well.

Great. Thanks, Joe. And we're going to do one more question here. Tom, similar to the question that was asked of Joe at the beginning of this session. We've provided a deep look behind the orange doors here today, what is it that excites you most about the company's outlook?

Sure. That's a great question. The thing that excites me most is the growth profile. Obviously, outline, the growth outlook over the longer term. But if you think about the growth in consumer demand for self-storage, driving organic growth, the growth in the platform driven by Mike's activities, acquiring properties, Andres' building properties and Pete managing properties, we're excited about Public Storage growing from here and the financial performance associated with that. So Public Storage is growing, and we're excited about it.

Thanks, Tom. With that, I'm going to turn it back over to Joe to close this out.

Okay. Thanks, Ryan. Appreciate you being the emcee for us today, and we really appreciate all of your time being able to share the last few hours with us as we've taken you behind the orange door. It's something the management team has been very excited to actually share. And hopefully, from that, you've taken away the very deep and unique and strong capabilities we have at Public Storage. We look forward to continuing our commitment to share our various strategies and the ways that we'll continue to drive shareholder value at Public Storage. Thank you, again. We really appreciate the time you've been able to spend with us today.