Public Storage (PSA) Q2 2018 Earnings Conference Call Transcript

Public Storage Corporation (PSA -1.33%)
Q2 2018 Earnings Conference Call
Aug. 2, 2018, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Public Storage second quarter 2018 earnings call. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. If you have a question at that time, please press * then the number 1 on your touchtone phone. If you wish to remove yourself from the queue, please press the # key.

It is now my pleasure to turn the floor over to Mr. Ryan Burke, Vice President of Investor Relations. Sir, you may begin.

Ryan Burke -- Vice President, Investor Relations

Thank you, Crystal. Good morning, good afternoon, everyone. Thank you for joining us for the second quarter 2018 earnings call. I am here with Joe Russell and Tom Boyle.

Before we begin, we want to remind you that all statements other than statements of historical fact included on this call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected by the statements. These risks and other factors could adversely affect our business and future results that are described in yesterday's earnings release and in our reports filed with the SEC. All forward-looking statements speak only as of today, August 2, 2018, and we assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, SEC reports and an audio webcast replay of this conference call on our website at www.publicstorage.com.

With that, I will turn the call over to Joe.

Joseph D. Russell, Jr. -- President

Thanks, Ryan and thank you all for joining us. This quarter, we continued to see the resiliency of our business in the face of the supply pressure impacting the self storage industry. Before we open the call for questions, I want to point out that we have lined up the timing of our earnings release, the filing of our 10-Q and this call. We feel that our 10-Q addresses a number of questions and data points that some of you have requested and this will ensure the full disclosure package is in everyone's hands. Our Q, particularly the MD&A section, is detailed, so please continue to look to that document as a guide to how we evaluate the status of the business.

Now, I'd like to open up the call for questions.

Questions and Answers:

Operator

At this time, if you would like to ask a question, please press * then the number 1 on your telephone keypad. Our first question comes from Juan Sanabria with Bank of America.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

-- crease in the amount of deliveries and expectations for deliveries, particularly as we start to think about '19 versus '18. And is the right way to look at it from a fundamental perspective a 3-year rolling window, given the lease-up time on new assets, in your mind?

Joseph D. Russell, Jr. -- President

Juan, unfortunately, I missed the very first part of your question, but if you're talking about what our outlook and view of supply, the context of the question was. Let me give you a little bit of color on what we see. That's both deliveries and the timing that would typically take place, as we know in our business, with any given delivery there's plus or minus a 3-year lease-up on a per-property basis.

So, 2017 and 2018 we expect very similar, if not elevated levels of deliveries this year over last. Going into '19, there's some commentary and data out there that potentially points to a slow-down in deliveries, but realistically that, to some degree, is just the way the development business works. Some of the things that can prolong or delay deliveries include time [inaudible] entitlement approvals or permit approvals. There could also be delays again based on any particular developer's view of market conditions, costs tied to either labor or materials, particularly steel in the case of self-storage properties.

But all that said, we're still in an environment, more often than not, and market-to-market, where developers are still seeing healthy returns when they can build a property that ultimately will yield anything from a 8% to 9% return and potentially flip it for a 5% or a 6%. Whether those development margins are more extreme or elevated, let's say 8% or even tapered down in half, there still a lot of fuel out there in capital that's putting development dollars into this cycle.

The thing that may happen that we would certainly look at as a positive is with some of the potential headwinds tied to either the amount of supply hitting markets, some of the pro formas being changed, maybe some pushback from lenders, and frankly just expectations to the overall return of the properties there could be some slowdown, but too hard to see and our view is, again, the amount of capital that continues to want to be placed in this sector is elevated. It's still a business that customer to produce very good returns on a property-by-property basis, and the development cycle is still with us. So, with that, I really don't have a lot more specific color other than we'll continue to track and see what we see throughout our market going into 2019.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Thanks for those thoughts; very thorough. Then on the street rates, if I may, any sense or could you give us any color on what they were year-over-year in the second quarter and maybe third quarter to date? And if we step back and think, you've had declining numbers for a couple quarters at least and do you think that is a leading indicator for same-store revenues should eventually migrate to?

Thomas Boyle -- Chief Financial Officer

This is Tom. The street rates in the quarter were down roughly 4%, as we've talked about in the past and as we've disclosed in the 10-Q. We view take rates or move-in rates as more meaningful. So, as you saw in the 10-Q that we filed last night, the move-in rates on a per-square-foot basis were down 2% in the quarter. For instance, between second quarter and the first quarter, we did lower our rate by volume during our kick-off to summer sale. We were pleased by the demand response from the customer base during that sale versus prior years.

Breaking the quarter down by month, April and May were down roughly 2%, so similar to the first quarter performance. And then we clearly decided to lower rates during the sale to drive customer response. On a holistic basis, looking at move-in revenue, so both the amount of space leased, as well as the rate, that contract rent for all move-ins was down 8% year-over-year in the second quarter. But the flip side was that the contract rent in aggregate, so again volume and rate, for move-outs was down 3.6%, and that was driven by a reduction in move-out activity.

So, that just continues to point to the existing customer base stickiness and stability that we've talked about and that's continued here as we've gone through the second quarter and into the third quarter, as we've sent out our existing tenant rate increases. Speaking of move-ins and move-outs on a volume basis, occupancy trends improved because of the difference between move-in volumes and move-out volumes. So, that's a good trend. Occupancy ended the quarter down 100 basis points and down 60 basis points on average, which compares to down 90 basis points on average in the first quarter. So, we did see some occupancy improvement through the second quarter on a sequential basis.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

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

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, thanks. Joe, the comments that you just made about potential I guess positives to the development cycle, either pro formas being changed or pushed back from lenders, are you seeing changes pro formas or are you changing your pro formas at all? Then on the lending side, I guess you're not in the market talking to lenders. Was that comment hypothetical in nature or is there any evidence that lenders are starting to push back or tighten up around development funding?

Joseph D. Russell, Jr. -- President

Yeah, Todd. There's definitely some anecdotal impressions we get through the variety of conversations that we have with a lot of groups out there. One of the things that adds to that is the kind of dialogue we're actually having on a reverse-inquiry basis, where we are seeing more entitled land parcels come through owners that were planning on taking a property through a development cycle and have now decided not to.

That would include circumstances like I alluded to, where again, they've either shifted down their expectations from a rental rate and/or time to occupy the property, interest rates. They haven't moved materially, but certainly the opinion out there is that they're likely to increase. There's likely more pressure coming from interest rate cost. With that, I think there is some tapering down from a dialogue standpoint that, again, there could be either delays or intentional movement away from the level of full deliveries that statistically were predicted for 2019.

I can't tell you is it going to be down 10%, 50%, but there could be some of that in the mix. Again, with other elements at hand, again with construction costs, [inaudible] market-to-market around labor and [inaudible] as I mentioned. Again, I think there's some rethinking relative to the pool of developers that were 1, or 2, or 3 years ago looking at everything being completely full-steam ahead. They could build these properties, flip them very quickly, not worry about achieving pro formas.

And now all of a sudden, there's a little bit more review or analysis going on, which I think holistically is very good. It's good for our overall industry and it's good market-to-market, but I couldn't tell you. It's really something that's become a mix shift yet. So, we'll have to see how this plays forward.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, then I was wondering if you could talk about how conditions have trended through July, whether or not you can comment at all on occupancy or rent trends? And as you head into the off-peak season here and the summer winds down, any thoughts around your strategy as it pertains discounts and promotions?

Joseph D. Russell, Jr. -- President

I would call July trends very consistent with what we saw in the second quarter, both in terms of occupancy and rates. Nothing really to highlight there. I think inn terms of moving through the summer, clearly we'll continue to monitor our tenant base and how they're accepting the rental rate increases. So far to date, they continue to demonstrate the stickiness that we've observed in the second quarter and as it relates to pricing and promotion, that's something we obviously dynamically adjust, but we've historically continued to offer dollar special discounts through the summer period and then sprinkling in sales as well. So we would expect to do that similar to how we've done it over the past several years.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Steve Sakwa with Evercore ISI.

Stephen Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. I realize it's hard to maybe compare or you don't maybe have a full understanding of what the peers do and maybe can't speak to their operations, but there are a couple of large markets where your revenue growth does seem to be trailing behind some of your peers. I'm just wondering if you've got any thoughts around that. I think Chicago and D.C. are two markets in particular where your revenue growth trails noticeably behind. I don't know if that's new supply specifically or if there's something else in those markets that's pulling your performance down.

Joseph D. Russell, Jr. -- President

Obviously, we can begin with something that we talked to in the past, which is the way that we pull properties in or not into same store. There likely is some gap of performance tied to that. There could be market-to-market distinctions based on location of assets. Again, you would also need to take a look at levels of occupancy and market-to-market what's going on there, and then clearly, our goal has always been to maximize revenue per square foot on a per-property basis.

So, even though in some markets you may look at those distinctions, like you've highlighted, we would also want you to take a look at what's trending. It's all reported. Again, peer-to-peer the cash flow market that takes place across our various portfolios. I think you there would see a distinct difference.

Now, you mentioned Chicago. We talked about Chicago. It's one of our toughest markets for many reasons. Not supply as much, but more economic. Overall, migration either out or not flowing into that particular metro area has continued to be a tough market. So, in that case, there's definitely more of a factor there. D.C., a little bit more supply coming into the market, but again, as you mentioned, Chicago for us has been a market we've talked to now for several quarters. It's one of our weakest.

Stephen Sakwa -- Evercore ISI -- Analyst

Okay, so there you might think it's a sub-market differential perhaps between some of the peers and you just kind of different parts of town maybe?

Joseph D. Russell, Jr. -- President

That could be a component.

Stephen Sakwa -- Evercore ISI -- Analyst

Okay. Then, I guess just flipping gears here maybe on the technology side. Some of your peers are doing some different things to attract tenants and to lease space. Some are almost automated leasing. What are you guys doing, if any, and is there anything you can share with us about some of those programs and some of the effectiveness you might be having?

Joseph D. Russell, Jr. -- President

We continue to invest and optimize all the things that we do to attract and learn about customer behavior. There are many things that are proprietary that we continue to do that we don't talk thoroughly or transparently about. But we clearly have a number of committed initiatives that continue to enhance our ability to attract and find what we feel are good quality customers and customers that we think suit our locations well. And that again, just being able to do many things on a per-property basis.

We have now fully integrated a new point of sale system that took us several years to develop. That was integrated and fully implemented across the company at the end of 2017. Not only is that a more vibrant system, but it's giving us much more clarity relative to the things that we can do to enhance customer experience and customer knowledge. So, from a focus and technology standpoint, we continue to do a variety of things and we continue to see good traction from our investment and our technique that comes from that.

Stephen Sakwa -- Evercore ISI -- Analyst

Lastly, for me, could you just maybe speak to the third-party management business that you sort of rolled out, I guess, a couple quarters ago and some of the traction that you may be having with existing owners in the marketplace today?

Joseph D. Russell, Jr. -- President

Sure. Yeah, Steve, just as you said, we obviously launched and made the announcement that we were going to go into the third-party management business earlier in the year. I'd say overall we've been very pleased with the reaction and frankly, it's been better than expected. Pete Panos has now hired his team. So, we have a team around Pete that focuses on business development, customer relations, and brand integration. Up until this point, the efforts that we've had have been tied to dealing with reverse inquiries, which have been strong and healthy, and we really haven't even started our major outbound initiatives yet, but that's coming.

The point we're at right now is we have 48 signed properties in the program and the backlog continues to grow. If you combine that with our 26 legacy properties that we've run for several years, we've now got 74 properties in the program. What we're seeing is, again, a lot of the strong reaction tied to the value of our brand, the amount of consistent cash flow and revenue we do produce on a per-property basis, because I can tell you, owners are very fixated on that. They also like the scale and market knowledge that we have market-to-market and our ongoing capability, again, that we continue to drive through our technology, just like you were asking.

So, overall, the program is off to a great start and we're encouraged by what we're going to be able to see going forward.

Stephen Sakwa -- Evercore ISI -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of George Hoglund with Jefferies.

George Hoglund -- Jefferies -- Analyst

Hi, just piggybacking off that question. Of those 48 newly signed third-party management deals, are you able to provide color on how many of those were previously managed by other third-party managers and how many of them are maybe just new projects?

Joseph D. Russell, Jr. -- President

Yeah, George, I'll talk to maybe holistically the entire pool that we're dealing with. So, not surprisingly, but encouragingly, we are seeing a variety of different types of situations come to us. It includes properties that are in development. It includes properties that are currently flagged by other operators, both public and private, and it includes operators that are just running the properties themselves. So, we're seeing a good combination.

As I mentioned, that has really be without us actually going intentionally out to markets yet in an outbound way. So, again, out of the gates, we've had good, strong reaction from a good collection of different types of situations. We are pleased with the quality of the assets that are coming into the pool. We think based again on what we're seeing right now, we can fold them into our operational platform pretty easily and again, that's another advantage that many of the owners look to right out of the gate once we put the Public Storage brand on the property.

George Hoglund -- Jefferies -- Analyst

Thanks. Appreciate that color. Then also, going back to development, are you seeing more development migrate into the secondary markets? If so, kind of which areas are you seeing more flow to?

Joseph D. Russell, Jr. -- President

I really couldn't tell you, George, that there's a sea change that would lead you to say now [inaudible] again, either secondary or more [inaudible] markets because frankly, we have a very fragmented industry as a whole and there are developers out there in parts of the country that are looking to build this type of product. I think the currents that are out there, there is no question in some of the more highly dense, urbanized markets, there's going to be more difficult entitlement situations, land is not going to be available. Again, more headwinds that you're going to get there, whether a storage facility can be built on a particular site because of pressure in a community, relative to caps on the amount of storage product that might already be in place, those properties typically will be more expensive. Again, I wouldn't tell you there's any overall sea change in where the overall development is happening. Because, again, it continues to be pronounced.

George Hoglund -- Jefferies -- Analyst

Okay, thanks. Just a last one for me. On the acquisition front, are you seeing an increase in opportunities out there and are there going to be or do you see more opportunities from sort of busted development projects?

Joseph D. Russell, Jr. -- President

Again, this disconnect between what seller expectations and buyer pro formas or buyer expectations are is still strong. So, based on that, we're not seeing a healthy or high level of trading that's going on out there. There really hasn't been much of a change. Cap rates for the most part are relatively in the same tight zone. They hover around a 5% or so handle. Again, we're not really seeing a lot of volume coming into the market.

Now, what we've done in this environment, both last year and this year, is we continue to look at opportunities where we can buy really good properties at good values. We're able to round out our presence in a number of markets where we'd like to have more scale. More recently this year, you've see us do it with some of the one-off acquisitions in communities like Louisville, Omaha, Columbia, South Carolina.

You saw in our press release we've got 14 properties under contract. Those 14 properties total about $95.2 million. A little over 840,000 square feet. Again, same theme. Part of that whole group of properties does include a small portfolio in Minneapolis. But, again, we're not seeing a new range or a healthy level of portfolio volume getting traded right now.

George Hoglund -- Jefferies -- Analyst

Thanks.

Operator

Our next question comes from the line of Eric Frankel with Green Street Advisors.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. I was hoping you could touch upon your development opportunities in your own portfolio. I understand you took four properties out of your same-store pool, presumably to enter into expansion projects. Maybe you could touch upon given maybe that some of your sites are older and a little bit less utilized, what kind of redevelopment opportunities are available over the long term. Thank you.

Joseph D. Russell, Jr. -- President

Thanks, Eric. In fact, again, if you look at the Q on page 45, we have a little bit more color on some of the activity that we have in our expansion efforts. One of the things that we've been able to do since we started our development program in 2013, is as opportunities have evolved in our own portfolio, we're starting to shift even more dollars into redevelopment and expansion. Again, on page 45,it's actually footnote A, you can see what we highlighted relative to some of the demolished properties that we've touched this year, which total about 650,000 square feet in rentable square footage.

And over the next 18 months, we've got another 150,000. So, that pool, as we speak today, is a little over 800,000 square feet. So, to put a little color on that and give you a view of how we look at that economically, if you look at that 800,000 square feet on an annual basis, that generates about $8.2 million in NOI. Now, we're taking that 800,000 pool property set and expanding it almost by 4, a little over 4 times to 3.9 million square feet. We're investing $364 million into those property expansions.

If you kind of compare the yields that we continue to see on our mainline development program, where ultimately we can get these properties conservatively into say an 8% or higher yield, that pool alone, once stabilized, is going to generate instead of $8.2 million in NOI, it'll generate, if you assume an 8% to 10% yield, you're going to see a $55 million NOI level.

So, again, a very strong and healthy level of continued performance and opportunity. Eric, we've just begun to look at this and with the amount of properties that we've got throughout many markets, we think we've got good, long-term opportunities with that pool.

Eric Frankel -- Green Street Advisors -- Analyst

Thanks for the additional color and pointing it out in the Q. Geographically, where have you found these redevelopment opportunities thus far?

Joseph D. Russell, Jr. -- President

It's a little bit, I wouldn't say everywhere, but we're encouraged because some of the areas that make most sense is where we can easily, again, add a facility to a property without touching existing inventory or existing buildings. So, in many markets, say with some of our legacy assets we might have extra land and/or parking area that's pretty simple to expand and convert. Then in other areas, say you take one we just finished up in Milpitas up in the Silicon Valley, same thing. But it's an infill location. Literally, we could never buy that property again because there's no land available in that market and if it were to become available, it would trade at something extreme. We've got those pockets of opportunity throughout the portfolio, so, again, we're encouraged by what we can continue to do long-term in many of our markets.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Ian Gaule with SunTrust.

Ian Gaule -- SunTrust -- Analyst

I'm here with Ki Bin. first question, on your rent rolls, in 2Q it's typically flat to slightly positive. And then 2Q last year was a little bit negative, and this year it just kind of fell off. I'm just curious, is that something that worries you guys? Could the rent increase program that was once a tailwind now become a headwind?

Joseph D. Russell, Jr. -- President

Thanks for the question. There is some seasonality in the difference between our move-in rate and our move-out rate. If you go back several years, you will see that seasonality play out. I think if you go back, looking back longer term, I think there was a quarter back in 2015 where we rolled up in the difference between move-ins and move-outs. But for the most part, you do see some rent rolldown for some of the reasons you highlighted.

As I mentioned earlier, we did see good traction on move-ins with our reduced rate in the month of June and the end of May. That certainly contributed to the rent rolldown increase year-over-year. But as you point out, last year we saw rent rolldown as well. So, it's a component of our revenue which is balanced with the revenue benefit from the stickiness of our existing tenant base and the existing tenant rate increase that we do send out.

Ian Gaule -- SunTrust -- Analyst

Okay. If I look at your end-of-period occupancy, which is down about 100 bps and then contract rent was about 1.7% in the quarter, that would imply a sub 1% same-store revenue in 3Q. Is that a fair way to think of it? Are you going to be below 1% or right around there in the back half? I'm just curious if I'm missing something.

Joseph D. Russell, Jr. -- President

That is a metric that we've pointed to over past calls as a sign at the last day of the quarter where contracts are and where occupancy is. So, the most recent data point. If you look at the end of period occupancy on [inaudible] 110 basis points in the contract rent, we point to something like a 0.6% revenue in the next quarter. At the same time, we talked about the difference between end of period and average occupancy, given some of the changes that we've seen in our customer move-out patterns. So, looking at an occupancy average over the quarter of 0.6%, using that number would point to a little north of 1%, is another data point. We talked about last quarter those same metrics pointed to 1.5% to a 1.8% rental income growth and we came in at the quarter at 1.7%. So, there's historically been some correlation between that. It's not a perfect number because [inaudible] change during a quarter. But it's the most [inaudible] points on rent and occupancy that we disclose.

Ian Gaule -- SunTrust -- Analyst

Okay, I appreciate it. Thank you.

Operator

Our next question comes from the line of Jeremy Metz with BMO Capital.

Jeremy Metz -- BMO Capital Markets -- Analyst

Hey, guys. Tom, you just touched on the existing customer rate increases a bit. You talked about looking at the importance of take rates. But in terms of looking at revenue growth, the 1.5%. Can you talk about how much is being driven by the existing customer rate increases at this point and then any changes in the amount of increase or frequency or number of customers getting those?

Joseph D. Russell, Jr. -- President

The increase in the rent rolldown certainly is a negative for rental rate growth through the quarter. So, the existing tenant rate increases was a meaningful portion of the revenue growth. There has been no change from a strategy standpoint to how we send those out. We've talked about, in the past, we do send out more of those through the summer months. Rates are highest. Activity in terms of backfilling any vacates is good during this time period. So, it makes a lot of sense to send out those existing tenant rate increases around this time of year. We've seen good receptivity to those. No changes there, but that is driving our revenue growth at this point.

Jeremy Metz -- BMO Capital Markets -- Analyst

Okay. Switching to supply. Your predecessors talked a lot about the impact of certificate of occupancy deals we're having on development activity. As you look at the market today, are you still seeing a fair amount of activity out there and is there any insight on the pricing trends relative to cap rights you can give? Just in terms of what you're seeing. I know you guys obviously don't do any of those. I just wonder how aggressive folks still are being on that front.

Joseph D. Russell, Jr. -- President

Jeremy, again, I think it thematically it's the same set of issues that I talked about before, which is there is a healthy development community out there that continues to see good returns when they're able to develop these properties. And again, if they can build them to an 8% or 9% and they can flip them, full or unoccupied at a rent level that would yield off of full occupancy or close to it at a 5% or 6%, they're going to keep doing it.

But we do engage and we have actually bought here and there some C of O deals. I wouldn't tell you that those are necessarily becoming more stressed, but they're out there. I think some are going to continue to continue to come into the market. But it's too soon yet to tell if there's any kind of overall stress that's coming with, again, those properties that are coming into the market.

Jeremy Metz -- BMO Capital Markets -- Analyst

Okay, I appreciate that. Just a last one for me. I was wondering if you could just comment on the advertising and selling costs. There were down again this quarter. I know some of that is TV spend, but I would just think with supply and the demand pressures you've talked about here, that maybe we'd see you try to ramp that maybe to create more demand into the funnel. Any color you can provide on that line?

Joseph D. Russell, Jr. -- President

That's a good question. Advertising was down 5% in the quarter, but as you point out, that was driven by TV spend in the prior year. Our internet spend was up in the quarter 33%. That's primarily Google and that's a combination of that landscape remaining competitive and cost-per-click moving higher, as well as our pushing on that to drive volume. That's a channel of advertising that we like. It can be very targeted and trackable and down to the property level.

So, there's a lot of ability to use technology and our system to drive demand on a very granular basis. And so we've been doing that more and more. In addition, we do have an advantage online, which is our brand. We drive a significant amount of volume on the internet, even away from the paid search channel. The focus there remains very strong coming through channels like local maps, and [inaudible].

So, certainly a focus there on driving customer volume. This is the last quarter that you'll hear us talking about TV in the prior year. We won't have that as a reduction in [inaudible]. TV is something that we continue to monitor. TV is going through transition, but we're monitoring television and television-like advertising media as potentials to drive traffic to our stores as well, but no immediate plans there.

Jeremy Metz -- BMO Capital Markets -- Analyst

Appreciate it. Thanks.

Operator

As a reminder, if you would like to ask a question, please press * then the number 1 on your telephone keypad. Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Ronald Kamdem -- Morgan Stanley -- Analyst

Just a couple quick ones. Just following up on that stimulating demand question. If you can just help us understand a little bit for that incremental dollar, when you're deciding between internet spend versus reducing rates versus increasing discounts. If you could provide a little bit more color on what goes into each bucket and how you decide how to allocate those dollars, that would be helpful.

Joseph D. Russell, Jr. -- President

That's a pretty dynamic judgment that's made on a very local basis. That depends on both the traffic, the characteristics of that local market, and its response, both in the past and in current to those different tools that we have in our toolkit. I don't think I'll talk about that at a high level, but just say that's a property-by-property judgment that is made through our technology and our systems, and they're certainly integrated, i.e., moving the levers between discounting, lower asking rates, by-channel pricing, and advertising are all different tools we have in our toolkit.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. That's helpful. Then if I could go back to the revenue growth expectations. I think you mentioned on bottom revenue growth for the rest of the year. I'm just trying to understand what the upside or downside risks could be for the end of the year. Is it through rent or is it through occupancy where there's more leverage to either surprise on the upside or on the downside?

Joseph D. Russell, Jr. -- President

Again, I think that really is a market-by-market judgment. We'll have to see how the rest of the year plays out. But there's certainly markets where we view that there is occupancy potential to improve and there's other markets where occupancy is really healthy. You look at Los Angeles, where we have 95% occupancy. The same with San Francisco and New York. Those are places where occupancy is really quite good and so the opportunity is probably more on a rate basis once you get into those types of occupancies. But not all our markets are at 95%. So, there is occupancy potential as well.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. Then the last one for me. I saw in the Q all the markets in terms of supply, dealing with new supply. I'm just wondering if there's any new markets that early on you're seeing that there's potential signs it could have supply issues in the future?

Joseph D. Russell, Jr. -- President

That supply could come into those markets, Ronald?

Ronald Kamdem -- Morgan Stanley -- Analyst

That's right.

Joseph D. Russell, Jr. -- President

There's a couple that we talked about in the last quarter, too. Portland, Oregon, for instance, has a number of deliveries coming into that market. Nashville is another market that we're keeping a close eye on. Again, a lot of vibrancy from an overall MSA standpoint, but development too. So, we're tracking the amount of deliveries, particularly in those two markets, and keeping a close eye on them. Portland, in particular, hasn't seen a lot of development in several years for a number of reasons. There are a lot of properties that are, again, predicted to start. Again, it goes back to that same thing that I talked about beginning of the call, which is even though some of these properties are being tracked, you really don't know clearly when they're going to start until they do. But Portland is definitely one that we're keeping a close eye on.

Ronald Kamdem -- Morgan Stanley -- Analyst

Helpful. Thanks so much.

Operator

Our next question comes from the line of Hong V. with J.P. Morgan.

Hong V. -- J.P. Morgan -- Analyst

I was just curious if you've seen any change in behavior from your peers in the third-party management space now that it sounds like you've gotten a decent amount of positive reception from just various operators?

Joseph D. Russell, Jr. -- President

No, we're early into this, Hong. Again, we are definitely looking at the business as something that's got a lot of vibrancy. The other platforms have done well in the business and we'll see how the entire business changes now that we're involved in it as well. But I couldn't tell you directly if we've seen anything change directly in what we hear or know so far relative to what strategies or programs that they're either running or changing. So, I couldn't tell you that yet.

Hong V. -- J.P. Morgan -- Analyst

Gotcha. I guess a follow-up question for me. Hypothetically, if an operator were to come to you just from one of your peers to you for third-party management what would it take to onboard and rebrand them?

Joseph D. Russell, Jr. -- President

I'm not really sure I follow the question.

Hong V. -- J.P. Morgan -- Analyst

If I were signed up with one of your competitors for third-party management right now and I wanted to switch to Public Storage, how long would it take for me to get onboard into your system to put the Public Storage sign and all that kind of stuff?

Joseph D. Russell, Jr. -- President

That's going to depend situation-by-situation. From what we understand over time, that has been some interplay both within the public operators and even the private operators. There are a number of private third-party operators too. The timing of that depends on a lot of things. It depends on the owner's desire, how quickly they would want to make a change. Again, are there implications tied to changing personnel at the properties? Again, it could take anywhere from a couple of months to several.

Hong V. -- J.P. Morgan -- Analyst

Thank you.

Operator

Our next question comes from the line of Juan Sanabria with Bank of America.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Just going back to the period-end data points as a leading indicator, could you just give us a sense of where spot occupancy is today relative to last year on a same-store basis?

Thomas Boyle -- Chief Financial Officer

Spot occupancy is similar from a trend standpoint to prior year today as it was at the end of the quarter. As I highlighted, occupancy improved through the quarter, so looking at average occupancies through the quarter, you had April and May down circa 60, 70 basis points, in June finishing down roughly 30 basis points on an average basis, and we're seeing similar in July. So, occupancy trends have continued to be more favorable as we've gone through 2018.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Okay. Then just on expense side, is there any offsets from what look to be tougher comps from the second half of last year that you have in the second half of '18 that should limit the pressures from those tough comps from last year? Or how should we think about expense growth on a same-store basis?

Thomas Boyle -- Chief Financial Officer

Looking at this quarter and going back in time, the expense line items that is likely the most pressure as we go through the year as property taxes. You saw in the quarter property taxes up 5.5%. That's an area where both state and local governments are driving increases in assessments. We would expect that to continue as we go through the year here. But we disclosed in our Q that we'd expect that to continue. I think beyond that, I think the puts and takes are clearly focused on expense management and other areas. We look at expense in general plus or minus 3% as we go. Clearly, in the first quarter we were little above that, second quarter we were a little below that, but that's a fair number.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Our final question comes from the line of Smedes Rose with Citi.

Smedes Rose -- Citi -- Analyst

Hi, thanks. I just wanted to ask you, you received a large cash payment from SureGuard. Does that change anything around sort of acquired dividend distributions or does that count as part of your taxable income or that's different from a redistribution perspective?

Thomas Boyle -- Chief Financial Officer

Thanks, Smead. We did receive dividend and in terms of rationale for that dividend and the drivers there, the tax reform that was passed at the end of last year required us in 2017 to recognize income associated with our international operations, like other multi-national companies. That is at an advantaged rate. So, from a taxable income standpoint, there's an advantage to that recognition. But we needed to recognize that in 2017. So, this cash dividend is in effect the cash associated with that income, and we took our 49% share and our partner took the remainder.

Smedes Rose -- Citi -- Analyst

Thank you. I just wanted to ask you too, I don't know if you have this, but when you look at the percent supply increases in the markets that you're in across your portfolio, do you have a sense of what your own development or expansion activities are as a percent of that total supply coming into the market? Is it significant or is it a relatively small piece of the whole?

Joseph D. Russell, Jr. -- President

Smedes, that's going to vary market-to-market. But the amount of [inaudible] say in 2017. So, nationally around $3.5 billion. Our own development program was about $300 million. This year, development activity is likely to be around $4 billion. Our development platform is going to be about $400 million. So, again, not a significant percentage. The thing that we will continue to take advantage of though, is we may in certain markets be a higher percentage of the development activity, but more often than not, that's intentional and that's a good thing. Meaning we've got one of these infill sites, whether it's an owned property that we're expanding or we've been able to get a hold of a great piece of property, but we continually look at the competitive activity that's going on in any particular sub-market, the competition ratio. Again, population dynamics, all those things. We put a lot of analysis into the way we make those decisions to literally launch, whether it's a new development or a redevelopment property.

Smedes Rose -- Citi -- Analyst

Great, OK. Thank you.

Operator

At this time, there are no further questions. I will now turn the conference over to Mr. Burke.

Ryan Burke -- Vice President, Investor Relations

Thanks, Crystal. Thanks again to all of you for joining us today. We look forward to connecting with you in this venue again next quarter. Have a good day.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 51 minutes

Call participants:

Joseph D. Russell, Jr. -- President

Thomas Boyle -- Chief Financial Officer

Ryan Burke -- Vice President, Investor Relations

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Stephen Sakwa -- Evercore ISI -- Analyst

George Hoglund -- Jefferies -- Analyst

Eric Frankel -- Green Street Advisors -- Analyst

Ian Gaule -- SunTrust -- Analyst

Jeremy Metz -- BMO Capital Markets -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

Hong V. -- J.P. Morgan -- Analyst

Smedes Rose -- Citi -- Analyst

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