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Public Storage (NYSE:PSA)
Q4 2018 Earnings Conference Call
Feb. 27, 2019 1:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage fourth-quarter and full-year 2018 earnings call. [Operator instructions] And the floor will be open for your questions following the presentation. [Operator instructions] It is now my pleasure to turn the floor over to Ryan Burke, vice president of investor relations. Ryan, you may begin.

Ryan Burke -- Vice President of Investor Relations

Thank you, Maria, and good day, everyone. Thank you for joining us for the fourth-quarter 2018 earnings call. I'm here with Joe Russell and Tom Boyle. Before we begin, we want to remind you that all statements other than statements of historical fact included on this call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected by those 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, February 27, 2019, and we assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. A reconciliation to GAAP of the non-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, publicstorage.com.

With that I'll turn the call over to Joe.

Joe Russell -- Chief Executive Officer and Director

Thank you, Ryan, and thank you for joining us. We had a good quarter and now I'd like to open the call for questions. 

Questions and Answers:

Operator

Thank you. Our first question comes from the line of Shirley Wu of Bank of America Merrill Lynch.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. Thanks for taking the questions. So on supply, what are the latest supply outlook for '19 and '20? And maybe a little bit of color on the markets are improving or are deteriorating?

Joe Russell -- Chief Executive Officer and Director

OK. Sure. Good morning, Shirley. No question.

For the last two to three years, we've seen a heavy amount of supply entering many markets across the United States statistically and in particular if you look at the amount of deliveries that took place in 2017, which was roughly over $4 billion, last year just over $5 billion. Our view for 2019 is it's likely to to be similar to 2018 deliveries. So if you just look at those three years, there's no question there's been a lot of new product that's entered the market. The totality of that is, in its full view, is pretty commanding.

It's about 90 million square feet, plus or minus, 1,200 to 1,500 properties. So as we've talked over the last few quarters, we've been very transparent around the markets that we've seen the most impact from all the supply entering. Another part of the delivery and the complexion of these properties is something I talked about last quarter, which not only is at a heavy level of deliveries but on average the size of many of these properties are much bigger than they've been historically. So you've got a number of owners out in some of these markets that, frankly, don't have the tools or capabilities to operate them in a traditional way.

So I think there's an element of both disappointment and potentially and ultimately some level of distress that could come from that as they learn and see the challenges of running these larger properties. So you also asked about OK how are we thinking about the shift. So there's a couple of good things here. One is, first of all, the markets that have seen these delivery levels, many of the markets have actually absorbed the product well and we've been encouraged by that.

It points to the resiliency of the product type itself and the depth of many of those markets, consumer behavior, all those kinds of things but there are still a number of markets that continue to be impacted. Those include Denver, Dallas, Chicago, Charlotte, where again we have seen this overhang from the amount of new supply entering, and we don't see that really changing here in the near term. The good news, however, is there is a lower level of deliveries anticipated going in many of those markets going into 2019. Some of our better markets, again, going into 2019 include Boston, Philadelphia, L.A., New York, Atlanta, San Francisco, Orlando.

So we do see some additional product coming into Boston, for instance, New York. And again, we're going to keep our eyes wide open around potential impact from that additional supply. The good news is the West Coast outside of Portland has been pretty resilient to supply additions and, again, we see very good metrics and just overall consumer and customer activity coming to those markets because we have far less new competition. So with all that said, we still feel like we're not out of, again, heavy supply environment.

But on the flip side, we continue to be encouraged by some of the things that we've seen through 2018, particularly in the fourth quarter, and how we're feeling activities kind of playing through as we begin 2019.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Great. That's helpful. Could you talk about the street rate trends that you've actually seen in 4Q and maybe into 1Q as well?

Tom Boyle -- Chief Financial Officer

Sure. We can talk about street rates. We generally like to talk about move-in rates more, just given their -- have a -- the real impact to our revenue as it's what customers actually rent from us. Street rates were down about 1.4% in the quarter.

Overall move-in rates were down about 3.5%. But I think that talking about move-in rates really mask what happened in the fourth quarter. So as we talk about the customer behavior and trends that we saw through the quarter, you really need to talk about move-in and move-out volumes as well. So as we started the fourth quarter, we were down about 110 basis points in occupancy.

We closed the quarter positive 20 basis points in occupancy. And so what happened through the fourth quarter, what we saw were pretty encouraging customer trends throughout the quarter. Flat move in volumes year over year, which is the best quarter for move-in volumes all year. And so how do we achieve that combination of increased advertising spend, where we saw good customer response there, as well as attracting customers with that lower move in rate that I just highlighted.

In addition to that, we benefited from what is a continued trend throughout 2018. And that is consistent sticky existing customer. So lower move-ins again in the fourth quarter, which drove the occupancy pickup. So, overall, as we sit here today, we were encouraged by customer trends through the fourth quarter.

That's largely holding through the beginning part of the first quarter and obviously we're at the seasonally slow part of the year, so we'll need to watch how that progresses as we get into the busy season here in the next several months.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

All right. That's something very encouraging. Do you think that continued strength through -- I mean, through beginning of '19 as well, or really is that just like a function of maybe that extra marketing spend that you mentioned?

Tom Boyle -- Chief Financial Officer

Well let's talk a little bit about the marketing spend. So we did increase our advertising spend 29% in the quarter. The driver of that was paid search spending. So as I've talked about on previous calls, we've incrementally spent more as we've gone through 2018.

We've been encouraged by the customer response to that spend. And what we've discovered throughout the year is that the real power of the public store is brand online and the reception that we're receiving to that increased spend. So we've been encouraged by that as well, and we'll continue to use that tool as we get into 2019. So that was a a fourth quarter -- certainly a decision to drive traffic and we're continuing to push a little harder on that lever to drive traffic in the first quarter of 2019 as well.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Great. Thanks for the color.

Operator

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

Ronald Kamdem -- Morgan Stanley -- Analyst

Hey, just sticking with expenses, just looking at -- you came in full-year around 3 2. Maybe -- obviously, you're not providing guidance but can you just talk maybe about the big buckets, how we should think about maybe '19 and beyond? So I'm thinking property taxes growing in the fives? On-site property payroll, I think you touched on marketing spend as well. Just curious how you guys are thinking about that in '19 and beyond?

Tom Boyle -- Chief Financial Officer

Yes, sure. I would point you to the disclosure we have in our MD&A in the 10-K, which breaks out line-by-line expectations for these spend items. I think you covered it reasonably well actually, which is that property taxes we expect to continue to increase and expect that around 5%. And obviously, we'll update that as we go through the year but there continues to be pressure there.

On-site property manager payroll continues to be another pressure point with a very tight labor market out there certainly throughout 2018. We grow some efficiencies while at the same time being able to increase wage rates to attract the right employees at the property level. On down the list, marketing spend I just touched on. We expect to continue to spend online as our primary tool there to drive traffic, and we did see good response there and we're seeing a good response here in the beginning of 2019 as well.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. And just moving to development, maybe a two-part question. One is just maybe if you can give us some color three versus six months ago, what you're hearing on the ground in terms of development projects in terms of making they're making their pro formas or delays being had. And the second piece of it is going back to the opening comments about all the supply coming on and potential distress with properties.

Is that an opportunity for you guys? Do you see yourself down the road maybe trying to acquire some of those properties that are that are distressed? Thank you.

Joe Russell -- Chief Executive Officer and Director

Yes, Ronald, to start with your final question. Yes, I mean, that's been historically and we would look upon that as the absolute right time to start getting much more aggressive and going out and acquiring properties in an environment where there is an elevated level of stress. What comes with that is the opportunity to buy at much better valuations that we think would potentially be the right time to again start accumulating much more aggressive basis. If you look at our acquisition volume, not only for 2018, but the last two or three years, we've been very disciplined around the price point at which we've decided to go ahead and acquire assets.

We've found some good values out and see markets but have also shied away from the frothiness that has played through and is, in fact, still part of the market today, where again there's a lot of capital that still wants to come into the sector. There are pro formas out there that we think are not reasonable. I think there's a population of owners that I talked to a moment ago that are starting to see the reality very different than the expected either returns or timelines tied to potential lease up and revenue stabilization on these assets. So for all those reasons, we're we're prepared and we've got the balance sheet ready, obviously, to go out and be very aggressive when more of that stress starts entering the market.

Anecdotally, I would say there are a few more reverse inquiries coming to us that would include some owners out there that may be now not meeting pro forma and are seeing some stress points from either their lenders or maybe some of their partners or, frankly, are just saying, "Wow. This is very different than I thought it was going to be and it may be the right time to exit." So we're going to continue to track and look for those kinds of opportunities. What you saw in our quarterly numbers, which is consistent really through, obviously, 2018 as we've got a very strong and healthy development pipeline. We think that to a property where we're out putting all of our, not only internal metrics and everything that we do from studying submarkets to submarket, we've got a very good opportunity to continue to deliver a brand new-generation five product into our own ownership structure, where we can build this kind of product for, say, $100 a square foot, which in today's environment, could trade almost on multiple higher than that.

So we are very focused and we pivoted into a vibrant development program, plus or minus, five years ago. See a lot of good opportunity there. We have shifted more of our efforts into our own redevelopment as well, where again we've got great locations, iconic opportunities to take very well-performing assets and potentially make them even bigger or, again, more profitable ultimately by doing some kind of either redevelopment or expansions. So many of the tools and capabilities that we've learned through ground-up development are being applied to our redevelopment portfolio, which is again shifting from a weighting even more on that spectrum right now.

Part of what's driving that land costs are, in many markets, getting more expensive. There is a little bit more cost pressure relative to components of construction whether it's steel, labor, concrete. So we're keeping a very close eye on that. But overall, we think that we'll continue to deliver very good returns with a development pipeline that we have ahead of us.

And then the properties that we put in on the market over the last three or four years continue to do very well. They're meeting, if not exceeding, expectations. And we continue to think that's a very appropriate use of our own capital and we're getting very good returns from that strategy.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. My last question would be just looking at the end-the-period metrics, the square foot occupancy and the annual contract rents, if I'm doing the math right, that suggests that's about 1.5% revenue growth, compared to the 1.2% that you did in 4Q. Just as you're sitting here today and, obviously, the commentary about the marketing spend being being taken well, does it like 20 -- the business is starting to stabilize a little bit and the portfolio is absorbing absorbing some of that extra supply? Or which way are the risks skewed is basically what I'm trying to trying to get at.

Joe Russell -- Chief Executive Officer and Director

Yes. Yes, I'll maybe give you some color from my perspective and Tom can add to that as well but sitting here today compared to where we were a year ago, I would say that yes, we have an outlook that's shifted to be more encouraged around many of the things that we're seeing, which include again the resiliency in the sector at large, the product type in the way it is as we know it behaves from a lease-up fill-up standpoint. We're seeing good resiliency. And again, with many of the things that we continued to use that are unique to us through 2018.

We saw some good traction, particularly the second half of the year. So sitting here today, we feel like we're in a better place now going into moving and busy season. We'll see how that plays through. We're just a few weeks from that but all things considered, we feel like we're in a better place going into that than we were a year ago and we'll continue to see and figure out how to maneuver around the supply that continues to come in the markets as well.

So it's a little bit of a two-edged sword. But all things considered, we're on-balance and feeling more encouraged.

Tom Boyle -- Chief Financial Officer

Yes and I think the only thing I'd -- I'd add a couple of things to that. One is that you have to look back several years as you think about where we were at the beginning of the development cycle with occupancies north of 95%. Certainly watched the last several years some of that occupancy be given up and some of the supply impacted markets. And as we look at those markets today, we have been impacted in some areas.

We expect to be impacted in others. And so there's more of a put and take around markets where we're seeing some improvement and markets where we're seeing deterioration based on that that new supply. I think your question around the period-end math, you did the math right. The 1.3% and 1.2% gives you 1.5% aggregate contract rent as we go into 2019.

As we look at trends since January 1st, as I highlighted earlier on the call, pretty consistent. So occupancy trends have been consistent with that time period. We're up about 30 basis points in occupancy today and contract rent continues to be impacted by rent rolldown an existing tenant rate increases, but I think that that period end math you did is right.

Ronald Kamdem -- Morgan Stanley -- Analyst

Super helpful. Thanks so much.

Joe Russell -- Chief Executive Officer and Director

Thank you.

Operator

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

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, thanks. Good morning. Just first question. I guess, following up on that a little bit.

I was just curious in the 10-K that was filed this morning, you disclosed the move-in and move-out spread was negative 16%. So that's the widest during the cycle. And, Tom, you noted that move in rates we're lower year over year by 3.5%. Any sense where we are in the cycle, whether you may see some stabilization in pricing for new customers? And then can you talk about how much that spread contributes to revenue growth and how we should sort of think about that spread?

Tom Boyle -- Chief Financial Officer

Sure. So let me take that piece by piece. So, we did see, as I highlighted earlier in the call, rental rates for move-in customers be down 3.5%. That move-in move-out spread that you highlighted of, call it, 16% did deteriorate.

That was a strategy to drive the move-in volume that we achieved during the quarter, and so it's hard to to talk about rate without volume. As I talked about, the move-in volume that we achieved was the best move in volume that we achieved throughout 2018. And so it's really a combination of both of those factors but certainly the -- there is rental rate pressure in many of the markets that Joe highlighted having been impacted by new supply. We're gonna see some new markets enter that list and I'm sure that will we'll see some rental rate impact in those markets as we get through 2019.

So I think the environment there remains a challenging one. But as I said earlier, the flipside of that is our existing tenant base continues to perform very well and move outs were down on a volume basis and those sticky customers afford us the ability to send rental rate increases as we get through the busy months here. And so we've been encouraged by those trends and I think those customers are supported by the macro environment, right, wage growth, the employment market. Things like that are all contributing to the performance and behavior of our existing tenant base.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Got it. And so yes, you talked about, obviously, the business is seasonal and you mentioned that you drove sort of higher move-ins during the quarter and the fourth quarter represented on a square footage basis just under 24% of the full-year move-ins, right. So there seemed to -- which is up 100 basis points versus the prior year for the fourth quarter, so it seems like the fourth quarter this year there was a lot less seasonality than in prior years. And you talked about the marketing spend and the positive effect it had on move-ins.

Was that it or was there anything more broadly that led to the higher fourth-quarter rental activity that you can you can point to?

Tom Boyle -- Chief Financial Officer

I think you actually -- I think you summarized it pretty well. A number of factors and as I said we're encouraged by by the traffic we saw in our stores and and we'll see where we get to during the busy season, which will be the real litmus test as we get through 2019 as we see much more volume through the summer months and and we'll have a big impact on our 2019 performance. So more to come there.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Have you seen some lower -- less seasonality starting to materialize in recent quarters or is this the first quarter where you've sort of seen that? I think we continue to see seasonality in the business. There's nothing different about the fourth quarter this year versus prior years from a seasonality standpoint. And there's different -- customers use stores for different reasons through different times of the year.

You don't have the college students in the fourth quarter, you don't have folks that are moving to get into a new school district in the summer, in the fall. So there's there's going to be seasonality and we continue to expect that 2019 will be no different there.

OK. Thank you.

Operator

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

Smedes Rose -- Citi -- Analyst

Hi, thanks. I wanted to go back to -- on the expense side. You mentioned also in the 10-K that you had reduced hours on-site in order to help offset some of the wage increases. And I was wondering if there is a more to go there or if there -- if you're able to maybe put in more automation perhaps that eliminates the need for employees or kind of how are you thinking about that part of the business?

Joe Russell -- Chief Executive Officer and Director

So yes. Smedes, what we did in 2017 was put into all of our properties our [Inaudible] system, which we talked about to some degree through 2018. So full-year 2018, we had [Inaudible], which again is our customer interface system throughout the entire organization. There's no question based on its design, we were able to optimize labor hours, along with training.

It's a much more intuitive system, so new employees are able to come into the company on a much more efficient training program. So we saw some good traction there. And I'd say we've got a lot of that work through the system. So there may not be going into 2019 the same level of additional benefit but the great news is the system itself continues to evolve from a functionality standpoint and efficiency standpoint.

It's all built around making the customer experience that much more efficient and timely coupled with again easier-to-learn use and adopt by new employees. So a lot of that traction, I think, went through the system in 2018. The thing that we'll see, which is something Tom's already talked about, is the price pressure we're seeing in labor overall. It's the toughest employment arena that we've seen in well over a decade.

So we're looking at many ways to optimize our labor force, the size of it. But at the end of the day, many of our properties fundamentally need that key single person each and every day to run our property and we really can't cut beyond that until we are at a point, where we can do something as forward thinking as what you're asking, is can we actually rent properties without people. So we're not at that point yet. It's an interesting concept but that's that's something clearly downstream that we'll we'll have to take a fair amount of time to figure out how to put any of those kinds of opportunities into the system.

Smedes Rose -- Citi -- Analyst

OK. Thank you. The other thing I just wanted to ask you, you also mentioned in the 10-K there were no plans to use joint venture financing or sales of properties as a source of capital. I'm just wondering, I mean, it seems we keep hearing that pricing has been very sticky and relatively high or low cap rates and -- is there not an opportunity maybe to sell more mature properties at very strong pricing and retain management contracts from them? Or is that just not something that you would be interested in doing to kind of jump-start the third-party platform or --

Joe Russell -- Chief Executive Officer and Director

Well, I don't think that's a necessary component to jump-start our third-party platform. I would just tell you from a strategic standpoint I mean that's something that we would continue to evaluate as we have in the past. But again that's not I would say in evolving strategies for the most part we were very pleased with the size and the scale and ownership structure that we've had with the full portfolio and we'll continue to consider all other alternatives as they arise. But no, I wouldn't point you to that direction right now.

Smedes Rose -- Citi -- Analyst

Thank you.

Joe Russell -- Chief Executive Officer and Director

Sure.

Operator

Our next question comes from Ki Bin Kim of SunTrust.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. So you -- in the 10-K you mentioned the average length of stay increasing. Can we talk about like what kind of magnitude you're talking about? And maybe if you can answer that differently, what percent of your customers have been there for over a year and how has that trend over the past couple of years?

Tom Boyle -- Chief Financial Officer

What we saw and what specifically we highlighted and in the 10-K was the increased length of stay from some of the move-ins that we saw through 2018. So we saw some good traction there. Overall, the entire portfolio, the metrics are pretty consistent with what we've talked about in the past. So a little under 60% of our customers have been with us for a year.

As I -- as we highlighted in the K, we've seen some modest improvement to those metrics but overall not a sea change at this point but encouraging trends.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. And if 60% of customers have been there over a year, I'm assuming that's a similar pool for the eligible conference to get a rent increase letter but what percent of that 60%, when once they get a letter actually end up rolling down? And I know it does all depend on timeframe. So maybe within three months of getting a letter or four months, I'm not sure what the cutoff is, what you're caught off but to get a sense of what the roll down and how meaningful that can be.

Tom Boyle -- Chief Financial Officer

I'm sorry, Ki Bin. I'm not understanding the question. Can [Inaudible]

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Yes, so it's --

Tom Boyle -- Chief Financial Officer

[Inaudible] of the roll-down, what roll-down are you talking about with existing tenants?

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

So my question is basically if 60% of customers in there you get a rent increase letter, what percent of that 60% actually ends up leaving within, call it, four months or so?

Tom Boyle -- Chief Financial Officer

We're not going to give specific around the efficacy of the existing tenant rate increase program, but that's metrics that we watch very closely and obviously where we seek to optimize the rental income that we can charge our customers based on many factors. And certainly the propensity to vacate, thereafter, is a key component to that analysis.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. All right. That's it for me. Thank you.

Operator

[Operator instructions] Our next question comes from line of Eric Frankel of Green Street Advisors.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. Just a broad question. I noticed that accord your 10-K, your market share and the market share the top five operators of 7% and 15%, respectively, hasn't changed over the year. Obviously, there's been a lot more storage volume.

Can you walk -- can you -- do you have on hand how much what the percentages look like with third-party management and the professionalization of that business and what that market share is if you include that?

Joe Russell -- Chief Executive Officer and Director

I don't have that on hand. It's something that we can get some industry data and talk about offline, but I don't have that in front of me.

Eric Frankel -- Green Street Advisors -- Analyst

Do you think it's increased or stayed the same versus last year?

Joe Russell -- Chief Executive Officer and Director

The [Inaudible]

Eric Frankel -- Green Street Advisors -- Analyst

Third-party management the top five operators versus of all the U.S. stock.

Joe Russell -- Chief Executive Officer and Director

I don't know. We'd have to look at that data. I don't have it in front of me.

Eric Frankel -- Green Street Advisors -- Analyst

OK. Do you guys have any targets of -- obviously, you're more -- you're fairly sensitive to price and you think that acquisitions are still a little bit pricey today. Do you guys have a goal or target of what you think your market share should be over time?

Joe Russell -- Chief Executive Officer and Director

You mean on a per market basic -- basis?

Eric Frankel -- Green Street Advisors -- Analyst

Yes per market and nationally. Sure.

Joe Russell -- Chief Executive Officer and Director

Well, no. I mean, it's never that scientific. It's best to have one versus one number versus another. There's no question we, in almost every market nationally, we have commanding market share and we see inherent benefits whether that share is 15% or 20% or 25%, for instance.

So for the most part, more shares better. One of the things that we continue we continually look for are opportunities through our ownership and now through our third-party management platform to grow that scale and the scale comes through and can be very advantageous in a number of ways, not only physical presence, but obviously all the tools that we're using in today's world relative to our marketing tactics or the internet, etc. So we constantly look for ways to optimize our share, let's put it that way. But we do enjoy the fact that as the largest operator by a meaningful factor across the United States and literally in almost every metropolitan market, we see a lot of inherent benefits to that.

Eric Frankel -- Green Street Advisors -- Analyst

OK. Related to market share and controlling maybe more properties, I guess, third-party management business, I guess, your 10-K disclosure you manage 33 third-party storage, is that correct?

Joe Russell -- Chief Executive Officer and Director

Well, no. Today in the program, we have nearly 50. OK? So the -- if you look at our program, we literally announced our entree into the third-party management business exactly a year ago and we literally started from zero. So when we announced it a year ago, we did not have a team in place.

We had designated no senior leader [Inaudible] to basically build the business from the ground up. And he and now his team that's fully in place have been working on that diligently over the last 12 months. So we're very pleased with the traction that we're seeing from the -- our entree into the business. We're seeing good receptivity to the components of our offering, which include obviously the brand itself, our operational capabilities, the ability to be part of all of our initiatives tied to our marketing prowess, ets., and again a very competitive fee, which also includes sharing of insurance revenue.

So the offering is very compelling. We've got a backlog that continues to build. Pete and his team are now out doing much more outbound efforts. So what has taken place with our entree into the business, which I think is similar maybe to others over time is it does take a number of quarters to kind of get a pipeline built because many of the properties that typically come into these programs are being built.

So we have a healthy backlog that includes a number of those properties. And as well, we have a number of properties that have been in place that have decided to come into our platform versus either running the facilities themselves or coming off another third-party platform. So, we see a lot of good traction there and we'll continue to, I think, see good opportunities going into this year.

Eric Frankel -- Green Street Advisors -- Analyst

OK. And I probably have a few more questions. I'll keep -- I'll just ask one last one. Just related to [Inaudible] Europe, I guess, after the offering, you now own a 35% stake in the company.

Do you foresee that increasing or decreasing or staying the same over time depending on how fast they grow?

Joe Russell -- Chief Executive Officer and Director

Well, the thing I would comment to -- Eric, and you kind of use as an example, our commitment and sponsorship of PSB, I would say we have the same view of [Inaudible]. We think the teams are very capable. I think the IPO went really well. They've worked really hard over the last decade optimizing their portfolio, their full capabilities.

We think they've got a great opportunity and a platform to go forward on their own. And with that, we continue to be a key sponsor of their efforts and we'll continue to, again, be committed to the entity as a whole. So from a specific percentage standpoint, I really am not going to talk to that but I'll just tell you that we plan to have a very strong endorsement sponsorship of the entity.

Eric Frankel -- Green Street Advisors -- Analyst

OK. Thank you.

Joe Russell -- Chief Executive Officer and Director

You bet.

Operator

Our next question comes from line of Michael Mueller of JP Morgan.

Mike Mueller -- J.P. Morgan -- Analyst

Yes, hi. Just a quick financing question. You called the series Y preferred. Just curious what are the plans to either finance that, replace it, looking at that, looking at other preferred, etc.?

Tom Boyle -- Chief Financial Officer

Sure. We did issue the redemption notice and we will redeem the series Y 6 3/8 preferred at the end of March. That is a 6 3/8 coupon, so we view that as a good capital allocation decision to redeem those. We have many tools at our disposal.

The financing market is pretty attractive right now, both preferred as well as the debt market and we finished the year with $360 million in cash. So lots of tools to address that $285 million redemption at the end of the quarter, and the financing markets are good.

Mike Mueller -- J.P. Morgan -- Analyst

OK. But no bias at this point in terms of debt or preferred?

Tom Boyle -- Chief Financial Officer

No.

Mike Mueller -- J.P. Morgan -- Analyst

OK. [Inaudible] Thanks.

Operator

Our next question comes from line of Jonathan Hughes of Raymond James.

Jonathan Hughes -- Raymond James -- Analyst

Hey, good afternoon. Tom, on the predicted revenue growth metric, you've said in prior calls that average occupancy is a better way to look at it than using period-end occupancy. Has that view changed? And the reason I ask is because know using period and occupancy implied worse revenue growth for the following quarter than using average occupancy in the past three earnings releases.

Tom Boyle -- Chief Financial Officer

Yes -- no, that's a good question. We had talked and really shifted to talking about averages being probably a better metric as we went through 2018. And the reason for that was some shifting consumer trends as we looked at vacate trends throughout the month. We've now lapped that and so, the period-end trend, particularly for the fourth quarter, given the fact that we increased occupancy on a year-over-year basis throughout the quarter period and is a better metric to look at than average.

So this short answer is we've kind of lapped that that differential in the period end is as close to 2019 as you're gonna get. And so I would point you to that as an indicator to look toward.

Jonathan Hughes -- Raymond James -- Analyst

OK. And what were the -- can you just remind us, what were the changing preferences again?

Tom Boyle -- Chief Financial Officer

We just saw customers electing to vacate more toward the end of the month. And we've talked about that was something that we liked. That allowed us to get more inventory back before the busy part of the month, where we move in a lot of customers at the end of the month and beginning in the following. So that was another encouraging customer behavior change that we saw through 2018.

Jonathan Hughes -- Raymond James -- Analyst

OK. And you don't think that will continue this year.

Tom Boyle -- Chief Financial Officer

It will. It's just that it would it happened in 2018, so we've lapped it.

Jonathan Hughes -- Raymond James -- Analyst

OK. All right. And then looking at the CAPEX spend, that was about $140 million last year. Actually, a bit below guidance but I understand some might have gotten shifted into into 2019 but the 2019 CAPEX spend guidance of $200 million suggests a 40% increase this year.

Can you just give us some color on what's driving that increase?

Joe Russell -- Chief Executive Officer and Director

Sure, Jonathan. So it's primarily driven by an initiative that we did a lot of testing on and through 2018 that includes a number of enhancements that we're going to be delivering to our existing product. So through our development program over the last few years, we've come up with what we've labeled our Generation 5 product that has a number of components and elements that we think are really well suited to go back to our existing assets and basically use it as an opportunity to do a refresh of the physical part of the assets as well as looking at some opportunities to improve from a cost and efficiency standpoint things like utilities, etc. So it includes simple things like paint, which again we've learned over time and done a lot of testing that using a dominant about an orange plays well, not only for [Inaudible] but lines up with a lot of things that we do on our online efforts, simple signage, some of the office environments, retooling them to make them much more customer oriented.

We have now a paperless environment with [Inaudible], so we need fewer filing cabinets. And with that, can use office space in a very different and more efficient way. And then to the efficiency side of the equation, we're doing things like internal and external LED, upgrading landscaping so we have less water usage. We are looking at solar, so we're doing some testing on solar as we speak.

So there's a number of , I think, meaningful investments that you're going to see as we use really the enhanced capabilities that we've seen and good reaction to our Generation 5 product as we deliver that new product in many markets across the United States now into our existing portfolio. So this year, we're likely to spend, plus or minus, about 100 million on that effort. It's going to launch in many parts of the West Coast. So when you're out here toward the end of the year, for instance, at NAREIT, we may have an opportunity to actually display and show some of that while a number of you are in town.

So we're excited about what kind of traction that we're getting from this? We're getting very good reaction from customers and employees and we're really excited about the overall benefits that we're going to see in the existing portfolio.

Jonathan Hughes -- Raymond James -- Analyst

OK. Great. I look forward to hearing more on that. And then on the last one, on the 383 stores and 31 million square feet that are outside of the same store pool, I've realized a large portion that's not stabilized but how much do you expect to kind of roll into the same store pool this year?

Tom Boyle -- Chief Financial Officer

Yes, well, we'll look at the number of properties within that pool that will be stabilized as of January 1, 2017 and would be appropriate to roll in. And when we'll make that determination, it will be based on both their occupancy as well as the rental rate and revenue growth associated with those properties as well as cost of operations. So our philosophy is to ensure that those properties that are added are stabilized versus the other properties within the market and within the market where that -- those properties are. I would expect that many of our 2016 acquisitions as well as some of our 2013 to 2015 developments will roll into the same store pool.

They will be stabilized when we roll them in. And so we won't be talking about any sort of revenue benefit associated with rolling those properties in, given the fact that they're stabilized when they're rolling in. And there's probably some expansions as well in 2018 to 20 15 period that are in the other category that will be rolled in as well as in the other category. There are properties impacted by natural disasters damage, etc., that we'll evaluate.

So I don't have a number for you at this point but certainly we'll be prepared to talk about that for the first quarter call.

Jonathan Hughes -- Raymond James -- Analyst

OK. All right. Thanks for the time.

Joe Russell -- Chief Executive Officer and Director

Thank you.

Operator

And thank you, ladies and gentlemen, that was our final question. I would now like to turn the floor back over to Ryan Burke for any additional or closing remarks.

Ryan Burke -- Vice President of Investor Relations

Thank you, Maria, and thanks to all of you for joining us today. We look forward to connecting with you in the coming weeks and months. Have a nice day.

Operator

[Operator signoff]

Duration: 47 minutes

Call Participants:

Ryan Burke -- Vice President of Investor Relations

Joe Russell -- Chief Executive Officer and Director

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Tom Boyle -- Chief Financial Officer

Ronald Kamdem -- Morgan Stanley -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Smedes Rose -- Citi -- Analyst

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Eric Frankel -- Green Street Advisors -- Analyst

Mike Mueller -- J.P. Morgan -- Analyst

Jonathan Hughes -- Raymond James -- Analyst

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