Welcome to the Public Storage Q1 2017 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] Today’s call is being recorded. I would now like to turn the call over to Clem Teng.

Thank you for joining us for our first quarter earnings call. Here with me today are Ron Havner and John Reyes. Before we begin, I want to remind those on the call that all statements other than statements of historical facts included in this conference call are forward-looking statements subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in today’s earnings press release and in our reports filed with the SEC. All forward-looking statements speak only as of today, April 27, 2017 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 to the non-GAAP financial measures we’re providing on this call is included in our earnings press release. You can find our press release, SEC report and an audio webcast replay of this conference call on our website at www.publicstorage.com. Now I’ll turn the call over to Ron.

Thank you, Clem. Good morning everyone, we had another solid quarter, so we're going to open up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Gaurav Mehta with Cantor Fitzgerald.

I was wondering if you could comment on how your markets performed in the quarter and which markets outperformed and underperformed your expectations.

I'll answer that a couple of ways and then John can add to it. In our top 20 markets across the platform, every market had a lower growth rate than last year. So last quarter, it was 80%, our revenue base was down year over year, this quarter it was 100%. With respect to the most challenged markets, they remain Denver and Houston, which had same store revenue growth, Houston was down 1.4%, Denver was down 1.1%. Our best markets, Tampa was up 7.1, Seattle 6.7, West Palm Beach 6.5 and Los Angeles 6.2. So those have been strong markets and they continue to be strong markets. But again every market was down year-over-year in terms of growth rate.

And as a follow-up, it seems like you advertising and selling expense an uptick in the quarter. So does that really reflect that you’re spending more money to get there and sell by advertising more?

Yes, we've increased both television and Internet spend and we expect to do that, increase it again in Q2.

Your next question comes from the line of Michael Mueller of JP Morgan.

I guess just thinking about the moderation and how it's trended and I’m not sure if it's black or white, one or the other combination of both. But as you look across the markets, I mean how much of I guess the headwind that you’re pumping up against in terms of the growth rate which you say is just really driven by new supply in the markets as opposed to you had years of really great increases and just bumping up against those increases regarding of supply.

Hey Mike, this is Ron. I'd say there's a couple of factors, we certainly had above historical trend line growth the last four years or so. If you take a 20 year average, same-store revenue growth and Granite same stores change, it’s about 3.9% to 4%, so we've been above trend line through 2016, I think 2012 to 2016 was above trend line. So we're coming back down towards trend line. The second thing is new supply, as you indicated and the third which I actually think is probably a bigger factor is macro factors affecting our customers. If you look at trends in credit card delinquencies, charge-offs, auto loans delinquencies and charge offs, if you look at the aggregate amount of consumer debt in both credit cards, auto loans and student loans, over 3 trillion that's up about 800 billion in the last four years. So you're seeing a variety of things where the consumer which is basically our customer is stretched in or understressed. You see it also in companies like Nestle and Unilever that are reporting declining year-over-year sales. And for us we've seen an uptick in delinquent tenant sales for the last two to three quarters and a decline in merchandise sales, locks and boxes. So I'd say it is more than just supply, I’d say that in general the customer is under a little stress and that's why across the platform you see things like same-store revenue growth declining year-over-year in terms of growth rates not absolute decline, but the growth rates, you know, the rate of growth declining.

Your next question comes the line of David Corak with FBR.

Just looking at the supply data that's kind of floating around out there and the folks commenting on it. There seems to be some debate as to which year is going to be peak starts versus peak deliveries versus kind of peak absorption. I'd love to get your opinion on that. But my question really has to do with the amount of kind of cumulative product that's actually in lease up. So if we assume kind of a three-year lease up period by the time we get to the back half of ’18, we would theoretically have a lot of the ‘16 deliveries, all of the ’17 deliveries, and all of the ’18 deliveries in lease up, which ballpark could mean you know pick a number, but maybe 2,000 stores will be leasing up at once. Does that really matter or is it just the first lease up season that impactful to fundamentals or should we kind of be thinking about this in a completely different way.

I think your analysis is pretty good. And in terms of when you know how long lease up impacts the surrounding competitors that really depends on the pricing and marketing strategy of the operator. For us, we will continue to be aggressive in terms of pricing, promotional discounts and marketing until we reach what we've stabilized 92%. And by stabilize, I don't mean that just hits 92%, that means that it's operating at that level for a period of a year or two. But I think your analysis is right, somewhere between 2,250 hundred properties in lease up over the next couple of years at least.

And then just to follow up on that just in terms of your specific development pipeline. You guys have been historically conservative relative to some of your peers with your 90%, 92% stabilized occupancy not trending rents, lease-up timelines et cetera. But with the deal that you don't done recently or under recently, have any of these assumptions changed from how you’re looking at those maybe a year ago. I mean we’ve heard some reports from developers that are trending rents down over the next couple years.

Now when we underwrite a development, we use spot rate that we get in the pricing group, we don't make forecasts of what rates are going to be over the next three to five years and we don't underwrite ten insurance or merchandise sales. And we underwrite a 90% occupancy with that cost of money to fill up at 8% and that's not changed over the last year or two. As rates moderate and come down in markets certainly in the market like Houston or Denver as rental rates come down because occupancies are down. It will make it hard for us to underwrite new developments because our return requirements haven't changed. And so if rates are coming down that's going to eliminate a lot of potential product that we might otherwise have underwritten a year or two ago.

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

Ron, occupancy trended lower throughout the quarter in the same store portfolio and there was a little bit more of a year-over-year decrease at March 31. Are you seeing signs that occupancy stabilizing maybe you can provide an update on how occupancies trended since the end of the quarter.

Todd, this is John, it's pretty - occupancy negative spreads has pretty much been consistent. What problem that we're experiencing aside from all the things that Ron touched upon is what that's resulting in for us is a softness in demand into our system. And we're spending more money to get to basically maintain this almost the same level of demand as we had last year. But one of the things that I wanted to point out is that at least with respect to the move out volumes, our move out volumes are pretty much still intact, the long-term tenant is still staying put. So it's really on the front end on the move in to try to backfill the vacates that we are experiencing softness in.

And then, I guess given some of that occupancy loss or the challenge in you know back filling some of the move outs at the margin is due to some of the new capacity that's entering the system. And I guess given Ron's comments that there could be 2,000 or 2,500 new facilities developed in the years ahead. I mean we do expect to continue to see those challenges persist where occupancy could continue to trend lower a bit from here forward.

I think one of two things like happen either we'll try to re-stabilize the occupancy and move it back up, but that might may result in more discounting and lowering street rates. Right now, our street rates are up about 2% to 3%. We're discounting probably on par with where we were last year. So we're at the moment trying to hold rates and keep this level discounting at somewhat flat. But yes, it could get to a point where maybe we have to throw the towel in and start cutting rates and getting more occupancies, I mean get more discounts to stabilize the occupancy more.

Todd, also let me clarify. I'm not forecasting that future developments of 2,500 facilities, the gentlemen asking the question was just saying you know you have three to four years of 500 to 700 properties being developed and it's a three year fill up, so do the math, you're going to have 2,250 properties across the country filling up in 2018 and 2019. So that's not a future forecast. The second thing to John's point, if you looked at occupancy across the top 20 markets, Seattle, San Francisco, Los Angeles, West Palm Beach, Tampa are pretty darn full, there's not a lot we can do in terms of occupancy growth. You have gaps down in occupancy in Denver, Houston, Chicago that are weighing in terms of the portfolio into the year-over-year negative occupancy growth. So we can't move customers from San Francisco, we're full over to Houston.

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

Just a question on the supply. Do you have a number you feel comfortable sharing at this point on 2018 supply given where we stand today and how does that compare to what you expect for the full-year this year.

I don't have a forecast for 2018. The way I try to triangulate in terms of what I - new supply coming out of the market and what is the rate of change in that is looking at CofO deals of the other public companies disclose as well as what I know our own development pipeline to be. But I think the 2018 numbers are still evolving. The only company that reported is Extra Space, they reported a pretty good uptick in CofO pipeline for 2018. I know Life Storage just said they're out of the CofO deal market. So I don't expect them to report much, but I think for everyone the 2018 pipelines are still somewhat evolving.

How are you guys thinking about Street rate growth going into the second quarter and I guess throughout the balance of the year given the pressures on supply and your comments about a softer consumer or demand environment. Do you think that 2% to 3% holds or do you see risk to the downside on Street rate growth?

I mean it’s hard to tell, I mean, every market is so different, for example, Sacramento, which is probably our best performing market right now, Street rates are up 10.3%. And then on the other extreme you have Houston down 8.1% and everything in between. So it's really on a market by market basis and we’ll just have to react as necessary to try to continue to maintain some level of revenue growth.

As John mentioned earlier, we have uptick marketing both television and Internet, so we're trying to drive more flow into the system.

Your next question comes from Ki Bin Kim with SunTrust.

So you just mentioned Houston [indiscernible] down 8%, I think earlier you mentioned same store revenue was about only 1% though. So can you help me understand that does that mean eventually Houston same-store revenue has to get worse all of equal or is there something offsetting like occupancy that's making up the entire difference?

No, if it stays down at negative 8% for an extended period of time then yes, it continues to drive down revenue growth year-over-year.

But I guess I asked that too simply. I guess what I meant was, how much time does it take to actually lead into the results where more reflects that minus 8% you think, will it take a couple of years or it can be like quick as a year.

Well I get it, if Houston stayed down 8% right now, I would expect that by the end of the year, we probably could be very close to 8% year-over-year reduction.

On the contract rates that you quote in your press releases, is there a big difference between the walk in rate, contract rate versus just the only online advertised contract rate year-over-year. Is there any diversions?

Yes. We do offer a discounted rate if somebody comes to us through our website, makes the reservation and then moves in. That discount could range anywhere from I think 5% to as high as 15%.

John, I guess what I meant was on a year-over-year basis. I realize online is cheaper, but like it has one trended better than the other.

I’m not sure I followed your question.

Well meaning I realize online rates are always lower almost. But the year-over-year change in that is it worse than lock-in rate?

Do you mean has the promotional discount changed on the Internet version last year?

Yes, in effect, [indiscernible] rate was holding more steady or so.

There's a channel shift key to mobile and the web from Rocket, and almost all customers are shopping the web before they're making a reservation. So by that process, you’re getting more customers through the web and therefore more customers are getting the so to speak web discount.

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

I guess first of all, if you could comment on the Shurgard’s performance?

Sure. Shurgard's same stores revenue was up 1.7%, expenses were down 2.6, same store NOI was up 4.8. Occupancies were down 90 bps 89.8 versus -- down to 89 and rates were up modestly. Best markets, France was up 5.3, Holland 7.7, and UK down 1.7, and Denmark down 1.2.

And then just one thing going back to the increases in operating expenses, the repairs in maintenance were up about 12% kind of what drove that large increase?

I wouldn't read too much into it, gates are broken, the apartments get repaired, roads get fixed. So there's the baseline RNM and then there's things that need to get done on the spot. So I think the increase is 5 million bucks.

And then just one last one just any update on thoughts about issuing unsecured and maybe taking out some of the preferreds.

We're still evaluating that, something that's very high topic on our minds. So we're still looking at that right now.

No decision has been made.

Any sense on if you were to do inaugural unsecured deal where it might price.

Well, I believe the best spread of any REIT.

Your next question comes from the line of Vikram Malhotra with Morgan Stanley.

Just to clarify, so Street rate growth in the 2% to 3% range, is that - it seems to be higher than last quarter if I’m not wrong where I think you’d mentioned more like 1% is that correct?

And I don't recall what last quarter was, I mean that's where we are today. I could tell you like in January we were about up 1%, February we were up 4%, March we were up 3%, no we are about 2% to 3% somewhere in that neighborhood. It just it varies.

And then just as we think about sort of the folks taking or getting the web rate versus the in store rate, would you suspect over time as you just have more and more people going to the web eventually just to have more people gravitating to that web rate. And can you give us what the split is today between those actually on the web getting the web rate versus the in-store?

I don't have that split but I would be willing to bet that the majority, the vast majority of the people come to us are getting the web rate. Either they're getting it through our website or desktop website or a mobile website. Walk-in traffic has really shrunk over the years as the Internet as well as mobile has become more predominant in people’s everyday lives.

So effectively, am I correct just to clarify and say, when you talk about Street rate growth, it's really is much more driven by the change in the web rate growth.

Well, last year we were doing 15% reduction and this year we're doing 15% reduction in the same thing. I mean that's what - I'm saying what the 3% - 2% to 3% would be. So that hasn't changed. I mean year-over-year the rates that we're telling you it's not worse than the 2% or 3%, even though we're getting more - we're doing the 15% discount because we're doing that last year. Do you mean the discount on the web, we've been doing that for years now, many years.

No, no, I understand that rate is lower, I'm just saying say, next year you take that same web rate and change it by X, your overall Street rate would be somewhat of a blend of the in-store that you - at that some smaller proportion of people [indiscernible] versus the web, but increasingly the change in the web will be driving your Street rate growth.

Yes, and that's why in the past I've talked about kind of disregarded Street rate, we’ve talked about move in rates because that's the more relevant metric. Is what are people actually moving in at after you take away whether they got a web discount or no discount. But I could tell you for the first quarter of this year compared to the first quarter of last year, the moving in rate was about flat and notwithstanding the fact they just told you that the rates were up about 2% to 3% end of Q1, the actual take rate was flat.

Your next question comes from the line of Smedes Rose with Citigroup.

As mentioned earlier that you thought one of the issues overall in the industry is consumer just weakness and macro concerns. Just in your history with the space, if the economy were to improve significantly or the consumer sort of feels better. How long does that take to sort of translate over to increased usage in storage or being more likely to take higher prices?

Smedes, I would say if you look at where we are today, unemployment is about 4.5%, we're back down to where we were in 2007. So we’re going to drop to an unemployment rate of 3.5% nationwide I think that's a little hard and some markets have 2.5% to 3% unemployment rate. But I don't see that happening. And barring that, I don't know what's really going to improve things for the consumer. If levered up and everyone's employed and so, like I said, you're seeing in a variety of factors in terms of the stress that the average consumer is having.

Okay. Thanks. I just wanted to ask you too, you discussed for a while there the web rate versus the in-store rates and as consumers continue to move to web rates, do you think this also -- so there would be -- it’s considered such a three to five mile business from someone's home, but as rates become more and more transparent and competitive, have you seen any sense that consumers are willing to drive further in order to chase lower rates available on the web?

The other day I did a study of consumers coming into our New Jersey city property, which has very aggressive promotional rates and there is certainly a number of customers coming outside the historical three mile radius. We're getting people from the Bronx, from Brooklyn, from distant parts of New Jersey. So people are definitely migrating or figuring out a way to get to our Jersey City property. And we saw the same thing in Gerard when we opened that up.

[Operator Instructions] And your next question comes from the line of Gwen Clark with Evercore.

Can you run through the top 10 market performance on revenue and NOI? I know you went through a bit of it, but if you could just say them all, that would be helpful.

So Los Angeles, which is our biggest market by far, which represents about 15% of our revenue was up 6.2%. San Francisco, 4.7%; New York was up 2.8%; Chicago, 2%; Miami was up 3.3%; Washington DC, 2.6%; Atlanta; 4.6%; Seattle, 6.7%; Houston was down 1.4% and Dallas was up 3.5%. Those were the top 10 markets we have.

Gwen, that’s revenue growth.

Okay. Is it possible to do NOI also?

Sure. Los Angeles was up 7.5%. San Francisco, 5%. New York, 2.4%. Chicago, 0.3%. Miami, 2%. DC, 0.6%. Atlanta, 5%. Seattle, 6.6%. Houston, down 4.2% and Dallas, up 2.3%.

Okay. That’s helpful. One other quick thing. You gave the Denver growth rates for the first quarter, is it possible to get the revenue growth in Denver for the fourth quarter?

Denver was down 1.1%.

In the first quarter?

Yes.

And do you know what it was in the fourth quarter?

In the fourth order, I do not have that here. No.

Okay. Separately, on the acquisition front, can you talk about the rationale to continue to buy sites at softening macro environment and weak rental rates? I do understand that you're not buying much, but if you could just walk us through the rationale that would be great.

Well, I'd say we're not buying much, so it's harder product to pencil, given the environment. If I talk about the acquisition environment as a whole, I'd say today, there's quite a gap between buyer and seller. We're not seeing much product come to market and the product that we are seeing is of lower quality. Not a lot of deals, transacting, It's a much different market than just a year ago where we were still in the, I would call it, the lay other stages of the feeding frenzy and that has certainly dissipated. People are much more cautious and as someone mentioned obviously, potential buyers are underwriting much more conservative, probably street rates as well as growth rates. So the acquisition environment overall has changed quite a bit over the last year.

You have a question from the line of Smedes Rose with Citigroup.

Hey, Ron. It’s Michael Bilerman. I had a couple of questions. You talked a little bit about increased marketing spend. Can you talk about the other aspect of promotional discounts, you've been running around 80 million, 83 million in the last couple of years. I guess, what's the cadence right now in terms of your promotional discounts that we should be thinking about to stimulate increased activity.

Michael, actually Q1, our promotional discounts were down slightly year-over-year about $700,000. But that’s in part rates were, as John touched on, basically flat and move in volume was down. So assuming move in volume picks up with respect due to television and Internet marketing, and I would expect the absolute dollar of move in discounts to increase.

So the spread between move ins and move outs which had been a negative drag in ’16, what was it in the first quarter?

In the aggregate, Michael or you want it by monthly rates.

I guess just in the aggregate, that would be helpful.

Yeah. I think it would be much more helpful. So in the aggregate, the rent rollout between move ins and move outs first quarter of 2017 was about 1.09 million negative. That compares to about 700,000 negative roll down in Q1 of 2016.

And where are you right now in your annual rent increases that you're pushing through, because that’s at least a helpful offset to drive revenue growth?

We're still moving forward with the same strategies we’ve had since the past couple of years. I'll be much more cautious in terms of how we're doing it and testing the waters to make sure that we're not disrupting the length of stay in the long term tenant, but so far and it's really early, so far, nothing has led us to believe that we should change that strategy yet.

And then just the balance sheet corporate structure question, Ron, we had talked, I think it was last year when you were inverted on a multiple basis, an implied cost of equity to where your preferred is and you're probably 25, maybe 40 basis points wide today, do you have any thought to a stock buyback, given where your implied multiple and equity cost is.

Well, Michael, the preferred market, if you recall post our 4.9% issuance last October, really backed up those issues traded down. We have seen some modest resumption of activity in the preferred market and interest rates have come back down post the Trump election. So we'll wait and see what happens, but I can tell you at the forefront, for John and I, in terms of capital allocation, we're always looking at, are we doing development, are we doing acquisitions that we'd be doing share repurchases. We're looking at that menu all the time.

Yes. And how it's still your pecking order, your preferreds are probably 5 in a quarter and your implied equity is probably in the high-4s with growth that’s still coming, so I just thought the math could work today and I didn't know how aggressive you would actually want to be?

Well, as you can see from our balance sheet, we have tremendous financial flexibility to do whatever creates the most meaningful value for shareholders.

I don't know if that's a yes or not, but I will yield the floor.

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

Hi. Thanks. Just a follow-up. Ron, I wanted to just circle back again to the comments you made about the macro factors impacting the business a bit and as we think about self-storage as a needs based product or service, I'm not sure I fully understand your comments whether you've witnessed a change to consumer behavior as it pertains to self-storage at all or if you're simply just saying that the consumer appears to be sort of stretched or tapped out a bit?

The latter.

Okay. And then --

And why do I say that Todd, well, we opened Jersey City 60 days ago, 4000 units, 10% occupied. We opened Red Hill down in Irvine, California little less than a year ago, 3000 units, it’s 55% occupied. So there's no change in customer behavior. Our volumes are still good across the platform, but just not as robust as they were. So when you start to think about why aren't they as robust, unemployment's flattening out and the customer -- our customer has a fair number of headwinds that they’re facing. But their use of storage is building.

Okay. And would you say that the use of storage from some of the different sources of demand is consistent throughout also, students moving related activity commercial uses. Have you seen any change to any one of those different sources of demand?

We don't track that, but we haven't seen any change. Our college properties are still behaving as our college properties, but we have commercial tenants around us. They're still behaving the same way, but in terms of absolute change, I couldn't tell you.

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

Thanks. Ron, is there any reason why development should really slow down at this point.

Is that a question for Public Storage or is that a macro question?

Macro.

Macro. Well, if you're a local developer or a regional developer and you've decided to build, you probably have created an infrastructure for yourself, you’ve hired site acquisition people, you’ve hired construction people, you've hired development people and you're developing and you've got this overhead. And more likely than not, given the way developers behave as you're going to continue to build until the capital dries up. Now, it has made sense for these local regional people to build because they are monetizing their developments, unoccupied at 1.5 to 2 times what it cost to build a product. So if you're that person and you can monetize it at those multiples to cost, you're going to build as much as you can. The challenge then for that person is, as the market changes, as buyer expectations change and buyers dial back their -- the multiple of costs that they're willing to pay or don't even want to buy. As I mentioned, Life Storage just said we're out of that market. So as buyers kind of dissipate, then those developers are stuck with the product and they will build out, assuming they have the financial capability, they will build out the product, but then they will slow down and/or stop development.

And just gut opinion, how far are we from any kind of slowdown or is this still kind of a green light, besides that?

Well as long as you can do that, so the fundamental economics will take a back seat, so there was a self-storage convention, I think a month or month and a half ago and my guys told me, it was a record attendance. So I would say that and the word is develop, develop, develop. So I'd say we're a ways from the new product supply slowing down.

And maybe I just missed this, but I don't see where you're developing in some of your releases. Apologies if I just missed it, but can you just talk about where your development projects are?

Sure. Our largest market is Texas. Dallas and Houston where we've been developing for quite a while. Texas is, our pipeline is 5.2 million square feet. So Texas is half of that. California is about 1 million square feet. Colorado is 0.5 million. Ohio is 100,000. Florida is 300,000. Washington, state of Washington is 3. Seattle is 342,000. North Carolina's 170,000 and then it kind of spreads across a variety of other states.

Okay. If I could just squeeze one more in?

I think that’s three, isn’t it?

I was wondering if, given the kind of slot Texas is in, longer term it's not really that much of a concern, is that why you're comfortable doing Texas at this point.

Well, this is stuff key, we have under construction. So we made a decision last year to build and so we bought the line and we're building.

The next question comes from the line of Jon Hughes with Raymond James.

Hi. Thanks for taking my question. Just two for me. Could you clarify the Houston rental rate growth number? Was that down 8% from last year's rate or did the growth in rental rate flow from positive 7% last year to negative 1% this year.

That's where the Houston Street rate growth is year-over-year as of yesterday.

Okay. So it’s actually down 8% year-over-year.

It is used in revenue growth -- same store revenue growth for the first quarter was down 1.4%.

Right. And it was up 6.8% last year on a perfect basis? I was asking if the actual rate was down 8% or if it just slowed to 8%?

No, it's down. The street rate that we are asking today is down 8% versus the street rate we were asking last year.

Okay. And then one more supervisory payroll and allocated overhead, that’s included in same store expenses increased about 7% year-over-year. What drove that increase and is this expected to moderate through the rest of the year?

The increases, a few more district managers, some pay increases and then Joe Russell who's running operations is in that number. So he popped into that number I think in the third quarter of last year. So it'll be up year-over-year through the second quarter and then it will be moderate in the third and fourth quarter.

Your next question comes from the line of Ryan Burke with Green Street Advisors.

Thanks. John, a couple of calls ago, you defined move in demand as call volume plus Internet traffic plus walk ins. And at that point, call volume was up, Internet traffic was flat and walk ins were down about 7%. Are you able to quantify what happened in those three buckets for the first quarter?

Yeah. Let me give you -- this is just with respect to our same store, so I don't have a whole -- so we kind of allocate to our same stores, but it's pretty close the whole so to speak. So calls into our call center were up about 1%. The inquiries into our website and combining our desktop and our mobile were actually down about 5%. Walk in traffic was down 9% year-over-year for the quarter.

All right. And then Ron, you mentioned the wide bit of spread between buyer and seller. How much higher would cap rates be if that spreads were to close today would you say?

In whose favor?

In the favor that -- whatever favor it should go, in your favor, let's say.

Well, so the buyers are for the most part north of the trend line. Well, last year, deals were done at about 4 to 4.5 cap rates and I think we're back up to about 5.5 to 6. But again, Ryan, there's not a lot of product trading, so that's best guess number. There's not a lot of transactions to say, there's the number.

Okay. So you're not saying the cap rates you think are up 100 basis points, you think that's where the buyer expectation is and maybe if there's a spread, it's up 50 basis points or?

Yeah. There's not enough transaction volume for me to say exactly what it is, but most -- buyer expectations were still at last year's cap rates and seller's expectations of what the purchase prices has changed. And so that gap is creating a slowdown in transaction volume.

Okay. So seller expectations have actually moved higher than this time last year from a value -- property value perspective?

Yes.

Okay. And actually last question here. In the 2016 acquisition bucket, your contract rents are down pretty meaningfully. Is that to say that you guys actually cut rents in those properties or is that more just a mix of the properties that you owned during the first quarter of last year versus those that you owned for the first quarter of this year?

It's a mix. Ryan, the first quarter last year, we had predominantly bought some properties in Florida and higher rate markets and then throughout the year, we were buying some properties at lower rate markets, for example in the fourth quarter, we bought portfolio properties in Oklahoma City, which is a lower rate market and the Florida market. So it's just truly just a mix, it’s not because we’re cutting rates in those particular properties.

Our final question comes from the line of [indiscernible] with UBS.

Hey, guys. I joined a little late. I know you went over some of this, but on the move in versus vacate rents, you gave some of the details there and I thought in the 10-K, you did a good job of explaining how that played out last year. And then on the first quarter, it sounds like you're saying the delta got a little bit worse versus a year ago. And so what I'm wondering is how should we think about that impact for the rest of the year and particularly what's going to help that? Is it just street rate growth going up or you’re just facing just some natural high rents burn off from some of the vacates that your street rate growth can't really make up for?

I think that obviously we would like to see the street rates get much higher than what they are today and combined with increased move in volumes or at least move in volumes better able to offset the vacate. In terms of the vacate rate, we're starting to see a slowdown in the actual rental rate, the year-over-year rental rate that they're paying. So the Delta right now is, they will be now paying about 137 bucks a month versus last year they moved out paying about 134 bucks a month. So that’s about a $3 delta. That delta has been narrowing, which is somewhat of a good thing, because it gives us a lower hurdle on the move in rate to cover. But still right now, it's about $13 negative delta between our move ins and our move out rates. So the move in rates is about 124 bucks a month. So that's the key, at least in my mind right now is to get those street rates up. But we also need to get them up with the additive moving volumes, so that we're not losing occupancy.

I would add that in the first quarter, there is generally a negative spread because the rental rates, the street rates are lower than they are as we head into the rental season, April, May, June, July, August. So as that plays out over the course of the year, that gap should close. We'll see whether move in rates achieve or exceed move out rates.

At this time, there are no further questions. I will turn the conference back to Clem Teng.

Thank you for participating on our call and we look forward to talking to you in our second quarter. Thank you. Bye.

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