Public Storage (PSA) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage Fourth Quarter and Full Year 2019 Earnings Call. At this time, all participants have been placed in a listen-only mode. And the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Ryan Burke, Vice President of Investor Relations. Ryan, you may begin.

Thank you Maria. Good day everyone. Thank you for joining us for our fourth quarter 2019 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 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 February 26, 2020. We assume no obligation to update or revise any of these statements whether as a result of new information, future events or otherwise. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find that press release, our SEC reports and an audio replay of this call on our website at publicstorage.com. We do ask that you initially limit yourself to two questions. Of course, if you have additional questions after those, please feel free to jump back in queue. With that, I'll turn the call over to Joe.

Thank you Ryan, and thank you for joining us. We had a good quarter where we reported our seventh consecutive quarter with same-store revenue growth between 1% and 2%. As we previously disclosed in an 8-K filed on February 14, we submitted a non-binding proposal to acquire 100% of the stapled securities of Australian-based national storage REIT and its controlled entities for AUD 2.40 per share Australian dollars. Please refer to the 8-K and we won't provide any updates on this call. Now, I'd like the call to be open for questions.

Thank you [Operator Instructions] Our first question comes from the line of Shirley Wu of Bank of America.

Hey, guys. Thanks for taking the question.

Hi, Shirley.

So my first question is on the marketing spend. So it's up roughly 50% in 2019. So I was curious as to what your thoughts are on the effectiveness of any incremental spend? And how you think that's going to trend in 2020?

Sure. Shirley, it's Tom. I'll speak a little bit about our advertising spend in the quarter and then outlook as we head into 2020. So we've been communicating a pretty consistent strategy on advertising throughout 2019. We've liked what we've seen with the increase in spend through 2019. And so as we've spent more money, we liked the demand response we received from customers. Advertising was up 40% in the fourth quarter. That rate of growth did moderate from the third quarter and as we've discussed on our last call, we proactively pulled harder on the advertising lever in the third quarter during the busy season to attract more customers during that time period. Stepping back, we continue to have real advantages online. Our brand name which is synonymous with our product and a top-search term drives a meaningful portion of our move-ins either direct to site or through unpaid channels. Roughly two-thirds of our move-ins come through unpaid channels. Those are our largest channels. In addition to that about half of our paid move-ins come through brand search and brand advertising, which comes at a lower cost. So those give us some advantages with which we are utilizing today online. We talk a lot about Google. Google is a primary portion of our advertising spend, and we really like that tool given it's dynamically managed and very local and granular, so we can set our bidding strategy similar to how we set our pricing on a very local level. But in addition to that, we do utilize social media and affiliates as well. So we spent a lot of time talking about Google, but it's a broader marketing plan. As we head into 2020, I would anticipate that if we continue to like the incremental traffic that we're seeing from the advertising spend that we'll continue to spend. And so far in 2020, we continue to like what we've seen. So, we would anticipate that we continue to pull on that lever along with rental rate changes and discounting to drive traffic to our stores in what is a -- what remains a challenging operating environment.

Got it. That's helpful. So -- and then on the flip side, can you talk a little bit in terms of what you're seeing for your move-in rates in 4Q, and so far into 1Q as well as street rates?

Sure. So, as you know Shirley, we don't really like to talk about street rates. We think that move-in rates are really more valuable. So move-in rate were 2.4% in the quarter, which is a little bit better than what we saw in the second and third quarters. But we did have lower move-in volumes. The move-in volumes were down 3.5% in the quarter compared to roughly flat in the second and third quarter. So, while move-in volumes were down 3.5%, we continue to be benefited by lengthening stays of existing tenants and continued very good performance by existing tenants. And so, move-out volumes were down 1.5% as well. So continued good -- good trends there amongst initial or existing tenants, but the initial acquisition of customers remains challenging in this operating environment.

Got it. Thanks guys.

Yes.

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

Hey, Joe. Hey, Tom. Joe, I wanted to go back to NSR. I understand you can't comment on the process here, and that's not where the question is related. I guess as I think about what you have going on in the U.S. you have a lot going on in the developments and expansions. You've been increasingly active on acquisitions. You have the broader CapEx program. You initiated a while back and that's still ongoing. You got some tech initiatives. We all know about supply in the market, the pressure on revenues and expenses. I guess you take all that together, why would now be the time to look to make a move outside the U.S. in a big way?

Well, Jeremy, I appreciate, and you did a good job characterizing the variety of things that we're looking to do from a capital allocation standpoint. So as an entity, we have and always will be inquisitive along a number of different fronts whether it's within our borders here or where opportunities may lie outside of our borders. You can see that from obviously the investment that we made into the Shurgard platform a number of years ago. We have talked over the years about, again the outlook and the desire on our part to continue to vet and understand markets outside of our borders. And with that we're going to continue to look for those opportunities as they arise. Looking at the things you talked specifically about, yeah, we have had over the last year in particular or particularly strong uptick in the amount of volume that we've done, particularly tied to acquisitions. We're seeing a healthy amount of attractive opportunities that continue to lead to the kind of volume that we did in 2019 where we bought approximately $430 million of acquisitions, 44 separate properties. And again that's higher than the volume that we've done in the prior four years. So, we continue to vet and leverage our relationships, leverage the amount of opportunities that we're seeing out in the market and we're seeing good trends. We also have a decent backlog of acquisition activity going into 2020. So, we continue to be equally focused on everything that happens right here within the United States. And then from time to time if things happen outside of our borders, we're going to take a strong look at that too. You mentioned the development and redevelopment activity, that too again for 2019 with a vibrant part of our business. We brought 40 properties online whether from ground-up or redevelopment; again about $375 million of investment. And again, if you combine that activity with the acquisition activity, we brought in about 85 additional assets into the portfolio. We think they're great additions to the platform and we will continue again from the development -- redevelopment standpoint to fund that business as we're finding attractive opportunities. We're seeing good land sites that are coming to us. I would tell you frankly, we're seeing more of those right now than we have in the last two or three years, because there is a little bit of rewinding relative to some of the spec development that has been going on in certain markets. So we're seeing a number of additional land sites that are attractive. So we're going to continue to look at that. So overall I mean we've got a number of very positive things happening. The management team is well-prepared to embrace the kind of volume and again from a capital allocation standpoint, the way that we can drive good returns to our shareholders. And we've -- no confusion, our balance sheet has been and continues to be ready to fund a whole range of different capital allocation initiatives. So we continue to be encouraged by what we're seeing out there. And like I said, looking at the beginning of this year we've got some good momentum at hand.

Thanks for that. And the second question for me, in your 10-K you do alluded to the Prop 13 initiative on the ballot granted timing of any reassessment, or it getting actually to happen if it passes is uncertain, but if there -- is there anything you can share with us on the potential impact if it did pass? Or any color on your assets there? And what that mark-to-market could look like on the tax side? Thanks.

Sure Jeremy. So we do benefit from a very strong portfolio of about 440 properties here in the State of California and many of those assets are in great locations and were acquired or built by the company years ago, which gives us a great competitive position in many of our markets. So we like -- we really like the portfolio. In the 10-K you highlighted we did include some disclosure. I think that's the best information we can give you to allow you to be able to underwrite what you think the impact would be. So we provide to you in that risk factor what our 2019 State of California net operating income is and also our property taxes for the State of California. So, depending on what time period or valuation strategy you think will be employed, you can model what you think the impact will be.

Thanks.

Thanks, Jeremy.

Thanks, Jeremy.

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

Hi, thanks. I just wanted to ask you a little more on the acquisition side. You had pretty high volume in 2019 and it looks like 2020 is starting out ahead of where you were at this time last year. And I mean, would you expect that you could see the same kind of volume -- acquisition volume activity this year that you were able to put up last year?

Yes Smedes. It always tough to predict. I'll just try to answer the question around. Again the number of things that are driving the opportunity set that we've been able to capture. So we are seeing a higher level of sellers coming into the market that have either acquired or built assets over the -- say the last three to five years with certain sets of expectations, many of which have not met either pro forma or have not basically put them in the position that they expect it to be in at this point. A number of the deals and frankly the majority of the deals that we did in 2019 were off market, so some of this comes with enduring relationships that we've got with these owners. And again some of that's harder to predict to get to your question well how much volume might we see in 2020. The thing that it is pronounced and I think we talked to quarter-by-quarter last year was the theme of more owners coming to us with more anxious motivation to get out, right? So with that, it's again a more vibrant arena. Our acquisitions team is very busy, looking at a number of opportunities again with the kinds of circumstances that I described. And we also have a number of owners who have also come to us and said, hey, it's been a great business. Timing is right. And they too want to exit for a variety of different reasons. We continue to evaluate the quality and the pricing of these assets. Our filter is as tight as it ever has been. And frankly with that we're off to a good start as you mentioned in 2020. How much of that plays through for the balance of the year to be determined, but if you step back and look at the wave of development activity in particular that's taken place over the last four or five years there's a pretty strong collection of assets that have come into various markets many with ownership histories that have nothing to do with long-term commitment to the storage business. And there are a lot of entities out there who are looking for exits. And we've been pleased by again the amount of volume that we've seen come through the quality of the assets and in our view again the appropriate time to acquire and see ultimately good returns from those investments.

Okay. Thank you. And I just wanted to ask you you've lined out development spending. Just when you look at the quality of your portfolio now you've talked in the past about bringing some of the older facilities kind of more -- have more curve feel for lack of a better word. Do you still -- is that still a pretty big effort to be done this year? Or did you -- how much of the portfolio I guess do you feel like needs to I guess be improved from a looks perspective?

Yes, sure. So yes you're speaking to what we call our Property of Tomorrow program. So that launched in 2018. Last year we put about $100 million into that platform where we retooled approximately 250 assets or so in a variety of different markets. And if you look at 2020 the size of that program will take another step up. So it's a multiyear program. We're embedding a number of our latest generation assets into existing assets to get the not only curb appeal impact, but relevancy to our brand; the optimization of some of the physical characteristics of the asset where we're retooling lighting, for instance; in some cases we're putting solar on assets; we're optimizing the customer environment; and doing a number of different things to again enhance the overall quality because frankly we've got many assets that continue to do phenomenally well. And we've just gotten to the point where we think that ultimate lift to our most recent generation five quality standard is very appropriate. Customers are responding well to it. Our employees are responding well to it. We're prioritizing as we're ratcheting through the full portfolio. And again this program is likely to take five years or more to get through the portfolio at large. But we are prioritizing around market concentrations higher revenue markets where we're seeing even better impact from that investment. So all things considered we're seeing good traction from the investment in the program and it will continue like I mentioned over the next few years.

Great. Thank you.

Sure.

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

Thanks. Good morning. Tom, I don't think in the 10-K you explicitly provided kind of the fourth quarter average move-in rates or the move-outs. I guess we sort of backed into the numbers for both of those and got about a 17% decline. I was just wondering if you a had those? Or does that sound about right? And I know you don't provide guidance but do you feel like that number is kind of getting towards the bottom? Or do you feel like that can continue to sort of widen out a bit? Because if that 17% is right that was probably the widest number we've seen on that statistic.

You did a good job with our numbers. The gap between move-in rents in the fourth quarter and move-out rents on a per square foot basis was 17%. If you look back at prior year it was 16%. And so while it did get a little bit wider. That's a seasonally wider time period. And so that obviously sounds like a reasonably large number but we lower our rental rates seasonally through the fourth quarter and in the first quarter as occupancy dips and we have vacancy to fill. So that's a strategy that we've employed year-in and year-out for a number of years and you saw that again this year. In terms of overall move-in rate trends, I think it's really a story of markets and it's hard to talk about at a high level what it is we're going to see for 2020. But if you look at the different market performance in the fourth quarter, you have markets that have been impacted by new supply where move-in rates, we lowered proactively to drive volume. So a market that I'd highlight is Houston and we're seeing some encouraging trends in Houston as it relates to year-over-year move-in performance as we went through the fourth quarter and into the first quarter, but it's come at a lower rate. So fourth quarter move-in rates in Houston were down 16%. But for the first time in a little while in 2019 we started to see real volume in Houston. So move-in volume was up north of 5% in Houston and we're seeing better traction as we go through the first quarter. We have markets like Houston or Atlanta where the impact of new supply continues to be felt and we have little pricing power in those markets where we're utilizing rate and we're utilizing advertising to fill in occupancy. The good news is, in Houston we are getting good occupancy traction. Right now we're sitting at 300 basis points plus year-over-year occupancy, just looking at my dashboard this morning. So getting some good occupancy traction, but it's coming at a lower rate. And then going to flip side a market like L.A. where we had positive move-in rent growth in the fourth quarter. So stepping back, we continue to think there's going to be ebb and flows through markets as they're impacted by new supply in 2020. Just as another snapshot in the fourth quarter of 2019, we reported 1.1% same-store revenue growth. In the fourth quarter of 2018 we reported 1.2% same-store revenue growth. So pretty consistent revenue growth, but if you look at the contribution from the different markets, it's a barbell and you've got markets like Chicago, Denver and Dallas that actually are the best year-over-year change in revenue growth. And the flip side is, you continue to have Houston be a laggard; Atlanta as I highlighted and Boston that was impacted by new supply in 2019 that impacted us. So another quarter of reasonably consistent revenue growth in the fourth quarter, but the market contributions continue to shift as we navigate through as -- a tough operating environment.

Okay. I guess maybe second question just kind of big picture maybe for you or Joe. Just in terms of like the pressure from supply. I mean it's interesting to see that revenue growth or decline in revenue growth seems to be stabilizing a bit. And frankly it was a little bit better in Q4 than we thought. Generally speaking, I realize the markets will change and mix around. But do you feel like the overall competitive pressure from new supply is beginning to kind of find a footing here? And maybe it doesn't get a lot worse from here? And the question then is how quickly can it improve in '21 and beyond? Or do you still feel like there are more supply coming and there's more competitive pressures as we move into 2020? And how does that sort of play into the -- I guess the Google spend on the advertising side?

Well there's a lot of correlations between all those things, Steve. And you're right we are seeing less deceleration. We feel like we have a strong tool kit to continue to maneuver through higher supply markets. As Tom mentioned some of that is shifting the supply picture nationally. We'll have another strong year of deliveries in 2020. It could be plus or minus say 10% down from what we saw in 2019. Again these are elevated levels of construction that we're now going into the fourth year of a range of anywhere from $4 billion to $5 billion in deliveries. And again, if you don't have the right playbook to deal with supply as it impacts particular assets say right down to that 3 to 5 mile trade area, you could definitely have some pretty strong headwinds to deal with. And frankly that's where we continue to see some not all, but some of our acquisition opportunities as well. The interesting thing and it ties to the resiliency of the product overall the resiliency of our own brand, et cetera is we are seeing deliveries come down in markets like Denver, Charlotte, Houston, Austin and Chicago; and not ironically those are some of the markets now that we're actually starting to see some decent percolation, and we're encouraged by that. Now going into this next year, we've got our eyes wide open on markets like Portland, Boston, Seattle, Miami, D.C. and New York, because there's more deliveries coming to those markets, some of which haven't had the kind of development activity in quite some time. But reflecting on some of the comments Tom just walked you through relative to again, the ways that we're using our own brand, our marketing strategies, the ways that we're improving the quality of the assets directly themselves, the way we're doing our own revenue management pricing strategies. I mean, we continue to have ways that we feel are strong components to work through these higher supply conditions. The outlet -- or the outlook beyond even this year is more murky. We are seeing fewer C/O deals get delivered to the market. I think that's an encouraging sign. There may be some tapering down of the part of the market that was driving again share development just based on spec developers out there just flipping an asset and trying to get a quick return, because there were many buyers that were basically just aggressively taking down empty facilities. That volume is down quite a bit. And part of the reason it's down, again, it's -- you could look at it and say this is probably a healthy thing as rents are down too. So they're not making the pro formas that they intended to maybe when they acquired that piece of land or had it tied up. So there are a number of things that are starting to work through that hopefully will lead to a more balanced market-by-market set of conditions. But again, this year in 2020, we still got the lingering impact of the supply that's been built over the last say two to three years. We'll have again a number of deliveries this year. But we're highly encouraged by our own capabilities and the things that we can do uniquely enough to keep again this band performance at least what you've seen for the last seven quarters in pretty tough market conditions. If things actually start improving then we'll hopefully see the upside of that too. It's too soon to tell. But again, we'll continue to use all those tools that we've got.

Great. Thanks.

Thanks, Steve.

[Operator Instructions] Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

Hi. Thanks. Just a quick follow-up on Steve's question there about revenue growth. Maybe taking a step back and thinking about it at a high level, Joe you just commented again and in your prepared remarks, you mentioned that it's a seventh straight quarter of revenue growth between 1% and 2% for the company. Do you see that continuing to hold?

Well, again, Todd, we're not going to give guidance. Again, the point that I just made and to Steve's question was tied to the fact that, yeah, we've got tools. We've got ways again to continue to deal with higher supply conditions and we'll have to see how that plays forth going forward. The deceleration that we were dealing with has eased. Will it continue to ease? We'll see. But again, we feel very confident that we've got the right set of strategies and capabilities to deal with the environment that we've had over the last two or three years.

Okay. And then -- so switching to investments and thinking about an expansion overseas. You're invested in Europe and have a platform there. But in terms of thinking about investments outside of the U.S. or halfway across the globe, can you just help us understand the synergies from investing outside of the U.S. that may not be obvious for self-storage?

Yeah. The only thing I really speak to Todd is what we've said consistently for a number of years, which is we will continue to evaluate a variety of different markets. It's likely, but not always, but likely beneficial to enter any market we're not in through some kind of a platform. So -- okay look at Shurgard. That was the platform okay? So does that mean that's the one and only way to do it? Absolutely not. Is it a way that can have certain advantages? Yes. So -- and then beyond that as I mentioned in my opening comments we're really not going to talk more specifically about any particular transaction we're looking at. But that again thematically is and will continue to be the way that we'll evaluate any opportunity not that again it has to be tied to a specific platform but there are many inherent benefits that will likely come through, if it's the right type of platform that aligns well with what we do right here in the United States. Shurgard was a perfect example of that. So I can just point to that and say that's -- that was a very successful playbook.

Okay. And to the extent you were to make a large acquisition something in excess of the sources of capital that the company has over say the next approximately 12 months, how should we think about -- obviously, you have a lot of capacity and access to capital but how should we think about funding a larger investment if something were to materialize?

Yeah. We're not going to comment any specifics. But balance sheet is in very, very good shape. Last year was a good capital raising year for us. We extended the line of credit. We issued $1 billion of preferred. We redeemed $1 billion preferred. We issued some debt in the U.S. We recently issued debt in Europe. So we've got a lot of capital sources at our fingertips and capital is pretty attractively priced today. So overall, we like our capital sources heading into the year regardless of what the capital will be allocated to.

And maybe to put the exclamation point on that the balance sheet has never been in better shape so.

Okay. Thank you.

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

Thanks. Just going back to the Prop 13 discussion. Could you give us a sense of their average tax year basis in California?

Well, I think what we've disclosed we feel is adequate for you to be able to do some underwriting. If you want to talk through that on a one-off basis we can certainly do that. But I think we disclosed $42 million of property taxes paid in 2019 and we disclosed our California NOI. So that should give you an ability to underwrite different assessed values and compare those assessed values and ultimate taxes to what we paid last year.

Okay. And going back to your acquisitions, I'm just trying to get a sense of if there's been any incremental change in the thinking strategically for -- about your excellent growth? And basically trying to get a sense of are more assets and deals just fitting in the parameters that you have always set? Or are you also expanding the parameters that you're looking for? Or our IRR thresholds?

Yeah. I mean. We're never -- we've never been an IRR buyer Ki Bin. But no I wouldn't say in any way, we've widened our underwriting and made some additional accommodation to what we've always done historically. We have a pretty stringent disciplined methodology that we use for acquisitions. Again, we're -- frankly we're just -- we're pleased by we're seeing good quality assets and more of them that meet our thresholds. And we've been pleased by the amount of volume that's come to us. And we're going to again continue to stay focused on the range of opportunities that are out there and the team is working hard. And many of these situations don't evolve at a moment's notice. Some of them take many years in some cases to evolve so we've got a whole collection of different kind of opportunities around us. And we're going to continue to vet and determine whether or not they're the right types of deals to bring into the portfolio. We like the quality that we're seeing with the range of assets. It's a combination of some more mature assets and some relatively new assets as well. So good quality, good location, very additive to the platform and again -- again like I mentioned in 2019, he pulled in 44 assets. And overall, it's kind of a seamless transition. So ops team is ready to continue to absorb that volume and more and it's all going very well.

And I remember years ago, you guys had a pretty big emphasis on buying things below replacement cost. Is that still the case? And how do some of these deals compare to replacement cost?

Yes we definitely -- we strip out a lot of different financial factors and compartmentalize them and that being one, okay? So just again to step back I mean, we have the only development platform in the public arena and we by far have the biggest development platform in the United States. We understand replacement costs, quite well. We deal with it literally on a daily basis as it ties to our own development and redevelopment activities. It's a great benchmark for us to continue to evaluate the price point that we're looking at assets. And that is a key factor that we look at.

Okay. Thank you.

[Operator Instructions] Our next question comes from the line of Ryan Lumb of Green Street Advisors.

Thanks. Just wondering if you could expand on what drove labor costs higher during the quarter? And if it was sort of onetime in nature or if you anticipate this to be some sort of longer-term trend?

Sure. So as you look at labor costs in the quarter, on-site property manager payroll was up about 6%. The drivers of that was largely wages. And we've talked for now a number of years about the very tight labor market that we find ourselves in today nationally. There's certainly some pockets that are even tighter than the national numbers. And so what we've done over time is make sure we're being as efficient as possible. And some of that comes down to some of the initiatives tied to Web Champ 2. And otherwise that we were able to utilize efficiencies and reduce number of hours, but ultimately we've continued over that time period and including last year to increase wages to attract a competitive employee and provide a competitive package for employees to give our customers a good customer service at the property level. So wages is the short answer. I would anticipate that we continue to have wage pressure as we go through 2020. As always, we're looking at the ways to be more efficient and utilize the hours that we have best but would anticipate that wages will be a pressure in 2020.

Sure. And then I guess related to the comments that you made on the Property of Tomorrow initiative. When you think about the expansions, is it a decision that is made based on a market-by-market basis? Some markets are more apt or more suited for expansions? Or is it sort of an asset-by-asset basis? Some assets are well suited for an expansion regardless of market. Or how is the decision made there?

Yes. So Ryan, yes the Property of Tomorrow program isn't directly tied to expansion. That's really tied to like-for-like asset condition. So separately we do have all of our initiatives tied to redevelopment, which would include expansions. So -- and that does go right down to a case-by-case basis. So what comes with that is there are a whole host of roadblocks that you might have to go through depending on zoning any kind of approvals and opportunities to actually expand an asset that at face value may look like a prime candidate, but it may be a condition where frankly you just can't get the appropriate zoning and ability to expand the site itself. So that's one hurdle you have to work through. There are economic hurdles that you have to work through because if we're going into an asset and disrupting current income, it can be quite dilutive in some cases. So you have to measure and understand that as well and then counterbalance it with the kind of returns and opportunities that you would get by putting basically whether it's some additional size into an existing property through a single, larger building or a multitude of again new gen five properties or in some cases actually tearing down the entire site. So there's a whole host of parameters that go into that but it goes right down to a case-by-case property-to-property base.

Sure. Thanks guys.

Thank you.

Our next question comes from the line of Michael Mueller of JPMorgan.

Yeah. Hi. Tom, I think, you were talking about, marketing spend levels, expecting to continue to spend in 2020. Should we be in the mindset of you've seen the spend levels ratchet up a notch on an absolute dollar basis. And you're thinking more about maintaining that absolute level? Or we could see it move up again. And just have notable growth on top of a year of pretty accelerated growth?

Yeah. So we did see accelerated growth, in 2019. But if you go back through 2018, we actually continue to ramp good spend in 2018 as well. And we've liked what we've seen. So, there's no question that we spent more in 2019, than we did in 2018. So your point around comps, as we get into 2020, is a fair one. We don't manage our advertising spend, based on what we spent last year. We manage it based on, what it is we're getting for it. And what the return is on it, in the current period. And so, if we like, what we're seeing, we're going to spend even more in 2020. We won't hesitate to do that, if we like the returns. And the flip side is, we're managing it dynamically. So, there will be markets where we've toned down advertising spend. And ones where we likely increase, as we get into 2020.

Okay.

The one thing I highlighted on the last call was just, stepping back and thinking about advertising spend as a percentage of revenue. And the fact that it was 3-plus percent, historically in previous cycles. And it got as low as about 1% of revenue in 2015, 2016, when frankly we were fall and didn't need to spend on marketing. We've been increasing it consistently over the past several years. And we anticipate that we increase it in 2020 as well. But if you look historically, we're in a comfortable range for advertising spend.

Got it, okay. And then, Joe, looking on the -- looking at the 2020 acquisitions and kind of what I guess what you have earmarked for under contract right now. I mean, what are the buckets that those would fall into, if you split it between -- here's a bunch of what the market would consider to be stabilized properties versus here something that's clearly in lease-up. Can you just kind of walk through what that split have been?

Yeah, Mike. It's a combination. There are assets that are newer, say, anywhere from one to three years old. And then, some that are more stabilized that have been in place for 10-plus years. So, it's a combination. And it's motivated by many of the things I outlined earlier in my comments. Some owners come into the market, thinking they were going to get a quicker profit or be able to turn an asset. And achieve whatever pro forma hurdles they were looking at and kind of step back and said "No, I don't want to continue let's look at a quicker exit". And then, some have been more mature owners that for a variety of reasons too are saying this is a good time to exit. So it's a combination.

Got it, so, total mixed bag, okay.

Yeah.

That’s it. Thank you.

You bet.

Thanks, Michael.

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

Sorry, just one follow-up, guys. On just the Google kind of ad spending and just some changes Google might have made. I think, there was a reference in your 10-K about, maybe level the playing field. I'm just curious is there anything you can share with us about maybe just how Google ad searches are working? And just things that maybe are leveling the playing field there? Is there any real change in that dynamic that we should be thinking about?

Yeah. No, I think, we included that to just describe frankly the evolution of paid search on Google and the other search platforms, over the last couple of years. I think that they've got a great business. And they obviously seek to garner as many competitors in the keyword auctions, as they can. And I think they're doing a pretty good job of it. And we're just highlighting the fact that it's gotten more competitive and they're doing a good job of getting more people into those auctions.

Okay. So it wasn't that there is something more recent that really changed. It's just more the general trend?

Yeah. General trend there and they've got a great business.

Okay. Thanks. That's it.

Thanks, Steve.

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

Thanks to all of you for joining us today. We look forward to interacting as the year progresses. Have a good week.

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