Q2 2020 National Storage Affiliates Trust Earnings Call
[music].
At this time, all participants really listen only mode. A brief question answer session will follow the formal presentation.
If I do want to acquire operator assistance during the conference. Please press Star Zero Wonder telephone keypad. As a reminder, this conference is being recorded its my pleasure to introduce your host <unk> Vice President Investor Relations for natural storage affiliates. Thank you Mr. <unk> you may begin.
Good morning, or good afternoon, depending on what side of the country you're on.
Some of you on this call maybe looking to follow the recent trend of moving out of the big city and into the suburbs I'd like to remind you that self storage is available to facilitate life's transitions.
We'd like to thank you for joining us today for the second quarter 2020 earnings conference call National storage affiliates Trust.
In addition to the press release distributed yesterday, we filed an 8-K with the FCC contained in our supplemental package with additional details on our results, which may be found in the Investor Relations section on our web site at National storage affiliates Dot com.
Today's call management's prepared remarks, I think answers to your questions may contain forward looking statements that are subject to risks and uncertainties, including uncertainty related to the scope severity and duration, but cobot 19 pandemic the actions taken to contain or mitigate the direct and indirect impact.
The company cautions that actual results may differ materially from those projected in any forward looking statement for additional details concerning our forward looking statements. Please refer to our public filings with the FCC.
We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO core at Buffalo and net operating income contained in the supplemental information package available in the Investor Relations section now on our website has in our FCC filings.
On the line with me here today, our and assays CEO, Tim or Fisher, COO, Dave Kramer and CFO brand didn't say gosh you.
Following prepared remarks management will accept question from registered financial analysts I will now turn the call over to Tammy.
Thanks, George and thank you everyone for joining our call today I'd like to first acknowledge and thank our pros and our many team members who continue to work diligently in a challenging environment to deliver what we believe is a very solid quarter given the circumstances.
Oh, I never imagined being satisfied with the negative same store NOI resolved the extraordinary effort by our pros and team members minimized the magnitude of that declined in the second quarter.
Further and consistent with what we've discussed historically, our pros absorb a disproportionate share of downside risk through our structure mitigating the negative impact on cash flow and core FFO per share very challenging time.
As a result, and in spite of the 1.2% decline and same store NOI core FFO per share increased 7.9% in the second quarter compared to the second quarter last year.
This positive result is due primarily to three factors are largely driven by our pro structure.
First our ongoing robust acquisition volume, it's consistently accretive to AFFO per share.
And the internalization of our secure care pro was accretive by approximately a penny per share in the second quarter answered or pros absorbed a disproportionate share of the decline in same store NOI through reduced distributions on the S. P units.
Our unique structure was designed to align the interests of all of our stakeholders in good times and in bad, giving special priority to our common shareholders and we saw this clearly demonstrated in the second quarter.
Well, we're pleased with the overall performance in these challenging time, the Corona virus pandemic and its impact on the economy remain a key risk to our business and I would emphasize health and safety of our employees and customers is our top priority.
It's been proactively addressing the rapidly changing environment driven by the pandemic.
All of our stores remain open and operating in a modified manner for safety and all have contact less rental option.
We have resumed rent increases and auctions across our portfolio, except were prohibited I stayed executive workers.
Cash collections remain at or near our normal strong level and so far have really been a non issue.
Rental activity seems to have crossed in April and has definitely improved since then as many states began phase reopening.
Same store move ins and move outs were down about 28% year over year in April but steadily improved to the point that you moved in volume was roughly flat year over year and move outs remain down about 7% compared to June 2019, resulting in an increase in net move ins year over year and.
Jim.
Steady improvement in net rental activity continued into July and we ended the month with occupancy up 80 basis points compared to July last year.
Further easing of restrictions on rent increases late fees and auction moratoriums I state and local government has been steadily gaining steam and fee revenue is beginning to recover.
In most markets, we're putting auctioned units back into the rental system again.
One important point I would highlight is related to concerned that the inability to auction building what kinda units might have created an occupancy overhang.
Proactively working with delinquent tenant since may and negotiating opportunities for these tenants to pay a portion of their overdue red to vacate their units and avoid the auction foreclosure process.
This is materially reduce the number of pending auction and there's a win win for us and for exiting customers.
We currently estimate that unprocessed auctions overstate occupancy I only about 50 basis points.
So given that our July month, and occupancy was up by 80 basis points year over year, we're now seeing a true net occupancy gain on a year over year basis.
I think the clearly moved in the right direction and we're hopeful we've seen the worst of this downturn, but the resurgence of coded infections across a number of states and uncertainty about how and when phase Reopenings will occur continue to create uncertainty and limited visibility as such we are not reinstating 2020 guidance.
At this time, but we will continue to monitor and evaluate as the year progressive.
Although the environment remains challenging we think that I'd say is well positioned given the downside protection inherent in our unique pro structure essentially no lease up exposure and our greater concentration in secondary and tertiary markets, which have been less affected by code that 19.
Sure, but a number of analyst reports and media article published over the past couple of months highlighting the early stages of out migration from urban areas and primary markets.
More suburban locations in secondary markets.
This is an important trend to keep in mind. When you think about how our portfolio is position and how this shift nearly benefits and I say.
We believe this trend will only gain more investor focus as time goes on.
Brandon will spend more time talking about our balance sheet and liquidity. We were extremely pleased with the execution of our $250 million that private placement transaction, which closed just this week.
The 2.99% coupon on the 10 year notes was the lowest of any tenure public or private notes issued by a self storage right.
On the external growth front, we continue to evaluate opportunities and acquired for wholly owned properties. During the second quarter for a total investment of $36 million.
And subsequent to quarter end, we acquired one additional store valued at $6 million.
Three of these assets, where from our captive pipeline, which remains a strong source of acquisition opportunities for the future.
The external acquisition environment slowed significantly in the second quarter as many portfolios were pulled from the market and bid ask spreads remained wide.
No that operating fundamentals are stabilizing and there's a sense that the worst is behind us we're starting to see portfolios come back to market and overall market transaction activity is picking up.
And I say is extremely well positioned to take advantage of potential opportunities with the reloaded revolver. Following our private placement Oh P units that serve as attractive acquisition currency and the expectation that we will continue to execute I kept his pipeline acquisition.
I'll now turn the call over to Brandon to discuss operating results and balance sheet activity.
Thank you Sami.
Yesterday afternoon, we reported core AFFO per share 41 cents, which represents an increase of 7.9% over the prior year period.
As Tony mentioned this growth was fueled by a combination of strong acquisition volume over the past year end accretion from the internalization them secure care.
The second quarter same store NOI decreased by 1.2% over prior year, driven by 1.1% decline in same store revenues and 1.1% decline in property operating expenses.
Same store occupancy averaged 88.1% during the second quarter, a decline of 140 basis points compared to the same period in 2019.
This effect was partially offset by an average rental revenue per occupied square foot slightly increased year over year. Despite the fact that we pause rental rate increases to existing customers and most of our markets during the quarter.
Same store Opex growth benefited from diligent cost control measures across the board.
Specifically personnel costs declined 2.5% as we optimize nothing hours due to less activity in store offices.
Here's a maintenance decreased 13%.
Utilities declined 1%, partially attributable for benefits from our Elie de lighting initiative.
These favorable expense controls were partially offset by property taxes. The grew 5.5% from the prior year period.
Next let me give some color on the positive trends in July.
Same store occupancy at the end of July was 91.1%, which is up 80 basis points compared to the end of July 2019.
And up 130 basis points sequentially from the end of June.
Same store move in volume in July was 8% higher than July 2019, and move outs were down 20% compared to the prior year.
Cash collections in July remain healthy and we're about 99% of normal levels similar to what we experienced in the second quarter.
Our street rates were down about 5% year over year in both Q2 and July.
We focused on optimizing revenue and believe our revenue management systems have done a good job balancing the gives and takes between occupancy and rental rate during this challenging time.
Now, let me comment on some of our markets.
In General we were pleased that of our reported I'm assays half of them achieve positive same store revenue and then a why growth and of our sixth largest exposure markets for achieved positive same store revenue and I know why growth.
Two of our largest markets Riverside, San Bernardino and Phoenix performed better than portfolio average during the quarter.
Both markets experienced overall slowdowns in new rental activity consistent with the broader portfolio occupancy held study and the Q2 results benefited from rent increases to existing customers that were processed in March before we paused the program due to the pandemic.
In Portland, the second quarter was quite negatively impacted by a combination of the kobin related stay at home orders regulatory restrictions on both auctions in late fees and the existing oversupply issues.
Average occupancy was down 280 basis points during Q2, but ended the quarter down just a 140 basis points.
This improvement continued in July as the month and occupancy was up 110 basis points year over year.
While this trend is encouraging Portland remains the most restrictive market in which we operate the state mandates prohibiting late fee charges and auctions for the entirety of the third quarter.
These are just a few examples of what we're seeing across markets.
The landscape remains challenging and as Tami noted our limited visibility about the continuing economic impact of the pandemic prevents us from confidently providing for your guidance at this time.
That said I do want to offer some commentary about same store revenue growth in the third quarter.
We have a tough comp when we look back at the strong performance in the third quarter 2019.
This year, the lack of rent increases to existing customers. During the second quarter has weighed on in place rental rates heading into the third quarter and we have been slightly more aggressive with lower pricing and discounting to new customers to boost occupancy.
A combination of these factors could lead to Q3 year over year revenue growth.
Equal to or slightly below the negative 1.1% we recorded for Q2.
Now turning to the balance sheet.
Subsequent to quarter end, we paid off $35 million of mortgage debt you only that it was maturing during 2020.
We also closed on a 250 million dollar private placement of senior notes comprised of two tranches $150 million for 10 years at 2.99% coupon.
On $100 million for 12 years set a 3.09% coupon.
Let's take advantage of our low floating rate on the revolver, we have elected to delay funding of the notes for up to three months no later than October 22nd.
We're very pleased with the execution of this private placement that extends our weighted average maturity lowers our average fixed rate borrowing cost.
Clinicians the capacity on our revolver.
Also during the second quarter, we issued 387000 shares of common stock through our ATM program at an average price of approximately $31 per share.
Gross proceeds of $12 million.
We also issued 206000, okay NSP units at an average price of $28 per unit in connection with our acquisition activity.
Our balance sheet is well positioned with the four or $500 million available on our revolver after reflecting the private placement.
Essentially no debt maturities through 2022 unhealthy access to multiple sources of capital.
Our weighted average cost of that at quarter end was 3.3%.
All borrowings, except our revolver fixed rate or swapped to fixed.
Our weighted average maturity was 5.2 years and our net debt to EBITDA ratio was 6.3 times at the end of the second quarter down slightly from 6.5 times up you know the first quarter.
We have no immediate need for capital will be opportunistic about accessing the capital markets going forward.
The strength and flexibility of our balance sheet also positions us well, let's take advantage of investment opportunities as they arise and we believe our well connected network of pros and our ability to offer tax deferred transactions with her opening a currency will continue to fuel our external growth strategy.
Thanks again for joining our call today, let's now turn it back to the operator to take your questions operator.
It should now be conducting a question answer session, if you'd like to be placing the question Q. Please press star one under telephone keypad, a confirmation told will indicate your line is in the question Q.
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One moment, please what we sold for questions.
Our first question today is coming from Neil Malkin from capital one your line is that a lot.
Good morning, guys.
Fantastic quarter.
George I think you had a lot to do that body. So good job on the intros well.
[laughter] [laughter].
First question on on the transaction market, we've heard that.
The market it bounced back pretty quickly in terms of pricing. If there was any change in cap rates Oh, you know during the worst of it <unk>.
Can you comment on sort of the deal maybe that you did it said second quarter and the deal in third quarter I in terms of pricing and kind of what you're seeing.
More like today as more deals are coming back to market.
And then just as a follow up given your performance your stock price performance today are their portfolios that that'd be your criteria considering you could you could issue equity.
Accretively.
Hi, Neal this is tami and thanks for the question, we always appreciate it going out George there [laughter] sure. He is big part of it.
But the I would say a in answer to your question about the acquisitions market. We thought we would see more of a compression in cap rates than we did yeah. As you know that Bob transaction market did slow down in the second quarter beginning mid March.
We didn't see a lot of compression in cap rates, what we closed in Q2, we already had under contract and well those assets came out of our cap. This pipeline, we tend to buy those that a little better cap rate.
Our average cap rates for deals closed in the second quarter I, including the one that we closed in the beginning its third quarter Oh close at about a six and a half cap in mid Sixs. That's what I would say Oh, we are definitely seeing a pickup in activity. There is a lot of capital there waiting to be deployed a wanting to.
Acre increase their position in self storage and I, yet, we do feel that we're well positioned.
Take advantage of opportunities as they become available to us and we'll remain disciplined in our underwriting, but but we're pretty I'm pretty happy with what we're seeing right now.
We do like our stock price today, Oh today, So, we'll see where that goes but we have our revolver available to us fully available to us and we've also been very successful as I think you know and the use of our oki currency.
As a.
Hi, Incenting sellers to sell the I'd say.
Sure I got you on that one.
Last one from me is can you give a sense as to.
How much demand.
You can even discern that is related to doubling up or moving due to their work from home work or job loss.
More moving back in with your mom and Dad, you know typically that that that's a pretty you know.
Quick occurrence I guess so.
Are you seeing any of that or do you believe that that is coming to essentially helps support occupancy through the remainder of the year.
I know this is David that's a good question you know I can tell you. We have had stories of that we witness did I can't put eight an exact number do it as far as how much activity, but we're certainly seeing people empty at bedroom to create an office, you'll empty betters to create placed basis for the children. Some of the small businesses getting rid of tables, you know to make.
Room to have limited capacity seeding, we've experienced that all throughout the country I'm just nothing really significant than we were finger to on how long, it's going to last and how much it's really impacted occupancy.
Okay. Appreciate it thank you got.
Thank you.
Thank goodness question today is coming from Todd Thomas from Keybanc capital markets. Your line is not a lot.
Hi, Thanks, just first question. So following up on external growth I think previously you've talked about.
Growing the asset base 20 per cent per year do you think that you could see or return to that pace of investment activity in the near term.
Yeah, I think I honestly think that we talk more about 10% here to be honest with you Todd.
But I do believe that we can return to that I think that will be our goal. Our original guidance for 2020 was <unk> investment a 400, the $600 million. This year I don't know, we'll get parents yeah. We're getting to later part of the air and seems like we'd have to have things that I know, but we're going to continue to.
Actively seek transactions that makes sense for Austin, and what was them as quickly as as we can reasonably do it. So yeah, we're very motivated on that front.
Okay and.
Sorry about that 20% 10%.
Scott.
Yeah [laughter].
[laughter] and then I know you are looking to round out the map with another pro or two and in certain geographies.
Any update on those efforts is the current environment.
Supportive of of you know additional you know pro adds here.
So I would tell you that in the recent months I would say that has not done really high with eight with our stock price, where it was a b with the uncertainty and self storage and then see as it relates to they just the general economic environment, and so, but I would say thing.
These are changing and I am still optimistic that overtime I can't say, when but overtime I do believe we will be successful and adding one to three more froze.
You know we've talked about it before we're always in conversations with a handful of different private operators.
And but it takes time.
It's time to sort through it, but but I'd say on past I, you know eight to 12 weeks and substantially on Pos.
Okay, and just one more on investments up so you know historically, you've you've refrain from development and buying much product that wasn't wasn't stabilized how would you would you sort of weighed into the lease up market at all for new investments or do you expect to still be buys.
Minutely stabilized stabilized stores.
So you're right. It's the acquisition of non stabilized properties is definitely not part of our core strategy, but we've always said that I, if and when the time is right and if it makes sense. We would we would be open to acquiring non stabilized now stabilized assets to a certain.
So certain level I will never be a huge part of our portfolio. Our investment strategy I don't think but we also expect it to see some change in pricing expectations and what why we're seeing some deals come to market.
There's still a pretty wide gap in the desk and and so at this point in time, we're still watching and waiting and if there was a sizable opportunity I think we we'd be open to looking at that with a with a JV partner.
If and when it makes sense.
Okay, and just last one for for Brandon can can you share you know what the bad debt expense or the reserve wasn't in the quarter that ran through the income statement and how do you expect I you know I appreciate the comments around the the you know the third quarter comp, but how do you expect the.
The reserve to trend in the third quarter as you work through continue to work through auctions and that that backlog.
Sure Todd Yeah. Thanks, So so our historical bad debt expense as a percent of revenue and again. This is all netted with an revenue. So you don't see it.
Clearly on the financials has has been in a 2% to 2.5% range and Q2 is no different I think we're right in the middle of that range July did tick up I'd say towards the high end of that because we did reinstate the auction process across several markets. I think we may see a a little bit of a continuation of that.
Just as we get to the full cycle of auctions meeting the high end of that range, but I don't don't expect it to be dramatically higher. We you know by the time, we're getting to customers who are going through the auction process, we've pretty much fully reserved.
For that affect already and so that's baked into the two to two and half percent.
Okay got it and you you'd expect to be through the auction process by by the end of the third quarter.
It's not it's Dave Yeah, we hope to be I'm, obviously, we still have some restrictions around the country and municipalities and governments that are prohibiting us from completing all of those some of those do stretched through the end of September at this point I'm, you know, Oregon to be in pretty restricted could go even longer than that but as the restrictions lift we're working our way through.
Alright, thank you.
Thanks, I think side.
Thank goodness question three is coming from bottled Kim from Morgan Stanley. Your <unk>. Your line is that a lot.
Thanks, just a couple of quick ones from me why now the July moving volumes down it sounded pretty strong just wondering if you could provide maybe a little bit more color.
Are you seeing any trend is there any parts is portfolio any markets.
You know potential demand drivers.
Just any more color on that would be helpful.
Hi, Good question this is Dave.
No I really think you know July we had lot of our markets performed pretty well with the move in volume in the rental volume I think it all the pros who dialed in all of our all of our teams are dialed in.
We were priced competitively, we had or discounting in place we did a good job on marketing spend and I think you know as a country everybody got more active you know even Portland was positive in move activity in the month of July which as you know something we haven't seen in a while and I know that you've got more active it got more open and I think our strategies.
Really good and everybody executed very well on it.
Great. That's helpful. And then the the second question was just maybe try to try to get an understanding of sort of the guidance parameters I appreciate that there's a lot of uncertainty there, but when you think about the second half of the year I think you've already.
Sorta, but some brackets around what during Q could look like.
Just just curious what what are some of the I know it's right what are some of the things that.
Sort of causing uncertainty that you wouldn't be one set of more more of a road map for us out there.
The guidance from hopefully that made sense.
You did Ron Thank you.
Well I think what we believe is it is that the worst is behind us I and as you mentioned in Brendan mentioned in his comments I eat we do believe that third quarter could look very much like the second quarter in terms of that.
China revenue.
But I will also say that we're feeling a lot better about things today and I and if you assume that there are no additional shutdowns or or shelter in place orders around the country.
We do believe that the last half of 2000 20-F, AFFO should come in and ahead of the last half 2019.
Helpful. Congrats on great quarter.
Thank you. Thank you.
Thank you. That's question today is coming from Smedes Rose from Citi. Your line is our life.
Hi, Thank you I just you mentioned a couple of the properties that you acquired came out of the captive acquisition pipeline.
And I think that Stanton, maybe around 140, or so properties, what what's sort of the I guess the timing of those coming into your system and how does that just you're just a reminder, how does that work in terms of.
You being able to acquire from the captive pipeline.
Well, the cadence is pretty lumpy smedes and and the way I would describe it is that the assets that are in the captive pipeline are our managed by our pros and in many cases they have some ownership many of those assets either have data on them or they are non Steve.
Wise.
Or in some cases, the actual disposition is not controlled by the problem and so we work with our pros to.
Two for them to use their best efforts to facilitate the contribution of the asset do when I say when it becomes available its a little bit hard to predict we have conversations with our pros every quarter about it and and look out you know.
12 months to 24 months said, let's see what's coming.
But but it's not not necessarily a black and white and maybe that is predictable as we would all like.
Okay, and then they and they take typically they would take some okay. Oh p. currency as you described as part of your acquisition.
They don't know pros take S P.
Units and in many cases, if they haven't outside owner that outside owner will take Oh, yes.
And then I mean this is just sort of open ended but I mean your part is the.
You know on the table is a is to potentially eliminate the step up basis, which would apply across multiple asset classes, but I'm. Just wondering if that ability to kind of shield gains to ones. The air as goes away is that significantly change.
You think the way that pros may think about being in this model or I don't know if it's something that you pay a lot of attention to or.
Let me just general thoughts on it.
Well to be honest with you it's not something we've had conversations about recently in terms of potential changes to tax <unk> I will say that Ah conversations that we're having with.
Sellers have all been very favorable on there and at least in terms of what's in place right now and honestly S. A change does come we may see a seller's being more willing to move on things a little bit more quickly so that could be a real positive for us.
Okay alright, thank you.
You bet.
Thank you. My next question. Please go away from Tom Peterson from Jefferies. Your line is alive.
Great. Thanks, I'm, just a few picky questions on markets I just looking at your on your same store page. So, Indiana. It looks like operating expenses were up 38% year over year I Wonder if you could just.
You know, let us know, what's driving that and then you know if we look it looks like the worst markets in terms of revenue were Oregon, and Washington, I know, there's certainly been supply issues and Portland's maybe kind of update us on how you're feeling about a market dynamics in Portland.
Yeah sure John It's Brandon So on the first one India is a property tax item and it's really a comp issue. So there was a a pretty big benefit taken in the second quarter of last year and so we expected that that big increase when you look year over year. When we got to so Q2 of this year, but just just as a hats.
Up in the back half a year we.
Also expect you for the year over year will be a little more elevated because of the same type of comp issue in other markets and then in terms of I mean, I guess just broadly of the markets that.
Underperformed to the portfolio average on a standalone basis as well as as if you just compare how they performed in Q1 and then what the the sequential decline was yeah, Portland, Yes, Dallas you have L.A.
Vegas, those four or so those four I would say are all markets that are properties are specifically challenge will supply issues. So you have the confluence of a pandemic and the resulting in fact of that as well as the existing supply of those four Vegas is probably the one that that that's the least amount on the story.
Got it was similar to Oregon was very restrictive with regard to the types of fees and different normal parts of our business that we should conduct in the second quarter. So that's a big piece of it in Vegas.
Okay, and then I I'm curious does it maybe some more color on July in the first week of August in terms of anything that you guys are seen on which markets are starting to do.
Better or worse than I guess it was we think about how Kobe this kind of spread around I mean, obviously, Texas and Florida has been a lot harder hit I know you guys are New York, but it actually seems like initially people thought it'd be a negative in New York and it's kind of turned into a positive I actually have like a hard hit reagents I'm just curious if you've seen any sort of themes or trends.
You know related to that and the more recent weeks.
Yeah, we really haven't seen much of a change in the recent weeks it's it's.
Just like we saw some uptick in July and August is holding on the same trends. So we're pleased about that you know.
Even though there are some you know.
Takeout is going on I think the active markets are still running pretty active with people get out you know foot traffic is remaining up.
All the metrics, we look as far as web traffic are up I'm. So no significant changes I take them out of the second quarter going through July and in the first week of August so feel pretty good.
Okay. All right that's helpful. Thank you.
Thank you.
Thank you. My next question to me is coming from I read a profit press somebody your line is that a lot [noise].
[noise] [noise] yellow they came up.
Yep Yep.
Yeah, I Wonder if you get more color on that property taxes, so by nine <unk> all that.
No problem then Alex so.
And you mentioned earlier that that's a tough comps and some of his team.
No look into maybe more.
Great recalls in the second yeah for the property taxes on what do you see.
When you tell pace.
I approach in this hobby Trenton, Queen sand or.
What kind of more understanding.
Yes, sure let me, let me take US Yeah Arena. This the brand and so the property tax expense growth that we had in Q2 was 5.5% year over year for the same store pool and at the beginning of this year. When we gave you know our guidance pre pandemic, we talked about an expectation that the full year growth would be.
Five and a half the six mass percent. So so that's in line our for our first quarter, we had some unexpected benefits come in so that was.
You know positive.
And so for the back half for the year, we do know more than we did at the beginning of the year, but you still have some jurisdictions like Florida. For example was a big one that we'll find out here this month.
Those value assessments and the.
Notices of value.
And in the back in the fourth quarter My comments earlier, we're really around the and a couple of Texas markets. We had some benefits come through in 2019, and so that's going to be the comp there, but right now I would say on average we still expect I still expect <unk>, 5.5% growth clip that we have for Q2 I expect something similar on average for the back half.
For the year.
Okay. Okay.
Thank you.
Thank you as a reminder, that star one to be placing the question Q.
Our next question today is coming from Stephen need from anchor capital Advisors. Your line is a lot.
Yeah, Hi, I would just curious in terms of the impact of you know the student population in terms of what normally happens you know in the late August September timeframe, and whether you know this year is gonna be much different in terms of year over year comparisons.
[noise]. So this is Dave that's a great question you know, we certainly saw it in the spring a change in the amount of college activity. We experienced some of it was newer iron or sooner back in March has colleges let go earlier.
We did you see a little bit in may as they actually loud the students to come back and improve their dorms I think the question is run through our mind is I don't believe we got as many college students as we've had historically and so as we look at the back half of August.
We're looking at we May have less move outs and what we had a year ago based upon this activity you know about 15% to 20% of our portfolio as some form of college exposure to it.
And you know as we started to move in activity. We thought it was less this year than what it was in previous years and so you know.
Still to be determined and we'll see it as we get to the back half of August here.
But at this point, we work a little hopeful that we may not have as many move outs.
Okay, and then the construction segment in terms of general contractors, and and people who use storage.
Or you know their construction work.
And what percentage of the total is that.
It's hard for us to track true true business commercial tenants because they rent with individual names and you know when it's really hard to keep a good segment there.
If we thought our commercial was 15% that would probably be a rough average of commercial tenants.
We haven't seen any movement there we haven't seen any change in behavior from that group.
Yes, it's remained steady thus far so we're pleased with that.
And then what are you seeing in terms of new starts and also sort of those projects that were you know underway and also in terms of the permits in terms of new supply out in the future.
So Steve what we're seeing right now with new supply is that those properties. Those projects that were approved obviously the ones that were under construction are going to be completed and deliver deliveries may be delayed for a variety of obvious reasons those that are a proof permitted.
Ready to go our [noise].
Maybe not going forward I had to the degree you might have expected not 100%, but something less than that lenders have pushed away from the table a little bit not is willing to participate and where we've really seen the drop is in planning and permitting so not seeing nearly as.
Much.
Coming up out of nowhere. So I think that's it that's a good sign for us ultimately although it for next year. So we'll continue to see deliveries on a delayed basis.
[noise] just one last question as you look at the your Nonsame portfolio.
And the metrics in terms of occupancy can you generalized.
The that those new assets that you're adding in terms of upside associated with either improvement in occupancy or.
Our rates.
Yeah, Steve It's Brandon.
So the non same store property is I mean, we typically are able to improve those beyond what what we believe you know the sellers were able to operate them out. So there's definitely some upside there are some of that was realized.
In the period of time between when we acquire it and when we've held at long enough for for it to get included in the same store pool. So you don't always see that but but typically the first year that are properties included in our same store pool, we do still see some incremental less this year, we started reporting the different legacy pool result.
And so you so in the supplemental schedule six and seven at the bottom you can always refer to those and and you can kind of see that based on what information. We provide more recent adds to the same store pool do do perform better.
In terms of what we're seeing today and that pool occupancy is a little tough because it depends on markets that Iran, and the occupancy profile, whose b b across the board, but by and large everything I just spoke to we're still seeing those continued trends.
I would use historically seen.
Okay. Thanks.
Thank you.
Thank you next question today is coming from Neil Malkin from capital one your line is that a lot.
Hello again, thank you couple of quick one.
From your peers had pretty significant increases in payroll and marketing on you know for either demand purposes or front line, you know risk purposes for some associates how.
Well, you guys able to keep those cost down or actually.
Reduce them year over year, what do you think drove that pretty large disparity there.
A couple of factors are pros that is a wonderful job with her teams and controlling the environment keeping everyone safe keeping everyone satisfied.
From team member to consumers the vendor all of our partners.
I think it's a tribute to their leadership and how they're able to really manage the teams are we also new during some of that down period, we had very slow foot traffic and so we focus very hard on store hours and staffing levels.
Technology kick in there and allowed us to do some rentals in different ways than we've done in the past and so I think you know if you look at all the team work and the things that they focused on really helping that payroll piece of it I think their environments. They created didn't create a need for us to drive any type of premium pay or any type of no hardship as it went along those lines. So has.
After them and hats off to all of the teams around the.
Gotcha.
Just on in terms of the whole collections, which looks like there's well barely any impact from Colgate, but what are your normal assumptions for [noise].
Collectability.
When you do reserves.
Let's just say a given units you know do you assume like you know, 10%, 20% Collectability and then has that changed in that coated environment.
Yeah, Neel, it's Brandon So the question that Todd had earlier I mentioned, the two to two and half percent bad debt as a percentage of revenue and so what goes into that equation as you hit it I mean, it's right around that 10% to 20% in the early.
In the early stages of when a customer first also linked one on one month and then as they age out further that that quickly escalates up to.
59% to 100% based on their aging profile and so that's that's allowed us to have that historical 2% to 2.5% number and.
Throughout this process, we just haven't seen a dramatic change to the downside on collections and so I believe we're still going to continue to see that my so my response to taught earlier and I think there's some of that we do attribute to the fact that.
Our fees were down during the period as I think you saw across the sector or some of that as you know mandated prohibited we can't charge some of those fees, but we also know where lenient and we worked with our customers and the right thing where it made sense and I think that help our collections with them as well I would agree and it also helped US and you know as we look at the auction process going forward you know we say.
We may have a half appointed occupancy built up in the late auctions and teams did a really good job focusing on these tenants who are behind in working with into the process. As you think it get them either current or get some type of agreement where they actually came in a paid a portion of moved on and so we don't have to auctions human auction human future. So.
Instead, it really good job drought.
Yeah. It sounds like it just one more on that you had 100 units.
What.
Her at 100 delinquent units, sorry, what percentage of that actually engages with your pay to break program.
It's really by a yet I don't know that I have a percentage for its our availability to contact the tenant you know and that's really you know somebody's tenancy there just gone and we didn't have tho contact with them and those move into the auction process without any question. We're in constant contact with the Dennis is still have communication with us and.
We know if we can get somebody to pay a portion of the rent 30 40, 50% of the rent that's better than we're going to take an auction and so we really given the team the latitude to saying go out and reach out to these folks and see what we can get as far as a collection of rent and in some cases rent and fees.
And really working through because that's really better a better ending the auctions. The worst case scenario, it's a lose lose for everyone and we would really not rather not have to do that.
Okay.
Over the last three to four months have you seen notable change in the demographics of any kind in any way.
In your in your portfolio in terms of move in relative to your sort of in place a demographic.
That's a noticeable nothing thats it jumps out to us at all at this point.
Okay, and then last when would you guys. I know you guys don't do that at least that's or you're ready for it but.
Is there a point at which occupancy is high enough for the least has gone far enough that you would be willing to take you know quote unquote not stabilized assets.
Just for the fact that your platform can you know juice, the the and why that you would get compared to that you know merchant or private developer.
Yeah, even there maybe a time, but we're not anywhere close to it we have a bottle levers defaulted to.
Optimize revenue and that that's really what we're focused on a month to month.
And so for now I don't see that as being something we want to do short term in material way unless it really makes sense to US you know from the standpoint of our investment and location at the property in and long term.
Strategic benefits of holding an asset maybe where were building scale or something like that.
I think you guys very much.
Thank you thanks, Matt.
Thank you we reach of our question answer session I like to trigger for back over to Tami for any further closing comments.
I'd like to thank everyone for your interest in NSC and to reiterate reiterate we're pleased with our second quarter results and the fact that self storage again shows its resilience in the face a challenging time.
We feel much better about things today than we did three months ago, and we're confident we'll come through this stronger and we'll continue to deliver sector leading result.
He safe and stay healthy thanks.
Thank you. It does conclude todays teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you Peter participation today.