Q3 2021 National Storage Affiliates Trust Earnings Call

[music].

Greetings and welcome to National storage affiliates third quarter 2021 conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star two.

Zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to George Hoglund, Vice President of Investor Relations. Thank you you may begin.

We'd like to thank you for joining us today for the third quarter 2021 earnings conference call of National storage affiliates Trust on the line with me here today are Nsa's CEO, Tamara Fischer COO, Dave Cramer and CFO Brandon Gotcha. Following prepared remarks management will accept questions from.

Financial analysts.

In addition to the press release distributed yesterday, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at national storage affiliates dotcom.

On today's call management's prepared remarks and answers to your questions may contain forward looking statements that are subject to risks and uncertainties and represent managements estimates as of today November 3rd 2021.

The company assumes no obligation to revise or update any forward looking statement because of changing market conditions or other circumstances. After the date of this conference call.

The company cautions that actual results may differ materially from those projected in any forward looking statement.

For additional detail concerning our forward looking statements. Please refer to our public filings with the SEC.

We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as <unk> core <unk> and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings I will now turn the call over to Tom.

Thanks, George and thanks, everyone for joining our call today, where.

Or are we talk about our results for the quarter I'd like to open by acknowledging and thanking our team for their extraordinary dedication and hard work, which allows us to again deliver exceptional results for the quarter.

The results, we announced yesterday, including growth in same store NOI is 24% and growth in core F. F O per share of 30% are indicative of the ongoing strength of our sector as well as the benefits of our differentiated structure.

Continued near record occupancy levels have allowed us to assertively drive rate growth, both for new and existing customers.

Right now there are no apparent signs of any near term headwind, which bodes well for the remainder of the year and implies a strong start to 2022.

On the external growth front, the volume of deals in the market remains at unprecedented bubble.

During the third quarter, we invested $600 million and 76 property, bringing.

Bringing our total acquisition volume through the first nine months of the year to 119 properties valued at just over $1 billion.

October we invested approximately $325 million and 39 stores.

This result in our current year to date investment in acquisitions of over $1 $3 billion, surpassing the top end of our prior guidance range.

Yeah, if rates on these deals range from just below 5% to over 6% and vary based on location source of the deal whether it was marketed off marketed or from our captive pipeline and whether there's a portfolio premium or some element of lease up involved.

The weighted average cap rate on all of our transactions closed. This year is in the mid five cap range.

We continue to see meaningful competition for transactions and the amount of capital seeking to establish or expand our position in self storage continues to drive cap rate compression, especially on larger portfolios. We.

We remain disciplined in our underwriting and continue to benefit from our pro structure, which essentially provides us with 10 acquisition teams and 10 operations teams across the country to source deals and integrate acquisition assets into our portfolio.

About two thirds of our deals closed this year have been off market or from our captive pipeline, where we tend to buy at cap rates slightly above market.

It's also worth pointing out at just over 10% of the deals we've closed year to date, we are in some stage of lease up which further depresses the first year cap rate.

As we look forward, we have additional deals valued at over $300 million under contract and we expect to close by the end of the year.

Our exceptional third quarter results all of weighted acquisition volume and continued tailwind in the sector led us to again revise guidance. This quarter, we increased the mid point of year over year growth in same store NOI, 219% full year growth in core <unk> per share to Neil or nearly 30% and.

Revised our expectations for acquisition volume to $175 billion at the midpoint.

Brandon will discuss our revised guidance further in his comments.

The fundamental backdrop for self storage remains very favorable and our team is executing at a very high level to deliver exceptional results for all stakeholders.

Our historical commitment to secondary and tertiary markets as well as our differentiated pro structure continue to serve as well I'll now turn the call over to Dave.

Good color on what we're seeing on the ground ace.

Thanks, Tammy overall storage fundamentals remains strong consumer demand is being driven by multiple factors such as job transition.

Geographic relocation housing boom tight rental market and the lifestyle changes all of which are contributing to the high occupancy and rate growth.

And then make driven demand introduced a significant number of new customers to self storage and we believe that much of this new demand will remain long term.

Apart from the normal seasonality, we're experiencing which has been muted compared to your historical patterns.

We don't see any near term sign of changes to the current favorable environment.

Occupancy levels remain close to record highs, allowing us to continue our push on street rates, which averaged 27% higher this third quarter compared to a year earlier.

The high occupancy level, we're able to hold discounting and concessions well below historical averages.

We continue to be assertive on rent increases to in place tenants. These rate increases are averaging high single to low double digits.

Our rent roll ups in the third quarter, which is in the move in rental rate versus the move out rate was a positive 7%.

Which is up slightly from the 6% that we realized in the second quarter.

Positive rent roll up trend continued into October which is impressive considering we normally be experiencing a rent roll down in the fourth quarter.

Combination of strong three rates and assertive in place tenant rate changes.

To drive improvements in our contract rates.

Contact rates have improved every month this year and were up.

Over 9% for the third quarter.

In mind that we started the year essentially flat year over year. So we're pleased with the momentum we have in place rents and believe it sets us up well for the fourth quarter and heading into 2022.

We know that the 2020 comps are distorted due to the pandemic, but I'd like to give a two year comparison to 2019.

Our third quarter Street rates are approximately 24% above third quarter 2019 levels and our in place contract rates are about 8% higher as well with very healthy growth over a two year period.

We ended the third quarter with occupancy of 96, 2% up 450 basis points year over year and the positive trends continued into October.

We're very pleased with how resilient occupancy has been especially in light of the strong growth in rental rates on both new and in place customers.

Earlier this year, we projected a seasonal decline in occupancy from the end of June at the end of December and the range of 200 to 250 basis points.

The occupancy has only declined 70 basis points and seems to be holding relatively steady in the 96% range.

We do want to remind everyone that we managed to optimize our revenues not occupancy.

Turning to new supply, we've yet to see any meaningful shifts in development activity in any of our markets and the unprecedented consumer demand is muted the competitive impact of the new facilities that are coming online.

There is certainly no shortage of developers who want to build a self storage.

And we do expect development activity to pick up.

Construction and land costs are high and the entitlement and permitting process remains slow and cumbersome.

We expect to continue to face some headwinds from new supply in Portland, Phoenix, certain sub markets of Dallas, Atlanta, and West Florida.

Currently just under 30% of our portfolio as a new competitor in the three mile radius and under 50% within the five mile radius.

These figures are in line with last quarter and flat to slightly down from year end 2020.

I will now turn the call over to Brandon to discuss financial results and balance sheet activity.

Thank you Dave.

Yesterday afternoon, we reported core <unk> per share with 57 for the third quarter of 2021.

Which represents an increase of 30% over the prior year period.

Third quarter same store NOI increased by 24, 3% over prior year.

Driven by an 18, 4% revenue increase combined with a four 6% increase in property operating expenses.

Same store occupancy averaged 96, 5% during the quarter.

An increase of 580 basis points compared to 2020, while this is amazing growth as you've heard from us throughout the year. We think it's appropriate to look at average growth across the last two years, thus removing some noise from the impact of the pandemic.

For <unk>. The two year average same store revenue and NOI growth is nine 2% and 12, 3% per year respectively.

<unk> core per share growth over those same two periods was 20% per year, all very impressive levels.

Regarding opex.

Same store growth picked up in the third quarter to four 6% due to the challenging year over year comp.

Specifically personnel cost increased 5% due in part to more normal store hours and staffing levels this year versus the reduced levels of 2020.

Also contributing to higher personnel costs as overall wage inflation and incentive opportunities for store employees, given the topline revenue and occupancy performance.

Another expense line item, which saw higher growth was repairs and maintenance of 16, 6% from third quarter.

Actually due to the challenging comp as we limited spend last year to the most critical items.

Other modest increases were property taxes at two 4% and utilities at two 2%.

This expense growth was partially offset by marketing costs that were down 10, 4%.

Clearly with the elevated occupancy and strong demand that we're experiencing there was a reduced need for marketing spend.

Now moving on the guidance.

Incredible internal and external growth we've experienced this past quarter led us to increase full year 2021 guidance as follows.

Core <unk> per share increases to a range of $2 19.

To $2 22.

Approximately 30% growth over prior year at the midpoint and.

And a 4% increase from the prior guidance midpoint.

For same store revenue growth of 14% to 15%.

Joining that we drive year over year growth in the mid teens for the fourth quarter, which is a slight moderation from third quarter growth as we encounter a tougher comp.

Opex growth of 3% to 4% and NOI.

High growth of 18% to 20%.

Additional assumptions regarding guidance are outlined in the earnings release.

Turning to the balance sheet.

We were active in the third quarter on the capital front much of which we discussed on our last earnings call and the details of which are in our earnings release.

In summary, these accomplishments included on the equity side issuing nearly $600 million across our large follow on offering in July ATM activity and <unk> equity for acquisitions.

On the debt side, we issued nearly $350 million across multiple channels in the third quarter.

Subsequent to quarter end, we priced $450 million of senior unsecured private placement notes with a weighted average maturity of 11, two years and a weighted average coupon of 288%.

The transaction closing is subject to among other things market conditions and the completion of definitive documentation.

However, we're working to have all the documents for the private placement signed very soon at which time, we will provide more specifics on the transaction.

The proceeds from these capital raises are being used to repay borrowings on our revolver and to fund our acquisition activity.

Our balance sheet is well positioned with no maturities through 2022, and a fully available $500 million revolver at the end of the third quarter.

We are committed to maintaining a conservative leverage profile with a net debt to EBITDA ratio of four nine times at the end of the third quarter and healthy access to multiple sources of capital.

Obviously based on our revised acquisition guidance, the fourth quarter will be busy, but we are well capitalized and look forward to remaining a disciplined consolidator in our sector.

Thanks again for joining our call today, let's now turn it back to the operator to take your questions.

Operator.

Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Neil Malkin with capital one. Please proceed.

Okay.

Hey, everyone. Good morning to you a fantastic quarter.

First one for me.

Maybe bigger picture, Dave anyone who wants to take it.

It seems like over the last year.

12 to 18 months Theres been a couple of step change.

Functions higher in terms of.

Demand.

Change in move out propensity.

Occupancy going extremely high and I'm just wondering if there are things that you believe are permanent from.

Either COVID-19 or are sort of the great relocation that's happening right now.

Or do you think that.

Some of the things that are potentially driving more people to storage.

Or perhaps making them stay longer.

Kind of abate as as they can.

Sort of Covid related things ease up People's savings accounts kind of dwindle a little bit.

As stimulus it sort of stops them from the federal government.

You can just kind of talk about how you see that playing out over the next 12 months that'd be great. Thanks.

Yeah. Thanks, Neil Thanks for the question.

Interesting question and hard to have a real tight line of sight on how this demand in this current favorable environment really plays out.

Don't think it's a short term thing I think usage is at all time high for self storage, which is great for us in our sector I think the things that happened in the pandemic. We are accelerating things that were already happening in our country already.

There's always been a push to more work from home or more remote work.

<unk>.

Things around lifestyle changes that were accelerated by the pandemic as you look at the.

Transaction patterns of all of the consumers around the country. It has certainly been an outflow from some of the some areas of the country and somehow markets, which has definitely been anything us that's a permanent sneak in my opinion.

I just think a lot of things that we are experiencing from the demand piece are not going anywhere anytime soon.

If return to work happened I still think there'll be days at home, where you have all of my office for an example.

And so we're encouraged by that and we're encouraged and the fact that the people are using our product are finding it very affordable very easy to use a great product overall it fits lifestyle. If you think of housing prices today in all high they've gone and whats happening in the rental market in all of these things it'll take a while for those things to really change.

Self storage is a very affordable product when you maybe can't buy the size of the house, you wanted or downsize it a little bit less of an apartment because of cost.

I think long term that's that's there I think the thing I would tell you is I think all of our teams have gotten a little bit better to this I think our tools are getting better and so some of the gains that we've been able to have with occupancy and some of the other revenue gains we have as a function of demand, but it's also a function of us doing our jobs better. So to me I am proud of what all of our teams have accomplished.

Proud of what our tools and our technology improvements are weighing in for US right. Now so I think a lot of good things for us as you go into the future.

Well that's great other one from me.

Shockingly is on the acquisition you guys have been extremely active I think especially for your size you've been able to source.

You know a really robust amount of activity I think it's a testament to your pro structure can you maybe talk about.

No.

What what kind of product you are seeing on the market.

In terms of either quality lease up component.

Or are you seeing potentially more.

More players maybe more institutional players given how your markets have fared in the relative yield.

Yield premiums you can get on going in cap rates.

And just kind of your outlook for the cap rate environment.

You know kind of near term.

So I'll start and other members of the team can jump in here.

I missed something but the volume of transactions continues to be literally unprecedented.

And even even as we head toward the end of the year.

It's actually not slowing down at all the type of transactions that we're seeing our range from a large portfolios and really large portfolios two one offs.

Assets, where that is.

That's really where we'd like to play we were also very.

I think we've been very successful with remained disciplined but very successful.

And targeting our secondary and tertiary markets and we like the cap rates there a little bit better now we've also strategically invested in some non stabilized assets and when I say non stabilized I'm talking about assets that are delivered and in some.

Stage of lease up so maybe in the 70% to 75% range.

But on the whole I think that as you said, Neil I think our structure continues to benefit us.

We.

Very active in our markets and again, it's not to say that we won't look at everything that's out there we look at the top msas, but from.

Our strategic standpoint building scale and the cap rate environment.

We still like the secondary and tertiary markets and Thats, where we continue to focus on.

In terms of your question about.

Capital chasing deals there is a lot of capital there's a lot of competition and I and we've said it many times and probably will continue to say it but self storage is a great place to be right now, it's a fantastic sector as evidenced by our peers results released over the last few days in our own results.

So naturally I think it is it is bringing new players and it's keeping us on our toes and it's highly competitive but I also think that we will remain relevant in this consolidation phase.

So I'm not sure if I hit all of your points, there or did I Miss a couple of things.

Yes.

Only thing I was just saying I think a lot of other sectors have seen cap rate compression since the beginning of the year. So just wondering if you can kind of comment on that specifically in the markets you plan on.

Just because I know that the yield game I think is a little bit more important.

Particularly because of the pro structure.

Right. So this is what I would say on the whole we're buying assets in the five five cap range.

Non stabilized assets that we've acquired are are below that.

In the mid to recap range.

And thats year, one yield.

Stabilized yield on those assets is is still on the six six cap range.

The thing that we like about the assets that we acquired that are sourced by our approach either through their captive pipeline for through their relationships.

I think I mentioned in my prepared comments about two thirds of our deals have been sourced off market. This year.

And I think that gives us an advantage from a cap rate standpoint, having said all of that.

There is still some cap rate compression.

We're still pretty comfortable in that in that mid five range, we'd like to fix better but.

I think we'll just remain active and continue to go after those deals.

And then we'll see where it goes but we have seen cap rate compression that we've never seen before.

Portfolio premiums if they were.

15 to 20 basis points, a couple of years ago.

Upwards of 25% to 40 basis points now.

So that's.

It's challenging.

But there's no shortage of transactions to look at.

Okay. Thank you.

You bet.

Our next question is from Juan Sanabria with BMO capital markets. Please proceed.

Hi, Chris.

Good morning, and thank you for the time, just curious on the assumptions with regards to occupancy.

For the fourth quarter.

Although if you can give us where the spot was.

The end of October just to see how we're trending relative to those assumptions.

And guidance.

Yeah, Juan this is Brandon so.

So the spot occupancy at the end of October for same store was 96 flat and so that gets up to 70 basis points down from the end of June that Dave hit on in his remarks.

As he said earlier when we spoke last quarter. We had estimated maybe a 200 to 250 basis point drop from period in June to period in December.

But things have played out more favorably looking.

Looking at a pre COVID-19 year, it would not be uncommon from June to October month end for you to have something like a 200 basis points or more in drop in occupancy. So the fact that we're at that 70 basis point Mark.

Is very encouraging.

And so for.

The back half the remaining couple of months I think we're looking at something closer to a it could be in the 150 to 200 basis point range.

Going from that June December period.

November and December historically, there's been there's been movements over the next couple of months will be telling.

Okay.

The assumption in guidance is that 150 to 200 that you just touched on that's right that's right.

Okay.

And then.

Just with regards to rate is the expectation that that continues to accelerate or grow on a year over year basis. The numbers have been steadily going up.

Or should we assume that that that begins to tail off as you have some.

Tougher comps.

Fourth.

Into 2022.

It's a good question and certainly there is a tougher comp in the fourth quarter and into 2022, I think what we see happening right now our street rates are starting to level off and moderate.

But we're not backing off on any type of in place changes and so as we look going forward, we don't see street rates declining.

Considerable amount at all of that was probably plateau.

We stay aggressive in in the in place piece of it we don't see contract rate growth as we continue on through the rest of the fourth quarter and into 2022.

And any chance I can get you guys to comment on what the the earn in is all else equal occupancy shrink rates.

Rates for how you would start.

All right.

Or what that is today is kind of going forward.

Probably not a lot of color youre going to get on this one but you're.

Tying into the remarks I made about occupancy I mean, if we if we do end up in that range that I said, it's going to give us a nice.

A nice year over year positive number in terms of that occupancy spread and so that's going to benefit us well in the trajectory on the rate.

You mentioned, the 9% for the quarter contract rate growth year over year, I mean, the trajectory of that throughout the quarter was just steadily improving so so we were closer to the low double digits by the end of.

At the end of the quarter and certainly into October and so that that's also tremendous tailwind.

Most of that will comment on in terms of.

Looking into 2022.

Super helpful. Thanks, guys.

Thank you.

Our next question is from Steve <unk> with Evercore ISI. Please proceed.

Thanks, Mike just wanted to follow up on some of the <unk> line of questioning just to be clear the 150 to 200.

Is what you've got baked in but I think so far the decline maybe I'm wrong I wrote it down wrong. It was something maybe like 70 basis points Max.

So I'm just curious is that just your effort to be conservative is there anything that youre seeing in the recent weeks that would suggest that youre going to that level or that's just kind of what's happened historically and you just want to be cautious.

A great question and it's it's more around what we've seen historically and we did see some seasonality in the back half of this year, which encourages that things are returning back to what we would expect to be a little bit more normal patterns.

Certainly, we're happy with rental velocity and move outs are still muted. So those two factors in play.

I will say, we're 100% conservative, but certainly historical patterns or is the movement in November and December, but we're pleased with where we're sitting right now.

Okay, and then just to sort of go back to some of the acquisition questions again, if I've got my math right.

Basically you've done $1 three including what you closed in October.

I can't remember if it was Brandon or Tammy said, yet another 300.

That was sort of under contract to close sometime in the fourth quarter, which would put you at $1 six so above the low end of the range, but maybe still a little far away from the upper end of the range of $2 billion. So.

Are there things that you can actually get over the finish line that are not under contract today before yearend or I mean, our sellers really scrambling to try and get deals done before tax rates change or.

Is the $2 billion, maybe just.

Maybe really not realistic at this point.

No I think it's achievable Steve.

Question and your math is right.

But we are speaking to what we have closed what we have under contract and there is a fair amount more that is in some other stage of negotiation and sellers are highly motivated and so it'll it'll come down to how much we can actually get done and get it through third party diligence negotiations.

And get it closed this year. So I don't think that our range is is it all unrealistic I don't know if we'll get to the $2 billion, but.

But it certainly can be done based on what we're seeing right now.

Got it and then maybe last question is given the incredible strength, we've seen in rent growth and high Occupancies I'm. Just curious when you are underwriting new acquisitions today, how are you sort of thinking about the new normal is kind of these numbers the new normal or are you sort of reverting back to something in between.

The old numbers in today's numbers I mean, how do you sort of think about what stabilized rents occupancy it'll be 234 years from now.

Yes, it's a great question and it's a it's a tough call, but we are we are finding our way probably in the middle Someplace, We don't believe.

As competition comes in and maybe a shifting market additions come that will put pressure on street rate and so as we're looking at new properties. We're really taking a look at what we think street rate and market rate really is how we look at that what it'll be next year and the year. After and then modeling of course, our ERP <unk> models that we put into it so I would say it's somewhere between.

Maybe the upper upper middle of what Youre talking about what historical as to where we are now but certainly we're in a very very hot market right now and street rates are very very.

Everybody has done a great job taking advantage of the situation we're in.

Steve we've talked about this before too but but.

First and foremost.

We're highly motivated to.

Externally and we have our targets and we've had them every year end and expected expected.

Certainly.

Hit or exceed this year, but we.

We also remain disciplined we are not going to fall into a trap of growing just for the sake of growth.

And so for US it's all about underwriting good deal.

Ultimately, our strategic and accretive to our shareholders.

Great. Thanks, that's it for me.

Thank you.

Our next question is from Todd Thomas with Keybanc capital markets. Please proceed.

Hi, Thanks, a couple of questions on <unk>.

On acquisitions.

Tommy how much of the third quarter and.

Or I guess remaining acquisition sorry expected through the end of the year here will be lease up our CFO deals and do you expect to be able to maintain the yields that you discussed on investments so that that mid 5%.

Range moving forward.

So through the third quarter.

Investment in non stabilized assets was about $180 million and eight.

What we have under contract right now what we've closed.

So that speaks to what we've closed through October we have remaining to close.

Is there.

There are a handful of non stabilized assets in there, but I do believe that on the whole we will be able to maintain that.

Five five at mid five cap range it may come down a little debt with.

Remainder of our Q4 <unk>.

Acquisitions, but.

It'll be pretty close.

Again, we're not really going for CFO type deals where most of what we're looking at is is in some stage of fill up moving toward stabilization.

Right, Okay and then.

I guess that pricing on acquisitions right. It seems to be above what we're seeing from others and what we're hearing in the market. You mentioned that there is a premium you get from transacting off market and in the captive pipeline how much of this year's activity was in the captive pipeline.

<unk>, specifically and sort of what's the premium that you think you get on those acquisitions.

It's hard for me to estimate the premium, but what I would say, let me start with your first part of your question about $80 million of our deals came through our captive pipeline and and.

That combined with the fact that in total about two thirds of our deals have been sourced off market.

This is an advantage.

That cap rate analysis.

<unk>.

Whether that is.

We can compare it to what we're buying from third parties and it could be easily 50 basis points.

What I would say.

The captive pipeline has clearly come in at the higher end of the range and the off market deals are pulling the cap rate up to.

Okay and then.

So your comments just just sort of looking ahead your comments about the amount of product coming to market being unprecedented do you anticipate this this level of activity to continue into 'twenty two I guess.

It will the first half of the year, which.

I believe historically has not been as busy well traditionally will it be much busier time of year in your view than it has been in prior years.

I believe that potential exists yet and the reason is because the volume of deals and the potential sellers, who would like to get something that I'm sure they'd like to get it done right now.

Some of it is just not going to be it's not going to be possible and so it is going to fall into the first part of next year.

While people have been and continue to be motivated by potential changes in tax law I would also say that that the amount of capital chasing deals and the pricing that we're seeing right now is keeping sellers interested so it may fall off some maybe some people who don't get their deal done this year, well just pull back and hang on for a while.

But.

But based on what we're seeing and hearing we believe that at some of this activity will fall into the first part of 2022.

Okay, Great and just one last one the updated guidance for acquisitions is the one and a half.

To $2 billion is that NSA share of investments in as their interest to do anything sort of on a larger scale with a joint venture partner.

Yes that that assumes all on balance sheet, our guidance range right now assumes all on balance sheet.

And yes, we would be interested in doing something with the JV partner under the right circumstances.

If it if it was a strategic move in and.

Have conversations with investors, who are interested and we keep that door open and there may come a time when it makes sense, we would definitely be open to it.

Okay alright, thank you.

Our next question Austin.

Our next question is from Smedes Rose with Citi. Please proceed.

Hi, Thanks.

I guess I, just wanted to understand a little bit more too.

Someone just mentioned that the cap rates seem kind of higher than what we're seeing for other acquisition opportunities in the market. You mentioned two thirds are off market and sort of outside of your captive pipeline.

I guess I'm, just wondering why you or someone selling to you with these rates when it seems like they'd be able to sell at a lower cap rate.

With someone else through maybe a more brokered process.

Trying to sort of get it just relationship driven or is it youre talking about stuff. That's outside of your captive pipeline rate, where you kind of get firsthand.

Yes.

So my two thirds basically includes the $80 million, so, but having said that.

It's still a big number and I and Smedes. It's a great question I would tell you that it is relationship driven in every single case and and.

In all but one case, when we're talking about anything of any.

Out of money the seller was interested in <unk> equity.

And.

And so between our our relationships and these are long term relationships and our ability and willingness to work with the seller and the issuance of op equity.

I think it did give us an advantage, but I think youre right. If it was a fully marketed deal.

The seller might have left a little bit of money on the table. However, they got stock at a good price.

And I think they've done okay.

Okay and then the other thing I wanted to ask you it sounds like development activity Hasnt changed a whole lot from what you've talked about in the last quarter.

But it sounded like in your in your opening remarks, you guys are expecting an uptick in development is that just because you feel like fundamentals are strong and it will draw new development to the space or are you starting to see here.

<unk> of the mall.

More development that you think it's coming I just wanted to maybe clarify that.

I wouldn't say that it's anything that we are seeing specifically today I think that.

Our comments are probably a little bit more anecdotal there based on the.

At the same data that all of you guys see which comes from primarily from you already and maybe a handful of other sources. We also have the benefit of having.

Conversations with our pros who are on the ground and they know what's going on and then they stay very close to it because it affects them.

In a very real way. So so I think we form our opinions based based on those facts.

What we're hearing.

But I also think that hey, it's human nature.

Sector has so performed so well over the last 18 months and even more than that but.

What I think will slow it down.

Is.

The entitlement process itself, which takes a very long time and I and then beyond that the.

Cost of the building products the availability of the building products and shortage of labor.

So I don't think it's an imminent threat, but.

I think that it's just.

Common sense that it will happen again and the question is really timing is it 2024, a little later than that maybe maybe the end of 'twenty three but we don't see it happening near term.

Great. Okay. Thank you.

Our next question is from Al <unk> with Bank of America. Please proceed.

Hi, congrats on the quarter and thanks for taking the question.

You mentioned labor pressures in payroll pressures in the opening remarks can you maybe comment a little bit more on what youre seeing on the ground in your markets and in particular do.

Do you expect.

Payroll increases to continue to exceed it.

<unk> going forward.

Great question, certainly the labor market is tight.

A little more clarity on that payroll is part of our payroll uptick is also incentives paid to employees for the great performance and so if you look at how strong revenue was in and the metrics that did affect our store operations teams across all of our all of our pros it ourselves incentive levels are high but we are seeing a little bit of pressure from overtime. Obviously, you tried to keep staffing levels at the right.

<unk> and <unk>.

And did it attract the right team members is tougher now than it's ever been.

Obviously, there has been a handful of rate changes around certain states raising minimum wages and things like additive cros come across in the country.

But overall, it's really tight labor market, we're doing our best to attract people.

Doing our best to look for efficiencies within our systems and our operations to make sure that.

As we fill the wage pressure, maybe when we can find their path to do business.

But.

I don't see the labor market easing anytime soon at this point, we'll do our best to manage and I think we've done a good job throughout and creating the right culture and the right place for our team members to be in.

Oh, I guess navigate it as we go.

Great. Thank you and just a follow up this might be and connection to labor and other expenses, but your same store operating margins continue to improve is that a function of just having more scale as you get bigger and your individual submarkets or is there something you're doing with technology or <unk>.

And sort of how you are changing and managing each individual stores with the pros.

You can share could be helpful. Thanks.

Yeah, Great question I think it's a combination of a lot of those things certainly.

Tremendous rate growth that we've had will certainly help your margins in Ohio occupancy levels will help your margins and we are looking at technology, how do we look at how we staff our stores how many hours are open with <unk>.

Online rentals approaching 30%. So there is an opportunity to transact with the consumer and the way they want to transact and maybe that allows us to look at our office hours.

Reasonably upgrade at the call center platform to get a better technology behind that and really work on customer service and rental application there as well. So I think it's a handful of a lot of things that are in play here.

Thank you.

Thank you.

Our next question is from Ronald.

Camden with Morgan Stanley. Please proceed.

Yes, two quick questions from me just sticking on the acquisition theme.

So if I look at the 1 billion 75 at the midpoint of the guidance just could you give us a sense of what the total pipeline that you would look at in the year would be is it like are you looking at five or you're looking at $10 billion to be able to sort of close at $9 75.

And I think sort of back to a previous question, which was we're thinking about over the next two to three years is this sort of.

More sustainable or there are some really one time bigger deals this year that we should be mindful off.

I think that.

I will tell you Ryan Thanks for the question that we look at every major portfolio that hits the market.

And so in answer to your question, how do you get to $1 $75 billion, we probably have looked at I don't know if Dave would you get $10 billion portfolio valued at every bit of $10 billion.

And will this continue into the next.

<unk>.

21234 years, it is impossible to predict.

A lot remains to be seen when.

When we have this call again at the end of February.

So much better line of sight on what we think is going to happen and at least in the next 12 to 18 months, but right now it's.

<unk>.

It's really truly impossible to predict it is and it is an interesting phase of consolidation in this industry.

I think that we on the inside have been expecting for a while.

And and yet how long does it go on and just how consolidated does the sector become.

I don't know the answer to that we've talked about historically, we've talked about.

Something like let's just say 50000 self storage facilities in the United States.

Let's take a haircut it for non institutional grade assets. So 40000.

Assets in the United States and.

<unk>.

Case of acquisition this year, if the number historically has been.

The top five plus an 18% or thereabouts.

David.

And we're just talking yesterday, what does that number become it'll be interesting to see how this rolls out over the next six months or so because that numbers and in our view going to be well over 20%. So.

It's a very good question.

I don't have a eight.

Certainly don't have a black and white answer, but it's but it's certainly something that we're going to be watching and monitoring and our objective will be to remain relevant and I think we're well set to do that yes, I think I would add and I think you touched on some of them are having.

A couple of portfolios that transacted that maybe we wouldn't have thought would have transacted through this year.

But I think if you look at our acquisition activity and the amount of even one off and smaller portfolios in the amount of activity, we've done because it relationships and all the things we do as I look forward to 2022 and beyond I think we stay very active there and it's not always about the one off big portfolio that really helps us in our acquisition activity.

Okay, good point back to the blocking and tackling.

We lose you Ronald.

As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Kevin Stein with Stifel. Please proceed.

Good morning, guys.

Just wondering portland's one of your larger markets and its been doing really well, it's one of the top performing markets. Both also.

Quite a bit of development for like the last few quarters. So I was just wondering why your portfolio is growing so well is because demand is just so strong.

Development isn't near your stores.

Yes, yes, great question, and we talk a lot about Portland, Portland still remains our most challenging market with the amount of new supply that's in the market.

Couple of things have gone on certainly the new demand has certainly helped the Portland market and it helped all of the self storage is in that market have better success.

I think the team up there in Portland, and has done a great job and really implementing strategies around pricing and discounting and attraction of customer acquisitions, but I think they've done a good job repositioning themselves in that competitive market and I think that shows in their performance.

We need to call out they've done a wonderful job.

If you really look at it though Portland still trading our average portfolio occupancy by about 3%. So you can see there is still pressure there.

You can see where the new supply still remains there, Oregon as a whole has seen some ingot migration has been some movement around Oregon, and so if you look outside of Portland, Oregon is really really done exceptionally well.

But.

Dennis you get back to your question I think the team is doing a better job and certainly the supply the demand factors, helping with all the supply that sir.

Okay. Thanks.

Okay.

Okay.

Okay, we do have.

Ronald back so we'll jump right back to him.

Sorry about that.

Second question was just looking at expenses.

A little bit and the reason I asked is because I think a lot of the.

Tears have they either increase wages give special sort of incentive in 2020, so that in 2021 expenses were actually sort of down.

I guess the question is really obviously property tax expenses are what they are but is there expense savings opportunities as youre thinking down the road 345 years down whether it's with increased penetration of E rentals, whether it's the marketing expenses that you may not need because of occupancy.

Granted the margin is already pretty high but just curious how are you guys thinking about potential expense saves opportunities down the pike.

Yes, Great question, Ron and we're always thinking about that and I think you touched on a few of them is how do we how do we take technology and platform and make it better.

Online rental if we can continue to increase our online rental presence obviously.

You may see some some opportunity around stores and maybe overall personnel costs.

Certainly with the customer acquisition platform and really the revenue management platforms that are still new to us I mean revenue magic elaborate for US is only 21 months old or customer acquisition platform continually being updated I do think theres ways to find efficiencies there.

And really looked at overall operating efficiencies I am very pleased with what our margin growth has been and we've had really good margin growth. This year all of our pros and their teams and our corporate team has done a good job focusing on where we can be efficient and really drive down expenses, where possible or maintain it and really drive on revenue. So I think we're looking at all those things I do think.

We run very lean its not like Theres, a lot of fat hanging around in our organization around our properties and an organization. So.

We will do our best to find those efficiencies and implement them.

Yeah.

Great. Thank you.

Thank you.

Our next question is from less Golladay with Baird. Please proceed.

Hello, everyone. So wanted to dig in a little bit into the drivers of the above average occupancy levels is it mainly driven by the.

Demand more movements or is it a lack of term the move outs.

Good question I would say the majority of it for lack of move outs, our rental volumes are vigorous, but it's really that muted move out volume that's really elevated the occupancy levels.

Okay, and then when we look at the I guess the lease up deals.

Can you remind us how long those typically take to lease up and where that is now to get to that 6% stabilized yield.

Okay.

Yeah, I mean, certainly the lease up lease up schedule, certainly tightened with the demand that's going on we're seeing properties that maybe with the least in 24 to 36 months or maybe 20 to 24 months now. So we're certainly seeing a quicker side of it most of what we're purchasing though is it has a lot of the physical occupancy in place and what we're working on is getting the right back up where it should be so very.

Quick Phil to the high physical occupancy levels, but now we need to work on getting the discounts to burn off and really get the right where it needs to be.

And for US we look at stuff that.

Most of our stuff that we're buying will be stable by year or two.

And I would just add to that the.

The stabilized yields on those assets is estimated to be about 6% and the average occupancy was in the mid 70% range and announced it.

What were classifying as non stabilized assets.

Great. Thanks for the time.

Yes. Thank you.

We now have a follow up question from Neil Malkin with capital one. Please proceed.

Thanks, everyone.

Dave just a question on the.

The in place.

<unk> from the in place customer renewals, so because of the move outs are lower.

The population now every month every quarter is.

Eligible for renewal increases and obviously lower churn means that more people are taking them. So.

So can you just talk about how what that looks like what is the sort of quarterly potential of the portfolio that eligible for <unk>.

Renewal increase versus like maybe pre COVID-19 in and.

How far below or is it above the sort of renewal rents from market.

Almost like a loss to lease.

You will for your exists.

Existing customers, just kind of get a sense on how much more you can push.

Yeah, great questions.

In fact, there so first of all we are at a positive rent roll up right now and we went through October which is a good place to be as far as giving us the ability to really be assertive on what we want to do in case, we have to have somebody move out we're actually replacing them right now at about a four 5%.

<unk> on a new tenant coming in the door. We certainly were around in place tenants have the opportunity to push harder and more frequently and we're bullish around that.

So what we've seen is the frequency of tenants that are getting rate increases probably increased.

225% on average per month of what we would normally be doing particularly this time of year and as we talked about low single.

Low double digit increases is probably more of the norm at this point in time.

Really shifted to removing some of the caps, maybe removing some of the ways we think about.

Placement of that tenant.

And Mike you probably heard me talk about this before more of a lifecycle, if youre going to be with us on average 60 months, how do we maximize that time efficiently through our in place rent change program.

Okay, Yes.

Last thing I had was.

These eviction moratoriums and some of the coastal markets have been expiring.

Some.

Shorter or in sooner than others.

And in particular to your West Coast portfolio are you seeing or do you expect to see.

Some some near term.

Windfall.

If those evictions.

<unk>.

Could be pretty sizeable.

Do you need to play out or come to fruition.

Certainly I think we will see that's going to create transition and anytime you have transition where a great opportunity for having people need in our space I think the interesting thing now as you mentioned the west coast were fairly full out there as is everyone and so I think obviously will help us in the fact that we can probably.

It will be over and all that sort of on street rates, but I think for the folks that are getting evicted it's going to be a challenging time and the fact that I think storage basis pretty pretty lean on some of these areas. So certainly we'll do we do what we normally do we will look at opportunities and do what we need to do there but.

It certainly will create transition yes.

Okay. Thank you guys.

And we do have a follow up question from Smedes Rose with Citi. Please proceed.

Hi.

Wanted to ask you I think in the past you've talked about the acquisition targets at about annually about 10% of enterprise value is that.

Still sort of a good metric metric to think about as we model going forward.

For next year.

Yeah.

Great question Smedes I think that is certainly something that we have said historically in and I'd like to say, yes, I think thats, how we should continue to think about it.

The one thing that I would add is.

The way that we have talked about it historically is that on average will acquire about 10% of our total enterprise value year over year and so some years, we will in some years, we will not hit that and im sitting here today, it's a little hard to predict what 2022 will look like.

I think we still hold that out as a goal of ours.

I'm going to focus on the on the average part of it since it's been such a big year this year.

Yes.

As Brandon just one other thing on that.

Obviously with a year like this year, it's so unique and much of what we're doing is back half weighted so obviously that that's.

<unk> 2022 more than it will 'twenty one in terms of like our bottom line <unk> per share growth. So that's just another way that we think about much of what we're doing this year is serving us over.

Maybe not a 'twenty one calendar year, but.

Obviously.

Next year, and then just a point of color on that since I mentioned that.

Of the $600 million that we did in Q3.

Vast majority of that was in in the month of September around 425 million specifically was in the back half of the September months, just as <unk> as it helps when you think about modeling in what.

That's not what we're not getting the benefit of in Q3 that will have for a full quarter of Q4 and into next year.

Thank you I appreciate it.

Yes. Thank you. Thank you thanks Smedes.

We have reached end of our question and answer session I would like to turn the call back over to Tamara Fischer for closing remarks.

Thanks, again for joining our call and for your interest in and support of NSA and as many instead, it's a great time to be in self storage.

I'll also reiterate our thanks to our team members and our proceeds efforts are key to NSA once again delivering sector, leading results. We look forward to connecting with many of you next week during NAREIT. Thanks.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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