Q4 2021 National Storage Affiliates Trust Earnings Call
[music].
Greetings and welcome to the National storage Affiliates' fourth quarter 2021 conference call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host George Hoglund, Vice President of Investor Relations for National storage affiliates. Thank you. Mr. Hoglund you may begin.
We'd like to thank you for joining us today for the fourth quarter 2021 earnings conference call of National storage affiliates Trust on the line with me here today are Nsa's CEO Tamara Fischer.
Hello, Dave Cramer and CFO brings into gotcha.
Following prepared remarks management will accept questions from registered financial analysts.
Please limit your questions to one question and one follow up and then return to the queue. If you have more questions.
In addition to the press release distributed this morning, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website and national storage affiliates Dot com.
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 February 22nd 2022.
The company assumes no obligation to revise or update any forward looking statement because of the changing market conditions or other circumstances. After the date of this conference call.
Any 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 Tammy.
Thanks, George and thanks, everyone for joining our call today before we discuss the strength of our industry and NSA is banner year and outlook for 2022, it's like the first acknowledge and thank our team for their extraordinary dedication and hard work, which allowed us to accomplish all that we did in 2021.
Industry fundamentals remained strong we finished the year on a high note achieving some of the strongest operating results in the history of the self storage industry in.
In the fourth quarter alone, we delivered record results with same store NOI growth over 20% acquisition volume over $1 billion and growth in core <unk> per share of 39% our highest quarterly earnings growth in our history as a public company.
Strong results solidified 2021 as a banner year across the board for MSA, including record same store revenue and NOI growth of 15, 1% and 19, 8% respectively are highest reported full year results in the history of self storage acquisition volume of $2 two.
Yeah.
Our highest year in our history and core F. F O per share growth of 32% also the highest in our history.
Two capped the year off in December our portfolio surpassed the 1000 property milestone and NSA delivered total shareholder return of 98% in 2021, including raising our dividends of 29% throughout the year.
Our results are driven by the powerful combination of our differentiated pro structure, our concentration in sunbelt suburban and secondary markets and the remarkable strength and resilience of the self storage sector.
Building off a record 2021, we begin 2022 with another accretive event.
Retirement of northwest self storage one of our founding pros as a reminder, we discussed and anticipated pro retirements over time, and we expected at the time of our IPO. It as many as half of our six pros at the time would choose to retire within 10 years or less.
Northwest will now be the second of our pro retirements and we expect that this internalization will be even smoother as we implement based on lessons learned from our experience with secure care.
In terms of the transition all of our northwest stores have been have been migrated onto NSA corporate platforms.
Almost all of the northwest team came on board with US and will continue to operate the stores under the northwest flag.
The internalization of northwest increases the number of stores managed within our corporate portfolio to 685 stores or 65% of our total thousand 50 stores at the end of the year.
We estimate this retirement will be approximately two cents per share accretive to core F. F O in 2022.
I'd like to thank the northwest team for their partnership over the years, it's been a key contributor to NSA success.
On the external growth front, we capped off the year in the fourth quarter with the investment of over $1 billion and 110 properties, bringing our total acquisition volume for the year to 229 properties valued at $2 $2 billion.
This significantly surpassed our expectations and exceeded the top end of our guidance range.
Cap rates on fourth quarter deals averaged five 1%, but generally range from the high threes to the high sixes based on level of lease up location source of the deal that is whether it was marketed off market or from our captive pipeline and whether there was a portfolio of premium involved.
As we talked about over the course of the year, we were more active in 2020 one in the acquisition of non stabilized properties.
350 million or 16% of the properties, we acquired in 2021 were non stabilized.
We believe this provides significant growth opportunities for 2022 and beyond the weighted average cap rate on all of our transactions in 2020 . One was approximately five 3%. It's also worth noting that over 60% of the deals. We closed in 2021 were off market or from our captive pipeline, where we tend to buy it.
Cap rates slightly above market.
The strength and resilience of our industry continues to draw attention and increased interest in investing in self storage.
So it's not surprising that we continue to see significant competition for transactions. Despite the upward movement in the 10 year Treasury and the overall increase in the cost of capital.
As a result, we expect a lower volume of acquisitions. This year as we remain disciplined in our underwriting and focus on assets that add to the long term value of our portfolio and are accretive to our shareholders year.
Year to date, we've closed on properties valued at about $20 million and we have additional deals valued at between 200 and $300 million under contract or letter of intent.
Complementing external growth this year, we have significant opportunity to drive growth and scale efficiencies from the integration of the record number of assets that we acquired in 2020 , one as well as through the integration of the northwest stores onto N S as management platform.
Our exceptional fourth quarter results elevated acquisition volume and continued tailwind in the sector give us confidence for 2022, our guidance. Once again implies double digit same store NOI growth and 20% growth in core <unk> per share, which is an impressive encore to 2021 .
Brandon will provide further detail on our guidance in his comments I'll now turn the call over to Dave to provide color on what we're seeing on the ground and with new supply.
Thanks, Debbie and our third quarter earnings call, we said that overall storage fundamentals remains strong.
We also know that we didn't see any near term signs of changes to the current favorable environment.
Well, that's certainly how the fourth quarter played out.
And that statement still holds true today.
Did experience some normal seasonality at the end of the year.
Occupancy levels remained high.
As a result, our street rates averaged 25% higher this fourth quarter compared to a year earlier.
We're also able to whole discounting concessions well below historical averages at 2% of revenue.
And then you'd be assertive on rate increases to in place tenants, but the increases averaging in the low to mid teens.
Our rent roll up in the fourth quarter was a positive three 5%.
This is down from the 7% we realized in the third quarter, it's still well above normal at a time, when we usually experiencing rent roll downs.
Rent roll up trend remains positive in 2022.
Her contact rates improved every month in 2021.
Up about 12% for the fourth quarter.
Keep in mind that we started the year since it flat year over year. So we were pleased with the momentum of our contract ramps.
We ended the fourth quarter with occupancy of 94, 8%. This is up 310 basis points over the prior year.
Occupancy declined 190 basis points from June .
210 basis points in the peak occupancy at the end of July both of which were at or below historical norms, but in line with our expectations.
We continue to return towards normal seasonal trends, we will be entering the spring leasing season, well positioned on both occupancy and rate.
Having this momentum in these areas helped us with our ultimate goal, which is revenue growth.
One thing I'd like to put into perspective, they're coming off a record 2021.
Moderation in growth is expected.
Nonetheless, our same store guidance implies revenue and NOI growth there double the sectors long term historical averages not too shabby.
Turning to new supply, we're starting to see a handful of projects started in mostly the top 20 msas.
However, we continue to see the impacts of new supply will likely remain muted through 2022 and into 2023.
Currently the unprecedented consumer demand is reduced the competitive impact of a few new facilities that are coming online.
There's certainly no shortage of developers who want to build a self storage and we do expect the government activity pick up.
Construction and land costs remain high and the entitlement and permitting process still remain very slow and cumbersome.
Overall, we expect to continue to face competition from new supply in Portland, Phoenix, certain Submarkets in Dallas, Atlanta, and West, Florida with the strong fundamentals in these markets are offsetting much of the impact.
We have not seen any significant change in new competitive landscape within our portfolio the.
The percentage of stores, having a new competitor in a three or five mile radius or 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. This morning, we reported core <unk> per share of <unk> 64 for the fourth quarter of 2021, which represents an increase of 39% over the prior year period and strong acceleration from the 57 cents we reported in Q3.
The sequential increase was due to a combination of factors, including the fact that our Q3 acquisition volume was weighted toward the end of the quarter. We had some dilution in Q3 from our July equity raise and we had record acquisition volume during the fourth quarter.
Same store NOI increased by 21, 7% in the fourth quarter over prior year period, driven by a 17, 4% revenue increase combined with a six 5% increase in property operating expenses.
Same store occupancy averaged 95, 5% during the quarter, an increase of 360 basis points compared to Q4 2020.
For the full year corporate Boe per share was $2.26, a 32% increase over 2020, driven by robust same store growth and healthy acquisition volume in the back half of 2020 and throughout 2021.
Full year same store NOI grew 19, 8% a record in the history of the self storage industry.
By 15, 1% revenue growth and 4% growth in Opex.
Same store NOI growth was near the high end of our guidance range of core for full per share results beat the top end.
Largely due to outsized acquisition volume and better than expected results from our non same store pool.
Regarding opex same store growth ticked up in the fourth quarter to six 5% due to the challenging year over year comp and upward pressure on personnel expenses.
Specifically personnel costs increased 8% with R&M and utilities up by a similar percentage.
This expense growth was partially offset by marketing costs that were down 11, 8% and property taxes. The grew just one 5%.
For the full year, we were pleased that on a combined basis, our two largest opex line items personnel and property tax only grew three 2% year over year.
Now moving onto guidance.
We expect the elevated acquisition volume in 2021, which was largely back half weighted will have a meaningful impact on <unk> per share growth in 2022.
Add in the momentum that we're currently experiencing with operating fundamentals and we expect a very strong 2022 with higher growth levels in the first half of the year as comps become more challenging in the second half.
Taking all of this into consideration we introduce full year 2022 guidance as follows.
Core <unk> per share of $2 68 to $2.74 or 20% growth over prior year at the midpoint.
Our same store pool of 631 properties with revenue growth of eight to nine 5% Opex.
Opex growth of five and a quarter to six 5% and NOI growth of 9% to 11%.
We expect acquisitions of $400 million to $600 million during the year and we also expect the retirement of northwest it'd be accretive by two pennies per share in 2022.
Regarding northwest.
Offer a reminder, on the mechanics of our pro retirement, yes.
E S. P units associated with the northwest Pro were converted to O. P units on January 1st a conversion ratio of 188.
And therefore distributions to S. P units will be reduced accordingly.
NSA will no longer pay a management fee to a pro for the northwest branded properties. So there will be a reduction in supervisory and administrative expenses within G&A, which will be partially offset by an increase in other G&A was the properties will now be managed fantasies corporate property management platform.
All of these items are factored into our additional guidance assumptions that are detailed in the earnings release.
Turning to the balance sheet.
We were active in the fourth quarter on the capital front in order to fund our acquisition volume.
On the equity side, we issued $138 million of common equity through our ATM program and $120 million of O P equity for acquisitions.
On the debt side, we upsized, our revolver by $150 million to give us $650 million of capacity.
And we priced $450 million of senior unsecured private placement notes, which we discussed on our last call.
$325 million of those notes were funded in December and the remaining $125 million was funded at the end of January which we used to pay down amounts outstanding on our revolver.
And with that in mind today, our revolver balance stands at about $370 million.
At year end, our reported leverage was six one times net debt to EBITDA in the middle of our targeted range of five five to six five times.
However, this number is skewed higher by the fact that our significant Q4 acquisition volume was weighted toward the end of the quarter.
Adjusting for a full period effect of the EBITDA from those acquisitions, our leverage would fall to about five seven times were towards the low end of our targeted range.
All of that into account, we're very comfortable with our balance sheet is positioned with no maturities through 2022 and $280 million of remaining availability on the revolver for.
We're committed to maintaining a conservative leverage profile and healthy access to multiple sources of capital.
Thanks, again for joining our call today, and I'll turn it back to the operator to take your questions operator.
Thank you.
And at this time, we will be conducting our question and answer session.
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Okay.
Our first question comes from Elvis Rodriguez with Banc of America Securities. Please state your question.
Good morning out there congrats on the quarter and year just a quick question on the internalization of northwest self storage anything you can share on the dollar amount the yield that you're bringing in the portfolio and today relative to when.
First created the the relationship.
Hey, Alex this is Brandon thanks for the question so.
A couple of things just to clarify for you than others, because we've only had the one other pro retirement prior to the northwest.
Back in 2020 secure care so of course, we own all of the assets already. So this transaction is purely related to a couple of things one.
The pro has subordinated performance or SP equity that.
And that gets converted into <unk> equity, that's what I mentioned on my remarks happened on.
January one the specific unit counts they they are in the supplemental there are little it's fine print, but it's the second page of supplemental schedule four where we talk about $2 1 million op units are converting them into $3 9 million O P units.
Sorry, $2 1 million SP units converting into $3 9 million O. P units. So that's that's one thing and then the SP distributions that we're going to the northwest probe will no longer happen and so that's that's a benefit to the Oh My phone number and then our <unk> denominator, obviously goes up by that that Op unit Count and then the second critical thing is that <unk>.
Management fee that we pay to our proud as a percentage of revenue number that goes away I mentioned that in my opening remarks, we will have some incremental G&A that we absorb Tammy mentioned, we hired the vast majority of those northwest employees. So that comes into our normal corporate G&A load, but there isn't that benefit there and that's part of the calculus to get to that two pennies of accretion.
So that's that's I guess I'll offer that up as just a breakdown of the key elements of the pro retirement.
Well, let me see if you're a follow up if there's anything I didn't hit.
No. That's very helpful. Thank you, perhaps moving on to.
The performance year to date on the portfolio.
Can you share an update of where the portfolio is today street rates versus in place as well as any occupancy gain so you can share.
Thanks, Dave Good question, we're very pleased with where the portfolio started out in 2020, obviously, finishing as strong as we did in 2021, we've only lost about 20 to 30 basis points of occupancy it's really through January and into February . So we're pleased with that we've been able to maintain street rate levels were still in a positive rent <unk>.
All up situation as far as move out and move in tenants.
And then we still have.
At a spread of about a little over.
Probably pretty close to about 2% street rate over contract ran at this point in time.
So everything fundamentally as great as we look through the spring season, a rental velocities remain well remain good and you know move out velocities have still been a little bit muted for us So all things positive.
Thank you.
Thank you and just to clarify it to one question and one follow up per each time you queue. Thank you.
Our next question comes from Neil Malkin with capital one please state your question.
Hey.
Good morning, everyone.
Great quarter, great year, congrats on everything.
Hum.
A question for me.
Maybe you can elaborate but given the large amount of.
Acquisitions, you guys made in in 'twenty, one and they're relative a significant portion of our lease up opportunity and not to mention just the overall benefit from being on the.
MSA.
Corporate or revenue management platform can you can you maybe give us an idea or order of magnitude and what what that non same.
Our portfolio NOI would kind of do or should grow them you know.
Relative to the same store this year.
Okay.
Yeah.
Neil we might this is Brandon we might need just a little more color on the question. So you're asking on the non same store pool.
Think about the performance of that relative same store subset.
Yeah, I mean, you've acquired a lot right. So I'm just trying to you know kind of gauge what kind of upsides from being on your platform.
From third parties.
All of that.
Canada cannot you know how you think about that in terms of again, just accretion from not only the acquisitions.
Relative to your cost of capital, but just being in the.
NSA platform in terms of revenue and expense management and then also the accretion from lease up I'm just trying to see.
Maybe how you think that should perform relative.
To your same store like is it is it 500 basis points you know.
Of Alpha just again, given the lease up any way to think about that because obviously those two portfolios aren't going to grow the same the same rate. So just.
Any kind of color or view would be great.
Yeah, I think let me approach it in a double matters. So certainly we required a significant amount of properties and so we had a bucket of those properties that were.
Certainly more mature and as we look at those properties and look at how we're able to perform as you think about really growing rate and growing around.
Some of the occupancy metrics, where maybe they were very.
Strong physically occupied but there was an economic spread of 15 to 20 points on physical and economic occupancy that mature portfolio certainly we you know.
The benefit will have bring them on our portfolios will tighten up that economic occupancy.
And really close that 15 to 20 point spread them very quickly as we as we worked through our revenue management system as we work through our contract rates and our in place rent changes and so you look at the airport the opportunity within that portfolio versus our stable portfolio you certainly have.
No that does.
Occupancy spread is where I would probably tell you is where most of that gain is going to come as we close out that economic to physical occupancy and.
And so we certainly expect that portfolio to outperform our stable portfolio as you think about how we season that up.
Not sure I'm prepared to give you probably a hard number on what that is and that spread of points is going to be but we certainly do expect it to outperform the stable portfolio and then we had another bucket that Tammy mentioned in her opening comments about this non season group and that non season group, probably has a physical occupancy of around 70%.
Maybe an economic occupancy of another 15 to 20 points below that and so those will take a little bit longer to season, you may look at our window of maybe 18 to 24 months to season those properties to maybe a little more stable look and certainly as you stable season, those properties out and stabilize the occupancy to stabilize the revenue and drive some of the rental rates forward.
Those will certainly it performed at a much higher level than what our stable portfolio will perform it.
Yeah, that's great. Thank you for that the other one.
For me.
In terms of acquisitions, I mean, I'm sure people are going to ask a lot of different ways, but I think Tammy you said, you had $200 million to $300 million.
Under contractor LOI.
I understand that competition continues to increase but.
Does that does that what 406 hundred seem a little you know I guess conservative I mean, I feel like last time, we talked it sounded like if 2021 didn't exist 2022, theoretically would be like a record year as well just given the amount of transaction activities, though.
Can you just maybe kind of speak on them you know.
What you're seeing in and how you expect the year to shape up.
Just given you know all of the things I mentioned, plus the fact that you know you.
Still a very attractive cost of capital so.
Thanks.
Sure sure Neal Thanks.
So we're still seeing a significant amount of activity in the funnel. So so a lot of transactions coming to market and we continue to look at every at every deal that kind of crosses our desk.
The issue is that cap rates remain compressed and while the cost of capital is.
I think it.
It's good it's not as good as it was and we frankly are not high.
And we don't like what we're seeing as much as what we were looking at last year and when you think about that and think about the fact that we've always said, we'll be very disciplined in our underwriting we're buying for the long term, we're improving the quality of our portfolio.
And are very focused on acquiring assets that are accretive to our shareholders and it's just causing us to pause a little bit now and we acquired $2 billion of assets last year, and that's going to take some time and effort and energy to integrate into our portfolio. We have a lot of upside in those assets that we acquired in.
The fourth quarter so.
I think we're comfortable with the guidance that we're providing now you know something might change we're seeing a handful of.
Small to midsize portfolios that might prove interesting, but but at least for now I think our view is to be cautiously optimistic about 2022.
He put it that way.
Okay I appreciate it thank you guys great quarter.
Okay. Thank you.
Thank you. Our next question comes from Todd Thomas with Keybanc capital markets. Please state your question.
Hi, Thanks, just first question I guess following up on that last.
Line of questioning Dave I'm curious how much of the 2021 investment volumes almost $2 $2 billion, how much of that.
Was non stabilized or non seasoned where there is outsized growth and how much yield upside should we assume a 150 basis points during the year, maybe 250 basis points, what what's the right way to think about that throughout the year.
Hey, Todd this is Tammy. Thanks for the question. Good question. The way, we're looking at that $2 $2 million of about 350 million of it is what we consider non stabilized and in some phase of stabilization.
And the cap rate on those assets was in the low to mid 3% range. The stabilized cap rate so call. It two to three years out would be about a six.
Okay, Great that's helpful and then.
Regarding the guidance can you talk about what's embedded in the guidance for.
For occupancy throughout the year, whether we should expect.
And I say to maintain a positive year over year occupancy spread throughout the year are you anticipating.
Embedding in the guidance occupancy gains to flatten out or turned negative during the year.
Yes, it's a it's a good question. So certainly we're starting in an elevated level. So we certainly think we're returning put some normal seasonal trends we saw at the back half of 2021 really the back quarter of 2021, we saw some there was some seasonal trends.
Selling occupancy pull off just a little bit and so we're starting at a higher level of 2022, we certainly expect to see the seasonality in the summer months, albeit more little cooler now so we may not see the.
No significant change in occupancy as you head into the June and July , but we still are going to see improvement in June and July and we expect it to trail off in the back half of the year, you know really starting around August .
More seasonal normal historical trends in normal level, that's usually around 300 to 350 basis points from the peak to the end of the year, we modeled that maybe just a little more conservative this year, because we are starting at a higher level and we may not have as many seasonal tenants.
So we may be thinking if normal history was 300 to 350 were probably thinking 250 to 300 is what we're thinking about by the end of the year as far as an occupancy landing point.
Great and can you share where our current occupancy is today and what that spread looks like year over year.
So Todd at end of the year, we were 94, eight and Dave I think mentioned it earlier, we're about 30 basis points off which is kind of normal from that December mid February so call. It 94 five.
And that's still.
A healthy too.
<unk> points.
Above prior year.
Okay, great. Thank you.
Yep.
Our next question comes from Smedes Rose with Citi. Please state your question.
Hi, Thank you kept me I just wanted to ask you. When you say that you don't really like what you're seeing in the market now on the acquisition side its a function of of quality or you said crap.
Cap rates remain compressed and I'm. Just wondering are you seeing the same amount of set of products on the market. It seemed like there was kind of this rush to sell last year and it's that kind of died down a little bit.
No I would say that the volume is still high and the volume of potential transactions.
And our.
I think what gives us pause is a combination of quality and cap rate. So where you were paying compressed cap rates on markets, where we're building scale and we want to operate long term in 2021 I, it's the markets or maybe not quite as desirable and the assets frankly, maybe not quite as.
Well in terms of improving the long term quality of our portfolio.
Okay.
Wanted to ask you wouldn't you wouldn't be pros for tire now that you've had to I mean, it's it always the case that.
Their retirement, it's accretive to NSA or there are times, where it may not be but where it might be neutral or even dilutive.
It will always be modestly accretive.
The the bigger the obviously I think probably obviously the bigger the pro more accretion to NSA, but if you think about it there's the penalty on the conversion from the S. P units to the O P units and which is one component of the of the accretion and then the second component is management say.
Taking taking the assets off the pro management fee and then pro management platform onto Msas.
Ah corporate platforms and in that regard, what we will save some money I'm not on the management fee, but we also expect to get some benefits from that full use of the corporate platforms.
Okay. Thank you appreciate it.
Sure.
Our next question comes from Kevin Stein with Stifel. Please state your question.
Good morning, everyone.
I was just wondering if you've seen any changes in the top of your funnel in terms of demand maybe searches or any color there would be helpful.
Yes, great question.
The overall activity at the top of the funnel is still remains very robust and we haven't seen a significant change as.
As far as the amount of activity, we're able to drive what you're starting to see is a return to normal pricing around cost per acquisition.
If you think of 2021 , particularly the spring of 2021 we had very favorable marketing cost very favorable demands, which created you know cheaper rentals. If you want to think about it that way from a marketing expense and the teams have done a good job returning to very disciplined practices, but the marketing costs are returned to a more normal cost in a more normal pace, but the top of the funnel.
Remains very robust.
Okay. Thanks.
Mhm.
Thank you.
Our next question comes from Samir Khanal with Evercore. Please state your question.
Hey, Brendan.
On guidance can you maybe break down the Opex line items, just trying to see where personnel property taxes. What's your views are on kind of the various line items for this year.
Yeah sure Samir Sameer so.
Personnel cost, we I would tell you we're estimating kind of right in line with that total Opex guide of five and a quarter to six and a half.
Property taxes baked into the range is.
A number of 5% to 7% growth and then outside of that I would highlight.
Marketing and insurance says two line items that would be above the total opex range.
Call it double digits, 10% to 15% growth.
And R&M is one where it would be below.
The five and a quarter to six and a half range.
Got it and I guess as a follow up just sticking to expenses your G&A is.
I think when you do the math real quick about 15% year over year.
I know costs are up across the board, but wondering what else is driving that I mean, maybe the pro retirement acquisitions or is there something else that's driving that number.
Yes.
Pro retirement will actually be a little bit of a benefit to my earlier remarks, but you are right Sameer I mean the <unk>.
G&A growth.
This past year of 'twenty, one over 'twenty was 17% if you look at the guidance that we gave at the midpoint, it's implied to be a 15% growth.
But you're also talking about topline revenue in 'twenty, one grew 36%.
This past year, and our projections for 2022 as a topline revenue growth of 32%. So we're certainly still taking advantage of the scale efficiencies growing top line at a faster pace than our <unk>.
G&A load in one of the metrics that we look at internally as G&A as a percentage of revenue and so that number. If you look at 2020 was 10% it's up nine in 'twenty one.
We saw late in 2022. So those are all good good indicators for us and resulting EBITDA margin expansion.
Got it thanks, so much.
Yes.
Thank you. Our next question comes from keeping Kim with Truest. Please state your question.
But.
Good afternoon, everyone. So I'm not sure if I missed it but can you talk about the street rate trends that you are seeing I think you said, 12% up in <unk>.
What does that look like mid February and what is implicit in your guidance and how youre thinking about that as it progresses through the year.
Yes, certainly keeping all I'll start off and Brendan can finish here, we certainly seen you know year over year. The percentages of street rate increases are still in the low 20. So things are very positive starting out the year as far as street rates year over year.
We're starting to see street rates Youre not seeing the rapid rapid rise that we saw certainly for parts of 2021, but we're still able to improve.
Most of our markets and so we're happy with that.
It's been another positive rent roll up as we talked about earlier were still positive in our rent roll up.
Which allows us there's still you know strong figure eight strong obviously, we're still being very assertive in the IPR C. But thus far our street rates are still still doing very well and keep in the 12% you heard was a contract rate for the fourth quarter year over year.
Okay and.
So the second part of that question was what do you expect for rest of the year is it still that 20% range.
No. It can't you won't hold at that level I mean, certainly we had tremendous growth in 2021, and so as you look at the back half of the year comps that spread of growth year over year will not be in the twenty's as we bring it down towards the end of the year, certainly see that coming into probably more normal normal historical ranges as you think of the back half of the year as far as the street rate growth.
Okay.
Okay and.
In terms of the pro internalization this quarter.
All right.
Was that pro fully on the NSA platform.
Or were they operating.
Under one umbrella or was it something in between.
And.
If the if it's the case that it comes on to the LNC platform are there additional synergies that you think you might be able to extract from that.
Yeah. Good question.
They were they were probably more on their own platforms. When they were on NSA platforms and so what I mean by that is they ran their own website. They have their own web team. They.
They use the NSA is revenue management platform, but they have had their own decision, making process within their company around that piece of it. So we do think there's efficiencies to be had we do think there's upside there we've already transform them to all of the NSA platform. So they are on currently on the CMS and they're currently other full revenue management platform and in all the platforms across so we do think.
Theres upside there the team did a wonderful job they were very good at what they do so it's a big challenge for us, but we do think there's upside here.
And if I can squeeze in a third one.
You mentioned that youre going to keep the same flag.
That currently exists.
But if I think about you know what storage companies have done over the past decade has been able to its been cause drive to increase scale not just in the physical means but from a digital perspective getting the benefit of scale on Google search and whatnot. So why keep it under its own flag.
Or is that northwest interim decision.
No it's not an interim decision yes, it's a good question keep it but the northwest brand is very dominant in those markets.
There.
There our ability to bring it onto our platform and put all the tools in place, we'll certainly make it would be better but the northwest brand itself has been there for a long time has been well represented well positioned that they've done a good job building that brand out and as we evaluate the cost of rebrand every stores and the disruption when you just rebrand to restore we just don't think it's worthy.
We think we can be very good run in the northwest brand up there and the.
The digital benefits with the platforms, we have and the tools. We have we can implement everything we do with the northwest brand. There's no hiccup there at all it actually gets better so as we think about it. We just think it's the right decision to keep the brand and I think the other thing I would add I keeping is and we've talked about this over the years is that this is a V.
Very local trade area business, So what 80, 90% of our customers come from within a three mile. The fact, maybe now it's expanding a little bit up to a five mile trade area, but the.
The benefit that we would that we would lose by the rebranding.
We do not believe that it could be offset.
I don't know if I'm, saying this right with the benefit of the local presence.
Would be lost in a rebranding effort and we don't believe it would be worth the cost of rebranding.
We just wouldn't pick up those benefits digital marketing.
Got it thank you.
Yeah.
Our next question comes from Ronald Camden with Morgan Stanley . Please state your question.
Hey, congrats on a great quarter. It just two quick ones from me one just on the rent increases both in terms of the frequency and the magnitude.
And sort of your guidance for 2022 is there any sort of thoughts or changes maybe this year versus last year, how should we think about that.
What's what's the strategy for this year.
Yes, great question.
Certainly we've been able to be more assertive and we really have been through 2021 really the back half of 2021 strategy going into 2022 is very much. The same we're not coming off of our assumptions, we're leaving most all of the frequencies in place.
As you noticed as we talked earlier, our increases are actually in the low to mid teens, now where a year ago. They made have been low single or high single digits to low teens. So we've certainly been able to be more assertive when we're going to keep that program running at this point, we're just not seeing significant pushback or changes in the environment as we model occupancy through the year, we just believe.
That we've got stepped out and it won't be a significant change.
Got it that's helpful. And then just another one on the prowess, obviously second one internalize.
I remember in previous calls you talked about conversation with new pros coming on.
Maybe could you just remind us how those conversations are going and does does the math change at all for a pro coming in today versus I don't know 12 to 24 months ago.
Sure.
Good question and we continue to have conversations with high quality private operators, who might be a good fit for the MSA.
<unk> its structure, but as we've talked about before it's a long and and I and difficult process. It's a big decision for an operator to join NSA, It's a very big decision for us.
To decide to affiliate with an operator.
And so it just it takes time and its unpredictable in terms of the timing.
But in terms of the math no real change to the structure.
Our structure has remained consistent since basically since formation in 2013.
And we're not contemplating any changes to the structure for new or existing pros right now.
Great. Thank you.
That you.
Thank you and just a reminder to ask a question press star one on your telephone keypad.
Remove yourself from the queue press star two on your telephone keypad.
Our next question comes from Wes Golladay with Baird. Please state your question.
Hi, everyone I just have a quick question on the balance sheet. It looks like the line balance was up a little to finish the year and I think you've mentioned you've cleared the line a little bit but what is the long term plans for the year on our line of credit.
Yeah Wes Thanks for the question. This is Brandon you're right we did.
Can you bring that down post year end with the last tranche that we had yet to fund on the private placement. So it's.
Closer to just over $350 million, we also upped the capacity on our line at the end of December . So we have a total capacity of 650, so we still got a lot of room.
In terms of capacity, so nothing urgent not drilling under the gun to unnecessarily addressing anything I mentioned about 2022 maturities in urine sami's comments about deal flow. So.
We're comfortable with where we're at we always strive to have optionality and flexibility and so we're very pleased with the private placement transaction. We had late last year, that's certainly an option on the debt side.
We also did some things with the bank group last year and could very well do so again this year. So anyway, a lot of opportunities a lot of options still plenty of capacity on our Atms as well.
Okay, and then one quick one you mentioned that a normalized debt to EBITDA.
For the fourth quarter acquisitions could you provide us with the EBITDA that was not captured in <unk> from the in the run rate.
Yes, the math west to get from that six one to five seven its really adding about 35 million of EBITDA to the annualized number I mean, that's the that's the number that gets you to that specific math and then just another point of color.
The one point a little over $1 $1 billion of deals that we did in Q4.
About half of that was in the month of December .
And the majority of that December volume was really in the last two weeks of December from December 15 through through the end of the year if that helps with the modeling.
Yeah. Thank you very much for that.
Yep.
Our next question comes from Neil Malkin with capital one. Please go ahead.
Thanks, guys for letting me take another crack at it.
So can you talk about just given historically low turnover and you know youre getting aggressive are you continuing to be aggressive on the IPR see what what percentage of the portfolio is eligible or receiving.
Renewal notices versus like you know two.
2019, or pre COVID-19 , how much how much more how much of the portfolio is eligible and getting that that bump obviously that that's pretty much your largest driver of growth every year or so.
Can you maybe just quantify that.
And I think.
As I look at it I would say probably the average of 2% to 3% more of our tenants per month are eligible and receiving rate increases versus what maybe 2019 would look like so that's a pretty significant number given the tenant base that we have.
And again with the Mount of rate increase we're doing and you know the way we've removed some caps and really just increased not only frequency at the mouth, it's adding up to a pretty good number for us, but I would say, 2% to 3% more on average is what's coming across yes. Neil then also pre Covid. We were open about the annual number being maybe 75.
Some of the customer base. So if you do the math on what Dave just gave you that's you're talking about hidden.
Each of the customers are hitting 100% of the pre close here over the course of the year, obviously youre turning customers over every month and new customers are being replaced so that factors into that as well so right.
Great. Thanks, the other one is in terms of.
Some markets had the eviction moratoriums I believe expire.
In some form or another you ended the last year January 1st of this year.
Some coastal markets have you.
Have you seen any increase in demand.
In markets that where you've had.
Either long winded or our strict.
<unk> Moratoriums and are you seeing an influx of demand from dislocation or nothing really discernible.
Nothing discernible anecdotally, we've certainly heard the stories and we've seen folks who have been gone through the process of being evicted and had to relocate and so.
Nothing I can really put a hard number too, but yes as those moratoriums burned off it has created some more transition in some of our markets and those folks have use storage.
We are in a very tough rental market you know as you know it kind of hard transitioning at the time of year to find a new rental home has been tough. So we are seeing we're seeing that we're hearing stories about it I can't give you a real number on what it's doing as far as overall impact.
Alright, Thanks again.
Mhm.
Thank you.
Your next question comes from Elvis Rodriguez with Banc of America Securities. Please go ahead.
Just a quick just a quick follow up on supply I think you mentioned that you're starting to see a little bit of uptick in supply, but won't really impact. Your until 2023 can you talk about that in more depth I know your secondary markets traditionally see less supply. So anything that you see is changing given how well your.
<unk> performed any new developers and entering new markets.
Any information you can share would be helpful. Thank you.
Yes, great question.
As we commented earlier, we did we just have not seen in most of our markets a lot of new supply coming we mentioned the top 20, Msas, where we felt probably the most pressure of new developers coming.
If you think about a lot of the older developers were bought out of their property is probably in the last 12 to 18 months. Some of those are retooling and they're building in some of these top 20 markets, but overall, we just haven't seen a significant change due to the things. We mentioned timing are supply chain problems ability to find contractors ability to get them.
<unk>.
We think as you know.
We listened to outsiders talk a little bit about what we have been steady and it's just the process still remains very slow very cumbersome in and we just haven't seen a real ramp up in development activity yet.
Great and then just a follow up on the internalization of the pro I think you mentioned opportunities for synergy but.
As you bring the portfolio onto your platform call. It it's been a couple maybe six to eight weeks now can you mentioned sort of.
Performance of the portfolio on your platform versus when it was externally managed by the pro.
Yeah, Great question, we really can't comment at this point in time as we get in further into the year and get into obviously calls later after future quarters, we'll probably be able to speak a little bit more about it but there's just nothing to report at this time.
Great. Thank you.
Mhm.
Thank you and ladies and gentlemen, that's all the questions. We have for today I'll now turn the call back to Tamara Fischer for closing remarks. Thank you.
Thank you I'll I'll, Chris So I'll close the call today by again thanking our team for their commitment and efforts through an incredibly busy quarter and year of 2021, we're very optimistic about our prospects for 2022 as we continue to deliver outstanding results by executing on our differentiated strategy.
Including our pro structure, our geographic diversity and our presence in sunbelt in secondary markets. Thanks.
Thanks, again for joining our call and for your interest and support of NSA, We've said it before and I'm sure. We'll say it again, it's a great time to be in self storage. Thank you.
Thank you. This concludes today's conference all parties may disconnect have a great day.