Q1 2023 National Storage Affiliates Trust Earnings Call
The long.
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 Huckland, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Huckland. May Spring Gray Begin.
We'd like to thank you for joining us today for the first quarter 2023 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's Executive Chair Tamara Fisher.
President and CEO Dave Kramer, and CFO Brandon Togashi. 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 yesterday afternoon, we furnished our supplemental package with additional details on our results, which may be found in the investor relations section on our website at nationalstorageaffiliates.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 management's estimates as of today, May 2nd, 2023.
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 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 FFO, core FFO, 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 Dave.
Thanks George, and thanks everyone for joining our call today. Before we get started, I'd like to acknowledge the recent passing of a valued member of our Board of Trustees, George Chapman.
George joined our board at our IPO in April of 2015 and his contributions are too many to name. We greatly appreciated his wisdom, guidance, and sense of humor and we will miss him greatly.
As many of you know, today is my first earnings call as CEO . Tammy is in the room with us today, so I'd like to say thank you for all you've done for the NSA over the years, and congratulations on your move to the Executive Chair role.
But I'd also like to acknowledge and thank all of our team members here at NSA and our pros for their continued dedication and hard work.
It's a significant contribution for our team members that drive our continued growth, and we appreciate everyone's efforts.
Overall, looking at how the year started, there are positive signs that fundamentals are moving in the right direction.
the year. History rates have increased 4% from the beginning of the year through the end of spring 2017 and it is up to people to take smiling pics
Link to stay continues to increase with the average link to stay on move outs now up to 17 months, the highest it has ever been for our portfolio.
Also, our rent roll down is moderated every month this year starting at 19% in January and is now 13% in April . With things moving in the right direction, I'll remind you that we're coming off the best two years of rate and occupancy growth in the self-storage sector ever seen.
The comps are challenging as we moderate back to normal levels.
Now turning to results for the quarter, we began the year with solid operating performance, covering same store revenue growth of 5.7%.
which is still above the long-term historical average for the sector.
October 10th, 2021, we finished at 89.8%, and April finished at 90%.
With the headwinds of a slowing economy and a muted housing market, demand levels will continue to feel pressure. As an example, in March, home sales were down 29% year-over-year in both Phoenix and Las Vegas. Poll occupancy in those markets was down 570 basis points and 790 basis points respectively.
Pardeens have done a good job navigating the changing economic environment and remain focused on executing strategies to capture new customers as we progress through the spring leasing season.
Keep in mind, it's still very early, so the next couple of months will be key to our full-year growth.
Geographically, our Sunbelt and secondary markets continue to outperform with MSAs such as McAllen, Oklahoma City, Brownsville, and Wilmington all generating revenue growth north 10%.
This reinforces our strategic market focus and continued emphasis on geographic diversity.
Turning to the supply environment, we believe that on a portfolio-wide level, supply will remain relatively muted near to mid-term, given the many headwinds that developers are facing today. That said, there are a handful of markets where we are feeling pressure from new supply, resulting in below-average growth, including Portland, Phoenix, and Las Vegas.
On the acquisitions front, we had a productive quarter, acquiring 16 properties totaling $160 million.
Contained to these properties were previously discussed and were part of a portfolio purchased out of the GAPI pipeline for approximately $145 million.
We funded these transactions with $150 million of equity, which Brandon will discuss further in his remarks.
These transactions demonstrate one of the benefits of our pro structure, which is the CAPTCHE pipeline, which now stands at approximately 100 properties, totaling $1.4 billion.
The acquisition environment remains competitive with the wide gap between buyer and seller expectations.
while we remain patient and disciplined, focusing on CAPTI pipeline and off-market transactions.
I'm now turning the call over to Brandon to provide more detail on our financial results and balance sheet activity.
Thank you, Dave. Yesterday afternoon, we reported core FFO per share of 66 cents for the first quarter 2023.
It represents a decrease of 2.9% over the prior year period.
The sequential and year-over-year decline in Core FFO per share, despite 4.8% growth in same-store NOI, was due primarily to elevated interest expense given the rising rate environment.
Animal acquisition volume in the fourth quarter of 2022 versus the $1.1 million of acquisitions in the fourth quarter of 2021.
and an overall deceleration in operating fundamentals as we come off historic highs.
operating expense growth in the first quarter was 8.3%. In line with the high single-visit growth we previewed on our last call.
As we had a tough time on property taxes, the favorable adjustments in the prior year period. Property taxes grew 11% year over year, but excluding the prior year adjustments, the growth was closer to 7%.
We also saw an 11% increase in utilities and a 29% increase in marketing expense.
Both of these line items have elevated spend beginning in the second quarter of last year so we will start to lap the tough comps by midyear. These items were partially balanced by lower growth in other line items, a 1% increase in payroll and a 4% increase in repairs and maintenance.
line items have elevated spend beginning in the second quarter of last year so we will start to lap the tough comps by midyear. These items were partially balanced by lower growth in other line items, a 1% increase in payroll and a 4% increase in repairs and maintenance. Turning to the balance sheet.
Apart from the January recast of our credit facility we previously announced, we issued $113 million of a new series of preferred stock during the quarter in conjunction with an Orlando portfolio acquisition.
The Series B preferred stock has a 6% coupon and was issued at an effective yield of approximately 6.1%.
Separately, we also repurchased 1.6 million common shares for $69 million.
Subsequent to quarter end, we issued $120 million of five-year unsecured notes in a private placement with a face coupon of 5.61% and an effective rate to us of 5.75% inclusive of the impact of pre-issue hedges.
Additionally, the Pearl Bond Rating Agency affirmed NSA's BVV Plus credit rating and maintained the outlook at stable.
A quarter end, our leverage was 6.3 times net EBITDA up sequentially from year end, primarily due to typical first quarter seasonality. We project leverage will decline slightly in the next couple quarters as EBITDA increases from organic growth and the acquisitions we completed in mid-March.
giving effect for our $120 million debt raise. Approximately 16% of our debt is subject to variable rate exposure.
mostly from the outstanding balance on the revolver.
We're committed to maintaining a conservative leverage profile and healthy access to multiple sources of capital.
Now, moving on to 2023 Guidance.
As Dave mentioned, it's still early, so we will wait until we get further into the peak leasing season before revisiting the outlook for same-store revenue growth.
On the OPEX front, we completed our annual property insurance renewal effective April 1 and experienced the same as other property owners, a very challenging renewal market with cost increases that were roughly double what we had in the budget.
All insurance expenses are relatively small component of our property OpEx.
This will still put some pressure on growth, which we'll combat where we can with controllable items.
We thus maintain the guidance ranges that we introduced in February , which can be found in the earnings release. We now maintain the guidance ranges that we introduced in February , which can be found
Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?
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One moment please while we poll for questions. Our first question comes on Michael Goldsmith with UBS. Please proceed with your question. Good afternoon, thanks a lot for taking my question. Your comments from the earnings release and the call today.
imply some caution. So can you maybe elaborate a little bit on how you view the quarter and then trends in April ?
Hi Michael, this is Dave. Thanks for joining our call today and I appreciate you being on and thanks for the question. Yeah I think as you listen to what we talked about in our prepared remarks and as we look at the quarter, we certainly have a challenging comp to last year's occupancy. We've been facing that comp now for two quarters. Going off unprecedented times of just...
great time for the self-storied sector. We really spent a lot of time looking on what is it we wanted to accomplish in the first quarter and what were the business trends we were trying to achieve in the first quarter. The first quarter, in our opinion, really reacted pretty much as we expected. We saw seasonal changes where you saw the trough in occupancy and you saw the trough in the street rates really coming about mid-quarter in February , which would be expected in a normal seasonal trend.
And really our MSA is above 25. Also outperformed our portfolio in general as you think about how they performed against the total portfolio. You know, top of the funnel we made it active. We had to spend more marketing dollars to keep customers coming in that top of the funnel. As we looked at the quarter though, we thought the rental activity was a little bit less than we wanted.
And so top of the funnel was active enough.
Conversion rates were not as strong as we wanted to be within that funnel and so we thought rental activity was a little bit on the light side.
Again, overall the quarter very much played out like we thought and we're pretty happy with where we ended, particularly coming out of April .
That's helpful, Dave. And as my follow-up, I'm just trying to put the start of this year into context. So maybe if we compare, you know, other years where, you know, rental activities may be a little bit late, in the beginning of the year, you know, has there been times when it picks up in 10%...
softness earlier in the year.
Yeah, good question. We do think it is early yet. We are just now entering the spring leasing season. We still have May and June which are very active months and sometimes July , parts of July are as well. We think it is too early to tell and that is why we have not looked anymore about our guidance. R converses as timeLiber definition of elevated unemployment is said to apply. We think it is easy. Our
Plenty of opportunity in the next couple months to drive performance, and we're watching it very closely. Like I said, we did see an improvement, you know, April over March as far as net moves. We were pleased with that.
April , from just a pure rental activity in occupancy in March to April , April was just a little lighter than we thought it might be based on maybe 2018 or 2019 trends.
Thank you very much.
Thank you very much. Thank you. Appreciate it.
Our next question is from Juan Santa Brea with BMO Capital Markets. Please proceed with your question.
Hi, thank you. Just wanted to follow up on that last commentary. One of your peers talked about March was softer, but April rebounded and it's kind of back to normal. So just curious, I guess, what you saw month to month in March and April and maybe May. I guess you can't talk to May. It's just the second of May. Okay.
But just curious on the slope of what you're seeing and if that is not as steep on the upward trajectory as you normally would expect and more importantly I think from an investment perspective what's assumed in guidance. If you could just comment on that, that'd be great. Thank you.
I'll touch on the slope of the activity around the edelpiece and then Brandon can jump in on the other backside of that question. Certainly again, we were happy with the improvement. We saw street rate improvement, we saw contract rate improvement through the first quarter and it also improved in April . We're happy with that. The top of the funnel, the marketing span of the dollars we deployed generated...
or maybe a Saturday last year was the 30th and the 30th issue was on a Sunday. There's some movement around days. You know, we're way early in May. I can't really comment on May. But I do think there's an opportunity from a rental aspect to make some of this up in the month of May. Brandon, if you want to jump in on. No, Juan, the only thing I would say kind of in response to what you asked as well.
So we have to we can use 2018-2019 as reference points, but there's also an element of a new normal that we're frankly still finding.
And then on this just on the existing customer rate increases, how have you been able to push those what's been?
the receptivity of the customers. Has there been any increased price sensitivity to where maybe you step back on the pace of the increases you'd expect to push through? Any commentary would be helpful.
Yeah, good question. Honestly, no. That's been very solid for us. It's been a good strength for us. Our cadence remains as active as it has been really through the pandemic. The amount of customers and the amount of rate increase they're getting remains very constant and very...
right where we want it to be. There's been no change, there's been no commentary back from our consumer. Our length of stay hit 17 months, which is the longest length of stay on move outs that we've seen in our history. So I think there's a lot of strength around that. And so right now we're really confident where we're at with our in place rent changes.
There's been no commentary back from our consumer. Our length of stay hit 17 months, which is the longest length of stay on move outs that we've seen in our history. So I think there's a lot of strength around that. And so right now we're really confident where we're at with our in-place rent changes. Thank you very much.
Thank you. Our next question is from Jeff Spector with Bank of America. Please proceed with your question.
Great, thank you. Yeah, just stepping back, I'd say, you know, the comments on the call today are more positive than the quotes I read in the press release. So just trying to figure out again maybe the weakness or where it was lighter in April .
because I think based on the press release and the quotes, there was some concern that maybe it was more national. When you say lighter in April , are you specifically talking about the weaker markets you highlighted in the press release and on today's call like
Phoenix and Vegas where there's more supply. Can you
Maybe dive into that a little bit. Yeah, great question. Thanks for being on the call. Those markets certainly put pressure on that activity. Absolutely. You've certainly have seen changes around some of these markets because they've come out from some really hot housing market, but also they have new supply coming. Phoenix had supply coming, Vegas had supply coming. We're still feeling pressure in Portland.
affected due to changing economic conditions.
Okay, thank you. And then my follow-up would be on, I guess, the marketing strategy.
But as we're, you know, heading into May here, into some of the busy months, like what is the marketing strategy at this point for 23 peak leasing?
Certainly we want to make sure that we keep the activity at the top of the funnel. And so we have certainly increased our marketing spend pretty substantially to make sure that we're keeping that activity. I think the tricky part as the team is experiencing, and we have a lot of markets and all markets are not reacting the same, is really pricing and discounting and really getting that customer to convert.
points to rent. It's feeling, you know, it's feeling back like it did in 17 and 18 and 19 and so we're really trying to figure out what's what's the best formula in all of our markets and it varies by market to get the conversion rates we want on rentals.
Okay, thank you. Thank you. Our next question is from Samir Canal with Evercore ISI. Please proceed with your question.
Thank you.
the various components there. How are they tracking versus your expectations? Any areas where you're seeing more pressure than others?
I missed the first part of that, Samir, can you... We missed the first part of that question.
I was asking about just an update on expenses, the various line items, the components, how are they tracking versus your expectations.
any areas where you're seeing more pressure than others. Yeah, Samir, this is Brandon. So the first quarter, as I mentioned in the open, was very much in line with our expectations. So we knew property tax was going to be a tough comp. A high single-digit growth number over prior year was not, you know, a surprise to us. We were essentially on our budget. As a reminder, the first quarter growth.
For same store last year in OpEx was 3% even though for the full year it was closer to five. So it's just a tough comp there. Everything, you know, the biggest surprise is the insurance that I mentioned. At the open we have a renewal that starts April 1 so we feel three fourths of the impact of that 12 month renewal in 2023.
And we had budgeted something closer to 25% year over year increase. And like I said in the earlier remarks, it's going to be closer to a 50% year over year increase April through December that you see in this year's numbers. And so that's the biggest downside that's come through since our last call.
Property taxes for the full year, even inclusive of the tough Q1 comp, we still expect to be toward the high end of the total OPEX range that we gave. So call it, you know, five and a half to seven percent. Personnel, R&M, we expect to be within the total OPEX range, maybe even touch below in the case of R&M.
And then marketing will be double digit year over year, but the worst of it I think is Q1 and Q2 because of the comps.
Thanks for that. My next question, just switching subjects a little bit here.
You know we've seen the the LSI deal get announced and then we've been getting a lot of questions about
We've seen the LSI deal get announced and we've been getting a lot of questions about your performance and how difficult
Does the purpose of the potential of building improve the extent that there was an interest at this transferable thing may help us in the future.
Yeah Samir, I'm sorry it's really choppy. Can you say it one more time please? Yeah so look, you know we've seen the LSI deal get announced and we've been getting a lot of questions about your portfolio so maybe just remind us how difficult does the pro structure make it for a potential deal to get approved?
the event that there was an interest for your portfolio help us through think through the process. Well Samir our board is very focused on strategies that would create superior long-term value for our shareholders that's that's top priority and they certainly are very focused on it. The pro structure itself you know it's a pro structure to remain intact it doesn't really put a lot of obstacles in it at all. I mean
Thank you. Our next question is from Keegan Carl with Wolf Research. Please proceed with your question. Thanks for the time guys. Dave, I know you mentioned in your opening remarks that street rates are up kind of similar in the 4% range since the start of the year. I'm just kind of curious, a few questions on that. So first, how does that compare to March? Yes.
February to March, March to April . April was the strongest of that increase. That's where you saw the largest percent increase month over month as expected. As you're going into the spring leasing season, we're starting to see a little more activity. We're certainly trying to push as hard as we can. It's hard to compare to last year. Last year was such an outsized year. We had the best pricing.
power that we have had ever since I have been in this industry. We have the strongest occupancy numbers. Our street rates are still down about 8% the last year. The pace of growth April to March last year was better than it was this year. Again, just a really tough comp. I would say as I look back at 18 or 19, maybe a core portfolio, that April street rate gain iseker.
similar to what we just saw in that April 18 or 19 cycle.
I know that's helpful. And I guess for a follow-up here, how should we think about your capital allocation going forward? I mean, if your multiple stays where it's currently at, is there an expectation we should be looking for more buybacks and less transactions from an acquisition side of things going forward?
Keegan, this is Brandon. You know, we're going to be like we have been the past few quarters since, you know, interest rates really started to increase and cost of capital became a lot higher. We're going to be very patient. We're going to be very judicious about the opportunities in front of us. I think we've been quite balanced these last couple of quarters. We're doing some in the way of acquisitions. It's been—
We talked about it in February . Some creative deals in the sense that we've issued OP equity at a premium. We did the new series of preferred stock. Those are ways that we're helping to fund the acquisitions without issuing our comment at discounted value and not bearing too much on high interest rate debt either.
And then yeah, we certainly had some appetite for share repurchases. I think it's been in moderation. And so I think going forward you can expect us to be, you know, selective in the same ways that we have been these past couple quarters.
Great, thanks for the time guys. Thank you. Thank you. Our next question is from Spencer Ollaway with Green Street. Please proceed with your question.
Thank you. So I know you guys tend to acquire assets via your pro relationships and I know you commented on your captive pipeline in your opening remarks, but is there anything you can share just on the broader transaction market in terms of what's come across your screen as it relates to volume of deals being marketed right now, competition for assets and cap rates?
Thanks for the question. Thanks for being on the call today. Certainly the captive has been a great tool for us in the first half of the year and has been over our years. From third party transactions we're certainly seeing less volume of transactions across our desk. There's still opportunities out there. Those opportunities are probably more single to one asset versus portfolios at this point in time.
been underwriting, we've been active. We will be very patient and making sure we're buying the right opportunity strategically for ourselves in the future. But I can tell you it's just been more challenging just because of the seller and Myers expectations are different at this point in time.
Okay, that's helpful. How much are you being on the rate side in markets where you have seen occupancy fall back to pre-COVID levels? Specifically are you able to comment on how much promotional activity is being given right now relative to let's say the pre-COVID era?
Promotion and discounting still remains at historical lows. I mean, it's not back to pre-COVID levels yet. I think what the teams are working on and what we're finding is, thus far, rate has been a little bit better trigger than discounting. So, as we watch rates in different markets and watch our reactions to what the markets are doing, that's been our focus. So, it's certainly, you know,
Tricky, I think I'd tell you it's been very dynamic. We've seen a lot of movement around street rates. We've seen Operators chasing occupancy and maybe that's putting a little more pressure on street rate so our teams are looking at all the levers and asking ourselves what is the best formula to try to get the revenue and And working on street may we work well in one market and this kind of may work Well on the other at this point in time. I would tell you discounting is just not climbing back to the historical averages yet
Thanks so much for the color.
for the color. Thank you.
Our next question is from Kee Bin Kim with Truist Securities. Please proceed with your question. Hi, good afternoon, everyone. Just a quick one on street rates. You mentioned 8% down year over year. Was that for the first quarter or April ?
The first quarter keep-in was around seven and a half and April was eight so the average for the first quarter seven and a half. And how do those rates compared to let's say like 2019 levels?
Still elevated, that brand on the memory. Yeah, Keebend, I mean, when we look at a subset of stores that we've had for that entire period of time, so you strip out some of the noise of new additions, street rates are up right around 20% over that four-year period. So simple average 5%, a little less when you compound average it.
Okay, and I realize your pros are also kind of geographically divided, so it might be difficult to answer the next question, but you know.
Under the pro structure, obviously the pros can run their own pricing schemes or marketing platforms. Are you...
infrastructure, obviously the pros can run their own pricing schemes or marketing platforms. Are you noticing at all differences in the market?
between how pros have performed as we are kind of in a somewhat of a soft patch.
pros have performed as we are kind of in a somewhat of a soft patch.
Good question. I think you touched on it's geography. You know, we've had the Southeast and some of those Florida markets just performing at very very strong levels. And so the pros have done a great job at the opportunities given them. They have strong occupancies. They've been able to have good pricing and so they're doing all they can to drive performance out of those markets. We have pros that are in Las Vegas or Phoenix for an example, which are facing a different challenge.
And we're, you know, there's a really good tight connection around strategies and our strategies working or are they not working and what you're seeing on the ground. And so we get lots of good color. We get lots of good flavor. And we have pros with a lot of history that can really dial in on, you know, things they've seen in the past. So I don't think it inhibits anybody from maximizing their business. They're doing a really good job.
Are there any mechanisms built into the contracts where, I mean I'm going to assume the answer is no, but where if you deemed that operations are a little bit weaker than you would have expected, some type of mechanism where you could put in more of the NSA controls in there?
There are certainly things in the agreement should something go south with a pro. And it is something that is not outside of their control. We are very realistic about the business and what. If there is something they are doing that is getting in the way of their business, we certainly have mechanisms where we can insert.
and then somebody from the NSA to help guide their business and try to get it back on track. And that's very well defined in the documents and we've been very, very fortunate. There's never even been close to having to do something like that, but there are mechanisms in our document that would allow us to do that. A more practical thing, Keegan, that we do though is just on a week-to-week basis, we share information, I mean the pros have access to the same.
the visual analytics on the screen and discuss, frankly, the SP distributions that the pros get as the biggest motivator on performance.
Okay, thank you. Thank you. Our next question is from Smetes Rose with Citi. Please proceed with your question.
Hi, thanks. I was just wondering if you've seen any changes in the amount of late payments or non-payments year over year and maybe how that compares to pre-pandemic levels?
A good question. We've actually seen an improvement in a bad debt. So, we mentioned the team getting the portfolio ready for the spring leasing season. We worked very hard with delinquencies and working through the delinquency schedule of our tenants. But our bad dread has actually came back and it's improved over the last couple of months. So, no real change in how many people are delinquent in any cycle of the delinquency schedule. So, from days late and
that comes in with like a particularly low rate tends to stay longer relative to a customer who didn't or something you can speak to there maybe it's potential strategies.
We haven't noticed a real large difference between the rental rate when they moved in. Certainly we're more assertive if you're getting a better entry rate, you're getting a much stronger first rate increase on our in-place rent changes right off the bat. But we just haven't seen a real difference. I look at it, if you're renting 10 units to 10 different customers, the percentages of people that are staying through the budget.
Slashing streature rates 50% to grow occupancy. We're just not doing that.
Okay, thank you. Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions.
Our next question is from Ronald Camden with Morgan Stanley . Please proceed with your question. Indian yours is now written in Mar Salesman's memory of a developing an original add-on
Hey, just a couple quick ones. I saw the preferred issuance in the quarter. Maybe you could talk about just how you're thinking about funding in this environment, you know, where could you issue debt, and how do you make that call between using debt and the preferred, and can we see more of the preferred issuance? Yeah, Ronald, that was a really good transaction.
very pleased with the coupon or you know the effective yield that I cited of 6.1% in the opening remarks you know very pleased with that pricing given the cost of all alternative sources of capital right now and and certainly we're open to doing more in the way of the preferred as an alternative to say our common equity
When we first did our inaugural issuance of preferreds back in 2017 that represented roughly 5% perhaps a little bit more than 5% of our total capital stack and over time that's drifted down just because of the way we've balanced the You know the sources and uses so you know this will put us back up closer to three and a half four percent of the capital stack and I think there's room to add
to the extent that that suits what a seller is looking for. Great, thanks. Can you just touch on the top of the funnel demand heading into the peak leasing season? The question really is, if you think about marketing spend, you know, you're going to
Is up and you've talked about sort of street rates down sort of. I think 8% in April . I would have thought that would start to strengthen. By now, and the question is, is that is that still to come? Have you seen strengthening just.
What sort of trends are you seeing this year as you're coming into the peak leasing season and maybe how would that have compared to other years?
From a top of the funnel perspective, the spend is creating opportunities. We are pleased with that. The fact that we can go out and target markets and target specific areas and drive top of the funnel activity has been good. As we talked earlier, as we flow them through the funnel, the conversion rate we would like to see a little bit better to rental. That's what we are focused on.
challenging for us through the second quarter and into the third quarter as far as occupancy and we just had tremendous pricing ability last year. And so we're pleased that the R3 rate this year is up 4%. We have seen it improve to answer your question.
Great, Evan, the last one is just, I know you guys obviously saw for revenue and not occupancy, but what is the guidance baking in for the occupancy trends back half of the year? So where are you ending the year? Thanks. It would look very similar to what you may have seen early in 18 and 19 in our trends. So if we're going to come into the season and trough in February , we're going to have a lot of good news.
Our next question is from Todd Thomas with KeyBank. Please proceed with your question.
Hi it's AJ on for Todd Thomas. Dave I just wanted to follow up some of your comments around supply in your opening remarks. Are you seeing the deliveries delayed or is it more about starts decreasing and then is the outlook of supply does that have more of an impact on 2023 or is that 2024 and on?
Really good question. What we're really seeing is if it was in the cycle and being built, it's being completed. So that piece is continuing. The new starts are really, really slowing. So what you're seeing is using some of the yardage data that we look at is if it hasn't been started, it's probably not going to be started. It's kind of a conclusion we're starting to see. And so that really helps us really, you know, 2024 and beyond as you think about it because the stuff that's
has been built or being completed, we'll be cycling here through the rest of this year. And so most of our markets are seeing a decline in new supply hitting the market. And so we're happy about that. And I think those those headwinds are going to remain. It's very expensive to develop. It takes a long time. There's some uncertainty around what kind of rate growth you can drive today versus what they were underwriting when they were trying to get these projects approved two years ago. So, you know, I can tell you anecdotally, there's a lot of land crossing our nests right now where they...
markets are being, are they using promotions? Are they cutting rates? Can you just provide a little more color? Really good question. I would say predominantly rate is the driver right now. They're being super assertive on trying to get their fill up. There's certainly, there's some discounting out there, I'm not saying they're out, but we've certainly seen, I think our team would tell us, it's been more about rates.
question I guess are we calling for like peak delivery this year in 2023 or peak supply pressure when you take in the context of time to lease up?
I think from my city it would be deliveries. I mean the deliveries, we've seen the pinnacle and the deliveries are on their way down. Okay, so maybe, it was at a typical, maybe a year to lease up, so maybe a little bit more pressure, at least in the front half of next year would be a good way to look at it.
I think that's probably a good way to look at it. The LESAP curve may be interesting to study on these facilities. Many things have changed versus, you know...
In the old days, I'll use that word. I mean, you're talking about 36 months to fill up a property, and then during COVID, it got down to 18 months. So I think we're heading more back towards the old days, and then where fill up is going to be a lot longer.
Okay, thanks for that. And then my final question would be, how do you balance buying back the shares? It's a pretty steep discount, I understand that part. But then at the same time, you're taking on a little bit more leverage and variable rate at the same time with the macro and even the micro at this point is a little bit more uncertain. Yeah, Wes, it's a good question. It's generated a healthy discussion, I would say, on our side.
It's all done with a view of long-term value. And so we look at the growth prospects of our company and the diversified portfolio that we offer relative to alternative capital deployment options. And most recently, especially in light of what Dave spoke to earlier about the bid ask spread between buyers and sellers on individual assets.
That's been an easier investment to make that gives you know what we think is pretty quantifiable Easy to quantify I should say real value to shareholders long term, but to your point We have to keep in balance with with leverage. You know concerns or evaluations and so
The increase in our leverage from Q4 to Q1, I spoke to it on the call, but we were at six flat times at 1231. That went to 6.3. I attribute a tenth of a turn to the buyback and we're going to easily grow into that with organic growth. So that's kind of the way we look at that. That solves for itself pretty quickly. And then …
the other two-tenths of a turn increase was really the seasonality and the lack of external growth that we've had the last couple quarters. With seasonality changing, that will come down as well.
increase was really the seasonality and the lack of external growth that we've had the last couple quarters. So with seasonality changing, that will come down as well. I can click right here and look to see whether we've had this coming along but I'm sure this
We might have lost Wes operator. That's it. Thanks. Thanks everyone. Oh, okay. Gotcha. Yep. Thank you. Our next question comes from Spencer Allaway with Green Street. Please proceed with your question.
Sorry, thanks. Just one more. I apologize if I missed this. Would you guys be able to provide just a little bit more color on the 16 assets that you acquired in the quarter? I know obviously you gave the state breakout, but any additional color on what was appealing about these assets, any commentary on age, were they single story versus multi?
any of the units, climate control, etc., that would be really helpful. Really good question. The majority of those, 15 of those, were in the Orlando market. So the appeal of that is here is a top 25 market where we can add a significant amount of assets to an operator out of their captive pipeline. So it was a tough transaction for the pro because he's one of these...
that's going on there. There's a lot of metrics we like about Orlando, so it made a lot of sense for us. The assets are mostly single-story. There is a mixture of climate and non-climate in there. The assets are, you know, I'd say the average age is probably in the 90s. 85 to 90 probably would be the average age on those assets. Well positioned in a part of Orlando where you wouldn't be...
in the previous ownership, so there wasn't a lot. They've done a really good job maintaining them and keeping them up to standard and just well taken care of assets, well positioned.
Okay, that's it. Thank you again. Thank you. We have reached the end of the question and answer session. I'd now like to turn the call back over to David Kramer for closing comments. We are pleased with our operating results for the quarter with trends moving in the right direction.
Having been in the industry for 25 years, I'll once again remind you that the self-storied sector and the NSA in particular remain well-positioned to manage through different economic environments.
Thank you all for your continued interest in the NSA.