Q3 2024 National Storage Affiliates Trust Earnings Call
Greetings and welcome to the National storage affiliates third quarter 'twenty 'twenty four conference call. 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 Zero and 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 Nash.
Speaker Change: <unk> storage affiliates. Thank you Mr. Hoglund you may begin.
George Hoglund: We'd like to thank you for joining us today for the third quarter 2024 earnings conference call of National storage affiliates Trust on the line with me here today are NSA as president and CEO, Dave Cramer and CFO Brandon 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.
Additional to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at NSA storage 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 October 31st 2024.
The company assumes no obligation to revise or update any forward looking statements because of changing market conditions or other circumstances. After the date of this conference call.
Speaker Change: The company cautions that actual results may differ materially from those projected in any forward looking statement.
Additional details concerning our forward looking statements. Please refer to our public filings with the SEC.
Speaker Change: We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as <unk> <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 Dave.
Thanks, George and thanks, everyone for joining our call today.
Pleased to announce that all of our team members are safe following Hurricanes Helena Milton.
We hope that all affected by these storms remains safe and we wish him the best as they work their way through this tough recovery period.
A summary of our facilities in the path of the storms experienced minor damage.
Actually impact engage Russ and signage all of our stores are back open for business.
We have experienced an uplift in occupancy on the west coast of Florida, primarily in Tampa and Sarasota Bradenton area. In these markets, where we have 25 stores. We've seen an increase in occupancy of approximately 600 basis points from Charlie before Hurricane Melbourne until today.
An uplift in the occupancy is helping to partially offset what remains a very competitive operating environment.
Our sunbelt markets and areas, where the elevated new supply.
To be more challenging for us so.
So far we have not seen an impact to the housing market or customer demand levels. As a result of the September rate that I just said.
Speaker Change: <unk> rates during the third quarter were down 17% from the prior year period.
We expect that number to widen your pet in the near term as we seek to hold occupancy levels for the remainder of the year.
I would add that we were pleased with the rental activity and occupancy levels in October.
We estimate that the average Oxazine October will be down approximately 200 basis points year over year.
Our existing customer base remains healthy.
Payment activity in length of stay all remaining within our expectations.
The softness in pricing to new customers, we continue to be pleased with the success of our ECR I program.
Have not experienced a material change in customer behaviors.
Or any of the internalization of our pro structure, we're making great progress and we remain ahead of schedule on the transition of pro stories to NSA management.
Speaker Change: We're about 85% done transitioning on the web and operating platforms.
The remainder will be completed by mid November.
70% complete on the transition of operations management, which consists primarily of hiring on boarding training and implementing standard operating procedures.
Speaker Change: It could be finished mid December with this piece.
We've completed about 50% of the initial store rebranding.
We also remain on track to achieve the accretion levels that we've previously highlighted.
Encouraged by the early benefits from Communize into customer acquisition and revenue management strategies.
Overall, we're pleased with how well the transaction has gone to date.
Due to the acquisitions environment, we've seen more opportunities come across our desk and the team has been busy underwriting a variety of deals successfully closed on two portfolio transaction using our 2023 JV.
Putting a five property portfolio in the Rio Grande Valley of Texas, and a 13 property portfolio in Oklahoma City for approximately $148 million.
Speaker Change: Q portfolios or in markets, where we already have a strong footprint and will improve our overall portfolio quality and increase our operational efficiencies.
Although the operating environment will likely remain competitive in the near term we remain optimistic that the benefits from the internalization.
And improving acquisition environment and eventual recovery in the housing market will lead to improving performance going forward well.
I will now turn the call over to Brandon to discuss our financial results.
Brandon: Thank you Dave.
Brandon: Yesterday afternoon, we reported core if a full per share of <unk> 62 cents for the third quarter of 'twenty 'twenty four.
Speaker Change: Presenting a decrease of seven 5% over the prior year period, driven primarily by the decline in same store NOI.
For the quarter revenues declined three 5% on a same store basis, driven by a 290 basis point year over year decline in average occupancy and a 90 basis point decline in rent revenue per square foot.
Expense growth was one 2% in the third quarter with the main drivers of growth in property taxes, and insurance, partially offset by declines in personnel and R&M.
Now speaking to the balance sheet.
Last month, we issued $350 million of private placement notes with a weighted average coupon of five 6%.
And our weighted average maturity of seven six years.
We were pleased to have priced the transaction in late August taking advantage of a more favorable rate environment.
10 year Treasury yield is about 40 basis points higher today from where we priced the transaction.
Speaker Change: We used the proceeds to retire the $325 million tranche C term loan that was due in January 2025.
In July we also paid off the $145 million tranche B term loan that came due bringing total debt paid off in the third quarter to $470 million.
We have just $16 million of mortgage debt maturing for the remainder of 'twenty 'twenty four and no maturities in 2025.
Our revolver balance was roughly $400 million, giving us $550 million of availability.
As Dave mentioned, we are evaluating more acquisition opportunities and as accretive deals materialize, we will opportunistically seek to term out the balance on our line of credit to maintain ample capacity.
We were comfortable with our leverage which was 6.4 times net debt to EBITDA at quarter end.
As discussed on our last call as part of the pro Internalization on July 1st all of the subordinated performance units associated with our pro structure were converted into O P units and thus there was no further sharing in the operating performance of the former pro managed properties.
So on July 1st we bought out the management contracts in tenant insurance economics related to the Pearl managed stores.
All of the pertinent details are in the release and the 10-Q that we will file later today.
Speaker Change: Now in relation to the recent hurricanes damage from Hurricane Helene was for the most part minor during the quarter.
Subsequent to quarter end Hurricane Milton had more of an impact on our portfolio with a few of our stores experiencing moderate roof damage and one store that had several hundred units impacted by flooding.
Cost estimates are still preliminary but the aggregate damages that we expect to incur are less than $2 million.
Brandon: Now moving onto guidance for 'twenty 'twenty four.
We've reaffirmed the mid points for same store NOI growth of negative five 5% and core for full per share of $2.40.
Speaker Change: And I would characterize the high and low ends of the ranges as low probability outcomes.
Speaker Change: Thanks again for joining our call today, let's now turn it back to the operator to take your questions operator.
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you 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 you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up if you have additional questions you may re queue and time permitting those questions will be addressed one moment.
Speaker Change: While we pull for questions.
Speaker Change: Okay.
Thank you My first question comes from the line of one fun Bria with BMO capital markets. Please proceed.
Speaker Change: Hi, good morning.
Brandon maybe just following up on a comment you made there at the end with regards to guidance to the full year.
Speaker Change: Our guidance implies a sequential.
Drop off versus what you reported in the third I just wanted to make sure that I understood that correctly at the mid point is a good base off of which to work in that kind of four to five set sequential deceleration is in fact kind of what you guys are pointing to.
Yeah, Juan Thanks for the question and you're right you know the implied midpoint.
The mid point.
The guidance implies Q4 would be right around that 56 cents, obviously, a sequential decline from Q3, a couple of things about the third quarter numbers that had some one time benefits that the joint venture deals that Dave described earlier, we did have roughly $800000 in fees in the third quarter related to those fees and roughly.
650 Grand a that is one time acquisition fees no one of those deals close at the end of July the other close mid August. So we will have some ongoing fee recognition on a four quarter basis that will be a benefit but there was a one time acquisition fee in there that's unique to the third quarter numbers and then on the same store Opex I would tell you we did have some.
Speaker Change: Benefits and property taxes that are that are more onetime in nature.
Speaker Change: And in Q4 year over year, it gets a little tougher as well and so that opex growth number year over year is expected to be higher in the fourth quarter versus the third quarter. So those are a couple of things that when you normalize for that and maybe.
Speaker Change: Maybe you're at a 60 or 61 cents for the third quarter. If you adjust those things out and then the rest of that sequential decline that you're picking up on frankly is seasonality in the business that we anticipate.
Great and then.
Your prior presentations, you've kind of had some updates on how some of the web traffic and conversions and relative occupancy differences between the corporate.
Corporate managed stores in the first stores that were previously third party managed now internally.
So just curious if you could give an update on kind of how that's trending and potential upside there.
Yeah. One good question, thanks for being on the call today you know.
Speaker Change: We've been really successful through this transition and we started.
As we talked about in the southwest with the really the initial set of pro stores that we moved over around that Phoenix, Las Vegas market, a little bit of southern California, and so the work of the transition. If you think about it as we transition platforms and we transition team members and we train and teach and get systems lives.
Really we think takes you know about 45 to 60 days before we really start to see some impact from that transition and we really are how we're able to start working on revenue management strategies and customer acquisition strategies, and so if you're pointing back to that southwest market and look at a market like Phoenix or look at a market like Las Vegas I can tell you early on we're pleased with some of the progress we've made.
Made on two fronts. If you look at the occupancy gain around Phoenix and Las Vegas are they're probably 50 to 80 basis points better occupancy gain in the period of the third quarter than what our overall portfolio. It was and so that's encouraging to us and the fact that as we put the customer acquisition strategies and the right strategies and we did see a movement in rentals.
And that's important as you think about revenue because that's what we're driving to that as one of the legs. We're working on and then on the back side of that we're also go through those early markets. Once you get them transition and get the team members down and in all the platforms that we're able to go back through the existing customer base and look at E. C rise and ask yourself, where that existing customer base was compare.
To where we thought we could move them not only on new move ins going forward non existing tenant base and so we stepped back in in the third quarter scrubbed. Those early on transition stores. They were you know.
Pass that 45 to 60 day period, and we've implemented some.
Pretty sizable increases around some of the tenants in and in magnitude and the quantity of rate increases back to that tenant base that will start to see the benefits of late third quarter fourth quarter into 2025, and so we're pleased in the fact that we're able to do both those things see a little bit of progress early on recognized that you know, obviously digital footprint got better or pause.
<unk> got stronger our paid search advertising and got more effective as we use NSA stories dotcom. So a lot of positive things for us early on but we also know as we pointed to earlier, it's really a 2025 view that we're looking at the back half of the year was really about the transition transition is going well all of these really green shoots coming.
And in 2025.
Speaker Change: Thank you.
Our next question comes from the line of Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Todd Thomas: Hi, Thanks, good morning.
Speaker Change: And appreciate the.
Todd Thomas: The detail you know as we think about the fourth quarter and.
The midpoint that you you kind of highlighted.
Todd Thomas: But you know as it pertains to the internalization transaction, which closed on July one. So you know we just got a full period reflected in the financials. This quarter is there anything that we need to think about related to the internalization transaction itself as we move into the fourth quarter and sort of early twenty-five around G&A or or.
Some of the other income line.
Lines that we should be sort of considering.
Yeah, Todd Thanks for the question. So what I would say is remember that you know there was a couple of different pieces of the F. O accretion we communicated on regarding the pro internalization.
One of those was the savings on G&A and the tenant insurance benefits right in that one I think is the most immediate one that one you can see in the financials and two that were.
Most immediately recognizing so the tenant insurance benefit we started to realize on July one you can see that primarily in our management fees and other revenue line item on our P&L, you can see that improvement over prior quarter and prior year.
G&A benefit I would point you to our supplemental schedule mine it breaks out our G&A expense line items from the P&L and it shows it's it's it's.
It's labeled supervisory and administrative fees, that's the management fees that we pay the pros.
That number for the first two quarters averaged $5 million per quarter and as as you know from our last couple of touch points, we have entered into new agreements.
Todd Thomas: They have the pros continue to manage the stores and do the accounting and other back office things for the properties until we do the transitions that Dave just described so you see that number go down from the 5 million previous run rate to $3 4 million.
In the third quarter and that will continue to taper down as you go through the fourth quarter and then into next year. So were point as we're starting to realize some of that benefit, but it's not all captured yet in the third quarter numbers.
I think by early 2025, you know we should see the full benefits of both the tenant insurance and the G&A on a run rate basis.
The last thing I would say, though Todd on your question is and it kind of ties into my response to one question. So we do lose the benefit of the S. P unit sharing and as long as NOI is negative near term you know that was one of the tradeoffs that we as management had to accept when we endeavored to do this pro internalization and so the implied same store.
Todd Thomas: With numbers.
For fourth quarter, that's in our guidance has a larger year over year same store NOI.
Growth in the third quarter end, and we don't have that that S. P units sharing and so that is also factored into the math that kind of walks you from Q3 to Q4 back to <unk> question. Those are the big things I would point you to Todd maybe just since I have the floor as a reminder, the other pieces of the accretion was going to be is that just the.
<unk> benefits in Dave's remarks on some of that we really need kind of a full year and frankly, a normal leasing cycle next spring and summer. It's that's really capture the full amount of those benefits and then obviously when fundamentals and collect and we have positive NOI growth that'll be a tailwind in terms of no longer having that economic sharing.
Okay. That's that's real helpful and then in terms of the.
Speaker Change: The transaction environment.
You you know, obviously, you're putting some money to work and it sounds like the pipelines building four for acquisitions.
Todd Thomas: But you've also talked about some additional capital recycling and dispositions and I just wanted to see if you could provide an update as to where you're at on that process.
You know, whether you started marketing additional assets for sale or have anything.
You know sort of under agreement at this time.
Yeah. Good question Todd.
I'll start with just the overall transaction market and then we're working through how we're looking at dispositions and some selling of the assets. We have seen many many deals cross our desk, where we're encouraged by the overall deal volume. The overall quality of the deals we are underwriting variety of markets variety of size.
Todd Thomas: I do believe now that were you know a couple years removed from the highs of Covid and sellers' expectations in our ability to underwrite forward looking revenue numbers all of those things are starting to I think be.
Todd Thomas: Be clearer for everyone and be more consistent for everyone and so we're actually finding opportunities that we like in markets, we like and we're able to move out and so that's encouraging from the acquisitions front I think that continues.
And we're like I say, we're encouraged and the team's working hard in an underwriting a lot of deals.
As we go through the transition of the pro stores that was the one when we did the first set of.
Really pruning the portfolio and selling of assets, we did not really dig into the pro side of that that transaction as far as the pro stores and now that we're transitioning those stores as we transition markets. We are studying all points of the markets the stores the individual assets our success in the markets. How we are positioned we've already identified you know probably 15 to 20 asked.
Todd Thomas: Sets that we think would be something that we might dispose of Ah I think youll start to see us really in the fourth quarter and the beginning of next year I think about is this the right time to get them listed and start recycling. The capital. Obviously, we think we have good opportunities in front of us so selling the assets recycle them into better assets is really attractive to us and we can use vehicles.
Todd Thomas: 10, 31 exchanges to make some tax efficiencies there and some some opportunities around that piece of it. So I would look for us over the next.
Three to six months, you'll start seeing some activity lifting of properties and really over the next six to nine months sale of properties are the heavy lift is over though.
Todd Thomas: Not.
I mean, we I think we're net buyers going forward you know if we're able to self or trends you know recycle 100, and 200 million of these assets over time, that's probably the number I gave you.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Jeff Spector with Bank of America. Please proceed.
Great. Thank you.
On the previous call your peer discussed not just stabilization, but improvement and they said nationally.
How would you characterize the current environment your thoughts heading into 'twenty five.
Speaker Change: Good question. Thanks for thanks for joining today, it's interesting I would tell you you know we have a very diversified portfolio and as you look at that and you look at markets and individual assets.
There's a lot of ways to look at what's going on if.
If you look at markets today that you know we were a little more heavily exposed into the sunbelt, we're a little more heavily exposed into single family housing.
And if you look at those markets and you look at their history. They had a great run during the pandemic and they had some really outsized performance and now they have you know.
Speaker Change: Tough comps they were up against and they have elevated supply in a lot of those sunbelt markets like Atlanta, or Phoenix or Las Vegas, those are going to remain challenged you're going to have to work your way through the new supply you're going to have to work your way through some of the fundamentals that have not returned.
Because of transition around housing and so forth, we do have markets across the country that we have found putting in occupancy we found putting in rates our customer base remains very healthy we're having really strong success around the ECR I program and so as we get stability in occupancy if we get stability in rates, that's encouraging to us maybe a market I would point you to.
Speaker Change: As Portland, Oregon, which we've talked about for a number of years with had a lot of supply a lot of the headwinds in front of it and if you look at it we've actually been able to stabilize that market and a little bit of occupancy stability find some rate stability in and have a market. While it still has a ways to go because of the growing to the supply. It. It is a positive sign for us that we found stability there.
I would tell you if you looked at our numbers, we knew that we knew the second quarter.
Speaker Change: The spring leasing season was not as elongated as it normally was it was shorter than historical the third quarter was challenging but we are pleased with you know in October we talked about on the opening remarks about the spread but I can give you a spot number in occupancy in October.
Right now as of yesterday worried about 85, 8%, which is down 190 basis points to last year, but that is an improvement over September and so for US again, a lot of variety of markets a lot of things at play here, but we were pleased to see the rental activity and the move out volumes in October and then have an occupancy gain.
Okay. That's really helpful. Because I think last quarter, you did say that you you weren't seeing normal seasonality patterns do this spring, but it cause that now return this fall and you expect that to continue through the winter.
You know the October number kind of Bucks the seasonality because typically you know from a summer high you you really bleed occupancy down through really almost till February I mean, that's really the highs in June July and August and you get your trough in February but they have the occupancy deal the rental activity around October would be a little stronger was pleasing.
Speaker Change: And so that's that wasn't objected, we're certainly working all the levers around rate and advertising and discounting and all the things we can do to try to attract customers, but I again, it's market specific there's a lot of factors to this but we were pleased with the activity in October.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed.
Good afternoon, and thanks, a lot for taking my question it sounds like.
Michael Goldsmith: Street rates were down 17% for the third quarter, you expect that to get a little bit worse as you look to close the October occupancy gap I think in the third quarter were down 290 basis points and now for October Youre looking to be closer to 200 basis points. So can you provide an update on.
Speaker Change: Kind of where street rates are for October and like you know what does the path look you know look like going forward as street rates, probably get a little bit worse before they get better, but occupancy kind of getting better and how that sets you up for the spring leasing season.
Yeah, Michael absolutely. Thanks, Thanks for joining.
I'd tell you you're right we were down 17% in the third quarter, but if you really look at the third quarter. It started to widen from July through September and so you know.
Speaker Change: If we are maybe you know low.
Low to mid teens and in July we were you know maybe we're in the low twenties. My My My July September and so that path has continued into October I think it's.
Speaker Change: It's widened we were mid Twenty's in October today, and and I think it's two things going on for US. So obviously, we're trying to.
I had the right blend of rate and discount and in marketing spend to get the amount of rental volume. We wanted and so October was a positive for us around that rental volume or we like that but also with the pro transition where I'll go going back through that portfolio, introducing our revenue management strategies, and our marketing strategy and customer acquisition strategies and we're repositioning some of those markets.
Speaker Change: To be a little more competitive in their in their environment and so I think some of that October moving some of that September move it it might be a little bit outsized as we worked through that pro portfolio and find their footing as I mentioned earlier with Phoenix, and Las Vegas, responding quite well to our new positioning that's encouraging as well.
Speaker Change: But you know I don't you know I'm not I'm not sure how much wider they get you know from a year over year basis through the rest of the year I think we've done a lot of the heavy work around street rates really the last three months.
Speaker Change: If we continue to see the activity we like on rentals, maybe maybe we're not widening as much November and December.
Speaker Change: Got it so you see it is like you know.
October is kind of like the trough and then for street rates and it should get to kind of get better from there.
Speaker Change: Or flatten out you know what means that the gap may flatten out right.
Speaker Change: I think yeah, we'd been a lot of work September October.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Thank you. Our next question comes from the line of Omar Tayo Okusanya Awash with Deutsche Bank. Please proceed with your question.
Speaker Change: Hi, Yes, good afternoon I just wanted to follow up on the last question again.
Speaker Change: It was down 20% year over year in October.
I'd, probably say, that's pretty wide and I get it you know trying to get occupancy can ultimately cri those tenants, but when you kind of talk about how much you may be quote unquote, giving away.
Speaker Change: Why.
On the very near term basis, how do you kind of offset that is that no marketing is that I'm just kind of curious how they kind of offset you know such a little shrink, which I can show you still kind of generating the level of auto while your profitability that we're looking for.
Speaker Change: It's a good question.
I think there's several pieces at play here is certainly what we can do around any type of efficiency operational to help offset that I also think the occupancy gain in October as an important not overlook that is one of the things that helps us drive revenue.
And so if we're looking at the street rate and trying to find a balance of right rental activity versus you know how the customers coming in and what their with their focus on and I do believe the customer right. Now is very focused on price will that change over time, we believe so but right now price seems to be high on the list of one of the things is triggering people threat units when they're looking.
Speaker Change: <unk> for units.
And so the other thing I would tell you Tayo, we worked really hard on the backend right I mean, and so once you have them in the door, where more sophisticated and we're certainly have a better program than we've ever had and we have a higher level of confidence that we can recover that entry rate quicker than we ever have in the past and so I think we're trying to find that balance of asking rent.
Speaker Change: Marketing spend amount of customers, we want in the portfolio within market within property right you've got to drill all the way down even to the unit sizes, what we're studying but I think those things help us kind of offset that asking rent. The other thing I would also tell you length of stays are longer than they've ever been customer remains healthy so getting a customer in the door today, we have a longer runway for the lifetime value.
Speaker Change: Of that customer.
Speaker Change: That's helpful and then from from a pricing perspective again, the public says that's about 15% of the overall market.
Speaker Change: The private side of the market.
Speaker Change: Thank you Frank.
Indicate that made me strictly the bottom a little bit faster or actually widening a little bit more than that we may be anticipating or you know is the private side of the market pretty much just.
Following what the public guys are doing still.
I think it's easy as you're talking about the private sector. There's two parts of that I think a larger private operators that have a little more sophistication are certainly following more of what the public groups are doing and they're reacting.
Speaker Change: The same pretty quick and they were able to react up or down by the way all the way around that piece of it the rest of the segment, though that arent. These larger more sophisticated private operators are not doing anything and most of our markets and this happened all the way through Covid. They did not raise any type of street rates to Covid and so now everything's return down to pre COVID-19 level.
They're back in this mix about the same level and so that non sophisticated operator, just hasn't moved at all.
Speaker Change: Yeah.
Speaker Change: Helpful. Thank you.
Speaker Change: Thank you.
Our next question comes from the line of Ronald Camden with Morgan Stanley. Please proceed.
Hey, I just wanted to just go back to a sort of asking the demand question in a different way I guess I'm trying to figure out.
Speaker Change: You know as you're cutting street rates to get sort of more occupancy more market share.
Speaker Change: Are you doing that into an environment, where our top of the final demand is stabilizing improving or like how would you characterize as the top of the funnel demand.
Overall irregardless of sort of the strategy that you're pursuing.
Speaker Change: Yeah. Good question.
I think the top of the funnel is probably I would characterize probably stable stabilizing where if you look at just anecdotally our surveying and in what we do around customers that have rented from US you know are out you know all the survey we'd do we are seeing a change in the fact that more people are saying, they're renting storage units because they're moving and that's an improvement that we've seen.
For the last few months and so you look at that that in itself, saying, Okay. That's something that's been missing from our business and in our markets, particularly where we are a little more sensitive to that transition around movement.
It's in crude that's an encouraging sign for us, but we're not seeing that top of the funnel.
Speaker Change: Kris you know we're not seeing you know if you think about web sessions or people are pinging us at the very top of that funnel, we're not seen a significant change up or down it's pretty much been pretty stable and so we're trying to my right and of course in my discount in my the things. We're doing we're trying to get a little bit more of that conversion rate up and take a few more of those customers.
Great and then just my quick follow up would just be on the on the expense side is there a sort of you know other than you know, but they use those sort of property taxes and insurance is there anything that we should sort of be mindful off for this quarter and going into next year. Thanks.
Ronald This is Brandon I mean other than what I remarked on earlier the comp gets a little tougher we had some property tax benefits.
Speaker Change: In the back part of last year.
So the growth number you know like I said earlier, we expect to be higher than what you saw in the third quarter from a year over year perspective.
Only other thing I'd, probably add to what we said earlier, it's just personnel costs Ronald you see that in the numbers in a trailing five quarter information that we disclosed yeah. There was some improvement meaning lower lower spend in the third quarter.
Over Q2, and I don't I wouldn't.
Say, that's necessarily like a great run rate I do think that that number will come back up a little bit some of that was attributable to these markets. The Phoenix as the Vegas, Southern California that we started to transition from the frozen and we tried our best to hire as many of the people that we could that were already working at those stores, but inevitably you know you have some some turnover there and so that that caused that personnel.
<unk> cost line item to be a little bit lower than third quarter. So I expect that would pick up.
Speaker Change: Somewhere between the second and third quarter numbers.
Great. That's it for me thank you.
Speaker Change: Thanks Ronald.
Thank you. Our next question comes from the line of <unk> Mehta with Green Street. Please proceed.
Speaker Change: Hi, guys. Thanks for taking my question and congratulations on the quarter I'd, just like to quickly touch base here on the M&A activity in the acquisition pipeline. It seems like common theme through the other storage Reits in the industry as a whole has kind of started out slow in 2024 until they ramping up just wondering if you guys could provide some color.
Speaker Change: On that and kind of where you guys expect which direction. They did go into 2025.
Yes, sure Thanks, and thanks for joining appreciate the question Yeah, I think as we thought about this year. We did think the back half of the year will become more active than certainly the front part of the year and I think it's because of the factors. We discussed earlier I think the sellers expectation buyers' expectations are getting closer and I think we're seeing the quality of properties are in there.
Market. So we want to see come to market and we're able to move on some of those I think that continues on into 2025 I think we're just getting started if you really looked at even from July.
We're seeing the data theres been a significant change in the amount of deals and the amount of calls the amount of things that are crossing our desk for opportunities and so I think that carries into 2025 I think.
Speaker Change: Is it finding the right balance of what our return expectations are in and obviously the more we get comfortable that fundamentals are going to improve and that we found some stability around the fundamentals. It makes it easier for us to be forward looking and wanting to acquire properties.
Awesome, Thanks for that and just a specific question on the joint venture with Heitman.
Speaker Change: Kind of hanging in the M&A, but haven't underwritten any opportunities in the last quarter and do you think you'll start seeing us getting out of the sponsor and its development of thought for this as well.
Yeah. So it's clearly we've been looking at a lot of assets that would fit into that venture and we think that that's one of our good access of good quality capital at a at a reasonable price and you know for US capital light. So we like the venture we wanted.
You need to work in the venture and we're finding opportunities there.
Speaker Change: And from a development side, not really something we really want to look at it in that venture.
We want to look more simply.
There could be some opportunistic properties in there, but we're really looking for assets that we can.
We're fairly season that we can squeeze more juice out of and that's what we want to put in there.
Awesome that's it for me thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Brendan Lynch with Barclays. Please proceed.
Brendan Lynch: Great. Thank you for taking my question, David I think you just mentioned earlier that length of stays are longer than ever can you talk about what is driving that dynamic how durable you think it is in.
How you think about E CRA is in that context.
Speaker Change: Sure.
It's interesting I think as we went through the pandemic I think people got introduced into storage for a variety of reasons and I think if you think about the home office piece has not changed people may be back in the office, some but they still have home offices and that has carried its way through I still think home gyms appeared the way through people cleanup garages did a lot of thing.
During that period of time that had been sticky and I also think we introduce customers that have never used self storage because of that two self storage and they've realized that it's convenient it's fairly inexpensive.
Inexpensive and it's just a really good use of space time and money for them and so I think that's led to this long length of stay and you know it's above pre pandemic levels, we have not seen a change in the last we've just not seen a change at all I mean at elevated levels.
Speaker Change: The levels, maybe its came up a little bit from the highs of the pen able levels, but well above pre pandemic and so what that does it gives us an opportunity to look at our ACI program and the frequency we call. It lifecycle in the customer lifecycle of the amount of times, we can touch that person in the lifecycle and so when we have a our same store tenant base right now length of stay.
For the current tenant bases over 40 months do you think about the opportunities in the tough times, we have for each year I opportunities 40 months period.
I think it helps us with our conviction around the ECR is but certainly we've done a better job building better systems living our technologies and our strategies to really maximize that length of stay better than we have before.
That's helpful. And then you also mentioned that customers are very focused on rate.
The economy's reasonably strong at present, so what is going to make them less sensitive and kind of how has that transitioned over time that that level of sensitivity I'd imagine.
There's more risk to the downside that they can get more sensitive rather than less.
Speaker Change: Going forward, but would be interested in your thoughts there.
It's a good it's a good question and we thought about it a little bit in some ways I think we did it to ourselves.
Speaker Change: I think discounting was the more.
Probably predominant use thing prior to the pandemic, where you're giving the first month free or you know three months free and and I think we haven't introduced them as much of the discounting back its still the same concession right you're still giving up.
Percentage of the red throughout the piece, but I think what has come back. After pandemic has just been more of a sharp entry price and then you use in the ECR I to back it up on the back side of that right. So maybe just a little bit difference in strategy, but I think does change going forward as I do think as fundamentals improve.
Speaker Change: Fly things ease some.
Some of this transition that's gone on in the industry Eases I don't think it's going to be as competitive to attract new customers as it was maybe over the last 12 to 18 months and so maybe as we all get more comfortable with our activity levels and we get more comfortable on where where our footing as we get some strength in street rates and then I think that the consumer kind of follows what we give them right I mean.
We've been pretty aggressive in our street rates and I think theyre just reacting to it.
Speaker Change: Great. Thank you for the color.
Speaker Change: Okay. Thank you.
Thank you there are no further questions at this time I'd like to pass the call back over to George for closing comments.
George Hoglund: Okay. Thank you all for joining the call today, and we are and your continued interest in NSA. We look forward to seeing many of you at the REIT World Conference next month and have a happy Halloween.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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