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Operator: Greetings. Welcome to National Storage Affiliates First Quarter 2024 Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 now begin.

George Hoglund: We’d like to thank you for joining us today for the first quarter 2024 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA’s President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. You 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 detail 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, they contain forward-looking statements that are subject to risks and uncertainties and represent management’s estimates as of today, May 2, 2024.

The company assumes no obligation to revise or update any forward-looking statement because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details 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.

Dave Cramer: Thanks, George, and thanks everyone for joining our call today. During the quarter, we completed many of our strategic initiatives that we’ve been discussing in previous calls. These initiatives enable us to deleverage our balance sheet in access to growth capital, increase earnings per share, and ultimately, position our company for future growth. Continue our focus on enhancing our operating platforms to ensure a better customer experience, these initiatives are still ongoing, but we’re starting to see improvements in rental activity and conversions from our advanced web presence and upgraded call center operations. On the rental front, we experienced three months of positive net rentals through the end of April, contributing to a seasonal uptick in occupancy, which ended April at 86%, up 50 basis points from the end of February.

During the quarter, we experienced a meaningful year-over-year increase in leases being fully executed online, large part due to improvements made to the lease signing experience. Additionally, our call center answered over 30% more calls during the quarter compared to last year. Continue to enhance and simplify our customer journey by leveraging intelligence in our customer acquisition strategies, we expect to see continued improvements in the customer experience we offer and overall performance. We’re also being more aggressive on our pricing strategy. While this is helping to drive rental volume, it is putting pressure on our move-in rates, which averaged down about 14% year-over-year for the quarter. Consumer base remains healthy, with 65% of our tenants having stayed with us over a year, while 49% have been with us over two years.

Our ECRI program remains largely consistent with the past couple of quarters in terms of pregnancy and magnitude. Ultimately, the quarter played out as we expected, but it’s still early in the spring leasing season, with the peak months ahead of us. That said, looking across our different Sunbelt markets, continue to face many challenges due to several factors, including absorption of new supply, unmuted housing market and a very competitive pricing environment. Results are mixed in these markets with revenue in Phoenix, Sarasota and Las Vegas all coming in below portfolio average, while markets like Oklahoma City, Savannah and Corpus Christi were better than average for the quarter. Continue to work hard in these markets to deliver a superior customer experience, recognize some of our markets are going to be slower to recover.

It is important to point out that we have markets that are currently healthy and delivering solid results. We remain very confident in the growth prospects of our Sunbelt markets due to attractive population and migration trends. I’m very pleased with our strategic positioning heading into this next phase of growth. We’re starting to see opportunities on the acquisitions front. We’re finding a variety of deals in many of our strongest performing markets where we have good insights into rental demand and street rates, allowing us to be more precise in our underwriting. These are deals that make sense for us to pursue as they improve our overall portfolio quality, add depth to our existing markets and increase our operational efficiency.

We currently have over $25 million under contract and approximately $200 million of properties in various stages of negotiation. Expect to fund these acquisitions through a combination of 1031 proceeds, joint venture capital and debt. We won’t comment on pricing until the deals are closed. These transactions make economic sense for us and our JV partners. We represent the start of us putting the dry powder to work that was generated from our portfolio optimization strategies. I’ll now turn the call over to Brandon to discuss our financial results.

Brandon Togashi: Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.60 for the first quarter of 2024, representing a decrease of approximately 9% over the prior year period, driven primarily by the decline in same-store NOI, an increase in G&A and a decline in contribution from our JVs. Overall, our results for the quarter were in line with our expectations, except for a few casualty events resulting in an aggregate $1 million loss or almost a penny per share. For the quarter, revenue growth declined 1.5% on a same-store basis, driven by growth in rent revenue per square foot of 2.4%, offset by a 380-basis-point year-over-year decline in average occupancy during the quarter. Occupancy ended the quarter at 85.9%, down 350 basis points year-over-year.

Expense growth was 4.5% in the first quarter, similar to the past couple quarters, the main drivers of growth were property tax, marketing and insurance, partially offset by payroll efficiencies that resulted in lower spend versus the prior year period. Marketing expenses remain elevated due to increased competition for customers and a tough comp, while insurance expense growth will moderate going forward for the low-single digits, given our policy renewal that occurred on April 1st. As Dave mentioned earlier, we had a busy start to 2024 on the asset sales and joint venture front. All of which was discussed on our last call. Although we did not complete any acquisitions during the quarter, we remain active underwriting and evaluating potential transactions.

The majority of our revolver available to us today and $1 billion of buying power within our 2023 joint venture, we are encouraged by the opportunities for external growth that lie ahead of us. Turning to the balance sheet, during the quarter we completed just over $200 million of common share buybacks and subsequent quarter end exhausted the remaining $72 million of our program. We believe this strategic initiative is beneficial to our shareholders and will ultimately provide more FFO per share to them over the long run. Our current revolver balance is roughly $200 million, giving us approximately $750 million of remaining availability. Lastly, our leverage was 6.2 times net debt to EBITDA at quarter end. Now moving on to 2024 outlook. As we said earlier, the quarter played out largely as expected and it’s still early in the spring leasing season.

We are reaffirming our previously provided guidance, which is detailed in the earnings release. One item I want to mention on the balance sheet. We have $250 million of interest rate swaps that fixed daily simple SOFR at 1.59%, which mature in Q3. $145 million of this relates to the term loan that matures in July. So effectively $250 million of fixed rate debt will adjust to market rate starting August 1. This impact was factored into the guidance we provided in February, but I wanted to point it out since the swap expirations aren’t exactly aligned with the underlying debt maturities. Thanks again for joining our call today. Let’s now turn it back to the Operator to take your questions. Operator?

Operator: Thank you. [Operator Instructions] Our first question today is from the line of Samir Khanal with Evercore ISI. Please proceed with your questions.

Samir Khanal: Hey, Dave. Can I ask you to give more call around April? I know, I believe you said move-in rates were down 14% in the first quarter. Maybe give us an idea of kind of what you’re seeing in April so far.

Dave Cramer: Yeah. Samir, thanks for joining our call today. Certainly, April, we — I saw another positive net move-in activity in the month of April, which we were pleased with. We were able to generate the activity at the top of the funnel. We certainly are in a very competitive, most of our market’s in a pretty competitive market around street rate or asking rent to get started. And so I would tell you April got slightly worse than where the quarter finished. It wasn’t a large number, but it got slightly worse as far as street rate to street rate and move-in rate to move-in rate. So we saw a decline in both.

Brandon Togashi: Samir, this is Brandon. On the year-over-year move-in rate worsening that Dave’s referring to, that’s in part because last year we moved rates up some in April and so that’s also affecting that comp.

Samir Khanal: Okay. Got it. And I guess on the transaction side and it sounds like you have some opportunities on the acquisition front, but last quarter you were active on the sales front of the non-core assets. Is there more — like, is there more in that bucket of non-core at this point or is that pretty much done you think?

Brandon Togashi: Yeah. I think we’ll continue to look at our portfolio and scrub through the portfolio. We did the large portion of the asset sales last year in that tranche we worked through and we were pleased with that activity. I know we’re still scrubbing through, particular markets and particular assets and I think that’ll be a part of our program as we go forward in our future, as we look at optimizing our efficiencies and optimizing our portfolio. So I think you could see sales in the future. I don’t think you’re going to see the large chunks that we’ve done recently. I think we’re shifting our focus to looking for opportunities and when opportunities persist or present themselves, we’ll go out and look to start acquiring properties.

Samir Khanal: Okay. Thank you.

Dave Cramer: Thank you.

Operator: Our next question is from the line of Jeff Spector with Bank of America. Please proceed with your questions.

Dan Byun: Hello. This is Dan Byun on for Jeff. Thanks for having me. When it comes to allocating capital, how are you thinking about leverage versus buybacks?

Brandon Togashi: Yeah. Dan, I’ll take that. This is Brandon. So, look, we completed the $275 million share repurchase program that we mentioned in the earlier remarks and also the details in our release, and also as mentioned, pretty light on the acquisition volume. Everything we’ve done over the past few quarters, very pleased with accomplishing what we set out to do. Leverage in line with our targeted range of 5.5 times to 6.5 times. So what it does right now is it really positions us with the majority of our revolver available to us to take advantage of some of those opportunities that Dave referred to earlier. No different than what we talked about in our February call. I think if there’s a slight bias, it’ll be to deploy capital through the joint venture platform and that allows us to obviously do that in a capital lightweight, manage leverage and put to work some of that money that we worked hard to get ready with our JV partners.

Dan Byun: Thank you. And then just to follow up on leverage, could you provide your rationale behind including the hypothetical liquidation at book value for your 2024 JV to adjust EBITDA?

Brandon Togashi: Yeah. Good question and good observation. That was a new thing this quarter. So that joint venture, that’s the one that we put the 56 assets into. I would tell you the arrangement there is quite similar to the existing two joint ventures we have and that we’re 25% money partner managing the assets. However, the one nuance is there is an arrangement where based on certain performance metrics, the split of cash may be something different than 75-25. In some cases, we may get outside share. In other cases, our partner may. That drives us into the term you used, a GAAP-specific methodology for allocating earnings and we’re basically removing the effect of that and just showing a more straightforward 75-25 split.

Dan Byun: Awesome. Thanks for your time.

Brandon Togashi: Sure. Thanks.

Dave Cramer: Thanks.

Operator: Our next question is from the line of Michael Goldsmith with UBS. Please proceed with your questions.

Michael Goldsmith: Good afternoon. Thanks a lot for taking my questions. We’ve heard from some of your peers that a number of markets are starting to bottom out and reaccelerate. Are you seeing that across your portfolio? Maybe what percentage of your markets are accelerating or any specific markets to call out? Thanks.

Dave Cramer: Yeah. Michael, thanks for the question. Thanks for being here. I think as we think about it, we believe that the first half of our year was going to be the toughest part of our year, as we think particularly from a year-over-year comp. If we look sequentially, we’re happy that we had the move-in volume and the net rental activity that we had over the last three months and it was tougher sledding, I would tell you, in the Southeast, Florida, some of the Sunbelt markets, Phoenix, we mentioned, we mentioned Sarasota, Las Vegas. Those markets have been slower to respond, and those markets are also facing supply, like markets like Atlanta as well. And so I think as you look at it and look — as we look at some of those markets, the markets that have the most supply are slower to recover, but we’ve had good success in the Midwest.

We’ve had good success through the Texas markets, as we call that, I think we call that Corpus Christi in our opening remarks. And so, those, I think, did not also have some of the pandemic highs and they’ve been a little bit more stable, I think, as we went through this last cycle, and those are performing well for us. But again, I think, more of that, some of that Sunbelt exposures with the housing and muted transition and some of the other factors that are going on are going to be a little bit slower for us to recover.

Michael Goldsmith: Thanks for that, Dave. And then my follow-up is, you did a number of transactions at the start of the year with the sale and then the sale to the JV, it provided an influx of capital, but with the transaction market seemingly paused for the time being, how are you thinking about redeploying these proceeds and when do you think you can put them to work? Thanks.

Dave Cramer: Yeah. Good question. I touched on a little bit in the opening remarks. We do have — we have $25 million under contract right now in existing markets where we’re adding properties to our portfolio that will certainly help us in our efficiencies and the way we operate and scale and density and really things that we’re looking to drive in those markets. We have about $200 million that we’re in negotiations with right now. And so I would tell you, we’re starting to find opportunities that we like, and we thought for sure, as we looked at this year, that the back half of the year, we continue to see more opportunities. I think the fact that we’ve found some opportunities earlier in the year is a positive sign for us. And again, these are in markets that we operate and have great scale in and have great efficiency in and we are a good logical buyer for these properties.

Michael Goldsmith: Thank you.

Operator: Our next question is from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your questions.

Juan Sanabria: Hi. I just wanted to continue with the same line of questioning with regards to acquisitions. I guess, where are you — are your targeted yields or cap rates and do you think that would be indicative kind of the current market for your types of assets and this is a subset of that. Should we assume or not that you re-up buyback now that it’s been fully depleted?

Dave Cramer: I’ll jump in and maybe Brandon finishes on this. I think as we look at assets that we’re looking to purchase, we’re targeting mid-6 is probably a range that we’re looking at today. Obviously, each property one, when you start talking cap rate, it — where is the property and how old is it? How seasoned is it? What’s the opportunity? Is there a value add? Is there a component of management from who you’re buying it for, where you think you may have a better opportunity versus you would on a different type of property or a different owner? And so I think it’s hard to really pin down cap rates, but we certainly internally have been modeling around that mid-6 range. As you remember, the assets we sold were towards the 6 cap itself and so we are certainly thinking redeploying this capital when we sold it to 6 and redeploying it to 6.5 makes a lot of sense to us and we get some growth opportunity on these assets that we’re buying.

As far as the share, we were able to obviously fulfill the current authorization on our share repurchase program. I think that share repurchase is part of our investment activity. I think that we look at several ways to deploy capital from this company and buying our shares back makes sense and so we don’t have anything authorized at this time, but again, I think, we would use that as a tool in our investment opportunities if we thought it was appropriate.

Brandon Togashi: And Juan, this is Brandon, I’ll just jump in. So the other thing I would comment on the share repurchase is just to my earlier remarks about leverage. I mean, we’ll obviously do everything that we’re talking about here, capital deployment, acquisitions, repurchases and maintain the range of comfort five and a 5.5 times to 6.5 times on that EBITDA that we’ve had for a long time now and are in currently. And then the only other thing I would add to Dave’s remarks is just on the year one yield and acquisitions. Also to my earlier point about some bias towards using those JVs, that gives us some management fees and allows us to stretch on deals that might be on the lower end of the yield target.

Juan Sanabria: Great. Thanks. And then just on the slope of seasonality, both in occupancy and rate, could you just comment on how that’s trending? I mean, it seems like rate maybe is disappointing. You called out a tough comp from the increase you saw last April. So just curious on your commentary there and how that stacks up relative to your initial thoughts?

Dave Cramer: Yeah. I think what we’re trying to balance and that — we always talk about. We’re solving the revenue and so occupancy is a piece of that, asking rate is a piece of that, discount is a piece of that. What type of customer we’re attracting, what type of unit we’re renting? It’s hard to have a global comment to that because there’s so many things that we’re looking at as we work hard and navigate what we’re trying to do. But what I would tell you is the reason we’re being a little more sharp on rate. It’s a competitive environment. But what we’re finding and the team has done a good job finding, is conversion rate. And that’s what we’re really looking at as far as what’s coming through our opportunities and how we’re converting those opportunities into rentals.

And so from the seasonal profit in February to where we finished in April, we were very pleased with the rental activity and what we’re able to achieve and some of that came at a little bit sharper price point than maybe we would have wanted. I can tell you we’re backing that up with the ECRI program, which is stronger than ever and our ability to really work through our existing tenant base. And so we’re looking at the offset of what we have to give maybe on an upfront rate or an upfront discount and how we make it up quicker in the ECRI cycle.

Juan Sanabria: Thanks, Dave.

Dave Cramer: Yeah. Thank you.

Operator: Our next question is from the line of Eric Wolfe with Citi. Pleased proceed with your question.

Eric Wolfe: Yeah. I just wanted to follow up on your last answer there. I mean, last quarter, you talked about the occupancy-based models and you were just talking about a second ago. I was just wondering how that testing has gone thus far and is it providing any type of outperformance versus comparable areas of your portfolio?

Dave Cramer: Yeah. Thanks for joining. Good question. We are seeing success in areas and it’s not — again, that’s the advantage of testing, and again, as we talk about our business unit size, it goes down to the unit size. And so, yes, we’ve seen some success. We have expanded the program in areas that we thought we would have success in. I can tell you we’ve had some areas where it was not successful and we pulled right back and said that tested did not work for us. But I would tell you as a whole, we — as around the commentary and being a little sharper in pricing, we have found activity we like and so we’re expanding the program and that’s put a little bit of pressure on the street rate for us.

Eric Wolfe: Got it. And your occupancy came a bit this quarter, sounds like a trough in February. I was just wondering in the typical year sort of what you would expect in terms of occupancy increases in the second quarter into the third quarter, and then sort of what’s baked into your guidance for this year?

Brandon Togashi: Eric, yeah. It’s Brandon. I mean, it wouldn’t be uncommon for us to gain 250 basis points to some years 350 basis points from the valley to the peak. What was baked into guidance for this year at our midpoint was really more like flattish occupancy as we went. I mean, maybe a little bit of seasonal uptick in the spring and summer, but by and large, sequentially flat for most of the year. And what that means on a year-over-year basis is that, as you saw in our first quarter numbers, you’re starting off 350 basis points, 380 basis points negative over prior year, but the comp gets easier in the back half. So that gap narrows as you go throughout the year.

Dave Cramer: I think I would add to that, to Brandon’s point, we’re also not very assertive on rent growth either. And so, as we’re testing these models, anything we’re trying to trade off on rent, we’re certainly trying to pick back up an occupancy. And so what moves that initial guidance to the occupancy level you’re talking about around, if we move the occupancy number up and we have to give a little bit on street rate, that’s the analysis we’re trying to find.

Brandon Togashi: Right. And the thesis on the occupancy, Eric, was really just expecting, like, we experienced last year, more muted demand related to housing, and so far, that’s played out. I mean, nothing wildly better or worse than how we thought about things back in February.

Eric Wolfe: That’s helpful. Thank you.

Dave Cramer: Yeah. Thank you.

Operator: Our next question is from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your questions.

Todd Thomas: Hi. Thanks. First, just a quick follow-up. So 86% at the end of April, talking about the comps getting a little easier. Did — sorry if I missed it, but what’s that look like on a year-over-year basis? Has the gap continued to narrow?

Dave Cramer: It stayed fairly flat in April, Todd. As — the hard part about it, when you look at it a month — that monthly snapshot, we were talking earlier this week, there was five Saturdays in April last year. There’s four Saturdays this year, five Mondays, and moving this stuff around and so you start talking about it. It’s really, we have to look at through the second quarter before we really know the amount of occupancy gain and the amount of momentum we’re picking up. We did see rental activity. We’re happy with April. But again, there is some noise around the moving pieces of rental days in there.

Brandon Togashi: We ended 86% flat, Todd, intra-month, we were higher than that and then not uncommon to lose 10 basis points to 30 basis points near the end of the month. So we were pleased with, I was pleased with some of the gross rental volume. It also meant there was a little bit higher move-out volume versus last year. So it’s early to start making too many conclusions, but I think there’s — April there was just more mobility generally than what we saw last April. And maybe that portends for the next few months of a little bit more activity, but we’ll have to wait and see.

Todd Thomas: Okay. Yeah. Got it. And then Brandon, with — you — I appreciate the comments on the swap expiration, but can you just remind us or give us an update on the plan related to both the 2024 and the 2025 term loans, the Tranche B in July and Tranche C next year. It’s $470 million in total, what the plan to refinance at it looks like?

Brandon Togashi: Yeah. Sure. So we’ve got the near-term, we’ve got the Tranche B that’s $145 million. So we can — we got capacity on our line, we can obviously seek to place some refinance debt out there as well. We do have a six-month extension option on Tranche B. So that would stack it on top of the January 2025 tranche C that you’re referring to. All that debt is with our banks. So, we’re — in this environment, you got to stay close and in constant dialogue with your bank groups. So we’re certainly doing that and we’ll continue to do that throughout the year. And then, base case is to put some replacement debt out there, be it with our bank group or we’ve been very successful accessing the debt private placement market.

So that remains an option for us. Our secured debt as a percent of our total debt stack, there’s opportunity to return that to levels that it’s historically been, that’s called the 10% to 12% range. We’re 6% currently. So, a lot of opportunity there and I expect we’ll probably address the majority of that in the second half of 2023, 2024, excuse me.

Todd Thomas: Okay. And then just back to the acquisition discussion here. So, in terms of acquisitions, it sounds like the majority of what you intend to acquire is expected to be through the joint venture that you announced last quarter. Will there be any acquisitions on balance sheet that we should anticipate? And then what happens to the assets that were in the Captive growth pipeline that the PROs had sort of in the pipeline that NSA had been executing on since the IPO in 2013?

Dave Cramer: Well, yeah, good three-parters there. I’ll try to make sure I cover them all. I think, probably the majority of our acquisitions will be weighted towards the JV, because that is a good passive capital for us and it’s a good way for us to purchase properties in today’s environment. I would not rule out that you’ll see stuff on balance sheet. We do have some 1031 activity we want to take care of as some of the properties we sold last year, we’re going to want to redeploy in a 1031 mechanism this year. So you’ll see those come through. And we’ll try to balance the opportunity, the type of property, what we think is the right place for that property to sit and we’ll put it in the right bucket. As far as the pro Captive pipeline, it’s still out there.

We’re still evaluating, obviously, with today’s cost of capital and finding the bid-ask between seller and buyer. We’ve had a tougher time bringing stuff in from the Captive pipeline. It doesn’t mean we’re still not working it. It doesn’t mean there’s still not opportunities. It’s just been a little slower for us to work off that Captive pipeline in today’s environment. And then there was a third part that, I’m sorry, Todd, if I missed.

Todd Thomas: No. That was it really about the Captive pipeline. But I guess, what’s the latest there, in terms of the size, and if I recall, these assets, a lot of them had debt, there was leverage or maturities that, I think were sort of the catalyst for NSA being able to acquire them at maturity. What’s the latest there? What are the PROs, I guess, sort of executing around that in the meantime, while NSA has been sort of less active, bringing those, the Captive pipeline properties onto the balance sheet?

Dave Cramer: Understood. I think if you look at — if we look at this top of the stack, there’s probably 110 to 115 properties in the Captive pipeline, depending on how you want to value it, north of a $1 billion, $1.2 billion. I think that — if you think about most of the folks that are in that Captive pipeline and they’re looking for some kind of tax deferred transaction and so the preferred method they’d want to have is some type of OP unit, right? And so I would tell you the Captive pipeline is not shrinking, they’re not outselling it to third parties, there hasn’t been a lot of transactions around that. Amount of debt coming due, we haven’t felt a lot of that pressure in that group. They’ve been fine and so I think the opportunities still exist. I think we’ve had a lot of discussions around it, but at this point in time, it’s just been hard for us to find a place where it works for most parties.

Todd Thomas: Okay. All right. Thank you.

Dave Cramer: Sure.

Operator: Our next question is from the line of Ron Kamdem with Morgan Stanley. Please proceed with your question.

Ron Kamdem: Hey. Just two quick ones. In terms of the performance of the portfolio, is there a way to provide a little bit more color on maybe some of the more sort of COVID winners versus the rest of the portfolio or is there any sort of other way to slice and dice performance and thematic buckets that would be helpful?

Brandon Togashi: Yeah. Ron, I mean, I’ll give it a shot. I mean, I think certainly what you have is some of the markets that were red hot during the pandemic, Atlanta, Riverside for us, those have definitely cooled off and to some degree we’re still dealing with the comparison against that cooling off that was happening on the back half of 2022 and all throughout 2023. And so that certainly plays into the year-over-year performance that you see for any given quarter. There’s other markets that maybe didn’t perform, they still perform really strong, but not as strong as those. And so those have been more like steady eddies all throughout and those are going to be your OKCs and PULSOs [ph] and some of the other markets that Dave cited in the opening remarks. Any other comments, Dave?

Dave Cramer: But I’d also probably say, if you think about the lack of movement around single-family housing, we do have some of this portfolio that sits around markets that benefited from people who bought houses in the lower interest rate markets, so maybe they pulled ahead their home purchase, they went ahead and moved into Florida, they moved into some of these markets and until I think we see a meaningful change around that single-family housing environment, some of these stores may be slower to recover versus the rest of our portfolio until you see a little bit more activity around that transition. I would tell you, I think we’re happy with where we’re positioned, we like our Sunbelt exposure, the Sunbelt exposure as we call it, but I also think the positioning of our portfolio and the diversity of our portfolio, to Brandon’s point, we’ve got some markets that are going to away just fine and we’re able to do exactly what we want to do, and these other markets had a red, red hot, unbelievable run for about 18 months to 24 months there and now they’re back to, it’s going to take a little bit for things to come back to what we would call, I don’t know, new normal and new reality.

Ron Kamdem: Great. That’s helpful. And then my second question was just on sort of the guidance basically versus where you are sort of in 1Q. I guess it would assume a little bit of a deceleration on the same-store NOI, same-store revenue line. Is that mostly just because you’re trying to wait and see what sort of the peak leasing season brings or is there sort of something else there? And if you could just quickly comment on just how you’re thinking about demand from sort of home turnover given higher rates? Thanks.

Brandon Togashi: Yeah. Ron, on the first part, you’re correct. I mean, certainly the midpoint of the full year guide that we gave for both same-store revenue and same-store NOI is lower than the Q1 year-over-year growth numbers so that there’s implied deceleration. That’s no different than when we were introducing the guidance in February, we expected to trough in terms of that growth in the middle of the year and then maybe that accelerates, still maybe negative growth year-over-year, but improving in the fourth quarter and that’s just really the dynamic of how we budgeted this year and the quarter-by-quarter comp that you have all throughout last year. On your second part regarding housing, I mean, look, we — how we feel today is probably different than how we felt six weeks ago, but I’m sure four weeks from now we’ll feel different, right?

it’s — mortgage rates felt like they got a little bit of a relief early in the year, late last year and then things have picked back up. But like I said in my response to Todd’s question, some of the general mobility stuff we saw in the data in April was encouraging. So that would be despite the new highs for 2024 that you’re seeing in mortgage rates, obviously, you’ve got apartment renters and other things. So the benefit we have also is just a longer length of stay. If people aren’t moving in as much, there’s also a lot of people who aren’t moving out as much and that gives us power with ECRI and it’s what — as you know, it’s what has allowed us and others in the space to maintain and protect the in-place portfolio rates.

Ron Kamdem: Great. That’s it for me.

Dave Cramer: Thanks, Ron.

Operator: Our next questions are from the line of Keegan Carl with Wolfe Research. Please proceed with your questions.

Keegan Carl: Yeah. Thanks for the time guys. Maybe just first on supply. How should we think about new deliveries in your markets in 2024 and 2025?

Dave Cramer: I think our general tone is we do think new deliveries are slowing nationally. And if you look down into a lot of our markets, we think new deliveries are slowing off the pace they were two years ago and so that’s a positive, excuse me, a positive sign. I think the way we look at it is we really track around amount of fill-up properties, fill-up properties that would be in our 3-mile radius. And I can tell you that number, percentage of stores that are facing pressure of some store in some form of fill-up isn’t moving around much. I mean, so the amount of new entries coming in and the amount of new entries falling off is keeping that percentage pretty similar and that is down from where it was in 2022. And so we see the decline in the amount of our stores feeling pressure from stores and fill-up.

And so all of that, if I had to wrap it up, I think, we’re feeling better about new supply pressure in the coming years. But certainly that’s market-specific, right? You’ve heard us talk today on the call about Phoenix and Atlanta, and there’s been some product delivered that’s going to put pressure around those markets. We believe in them, we believe they’ll grow out of it, but there are going to be markets that feel more pressure than others.

Keegan Carl: Yeah. And then changing gears, if I think back roughly a year ago, one of the things that came up in our NAREIT meeting was the potential for you guys to start your own third-party management platform. I guess just where are you guys at on that today?

Dave Cramer: That’s a really good question. You’ve heard us talking over the last eight months, 10 months really about really looking at our platform, improving our platform, looking at people processing platforms, our team, our talent. We have done some major lifts in the last eight months to 10 months around our data systems, our operating platforms, our website, our call center, all of these things to position us to really evaluate how we continue to grow this company and look for things that would be added to the company. Certainly today, our PROs do third-party management and so that’s something we’ve had access around. We obviously have JV, so we do a lot of what we would call, even though we have an ownership, we manage for others and we have all the systems, the reporting, all that stuff built out.

I would tell you it’s in our discussion points. It’s something we look at and ask ourselves, is there a right time to dip your toe on the third-party platform? I would tell you we talk about it. I don’t have an exact date for you, but I’d say it’s something that might be on our horizon.

Brandon Togashi: And in addition to the platforms initiatives, Keegan, Dave said I would tie in all the portfolio optimization strategies that we’ve been speaking with, right? So, I mean, the 71 stores that we sold in Q4 and Q1, if you remember our comments from the last call, I mean, that was spread out across 33 different MSAs and so we’re certainly trimming in areas where we don’t have market dominance or strong market presence and we’re densifying in areas where we do, and I think that’s going to — in addition to the systems and platforms efforts, it’s going to provide the path going forward for us to seriously consider the 3 p.m. to your point.

Keegan Carl: Great. Thanks for the time, guys.

Dave Cramer: Yeah. Thank you.

Operator: The next question is from the line of Wes Golladay with Baird. Pleased proceed with your questions.

Wes Golladay: Hey, guys, a quick one on the PROs. Do you get the sense when talking to them, they’re more excited about the current environment with the opportunities they see or do you think you may see some want to retire over, call it, within the next year or so?

Dave Cramer: That’s a good question and thanks for being with us today. I certainly think from the PROs’ perspective, they would like to be, they’d like to see the environment be a little more conducive to external growth. I think as you think about heritage and how long we’ve all been in the business, and part of this business was acquiring and improving performance on properties and finding the value in those acquisitions, and so certainly this has been a time where patience has been at the top of the list, and I think, the PROs have been very, very good at being patient. I would also tell you they’ve also been very good about acquiring properties outside the REIT. They’ve been out. They have found some opportunities.

They’ve found money outside the REIT and then that just puts stuff into our Captive pipeline that we can evaluate and look to move on at a later date. So I — they’ve been great, we appreciate them very much and they’ve been patient, but they’ve also been active. So I think, short answer to your question, sure, they’d love to see it be a little easier to acquire properties within the NSA.

Wes Golladay: Okay. And then you had the comment earlier in the call about the cash flow and the JV may not exactly be 25%. Can you put some sensitivity on that? Are we looking at 2024 or 2026, and what would cause that deviation?

Dave Cramer: Yeah. Sure. Wes, it’s really around like providing a minimum base return to our partner, which the going-in yield, the value at which we contributed the assets, it was all kind of pre-designed to, not guarantee, but strongly assure that we’re going to be at those levels and then if we hit certain metrics and operating performance, we have the ability to earn some incremental fees. That’s not currently — that scenario of us being in the money on those is not a meaningful driver of our 2024 guidance. It’s a possibility, but it’s just not a big needle mover. And then I’ll save comments for the out-years. They’re achievable goals, but I’ll save comments without handicapping the likelihood beyond 2024. And then like our existing two JVs, we have, upon a liquidity event, promote structure where once a certain return has been provided to our partner, then we get kind of a disproportionate share of that upside.

Wes Golladay: Okay. Then how should we think about, call it, the floating rate exposure? I think you mentioned some swaps are coming offline. You did some buybacks. You may have some dispositions. You may be buying some more assets. So a lot of moving parts over the calls and the balance of the year. Where do you think the floating rate exposure ends the year?

Brandon Togashi: Well, I guess, let me say it this way. We’re — as I mentioned in the opening remarks, about $200 million drawn on our revolver, which is our only current variable rate exposure. We have the $250 million of swaps that expire middle of the year. That could go to floating or between now and then we could enter into new swaps and fix that. So that’ll be or pick out a place replacement bet. So those are options to us. If you factor in the $250 million of swaps that burn off, let’s just assume that that goes to floating. It puts our total debt, that’s subject to variable less as a percent of our total, it’s around 14% — 13%, 14%. We’ve been comfortable in the past up to 20%, sometimes 25%. So I think if I had to tell you, I’d say between 10% and 20% of our total debt stack of a little over $3 billion could be floating rate by the end of the year.

Wes Golladay: Okay. Thanks for that.

Brandon Togashi: Sure.

Operator: Thank you. [Operator Instructions] Our next question is from the line of Tayo Okusanya with Deutsche Bank. Please proceed with your questions.

Tayo Okusanya: Hi. Yes. Good afternoon. Quick question, the Captive pipeline from the PROs, is there any way that can potentially be acquired by the JVs or you can’t do that legally or because of tax implications, something like that would not work?

Dave Cramer: Well, certainly, I think, you touched on the point is that, the Captive pipeline people would probably, they could sell to anybody. They could sell it to a JV, they could sell it to our JV, they could sell it. If we turn the property down and decide we own it, they could sell it wherever they want. I think they’re really looking for the tax treatment and the OP unit is one of the primary drivers behind that Captive pipeline and that group of sellers. And so that makes it hard, we can’t spin it into the JV in that aspect is the answer to that, I guess, short answer.

Tayo Okusanya: Okay.

Brandon Togashi: And Tayo, the only other thing I would say is, Todd, in his question referenced the debt maturities as a driver, which is true, but there’s also assets in that Captive pipeline that our PROs manage, but they don’t outright control. They may just completely manage them only or maybe they have a minority ownership interest and also manage them. So, to the extent that those other owners, if their pattern changes and if they wanted to be a cash seller, the JV could be an option. We haven’t seen that yet. And I think it’s less likely as Dave said, but I just wanted to provide some additional color on some of the different arrangements.

Tayo Okusanya: Okay. That’s helpful. And then could you also kind of give a general sense on overall tenant credit, maybe what you’re kind of seeing in regards to, increasing auctions, increasing delinquencies or decreasing auctions and decreasing delinquencies?

Brandon Togashi: Yeah. I mean, no real changes in the first quarter from the previous several quarters in terms of delinquencies. We track bad debt as a percent of revenue and that’s historically been in the round of 2.5% range. So, we’re very much in line with those levels for Q1. Something we’re certainly watching closely, but haven’t seen any significant changes in payment patterns or payment timing from the customer. So, all indicators are very healthy customer base intact.

Tayo Okusanya: Great. A solid work on the capital allocation from this quarter.

Brandon Togashi: Thank you.

Dave Cramer: Thank you.

Operator: Our next question is coming from the line of Brendan Lynch with Barclays. Please proceed with your questions.

Brendan Lynch: Great. Thanks for taking the question. I want to go back to the focus on internal operations and the people process and platforms that are being upgraded and evaluated. I’d imagine this is a perpetual focus to a certain extent, but to the extent you can define, are we reaching the end of that process for certain components of it and maybe just more broadly where you are in the transition overall?

Dave Cramer: Yeah. Really good question and I would categorize it as, yes, we are in — we are reaching the end of the current development cycle of what we’ve worked on. And so, but it will be done here shortly. We’ve upgraded the operating platform. We’ve upgraded our data center and our capabilities around data and AI and technology. We’ve upgraded the call center platform and we’ve updated the web experience. And so, we’ve touched all four of those, which were very big lists for this company. The teams have worked extremely hard and extremely diligent in their efforts. Couldn’t be more proud of all that we’ve accomplished. And so, to me, we’ve got the platform, the foundation really, really solidly built and this launches us into the next chapter of this company’s life as we look forward on utilizing what we’ve developed, utilizing the technology we’ve developed and really having the tools for the talent to really excel.

Brendan Lynch: Great. That’s helpful. And then it looks like here, you had about a 32% increase in marketing spending. Can you talk about the components that went into that? I’d imagine paying for Click is part of it, maybe some call center considerations as well?

Brandon Togashi: Yeah. You touched on them. I mean, our call center is included in our marketing expense. And I think we think about it today, you’re in a very competitive environment. The marketing spend has come back to a level that we’re very comfortable with as a percentage of revenue. And as we continue to implement technology and we continue to look at how we staff our stores and the payroll around our stores, obviously the call center and the customer touch points change. Digitally, we’re moving more people to more of a digital experience. Our customers are transacting much more with us digitally than they have in the past. And the call center volume I was talking about is also a function of that where we are meeting the customer on how they want to transact.

And so the comp is tougher because last year we were not spending at the level from a digital spend, paid search. Some SEO work around that piece of it was not as vigorous as it is this year. We’ll start to annualize that paid search and some of those marketing costs, the hard costs that go around Google and those things. Really, as we head into the second quarter, third quarter, we really start to annualize that year-over-year spend and that comp will not look as pronounced as it is today.

Brendan Lynch: Okay. Very good. Thank you.

Dave Cramer: Thank you.

Operator: Our next question is from the line of Eric Luebchow with Wells Fargo. Please proceed with your questions.

Eric Luebchow: Great. Thanks for taking the questions. So, it sounds like with some of your new revenue management systems you put in place, you’re being a little more dynamic in terms of new rates and offering lower rates to customers to generate some additional occupancy, which is reflected in some of your web scripts as well. So any early learnings on how that strategy is progressing compared to other types of promotions that you might give like one month free rent?

Dave Cramer: Yeah. Really good question. It’s — I would tell you to start at the top of that is what we’re discovering and I don’t think it’s new to all of us is, the customer price sensitivity is mattering more now in the rental process than it did a year ago and even six months ago. And so, the consumer from their entry level are looking for a little bit sharper promotion, discount, price reduction, however you want to look at that. We are — we have been primarily focused on lowering entry rate and then trying to make that up through a little bit more of the ECRI program, but we are finding success now, looking a little bit more back to what we used to do as an industry around promotion, where it’s maybe 30% off or a third off for the first three months or half off for two months, and a little easier to implement that with the consumer, a little more visibility around that piece of it as far as here’s your discount, your rent is this and you get 50% off for the next two months and then it’s going to that.

And as far as the consumer standpoint, that’s a pretty easy point of sale, pretty easy to understand and take a little bit of pressure off those large increases after 60-day or 90-day period of being with us. And so, we are testing and we’re finding a path around probably a little bit more promotions use and maybe not as steep of rate decreases as where we’re heading with this. And so, I would tell you having the technology, having the testing, having the testing environment, I’ve been around a long time, I’m really excited about what we can see and the data points we have and how we can test and react and how nimble we can be. We are much farther down the path of where we ever used to be and it’s a good thing to be excited about, it’s also a good way to learn, and hopefully, again, find the best efficiencies we can find when we’re trying to attract new customers.

I do want to shift back to also our existing customer base has been very, very sticky. We had long length of stays. And so, on the flip side of that technology attracting — we talk a lot about attracting customers, but our existing customer base is really healthy, really stable and it’s been very accepting of the ECRI program that we have in place.

Eric Luebchow: Great, Dave. That’s very helpful. And I guess just one follow up, just to confirm the midpoint of your same-store revenue guidance assumes we don’t have a typical seasonal uplift and move-in rents from the troughs of winter to the spring and summer. I just wanted to confirm that. And do you think that seems like the right assumption just based on what you’ve seen and kind of early spring through late March, early in April?

Brandon Togashi: Yeah. That’s correct, Eric. I mean, maybe we modeled a variety of scenarios. So in some of those that would incorporate a little bit of uptick in rate due to seasonality, but nothing like the typical norms that we’ve had in historical years. And I would agree with what you said. Yeah, nothing that we’ve seen so far makes us feel like we should or need to change those assumptions.

Eric Luebchow: Okay. Great. Thanks for the questions.

Dave Cramer: Yeah. Thank you.

Operator: Thank you. At this time, we’ve reached the end of our question-and-answer session and I’ll turn the call back to George Hoglund for closing comments.

George Hoglund: Thank you all for joining the call today. We appreciate your continued interest in NSA and look forward to seeing many of you at the REIT Week Conference next month.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.