National Storage Affiliates Trust Q3 FY2021 Earnings Call

We'd like to thank you for joining us today for the third quarter 2021 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's CEO, Tamara Fischer, COO, Dave Cramer, and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. In addition to the press release distributed yesterday, we furnished our supplemental package with additional detail on our results, which may be found in the investor relations section on our website at nationalstorageaffiliates.com. On today's call, management's prepared remarks and answers to your questions will contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, November 3, 2021. 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. The Company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional detail concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures, such as 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 Tammy.

Thanks, George. And thanks everyone for joining our call today. Before we talk about our results for the quarter, I'd like to open by acknowledging and thanking our team for their extraordinary dedication and hard work, which allows us to again deliver exceptional results for the quarter. The results we announced yesterday, including growth in same-store NOI of 24% and growth in core FFO per share of 30% are indicative of the ongoing strength of our sector, as well as the benefits of our differentiated structure. Continued near record occupancy levels have allowed us to assertively drive rate growth, both for new and existing customers. And right now, there are no apparent signs of any near-term headwinds, which bodes well for the remainder of the year and implies a strong start to 2022. On the external growth front, the volume of deals in the market remains at unprecedented levels. During the third quarter, we invested $600 million in 76 properties, bringing our total acquisition volume through the first nine months of the year to 119 properties valued at just over a billion dollars. In October, we invested approximately $325 million in 39 stores. This results in our current year-to-date investment in acquisitions of over $1.3 billion, surpassing the top end of our prior guidance range. Cap rates on these deals range from just below 5% to over 6% and vary based on location, source of the deal, whether it was marketed, off-market, or from our captive pipeline, and whether there's a portfolio premium, or some element of lease up involved. But the weighted average cap rate on all of our transactions closed this year is in the mid-five cap range. We continue to see meaningful competition for transactions and the amount of capital seeking to establish or expand the position in self-storage continues to drive cap rate compression, especially on larger portfolios. We remain disciplined in our underwriting and continue to benefit from our pro-structure, which essentially provides us with 10 acquisition teams and 10 operations teams across the country to source deals and integrate acquisition assets into our portfolio. About two-thirds of our deals closed this year were in some stage of lease up, which further depresses the first-year cap rate. As we look forward, we have additional deals valued at over $300 million under contract that we expect to close by the end of the year. Our exceptional third quarter results elevated acquisition volume and continued tailwinds in the sector led us to again revise guidance this quarter. We increase the midpoint of year-over-year growth in same store NOI to 19% and full year growth in core FFO per share to nearly 30% and revised our expectations for acquisition volume to $1.75 billion at the midpoint. Brandon will discuss our revised guidance further in his comments. The fundamental backdrop for self-storage remains very favorable, and our team is executing at a very high level to deliver exceptional results for all stakeholders. Our historical commitment to secondary and tertiary markets, as well as our differentiated pro-structure, continue to serve us well. I'll now turn the call over to Dave to provide color on what we're seeing on the ground. Dave?

Thanks, Tammy. Overall storage fundamentals remain strong. Consumer demand is being driven by multiple factors such as job transition, geographic relocation, housing boom, a tight rental market, and lifestyle changes, all of which are contributing to the high occupancy and rate growth. Pandemic-driven demand introduced a significant number of new customers to self-storage, and we believe that much of this new demand will remain long-term. Apart from the normal seasonality we're experiencing, which has been muted compared to historical patterns, we don't see any near-term sign of changes to the current favorable environment. Occupancy levels remain close to record highs, allowing us to continue our push on street rates, which average 27% higher this third quarter compared to a year earlier. Through the high occupancy level, we’re able to hold discounting concessions well below historical averages. We continue to be assertive on rent increases for in-place tenants; these rate increases are averaging high single to low double digits. Our rent rolls in the third quarter, which is the moving rental rate versus the move-out rate was a positive 7%, which is up slightly from the 6% that we realized in the second quarter. The positive rent rolls up trend continued in October, which is impressive considering we normally would be experiencing a rent roll down in the first quarter. The combination of strong free rates and assertive in-place tenant rate changes continue to drive improvements in our contract rates. Our contract rates have improved every month this year and we're up just over 9% for the third quarter. Keep in mind that we started the year essentially flat year-over-year. So we're pleased with the momentum in place rents and believe it sets us up well for the fourth quarter and heading into 2022. We know that the 2020 comps are distorted due to the pandemic. I'd like to give a two-year comparison to 2019. Our third-quarter street rates are approximately 24% above our third-quarter 2019 levels, and our in-place contract rates are about 8% higher as well. Both very healthy growth over a two-year period. We ended the third quarter's occupancy at 96.2%, up 450 basis points year-over-year. The positive trends continued in October. We're very pleased with how resilient occupancy has been, especially in light of the strong growth in rental rates on both new and in-place customers. Earlier this year, we projected a seasonal decline in occupancy from the end of June to the end of December in the range of 200 to 250 basis points. The occupancy has only declined 70 basis points and seems to be holding relatively steady in the 96% range. I do want to remind everyone that we manage to optimize our revenues, not occupancy. Turning to new supply, we've yet to see a meaningful shift in development activity in any of our markets. The unprecedented consumer demand has muted the competitive impact with the new facilities that are coming online. There's certainly no shortage of developers who want to build self-storage. We do expect development activity to pick up, although the construction costs are rising and the entitlement and permitting processes remain slow and cumbersome. We expect to continue to face some headwinds from new supply in Portland, Phoenix, certain sub-markets of Dallas, Atlanta, and West Florida. Currently just under 30% of our portfolio has a new competitor within the three-mile radius, and under 50% within the five-mile radius. These figures are in line with last quarter and flat to slightly down from here in 2020. I’ll now turn the call over to Brandon to discuss financial results and balance sheet activity.

Thank you, Dave. Yesterday afternoon we reported core FFO per share of $0.57 for the third quarter of 2021, which represents an increase of 30% over the prior year period. Third quarter same-store NOI increased by 24.3% over the prior year, driven by an 18.4% revenue increase combined with a 4.6% increase in property operating expenses. Same-store occupancy averaged 96.5% during the quarter, an increase of 580 basis points compared to 2020. All this is amazing growth. As you've heard from us throughout the year, we think it's appropriate to look at average growth across the last two years. That's removing some noise from the impact of the pandemic. For 3Q, the two-year average, same-store revenue and NOI growth is 9.2% and 12.3% per year respectively, and core FFO per share growth over those same two periods is 20% per year, all very impressive levels. Regarding OpEx, same-store growth picked up in the third quarter to 4.6%, due in part to the challenging year-over-year comp. Specifically, personnel costs increased 5%, due in part to more normal store hours and staffing levels this year versus the reduced levels of 2020. Also contributing to higher personnel costs is overall wage inflation and incentive opportunities for store employees given the top line revenue and occupancy performance. Another expense line item that saw higher growth was repairs and maintenance, up 16.6% in the third quarter, partially due to the challenging comp, as we limited spending last year to the most critical items. Other modest increases were property taxes of 2.4% and utilities at 2.2%. This expense growth was partially offset by marketing costs that were down 10.4%. Clearly, with the elevated occupancy and strong demand that we're experiencing, there is a reduced need for marketing expenditure. Now moving on to guidance. The incredible internal and external growth we've experienced this past quarter led us to increase our full year 2021 guidance as follows; core FFO per share increases to a range of $2.19 to $2.22 or approximately 30% growth over the prior year at the midpoint and a 4% increase from the prior guidance midpoint. For same-store revenue growth of 14% to 15%, implying that we drive year-over-year growth in the mid-teens for the fourth quarter, which is a slight moderation from third-quarter growth as we encounter a tougher comp. OpEx growth of 3% to 4% and NOI growth of 18% to 20%. Additional assumptions regarding guidance are outlined in the earnings release. Turning to the balance sheet, we were active in the third quarter on the capital front, much of which we discussed on our last earnings call and the details of which are in our earnings release. In summary, these accomplishments included, on the equity side, issuing nearly $600 million across our large follow-on offering in July, ATM activity and OP equity for acquisitions. On the debt side, we issued nearly $350 million across multiple channels in the third quarter. Subsequent to quarter-end, we priced $450 million of senior unsecured private placement notes, with a weighted average maturity of 11.2 years, and a weighted average coupon of 2.88%. The transaction closing is subject to market conditions and the completion of definitive documentation. However, we're working to have all the documents for the private placement signed very soon, at which time we will provide more specifics on the transaction. Proceeds from these capital raises are being used to repay borrowings on a revolver and to fund our acquisition activity. Our balance sheet is well positioned with no maturities through 2022 and a fully available $500 million revolver at the end of the third quarter. We are committed to maintaining a conservative leveraged profile with a net debt to EBIT ratio of 4.9 times at the end of the third quarter and healthy access to multiple sources of capital. Based on our revised acquisition guidance, the fourth quarter will be busy. We are well capitalized and look forward to remaining a disciplined consolidator in our sector. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions.

Hey, everyone, good morning to you. Fantastic quarter. First one for me. Maybe bigger picture, Dave, anyone who wants to take it? It seems like over the last 12 to 18 months there's been a couple of step changes higher in terms of demand, changes in move-out propensity, and occupancy going extremely high. I'm just wondering if there are things that you believe are permanent from either COVID, or the great relocation that's happening right now. Or as you think that some of the things that are potentially driving more people with self-storage, or perhaps making them stay longer, kind of abate as the COVID-related things ease up, and people's savings accounts dwindle a little bit as stimulus is stopped from the federal government. Can you just talk about how you see that playing out over the next 12 months? That'd be great. Thanks.

Thanks Neil, thanks for the question. Interesting question, and it's hard to have a real tight line of sight on how this demand and the current favorable environment really plays out. I don't think it's a short-term thing. I think usage is at an all-time high for self-storage, which is great for us in our sector. I think the things that happened in the pandemic accelerated things that were already happening in our country. There's always been a push for more work from home, remote work, and lifestyle changes that were accelerated by the pandemic. As you look at the transaction patterns of all the consumers around the country, there's certainly been an outflow from some areas of the country into the similar markets, which is definitely benefiting us. That's a permanent shift, in my opinion. I just think a lot of the things that we're experiencing from the demand piece are not going anywhere anytime soon. Even if return to work happens, I still think there will be days at home where you have a home office, for example. So we're encouraged by that. We're also encouraged by the fact that the people using our product find it very affordable, easy to use, and it fits their lifestyle. If you think of housing prices today and how high they've gone, and what's happening in the rental market, it would take a lot for those things to really change. Self-storage is a very affordable product when you can't buy the size of house you want or downsize to a little less of an apartment because of costs. So I think long-term that's there. Another thing I would tell you is that I think all our teams are getting a bit better at this. I think our tools are getting better. Some of the gains we've been able to achieve with occupancy and revenue are a function of demand, but it's also due to us doing our jobs better. I'm proud of what all our teams have accomplished. I'm proud of our tools and our technology improvements that are weighing in for us right now. So I think a lot of good things are in store for us as we go into the future.

Well, that's great. Other ones for me. Shockingly, is on acquisitions. You guys have been extremely active, I think, especially for your size. You've been able to source a really robust amount of activity; I think it's a testament to your pro structure. Can you maybe talk about what kind of product you're seeing on the market in terms of either quality, lease-up component? Are you seeing potentially more players, maybe more institutional players, given how your markets have fared and the relative yield premiums you can get on going-in cap rates, and just kind of your outlook for the cap rate environment near-term?

So I’ll start. Other members of the team can jump in here if I missed something, but the volume of transactions continues to be literally unprecedented. Even as we head toward the end of the year, it's not slowing down at all. The type of transactions we're seeing range from large portfolios that can really large portfolios to one-off assets; that's really where we like to play. We've also been very successful; we've remained disciplined yet very successful in targeting our secondary and tertiary markets, and we like cap rates that are a little bit better. Now, we've also strategically invested in some non-stabilized assets. When I say non-stabilized, I'm talking about assets that are delivered and in some stage of lease-up, so maybe in the 70% to 75% range. On the whole, I think that, as you said, Neil, our structure continues to benefit us. We remain very active in our markets. And it's not to say that we won't look at everything that's out there. We look at the top MSAs, but from a strategic standpoint, building scale and the cap rate environment, we still like the secondary and tertiary markets and that's where we continue to focus. In terms of your question about capital chasing deals, there is a lot of capital and competition, and we've said it many times and probably will continue to say it, that self-storage is a great place to be right now; it's a fantastic sector, as evidenced by our peers' results released over the last few days and our own results. Naturally, I think it is bringing new players, keeping us on our toes, and it's highly competitive. But I also think that we will remain relevant in this consolidation phase. So I'm not sure if I hit all your points there, or if I missed a couple of things.

No, that's the only thing I was just saying is, I think a lot of other sectors have seen cap rate compression since the beginning of the year. So I wonder if you can comment on that specifically in the markets you play, just because I know that the yield game is a little bit more important, particularly because of the pro structure.

This is what I would say; on the whole, we're buying assets in the 5.5 cap range. The non-stabilized assets that we've acquired are below that in the mid-3 cap range. The stabilized yield on those assets is still in the 6 cap range. The thing that we like about the assets we've acquired that are sourced by our pros, either through their captive pipeline or through their relationships, about two-thirds of our deals have been sourced off-market this year. I think that gives us an advantage from a cap rate standpoint. Having said all that, there is still some cap rate compression. We're still pretty comfortable in that mid-five range; we like six better, but I think we'll just remain active and continue to go after those deals. We'll see where it goes, but we have seen cap rate compression that we've never seen before. Portfolio premiums, if they were 15 to 20 basis points a couple of years ago, they're upwards of 25 to 40 basis points now. So it's challenging, but there's no shortage of transactions to look at. Hi, good morning. And thank you for the time, just curious on the assumptions with regards to occupancy for the fourth quarter, and if you can give us where the spot is reduced at the end of October, just to see how you're trending relative to those assumptions in guidance?

So the spot occupancy at the end of October for same-store was 96 flat. So that gives us up to 70 basis points down from the end of June, as Dave hit on in his remarks. As he said earlier, we estimated maybe a 200 to 250 basis point drop; that's from the period in June to the period in December. But things have played out more favorably. Looking at a pre-COVID year, it would not be uncommon from June to October, month-end for you to have something like a 200 basis point or more drop in occupancy. So the fact that we're at the 70 basis point mark is very encouraging. For the back half of the remaining couple of months, I think we're looking at something closer to a could be in the 150 to 200 basis point range going from that June to December period. But November and December historically have seen movement, so the next couple of months will be telling.

Okay, so the assumption and guidance is that 150 to 200 that you just touched on.

That's right.

Okay. And then just with regards to rate, is the expectation that it continues to accelerate or grow on a year-over-year basis, that the numbers have been steadily going up? Or should we assume that it begins to tail off as you have some tougher comps in the fourth and into 2022?

It's a good question. Certainly, there’s a tougher comp in the fourth quarter and end of 2022. I think what we see happening right now is street rates are starting to level off and moderate. We're not backing off on any type of in-place changes. As we look forward, we don't see street rates declining considerably at all; they will probably plateau. We stay aggressive on the in-place piece of it. We'll see contract rate growth as we continue into the rest of the fourth quarter and into 2022.

Super helpful. Thanks, guys.

Thanks. I might just want to follow-up on some ones line of questioning. Just to be clear, the 150 to 200 is what you've got baked in. But I think so far the decline, maybe I'm wrong, I wrote it down wrong. That was something maybe like 70 basis points max. So I'm just curious, is that just your effort to be conservative? Is there anything that you're seeing in the recent weeks that would suggest that you're going to that level? Or is that just kind of what's happened historically, and you just want to be cautious?

A great question. It's more around what we've seen historically. We did see some seasonality in the back half of this year, which encourages, things are returning back to what we would expect to be a little bit more normal patterns. Certainly, we're happy with random velocity and move-outs that are still muted. Those two factors in play, I will say we're 100% conservative. There have certainly been historical patterns and trends with some movement in November and December. But we're pleased with where we're sitting right now.

Okay, and then just to sort of go back to some of the acquisition questions. Again, if I've done my math right, you basically have done $1.3 billion, including what you closed in October, and can't remember if it was Brandon or Tammy said you had another $300 million that was under contract to close sometime in the fourth quarter, which would sort of put you at $1.6 billion. So above the low end of the range but maybe still a little far away from the upper end of the range at $2 billion. Are there things that you can actually get over the finish line that are not under contract today before year-end? Are sellers really scrambling to try and get deals done before tax rates change? Or is the $2 billion maybe just really not realistic at this point?

No, I think it's achievable, Steve. Good question, and your math is right. We're speaking to what we have closed and have under contract. There is a fair amount more that is in some other stage of negotiation. Sellers are highly motivated. It will come down to how much we can actually get done, get it through third party due diligence and negotiations, and get it closed this year. So I don't think that our range is at all unrealistic. I don't know if we'll get to the $2 billion, but it certainly can be done based on what we're seeing right now.

Got it. And then maybe last question is given the incredible strength we've seen in rent growth and high occupancies. I'm just curious, when you're underwriting new acquisitions today, how are you sort of thinking about the new normal? Is kind of these numbers the new normal or are you sort of reverting back to something in between the old numbers and today's numbers? How do you sort of think about what stabilized rent occupancy will be two, three, four years from now?

Yeah, it's a great question. It's a tough call, but we are finding our way, probably in the middle someplace. We don't believe as competition comes in and maybe a shifting market will put pressure on street rate. As we're looking at new properties, we're really taking a look at what we think free rates and market rates really are, how we look at that, what it'll be next year and the year after and then modeling, of course, our IPRC models that we put into it. I would say it's somewhere between maybe the upper and middle of what you're talking about what historical is to where we are now, but certainly we're in a very hot market right now, and street rates are very high. Everyone's done a great job taking advantage of the situation we're in.

Steve, we've talked about this before too, but first and foremost, as you know, we're highly motivated to grow externally. We have our targets and we've hit them every year, and expect to certainly hit or exceed this year. We also remain disciplined where we are not going to fall into the trap of growing just for the sake of growth. For us, it's all about underwriting good deals that ultimately are strategic and accretive to our shareholders.

Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Hi, thanks. A couple of questions on acquisitions. Tammy, how much of the third quarter and or, I guess, remaining acquisition expected through the end of the year here will be lease-up or CFO deals? And do you expect to be able to maintain the yields that you discussed on investment, so that mid 5% range moving forward?

So through the third quarter, the investment in non-stabilized assets was about $180 million. What we have under contract right now, what we've closed to the end, so that speaks to what we've closed through October, what we have remaining to close; there are a handful of non-stabilized assets in there. But I do believe that on the whole, we'll be able to maintain that mid-5 cap range, it may come down a little bit with the remainder of our Q4 acquisitions. But it'll be pretty close. Again, we're not really going for CFO-type deals where most of what we're looking at is in some stages still moving toward stabilization.

Right. Okay. And then, I guess that pricing on acquisitions seems to be above what we're seeing from others and what we're hearing in the market. You mentioned that there's a premium you get from transacting off-market and in the captive pipeline. How much of this year's activity was in the captive pipeline specifically? And sort of what's the premium that you think you get on those acquisitions?

It's hard for me to estimate the premium. Let me start with your first part of your question about $80 million of our deals that came through our captive pipeline. I think that combined with the fact that in total about two-thirds of our deals have been sourced off-market, it's given us an advantage in that cap rate analysis. Whether that is, we can compare it to what we're buying from third parties, it could be easily 50 basis points is what I would say. I think the captive pipeline tends to come in at the higher end of the range, and the off-market deals are pulling the cap rate up.

Okay. And then your comments about the amount of product coming to market being unprecedented? Do you anticipate this level of activity to continue into 2022? I guess, will the first half of the year, which I believe historically has not been as busy, will it be much busier in your view than it has in prior years?

I believe that potential exists. Yes. The reason is that the volume of deals and the potential sellers would like to get something done, I'm sure they'd like to get it done right now. Some of it's just not going to be possible. It may fall into the first part of next year. While people have been and continue to be motivated by potential changes in tax law, I would also say that the amount of capital chasing deals and the pricing that we're seeing right now is keeping sellers interested. It may fall off some; maybe some people who don't get their deals done this year, just pull back and hang on for a while. Based on what we're seeing and hearing, we believe that some of this activity will fall into the first part of 2022. That assumes all on balance sheet, our guidance range right now assumes all on balance sheet. Yes, we would be interested in doing something with a JV partner under the right circumstances. If it was a strategic move, we have conversations with investors who are interested, and we keep that door open. There may come a time when it makes sense, and we would definitely be open to it.

Hi, thanks. I guess I just wanted to understand a little more; someone just mentioned that the cap rates seem higher than what we're seeing for other acquisition opportunities in the market. You mentioned two-thirds are off-market and sort of outside of your captive pipeline. I'm just wondering why someone would be selling to you at these rates when it seems like they'd be able to sell at a lower cap rate to someone else through maybe a more broker process? Just trying to get -- is it just relationship-driven? Because you're talking about stuff that's outside of your captive pipeline, right?

So I think first half, so my two-thirds basically includes the $80 million. But having said that, it's still a big number. Smedes, that’s a great question. It is relationship-driven in every single case, and in all the one case, when we're talking about anything of any amount of money, the seller was interested in OP equity. Between our relationships and these are long-term relationships, as well as our ability and willingness to work with the seller on the issuance of OP equity, it has given us an advantage. But I think you're right; if it was a fully marketed deal, a seller might have left a little bit of money on the table. However, they got stuck at a good price, and I think they've done okay. I wouldn't say that it's anything that we are seeing specifically today; I think our comments are probably a little bit more anecdotal. They're based on the same data that all of you guys see, which comes from primarily from Yardi and maybe a handful of other sources. We also have the benefit of having conversations with our pros who are on the ground, and they know what's going on. They stay very close to it because it affects them in a very real way. We form our opinions based on those facts and what we're hearing. I think we expect to see development activity to pick up. But we don't see it happening near-term.

Hi, congrats on the quarter. Thanks for taking the question. You mentioned labor pressures and payroll pressures in the opening remarks. Can you comment a little bit more on what you're seeing on the ground in your markets? And in particular, do you expect payroll increases to continue to exceed inflation going forward?

Great question. Certainly, the labor market is tight. A little more clarity on that payroll is part of our payroll uptake; it has also been incentives played to employees for the great performance. If you look at how strong revenue was and the metrics that affect our store operations teams across all of our pros and ourselves, incentive levels are high. We are seeing a little bit of pressure from overtime, obviously, trying to keep staffing levels at the right level to attract the right team members is tougher now than it's ever been. There have been a handful of rate changes around, certain states raising minimum wages and things like that occurring in the country. Overall, it's really tight labor market, and we're doing our best to attract people and look for efficiencies within our systems and our operations. Yes, great question. I think it's a combination of a lot of those things. Tremendous rate growth that we've had will certainly help your margins; high occupancy levels will help your margins. I mean, we are looking at technology in how we staff our stores, how many hours we're open. Online rentals are approaching 30%, so there's an opportunity to transact with the consumer in the way they want to transact. And maybe that allows us to look at our office hours. We've recently upgraded the call center platform to get better technology behind that and really work on customer service and rental applications. So I think it's a handful of things at play here.

Yes, I think two quick questions for me; just sticking on the acquisition theme. If I look at the $1.75 billion at the midpoint of the guidance, can you give us a sense of what the total pipeline that you would look at in a year would be? Are you looking at five? Are you looking at 10 billion to be able to sort of close that $1.75 billion? I think sort of back to a previous question, which was, we're thinking about over the next two to three years. Is this sort of more sustainable? Or are there really one-time bigger deals this year that we should be mindful of?

I would tell you, Ron, -- thanks for the questions. We look at every major portfolio that hits the market. How do you get to $1.75 billion? We probably have looked at, I don't know, Dave, would you guess $10 billion in portfolios valued at every bit of that. Will this continue into the next two – one, two, three, four years? It is impossible to predict. A lot remains to be seen. I think what's, when we have this call again at the end of February, we'll have a much better line of sight on what we think is going to happen, at least in the next 12 to 18 months. Right now, it's really, truly impossible to predict.

I think you touched on something there. A couple of portfolios have transacted that maybe we wouldn't have thought would have transacted through this year. If you look at our acquisition activity, the amount of even one-off and smaller portfolios and the amount of activity we've done because of relationships and what we're doing, as I look towards 2022 and beyond, I think we stay very active, and it's not always about the one-off portfolio that really helps us in our acquisition activity.

Good morning, guys. I was just wondering, Portland's one of your larger markets, and it's been doing really well. It's one of the top performing markets, but it's also had quite a bit of development for like the last few quarters. I was just wondering why your portfolio is doing so well? Is it because demand is just so strong? Or is it development isn't near your story?

Yes, great question. We talk a lot about Portland. Portland still remains our most challenging market with the amount of new supply in the market. A couple of things have gone on. Certainly, the new demand has certainly helped the Portland market, and helped all of the markets in self-storage have better success. I think the team up there in Portland has done a great job of implementing strategies around pricing, discounting, and customer acquisition, and I think they've done a good job of repositioning themselves in that competitive market. To answer your question, the team has done a wonderful job. If you look at it, Portland's still trailing our average portfolio occupancy by about 3%. You can see there's still pressure there; with the new supply remains there, Oregon as a whole is really doing exceptionally well.

Just the second question was just looking at expenses a little bit. The reason I ask is because I think a lot of the peers have either increased wages or given special incentives in 2020. So that in 2021, expenses were actually sorted down. The question is really, obviously, property tax expenses are what they are. But is there expense saving opportunities as you're thinking down the road three, four, or five years? Whether it's with increased penetration of e-rentals, whether it's marketing expenses that you may not need because of occupancy? Granted the margins already pretty high, but just curious how you guys are thinking about potential expense opportunities down the pike?

Great question, Ron. We're always thinking about that, and I think you touched on a few of them. How do we take technology and platform and make it better? Online rental, if we can continue to increase our online rental presence, that may see some opportunity around stores and overall personnel costs. Certainly, with the customer acquisition platform and the revenue management platforms that are still new to us, I think there are ways to find efficiencies there and really look at overall operating efficiencies. I am very pleased with what our margin growth has been. We've had really good margin growth this year; all of our pros and their teams and our corporate team have focused on where we can be efficient and drive down expenses where possible or maintain and drive on revenues. We're looking at all those things, and we run very lean. It's not like there's a lot of fat hanging around in our organization and properties. We'll do our best to find those efficiencies and implement them.

Hello, everyone. I want to dig in a little bit into the drivers of the above-average occupancy levels. Is it mainly driven by demand, more movements, or is it a lack of turn and move-outs?

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

And then when we look at the lease-up deals, can you remind us how long those typically take to lease up and where that is now to get to that 6% stabilized deal?

Certainly, the lease-up schedule has tightened with the demand that's going on. We're seeing properties that maybe would have leased in 24 to 36 months are now maybe taking 20 to 24 months. Most of what we're purchasing has a lot of the physical occupancy in place, and what we're working on is getting the rate back up where it should be. Very quick build to the high physical occupancy levels, but now we need to work on getting the discounts to burn off and really get the rate where it needs to be. For us, we look at stuff that most of our purchases will be stable by year or two.

I would just add that the stabilized yields on those assets are estimated at about 6%. The average occupancy is in the mid-70% range for the non-stabilized assets we're categorizing.

Thanks, everyone. Dave, just a question on the benefit from the in-place customer renewals. Because move-outs are lower, more of the population now, every month, every quarter, is eligible for renewal increases. Obviously, lower churn means that more people are taking them. Can you talk about how that looks? What is the sort of quarterly potential of the portfolio eligible for renewal increase versus like, pre-COVID? How far below or is it above the renewal rents from market, almost like a loss to lease, if you will, for your existing customers, just to get a sense of how much more you can push?

Yes, great questions, a lot to unpack there. First of all, we're in a positive rent roll up right now. We were through October, which is a good place to be, as far as giving us the ability to really be assertive on what we want to do in case we haven’t had somebody move out, we're actually replacing them right now at about a 4.5% improvement on a new tenant coming in the door. We certainly, in place, tenants have the opportunity to push harder and more frequently. We're bullish around that. We've seen the frequency of tenants that are getting rate increases has probably increased 2.5% on average per month, particularly this time of year. Low double-digit increases are probably more than normal at this point in time. We really shifted to removing some of the caps on replacements; you may have heard me talk about this before, moving toward more of a lifecycle approach. If you’re going to be with us on average for 16 months, how do we maximize that time efficiently through our in-place rent change program?

Okay, yes. Last thing I had was, these eviction moratoriums in some of the coastal markets have been expiring, some shorter or in sooner than others. In particular, your West Coast portfolio, are you seeing or do you expect to see some near-term windfall if those evictions, which could be pretty sizable, continue to play out?

Certainly, I think we will see that will create transition. Anytime you have transition, it's a great opportunity for having people need our space. The interesting thing is that we’re fairly full out there, as is everyone. We're going to do what we normally do, look for opportunities, and do what we need to do there, but it will certainly create transitions.

Hi, I just wanted to ask you, I think in the past you've talked about acquisition targets of about annually, about 10% of enterprise value. Is that still a good metric to think about as we model for next year?

That's a great question, Smedes. I think that is certainly something that we have said historically, and I'd like to say yes. However, I think we still hold that out as a goal of ours, but I'm going to focus on the average since it's been a big year this year.

Just one of the things on that, obviously, with a year like this year, so unique. Much of what we're doing is back half weighted, so that obviously serves 2022 more than it will 2021 in terms of our bottom line core FFO per share growth.

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