Greetings, and welcome to the National Storage Affiliates First Quarter 2025 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you. You may begin.

We'd like to thank you for joining us today for the First Quarter 2025 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. Please limit your questions to one question and one follow-up and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, May 6, 2025. 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 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.

Thanks, George, and thanks, everyone, for joining our call today. Our first quarter results were in line with our expectations, and we are pleased with the 130 basis points of sequential improvement in same-store revenue growth on a year-over-year basis. Although three of our reported same-store markets saw a sequential improvement in the level of revenue growth, two of our top three markets, Portland and Houston, inflected positive in the first quarter, giving us momentum into the spring leasing season. Fee rates and contract rates have experienced sequential growth every month this year, which is encouraging. Although occupancy is a bit softer than expected, the rate growth is exceeding expectations, and we met our overall revenue goals. Our existing customer base remains healthy. We continue to be pleased with the success of our ECRI program. The length of stay remains above historical averages, and the bad debt expense remains within expected ranges. Now that we've completed the PRO transition, we are laser-focused on operations and realizing the benefits from the consolidated operating platforms and upgraded marketing and pricing tools. The benefits are manifesting themselves in better search rankings to drive customers into the top of the funnel, enhance pricing algorithms to optimize rate decisions, and the use of AI to optimize call flows and staffing hours. These improvements are reflected in our sequential contract rate growth and declines in personnel expenses. We are in the early stages of showing improvement and are building momentum. In fact, moving contract rates in April increased approximately 5% from the first quarter levels. Meanwhile, occupancy increased 20 basis points in April to finish the month at 83.8% occupied. The markets where we're further along in implementing these strategies demonstrate the benefits. Portland is a great example of a market where we have some runway behind us and a track record of implementing our strategies, and the benefits are showing. We continue to operate our marketing and revenue management efforts, leading to better results. We've been very successful with our pricing and ECRI program. Combined with the benefits of easing supply, Portland is now one of our top performers, delivering positive revenue growth in the quarter. Similar trends are happening in other markets as well, experiencing 2.2% revenue growth this quarter. Moving to the acquisition environment, while there remains a steady flow of opportunities coming across our desk, with the broader economic and capital markets uncertainty, we remain disciplined. During the first quarter, we successfully closed on three assets totaling approximately $40 million. We also sold two properties totaling $10 million. Proceeds from asset sales will be used to pay down the revolver and fund future acquisitions. Our activity is picking up, and we expect to announce more transactions over the next few months. In summary, we believe we found a trough in fundamentals. We are encouraged by the trajectory of contract rents, and the new supply outlook is improving. While there is plenty of noise around tariffs and economic uncertainty, so far, there's been no direct impact on our business. And I'll remind all of you that the self-storage sector has proven to be resilient through various operating environments. Lastly, there is still significant investor interest in the self-storage sector, as demonstrated by the recent successful IPO of our newest public peer, SmartStop Self Storage. I'd like to formally welcome Michael Schwartz and his team to the club. I'll now turn the call over to Brandon to discuss our financial results.

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.54 for the first quarter, a 10% decline from the prior year period due primarily to a decrease in same-store NOI and an increase in interest expense. For the quarter, same-store revenues declined 3%, driven by lower average occupancy of 190 basis points and a year-over-year decrease in average revenue per square foot of 1%. Expense growth was 3.7% in the first quarter. Main drivers of growth were marketing, repairs and maintenance, and utilities, partially offset by a decrease in personnel costs. We expect marketing to remain elevated in the near-term, given the competitive environment, whereas expenses were higher largely due to severe winter storms during the quarter, which resulted in outsized snow removal costs. Without such impact, our operating expenses growth would have been below 3%. These revenue and operating expense results led to same-store NOI growth of negative 5.7%, also a sequential improvement from last quarter, which we expect to continue as we progress throughout the year. Also impacting the quarter was interest expense, which was $1 million higher due to the maturity of a swap in the beginning of February, which fixed the rate on $225 million of our revolver balance at just under 3%. Upon swap maturity, the notional amount was then subject to the spot rate, which is approximately 275 basis points higher. This resulted in a $0.01 drag on the quarter's results. Now speaking of the balance sheet, we have no maturities in 2025, and our current revolver balance is $444 million, giving us approximately $500 million of availability. As Dave referenced earlier, we expect the immediate use of near-term asset sale proceeds to pay down the revolver, which, in combination with improving fundamentals, will help to bring leverage down. Net debt-to-EBITDA was 6.9 times at quarter end. As I discussed on our call last quarter, the recent trough in year-over-year same-store growth along with the first quarter being seasonally the weakest put additional pressure on that metric. We expect to be in the 6% to 6.5% range in the back half of the year. Now I'll conclude our opening remarks with a few comments about our reporting package. We added some new disclosure in our supplemental this quarter. At the bottom of Schedule 7, we've provided contract rent per square foot on in-place customers and on move-ins and move-outs to provide better clarity on fundamentals and assist with modeling. Regarding guidance, it is still early in the spring leasing season, and thus, our assumptions are unchanged and are detailed in the earnings release. I'll remind everyone that the midpoint assumes a moderately better spring leasing season than last year, characterized by improving pricing power and occupancy through the summer months. The high end of our guidance range assumes a better-than-average spring leasing season, fueled by a recovery in the housing market. The low end incorporates no material improvement in the housing market with muted seasonality and pricing power. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Eric Wolfe with Citi. Please proceed with your question.

Hi. Thanks for taking my questions. I think you said that the contract rates increased 5% from March and occupancy was up 20 basis points. So I was hoping you could just put that increase into perspective? Is that a very good April, normal April? And then how much were contract rates up year-over-year?

Eric, thanks for the question. I appreciate you joining the call today. Sequentially, we have seen improvement in our rate scheme throughout the entire year. We've seen street rate improvements sequentially from January through April and into May. We did see contract rate improvement from January through April and into May as well. So from our perspective, maximizing revenue while working on occupancy, rate growth, and marketing spend has been successful. If you notice in our new schedule, we provided in-place customer rate growth and move-in rate growth. We've improved move-in rates sequentially throughout the first quarter and into April, and our move-in rates actually inflected positive in March and stayed positive in April and improved again in May. Thus, we had good success around the rate program for the first part of the year, aligning with our goals to drive more storage revenue and maximize in-place customers through the ECRI program.

That's helpful. And you've talked about seeing better revenue and margin opportunities for the PRO properties that you brought onto your platform. I think you previously said there was like a 260 basis point occupancy gap that you could maybe close by the end of the summer. Maybe just giving a little bit more from right now, could you just talk about where you are in the process of achieving those revenue synergies?

Yes, good question. The transition occurred primarily in the third and fourth quarters of last year, with significant activities occurring in the mid-part of that third and fourth quarter. As you consider rebranding stores, moving to a new domain name, and consolidating pricing and marketing efforts, we are beginning to see the transition take place. The team is getting traction by managing everything in one place, improving our Google bid model, consolidating pricing tools, and enhancing marketing efforts. Initially, there was a 250 to 300 basis point gap when we started the PRO transition. While we didn't expect to close that gap until mid-summer, we are making good progress. We're happy with the rate growth in those portfolios and working on occupancy with the expectation of seeing traction by the mid-summer months.

Good afternoon everybody. Dave, maybe tagging along the prior question, just talk about the ramp-up. I don't know if you can quantify how much of a pickup we'll see in the second half. I mean you guys have done minus 3% in the first quarter for revenue growth. I would assume the second quarter will also be down from a revenue growth perspective, but maybe quantify how much of a pickup we'll see in the back half and especially into the fourth quarter. Thanks.

Hi Samir, this is Brandon. I'll jump in on it. As Dave said, the revenue number for same-store was in line with expectations. We hit our goal for the first quarter there. You may recall in February, when we introduced guidance, I said we would start the year on same-store NOI growth in the mid-single digits negative. Because of OpEx items I mentioned, we fell slightly worse than expectations. If we didn't have some of the winter storm impacts on snow removal and utilities, we would have been closer to a negative 5 flat on the NOI number. The trajectory and pace of growth, along with sequential improvement, is reflected in our full-year guidance. Also, you are correct that we still expect to see negatives for the second quarter on both revenue and NOI year-over-year. We are not getting too specific about the inflection point on revenue in the back half, but we expect to see positive growth eventually by year's end.

And then I guess just a follow-up is, I know you guys have discussed the month-to-month improvement you're seeing. I guess, how much of that is really just a return to seasonality versus improvements in demand?

Yes, good question. Certainly, seasonality begins to play a role. Typically, we see a trough around February, moving into the spring leasing season. Activity-wise, we're noticing more customers at the top of the funnel and improved search results. It feels seasonally improved. Still, we also had good success in the latter part of last year with street rate improvement, which continued into the first quarter and April and May. Our ECRI program has remained effective, helping us achieve strong results. While occupancy has not increased as dramatically as last year, our revenue has improved significantly compared to the same period last year. In summary, both frameworks of demand are positively impacting our results.

Good afternoon. Thanks a lot for taking my questions. My first question is around the dynamics of street rates. You can see, it seems like street rates have shown some improvement, but occupancy took a slight step back in the first quarter. So, can you walk through the dynamics of your ability to push rents and bringing people in and how you expect that to play out through the spring leasing season? Thanks.

Yes, Michael, thanks for joining. Good question. We did have success around improving street rates, which subsequently improved move-in rates. The ECRI program led to improved contract rates sequentially for the last several months. We're pleased with the progress made. For occupancy, we're focusing on marketing efforts and are seeing improved velocity at the top of the funnel. However, we're still cautious about expectations concerning the spring season. Our objective is to balance revenue and occupancy effectively.

Got it. Thanks for that, David. And as a follow-up, you're expecting some acquisitions and some dispositions this year. Can you give us a little bit of an update on the transaction market, where are you looking to buy a lot, and has there been any change in the transaction market over the last month?

Yes, good question. We’re seeing deal flow come across our desk and are being patient to match potential acquisitions with our cost of capital. The team is actively underwriting properties and working with our joint ventures, but we remain disciplined in our decision-making. We are also seeing progress in our dispositions pipeline, aiming to reach about $200 million in disposals this year, which we expect to discuss more after the second quarter.

Hi. This is Robin Haneland sitting in for Juan. With occupancy a little weaker in the first quarter, what occupancy assumptions are you baking into guidance?

Yes, Robin. I’d refer you back to our guidance introduced in February. We discussed occupancy expectations based on last year’s seasonal fluctuations. Although occupancy jumped from bottom to top by around 140 basis points last year, we expect our midpoint to reflect something closer to a 250 basis points increase this year, with a greater demand than last year. So, to summarize, we have factored expectations for improved demand into our guidance.

Thank you. And on the PRO internalization, can you help us quantify the operating expense savings? Will we see additional benefits throughout 2025, or has most of the upside already been realized?

Yes, Robin. A few key areas have presented savings. Certainly, G&A represents a clear-cut benefit we started to see in the back half of last year. You can see that year-over-year improvement, close to $2.5 million in savings. Since we are mid-2024, we expect more savings to be realized throughout 2025. Additionally, reductions in personnel costs stem from more efficient staffing practices. Given where we started with our staffing structures, we will see these operating expenses savings realized in the coming quarters.

Great. Thanks. I wonder if you can give us some insights into how promotions or discounts are trending for new tenants. It seems like street rates continue to improve, but I imagine getting that new tenant in is important to realize that ECRI increase a couple of months later. So, have you been holding firm on those concessions?

Good question. I think concessions remain well within our expectations and haven't exceeded historical levels. We have seen a slight increase in the use of promotions over the last two to three months. This is consistent with pushing street rates and repositioning in the market; we're using temporary discounts rather than always discounting lower rates. Overall, we are satisfied with results and will monitor to ensure discounts fall within our strategic boundaries.

Thanks, I appreciate the context. And with the helpful slides you have in your investor deck about search engine optimization with the new nsastorage.com, how are you seeing improved rankings on Google searches? Is it possible to improve from, say, the fifth or sixth slot to the top three?

Yes, it's a great observation, and it's very important to us. It is possible to move up in rankings. Achieving that involves working within Google My Business and focusing on SEO functions, which is continuous and requires patience. We've been busy optimizing nsastorage.com and now that all our stores are under one domain name, we're leveraging paid search effectively. The team has increased our visibility scores significantly, and we've observed a 25% increase in customer traffic compared to earlier months.

Great, that’s it for me. Thanks for the time.

Hi. Thanks. Good afternoon. I wanted to go back to occupancy and rate discussions. I'm curious what specifically gave you confidence to raise rates during the quarter despite the softer occupancy trends? Does it imply that your systems suggested that lower rates would not stimulate demand effectively?

Yes. We modeled and forecasted that lower rates would not attract enough customers for a net benefit. Coming out of the third and fourth quarter, we realized we were potentially under on rates due to the PRO transition. This allowed us to reset rates and reposition ourselves. Our competitive rates support this strategy. While we'd like more occupancy, the revenue improvements provide more flexibility.

Regarding changes in occupancy, how did vacate activity trend during the quarter? Any notable changes since the start of April?

Vacates remain muted compared to last year. The ratio of vacates versus move-ins has remained consistent. Both metrics are subdued compared to last year, and there hasn't been any notable change. Thus, we're managing the environment to mitigate challenges in occupancy.

Hi guys, good afternoon. The marketing spend numbers seem substantial year-over-year, around 20%. Can you walk us through the decision to increase spending when many REITs are pulling back in this area? Can we expect this run rate for the rest of the year?

Yes. Our marketing spend is deployed with a focus on effectiveness, and the year-over-year increase stems from our starting point last year and consolidation under one domain. We believe the increase is yielding results in top-of-funnel activity and customer conversions. We expect to maintain a similar run rate throughout the year, adjusting as necessary based on results.

The growth rate of 20% in Q1 was in line with expectations and will likely persist throughout the year, as we anticipate similar opportunities.

Just going back to occupancy, is there any common themes regarding move-outs? How do you ensure that the product remains accessible in light of potential affordability risks?

We analyze all customer move-outs, looking at length of stay, rate positioning, and ECRI program performance. Move-outs this period have shown no notable changes in behavior or affordability concerns. Bad debt is in check, and payment activity aligns with expectations, indicating stability for our current customer base.

I appreciate the additional disclosures on Schedule 7. When I examine the in-place customer figure of $14.60 for a 10x10 unit, how should we interpret the year-over-year change?

The year-over-year changes reflect improvements in asking rents and our enhanced ECRI performance. We've seen significant growth; our move-ins were up from $9.89 in quarterly averages to $10.38 in April.

I wanted to follow up on transactions. Is this an opportunity to adjust exposure to certain markets while increasing focus on others? How are you approaching this?

Absolutely. We're evaluating our portfolio to identify which markets to maintain. We intend to exit markets where we only have one asset and will focus on those with operational efficiency potential. This analysis will guide us in improving our capital recycling strategy.

What are some of the current demand drivers for self-storage? How is demand shaping up as we enter the peak leasing season?

Several demand drivers exist. We cater to various storage needs ranging from small businesses to residents facing transition due to home sales. While demand remains robust, our portfolio is affected by low existing home sales. However, when the housing market recovers, we believe we will benefit significantly. In the meantime, we are leveraging all consumer needs and ensuring visibility and affordability.

A couple of times you've indicated that fundamentals may be troughing, yet the housing market is still tough. Can you help reconcile those perspectives and explain your conviction in a better earnings growth profile as the year progresses?

You raised a critical point. Looking at where we are, the rate of supply absorption, consumer demand, and ongoing economic changes lead us to believe we have seen the worst. Our larger markets, including Houston and Portland, are now showing positive signs. The operational efficiencies gained through the PRO transition, along with easier year-over-year comparisons, provide us with confidence that we're heading in a positive direction for the remainder of the year.

Thank you all for joining our call today. We appreciate your continued interest in NSA. We look forward to seeing many of you at the REIT Week conference in June. In the meantime, we look forward to the Warriors-Nuggets Western Conference Finals.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.