National Storage Affiliates Trust

NYSE:NSA

Earnings Call Transcript 2021-Q1

[Operator]

Greetings, and welcome to the National Storage Affiliates First Quarter 2021 Conference Call. At this time, all participants are in a 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 pleasure to introduce you your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you. Mr. Hoglund, you may begin.

[George Hoglund, Vice President of Investor Relations]

We'd like to thank you for joining us today for the first 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 filed an 8-K with the SEC containing 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 the answers to your questions may contain forward-looking statements that are subject to risks and uncertainties, including uncertainty related to the scope, severity and duration of the COVID-19 pandemic and the actions taken to contain or mitigate the direct and indirect economic impact. The Company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional detail concerning the 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.

[Tamara Fischer, President and Chief Executive Officer]

Thanks, George. And thanks everyone for joining our call today. Before we talk about our outstanding results for the quarter and our positive outlook for the remainder of 2021, I'd like to recognize the hard work and dedication of all of our team members, beginning with our field team, our corporate team members and our PROs and their teams. The joint efforts by all of the extended NSA family are what drives our stellar results. And I couldn't be prouder or more appreciative of our entire team.

Now moving on to results. We're off to an exceptional start to the year delivering double-digit same store NOI growth in the first quarter, and with acquisition volume that is on pace to reach the top half of our original guidance range.

While the back half of the year still presents some challenging year-over-year comps, our current occupancy and reach trajectory make those comps appear somewhat less challenging. All signals are pointing in the right direction. And I don't see that changing in the near term. We continue to benefit from the resilience of the self-storage sector, the diversification of our portfolio and the strength of our differentiated PRO structure.

On the acquisition front, we've been very busy this year and the pace of deals coming to market is not flowing. During the first quarter, we invested $166 million in 23 properties. And so far this quarter, we've closed or have under contract to close 20 properties valued at about $250 million.

We continue to see meaningful competition for transactions and the amount of capital seeking to establish or expand a position in self-storage is driving cap rate compression, especially on larger portfolios.

Fortunately for us, though, about two thirds of our closed deals this year were either off market or from our Captive pipeline, where we tend to buy at slightly above market cap rate. The average stabilized cap rate on our first quarter acquisitions was in the high five, in the deal so far in the second quarter or in the mid sixes.

Our core FFO per share increased 23% in the first quarter compared to the first quarter last year. This growth was driven by a combination of strong same store growth, healthy acquisition volume, and the internalization of SecurCare in April of 2020.

While the self-storage sector as a whole is clearly having a banner year, we once again are able to deliver results above the pure average, which really attests to the benefits of our PRO structure and our secondary market exposure.

In summary, it's a great time to be in self-storage, as our results surpassed even our own expectations and fundamentals continued to strengthen from already remarkable level. We’ll remain very active and engaged in the current consolidation phase of our sector. A stellar first quarter results and the continued momentum into the second quarter, give us the confidence to raise our same store NOI and core FFO per share guidance meaningfully.

I'll now turn the call over to Dave to provide color and what we're seeing on the ground. Dave?

[David Cramer]

Thanks, Tammy. As you know, we kicked-off the first quarter with already strong year-over-year occupancy gains and positive momentum industry rates, both of which have seen continued improvement each month this year.

We ended the first quarter with record occupancy of 93.8%, which has increased to 95% at the end of April. Despite having entered the peak spring leasing season, with such a high occupancy, we are still experiencing normal seasonal basing trends.

As we move into the second quarter, the overall rental activity were going to be elevated, that is due to the comparison of the middle [ph] levels during the pandemic related shutdown of 2020. As we have discussed on our past couple of calls, consumer demand for storage is driven by a broad number of factors, which we believe will continue. When [indiscernible] our backs, and currently we're not seeing any decline in customer demand, we do believe we'll see a return to normal seasonal occupancy trends at the end of the year.

With the strong demand factors continuing, we believe that our occupancy will remain above historical levels throughout 2021. We do want to reiterate that we managed to optimize our total revenues and not occupancy.

Street [ph] rates have increased almost 8% year-over-year in the first quarter, and accelerated to the mid teens in April. As we continue to monitor all restrictions across all of our communities, we did see California lift most of its pricing restrictions during the first quarter, which provided an additional opportunity to optimize our revenue management strategies. A few remaining restrictions in California in areas we don't have significant exposure in those markets.

Turning to new supply. The outlook remain similar to what we've communicated on our previous couple of calls, completions are trending down year-over-year, while an increase in abandoned projects is reducing the forward pipeline. We have yet to see a meaningful shift of development activity in any of our markets. At this point, we don't think that the healthy storage fundamentals that we're experiencing today will result in a spike in new construction in the near term.

We will continue to face headwinds from new supply in Portland, Phoenix, certain sub markets in Dallas, Atlanta and West Florida. Currently, the robust demand is mitigating the negative impact on supply in these markets.

I'll now turn the call over to Brandon to discuss financial results and balance sheet activity.

[Brandon Togashi]

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.49 for the first quarter 2021, which represents an increase of 23% over the prior year period. First quarter same store NOI increased by 11.5% over prior year, driven by 8.1% revenue growth, with only a 60 basis point increase in property operating expenses. Same store occupancy averaged 92.5% during the quarter, an increase of 560 basis points compared to 2020.

Same store OpEx growth was muted due to an ongoing focus on cost control, as we've discussed in recent quarters, specifically strong customer demand allowed us to reduce marketing spend, which declined 4.1% in the first quarter compared to prior year.

Personnel costs declined 1.1% year-over-year, in part due to reduced store hours, as well as an easier comp from 2020. These favorable expense controls were partially offset by property taxes that grew 2.6% from the prior year period, and R&M which 4%, largely due to elevated snow removal costs from the winter storms.

Now, moving on the guidance. The first quarter was better than we expected, as is the continued momentum in April in these first few days of May. The elimination of nearly all restrictions that previously affected us is also a benefit since we introduced guidance in February. Of course comps become more challenging in the second half. Taking all of this into consideration, we're increasing full year 2021 guidance as follows.

Core FFO per share increases to a range of $1.89 to $1.93 or 12% growth over prior year at the midpoint, for same store revenue growth of 5.5% to 6.5%, OpEx growth of 3.5% to 4.5% and NOI growth of 6% to 8%. We also increased the low end of assumed acquisitions by $100 million to a new range of $500 million to $650 million.

Now, although we don't give guidance for the next quarter, I want to remind everyone of the mutual comp we have in Q2. In 2020, we only had negative same store revenue growth in one quarter, and that was Q2. Typically same store revenue grows sequentially in the second quarter due to seasonality. But last year that didn't happen because of the slowdown in customer traffic and the various limitations on our normal course business practices.

With that as the comp, and given we ended Q1 nearly 700 basis points stronger in occupancy over the prior year, it's very realistic, we could deliver double-digit same store revenue growth in the second quarter.

Additionally, I realized that our full year same store NOI guidance range assumes a deceleration from Q1 levels. But keep in mind, that Q1 benefited from low expense growth and we have more challenging expense comps for the rest of the year. I'll also point out that the bottom end of our full year same store NOI guidance range assumes a confluence of negative factors, the likelihood of which is very low.

Now turning to the balance sheet. At the end of March, we settled the remaining portion of our forward equity offerings that we transacted last year, issuing 3 million shares for net proceeds of $97 million. We also utilized our ATM program to issue nearly 2 million shares for net proceeds of $78 million in March and April.

Earlier this week, we entered into an agreement to issue $180 million of private placement notes, with a weighted average maturity of 9.6 years, and a weighted average cost of 2.87%. Our balance sheet is well positioned, with only $3 million of debt maturing through 2022, plenty of capacity on the revolver and a net debt to EBITDA ratio of 5.8 times at the end of the first quarter.

Our conservative balance sheet management was recognized by Kroll Bond Rating Agency in their recent affirmation of our issuer credit rating at BBB flat, while they revise the outlook to positive from stable. We're committed to maintaining a strong balance sheet with low leverage and access to multiple sources of capital, which allows us to opportunistically take advantage of the deal flow that we're seeing.

Thanks again for joining the call today. Let's now turn it back to the operator to take your questions. Operator?

[Operator]

Thank you. We will not be entering our question-and-answer session. [Operator Instructions] Our first question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

[Juan Sanabria, BMO Capital Markets]

Hi. Thanks for the time and good morning. Just on the cap rate comments you started out, I think you commented a kind of mid-5s or high 5s cap rate stabilized, just curious on the mix of stabilized versus reset. And if you could tell us what the going yields were. But more broadly, where you expect cap rates to be for kind of future acquisitions based on how competitive the market is today?

[Tamara Fischer, President and Chief Executive Officer]

So I would say that we - as you know, one thing, its good question, thanks for the question. As you know, our core strategy is the acquisition of stabilized properties. And so less than 20% of the assets that we acquire are considered fill up [ph] the assets in fill up.

Up to the extent the assets are in fill up, you might say that going in cap rate is you know, 50 to 75 basis points lower. The stabilized cap rates are mid to high 5s. And to the extent the assets are coming out of our captive pipeline or off market, we're seeing cap rates in the low to mid 6s.

Oh, and I guess let me follow up on that. Your second question was where do we see cap rates going? I'll tell you that we are seeing significant cap rate compression. There is no shortage of capital chasing transactions. We are very focused on acquiring assets that we want to hold over the long term. And yet we will remain disciplined. But I think there's no question that cap rates will continue to compress.

[Juan Sanabria, BMO Capital Markets]

Thanks for that color. And then just on the expense side. Curious on how we should think about personnel and marketing costs going forward. Some of your competitors are talked about as have others, about the impact of technology and reducing hours. But how much runway do you have on personnel? And how long do you think marketing costs stay kind of below the trend that we were seeing for a couple of years there with some of the pressures from group cost et cetera?

[Brandon Togashi]

Yeah. Hey, Juan. It’s Brandon. Let me start and I think Dave can provide some color. In terms of the personnel costs, some of what we saw in the first quarter was certainly always talked about the last few quarters about finding efficiencies, you know, last year caused us to look at the business in a different way. So certainly optimizing store hours, for example. It's also compelling.

So if you look at schedule eight in our supplemental, you see the trailing five quarters and Q2 through Q4 is a tougher comp, for personnel. So I definitely expect that to be elevated year-over-year, for the balance of the year. Marketing was certainly a benefit in Q1. And that had to do with positive fundamentals we saw across the board. We didn't need to spend the money, so we didn't spend the money. I do think there's some likes to that, as we just continue to see everything that we have so far in April and May. But I'll just pause there and let Dave chime in.

[David Cramer]

Yeah, I would agree, Brandon. I think we're also making some really nice enhancements on our customer acquisition tools, as we look at, you know, some of the AI learning tools we have implemented and how the teams are responding with the customer acquisition process, and their competitor sets and how they're really deploying marketing spend.

So one, we have great demand, which allows us key marketing costs down right now. But I do think futuristically, we are getting better at how we deploy our customer acquisition dollars.

[Brandon Togashi]

And then one more thing I wanted add is just the 50 basis point drop on the high end of our OpEx guidance that's really driven due to the marketing coming in lower in Q1 and what we're seeing right now, and then it's also property taxes, so even the property taxes were higher in Q1 year-over-year at 2.6%. That was due to some one time benefit that we had in the first quarter, related to last year. And so we still expect that run rate to be closer to 4.5% to 5.5% for the full year of ‘21.

[Juan Sanabria, BMO Capital Markets]

Thank you very much.

[Brandon Togashi]

Thank you.

[Operator]

Thank you. Our next question comes from Neil Malkin with Capital One Securities. Please proceed with your question.

[Neil Malkin, Capital One Securities]

Hey, everyone, good morning. I guess the market wasn't happy with double-digit same store revenue growth through the first half of this year.

[Brandon Togashi]

Right.

[Neil Malkin, Capital One Securities]

Yeah, so first one, maybe just kind of bigger picture, I think the out migration in the coast is, you know, by now well documented? Maybe it's a little harder for you guys to assess that or see that. But are you seeing a notable uptick in at least you know, new leasing volume from out of state? You know, in particular, you know, your coastal states or larger cities into your kind of secondary/suburban assets?

[Brandon Togashi]

That's a good question. We've certainly seen outward migration into, you know, really that - as you look at the Sunbelt areas, the Arizona’s, the Florida's, even Nevada, Texas, Alabama, we've certainly seen housing markets to be very strong, rental markets to be very strong, that transition, certainly creating demand for storage.

You know, all of our markets have responded well, though, and that's one of the things I think we're pleased with, is we've had success across all of our portfolio, but those markets are performing a little bit stronger in those areas. And you still have some COVID effect overhang going on with - you know, we still continue to have them cycled back yet, the communities haven't solved, they're returned to office, returned to the gym, garage those type of things. So that's still out there.

But our tertiary markets, even though they had a great 2020, if you want to look at it, compared to some of the other markets are still standing up very strong. So I think there's a lot of factors that we're talking about, and that transition, you mentioned is one of them.

[Neil Malkin, Capital One Securities]

Okay, great. And then maybe on revenue management. So occupancy is 95%, that's crazy for your portfolio, that's certainly congrats. But just kind of given the state of where things are. Clearly you're seeing street rates, you know tick higher. I mean, is that part of the revenue management? And maybe if you can give some insight, maybe Dave, really anyone, what are your plans for the next couple months, where you're seeing unprecedented demand, very high occupancy, how are you going to look at existing customer increases, street rates, especially with some of those restrictions being lifted. Can you just kind of walk through how you're thinking about that? And if that means there's potentially upside to your revenue guidance from that?

[Brandon Togashi]

Yeah, it's – they are really good point. And it's a good question. We're spending a lot of time on that, because this is a very, very high occupancy level for all of the sector, including ourselves. And so we're looking at all the ways we can, you know, assert ourselves in all of our markets and all of our locations.

We've seen very, very strong street rate growth through the first quarter. You know, we had around 6% in January. We - you know, street rate growth was somewhere in the almost 16% by the end of April. So we're seeing some really strong improvements there.

That leads us to obviously, with high occupancy, good street rate growth allows us to assert - that in place renting [ph] changes. And you know, those changes in the high single digits to low double digits at this point, and we're assessing it by unit size, by customer type, by location. And the team's done just a great job using the new tools that we have in place to implement all of these strategies. And we're going to assert and push as hard as we can push and be smart, but still be very assertive.

[Neil Malkin, Capital One Securities]

Okay. And then just, I guess, maybe a follow up to that. Specifically, you know, typically you're - it's seasonal with the move-out, move-in spread. Do you think this summer, that 2Q, 3Q - or 2Q, 3Q will be different in that, you might have move-out that came in during COVID, didn't get a bump because of the market and then they are moving out now, on top of very strong street rates, which will sort of maybe widen that move-in, move-out spread to, essentially historic levels. Is that a possibility?

[Brandon Togashi]

I certainly think it is. Yes. I mean, one of the things we're entering with the rent roll down as you kind of mentioned this piece of it, the first quarter was really more like a historical peak leasing season for us. If you looked at the first quarter averaged about a 2.5% rent roll down rate, which would normally be in our strongest leasing season. In April, we flipped that to a positive of 3%.

And so as we work our way through the summer, you know, what we're happy with is velocities are still remaining very, very good. Rental velocities are strong, even the move-out velocities right now are still muted, if - even if you look beyond what 2020 was, because we know that second quarter is going to be really hard to compare against our 2019 volumes, as we're setting the same set of stores. We're still seeing muted move-outs. And so I think this leasing season will be very strong for a lot of factors, occupancy level, rates, roll down, all those things you're mentioning.

[Neil Malkin, Capital One Securities]

Okay, thank you all very much. Great quarter.

[Brandon Togashi]

Thank you.

[Tamara Fischer, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Our next question comes from Smedes Rose with Citigroup. Please proceed with your question.

[Smedes Rose, Citigroup]

Hi, thanks. I just wanted to get back to your - some of your opening remarks, where you talked about not necessarily seeing a meaningful uptick in development, even though the industry is doing so well. And I am just wondering, what do you think of the key sort of kind of gating factors? Is it just the ability for developers to access capital from banks? Or is there something else that you kind of suppress new construction going forward?

[Tamara Fischer, President and Chief Executive Officer]

Hey, Smedes. And nice to talk with you. Thanks for the question. I think that what we are seeing right now is what's in the pipeline, and what we're hearing about, and so we rely probably on some of the same data that you guys do. We have maybe a slight advantage, because we have our pros on the ground and is what they're seeing and what they're hearing in their own markets.

I guess our view is that self-storage is performing so well. Clearly, there will be continued interest in developing assets. But right now, what we're seeing in the pipeline are projects that were delayed in 2020, coming to market in 2021. And length of time to get through a process, the cost of building a project, whether or not the project will pencil the same way it did. It's just - we're not seeing it yet. It doesn't mean that we won't.

Right now, we believe the deliveries will be up a little bit from 2020, primarily due to the delays in - I said - I might had said 2020. But in 2021, we think deliveries will be up a little bit from - as compared to last year. 2022, we think they'll be the same or down a little bit and continue to decline based on what we're seeing. It's not because the asset classes are attractive, I'm not positive that - that it's that easy to get through it right now.

[Smedes Rose, Citigroup]

Okay. And then I was just wondering, outside of your Captive pipeline, where you look at opportunities, you know, other opportunities. Are you seeing any change in the willingness of folks to try to come to market and sell based on the potential changes in tax rates? You know, as I'm sure you've seen elimination of the step up 1031 exchange, capital gains rates increasing. I mean, is that sort of trickling through at all or it's just not really an issue so far with what you've seen for motivated…

[Tamara Fischer, President and Chief Executive Officer]

We’re hearing about it. And there's a lot of discussion around it. I wouldn't say that what we're seeing in the current deal flow is driven by what's happening in Washington D.C. today. Having said that, I think that the pipeline, the top of the funnel is getting bigger and faster, and my take on that is that it does in fact, have something to do with potential changes in tax law.

[Smedes Rose, Citigroup]

Okay. All right. Thank you very much.

[Brandon Togashi]

Thanks, Smedes.\

[Operator]

Thank you. Our next question comes from Samir Khanal with Evercore ISI. Please proceed with your question.

[Samir Khanal, Evercore ISI]

Good afternoon, everyone. I guess Brandon, when I look at your guidance today, I mean, where do you think you've left some room to the upside, meaning that you know, if I were to look at guidance, again sort of six months forward at that point, you know if you've raised where would the upside come from? Is it acquisitions, is it better control expenses, just trying to get a better clarity on that.

[Brandon Togashi]

Yeah. That's a good question, Samir. I mean, I think the top line, I think is one area where we're at record high occupancies, Dave said. So it's somewhat new territory for us with this portfolio. How high can we go, projecting out the pace of move-outs? You know, I'll tell you last year, as we progressed, we saw the delayed start to the normal occupancy trends, and progressed in the back half of the year with a lot of trepidation about when would we start to see that slope down on the occupancy curve and never really came, right, we just kind of held occupancy for Q4 and into Q1. And now we're certainly seeing the typical occupancy trends and leasing activity you’d expect.

So we feel more comfortable with that. We do not expect a dramatic return to move-out with normal seasonal patterns. And so on the downside, we certainly - you know, if you get to the downside, it would have to be a surprise, it'd have to be very dramatic return to move-outs in mass.

Also, we're seeing very low bad debt right now. I mean, historically, we've talked for our portfolio that 2% to 2.5% of revenue, bad debt, and we're closer to 1.5%. And so there is - you know, in our minds, an expectation that we will see some return for those levels. There's a lot of money that's been pumped into the system, broader economic factors, that's all played into the ranges that we've realized, too.

But to your - back to your question, on the upside, I think it's a continued hold on the occupancy. And maybe we're seeing, as Dave mentioned, we grew occupancy further in April so far. So continue to see that. And that's probably the biggest one. For OpEx, I think we're at a good number. I don't expect that to contribute meaningfully on the upside.

[Samir Khanal, Evercore ISI]

Yeah. No, thanks for that. And I guess my second question is just taking a step back. I mean, where is the sort of this demand or new demand coming from, right. As you talk to customers, I'm sure there's surveys you do. I mean, what's kind of been the biggest reason as to your storage right now?

[Brandon Togashi]

I think largely what we've seen a lot of distributors recently is more around this transition, moving houses, rental apartments, type markets, there's just a lot of transition around the country, in and out of, you know, in and out of markets, in and out of cities, in and out of states, that is really fueling a lot of what's going on.

The economy, you know, from a small business perspective is standing up very strong right now. Our consumer ratio of residential versus commercial is in normal levels. And those commercial tenants are paying well and doing good. So this seems like all factors and then you lay on a little bit of the COVID overhang, it just adds to that overall demand picture.

[Samir Khanal, Evercore ISI]

Thanks.

[Brandon Togashi]

You bet. Thank you.

[David Cramer]

Thanks, Samir.

[Operator]

Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

[Todd Thomas, KeyBanc Capital Markets]

Hi, thanks. First questions, circling back to acquisitions. You provided the initial yields on the first quarter and second quarter investments, which was helpful. And I'm just wondering, with the demand that you're experiencing today in the portfolio, whether or not you're considering lease up opportunities more than you have in the past?

[Tamara Fischer, President and Chief Executive Officer]

Good question, Todd. We are - we're definitely more open to assets that are in lease up. And as I think I mentioned earlier, a little less than 20% of the assets we've acquired in the last six months would be considered lease up assets. So I think there are more opportunities coming to market and we like what we're seeing, and in many cases, so it's an opportunity for us from our perspective to drive the external growth.

[Todd Thomas, KeyBanc Capital Markets]

Okay. And then can you share updated thoughts in the current environment about bringing a new PRO onto the platform? Are you seeing activity pick up at all on that front?

[Tamara Fischer, President and Chief Executive Officer]

I wouldn't say that activity is picking up, we continue to have conversations with a handful of private operators who, you know, we've been talking to them as you know, this doesn't happen quickly. And it's a big decision to join NSA, it's a big decision for us to bring an operator into our family.

So I definitely wouldn't rule it out. It's a part of our strategy. We're focused on it and I will - will remain so. I'd like to see something happen this year, but we clearly can't say that it will. It's just - it takes time.

[Todd Thomas, KeyBanc Capital Markets]

Okay. What about the outlook for an additional PRO internalisation in the near term?

[Tamara Fischer, President and Chief Executive Officer]

We don't have any line of sight on a another PRO internalisation right now. Having said that, I do think that we would be having preliminary discussions early on, we wouldn't know formally until closer to the end of the year. I think that the success of the internalization of SecurCare shows leadership and shows how it can work and how successful it can be.

So I have confidence that that was a good move. And as I say, kind of leads the way for the rest of the group. But we don't have any indication that - anyone is considering it right now.

[Todd Thomas, KeyBanc Capital Markets]

Okay, that's helpful. And just last question, Dave, the comments, I think you made about seeing occupancy higher throughout 2021. Was that for the full year? Or were those comments suggests that, you know, you'd expect occupancy to remain higher on a year-over-year basis, even late in the year, in the fourth quarter through December of this year?

[David Cramer]

Yeah. It was really more as you look out towards to the rest of this year, and throughout the rest of 2021, it’s based upon on historical levels. We may see - you know, we may peak in the summer and see, you know, we're currently sitting at what 95% today, and I don't know where the summer ends up. And by the end of the year, we think that will trail off for a number of reasons.

One, we're working really hard to revenue management. When you do that, that also will push – did push occupancy down some and then just normal seasonal trends. But we do believe from a historic level, if you look at where we finished towards back half of year, you know, probably be higher than where we've historically closed previous years.

[Todd Thomas, KeyBanc Capital Markets]

Right. Okay. Make sense. All right, great. Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

[Ronald Kamdem, Morgan Stanley]

Hey, congrats on a great quarter. Just a couple of quick ones for me. Just going back to sort of seasonality and maybe asking that question a different way. Clearly, 2020 was a unique year, and there was really no seasonality. But as you're coming into 2021, is it possible that the peak leasing season and the acceleration where we typically get could it be back to normal this year? Is that possible or some form of it? How are you guys thinking about that?

[Brandon Togashi]

I would say early on, you know, April, certainly suggested that we were going to have some pretty more normal seasonality trends, you know, first few days of may have looked pretty good as well. I think as you look at it, we're pretty full right now, too. And so you start looking at how many more available units do you have and what do you have left in your inventory to rent.

But we are starting to velocities, we're happy with the velocities, it feels more like a spring to us, like a normal spring to us. And so yeah, I would say right now we're thinking it's more of a normal seasonal time of year for us.

[Ronald Kamdem, Morgan Stanley]

Got it. That makes sense. My second question was just a little more color, switching to sort of E-rentals and operations post-COVID. Could you just remind us what percentage of customers are coming in through sort of an E-rental platform, and any sort of color and how those customers are behaving relative to sort of the rest of the portfolio in terms of, you know, age, demographic, average day, any color there would be helpful?

[Brandon Togashi]

Yeah. Great question. Our complete online rental, if you look at the way, people who went through the process fully online, you know, is in the high 20s, is where it's settled in at. We're working on the journey, we're working on the tools. We'd like to see that increase more. We think that's an opportunity for us as we continue to build out our technology platforms.

The behaviors and the demographics and the people using the platform, we're not seeing a significant, nothing's really standing out for us, as being different or, you know, unique user or any different length of stays at this point in time. Obviously, early in this process, most of that stuff's only been out about really about a year.

But at this point time, nothing really standing out as far as a difference in type of consumer we're drawing. It just I think - just yet another tool for us to use to help however you want to rent from us and have that journey be just another tool for us to maximise on.

[Ronald Kamdem, Morgan Stanley]

Right. And then my final question was just going to be on - for the acquisition front and circling back to, I think you touched on the Captive pipeline, and so forth. The question really is, you're thinking about sort of upside to the acquisition volumes, and so forth. What's really the minigun [ph] is it usually - is it is it capital, or is it usually the availability of deals out there because it's so competitive when you're when you're thinking about acquisitions. I got to imagine with the equity currency, at these level, it may not be capital, but curious how you guys are thinking about it.

[Tamara Fischer, President and Chief Executive Officer]

You know, the truth is the cap - this cap rate climate is crazy. And I - every time we see the cap rates go down another, you know, 10, 15, 20 basis points, we're like, Oh!, this has got to be it. This is, you know, can't go any lower than this. And then the next deal comes out and prices at some 10, 20, 25 basis points lower. And, and so for us, it's a matter of keeping our eye on the long term and making sure that we're acquiring assets that are in markets where we want to be for the long haul, and that we think have upside value to us. So not capital as much as current competitive environment, frankly.

[Ronald Kamdem, Morgan Stanley]

Got it. It’s helpful. Congrats on a great quarter.

[Tamara Fischer, President and Chief Executive Officer]

Thank you.

[Brandon Togashi]

Thank you.

[Operator]

Thank you. Our next question comes from Ki Bin Kim with Truist. Please proceed with your question.

[Ki Bin Kim, Truist]

I just wanted to follow-up on Samir’s question earlier. When you look at the incremental demand drivers for your self-storage in a market, like Portland versus Atlanta, or Vegas, is it very different or pretty similar?

[David Cramer]

A lot of similarities. I mean, where our customers are coming from, you know, LinkedIn, Drive Time, mile radius [ph] types of customers, you know, demographics customer is pretty similar across most of those markets.

[Ki Bin Kim, Truist]

And when you mentioned some of the incremental demand is coming from a transmission related, housing related demand, traditionally, are users that stem from that kind of demand segment, do they have a longer length of stay or shorter or is that pretty similar?

[David Cramer]

You know, I think if you're looking at housing transitions, they may – they have their own set, as I guess, as you look at length of stay, it depends on how long they're waiting for their house to complete, how hot the housing market is. If you look at some of these really hot housing markets right now, how long does it take to actually find something to move into? And so, you know, are they going to be in that apartment nine months? Are they going to be in apartment six months as they wait for the house to either be finished, being built or being bought.

I don't know that I can really answer to you that - you know, between housing and our apartment rentals, that there's a significant difference, even but, you know, I think within the subset of what we're seeing, we haven't seen that change is, how I probably answer that.

Personally on the house right now in Phoenix length of stay [ph] is pretty much, you know, similar to what we would see in a normal housing market, just at the hot housing market now. So we're seeing more people need storage because of it.

[Ki Bin Kim, Truist]

Got it. And if I remember correctly, there's a 6% preferred return that goes to the SP units on deals. I believe that's on - only on contributed equity value. Does that in some way limit the type of assets that you might want to pursue because you have this initial preferred return that you have to give back, so you can't necessarily or not can't, but it discourages you from necessarily pursuing lease up deals that might not have that 6% cash flow to pay out?

[Tamara Fischer, President and Chief Executive Officer]

You know, I'll tell you that, it's interesting. Our PROs are very focused and very disciplined in their underwrite sourcing and underwriting transactions. But we are absolutely, I would say, not restricted in our acquisition strategy. I guess, it's also worth pointing out here is, you know, we're probably 45% now corporate owned, managed stores. So well, I mean, they're all 100% owned by NSA, of course, but our corporate team is a much bigger part of the pie these days.

So in the event that we're looking at, let's just say a portfolio that crosses over markets where we operate and our PROs operate for us. If a PRO takes a pass on a deal, for one reason or another, let's say they start to get priced out because of cap rates, we have the opportunity to go forward with the transaction on balance sheet with our corporate team. So that's sort of how we look at it. We don't feel like we're getting boxed out a deal, really ever. So we feel pretty good about that part.

[Ki Bin Kim, Truist]

Okay. And just last question, the conversion ratio for SP to comment increased to 1.28 from 1.23. Just curious if – what caused that?

[Tamara Fischer, President and Chief Executive Officer]

That’s directly related to our performance. So you know it's 100% related to Q1 performance.

[Ki Bin Kim, Truist]

No NOI, okay. Got it. Thank you.

[Brandon Togashi]

Thank you, Ki Bin.

[Operator]

Thank you. There are no further questions at this time. I'd like to turn the call back to Tamara Fischer for closing comments.

[Tamara Fischer, President and Chief Executive Officer]

I'd like to thank you again for your interest in NSA. We're very pleased with our first quarter results and the fact that our sector and our unique PRO structure allow us to continue to deliver these outstanding results. We remain optimistic about 2021. We look forward to meeting with many of you either virtually near term or hopefully in person again later this year. Thanks. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.