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National Storage Affiliates Trust
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Greetings, and welcome to the National Storage Affiliates First Quarter 2023 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 my pleasure to introduce your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may begin.
We'd like to thank you for joining us today for the first quarter 2023 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's Executive Chair, Tamara Fischer; 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 details on our results, which maybe found in the Investor Relations section on our Web site 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 and represent management's estimates as of today, May 2, 2023. 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 statements. 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 Web site and in our SEC filings.
I will now turn the call over to Dave.
Thanks, George. And thanks, everyone, for joining our call today. Before we get started, I'd like to acknowledge the recent passing of a valued member of our Board of Trustees, George Chapman. George joined our Board at our IPO in April of 2015 and has contributions that are too many to name. We greatly appreciate his wisdom, guidance and sense of humor, and we will miss him greatly. Many of you know, today is my first earnings call as CEO. Tammy is in the room with us today, so I'd like to say thank you for all you've done for the NSA over the years, and congratulations on your move to the Executive Chair role. But I'd also like to acknowledge and thank all of our team members here at NSA and our PROs for their continued dedication and hard work as a significant contributions from our team members that drive our continued growth, and we appreciate everyone's efforts. Overall, looking at how the year started, there are positive signs that fundamentals are moving in the right direction. The Street rates have increased 4% from the beginning of the year through the end of April. Contract rates are also up slightly over that same time frame. Length of stay continues to increase with the average length of stay on move-outs now up to 17 months, the highest ever been for our portfolio. Also, our rent roll down has moderated every month this year starting at 19% in January and is now 13% in April. With things moving in the right direction, I'll remind you that we're coming off the best two years of rate and occupancy growth in the self storage sector as ever seen. The comps are challenging as we moderate back to normal levels.
Now turning to results for the quarter. We began the year with solid operating performance, delivering same store revenue growth of 5.7%, which is still above the long term historical average for the sector. Occupancy ended the quarter at 89.8% and April finished at 90%. With the headwinds of a slowing economy and muted housing market, demand levels will continue to feel pressure. As an example, in March, home sales were down 29% year-over-year in both Phoenix and Las Vegas, while occupancy in those markets was down 570 basis points and 790 basis points respectively. Our teams have done a good job navigating the changing economic environment and remain focused on executing strategies to capture new customers as we progress through the spring leasing season. Keep in mind, it's still very early. So the next couple of months will be key to our full year growth. Geographically, our Sunbelt and secondary markets continue to outperform with MSAs such as McAllen, Oklahoma City, Brownsville and Wilmington all generating revenue growth north of 10%, which reinforces our strategic market focus and continued emphasis on geographic diversity.
Turning to the supply environment. We believe that our -- on a portfolio wide level, supply will remain relatively muted near to midterm, given the many headwinds that developers are facing today. That said, there are a handful of markets where we're feeling pressure from new supply, resulting in below average growth, including Portland, Phoenix and Las Vegas. On the acquisitions front, we had a productive quarter, acquiring 16 properties totaling $160 million. 15 of these properties were previously discussed and were part of our portfolio purchased out of the Captive pipeline for approximately $145 million. We funded these transactions with $150 million of equity, which Brandon will discuss further in his remarks. These transactions demonstrate one of the benefits of our PRO structure, which is the Captive pipeline, which now stands at approximately 100 properties, totaling $1.4 billion. The acquisition environment remains competitive with a wide gap between buyer and seller expectations, while we remain patient and disciplined, focusing on Captive pipeline and off-market transactions. I'll now turn the call over to Brandon to provide more detail on our financial results and balance sheet activity.
Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.66 for the first quarter of 2023, which represents a decrease of 2.9% over the prior year period. The sequential and year-over-year decline in core FFO per share despite 4.8% growth in same store NOI was due primarily to elevated interest expense given the rising rate environment, minimal acquisition volume in the fourth quarter of 2022 versus the $1.1 million of acquisitions in the fourth quarter of 2021, and an overall deceleration in operating fundamentals as we come off historic highs. Operating expense growth in the first quarter was 8.3%, in line with the high single digit growth we previewed on our last call, as we had a tough comp in property taxes with favorable adjustments in the prior year period. Property taxes grew 11% year-over-year but excluding the prior year adjustments, the growth was closer to 7%. We also saw an 11% increase in utilities and a 29% increase in marketing expense. Both of these line items had elevated spend beginning in the second quarter of last year, so we will start to lap the tough comps by midyear. These items were partially balanced by lower growth in other line items, a 1% increase in payroll and a 4% increase in repairs and maintenance.
Turning to the balance sheet. Apart from the January recast of our credit facility, we previously announced we issued $113 million of a new series of preferred stock during the quarter in conjunction with an Orlando portfolio acquisition. The Series B preferred stock has a 6% coupon and was issued at an effective yield of approximately 6.1%. Separately, we also repurchased 1.6 million common shares for $69 million. Subsequent to quarter end, we issued $120 million of five year unsecured notes in a private placement with a face coupon of 5.61% and an effective rate to us of 5.75%, inclusive of the impact of pre-issue hedges. Additionally, Kroll Bond Rating Agency affirmed NSA's BBB+ credit rating and maintain the outlook at stable. At quarter end, our leverage was 6.3 times net debt to EBITDA, up sequentially from year end primarily due to typical first quarter seasonality. We project leverage will decline slightly in the next couple of quarters as EBITDA increases from organic growth and the acquisitions we completed in mid-March. Giving effect for our $120 million debt raise, approximately 16% of our debt is subject to variable rate exposure, mostly from the outstanding balance on the revolver. We're committed to maintaining a conservative leverage profile and healthy access to multiple sources of capital.
Now moving on to 2023 guidance. As Dave mentioned, it's still early, so we will wait until we get further into the peak leasing season before revisiting the outlook for same store revenue growth. On the OpEx front, we completed our annual property insurance renewal effective April 1 and experienced the same as other property owners, a very challenging renewal market with cost increases that were roughly double what we had in the budget. While insurance expense is a relatively small component of our property OpEx, this will still put some pressure on growth, which will come back where we can with controllable items. We thus maintained the guidance ranges that we introduced in February, which can be found in the earnings release. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?
[Operator Instructions] Our first question comes from Michael Goldsmith with UBS.
Your comments from the earnings release and the call today imply some caution. So can you maybe elaborate a little bit on how you view the quarter and then trends in April?
Michael, this is Dave. Thanks for joining our call today, and I appreciate you being on and thanks for the question. Yes. I think as you listen to what we talked about in our prepared remarks and as we look at the quarter, we certainly have a challenging comp to last year's occupancy. And we've been facing that comp now for two quarters coming off unprecedented times of just great times for the self storage sector. And so we really spent a lot of time looking on what is it we wanted to accomplish in the first quarter and what were the business trends we were trying to achieve in the first quarter. And so first quarter, in our opinion, really reacted pretty much as we expected. We saw seasonal changes where you saw the trough in occupancy and you saw the trough in the street rates really coming about mid-quarter in February, which would be expected in a normal seasonal trend. And then we saw improvement in March and we saw improvement again in April in occupancy and street rate and contract rate. And so from that, our seat, that was a positive reaction in the quarter, a positive trend within the quarter that we're hoping to see. Our Sunbelt states continue to perform well throughout the quarter, really outperforming the portfolio in general. And really, our MSA is above 25%, also outperformed our portfolio in general as we think about how they performed against the total portfolio. Top of the funnel were made it active, we had to spend more marketing dollars to keep customers coming in that top of the funnel. As we looked at the quarter though, we thought the rental activity was a little bit less than we wanted. And so top of the funnel was active enough conversion rates were not as strong as we wanted to be within that funnel, and so we thought rental activity was a little bit on the light side. Again, overall, the quarter very much played out like we thought and we were pretty happy with where we ended particularly coming out of April.
And as my follow-up, I'm just trying to put the start of this year into context. So maybe if we compare other years where rental activities maybe a little bit late. In the beginning of the year, has there been times when it picks up in May and June and you're able to meet your expectations or meet the guidance through the year because things pick up, or is it kind of like when you face pressure earlier in the year, it's just harder to catch up based on maybe a little softness earlier in the year?
We do think it's early yet. We're just now entering the spring leasing season. We still have May and June which are very, very active months and sometimes July, part of July are as well. So we think it's too early to tell and that's why we haven't really looked anymore about our guidance. We think there's plenty of opportunity in the next couple of months to drive performance and we're watching it very closely. Like I said, we did see an improvement in April over March as far as that moves, we were pleased with that. April, just a pure rental activity in occupancy gain March to April, April was just a little lighter than we thought it might be based on maybe '18 or '19 trends, 2018 or 2019 trends.
Our next question is from Juan Sanabria with BMO Capital Markets.
Just wanted to follow up on that last commentary. One of your peers talked about March was softer but April rebounded and is kind of back to normal. So just curious, I guess, what you saw month-to-month in March and April and maybe May? And I guess you can't talk to May, it's just the 2nd of May. But just curious on the slope of what you're seeing and if that is not as steep on the upward trajectory as you normally would expect and more importantly, I think from an investor perspective, what's assumed in guidance? If you could just comment on that, that would be great.
Yes, I'll touch on the slope of the activity around the [indiscernible] [piece] and then Brandon can jump in on the other backside of that question. Certainly, again, we were happy with the improvement. We saw street rate improvement. We saw contract rate improvement through the first quarter and it also improved in April. We're happy with that. The top of the funnel, the marketing spend and the dollars we deploy generated opportunities. I think, March to April, maybe we would expect maybe a 60 basis point improvement in occupancy and we didn't get to 60, and that's where we're looking at the rental activity being a little softer than that. It doesn't mean it's not going to come either. There are days of the week involved at the end of April where maybe a Saturday last year was the 30th and the 30th this year was on a Sunday. There's some movement around days. It's way early in May, I can't really comment on May. But I do think there's an opportunity from a rental aspect to make some of this up in the month of May. Brandon, if you want to jump in on…
No, Juan, the only thing I would say kind of in response to what you asked as well as what Michael asked is, we're doing a lot of sanity checks as it relates to what we saw pre pandemic years. But there's other things in play as while we're coming off the historic high occupancies that Dave spoke to. Our in-place rate strategies, though, are a lot stronger than they were back in '18 and '19. So you have that dynamic as well. So we have to -- we can use 2018, 2019 as reference points but there's also an element of a new normal that we're frankly still finding.
And then just on the existing customer rate increases, how have you been able to push those, what's been the receptivity of the customers, has there been any increased price sensitivity to where maybe you step back on the pace of the increases you'd expected to push through? Any commentary would be helpful.
Honestly, no. That's been very solid for us, it's been a good strength for us. Our cadence remains as active as it has been really through the pandemic and the amount of customers and the amount of rate increase they're getting remains very constant and very right where we want it to be. There's been no change, there's been no commentary back from our consumer. Our length of stay hit 17 months, which is the longest length of stay on move-outs that we've seen in our history. So I think there's a lot of strength around that. And so right now, we're really confident in where we're at with our in-place rent changes.
Our next question is from Jeff Spector with Bank of America.
Just stepping back, I'd say the comments on the call today are more positive than the quotes I read in the press release. So just trying to figure out again maybe the weakness or where it was lighter in April. Are you -- because I think based on the press release and the quotes, there was some concern maybe it was more national. When you say lighter in April, are you specifically talking about the weaker markets you highlighted in the press release and on today's call like Phoenix and Vegas where there's more supply? I guess can you maybe dive into that a little bit?
Those markets certainly put pressure on that activity, absolutely. You certainly have seen changes around some of these markets because of the -- they are coming off from some really hot housing market, but also they have new supply coming. Phoenix had supply coming, Vegas had supply coming. We're still feeling pressure in Portland, which was one of our largest MSAs. So some of that move volume is clearly around those markets. And so we also have our other markets, some in the Sunbelt, Oklahoma City and another one we called out where we had very good activity. So I would not say it's a national situation, it's just we do have some markets that are more adversely affected due to changing economic conditions.
And then my follow-up would be on, I guess, the marketing strategy. As we're heading into May here into some of the busy months, like what is the marketing strategy at this point for '23 peak leasing?
Certainly, we want to make sure that we keep the activity at the top of the funnel. And so we have certainly increased our marketing spend pretty substantially to make sure that we're keeping that activity. I think the tricky part, as the team is experiencing and we have a lot of markets and all markets are not reacting the same is really pricing and discounting and really getting that customer to convert as you get them into the funnel. We would like a little stronger conversion rate into rental from those opportunities. And so we're generating enough opportunities. We're happy with the opportunities we're generating. We're trying to find the right formula to get better conversion rate. We think customers are shopping more, they're certainly taking more touch points to rent, it's filling back like it did in '17 and '18 and '19. And so we're really trying to figure out what's the best formula in all of our markets and it varies by market to get the conversion rates we want on rentals.
Our next question is from Samir Khanal with Evercore ISI.
Can you provide [Technical Difficulty] the various components there? I mean how are they tracking versus your expectations, any areas where you're seeing more pressure than others?
I missed the first part of that, Samir, can you rehearse first part of that question.
I was asking about just an update on expenses, the various line items, the components, how are they tracking versus your expectations, any areas where you're seeing more pressure than others?
So the first quarter, as I mentioned in the open, is very much in line with our expectations. So we knew property tax is going to be a tough comp, a high single digit growth number over prior year was not surprise to us. We were essentially on our budget. As a reminder, the first quarter growth for same store last year and OpEx was 3%, even though for the full year, it was closer to 5%. So it's just a tough comp there. Everything -- the biggest surprise is the insurance that I mentioned at the open. We have a renewal that starts April 1, so we feel three fourth of the impact of that 12 month renewal in 2023 and we had budgeted something closer to 25% year-over-year increase. And like I said in the earlier remarks, it's going to be closer to a 50% year-over-year increase, April through December that you see in this year's numbers. And so that's the biggest downside that's come through since our last call. Property taxes for the full year, even inclusive of the tough Q1 comp, we still expect to be toward the high end of the total OpEx range that we gave, so call it, 5.5% to 7%. Personnel, R&M, we expect to be within the total OpEx range, maybe even a touch below in the case of R&M. And then marketing will be double digit year-over-year, but the worst of that, I think, is Q1 and Q2 because of the comps.
And then for my next question, just switching subjects a little bit here. We've seen the LSI deal get announced and we've been getting a lot of questions about your portfolio [Technical Difficulty] and just how difficult does the [Technical Difficulty] there was an interest, [Technical Difficulty] maybe help us [Technical Difficulty] here?
Samir, I'm sorry, it's really choppy. Can you say it one more time, please?
So look, we've seen the LSI deal get announced and we've been getting a lot of questions about your portfolio. So maybe just remind us how difficult does the PRO structure make it for a potential deal to get approved in the event that there was an interest for your portfolio, help us think through the process?
Sameer, our Board is very focused on strategies that will create superior long term value for our shareholders, that's top priority and they certainly are very focused on it. The PRO structure itself, PRO structure to remain intact, it doesn't really put a lot of obstacles in it at all. I mean if there's changes to the current structure and there might be modifications in the current structure then the PROs would certainly have invoice in the transaction. But if all things will remain the same and the PRO structure remains intact, there's a very clear path to it.
Our next question is from Keegan Carl with Wolfe Research.
Dave, I know you mentioned in your opening remarks that street rates are up kind of similar in the 4% range since the start of the year. But I'm just kind of curious a few questions on that. So first, how does that compare to March? And then also to this time last year and then throughout Q1, if you could just help us kind of understand how street rates flowed just given the softness that everyone experienced in March?
Well, I can tell you, street rate wise, we've improved every month since January. So we've seen a continual uptick January to February, February to March, March to April. And so April was the strongest of that increase, that's where you saw the largest percent increase month-over-month as expected. I mean, as you go into the spring leasing season, we're starting to see a little more activity. We're certainly trying to push as hard as we can. It's hard to compare to last year. Last year was such an outsized year. I mean we had the best pricing power that we've had ever since I've been in this industry and we have obviously the strongest occupancy number. So our street rates are still down about 8% to last year. The pace of growth in April to March last year was better than it was this year, but again, just a really tough comp. I would say, as I look back at maybe in '18 and '19, maybe a core portfolio that April, again is similar to what we saw in that -- in '18 or '19 cycle.
And I guess for a follow-up here, how should we think about your capital allocation going forward? I mean if your multiple stays where it's currently at, is there an expectation we should be looking for more buybacks and less transactions from the acquisition side of things going forward?
We're going to be, like we have been in the past few quarters since interest rates really started to increase and cost of capital became a lot higher, we're going to be very patient. We're going to be very judicious about the opportunities in front of us. I think we've been quite balanced these last couple of quarters. We're doing some in the way of acquisitions. It's been -- we talked about it in February, some creative deals in the sense that we've issued OP equity at a premium. We did the new series of preferred stock. Those are ways that we're helping to fund the acquisitions without issuing our common at kind of this discounted value and not bearing too much on high interest rate debt either. And then, yes, we certainly had some appetite for share repurchases. I think it's been in moderation. And so I think going forward, you can expect us to be selective in the same ways that we have been these past couple of quarters.
Next question is from Spenser Allaway with Green Street.
So I know you guys tend to acquire assets via your PRO relationships, and I know you commented on your Captive pipeline in your opening remarks. But is there anything you can share just on the broader transaction market in terms of what's come across your screen as it relates to volume of deals being marketed right now, competition for assets and cap rates?
Certainly, the Captive has been a great tool for us in the first half of the year and has been over our years. From third-party transactions, we're certainly seeing less volume of transactions across our desk. There's still opportunities out there. Those opportunities are probably more single to one asset versus portfolios at this point in time. We're not seeing a lot of portfolio opportunities across our desk. There's still just a wide gap between seller's and buyer's expectations. Maybe 10% to 15% price wise, if you think about it in those aspects. It varies by market, it varies by asset type, of course. But we've been underwriting, we've been active. We will be very patient in making sure we're buying the right opportunity strategically for ourselves in the future. But I can tell you, it's just been more challenging just because of the seller and buyer's expectations are different at this point in time.
And then how some stuff are you guys being on the rate side in markets where you've seen occupancy fall back to pre-COVID levels? Specifically, are you able to comment on how much promotional activities is being given right now relative to, let's say, the pre-COVID era?
Promotion and discounting still remains at historical lows. I mean it's not back to pre-COVID levels yet. I think what the teams are working on and what we're finding is, thus far, rate has been a little bit better trigger than discounting. And so as we watch rates in different markets and watch our reaction to what the markets are doing, that's been our focus. So it's certainly tricky. I think I'd tell you, it's been very dynamic. We've seen a lot of movement around street rates. We've seen operators chasing occupancy and maybe that put a little more pressure on street rate. So our teams are looking at all the levers and asking ourselves what is the best formula to try to get the revenue and working on street may we work well in one market and this kind of may work well on the other. At this point in time, I would tell you, discounting is just not climbing back to the historical averages yet.
Our next question is from Ki Bin Kim with Truist Securities.
Just a quick one on street rates. You mentioned 8% down year-over-year. Was that for the first quarter or April?
The first quarter, Ki Bin, was around 7.5% in April was $8, so the average for the first quarter of 7.5%.
And how do those rates compare to, let's say, like 2019 levels?
Still elevated that -- Brandon on numbers…
Ki Bin, I mean when we look at a subset of stores that we've had for that entire period of time, so you strip out some of the noise of new additions, street rates are up right around 20% over that four year period. So simple average 5%, a little less when you compound and average it.
And I realize your PROs are also kind of geographically divided. So it might be difficult to answer this next question. But under the PRO structure, obviously, the PROs kind of run -- can run their own pricing schemes or marketing platforms. Are you noticing at all differences between how PROs have performed as we are kind of in a somewhat of a soft patch?
I think you touched on it, it's geography. We've had the Southeast and some of those Florida markets just still performing at very, very strong levels. And so the PROs have done a great job, that the opportunity has given them and they have strong occupancies, they've been able to have good pricing. And so they're doing all they can to drive performance out of those markets. We have PROs that are in Las Vegas or Phoenix, for example, which are facing a different challenge. Oversupplied markets, cooling housing market, cooling fundamentals. And so you're seeing pretty significant swings in peak occupancy last year to where they're sitting today and they're having to take a different approach. What I do know is our teams do a great job. We talk weekly about this stuff, the marketing people have round up calls weekly, the operations group are constantly talking about it. And there's a really good tight connection around strategies and our strategy is working or are they not working on what you're seeing on the ground. And so we get lots of good color, we get lots of good flavor. And we have PROs with a lot of history that can really dial in on things they've seen in the past. So I don't think it inhibits anybody from maximizing their business, they're doing a really good job.
Are there any mechanisms built into the contracts where, I mean I'm going to assume the answer is no, but where if you deem that operators are a little bit weaker than you would have expected, some type of mechanism where you could put in more of the NSA controls in there?
There are certainly things in the agreement should something go south with the PRO and it's something that's not outside of their control, I mean we're very realistic about the business and what. And so if there's something that they are doing that maybe is getting in the way of their business, we certainly have mechanisms where we can insert and then somebody from the NSA to help guide their business and try to get it back on track, and it's very well defined in the documents. And we've been very, very fortunate the years, never been close to having to do something like that, but there are mechanisms in our document that would allow us to do that.
A more practical thing, Ki Bin, that we do, that was just on a week-to-week basis. We share information. I mean, the PROs have access to the same management reporting tools that we do. And just as an example, we have typically, Tammy, Dave and I have meetings with our PROs post every Monday, every other Monday. Oftentimes, that's the review acquisition deals. But in an environment like this where the transaction pace is slower, we use it as an opportunity to talk talk operations, talk fundamentals show the visual analytics on the screen and discuss, and frankly, the SP distributions that the PROs get is the biggest motivator on performance.
Our next question is from Smedes Rose with Citi.
I was just wondering if you've seen any changes in the amount of late payments or nonpayments year-over-year and maybe how that compares to kind of pre-pandemic levels?
We've actually seen an improvement in bad debt. So as we mentioned, the team getting the portfolio ready for the spring leasing season. We work very hard with delinquencies and working through the delinquency schedule of our tenants. But our bad debt has actually came back and has improved over the last couple of months. And so no real change in how many people are delight or delinquent in any cycle of the delinquency schedule. So from days late and amount of payments made really, really consistent and we've been very pleased there, which is -- again, strength of our consumer right now is still strong.
And then when you lower initial asking rates and I guess the PROs have a fair amount of autonomy across the owned portfolio. But do you find that a customer that comes in with like a particularly low rate tends to stay longer relative to a customer who didn't or is there anything you can speak to there maybe potential strategies?
We haven't noticed a real large difference between the rental rate when they moved in. Certainly, we're more assertive. If you're getting a better entry rate, you're probably -- you're getting a much stronger first rate increase on our in-place rent changes right off the bat but we just haven't seen a real difference. I mean, I look at it if you're running 10 units to 10 different customers, the percentages of the people that are staying through the buckets are pretty similar, whether you have to be at a lower street rate to get because market is driving the street rate, right? We're not -- it's not necessarily us changing the street rate. The market is driving the street rate. We're trying to find a rental foothold and our rental activity, but the customer bases are -- seem to be very similar, no matter where they're asking right is right now. And then keep in mind, we're not out there trying to destroy our market either. So we're not slashing street rates 50% to grow occupancy, we're just not doing that.
Our next question is from Ronald Kamdem with Morgan Stanley.
Just a couple of quick ones. I saw the preferred issuance in the quarter. Maybe could you talk about just how you're thinking about funding in this environment, where could you issue debt and how do you make that call between using debt and the preferred, and can we see more preferred issuance?
Yes, Ronald, that was a really good transaction that we are working on for a long time with our PRO in the Orlando area. We talked about a little bit on the last call, but it was a lot of moving parts, a lot of different family dynamics, and ownership pieces that the PRO had to work through on their side of the portfolio and then just some complexities generally, including getting that new series of preferred equity stood up. Very pleased with the coupon or the effective yield that I cited of 6.1% in the opening remarks, very pleased with at pricing given the cost of all alternative sources of capital right now. And certainly, we're open to doing more in the way of the preferreds as an alternative to say our common equity. When we first did our inaugural issuance of preferreds back in 2017 that represented roughly 5%, perhaps a little bit more than 5% of our total capital stack. And over time, that's drifted down just because of the way we balance the sources and uses. So this will put us back up closer to 3.5%, 4% of the capital stack and I think there's room to add, to the extent that, that suits what a seller is looking for.
And then just -- can you just touch on the top of the funnel demand heading into the peak leasing season? And the question really is, if you think about -- so I see marketing spend is up and you've talked about sort of street rates down sort of, I think, 8% in April. I would have thought that would start to strengthen by now. And question is, is that still to come, have you seen strengthening? Just what sort of trends are you seeing this year as you're coming into the peak leasing season and maybe how would that compare to other years?
So from a top of the funnel perspective, the spend is certainly creating opportunities. And so we're pleased with that. The fact that we can go out and target markets and target specific areas and drive top of the funnel activity has been good. As we talked earlier, as we flow them through the funnel, the conversion rate, we'd like to see a little bit better to rental and that's what we're focused on and that's a function of -- could be a function of concession or rate. There are certain things as you work your way through that. Street rates have improved since the beginning of the year. So street rates are up 4% since January. The 8% down is to last year's comp. And last year's comp was very, very -- it remains very, very challenging for us through the second quarter and in the end of the third quarter as far as occupancy, and we just had tremendous pricing ability last year. And so we're pleased that our street rate this year is up 4%. So we have seen it improve, to answer your question.
And then the last one is just you guys obviously saw for revenue and not occupancy, but what is the guidance baking in for the occupancy trends back half of the year, so where are you ending the year?
It would look very similar to what you may have seen early in '18 and '19 in our trends. So if we're going to come into the season and trough in February, we might see a 300 basis point peak in July and then trail off 250 in the back half of the year towards the end of the year is really how we’d look at the occupancy slope this year -- curve this year.
Our next question is from Todd Thomas with KeyBanc.
It's A.J. on for Todd Thomas. Dave, I just wanted to follow up some of your comments around supply in your opening remarks. Are you seeing the deliveries delayed or is it more about starts decreasing? And then is the outlook of supply, does that have more of an impact on 2023 or is that 2024 and on?
What we're really seeing is if it was in the cycle and being built, it's been completed, and so that hasn't -- that piece is continuing. The new starts are really, really slowing. So what you're seeing is using some of the already data that we look at is that it hasn't been started, it's probably not going to be started, it’s kind of the conclusion we're starting to see. And so that really helps us really 2024 and beyond as you think about it, because of the stuff that has been built or being completed, we'll be cycling here through the rest of this year. And so most of our markets are seeing a decline in new supply hitting the market and so we're happy about that. And I think those headwinds are going to remain. It's very expensive to develop, it takes a long time. There's some uncertainty around what kind of rate growth you can drive today versus what they were underwriting when they were trying to get these projects approved two years ago. So I can tell you, anecdotally, there's a lot of land crossing our desk right now where they have a CO deal that they're looking to sell. And so they're not looking to build it, they're looking to sell it.
And then if I could just follow up. So for the nonstabilized stores, so you mentioned in Portland, Phoenix, also Vegas, that you were seeing pressure from the new supply. Can you just provide a little context around how the operators of the nonstabilized stores in those markets are being -- are they using promotions, are they cutting rates? Can you just provide a little more color?
I would say predominantly rate is the driver right now. They're being super assertive on trying to get their fill up. There's certainly -- there's some discounting out there. I'm not saying they're out, but we've certainly seen -- I think our team would tell us it's been more about rate and driving that rental growth through rate -- as far as occupancy growth rates…
Our next question is from Wes Golladay with Baird.
I just got a follow-up to that supply question. I guess are we calling for like peak delivery this year in 2023, or peak supply pressure when you take in the context of the time to lease up?
I think from -- I’d say there’ll be deliveries. I mean, the deliveries that -- we've seen the [indiscernible] on the deliveries are on their way down.
So maybe -- was it like a typical maybe a year to lease up, so maybe a little bit more pressure at least in the front half of next year, would be a good way to look at it?
I think that's probably the appropriate way to look at it. The lease-up curve maybe interesting to study on these facilities. Certainly, things have changed versus in the old days, I'll use that word. I mean it was -- you're talking about 36 months to fill up a property. And then during COVID it got down to 18 months. So I think we're heading more back towards the old days and where fill up is going to be a lot longer.
And then my final question would be, how do you balance buying back the shares? It's pretty steep discount, I understand that part. But then at the same time, you're taking on a little bit more leverage and variable rate debt at the same time, when the macro and even the micro at this point is a little bit more uncertain?
It's generated a healthy discussion, I would say, on our side. It's all done with a view of long term value. And so we look at the growth prospects of our company and the diversified portfolio that we offer relative to alternative capital deployment options. And most recently, especially in light of what Dave spoke to earlier about the bid-ask spread between buyers and sellers on individual assets, that's been an easier investment to make that gives what we think is pretty quantifiable, easy to quantify, I should say, real value to shareholders long term. But to your point, we have to keep in balance with leverage concerns or evaluations. And so the increase in our leverage from Q4 to Q1, I spoke to it on the call, but we were at 6 flat times at 12/31, that went to 6.3. I attribute a tenth of a turn to the buyback, and we're going to easily grow into that with organic growth. So that's kind of the way we look at that, that's all sort itself pretty quickly. And then the other two tenths of a turn increase was really the seasonality and the lack of external growth that we've had the last couple of quarters. So with seasonality changing that will come down as well.
Our next question comes from Spenser Allaway with Green Street.
Just one more, and I apologize if I missed this. But would you guys be able to provide just a little bit more color on the 16 assets that you acquired in the quarter? I know, obviously, you gave the state breakout. But any additional color on what was appealing about these assets, any commentary on age, whether single story versus multi, any of the units, climate controls, et cetera, that would be really helpful?
The majority of those, 15 of those were in the Orlando market. So the feel of that is here's a top 25 market where we can add a significant amount of assets to an operator out of their Captive pipeline. So we bring -- it was a tough transition for the PRO, because there was -- each one of these were owned individually by a lot of people and so there was a lot of time putting this portfolio together and then get it over the finish line. We bought in the top 25 market for around a 6 cap, just right at a 6 cap, and we think that's a pretty good price for a top 25 market. Strategically, we like Orlando, we like the market, we like everything that's going on there. There's a lot of metrics we like about Orlando. So it made a lot of sense for us. The assets are mostly single story, there is a mixture of climate and nonclimate in there. The assets are -- I'd say the average age is probably in the 90s, 85 to 90, probably would be the average age on those assets, well positioned in part of Orlando where you wouldn't be building storages right today. So I mean there's lot of good pluses in this portfolio and where they're positioned in the Orlando MSA.
And then was there much deferred CapEx underwritten with those assets?
The PRO has done a really good job in the previous ownership, so there wasn't a lot. They've done a really good job maintaining them and keeping them up to standard and just well taking care of assets well positioned.
We have reached the end of the question-and-answer session. I'd now like to turn the call back over to David Cramer for closing comments.
We are pleased with our operating results for the quarter, with trends moving in the right direction. Having been in the industry for 25 years, I'll once again remind you that the self storage sector and the NSA in particular, remain well positioned to manage through different economic environments. Thank you all for your continued interest in the NSA.
This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.