National Storage Affiliates Trust (NSA) Q4 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the National Storage Affiliates’ 2018 Fourth Quarter and Year-end Analyst 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, Marti Dowling, Director of Investor Relations for National Storage Affiliates. Thank you, Ms. Dowling. You may now begin.

Hello, everyone. We would like to thank you for joining us today for the fourth quarter 2018 earnings conference call of National Storage Affiliates Trust. In addition to the press release distributed this morning, we have 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 session on our website at nationalstorageaffiliates.com. On today's call, managements' prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties. The Company cautions that actual results may differ materially from those projected in any forward looking statements. For additionally detail concerning our forward-looking statement, please refer to our public filings with the SEC. We also encourage listeners to review the definition and reconciliations of non-GAAP financial measures such as FFO, core FFO and net operating income contained in supplemental information package available in the Investor Relations section on our website and in our SEC filings. Today's conference call is hosted by National Storage Affiliates, Chairman and Chief Executive Officer, Arlen Nordhagen; President and Chief Financial Officer, Tamar Fischer; Chief Operating Officer, Steve Treadwell; and George Hoglund, our new Vice President of Investor Relations. Following prepared remarks, management will accept questions from registered financial analyst. I will now turn the call over to Arlen.

Thanks, Marti, and good morning everyone. Our strong fourth quarter and full year 2018 results reflect the ongoing execution of our differentiated strategy which has resulted in the industry leading growth of our portfolio while new supply continues to be filled across our industry impacting multiple markets of submarkets. We believe the combination of our national operating platform, healthy balance sheet and local market expertise of our pros provides us with a competitive advantage throughout market cycles. From an operational perspective despite more challenging fundamentals, our results remain strong. For the full year 2018, same-store revenues grew by 4% and same-store NOI grew by 4.7%. As expected, our NOI growth accelerated through the back half of the year, with a solid finish, as we grew same-store NOI by 5.3% in the fourth quarter. From an external growth perspective, 2018 was a record year we acquired selling properties in the fourth quarter for just over $50 million, which brought us 2018 total portfolio investments to about $1.7 billion. This consisted of over $350 million for 57 properties in our wholly owned portfolio and over $1.3 billion for 106 properties for our joint venture portfolios, the majority of which we acquired through our assembly, sort of storage transaction. In addition to our 25% ownership stake in the joint venture via management and platform fees which makes the transaction highly accretive to NSA. We are very pleased with our continued ability to source and close these creative acquisitions, which allow us to grow our footprint and realize scale benefits and fee income from our joint venture strategy. We ended 2018 with 675 properties in 34 states at Puerto Rico, which represents more than 30% growth over 2017 and almost 175% growth since our IPO in 2015. The support to this ongoing growth, we continue to maintain access to multiple capital sources. During the year, we expanded our credit facility to over $1 billion. And during the fourth quarter, we rolled $75 million from our revolver onto a 10-year term loan. We also raised a $175 million through a well timed follow on equity offering and secured $643 million of joint venture level debt to fund our new 2018 joint venture. As a result, we enter 2019 well positioned for additional growth from a capital perspective. On a full year, core FFO per share grew by 11.3% above the prior year particularly impressive given the 15% increase in our weighted average share and unit count during the year. We're very pleased with these results and very appreciative of our team for their hard work and dedication. Now let me take a few moments to discuss our view of 2019 and beyond. Overall, demand drivers remain healthy and supportive of the self storage industry, and the extremely fragmented nature of our industry supports our continued long-term growth strategy despite volatility in the stock market and the government shutdown with major economy has been relatively stable with steady employment growth and new household formation two key demand drivers for self storage. From a supply perspective, however, challenges remain. After extended period of outside same-store growth, construction activity has increased significantly in the last few years. While we believe 2018 represented the high watermark for new store deliveries, deliveries of new supply will certainly continue in 2019 and there are three areas of excess supply still to be absorbed in several of our markets. We're expecting that it will take two to three more years before the supply demand dynamics are in balance for the industry. Further, while we previously commented that new supply deliveries have been concentrated in the top 20 MSA, we've been seeing new supply is impacting several of the secondary markets as well. At this time, we estimate that 16% of our stores are impacted by new supply within their 3 mile trade area and 30% by new supplies in the 5 mile trade area. But as I mentioned before, we have and will continue to benefit from a significant geographic diversity of our portfolio. For that part, we remain focused on continuing to grow portfolio like rent levels, as we pass along standard rate increases to our existing customers and maintaining competitive street rates to generate adequate move in our activity. Given the self storage is an extremely mobilized business, we also expect to leverage the deep market inside of pros as well as our revenue management platform to ensure that we are maximizing our NOI growth potential. Although the elevated amount of new supply is pressuring fundamentals industry-wide. We believe our industry consolidation strategy will allow us to continue to drive outsized external growth in 2019. We have grown leverage inherent in our differentiated platform including the deep pipeline of acquisitions that we sourced through our pros and their network of industry relationships as well as an active joint venture program. Further, our OP equity currency provides a competitive advantage as we seek to be a consolidator in this highly fragmented industry. As such, we're confident these levers will drive FFO per share growth above our peers in 2019. Now, let me update you on our current pipeline which consists of our captive pipeline of over 100 properties managed by our PROs, but not yet owned by NSA valued at over $900 million as well as an active pipeline of third-party acquisitions sourced by our PROs. In addition, our joint venture strategy allows us the flexibility to complete larger portfolio acquisitions in an opportunistic fashion. And finally, we continue to add new PROs as appropriate. In addition to our previously announced addition of Southern Self Storage, who joined us our 9th PRO on January 1st, we recently entered into agreements with our 10th PRO, Moove In Self Storage, Moove is located in the Mid-Atlantic region and is led by founder, John Gilliland, a former Chairman of the National Self Storage Association. We remain in discussions with additional PRO concepts and expected out another one to three more PROs over time. At which point, we believe we'll have most of our target geographies covered. We continue to be extremely pleased with the team of PROs that we've assembled. Their insights, best practices, local knowledge and relationships have been proven differentiators for NSA's growth and success. As we look ahead to 2019, despite the near-term moderation and fundamentals, we're especially optimistic about the long-term strength and resilience of this sector as a whole. Against that backdrop, we're especially positive about NSA and our capacity to continue to drive sector leading FFO per share growth, fueled by our differentiated growth strategy and improving same-store performance. With that, I'll turn the call over to Tammy.

Thanks, Arlen, and thanks everyone for joining us on our call today. For the fourth quarter, we reported core FFO per share of $0.37, a 15.6% increase over the prior year fourth quarter. As many of you know, Q4 reflected the full quarter impact from our Simply Self Storage acquisition. The integration of that transaction has been even more efficient than we hope, and as a result, the FFO per share benefit from the acquisition during the quarter was slightly higher than expected. For the full year of 2018, we recorded core FFO per share of $1.38 and 11.3% increase over the prior year and $0.01 of the high end of our guidance range for the year. This growth in core FFO was driven by our acquisition volume, same-store NOI growth and growth of income from our joint venture. Our strong top line growth was partially offset by natural growth and G&A expense, increased interest expense and the diluted impact from our equity issuance early in the third quarter. Regarding our operation, our fourth quarter same-store NOI increased by 5.3%, driven by growth and same-store revenue of 4.2%. In the face of challenges from the absorption of new supply across the industry, we will continue to focus on our REIT increased strategies to drive revenue growth and offsets small declines in occupancy. For Q4, our same-store expense growth was low and only 2%, while same with this result, we acknowledge our ongoing pressure from property taxes and personnel costs driven by the tight labor market which we are factoring into our 2019 guidance. For the full year of 2018, same-store NOI grew by 4.7% driven by 4% growth in same-store revenue and 2.6% growth in property operating expenses. Our average annual rent per square foot grew 4.1% offset by a slight decline in average occupancy of 20 basis points. As we mentioned on last quarter earnings call, we expected to come in at the low end of full year same-store revenue and expense guidance. We ended up with the low end of revenue guidance as expected and below the low end of extend guidance, which was better than expected. Regarding specific markets, our stores in California showed continued strength. Georgia and Indiana performed quite well after struggle earlier in the year, and South Texas and West Texas delivered strong results. Our stores in Oregon, Oklahoma, West Florida, Raleigh, Durham and Phoenix continue to work through significant headwinds to near supply. Now to our balance sheet which remains very healthy and continued to provide the flexibility needed to support our growth strategy. Our weighted average cost of debt at year end was 3.6% with 83% of fixed rate. At the end of the fourth quarter, our net debt to EBITDA ratio was 5.6 times at a low end of our target range of 5.5 to 6.5 times. We have no debt maturities in 2019. As Arlen mentioned, we entered in a $75 million 10-year term loan during the fourth quarter and used the proceeds to repay outstanding amount on our revolver. At quarter end, we had approximately $255 million of availability on our $400 million revolver. Now, let me introduce guidance for 2019. We do expect headwinds from new supply about the number of our targets in 2019 and we've taken this into account as we contemplated our guidance for the year. We anticipate 2019 core FFO to be in a range of $1.48 to $1.52 per share, we're displaying of a $1.50 implies 8.7% year-over-year growth. We expect continued positive same-store NOI in the range of 2.5% to 3.5% driven by both the same-store revenue and expense of 2.5% to 3.5%. Our revenue growth strategy will remain focus on rate increases which we anticipate will offset a slide decline in occupancy. Our 2019 same-store portfolio will include 439 stores which represent over 85% of our wholly-owned portfolio at year end. We’ll have increased presence in Georgia, Florida, Texas, St. Louis, and Las Vegas. We expect to change the same-store pool will be slightly positive to our same-store growth in 2019. On the acquisition front, we expect our investment activity will range from $300 million to $500 million from wholly-owned stores and another $20 to $100 million for our joint venture portfolio. We're starting off 2019 strong with approximately a $190 million close or expected to close in the first quarter. Finally, our guidance once again assumes cash G&A expense in the range of 10% to 10.5% of consolidated revenues with non-cash equity count ranging between 1% to 1.5% of revenues. We've been able to maintain this competitive level of G&A expense despite significant growth in operations and we assume corporate management for all our JV activity. If we factored in our total revenues from our JV activity rather than just NSA's consolidated revenues, our cash G&A only ranges from 7% to 7.5% of all revenue NSA produces. In closing, we're very pleased with our accomplishments in 2018 and believe we're entering 2019 well positioned to continue to creating long term shareholders value. We'll now turn the call back to the operator to take your questions. Operator?

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of RJ Milligan with Robert W. Baird. Please proceed with your question.

Arlen, I wanted to go back to your comments on new supply. You mentioned that 2018, you expect to be the peak for new deliveries, yet there is probably a two to three year supply demand imbalance or it's going to be two to three years before that supply and demand balances out. Would you expect same-store revenue to decelerate until we hit that two to three year supply demand balance?

Yes, thanks, RJ. In general, I would expect to see at least lower than normal performance and we've reflected that in our 2019 guidance. Certainly the peak year of the deliveries of 2018 is going to carry into 2019 to 2020. We're pretty fortunate in the fact that with our diversified portfolio being not so heavily focused on the top 20 MSAs, at least we only have about 30% of our stores with a new competitor within five miles, and that is a big help for us, but certainly those are pressure. So I think, we're probably going to see 2019 and 2020 being in a fairly similar range based on all this built-up new supply, I don't -- definitely don't see an uptick, but I don't think it'll be a big downturn.

So obviously sort of providing guidance for 2020, you wouldn't expect an acceleration given the fact that 2018 is the projected peak for new supply deliveries.

That's right because certainly 2018 deliveries are going to impact the 2020 ability to move revenues.

I was wondering if you could provide some more color on the fourth quarter and year-to-date acquisitions or properties that are under contract. We've been seeing a lot more transactions for non-stabilized properties. I'm just curious if you could give some details on what the average occupancy of these properties are? Are they all stabilized, going in cap rate? And whether or not they're accretive day one, or is there any associated dilution early on with the acquisition of these properties?

Hey, RJ. It's Tammy. So, we either have closed or expect to close in about 30 properties in the first quarter of 2019. And we're still committed to the acquisition of stabilized properties, a whole bunch of those assets are coming in, in connection with the addition of Southern as our 9th new PRO and then move-in, as our 10th new PRO. And our average occupancy is maybe a little bit below, our existing portfolio seems probably a little bit of upside with those assets, just under 90%. But at this point, we certainly don't see any dilution coming from the acquisitions that we're making.

But you're right, RJ. We definitely see a lot of properties on the market that are not stabilized either CMO properties or very low occupancy and we're not buying those properties. We still believe that's where the high-risk is in this industry and we're staying away from that.

And then any color on cap rates for the fourth quarter and year-to-date acquisitions?

We're not seeing much movement in cap rates either, it's still in that 6% to 6.5% range for us.

Okay. And one last question. We've seen some of your peers provide higher expense guidance for 2019. Just curious if you could breakout any of the components of your expense growth guidance, maybe separating out with the assumptions you have for property taxes, expense growth or any other buckets you could break out?

No RJ, we're expecting property taxes to grow by just over 5% in 2019 and that's what our guidance assumes. And on personnel cost well, in this tight labor market, we do expect to involve a little bit, we expect that'll be just a little bit over inflation.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Now the first one was just I think you mentioned in your opening comments, the focus is still on pricing increases over occupancy. Just curious with your existing tenants, have you seen any change in behavior in terms of taking in these pricing increases? And if so to the extent that you do, could that cause you to change your strategy or how should we think about that?

Hey, Ron, it's Steve. We really have not seen a change in behavior among our customer base. We continue to send out rent increases on a regular monthly and quarterly basis, if I expect to see two-thirds to three-quarters of our customers receive an increase over the course of the next 12 months. And we're still able to get mid to high single-digits in terms of those increases, so really no change in strategy there.

And I would also add that our average length of stages keeps slowly increasing, it's not huge, but we're definitely not seeing that dropping down.

Maybe moving on to Oregon, maybe just provide a little bit more color there, obviously there's a little bit challenge in 2018, I see occupancy down over 300 basis points. Well, how do you guys feel about the market today, do you see signs of improvement green shoots maybe?

Yes, so Portland continues to be a struggle for us and it is a supply question, as we mentioned for the last few quarters now. We don't see that market turn the corner at this point, occupancy has been tough and while we will continue to be challenge but may not deteriorate quite as fast in '19, as what we saw in '18. And the good news is that we continue to be disciplined on our rate increases to existing customers and that has allowed us to keep the revenue growth within control in Portland. So, given that we're suffering in occupancy, where we didn't make it up little bit on rates and try to keep the breakeven levels for, what is the very challenging market today.

And then my last one, I think kind of related to, you talked about seeing maybe a little bit more properties on the market that aren't stabilized above occupancy. Just asking at a different way, when you think about the developers out there maybe versus three, call it six months ago, do you see any changes in, whether it's a longer lease up times, people aren't hitting their pro formas? Any kind of incremental signs that may give you some idea that supply is really starting to turn even further.

Well of course, we won't do their pro formas or see those, but from anecdotal comments, there is no doubt that a lot of developers are missing their pro formas and they're definitely looking at longer fill up times. And then what they have underwritten originally and certainly if they're continuing to look at new developments, they've expanded those, fill up times to longer. And that has resulted in a number of developers either scaling back there to -- number of developments doing less than they'd originally thought, or delaying development. So that's one of the things we definitely see is the number of stores we though might open in '18 several of them have moved into '19. Some of the ones in '19, people are already talking about either delaying it into '20 or just completely forgetting about it, selling that land for some other use. I mean, building a store does not create new demand. So the bottom line is, you have to have demand to fill the stores up and when too many stores get built in the same market, that obviously has an bearing on developers actions for the future. We sometimes wish it would be quicker with that actions would change. But we deal with add in, we also believe that, and have started to see, there will be some buying opportunities in the future as developers run out of their loan time periods and they're not stabilized or even close to state-wise. So we are looking at that as a future opportunity for value-add. But right now, it's not -- which we think it's too early, we're not looking at buying non-stabilized stores right now.

Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Arlen, I just wanted to follow-up on that. You mentioned that at some point, you might be interested in buying properties that are still in lease-up. So, if it's too risky now, I guess, kind of what sort of things would change in your mind, either from a pricing perspective or supply perspective to that a more interesting opportunity?

Yes. So the two things that we would look at and we keep looking on as number one, the price that we can buy the properties at. So far developers for the most part are still trying to make a reasonable, although a lot lower profit than they were looking at prior to this. And so, we're working at -- waiting until the time when developers are looking at selling the properties at break even or at a very small profit, so that would be one factor. And then the other is how many new stores are still going to come into those markets? So we kind of look at those in total because as I said, the development of new stores doesn't create demand, so what we want to look at is, will the supply demand balance -- hit balance within some reasonable period of time and we look at that to be within a one to maybe at the most two years after we buy that store, where we see that we can get this to a true stabilized occupancy in the mid 80's and be at market type of supply demand balance. So those are the things that we'd be looking at before we would pull the trigger.

And then I just wanted to ask you. The sequential decline in occupancy from 3Q to 4Q, at least on our expectations, it's a little steeper than what we had expected, I'm just looking back over the past few years. Are you seeing any change? I mean, you mentioned no change in consumer behavior, but I was wondering if there's anything you can point to there, maybe more move-outs, or is it just more a function of revenue manage manner.

I think it's really just a function of the supply out there, and we look at comps sometimes it's a timing issue. Nothing has really materially changed when it comes to the occupancy dynamics out there on the demand dynamics. We think everything was consistent and what we're seeing so far in Q1 suggests that we're going to get consistent performance in 2019 compared to what we saw in 2018 with respect to occupancy.

And I think the velocities are good, we keep tracking that and we're happy with that. We do know and we know we're going to slowly go down a little bit in occupancy, because we want to maximize revenues. And if we wanted to, we could certainly make our occupancy go up, but our revenues will go down, so there's no point in doing that. And so that's kind of what we try to optimize and it's not an exact science, but so far it certainly worked well for us as we've been leading the industry in those kinds of performance by allowing that very small decline in the market proposal.

Okay. And then just last one for me, you have this portfolio of properties in Puerto Rico now. Are you -- is it your intend to hold those longer-term or are you guys thinking of may be disposing of those or how are you thinking about that market?

We have completed the analysis of that market and we're happy with the market, it's been very strong pro forma. We have seen a lot of progress on the recovery of the Island. And it's not going to be a big population though, Island in the future, but the economy is stabilizing, that's a positive and it's a very low supply market. So there's a lot of room for potential increases in absorption rates. But should -- we believe make up for any continued declines in population. And between those two, we've concluded that we're happy with staying in that market long-term.

Our next question comes from the line of Jeremy Metz with BMO Capital Markets. Please proceed with your question.

Just question on moving the 10 PRO that you added, you're getting six assets there at closing. Wondering what the value attributable to those is. And then, how many fall into the captive pipeline? And what's the sort of ballpark value on those? And any more color on that pipeline of potential timing to get at some of those.

So the assets they're coming in was moved in, this quarter are valued as -- I would see roughly the mid $30 million range, call $35 million $36 million. The remainder of the assets, call it 13, 14, 15 assets will go into the captive pipeline and non-stabilized assets and will come in over time over the next couple -- three years is our expectation, with those are valued right now call it somewhere north of $60 million.

Okay.

And still -- probably -- total of those is probably closer to maybe $100 million. But the timing of them like I'd say in this year, we might only pick up another maybe three -- two or three and then next year quite a few more. But there'll will be relatively short-term coming in over the next, certainly three years or less.

Got it. And you mentioned adding -- looking to add over time another one to three PROs here. Do you feel like you can get one or two of those to hit here in 2019 or any discussions you're having much further longer?

Well, we have ongoing discussions with some of those guys for quite a long period of time, but we really don't control the timing of -- it's a very personal decision on when they want to pull the trigger and it's often related to things such as their management situations, sometimes their tax situation, personal, family or other issues like that. And, so I would say in general, it's unlikely that we would have another one join us this year or if so would be very late in the year. So normally our pace has historically been around one a year, so that fact that we've actually have these to join us within this very short period of time, it's really just reflective of the timing on their personal decisions.

And I guess, you are sticking with that. Was there anything in particular that you can comment on that drove move-in to finally come onboard?

I think one of the things that is helpful and it just could create an acceleration from some other decision makers as well, is the fact that as we've been an existing company, public company for longer now, which we now are approaching our four year anniversary within the next couple of months as a public company. I think that's a track record of performance for our PROs, in particular, is starting to really carry a lot of weight as other perspective PROs are looking at it and they see how successful our existing PROs have been. And so, that's cumulative track record of four years, probably has had a bearing on getting some of the PROs to pull the trigger along with that, quicker than maybe others in the past have done.

Appreciate that. And just switching gears on last one. Can you just comment on how your net effective rents for move-ins trended in the fourth quarter? How that compared to last quarter and if you're seeing any change from that already here in 2019? Thanks.

Hey, Jeremy, Steve here. So we're seeing movement rates for new movements dropping in the low-to-mid single-digits year-over-year. And it deteriorated a little bit over the course of 2018, but nothing significant. So Q4 was not that dissimilar from Q3. And likewise, Q1 of this year is not that dissimilar from Q4. So all in all in phases low-to-mid single-digits in terms of loss of street rate power.

Our next question comes from the line of Ki Bin Kim with SunTrust. Please proceed with your question.

Can you talk a little bit about where are we in the kind of lifetime of improving your kind of marketing dollars, kind of how you spend it, that science behind like pricing and revenue management, where -- how much has it come from since your IPO and what more do you have to do?

Yes. So to start with revenue management I'd say that we have definitely seen a lot of benefit from that program over the last few years and we've squeezed a lot of juice out of that lemon, there's still more room to grow, we continue to get better every quarter. And we continue to develop some proprietary technology and in addition to the more traditional platforms that were plugged into. So there is upside there, but not as significance as what we've already seen, when you look at marketing, I think there's considerable upside, a lot of things that we could be better at, lot of things that we're improving upon. We're definitely seeing good trends in our cost per lead and our cost per movement. And our effectiveness with respect to both SEO and search engine marketing, so there's still plenty of upside there. And when it comes to business analytics and machine learning, we continue to find new ways to add value to our platform and provide better tools for both our internal managers and our PROs to manage the platform, so they're still upside with our platform.

I'd say, if you talk about it in the -- like in the terms of like a baseball game or something like that, we're probably only in the fourth or fifth pending of opportunities that we can take advantage of as it relates to technology applications in our platforms. We certainly made a lot of progress, but there is still a lot upside opportunity for us.

I know it's probably hard to estimate, but as you get to the 9th ending, how much more uplift in the same-store NOI margin do you think is possible?

I think we should be able get margins that are pretty comparable to our peers with the exception Public Storage's margins are obviously pretty amazing. But right -- I mean, we still have another couple 3% that we might be able to get out over time.

Yes, actually rate is going to be the big driver of than the platform itself.

The good thing is that where we have more rates, which is totally market specific at least in most of those property, taxes are also lower. So that -- but it's hard to make the -- for example, labor costs. They're not going to be that much proportionally lower than higher rate market and so you're going to end up with a higher expense level on labor in those markets and you're not going to get as higher margins there as you could in high rate market.

Okay. And in terms of your balance sheet, at least as of third quarter your pro rata look to be leveraged was about 6.8 times. You've been buying a lot of assets, but -- and that you've been funding it with SP and OP, but not enough to keep leverage neutral. So do you have any kind of larger thoughts on just balance sheet and if you have to -- or if you see a need to reload the equity base in the Company?

In general, we do not believe it makes sense to do a look through on the joint venture debt because of the fact that's completely non-recourse debt to anyone much less to us. And so we look at our leverage without the JV debt because the JV debt is frankly more of a choice-based on our JV partners in the level that they would like to run. I think that on the other standpoint, if you take that out, we're about 5.6 times EBITDA, which is really toward the lower end of our target range, which is 5.5 times to 6.5 times. Please go through the map on that, we're very comfortable being able to do $300 million or so of acquisitions without having to raise equity, just because of the SP and OP equity that we get coming in all the time anyway. But we certainly are always looking at our pricing of our equity and always try to stay ahead of that with the market when the pricing is attractive to us and so we always look at continuing to keep our balance sheet in good shape. I don't know if Tammy has any additional comments, but certainly we're not under pressure to do it, but we will always be looking for opportunities when the price is good.

I think that's really well set on when our objective is to maintain multiple sources of capital and we are continuously working on that. And I think we've been reasonably successful at it up to now.

[Operator Instructions] Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Just a couple follow-ups on the addition of move-in. First, where will move-in have exclusive rights? I think Arlen, you mentioned the Mid-Atlantic, but I was just curious where those exclusives will be specifically?

Yes, so their strong presence is really in the York, Lancaster, Harrisburg type area of Pennsylvania and they will be have an exclusive in that area. And then in addition to that they have presence in Maryland and in some parts of New York and parts in New Jersey. And so that's kind of the areas that they'll be focusing on growing and we have really very limited presence in those markets. So it's a great geographic addition to our team, where -- and they have a tremendous number of relationships within those markets and we think they'll be very successful at continuing to grow the platform in their areas there.

Okay. And then you talked about the sort of implied valuation on that portfolio. Can you talk about the capital contributions, the splits between SP and OP equity for that? And maybe Tammy, for that portfolio specifically, can you talk a little bit or maybe characterize that in terms of sort of the implied cap rate? What the contributions look like?

So the -- I'd start with the cap, the last question first. The cap rate is in that same general range that we've been acquiring assets and which is at 6% to 6.5% range and this keeps a little bit toward the higher end of that range. In terms of the amount of equity, it's not completely nailed down today. So I don't want to get too carried away with it, but I'd say maybe up about $10 million of equity and $36 million $37 million of value.

And most of that would be SP equity, almost all. I mean a good rule of thumb is that on property contributions. A PRO needs to contribute around 12% to 15% of the total value of that SP equity at a minimum. And then a lot of PROs decide they want more than that because it gives them a lot of buying power for future acquisitions as well. But that's a good number to use as kind of a minimum number.

And then just a couple follow-ups on the guidance, so the fee income that you're projecting $20 million to $21 million. Does that include any acquisition fees or anything related to sort of what's already closed the activity, subsequent to the end of the year, anything non-recurring in nature?

No, it doesn't assume acquisitions by the joint ventures in the ranges that we disclosed in our guidance, so that's $20 million to $100 million. But we -- in Q1 we actually haven't closed anything in the joint ventures, yes.

But we also accrue acquisition fees, that we've already received. We don't book those acquisition fees on day one when we receive them, because the way the contracts are setup, we accrue those over time as they're technically earned.

Okay. So of that $20 million to $21 million in guidance, how much is related to acquisition fees in '19?

Yes, Todd. It's Steve. It's probably around 50% at the top level, we've got two rounds of acquisition fees stores through from 2016 to 2018 joint ventures. And then we do have some projections for new acquisitions within those joint ventures.

Okay, got it. It's a little over $3 million. Okay. And just lastly for me then, Tammy, you mentioned the 15% increase in the same-store pool would be accretive to growth in '19. Can you quantify that?

What was the question, again?

The increase in the same-store pool in '19 relative to '18 right now, Yes.

Yes, So Todd, we expected it'll be slightly accretive, it might be say up to 10 basis points are there about.

Yes. Then the results for the non-same-store pool and the same-store pool when we roll it in, it's a little bit better because there's a little more upside on some opportunity on occupancy in there. But when we blended in, it's pretty close to neutral it, it affects our numbers by about 10 basis points. So if our midpoint on our guidance is 3% same-store NOI might have been 2.9% if we didn't have the new stores in there, so it's not a whole big impact, but it's on.

Our next question comes from the line of Tayo Okusanya with Jefferies. Please proceed with your question.

I wanted to talk about same-store NOI a little bit. The slowdown in '19 relative to '18, is there a way you could -- there's not to be an exact quantification, but how much of that slowdown really is all kind of new supply impacting the portfolio? How much of it is more kind of tougher year-over-year comps as you've kind of picked up the quote-unquote low hanging fruit in the portfolio over the past year or two?

Of course it's hard to say, but I could -- I would say 80% of it is related to supply differences. There is certainly less low hanging fruit, but we end up getting most of the low hanging fruit before it even goes into the same-store pool to beyond. So there's some of that, that's less. But it's mostly supply, I mean we're in a lot of markets where we have new supply -- I mentioned that 30% of our stores have a new supply within five miles. But some of those stores have five new competitors within that five mile radius. And especially, when you look at markets like Portland, that kind of thing is common. So that has some significant impact. If all you have in that is one new store, it wouldn't be a bigger deal, but some of these markets have a lot more impact, and that's really what's causing the slowdown in our guidance.

And then just following-up on Jeremy's earlier question about move-ins and move-outs. Again, could you just give us a sense in 4Q, what the mark-to-market on the portfolio was in regards to the rates people are moving-in at versus they're moving that out -- moving out at? And your sense of kind of how that transpired through 2018?

Yes, Tayo. So, for all of 2018, we're sort of in the low to mid-single-digits in terms of the negative churn of the roll down, whatever term you like, it was certainly higher during Q4, and we expect to see that in Q4 and Q1, and then we see that gap close in Q2 and Q3. So I think we'll see the same thing in 2019 as what we saw in 2018, where we had a stronger summers than a weaker winter. But I would say a low to mid-single-digits in terms of the negative churn.

That would be the blended average for the year.

Per year.

We double in the winter, but it is the average or something like that.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Arlen Nordhagen for closing remarks.

Well, thanks again everyone for joining NSA's fourth quarter 2018 earnings call. As we've discussed, we're very pleased that the growth we experienced in 2018 really positions us for a very strong year of increased FFO per share growth in 2019 and combining last year's growth with the new additions of our ninth and 10th PROs with Southern Self Storage and move-in Self Storage joining NSA will create substantial value for our shareholders in 2019. As always, we very much appreciate your continued interest in and support of National Storage Affiliates. And we look forward to seeing many of you later this week at the Wells Fargo Conference in New York. Thank you, operator.

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