Greetings. Welcome to the National Storage Affiliation Third 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 third quarter 2023 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to one question and one follow-up and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nationalstorageaffiliates.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, November 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 statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, Core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings. I will now turn the call over to Dave.

Thanks, George, and thanks everyone for joining our call today. The third quarter was largely in line with our expectations as we continue to execute on the everyday blocking and tackling of our business. The teams did a great job navigating the dynamics of the seasonality and the competitive environment. In the back half of the year, occupancy continues to follow typical seasonal patterns and we are nearing year-over-year occupancy delta. Our consumer remains healthy and stable, allowing us to execute on our revenue management strategies. There were several positive items to highlight this quarter, including the completion of our $250 million net private placement. Our team did a great job in the timing and execution of that transaction. Treasury rates are higher today than when we priced the offerings, so we're pleased to have that capital raise behind us. We also continue to execute on acquisitions from our captive pipeline while our PROs continue to replenish our pipeline by making acquisitions outside of the REIT. This illustrates one of the many strengths of our PRO structure. We remain pleased with our geographic exposure and our secondary market performance. Our MSAs outside the Top 25 continue to outperform the portfolio average in revenue growth. However, we are facing near term headwinds, including high interest rates, which has muted the housing market plus slowing consumer transitions. We're in a very competitive customer acquisition environment, which is pressuring street rates. We have challenging comps in parts of Florida due to hurricane-driven demand last year. We're also dealing with elevated new supply in a few select markets like Atlanta, Phoenix and Las Vegas. That said all these challenges eventually will ease, which gives me confidence in our outlook for NSA. In the meantime, we continue to focus on the things we can control.…

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.67 for the third quarter of 2023. This represents a decrease of 6.9% over the prior year period. The year-over-year decline despite 3.9% growth in adjusted EBITDA was due primarily to elevated interest expense as same-store NOI growth was essentially flat declining just 10 basis points. We delivered positive revenue growth of 1.1% on a same-store basis, driven by growth in contract rate of approximately 5% partially offset by a 400 basis point year-over-year decline in average occupancy during the quarter. Occupancy ended the quarter at 88.5% down 150 basis points from Q2 and down 360 basis points year-over-year. Similarly, October occupancy finished at 87.4%, which is also 360 basis points below last year. Expense growth in the third quarter was 4.2%. Payroll declined 4.7% from the prior year period while property taxes were down 2.2%. These cost savings were offset by marketing expenses that remain elevated due to increased competition for customers and a tough comp. As well as insurance expense, which will remain elevated due to the policy renewal we have on April 1. We will continue to focus on minimizing our controllable expenses, where we can. On the acquisitions front, during the quarter and through October, we acquired four facilities totaling $55 million mostly out of our captive pipeline. In the near term, as Dave alluded to, we are focused on optimizing our portfolio and will remain patient in regards to acquisitions. Turning to the balance sheet. During the third quarter, we repurchased 6.4 million common shares for $213 million. We're encouraged by the volume of execution we were able to achieve under the repurchase plan our Board established last year. We are confident in the long-term outlook for NSA and believe, the current trading…

Thank you. [Operator Instructions] Our first question is from Michael Goldsmith with UBS. Please proceed.

Good afternoon. Thanks a lot for taking my question. It seems as though the sequential deceleration in operating metrics was more modest than they've been over the last couple of quarters. So is that a function of the environment improving slightly, is that some of the larger steps you've had, some of the larger step downs in the past - the comparisons are getting easier? And then do you think the trend going forward should kind of continue to be more flattish as you've moved past - some of the worst of it? Thanks.

Yes thanks, Michael. It's Dave, thanks for the question. Thanks for being on the call. I think you're right in how you are looking at it. Our toughest comps are behind us as far as you know year-over-year street rate and year-over-year occupancy. As we go through, as we really came through the third quarter, September was really kind of the peak of the pinnacle of those high points. And so as we head into the fourth quarter, you'll see us have, a little bit easier comps and we're starting also to level out a little bit on street rate in a lot of our markets and a little less volatility around street rates in some of our market. So, we're having in little easier comp in the fourth quarter, those spreads will tighten year-over-year and that's due to the fact that last year we held on a little longer on lowering our street rates - really in the third quarter when we had the movement around street rates. And you know, the teams have done a good job really looking at how do we you know revenue management practices and how we're really working with our existing tenant base and really looking at how we're putting the customers that are with us today. We've had really good success around some of the technology platforms that we've improved and some execution around that existing customer base that allowing us to really work on what we have. Certainly today, there is still you know some pressure around some markets where we have supply. There's markets where street rates have been more volatile, because of that supply and the demand ratios. And so, we've had to react to that. But on a whole, our portfolio, we believe with the diversification and where it's located at, we've got some pretty good success moderating some of that - some of the effects of rate competition and supply and those things.

Thanks. And then my follow-up question is related to the share repurchases. Can you talk a little about the funding source for these and - is this a true you know invest in the shares buying back just given where they're priced. Are these offset some of the OP units you issued and then would you consider to - would you consider continuing to use this lever going forward? Thanks.

Yes, so I'll start and Brandon can jump in here. And again, thanks for the question. Our belief in our shares and our belief in our company and our belief in adding shareholder value, we think our stock is a great purchase, where it's currently trading at and where it's valued at today. We think purchasing our stock is a great opportunity for us and we were happy to fulfill what the Board has approved for us over a year ago. You know pretty much fulfill that commitment to repurchase our stock back, from our perspective and we look at where we're at with our strategic initiatives and what we're trying to accomplish in the future. We talked about on our last call is, we're looking at initiatives around our portfolio and optimizing our portfolio and if you think about part of that portfolio optimization, we're evaluating sale of non-core, non-strategic assets, we're evaluating some portfolio opportunities around JVs where you might recapitalize some stores into a JV. And so, the team has done a really good job. And we've been very thoughtful about studying our portfolio top to bottom and really thinking about where we want to operate, how we want to operate and where maybe some locations don't fit into that strategy going forward. And the team has done a good job identifying assets that would fit in one of these categories, whether it'd be some kind of recapitalization, or sale and we're vigorously working on those initiatives. I don't have much more to report as far as definitive pieces of that, but I can tell you, I've been pleased with the progress we've made. The team has done a great job identifying and working the plan. And so I'm pleased from that aspect of it.

Yes and Michael, this is Brandon. I mean the only other thing I would add is on the repurchases, it's not necessarily the offset, as you said in your question. The OP equity we've issued this year, I mean, really what we've issued this year has been weighted towards our preferred equity, preferred OP units and the subordinated equity with our PROs. Now having said that, we grew a lot and very quickly in '21, early parts of '22. And so some of the equity, common equity we issued during that time was at higher levels than what we can repurchase that at now. So that's certainly part of the math and the obvious benefit that goes into it. But that's just the only other thing I would say, in response to your question. And I think what's important in terms of what Dave spoke to, is that there is a multi-quarter execution to our strategy here. So what you saw in the third quarter, we're very pleased with, but more to come in the next couple of quarters.

Thank you very much. Good luck in the fourth quarter.

Thanks, Michael.

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed.

Good morning, thanks for the time. Just hoping, you could talk a little bit about the street rate trends throughout the third quarter and you can provide an update for how October trended on a year-over-year basis. And as part of that where you feel most comfortable within the same store range. It's still pretty wide to cater. We only have a quarter left so to give any kind of - include that in the answer that would be fantastic?

Yes. Juan, this is Brandon. So street rates year-over-year as we finish the third quarter were similar to the update that we gave for August and we talked about those being 15% down year-over-year. And so that held pretty steady on a year-over-year basis in September. That delta is compressed a little bit and that goes to what Dave said earlier that last year we started to move rates down really in late Q3 and early Q4. And so we're hitting that comp that gets slightly easier. But there's still, there's still negative double-digits. And then in terms of the guidance, you're right, the ranges we kind of kept it where we revised too in August. The thought process there was just, whenever we've revised guidance in the past in August, we don't spend a whole lot of time micro-tweaking it in November. And frankly, this year has been more difficult to predict and you saw that based on you know what we introduced in February. And what we had to revise in August. So, I think going forward, including when we introduced guidance for '24 in February, it's possible that our ranges then are a little wider than what we've historically introduced to start the year. Where we're most comfortable is certainly around the midpoint of the range. I mean the - on revenue, for example, at the high end of our full year guide, it would imply a fourth quarter that's accelerating from the 1.1% rev growth that we had in third quarter. And I would characterize that as unlikely. So I would guide you to really the midpoint of the range on all fronts, rev, you know, OpEx and NOI on the same-store pool.

Great, thank you. And then you guys are really kind of reinvesting in the platform and the systems given some of the rapid growth you've had over the last couple of years. So just curious as we start to think about '24, how we should think about G&A growth again as you reinvest into the business?

Yes, that's a good question. We're not prepared to speak to specifically the '24. But we certainly are making investments. Some of those investments we've been making throughout '23. So that's kind of already baked in. Those investments are on the personnel side. We've hired staff. There has been opportunities, frankly, given the - the M&A activity in our space. There's opportunities to add folks who had storage experience through our team. There has been technology investments for sure. Some of that runs through G&A, some of that's capitalized and then it gets depreciated through our corporate investments and that does flow through to FFO, but it's only still impactful given you're spreading those costs out over a multi-year basis. So, I wouldn't characterize those investments one is like tremendous needle movers in terms of, in terms of like G&A costs. So, I think they're needle movers in terms of the ROI that they can provide, but in terms of the G&A line item, it's just not a super noteworthy delta.

Thank you.

Thank you.

Thanks Juan.

Our next question is from Smedes Rose with Citi. Please proceed.

Hi, thank you. I just wanted to ask you a little bit, if there's any sort of change in the way that you're thinking about occupancy versus rates, I mean, I get that everyone is trying to maximize revenue per unit where occupancy is now in the high 80s kind of back to where you were pre-pandemic and as the - and others seem to be maybe being more aggressive to maintain occupancies over 90% for various reasons. I'm just wondering is there any change like with what's going on in the housing market, or the ventures market or anything that would make you change kind of the way you think about what's the right occupancy level to achieve?

Yes, Smedes. Thanks. That's a great question and thanks for being on today. Certainly, you know, the muted housing market and the lack of transition has certainly changed one of the demand drivers you know in our business and we have a lot of them, but certainly, that's one of them that you know over the years has provided a good source of tenants for us. What the team is doing is really trying to balance how much we want to chase occupancy at the expense of rate and discount and how does that affect the life, you know, lifetime value of a customer and really how does that fit into our revenue model, and I think the team you know between marketing spend, between discounting, between how aggressive to be on asking rent, you know, street rate, entry rate. And how to really balance our occupancy and you know I'm very pleased. So if you look at our annualized rent per square foot growth has been strong and I think, we're finding our foothold around, you know, little calmer around the street rate movement and trying to balance that you know street rate occupancy discount to drive with the revenue number we want. And so what I would say is in the markets where it's been very volatile like, you know we have new supply like Phoenix and Vegas and Atlanta. We probably had to react a little harder. But we have a lot of markets where we've actually found a good occupancy foothold and been able to really hold some street rate activity to leveling off. And so, to your point, it's a balance. I think we're probably returning a little bit more through our heritage where we're not necessarily going to chase occupancy at all costs. We're going to balance and try to find our revenue path with balance occupancy rates and discount.

Okay. And then just to follow-up on that. I mean, any change in the way that you're thinking about ECRIs going forward either more moderate or less frequent or you know the same - to the same degree?

We've been, that's to me been one of the silver linings to our business for a lot of years and it remains. Our customer rates, it's healthy, they are stable. That side of the revenue management business, we've been able to maintain our cadence and our level of increase, and quantity of increase and we're just not seeing any change in customer behavior because of that program. And so why maybe we're not attracting as many from the top of the funnel, because of the, you know the little bit slowing in housing market and the muted housing market. The existing consumer base is very healthy and we've had great success there.

Okay, thank you.

Thank you.

Our next question is from Jeff Spector with Bank of America. Please proceed.

Great. Thank you. You know back on the occupancy. Again, you have had the most loss versus your peers since the third quarter of '22 and again that gap hasn't you know closed as much as the peer. So again just trying to think about what your comments on the strategy. You know occupancy versus rate. And that or is it certain markets that are maybe winning on the portfolio versus others?

Good question. And a good thought. And thanks for being here. You know I - we had a lot farther to fall. If you really study what happened during COVID, where we started in '19 and '20 in our occupancy levels, which we're coming close to now as we're back down to it. We had the most occupancy gain of any of the peer group, any of them. And we had, we've had the most fall off, obviously. And if you think about where we're positioned today, it's still a result of that tough comp. I mean we're finding our we look at supply demand. We look at marketing equilibrium. We look at where our portfolio can run at an occupancy level that generates the maximum amount of revenue that we're trying to strive for. I think that's the spread you're seeing. It just -- as we cycle back down into what I would call normal patterns. We certainly are working to find the right balance between those two. I talked on the last call, I do think, as we look going forward, we want to make sure as we optimize our portfolio. Do we have the right unit mix in all of our locations for the right occupancy levels we want to run at? And so strategically over time, we are looking at sizes of units, how long they are on market? How full are they? Is there opportunities for us to change our unit mix a little bit and reattribute our properties versus just discount the unit down 40% to try to fill it up? We think there is a better approach to that and so I think as we cycle through this last quarters you know some of that occupancy comp and that spread will start tighten to what the peer group looks like year-over-year.

Okay, thank you. And then how - are you balancing the leverage, you know, your leverage? It is higher than the peers versus the share buybacks. You know I definitely appreciate the share buybacks. But at the same time, it just, it feels like an environment where a company should be reducing debt. So how are you balancing those two?

Yes, Jeff, good question. It's obviously top of mind for us and that that goes back to my earlier comment about this is a multi-quarter execution. So I think you know at the end of the day, our - intent is when we're done with you know, with these core set of immediate initiatives that they've spoken to, you know our leverage is going to be you know equal to what it was before we endeavored to execute on all these strategies or even lower. Right. And so everything that we're doing now is with an eye towards ultimately creating more liquidity so that when market conditions are more conducive, we can grow externally at the same pace that we enjoyed for you know several years And you know also address the annual debt maturities that we have coming up and you know put ourselves in a position, the best capital position to fund our growth and to address kind of those annual capital needs.

Thank you.

Thank you.

Our next question is from Samir Khanal with Evercore ISI. Please proceed.

Hi, Dave on maybe getting back to the easier ECRI question. But can you -- how much has that sort of moderated through the year?

You know it's a good question, Samir. You know for us, I would say in the last couple of months, we've probably come up, are really, really high. We were pushing really, really hard through the summer. Frequency, a little bit elevated in the summer, but certainly on the amount of rate increase. And so it's moderated slightly in the last couple of months. Frequency hasn't changed, cadence hasn't changed. But we've come off a little bit on you know the top in percentages of rate increases and some of - that's a function of we got a lot of tenants process through the summer you know and so that was great. We got out in front of that piece of it and some of it were obviously you know as you look at market conditions and units that are opening up and those things. But I will tell you, we're still well above pre-pandemic levels and the technology is you know, we have better line of sight. We're able to react quicker, understand trends quicker. I'm really pleased with the position we're at to really continue to execute in the market conditions we are in.

Okay, got it. And then I guess the switching of the transaction markets. You know, it looks like you acquired a few assets. I mean, how are you thinking about sort of revenue growth, NOI growth, maybe the underwriting of those properties? Thanks.

Yes. And another good question. Certainly, you know we're able to tap the Captive pipeline. So those are assets, obviously our PROs have had a good line of sight on them for a number of years whether they were filling them up or built them in, and worked through the process of seasoning them up. Certainly next year, and it's going to be a challenging year as far as you look at revenue growth. But we also, we're adding stores in markets where we have operational efficiencies. We think as we're bringing them in, there's still upside to those. You know we believe we brought most of those assets in around - right around our six caps today and as you look forward moving forward, you know, we'll grow out of that and have some success around it. And I think really with six caps a year forward-looking if you think about it that way. And then, we'll continue to grow through it. But yeah you know from a revenue perspective, we've certainly moderated our expectations on underwriting and how we're thinking about growth on assets we're looking at. I think that also contributes to the overall market conditions of how people are buying properties today, it's hard to underwrite tremendous amount of revenue growth unless an asset has some fillip left into it or some -- something that's not got on from a seasoning point of view, hope that helps.

Okay, got it. Thank you.

Thank you.

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

Hi, thank you. Brandon, Dave with regard to the buybacks. You know, I think you characterized it as a multi-quarter execution. So does that mean that you anticipate continuing to buy back stock here in the near term or do you pause a bit here? I just wasn't clear on what the message was. And you know it sounds like some of the dispositions or the recap plans that that you're alluding to you know are, you know, you are expecting to reduce leverage. But is it possible that leverage rises above the 6.5 times leverage level in the near term just between additional buybacks and the near-term negative NOI and EBITDA growth that you're forecasting?

Yes, Todd, all good questions. I'll try to -- try to work through them, and you'll tell me if I miss - any of the ones you threw out there. So my comment about multi-quarter execution was definitely all-encompassing meaning you know the debt raise we did, post quarter end in October the share repurchases that we did in the quarter. All of the portfolio optimization strategies that Dave spoke to that you know will be a source of capital for us. All of those things is what I was referring to when I said the multi-quarter execution. And so when you wrap all those things together back to Jeff's question, I think that's where you'll see us bring leverage you know back towards the midpoint of our you know range of comfort at 5.5 times to 6.5 times. The share repurchases. You know, we have a lot of conviction in it. I think the execution in Q3 speaks for itself in terms of the dollar volume. We only have about $28 million left on that current program. So to your question, you know, will we -- could we do more? You know we would obviously have to refresh the program there and that will be something that we disclose when we do it, but it remains a possibility. And it was something that we'll talk about as a management team and with our Board. I think that you - are right with seasonality in our business. Sure. You hold everything steady and you just roll forward fourth quarter, typical seasonality from third quarter, it would imply, our leverage ticks up, but look by the time, we're talking again in February, I would hope that whether it's in the fourth quarter as of December 31 or post year-end, I would think that we would have a good update for you and others about execution on these other strategies that would bring that that number in.

Okay. And you know I guess, sticking with that a little bit, can you provide a little bit more color maybe book end, you know, how much of the portfolio that you might be looking to sell or recapitalize? Sounds like you know joint ventures on the table, you know perhaps some outright dispositions. And just to you know continue there. You know is the strategy focused on you know what - in terms of the portfolio optimization, you know is the strategy focused on the geographic footprint of the portfolio, you know the competitive landscape and where you operate or you know just sort of growth or something else altogether, I mean how should we think about you know what that recap or the dispositions might be looking to accomplish?

Yes. Sure, Todd. Thanks for the question. You know I'm not going to give a whole lot of color about size, so obviously, we're still working through a number of factors there. What I will tell you, you're right about is, you know we've had tremendous growth one since IPO and really and if you look at the years of '21 and '22, we were able to, to buy a few sizable portfolios and when you buy portfolio certainly, you have assets. Then those portfolios that maybe do not fit strategically long-term where you want to go. And so what I would tell you we did is we really look at the portfolio, top to bottom and we ask ourselves, you know if you looked at a 9010 rule for an example and ask yourself 10% of the assets that you know where are they positioned, do we have synergies, do we have operations synergies, do we have multiple properties, are we able to grow? Are we happy with rent growth, you know all the factors we look at as far as long-term owning assets in those markets. And the team did a good job just analyzing across the country that we were not geographically focused on one area, we were asking ourselves, as you look at markets, where they're singles, where they're doubles in these markets. Have we not grown or had the ability to grow? Do we not like the demographics of the market and or do, if we do like the demographics, you know, is it something long-term that we can continue to improve our position on and we've identified a list of products out there that might be good candidates for dispositions. As you look at you know from that aspect of it, we were having great discussions and the team has done a good job working that plan and we think there are real opportunities to go out and really execute on you know sale and disposition of the assets. You know from a portfolio recapitalization and JVs, it's a little bit different approach here. I mean you look for stores where maybe you want delever some of the risk you have in particular markets. You look at maybe opportunities where you can infuse capital and improve performance of the properties, things like that that long-term properties we want back, properties we want to own long-term, but it certainly gives us an advantage or an opportunity to go out and kind of you know re-look at those properties, re-infuse those properties and the JVs that provide good opportunity for that.

Okay. And Dave. One more question if I could, you know you mentioned in your prepared remarks that the PROs continue to make acquisitions outside of the REIT. Can you just speak to that a little bit maybe put some numbers around that activity and I'm just curious, you know, how they're sourcing deals, how they're going about that and you know maybe talk a little bit about the pricing and also where they're sourcing capital from today?

Yes, sure, sure. Great question, you know and that is an advantage. Our PROs have done this for years, they're very good at it. They have raised money for years, they have friends and family networks, they have seen on small, small investment firms that have certainly invested them over the years and you know with the NSA program, that's one of the advantages that they can roll those in and take AP -- OP units, at the time when they want to roll the properties into the REIT, of course. You know, I would say numbers, you know if you think about what they're looking to buy, some of them are developing, some of them are value add where they buy a small property and building expansions. Some folks are buying maybe CO deals that they think are great opportunity that it's the right time to be buying those - pieces of it. And these are all activities, we like to see outside the risk. The PROs are really taking more of that risk and they'll season the asset up and then bring it to us and see if it's an acquisition target for us in the future. And again, from a source of capital, they've all done this over the years, they have a lot of good line of sight of where to get the pieces from. You know pricing wise, I'm not going to go - get into because there's a lot of moving pieces there. If you're building or you're value adding or if you're buying a CO deal that the pricing metrics are you know quite wide through all those pieces of it. You know, I would, if you look at it, I would say, you know from a number's perspective, 10 to 15 stores have been bought by the PROs this year. And they're still sourcing more. And then you know there's some other activity, I know they're working on it. And for us, we like it, and the fact that it just continues to restock our Captive pipeline. ***EOF***

Okay, all right, thank you.

Thank you.

Our next question is from Spenser Allaway with Green Street. Please proceed. Spenser, please check and see if your phone is muted. Okay. We will move on. Our next question will be from Keegan Carl with Wolfe Research. Please proceed.

Hi guys, thanks for the time, maybe a two-part question here, just curious what you're seeing top of the funnel demand and you know how that's benefiting from marketing spend and then how you're thinking about the mix between your marketing spend and your street rate?

Good questions and hi thanks for joining too. You know top of the funnel, certainly, we've been able to generate good activity there and a lot of that activity is, because of the additional marketing spend. And so we - the teams have done a good job really analyzing where we're getting our best value from a paid search perspective. And really looking at how we can drive the right opportunity. I would tell you, what we're focused on is conversion rate. And so as you think of the top of the funnel, you can produce a lot of people at the top of the funnel by marketing spend but it's how you get them to convert through the funnel is important to us. And so that's where discounting and street rate and that conversion piece all come together. And so us - in the markets where we have good footing on occupancy. We have pretty stable street rates, conversion rates have been a little more easy to predict and a little more easy to maintain. Markets where you have some pretty wilder dynamic street rate movement, a little more challenging. I mean if you're generating an additional 5% of the top of the funnel but your conversion rate is dropping by 4% and you've had a pretty volatile street rate market, obviously, we have to incite ourselves. We want to continue to spend and drive the top of the funnel and lower our conversion rate or we want to adjust our pricing and keep that conversion rate - the target levels we want to keep it at. I would tell you in our business, it's a store-by-store, market-by-market, adventure, right? And you know one thing I will talk about, and we've been talking about is our technology continues to improve. Our bid models are new and improved. And our AI technology behind those bid models, are new and improved. And so the team is much more efficient at what they're doing today versus where we would have been a year, two, three years ago.

Our call center investment as well, Keegan is another one to call out. I mean, that's an area where we've really made some big advancements on our - what is now our proprietary platform. And that I should have added that when Juan asked an earlier question about our G&A, because that's another area where our investment in these technologies manifests itself. The call center expense for us is in the marketing line item, in our property OpEx. So that's - another area where you know that shows up and impacts the numbers, outside of just the pure G&A.

Got it. And then just one on guidance. Just curious what's baked in from an occupancy perspective? I think Brandon said last quarter, you guys were expecting 200 basis points, 250 basis points drop from peak to trough, just wondering if that's still in play and then where you ultimately see yourself ending the year at.

Yes, I think it was 250 basis point to 300 basis point was the range we gave from the end of June through the end of the year. The working theory, I think for us and others in the sector was that maybe the back half of the year we wouldn't see some of the same seasonal occupancy declines, because in the spring-summer, we didn't quite see the same magnitude of uptick. And so that's a potential scenario, you know that that - the optimistic scenario was baked into more of the high end of our guidance, Keegan. What's played out is in fact much closer to kind of your typical seasonality. So we lost a 150 basis points from the end of - June through the end of September and another 90 basis points to the - in October. And so that's, that's pretty much in line with kind of your pre-pandemic years 2018-2019. And so, what's baked into our call it base case projections, which is really the midpoint of our guide is a continued de-sell or loss of occupancy of maybe - could be 100 basis points from the end of October through December. That wouldn't be out of the norm.

Got it. Super helpful. Thanks for the time guys.

Thank you

Our next question is from Spenser Allaway with Green Street. Please proceed.

Thank you. Sorry about that, you guys commented on the difficulty in underwriting future operations in the current environment. And with that in mind, can you just provide some color on the depth of the potential buyer pool and your confidence in ultimately being able to execute on dispositions and your potential JVs?

Yes, very good question and I'm glad you get in this Spenser. We had someone at our end, but we have a high level of confidence. One thing I would tell you is throughout our history and our relationships and all the things that we've done in the past and we have a lot of relationships in this industry and as we look at possible sale of assets, there are groups of buyers that we know that are well-capitalized, they can get the deals done that we've reached out to and we're having discussions with. And so from that aspect of it, we know that these folks are in the market already. They have assets in the market, they would be strengthening their positions in the market where we believe in a market with one or two assets. And so from that aspect, it's a win for them and it's a win for us. And so I would just tell you, as we talked about in our last call, we are seeing transactions trade and we're seeing transaction chain in a lot of the markets that will probably be leaving and the size of the transactions are fitting what our sellers' expectations are and so at this point in time, I would tell you, we got a good confidence level going into it.

Right. Thank you, guys.

Thank you.

[Operator Instructions] Our next question is from Ron Kamdem with Morgan Stanley. Please proceed.

Hi, just two quick ones. On same-store revenue I think you mentioned in your opening comments implies, I think negative 1.1 in 4Q. I think historically, we've talked about 4Q being a good sort of barometer for the next year. And just curious how we should think about that number this go round. And what may be different this time around or what should we be keeping in mind as we're trying to think about where next year can shake out?

Yes. Ronald, it's Brandon. Yes, I mean the exit point for the calendar year is a good way to kind of start projecting the next calendar year. It's - but it is tough, right? And you know the ingredients to the recipe, it's - where street rates have moved. We've got the negative occupancy delta we're working with. As Dave mentioned earlier, the extreme positive on our sector is the ability to be nimble with revenue management through the ECRI to existing customers. So we all know that, right, it's a matter of how do those dynamics play out and are demand levels higher in 2024 than what we've seen here in 2023. Yes, we'll get into that more obviously in February. I think for us, what we're focused on is historically when the sector on the rare occasions that it has encountered negative revenue growth, it's been relatively short lift. Right. And so where exactly does it go in Q1 of '24 or Q2 of '24, or when exactly is the bottom, I mean those are fair questions. They're just not questions that we're spending a whole lot of time trying to answer you know day-to-day. Right now, we are taking a much longer view with a lot of the things that we're executing on right now. And with the belief that you know the resilience of the sector is going to prove out, it's going to demonstrate itself yet again. And you know the negative territory will be we think relatively short-lived.

Got it. Makes sense. And then just a few expense line items. The trailing five quarters in the supplemental is super helpful. So just on - one on property taxes, running 2.1% year-to-date anyways. Maybe can you talk about what - is there sort of one-timer or that's helping that or is that sort of a good run rate? And then on marketing expenses. You know I see that's - it's gone up year-over-year, just thoughts on how much more you can lean into that? Thanks.

Yes on property tax, Ronald, it's - the Q3 number did have some favorable adjustments. So downward adjustments to the expense in Q3 that related to kind of truing up the full year numbers as we got value assessments or tax bills in hand. I would say, how do you look at the year-to-date to nine-months 2023 number and annualize that? It's probably a better approximation. And that would, that would give you a number that year-over-year is probably going to be in the 4% to 5% growth territory for property tax, as you can see in that trailing 5. The fourth quarter of '22 has a tough comp because we had some favorable adjustments. There's potential for maybe some of that this year, we'll see with Texas in particular with state surplus and you know what the final levy rates are in some of those jurisdictions. Marketing, you're right, that's definitely up. Some of that is just the comp. We weren't spending the dollars last year. Our spend levels are back to maybe a little bit higher than call it the norms that we had in 2018 and 2019. As I mentioned before, we've made some call center investments so that that's contributing to that. But the majority of that line item is your paid search spend and you know we're using those dollars judiciously where we think there's you know positive returns.

Great, that's it from me. Thank you.

Thank you.

Our next question is from Eric Luebchow with Wells Fargo. Please proceed.

Hi, I appreciate the question, guys. So I think in your prepared remarks, you talked a little bit about supply deliveries being down, I think 20% by 2025. So maybe could you talk about what you're seeing in your markets in terms of new construction starts, you know interest rates probably having some impact on that and whether you're seeing any difference in construction activity between, call it, you know your more primary versus secondary markets?

Yes, Eric. Thanks for joining. Good question. You know we certainly have seen the new starts slow considerably and for a variety of reasons, headwinds and interest rate, uncertainty in outlook on what the future is as far as revenue growth and fill rates look like, availability of capital. There is still headwinds around getting contractors and everybody lined up and getting approvals going and so as a whole nationwide, we've seen you know new construction starts certainly slow and we've seen proposed projects maybe stall or take longer or maybe not even pellet all. You know I think the markets that we still feel the most pressure is one - some of the ones we called out, Phoenix, Las Vegas around parts of Atlanta, where these starts were - had been started and are finishing up now or there are still a few new starts in those markets. And so I would generalize it in probably more of our major markets is where we've seen the most competitive pressure and our secondary markets, not as much.

Yes, that's helpful. Thank you. And just to follow up on the asset disposition topic, I guess how do you think about the various use of those potential proceeds between you know repaying debt, additional M&A or repurchasing additional stock and as you look at the attractiveness of those, you - should we think about you know FFO per share accretion or how it impacts your longer-term same-store growth. Just maybe some color on how you assess the attractiveness of those various dispositions? Thank you.

I think, Eric all the things you mentioned are potentials for how we would use the proceeds. I mean, certainly we've got amounts drawn on the revolver. So most immediately, we would use the funds to reduce that and which is carrying a pretty healthy interest rate cost. Today, I spoke to you know share repurchases earlier. We'd have to refresh or stand up a new program. But that that remains a possibility. And then we do want to position ourselves to grow externally again. And you know that's not going to happen in mass and so there is a rebalance in terms of cost of capital and cap rates. But when that happens, we certainly want to be ready to go. And so all those things are what we're trying to position ourselves for. I think the assets that we've identified that Dave spoke to earlier, they are generally of the type that are probably going to you know slightly improve our occupancy profile, slightly improve our NOI margin profile once they are no longer part of the portfolio. Not tremendous amount but it will still improve the quality of the existing portfolio and that's certainly you know a clear intent of these strategies.

Thank you.

Thank you.

Our next question is from Ki Bin Kim with Truist Securities. Please proceed.

Thanks, good morning. Good morning. So I was curious, eventually, we're going to hit you know occupancy being flat and street rates being flat at some point. Is there a scenario as we get to that point that same-store revenue could still be negative? Just because even though your ECRI program is doing what it's doing, you know, you still have that - the cost to release those customers that left at higher rents.

So it's a good question, Ki Bin and thanks, you know, thanks for joining. Maybe there could be a scenario like that. Certainly what we're seeing also is a compression of the rent roll down. And so I also think we've hit the peak of our rent roll downs. And so as occupancy, the spread in occupancy becomes tighter as our street rates level out and you know what we're turning over time is longer term tenants that have that that longer you know rent roll down implication. We're starting to see that roll down tighten because we're turning over people who've been with us six months or people who have been with us nine months, who have been on a little bit less of a street rate entry level. And so that first ECRI is making up for that, you know that compression around that rent roll-down. So I would not expect it to be long if it did that just be my personal take on that. But there could be a situation.

And what is the rent roll-down in 3Q?

So the rent roll down in 3Q was at about 18% on average almost 19%. It peaked in September '23, Ki Bin, so you can always, its - it started in the third quarter much closer to around 14% and finished up about 23% and then in October, it's fallen off. So, like we said with street rate gap, and occupancy gap, we think you know September was probably the peak.

And last question from me, your store payroll costs have been pretty flattish sequentially. Just curious as you look forward, you know what kind of growth in expenses should we expect from that line?

Probably a little tougher line of sight there. You know we've done a lot around store initiatives and use of technology and store operating hours and headcount and so the teams have done a wonderful job really working towards the new staffing model and it's still evolving. We've had some good success. And what we've really been doing is not refilling. We've been doing it through attrition and we've been doing it as opportunistically as we can. There's you know, we've had two, so actually three really good years of payroll set, control and payroll expense. You know, looking forward, we think there's a little bit more around head count that we work on it. And I think that the true test for us is going to store operating hours, just when do we have to be there, when this consumer not needed to be there. How can we use technology to supplement that? So again, I think maybe on our next call, when we're talking about 2024, we might have a little more color around that for you.

And even with portfolio optimization strategies, Ki Bin, I mean it serves this topic as well right because to Dave's earlier point, where we're identifying assets or markets where we only have you know one, two, three assets and don't see that opportunity or desire to really grow and if we can exit those and redeploy and densify further in other markets, that helps when you think about some of that operational overhead that that makes its way into the store level costs.

Thank you.

Thanks, Ki Bin.

Our final question is from Juan Sanabria with BMO Capital Markets. Please proceed.

Hi, just wanted to ask a follow-up on the cap rates, essentially, you said, you'd transacted on the most recent acquisitions in the third quarter around 6%, so just curious if you think that's a good indication of spot yields or if that's maybe a still number acquisitions where you kind of agreed to months back and not indicative of where rates are today. So just curious on the commentary with regards to transaction pricing today versus that 6% cap rate that you noted earlier for third quarter deals.

Yes, and good question, Juan. There's little bit of legacy to those, to your point as we, those deals. Those deals have kind of materialized and really worked through the process. You know it's hard with cap rate because it's also these were one-off assets in one-off markets in - where you know that could dictate if it's a 5% cap market or a 7% cap market, right. I mean, just depending on type of asset, type of quality, type of market. I think, I think cap rates today, they're certainly starting to nudge up a little bit. But there's still a big spread between seller's expectation and buyer. And you know in our industry, you typically don't see a lot of stress in the product type. And so you know we are seeing you know individual properties sell. We're seeing - smaller portfolio sell. And you know, I mean and we're also seeing deals not trade because the expectation of prices not being met. But I would tell you, I would - if looking back to where we've come from '21 to '22, now to '23, cap rates are definitely nudging up. And you know I don't know if it's 25 basis points, 50 basis points from where they were maybe a year ago. But it's also by market, by property type, a lot of variances in there, right to drive that cap rate.

Thank you very much.

Thank you.

We have reached end of our question-and-answer session. I would like to turn the conference back over to George Hoglund for closing comments.

Thank you all for joining the call today. And we appreciate your continued interest in NSA. We remain confident in the long-term outlook for our business. And we look forward to seeing many of you at the NAREIT Conference in two weeks. Thanks.

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