National Storage Affiliates Trust Q1 FY2025 earnings call

• Same-store revenue growth improved by 130 basis points sequentially year-over-year, with three markets seeing sequential revenue growth improvement and two top markets (Portland and Houston) inflecting positive in Q1.
• Fee rates and contract rates have seen sequential monthly growth. Occupancy was softer than expected but rate growth exceeded expectations, and revenue goals were met. The existing customer base remains healthy, and the ECRI program is successful with length of stay above historical averages and bad debt within expected ranges.
• Completed the PRO transition and is focused on operations, realizing benefits from consolidated platforms, upgraded marketing, and pricing tools, including better search rankings, enhanced pricing algorithms, and AI for call flows and staffing. Contract rates increased ~5% from Q1 levels in April, and occupancy increased 20 basis points in April to 83.8%.
• In the acquisition environment, there's a steady flow of opportunities, with $40 million in assets closed and $10 million in properties sold in Q1. Proceeds from sales will be used to pay down the revolver and fund future acquisitions, with more transactions expected in the next few months.

Core FFO per share for the first quarter was $0.54, a 10% decline from the prior year period. Same-store revenues declined 3% due to lower average occupancy (190 basis points) and a year-over-year decrease in average revenue per square foot (1%). Expense growth was 3.7% in the first quarter, with main drivers being marketing, R&M, and utilities, partially offset by a decrease in personnel costs. Same-store NOI growth was negative 5.7%, a sequential improvement from the previous quarter. Revenue contribution details weren't explicitly broken down by product segment beyond the overall same-store performance.

• Still early in the spring leasing season, assumptions unchanged from the earnings release. Midpoint assumes a moderately better spring leasing season than last year with improving pricing power and occupancy through summer. High end assumes a better-than-average spring leasing season fueled by a housing market recovery. Low end incorporates no material housing market improvement with muted seasonality and pricing power.
• Expect to be negative for same-store revenue and NOI in the second quarter year-over-year, with sequential improvement expected in the back half of the year, aiming for net debt-to-EBITDA to be in the 6% to 6.5% range in the back half.

• Broader economic and capital markets uncertainty could impact acquisition and investment decisions. Tariffs and economic uncertainty so far have no direct impact on the business, but there's potential for impact on tenants using storage for small businesses. Supply-demand ratios in some markets remain a concern with muted move-in and move-out volumes compared to previous years, affecting occupancy.

Q: Eric Wolfe asked about putting April's contract rate and occupancy increase into perspective, how much contract rates were up year-over-year, and where they are in achieving revenue synergies from PRO properties.

A: Dave Cramer responded that there's been sequential improvement in rate scheme throughout the year, with move-in rates improving sequentially, and progress is being made on PRO properties with a 250-300 basis point gap initially, expecting mid-summer to see traction.

Q: Samir Khanal asked about quantifying revenue growth pickup in the back half and into Q4.

A: Brandon Togashi said same-store revenue was in line with expectations, started the year with mid-single digits negative same-store NOI growth, still expect second quarter to be negative year-over-year, and sequential improvement is implied in full-year guidance.

Q: Michael Goldsmith asked about street rate dynamics, transaction market update.

A: Dave Cramer said there's deal flow, being patient with acquisitions to match cost of capital, active on dispositions with progress and $200 million guidance for dispositions this year.

Q: Robin Haneland asked about occupancy assumptions in guidance and market signs of housing recovery.

A: Brandon Togashi referred to February guidance, midpoint has baked in better demand than last year, and there's encouraging demand in some markets but it's early.

Q: Unidentified Analyst asked about promotions/discounts trend for new tenants.

A: Dave Cramer said concessions are within expectations, seeing a bit more promotional discount usage at higher rates.

Q: Todd Thomas asked about confidence in raising rates despite softer occupancy and vacate activity trend.

A: Dave Cramer said modeling showed lower rates wouldn't drive enough demand, repositioned in the market, and vacate activity remains muted compared to last year.

Q: Salil Mehta asked about marketing spend increase and run rate.

A: Dave Cramer said marketing spend is used where effective, run rate likely similar for rest of year depending on results, and Brandon Togashi noted 20% year-over-year increase was within expectations.

Q: Ronald Kamdem asked about vacate activity trend and interpretation of in-place customer year-over-year change.

A: Dave Cramer said vacate activity is muted, in-place customer changes are due to improved move-in rates and ECRI program success.

Q: Ravi Vaidya asked about transactions and capital recycling, demand drivers.

A: Dave Cramer said looking to trim and increase exposure in markets based on operational efficiencies, and demand drivers include small businesses, residential transitions, etc.

Q: Omotayo Okusanya asked about demand drivers and marketing ad rates.

A: Dave Cramer said there are multiple demand drivers, and marketing is working on visible positioning with improved top-of-funnel activity and more people searching for self-storage.

Q: Unidentified Analyst asked about markets performing better/worse than expectations and tariffs impact.

A: Brandon Togashi mentioned Portland and Houston performing better, and Dave Cramer said tariffs impact on tenants using storage for small businesses is too soon to tell.