National Storage Affiliates Trust

Greetings and welcome to the National Storage Affiliates Second Quarter 2020 Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, George Hoglund, Vice President, Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may begin.

Good morning, or good afternoon, depending on what side of the country you're on. As some of you on this call may be looking to follow the recent trend of moving out of the big city and into the suburbs, I'd like to remind you that self-storage is available to facilitate life's transitions. We'd like to thank you for joining us today for the second quarter 2020 Earnings Conference Call of National Storage Affiliates Trust. In addition to the press release distributed yesterday, we filed an 8K with the SEC containing our supplemental package with additional details 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, including uncertainty related to the scope, severity, and duration of the COVID-19 pandemic, the actions taken to contain or mitigate the direct and indirect impact. The company cautions that actual results may differ materially from those projected in any forward looking statement. For additional detail concerning our forward looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, Core FFO, and Net Operating Income contained in the Supplemental Information Package available in the Investor Relations section on our website and in our SEC filings. On the line with me here today are NSA's CEO, Tamara Fischer, COO, Dave Cramer, and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. I will now turn the call over to Tammy.

Thanks, George, and thank you everyone for joining our call today. I'd like to first acknowledge and thank our pros and our many team members who continue to work diligently in a challenging environment to deliver what we believe is a very solid quarter, given the circumstances. While I never imagined being satisfied with a negative same-store NOI result, the extraordinary effort by our pros and team members minimized the magnitude of that decline in the second quarter. Further, and consistent with what we've discussed historically, our pros absorb a disproportionate share of downside risk through our structure, mitigating the negative impact on cash flow and core FFO per share during challenging times. As a result, and in spite of the 1.2% decline in same-store NOI, core FFO per share increased 7.9% in the second quarter compared to the second quarter last year. This positive result is due primarily to three factors, which are largely driven by our pro structure. First, our ongoing robust acquisition volume is consistently accretive to FFO per share. Second, the internalization of our SecureCare Pro was accretive by approximately a penny per share in the second quarter. And third, our pros absorbed a disproportionate share of the decline in same-store NOI through reduced distributions on the SP units. Our unique structure was designed to align the interests of all of our stakeholders in good times and in bad, giving special priority to our common shareholders. And we saw this clearly demonstrated in the second quarter. While we're pleased with the overall performance in these challenging times, the coronavirus pandemic and its impact on the economy remain a key risk to our business. and I would emphasize that the health and safety of our employees and customers is our top priority. We've been proactively addressing the rapidly changing environment driven by the pandemic. All of our stores remain open and operating in a modified manner for safety and all have contactless rental options. We've resumed rent increases and auctions across our portfolio except were prohibited by state executive orders. Cash collections remain at or near our normal strong levels and so far have really been a non-issue. Rental activity seems to have crossed in April and has steadily improved since then as many states began phased reopening. Both same-store move-ins and move-outs were down about 28% year-over-year in April, but steadily improved to the point that June move-in volume was roughly flat year-over-year. and move outs remained down about 7% compared to June 2019, resulting in an increase in net move ins year over year in June. The steady improvement in net rental activity continued into July and we ended the month with occupancy up 80 basis points compared to July last year. Further, easing of restrictions on rent increases, late fees and auction moratoriums by states and local governments has been steadily gaining steam and fee revenue is beginning to recover. In most markets, we're putting auctioned units back into the rental system again. One important point I would highlight is related to concern that the inability to auction delinquent tenant units might have created an occupancy overhang. We've been proactively working with delinquent tenants since May in negotiating opportunities for these tenants to pay a portion of their overdue rent to vacate their units and avoid the auction foreclosure process. This has materially reduced the number of pending auctions and is a win-win for us and for our exiting customers. We currently estimate that unprocessed auctions overstate occupancy by only about 50 basis points. So given that our July month end occupancy was up by 80 basis points year over year, we're now seeing a true net occupancy gain on a year over year basis. Things have clearly moved in the right direction and we're hopeful we've seen the worst of this downturn. But the resurgence of COVID infections across a number of states and uncertainty about how and when phased reopenings will occur continue to create uncertainty and limited visibility. As such, we are not reinstating 2020 guidance at this time, but we will continue to monitor and evaluate as the year progresses. Although the environment remains challenging, We think NSA is well-positioned given the downside protection inherent in our unique pro-structure, essentially no lease-up exposure and our greater concentration in secondary and tertiary markets, which have been less affected by COVID-19. There have been a number of analyst reports and media articles published over the past couple of months highlighting the early stages of out-migration from urban areas and primary markets to more suburban locations and secondary markets. This is an important trend to keep in mind when you think about how our portfolio is positioned and how this shift clearly benefits NSA. We believe this trend will only gain more investor focus as time goes on. Brandon will spend more time talking about our balance sheet and liquidity, but we were extremely pleased with the execution of our $250 million debt private placement transaction, which closed just this week. The 2.99% coupon on the 10-year notes was the lowest of any 10-year public or private notes issued by a self-storage REIT. On the external growth front, we continued to evaluate opportunities and acquired four wholly owned properties during the second quarter for a total investment of $36 million. And subsequent to quarter end, we acquired one additional store valued at $6 million. Three of these assets were from our captive pipeline which remains a strong source of acquisition opportunities for the future. The external acquisition environment slowed significantly in the second quarter as many portfolios were pulled from the market and bid-ask spreads remained wide. Now that operating fundamentals are stabilizing and there's a sense that the worst is behind us, we're starting to see portfolios come back to market and overall market transaction activity is picking up. NSA is extremely well positioned to take advantage of potential opportunities with a reloaded revolver following our private placement, OP units that serve as attractive acquisition currency, and the expectation that we will continue to execute on captive pipeline acquisitions. I'll now turn the call over to Brandon to discuss operating results and balance sheet activity.