National Storage Affiliates Trust

Greetings and welcome to the National Storage Affiliates second 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. 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 is now my pleasure to introduce your host, George Hoagland, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoagland. You may begin.

We'd like to thank you for joining us today for the second quarter 2023 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Kramer, and CFO, Brandon Tagashi. 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, August 8, 2023. company assumes no obligation to revise or update any forward-looking statement 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 to everyone for joining our call today. I would like to start by acknowledging and thanking all of our team members here at NSA and our pros for their continued dedication and hard work. It is the significant contributions from our team members that drive our success and we appreciate everyone's efforts. Our continued focus on people, process, and platforms is allowing us to improve our performance as we navigate very challenging comps and unusual environment for our sector. Our teams did a good job balancing the changing demand environment by effectively using all levers available to create rental opportunities and drive conversions. Our customer base remains very healthy. Our portfolio is well-positioned for long-term success, and our focus on key initiatives will enhance our ability to remain a leader in the self-storage sector. Looking at the second quarter, we had a number of operational data points that we were pleased with, including street rate growth at 3.4% over the first quarter, contract rate growth increased 1% sequentially and 7% year over year. Our existing customer base remains resilient, with average length of stay remaining well above historical norms. 50% of our customer base has now been with us for greater than two years, With that in perspective, on average, our current tenant base has now been with us for over 40 months. Our ability to implement ECRIs remains strong at above pre-pandemic levels, and insurance penetration continues to improve, increasing over 10% year-to-date. Ad debt was 2.1% of revenue, and concessions were 2% of revenue, both below pre-pandemic levels. Overall, our operational performance is strong in many areas, and our customer base remains stable over the quarter. It's worth pointing out that three rates in July were still 18% above 2019 levels, and contract rates in July were 30% above 2019 levels. We had a couple areas that did not meet our expectations. The spring leasing season was weaker than we originally forecasted, resulting in occupancy levels that were below our initial projections. Move-in activity was below the levels we had anticipated due to several external factors. First, we experienced a disappointing change in the amount of move-in demand due to the slowing housing market. Home sales were down across most of our markets. This change in volume of housing sales has temporarily decreased the demand for self-storage, which impacted our spring leasing season. Although we expect this housing trend to eventually subside, it has put short-term pressure on our business. We also had a very competitive environment for the acquisition of new customers. Our teams were navigating a dynamic street rate environment, along with elevated marketing spend across the sector. The number of rental opportunities generated was below our expectations. Not only did the rising interest rate environment put pressure on storage demand, it also put pressure on our interest expense, leading to less than expected core FFO for the second quarter. We expect interest rates to remain a headwind for the remainder of the year. These factors have led us to revise our guidance, which Brennan will discuss later in the call. As we cycle past the historically tough comps to the back half of the year, We are confident our portfolio remains well positioned for future success. I want to highlight a few areas where we are focused on delivering both internal and external growth going forward. First, we remain focused on enhancing our customer acquisition and revenue management process and platforms. We continue to strengthen our team, and we're excited about the initiatives underway to optimize the online customer experience and front-end pricing. Second, our investment in an improved data warehouse and the use of AI technology continue to improve our ECRI program, which drives our revenue growth once the customer is in the door. Third, we are actively working on repossessioning our balance sheet. We are exploring various capital sourcing strategies that will enable us to become more opportunistic when the time is right. We are confident in our strategies we will position the NSA to deliver healthy growth, as we have demonstrated since our IPO. I will now turn the call over to Brandon.