Welcome to the first quarter 2018 Extra Space Storage Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Jeff Norman, Vice President, Investor Relations. Sir, you may begin.
Thank you, Chelsea. Welcome to Extra Space Storage's first quarter 2018 earnings call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statement due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, Wednesday, May 2, 2018. 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.
I would now like to turn the call over to Joe Margolis, Chief Executive Officer.
Hello, everyone. Thank you for joining us for our first quarter call and for your interest in Extra Space Storage. Four months into the year, 2018 is progressing as planned. We held occupancy through the winter months and ended the quarter at over 92%, 10 basis points ahead of 2017. The steady demand for our need-based product, together with our ability to capture customers, not only allowed us to maintain occupancy, but also gave us pricing power. This pricing power drove same-store revenue growth of 5.2% in the quarter and positions us well heading into the summer leasing season. We continue to see new supply, which has an impact on performance in certain sub-markets. However, our digital marketing platform is doing a great job driving qualified traffic, and our proprietary revenue management systems are optimizing price and promotion to convert the traffic to rentals.
Our technological advantage over smaller operators, together with our diversified portfolio, have led to steady performance. In periods of elevated supply and heightened competition, the advantages held by the larger operators become more apparent, we see that in the market today. We continue to have success acquiring properties through off-market transactions. In the quarter, we invested $71 million in 6 acquisitions and completed a $14 million development. All but 1 of these acquisitions were from existing relationships where we did not have to compete on the open market. Subsequent to quarter end, we closed a buyout of a joint venture partner's interest in a 14-property portfolio for $204 million. While the cap rate for the portfolio was at market, the sale resulted in Extra Space realizing an embedded promoted interest in the joint venture of $14 million.
After crediting the promoted interest to Extra Space, the effective first-year cap rate was approximately 6%. We continue to explore opportunities to enhance shareholder returns through mutually beneficial partnerships. We continue to see significant growth in our third-party management platform. In the quarter, we added 41 stores, we expect to add a similar amount in the second quarter. Additions to our third-party platform continue to be a mix of newly constructed and existing properties, bringing high-quality stores into our system as well as additional income. Between our third-party program and our JV stores, we have 672 managed stores, which continues to be the largest in the business. I would now like to turn the time over to Scott.
Thank you, Joe, hello, everyone. Our core FFO for the quarter was $1.09 per share, exceeding the high end of our guidance by $0.01. The beat was primarily due to better-than-expected property performance and lower-than-anticipated interest expense due to the timing of acquisitions. As Joe mentioned, our same-store revenue growth was 5.2% for the quarter. This was primarily driven by new customer rate growth, which was up 4%-5% year-over-year. Discounts were down as a percentage of revenue in Q1. We project discounts to increase in upcoming quarters as we expect to use them more heavily in the summer months. Same-store expenses were up 6.9%, which is a significant increase from the low expense levels we have seen in the last several quarters. It was not a surprise.
Due to a very difficult Q1 2017 expense comp of -2%, we expected higher expense growth in the first quarter. The increases can largely be attributed to property taxes, which while elevated, were on budget outside snow removal and utility expenses. Snow removal and utility overages were driven by weather events in the Northeast and came in approximately $1 million over budget and $1.1 million over last year's numbers.
We've revised our guidance and annual assumptions for 2018. We raised the bottom end of our same-store revenue guidance by 25 basis points to 3.5%-4.25%. We have done the same for the same-store expense growth, which is also revised to 3.5%-4.25%, resulting in same-store NOI growth of 3.25%-4.5%. We also increased our acquisition guidance to $600 million to reflect the JV buyout we just closed. Of the $600 million, $482 million is closed or under contract. The $118 million that is not closed or under contract is projected to close towards the end of the year and won't have a material impact on our earnings. Seller pricing expectations are still high, and we are committed to being disciplined.
While we expect additional opportunities throughout the year, we will only transact at prices that will create value for our shareholders, even if that means investing less than our guidance. Our full-year core FFO is estimated to be between $4.57 and $4.66 per share. In 2018, we anticipate $0.06 of dilution from value add acquisitions and an additional $0.15 of dilution from C of O stores for a total dilution of $0.21. Our investments in our C of O stores and value add acquisitions continue to improve the quality of our portfolio and generate long-term growth for our shareholders. With that, now let's turn it over to Jeff to start our Q&A.
Thank you, Scott. In order to ensure we have adequate time to address everyone's questions, I would ask that everyone keep your initial questions brief. If time allows, we will address follow-on questions once everyone has had an opportunity to ask their initial questions. With that, Chelsea, go ahead and start our Q&A session.
Certainly. Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we do ask that you please place your line on mute once your question has been stated. Thank you. Our first question comes from the line of Juan Sanabria with Bank of America Merrill Lynch. Your line is open.
Hi. Thanks for the time. I was just hoping you could comment on the strength of demand. It seems like you had more vacates than move-ins this quarter and last quarter. Just curious if you can give broad comments as to why that is and just your view on demand, and how should we think about that, yet the fact that your occupancy went up. I'm not sure if it was just the size of the units.
Demand continues to be very steady. We don't see any turn down in demand across any of our channels. Our net rentals were actually up in the First Quarter, and we're very positive on that in the winter months.
Was there any impact from the weather, though? It did look like move-ins versus move-outs were kind of negative, and this is the Second Quarter in a row.
I think if you look at move-ins in the First Quarter versus move-outs in the First Quarter, you'll see we were positive and very consistent with our eight-year average.
Okay. Then just on street rates, I was just hoping you could give us any color on the net effective street rates throughout the first quarter and into April and how you're seeing things trending.
Yeah. During the first quarter, we saw new customers coming in at rates that are 4%-5% above last year, April continues to be pretty consistent with the first quarter.
Thank you.
Thanks, Juan.
Thanks, Juan.
Thank you. Our next question comes from Nick Yulico with UBS. Your line is open.
Thanks. I guess a question on the guidance. Even though you did have a modest raise to the guidance, it seems like the first quarter is well ahead of the full-year guidance range. Can you just explain what factors we should be thinking about in the back half of the year that create some slowing growth?
We project, as Scott mentioned in his remarks, that we're going to use the discounting tool more in the summer, that will provide a little bit of a drag. We're continuing to face a development cycle, new supply, and that affects certain of our properties. That being said, we feel we're putting up good numbers and performing well in face of the new supply. We have increasing interest rates, which also could be a factor.
Yeah. Nick, if you look at the big changes in guidance, they're primarily related to interest expense, which obviously increases due to the $200 million acquisition, which was financed all with debt. We increased interest expense slightly due to a change in the LIBOR curve, which you've seen recently. In addition to that, we had a slight adjustment in our tenant insurance and a couple of other items. Those are the big kind of puts and takes, and then also the benefit of the $200 million acquisition we just did.
Okay. A question on supply. What are your thoughts on the supply impact this year versus last year or maybe on a three-year moving period? How are you thinking about where we are in the supply cycle, and which markets within your portfolio you think are facing the most competition from a new supply standpoint right now?
Well, we're certainly right in the heart of the development cycle, and more of our stores are being impacted this year than last year. The markets that are problematic continue to be some of the markets that we've talked about in the past, New York City, Dallas. We see South Florida, and then we're starting to see markets like Tampa or Portland, Phoenix, that we're actually doing very well in now, but we feel there is some supply coming in those markets. Again, I feel like I want to repeat myself, even in the face of this development cycle, we're coming out of the winter months at 92% occupancy with positive rent growth. We have many markets that we're not facing similar supply challenges. We have a broadly diversified portfolio, and we have highly developed proprietary systems that maximize revenue in the face of new competition.
We're not ignoring new supply. We understand what it is. Our guidance reflects it, but we're able to operate pretty well in the face of these conditions.
Appreciate it.
Thank you. Our next question comes from Smedes Rose with Citi. Your line is open.
Hi, thank you. Just to follow up on that, I wanted to ask you mentioned that seller pricing hasn't really changed or expectations are still high. Are facilities transacting, or are they just waiting and thinking that at some point they'll get the price they want? It just seems surprising that pricing wouldn't have come down somewhat, given deceleration at least across all of the public companies in terms of same store. I guess along with that, are you seeing any changes in the availability of capital for developers in terms of either from lenders or shrinking returns maybe changing their thoughts about new development?
Smedes, I'm surprised as you are that we haven't seen any increases in cap rates. Certainly deceleration, increasing in interest rates, other factors would make you think there should be some price movement. I think all of that is offset by just the large amount of lots and different types of capital seeking exposure to the self-storage space. Deals are transacting, and we see lots of capital from large private equity funds to more regional people who've just put together a small pool of money, and they're buying self-storage. On the development side, there are factors that I would expect to slow down the development factor. Construction costs have increased even before the steel tariffs were announced. Steel was up 15%. Construction costs are up, labor costs are up, interest rates costs are up.
When you take all of those factors on the cost side, if you do honest underwriting on the revenue side, development deals are starting to shrink. It's certainly our hope that that will slow down some of the development that shouldn't be taking place right now.
Okay. When you bought out your JV partner's interest, which wasn't included in your initial outlook at the 4Q, was that something they came to you with, or was it something you were working on, but you weren't sure that it would be completed this year? Just how did that, I guess, change from last report to this one?
We were working on it at the last report, but it was not in any way firmed up. We did not know about it much earlier than that. This is a single client account of one of our partners that is in somewhat of a drawdown mode, and they're liquidating properties to generate cash, and we were able to take advantage of that.
Okay. Thank you.
Thanks, Smedes.
Thank you. Our next question comes from George Hoglund with Jefferies. Your line is open.
Yeah. Hi, guys. Just one question continuing on the capital interest in the space. With all this demand from private equity looking to get in the space, do you think at some point we see them try to go at one of the public companies to get a larger portfolio, or why haven't we seen that happen to date?
Boy, that's hard to comment on other than this is a management-intensive business, if someone was going to make a play for a large company, they would have to have a way to operate it. I'm assuming if they're going after a public company, that means they're not happy with the current operators, so they have to figure that out. I don't know if that's going to happen or not.
Okay. Then just on the buying out JVs, do you think there's greater interest from some of your JV partners to liquidate sooner rather than later, or are you noticing any change in desire from your partners to remain invested?
We have a variety of partners. Some are which perpetual life open-end funds that may never sell, and others are either closed-end funds or IRR-driven or have other incentives, and it's truly a case-by-case basis.
Okay. Thanks for the color.
Sure thing.
Thank you.
Our next question comes from Jeremy Metz with BMO Capital Markets. Your line is open.
Thanks. Hey, guys. Scott, acquisition volume is more than double your initial expectations here. You mentioned earlier funding this with debt. I'm sure it's just a rounding issue, but your share count guidance is down 100,000. The stock today, they call it a 12%-13% premium to consensus NAV. Can you just talk about your decision here to fund activity with debt, thoughts around using your equity for currency? Is this something we should look for if you're able to continue to source additional deals from here?
Yeah. Our guidance is up from $400 million-$600 million, so not quite double. We left the same $50 million in equity in there. We're always looking at the best source of capital. I think that equity is always an option. For modeling purposes, we use the $50 million, and it doesn't really move your ratios much to go from $400 million-$600 million. In terms of your share counts, part of that is timing on when those OP Units were issued. They've pushed towards later in the year. We're always going to try to use the cheapest cost of capital possible. Equity, if we were to ever issue equity, you'd want to do it when your stock is appropriately valued, and you'd want to do it when you have somewhere to put that money to work.
We don't look to issue equity just to pay down debt. We feel like equity is more expensive than debt.
Overall, we're targeting to remain leverage neutral.
Yeah.
While we fund this with debt, because of our NOI growth, we're maintaining a leverage neutral position.
Okay. Appreciate that. Then sticking with the acquisitions, you talked about generating a lot of off-market activity here. Can you just kind of give some color around what's driving the increased activity, maybe relative to some of your initial expectations? I know it's a little hard to forecast acquisitions, but wondering if the activity is a result of sellers today who previously were holding on but maybe just want to completely sell out now given the rising supply or good, but even lower revenue growth expectations at this point.
All of the increase in our expectations is this one transaction, the JV buyout. Other than that, our acquisition volumes are as projected. We are seeing folks who have built a new self-storage facility. They're somewhere in the lease-up process, and either it's not going as well as they expected, or it's not going as well as the banks expected, or they're nervous about the future and they want to take their chips off the table. We are seeing some of those opportunities. Again, the pricing's got to be right for us to transact, as Scott said.
If you look at where our acquisitions are weighted this year, excluding this $200 million transaction, there's a lot of C of O deals that we've been working on for the past several years, and those are just completing this year and will close this year.
All right. Thanks.
Thanks, Jeremy.
Thank you. Our next question comes from Jonathan Hughes with Raymond James. Your line is open.
Hey, good afternoon. Thanks for the time. Looking at the New York same-store pool, revenues there were up almost 4%, but that was down a little bit from the fourth quarter. I know that's one of the more supply-impacted markets. Could you just talk about what happened there? Was it just new openings or maybe the properties added this year were responsible for the deceleration? Just trying to understand what happened there because I was expecting that to actually accelerate from the fourth quarter.
Yeah. I'm not sure it was such a change that one quarter change of that magnitude, we can call a trend or point to some big change in the market. We continue to do much better outside of the boroughs. We had about 4% revenue increase outside of the boroughs. Inside the boroughs, we are sub 2%. That being said, we only have eight stores in the borough, so it's a very small sample. We don't see any significant change in the market.
Okay. That's helpful. Then just one more. The boost to revenue growth from the new same-store assets was about 30 basis points in the quarter. I think, Scott, you mentioned last call, this would be more like 50 basis points at the start of the year. Just curious if that glide will be a less drastic decline or if there was something in the first quarter that led to that being a little less than you discussed in February.
I would tell you it proceeded pretty similar to what we expected. I think that we expected there to be a boost this year, but not as large as last year. I don't recall saying the 50. I think we were expecting it to be closer to where it is today and then going to zero by the end of the year. I would tell you our same store, the benefit from change in pool is pretty similar to what we were expecting.
Okay. I'll hop off. Thanks for taking my questions.
Thanks, Jonathan.
Thank you.
Thank you. Our next question comes from Robert Simone with Evercore ISI. Your line is open.
Hey, guys. Thanks for taking the question. Most of my questions have been answered, just really quickly on the expense growth and on the added snow removal and utilities in the Northeast. April was kind of a poor month weather-wise as well. I guess I'm just wondering how much or if any of the guidance raised on expense growth was some carry over the bad weather in April, or whether that was all Q1 related? Just trying to figure out if there's any cushion, so to speak, built in there at all.
No, our expenses did not change materially in April. Anything that's happened is what we've built in.
Got it. Thanks, Scott. Appreciate it.
Thanks, Rob.
Thank you. Our next question is from Todd Stender with Wells Fargo. Your line is open.
Hi. Thanks. Can we hear more on the portfolio that you acquired subsequent to Q1, where it's located, occupancy, and why does it make sense to acquire that? I know the partner was stepping aside, but maybe just thinking about your growth expectations.
Sure. The 14 properties in 12 states, highly diversified across the country. These are properties that we acquired in the Storage USA transaction. They're older properties. We know them very well. They're stabilized. As you know, as properties get older, they get a larger proportion of long-term customers, so they just get more and more stable. Acquiring from a JV partner from a management is a very safe transaction for us. We know the assets very well. We know the cash flows. We know if the roof leaks, et cetera. We have no transition costs, no branding costs, no broker costs. We didn't steal the properties in any way. We acquired them in a market cap rate in the mid-fives.
One of the big benefits here is this venture had a very traditional prep promote structure where upon liquidation, if the venture received a certain return threshold, any funds above that, we got a disproportionate share of those funds. We got a promote. That was $14 million in this case. That was nowhere on our books, and we were unable to access that without this type of transaction. Even without that, this was a good market, safe deal for us. With that, it provided us with some additional benefit.
Thanks for the color. Do you get that promote? How is that booked? Is that going to show up in Q2? How do you reconcile that?
In effect, it reduces the purchase price. If the 100% purchase price is $225 million, we don't have to pay for our 5%, nor do we have to pay for the $14 million. It just reduces cash out of our pockets to buy $225 million worth of real estate.
Got it. Are you assuming any mortgage debt, and is the rest going on your line?
There was about $89 million worth of debt that we assumed, and we're currently considering whether to keep that or extend it or do something with that debt. As of today, we assume that debt and the rest went on our line.
Great. Thank you.
Thanks, Todd.
Our next question comes from Vikram Malhotra with Morgan Stanley. Your line is open.
Thanks. I just want to go back to the discounting that you mentioned. Can you talk about what is causing you to try to test the discounting, increase the discounting across your markets? Can you clarify, is this discount higher relative to last year in the second and third quarter, or is it more of a sequential trend?
Yeah, I would tell you it's an assumption where discounts will be higher in the summer months, and the assumption is in order to keep rate, we are going to discount more. You really have the option of cutting rates, increasing discounts, increasing marketing spend, and kind of based on our plan this summer, the assumption is we will increase discounts.
Sorry, the increase again is relative to last year or relative to just the way you exited the quarter?
Yeah, it's more relative to last year.
Okay. Then just one more, I think, big picture question. Correct me if I'm wrong. I think on the last call you had indicated stability in revenue likely pick up in the back half of the year. I'm wondering if that's still your expectation or any signs that you could see certain markets accelerate.
Yes, that continues to be our expectation that primarily due to the summer month discounting, which may depress those months a little bit. We'll see acceleration in the back half of the year.
Okay. Thank you.
Thanks, Vikram.
Our next question comes from Ki Bin Kim with SunTrust. Your line is open.
Thanks. Can you just put a little more color into the discount patterns in terms of what % of customers were receiving it last year versus this year? When you talk about maybe using it more this summer, how does that look like?
Yeah. Last year in the first quarter, about 82% of our customers coming in the door got discounts compared to 59% in the first quarter of 2018. Last year you were discounting at just over 4% of revenue. This year you're just under 4% of revenue in the first quarter. During the summer months, you were 60% of customers roughly in the second and third quarter getting discounts, then call it just under 4%. We're assuming it will be above 4% and above the 60% of new customers coming in the door getting discounts.
I see.
part of it is also a discount mix. It might be last year you were giving half a month free, now it's a full month free.
Mm-hmm. Is there something just generally speaking, that you're doing with pricing systems or the way you advertise or the way you manage your properties today versus maybe a few years ago? Just because to push rates 4%-5% with less discounts and holding occupancy, is a rare thing.
I would tell you that we've had the same goal throughout, which is to maximize revenue, and that we are always testing and trying different things to achieve that goal.
Okay, thanks.
Thank you.
Thanks, Ki Bin.
Thank you. Our next question is from Eric Frankel with Green Street Advisors. Your line is open.
Thank you. I'm obviously a little bit new to the company, but I'm trying to reconcile your page 19 showing how the prior same-store pool versus the new same-store pool, there's about a 40 basis point impact to NOI. If I take a look through your past subs, it looks like the impact should be greater. Can you just clarify how that calculation works? It seems like the impact should be closer to 100 basis points, but just based on what your 2016 wholly-owned acquisitions generally looks like, your revenues and expenses for the prior quarter. Hopefully you can explain that a little bit further.
I would tell you it really depends on the number of stores you're adding to the same-store pool each year, the mix of those stores. Going from 2016 to 2017, we added the SmartStop acquisition. It was 122 stores that we had purchased that still had a small amount of rate growth in them and maybe a small amount of lease up. Last year we received a bigger benefit. The stores that moved in from 2017 to 2018, they were more core stores, they were acquisitions we had made from some of our joint venture partners where these stores went back to Storage USA. It's a mix of the stores that you're moving in and kind of the upside in those stores.
We've always kept the same definition, but we've also wanted to break out if there is a benefit from some of these types of stores. This year it's more just a mix of the stores.
Okay, thanks. Obviously, I'll follow offline too. One other question. You referenced earlier in the call, how you work on these Certificate of Occupancy deals for years in advance as these developments kind of come through. Have you ever thought about doing some sort of forward equity issuance based on if you think your equity is attractively priced, but there's a CO deal you have to close maybe two or three years from now? Have you ever thought about structuring your deal that way?
Always something we're looking at. Anytime we consider equity, you'll always look at a forward and what the pros and cons are with that.
Some of the CO deals we agreed to issue OP Units for. In effect, that is a forward equity.
That is absolutely true. Awesome. Thank you very much. Appreciate it.
Thanks, Eric.
Thank you. Our next question is from Wes Golladay with RBC Capital Markets. Your line is open.
Hi guys. I want to know on the markets where there is heavy supply, have you experienced increased churn from some of your stickier tenants, the ones that have been with you for multiple years? If not, have you noticed a major variance in your older assets versus your newer assets in markets where there is heavy supply?
We see very few customers going to rent a truck, pick up their stuff, and go across the street to the new supply. New supply is more of an effect on your incoming rentals than on people picking up and moving. Was there a second part of the question?
Yeah. Okay. Under that logic, would some of your older assets actually fare better in a market where there is heavy supply? Because I assume you'd have a larger component of the mix of tenants there would be those multiyear tenants, so they could actually potentially fare better than the newer assets.
Yeah. Really two reasons. One is what you point out is the mix of tenants. The other is frequently our older assets are an older generation. There are a lot of single-story drive-up units, and much of the new supply are multi-story interior climate control, and we have a product that they don't have. The older drive-up is very attractive and some of the new supply can't offer that.
Okay, thanks for that. Then on the financing front, the move up in LIBOR has been pretty sharp. Has that changed your view on potentially terming out more of the debt if we were to get a pullback in the financing market?
Yeah, we're looking to term out debt. We're looking to extend our average loan, the term. We're also looking obviously to manage the variable rate debt that we have. Very focused on that today, and we are willing to take a little bit of pain today to extend term and take advantage of some of those opportunities.
Okay. Thank you, guys.
Thanks, Wes.
Thank you. Our next question is from Todd Thomas with KeyBanc Capital Markets. Your line is open.
Hi. Thanks. Good afternoon. First question, I was curious if you could give us an update on occupancy maybe through the end of April here and where that stands year-over-year.
Sure. Occupancy continues to be pretty steady with perhaps a slight move in the right direction.
Seasonally, it's moving higher. Any comment around where that is sort of on a year-over-year basis?
Very similar to where we ended the quarter.
Okay, got it. Just following up back to the discounting that you talked about, maybe a little bit of a clarification, I suppose. I think you said that the discounting will be used to maintain rate. Can you just explain that? It sounds like you might be moving asking rents higher to offset the higher discount, so effectively maintaining rates or maybe still increasing rates, move-in rates. Is that the right read, or is there something else that you're suggesting?
I'm not saying that we're looking to increase them significantly more than what we've done in the first quarter, but we feel like we will have to increase discounts going forward in order to maintain that kind of 4%-5% revenue growth in our new customer rate growth.
Okay. The changes to the discounting policy here over the next several months here, is that expected to be broad-based across the portfolio, or will it be concentrated in some of the supply-impacted markets, mostly?
It's across the portfolio. Obviously, a highly occupied property might have different discounting policy than one that has less occupancy.
Sure. Just lastly, in terms of the comments around new supply, it seems like you're expecting supply in some of the markets that you mentioned, I think Phoenix, Tampa, Portland, that you're expecting maybe a little bit of a greater impact today than you have previously. Is that right? If so, what's changed or given you that indication?
That is correct, as we do our best to track quarter-to-quarter on not only new deliveries but what's in the pipeline in permitting or under construction, we see development moving from markets like Dallas that are saturated to other markets. We then base our projections on what we think is going to happen at those markets. It's hard to be exact because a lot of stuff that is planned doesn't eventually get built, but a good proportion of it does, then impacts our stores.
Okay, thanks.
You're welcome.
Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.
Thanks. I guess Wes had kind of asked the question on the debt side, but I just was hoping, Scott, you could give a little more detail. You've got, I think, about two-thirds of your debt when you look at the column with extensions expiring between 2020 and 2022. I'm just curious how you're thinking about proactively maybe pulling some of that forward to take some of the risk off the table now. Is that stuff that you just have to kind of wait till the natural expiration and, I guess, how far out on the curve are you willing to go today, between 5 and 10 years on debt terms?
We are actively working with lenders on many of the loans coming due in 2019, 2020, and 2021. We're willing to extend those out to 2025, and we're looking to get the spreads down. Then we're trying to work through some of the swap issues, because many of those loans that come due in 2020, for instance, have swaps on them. We're trying to work through swap issues, extending swaps, getting things re-swapped, letting things go variable, trying to work through a balance of that. The goal, obviously, is to try to lock in some of that rate and extend the term today. Like I said, I think that there are times when we're willing to take a little bit of pain today. Part of our increase in our interest rate today is some of that pain.
We are actively negotiating on, of the 2020 loans that are coming due, if you assume that we exercise the contractual extensions and then do a couple of the refinancing that we're working on today, the amount coming due in 2020 is under $1 billion. Actively working on it, actively looking to extend the term and lock in rate.
Okay. If you had to maybe ballpark sort of the benefit or the more likely the pain, what are you sort of looking at in terms of an average increase in rate, kind of all in between base rate and kind of maybe spreads coming down?
Spreads, if you take a loan that was done two or three years ago, your spread would've been 160-180 over. Today, the market rate's more 140 in terms of a spread. Rates have gone higher on us. On average, they are going up, but it depends really on when we did the loan.
Okay, that's helpful. Thanks. Maybe just back on development, Joe, we continue to see the FTR data isn't really showing much of a letup. I realize that the data bounces around kind of month to month. Just given that the private developers continue to make a lot of money on the CO deals, to our knowledge, there really hasn't been much pain on the development front with these developers. I guess it sounds like you continue to expect the supply to remain high, although your comments about pricing going up and yields coming down would suggest maybe that gets dampened. That just doesn't seem to be showing up in the data just yet. What are we missing?
I'm not sure you're missing anything other than it's important to slice the gross data by market. The fact that the same amount of stores may get delivered in one year the next year, if they're delivered in different markets, it will have less of an impact. If everything keeps getting built in Dallas and Miami, it's going to be a disaster, but it's not the case. People are starting to look elsewhere and build elsewhere. There's still a lot of development, but I think it's getting spread more rationally, if you will, across markets. I don't mean to suggest everything's rational, every development that's going in makes sense, but there is some market forces pushing development to where it should be.
Okay. Can you think of many examples in the markets that you compete in where developers have actually pulled back or not gone forward with projects because costs sort of became prohibitively expensive or the yields just didn't pencil, is that just not really happening yet?
It's interesting. If you talk to the folks who have been in the business for some period of time who are a little more experienced, they absolutely are canceling projects and pulling back. The folks you see who are more excited about going forward are maybe more the newcomers to the markets, to the business.
Got it. Okay. Thanks for the color.
Thanks, Steve.
Sure. Thank you.
Thank you. Our next question is from Todd Stender with Wells Fargo. Your line is open.
Hi. Thanks. Just one follow-up. I'm not sure if I missed this. The third-party managed properties, they ramped pretty good, upwards of about 10% growth it looks like. Is this a reflection of you've got newly built properties out there where the builder either requires it from their lender to have it managed, or they just literally need a platform to manage it? Maybe any color there on how you ramped it up so quickly.
I think that is one factor, absolutely. A second factor I would tell you is that the performance of the large operators just continues to outpace on a larger and larger basis the smaller operators. As the market gets tough, even the existing operators realize they need a professional platform. About 40% of the stores that we're bringing on are existing stores, are not new developments. I think you're right, and then I think there's also the second factor.
Just a quick follow-up on that. For the existing stores, how often are you in a competitive situation to manage that property?
I would tell you that for folks who we already manage for, almost never, although we do have some folks we manage for that split between us and CubeSmart. For new people, they almost always will look at more than one option. We are the high-cost option. We're not the cheapest out there. We're the most expensive out there. As our numbers show, we've been able to compete very well based on not how much we charge, but how much money we're going to put into the owner's pockets.
Okay. Thank you.
Thank you.
Thanks, Todd.
Thank you. I'm showing no further questions at this time. I would now like to turn the call back to Mr. Joe Margolis, Chief Executive Officer, for any closing remarks.
Thank you all for joining us today. 2018 is shaping up as expected, and we anticipate another strong year for Extra Space. We continue to experience solid property-level NOI growth and consistent external growth through acquisitions and third-party management. Our investments in people, technology and systems have strengthened our operational platform, and we have had excellent execution throughout the organization, resulting in continued peer outperformance. I want to thank you all for your interest in Extra Space and participating, and I hope everyone has a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.