Good day, ladies and gentlemen, and welcome to the Q2 2016 Extra Space Storage Inc. Earnings Conference Call. At this time, all participants are As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jeff Norman, Senior Director of Investor Relations for Extra Space. You may begin.
Thank you, Shane. Welcome to Extra Space Storage's 2nd quarter 2016 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 statements 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, Thursday, July 28, 2016. 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 Spencer Kirk, Chief Executive Officer.
Hello, everyone. It was another solid quarter for Extra Space. We produced same store revenue growth of 7.6%, primarily from rate. Expenses increased 3.1%, which led to NOI growth of 9.4%. Quarter end occupancy was very strong at 94.4%.
FFO per share as adjusted grew more than 5% year over year. This exceptional growth is the result of solid operating performance, accretive acquisitions, joint ventures, 3rd party management and optimized balance sheet. These growth components have produced 23 consecutive quarters of double digit FFO growth and enabled a second quarter dividend increase of 32%. Year to date, we have closed over $500,000,000 in wholly owned acquisitions, bringing the total property count to 14 12 Extra Space branded stores. Marketed acquisitions continue to be as competitive as we have ever seen.
We continue to be disciplined and only transact at levels that are beneficial for our shareholders. We've been particularly successful sourcing off market transactions through our joint ventures, 3rd party and other relationships. We believe that the 630 Extra Space branded stores, which are not wholly owned, will continue to provide outsized acquisition opportunities. I'd now like to turn the time over to Scott.
Thank you, Spencer. Last night, we reported FFO as adjusted of $0.94 per share, meeting the high end of our guidance, Including costs associated with acquisitions and non cash interest expense, FFO was $0.91 per share for the quarter. Our same store revenue growth was driven by higher rates to new and existing customers. This is consistent with our guidance, which assumed minimal benefit from occupancy and discounts. The change in our same store pool from 2,006 15 to 2016 positively impacted our revenue growth by 30 basis points for the quarter.
Our top performing markets included Atlanta, Tampa, St. Pete and most of the state of California, all of which experienced double digit revenue growth. The slowest markets were Chicago, Denver, Memphis and Washington, D. C, each of which still had positive revenue growth. Our 2015 acquisitions, including SmartStop, are performing in line with our estimates and lease up times on our C of O deals are significantly faster than underwriting in our historical norms.
Year to date, we have closed or have under contract to close 547,000,000 dollars of wholly owned acquisitions. In addition, we have $248,000,000 in joint venture acquisitions closed or under contract. Our investment in these JVs will be $81,000,000 this year. All of these acquisitions are expected to close in 2016. During the quarter, we restructured 2 of our joint ventures to realize the value of our promote.
The promote was exchanged for additional ownership FFO as adjusted is estimated to be $3.71 to $3.78 per share. FFO is estimated to be $3.59 to 3 $0.66 per share. This guidance includes $0.05 of dilution from our 2015 16 C of O stores. It also includes 2015 2016 acquisitions that as anticipated will require time to be brought up to our performance standards. As these properties move towards our portfolio average, we expect outsized NOI growth.
I will now turn the time back to Spencer.
Thanks, Scott. While our unprecedented revenue and NOI growth have moderated, our ability to produce the industry's best FFO growth year in and year out has not moderated. This quarter's FFO as adjusted grew 25.3%. This is the result of our multifaceted strategy, which includes the industry's leading operating platform, the industry's most successful acquisition program, the industry's largest third party management platform, the industry's largest and most successful JV program and a management team that clearly understands the growing FFO is our number one priority. In closing, as we expected, our same store performance has gone from phenomenal to excellent and FFO growth is still phenomenal.
Now let's turn the time over to Jeff to start the Q and A session.
Thank you, Spencer.
For our
Q and A session, we are also joined by Joe Margolis, our Chief Investment Officer. Officer. In order to ensure that we have adequate time to address everyone's questions, I would ask that everyone keep your initial questions brief.
And our first question comes from the line of Ki Bin Kim of SunTrust. Your line is now open.
Thank you. Hi, everyone.
So I
just wanted to ask you a couple of questions regarding the same store revenue trends, the deceleration from about 9% to 7.5%. So if I put it in perspective, that 7.5% growth, we get it. I mean, it's still better than almost any other readout there. But at the same time, the decline is bigger than what we've seen from your portfolio in quite some time. And some of that growth also carries with it just good pricing momentum you've experienced over the past year.
And it may not necessarily be reflective of new customer activity today. So my question is, what is really happening on the front lines of new customer activity in terms of just your price sensitivity and what's happened with street rates year over year promotion usage, things like that?
Yes. Ki Bin, this is Scott. The deceleration from Q1 to Q2 and from last year, I would tell you is largely the result of no occupancy delta and not significant discount delta. So last year, we experienced call it 200 to 300 basis points of we benefited 200 to 300 basis points of occupancy and discount delta. This year, that's gone to minimal amounts.
Our current street rates and our current achieved rates are still very solid. We're still getting, call it, 6% to 8%, I think, right? More recently, it's been about 7%. So we're still seeing very good street rate and achieved rate growth.
And so if I take
that into consideration, it sounds like you I mean, obviously, you had the occupancy benefit loss, but are promotions almost going the other way where it's higher year over year?
Promotions are move Yes, I would tell you promotions are moving in line with rate. So in other words, if rates are up 7%, discounts are up 7% also. So discounts may be up slightly, but not significantly at all or not materially. It's moving with rate.
I guess what I meant was, are for new customers moving in, what is the percentage of new customers moving in that are getting a promotion this time around?
So it's between 60% 65%, and that's not very much above last year. Last year was similar numbers, call it 60% to low-60s. And you also have to look not just at the percentage of customers getting the discount, you have to look at what discount they're getting. So it may be they're getting a discount, but it's 1st month half off or something smaller than they received last year.
Okay. Thank you, guys.
Thanks, Ki
Bin. Thank you. And our next question comes from the line of Gwen Clark of Evercore ISI. Your line is now open.
Hi, guys. Good afternoon.
Hi, Gwen.
So just a quick question. On the CO pipeline, it looks like a chunk of the assets will be wholly owned, while others will be in a JV structure. Can you talk about the decision making process you go through when evaluating these?
Sure. This is Joe Margolis. We have set up several programs with local developers where they in targeted markets they will source CO opportunities for us to review and will in a programmatic basis execute a number of those in joint venture in those markets.
Okay. And do you have the right of first refusal in the event that the partner would like to exit eventually?
Yes. In all of our ventures, we have protections on exit, so we have the opportunity to purchase. That's a very important tool for us to make sure that we have.
Okay. That is helpful. Thank you very much.
Thanks, Quinn.
Thank you. And our next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Your line is now open.
1, any changes in the number of completions you're expecting in 2016 'seventeen? And then 2, you've talked about we've heard about Chicago, Denver and Houston as seeing new supply lead to some relative softness. I'm just wondering if there are any markets on your radar at this point?
Good question, Todd. It's Spencer. First of all, our best guesstimate for 20 16 is 700 properties likely to be delivered, 2017 maybe a little bit more. I think more importantly, in the last two and a half years, if I could just provide a little color, 45 stores came online within a 3 mile radius of one of our properties and we still delivered outstanding performance. Within that same 3 mile ring, we see an additional 46 properties to come online sometime 2016, 2017.
So yes, in some markets there's been a little disruption of new supply in Denver, Boston, San Antonio. We're feeling the effect. But there are other markets where it's not disruptive because there's virtually no new supply. When you think of Northern California and Southern California, we're doing phenomenally well. So while there is supply, the effect has yet to be felt system wide and this is one of the beauties of geographic diversification.
Okay. And then I was just wondering if you're seeing any change at all in existing renters behavior as it pertains to rent increases. Are you seeing any change in move outs associated with rent increases at all?
No. Existing customer rate increases continue to work beautifully. No change.
The other thing I would add to that Todd is customers are actually staying a little bit longer. We are seeing our length of stay increase.
Where is that at today?
You are up by about a month from where they were 3 to 5 years ago, so closer to 14 months. That's everyone that has moved in and moved out versus everyone that is in your property today. Okay. Thank you.
Thanks, Todd.
Thank you. And our next question comes from the line of George Hoglund of Jefferies. Your line is now open.
Hey, guys. Just looking at the back half of the year and same store occupancy, as last year, the end of 3Q, you had 90 3.6% and then the 4Q is 92.9%. So I was wondering as you're from today looking towards the back half of the year, do you think year over year occupancy would be relatively flat or do you think you may be able to eke out some gains on a year over year basis?
At this point, we're assuming that there's going to be flat, 0 delta from last year.
Okay, thanks. And then also on some of the markets that had lower performance this quarter relative to the broader portfolio, obviously, we just touched on some, but due to new supply. But are there other factors you were seeing that could be characteristic of just certain individual markets that led to weaker performance, for example, like Memphis?
Yes. I would tell you new supply affects it, but also you've got to look at prior year performance. For instance, Chicago today is not doing great for us a couple of years ago. And if you look at a 10 year average, Chicago has been very strong for us. So I think that you can't continue to raise rates 16% year after year after year.
And so I think that some of these markets probably just have a little bit of fatigue year over year and you're coming up against some very tough comps.
Okay. Thanks guys.
Thanks George.
Thank you. And our next question comes from the line of Juan Sanabria of Bank of America. Your line is now open.
Hi. Just a question on what you're seeing on the West Coast markets. One of the themes from some of your other non self storage peers has been a weakening in demand, maybe slightly weaker job growth in the Bay Area and San Francisco. Anything you're seeing in the data you look at in terms of traffic or anything like that that gives you a picture of what you're seeing on the ground, whether it's staying still strong or any softening?
We have not seen the softening yet. We've seen it from some of the other property types. We've heard them talk about it on their calls and whatnot. But as of today, those markets are still very strong for us.
Okay, great. And just a bigger picture question in terms of competition, full service providers. Can you give us any sense of what kind of market share those players may have in some of the top markets like in New York or San Francisco? Any views on the potential disruption of that technology or that business's viability at this point?
Yes. Juan, it's Spencer. Number 1, for the full service ballet concierge, whatever you want to call it, we would say their market share today to the best of our knowledge in any market is de minimis. And for this company, we don't believe it's a viable business model.
And why is that? Is it just the cost of transportation? Or what makes you so confident?
Well, we've studied it extensively. We have looked at the mechanics of what it really takes to provide that full service on demand at a price point that is competitive. And I think, Juan, the fact that none of the large storage REITs made any announcement that they're getting into this ought to be a pretty good indicator that they don't see the dollars out there as well. There have been a lot of potential disruptors that have announced themselves in the past that would cause pain to the storage industry. And for whatever reason, it just has not materialized.
We still think that storage offers the best value for a customer. And any time you try to put 2 people in a truck and transport it across the George Washington Bridge and do so at a cost effective price point, we can't get there mathematically or economically.
Thank you very much.
Thanks, Wang Yu.
Thank you. And our next question comes from the line of Smedes Rose of Citigroup. Your line is now open.
Hi, thanks. Spencer, just a couple of questions. If you go back to the beginning of the year, just remind us, has your supply outlook for the number of facilities coming on this year, has that I think it may be a little bit increased from what you initially thought or is that the same at around 700? It seems to me that it's gone up, but maybe I'm remembering it wrong.
I think I gave a range. I don't remember. I'd have to look at the transcript, but 5 to 7.
Okay. So I mean, I guess my question is, do you feel like facilities under construction are just opening faster? Or is there more are you guys discovering more on the margin? It seems like overall based on commentary from private participants as well that the pace of supply is starting to increase after many years of having a lot of gating issues. I mean, is that something that you would agree with or not?
Yes. I think there is more talk, there's more action and there's more supply, which is why if you go to one of my prior questions, it doesn't matter if 700 properties or 800 properties are being built or 1,000 properties are being built. What matters is if those properties are built right across the street or next door or within 1 or 2 miles of your property that you're currently operating. And as I indicated, over a 2.5 year period, we only identified 45 properties in our entire portfolio within a 3 mile ring. And Smedes, if you think about a 3 mile ring in 1 of the boroughs of New York or Downtown San Francisco, your trade area isn't 3 miles.
We were generous on the 45 property count. Your trade area might be a mile or less in a dense metropolitan area. And if you think about 46 properties that we have identified that are permitted and or in some stage of construction to come out of the ground in 2016 or 2017 also within that 3 mile ring. Yes, there is competition. Properties are being built.
The question is when will we feel the impact? And today, the impact has been localized to a few specific markets and there are many markets where it's not felt at all. So we're going to have to wait and see how it plays out. But yes, there is supply and it's coming. Question is when will the impact be felt system wide.
Okay.
That's helpful. I just wanted to ask you too, as you look at acquisition opportunities, are you seeing any particular difference between kind of primary markets and smaller secondary markets in terms of pricing or maybe the relative quality of portfolios?
This is Joe again. Yes, there's a premium for secondary or tertiary markets that I think is getting squeezed as people are unable to place their money into primary markets, then all of a sudden, Raleigh looks good. And there's probably also a premium in terms of quality.
Okay. So I mean given that against that background, would you be interested in selling you sold some I saw in the quarter, I think, but would you be interested in selling more against that improving pricing in secondary markets?
Our sales are driven by our view one of 2 things, our view of future growth opportunities. If we feel that there is a market that future growth is not going to be as robust as alternative places we could put that money. And secondly, where we have management inefficiencies, maybe we bought a portfolio and there's a property that is in a remote area, we don't have sufficient scale to bring the full force of our management machine to, we'll put that on a sales list.
Okay, that's helpful. Thank you.
Thanks, Spence.
Thank you. And our next question comes from the line of Jeremy Metz of UBS. Sir, your line is now open.
Hey, guys. Scott, you touched on this a little earlier, but I guess I kind of want to ask it a little differently. If I go back to the last call, you talked about tweaking your model to focus more on occupancy heading into the peak leasing season. Obviously, occupancy is still very good at over 93 percent, especially relative to historical levels. But I think your expectations were for 75 to 100 basis points of occupancy growth this year.
So just wondering if you could give us some color on maybe what happened here given that it doesn't really sound like it was a supply issue?
Yes. So, I mean, our models obviously are always going to focus on maximizing revenue. And when we looked at the models early in the year and the end of last year and estimated where the model would take us, we estimated that we would have more occupancy benefit than we have had. The model has taken more rate and not pushed as much towards occupancy. There are certain markets where we have maybe tweaked the model a little bit in markets such as Denver where we have seen some softening of occupancy, a couple of other markets where we've seen supply, we've had to do manual inputs into the model just because things were going on within that submarket or that overall market that the model it's impossible for the model to read.
Okay. And maybe just sticking with the specific markets, can you just give us a little color on what's going on in Boston and Washington, D. C? Particularly Boston, it seemed like revenue growth decelerated quite a bit. So I don't know if that's maybe just the tougher comps you alluded to earlier there?
I would tell you Boston is one that is up against tougher comps. We've seen some construction, but not significant amounts of construction. Boston was a very strong market for us last year. And Washington, D. C.
Is another market that has never been great. I wouldn't tell you it decelerated significantly. It's been steady.
Okay. And then just one quick one on the expense side. I'm guessing it was small, but did you get a benefit this quarter from lower snow costs in the quarter?
We actually had snow costs slightly above where we had estimated. We had a late storm and it's timing of some invoices and things like that. We'd made some accruals, but our snow was slightly higher than what we were estimating.
All right. Thanks, guys.
Hess. Thank you. And our next question comes from the line of Vikram Malhotra of Morgan Stanley. Sir, your line is now open.
Thank you. So just going back to rate and in particular just street rates, you talked obviously about this quarter rate being the primary driver and then back half no real change in occupancy year over year. So just mechanically and maybe strategically in the 4th and the Q1 as we move ahead, how should we think about your ability to push free trades relative to a year ago, but also just relative to the overall rate? Really the question being could we is this 7% rate growth that you're seeing, could it be tough to do that in sort of 4Q, 1Q when you just naturally pull back on rate?
I would tell you, Vikram, over time, I think it's going to be difficult, whether that's 4Q or Q1, I don't know. I think it's going to depend a little bit on the strength of market. But I think things will, at some point, revert more to the historical norm. I think that's just going to be natural. It's the beauty of a diversified portfolio.
Some markets will be stronger than others. You've seen some markets revert more to that historical norm already and others are lagging.
Okay. And then just on payroll, I guess your costs were fine. 1 of your peers had slightly higher costs. I'm just wondering as the supply comes on or you've seen at least in certain market supply come on, any pickup in attrition, maybe managers saying there are other opportunities? And just broadly, what are you seeing for wages?
Our payroll and our turnover is very similar to prior years, and we are not seeing a lot of pressure on our wages. There's been some discussion about minimum wage and it's not become an issue for us just based on where we bear managers today already.
Okay. Thank you.
Thanks, Vikram.
Thank you. And our next question comes from the line of Wes Golladay of RBC Capital Markets. Your line is now open.
Hi. Thank you. Hey, guys. Looking at moderating trends, what do you think the new normal, I guess, 5 to 10 year growth rate is? What is a at trend growth rate that you guys will eventually get to?
So Wes, it's Spencer. Let me give you just a little performance. You've got revenue expenses. I'm going to focus on NOI because that's really where the rubber meets the road. Over the last 10 years, the simple average for NOI growth for the entire storage sector has been 5.3%.
For Extra Space during that same 10 year period, it's been 6.7%. The fact that we just posted 9.4% ought to tell you that even with some moderation, we're still way above any historical norm. And I don't see us falling off a cliff by any stretch. Storage, if you go back to 1998 when I started with the company was used by about 6% of the U. S.
Population. Today that number is more than 9% of the U. S. Population. One of the questions is, does that top out at 10%, 11%, 12%, I don't know.
But I think that at the end of the day, we're in a really good position to maximize revenue. And as I tried to state in my closing comments, look, NOI is only one contributor to our overall FFO performance. You'll get joint ventures, the most successful acquisition program in the industry and all of the other elements that I enumerated, which I'm not going to repeat, they all contribute to what we're trying to do and that's grow FFO. And we've got multiple levers that we're pulling to reduce the industry's best FFO growth year in and year out.
Yes. Okay. Thank you for that. And then looking at Atlanta, that market has been doing fantastic for 6 quarters in a row. Anything special going on there?
Is it just new, I guess, properties entering the comp pool? Is it just a very good market?
It's just a good market for us. I think, again, it's the cyclical nature of it. I think Atlanta is doing really well today. I think next year it could slow a little. Okay.
Thank you.
Thanks, Wes.
Thank you. And our next question comes from the line of Ryan Burke of Green Street Advisors. Sir, your line is now open.
Thank you. To try and encapsulate some of the comments that you've already made from the perspective of moderating growth, would you say that you're more concerned looking forward about potential changes in consumer demand? Or are you more concerned about the impact of new supply, call it, 12 to 24 months out?
I would tell you it's probably we're I think supply will have some impact, but I think also it's somewhat the fatigue within a market. At some point, you can't continue to push rates at 9%.
Okay. And you're still acquiring in scale. You had a big increase in additions to your CFO development pipeline this quarter. Does the trend towards moderating NOI growth change your outlook for external growth, acquisitions and or development looking out beyond 2016?
So we've been successful in keeping up our acquisition pace primarily through off market transactions and transactions we're able to generate through our Management Plus through joint venture pipeline. Pricing on the open market for some of the reasons you mentioned is difficult for us to get our minds around in general. But we still think that these other avenues of growth are going to be available to us and will continue.
Okay. Thanks, Joe. One last quick one. Are there any discernible trends in terms of why I'd call it smaller owners are selling particularly in your 3rd party managed asset pool?
Prices are good and particularly in the stores we've managed, we've been able to take their NOI up to very attractive levels and it's a good time to be a seller.
And our next question comes from the line of Todd Stender of Wells Fargo. Sir, your line is now open.
Thanks guys. Just looking at revenue management, can you share some of the specifics that revenue management was telling you in Q2, just as far as pushing rate, potentially the expense of occupancy. And as you look at the second half of the year, we're right now at peak season. Anything you can share from the past and the future about what revenue management is kind of pointing to right now?
So Todd, it's Spencer. As you look at our revenue management algorithm, which has 56 different inputs, the whole philosophical underpinning is not about rate or occupancy. It's about maximizing revenue for a particular unit size code and a particular property based on what we know about those elements that are under consideration. So it's not rate, it's not occupancy, it's revenue.
That's helpful. Thank you, Spencer. How about we got an update in June at NAREIT about SmartStop. Any trends you can share, any updates? And then when does that hit the same store pool?
Yes. I would tell you in terms of trends in the updated NAREIT, I would tell you it continues to be ahead in revenues and behind on expenses. So when we said it's performing within our expectations, that's in terms of NOI. So revenues are better, expenses are higher. Majority of those expenses are timing.
We've probably spent more earlier on R and M and on some of the office supplies and repair and maintenance type supplies than we originally estimated, and we hope to recover some of those throughout the year. But overall, revenues are strong. And then in terms of same store pool, it will go in next year, January 2017.
Okay. Thank you.
Thanks, Todd.
Thank you. And our next question comes from the line of Paul Adornado of BMO Capital. Sir, your line is now open.
Thanks. One source of confusion among analysts and investors, I think, is just getting consistency in terms of the number of new stores opening the supply pipeline. And I know that you guys, I believe, have been trying to square and come up with either some sort of cooperative view or some third party sources. I was wondering if you could provide an update on those efforts.
So Paul, it's Spencer. Just a couple of observations. Number 1, we do triangulate to the best of our ability using broker data, our own external field observations, the hardware vendors data and just what we hear from other sources to come up with an estimate. And when we talk about 700 properties being built in the United States at this time, you have to recognize there are 14 states we don't even do business in. And back to my earlier comment, it really doesn't matter what the number is, it just matters what the number of properties are that are being built within your competitive trade ring, whether it's 1 mile, 2 mile, 3 miles.
And I don't know how as an industry at this point we provide something that all analysts can triangulate on, but I think each of the individual public companies have generally been guiding toward what's coming up out of the ground that is within the trade area, because if it's not in the trade area, it doesn't matter.
Got it. Thanks for that color. Appreciate it.
Thanks, Paul.
Thank you. And our next question comes from the line of Jonathan Hughes of Raymond James. Sir, your line is now open.
Hey, guys. Thanks for taking my question. I know you mentioned earlier that SmartStop was ahead of I think ahead of revenues and behind on expenses. But could you give us an update on maybe where occupancy is today?
I actually don't have that right in front of me, but I know it's been trending in line with our estimates.
Okay.
And then Scott, you mentioned occupancy is now expected to be flat for the year. As tenants are getting stickier and use of storage becomes adopted by more people, Do you think occupancy could surpass maybe 95% in the next several years? And is that 95% the max or are you at max occupancy right now in terms of the same store pool?
Our philosophy and our understanding is we think that we are approaching max occupancy. And the reason being is it takes time for units to turn. They typically sit vacant for a certain number of days before the new renter moves in. They don't necessarily pass each other in the hall as one is moving out and the next one is moving in. And that comes from a lot of factors, whether it's demand or whether that's our reservation policy at the time where we allow someone to reserve a unit for maybe 7 days or 14 days depending on the occupancy of that unit.
And then that reservation may or may not turn into a rental. So at some point, you are theoretically full. We have estimated that to be around 95% 96%. So 95% is it possible? Yes.
Right now, we're not estimating we'll hit it this year.
Okay. Thank you for the color. Appreciate it.
Thank you, Jonathan.
Thank you. And our next question comes from the line of Steve Sakwa of Evercore ISI. Sir, your line is now open.
Thanks. Most of my questions have been asked and answered. But just in terms of the kind of the acquisition pipeline, I understand you guys are looking at a lot and being more disciplined about what you want to buy. But can you kind of just maybe help frame maybe kind of what's on the market either actively or maybe quietly? And just try and help us kind of think through how much pricing, I guess, has changed over the last year or so in terms of cap rates?
There's a good amount of product on the market. I would say that a lot of it is of lesser quality. We think cap rates have compressed a little bit this year, maybe 25 or 50 basis points. Clearly, there's a big premium for portfolios. We saw that in the large portfolio transaction that was previously announced by one of our peers.
And it's just it's a competitive landscape. The secret of self storage is out and there's a lot of money chasing it.
Right. So I guess, Spencer, just if pricing is getting harder or more expensive on each deal, does that mean that kind of return hurdles have to come down in order for you to make these deals tensile? Are you willing to just accept kind of lower IRRs today than you were say a year or 2 ago? Or are you just able to squeeze more out of the portfolios and get better growth in order to maintain those high unlevered IRRs?
I think I would answer yes to most of your questions. With that, Steve, the fact of the matter is the market is red hot and for extra space, looking at 6.30 assets that are not wholly owned that are in our system to us is a meaningful acquisition pipeline that we can go after for years to come. And I believe that every market travels in cycles. And although things might be extremely competitive today, that necessarily won't be the case in future years. So for us, we're going to continue to use a multi pronged approach to growing this company.
And I've talked about several growth levers that we're employing to make sure that we deliver the industry's best result. Steve, I'd maybe add one other possibility to kind
of your realm of possibilities there and that is the deal doesn't actually sell. At some point pricing will get to that point if it continues to not meet people's IRR hurdles and their return hurdles possible things don't transact.
And I guess lastly, as was previously mentioned, you've seen us do a few more transactions in the JV structure because we get a premium return through that structure, which helps kind of bridge the gap between market pricing and the return that we're trying to get for our shareholders.
Okay, thanks. That's it for me.
Thanks, Steve.
Thanks. Thank
you. And we have a follow-up question from the line of Ki Bin Kim of SunTrust. Sir, your line is now open.
Thank you. Just a couple of quick ones here. In regards to the properties where you do have new supply competing with you, I think you said 45 properties within 3 mile radius. When you look at the dynamics of what you can do with pricing in those type of markets where there is more supply coming, how does street rates or promotions or a combination of compare to what you said earlier about achieving about a 7% street rate with relatively flat promotion? I mean, look at those micro markets, is it how much does it differ?
So it obviously differs by market, by property. If you look at where we compete with brand new properties that are opening, I'll give you a couple of examples. We had one up in Harlem, where we had a property opened by 1 of our peers, a large property that filled up quickly, our property still grew at almost 10% that year. Now that's not to say it couldn't have grown at 15%, but we still had very solid growth. We've had another property or 2 where for a year's time we had flat or slightly negative growth, but we haven't seen them fall off the map by any sense here.
Okay. And just a quick question on your balance sheet. You have about 22% floating rate debt. Given the interest rate environment, any thoughts on maybe changing that?
So we're pretty happy with where we are. We don't see it going up significantly, but we if you look at the markets historically, at least recently, the bets on variable rate debt have been right. And we feel like it's at a point that is good for our shareholders as well as prudent.
Okay. Thanks again.
Thanks, Ki Bin.
Thank you. And we have a follow-up question from the line of George Hoglund of Jefferies. Sir, your line is now open.
Yes. So you had mentioned earlier that one of the kind of biggest headwinds is the renter fatigue. And I guess when you look at I guess that would be for the same store portfolio. When you look at what's in the non same store portfolio, I guess, including SmartStop, do you view a large difference in terms of how much renter fatigue is in that non same store portfolio? I guess that's sort of part 1.
And then part 2 is, I guess for new properties that come online from the C of O deals, obviously, no renter fatigue in a new property. But do you see sort of more, I guess, rent growth potential going forward with these newly opened properties?
I would tell you in terms of properties we buy that were not managed as well as C of O properties, there's more runway. Typically, these properties are at lower rates than our properties, so we have the ability to push them for longer. And typically, in C of O store, we open at a rate that's below market. And so we have the ability to push rates longer because it takes them a little bit of time to get them up to street rates or what are
normal market rates. George, it's Spencer. There's one other thing on this retro fatigue. I wouldn't take it too far because more than 50% of our customers walking in the door have never used self storage ever. So they don't even know what they're up against.
So it's the more mature properties where you've got a lot of really long term tenants that you might start to feel it.
Okay. Thanks for the color.
Thank you. And ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.