Good day, ladies and gentlemen, and welcome to the Extra Space Storage First Quarter 2016 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 follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host for today's call, Mr.
Jeff Norman, Senior Director, Investor Relations. Sir, you may begin.
Thank you, Takiya. Welcome to Extra Space Storage's Q1 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, Tuesday, May 3, 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. We are off to a strong start in 2016. Revenue growth exceeded expectations coming in at 9.1%. Mild winter helped moderate expenses leading to NOI growth of 12.3%. Ended the quarter at 92.8 percent occupancy, the highest in our company's history at this time of year.
We acquired 25 stores during the quarter, 6 of which were through an off market transaction where we bought out a partner. Pricing remains competitive and seller expectations are high, but we continue to find some accretive acquisitions in the open market and through our managed asset pipeline. We ended the quarter with 13.71 Extra Space branded stores. Per share, FFO as adjusted grew 25% year over year. This is on top of 21% growth the previous year, resulting in FFO growth of over 50% in 2 years.
Our multifaceted strategy to increase shareholder value has 5 components. 1st, operating performance, 12.3% NOI growth is outstanding by any measure and for any asset class. 2nd, accretive acquisitions. We have strategically purchased $4,000,000,000 since 2012. 3rd, joint ventures.
They have and will continue to produce an outsized return on dollars invested. 4th, 3rd party management. Our program, the nation's largest, provides significant economies of scale and off market acquisition opportunities and 5th, an optimized balance sheet. These five components have enabled us to produce 22 consecutive quarters of double digit FFO growth.
I'd now like to turn the time over to Scott. Thank you, Spencer. Last night, we reported FFO as adjusted of $0.86 per share, exceeding the high end of our guidance by $0.01 The beat was the result of better than expected property level performance, Including costs associated with acquisitions, non cash interest expense and a $4,000,000 legal expense, FFO was $0.79 per share for the quarter. Our same store revenue growth was primarily driven by higher rates to new and existing customers and increased occupancy. Our 2016 same store pool increased to 564 stores.
The change in the same store pool positively impacted our revenue growth by 30 basis points. Our top performing markets included Atlanta, Dallas, Los Angeles, San Francisco and Tampa St. Pete, all of which experienced double digit revenue growth. Our slowest markets included Chicago, Memphis and Washington, D. C, Baltimore, all of which still grew revenue at 3 plus percent.
In addition to the strong performance of our same store pool, our 2015 acquisitions, including SmartStop performed ahead of our underwriting. Our platform continues to maximize results. Year to date, we have $520,000,000 closed or under contract, all of which are wholly owned acquisitions. In addition, we have $191,000,000 in joint venture acquisitions where we will invest $50,000,000 in 2016. Based on our solid Q1 results, we have increased our full year guidance.
FFO as adjusted is estimated to be between $3.71 to $3.78 per share. FFO is estimated to be between $3.59 $3.66 per share. Guidance includes $0.05 of dilution from our 2015 2016 certificate of occupancy stores. It also includes 2015 2016 acquisitions that as anticipated will require time to be brought up to our performance standards. Once they are performing our portfolio average, these acquisitions should produce an additional $0.10 per share.
I'll now turn the time back to Spencer.
Thank you, Scott. Demand is steady, and while new supply is appearing in pockets, it is still muted across the country. We see exceptional performance in many markets and even our slower growth markets are posting steady revenue increases. As we indicated last call, we expect 2016 to be another strong year. Lastly, the outstanding results of Q1 are the direct result of 3,278 dedicated employees focused on and working hard to maximize shareholder value.
To each of them, I say thank you. Let's turn the time over to Jeff to start our Q and A.
Thank you, Spencer. 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, we'll turn it over to Kia to start our Q and A session.
Thank And our first question comes from Glenn Karp of Evercore
SII. Good afternoon. This is kind of a bigger picture question. It looks like you have a number of new markets added to the same store disclosure such as Norfolk, Columbus and Greensboro. With the exception of San Diego, they look like they're pretty low rent per square foot market.
Can you talk about the operating performance since ownership and how you guys are thinking in regard to the future for these assets?
Yes, this is Scott. I'll go ahead and take that one. The performance of the assets in Southern Virginia have probably performed a little bit below our original underwriting estimates. In terms of the other markets, they performed fine. And these markets are like most markets across the U.
S. I think they'll be cyclical in nature. There'll be times they'll outperform and there'll be times they'll perform within the portfolio average or even slightly below. I mean, it's tough to comment on a specific market like that.
Okay. Thank you. I guess as a follow-up, looking 5 years out, how do you see your exposure within these markets?
We'll continue to invest across the U. S. I think on average, we want to keep our portfolio demographic similar to what we have today on average. So if we invest in one of those types of markets, hopefully, we're also investing in some of the very dense metropolitan areas with low high rent per square foot and good population and income demographic. So on average, we're not looking to decrease the average of our property portfolio.
Okay. That's helpful. Thank you.
Thanks, Glenn.
And our next question comes from George Hoglund of Jefferies.
Hey, guys. Just a couple of questions here. I guess, first, just on the $4,000,000 settlement charge, can you just give some color on that?
Hi, George, it's Spencer. Big picture, this is a class action in New Jersey. It has to do with consumer contracts and it cuts across many, many industries and many, many companies. So we attended a mediation where we reached an agreement on the parameters of the settlement. We're in the process of finalizing the terms of that settlement and getting court approval.
And we've accrued an estimated cost of settlement and that's what we've been talking about. We expect it to be a one time expense and it's going to be tough to better estimate until all of the negotiating is concluded, but we've given you our best number and given you as much color as we
can. Okay. Thanks. And then also just in terms of Chicago, it's a market that's underperformed the rest of the portfolio as of late. If you could just sort of address that?
And then also, it seems that there's a large portfolio in the market that has about 30 odd stores in Chicago area. Is that a market you would look to or be interested in increasing your exposure?
So Chicago for us over the long term has been a good market for us. Clearly, it's one of our focus markets. We like it. It's got great demographics. There's a lot of people there.
Chicago, if you look a few years back, was one of our top performing markets. As I commented on earlier, it's markets typically go in cycles. So we would look at Chicago as a long term play. It's something that we would be interested in increasing our exposure in.
Okay. Thanks guys.
Thanks George.
And our next question comes from Todd Thomas of KeyBanc.
Hi, thanks. Just a question on third Just a question on 3rd party management and that business. I believe historically, you said that adding or every 20 properties added about $0.01 to $0.02 per share of FFO. Is that still the right way to think about the direct contribution from those properties?
If If the property is in New York City, 6% of $30 rents is significantly more than 6% of $6 rent. So on average, I would say that's still correct.
And outside of the management contracts that you've been adding or properties that you've been adding to the platform from the strategic, the 2 other entities as strategic deploying capital for, How is the demand like for from other operators to utilize third party management at this time?
We continue to see strong demand. We were at Industry Trade Show this past week and our booth was full the entire time. We continue to talk to people. A good source recently has been some of the new construction coming on. So while new construction is coming into the market, we are bringing those on as management contracts.
Okay. And just one last one, if I may. Spencer, you've been plugged into the technology industry over the course of your career, prior to EXR and at EXR. And I know you spent some time with the team researching and trying to understand the full service or valet storage operating businesses. Curious to get your read on what you think here.
Is it positive for storage, just tapping into new customers, creating awareness or is it changing the way consumers think about storage on some level? And, how the businesses or how the storage business may operate in the next couple of years? Would just appreciate your thoughts and comments a bit.
Thank you, Todd. Just a few observations. First of all, valet or concierge or full service, however you want to characterize it, is a logistics business. And we are looking at it very carefully. My personal opinion is, I don't think it's likely to be a disruptor for self storage.
I think there is a segment of the population that will dial into it and we're going to continue to monitor it. But today, we're not making any announcement that we're getting into Vale because it is questionable whether it is a viable business model.
Okay. Thank you.
And our
next question comes from Janet Gallon of Bank of America.
Thank you. I appreciate your comments on the different market performances. I was curious if you could provide a little bit more color around New York City and Houston. And they did great, but a little bit below the portfolio average. So just curious if that they're seeing any impact from some of the supply?
So Houston, I think, is probably a supply as well as an economic issue there. Our portfolio is about 2% below where it was a year ago. But even Houston has suffered from the energy downturn as well as some building. Our same store pool was about 5% in revenues ahead of where they were last year and our bigger pool was about 7% ahead of where it was last year. So still solid performance.
And last year, those properties did really well. New York City as a whole, I would tell you, is not suffering from the overbuilding. I think overbuilding is going to affect in a micro market more than it is on the whole. But New York City on the whole is still 3 feet per square foot per person. It's still very low square feet per person in New York City.
Thank you. And I was just curious if you could provide update on where occupancy is now?
Occupancy is slightly higher than where we ended the quarter, call it 30 basis points or so.
Thank you.
Thanks, Yana.
And our next question comes from Smedes Rose of Citigroup.
Hi, thanks. I wanted to ask you just a little bit about the quality of the product that you're seeing on the market as you look across when you are looking at acquisitions, it looks like you're fairly continue to be fairly active there. And we've heard some sort of mixed commentary around pricing and quality and be interested in your perspective as well.
So Smedes, it's Spencer. As you look at what's out there, first of all, there is a steady deal flow that's coming in. I think all of the larger companies, the REITs are getting calls to bid. And with a steady deal flow coming in, we see asset quality spanning the spectrum. The one constant in all of this is prices are high, really high.
And you can have crappy assets that we think are just way out of market and you can have really nice assets that even for us or maybe even some of the REITs are getting a bit too rich to transact. So we're looking for those accretive acquisitions, the opportunities that make sense geographically and economically. And when they do, we're going to act, but quality expands the spectrum.
Okay. I mean, so could you maybe sort of maybe quantify the change in say cap rates over say the past year or so roughly? I mean is that like 25 basis points or 50 or?
They're lower and call it between 25 50 basis points.
Okay. Okay, thank you.
Thanks, Smedes.
And our next question comes from Ki Bin Kim of SunTrust.
Thank you. Good morning, guys. So just had a couple of questions regarding how pricing trends are coming out or playing out in the spring. I guess in the winter things were a little bit better than expected getting the bigger year over year increases. I was just curious if you are I know it's only May 3, but is this spring, are you getting the year over year increases so far that you've been used in the previous springs?
So I would tell you pricing continues to be strong. January, February, we are close to 10% above where we were last year. Going into March April, we're still 6% to 7% above where we were last year, which for the spring is still pretty solid.
Okay. And so I mean, obviously, that 7% in April is not a small number, but it is a little bit down from the January, February. Any particular reason your revenue management systems or the results are lining up that way?
So we pushed rate harder in January, February and we gave a little bit on occupancy. You saw our year over year delta come in a little bit. And now we're kind of easing off that and going a little bit more with occupancy.
Okay. And just last question. Obviously, your management system your revenue management system is trying to optimize revenue. We get that. But just curious if we did see a little bit more move outs and less move ins this quarter.
Any patterns or reasons why more people moved in or more people left or less people moved in that you can point to that happened this quarter that might be unusual?
Yes. I would tell you part of it is the unusual comp from last year. Last year, you had a really odd thing in the Northeast where you had some pretty severe weather, which had very few move outs and very few move ins. So I think part of it's year over year. If you look at a bigger average, call it a 5 to 7 year average, we're right in line with the 5 to 7 year average in terms of move ins and move outs both.
Okay. Thank you.
Thanks, Ki Bin.
And our next question comes from RJ Milligan of Baird.
Hey, guys. I was wondering if you could
just give a little bit more detail on who those buyers are for those really low cap rates, and how much appetite you think there is out there from that competition?
RJ, it's Spencer. There's a lot of appetite for self storage. Think it's no secret that it's probably the best performing asset class year in and year out. We're seeing pronounced competition everywhere we turn from trade buyers and non trade buyers. And the only comment I would make is, as we look at this, it's great to buy this asset class, but once you've purchased it, somebody's got to operate it.
It is operationally intensive and we think that, that creates opportunity. And we'll just have to see how things play out, but there's a lot of money chasing these assets. Okay.
And then on the CFO deals, can you talk about the sort of underwritten development yields that you were seeing maybe a year ago versus today and sort of where that middle ground is in terms of a cap rate where you guys are willing to buy those assets?
You're still looking at cap rates. Well, we typically underwrite them 150 to 200 basis points. I would tell you that they bid more on the 150 basis point range. Recently, we've said no to some deals, and we continue to see things come in, in the 7.5 to 8 yield once they're stabilized.
Okay. Thanks guys.
Thanks, RJ.
And our next question comes from Ryan Burke of Green Street Advisors.
Thank you. You disposed of a handful of assets, small dollar amount, but it's relatively uncommon for you. What was the specific rationale between for selling those properties? And can you give us an update on just your plans for further dispositions, if any?
So from our perspective, we will continue to look at markets and whether it's markets that are difficult for us to operate in or whether they are markets that we feel maybe have reached their potential and or they may have a need for CapEx to be put into those. So those are markets we'll look to dispose of assets. Some of these were a little bit more rural and maybe not as core as we would hope for in terms of rent per square foot and the income of population demographics.
Yes, Ryan, as you know, we are trying to build a company and dispositions have not been something that we've talked a lot about. But I think you can expect going forward that you will see us looking at the very bottom end of our portfolio and taking a really good look at the economic performance as well as the physical characteristics of that particular bottom segment and rationalizing whether it should be in the portfolio. And I think you'll see some activity year in and year out at the bottom end. But it's not going to be a wholesale initiative on our part because we are trying to build, not dismantle.
Sure. Are you able to give us a feel for what percentage of the properties the bottom end defines?
1% to 2%.
1% to 2%. Okay. Separate question just back to New York City development. I believe that all of the properties in your current pipeline in the NYC boroughs are minority stakes. Is that does that speak to a desire to control your exposure there?
Or is it more just the fact that that's the opportunity that has presented itself there?
It's a combination of the opportunity that's presented itself as well as our ability to leverage our returns in a lower cap rate environment.
Okay. And you picked up one property or a JV interest in 1 property in the Bronx during the quarter. That was 42% occupied as of March 31. Do you happen to have what the occupancy was on that asset as of January 1?
I don't have that specifically in front of me, but it's one that's opened recently. It continues to lease up really well.
Okay. Thank you.
Thanks, Ryan.
And our next question comes from Jonathan Hughes of Raymond James.
Hey, good afternoon. Thanks for taking my question. Just had one, most of them might have been answered. But what renewal rate increases were you able to pass on to tenants in this Q1? And then maybe how many left are vacated due to not wanting to pay those renewal rate bumps?
Let's take the second piece first, Jonathan. Our existing customer rate increase program continues to show financially that we are hitting the sweet spot. Yes, there might be a few move outs where people won't accept it, but the economics are compelling in terms of the gain that we pick up from the high 90%, 95%, 98%, whatever it is that accept it and don't move out because this is a very sticky product type. Existing customer rate increases, it's in the 9% to 10% range quarter in, quarter out and it works well.
And then are many just not leaving because they simply don't want to take the time to move their stuff out or is it just because lack of available space?
Let's be realistic about this, Jonathan. If you're renting a unit and you get a rate increase letter that says your rent is going up $15 you are not likely to go get a U Haul truck, take a Saturday morning, pack up your stuff, go down the street, unpack your stuff, return the U Haul truck to save $15 People just won't go through the effort to do that. It's an incredibly sticky product type. What we have found is a rate increase more often than not might finally signal to somebody, you know what, the problem that I was trying to solve has passed, maybe I should move out. And that is, as I said, a very, very small percentage, single digits, low single digits of the total customer base.
So existing customer rate increases, it's a great program. We think we're operating in the sweet spot.
Okay. It's great color. Thanks.
Thanks, Jonathan.
And our next question comes from Todd Stender of Wells Fargo.
Hi, thanks. Just on discounts, what percentage of customers are receiving some type of promotion this quarter? And also just wanted to get a sense of what you're budgeting for discounts this spring leasing season. You're obviously coming off a higher occupancy level having smoothed out some of the Q4 seasonal dip. Just want to get a sense of discounts.
Yes. Discounts during the Q1, about 75% to 85% of our customers moving in coming in first time renters or new customers received a discount. That is higher than it was last year. When we originally looked at the year, I think we had hopes that discounts would be flat. Now we're projecting they will be up slightly.
But if you think of it in terms of whether discounts are up or down, our rates are up 5% to 10%. So clearly, if you rent to the same number of people, discounts will be up 5% to 10% over where they were last year. We'd hope to be able to cut them and keep them flat as a percent, but now we're seeing that they will be up slightly and we're projecting the same into the spring leasing season, Todd.
All right. Thanks for the color, Scott. And just one last question. I wanted to follow-up on the question about the assets you've sold already. You're going to be managing them on a 3rd party basis.
Can you just go over maybe what the standard agreement you have in place is? Is it cancelable by either side? The reason I ask is I usually you get into the 3rd party management with the potential to buy the property, but I wanted to see if you can get out of this, since you're obviously disposing of it.
Yes. So it's pretty simple. It's a month to month contract. We do advance some money for the rebranding of the asset. And if they opt out before 36 months has transpired, we can get some money back on that on a pro rata schedule.
And we do not have a right of first refusal. We make this easy and hopefully our performance is enough to keep people in that they don't want to go somewhere else and we want the flexibility to do what we need to do. So time, I think we're coming up on 8.5 years of third party management, Todd. And we've learned some things that work in terms of seller expectations and we've learned some things in terms of management expectations, both coming and going. And we're very comfortable that our property level performance and the results we deliver on a month to month contract speak for themselves and is worth very well.
Great. Thank you, Spencer.
Thanks. Thanks, Todd.
And our next question comes from George Hoglund of Jefferies.
Yes. Hi. Just, follow-up on the transaction environment. Are you seeing any change in the motivation of sellers in terms of is it are you seeing more assets because this pricing is so good or are you seeing people looking to exit for other reasons as could be seen some of private equity backers look to exit their investments and maybe sooner than one would think?
Yes, yes, yes, yes, yes. All of the above.
Yes. I think it's tough to comment on sellers' motivation. I mean, they all have a different motive.
Yes, it's all of the above. It's pricing, it's motivation, it's everything.
Okay. And as far as concerns about development, I feel like people keep talking about it, but it's kind of waning. Now people may be getting more concerned about an economic downturn in 2017. How do you think storage would behave sort of differently sort of this time around if we head into a downturn versus last time? I know some factors are different.
You don't have the oversupply issues we did last time, but how might revenue management impact things? And it seems last time basically PSA just lowered rates significantly that impacted the industry. How do you think things would be different?
George, it's Spencer. So what I would tell you is we are comfortable that self storage is a great business to be in. It's recession resistant. We've already proven that. The industry has proven that.
We were amongst the last to go into the recession, amongst the first to come out of the recession. And the REITs are better equipped at this point than at any other time to acquire customers. The chasm between the haves and the have nots has widened and the rate at which the chasm is growing is accelerating. So if there's a downturn, I'm highly confident that the national players, the REITs are in the best possible position to capitalize and produce the very best result.
Okay. Thanks for the color. Thanks, George.
And our next question comes from Wes Golladay of RBC Capital Markets.
Hello guys. Stick with that last question regarding the downturn. I noticed you guys are having some pretty good success pushing rate and now you mentioned you want to build occupancy a little bit. Are you seeing anything in your predictive analytics that has given you caution or is this maybe the occupancy move specific to certain markets?
No. Typically, we're focused on just overall revenue growth and our models have certain inputs and so you can tweak them slightly. I would tell you early on in the year, it was focused more on revenue growth, meaning street rate growth and now we're focusing we've tweaked the model slightly to focus a little more on just on occupancy.
Okay. And then you mentioned a lot of people active in the market. Is SmartStop actually getting a little more active? Are you running into them? And can you get some, I guess, meaningful management contracts later in the year?
They continue to be active. I think that we see them. We see the other REITs. That we hope they continue to be successful. If we're not able to buy it, we wish them the best because we have a good relationship with them.
I think it works well for both of us.
Okay. Thanks.
Thanks, Wes.
And our next question comes from Jeremy Metz of UBS.
Hey, guys. It's actually Ross Nussbaum here with Jeremy. You touched on this a little earlier, but I just want to make sure I understood it. The vacates for the quarter were up 6.4% year over year. What exactly are you guys attributing that increase to?
It's tough to attribute it
to any one thing. Part of it, I would tell you, is the comp year over year. Last year had low vacates. It could be pricing. It could be a myriad of things.
So we have not attributed it to any one specific thing.
Also with more customers, Ross, you're going to have more vacates. We're at the highest occupancy we've ever been.
Yes. I mean, I think that's fair, although the 6.4% number did catch my eye a bit. I guess I was wondering, did you look at for those vacates, was there any trend in terms of average length of stay that it was more short term people, more long term people, they had received more than one rent increase. Was there anything in there that caught your eye?
No. In fact, our average length of stay has increased. So we continue to increase our of stay, but we have had some vacates, but not anything concerning to us at this point.
Yes. Ross, just two other points. If you look at an 8 year average, it's well within the bounds of being normal. And secondly, as Scott said earlier in this call, if you look at April, occupancy is going up, which means obviously we're doing something right. We can't look at just short periods of time.
We need to look at this thing in terms of macro trends and we think 2016 is going to be a strong year.
Okay. Same type of question on the rental side. The number of rentals were down, but again, that's probably because your occupancy is higher and you've got fewer units. Can you give us some sense of what the traffic numbers looked like both at the store, on your website, on mobile, at your call center and how those numbers look year over year in the
quarter? Year over year, our opportunities are within our normal range or expected range and our close rates were also within the expected or our target ranges.
Okay. So no discernible change. There weren't a lot of numbers in that answer. So no discernible change in trend in terms of traffic?
That's correct. Our traffic on the Internet, our traffic to our call center were all within the expected range.
Yes. I think maybe one of the things you're looking for, mobile continues to be really important and the growth rate of customers coming to us through mobile devices is growing well into the double digits. It's a phenomenon and we've got a terrific mobile platform and it's part of what's helping us to deliver the kind of results we have been.
Got it. Okay. And last one for me. Can you give us a sense where in place rents are today against street rents, what that variance is?
So it's kind of mid to high single digits, but that depends on the time of year and the seasonality, Ross. In the dead of winter, it's in the high single digits. At the peak of summer, it's low single digits if it's not right on top of each other.
I think Jeremy had a question.
Yes, sorry. Just one quick one on the dispositions. Were those I know they were small, but were those assets acquired in SmartStop deal or were those legacy Extra Space assets and then was keeping the management contracts a requirement of the deal? Thanks, guys.
So we purchased those in June of 2011 as part of a 15 property portfolio. Keeping the management contracts was not a requirement, but it obviously we lean towards the seller that was willing to do that.
Thanks.
Thanks, Jeremy. Thanks, Ross.
And our next question comes from Ki Bin Kim of SunTrust.
Thanks. Just a couple of quick cleanup questions here. Notice the certificate of occupancy deal move out of the pipeline in Naperville. Anything to look at there?
Yes. This was a property that I would tell you is probably pretty typical C of O deals and what you're seeing in the development. This was one that we thought we could get done. The developer was pretty comfortable that they could get entitled. We put it under contract.
We We put it under contract. We received some opposition from a neighborhood group, and it fell out of contract due to the inability to get the project done.
Probably in some weird way, that's maybe a good thing for the industry.
I think it's pretty standard. I think you see that not just with this one project. I think you're seeing it across the country.
Okay. And is there any discernible trend between in your New York MSA between the boroughs versus New Jersey performance wise?
I would tell you performance is going to be more on a micro market and depending on new competition within that market, but overall, it's pretty consistent between the boroughs in New Jersey Northern New Jersey.
Okay. And just last one. Can you comment on the SmartStop deal and what kind of growth you're getting in that portfolio in the NOI right now? And if it's meeting your pro form a or better than expected?
I would tell you it's slightly ahead of our projections. Our disclosure to The Street was we originally projected that it would be about 5.5% cap rate in year 1, and I would tell you it's at or above that slightly. In terms we're actually getting a little bit more in rate and a little occupancy is coming a little slower than we'd expected, although we saw some good occupancy growth in April.
Okay. Thank you, guys.
Thanks Ki Bin.
And our next question comes from Todd Thomas of
KeyBanc. Hi, thanks. Can you remind us what your typical rent increase pattern is for existing customers? What the thresholds are and how frequently you increase rents to existing customers? And has that changed at all over the last year or 2?
It really hasn't changed in much of the last decade. It's 5 months for the first rate increase. It's 9 months thereafter, 9 months thereafter, 9 months thereafter. We do have governors on that. If they get too far above the existing street rate, we abate the existing customer rate increase.
But as we're pushing street rates up each and every year, a customer that may have dropped out of the eligible pool finds himself back in the pool. And so as I said, between 9% 10%. We do this every single month. And quarter to quarter it provides meaningful revenue for this company. We like what we're doing and statistically we've shown that the program that we have in place works in a good economy and a decelerating economy.
We haven't changed it.
Okay, got it. And then, Spencer, you mentioned that some of the move outs from rent increases, they tend to generally occur from customers that no longer need storage, so their problem has been solved. Any sense for what percent of the portfolio might be discretionary at this time or not really need storage any longer? Is there sort of a way to gauge that based on how long people say they need storage when they move in or some way to arrive at an estimate?
I don't know the thoughts and intents. I don't know even how to quantify that. But what I can tell you, Todd, is that I think it's kind of in the mid to low single digits of the customer base where there's any question mark surrounding whether they're going to stay around or go.
Okay. It seems much lower than what I think we had maybe talked about or heard back in 'six or 'seven when I think it was closer to maybe 15% or 20%.
Is that
not an accurate assessment or something changed today versus maybe that last cycle?
Well, no, what I would tell you is over the course of a decade, a lot of things have changed, including our repository of data and our understanding of our customers. And without looking at some very specific numbers, I'm just having to give you off the top of my head that this is something that has not materially changed and I don't know where the 15% to 20% number came from previously. I'd have to go back and look, but I personally believe it's lower than that today considerably.
Yes. To quantify this, Todd, we'd be purely speculating or guessing. I mean, this is really a customer need or a customer decision here.
And I'm showing no further questions at this time. I would like to turn the call back over to Spencer Karp for closing remarks.
Thank you everybody for your interest and your time today. We look forward to next quarter's call. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.