Greetings, and welcome to National Storage Affiliates' third quarter 2021 conference call and webcast. At this time, all participants are in a listen-only mode. A question- and- answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to George Hoglund, Vice President of Investor Relations. Thank you. You may begin.
We'd like to thank you for joining us today for the third quarter 2021 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's CEO, Tamara Fischer, COO, Dave Cramer, and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. In addition to the press release distributed yesterday, we furnished our supplemental package with additional detail on our results, which may be found in the investor relations section on our website at nationalstorageaffiliates.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, November 3rd, 2021. The company assumes no obligation to revise or update any forward-looking statement because of changing market conditions or other circumstances after the date of this conference call.
The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional detail concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, core FFO, and net operating income contained in the supplemental information package available in the investor relations section on our website and in our SEC filings. I will now turn the call over to Tammy.
Thanks, George, and thanks everyone for joining our call today. Before we talk about our results for the quarter, I'd like to open by acknowledging and thanking our team for their extraordinary dedication and hard work, which allows us to again deliver exceptional results for the quarter. The results we announced yesterday, including growth in same-store NOI of 24% and growth in core FFO per share of 30%, are indicative of the ongoing strength of our sector, as well as the benefits of our differentiated structure. Continued near-record occupancy levels have allowed us to assertively drive rate growth both for new and existing customers. Right now, there are no apparent signs of any near-term headwinds, which bodes well for the remainder of the year and implies a strong start to 2022.
On the external growth front, the volume of deals in the market remains at unprecedented levels. During the third quarter, we invested $600 million in 76 properties, bringing our total acquisition volume through the first nine months of the year to 119 properties valued at just over $1 billion. In October, we invested approximately $325 million in 39 stores. This results in our current year-to-date investment in acquisitions of over $1.3 billion, surpassing the top end of our prior guidance range. Cap rates on these deals range from just below 5% to over 6% and vary based on location, source of the deal, whether it was marketed, off-marketed, or from our captive pipeline, and whether there's a portfolio premium or some element of lease-up involved.
The weighted average cap rate on all of our transactions closed this year is in the mid-5 cap range. We continue to see meaningful competition for transactions and the amount of capital seeking to establish or expand a position in self-storage continues to drive cap rate compression, especially on larger portfolios. We remain disciplined in our underwriting and continue to benefit from our PRO structure, which essentially provides us with 10 acquisition teams and 10 operations teams across the country to source deals and integrate acquisition assets into our portfolio. About 2/3 of our deals closed this year have been off-market or from our captive pipeline, where we tend to buy at cap rates slightly above market. It's also worth pointing out that just over 10% of the deals we've closed year to date were in some stage of lease-up, which further depresses the first-year cap rate.
As we look forward, we have additional deals valued at over $300 million under contract that we expect to close by the end of the year. Our exceptional third quarter results, elevated acquisition volume, and continued tailwinds in the sector led us to again revise guidance this quarter. We increased the midpoint of year-over-year growth in same-store NOI to 19%, full year growth in core FFO per share to nearly 30%, and revised our expectations for acquisition volume to $1.75 billion at the midpoint. Brandon will discuss our revised guidance further in his comments. The fundamental backdrop for self-storage remains very favorable, and our team is executing at a very high level to deliver exceptional results for all stakeholders. Our historical commitment to secondary and tertiary markets, as well as our differentiated PRO structure, continue to serve us well.
I'll now turn the call over to Dave to provide color on what we're seeing on the ground. Dave?
Thanks, Tammy. Overall storage fundamentals remain strong. Consumer demand is being driven by multiple factors such as job transition, geographical r elocation, a housing boom, a tight rental market, and lifestyle changes, all of which are contributing to the high occupancy and rate growth. Pandemic-driven demand introduced a significant number of new customers to self-storage, and we believe that much of this new demand will remain long term. Apart from the normal seasonality we're experiencing, which has been muted compared to historical patterns, we don't see any near-term sign of changes to the current favorable environment. Occupancy levels remain close to record highs, allowing us to continue our push on street rates, which averaged 27% higher this third quarter compared to a year earlier. Given the high occupancy level, we're able to hold discounting concessions well below historical averages. We continue to be assertive on rent increases to in-place tenants. These rent increases are averaging high single to low double digits.
Our rent roll-ups in the third quarter, which is in the move-in rental rate versus the move-out rate, was a positive 7%, which is up slightly from the 6% that we realized in the second quarter. The positive rent roll-up trend continued into October, which is impressive considering we'd normally be experiencing a rent roll-down in the fourth quarter. The combination of strong street rates and assertive in-place tenant rate changes continue to drive improvements in our contract rates. Our contract rates have improved every month this year, and we're up just over 9% for the third quarter. Keep in mind that we started the year essentially flat year-over-year, so we're pleased with the momentum of in-place rents and believe it sets us up well for the fourth quarter and heading into 2022.
We know that the 2020 comps are distorted due to the pandemic, but I'd like to give a two-year comparison to 2019. Our third quarter street rates are approximately 24% above third quarter 2019 levels, and our in-place contract rates are about 8% higher as well, both very healthy growth over a two-year period. We ended the third quarter with occupancy of 96.2%, up 40-50 basis points year over year, and the positive trends continued into October. We're very pleased with how resilient occupancy has been, especially in light of the strong growth in rental rates on both new and in-place customers. Earlier this year, we projected a seasonal decline in occupancy from the end of June to the end of December in the range of 200-250 basis points.
Occupancy has only declined 70 basis points and seems to be holding relatively steady in the 96% range. We do wanna remind everyone that we managed to optimize our revenues, not occupancy. Turning to new supply, we've yet to see a meaningful shift in development activity in any of our markets, and the unprecedented consumer demand has muted the competitive impact of the new facilities that are coming online. There's certainly no shortage of developers who want to build a self-storage, and we do expect development activity to pick up. But construction and land costs are high, and the entitlement and permitting process remains slow and cumbersome. We expect to continue to face some headwinds from new supply in Portland, Phoenix, certain sub-markets of Dallas, Atlanta, and West Florida.
Currently, just under 30% of our portfolio has a new competitor in the 3-mile radius, and under 50% within the 5-mile radius. These figures are in line with last quarter and flat to slightly down from year-end 2020. I'll now turn the call over to Brandon to discuss financial results and balance sheet activity.
Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.57 for the third quarter of 2021, which represents an increase of 30% over the prior year period. Third quarter same-store NOI increased by 24.3% over prior year, driven by an 18.4% revenue increase combined with a 4.6% increase in property operating expenses. Same-store occupancy averaged 96.5% during the quarter, an increase of 580 basis points compared to 2020. While this is amazing growth, as you've heard from us throughout the year, we think it's appropriate to look at average growth across the last two years, thus removing some noise from the impact of the pandemic.
For Q3, the two-year average same-store revenue and NOI growth is 9.2% and 12.3% per year respectively. Core FFO per share growth over those same two periods is 20% per year. All very impressive levels. Regarding OpEx, same-store growth ticked up in the third quarter to 4.6% due to the challenging year-over-year comp. Specifically, personnel costs increased 5%, due in part to more normal store hours and staffing levels this year versus the reduced levels of 2020. Also contributing to higher personnel costs is overall wage inflation and incentive opportunities for store employees, given the top-line revenue and occupancy performance.
Another expense line item which saw higher growth was repairs and maintenance, up 16.6% in the third quarter, largely due to the challenging comp, as we limited spend last year to the most critical items. Other modest increases were property taxes at 2.4% and utilities at 2.2%. This expense growth was partially offset by marketing costs that were down 10.4%. Clearly, with the elevated occupancy and strong demand that we're experiencing, there is a reduced need for marketing spend. Now, moving on to guidance.
The incredible internal and external growth we've experienced this past quarter led us to increase full year 2021 guidance as follows: core FFO per share increases to a range of $2.19-$2.22, or approximately 30% growth over prior year at the midpoint, and a 4% increase from the prior guidance midpoint. For same-store revenue growth of 14%-15%, implying that we drive year-over-year growth in the mid-teens for the fourth quarter, which is a slight moderation from third quarter growth as we encounter a tougher comp.
OpEx growth of 3%-4% and NOI growth of 18%-20%. Additional assumptions regarding guidance are outlined in the earnings release. Turning to the balance sheet. We were active in the third quarter on the capital front, much of which we discussed on our last earnings call and the details of which are in our earnings release. In summary, these accomplishments included, on the equity side, issuing nearly $600 million across our large follow-on offering in July, ATM activity, and OP equity for acquisitions. On the debt side, we issued nearly $350 million across multiple channels in the third quarter. Subsequent to quarter end, we priced $450 million of senior unsecured private placement notes with a weighted average maturity of 11.2 years and a weighted average coupon of 2.88%.
The transaction closing is subject to, among other things, market conditions and the completion of definitive documentation. However, we're working to have all the documents for the private placement signed very soon, at which time we will provide more specifics on the transaction. The proceeds from these capital raises are being used to repay borrowings on our revolver and to fund our acquisition activity. Our balance sheet is well positioned with no maturities through 2022 and a fully available $500 million revolver at the end of the third quarter. We are committed to maintaining a conservative leverage profile with a net debt to EBITDA ratio of 4.9 times at the end of the third quarter and healthy access to multiple sources of capital.
Obviously, based on our revised acquisition guidance, the fourth quarter will be busy, but we are well capitalized and look forward to remaining a disciplined consolidator in our sector. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Our first question is from Neil Malkin with Capital One. Please proceed.
Hey, everyone. Good morning to you. Fantastic quarter. First one for me, you know, maybe bigger picture, Dave, anyone who wants to take it. It seems like over the last, you know, 12, 18 months, there's been a couple step change functions higher in terms of, you know, demand, changes in move-out propensity, occupancy going extremely high.
I'm just wondering if, you know, there are things that you believe are permanent from either, you know, COVID or sort of the great relocation that's happening right now, or if you think that some of the things that are potentially driving more people to storage or perhaps making them stay longer kind of abate as the sort of COVID-related things ease up, you know, people's savings accounts kind of dwindle a little bit, as stimulus has sort of stopped from the federal government. If you could just kind of talk about how you see that playing out over the next 12 months, that'd be great. Thanks.
Yeah. Thanks, Neil. Thanks for the question. You know, interesting question, and hard to have a real tight line of sight on how, you know, this demand and this current favorable environment we're in really plays out. I don't think it's a short-term thing. I think usage is an all-time high for self-storage, which is great for us and our sector. I think the things that happened in the pandemic were accelerating things that were already happening in our country. You know, there's always been a push to more work from home, remote work, you know, a little bit, things around lifestyle changes that were accelerated by the pandemic.
As you look at the, you know, transition patterns of all the consumers around the country, there's certainly been an outflow from some areas of the country into the Sun Belt markets, which has definitely been benefiting us. That's a permanent shift, in my opinion. I just think a lot of things that we're experiencing from the demand piece are not going anywhere anytime soon. Even if return to work happened, I still think there'll be days at home where you have a home office, for example. We're encouraged by that, and we're encouraged in the fact that the people who are using our product are finding it very affordable, very easy to use, a great product overall that fits lifestyle.
You know, if you think of housing prices today and how high they've gone and what's happening in the rental market and all these things, it'll take a while for those things to really change. You know, self-storage is a very affordable product when you maybe can't buy the size of house you wanted or you have to downsize to a little bit less of an apartment because of costs. I think long term, that's there. The other thing I would tell you is I think all of our teams have gotten a little bit better through this. I think our tools are getting better.
Some of the gains that we've been able to have with occupancy and some of the you know the revenue gains we have is a function of demand, but it's also a function of us doing our jobs better. You know, to me, I'm proud of what all of our teams have accomplished. I'm proud of what our tools and our technology improvements are weighing in for us right now. I think a lot of good things for us as you go into the future.
Well, that's great. Other one for me, shockingly, is on acquisitions. You guys have been extremely active. I think especially for your size, you've been able to source, you know, a really robust amount of activity. I think it's a testament to your PRO structure. Can you maybe talk about, you know, what kind of product you're seeing on the market, in terms of either quality, you know, lease-up component? You know, are you seeing potentially more players, maybe more institutional players given, you know, how your markets have fared and the relative yield premiums you can get on going in cap rates and just kind of your outlook for the cap rate environment, you know, kind of near term?
I'll start, other members of the team can jump in here, if I miss something. The volume of transactions continues to be literally unprecedented. Even as we head toward the end of the year, it's actually not slowing down at all. The type of transactions that we're seeing range from large portfolios and really large portfolios to one-off assets where, you know, that's really where we like to play. We are also very successful. I think we've been very successful. We've remained disciplined, but very successful in targeting our secondary and tertiary markets. You know, we like the cap rates there a little bit better. Now, we've also strategically invested in some non-stabilized assets.
When I say non-stabilized, I'm talking about assets that are delivered and in some, you know, stage of lease-up, so maybe in the 70%-75% range. But on the whole, I think that, as you said, Neil, our structure continues to benefit us. We, you know, remain very active in our markets. Again, it's not to say that we won't look at everything that's out there. We look at the top MSAs, but from a strategic standpoint, building scale and the cap rate environment, we still like those secondary and tertiary markets, and that's where we continue to focus. In terms of your question about capital chasing deals, there is a lot of capital.
There's a lot of competition, and we've said it many times and probably will continue to say it, but self-storage is a great place to be right now. It's a fantastic sector, as evidenced by our peers' results released over the last few days and our own results. Naturally, I think it is bringing new players and it's keeping us on our toes and it's highly competitive. I also think that we will remain relevant in this consolidation phase. I'm not sure if I hit all of your points there, or did I miss a couple things?
No, that's the only thing I was just saying is, you know, I think a lot of other sectors have seen cap rate compression since the beginning of the year. I was wondering if you can kind of comment on that specifically in the markets you play in. Just because I know that the yield game, I think is a little bit more important, particularly because of the PRO structure.
Right. This is what I would say. On the whole, we're buying assets in the 5.5 cap range. The non-stabilized assets that we've acquired are below that in the mid-3 cap range. That's year-one yield. Stabilized yield on those assets is still in the 6 cap range. The thing that we like about the assets that we acquire that are sourced by our PROs, either through their captive pipeline or through their relationships, and I think I mentioned in my prepared comments, about 2/3 of our deals have been sourced off-market this year. I think that gives us an advantage from a cap rate standpoint. Having said all that, there is still some cap rate compression.
We're still pretty comfortable in that mid-5 range. We like 6 better, but I, you know, I think we'll just remain active and continue to go after those deals. You know, we'll see where it goes, but we have seen cap rate compression that we've never seen before. Portfolio premiums, if they were, you know, 15-20 basis points a couple of years ago, they're now, you know, upwards of 25-40 basis points now. It's challenging, but there's no shortage of transactions to look at.
Thank you.
Thanks, Neil. You bet.
Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed.
Hi, good morning, and thank you for the time. Just curious on the assumptions with regards to occupancy for the fourth quarter from, I guess, the end of September, and if you can give us where the spot is as of the end of October, just to see how you're trending relative to those assumptions and guidance?
Yeah, Juan, this is Brandon. So the spot occupancy at the end of October for same-store was 96 flat, and that gets us to 70 basis points down from the end of June that Dave hit on in his remarks. As he said earlier, when we spoke last quarter, we had estimated maybe a 200-250 basis point drop. That's from period in June to period in December. But things have played out more favorably. Looking at a pre-COVID year, it would not be uncommon from June to October month end for you to have something, you know, like a 200 basis point or more drop in occupancy. So the fact that we're at that 70 basis point mark is very encouraging.
For the back half, the remaining couple of months, I mean, I think we're looking at something closer to a, you know, could be in the 150-200 basis point range, going from that June to December period. You know, November and December, historically, there's been movement, so the next couple of months will be telling.
Okay. The assumption and guidance is that 150-200 that you just touched on?
That's right.
Okay. Just with regards to rate, is the expectation that
Continues to accelerate or grow on a year-over-year basis, that the numbers have been steadily going up, or should we assume that that begins to tail off as you have some tougher comps in the fourth and into 2022?
It's a good question, and certainly there's a tougher comp in the fourth quarter and into 2022. You know, I think what we see happening right now is street rates are starting to level off and moderate, but we're not backing off on any type of in-place changes. As we look going forward, you know, we don't see street rates declining to a considerable amount at all, they'll at least probably plateau. We stay aggressive and in the in-place piece of it. We will see contract rate growth as we continue on through the rest of the fourth quarter and into 2022.
Any chance I can get you guys to comment on what the earn-in is, all else equal occupancy street rates for how you would start, or what that is today kind of going forward?
Probably not a lot of color you're gonna get out of this one. Just tying into the remarks I made about occupancy, I mean, if we do end up in that range that I said, it's going to give us a nice, you know, a nice year-over-year positive number in terms of that occupancy spread. That's gonna benefit us well. The trajectory on the rate that, you know, Dave mentioned a 9% for the quarter contract rate growth year-over-year. I mean, the trajectory of that throughout the quarter was just steadily improving. We were closer to the low double digits by the end of the quarter and certainly into October. That's also, you know, tremendous tailwind.
That's kind of the most that we'll comment on in terms of looking into 2022.
Super helpful. Thanks, guys.
Thank you.
Our next question is from Steve Sakwa with Evercore ISI. Please proceed.
Yeah, thanks. I just wanted to follow up on some of Juan's line of questioning. Just to be clear, the 150 to 200 is what you've got baked in, but I think so far the decline, maybe I'm wrong, I wrote it down wrong, it was something maybe like 70 basis points max. So I'm just curious, is that just your effort to be conservative? Is there anything that you're seeing in the recent weeks that would suggest that you're going to that level, or that's just kind of what's happened historically and you just wanna be cautious?
A great question. It's more around what we've seen historically. We did see some seasonality in the back half of this year, which, you know, encourages that things are returning back to what we would expect to be a little bit more normal patterns. Certainly, we're happy with rental velocity and move-outs are still muted. You know, those two factors in play, you know, I won't say we're 100% conservative, but certainly historical patterns, there is some movement November and December, but we're pleased with where we're sitting right now.
Okay. Then just to sort of go back to some of the acquisition questions, again, if I've got my math right, you know, you basically have done $1.3 billion, including what you closed in October. Can't remember if it was Brandon or Tammy said you had another $300 million that was sort of under contract to close sometime in the fourth quarter, which would sort of put you at $1.6 billion. Above the low end of the range, but you know, maybe still a little far away from the upper end of the range at $2 billion. Are there things that you can actually get over the finish line that are not under contract today before year-end? Or I mean, are sellers really scrambling to try and get deals done before tax rates change?
is the $2 billion maybe just, you know, maybe really not realistic at this point?
No, I think it's achievable, Steve. Good question, and your math is right. You know, we're speaking to what we have closed, what we have under contract, and there is a fair amount more that is in some other stage of negotiation, and sellers are highly motivated. It'll come down to how much we can just actually get done, get it through third party, get it through diligence negotiations and get it closed this year. I don't think that our range is at all unrealistic. I don't know if we'll get to the $2 billion, but it certainly can be done based on what we're seeing right now.
Got it. Maybe last question is, given the incredible strength we've seen in rent growth and high occupancies, I'm just curious, when you're underwriting new acquisitions today, you know, how are you sort of thinking about the new normal? Is kind of these numbers the new normal, or are you sort of reverting back to something in between the old numbers and today's numbers? I mean, how do you sort of think about what stabilized rents occupancy will be two, three, four years from now?
Yeah, it's a great question, and it's a tough call, but we are finding our way probably in the middle someplace. We don't believe, you know, as competition comes and then maybe as shifting market conditions come, that'll put pressure on street rate. As we're looking at new properties, we're really taking a look at what we think street rate and market rate really is. How we look at that, what it'll be next year and the year after, and then modeling, of course, our ECRI program, you know, models that we put into it. I would say it's somewhere between, you know, maybe the upper middle of what you're talking about, what historical is to where we are now. Certainly we're in a very hot market right now, and street rates are very, you know.
Everybody's doing a great job taking advantage of the situation we're in, so.
You know, Steve, we've talked about this before too, but first and foremost, as you know, we're highly motivated to grow externally and we have our targets and we've hit them every year and expected, you know, certainly to hit or exceed this year. We also remain disciplined. We are not gonna fall into a trap of growing just for the sake of growth. So for us, it's all about underwriting good deals that ultimately are strategic and accretive to our shareholders.
Great. Thanks. That's it for me.
Thank you.
Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.
Hi. Thanks. A couple of questions on acquisitions. Tammy, how much of the third quarter and, or, I guess, remaining acquisitions, sorry, expected through the end of the year here will be lease-up or C of O deals? Do you expect to be able to maintain the yields that you discussed on investments so that mid-5% range moving forward?
Through the third quarter, the investment in non-stabilized assets was about $180 million. What we have under contract right now speaks to what we closed through October. What we have remaining to close is a handful of non-stabilized assets in there. I do believe that on the whole, we'll be able to maintain that 5.5, that mid-5 cap range. It may come down a little bit with the remainder of our Q4 acquisitions, but it'll be pretty close. Again, we're not really going for C of O-type deals. Most of what we're looking at is in some stage of fill-up, moving toward stabilization.
Right. Okay. You know, that, I guess that pricing on acquisitions, right, seems to be above what we're seeing, you know, from others and what we're hearing in the market. You mentioned that there's a premium you get from, you know, transacting off market and in the captive pipeline. How much of this year's activity was in the captive pipeline specifically? You know, sort of what's the premium that you think you get on those acquisitions?
It's hard for me to estimate the premium, but what I like, let me start with the first part of your question. About $80 million of our deals came through our captive pipeline. I think that combined with the fact that in total, about two-thirds of our deals have been sourced off-market, have given us an advantage in that cap rate analysis. Whether that is, we can compare it to you know what we're buying from third parties, and it could be easily 50 basis points is what I would say. I think the captive pipelines clearly come in at the higher end of the range, and the off-market deals are pulling the cap rate up too.
Okay. Your comment just sort of looking ahead, your comments about the amount of product coming to market being unprecedented, do you anticipate this level of activity to continue into 2022? I guess, you know, will the first half of the year, which, you know, I believe historically has not been as busy, you know, traditionally, will it be, you know, a much busier time of year in your view than it has been in prior years?
I believe that potential exists, yes. The reason is because the volume of deals and the potential sellers who would like to get something done, sure, they'd like to get it done right now, some of it is just not going to be possible. It is going to fall into the first part of next year. While people have been and continue to be motivated by potential changes in tax law, I would also say that the amount of capital chasing deals and the pricing that we're seeing right now is keeping sellers interested. It may fall off some, you know, maybe some people who don't get their deal done this year will just pull back and hang on for a while.
Based on what we're seeing and hearing, we believe that some of this activity will fall into the first part of 2022.
Okay, great. Just one last one. The updated guidance for acquisitions is the $1.5 billion-$2 billion, is that NSA share of investments, and is there interest to do anything, you know, sort of on a larger scale with a joint venture partner?
Yeah, that assumes all on balance sheet. Our guidance range right now assumes all on balance sheet. Yes, we would be interested in doing something with a JV partner under the right circumstances, if it was a strategic move. You know, we have conversations with investors who are interested, and we keep that door open. There may come a time when it makes sense. We would definitely be open to it.
Okay. All right. Thank you.
Our next question.
Thanks, Todd.
Our next question is from Smedes Rose with Citi. Please proceed.
Hi. Thanks. I guess I just wanted to understand a little more too, on, as someone just mentioned that, you know, the cap rates seem kind of higher than what we're seeing for other acquisition opportunities in the market. You mentioned 2/3 are off market and sort of outside of your captive pipeline. You know, I guess I'm just wondering why someone is selling to you at these rates when it seems like they'd be able to sell at a lower cap rate to someone else through maybe a more brokered process. Just trying to sort of get, is it just relationship-driven or because you're talking about stuff that's outside of your captive pipeline, right? Where you kind of get first dibs on that.
My 2/3 basically includes the $80 million. Having said that, you know, it's still a big number. Smedes, that's a great question. I would tell you that it is relationship-driven in every single case. In all but one case, when we're talking about, you know, anything of any amount of money, the seller was interested in OP equity. Between our relationships, and these are long-term relationships, and our ability and willingness to work with the seller in the issuance of OP equity, I think it did give us an advantage. I think you're right. If it was a fully marketed deal, you know, the seller might have left a little bit of money on the table.
However, they got stock at a good price, and then I think they've done okay.
Okay. Then the other thing I wanted to ask you, it sounds like development activity hasn't changed a whole lot from what you've talked about in the last quarter. But it sounded like in your opening remarks, you guys are expecting an uptick in development. Is that just because you feel like fundamentals are strong and it will draw new development to the space, or are you starting to hear, you know, rumblings of more development that you think is coming? I just wanted to maybe clarify that.
I wouldn't say that it's anything that we are seeing specifically today. I think that our comments are probably a little bit more anecdotal. They're based on the same data that all of you guys see, which comes primarily from Yardi and maybe a handful of other sources. We also have the benefit of having ongoing you know, conversations with our PROs who are on the ground, and they know what's going on, and they stay very close to it because it affects them in a very real way. I think we form our opinions based on those facts and what we're hearing. I also think that it's human nature.
The sector has performed so well over the last 18 months and even, you know, more than that. What I think will slow it down is the entitlement process itself, which takes a very long time. Then beyond that, the cost of the building products, the availability of the building products and shortage of labor. I don't think it's an imminent threat, but I think that it's just maybe common sense that it will happen again. The question is really timing. Is it 2024? A little later than that, maybe it may be the end of 2023, but we don't see it happening near term.
Great. Okay. Thank you.
Our next question is from Elvis Rodriguez with Bank of America. Please proceed.
Hi. Congrats on the quarter, and thanks for taking the question. You mentioned labor pressures and payroll pressures in the opening remarks. Can you maybe comment a little bit more on what you're seeing on the ground in your markets? In particular, do you expect, you know, payroll increases to continue to exceed inflation going forward?
A great question. You know, certainly the labor market is tight. You know, a little more clarity on that payroll. You know, part of our payroll uptick is also incentives paid to employees for the great performance. If you look at how strong revenue was and the metrics that affect our store operations teams across all of our pros and ourselves, the incentive levels are high. We are seeing a little bit of pressure from overtime. Obviously trying to keep staffing levels at the right level and find and attract the right team members is tougher now than it's ever been.
You know, obviously, there has been a handful of rate changes around, you know, certain states raising minimum wages and things like that have come across in the country. Overall, it's really tight labor market. We're doing our best to attract people, doing our best to look for efficiencies within our systems and our operations to make sure that, you know, if, you know, as we feel the wage pressure, maybe we can find different paths to do business. I don't see the labor market easing anytime soon at this point. You know, we'll do our best to manage and, you know, I think we've done a good job throughout and creating the right culture and the right place for our team members to be, and I guess navigate it as we go.
Great. Thank you. Just to follow up, this might be in connection to labor and other expenses, but your same-store operating margins continue to improve. Is that a function of just having more scale as you get bigger in your individual sub-markets, or is it something you're doing with technology or, you know, mix in sort of how you're changing and managing each individual stores with the pros? Anything you can share could be helpful. Thanks.
Yeah, great question. I think it's a combination of a lot of those things. Certainly, you know, tremendous rate growth that we've had will certainly help your margins. You know, high occupancy levels will help your margins. We are looking at technology. You know, how do we look at how we staff our stores, how many hours we're open. You know, with online rentals approaching 30%, so there's an opportunity to transact with the consumer in the way they wanna transact, and maybe that allows us to look at our office hours. You know, we recently upgraded the call center platform to get a better technology behind that and really work on customer service and rental application there as well. So I think it's a handful of a lot of things that are in play here.
Thank you.
Mm-hmm. Thank you.
Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed.
Yeah. Two quick questions from me, just sticking on the acquisition theme. So if I look at the $1.75 billion as the midpoint of the guidance, just can you give us a sense of what the total pipeline that you would look at in a year would be? Is it like, are you looking at $5 billion, are you looking at $10 billion to be able to sort of close that $1.75 billion?
You know, I think sort of back to a previous question, which was we're thinking about over the next two to three years, is this sort of more sustainable or are there some really one-time bigger deals this year that we should be mindful of?
I think that I will tell you, Ron, thanks for the question, that we look at every major portfolio that hits the market. So in answer to your question, how do you get to $1.75 billion, we've probably looked at, I don't know, Dave, would you guess $10 billion?
Yeah.
Portfolios valued at every bit of $10 billion. Will this continue into the next one, two, three, four years? It is impossible to predict. A lot remains to be seen. When we have this call again at the end of February, we'll have so much better line of sight on what we think is gonna happen in at least the next 12-18 months. Right now, it's really truly impossible to predict. It is an interesting phase of consolidation in this industry. I think that we, on the inside, have been expecting for a while. Yet, how long does it go on and just how consolidated does the sector become?
I don't know the answer to that. We've talked about historically something like, let's just say 50,000 self-storage facilities in the United States. Take haircut it for non-institutional grade assets, so 40,000 assets in the United States. At the pace of acquisition this year, if the number historically has been the top, you know, 5+ own 18% or thereabout, Dave and I and Brandon were just talking yesterday, what does that number become? It'll be interesting to see how this rolls out over the next six months or so, because that number in our view gonna be, you know, well over 20%. It's a very good question.
I certainly don't have a black and white answer, but it's certainly something that we're gonna be watching and monitoring, and our objective will be to remain relevant. I think we're well set to do that.
Yeah. I think I would add, and I think you touched on something. There have been a couple portfolios that transacted that maybe we wouldn't have thought would have transacted through this year.
Mm-hmm.
I think if you look at our acquisition activity and the amount of even one-off and smaller portfolios and the amount of activity we've done because of relationships and all the things we do, as I look forward into, you know, 2022 and beyond, I think we stay very active there. It's not always about the one-off big portfolio that really helps us in our acquisition activity.
Yeah. Good point. Back to the blocking and tackling.
we losing you, Ronald?
As a reminder to star one on your telephone keypad if you would like to ask a question. Our next question is from Kevin Stein with Stifel. Please proceed.
Hey, good morning, guys. I was just wondering, Portland's one of your larger markets, and it's been doing really well. It's one of the top performing markets, but it's also had quite a bit of development for, like, the last few quarters. I was just wondering, why your portfolio is doing so well. Is it because demand is just so strong, or is it the development isn't near your stores? Thanks.
Yeah. Yeah, great question, and we talk a lot about Portland. Portland still remains our most challenging market with the amount of new supply that's in the market. A couple things have gone on. Certainly, the new demand has certainly helped the Portland market and helped all of the self-storage in that market have better success. You know, I think the team up there in Portland has done a great job in really implementing strategies around pricing and discounting and attraction of customer acquisitions. I think they've done a good job repositioning themselves in that competitive market, and I think that shows in their performance. I think we need to call that out. They've done a wonderful job.
You know, if you really look at it, though, Portland's still trailing our average portfolio occupancy by about 3%, so you can see there's still pressure there. You can see where the new supply still remains there. You know, Oregon as a whole has seen some in-migration. There's been some movement around Oregon. If you look outside of Portland, Oregon has really done exceptionally well. You know, to answer, you know, get back to your question, I think the team's doing a better job and certainly the supply, you know, the demand factor is helping with all the supply that's there.
Gotcha. Thanks.
Mm-hmm.
Okay, we do have Ronald back, so we'll jump right back to him.
Sorry about that. Just, the second question was just looking at expenses, a little bit. The reason I ask is because I think a lot of the peers that have, they either, you know, increased wages, gave special sort of incentives in 2020 so that in 2021 expenses were actually sort of down. I'm, I guess, my question is really, you know, obviously, property tax expenses are what they are, but is there expense saving opportunities as you're thinking down the road 3, 4, 5 years down, whether it's with increased penetration of eRentals, whether it's the marketing expenses that you may not need because of occupancy? You know, granted the margin's already pretty high, but just curious how are you guys thinking about potential expense saving opportunities down the pike? Thanks.
Yeah, great question, Ron, and we're always thinking about that. I think you touched on a few of them is how do we take technology and platform and make it better? You know, online rental, if we can continue to increase our online rental presence, obviously, you know, that may see some opportunity around store hours and maybe overall personnel costs. You know, certainly with the customer acquisition platform and really the revenue management platforms that are still new to us, I mean, revenue management platform for us is only 21 months old. You know, our customer acquisition platform continually being updated. I do think there's ways to find efficiencies there, and really look at overall operating efficiencies.
I am very pleased with what our margin growth has been, and we've had really good margin growth this year. You know, all of our pros and their teams and our corporate team has done a good job focusing on where we can be efficient and really drive down expenses where possible or maintain and really drive on revenue. I think we're looking at all those things. I do think, you know, we run very lean. It's not like there's a lot of fat hanging around in our organization, around our properties and in our organization. We'll do our best to find those efficiencies and implement them.
Great. Thank you.
Thank you.
Our next question is from Wes Golladay with Baird. Please proceed.
Hello, everyone. I wanna dig in a little bit into the drivers of the above average occupancy levels. Is it mainly driven by the just demand more move-ins or is it a lack of churn, the move-outs?
Good question. I would say the majority of it's the lack of move-outs. You know, our rental volumes are vigorous, but it's really that muted move-out volume that's really elevated the occupancy levels.
Okay. Then when we look at the, I guess the lease-up deals, can you remind us how long those typically take to lease up and where that is now, to get to that 6% stabilized yield?
Yeah, I mean, certainly the lease-up schedule is certainly tightened with the demand that's going on. We're seeing properties that maybe would lease in 24-36 months or maybe, you know, 20-24 months now. We're certainly seeing the quicker side of it. Most of what we're purchasing though, is it has a lot of the physical occupancy in place, and what we're working on is getting the rate back up where it should be. Very quick fill, you know, to the high physical occupancy levels. Now we need to work on, you know, getting the discounts to burn off and really get the rate where it needs to be. You know, for us, you know, we look at it stuff that, you know, most of our stuff that we're buying will be stable by year 2.
I would just add to that, the stabilized yield on those assets is estimated to be about 6%, and the average occupancy was in the mid-70% range on what we're classifying as non-stabilized assets.
Great. Thanks for the time.
Yep. Thank you.
Thanks.
We now have a follow-up question from Neil Malkin with Capital One. Please proceed.
Thanks, everyone. Just Dave, just a question on the benefit from the in-place customer renewal. Because the move-outs are lower, more of the population now every month, every quarter is eligible for renewal increases. Obviously the lower churn means that more people are taking them. Can you just talk about how what that looks like? What is the sort of quarterly potential of the portfolio that you know eligible for a renewal increase you know versus like maybe pre-COVID and you know how far below or is it above the sort of renewal rents from market almost like a loss to lease if you will for your existing customers just to kind of get a sense on how much more you can push? Thanks.
Yeah, great questions. A lot to kind of unpack there. You know, first of all, we're in a positive rent roll-up right now, and we were through October, which is a good place to be as far as giving us the ability to really be assertive on what we wanna do. In case we happen to have somebody move out, we're actually replacing them right now at about a 4.5% improvement on a new tenant coming in the door. We certainly, around in-place tenants, have the opportunity to push harder and more frequently, and you know, we're bullish around that.
What we've seen is the frequency of tenants that are getting rate increases probably increase to 25-2.5% on average per month of what we would normally be doing, particularly this time of year. You know, as we talked about, you know, low single-digit, low double-digit increases is probably more the norm at this point in time. You know, we really shifted to removing some of the caps, maybe removing some of the ways we think about, you know, replacement of that tenant. You probably heard me talk about this before, more of a life cycle. If you're gonna be with us on average 16 months, how do we maximize that time efficiently through our in-place rent change program?
Okay. Yeah. The last thing I had was, you know, these eviction moratoriums in some of the coastal markets have been expiring, you know, some shorter or sooner than others. In particular, your West Coast portfolio, are you seeing or do you expect to see some near-term windfall if those evictions, which, you know, could be pretty sizable, you know, continue to play out or come to fruition?
Yeah, certainly, I think we will see. You know, that's gonna create transition. Anytime we have transition, we're a great opportunity for, you know, having people needing our space. I think the interesting thing now is, you know, you mentioned the West Coast, we're fairly full out there, as is everyone. I think, you know, obviously it will help in the fact that we can probably, you know, continue to be, you know, very, you know, assertive on street rate. You know, I think for the folks that are getting evicted, it's gonna be a challenging time, and the fact that I think storage space is pretty lean on some of these areas.
Certainly, you know, we do what we normally do, and we'll look at opportunities and do what we need to do there, but, you know, it certainly will create transition, yes.
Okay. Thank you, guys.
We do have a follow-up question from Smedes Rose with Citi. Please proceed.
Hi. I just wanted to ask you, I think in the past you've talked about acquisition targets at about annually about 10% of enterprise value. Is that still sort of a good metric to think about as we model going forward for next year?
That's a great question, Smeeds. I think that is certainly something that we have said historically, and I'd like to say yes, I think that's how we should continue to think about it. The one thing that I would add is the way that we have talked about it historically is that on average we'll acquire about 10% of our total enterprise value year-over-year. Some years we will and some years we will not hit that. Sitting here today, it's a little hard to predict what 2022 will look like. I think we still hold that out as a goal of ours, but I'm gonna focus on the average part of it since it's been such a big year this year.
Yeah. Smedes, this is Brandon. Just one other thing on that. I mean, obviously with a year like this year, it's so unique and much of what we're doing is back half weighted. Obviously that serves 2022 more than it will 2021 in terms of like our bottom line core FFO per share growth. That's just another way that we think about much of what we're doing this year is serving us over, you know, maybe not a 2021 calendar year, but you know, obviously into next year. Just a point of color on that, since I mentioned it, of the $600 million that we did in Q3, the vast majority of that was in the month of September.
Around $425 million specifically was in the back half of the September month. Just if it helps when you think about modeling and what we're not getting the benefit of in Q3 that we'll have for a full quarter of Q4 and into next year.
Thank you. Appreciate it.
Yeah, thank you.
Thank you.
Thanks, Smedes.
We have reached the end of our question- and- answer session. I would like to turn the call back over to Tamara Fischer for closing remarks.
Thanks again for joining our call and for your interest in and support of NSA. As many have said, it's a great time to be in self-storage. I'll also reiterate our thanks to our team members and our pros whose efforts are key to NSA once again delivering sector leading results. We look forward to connecting with many of you next week during NAREIT. Thanks.
Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.