Greetings, and welcome to the National Storage Affiliates Second Quarter 2020 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, George Hoglund, Vice President, Investor Relations for National Storage Affiliates.
Thank you, Mr. Hoagland. You may begin.
Good morning or good afternoon, depending on what side of the country you're on. As some of you on this call may be looking to follow the recent trend of moving out of the big city and into the suburbs, I'd like to remind you that self storage is available to facilitate life's transitions. We'd like to thank you for joining us today for the Q2 2020 earnings conference call of National Storage Affiliates Trust. In addition to the press release distributed yesterday, we filed an 8 ks with the SEC containing our supplemental package with additional details 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, including uncertainty related to the scope, severity and duration of the COVID-nineteen pandemic, the actions taken to contain or mitigate the direct and indirect impact.
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. On the line with me here today are NSA's CEO, Tamara Fisher COO, Dave Kramer and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts.
I will now turn the call over to Tammy.
Thanks, George, and thank you, everyone, for joining our call today. I'd like to first acknowledge and thank our pros and our many team members who continue to work diligently in a challenging environment to deliver what we believe is a very solid quarter given the circumstances. While I never imagined being satisfied with the negative same store NOI result, the extraordinary effort by our pros and team members minimized the magnitude of that decline in the 2nd quarter. Further, and consistent with what we've discussed historically, our PROs absorb a disproportionate share of downside risk through our structure, mitigating the negative impact on cash flow and core FFO per share during challenging times. As a result, and in spite of the 1.2% decline in same store NOI, core FFO per share increased 7.9% in the Q2 compared to the Q2 last year.
This positive result is due primarily to 3 factors, which are largely driven by our PRO structure. 1st, our ongoing robust acquisition volume is consistently accretive to FFO per share. 2nd, the internalization of our Secure Care Pro was accretive by approximately $0.01 per share in the Q2. And third, our PROs absorbed a disproportionate share of decline in same store NOI through reduced distributions on the SP units. Our unique structure was designed to align the interests of all of our stakeholders in good times and in bad, giving special priority to our common shareholders, and we saw this clearly demonstrated in the Q2.
While we're pleased with the overall performance in these challenging times, the coronavirus pandemic and its impact on the economy remain a key risk to our business, and I would emphasize that the health and safety of our employees and customers is our top priority. We've been proactively addressing the rapidly changing environment driven by the pandemic. All of our stores remain open and operating in a modified manner for safety and all have contactless rental options. We've resumed rent increases and auctions across our portfolio, except were prohibited by state executive orders. Cash collections remain at or near our normal strong levels and so far have really been a non issue.
Rental activity seems to have crossed in April and has steadily improved since then as many states began phased reopening. Both same store move ins and move outs were down about 28% year over year in April, but steadily improved to the point that June move in volume was roughly flat year over year and move outs remained down about 7% compared to June 2019, resulting in an increase in net move ins year over year in June. The steady improvement in net rental activity continued into July and we ended the month with occupancy up 80 basis points compared to July last year. Further, easing of restrictions on rent increases, late fees and auction moratoriums by states and local governments has been steadily gaining steam and fee revenue is beginning to recover. In most markets, we're putting auctioned units back into the rental system again.
One important point I would highlight is related to concern that the inability to auction delinquent tenant units might have created an occupancy overhang. We've been proactively working with delinquent tenants since May in negotiating opportunities for these tenants to pay a portion of their overdue rent to vacate their units and avoid the auction foreclosure process. This has materially reduced the number of pending auctions and is a win win for us and for our exiting customers. We currently estimate that unprocessed auctions overstayed occupancy by only about 50 basis points. So given that our July month end occupancy was up by 80 basis points year over year, we're now seeing a true net occupancy gain on a year over year basis.
Things have clearly moved in the right direction and we're hopeful we've seen the worst of this downturn, but the resurgence of COVID infections across a number of states and uncertainty about how and when phased reopenings will occur continue to create uncertainty and limited visibility. As such, we are not reinstating 2020 guidance at this time, but we will continue to monitor and evaluate as the year progresses. Although the environment remains challenging, we think NSA is well positioned given the downside protection inherent in our unique Pro structure, essentially no lease up exposure and our greater concentration in secondary and tertiary markets, which have been less affected by COVID-nineteen. There have been a number of analyst reports and media articles published over the past couple of months highlighting the early stages of out migration from urban areas and primary markets to more suburban locations and secondary markets. This is an important trend to keep in mind when you think about how our portfolio is positioned and how this shift clearly benefits NSA.
We believe this trend will only gain more investor focus as time goes on. Brandon will spend more time talking about our balance sheet and liquidity, but we were extremely pleased with the execution of our $250,000,000 debt private placement transaction, which closed just this week. The 2.99% coupon on the 10 year notes was the lowest of any 10 year public or private notes issued by a self storage REIT. On the external growth front, we continue to evaluate opportunities and acquired 4 wholly owned properties during the Q2 for a total investment of $36,000,000 And subsequent to quarter end, we acquired one additional store valued at $6,000,000 3 of these assets were from our captive pipeline, which remains a strong source of acquisition opportunities for the future. The external acquisition environment slowed significantly in the 2nd quarter as many portfolios were pulled from the market and bid ask spreads remained wide.
Now that operating fundamentals are stabilizing and there's a sense that the worst is behind us, we're starting to see portfolios come back to market and overall market transaction activity is picking up. NSA is extremely well positioned to take advantage of potential opportunities with a reloaded revolver following our private placement, OP units that serve as attractive acquisition currency and the expectation that we will continue to execute on captive pipeline acquisitions. I'll now turn the call over to Brandon to discuss operating results and balance sheet activity.
Thank you, Tammy. Yesterday afternoon, we reported core FFO per share of $0.41 which represents an increase of 7.9% over the prior year period. As Tammy mentioned, this growth was fueled by a combination of strong acquisition volume over the past year and accretion from the internalization of Secure Care. For the Q2, same store NOI decreased by 1.2% over prior year, driven by a 1.1% decline in same store revenues and 1.1% decline in property operating expenses. Same store occupancy averaged 88.1% during the 2nd quarter, a decline of 140 basis points compared to the same period in 2019.
This effect was partially offset by an average rental revenue per occupied square foot that slightly increased year over year, despite the fact that we paused rental rate increases to existing customers in most of our markets during the quarter. Same store OpEx growth benefited from diligent cost control measures across the board. Specifically, personnel costs declined 2.5% as we optimize staffing hours due to less activity in store offices, repairs and maintenance decreased 13% and utilities declined 1%, partially attributable to benefits from our LED lighting initiative. These favorable expense controls were partially offset by property taxes that grew 5.5% from the prior year period. Next, let me give some color on the positive trends in July.
Same store occupancy at the end of July was 91.1%, which is up 80 basis points compared to the end of July 2019 and up 130 basis points sequentially from the end of June. Same store move in volume in July was 8% higher than July 2019 and move outs were down 20% compared to the prior year. Cash collections in July remained healthy and were about 99% of normal levels, similar to what we experienced in the Q2. Our street rates were down about 5% year over year in both Q2 July. We focus on optimizing revenue and believe our revenue management systems have done a good job of balancing the give and take between occupancy and rental rate during this challenging time.
Now let me comment on some of our markets. In general, we were pleased that of our reported MSAs, half of them achieved positive same store revenue and NOI growth and of our 6 largest exposure markets, 4 achieved positive same store revenue and NOI growth. 2 of our largest markets, Riverside San Bernardino and Phoenix performed better than portfolio average during the quarter. While both markets experienced overall slowdowns in new rental activity consistent with the broader portfolio, occupancy held steady and the Q2 results benefited from rent increases to existing customers that were processed in March before we paused the program due to the pandemic. In Portland, the Q2 was quite negatively impacted by a combination of the COVID related stay at home orders, regulatory restrictions on both auctions and late fees and the existing oversupply issues.
Average occupancy was down 280 basis points during Q2, but ended the quarter down just 140 basis points. This improvement continued in July as the month end occupancy was up 110 basis points year over year. While this trend is encouraging, Portland remains the most restrictive market in which we operate, with state mandates prohibiting late fee charges and auctions for the entirety of the Q3. These are just a few examples of what we're seeing across markets. The landscape remains challenging and as Tammy noted, our limited visibility about the continuing economic impact of the pandemic prevents us from confidently providing full year guidance at this time.
That said, I do want to offer some commentary about same store revenue growth in the 3rd quarter. We have a tough comp when we look back at the strong performance of the Q3 2019. This year, the lack of rent increases to existing customers during the Q2 has weighed on in place rental rates heading into the Q3, and we have been slightly more aggressive with lower pricing and discounting to new customers to boost occupancy. The combination of these factors could lead to Q3 year over year revenue growth being equal to or slightly below the negative 1.1% we reported for Q2. Now turning to the balance sheet.
Subsequent to quarter end, we paid off $35,000,000 of mortgage debt, the only debt that was maturing during 2020. We also closed on a $250,000,000 private placement of senior notes comprised of 2 tranches, $150,000,000 for 10 years at 2.99 percent coupon and $100,000,000 for 12 years at a 3.09% coupon. Take advantage of our low floating rate on the revolver, we have elected to delay funding of the notes for up to 3 months no later than October 22. We're very pleased with the execution of this private placement that extends our weighted average maturity, lowers our average fixed rate borrowing cost and replenishes the capacity on our revolver. Also during the Q2, we issued 387,000 shares of common stock through our ATM program at an average price of approximately $31 per share for gross proceeds of $12,000,000 We also issued 206 1,000 OP and SP units at an average price of $28 per unit in connection with our acquisition activity.
Our balance sheet is well positioned with the full $500,000,000 available on our revolver after reflecting the private placement, essentially no debt maturities through 2022 and healthy access to multiple sources of capital. Our weighted average cost of debt at quarter end was 3.3% with all borrowings except our revolver fixed rate or swap to fixed. Our weighted average maturity was 5.2 years and our net debt to EBITDA ratio was 6.3x at the end of the second quarter, down slightly from 6.5x at the end of the first quarter. We have no immediate need for capital and we'll be opportunistic about accessing the capital markets going forward. Strength and flexibility of our balance sheet also positions us well to take advantage of investment opportunities as they arise.
And we believe our well connected network of PROs and our ability to offer tax deferred transactions with our OP unit currency will continue to fuel our external growth strategy. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?
Our first question today is coming from Neil Malcolm from Capital One. Your line is now
George, I think you had a lot to do with that, buddy. So good job on the intro as well. First question on the transaction market. We've heard that the market has bounced back pretty quickly in terms of pricing, if there was any change in cap rates during the worst of it. Can you comment on sort of the deals maybe that you did in the second quarter and the deal in the 3rd quarter in terms of pricing and kind of what you're seeing more like today as more deals are coming back to market?
And then just as a follow-up, given your performance your stock price performance today, are there portfolios that meet your criteria considering you could issue equity accretively?
Hi, Neil. This is Tammy. And thanks for the question. We always appreciate it and calling out George there.
I'm sure
he is a big part of it. But I would say in answer to your question about the acquisitions market, we thought we would see more of a compression in cap rates than we did. As you know, the transaction market did slow down in the Q2 beginning mid March. We didn't see a lot of compression in cap rates. What we closed in Q2, we already had under contract and a couple of those assets came out of our cap this pipeline.
We tend to buy those at a little better cap rate. Our average cap rate for deals closed in the second quarter including the one that we closed in the beginning of Q3, closed at about a 6.5% cap, mid-6% is what I would say. We are definitely seeing a pickup in activity. There is a lot of capital out there waiting to be deployed, wanting to take or increase their position in self storage. And yet we do feel that we're well positioned to take advantage of opportunities as they We do like our stock price today, although it's today, We do like our stock price today, although it's today.
So we'll see where that goes. But we have our revolver available to us, fully available to us. And we've also been very successful, as I think you know, in the use of our OP currency as incenting sellers to sell the NSA.
Sure. I got you on that one. Last one for me is, can you give a sense as to how much demand, if you can even discern that, is related to doubling up or moving due to the work from home or job loss or moving back in with your mom and dad. Typically that's a pretty quick occurrence, I guess. So are you seeing any of that or do you believe that that is coming to potentially help support, occupancy through the remainder of the year?
Hi, Neil. This is Dave. It's a good question. I can tell you we have had stories of that. We witnessed it.
I can't put an exact number to it as far as how much activity, but we are certainly seeing people empty a bedroom to create an office, empty bedrooms to create place spaces for their children. Some of the small businesses getting rid of tables to make room to have limited capacity seating. We've experienced that all throughout the country. There's nothing really significant that we can point our finger to on how long it's going to last and how much it's really impacted occupancy.
Okay. Appreciate it. Thank you, guys. Sure. Thank you.
Thank you. Our next question today is coming from Todd Thomas from KeyBanc Capital Markets. Your line is now live.
Hi, thanks. Just first question, so following up on external growth, I think previously you've talked about growing the asset base 20% per year. Do you think that you could see a return to that pace of investment activity in the near
term? Yes. I think, I honestly think that we talk more about 10% a year, to be honest with you, Todd. But I do believe that we can return to that. I think that will be our goal.
Our original guidance for 2020 was investment of $400,000,000 to $600,000,000 this year. I don't know if we'll get there. We're getting to the later part of the year and seems like we'd have to have things zipped up by now. But we're going to continue to actively seek transactions that make sense for us and close them as quickly as we can reasonably do it. So, yes, we're very motivated on that front.
Okay. And sorry about that 20%, 10%, who's counting, I guess. That's okay.
I know our
And then I know you were looking to round out the map another pro or 2 in certain geographies. Any update on those efforts? Is the current environment supportive of additional pro ads here?
So I would tell you that in the recent months, I would say that it has not been really, with A, with our stock price where it was and B, with the uncertainty in self storage and C, as it relates to the just the general economic environment. And so but I would say things are changing and I am still optimistic that over time, I can't say when, but over time I do believe we will be successful in adding 1 to 3 more PROs. We've talked about it before. We're always in conversations with a handful of different private operators and but it takes time. It takes time to sort through it.
But I'd say over the past 8 to 12 weeks, it's been substantially on pause.
Okay. And just one more on investments. So historically, you've refrained from development and buying much product that wasn't stabilized. Would you sort of wade into the lease up market at all for new investments? Or do you expect to still be buying predominantly stabilized stores?
So you're right. It's the acquisition of non stabilized properties is definitely not part of our core strategy. But we've always said that if and when the time is right and if it makes sense, we would be open to acquiring non stabilized assets to a certain level. It will never be a huge part of our portfolio or investment strategy, I don't think. But we also expected to see some change in pricing and expectations.
And while we're seeing some deals come to market, there's still a pretty wide gap in the DASK. And so at this point in time, we're still watching and waiting. And if there was a sizable opportunity, I think we would be open to looking at that with a JV partner, if it wouldn't make sense.
Okay. And just last one for Brandon. Can you share what the bad debt expense or the reserve was in the quarter that ran through the income statement? And how do you expect I appreciate the comments around the Q3 comp, but how do you expect the reserve to trend in the Q3 as you work through continue to work through auctions and that backlog?
Sure, Todd. Yes, thanks. So our historical bad debt expense as a percent of revenue, and again, this is all netted within revenue, so you don't see it clearly on the financials, has been in the 2% to 2.5% range and Q2 was no different. I think we were kind of right in the middle of that range. July did tick up, I'd say, towards the high end of that because we did reinstate the auction process across several markets.
I think we may see a little bit of a continuation of that in August as we get to the full cycle of auctions, meaning the high end of that range, but I don't expect it to be dramatically higher. We by the time we're getting to customers who are going through the auction process, we've pretty much fully reserved for that effect already. And so that's baked into the 2% to 2.5%.
Okay, got it. And you'd expect to be through the auction process by the end of Q3?
Hey, Todd, it's Dave. Yes, we hope to be. Obviously, we still have some restrictions around the country and municipalities and governments that are prohibiting us from completing all of those. Some of those do stretch through the end of September at this point. Oregon being pretty restrictive could go even longer than that.
But as the restrictions lift, we're working our way through.
Thank you. Our next question today is coming from Ronald Kamdem from Morgan Stanley. Your line is now live.
Thanks. Just a couple of quick ones from me. 1, the July move in volume sounded pretty strong. Just wondering if you could provide maybe a little bit more color on that. And are you seeing any trends?
Is there any parts of the portfolio, any markets, potential demand drivers? Just any more color on that would be helpful.
A good question. This is Dave. I really think July we had a lot of our markets perform pretty well with the move in volume and the rental volume. And I think it's all the pros are dialed in, all of our teams are dialed in. We're priced competitively.
We had our discounting in place. We did a good job on marketing spend. And I think as a country everybody got more active. Even Portland was positive in moving activity the month of July, which is something we haven't seen in a while. And the country got more active, it got more open.
And I think our strategies were really good and everybody executed very well
on it. Great. That's helpful. And then the second question was just maybe trying to get an understanding of sort of the guidance parameters. I obviously appreciate that there's a lot of uncertainty there.
But when you think about the second half of the year, I think you've already sort of put some brackets around what 3Q could look like. Just curious what are some of the unknowns, right? What are some of the things that cause enough uncertainty that you wouldn't be willing to put more of a roadmap for us out there on the guidance front? Hopefully that made sense.
It did, Ron. Thank you. I think what we believe is that the worst is behind us. And as you mentioned and Brandon mentioned in his comments, we do believe that the Q3 could look very much like the Q2 in terms of a decline in revenue. But I will also say that we're feeling a lot better about things today.
And if you assume that there are should come in ahead of the last half of twenty nineteen. Should come in ahead of the last half of twenty nineteen.
Helpful. Congrats on a great quarter.
Thank you. Thank you.
Thank you. Next question today is coming from Smedes Rose from Citi. Your line is now live.
Hi. Thank you. I just you mentioned a couple of the properties that you acquired came out of the captive acquisition pipeline. And I think that stands in maybe around 140 or so properties. What sort of the, I guess, the timing of those coming into your system?
And how does that just if you could just give me a reminder, sort of how does that work in terms of you being able to acquire from the captive pipeline?
So the cadence is pretty lumpy, Smedes. And the way I would describe it is that the assets that are in the captive pipeline are managed by our PROs and in many cases they have some ownership. Many of those assets either have debt on them or they are non stabilized or in some cases the actual disposition is not controlled by the pro. And so we work with our pros to for them to use their best efforts to facilitate the contribution of the asset to NSA when it becomes available. It's a little bit hard to predict.
We have conversations with our pros every quarter about it and look out 12 months to 24 months to see what's coming. But it's not necessarily black and white and maybe not and in many cases, if they have an outside owner, the outside owner will take OP equity, yes.
Okay. And then, I mean, this is just sort of open ended, but I mean, part of the on the table is to potentially eliminate the step up basis, which would apply across multiple asset classes. But I'm just wondering if that ability to kind of shield gains to one's heirs goes away, does that significantly change do you think the way that pros may think about being in this model? Or I don't know if it's something that you've paid a lot of attention to? Or do you have any just general thoughts on it?
Well, to be honest with you, it's not something we've had conversations about recently in terms of potential changes to tax law. I will say that conversations that we're having with sellers have all been very favorable in at least in terms of what's in place right now. And honestly, if a change does come, we may see sellers being more willing to move on things a little bit more quickly. So that could be a real positive for us.
Okay. All right. Thank you.
You bet.
Our next question today is coming from Jon Petersen from Jefferies.
Just a few picky questions on markets, just looking at your same store page. So Indiana, it looks like operating expenses were up 38 percent year over year. I wonder if you could just let us know what's driving that? And then if we look it looks like the worst market in terms of revenue were Oregon and Washington. I know there's certainly been supply issues in Portland.
So maybe kind of update us on how you're feeling about market dynamics in Portland?
Yes, sure, John. It's Brandon. So on the first one, Indy a property tax item and it's really a comp issue. So there was a pretty big benefit taken in the Q2 of last year. And so we expected that big increase when you look year over year when we got to Q2 of this year.
Just as a heads up in the back half of the year, we also expect Q4 the year over year will be a little more elevated because of the same type of comp issue in other markets. And then in terms of I mean, I guess just broadly of the markets that underperformed to the portfolio average on a standalone basis as well as if you just compare how they performed in Q1 and then what the sequential decline was. You have Portland, you have Dallas, you have LA, Vegas, those 4 are those 4, I would say, are all markets that our properties are specifically challenged with supply issues. So you have the confluence of the pandemic and the resulting effect of that as well as the existing supply. Of those 4, Vegas is probably the one that that's the least amount of the story.
Nevada was similar to Oregon was very restrictive with regard to the types of fees and different normal parts of our business that we should conduct in the Q2. So that's a big piece of it in Vegas.
Okay. And then I'm curious as with maybe some more color on July 1st week of August in terms of any themes that you guys are seeing on which markets are starting to do better or worse. And I guess as we think about how COVID is kind of spread around, I mean, obviously, Texas and Florida have been a lot harder hit. I know you guys aren't in New York, but it actually seems like initially people thought it'd be a negative in New York and it's kind of turned into a positive to have like a hard hit region. So I was just curious if you've seen any sort of themes or trends related to that in the more recent weeks?
We really haven't seen much of a change in the recent weeks. It's just like we saw some uptick in July and August is holding on those same trends. So we're pleased about that. Even though there are some breakouts going on, I think the active markets are still being pretty active with people being out. Foot traffic is remaining up.
All the metrics we look as far as web traffic are up. So no significant changes I think come out of the Q2 going through July and in the 1st week of August. So we're feeling pretty good.
Okay. All right. That's helpful. Thank you.
Thank you.
Thank you. Our next question today is coming from Irina Prock from Pressama. Your line is now live.
Hello. Can you hear
me? Yes.
Yes. I wanted to get more color on property taxes. So by now you probably have received all the deals from the municipalities. So and you mentioned earlier that there are some tough comps in some of the states. So should we look into maybe more aggressive rate growth in the second half of this year for the property taxes?
And what do you see in terms of how municipalities are approaching this? Are they trying to increase them or they're kind of more understanding?
Yes, sure. Let me take a yes, Irina, this is Brandon. So the property tax expense growth we had in Q2 was 5.5% year over year for the same store pool. And at the beginning of this year when we gave our guidance pre pandemic, we talked about an expectation that the full year growth would be 5.5% to 6.5%. So that's in line.
Our Q1, we had some unexpected benefit come in. So that was a positive. And so for the back half of the year, we do know more than we did at the beginning of the year, but you still have some jurisdictions like Florida, for example, is a big one that we'll find out here this month on those value assessments and the notices of value. And in the Q4, my comments earlier were really around in a couple of Texas markets. We had some benefits come through in 2019 and so that's going to be the comp there.
But right now I would say on average we still expect I still expect that 5.5% growth clip that we had for Q2. I expect something similar on average for the back half of the year.
Okay. Thank you.
Thank you.
Thank you. Our next question today is coming from Stephen Mead from Anchor Capital Advisors. Your line is now live.
Yes. Hi. I was just curious in terms of the impact of the student population in terms of what normally happens in the late August, September timeframe and whether this year is going to be much different in terms of year over year comparisons?
This is Dave. That's a great question. We certainly saw in the spring a change in the amount of college activity we experienced. Some of it was newer or sooner back in March as colleges let go earlier. We did see a little bit of May as they actually allowed the students to come back and empty their dorms.
I think the question that's running through our mind is, I don't believe we got as many college students as we've had historically. And so as we look at the back half of August, we're looking at we may have less move outs than what we had a year ago based upon this activity. About 15% to 20% of our portfolio has some form of college exposure to it. And as we started to move in activity, we thought it was less this year than what it was in previous years. And so still to be determined and we'll see it as we get to the back half of August here.
But at this point we're a little hopeful that we may not have as many move outs.
Yes, okay. And then the construction segment in terms of general contractors and people who use storage for their construction work, And what percentage of the total is
that? It's hard for us to track true business commercial tenants because they rent with individual names and it's really hard to keep a good segment there. If we thought our commercial was 15% that would probably be a rough average of commercial tenants. We haven't seen any movement there. We haven't seen any change of behavior from that group.
It's remained steady thus far. And so we're pleased with that.
And then what are you seeing in terms of new starts and also sort of those projects that were underway and also in terms of the permits in terms of new supply out in the future?
So Steve, what we're seeing right now with new supply is that those properties, those projects that were approved, obviously the ones that were under construction are going to are approved, permitted and ready to go are maybe not going forward to the degree you might have expected not 100%, but something less than that lenders have pushed away from the table a little bit, not as willing to participate. And where we've really seen the drop is in planning and permitting. So not seeing nearly as much coming up out of nowhere. So I think that's a good sign for us ultimately, although for the next year or so, we'll continue to see deliveries on a delayed basis.
Just one last question. As you look at the your non same portfolio and the metrics in terms of occupancies, can you generalize in terms of the that those new assets that you're adding in terms of upside associated with either improvement in occupancy or rates?
Yes, Steve, it's Brandon. So the non same store properties, I mean, we typically are able to improve those beyond what we believe the sellers were able to operate them at. So there's definitely some upside there. Some of that is realized in the period of time between when we acquire it and when we've held it long enough for it to get included in the same store pool. So you don't always see that.
But typically the 1st year that a property is included in our same store pool, we do still see some incremental lift. This year, we started reporting the different legacy pool results. And so in the supplemental Schedule 6 and 7 at the bottom, you can always refer to those and you can kind of see that based on what the information we provide, the more recent adds to the same store pool do perform better. In terms of what we're seeing today in that pool, occupancy is a little tough because it depends on the markets that they're in and the occupancy profile can just be across the board. But by and large, everything I just spoke to, we're still seeing those continued trends that we've historically seen.
Okay. Thanks.
Thank you.
Thank you. Our next question today is coming from Neil Malcolm from Capital One. Your line is now live.
Hello again. Thank you. A couple of quick ones. Some of your peers had pretty significant increases in payroll and marketing for either demand purposes or frontline risk purposes for some associates. How were you guys able to keep those costs down or actually reduce them year over year?
What do you think drove that pretty large disparity there?
A couple of factors. Our pros did a wonderful job with their teams and in controlling the environment, keeping everyone safe, keeping everyone satisfied from team member to consumer to vendor, all of our partners. And I think it's a tribute to their leadership and how they were able to really manage the teams. We also knew during some of that down period we had very slow foot traffic and so we focused very hard on store hours and staffing levels. Technology kicked in there and allowed us to do some rentals in different ways than we've done in the past.
And so I think if you look at all the teamwork and the things that they focused on really helped in that payroll piece of it. And I think the environments they created didn't create a need for us to drive any type of premium pay or any type of hardship as it went along those lines. So hats off to them and hats off to all the teams that ran that.
Got you. Just in terms of the whole collections, which looks like there's barely any impact from COVID, but what are your normal assumptions for collectability? So when you do reserve, let's just say a given unit, do you assume like 10%, 20% collectibility? And then has that changed in the COVID environment?
Yes, Neal, it's Brandon. So the question that Todd had earlier, I mentioned that 2% to 2.5% bad debt as a percent of revenue. And so what goes into that equation is you hit it. I mean, it's right around that 10% to 20% in the early stages of when a customer first falls delinquent on 1 month. And then as they age out further, that quickly escalates up to 50%, 90%, 100% based on their aging profile.
And so that's allowed us to have that historical 2% to 2.5% number. And throughout this process, we just haven't seen a dramatic change to the downside on collections. And so I believe we're still going to continue to see that to my response to Todd earlier. And I think some of that we do attribute to the fact that our fees were down during the period as I think you saw across the sector. Some of that is mandated, prohibited.
We can't charge some of those fees, but we also were lenient and we worked with our customers and did the right thing where it made sense. And I think that helped our collections with them as well.
I would agree. And it also helped us and as we look at the auction process going forward, we say we may have a half a point of occupancy built up in the late auctions.
And the teams did
a really good job focusing on these tenants who were behind and working with them through the process and seeing if they could get them either current or get some type of agreement where they actually came in and paid a portion and moved on. And so we don't have to oxygen in the future. So, teams did a really good job throughout.
Yes, it sounds like it. Just one more on that. If you had 100 units, what 100 delinquent units, sorry, what percentage of that actually engages with your pay to break program?
It's really by I don't know that I have a percentage for you. It's our availability to contact the tenant and that's really some of these tenants they're just gone and we'd have no contact with them and those are moving into the auction process without any question. We're in constant contact with the tenants who still have communication with us. And we know if we can get somebody to pay a portion of their rent, 30%, 40%, 50% of the rent, that's better than we're going to take an auction. And so we've really given the team the latitude to say and go out and reach out to these folks and see what we can get as far as a collection of rent and in some cases rent and fees and really work it through because really a better ending.
The auction is the worst case scenario. It's a lose lose for everyone and we would really not rather not have to do that.
Okay. Over the last 3 to 4 months, have you seen a notable change in the demographics of any kind in any way in your portfolio in terms of move ins relative to your sort of in place demographics?
Nothing noticeable, nothing that jumps out to us at all at this point.
Okay. And then last one, would you guys I know you guys don't do the lease ups or you're reticent for it. But is there a point at which occupancy is high enough or the lease has gone far enough that you would be willing to take non stabilized assets just for the fact that your platform can juice the NOI that you would get compared to that merchant or private developer?
There may be a time, but we're not anywhere close to it.
We have a lot of
levers to pull to optimize revenue and that's really what we're focused on month to month. And so for now, I don't see that as being something we want to do short term in a material way unless it really makes sense to us from the standpoint of our investment and location of the property and long term strategic benefits of holding an asset maybe where we're building scale or something like that.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Tammy for any further or closing comments.
I'd like to thank everyone for your interest in NSA. And to reiterate, we're pleased with our 2nd quarter results and the fact that self storage again shows its resilience in the face of challenging times. We feel much better about things today than we did 3 months ago, and we're confident we'll come through this stronger and we'll continue to deliver sector leading results. Be safe and stay healthy. Thanks.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.