Q1 2024 National Storage Affiliates Trust Earnings Call

Participants

Brandon S. Togashi; Executive VP, CFO, CAO & Treasurer; National Storage Affiliates Trust

David G. Cramer; President, CEO, Member of Pro Advisory Committee & Trustee; National Storage Affiliates Trust

George Andrew Hoglund; VP of IR; National Storage Affiliates Trust

Brendan James Lynch; Research Analyst; Barclays Bank PLC, Research Division

Eric Thomas Luebchow; Associate Analyst; Wells Fargo Securities, LLC, Research Division

Eric Wolfe

Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Keegan Grant Carl; Research Analyst; Wolfe Research, LLC

Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division

Omotayo Tejumade Okusanya; Research Analyst; Deutsche Bank AG, Research Division

Ronald Kamdem; Equity Analyst; Morgan Stanley, Research Division

Samir Upadhyay Khanal; MD & Equity Research Analyst; Evercore ISI Institutional Equities, Research Division

Todd Michael Thomas; MD & Senior Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division

Unidentified Analyst

Wesley Keith Golladay; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Greetings. Welcome to the National Storage Affiliates First Quarter 2024 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may now begin.

George Andrew Hoglund

We'd like to thank you for joining us today for the First Quarter 2024 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, David Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to 1 question and 1 follow-up and then return to the queue if you have more questions.
In addition to the press release distributed yesterday afternoon, 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, May 2, 2024.
Company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. Company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details 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 Dave.

David G. Cramer

Thanks, George, and thanks, everyone, for joining our call today. During the quarter, we completed many of our strategic initiatives that we've been discussing in previous calls. These initiatives enabled us to deleverage our balance sheet and access to growth capital, increased earnings per share and ultimately position our company for future growth. We continue our focus on enhancing our operating platforms to ensure a better customer experience. These initiatives are still ongoing, but we're starting to see improvements in rental activity and conversions from our advanced web presence and upgraded call center operations.
On the rental front, we experienced 3 months of positive net rentals through the end of April. Driven into a seasonal uptick in occupancy, which ended April at 86%, up 50 basis points from the end of February. During the quarter, we experienced a meaningful year-over-year increase in leases being fully executed online. Large part due to improvements made to the lease signing experience. Additionally, our call center answered over 30% more calls during the quarter compared to last year.
Continue to enhance and simplify our customer journey by leveraging intelligence in our customer acquisition strategies, we expect to see continued improvements in the customer experience we offer and overall performance. We're also being more aggressive on our pricing strategy. This is helping to drive rental volume, it is putting pressure on our move-in rates, which averaged down about 14% year-over-year for the quarter. Consumer base remains healthy with 65% of our tenants having stayed with us over a year, while 49% have been with us over 2 years.
Our ECRI program remains largely consistent with the past couple of quarters in terms of frequency and magnitude. Ultimately, the quarter played out as we expected, but it's still early in the spring leasing season with the peak months ahead of us.
That said, looking across our different Sunbelt markets, continue to face many challenges due to several factors, including absorption of new supply, muted housing market and a very competitive pricing environment. Results are mixed in these markets with revenue in Phoenix, Sarasota and Las Vegas, all coming in below portfolio average. Markets like Oklahoma City, Savannah and Corpus Christi were better than average for the quarter. We continue to work hard in these markets to deliver a superior customer experience and recognize some of our markets are going to be slower to recover.
It is important to point out that we have markets that are currently healthy and delivering solid results. We remain very confident in the growth prospects of our Sunbelt markets due to attractive population and migration trends. I'm very pleased with our strategic positioning heading into this next phase of growth. We're starting to see opportunities on the acquisitions front. We're finding a variety of deals in many of our strongest performing markets where we have good insights into rental demand and street rates, allowing us to be more precise in our underwriting. These are deals that makes sense for us to pursue as they improve our overall portfolio quality at depth to our existing markets and increase our operational efficiency.
Currently we have over $25 million under contract and approximately $200 million of properties in various stages of negotiation. We expect to fund these acquisitions through a combination of 1031 proceeds, joint venture capital and debt. We won't comment on pricing until the deals are closed. These transactions make economic sense for us and our JV partners, we represent the start of us putting the dry powder to work that was generated from our portfolio optimization strategies. I'll now turn the call over to Brandon to discuss our financial results.

Brandon S. Togashi

Thank you, Dave. Yesterday afternoon, we reported Core FFO per share of $0.60 for the first quarter of 2024, representing a decrease of approximately 9% over the prior year period, driven primarily by the decline in same-store NOI, an increase in G&A and a decline in contribution from our JVs. Overall, our results for the quarter were in line with our expectations, except for a few casualty events resulting in an aggregate $1 million loss or almost $0.01 per share.
For the quarter, revenue growth declined 1.5% on a same-store basis, driven by growth in rent revenue per square foot of 2.4%, offset by a 380 basis point year-over-year decline in average occupancy during the quarter. Occupancy ended the quarter at 85.9% down 350 basis points year-over-year. Expense growth was 4.5% in the first quarter. Similar to the past couple of quarters, the main drivers of growth were property tax, marketing and insurance partially offset by payroll efficiencies that resulted in lower spend versus the prior year period.
Marketing expenses remain elevated due to increased competition for customers and a tough comp, while insurance expense growth will moderate going forward to the low single digits given our policy renewal that occurred on April 1. As Dave mentioned earlier, we had a busy start to 2024 on the asset sales and joint venture front, all of which was discussed on our last call. Although we did not complete any acquisitions during the quarter, we remain active underwriting and evaluating potential transactions.
The majority of our revolver are available to us today and $1 billion of buying power with our 2023 joint venture, we are encouraged by the opportunities for external growth that lie ahead of us. Turning to the balance sheet. During the quarter, we completed just over $200 million of common share buybacks and subsequent to quarter end, exhausted the remaining $72 million of our program. We believe this strategic initiative is beneficial to our shareholders and will ultimately provide more FFO per share to them over the long run.
Our current revolver balance is roughly $200 million, giving us approximately $750 million of remaining availability. Lastly, our leverage was 6.2x net debt to EBITDA at quarter end.
Now moving on to 2024 outlook. As we said earlier, the quarter played out largely as expected, and it's still early in the spring leasing season. We are reaffirming our previously provided guidance, which is detailed in the earnings release.
One item I want to mention on the balance sheet. We have $250 million of interest rate swaps that fixed daily simple SOFR at 1.59%, which mature in Q3. $145 million of this relates to the term loan that matures in July. So effectively, $250 million of fixed-rate debt will adjust to market rate starting August 1.
This impact was factored into the guidance we provided in February, but I wanted to point it out since the swap expirations aren't exactly aligned with the underlying debt maturities. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Our first question today is from the line of Samir Khanal with Evercore ISI.

Samir Upadhyay Khanal

Can I ask you to give more color around April? I know -- I believe you said move-in rates were down 14% in the first quarter. Maybe give us an idea of kind of what you're seeing in April so far?

David G. Cramer

Yes, Samir. Thanks for joining our call today. Certainly, April, we saw another positive net move-in activity in the month of April, which we were pleased with. We were able to generate the activity at the top of the funnel. We certainly are in a very competitive -- most of our markets in a pretty competitive market around Street radar asking rent to get started. And so I would tell you, April got slightly worse than where the quarter finished. It wasn't a large number, but it got slightly worse. As far as Street rate to Street rate and move-in activity -- move-in rate to move-in rate. So we saw a decline in both.

Brandon S. Togashi

Samir, this is Brandon. On the year-over-year move-in rate worsening that they was referring to, that's in part because last year, we moved rates up some in April. And so that's also affecting that comp.

Samir Upadhyay Khanal

Okay. Got it. And I guess on the transaction side, it sounds like you have some opportunities on the acquisition front. But last quarter, you were active on the sales front of the noncore assets. Is there more -- like is there more in that bucket of noncore at this point? Or is that pretty much done do you think?

David G. Cramer

I think we'll continue to look at our portfolio and scrub through the portfolio. We did the large portion of the asset sales last year in that tranche we worked through and we were pleased with that activity. I know we're still scrubbing through particular markets and particular assets. And I think that will be a part of our program as we go forward in our future as we look at optimizing our efficiencies and optimizing our portfolio.
So I think you could see sales in the future. I don't think you're going to see the large chunks that we've done recently. I think we're shifting our focus to looking for opportunities and when opportunities persist, we'll present themselves. We'll go out and look to start acquiring properties.

Operator

Our next question is from the line of Jeff Spector with Bank of America.

Unidentified Analyst

This is (inaudible) on for Jeff. When it comes to allocating capital, how are you thinking about leveraging versus buybacks?

Brandon S. Togashi

Yes, Dan, I'll take that. This is Brandon. So look, we completed the $275 million share repurchase program that we mentioned in the earlier remarks and also details in our release. And also, as mentioned, pretty light on the acquisition volume. Everything we've done over the past few quarters. We're very pleased with accomplishing what we set out to do. Leverage in line with our targeted range of 5.5x to 6.5x. So what it does right now is it really positions us with the majority of our revolver available to us to take advantage of some of those opportunities that Dave referred to earlier. No different than what we talked about in our February call.
I think if there's a slight bias, it will be to deploy capital through the joint venture platform and that allows us to obviously do that in a capital-light way, manage leverage and put to work some of that money that we worked hard to get ready with our JV partners.

Unidentified Analyst

And then just a follow-up on leverage. Could you provide your rationale behind including the hypothetical liquidation at book value for your 2024 JV to adjust EBITDA?

Brandon S. Togashi

Yes. Good question and good observation. That was a new thing this quarter. So that joint venture, that's the one that we put the 56 assets into. I would tell you the arrangement there is quite similar to the existing 2 joint ventures we have and that we're 25% money partner managing the assets. However, the one nuance is there is an arrangement where based on certain performance metrics, the split of cash may be something different than 75%-25%. In some cases, we may get through outside share. In other cases, our partner may.
That drives us into this -- the term you use, like a GAAP-specific methodology for allocating earnings. And we're basically removing the effect of that and just showing a more straightforward 75%-25% split.

Operator

Our next question is from the line of Michael Goldsmith with UBS.

Michael Goldsmith

We've heard from some of your peers that a number of markets are starting to bottom out and reaccelerate. Are you seeing that across your portfolio? Maybe what percentage of your markets are accelerating or any specific markets to call out?

David G. Cramer

Michael, thanks for the question. Thanks for being here. I think as we think about it, we believe that the first half of our year was going to be the toughest part of our year as we think, particularly from a year-over-year comp. If we look sequentially, we're happy that we had the move-in volume and the net rental activity that we had over the last 3 months. And it was tougher sledding, I would tell you, in the Southeast, Florida, some of the Sunbelt markets. Phoenix, we mentioned. We mentioned Sarasota, Las Vegas. Those markets have been slower to respond. And those markets are also facing supply like markets like Atlanta as well.
And so I think as you look at it and look at -- as we look at some of those markets, the markets that have the most supplier slower to recover, but we've had good success in the Midwest. We've had good success through the Texas markets, as we called out. I think we call that Corpus Christi in our opening remarks. And so those, I think, did not also have some of the pandemic highs and they've been a little bit more stable.
I think as we went through this last cycle and those are performing well for us. But again, I think more of that -- some of that Sunbelt exposures with the housing and muted transition and some of the other factors that going on are going to be a little bit slower for us to recover.

Michael Goldsmith

And my follow-up is, you did a number of transactions at the start of the year with the sale and then the sales to the JV had provided an influx of capital. But with the transaction market seemingly pause for the time being, how are you thinking about redeploying these proceeds and when do you think you can put them to work?

David G. Cramer

Yes. Good question. I touched on a little bit in the opening remarks. We do have -- we have $25 million under contract right now in existing markets. Where we're adding properties to our portfolio, that will certainly help us in our efficiencies and the way we operate and scale and density and really things that we're looking to drive in those markets. We have about $200 million that we're in negotiations with right now. And so I would tell you, we're starting to find opportunities that we like.
And we thought, for sure, as we looked at this year -- at the back half of the year, we continue to see more opportunities. I think the fact that we've found some opportunities earlier in the year is a positive sign for us. And again, these are in markets that we operate and have great scale in and have great efficiency in, and we are a good logical buyer for these properties.

Operator

Our next question is from the line of Juan Sanabria with BMO Capital Markets.

Juan Carlos Sanabria

Just wanted to continue with the same line of questioning with regards to acquisitions. I guess, where are your targeted yields or cap rates? And do you think that would be indicative kind of the current market for your types of assets? And this is a subset of that. Should we assume or not that you re-up the buyback now that it's been fully depleted?

David G. Cramer

Juan, I'll jump in and maybe Brandon finishes on this. I think as we look at assets that we're looking to purchase, we're targeting mid-6% is probably a range that we're looking at today. Obviously, each property one, when you start talking cap rate, it's -- where is the property unit, how old is it, how seasoned is it, what's the opportunity, is there a value add, is there a component of management from who you're buying it for, where you think you may have a better opportunity versus you would on a different type of property or a different owner? And so I think it's hard to really pin down cap rates.
But we certainly internally have been modeling around that mid-6% range. As you remember, the assets we sold were towards the 6% cap itself. And so we are certainly thinking redeploying this capital when we sold it to 6% and redeploying it at 6.5% makes a lot of sense to us and we get some growth opportunity on these assets that we're buying. As far as the share, we were able to obviously fulfill the current authorization on our share repurchase program. I think that share repurchase is part of our investment activity.
I think that we look at several ways to deploy capital from this company and buying our shares back makes sense. And so we don't have anything authorized at this time. But again, I think we would use that as a tool in our investment opportunities if we thought it was appropriate.

Brandon S. Togashi

And Juan, this is Brandon. I'll just jump in. So the other thing I would comment on the share repurchases, just to my earlier remarks about leverage, I mean, we'll obviously do everything that we're talking about here, capital deployment, acquisitions, repurchases and maintain the range of comfort, 5.5x to 6.5x on net debt to EBITDA that we've had for a long time now and are in currently. And then the only other thing I would add to Dave's remarks is just on the year 1 yield and acquisitions, also to my earlier point about some bias towards using those JVs, that gives us some management fees and allows us to stretch on deals that might be on the lower end of the yield target.

Juan Carlos Sanabria

Great. And then just on the slope of seasonality, both in occupancy and rate, could you just comment on how that's trending? And it seems like great maybe is disappointing, you called out a tough comp from the increase you saw last April. So just curious on your commentary there on how that stacks up relative to your initial thoughts?

David G. Cramer

Yes. I think what we're trying to balance and we always talk about we're solving the revenue. And so occupancy is a piece of that, asking rate is a piece of that, discount is a piece of that, what type of customer we're attracting, what type of unit we're renting. It's hard to have a global comment to that because there are so many things that we're looking at as we work and navigate what we're trying to do. But what I would tell you is the reason we're being a little more sharp on rate, it's a competitive environment, but we're finding and the team has done a good job finding is conversion rate. And that's what we're really looking at as far as what's coming through our opportunities and how we're converting those opportunities into rentals.
And so from the seasonal trough in February to where we finished in April, we were very pleased with the rental activity and what we're able to achieve. And some of that came in a little bit sharper price point than maybe we would have wanted. I can tell you we're backing that up with the ECRI program, which is stronger than ever and our ability to really work through our existing tenant base. And so we're looking at the offset of what we have to give maybe on an upfront rate or an upfront discount and how we make it up quicker in the ECRI cycle.

Operator

Our next question is from the line of Eric Wolfe with Citi.

Eric Wolfe

I just wanted to follow up on your last answer there. I mean last quarter, you talked about the occupancy-based models, and you were just talking about a second ago. I was just wondering how that testing has gone thus far? And is it providing any type of outperformance versus comparable areas of your portfolio?

David G. Cramer

Yes. Thanks for joining. Good question. We are seeing success in areas. And it's not -- again, that's the advantage of testing. And again as we talk about our business unit size, it goes down to the unit size. And so yes, we've seen some success. We have expanded the program in areas that we thought we would have success in. I can tell you we've had some areas where it was not successful when we pulled right back and said that test did not work for us. But I would tell you, as a whole, we -- as around the commentary and being a little sharper in pricing, we have found activity we like, and so we're expanding the program, and that's put a little bit of pressure on Street rate for us.

Eric Wolfe

Got it. And your occupancy came a bit this quarter. It sounds like a trough in February. I was just wondering in the typical year sort of what you would expect in terms of occupancy increases in the second quarter, into the third quarter? And then sort of what's baked into your guidance for this year?

Brandon S. Togashi

Eric, yes it's Brandon. I mean it wouldn't be uncommon for us to gain 250 to some years 350 basis points from the valley to the peak. What was baked into the guidance for this year at our midpoint was really more like flattish occupancy as we went. I mean, maybe a little bit of seasonal uptick in the spring and summer. But by and large, sequentially flat for most of the year. And what that means on a year-over-year basis is that as you saw in our first quarter numbers, you're starting off 350, 380 basis points negative over prior year, but the comp is easier in the back half. So that gap narrows as you go throughout the year.

David G. Cramer

I think I would add to that to Brandon's point, we were also not very assertive on rent growth either. And so as we're testing these models, anything we're trying to trade off on rent, we're certainly trying to pick back up in occupancy. And so what moves that initial guidance to the occupancy level you're talking about around, if we move the occupancy number up when we have to give a little bit on Street rate, that's the balance we're trying to find.

Brandon S. Togashi

Right. And the thesis on the occupancy, Eric, was really just expecting like we experienced last year, more muted demand related to housing. And so far, that's played out. I mean nothing wildly better or worse than how we thought about things back in February.

Operator

Our next question is from the line of Todd Thomas with KeyBanc Capital Markets.

Todd Michael Thomas

First, just a quick follow-up. So 86% at the end of April, talking about the comps getting a little easier. Sorry if I missed it, but what's that look like on a year-over-year basis? Has the gap continued to narrow?

David G. Cramer

It stayed fairly flat in April, Todd. The hard part about it, when you look at it a month -- that monthly snapshot, we were talking earlier this week, there was 5 Saturdays in April last year, there's 4 Saturdays this year, 5 Mondays and moving this stuff around. And so you start talking about it, it's really we have to look at through the second quarter before we really know the amount of occupancy gain and amount of momentum we're picking up. We did see rental activity. We're happy with April. But again, there is some noise around the moving pieces of rental days in there.

Brandon S. Togashi

And we ended 86% flat, Todd. Intra-month, we were higher than that and then not uncommon to lose 10 to 30 basis points near the end of the month. So we were pleased with -- I was pleased with some of the gross rental volume. It also meant there was a little bit of higher move-out volume versus last year. So it's early to start making too many conclusions. But I think there's -- April, there was just more mobility generally than what we saw last April and maybe that portends for the next few months of a little bit more activity, but we'll have to wait and see.

Todd Michael Thomas

Okay. Yes. Got it. And then, Brandon, with -- you -- I appreciate the comments on the swap expiration. But can you just remind us or give us an update on the plan related to both the 2024 and the '25 term loans, the tranche B in July and tranche C next year. It's $470 million in total. What the plan to refinance that it looks like?

Brandon S. Togashi

Yes, sure. So we've -- got near term, we've got the tranche B, that's $145 million. So we can -- we've got capacity on our line. We can obviously seek to place some refinance debt out there as well. We do have a 6-month extension option on tranche B. So that would stack it on top of the January '25 tranche C that you're referring to. All that us with our banks. So we're -- in this environment, you got to stay close and constant dialogue with your bank group. So we're certainly doing that and we'll continue to do that throughout the year.
And then the base case is to put some replacement debt out there, be it with our bank group or we've been very successful in accessing the debt private placement market. So that remains an option for us. Our secured debt as a percent of our total debt stack has -- there's opportunity to return that to levels that it's historically been at, call it, the 10% to 12% range. We're 6% currently. So a lot of opportunity there and I expect we'll probably address the majority of that in the second half of '23 -- '24, excuse me.

Todd Michael Thomas

Okay. And then just back to the acquisition discussion here. So in terms of acquisitions, it sounds like the majority of what you intend to acquire is expected to be through the joint venture that you announced last quarter. Will there be any acquisitions on balance sheet that we should anticipate? And then what happens to the assets that were in the captive growth pipeline that the PROs had sort of in the pipeline that NSA has been executing on since the IPO in 2013?

David G. Cramer

Well, yes, good three-part, I'll try to make sure I cover them all. I think probably the majority of our acquisitions will be weighted towards the JV because that is a good cost of capital for us, and it's a good way for us to purchase properties at today's environment. I would not rule out, you'll see stuff on balance sheet. We do have some 1031 activity we want to take care of as some of the properties we sold last year, we're going to want to redeploy in a 1031 mechanism this year. So you'll see those come through. And we'll try to balance the opportunity, the type of property what we think the right place for that property to sit and we'll put it in the right bucket.
As far as the capital pipeline, it's still out there. We're still evaluating, obviously, with today's cost of capital and finding the bid-ask between seller and buyer. We've had a tougher time bringing stuff in from the captive pipeline. It doesn't mean we're still not working it. It doesn't mean there's still not opportunities. It's just been a little slower for us to work off that captive pipeline in today's environment. And then there was the third part that -- I'm sorry, God, if I missed.

Todd Michael Thomas

No, that was it really about the captive pipeline. But I guess what's the latest there in terms of the size? And if I recall, these assets, a lot of them had debt. There was leverage or maturities that I think we're sort of a catalyst for to say being able to acquire them at maturity. What's the latest there? What are the PROs, I guess, sort of executing around that in the meantime, while NSA has been sort of less active bringing those the captive pipeline properties on to the balance sheet?

David G. Cramer

Understood. I think if you look at -- if we look at the top of the stack, there's probably 110 to 115 properties in the captive pipeline depending on how you want to value it, north of $1 billion, $1.2 billion. I think if you think about most of the folks that are in that captive pipeline, they're looking for some kind of tax-deferred transaction. And so the preferred method they'd want to have is some type of OP unit, right? And so I would tell you the captive pipeline is not shrinking. They're not out selling it to third parties.
There hasn't been a lot of transactions around that. Amount of debt coming due. We haven't felt a lot of that pressure in that group. They've been fine. And so I think the opportunities still exist. I think we've had a lot of discussions around it. But at this point in time, it's just been hard for us to find a place where it works for both parties.

Operator

Our next question is from the line of Ron Kamdem with Morgan Stanley.

Ronald Kamdem

Just 2 quick ones. In terms of the performance of the portfolio, is there a way to provide a little bit more color on maybe some of the more sort of COVID winners versus the rest of the portfolio? Or is there any sort of other way to slice and dice performance in thematic buckets, that would be helpful?

Brandon S. Togashi

Yes, Ron, I mean I'll give it in a short. I mean I think certainly, what you have is some of the markets that were red hot during the pandemic. Atlanta, Riverside for us, those have definitely cooled off. And to some degree, we're still dealing with the comparison against that cooling off that was happening in the back half of '22 and all throughout '23. And so that certainly plays into the year-over-year performance that you see for any given quarter.
There are other markets that maybe didn't perform. They still performed really strong, but not as strong as those. And so those have been more like steady Eddies all throughout. And those are going to be (inaudible) some of the other markets that Dave cited in the opening remarks. Any other comments, Dave?

David G. Cramer

I'd also probably say, if you think about the lack of movement around single-family housing, we do have some of this portfolio that sits around markets that benefited from people who bought houses in the lower interest rate markets. So maybe they pulled ahead their home purchase. They went ahead and moved into Florida, they moved into some of these markets. And until I think we see a meaningful change around that single-family housing environment, some of these stores may be slower to recover versus the rest of our portfolio until you see a little bit more activity around that transition.
I would tell you, I think we're happy with where we're positioned. We like our Sunbelt exposure. We continue the Sunbelt exposure as we call it. But I also think the positioning of our portfolio and the diversity of our portfolio, to Brandon's point, we've got some markets that are going to wait just fine, and we're able to do exactly what we want to do. And these other markets had a red, red, hot, unbelievable run for about 18 to 24 months there. And now they're back to -- it's going to take a little bit 4 things to come back to what we would call, I don't know, new normal and new reality.

Ronald Kamdem

Great. That's helpful. And then my second question was just on sort of the guidance basically versus where you are sort of in 1Q. I guess it would assume a little bit of a deceleration on the same-store NOI, same-store revenue line. Is that mostly just because you're trying to wait and see what sort of the peak leasing season brings? Or is there sort of something else there? And if you could just quickly comment on just how you're thinking about demand from sort of home turnover given higher rates?

Brandon S. Togashi

Yes, Ron, on the first part, you're correct. I mean, certainly, the midpoint of the full year guide that we gave for both same-store revenue and same-store NOI is lower than the Q1 year-over-year growth numbers so there's implied deceleration. There is no different than when we were introducing the guidance in February. We expected to trough in terms of that growth in the middle of the year and then maybe that accelerates. Still maybe negative growth year-over-year, but improving in the fourth quarter. And that's just really the dynamic of how we budgeted this year and the quarter-by-quarter comp that you have all throughout last year.
On your second part regarding housing, I mean, look, we -- how we feel today is probably different than how we felt 6 weeks ago. But I'm sure 4 weeks from now, we'll feel that right? It's -- mortgage rates not like they got a little bit of a relief early in the year, late last year and then things have picked back up. But like I said in my response to Todd's question, some of the general mobility stuff we saw in the data in April was encouraging. So that would be despite the new highs for 2024 that you're seeing in mortgage rates. Obviously, you've got apartment renters and other things.
So the benefit we have also is just a longer length of stay. If people aren't moving in as much, there's also a lot of people who aren't moving out as much, and that gives us power with ECRI. That's what -- as you know, that's what has allowed us and others in the space to maintain and protect the in-place portfolio rates.

Operator

Our next question is from the line of Keegan Carl with Wolfe Research.

Keegan Grant Carl

Maybe just first on supply, how should we think about new deliveries in your markets in '24 and '25?

David G. Cramer

I think our general tone is we do think new deliveries are slowing nationally. And if you look down into a lot of our markets, we think new deliveries are slowing off the pace they were 2 years ago. And so that's a positive sign. I think the way we look at it is we really track around amount of fill up properties. Fill up properties that would be in our 3-mile radius. And I can tell you that number -- percentage of stores are facing pressure of some store in some form of fill up isn't moving around much.
I mean, so the amount of new entries coming in and the amount of new entries is falling off is keeping that percentage pretty similar, and that is down from where it was in 2022. And so we see a decline in amount of our stores feeling pressure from stores and fill up. And so all of that, if I had to wrap it up, I think we're feeling better about new supply pressure in the coming years. But certainly, that's market specific, right?
You've heard us talk today on the call about Phoenix and Atlanta, and there's been some product delivery that's going to put pressure around those markets. We believe in them. We believe they'll grow out of it. There are going to be markets feel more pressure than others.

Keegan Grant Carl

And then changing gears, if I think back roughly a year ago, one of the things that came up in our NAREIT meeting was the potential for you guys to start your own third-party management platform. I guess just where you guys are at on that today?

David G. Cramer

That's a really good question. You've heard us talking over the last 8, 10 months, really about -- really looking at our platform, improving our platform, looking at people, process and platforms, our team or talent. We have done some major lifts in the last 8 to 10 months around our data systems, our operating platforms, our website, our call center, all of these things to position us to really evaluate how we continue to grow this company and look for things that would be additive to the company.
Certainly, today, our PROs do third-party management. And so that's something we've had access around. We obviously have JVs. So we do a lot of what we would call even though we have an ownership, we manage for others. And we have all the systems and the reporting all that stuff built out. I would tell you it's on -- it's in our discussion points. It's something we look at and ask ourselves, is there a right time to deprecate on the third-party platform? I would tell you we talk about it. I don't have an exact date for you, but I'd say it's something that might be on our horizon.

Brandon S. Togashi

And in addition to the platforms initiatives, Keegan, that Dave said, I would tie in all the portfolio optimization strategies that we've been speaking with, right? So I mean the 71 stores that we sold in Q4 and Q1, if you remember our comments from the last call, I mean, that was spread out across 33 different MSAs. And so we're certainly trimming in areas where we don't have market dominance or strong market presence. And we're densifying in areas where we do. And I think that's going to -- in addition to the systems and platform efforts, it's going to provide the path going forward for us to seriously consider (inaudible) to your point.

Operator

The next question is from the line of Wes Golladay with Baird.

Wesley Keith Golladay

Quick one on the PROs. Do you get the sense when talking to them, they're more excited about the current environment with the opportunities they see? Or do you think you may see some one to retire over -- call it within the next year or so?

David G. Cramer

Good question, and thanks for being with us today. I certainly think from the PROs perspective, they would like to be -- they would like the environment be a little more conducive to external growth. I think as you think about heritage and how long we've all been in the business and part of this business was acquiring and improving performance on properties and finding the value on those acquisitions. And so certainly, this has been a time where patience has been at the top of the list, and I think the PROs have been very, very good being patient.
I would also tell you, they've also been very good about acquiring properties outside the REIT. They've been out, they have found some opportunities, they found money outside the REIT and then that just puts stuff into our captive pipeline that we can evaluate and look to move on at a later date. So they've been great. We appreciate them very much, and they've been patient, but they've also been active. So I think short answer to your question is sure they'd love to see it be a little easier to acquire properties within the NSA.

Wesley Keith Golladay

Okay. And then you had the comment earlier in the call about the cash flow and the JV may not exactly be 25%. Can you put some sensitivity on that? Are we looking at '24 or '26? And what would cause that deviation?

Brandon S. Togashi

Yes. Sure. Wes, it's really around like providing a minimum base of return to our partner, which the going in yield, the value at which we contributed the assets, it was all kind of predesigned to not guarantee, but strongly assure that we're going to be at those levels. And then if we hit certain metrics and operating performance, we have the ability to earn some incremental fees. That's not currently that scenario of us being in the money on those is not a meaningful driver of our '24 guidance with the possibility, but it's just not a big needle mover.
And then I'll save comments for the out years. They are achievable goals, but I'll save comments about handicapping the likelihood beyond 2024. And then like our existing 2 JVs, we have upon a liquidity event, promote structure where once a certain return has been provided to our partner, then we get a disproportionate share of that upside.

Wesley Keith Golladay

Okay. Then how should we think about, call it, the floating rate exposure? I think you mentioned some swaps to coming offline, you did some buybacks, may have some dispositions. You may be buying some more assets. So a lot of moving parts over the calls in the balance of the year. What do you think the floating rate exposure into the year?

Brandon S. Togashi

Well, I guess, -- let me say it this way. We're -- as I mentioned in the opening remarks, about $200 million drawn on our revolver, which is our only current variable rate exposure. We have the $250 million of swaps that expire middle of the year. That could go to flowing or between now and then, we could enter into new swaps and fix that. So that will be a takeout place replacement that.
So those are options to us. If you factor in the $250 million of swaps that burn off, let's just assume that, that goes to floating. It puts our total debt that's subject to variable less as a percent of our total. It around 13%, 14%. We've been comfortable in the past up to 20%, sometime 25%. So I think if I had to tell you, I'd say between 10% and 20% of our total debt stack of a little over $3 billion could be floating rate by the end of the year.

Operator

(Operator Instructions) Our next question is from the line of Omotayo Okusanya with Deutsche Bank.

Omotayo Tejumade Okusanya

Quick question. The captive pipeline from the PROs, is there any way that can potentially be acquired by the JV? Or you can't do that legally or because of tax implications, something like that would not work?

David G. Cramer

Well, certainly, I think you touched on the point is the captive pipeline people would probably -- they could sell to anybody. They could sell it to a JV, they could sell it to our JV, they could sell it -- if we turn the property down and decide well, they could sell wherever they want. I think they're really looking for the tax treatment and the OP unit is one of the primary drivers behind that captive pipeline in that group of sellers. And so that makes it hard. We can't spin it into the JV in that aspect is the answer to that, I guess I answered.

Brandon S. Togashi

And Omotayo, the only other thing I would say is, Todd, in his question referenced the debt maturities as a driver, which is true. But there's also assets in that captive pipeline that our PROs managed, but they don't outright control. They may just completely manage them only or maybe they have a minority ownership interest and also manage them.
So to the extent that those other owners, if they're tax pattern changes and if they wanted to be a cash seller, the JV could be an option. We haven't seen that yet, and I think it's less likely, as Dave said, but I just wanted to provide some additional color on some of the different arrangements.

Omotayo Tejumade Okusanya

That's helpful. And then could you also kind of give a general sense on overall tenant credit, maybe what you're kind of seeing in regards to increasing auctions, increasing delinquencies or decreasing auctions and decreasing delinquencies?

Brandon S. Togashi

Yes. I mean no real changes in the first quarter from the previous several quarters in terms of delinquencies. We track bad debt as a percent of revenue, and that's historically been around the 2.5% range. So they're very much in line with those levels for Q1. It's something we're certainly watching closely, but haven't seen any significant changes in payment patterns or payment timing from the customers. So all indicators are very, very healthy customer base intact.

Omotayo Tejumade Okusanya

Great. A solid work on the capital allocation front this quarter.

Operator

Our next question is coming from the line of Brendan Lynch with Barclays.

Brendan James Lynch

I want to go back to the focus on internal operations and the people, process and platforms that are being upgraded and evaluated. I'd imagine this is a perpetual focus to a certain extent. But to the extent you can define, are we reaching the end of that process for certain components of it? And maybe just more broadly where you are in the transition overall?

David G. Cramer

Really good question. I would categorize it as yes. We're reaching the end of the current development cycle of what we've worked on. And so it will be done here shortly. We've upgraded the operating platform. We've upgraded our data center. And our capabilities around data and AI and technology, we've upgraded the call center platform and we've updated the web experience. And so we touched all 4 of those, which were a very big list for this company.
The teams have worked extremely hard and I've been extremely diligent in their efforts. I can be more proud of all that we've accomplished. And so to me, we've got the platform. The foundation really, really solidly built and this launches us into the next chapter of this company's life as we look forward on utilizing that we've developed use line -- technology we've developed and really having the tools for the talent to really excel.

Brendan James Lynch

Great. That's helpful. And then it looks like you had about a 32% increase in marketing spending. Can you talk about the components that went into that? I'd imagine paying for clicks as part of it, maybe some call center considerations as well.

David G. Cramer

Yes, you touched on them. I mean our call center is included in our marketing expense. I think as we think about it today, you're in a very competitive environment. The marketing spend has come back to a level that we're very comfortable with as a percentage of revenue. And as we continue to implement technology and we continue to look at how we staff our stores and the payroll around our stores, obviously, the call center and the customer touch points change.
Digitally, we're moving more people to more of a digital experience. Our customers are transacting much more with us digitally than they have in the past. And the call center volume I was talking about is also a function of that where we meeting the customer on how they want to transact. And so the comp is tougher because last year, we were not spending at the level from a digital spend, paid search, (inaudible) around that piece of it was not as big as it is this year. We'll start to annualize that paid search and some of those marketing costs, the hard costs that go around Google and those things.
Really, as we head into the second quarter, third quarter, we really start to annualize that year-over-year spend, and that comp will not look as pronounced as it is today.

Operator

Our next question is from the line of Eric Luebchow with Wells Fargo.

Eric Thomas Luebchow

So it sounds like with some of your new revenue management systems you put in place, you're being a little more dynamic in terms of new rates and offering lower rates to customers to generate some additional occupancy, which is reflected in some of your web grades as well. So any early learnings on how that strategy is progressing compared to other types of promotions that you might give like 1 month free rent?

David G. Cramer

Yes. Really good question. It's -- I would tell you, the start on the top of that is what we're discovering and I don't think it's new to all of us is the customer price sensitivity is mattering more now in the rental process than it did a year ago and even 6 months ago. And so the consumer from their entry level are looking for a little bit sharper promotion, discount price reduction, however, you want to look at that.
We are -- we have been primarily focused on lowering entry rate and then trying to make that up through a little bit more of the ECRI program. But we are finding success now looking a little bit more back to what we used to do as an industry around promotion where it's maybe 30% off or 1/3 off for the first 3 months or half off for 2 months and a little easier to implement that with the consumer, a little more visibility around that piece of it as far as here's your discount, your rent is this and you get 50% off for the next 2 months and then it's going to that.
And as far as the consumer standpoint, that's pretty easy point of sale, pretty easy to understand and takes a little bit of pressure off those large increases after a 60- or 90-day period of being with us. And so we are testing and we're finding a path around probably a little bit more promotions use and maybe not as steep of rate decreases where we're heading with this.
And so I would tell you, having the technology, having the testing, having the testing environment, I've been around a long time, I'm really excited about what we can see and the data points we have and how we can test and react and how nimble we can be. We are much farther down the path of where we ever used to be in. It's a good thing to be excited about. It's also a good way to learn and hopefully, again, find the best efficiencies we can find when we're trying to track new customers.
I do want to shift back to also our existing customer base has been very, very sticky. We had long length of stays. And so on the flip side of that technology, attracting -- we talk a lot about attracting customers, but our existing customer base is really healthy, really stable and has been very accepting of the ECRI program that we have in place.

Eric Thomas Luebchow

Great, Dave. And I guess just one follow-up. Just to confirm, the midpoint of your same-store revenue guidance assumes we don't have a typical seasonal uplift and moving rents from the troughs of winter to spring and summer. I just wanted to confirm that. And do you think that seems like the right assumption just based on what you've seen in kind of early spring through late March, early in April?

Brandon S. Togashi

Yes. That's correct, Eric. I mean maybe we modeled a variety of scenarios. So in some of those that would incorporate a little bit of uptick in rate due to seasonality, but nothing like the typical norms that we've had in historical years. And I would agree with what you said. Yes, nothing that we've seen so far makes us feel like we should or need to change those assumptions.

Operator

At this time, we've reached the end of our question-and-answer session. I'll turn the call back to George Hoglund for closing comments.

George Andrew Hoglund

Thank you all for joining the call today. We appreciate your continued interest in NSA and look forward to seeing many of you at the REIT Week Conference next month.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.