National Storage Affiliates Trust - Q3 2024

Transcript

Operator (participant)

Greetings and welcome to the National Storage Affiliates Q3 2024 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 begin.

George Hoglund (VP of Investor Relations)

We'd like to thank you for joining us today for the Q3 2024 earnings conference call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer, and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to one question and one follow-up, and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we've furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.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, October 31st, 2024.

The company assumes no obligation to revise or update any forward-looking statement because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional 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.

Dave Cramer (President and CEO)

Thanks, George, and thanks everyone for joining our call today. We are pleased to announce that all of our team members are safe following Hurricanes Helene and Milton. We hope that all affected by these storms remain safe, and we wish them the best as they work their way through this tough recovery period. While several of our facilities in the path of these storms experienced minor damage, largely impacting gates, roofs, and signage, all of our stores are back open for business. We have experienced an uplift in occupancy on the West Coast of Florida, primarily in Tampa and the Sarasota-Bradenton area. In these markets, where we have 25 stores, we've seen an increase in occupancy of approximately 600 basis points from shortly before Hurricane Milton until today. That uplift in occupancy is helping to partially offset what remains a very competitive operating environment.

Our Sunbelt markets and areas with elevated new supply continue to be more challenging for us. So far, we have not seen an impact to the housing market or customer demand levels as a result of the September rate cut by the Fed. Pre-rates during the Q3 were down 17% from the prior year period, and we expect that number to widen a bit in the near term as we seek to hold occupancy levels for the remainder of the year. I would add that we are pleased with the rental activity and occupancy levels in October. We estimate that the average occupancy in October will be down approximately 200 basis points year-over-year. Our existing customer base remains healthy, and payment activity and length of stay all remaining within our expectations.

Despite this, our focus on pricing to new customers, we continue to be pleased with the success of our ECRA program, and we have not experienced a material change in customer behaviors. Regarding the internalization of our PRO structure, we are making great progress, and we remain ahead of schedule on the transition of PRO stores to NSA management. We are about 85% done transitioning to the web and operating platforms. The remainder will be completed by mid-November. We're almost 70% complete on the transition of operations management, which consists primarily of hiring, onboarding, training, and implementing standard operating procedures. We expect to be finished mid-December with this piece. We've completed about 50% of the initial store rebranding. We also remain on track to achieve the accretion levels that we previously highlighted. We're encouraged by the early benefits from communizing the customer acquisitions and revenue management strategies.

Overall, we're pleased with how well the transaction has gone today. Due to the acquisitions environment, we have seen more opportunities come across our desk, and the team has been busy underwriting a variety of deals. We successfully closed on two portfolio transactions using our 2023 JV, including a five-property portfolio in the Rio Grande Valley of Texas and a 13-property portfolio in Oklahoma City for approximately $148 million. These two portfolios are in markets where we already have a strong footprint and will improve our overall portfolio quality and increase our operational efficiencies. Although the operating environment will likely remain competitive in the near term, we remain optimistic that the benefits from the internalization, combined with an improving acquisitions environment and eventual recovery in the housing market, will lead to improving performance going forward. I will now turn the call over to Brandon to discuss our financial results.

Brandon Togashi (CFO)

Thank you, Dave. Yesterday afternoon, we reported Core FFO per share of $0.62 for the Q3 2024, representing a decrease of 7.5% over the prior year period, driven primarily by the decline in same-store NOI. For the quarter, revenues declined 3.5% on a same-store basis, driven by a 290 basis points year-over-year decline in average occupancy and a 90 basis points decline in rent revenue per square foot. Expense growth was 1.2% in the Q3, with the main drivers of growth being property taxes and insurance, partially offset by declines in personnel and R&M. Now, speaking to the balance sheet, last month we issued $350 million of private placement notes with a weighted average coupon of 5.6% and a weighted average maturity of 7.6 years. We were pleased to have priced the transaction in late August, taking advantage of a more favorable rate environment.

The 10-year Treasury yield is about 40 basis points higher today from where we priced the transaction. We used the proceeds to retire the $325 million Tranche C term loan that was due in January 2025. In July, we also paid off the $145 million Tranche B term loan that came due, bringing total debt paid off in the Q3 to $470 million. We have just $16 million of mortgage debt maturing for the remainder of 2024 and no maturities in 2025. Our current revolver balance is roughly $400 million, giving us $550 million of availability. As Dave mentioned, we are evaluating more acquisition opportunities, and as accretive deals materialize, we will opportunistically seek to term out the balance on a line of credit to maintain ample capacity. We are comfortable with our leverage, which was 6.4 times net debt to EBITDA at quarter end.

As discussed on our last call, as part of the PRO internalization, on July 1st, all of the subordinated performance units associated with our PRO structure were converted into OP units, and thus there is no further sharing in the operating performance of the former PRO-managed properties. Also, on July 1st, we bought out the management contracts and tenant insurance economics related to the PRO-managed stores. All of the pertinent details are in the release and the 10-Q that we will file later today. Now, in relation to the recent hurricanes, damage from Hurricane Helene was, for the most part, minor during the quarter. Subsequent to quarter end, Hurricane Milton had more of an impact on our portfolio, with a few of our stores experiencing moderate roof damage and one store that had several hundred units impacted by flooding.

Cost estimates are still preliminary, but the aggregate damages that we expect to incur are less than $2 million. Now, moving on to guidance for 2024, we've reaffirmed the midpoints for same-store NOI growth of negative 5.5% and Core FFO per share of $2.40, and I would characterize the high and low ends of the ranges as low probability outcomes. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may re-queue, and time permitting, those questions will be addressed. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed.

Juan Sanabria (Managing Director)

Hi, good morning. Brandon, maybe just following up on a comment you made there at the end with regards to guidance. The full-year FFO guidance implies a sequential drop-off versus what you reported in the third. I just wanted to make sure that I understood that correctly. The midpoint is a good base off of which to work in that kind of $0.04-$0.05 sequential deceleration is, in fact, kind of what you guys are pointing to?

Brandon Togashi (CFO)

Yeah, Juan, thanks for the question. You're right. The implied midpoint or the midpoint of the guidance implies Q4 would be right around that $0.56, obviously, a sequential decline from Q3. A couple of things about the Q3 numbers that had some one-time benefits. The joint venture deals that Dave described earlier, we did have roughly $800,000 in fees in the Q3 related to those fees, and roughly $650,000 of that is one-time acquisition fees. Now, one of those deals closed at the end of July. The other closed mid-August. So we will have some ongoing fee recognition on a full quarter basis. That will be a benefit, but there was a one-time acquisition fee in there that's unique to the Q3 numbers.

Then on the same-store OpEx, I would tell you we did have some benefits and property taxes that are more one-time in nature. The comp in Q4 year-over-year gets a little tougher as well. And so that OpEx growth number year-over-year is expected to be higher in the Q4 versus the Q3. So those are a couple of things that when you normalize for that, maybe you're at a $0.60 or $0.61 for the Q3 if you adjust those things out. And then the rest of that sequential decline that you're picking up on, frankly, is seasonality in the business that we anticipate.

Juan Sanabria (Managing Director)

Great. And then in your prior presentations, you kind of had some updates on how some of the web traffic and conversions and relative occupancy differences between the corporate-managed stores and the PRO stores that were previously third-party managed now internally. So just curious if you can give an update on kind of how that's trending and potential upside thereof?

Dave Cramer (President and CEO)

Yeah, Juan, good question. Thanks for being on the call today. We've been really successful through this transition, and we started, as we talked about in the Southwest, with really the initial set of PRO stores that we moved over around that Phoenix, Las Vegas market, a little bit of Southern California, and so the work of the transition, if you think about it, is we transition platforms and we transition team members and we train and teach and get systems live. Really, we think it takes about 45 to 60 days before we really start to see some impact from that transition, and we really are able to start working on revenue management strategies and customer acquisition strategies.

And so if you point back to that Southwest market and look at a market like Phoenix or look at a market like Las Vegas, I can tell you early on we're pleased with some of the progress we made on two fronts. If you look at an occupancy gain around Phoenix and Las Vegas, there are probably 50-80 basis points better occupancy gain in the period of the Q3 than what our overall portfolio was. And so that's encouraging to us in the fact that as we put the customer acquisition strategies into the rate strategies in, we did see a movement in rentals. And that's important as you think about revenue because that's what we're driving to. That is one of the legs we're working on. And then on the backside of that, we were also going through those early markets.

Once you get in transition, get the team members done and all the platforms done, we're able to go back through the existing customer base and look at ECRAs and ask ourselves where that existing customer base was compared to where we thought we could move them, not only on new movements going forward, but on existing tenant base, and so we stepped back in in the Q3, scrubbed those early on transition stores that were past that 45-60-day period, and we've implemented some pretty sizable increases around some of the tenants in magnitude and the quantity of rate increases back through that tenant base that we'll start to see the benefits of late Q3, Q4 into 2025.

And so we're pleased in the fact that we're able to do both those things, see a little bit of progress early on, recognize that obviously digital footprint got better, our positioning got stronger, our paid search advertising got more effective as we used nsa-stories.com. So a lot of positive things for us early, but we also know, as we pointed to earlier, it's really a 2025 view that we're looking at. The back half of the year was really about the transition. Transition's going well. All these really green shoots come in in 2025.

Operator (participant)

Thank you. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Todd Thomas (CFA)

Hi, thanks. Good morning. Brandon, appreciate the detail as we think about the Q4 and sort of the midpoint that you kind of highlighted. But as it pertains to the internalization transaction, which closed on July 1, so we had just got a full period reflected in the financials this quarter, is there anything that we need to think about related to the internalization transaction itself as we move into the Q4 and sort of early 2025 around G&A or some of the other income lines that we should be sort of considering?

Brandon Togashi (CFO)

Yeah, Todd, thanks for the question. So what I would say is, remember, there was a couple of different pieces of the FFO accretion that we communicated on regarding the PRO internalization. One of those was the savings on G&A and the tenant insurance benefits, right? And that one, I think, is the most immediate one that, one, you can see in the financials and two that we're most immediately recognizing. So the tenant insurance benefit, we started to realize on July 1, you can see that primarily in our management fees and other revenue line item on our P&L. You can see that improvement over prior quarter and prior year. The G&A benefit, I would point you to our supplemental schedule nine. It breaks out our G&A expense line item from the P&L, and it's labeled supervisory and administrative fees. That's the management fees that we pay the PROs.

That number for the first two quarters averaged $5 million per quarter, and as you know from our last couple of touch points, we have entered into new agreements to have the PROs continue to manage the stores and do the accounting and other back office things for the properties until we do the transitions that Dave has described, so you see that number go down from the $5 million previous run rate to $3.4 million in the Q3, and that will continue to taper down as you go through the Q4 and then into next year, so the point is we're starting to realize some of that benefit, but it's not all captured yet in the Q3 numbers. By early 2025, we should see the full benefits of both the tenant insurance and the G&A on a run rate basis.

The last thing I would say, though, Todd, on your question is, and it kind of ties into my response to Juan's question, we do lose the benefit of the SP unit sharing. And as long as NOI is negative near term, that was one of the trade-offs that we as management had to accept when we endeavored to do this PRO internalization. And so the implied same-store growth numbers for Q4 that's in our guidance has a larger year-over-year same-store NOI growth than the Q3, and we don't have that SP unit sharing. And so that is also factored into the math that kind of walks you from Q3 to Q4 back to Juan's question. Those are the big things I would point you to, Todd.

Maybe just since I have the floor as a reminder, the other pieces of the accretion was going to be just the operational benefits. And Dave remarked on some of that. We really need kind of a full year and, frankly, a normal leasing cycle next spring and summer to really capture the full amount of those benefits. And then, obviously, when fundamentals inflect and we have positive NOI growth, that'll be a tailwind in terms of no longer having that economic sharing.

Todd Thomas (CFA)

Okay, that's real helpful. And then in terms of the transaction environment, obviously, you're putting some money to work, and it sounds like the pipeline's building for acquisitions. But you've also talked about some additional capital recycling and dispositions. And I just wanted to see if you could provide an update as to where you're at on that process, whether you've started marketing additional assets for sale or have anything sort of under agreement at this time?

Dave Cramer (President and CEO)

Yeah, good question, Todd. I'll start with just the overall transaction market, and then we'll work into how we're looking at dispositions and some selling of the assets. We have seen many, many deals cross our desk. We're encouraged by the overall deal volume, the overall quality of the deals we're underwriting, variety of markets, variety of size. I do believe now that we're a couple of years removed from the highs of COVID and sellers' expectations and our ability to underwrite forward-looking revenue numbers, all those things are starting to be clearer for everyone and be more consistent for everyone. And so we're actually finding opportunities that we like in markets we like, and we're able to move on. And so that's encouraging from the acquisitions front. I think that continues. And like I say, we're encouraging the team to work hard and underwriting a lot of deals.

As we go through the transition of the PRO stores, that was the one when we did the first set of really pruning the portfolio and selling of assets. We did not really dig into the PRO side of that transaction as far as the PRO stores, and now that we're transitioning those stores, as we transition markets, we are studying all points of the markets, the stores, the individual assets, our success in the markets, how we're positioned. We've already identified probably 15-20 assets that we think would be something that we might dispose of. I think you'll start to see us really in the Q4, in the beginning of next year, think about, is this the right time to get them listed and start recycling the capital? Obviously, we think we have good opportunities in front of us.

So selling the assets, recycling them into better assets is really attractive to us. And we can use vehicles like 1031 exchanges to make some tax efficiencies there and some opportunities around that piece of it. So I would look for us over the next three to six months, you'll start seeing some activity on the listing of properties and really over the next six to nine months' sale of properties. The heavy lift is over, though. I would not. I think we're net buyers going forward. If we're able to sell or recycle $100 million-$200 million of these assets over time, that's probably the number I'd give you.

Todd Thomas (CFA)

Okay, great. Thank you.

Dave Cramer (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Jeff Spector with Bank of America. Please proceed.

Jeff Spector (Managing Director)

Great, thank you. On the previous call, your peer discussed not just stabilization, but improvement, and they said nationally. How would you characterize the current environment, your thoughts heading into 2025?

Dave Cramer (President and CEO)

Good question. Thanks for joining today. It's interesting. I would tell you we have a very diversified portfolio. And as you look at that and you look at markets and individual assets, I think there's a lot of ways to look at what's going on. If you look at markets today that we're a little more heavily exposed to the Sunbelt, we're a little more heavily exposed to single-family housing. And if you look at those markets and you look at their history, they had a great run during the pandemic, and they had some really outsized performance. And now they have tough comps that they're up against, and they have elevated supply. And a lot of those Sunbelt markets, like in Atlanta or Phoenix or Las Vegas, those are going to remain challenged. You're going to have to work your way through the new supply.

You're going to have to work your way through some of the fundamentals that have not returned because of transition around housing and so forth. We do have markets across the country that we have found footing in occupancy. We've found footing in rate. Our customer base remains very healthy. We're having really strong success around the ECRI program. And so as we get stability in occupancy and we get stability in rate, that's encouraging to us. Maybe a market I would point you to is Portland, Oregon, which we've talked about for a number of years, which had a lot of supply, a lot of headwinds in front of it.

And if you look at it, we've actually been able to stabilize that market, find a little bit of occupancy stability, find some rate stability, and have a market while it still has a ways to go because of the growing supply. It is a positive sign to us that we found stability there. I would tell you, if you looked at our numbers, we knew the Q2, the spring leasing season was not as elongated as it normally was. It was shorter than historical. The Q3 was challenging, but we are pleased within October. We talked about it in the opening remarks about the spread, but I can give you a spot number on occupancy in October. Right now, as of yesterday, we're at about 85.8%, which is down 190 basis points the last year, but that is an improvement over September.

And so for us, again, a lot of variety of markets, a lot of things at play here, but we were pleased to see the rental activity and the move-out volumes in October and have an occupancy gain.

Jeff Spector (Managing Director)

Okay, that's really helpful because I think last quarter you did say that you weren't seeing normal seasonality patterns through the spring, but has that now returned this fall, and you expect that to continue through the winter?

Dave Cramer (President and CEO)

You know, the October number kind of bucks the seasonality because typically from a summer high, you really bleed occupancy down through really almost till February. I mean, that's really the highs in June, July, and August, and you get your trough in February. But to have the occupancy or the rental activity around October be a little stronger was pleasing to us. And so that was an objective. We're certainly working on all the levers around rate and advertising and discounting and all the things we can do to try to attract customers. But again, it's market-specific. There's a lot of factors to this, but we were pleased with the activity in October.

Jeff Spector (Managing Director)

Thank you.

Dave Cramer (President and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Michael Goldsmith with UBS. Please proceed.

Michael Goldsmith (US REITs Analyst)

Good afternoon. Thanks a lot for taking my question. Sounds like street rates were down 17% for the Q3. You expect that to get a little bit worse as you look to close the October occupancy gap. I think in the Q3, you're down 290 basis points. And now for October, you're looking to be closer to 200 basis points. So can you provide an update of kind of where street rates are for October and what does the path look like going forward as street rates probably get a little bit worse before they get better, but occupancy kind of getting better and how that sets you up for the spring leasing season? Thanks.

Dave Cramer (President and CEO)

Yeah, Michael, absolutely. Thanks for joining. I would tell you you're right. We were down 17% in the Q3, but if you really look at the Q3, it started to widen from July through September. And so if we were maybe low to mid-teens in July, maybe we're in the low 20s by September. And so that path has continued into October. I think it's widened. Maybe we're mid-20s in October today. And I think there's two things going on for us. Obviously, we're trying to find the right blend of rate and discount and marketing spend to get the amount of rental volume we wanted. And so October was a positive for us around that rental volume, and we like that.

But also with the PRO transition, we're all going back through that portfolio, introducing our revenue management strategies and our marketing strategies and customer acquisition strategies, and we're repositioning some of those markets to be a little more competitive in their environment. And so I think some of that October movement, some of that September movement, it might be a little bit outsized as we work through that PRO portfolio and find our footing. As I mentioned earlier, with Phoenix and Las Vegas responding quite well to our new positioning, that's encouraging as well. But I'm not sure how much wider they get from a year-over-year basis through the rest of the year. I think we've done a lot of the heavy work around street rates really the last three months.

If we continue to see the activity we like on rentals, maybe we're not widening as much November and December.

Michael Goldsmith (US REITs Analyst)

Yeah, so you see it as this October is kind of like the trough, and then for street rates, and it should kind of get better from there.

Dave Cramer (President and CEO)

We're flattening out. You know what I mean? The gap may flatten out, right? Yeah. But yeah, I think we've done a lot of work September, October.

Michael Goldsmith (US REITs Analyst)

Got it. Thank you very much.

Dave Cramer (President and CEO)

Yeah, thank you.

Operator (participant)

Thank you. Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your question.

Omotayo Okusanya (CFA)

Hi, yes. Good afternoon. I just wanted to follow up on the last question. Again, street rates down 20% year-over-year in October. That's pretty wide, and I get it, trying to get occupancy so you can ultimately ECRI those tenants. But when you're kind of thinking about how much you may be "giving away" street rates wise, on a very near-term basis, how do you kind of offset that? Is that lower marketing? I'm just kind of curious how you kind of offset such low street rates to ensure you're still kind of generating the level of ROI or profitability that you're looking for.

Dave Cramer (President and CEO)

It's a good question. I think there's several pieces at play here. Certainly, what we can do around any type of efficiency operational to help offset that. I also think the occupancy gain in October is an important not to overlook. That is one of the things that helps us drive revenue. And so if we're looking at the street rate and trying to find a balance of right rental activity versus how the customer's coming in and what they're focused on. And I do believe the customer right now is very focused on price. Will that change over time? We believe so. But right now, price seems to be high on the list of one of the things that's triggering people to rent units when they're looking for units. And so the other thing I would tell you, Tyler, we work really hard on the back-end rate.

I mean, and so once you have them in the door, we're more sophisticated, and we certainly have a better program than we've ever had. And we have a higher level of confidence that we can recover that entry rate quicker than we ever have in the past. And so I think we're trying to find that balance of asking rent, marketing spend, amount of customers we want in the portfolio, within market, within property, right? You got to drill all the way down even to the unit size is what we're studying. But I think those things help us kind of offset that asking rent. The other thing I would also tell you is length of stays are longer than they've ever been. Customer remains healthy. So getting a customer in the door today, we have a longer runway for the lifetime value of that customer.

Omotayo Okusanya (CFA)

That's helpful. And then from a pricing perspective, again, the publics are just about 15% of the overall market. Is the private side of the market doing anything different that could indicate that maybe street rates bottom a little bit faster or actually widening a little bit more than we may be anticipating? Or is the private side of the market pretty much just following what the publics are doing still?

Dave Cramer (President and CEO)

I think as you talk about the private sector, there's two parts of that. I think larger private operators that have a little more sophistication are certainly following more of what the public groups are doing, and they're reacting in the same pretty quick, and they were able to react up or down, by the way, all the way around that piece of it. The rest of the segment, though, that aren't these larger, more sophisticated private operators are not doing anything. In most of our markets, and this happened all the way through COVID, they did not raise any type of street rates through COVID, and so now everything's returned down to pre-COVID levels. They're back in this mix about the same level, and so that non-sophisticated operator just hasn't moved at all.

Omotayo Okusanya (CFA)

Helpful. Thank you.

Dave Cramer (President and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed.

Ronald Kamdem (Managing Director)

Hey, I just want to go back to sort of asking the demand question in a different way. I guess I'm trying to figure out, as you're cutting street rates to get sort of more occupancy, more market share, are you doing that into an environment where top-of-the-funnel demand is stabilizing and improving? Or how would you characterize top-of-the-funnel demand overall, regardless of sort of the strategy that you're pursuing?

Dave Cramer (President and CEO)

Yeah, good question. I think the top-of-the-funnel is probably I would characterize probably stabilizing. If you look at just anecdotally our surveying and what we do around customers that have rented from us in or out in all the surveying we do, we are seeing a change in the fact that more people are saying they're renting storage units because they're moving. And that's an improvement that we've seen for the last few months. And so you look at that in itself saying, "Okay, that's something that's been missing from our business." And in our markets, particularly where we are a little more sensitive to that transition around movement, that's an encouraging sign for us. But we're not seeing that top-of-the-funnel increase.

We're not seeing, if you think about web sessions or people pinging us at the very top of that funnel, a significant change up or down. It's pretty much been pretty stable. And so we're trying to, by rate, of course, and by discount and by the things we're doing, get a little bit more of that conversion rate up and take a few more of those customers.

Ronald Kamdem (Managing Director)

Great. And then just my quick follow-up would just be on the expense side. Is there sort of, other than their usual sort of property taxes and insurance, is there anything that we should sort of be mindful of for sort of this quarter and going into next year? Thanks.

Brandon Togashi (CFO)

Ronald, this is Brandon. I mean, other than what I remarked on earlier, the comp gets a little tougher. We had some property tax benefits in the back part of last year, so the growth number, like I said earlier, we expect to be higher than what you saw in the Q3 from a year-over-year perspective. The only other thing I'd probably add to what we said earlier is just the personnel costs. Ronald, you see that in the numbers and the trailing five-quarter information that we disclosed. There was some improvement, meaning lower spend in the Q3 over Q2, and I wouldn't say that's necessarily like a great run rate. I do think that that number will come back up a little bit. Some of that was attributable to these markets, the Phoenixes, the Vegas, the Southern California that we started to transition from the pros.

We tried our best to hire as many of the people that we could that were already working at those stores, but inevitably, you have some turnover there. And so that caused that personnel cost line item to be a little bit lower in Q3. So I expect that would pick up somewhere between the second and Q3 numbers.

Ronald Kamdem (Managing Director)

Great. That's it for me. Thank you.

Brandon Togashi (CFO)

Thanks, Ronald.

Operator (participant)

Thank you. Our next question comes from the line of Salil Mehta with Green Street. Please proceed.

Salil Mehta (Equity Research Associate)

Hi guys. Thanks for taking my question and congratulations on the quarter. Just like to quickly touch base here on the M&A activity and the acquisitions pipeline. Seems like a common theme through the other storage REITs in the industry as a whole has kind of started out slow in 2024 and slowly ramping up. Just wondering if you guys could provide some color on that and kind of where you guys expect which direction it did go into 2025.

Dave Cramer (President and CEO)

Yeah, sure. Thanks for joining. Appreciate the question. Yeah, I think as we've thought about this year, we did think the back half of the year would become more active than certainly the front part of the year. And I think it's because of the factors we discussed earlier. I think the seller's expectation, buyer's expectations are getting closer. And I think we're seeing the quality of properties and the markets that we want to see come to market, and we're able to move on some of those. I think that continues on into 2025. I think we're just getting started. If you really looked at even from July to what we're seeing today, there's been a significant change in the amount of deals, the amount of calls, the amount of things that are crossing our desk for opportunities. And so I think that carries into 2025.

I think obviously finding the right balance of what our return expectations are, and obviously, the more we get comfortable with the fundamentals are going to improve and that we find some stability around the fundamentals makes it easier for us to be forward-looking and want to acquire properties.

Salil Mehta (Equity Research Associate)

Awesome. Thanks for that. And just a specific question on the joint venture with Heitman, kind of tying into the M&A, but has it underwritten any opportunities in the last quarter? And do you think you'll start seeing assets getting added to this venture? And is development a thought for this as well?

Dave Cramer (President and CEO)

Yeah. So clearly, we've been looking at a lot of assets that would fit into that venture. And we think that's one of a good access of good quality capital at a reasonable price and for us, capital light. So we like the venture. We want to continue to work in the venture, and we're finding opportunities there. And from a development side, not really something we really want to look at in that venture. We want to look more. There could be some opportunistic properties in there, but we're really looking for assets that are fairly seasoned that we can squeeze more juice out of, and that's what we want to put in there.

Salil Mehta (Equity Research Associate)

Awesome. That's it for me. Thanks, guys.

Dave Cramer (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Brendan Lynch with Barclays. Please proceed.

Brendan Lynch (CFA)

Great. Thank you for taking my question. Dave, I think you just mentioned earlier that lengths of stays are longer than ever. Can you talk about what is driving that dynamic, how durable you think it is, and how you think about ECRIs in that context?

Dave Cramer (President and CEO)

Sure. It's interesting. I think as we went through the pandemic, I think people got introduced into storage for a variety of reasons. And I think if you think about the home office piece has not changed. People may be back in the office, some, but they still have home offices, and that has carried its way through. I still think home gyms have carried their way through. People cleaned out garages, did a lot of things during that period of time that have been sticky. And I also think we introduced customers that have never used self-storage because of that to self-storage, and they've realized that it's convenient, it's fairly inexpensive, and it's just a really good use of space, time, and money for them. And so I think that's led to this long length of stay. And it's above pre-pandemic levels.

We have not seen it change in the last. We're just not seeing it change at all. I mean, it elevated in pandemic levels. Maybe it came off a little bit from the highs of the pandemic levels, but well above pre-pandemic. And so what that does, it gives us an opportunity to look at our ECRI program in the frequency. We call it lifecycle in the customer lifecycle of the amount of times we can touch that person in the lifecycle. And so when we have our same-store tenant base right now, the length of stay for the current tenant base is over 40 months. You think about the opportunities and the touch times we have for ECRI opportunities in a 40-month period.

I think it helps us with our conviction around the ECRIs, but certainly we've done a better job building better systems, building our technologies and our strategies to really maximize that length of stay better than we have before.

Brendan Lynch (CFA)

That's helpful. And then you also mentioned that customers are very focused on rate. The economy is reasonably strong at present. So what is going to make them less sensitive? And kind of how has that transitioned over time, that level of sensitivity? I'd imagine there's more risk to the downside that they'd get more sensitive rather than less going forward, but would be interested in your thoughts there.

Dave Cramer (President and CEO)

It's a good question. We've thought about it a little bit. In some ways, I think we did it to ourselves. I think discounting was the more probably predominant use thing prior to the pandemic where you're given a first month free or three months free. And I think we haven't introduced as much of the discounting back. It's still the same concession, right? You're still giving up a percentage of the rent throughout the lease. But I think what has come back after pandemic has just been more of a sharp entry price, and then you're using the ECRI to back it up on the backside of that, right? So maybe just a little bit different in strategy. But I think it does change going forward is I do think as fundamentals improve, supply things ease, some of this transition that's gone on in the industry eases.

I don't think it's going to be as competitive to attract new customers as it was maybe over the last 12 to 18 months. And so maybe as we all get more comfortable with our OXP levels and we get more comfortable on where our footing is, we get some strength in street rates. And then I think that the consumer kind of follows what we give them, right? I mean, we've been pretty aggressive in our street rates, and I think they're just reacting to it.

Brendan Lynch (CFA)

Great. Thank you for the call.

Dave Cramer (President and CEO)

Yeah, thank you.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to pass the call back over to George for closing comments.

George Hoglund (VP of Investor Relations)

Thank you all for joining the call today and your continued interest in NSA. We look forward to seeing many of you at the REITWorld Conference next month, and have a happy Halloween.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.