National Storage Affiliates Trust (NSA) 2015 Q4 法說會逐字稿

Greetings and welcome to the National Storage Affiliates Trust fourth-quarter and year-end 2015 conference call.

(Operator Instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Marti Dowling, Director of Investor Relations. Thank you. You may begin.

Hello, everyone. We would like to thank you for joining us today for the fourth-quarter and full-year 2015 earnings conference call of National Storage Affiliates Trust. In addition to the press release distributed yesterday after market close, we have filed a supplemental package with additional detail on our results which is available in the most recent form 8-K which may be found in the investor relations section on our website.

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. The Company cautions that actual results may differ materially from those projected in any forward-looking statement. Management will also discuss certain non-GAAP financial measures such as FFO, core FFO and net operating income.

We encourage listeners to review the additional information concerning factors that could cause actual results to materially differ from those in any forward-looking statement and the non-GAAP financial measures contained in the Company's filings with the SEC, including our quarterly report on form 10-Q that was filed with the Securities and Exchange Commission on November 10, 2015, and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the Company's website at nationalstorageaffiliates.com.

Today's conference call is hosted by National Storage Affiliates' Chief Executive Officer, Arlen Nordhagen; Chief Financial Officer, Tamara Fischer; and Senior Vice President of Operations, Steve Treadwell. Following prepared remarks Management will accept questions from registered financial analysts. I will now turn the call over to Arlen.

Thank you, Marti, and welcome to our fourth-quarter and full-year 2015 earnings conference call. This morning I will begin with a brief overview of our quarterly and full-year results and then provide an update on our strategic initiatives.

Tamara Fischer, Our Chief Financial Officer, will review our recent results and balance sheet and we'll close by introducing our guidance for 2016. And Steve Treadwell, our Senior VP of Operations, is also here with us today and will be available to answer questions about our operations. After our prepared remarks we will open the call up to analyst questions.

2015 was a landmark year for National Storage Affiliates and I am pleased to report that we had a strong finish with fourth-quarter results that demonstrate growth in all areas of our business. Last night we reported fourth-quarter core FFO per share of $0.24, which is an increase of 14% over the same period last year.

We also grew our same-store NOI by 10.7%. This growth was driven by primarily by revenue increases as we achieved strong increases in both average occupancy and average rent. For the full year, we reported core FFO per share of $0.92, which is an increase of 23% over the full-year 2014. And we grew our same-store NOI by 11.5%, which again was driven by meaningful increases in both occupancy and rate.

Tammy will provide more details on our by financial results but we are very pleased with the same-store growth that we experienced in 2015. We're very pleased with our results this year and our team has exceeded our expectations in all major areas of internal organic growth as well as external growth through acquisitions.

Overall fundamentals in our industry remain strong. Demand is solid as consumer spending remains on steady footing and new supply growth has been generally muted except in a few sub-markets. Within this favorable operating environment, NSA is well-positioned to drive strong internal and external growth over the long-term.

I'd like to take a moment to update you on our progress on our initiatives. First, we continue to drive same-store occupancy. For the fourth-quarter our same-store portfolio's average occupancy was 88.9%, which is a 250 basis point improvement over the same quarter of the prior year. As we look ahead we believe we have a strong opportunity to continue to grow our occupancy.

We'll continue to close the gap between us and our public peers as we use our national marketing platform to generate leads and our call center to help close those leads to rentals. We will also be able to drive further occupancy and increase rates as we continue to roll out our new revenue management program to additional stores. We expect that in the first half of 2016 we'll broaden the implementation of this new system to 65 additional stores across seven new markets.

We'll continue to evaluate the benefits of expanding implementation of the system in the third quarter. By implementing this revenue management system we hope to combine the market specific knowledge of our local operators with an automated system that helps us maximize the blend of occupancy and rate using real-time data. In addition, we're looking to dramatically expanding our same-store pool in 2016. Up to 222 stores compared to 135 stores in 2015.

This expanded pool will more than double our revenues and NOI reported with the same-store results and will help us to minimize the potential impact of a single market. For example, with only 135 stores in the same-store pool the continued softness in the Fayetteville, North Carolina market significantly impacted our fourth-quarter results.

Even though our fourth-quarter results were very good with the Fayetteville stores included, our same-store NOI excluding the Fayetteville stores would've been an industry leading 12.1% increase instead of the 10.7% we reported. With a much bigger pool in 2016, a single relatively small market won't be able to move the needle that way. But we do recognize that today's weakest market may very well be tomorrow's strongest performer so we are focused on broad geographic diversification of our portfolio.

Finally, we grew our overall unit count by about 30% in 2015, which allows us to better leverage our vendor relationships and drive down our customer acquisition costs through the utilization of our call center and Internet-marketing investments. In addition, we have a number of redevelopment and expansion opportunities throughout the portfolio and we continue to work to optimize our unit mix. As I mentioned, our external growth to date has been extremely strong.

We acquired 16 self storage properties in the fourth quarter for over $70 million adding 1 million square feet to our portfolio. For the full-year 2015, we closed on the acquisition of 58 properties for an aggregate investment of $313 million adding almost 4 million square feet and over 28,000 units to our portfolio. Subsequent to year-end, we have closed on the acquisition of 16 additional properties for a total investment of approximately $85 million.

Through these new acquisitions we've expanded our footprint in New Hampshire and have entered the Indianapolis market, both of which have attractive growth prospects. In February, we also announced that we had reached an agreement with Hide-Away Storage Services of Sarasota, Florida, to become an NSA's seventh PRO, and the first PRO added after our IPO.

We expect that in early second quarter this year Hide-Away will contribute 14 properties to NSA for a total consideration of about $115 million, including $60 million and OP equity. At the time of the expected close, this transaction will add another 1 million rentable square feet to our portfolio.

We are excited to partner with Steve Wilson, the highly respected Founder of Hide-Away and his management team, to increase our exposure to the fast-growing Western Florida market. As with all our PROs, we expect to drive growth as the Hide-Away portfolio benefits from NSA's operational value-add including best practices, economies of scale and centralized corporate marketing and technology. We also expect to benefit from Steve Wilson's industry relationships, his development capabilities and local market knowledge for acquisitions for our pipeline.

We're excited to have Steve and the Hide-Away team on board. As we look ahead to 2016, our three external growth pipelines are very active and will continue to deliver strong value to NSA. Our captive pipeline, which consists of assets that our PROs already manage, still totals over a 100 properties worth more than $700 million.

This is despite the fact that, subsequent to the IPO, we've already closed almost $100 million of captive pipeline acquisitions. As PROs develop new properties this pipeline keeps on growing. Additionally, our PROs industry relationships with local and regional operators continue to drive significant acquisition volume for NSA.

Given the highly fragmented nature of the self storage industry, we continue to underwrite a great number of opportunities from this pool. Since the IPO, over 40% of our external growth has been driven by these third party acquisitions generated by our PROs.

And finally, we continue to recruit new PROs to our platform. Our goal is to add one to three operators each year in attractive markets who have a strong track record with solid growth prospects and own large existing portfolios valued at over $100 million. We're in various stages of discussion with a number of high-quality private operators and we continue to believe our platform is extremely attractive to potential PROs.

With the announced addition of Hide-Away, this new PRO will represent a approximately one-third of our total acquisition volume since our IPO. From a same-store internal growth perspective, we're also very bullish for 2016. We will continue to rollout our revenue management program to more of our stores throughout the year.

Combined with continued improvements in our Internet marketing platform and integration of our call center program, we believe will have another strong year of occupancy gains. We see relatively minor new supply being added to most of our markets and don't see any meaningful impact coming to play during the first half of 2016 and expect only relatively small impact affecting our portfolio later in the year.

We're keeping a close watch on these new developments and are projecting somewhat slower revenue growth in our Portland, Charlotte and Colorado markets for the second half of 2016 as a result. As we look ahead to 2016, we believe it's clear that we're only in the early stages of realizing the significant growth inherent in our platform. We're really excited and very bullish about the future here at NSA.

I will now turn the call over to Tammy.

Think you, Arlen. In my comments today I will review our fourth-quarter and full-year 2015 results, update you on our balance sheet and liquidity and finally we'll turn to our outlook for 2016. As we've said in the past, we believe core FFO is the most relevant metric to track for NSA as it eliminates the impact of certain nonrecurring and non-cash items and therefore provides a better perspective on the Company's operating performance and cash flow.

I'm pleased to report that core FFO per share increased by 23% in 2015, compared to the full-year 2014, moving from $10.4 million or $0.75 per share in 2014 to $35.8 million or $0.92 per share in 2015. And for the fourth-quarter 2015, we reported core FFO of $11.6 million or $0.24 per share, up 14% from $4.2 million, or $0.21 per share, in the same period 2014. This strong growth demonstrates the power of our differentiated platform as we continue to drive both internal and external growth.

Turning to results of operations. For the full-year 2015, we delivered same-store NOI growth of 11.5% over 2014 having grown average occupancy by 250 basis points and average annualized rental revenue by 4.8%. We continue to experience strong year-over-year gains in Oregon, Georgia and Washington, but as Arlen mentioned, North Carolina remains under some pressure due to the decrease in military deployment activity in the Fayetteville market.

At any point in the cycle, a single market may under-perform but over the long-term we undoubtedly benefit from having a diverse portfolio that is focused in states with above average population and job growth. As a note our 135 properties same-store portfolio in 2015 represented approximately 40% of our total rentable square feet.

For the fourth-quarter our total portfolio was 88.5% occupied at December 31, and our average rent per occupied square foot for the quarter was $10.65. On a same-store basis we realized a 6.5% increase in revenues and a 10.7% increase in NOI, compared to the prior year. The increase was driven by a 250 basis point improvement in average occupancy to 88.9% and a 3.6% increase in average rental revenue per occupied square foot.

Property operating expenses in our same-store portfolio declined slightly in the fourth quarter of 2015 compared to the prior year. Finally, we are pleased with the Q4 improvement in same-store portfolio gross margin, which grew by 240 basis points to 65.8% from 63.4% in the prior year, evidence that our operations continue to benefit from economies of scale.

Moving now to our balance sheet and liquidity position. At year end, we had total debt outstanding of approximately $571 million. About two-thirds of our debt is fixed rate mortgage financing or fixed with swaps. Our weighted average cost of debt is approximately 2.9% and our weighted average maturity is about 3.1 years.

We're currently in active conversations with our bank group with the objective of recasting our existing facility, expanding the facility, terming out a portion of the debt and extending maturities. We would expect to complete the transaction sometime in the second quarter. We are well positioned to continue to our fund our growth through the various sources of a capital available to us.

For instance, nearly 40% of the consideration for year-to-date acquisitions closed and under contract to close will be through the issuance of OP equity. Our acquisition strategy continues to benefit from our ability to offer OP equity to sellers who are motivated to defer taxes and maintain strong cash flows.

In November, our Board of Trustees approved a 5% increase in our quarterly dividend to $0.20 per share, or $0.80 annualized. And last week our Board approved our first-quarter dividend of $0.20 per share payable at the end of March.

Now turning to our guidance. Based on our outlook for NSA's growth prospects and our positive view on self storage fundamentals, we are expecting core FFO to be in the range of $1.02 to $1.08 per share for the full-year 2016, which at the midpoint represents 14% growth over 2015. Our guidance is based on several factors including anticipated same-store NOI growth of 7% to 9% driven by revenue growth of 6% to 7% and expense growth of 3% to 4%. Our expected acquisitions in the range of $350 million to $450 million which includes our year-to-date activity in 2016 of almost $200 million. Our full-year planned corporate G&A cash expense of approximate 9% to 9.5% of revenue plus another 1% to 1.5% of revenue in non-cash comp expense.

So that concludes my prepared remarks and with that we will now take questions. Operator?

Thank you.

(Operator Instructions)

George Hoglund, Jefferies

Yes, good morning out in Denver. I guess one question just on the implementation of the revenue management system, just how is that going in terms of what's the performance looking like relative to what you had expected and how are the PROs reacting to the changes they're seeing?

Hello, George. It is Steve. Thanks for the question. We are really pleased with the results we have seen so far from Q4 through February in the control testing that we've been doing. We think the tool is really easy to work with. We see a lot of value in helping us drive both occupancy and rate.

I think the PROs are very favorable to it as well. So far we are very pleased with it. We are excited to roll it out to two new PROs and 7 markets and 65 new stores here over the next, call it 30 to 60 days.

And is there any indication on the difference in performance of properties that are on the system to those that are not on it?

We are definitely seeing results. We're at a stage now where we're not prepared to disclose the differentials but we're definitely tracking that on a daily basis and we're believers in the system.

George, this is Arlen. That was one of the reasons why it was important us to have the control group during this test. So that we could try to really determine how much of a gain were we getting. And we're definitely seeing gains and it varies a little bit market to market. We haven't built any of that into our guidance but we're certainly positive with what we're seeing.

Okay. Can you just comment on some of the pricing of the acquisitions that were done and what are your sort of expectations for the pricing of the pipeline for the rest of the year?

Yes. We've been really pleased with the volume of acquisition activity that we've run so far. We look at our acquisitions on a pricing basis on two looks basically. We look at what's our trailing cap rate we're paying on what has actually been performing under the prior management compared to what's the forward cap rate.

On a trailing cap rate basis, we have been really fortunate, most of our deals have come in between 6% and 6.5% cap rate. When we look at our first-year forward with under our operations we see those running between a 6.5% and a 7% cap rate in the first year post acquisition. Now partly the reason were getting such good cap rates is because most of the transactions we're doing are smaller, one-off type transactions that are PROs are able to source. Definitely on portfolio deals in the market, we're seeing cap rates and pricing very aggressive, certainly it's always in the 5s.

And so we're being very disciplined about doing those kinds of portfolio acquisitions and we certainly like to do those if they have strategic value for us. But with the huge volume of one-off deals we're looking at, we have to be careful to make sure we really do the things that use our capital most efficiently.

Thanks for the color.

You are welcome.

Thank you. Vikram Malhotra, Morgan Stanley.

Hello, guys. This is Landon on for Vikram. Congrats on the strong quarter. Just to start off, the capital markets, the debt activity that you guys mentioned you check to complete in the second quarter. Can you give us a better sense for what's baked into guidance on that front at the high and the low-end? And maybe on the term out portion of that what size would you expect and what kind of pricing and term are you guys looking at?

Hello, Landon, this is Tammy. Thanks for the question. Sure, I can give you some color on that. The way we are thinking about our balance sheet right now is that we still have substantial flexibility in our balance sheet to continue to support the growth strategy that we have in place.

But having said that, as I mentioned in my comments we are in discussions with our bank group to recast our existing credit facility and part of that recast will include an expansion of the facility and terming out a good part of the shorter-term debt. Our goal is to extend maturities, expand the facility, make the revolver largely available to us to fund acquisitions and bring the terms of the agreement closer to market.

And of course as you know, we fund a fair amount of our acquisitions with OP equity so year-to-date I think it's about 40% in fact of our closed transactions and transactions announced will be funded with the issuance of OP equity. So we've been pretty pleased with that as well.

Okay. Just a couple follow-ups on that. Can you give us a sense of maybe the pricing and the term you're expecting on the debt side? And then on the equity side as you mentioned, it seems like some of the recent deals including the PRO were more weighted towards OP versus SP equity? And just want to -- can you give us a little color on that and maybe expectations that are baked into guidance on that front?

Sure. Yes. As far as the guidance goes, we're expecting to term out -- I'm going to estimate because we don't have firm terms yet but we are estimating that we will term out $300 million to $400 million and we're making -- we obviously expect to pay more for that longer term debt. It could be another 40, 50 basis points. On a weighted average over the course of the year.

Okay. And on the equity SP versus OP equity side?

Right. So the I think probably we should wait until we close on Hide-Away before we start providing that guidance because we actually haven't disclosed that at this point in time. There is a fair amount of SP equity associated with Hide-Away.

And we have built that in, Landon, into our guidance for the SP distributions for the year because we will -- we have issued SP equity already and we will be issuing a large amount, certainly, with the Hide-Away transaction.

Okay. But you can't give us a sense of actuals just yet? On Hide-Away?

Other than what we have in the guidance. We haven't given any specifics on it so you can somewhat back into it a little bit but the guidance is really all we're releasing at this point.

Okay. And then just one last one, just on the material weakness that was present when you guys went public. Can you guys give us a sense of your expectations with the 10-K filing coming up on that front?

So KPMG hasn't totally finished their audit and hasn't reported to our audit committee yet on that. But right now every indication is that, that material weakness will have been mitigated and there will be no further reporting on material weaknesses or significant deficiencies or anything along those lines.

Okay. Great. Thanks and congrats again on the quarter.

Thanks, Landon.

Thank you.

Todd Thomas, KeyBanc Capital Markets

Hello, thank you. On guidance the 6% to 7% revenue growth, what is the composition of that growth look like if you were to break it out between realized rent growth and occupancy gains?

So, Todd, we actually haven't provided that metric at this point in time but I think one thing we could say to you is that we fully expect to continue to see our portfolio close the gap on occupancy. So our focus over the course of this year will be to continue to drive occupancy. We should also see some good rate growth, as Steve mentioned, with the revenue management system and we're heading into the season when will see good rate growth from the summer so --

So, Todd, this is Arlen. There may be a way for you to kind of think about it as looking at last year we closed the gap. We grew occupancy about 250 basis points and most of our peers grew maybe half of that or so.

We would expect that we'll probably continue to close the gap at a similar pace of closing. I don't know that we'll necessarily gain 250 basis points this year as we get higher and higher but we think we'll be able to do about double the occupancy growth of our peers this year and the rest of the growth will be through rate growth.

Okay. That is helpful. And then in terms of your commentary I think around new supply, you mentioned that your forecasting a second half slowdown in Portland, Charlotte and I think in Colorado related to new supply. Are you seeing evidence today that growth may slow or is this more of a speculative assumption just given some of the supply coming online that you're aware of?

Yes. It's totally speculative. It is difficult for us to get an exact feel for that because obviously we know that there are new -- some new facilities under construction but all three of the markets that I mentioned are very strong growth markets from the standpoint of population growth.

There's a lot going on in all those markets so then the question becomes, okay with the new supply coming online how will that be impacted with the new demand that comes with new population, et cetera. So we have tried to be conservative and look at a slower growth prospect but we still think all of those markets will still be growing in the last half of the year. We just put it not just as fast as a first half.

Sure. Would you expect revenue growth in those markets to fall below the portfolio average in the second half of the year?

I would say probably not below the portfolio average because they've typically been above the average. Although that's the part that's really hard to get exactly. They've done so well up to now that, that's part of the reason I think why there's so much new development activity in those markets. But I wouldn't say they'll will necessarily drop below the guidance average. Maybe on the low end of our guidance range might be a reasonable expectation for those markets.

Okay. And then on the external growth side, just curious, you talked about the captive pipeline. There's over 100 properties in that pipeline today. How many of those hundred properties or so are development properties? And can you talk a little bit about the decisions being made for new development, whether NSA is involved at all in that process and whether there's any obligation or agreement that NSA will acquire any those assets upon completion from the individual PROs?

Yes. That is a good question, Todd. We are involved in talking about new developments that our PROs work on however they are all done at the risk of our PROs and we -- they have an obligation to offer them to us to buy. But we do not have an obligation on any of them to purchase them.

However, because we pre-qualified them kind of by talking to them in advance, we know these are all acquisitions that we would love to own. Of the total 100 -- little over 100 properties in the portfolio, they are the captive pipeline. I mean, there is less than 10% of those are new developments I'd say, maybe around 10%. The others are mostly ones where the debt will be maturing over the next three years. A few of them will go beyond that. But mostly over the next three years.

Okay. And then just lastly, just given your cost of capital has improved over the last several months or so, just curious whether that's helped at all with conversations about bringing new PROs onto the network and whether or not you're underwriting new investments differently at all?

I would say the cost of capital side has definitely helped us, as we're underwriting new investments, to be able to be more competitive, certainly on portfolios. But as I mentioned, those do get priced a lot more richly.

From the standpoint of the new PROs, I would say the cost of capital is not as much an issue as simply the track record we've developed as the people we been talking to for a number of months have seen our stock perform extremely well. They've seen us increase our dividends. They've seen us see our same-store growth meeting or exceeding our expectations and being really in the top performing group in our peer group in terms of our same-store NOI growth.

So all of those are the things that really have helped us mostly in conversations with the prospective PROs. As opposed to necessarily the cost of capital.

Okay. Thank you.

Thank you.

(Operator Instructions)

Ki Bin Kim, SunTrust

Thank you. Good morning, everyone. So if I heard you correctly, for the Hide-Away portfolio, the $115 million acquisition, did I hear it correctly, $60 million of that is OP?

$60 million of that is operating partnership units which would include both OP and SP, Ki Bin.

Okay. That's what I wanted to clarify. So it is both. And is that usually half/half?

In most of our historic transactions the SP equity has been around 20% of the purchase price. You know that is 20% to 25% of the purchase price. It varies but that's the ballpark that you -- we've had in a number of our past deals.

Okay. Just curious, and it hasn't closed yet but is the pricing for that OP/SP, what is it dependent on? Is it dependent on the price your stock is at as you near closing date or is it already agreed upon? Just wondering if we could get a little clarity on that?

Yes, so the way that all of our transactions work with -- any time when we're issuing of OP equity, we issue those based upon a market price trailing at the time of signing a definitive agreement -- binding agreement.

So that's been set now for the Hide-Away portfolio because that is a signed definitive agreement. That's how we would do it for any of the -- we have a lot of third-party sellers that aren't PROs that just want to sell one or two properties and want to take OP units and we do that the same way with them. The main difference with the Hide-Away is there's a bit of a delay in the closing because we're in the process of completing the loan assumption on that.

Okay. And I'm just -- tell me if I'm assuming this incorrectly, but I would assume you're already in a definitive agreement and that price might, if I just look back maybe the past couple weeks, it would be somewhere in the high $16s. Assuming that it's correct, do you get pushback from the other PROs, basically protesting that the stock is too cheap when you do a deal like that?

Well, that's a good question. We do look at our acquisitions from the standpoint of making sure that we believe they're accretive to us. As you know, one of the things that's part of our negotiation with any PROs and any seller, related to contribution for OP equity, is that we need the price to be fair to us.

And it's not every single deal we've done. Our PROs and our other sellers could go out to the market and get a higher cash price for their assets but then they don't get the tax benefits and they don't get the ability to ride our stock, which we believe is a very favorable investment both from a dividend yield and an appreciation standpoint. So that's part of the pricing negotiation that goes into it and that's why the PROs understand that and are supportive of it. So we don't get complaints about it, but it is important to everyone that we negotiate a favorable price that recognizes the stock -- of our stock being what we consider undervalued.

Okay. Just a couple more quick ones here. What is the share count assumed in your guidance? I don't think I saw that.

It runs in the mid-50 million range. It really is going to depend partially on the types of acquisitions we do and how many OP and SP units we actually issue those acquisitions. It's roughly 52 million, 53 million on a weighted average (multiple speakers) basis.

And that would not include the SP equity because we deduct the SP dividends from the FFO, the core FFO calculation for our OP and REIT common shareholders.

Right. You're diluting the numerator before the denominator is what you're saying?

That is correct

Right. Okay. And I think someone asked the question already about this but I'm not sure if I heard correctly, the $300 million left, or $285 million left, to acquire within your guidance -- to be in line with your guidance, should we expect a similar kind of SP/OP percentage over those deals? That we've seen like in the --

It is hard for us to guess that. But if I'm guessing something, I would probably use a similar number. That has been typical. To be really honest with you, Ki Bin, in it varies. I mean we have some PROs we are talking to as prospects that have huge amounts of equity. I mean close to 100% of their purchase price is equity. But a more normal number would be about 40% equity and 60% funded with either debt that we assume or new debt.

But the financial accretion from that deal is within your guidance set that you said, right?

Yes.

Okay. The less question for me. Tenant insurance, are the profits from the tenant insurance program, do they fully float into NSA, [the entity], or does it go -- the profits of that, does that go to the PROs?

We have a policy when we bring in new PROs that we allow the structure of the profitability of the tenant insurance program to remain the way that it has been historically because were not paying them a price based upon additional profitability. So what it actually ends up with is that roughly half, a little over half of the profitability of that goes to NSA and a little less than half of that goes to the PROs. It's probably more like 60/40 between NSA and the PROs but it's based on the historical way that it's been set up and we only pay for what we get.

And how about for new PROs, though? As you grow the franchise -- I mean grow the platform with the new PROs or new -- I guess I see what you're saying about the [captive] pipeline might be different, but for new PROs or generally speaking for new acquisitions is at still 50/50 roughly or would it be more --?

It would be whatever way we pay for it basically. If they have it structured where, let's just say 60% of the profitability of tenant insurance went to them as a management company, then we would only pay for 40% of that profitability. That's how we value the acquisitions and the PROs contributions and so we don't try to change that right now. It doesn't make any sense. We want to -- we don't want to basically focus on that because it's sort of letting the tail wag the dog.

Okay. All right. Thank you.

Thank you, Ki Bin.

Thank you. George Hoglund, Jefferies.

Just following up on the acquisitions projected for the rest of the year, how do you have those modeled out or assumed for guidance? Would that be ratably over the rest of the year or would those be more back end weighted?

You know honestly, we've, for the acquisitions that we know of, and have been approved internally, we very specifically modeled those in for the date when we expect them to close and of course Hide-Away a big piece of that. And then for the other acquisitions that are not yet defined, those are somewhat ratably spread throughout the year. For the remainder of the year, I should say.

Okay. And then given the amount, you know, the 40% of equity that you guys are paying for these deals and given, call it $400 million in the midpoint of guidance, at what point do you think you would need to come back to actually raise equity outside of just paying that 40% of equity for deals?

You know, George, right now we think that we have the flexibility that we need to fund our growth strategy, especially with how fortunate we've been with respect to using the OP equity. But having said that, we will continue to evaluate and definitely want to keep our options open. There are a variety of reasons that we might want to use common equity, as you know of course, but that's how we're thinking about it right now. Keep our options open and continue to evaluate.

Okay. And then last question. I know you talked about targeting one to three PROs a year, but based on your sort of current discussions are we pretty far down the path with any additional PROs where you might expect another one over the next few months or so?

We do have pretty advanced discussions with a number of other folks. The only thing that's hard about predicting that is that it's either black or white, in terms of the decision, and it's a very significant decision for the PRO to join NSA. We don't try to push anyone into making the decision. We want to make sure it's right for them and for us.

I do feel like we'll probably add another PRO this year based on how conversations have gone but that's not entirely within our control. And I just feel like still saying the one to three a year is very doable.

Okay. Thank you.

Thank you. Jason Belcher, Wells Fargo.

Hello. I wanted to follow up on your regional sales trends a little more. Thanks for the color around Fayetteville. I wanted to ask specifically on your Oklahoma market, I noticed some pretty good movement in both the top line and the OpEx growth in the quarter versus Q3. Any color you could offer there?

Yes. Oklahoma is sort of a bifurcated market for us, it includes Oklahoma City and Tulsa. Tulsa has been a very strong market for us of late. Oklahoma City has not been quite as strong. It's partially impacted by the energy market so we're seeing the effects of that.

As we think about operating expenses, we try not to focus on quarterly numbers because they can be so volatile when you're really just looking at changes at the margin so we really like to focus more on the annual numbers. If you think about Oklahoma, in general for the annual numbers, we were up about 4.4% in the same store pool. And primarily that was driven by tax increases that were a little above average but other than that the expense control is very well in place for Oklahoma.

Great. Thanks.

Thank you. Ki Bin Kim, SunTrust

In terms of balance sheet, I think it is about 6 1/2 times debt-to-EBITDA, per the supplemental. But I know there is some noise regarding the timing of when you acquire those assets, so what is that on a pro forma-basis and what is the overall debt-to EBITDA-target ratio that you want to have?

So, if we pro forma-ed that with full impact of some of the acquisitions, it drops down below the 6 1/2%, between 6% and I think around 6 1/4%. Our overall target is that we don't want to go -- we want to stay between 6% and 7% and keep flexibility. Fortunately with all of the equity we've been getting in with these deals and with the strong growth in same-store NOI, we see definitely being able to do that. But that's just the general range that we like to look in, is between 6% and no higher than 7%.

Okay. So all else equal, if you're buying the $300 million additional assets for this year and you're funding it, let's just say 40%, a combination of SP/OP. In that scenario would you need -- maybe need is a strong word, but would you want some additional equity in your company or would it be sufficient because it's already 40% by nature, some type of equity? You don't need to raise common equity?

I think that is a good word. We don't need to raise common equity but we have other reasons that we might very much like to. One of the things that we have had investors tell us is they'd like to see more float.

Our float is only a little over $400 million so we'll consider that as part of that decision as well. It is definitely true. Your comment is true. We don't need to raise equity that if it's a fair price and something that helps the market in terms of getting our float bigger, we will definitely consider it throughout this year.

Okay. Thanks Arlen

Thank you. Tucker Andersen, Above All Advisors Ladies and gentlemen, we have no further questions in queue at this time. I like to turn the floor back over to Arlen for closing comments.

Thank you. Once again, we appreciate everyone's interest in National Storage Affiliates. We're really pleased with our fourth-quarter and the full-year 2015 results.

And as we look ahead to the coming year, we believe we have a strong opportunity to drive internal growth as we integrate our revenue management system, increase occupancy and further leverage the substantial scale that we're building. Our pipeline of acquisitions is extremely strong and our balance sheet is supportive of that strategy. And as a Management Team, we're very aligned with our shareholders and we're focused on creating shareholder value over the long term.

We look forward to speaking with you again when we report our first-quarter 2016 results. And thanks again for joining us today. Thank you.

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.