National Storage Affiliates Trust (NSA) 2016 Q2 法說會逐字稿

Greetings and welcome to the National Storage Affiliates Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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 for National Storage Affiliates. Thank you. Ms. Dowling, you may now begin.

Hello, everyone. We would like to thank you for joining us today for the second quarter 2016 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 of 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 statements.

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 most recent filings with the SEC, 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, Marty and welcome everyone to our second quarter 2016 earnings conference call. We are very pleased with our second quarter results which showed strong growth in our same-store and total portfolios, while at the same time realizing the accretive benefit of our acquisitions completed over the past year.

Our net income, Core FFO, and same store NOI all showed extremely strong year-over-year increases and during the quarter, we took further advantage of our unique platform, which provides us with a built-in pipeline of acquisitions as well as local acquisition teams, which continue to source attractive opportunities.

From January 1 through June 30, we acquired nearly $290 million of high quality self storage assets, and if we include the transactions we have closed since quarter-end, our acquisition volume exceeds $450 million so far this year. We also took steps to expand our access to growth capital.

During the quarter, we recast and upsized our credit facility, which now has total capacity of $675 million and we closed an additional $100 million term loan where our capital is staked. Subsequent to quarter end, we also completed a well received $250 million follow-on common share offering.

Turning to our portfolio operations, we continue to execute on our differentiated strategy that drives both strong same store growth as well as a rapid acquisition pace. NSA currently owns 344 self storage properties located in 18 states with approximately 20.5 million rentable square feet, up more than 40% in just 15 months since our initial public offering.

Overall, the self storage sector remains healthy with secular trends driving increasing self storage demand across the country. Within our particular markets, we continue to benefit from outsized employment and population growth. Further, though we are seeing some new supply in individual markets and submarkets, demand growth is currently continuing to outpace new supply in most of our markets.

We continue to work to drive organic growth within our existing portfolio by implementing our best practices and technology platforms to close the occupancy gap with our peers. These initiatives are driving strong occupancy growth with our same store portfolio ending the quarter above 92%.

Additionally, our revenue management system rollout is well underway as we are now operational in a 180 stores across 23 markets. Together with our PROs, we continue to work to optimize the system and evaluate its effectiveness in different types of markets. We expect that we will complete the revenue management rollout in the first quarter of next year.

Our revenue management system is having a meaningful impact on both rate growth and occupancy in our same store portfolio as well as with our more recent acquisitions. We believe revenue management is contributing to our strong growth in same store total revenue, which was 8.5% for the second quarter.

Finally, our acquisition pace was extremely strong in the second quarter and has continued into the third quarter. This acquisition growth combined with robust organic growth is what is driving our exceptional increase in Core FFO per share, which is up over 27% from second quarter of 2015.

During the second quarter, we acquired 25 self storage properties for an aggregate investment of approximately $200 million. These acquisitions, which included our seventh PRO Hide-Away storage, added almost 2 million rentable square feet to our portfolio.

Post quarter end, we acquired an additional 26 self storage properties for approximately $170 million, which added another 1.8 million square feet to our portfolio. Year-to-date, we have acquired a total of 68 properties for a total investment of over $450 million. These acquisitions add approximately 42,000 units and about 4.8 million square feet to our portfolio.

As a result, we've increased our acquisition guidance for the year to a range of $600 million to $750 million. We are very pleased with our acquisition performance and believe this strong pace of accretive growth proves out our differentiated strategy. Looking ahead, we continue to utilize the three components of our external growth strategy, which we believe provide us with high-quality properties at better than market pricing, ultimately enhancing shareholder value.

Our captive pipeline, comprised of assets which our PROs already manage but that we do not yet own currently exceeds 90 properties valued at almost $700 million. Additionally, we continue to work with our PROs to use their local relationships to uncover third-party acquisitions. These transactions comprised about two-thirds of the $450 million of acquisitions that we've completed year-to-date.

Finally, we remain focused on the longer term goal of adding PROs to our platform. We're currently in discussions with several large operators as prospective PROs. These conversations are getting easier, given the strong performance we've demonstrated since going public, but it still takes a lot of time to sign up a new PRO.

Our strong results for the first half of 2016 show consistent internal as well as external growth. We continue to drive both occupancy and rate in our same store portfolio, while maintaining our strong acquisition pace. We believe we're better positioned than ever to continue this momentum through 2016 and beyond.

I'll now turn the call over to Tammy.

Thanks, Arlen. We reported net income of $6 million for the second quarter of 2016, an increase of $5.9 million compared to Q2 2015. Our Core FFO was $14.7 million or $0.28 per share, an increase of 27.3% compared to the second quarter of 2015. This strong FFO growth continues to be driven by a robust acquisition pace and the excellent organic growth in our same store portfolio.

Our second quarter same store NOI was $21.6 million, representing a 10.8% growth over the prior year quarter. We continue to successfully drive both rate and occupancy with average portfolio occupancy increasing 340 basis points and our average rent revenue per square foot increasing by 4.5% year-over-year, resulting in same store total revenue growth of 8.5% in the second quarter.

Our same store property operating expenses increased by 3.9% as expected driven by increased property taxes, especially in Texas and Oklahoma, higher advertising spend in certain markets and timing of repair and maintenance projects this year. Overall, we realized strong growth in our same store NOI at 10.8% and positive improvement in our same store NOI margin, which was 150 basis points better this year than in Q2 2015.

Turning to our individual markets, we continue to benefit from our diverse portfolio that is currently concentrated in states with above-average population and job growth. For the second quarter, we achieved double-digit same store NOI growth in Georgia, California, Oregon and Arizona.

We continue to feel some pressure in Oklahoma and Texas where we have exposure to energy dependent markets as well as in North Carolina due to a reduction in military deployments. Looking ahead, we expect to see continued strength in Oregon and California and solid growth from Colorado, Georgia and our Southwestern states.

We remain focused on optimizing our balance sheet to support our growth objectives. At quarter-end, our total debt outstanding was $755 million of which about 85% was fixed-rate mortgage financing or fixed with swaps. Our weighted average effective interest rate is 3.05% and our weighted average maturity is just under six years.

As Arlen mentioned, we took important steps during the second quarter to increase our balance sheet flexibility and access to capital to fund our growth. First, we expanded our total capacity under our credit facility to $675 million and at that time, took the opportunity to lock-in historically low interest rates.

We also extended the maturity and then reallocated $325 million of our borrowings to five and six year term loan tranches. And at the end of the quarter, we finalized a seven-year $100 million term loan fixed with a swap at 3.08%.

During the second quarter, we issued OP and SP equity valued at over $80 million in connection with our acquisitions. And as you may recall, the last [of our] OP units issued in connection with our formation and certain other transactions expired at the end of April, and since that time, the unitholders have redeemed nearly 700,000 OP units in exchange for common shares, a nice increase to our public flow.

Redemption activity was higher immediately following the expiration of the lock-up, but the rate of exchange is likely to normalize in coming quarters.

Subsequent to quarter end, we closed on our first follow-on equity offering, issuing just over 12 million shares with net proceeds of approximately $237 million. We used these proceeds to repay borrowings on our revolver and for general corporate and working capital purposes.

In May, our Board approved a 10% increase in our quarterly cash dividend to $0.22 per share for the second quarter 2016. This is the second dividend increase since our IPO just [15] months ago and is supported by the strong growth in FFO per share that we have consistently generated.

Finally, I'd like to mention our guidance and expectations for the remainder of 2016. Taking into consideration our strong operational performance, our acquisitions momentum offset by the impact of our follow-on offering, we are increasing our guidance for same store revenue growth to a range of 7% to 7.5%, same store NOI growth to between 8.5% and 9.5%, our 2016 total acquisitions are now expected to be in the range of $600 million to $750 million and we're increasing the midpoint of our Core FFO estimate, narrowing the range to $1.6 per share to $1.8 per share for the year.

So this concludes our prepared remarks and we will now open the call to your questions. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Todd Thomas, KeyBanc.

First question just over the last couple of weeks, we've heard that competitors in some markets are increasing discounts and promotional activity, and I'll just be curious to get your thoughts on whether you're seeing any increased competition in your markets and then, second part of that is also as you continue to rollout the revenue management system, just sort of curious how you think about managing to rate versus occupancy?

You know, when it comes to discounts, we've actually seen a slight decrease on a sort of per customer, per movement basis for our discounts. We are offering discounts and promotions to about half of our customers at this point, and we're seeing competition out there. So we're definitely dealing with that. But overall, we don't see it having a meaningful negative impact on results.

As far as revenue management, I think what you'll see in the back half of the year is we'll have probably more focus on rate then on occupancy, we are certainly seeing results on both fronts from the system, but as we hit higher occupancies, it's certainly more incumbent upon us to push on the rate harder, push on employees rates and push on street rates and that's what we're doing. So we think we'll see more rate movement in the back half of the year.

Okay. And regarding the rollout of the revenue management system, apologies if I missed it, but how many properties in the same store pool are utilizing the system today?

It's about two-thirds and some of those, many of those have been added fairly recently. So, I wouldn't say that, that two-thirds number was sort of in place or in effect for all of Q2. But for Q3, it should be even more meaningful than what we saw in Q2 as far as the contribution from revenue management to same store results.

Okay, and then just a question for Arlen on acquisitions. The increase in acquisition guidance leaves you with nearly $200 million more to do in order to achieve the midpoint. How would you characterize the pipeline today, and are these similar to what you've acquired year-to-date? Are these mostly third party acquisitions being sourced by the PROs, or are there any additional PROs that you're talking about perhaps joining the network that's included in that guidance?

We do not have a new PRO included in that guidance, it's based primarily on both the captive pipeline roll-ins and the third-party acquisitions that we're looking at. We constantly look at a pretty sizable pool of opportunities. At almost all times, it's probably between $300 million and $400 million of deals that we're evaluating and over time we have historically ended up closing on maybe a forth to a third of those as they fall out due to underwriting or bidding or those kinds of things.

But we do not have a new PRO in that guidance. We certainly have a number of conversations with prospective PROs, but as I mentioned in my comments, it's really hard to predict the timing of when a new PRO will come in and so we generally don't do that unless we pretty much know for sure that they're going to come in.

Okay. And just lastly, just a modeling question on the acquisitions in the quarter, I guess, the $200 million roughly, what was the average timing of those acquisitions? Seems like they're mostly front end weighted in the quarter, but any idea what the average sort of closing date may have looked like for the properties acquired in the quarter?

Yes. For this quarter, basically the average of these that we're closing in the third quarter is going to be on August 1, and obviously those all depend on contracts and the timing of those, but obviously, we'd love it if everything could close the first day of the quarter, but that's not always possible, and so this quarter we know it'll be average August 1.

And what about what was completed in the second quarter?

The second quarter was pretty much mostly on --

It was throughout but 14 of the assets were acquired (inaudible).

Yes, a lot of it was the beginning of the second quarter, because that was our new PRO Hide Away that joined us on April 1.

R.J. Milligan, Baird.

Curious, Arlen, what do you think -- finishing just here in the low 90% in terms of occupancy, what do you think the runway is going forward for additional occupancy growth in the portfolio, given the markets that you guys are exposed to?

Based on our overall view of the opportunity, we feel like we've probably got another 100 basis points to 200 basis points of occupancy that we can ultimately gain, some were ending in 93% to 94% ultimately kind of high point occupancy, but of course now we're going into the slower time period. July is typically the peak months. As we look at seasonality, we start to see a little bit of drop-off in August and then in the fall it will drop off further than that. So we do feel like we're pretty close to our peak occupancy for this year and then we'll continue to build year-over-year gains I think as we continue throughout the next 12 months.

On the acquisition front, Arlen, can you talk about cap rates, where are you've been acquiring and where you think the market is and what that spread is given your structure, if you think you're getting 50 basis points or 75 basis points better than what market is?

Yes, certainly each transaction varies and is unique, but our average cap rates that we've been acquiring at as we look at our year one forward cap rate expectation or almost the current run rate is right around 6% to 6.5%, that's probably 50 basis points, maybe even 75 basis points better than a lot of the deals that we're seeing out there. Some of that we get the benefit of because the properties are coming in through our PRO network. Some of it is frankly because we get outbid on deals that we basically don't buy, but overall, we're very pleased with that. It's certainly accretive to us really right out of the box and that's very helpful to our FFO per share.

Okay. And then, on the supply side, there are comments that you're seeing some new supply but it's not impacting fundamentals yet. I was curious if there were certain markets where you're seeing more of new supply versus less?

We definitely have seen more new supply in, for example, Phoenix, in Charlotte, in Denver, in Dallas, those are some of the markets that we've seen more new supply. Now, fortunately, a number of those are strong growth markets in terms of population and job growth but the supply for the short-term in some of those has outpaced demand. We don't necessarily think they're overbuilt for the long-term, but it takes time to absorb that new supply as it comes online.

Ki Bin Kim, SunTrust.

I guess, first question, what is the contributed equity value for the SPs and common share portion as of today? And I was wondering if you could somehow provide that data in a supplemental going forward because that's quite important to model out the waterfall?

Yes, Ki Bin, that is disclosed every quarter in our 10-Q. It's not in the supplemental but it's specifically disclosed in the 10-Q. I can't recall the exact page but that we usually file our 10-Q right after this call or within the next day or so. And so, both the OP and the SP contributed values are in the 10-Q and, of course, we just completed a $250 million secondary offering in our common stock and that adds to our OP contributed value, as well as about $100 million year-to-date of additional new OP and SP equity that we've issued year-to-date. So we've got about $350 million ballpark of additional capital contributions in equity this year.

And when these PROs are sourcing more deals, the upside for them is that they can expand their network and have basically more SP units in these acquisitions. So where are these PROs coming up with the additional equity capital to partaken the deals?

So it varies, and the most obvious or easiest can be the PRO can contribute cash. Obviously, all of our PROs have been extremely successful in their careers. I think we've mentioned before that our PROs have combined equity investment in NSA of over $0.5 billion and, of course, they have large cash positions as well and very large dividends from their NSA investment.

But in addition to that, we allow PROs to convert OP units that they own into SP units if they need, and then as the value of their SP units increases as reflected by effectively the conversion ratio that you see we disclose each quarter, that additional value that those SP units create can be used as part of that co-investment as well.

And then, Ki Bin, the invested capital for Class A equity is $645 million and for Class B equity $177 million, that'll be in the queue.

So that's on a cost -- historical cost basis.

Yes.

Okay. And turning to operations, can you just give a quick update on what your street rates were year-over-year in the quarter and how that's trending to August?

We've seen very healthy increases in our street rates or asking rates, they do move around quite a bit. So I try not to get too tied to the number, but they were up double-digits year-over-year from Q2 versus Q2 and our effective rates were up about 5%. So our contractual rates were [above] 5%. And we're seeing 5% to 6% increase on moving rates Q2 of this year versus last year. So we feel positive about that and we see that continuing going forward.

What was the main difference for you? You said street rates were up double-digit in Q2 year-over-year, but the moving rate was up 5% to 6%. So besides just the mix of assets going in, is that the main difference that it causes that delta?

Yes, it's really -- we don't always get exactly what we're asking. So we do push street rate pretty hard and go for higher rates that we might actually get on the way in. So --

[So that wouldn't] factor in discounts and promotions, for example.

Okay, and has that been trending similarly in August or moderated?

It has. We use, I think, the street rates as a leading indicator and we watch it closely and we obviously move it around with seasonality, we move it around with occupancy, we move it around by market, [so it does] move around quite a bit, so we pay a lot more attention to the effective contractual rate, pay a lot of attention to in-place and how much they're being bumped for in-place customers. So it's all part of the equation.

And just last question, in terms of adding more PROs. At a certain point, I mean does that [add to] severance PRO, at a certain point does it get more incrementally difficult because you're basically adding more chieftains to that tribe?

Well, we do have a natural limit that we've kind of set from our beginning in terms of our strategy that we would really not want to go above 15 PROs ultimately, we're at seven right now and our target range is between 10 and 15. And really whether we end up closer to 10 or closer to 15 ultimately depends on the size and the territory covered by the PROs we add. If we add a number of really large PROs with very large territories, we would probably be closer to 10; if we add PROs that have more focused territories in narrower geographic regions, that would allow us to go to 15. But one of the real criteria for us in selecting PROs is that they really are team players, because this is really a very collegial approach to how we manage, it's a decentralized management approach and we have had tremendous cooperation and participation from our PROs that creates a lot of both positive results and sort of camaraderie and we want to keep that going as we add new PROs in the future.

George Hoglund, Jefferies.

I was just wondering if you can give a little more color on the markets where you're seeing new developments, so you'd mentioned Phoenix, Charlotte, Denver and Dallas, in which of those markets are you seeing more of an impact from new supply and is that impact more so on the rate side or the occupancy side? And then also just looking forward, what markets are you expecting occupancy to have the greatest negative impact?

Yes. Well, in total George, we have, we see about 29 of our 344 stores that have some impact from new construction within their trade areas. And as you look at those, probably the most significant areas are in Dallas and in parts of Florida and in Phoenix. And so we would say that those are areas that we're going to definitely see some impact, but typically it will impact our occupancy. It does depend on how aggressive a new PRO or a new competitor is when they open the store in terms of pricing. Some folks have the idea that they'll just use really low pricing and fill up really quickly, others will be more market pricing and fill up on a more normal curve. Fortunately for us, there only is about 7% of our portfolio that's even affected at all right now, so it's going to have some impact on occupancy in those 7% of the stores, but overall, in terms of the big picture, it will be fairly muted.

David Corak, FBR.

Arlen, you noted about 90 stores in the captive pipeline, $700 million of value. I think that the number of stores there is down a little bit. So were any of those -- any of the one-off close in 2Q from the captive pipeline? And then what do you think at this point the average time to stabilization and/or debt maturity is on (multiple speakers)?

Yes, some of those were captive properties that came in over the last, really quarter and a half. And then in addition to that as we look forward, I don't know what the average is but I know we have looked like in the next 18 months between now and the end of 2017, about one-third of those $700 million of stores have their debt maturing or expected to reach stabilization, it's mostly debt maturities, a few of them are stabilization. So about one-third will come in in the next 18 months, beyond that I don't know the exact schedule, but you can probably assume a ballpark of about one-third every 18 months and it won't be too far off.

And then Tamara, can you just remind us how you are thinking about leverage at this point? Do you have a particular target in mind, given all the recent balance sheet activity?

Yes. So we talked about our target being in the range of 6 times to 7 times net debt to EBITDA over the last couple of years, and we're still comfortable with that range. David, as you know, we're a growing company and so there may be times when we spike a little bit outside of that range right now or below the range, but we're comfortable with that stated range and with the steps that we've taken to maintain the flexibility on the balance sheet.

And then in terms of potential investment grade rating coming down the line here, with the acquisition and increased scale, do you think that has any impact on the timing there or do you think that's still a year or so, add them in your -- you're almost two years into this thing and hopefully that will be sooner than later?

Yes. It's certainly our goal to maintain the flexibility in the metrics that we would need to have in place in order to achieve an investment grade rating and we'll start exploring as soon as it's feasible and makes sense to look at it.

And then I know you guys talked a little bit about, and maybe I missed this, the cap rates that you're getting versus market, but how have you seen cap rates change over the past, maybe 12 months or even three months in your particular markets?

I would say it varies by market in the really larger MSAs where we have some acquisitions, probably not a majority, but the larger MSAs in the last three to six months, it's been fairly is fairly stable, because they dropped so far. The large markets are typically in the 5% type cap rate range from whereas in the secondary markets, which we define kind of as MSAs from like number 20 through 100, those markets, the cap rates have continued to come down as that differential between the biggest markets and the secondary markets has narrowed, probably they've come down another 25 basis points in the last three months or six months, but there's still a differential where the second tier markets are probably 50 basis points or 75 basis points higher cap rates than the top markets.

(Operators Instructions) Vikram Malhotra, Morgan Stanley.

So just some quick questions on some of the markets, like in Oregon for example, you seem to have very strong rate growth if I'm reading this correctly, almost 10% plus, whereas in say, Texas it seemed like very limited growth. Can you just give us a sense of like in Oregon, where you have 95% plus occupancy, what's the sustainable level of rent growth there versus weaker markets, how long you think it will take to move from the very low-single digits up towards that 4% to 5% average?

Yes. So we've been very pleased with our results in Oregon and Washington, and [also] Pacific Northwest. Obviously we are pushing rate very hard, because we're topped out on occupancy and we're taking advantage of that. It's a strong market from a demand perspective, at some point there'll be supply to catch up to that, but for now, we're going to continue to push rate. We still think there is room within our rent rolls to push rate on in-place customers and we'll continue to exploit that where there are opportunities.

In Texas, obviously it's a big state with a lot of different, diverse markets for us. In South Texas in particular that you see rolling through the same-store portfolio, we've had a great run on occupancy over the last 12 months. And now we're really much more focused on pushing rate in that market in those stores and we've recently implemented revenue management in those stores. So we expect to see the rates start to pop there. So we -- as you noted, it's really market-dependent on where we're pushing harder on occupancy versus rate and typically we want to push the occupancy up to the high 80%s to the low 90%s before we really start to push folks on rate excessively.

And would it be fair to say like in markets where you are in that low to mid 90%s, you can still push rate high-single digits at least?

We're going to certainly work on it, there are certain price types within a store where you can really push it hard, because you'll have one or two or three left. And then another price [tax rate] you've got to hang back a little bit. So even though a store might be 93%, it's even diverse within that store how hard you're pushing different unit types on rate, but it is our goal to be in the high single-digits.

(multiple speakers) comment also, Vikram on that -- some of our peers have commented about sort of a fatigue on rate increases and we see that more in markets where the rates are quite high. Because if the rates are quite high, the absolute dollar size of the increase, let's just take an 8% increase on a $200 rate, that's $16 a month, whereas an 8% increase on a $100 is $8 a month. And so it is definitely more of an issue as you get into higher and higher rate markets.

That makes sense, and you're right, we've heard, we've definitely heard that from some of your peers. Sorry if I missed this on the expense side, I believe in Texas and in Washington, it was in the high single-digits in terms of expense growth. Was there anything one-time in those markets?

Not really, to be honest with you. The only thing that we saw that was driving expense in Texas and in Washington also is, in Texas it was primarily property taxes, Vikram and in certain of our markets in Texas, we had the advertising spend. In Washington, we had a little bit higher advertising spend. We also saw some higher personnel costs related to some of the legislation that's going on out there.

I will comment that that I hope those property tax increases at those levels are one-time, but unfortunately we don't control that.

(multiple speakers) one-time, right.

They're going to continue going up, but we hope not as fast.

Then I guess the only other thing we saw in both of those markets were the timing of repair and maintenance projects that drove some of the expenses a little higher in Q2.

And then just last one. I'm just curious on even on the potential PROs that you're having discussions with and just given the run in the stock price, any views that they have or maybe views you have on the OP/SP unit mix, whether it's PROs contributing for the first time or just new acquisitions?

No, I think -- we haven't changed our approach at all and how that works and we do require our PROs to have a minimum amount of SP that we define based on our fixed charge coverage ratio and the equity requirement for that. I do think, in our conversations with prospective PROs, we talk about the future, we talk about their opportunities to grow within their portfolio and how that can impact the value of both the entire Company and the OP and their particular SP units and we're very bullish on the future for both of those. We believe that both OP and SP units that PROS, our new PROs would receive now have significant upside opportunity and that's attractive for the folks we're talking to.

Ki Bin Kim, SunTrust.

So Arlen, if I just put together the things that you said about (inaudible) is being up significantly and still couple of 100 basis points more of occupancy growth, any reason why your guidance for same-store revenue implies that you'll probably hit a sub-6% run-rate in the second half or is that just generally -- just conservativeness a little bit?

Well, I wouldn't say it's conservativeness as much as, if we look at our comps last year, in the last six months of last year, we were up over 12% on NOI growth. Same-store year-over-year. And so we have projected a lower number for the last half of this year, more in the 7% to 8% range. But if you think about it, 12% last year plus 7% or 8% this year, you're 19% to 20% over two years and that is a little bit slower than the first half was over the last two years, but it's really not that much slower overall. So we feel very good about the projections and of course our goal is always to do better, but we do after factoring the reality of just the timing and everything like that.

And in terms of G&A, is that -- for G&A associated with the revenue management system and web advertising, I know you allocate PROs in different ways in terms of the usage, especially call centers, but at income statement level, is it all in G&A or is it in property operating cost?

It's in property operating cost. So the cost to design and set up the system were deferred and would be amortized through depreciation and amortization and so you'll see that in corporate depreciation, but the actual cost of the system is run through the property level.

George Hoglund, Jefferies.

Actually, question for Steve. In your earlier comments you'd mentioned that you're seeing a little bit less in promotions and a little less promotions per customer, was that referring to NSA's portfolio or the markets in general that you're in?

No, really looking at our numbers, those are our numbers that I was talking about.

Jason Belcher, Wells Fargo.

First of all for Tammy. I saw your line of credit balance as of the end of Q2 in the supplement, and sorry if I missed this in your earlier remarks, but can you just update us on where the line of credit is currently here in mid-August?

Yes, we are at about $40 million right now. So we view the (multiple speakers) the following offering to pay down the revolver and then of course, deploy the rest of the capital to complete acquisitions and then [we've gone] back into the line a little bit.

And then back on operations. Just following up on the revenue management system, now that's been in place for another quarter. Can you guys start to talk a little bit more, maybe give us some sense of magnitude around the kind of benefits you're seeing there, either in terms of a range of average sales left or whatever metric you want to talk about?

We're still very positive on system and we're still certainly evaluating the impact of it. I think we prefer to wait until we have at least a full year under our belt before we start to talk specific numbers, but we like the ROI, we like the system, we like what it's done for our revenue growth and we're very optimistic about what it's going to do for us here in the coming quarters and years. But let's get back to more specific numbers after we got a year under our belt.

One thing I will add, Jason, is that we've commented before that we definitely see the most impact from the revenue management system on the highest occupancy markets and as our occupancy keeps going up overall, that will be more and more markets that see a more significant impact from it. But even in our lower occupancy markets, that definitely more than pays for itself and it's very valid tool, it's just the value add is bigger and bigger the higher the occupancy.

Thank you, ladies and gentlemen, this does conclude today's Q&A. I would like to turn the floor back over to Arlen Nordhagen for closing comments.

Thank you, operator, and thanks again, everyone for joining us for today's earnings call. As I mentioned earlier, we couldn't be more pleased with our second quarter results. Our expanded access to growth capital, combined with our PRO's consistent outperformance in both the organic and external growth since our IPO has positioned us well to continue enhancing shareholder value for the foreseeable future. So thanks again for your interest in National Storage Affiliates and have a good day.

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