National Storage Affiliates Trust (NSA) 2020 Q4 法說會逐字稿

Greetings and welcome to the National Storage Affiliates Fourth Quarter 2020 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund, you may begin.

We'd like to thank you for joining us today for the fourth quarter 2020 earnings conference call of National Storage Affiliates Trust. Since this is our first earnings call of the Biden presidency, I'd like to quote our new President and say to all of the potential investors that haven't yet purchased NSA's stock, come on, man. In addition to the press release distributed yesterday, we filed an 8-K with the SEC containing our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nationalstorageaffiliates.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties, including uncertainty related to the scope, severity and duration of the COVID-19 pandemic and the actions taken to contain or mitigate the direct and indirect economic impact. 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.

On the line with me here today are NSA's CEO, Tamara Fischer; COO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. I will now turn the call over to Tammy.

Thanks, George, and thank you, everyone, for joining our call today. Before we discuss 2020 results and our outlook for 2021, I wanted to acknowledge all those who have been affected by recent severe weather and related events. We are and will continue doing our best to support our team members and communities as they recover from these difficult challenges. Now moving on to results. We ended 2020 with a bang, delivering strong same-store NOI growth closing our busiest quarter ever in terms of wholly-owned acquisition volume. And to top it off, we announced in December, the addition of a significant new PRO, Blue Sky Self Storage. Occupancy is near record highs. Street rates are up year-over-year and growing, and our revenue management strategies are largely back to normal. The positive momentum in fundamentals is making for a strong start to 2021. And Brandon will elaborate further on that later in the call.

Overall, I'm very proud of our team for delivering a stellar fourth quarter, which positions us well for 2021. We continue to benefit from the resilience of the self-storage sector, the diversification of our portfolio and the strength of our PRO structure. Customer demand for storage is stronger than ever and has altered the seasonality that we normally experienced in the winter months. Usually, the self-storage sector experiences a seasonal decline in occupancy during the fall and winter months dropping in January or February.

But in 2020, we experienced unusual demand toward the end of the third quarter and beginning of the fourth. So occupancy rose through October and has held relatively stable since then foregoing the normal seasonal decline. While we always knew the self storage business to be resilient, we've been amazed at how well our business has performed over the past several months. As we've discussed, recent healthy consumer demand for storage is driven by a number of factors, which we think will continue to support occupancy at least near term, including work from home, which is causing people to clear out a room for a home office and spending more time on household projects in general, remote learning, which is driving the need to clear space for home classrooms, a booming housing market, businesses storing inventory and furniture as they create open space for social distancing purposes.

And finally, what I'll call the SSS migration. That is migration to sunbelt, suburban and secondary markets that substantially benefits our portfolio. Our core FFO per share increased 15% in the fourth quarter compared to the fourth quarter last year, driven by a combination of strong same-store growth, healthy acquisition volume and the internalization of our SecurCare PRO in April of 2020. For the full year, core FFO per share increased 11%. I think it's quite notable that despite the pandemic and associated recession, we were still able to deliver double-digit earnings growth for the year, which really attest to the benefits of our PRO structure, our secondary market exposure and the resilience of the self storage sector.

Our outstanding performance and strong trends gave us the confidence to increase our fourth quarter dividend to $0.35 per share, representing growth of 6.1% year-over-year and continuing our record of increasing dividends twice per year since going public.

Turning to new supply. We've seen completions trending down on a year-over-year basis, while an increase in abandoned projects is reducing the forward pipeline. But we've also seen delays push deliveries into 2021 in some cases. We believe new supply in our markets this year will be similar to 2020 and expect a steady decline thereafter. We'll continue to face headwinds from new supply in Portland, Phoenix and certain submarkets in Dallas, Atlanta and West Florida. Fortunately, though, the current boost in demand is alleviating some of that pressure. Especially in Portland and Phoenix. On the acquisitions front, we had our busiest quarter ever in terms of wholly-owned acquisitions, investing $260 million in 33 properties and 2 expansion projects. For the full year, we acquired 77 wholly-owned properties valued at $543 million and had investment activity of about $22 million in our JVs. We remained active in the new year and have invested nearly $85 million in the acquisition of 13 properties to date, and we also currently have another 10 properties valued at about $70 million under contract.

In summary, we're currently firing on all cylinders as fundamentals continue to strengthen. We remain busy on the transaction front, and we recently added another PRO who we're confident will help drive strong external growth results.

I'll now turn the call over to Brandon to discuss operating results and balance sheet activity.

Thank you, Tammy. Yesterday afternoon, we reported core FFO per share of $0.46 for the fourth quarter of 2020, which represents an increase of 15% over the prior year period. Fourth quarter same-store NOI increased by 6.1% over prior year, driven by 4.8% revenue growth and a 1.6% increase in property operating expenses.

Same-store occupancy averaged 92.1% during the fourth quarter, an increase of 400 basis points compared to 2019. For the full year, core FFO per share was $1.71, an 11% increase over 2019, primarily driven by the integration of prior acquisitions, additional strong acquisition volume during the year and same-store growth. We also realized $0.03 of accretion in 2020 from the internalization of SecurCare, in line with expectations.

Full year same-store NOI grew 2.2%, driven by 1.7% revenue growth and 0.5% growth in OpEx. Both same-store NOI and core FFO per share results were ahead of the top end of our reinstated guidance, largely due to occupancy remaining higher-than-expected and property taxes coming in lower than forecasted. Same-store OpEx growth benefited from diligent cost control, as we've discussed in recent quarters. Specifically, in the fourth quarter, personnel costs declined 80 basis points year-over-year. While utilities declined 5.3% due to a milder start to the winter as well as the benefits from our LED lighting initiative.

These favorable expense controls were partially offset by property taxes that grew 8.7% from the prior year period and R&M, which grew 5.3%. Although property taxes were up, we had expected an even larger increase given the challenging comp from 2019, but we saw favorable appeals and final bills in Texas, Georgia and Oklahoma.

I'd like to highlight a few notable markets which are driving our performance. First, our largest market, Riverside-San Bernardino, delivered above portfolio average revenue growth of 5.5% in the fourth quarter. Driven by a 700 basis point increase in average occupancy as the Empire benefits from in-migration and a quicker recovery in employment.

Portland, which is our second largest market, generated revenue growth of 6.4%, driven by a 600 basis point increase in average occupancy despite the ongoing pressure from new supply. In our Oregon submarkets, we're seeing all of the trends that Tammy mentioned earlier. Lagging markets for us are Atlanta and Dallas, where revenue growth was roughly flat to prior year during the fourth quarter due to impacts of new supply in our submarkets. I'd also like to provide some color on the overall positive trends that have continued into 2021.

For January, move-in volume continued to be higher year-over-year, while move-outs continued to be lower, which resulted in same-store occupancy at the end of the month of 92.1%, which is up 540 basis points compared to 2020. At this point, our occupancy levels do not include any inflated effects stemming from delayed auctions. As for Street rates, the increased to just over 6% year-over-year for the month versus up about 2.5% in Q4.

Now moving on to guidance. We expect the positive momentum that we are currently experiencing, combined with an easy revenue comp in the second quarter, will result in a very strong first half of 2021. However, comps become more challenging in the second half as we expect seasonal occupancy trends are likely to return, especially in the fourth quarter. We're also factoring in the elevated economic uncertainty due to the rollout of the COVID-19 vaccine and any potential changes to state and local regulations that impact the self-storage industry. Taking all of this into consideration, we introduced full year 2021 guidance as follows: core FFO per share of $1.81 to $1.86 or 7.3% growth over prior year at the midpoint, a same-store pool of 560 properties with revenue growth of 3% to 4.5%, OpEx growth of 3.5% to 5% and NOI growth of 2.5% to 5%.

We also assume acquisitions of $400 million to $650 million. Additional guidance assumptions are outlined in our earnings release.

Now turning to the balance sheet. At the end of December, we settled a portion of our $160 million forward equity offering that we had entered into in September. We issued 1.85 million shares for net proceeds of $60 million. We have approximately 3 million shares remaining from the forward, representing an additional $100 million of equity proceeds that we plan to settle over the next month to pay down our line of credit balance and fund acquisitions. In October, we funded our previously announced $250 million private placement. Our balance sheet is well positioned with only $4 million of debt maturing through 2022. Plenty of capacity on the revolver, healthy access to multiple sources of capital and a net debt-to-EBITDA ratio of 6.2x at the end of the fourth quarter. The strength and flexibility of our balance sheet will allow us to take advantage of the healthy acquisition activity we're seeing. Delivering our investors outsized external growth in addition to another year of strong organic growth.

Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator? Operator?

(Operator Instructions)

Our first question today comes from Samir Khanal of Evercore.

Tammy, can you walk us through the cadence of revenue growth over the next few quarters? Just trying to get a better understanding of how much of a deceleration you're baking in, in the third quarter or the second half of the year as things start to normalize?

Samir, it's Brandon. I'll take that one. I mean, we historically have not given quarterly guidance. Not doing so here now. But certainly, the first half, as I mentioned in opening remarks, is going to be very strong. Q3, you start to get a little more challenging, but we were still emerging from some of the restrictions in place. In terms of processing rate increases and certain fees being charged. So Q3, I think, still has -- the first part of it has an element of easy as well. And then Q4 is the really tough comp, right? And so what I'll tell you is the back half of '21, we still expect to be positive, but very modestly in the first half, we expect to be quite strong.

Got it. And then I guess just switching over to the expenses, Brandon, can you provide a little bit more color on kind of the breakdown of maybe your property operating expense lines, maybe property taxes. Payroll? What are you assuming for guidance this year?

Yes, sure, Samir. So I would say, for property taxes, specifically, that's the one line item that our assumption for growth is 5% to 6%, and that's outside of the 3.5% to 5% total OpEx range we gave. All the other categories, personnel is the next biggest, but everything else down the line from R&M, utilities, marketing. Each of those categories is within that 3.5% to 5% range. So the property taxes is the primary one that I would say falls outside on the high end.

Got it. And my last question here is given the weather disruption we've seen in Texas, right, recently, I mean, are there any early reads into the impact of rental demand? I mean, I guess, for you, it will be primarily the Dallas market, but just wanted to ask in case there's any kind of early reads?

Yes. This is Dave. Good question. Fortunately, the weather is starting to clear, and now everybody is assessing the damage, and we had very minimal damage from our properties. And from our perspective, a couple frozen water pipes is so fortunate there. It really just paused all the rental and move out that activity for 4 or 5 days. And so as we look at it, it will probably an uptick in demand as things unpause and people need some storage to move stuff around and make some repairs. And so it didn't really have an impact to us in the immediate time. And we think long term and short term, it has some positive effect for us.

I guess we do think in the first quarter, we'll probably see slightly elevated snow removal costs and maybe a little bit higher R&M than we might have otherwise expected, especially since we were off to such a a light winner. We actually don't plan for snow removal in Texas.

The next question is from Neil Malkin of Capital One Securities.

Good morning, everyone. Fantastic quarter. First question. Yes, sure. First question is on acquisition. Can you just kind of talk about what you're seeing out there on the, I guess, on balance sheet or consolidated side, in terms of the mix and kind of what -- kind of cap rates look like for the transactions for the fourth quarter? And what are they kind of looking like right now? That would be great.

Sure. I'll start, and Dave might want to take on to some of my comments. But really, what we saw was a combination of small to midsized portfolios, and so a big part of what we did in the fourth quarter. Frankly was 1 portfolio. And yes, we were super busy on the one-off transaction side of things. And a lot of it happened towards the end of December. I think we saw sellers who are a little anxious about upcoming potential changes to tax regulations, potential tax reform. And cap rates, I would tell you, are in the 5.5% to 6% range. Portfolio premiums still exist. And you might call them in the 50 to 75 basis point range for us in the markets where we like to acquire assets. We're seeing a little bit of cap rate compression, but it's not over-the-top at this point in time. And the activity continued into 2021, we continue to be very busy looking at transactions.

We also look at -- as you know, we look at almost every portfolio that hits the market. But we just keep on with our blocking and tackling and taking these properties down one asset at a time, to the extent that's what we need to do. And the nice thing about our structure is, frankly, is our multiple PROs all represent acquisition teams for us around the country. And they're all very busy. It's really not singled out to 1 team or another or 1 geographic location or another. Do you have anything to add to that, Dave?

No, I agree. I think particularly the geographic area, we saw properties in all of our markets and across the country, and that was pleasing to see. And really good pace of activity. So no, I wouldn't add.

Okay. Kind of an add-on to that. Several companies across real estate asset types have talked about -- have really put their foot forward in terms of either JVs or alternative structures to augment growth in an aggressive cap rate environment. And just kind of wondering if you are thinking about that, maybe talk to the Board, about other things could be different parts of the capital stack investing in. Also, your stock price is obviously very strong. So I was just wondering if that dictates where you allocate your capital or what you focus on, maybe even third party management. So just if you could just kind of give us an outline for how you look at all those things this year, that would be great.

Sure. So we have historically been successful in closing larger portfolio transactions with joint venture capital. And we have great relationships with our joint venture partners and we'd like to continue to deploy capital with them. We also see it as a very valuable component of our capital stack and are open to and frankly, almost are off season conversations with 1 potential JV partner or another, so that we will be well positioned to take advantage of opportunities as they present themselves. So we do see that capital as being an important part of our structure.

The next question comes from Juan Sanabria of BMO Capital Markets.

Just hoping you could delve a little bit deeper into Blue Sky, the new PRO and what you think that relationship brings to you? And are you assuming any incremental acquisitions beyond the small bit that came with the initial sign up in terms of your $400 million to $650 million of acquisition guidance for the year?

Sure. So I'll start with the key benefit of adding Blue Sky as a PRO. The underlying entities behind Blue Sky are grow your storage development, and that entity is led by Lee Fredrick, and Lee has a long history of developing high-quality self storage assets. In fact, we've been a buyer of some of those assets over the years. 2 years ago, Mike Perry, our former VP of Acquisitions joined Lee to broaden their platform and to become their acquisitions person. And they've been quite successful at it. They also partnered with Ben Vestal, who is a large third-party manager and frankly, a broker.

And so what we think they bring to the table is the ability to access some, let's just say, call it, about 30, 35 assets that they actually have a controlling ownership interest in that will be contributed to NSA over time, probably the next call it, 3 to 5 years. I might think about a cadence of $50 million a year thereabouts. And from somebody like Ben Vestal, we have an opportunity to look at the 150-plus stores that are managed by his platform. When an owner makes a decision to sell I think, hopefully, we have an opportunity maybe ahead of others to have a chance to acquire some of those assets. So -- and then just to speak about Mike Perry for a minute. He's been in the business a long time. He's very highly regarded. He has deep relationships in the industry. And I think just bringing that whole team onto our team as affiliate is -- will be hugely valuable for our company.

Great. And then maybe I was just hoping you could speak to any insights you've gained from your exposure, which is pretty diverse. You have some significant weightings in California, which maybe has seen some outflow of people may be more concentrated in the Bay Area than where you are, but some big exposures in Texas, which you see net move-ins apparently from where you can gather from the media and new stores. But curious on what you're seeing in terms of demand and/or move-outs given your geographic diversity?

Yes, it's a good question, Juan. This is Dave. Across our portfolio, we've seen positive fundamentals. I mean rental activities remain strong. Move-in, move-outs have been muted. If you talk about the California market, Brandon mentioned Riverside-San Bernardino, had really, really strong results. And that -- part of that is from the employment bounce back, but we also think it's the migration out of maybe the bigger cities into maybe not out of California, but into some of these more suburban markets for California. As you look at Texas, we've certainly benefited from the outflow of some of these other markets through the whole Sunbelt area, down through the Southeast and into Texas. But we haven't really seen a significant shift in any of our communities or any of our MSAs as far as patterns. Everything has remained very good, very strong, and we're very positive about it.

The next question is from Todd Thomas of KeyBanc Capital Markets.

Tammy, first question, in your prepared remarks, you said revenue management strategies are largely back to normal. I was just curious, what still has to normalize in your view as you look ahead further into the recovery?

I'll start and then let Dave tag on to it. What I would say is that we are evaluating rent increases for our existing customers. On a state-by-state, local municipality and trying to live within the guidelines. And there are some states where price gouging is prohibited. And for the most part, I would say that we are back on track with rent increases on existing tenants in the same cadence we've had historically. But we are keeping an eye on things to be sure that we absolutely we don't go out bounds.

I would agree. Todd. The only thing I would add is, speaking to California, we expect that the restrictions will lift here shortly. They have a currently an exploration date here in the next few weeks. But we're mindful of that, and we're just making sure we're following all the guidelines for like the state of California or maybe a couple of cities within California that have even tighter restrictions. But to Tammy's point, for the most part, we've been able to resume what we would normally be doing in our revenue management platform, pretty much across most of our communities.

And the nice thing about, again, about our structure, not to beat a dead horse, but by having our PROs located geographically across the country, they are as close as you can be to local rules and regulations and executive orders, and so I think that does give us an advantage to be able to stay close to what's going on and what the timing is for relief and/or if various governors are thinking about other kinds of restrictions. So I think that gives us an advantage in terms of visibility.

Okay. That's helpful. And then you talked about gaining additional occupancy through January. And so we're a couple of months now, a little less actually, I guess, from the start of the peak leasing season. Maybe outside of California, or some of these jurisdictions where there are price gouging rules still in effect or price increase limitations that are in effect. Do you have the ability to lean into the strength with sort of higher rate increases to more customers elsewhere across the portfolio?

It's a good question. And yes, to answer your question, we certainly have seen improvements in Street rates. We expect Street rates to improve through first half of the year, which will obviously hit what used to be the peak leasing season. Obviously, we're at record high occupancy right now. So we have the ability to push probably a little harder on in-place rent changes and we are, and we'll look across the portfolio and look for those seasonal trends as we see them. But yes, we like the runway. We like what's in front of us, and we're going to do our best to to make sure we maximize where we can.

Okay. And then I just wanted to also follow-up, I guess, on Tammy, your comments around work from home and some other trends that you discussed that maybe the pandemic accelerated. You characterized it as the 3 S's, and then sort of thinking about investments and how you think about allocating capital going forward, how does that affect your views around future investments and the companies thinking about the company's geographic footprint. So as you think about the PRO acquisition teams that are out there looking to source deals, do you anticipate any changes at all at the margin to how the company's footprint looks going forward in terms of some of the market exposures that we see today?

So Todd, that's a good question. I think, as you know, we've long been committed to secondary -- primarily, the secondary and tertiary markets, and that has served us well over time. And I think we remain committed to those markets. And that's not to say that we won't look at top 15 MSAs, we will, of course. And we're really open to growing in markets where our PROs currently operate, continuing to gain scale in those markets. And so I guess, on the whole, I would say that's not a huge change to our strategy. But if anything, I think we're maybe even more committed to the secondary and tertiary markets than we have been historically. It has served us well.

Okay. If we look at California and Oregon, where you have relatively large concentrations, how should we -- do you expect over time to reduce your exposure to those states, maybe by -- through acquiring assets elsewhere? Or do you think that you'll continue to maintain that level of exposure to those markets?

I think over time, as we grow, just naturally, those markets will become probably a less significant component of our total. But the truth is we like Oregon. We like Oregon long term. We may see some good opportunities up there to acquire assets over time. And our PRO up there is actively looking at deals as they become available. California. It's the same thing. I mean, it's a huge state. It's a huge economy, and it may always be huge to us, truthfully. But I would say we wouldn't turn away from California. I would also say that we're probably not on a one-off basis seeking to necessarily strategically increase our position there. Texas is big for us. But Texas is a huge state and it's huge to self-storage. And we'll probably remain big to us as is Florida. So I think we're big in states where self storage is heavily relied upon by the population.

And in states where we are seeing a benefit of significant immigration, such as, as I mentioned, Texas and Florida. So we haven't -- I think Dave addressed this earlier. We haven't necessarily seen the impact of out migration from California. At this point in time, we're heavily concentrated in Riverside-San Bernardino. We like the Inland Empire. And the Inland Empire, frankly, has seen its own in-migration. So I think when it's all said and done, probably not huge changes to our strategy.

The next question is from Smedes Rose of Citi.

I wanted to follow-up just on your comments about supply that you thought in '21, it would be similar to 2020. And just what sort of percent change is that in the supply? And what kind of gives you confidence, I guess, that you think it will sort of trail down the pace of growth thereafter?

So the comments that we make about supply are informed by Yardi, and we follow as they do. The data that they provide. And we find it to be quite reliable. But our perspective is refined by our PROs' local knowledge in those markets. And so what I think we can say based on what we're seeing the same probably the same stuff everybody is seeing across the industry. What we're seeing is that projects -- some projects have been just abandoned as some of the new developments literally miss pro forma by years and lenders backed way from funding those projects.

And yes, there were projects that were also delayed for a variety of reasons: labor, restrictions and working -- inability to get product. And so those deliveries will come to market in 2021. So we actually think that deliveries in our key markets will probably not be that much less than they were in 2021 than they were in 2020. On the whole, I think across the United States, there will be somewhat of a decline in 2021 in delivery of new product. And I'm not sure that we have any greater insight than most people who are reading the data and taking -- talking with experts in the field, except for the fact that -- and I keep circling back to this, but I do think our relationships with our PROs and their knowledge of our markets, it gives us a slightly better perspective on what's coming.

Great. Okay, good. And then you've mentioned on a couple of calls now that one of the things that might be driving more sellers coming to market, even though there hasn't been that much of a change in pricing and the expected changes in tax structures. And I'm just wondering, is that -- I mean, is that primarily around concerns around capital gains? Or is it a state taxes? And I guess sort of as a follow-on, would you expect any changes in behavior from your from your PROs as they consider potential changes to the current tax structure? Maybe in terms of like cashing out sooner or bringing properties to market to you sooner or anything along those lines?

So starting with the sellers, so the mom-and-pop sellers. I think that there isn't as much of hype around the potential changes in tax law. Even though, from my perspective, it seems like there should be because it almost seems inevitable. But we are still seeing increased activity. On the part of potential mom-and-pop sellers. And in part, at least what we are hearing anecdotally is that's part of what's driving it. As it relates to our PROs, I don't think that we'll see any change in behavior on the part of our PROs. At least right now, I don't think we see a risk to the ability to defer taxes on the contribution of assets to the REIT. And so I think they will continue to make those assets available to us to acquire upon stabilization or when -- if they happen to be managing the assets, when the third-party -- or in the -- I'm sorry, when the property owner is ready to sell the asset. So while we are seeing increased activity, I don't know if it's as driven as it was at the end of the year, by fear over changes in tax rules and regulation.

The next question is from Ronald Kamdem of Morgan Stanley.

2 quick ones from me. Congrats on a great quarter. Just number one, following up on the discussion with the PROs. After looking at sort of the 2020 performance, and sort of looking forward about maybe filling out whatever other markets you're interested in. What's the outlook for sort of the conversations with the PROs? Does this make more likely, less likely to be interested in joining the platform? Just curious how you guys are thinking about that going forward?

So I think we have room to add another, I'm going to say, 1 to 3 PROs and opportunistically around the -- if you look at the math in our debt, we've had that there for quite some time now. And so we still have geographic areas where we would like to add an operator. Our conversations with operators are -- they're steady. I wouldn't say the cadence has changed much, as we've talked about so many times. That predicting the timing is almost impossible. It is possible that some of the large private operators will take some of these potential tax changes into consideration. And the conversations might accelerate this year, but we don't have any line of sight on that at the moment. We are open to bringing on a couple more PROs. And we have room for a couple more PROs. And so the right operator and the right place, will be a good fit. I'd sure like to be able to do that this year. Sometime in the next 12 to 18 months.

Great. My second question was just going to be just revisiting this topic of other income. That always comes out, whether it's tenant insurance or third party management. Just sort of curious, if thoughts -- any updated thoughts or the company's view has changed on that just given the occupancy, the performance, is that sort of an opportunity that maybe looks a little bit more interesting than in the past? Or what's the updated thoughts there?

Ronald, it's Brandon. Let me give you a few thoughts and then see if it hits on the question or not. So everything you rattled off, obviously, is a ancillary part of the business, things like tenant insurance and and retail sales, most recently, given the velocity in rentals has been a positive year-over-year. Fees has been the case, I think, for us as well as others in the sector were challenged throughout all of 2020. And even in Q4, even though we spoke very positively about everything we experience fees were still down for us, roughly 10%. Some of that was Oregon was the last of our major geographies where we were restricted to start the quarter. And so we were still emerging from that. And then you also had just being working with our customers and perhaps being lenient in some cases on assessment of some of those charges. So it remains a key part of the business on an ancillary basis. And it will contribute to growth. But let me pause there and just see if there was more of the question.

No, I think that makes a ton of sense. Actually, 1 more, if I may, not to beat the acquisitions questions to death, but can you just comment on who are you guys competing against now in the markets, right? Obviously, private equities come into the space pretty heavily. Is it still sort of mom and pops? Is it is private equity. Just curious, what's the competition like for acquisitions now?

So our peers are across the board, pretty active and acquisitive. And so we think about them as being competitors, and we're looking at acquisitions, but certainly, Blackstone. And other private equity firms are active, and it's very competitive. The silver lining of self-storage performance is that it's attracted a lot of attention. And everyone wants to jump in the business and deploy capital here. So it's okay. I think we -- our idea is to remain disciplined and execute on our strategy.

I think, again, having our PROs out there looking at deals for us. We have a strong corporate acquisitions team. I believe that gives us a slight advantage, and we will -- I think we'll continue to be successful in executing on our strategy. We set a target of $400 million to $650 million invested this year, we hope to be able to do that with our PROs. And if something bigger comes along, hopefully with the JV partner. Either an existing one or a new one. And I'm very optimistic about our ability to deploy that capital this year without losing sight of the importance of remaining disciplined.

The next question is from Ki Bin Kim of Truist Securities.

So obviously, great to see all those strong demand across most of our markets. And we're all just trying to understand how to balance the very near-term strong growth versus the eventual kind of mean reversion. So I wanted to go back to your comments regarding the 3 assets, Sunbelt, Suburban and secondary markets. Do you think there's something to say about these markets perhaps having more resiliency to versus some of the more urban net migration out market that similarly saw strong demand in the near term?

I think you might be on to something there, and I'll tell you why. I think that those secondary and tertiary markets were not nearly as severely affected in terms of the community shutdown, small business shutdown and then they benefited from some in-migration and Ki Bin, what we've talked about in the past is those markets do not perform as well in really hot economies, really hot times. But they also do not suffer as much when there's an economic downturn or in this case, a health crisis, a pandemic. And so I think you hit the nail on the head there with your thought about the resilience of those markets.

Okay. Great. And you guys changed your website a little bit this past quarter or 2. The storage dot com website, you're not using any more, there isn't an encompassing umbrella website to just kind of search through some of your inventory. And now is this all different store websites -- I'm sorry, not store, the PRO websites. Did that -- did you lose any customers by that change? Do you think? And do you have any thoughts on creating another umbrella website?

Good question. This is Dave. And Ki Bin, yes, we have. We do have another umbrella website that has launched. It's in its first phases, and we'll be working through over the next couple of quarters, really building out to be a more robust product than what we had on the first version of go storage units. I don't feel we've lost any business with the evolution of our CMS and the tools that the PROs have deployed we really felt that the strength in those particular brands and their local brands was well beyond what we were getting out of the go storage units platform. And so we rolled out nsabrands.com. And we've got the front-facing page of that launched. And we'll be building on that as we go in the next quarters with more to come. And I think for one, you'll be very pleased with what you see.

Okay. And just to follow-up on a previous question on cap rates on acquisitions. For the $525 million that's in guidance for 2021, is it safe to assume is the kind of same 5.5% to 6% stabilized cap rate?

Yes, that's correct, Ki Bin.

The next question is from Jason Belcher of Wells Fargo.

Just wondering if you can give us a little more color on the stronger-than-expected customer demand you're seeing, maybe touch on where your average length of stay is currently and how that's trended over the last year or 2?

Yes, great question. This is Dave. Our average length of stay continues to increase, which we're happy about. It's above about 16.5 months right now. If you look at us as a whole, and it continues to turn in the right direction. From the demand patterns, it's all over the board, all of our communities. We're seeing what Tammy referenced in her opening comments, a multiple of factors and a lot of things going on out there, and we're seeing strength across all of our diverse portfolio.

Obviously, markets where we have competitive pressure maybe not have performed as strong as the rest of our portfolio. But because of this additional demand, they are performing well. But obviously, Sunbelt properties and the in-migration is a great story, and we've seen some strength there. But just really across the board, we're pretty pleased everywhere.

Great. That's helpful. And then if I could drill down just a little bit more on specifically the college student and business customer segments of your base. Any comments you can offer there? And maybe give us some rough idea of what percentage of revenue those 2 cohorts make up?

It's a good question. We've talked a lot about college students and what's going on with college students, and it's really a mixed bag across all the universities across the country. Some are still in, some are still out. Some never came back. I think as we look at the spring, the college season may not be as peak as what we've normally seen historically. We do expect some movement there. We expect that to come late March, first to April, probably in those ranges, as you listen to on colleges, maybe moving kids around in there dormitories, but I don't expect it to be as strong as it normally is because not everything is back to where it used to be as far as headcount and who's in the norms and who's not.

Our business tenants, we think it's about 15% to 20% of our overall tenant base. It's hard to tell, of course, because when you run a store unit, not everybody talks about them being a business, there's a lot of our businesses that runs to the individual operators' name. So it's a tough metric to track. But we still think it's in that 15% to 20% range, and that's above normal. It hasn't really shifted one way or the other that we've detected.

(Operator Instructions) Our next question is from Stephen Mead of Anchor Capital Advisors.

I was struck by the statistics and the comparisons in Oregon. And I was also in terms of the revenue management side of the equation, can you just kind of explain a little bit more sort of what was going on in terms of the pretty big increase in occupancy and then relatively flat rental rates? And then I have a follow-on question. As we get into 2021 and your guidance in terms of revenue guidance, what is sort of the trade-off in 2021 between occupancy and rental rates?

Both really good questions. So in Oregon, and it really stemmed around Portland, I think, is where you really saw the biggest occupancy gains. And our PROs there did a wonderful job really trying to balance occupancy and rental velocities and demand. And they obviously deployed some really smart marketing tactics and revenue management tactics to really focus on getting the rental velocities they were looking for and wanted to achieve. Obviously, Portland has been a very competitive market. So the pressure on rates will exist and continue to exist until it works its way through the supply that's come to the market. But the PRO, using all the tools that they have available to them, I thought did a really wonderful job working on things that were available and driving that occupancy percentage up.

As we look at next year or in this year and really 2 parts of this year, we have that same question, where are we going to balance occupancy versus where we are going to balance rate. Right now, fundamentals are strong. We're pushing hard on rate on both ends, current tenant and Street rate, and we're balancing that rental velocity and that expected rental velocity and move out velocity compared to what we think we can get for driving new demand. And I think first half of the year looks really, really strong. The back half of the year. If we talk about maybe what normal might look like towards the back half of that year, maybe we'll see a seasonal pattern where we're asking ourselves, how much occupancy do we want? How much do we want to spend to get it? And is it worth it? And that's all what we're modeling. Our revenue management team is working on that. And I think we have a pretty good road map, and we just have to see when the communities change and the environment changes.

And then 1 last question. Just in terms of historically, in higher inflation environments versus lower inflation environments. Is there any sort of connection to sort of the overall kind of macro picture in terms of inflation and your sort of ability to push rents?

Good question. The nice part about our products were month-to-month leases. So we have a great deal of flexibility. We can react very quick in both scenarios up and down for demand. Looking at overall inflation, obviously, balancing consumer spend with product cost and keeping as much as we can as far as demand. But historically, I would say flexibility gives us a really nice ability to really accelerate when we need to accelerate and maximize when we can. And inflation typically means rates go up.

I mean that's really what we've seen in the past.

The next question is from Neil Malkin of Capital One Securities.

I appreciate taking the follow-up. 2 quick ones. First, we haven't seen the strength in the single family, either ownership or rental probably since the mid- to early 2000s. How did that -- I don't know if you have like historical data? Or do you expect that to change the sort of demand profile, customer profile or seasonality of your portfolio if we were to have like we continue to have a very robust single-family market?

Well it certainly creates demand because transition creates demand as people move across the country. And I agree the single housing market has just been incredible in most of our markets. And so typically, that's more in the summertime, which is interesting as we come out of third and fourth quarter into the first. I mean, we're seeing this really strong housing demand right now. And so that's what's kind of got us all wondering a little bit about when is our peak leasing season and what will the summer look like. But I would say, Neil, it drives demand. We generally benefit from that. And I think as long as that housing market stays super hot in a lot of these markets, we're going to have some good results.

Okay. Other one for me is, a lot of companies, a lot of REIT peers across multiple sectors are really talking about or at least in the shorter-term lease sector is talking about how the operating -- technology and the operating platform as like the next chapter of institutionalization of the asset and sort of revenue management. Wondering what -- how you guys kind of fit in that? What you see as like the next chapter from an ops or tech standpoint? And then do you think that any implementation of that will be harder given that all your PROs can basically run their own systems?

Well, good question and good point. We're about a year into our own proprietary revenue management system. It's called store cast. It was a great year for us to really try as we work through the new system and really keep some controls on it. And certainly, 2020 was a trying year from a rate perspective and a pricing perspective. And really keeping controls on where the system didn't run wild on us and go too far one way or the other.

I'm really excited at this point in time of what we're doing with that tool. We have a couple of major initiatives here right now. One of them is really looking at discounting and upfront pricing and really maximizing customer acquisition. We've taken the data science revenue management team. We've really broken them into 2 different sectors. One of them setting that upfront dynamic pricing for new customers. And then the other ones are obviously studying life cycle, IPRC. And I think if you look at it -- if this was a baseball game, I think we're in the middle innings, and I think we have runway left. And I think we have pricing models to tweak and enhance and get better. And in that you look from a customer acquisitions perspective, it saves cost on advertising, and we certainly maximize rate and discount.

And I think we have a good line of sight on how to improve there. And then on the back side, with the in-place rent changes. You can always tweak that model just a little bit as we go forward. So good stuff there. And then we've made some really good enhancements in CMS, our content management system website, if you want to call it that. And there's some really nice changes there. And as we look at online rental and how we improve that process and how do we get more online rentals, I think that process and that customer journey is better, more efficient. That obviously leads to more efficiencies as we work our way through the customer acquisition process.

There are no additional questions at this time. I'd like to turn the call back to Tamara Fischer for closing remarks.

Thank you, and I'd like to thank everyone again for your interest in NSA. We're pleased with our fourth quarter and full year results and the fact that our sector and our unique PRO structure allow us to deliver such outstanding results. We're optimistic about 2021, and we look forward to meeting with many of you, either virtually near-term or maybe even in person later this year. Be safe, stay healthy. Thank you. Bye-bye.

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