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Edited Transcript of EXR earnings conference call or presentation 31-Jul-19 5:00pm GMT

Q2 2019 Extra Space Storage Inc Earnings Call

SALT LAKE CITY Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Extra Space Storage Inc earnings conference call or presentation Wednesday, July 31, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey Norman

Extra Space Storage Inc. - VP of IR & Corporate Communications

* Joseph D. Margolis

Extra Space Storage Inc. - CEO & Director

* P. Scott Stubbs

Extra Space Storage Inc. - Executive VP & CFO

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Conference Call Participants

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* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Robert Jeremy Metz

BMO Capital Markets Equity Research - Director & Analyst

* Ronald Kamdem

Morgan Stanley, Research Division - Research Associate

* Ryan Gregory Lumb

Green Street Advisors, LLC, Research Division - Senior Associate & Analyst

* Shirley Wu

BofA Merrill Lynch, Research Division - Research Analyst

* Smedes Rose

Citigroup Inc, Research Division - Director & Senior Analyst

* Stephen Thomas Sakwa

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Todd Jakobsen Stender

Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst

* Todd Michael Thomas

KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Jason, and I'm your conference operator today.

Welcome to the Extra Space Storage's second quarter conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to our host, Mr. Jeff Norman, the Vice President of Investor Relations. You may begin the conference, sir.

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Jeffrey Norman, Extra Space Storage Inc. - VP of IR & Corporate Communications [2]

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Thank you, Jason. Welcome to Extra Space Storage's Second Quarter 2019 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website.

Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review.

Forward-looking statements represent management's estimates as of today, July 31, 2019. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.

I'd now like to turn the call over to Joe Margolis, Chief Executive Officer.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [3]

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Thank you, Jeff. Hello, everyone. Thank you for joining us for our second quarter call and for your interest in Extra Space Storage. We had a solid quarter with positive rate growth and healthy occupancy in a competitive summer leasing season. Same-store revenue and NOI both increased by 3.9%, exceeding our estimates. This property outperformance contributed to better-than-expected FFO growth of 6.1%, which was $0.02 above the top end of our guidance.

We are pleased with our results in the first half of the year and the success our team and best-in-class platform have had mitigating the impact felt from new supply. In order to achieve this performance, we increased our advertising spend significantly on a year-over-year basis. And we do not expect the increased advertising spend to abate anytime soon.

As anticipated, we have seen the timing of expected deliveries slip on many developments. As these delayed projects deliver and begin their lease-up, we expect additional moderation in the back half of the year. However, while the market will continue to be very competitive, large operators with diversified portfolios and sophisticated systems, like Extra Space Storage, are best positioned to navigate the supply cycle.

We continue to actively explore external growth opportunities that present attractive risk/reward metrics. Widely marketed acquisitions are still very expensive. However, we continue to find success acquiring off-market acquisitions through long-standing relationships.

During the quarter, we purchased a nonmarketed 11 property portfolio in a joint venture structure for $228 million. We also acquired 1 Certificate of Occupancy project and completed 1 development for a total investment by the company of $57 million.

We have also executed innovative capital-light opportunities to enhance shareholder returns. In the quarter, we closed our first net lease transaction with W.P. Carey, which will include 36 total assets including 5 New York City assets that are new to our platform. We are gaining traction in our bridge lending program and our third-party management platform continues to see significant growth. In the quarter, we added 48 managed stores, bringing our 6-month total to 94 stores. Between our third-party program and our JV platform, we now manage 838 stores with the strong pipeline for the back half of the year.

I would now like to turn the time over to Scott.

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [4]

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Thank you, Joe, and hello, everyone. Our core FFO for the quarter was $1.22 per share, exceeding the high end of our guidance by $0.02. The beat was primarily due to stronger-than-expected property performance and tenant insurance income. Revenue growth was driven by increased street rates, with lower discounts also providing a tailwind. Year-over-year occupancy declined marginally in June, but we have already seen that bounce back in July, and today our occupancy gap is approximately 30 basis points below this time last year. This is in line with our annual expectations.

Like last quarter, same-store expenses were a mixed bag, with increases in property taxes and marketing spend which were partially offset by savings in payroll and utilities expense.

We view our elevated paid search and digital spend as one lever to drive revenue growth. However, pay-per-click advertising is expensive, especially in markets impacted by new supply.

Now turning to the balance sheet. We continue to have access to multiple sources of capital, and during the quarter, we accessed our ATM and issued approximately $100 million in equity. Subsequent to quarter end, we completed a transaction that converted $500 million of secured debt to unsecured debt and extended the term.

For many years, we have been laddering our maturities and increasing the size of our unencumbered pool to strengthen our balance sheet. The quality of our balance sheet was recently recognized by S&P Global when they assigned a BBB flat rating. This is another step in our overall balance sheet evolution.

Due to our outperformance in the first half of the year, we have raised our annual same-store guidance to 2.5% to 3.25%. As Joe mentioned, we still expect moderation in the back half of the year as we feel the additional impact from new supply. We also increased the bottom end of our expense guidance due to elevated marketing spend, resulting in an annual range of 4% to 4.75%. These changes result in raised annual same-store NOI guidance of 1.75% to 3%.

We raised our full year core FFO guidance to $4.79 to $4.87 per share, which includes the $0.02 beat from the second quarter. Our core FFO guidance includes $0.07 of dilution from value-add acquisitions and an additional $0.16 of dilution from C of O stores, for total dilution of $0.23, which is unchanged from our initial guidance. We believe these acquisitions will provide significant long-term value for our shareholders and improve the overall quality of our portfolio.

With that, let's turn it over to Jason to start our Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Shirley Wu.

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Shirley Wu, BofA Merrill Lynch, Research Division - Research Analyst [2]

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So my first question has to do with your revised revenue guidance assumption. So you raised revenue 40 basis points at the midpoint, and that implies a 20 to 30 basis points deceleration of revenues in the second half. So I'm just curious as to your thoughts on the cadence of revenue growth into the second half. And what would it take to get to the high versus the low point of your guidance range?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [3]

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Shirley, it's Scott. So without getting into too much detail in the exact cadence here, we obviously decelerated from quarter 1 to quarter 2 about 30 basis points. We are assuming that, that cadence -- or some sort of that cadence continues into the back half of the year where we continue to decelerate. And depending on where you are in the high and the low, I mean it is pretty simple math in order to get there. But without giving guidance as to where we are in that range, I think we do assume deceleration.

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Shirley Wu, BofA Merrill Lynch, Research Division - Research Analyst [4]

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Okay. And so on the street rates side, you mentioned that you saw slight increases. What were your achieved street rates in 2Q and also maybe quarter to date into July?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [5]

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Yes. Our achieved street rates during the second quarter were between 1% to 2%, and in July, they are slightly below that. But in exchange for that slightly lower street rate in July, we actually did see our occupancy bounce back a little bit, so as our model adjust, we did see some benefit in -- with occupancy.

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Operator [6]

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Our next question comes from the line of Jeremy Metz.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [7]

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I guess, I just wanted to follow up on that last question. As you think about where net effect of rents are, and you talked about the occupancy gap coming -- narrowing a bit, but the deceleration you're expecting, do you think that's going to come more from the rent side? Or do you have a plan? You mentioned the tailwind in discounting has been. Do you expect to ramp discounting more here on a year-over-year basis into the back half?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [8]

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Jeremy, we don't expect discounts to benefit as to the same degree in the back half of the year that it did during the quarter. During the quarter, it benefited us by about 50 to 60 basis points. And then if you look at our street rates or our achieved street rates over the past year, they continue to soften, and those continue to flow through into our current rental revenues.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [9]

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All right. So it sounds like a little bit of both. So that's fair?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [10]

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Correct.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [11]

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Okay. And then Joe, I was wondering if you could talk about what you're seeing on the acquisition front here. You've obviously been a big acquirer over the years. But just looking at what you have in the supp here, feels like it's the first time in a while. It doesn't really look like you have much to anything under contract. Just curious to read there.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [12]

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Sure, Jeremy. We have about 8 assets for $41 million under contract for the remainder of the year and then a modest pipeline also compared to historically for 2020. And that's a function of how we perceive pricing in the market today. We see there's lots of equity seeking exposure to self-storage. I think people are concerned about a potential downturn in the economy. Self-storage performed well in the downturn of the economy and attracted that asset class, it is easy to leverage. So there's lots of equity keeping prices high, and we're trying to remain disciplined. And if a particular deal doesn't work for us, we don't think it provides long-term shareholder value, good risk/reward metrics, we will sit on the sideline with respect to marketed deals.

That being said, historically, and certainly in this last quarter, we've had success working our relationships and growing without accessing the marketed deals. And I hope that, that continues in the future. Sorry for the long answer.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [13]

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No, appreciate that. I mean, just given those dynamics that you talked about, does it change any thoughts on selling some assets into that strong bid? I mean, you had the one in New York, but maybe some stuff beyond that to capitalize on that bid that you're talking about.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [14]

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Yes, certainly. We look at our portfolio at least every year, and we try to find assets that we think have lower future growth prospects than we can reinvest in. And when that situation occurs, we will dispose off assets.

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Operator [15]

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Your next question comes from Todd Thomas from KeyBanc Capital Markets.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [16]

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First question, so you touched on street rates, I was just wondering if you can comment on move-in rates in the quarter. And how was this sequential increase that you achieved in move-in rates this quarter compared to prior years, just moving -- as you move throughout the peak season?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [17]

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So Q1 to Q2, rates were up slightly in terms of achieved move-in rate. In terms of where they are to in-place rates, we are below our in-place rates as we move into the summer months. That's not odd. And what I mean by that is if you look at an average existing customer rate compared to the achieved rate when they move in, typically there is a roll down, but that is the average existing versus the new achieved. And you typically have more churn in short-term customers that are below the average. So it doesn't necessarily mean that there is always a negative churn as people move in and move out.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [18]

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Got it. Was the move, the increase in achieved rates from 1Q to 2Q this year, how did that compare to what you've seen in prior years?

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [19]

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It was up, but it was probably a little softer. As we've seen rates soften with the new supply, I don't think that that's any surprise to anyone.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [20]

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Okay. And then Joe, since announcing the net lease deal or transaction with W.P. Carey, I'm just curious if you had additional conversations with other owners to structure similar transactions. And how big is the company's appetite for these type of transactions?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [21]

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It's a good question. So we issued a press release, and as usual, when that happens, the phone starts to ring. So we have -- are in conversations and have had conversations with other folks where this type of structure may make sense. And I think our appetite is as big as the deal dynamics that make sense. We're not going to target doing any more of these if we can't get the right type of returns for the risk we're taking. But as long as we can underwrite the deals successfully and they are in markets within our operational footprint, we'd be happy to do more.

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Operator [22]

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Your next question comes from the line of Ronald Kamdem from Morgan Stanley.

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Ronald Kamdem, Morgan Stanley, Research Division - Research Associate [23]

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Just a couple of quick ones for me. The first is just on -- obviously, there was a big increase in marketing spend, and that will benefit move-in volumes. Just -- can you maybe give us some color if that's still sort of a good use of -- you're getting good returns on that spending? And if that's something we should expect maybe going to the back half of the year and potentially into next? As well as, does that change the type of customer that moves into the property? So said another way, is it more millennial, is it more tech-savvy? Is there any discernible trends from the move-ins?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [24]

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So I'll take those in reverse order. I don't think it changes the type of customers. I think almost everyone in society today searches for goods and services on the computer somehow. So we don't think it materially changes the type of customers. Yes, we do see continued elevated marketing spend throughout the rest of the year. And we're spending this money because it produces a great return for us. And our systems bid on millions of keywords a day and they go through algorithms -- complicated algorithms to determine how much to bid on any particular keyword and track the results to that. And we bid on keywords that produce acceptable returns to us and don't bid on keywords that don't.

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Ronald Kamdem, Morgan Stanley, Research Division - Research Associate [25]

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Helpful. The other question was just that as sort of -- as you're looking through some of your markets, particularly in the West Coast where you've had several years of pretty good pricing appreciation, are you getting any sense of customer fatigue at all? Or is there still some upside there?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [26]

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Yes. I'm a little uncomfortable with the word customer fatigue because there is still strong demand for our product, and we don't see any moderation in demand anywhere. I think with respect to rents, I agree with you. You're right, if you increase rents in a market like Sacramento by mid-teens, 3 years in a row, at some point the product just gets a little too expensive, and you can't increase it by that amount. Again, you need a little break. But we're still getting above portfolio average rate increases in those markets. So to the extent fatigue means, you raise prices so hard, it backs off for a little bit. I think that's a fair observation.

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Operator [27]

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Your next question comes from the line of Smedes Rose from Citigroup.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [28]

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I just wanted to ask you, when you're looking at acquisition opportunities, and you said some of them come through off-market relationships and off-market deals, but is there any sort of market difference between what you're seeing for stabilized properties versus facilities that are still in lease-up on pricing? Or are there any like more attractive opportunities, I guess, for lease-up? We just have heard that the valuations there become much more interesting for some of those that are underperforming relative to initial expectation.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [29]

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So I'll tell you, if you look at the 4 stores that we have approved for acquisition this year, all of those are unstabilized. They're somewhere between 54% and 79% occupied. Initial yields between 3.5% and 5%. So they are value-add type acquisitions that will stabilize in the low 6s somewhere. But some -- there is 4 of them. It's not -- we haven't seen a huge rush or volume of those stores at prices that we believe makes sense to us. So...

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [30]

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You think that's something that could come maybe to fruition over the next several quarters? Or...

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [31]

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I don't think that the amount of capital that is seeking exposure to self-storage is going to change materially in the next few quarters. Therefore, I'd be surprised if all of a sudden there is a flood of these opportunities that make sense to us. I think we're going have to, for the foreseeable future, work hard, be innovative, do some different things for our external growth as opposed to go out there and be the high bidder when there is lots and lots of other capital bidding on these assets.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [32]

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Okay. And then just to you, you mentioned the lending program, I'm just wondering if you could maybe update us on kind of where you are on that or I guess how many loans have you made. And what's the level of interest level been like?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [33]

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Sure. So we expect to close about $100 million worth of loans by the end of the year. The amount of that $100 million that will be Extra Space capital, we'll determine because we will sell off pieces to our debt partner in that structure that we've set up with them. And I think the interest is good. We have a good pipeline. We're being disciplined in underwriting these opportunities just like we underwrite acquisitions. But we are gaining traction. We're learning. We're getting better. And I expect that program to continue to accelerate.

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Operator [34]

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Your next question comes from the line of Mr. Eric Frankel from Green Street Advisors.

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Ryan Gregory Lumb, Green Street Advisors, LLC, Research Division - Senior Associate & Analyst [35]

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This is Ryan Lumb. I just want to circle back on the topic of discounting. And if I understand correctly from prior comments and comments that were made last quarter, it sounds like the dollar value of discounting has been sort of lower than you had originally expected. While at the same time, the marketing spend online has been quite a bit higher. I'm just wondering if those 2 events are related, because we've heard similar trends from other large operators as well. I'm just wondering if there is sort of a trade-off that a dollar is better spent today with online marketing rather than trying to attract a customer with a promotion with the first month rent.

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P. Scott Stubbs, Extra Space Storage Inc. - Executive VP & CFO [36]

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Yes. I would tell you that it's sum of both, meaning we have made a conscious choice to spend more on marketing, obviously. We feel like that's better than lowering rates. However, we still feel like discounts are effective. If you look at why our discounts are lower year-over-year, part of the reason is because our rentals were down slightly. And so that causes your discounts to be down slightly. And then in addition, we have changed our rental, our discount policy such that we do not discount at certain levels of occupancy. And so for instance, on the last unit, we're not going to offer a discount on something like that. So some small tweaks in the discounting kind of policy or procedure as well as lower rental volumes has also caused discounting to be down. And then also a conscious decision to spend more on marketing.

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Ryan Gregory Lumb, Green Street Advisors, LLC, Research Division - Senior Associate & Analyst [37]

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Okay. That's helpful. And then, I guess, just kind of more of a broader question on external growth or acquisition appetite. If you think of Extra Space as one of the most well capitalized with most attractive cost of capital in the industry, who are you losing to? Are you losing to just someone who has much higher leverage profile or appetite to carry debt on the acquisitions? Or you'd think that Extra Space would just be among the most competitive in the acquisition environment right now?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [38]

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So there is a wide variety of different types of capital out there. We're losing to local capital, private equity, and in some cases, the other public companies. And everyone's got a different cost to capital, a different leverage tolerance, a different risk tolerance, a different view of the future and maybe underwriting greater rental growth than we are, a different hold period that they're underwriting to. So people are all making different decisions that may be logical for them. But for us, we're looking at our long-term value creation, long-term cost to capital and trying as hard as we can to remain disciplined and only do deals that we feel very comfortable are going to provide long-term value to our shareholders.

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Operator [39]

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Your next question comes from the line of Steve Sakwa from Evercore.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [40]

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First question. On the loan book, you said you're closing in on $100 million by the end of the year. Is there a target size that you're looking for, for that total book of business? Or how big will that business be? Or how big do you think it can be? And what kind of rates are you charging on that business?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [41]

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So we don't have any limitation. Our balance sheet is in shape that we have plenty of access to different types of capital. And as long as we can make loans that earn a good risk-adjusted return, we'll continue to make loans. So we don't have an artificial cap on the size of that business.

I don't really know the answer to the second question. And just one thing we're very curious about is how big this business can get. And when we started it, we said we're going to walk before we run, and we're still walking. And we'll see -- I think time will tell how big it's going to get. And we have this debt partner also that allows us to -- it's kind of a governor on the size. So if we decide we want to continue to make loans, but not put out as much capital, we can lay off a piece of loan to our debt partner. So that provides us good flexibility and also a way to increase our returns. And then your last question was on pricing?

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [42]

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Yes. Just the pricing on those loans.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [43]

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Yes. I think we're competitive in the market, I'd say that.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [44]

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Okay. I guess, second question. Just as you think about sort of the deceleration that you're expected to see in the second half of the year. And you sort of talked about the supply still being somewhat elevated although and we've seen some delays in the deliveries. As you kind of think about the industry, is your expectation that we would continue to still see sort of a deceleration into 2020, even if supply does kind of peak this year and begin to moderate next year?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [45]

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So we -- the supply cycle is not going to end on December 31, 2019, right? There will continue to be deliveries of stores into 2020, and we're going to continue to have to deal with that. The question is are the markets that may be on the other side of the development cycle outweigh the markets that are more on the front end of the development cycle, and we won't have a good answer to it till we individually budget every property and provide 2020 guidance.

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Operator [46]

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Your next question comes from the line of Mr. Todd Stender from Wells Fargo.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [47]

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Just to kind of circle back with the triple net lease with W.P. Carey. Just so I understand, I guess, the general dynamics. You manage the properties and collect and book all the cash flow and then pay them a rent and cover the operating expenses. How does that kind of work?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [48]

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So it's a traditional triple-net lease, where we're responsible for all. We collect all the revenue, and we're responsible for all the operating and capital expenses of the properties, and we pay them rent every month. And the return we get has 3 components. It's a differential between NOI and the rent payment, and hopefully, that increases over time. It is a kind of baked-in management fee, it's not a management fee, but it's calculated management fee in the rent calculation. And it's our ability to sell tenant insurance at the properties.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [49]

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Okay. That's helpful. You're mostly a JV owner with other equity players. Why did you take the triple-net lease structure and not a joint venture? Or really that was W.P. Carey's call?

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [50]

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Yes. Exactly right. So W.P. Carey is a triple-net lease REIT. They purchased a vehicle called CPA:17, which had wholly owned self-storage assets in there, some of which we manage, some of which others manage. Now they had wholly owned assets in that triple-net lease REIT and they needed to do something with them. We would have loved to bought them or JV them, but that was not an option. So we came up with this structure that we felt is a win-win. They get a triple-net lease with investment-grade credit tenant on a long-term lease, which is what they're looking for. And we get to keep control of the 22 Extra Space assets. We get 5 additional assets that weren't Extra Space assets. And we believe it was a positive structure for both of us.

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Operator [51]

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Your next question comes from the line of Ki Bin Kim from SunTrust.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [52]

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Just a couple of follow-ups on the bridge loan program. If the loans defaulted, what would the cost basis look like compared to replacement cost? Just trying to get a sense of the mode of safety.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [53]

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So we are underwriting these to value, not to replacement cost. But replacement cost is a really difficult metric, I think, in self-storage, particularly because of the land component. When you have something that has a really small market ring -- hat, it's hard to find a comparable zoned piece of land to put in your land component. But to answer your question, how we're underwriting these things, is we underwrite them as if we're going to buy them. And then we lend 75% or 80% of what we would have been happy to buy the assets at.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [54]

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Okay. And for the triple-net deals, I'm just trying to get a sense of how close the rent you're -- the NOI you're collecting is compared to the rent you're paying. At the onset, is it very tight? Or is there a nice margin? Just trying to get a sense of that gap.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [55]

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We would tell you there is a nice margin. We underwrote these with the same discipline that we underwrite the $5 billion worth of acquisitions we've done over the last 5 years. Our track record is excellent if you look at the stats of our underwriting versus actual performance. We knew -- I gave a bad number in my previous answer, it's 31 assets not 22 assets managed by Extra Space. But we knew those assets very, very well. And we're very comfortable with the underwriting and with the spread between NOI and rent.

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Operator [56]

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(Operator Instructions) I am showing no further questions at this time. I would now like to turn the conference back to Joe Margolis.

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Joseph D. Margolis, Extra Space Storage Inc. - CEO & Director [57]

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Great. Thank you, everyone, for your time and interest in Extra Space.

If I could just highlight a couple of things. We continue to experience solid property level NOI growth despite new supply. We do expect some moderation, but we're very happy with the way the teams and the systems are able to maximize performance in this environment, and we've gotten better. As we get deeper into development cycles, the systems and the machines learn how to do better, and I think that's showing in our numbers.

And secondly, external growth is tough now, but we will continue to be disciplined and innovative, to find ways where we can to grow as long as it makes sense for our shareholders in the long term.

Thank you very much. I hope everyone has a good day.

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Operator [58]

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That does conclude our conference for today. Thank you for your participation in today's conference. You may now disconnect at this time.