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National Storage Affiliates Trust (NYSE:NSA)
Q4 2019 Earnings Call
Feb 25, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the National Storage Affiliates' Fourth Quarter and 2019 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may begin.

George Hoglund -- Vice President of Investor Relations

Good morning. Since this is our first earnings call of the year, I would like to remind everyone that it's a good time to get started on those New Year's resolutions and clean out your garages and basements and put those items into Storage. Remember, garages are for cars and basements are for man caves and rose rooms.

With that, we'd like to thank you for joining us today for the fourth quarter 2019 earnings conference call of National Storage Affiliates Trust. 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 and in 8-K with additional detail on the internalization of our largest PRO, 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. Company cautions that actual results may differ materially from those projected in any forward-looking statements. For additional detail, 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 on the Investor Relation section on our website and SEC filings.

Today's conference call is hosted by National Storage Affiliates' Executive Chairman, Arlen Nordhagen; President and CEO, Tamara Fischer; and Chief Financial Officer; Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts.

I will now turn the call over to Arlen.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks, George, and thank you all for joining our call. Today's call will wrap up my final reporting year as NSA's CEO. I'd like to start out by congratulating Tammy, on officially taking over as CEO and Brandon as CFO effective January 1st. I look forward to Tammy, leading NSA through its next growth phase and continuing the stellar track record that we've put together. With my transitioned into the Executive Chairman role, you can expect my participation on earnings calls and at investor conferences will be reduced going forward. However, I remain actively engaged and focused on overall Company strategy, key investments and PRO recruitment.

We wrapped up 2019 with another stellar quarter and full-year performance with results ahead of our expectations and same-store revenue, NOI and core FFO per share growth that we're confident, or once again, we have the top of our peer group. We also grew our total portfolio by 10% on both the property count and dollar value basis.

I'll let Tammy and Brandon to go into the details on our year, while I address the announcement made in conjunction with our earnings release; the internalization of SecurCare Self Storage, our largest PRO. This is a significant milestone representing a major step in the evolution of NSA. Since our IPO, we've consistently told investors and analysts to keep a few things in mind. One, by 2025, we expected that approximately half of our PROs, which currently stands at 10 would likely retire. And as part of the process, NSA would internalize the management of those properties. Two, we noted that the first retirement of a PRO wouldn't happen until 2020 at the earliest, which is five years after our IPO. When the conversion penalty on subordinated performance units or SP units reached its minimum for any PROs present at the time of our IPO. And three, the retirement of a PRO would always be an accretive event for NSA's common shareholders.

I'm pleased to announce that SecurCare is the first PRO to internalize the management of their branded portfolio and retire their SP units, which will be accretive to common shareholders by approximately $0.03 per share in 2020 and about $0.04 to $0.05 per share on an ongoing annual basis. I'm sure this begs the question, why SecurCare and why now? As many of you know, I'm a co-founder of SecurCare, which was NSA's predecessor company and one of the three founding PROs of NSA. It makes sense that SecurCare as company predecessor and a founding PRO to provide leadership and be the first to internalize, setting the example and demonstrating to our other PROs and to the investment community just how the process of PRO internalization will play out over time. Second, why now? To begin, SecurCare is largely finished contributing its captive pipeline assets into NSA and has exhausted a great number of its relationship-based acquisition opportunities within the local markets where it operates. Additionally January 1, 2020 was the first opportunity for any PRO to internalize at the minimum conversion penalty. Combination of these factors culminated into the decision for SecurCare to internalize now.

I'd like to also address the favorable timing that allows Dave Cramer, SecurCare's CEO to join NSA as our COO, given Steve Treadwell's departure from NSA. I first want to note that Steve's departure to pursue an entrepreneurial opportunity is in no way connected with the internalization of SecurCare. However, the timing does fortuitously coincide and we are fortunate that Dave, who I've worked with for over 20 years will step in as our COO, ensuring a seamless transition. I speak for all of NSA and saying that, we are sad to see Steve move on, but we thank him for his significant contributions to NSA and we wish him well as he pursues his entrepreneurial passion.

I'm excited for this new phase of NSA's growth and I'd like to welcome Dave Cramer and the rest of the SecurCare staff to the corporate NSA team. Dave brings over 20 years of self-storage operating experience and is well known and highly regarded in the industry. He is intimately familiar with NSA's operations and structure. Having served as CEO of SecurCare since NSA's formation. Being a member of NSA's PRO advisory committee since inception and consistently providing leadership in NSA's technology and best practices group, I'm confident NSA won't miss a step in this management transition.

I'll now turn the call over to Tammy.

Tamara Fischer -- President and Chief Executive Officer

Thank you, Arlen. I'll spend a few minutes on fundamentals and then address the mechanics of the SecurCare internalization. The economy continues to chug along at a Goldilocks pace, while interest rates remain very low, providing a favorable backdrop for real estate. Further, with increased economic uncertainty due to global events and an upcoming presidential election combined with challenges faced by a few other property types, the self-storage sector both properties and stocks has been in high demand by investors. And I don't see that changing anytime soon. On average, fundamentals in our portfolio remain healthy but are clearly moderating given the accumulative effect of new supply that is weighing on street rates and has driven intense competition on the Internet marketing front. Approximately 45% of our stores are now being impacted by a new competitor within a five mile radius up from the 41% we reported last quarter.

Portland, which is our second largest market and happens to be the poster child for oversupply, continues to battle through the elevated number of properties and lease-up. Despite this it's worth noting that street rates in Portland are finally improving and we saw a positive growth in the fourth quarter compared to the prior year. But occupancy remains under pressure and we expect revenue growth in Portland will remain muted. Phoenix in the West Coast to Florida will also continue to face increased pressure from new supply in 2020. Competition from new supply is driving the increase in our marketing spend, which was up 9% in the fourth quarter for our same-store pool compared to the prior year period. Same-store average occupancy during the fourth quarter was flat year-over-year at 88.2% and up 30 basis points for the full year compared to 2018.

Street rates are finally moving in the right direction, albeit very slowly. We started 2019 with street rates 3% to 4% lower year-over-year but saw steady improvement throughout the year to end 2019 relatively flat on a year-over-year basis. During the quarter, move in and move out volumes were roughly flat. Rental rates on move-ins remained below rates on move-outs because of our ability to increase rates on in-place tenant. This negative churn tends to fluctuate between low-single digits in the summer months to high-single digits in the winter months on a percentage basis. Importantly, we're seeing no softening in our ability to increase rents in the mid- to high-single digits on existing customers, which continues to be a key driver of overall revenue growth. Meanwhile, discounting is approximately flat year-over-year.

Next, let me comment on some specific markets. Similar to last quarter, our leading MSAs in terms of same-store revenue growth include Riverside, San Bernardino, Atlanta and Las Vegas, where recent demand growth has exceeded supply growth. Keep in mind, storage is a local game. So despite seeing new supply on an MSA level often our assets maybe concentrated in areas that are less impacted by the supply. Lagging markets in our portfolio included Portland, Phoenix and Tulsa, which continue to feel the headwinds from elevated new supply. Each of our Top 10 MSAs generated positive same-store revenue growth for the fourth quarter and full year. However, one of our Top markets LA did realize negative same-store NOI growth in the fourth quarter where same-store revenue came in roughly flat at 20 basis point, reflecting the impact of new supply in a number of our sub-markets. For the full year 2019, same-store NOI growth was positive in all our Top 10 MSAs.

Now, I'll shift to the mechanics of the SecurCare internalization, and the expected accretion from those transaction. The internalization is expected to become effective on April 1 and the SecurCare platform and employees will remain in place, although they will then become employees of NSA. Based on current store count, the number of properties internally managed by NSA rather than by our PROs will then increase to over 440, which represents almost 60% of NSA's total portfolio. Also, the corporate managed stores will represent about 40% of our budgeted same-store NOI in 2020.

Regarding the financial statement impact, there are a few key items that you should be aware of. First, the management fees paid by SecurCare will be eliminated. These management fees flow through G&A and are broken out in our supplemental sched -- in Schedule 10, labeled supervisory and administrative expense. Those expenses were approximately $20 million in 2019, about $7.3 million of which was paid to SecurCare. The elimination of these fees, net of what we expect to spend to operate these assets internally is expected to generate between $2.5 million and $3 million of annualized G&A savings. Second, SecurCare will receive about 348,000 OP units as consideration for our acquisition of the management company, which is based on the prescribed formula of 4 times EBITDA.

Third, the SecurCare series of SP units, roughly 2 million units will be converted into common shares of NSA at their applicable conversion ratio. Although the average conversion ratio for all outstanding SP units was 1.48 times at the end of 2019, SecurCare series of SP units as a conversion ratio of over 3 times, reflecting -- reflective of its outstanding historical performance. In total, approximately 2 million SP units and 1 OP units will be retired in this transaction with the total issuance of approximately 8 million new common shares. You can also expect the average conversion ratio for the remaining SP units in NSA's portfolio to decline over the next few quarters due to this conversion.

Fourth, the distributions to all SP units, which is included in FFO attributable to subordinated performance unitholders noted in the FFO reconciliation in Schedule 1 of the supplemental package will be reduced by over $12 million annually due to the retirement of SecurCare series of SP unit. We anticipate the net result of this transaction will be approximately $0.03 per share of accretion to core FFO in 2020 for approximately $0.04 to $0.05 per share on an annualized basis.

I'll now turn the call over to Brandon to address fourth quarter and full year 2019 results, recent balance sheet activity and guidance.

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Thank you, Tammy. Yesterday afternoon, we reported solid results for the fourth quarter with core FFO per share of $0.40, which represents an increase of 8.1% over the prior year period. This growth was fueled by a combination, a healthy same store NOI performance, strong full-year acquisition volume and growing fees from our JV platform. For the fourth quarter, same-store NOI increased by 3.8% over prior year, driven by 2.8% growth in same-store revenues with 0.3% growth in property operating expenses. The same store opex growth for the quarter benefited from unexpected favorable property tax assessments during the fourth quarter of 2019, which drove an unusual 4.9% decline in property taxes versus the prior year period. Personnel expenses grew just 1.5% year-over-year and repairs and maintenance costs decreased 70 basis points over the prior year. These favorable expense items were partially offset by marketing expenses that grew 9% over the prior year period.

For the full-year 2019, same-store revenue growth was 4%, property opex growth was just 1.6% and NOI growth was 5%. Notably, our same-store revenue and NOI growth were in line with historical sector averages, despite the challenges currently facing the sector. The favorable property tax assessments in the fourth quarter and really the full year will create a challenging year-over-year comp, which contributes to our elevated operating expense growth assumption for 2020. On the acquisition front, we acquired seven wholly owned properties during the fourth quarter for a total of $32 million. For full-year 2019, we acquired 69 wholly owned properties, located across 14 states for a total of $448 million. Subsequent to quarter end, the acquisition pace has accelerated and we've acquired a total of 36 properties, totaling $218 million, which includes 34 wholly owned and two JV properties.

Now turning to the balance sheet. It was a quiet quarter as far as the balance sheet is concerned. We issued just $2 million dollars of OP equity in conjunction with acquisitions and did not complete any debt issuances during the quarter. For the full year, we made significant progress, further strengthening the balance sheet by completing our inaugural private placement transaction, extending our weighted average maturity, opportunistically tapping our ATM and recasting our credit facility, which included increases to our revolver and term loans, while reducing the cost. Our balance sheet is very well positioned with a weighted average cost of debt at quarter end of 3.5% with all borrowings except our revolver fixed rate or swapped to fixed. Our weighted average maturity is 5.9 years and our net debt to EBITDA ratio was 5.7 times at the end of the fourth quarter, toward the lower end of our target range of 5.5 times to 6.5 times. We have just $40 million of debt maturing over the next three years and we are committed to maintaining a conservative balance sheet.

Now moving on to guidance. We expect that the cumulative impact of elevated new supply will further away on revenue growth in 2020. Additionally, we expect the net 61 store increase to the same-store portfolio, which brings the pool to an even 500 assets. We'll have only a slightly positive impact to same-store revenues in 2020. This contrasts with the 70 basis point positive impact of the additions to the pool had in 2019. Lastly, we've incorporated the impact of the SecurCare internalization into our guidance assuming in April 1 transaction date. Taking all of this into consideration, we introduced full-year 2020 guidance as follows. Core FFO per share of $1.64 to $1.68, which implies 7.8% growth at the midpoint, same-store revenue growth of 2.25% to 3.25%, opex growth of 3% to 4%. and NOI growth of 2% to 3%, as well as wholly owned acquisition volume of $400 million $600 million. Additional guidance assumptions are outlined in our earnings release.

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

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time, we'll be conducting our question-and-answer session. [Operator Instructions] Our first question comes from Jon Petersen with Jefferies. Please state your question.

Jon Petersen -- Jefferies -- Analyst

Thanks. I think I'll start with the question on SecurCare. So Arlen is the Chairman and CEO of SecurCare or was. So I'm just curious if SecurCare was given any preferential treatment with this internalization or this structured the same as any other internalization would be?

Tamara Fischer -- President and Chief Executive Officer

Thanks for that question, Jon. Good question. This is Tammy, by the way. So as soon as Arlen advised our Board of Trustees that SecurCare was considering a retirement events under the terms of our existing agreements. The Board of Trustees immediately appointed a special committee that was comprised of all independent trustees. And we set out to complete this transaction with the highest corporate governance standards in place. And as a result, Arlen excused himself from discussions on the transaction and the special committee actually led the way, they appointed an independent financial advisor, they worked with legal counsel, they negotiated the terms of the merger agreement. To the extent that it was not formulaic or prescribed. And I really saw the transaction through from beginning to end. When it was all said and done, the committee approved the transaction and recommended to our Board of Trustees that they go forward with it and then the Board then approves the transaction.

Jon Petersen -- Jefferies -- Analyst

Okay. All right, that's helpful. And just one more. I know you guys have talked in the past about how you have capacity to maybe add a few more PROs to the platform. I'm curious if you -- as you internalize one PRO and potentially internalize more through, you talked about a goal of 50% by 2025 or a possibility of 50%, does that make it easier to add more externally managed PROs to the platform as you internalize some of the existing ones?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Yes, John, this is Arlen. It actually does make it somewhat easier because of the fact that obviously there is a limited room at the table as you think about people around the table, managing together and making decision. So it's definitely easier. And as I talk about PROs retiring, I mentioned maybe half of the PROs from the original might be retired -- well that might be replaced by new PROs over time. It just becomes a practical matter of how many you can have working together at the same time. So it does make it easier. It also makes it little easier for opening up some territories and things like that. And we're very pleased with the some prospects we have for potential new PROs, but obviously the timing on that we never control, it's always a personal decision by those potential PROs.

Jon Petersen -- Jefferies -- Analyst

Okay.

Tamara Fischer -- President and Chief Executive Officer

And just a follow-on, we've always said that the right number of PROs is probably in the range of 12 to 15 PROs. And I think we still believe that we'll probably have room for another one to three.

Jon Petersen -- Jefferies -- Analyst

Okay. All right. Good quarter. Thanks guys.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks, Jon.

Operator

Our next question comes from Neil Malkin with Capital One Securities. Please state your question.

Neil Malkin -- Capital One Securities -- Analyst

Hey guys, good morning.

George Hoglund -- Vice President of Investor Relations

Morning.

Neil Malkin -- Capital One Securities -- Analyst

Just had a curiosity, what have cap rates been doing? Where they're been trending? I know, obviously, been coming down, but like for the transactions you closed in the first quarter, what were those yields at that you acquired your -- the current assets at?

Tamara Fischer -- President and Chief Executive Officer

Hi, Neil, this is Tammy. So you're right, we are seeing a -- basically for us at least continued compression in cap rates. Our Fourth quarter cap rates were in the range of 5.5% to 6%. And I'm pretty sure heading into 2020 that they probably will not go up from there. More looking at the transactional activity, we're seeing is in that 5.25% to 6% range.

Neil Malkin -- Capital One Securities -- Analyst

Okay. And I guess just regarding that. I mean the tenure is very low again a lot of capital out there. Do you guys have a conversation internally or a level that you may need to start -- we could take on new PROs, raise incremental capital that you lower the sort of 6% subordinated payment you make to as per unit holders, so the transactions are able to pencil if cap rates continue to trend lower.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Well, this is Arlen again. The way that our documents are set up, it is allowed for us to change the priority return on new acquisitions that would be both paid to the OP first and then the SP. And so if the market continues to trend down like that, we are allowed to do that. Fortunately, we've been able to the maintain that 6% rate, so far, because the debt costs have continued to come down making it possible for us to still achieve that 6% base return on equity. But it is possible for the Board to approve to change that. Now, one thing I would point out, if that has ever changed either upward or downward, it only applies to future acquisitions made after the date of that change. So for example, if the Board said, lets move it down to 5.5% that would be for any new acquisitions occurring until the next change and let's say, rates go back up and they move it up to 7%, that would be only applying the future acquisitions after that change again. So it's always based on future acquisitions for what that priority return is set at.

Neil Malkin -- Capital One Securities -- Analyst

Great, I appreciate that. And then last one from me. Your portfolio is obviously benefiting from less concentrated supply. I'm just wondering if you can kind of break out or you do look at the differences in terms of street rate or overall revenue growth in properties that are closer to the urban centers versus more suburban outside the major sort of beltway or ring areas?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

We do look at that from a general standpoint. And interestingly, historically we've seen rate increases on average just as good in the smaller and suburban markets as in urban core markets, but of course, it is a timing issue. They're particularly better in a down cycle and in a flat cycle in a really aggressive up cycle, the urban core can move quicker, we see that. But on an average basis, we've seen that the suburban and secondary markets have been able to move on a percentage basis, rates just as fast or faster than the urban core markets. But remember, you are at lower absolute dollars of rate per square foot, so it's just on a percentage basis that they can easily keep up.

Tamara Fischer -- President and Chief Executive Officer

Arlen, the one thing I would add to that is what we are seeing with street rates across the Board even in places like Portland, which is relatively encouraging the street rate sales recovered and year-over-year are basically now flat as they were negative toward the beginning of 2019.

Neil Malkin -- Capital One Securities -- Analyst

Great. Thanks guys. Good quarter.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks, Neil.

Operator

Our next question comes from RJ Milligan with Robert W Baird. Please state your question.

RJ Milligan -- Robert W Baird -- Analyst

Hey, good morning guys. Just on the SecurCare, given some of the -- I guess, weakness in SecurCare's markets given the new supply, Arlen, was there any risk to the subordinated allocation to the SP equity there? I'm assuming NOI growth has been so strong over the past couple of years that there wasn't any risk there, but I just wanted to confirm, there was no risk to that subordinated allocation?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Yes, there is not, RJ. In fact SecurCare even throughout this more oversupplied time has been -- long term, our strongest performing PRO and continues to perform really well obviously from quarter to quarter sometimes other PROs are better but over the long run, they have done the best and continue to do really well. So in general, they are a little bit less suspect to new supply than a lot of our PROs, obviously the most difficult one, being in the Northwest with the Oregon oversupply. But in general, SecurCare is in the less risky markets from that standpoint.

RJ Milligan -- Robert W Baird -- Analyst

Okay. And then for the external growth of $500 million projected at the midpoint this year, can you just sort of bucket, where those acquisitions are coming from?

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Hey, RJ, this is Brandon. So, yes, we've closed so far you saw in the release over $200 million on balance sheet, that's largely been third-party acquisitions. In our captive pipeline, which we report close to 140 properties that well over $1 billion for 2020, the properties that will come in from that avenue is I would say probably somewhere in the range of $50 million to $100 million. And then that puts you pretty quickly close to the bottom end of our range. We always talked about hitting the high-end of range if we plan a larger portfolio deal or if we have a new PRO come in. So that's kind of going to make up the rest of that mix.

RJ Milligan -- Robert W Baird -- Analyst

Great. Thanks guys. That's it for me.

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Thanks, RJ.

Operator

Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please state your question.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, good morning. So back to the SecurCare transaction. Arlen, I appreciate the comments you provided around the timing of the transaction with SecurCare providing leadership is the first PRO to demonstrate how the process works a little bit and that also the captive pipeline and some local relationships were largely exhausted. But given the three times conversion ratio, you mentioned in the promoted economics, I'm just curious if you can provide a little more insight there on the timing. Why effectuate the transaction now, if the cash flow splits are so attractive?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Well, Todd, it comes down to, obviously, the leadership was a big a big factor. The other factors came down to some personal issues that was that related to giving liquidity opportunities for other SecurCare shareholders. I think that's an important one. Some personal objectives as you relate to some of the other management members. You saw that Dave Kramer, CEO of SecurCare is now joining NSA that's proven to be a favorable timing issue on that. And then frankly, as you look at the opportunities that we see for NSA at the core level to continue its really strong growth, I just believe that we're going to see very good appreciation in NSA's core stock. And so it made a lot of sense for us to convert now, get those shares effectively now when we're in the $37 a share range. And we believe we'll see significant appreciation over the next few years above that $37.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, got it. And then just given where we're in the fifth year since the IPO, and that conversion penalty is minimized now. Are you expecting any additional PRO internalization transactions in 2020?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

I don't think we'll see any in 2020 the general processes that a PRO is supposed to notify the Board of their consideration for that before the end of the year, which SecurCare did that before the end of 2019 and then that's when the special committee of the Board was formed. But of course it was a fairly complex transaction and took until now to get that wrapped up. Some of the other PROs wouldn't be quite as difficult because they don't have the independence issues with me being Chairman of the Board that they might have. So we might have another PRO that might notify us at the end of this year, but I -- that's always tied to personal issues. And I'd just say that over the next four, five, more years, probably we'll see another four or so PROs retire. But again I can't control that, that's up to them and it depends on their personal objectives.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then just thinking about the accretion and again sort of the three times conversion ratio that you mentioned for SecurCare on the SP units would that imply that future PRO transactions would be would be less accretive at the margin, is that the right way to think about it?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

No, the last accretive only because of the size. SecurCare is our largest PRO, but the relative percentage accretion in all cases is going to be basically the same, but obviously a large transaction adds more dollars of accretion and therefore a more cents per share, but the percentage accretion would be the same, because it's a formulaic approach to that accretion model.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And just one more on the transaction, I guess, can you just talk about the transition of management and an oversight of the iStorage platform in light of Steve Treadwell's departure?

Tamara Fischer -- President and Chief Executive Officer

Sure, Todd. I'm happy to do that. We're really -- although we're really sad to see Steve take his leave, as Arlen mentioned, it's completely disconnected from this transaction. We feel very fortunate to have Dave Kramer join us. Dave, I think maybe you've met Dave, many of you have any way -- is an industry vet with over 20 plus years of experience in self-storage, is very highly regarded in the industry and certainly by our pros. Our goal here is to do effect this transaction in the least possible disruptive way to our team members, both SecurCare and the NSA team members. So our thought is that and certainly in the beginning, we will run operations for iStorage and for SecurCare as two verticals, all of the employees will stay in place for both entities and the objective here is to -- is really for this to be seamless. Over time, I think we'll see opportunities to consolidate some functions but that is not a short-term objective of ours.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Even though Steve will be leaving, all of the team that's worked on iStorage will all be here, will continue overseeing all the properties, doing all the marketing, doing all the revenue management, all of that. So it's really just Steve moving out and Dave stepping in and really, I don't think we'll see on the ground level really much difference whatsoever.

Tamara Fischer -- President and Chief Executive Officer

No, I think that's right. The other thing is, if we have call it 440, 450 stores and that are now basically corporate managed in two brand SecurCare and iStorage, Dave has a unique perspective on both of those sets the portfolio. He knows the entire team and he is involved with the evolution of our best practices platforms. So honestly although change is hard, I think that this couldn't be better for us.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right, that's helpful. And just one last one, back to the acquisition activity. It sounded like last quarter that acquisition activity was going to moderate. You lowered the high end of the range last quarter as 2019 was winding down. So I think the $400 million to $600 million was a little surprising and having more than $200 million closed year-to-date was also a little unexpected. I guess what changed and what gives you confidence that you'll be able to achieve the forecast?

Tamara Fischer -- President and Chief Executive Officer

So I'll just start by saying, when we adjusted guidance last year, we had pretty good line of sight as to what was happening in the fourth quarter and we started off with a busy first six months of 2019 and then closed $30 million, $35 million in Q3 and other $35 million in Q4 and yet we -- a transaction the size of what Brandon mentioned is -- we also have [Indecipherable] on that. So we feel good heading into 2020 and I think that our range is reasonable. I don't think it's a slam dunk by any means. The other thing that we have talked about frequently is that acquisition activity is lumpy. And so we'll have a good first quarter because we already know what's kind of done and to be closed. Q2 could be slow. As Brandon mentioned, I don't think there frankly is much of any way to hit the high end of our guidance without either adding a new PRO who can make significant contributions at the time of joining NSA or landing another good sized portfolio.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, thank you.

Operator

Thanks, Todd. Our next question comes from Smedes Rose with Citi. Please state your question.

Michael Bilerman -- Citi -- Analyst

Hey, it's Michael Bilerman here for Smedes. Tammy, I was wondering if you can just -- just walk through sort of the net cash impact from doing the SecurCare transaction and you sort of laid out that almost of $3 million of net G&A savings, you talked about the $12 million of distributions going away. But then you will have the annual dividend on 7.7 million shares, call it 10 million. I just wasn't sure when you net everything out, what is really the true cash differential from the transaction?

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Yes. Hey, Michael, this is Brandon. Let me take that one. So the $2.5 million to $3 million that Tammy talked about on the G&A savings, that one's pretty clean and easy. The SP units going away adds to our denominator for the Class A shares but the distributions that we're no longer paying, on those SP units, it kind of makes up for the dividend you're going have to pay on those new A. So that's kind of a wash.

Michael Bilerman -- Citi -- Analyst

Even with the exchange, the $3.5 million exchange, I would have thought there would have been some leakage there.

Brandon Togashi -- Executive Vice President and Chief Financial Officer

No, that's really a neutral effect. It's not actually slightly accretive but it is so de minimis. It's not really going into that $4 million to $5 million set number. It's really -- that's like, that's the way the model is set up on the conversion penalty to always assure that there is a cash flow accretion but it's minor. So you have the $2.5 million to $3 million on the G&A and then really what it is, it's the, the organic growth and the potential for growth through external acquisitions under the SecurCare properties that is no longer sharing in that SP participation. And so the way to quantify that is SecurCare currently makes up a little over a third of our same-store portfolio. So if you take the same store NOI of $208 million for the year, you have a number that is approaching $80 million for SecurCare and you could take an organic growth NOI number to that. And so if you just say 3% NOI growth on that $80 million, you are at $2.5 million. And my quick math as I take 50% of that is being shared by the PRO or the SP and that will no longer be there. And that's how you get to somewhere between $0.01, $0.015. And you add that to say the $2.5 million or $3 million, which equates to $0.025, $0.03 on the G&A, and that's how you get to that $0.04 to $0.05 range.

Michael Bilerman -- Citi -- Analyst

So your guidance is really a forward look as if this had stayed as a PRO, the growth in NOI would have been shared, or would have been offset by bringing in today, you now have 100% of that growth. So from real accretion perspective, it's all predicated on those assets producing the returns that you're talking about. On a straight current basis, the accretion is much less, it would only essentially be those G&A savings that effectively you're paying for years upfront by giving them the equity, right?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

No, that's not quite true Michael. Even on a current basis, on a cash basis, there is about $4 million a year of additional cash that's going to NSA. This is on a look-back basis versus what NSA's getting now. Now you have an extra 7.7 million shares. So you have $4 million of extra FFO effectively divided by 7.7 million additional shares for that component, but really now you're going to divide by 100 million shares, our fully diluted share, which is where you get to the effectively $0.04 on a look-back basis and then on a look-forward basis, that's how you get to the $0.05.

Michael Bilerman -- Citi -- Analyst

But your $4 million, where is that $4 million. And you talked about the $2.5 million to $3 million of G&A, where is that other $1 million, $1.5 million of additional FFO coming from?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

From the penalty on the SP equity versus the OP equity, the conversion of the SP to the OP.

Michael Bilerman -- Citi -- Analyst

Is there a lock-up on the 7.7 million shares at all?

Tamara Fischer -- President and Chief Executive Officer

Yes, there is, there is a five-year lock up.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

That only relates to the insiders, not the small private shareholders of SecurCare.

Michael Bilerman -- Citi -- Analyst

The five-year lock up and what percentage of the shares would that be, I assume it's you and David are the primary holders of the company anyways?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Yes, Dave and I are about 80% of the company.

Michael Bilerman -- Citi -- Analyst

Okay and then just remind me the retirement of an option, because it is kind of odd right because you're not retiring, nor is David. What were the other formulas or options for the internalization? And how did those compare to what is called the retirement of an option where no one's really retiring?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Formulas are the exact same. The only -- so the formula is our 4 times EBITDA on the retirement of the management company. So that's running right now at over $3 million, let's just say $3 million a year. And then the haircut, the 10% haircut on the SP to OP conversion. And then because this transaction needed to be structured as a corporate merger rather than a regular just conversion of SP to OP and that's because SecurCare is a S corp. So we had to do this as a merger structure. There is an extra 1% discount on top of that that benefits NSA. And that -- so all of those formulas are literally the same as retirement event. And one thing to remember that we call it a retirement event, but it doesn't imply that the actual people are retiring. It really means that we are retiring the SP equity for that PRO. And so in this case, both Dave and I will continue to be involved in the company, we're not physically retiring but that SP equity is retired.

Michael Bilerman -- Citi -- Analyst

And then just lastly the G&A savings, while it's a benefit to FFO, what you're giving is consideration for that effectively $13 million of value, right? So, yes, you're getting the bump in FFO but you are paying for years of those savings upfront in the form of OP units.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

That's correct. Yes.

Michael Bilerman -- Citi -- Analyst

So I'm not sure of it. It's great that it's accretive, but you're effectively paying for that accretion upfront and outside of the growth in EBITDA of the assets. I'm not sure it is beneficial as you're trying to make it out to be.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Well, the management see profitability grows with the revenues effectively. So that savings or that benefit will continue to grow as those revenues grow.

Tamara Fischer -- President and Chief Executive Officer

I will also say just if think about it from a corporate governance standpoint, one of the things that we've spent a lot of time speaking with our investors and analysts about is our differentiated structure and we certainly have benefited from that differentiated structure, I think we'll continue to benefit from it, but this is also a first step in looking a little bit more like a traditional upgrade if you will. So we see it as net-net positive.

Michael Bilerman -- Citi -- Analyst

Okay, thank you.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks, Michael.

Operator

[Operator Instructions]

Our next question comes from Ronald Kamdem with Morgan Stanley. Please state your question.

Ronald Kamdem -- Morgan Stanley -- Analyst

Hey guys, just speaking on the SecurCare, just want to make sure I understood this part correctly. So you mentioned the conversion ratio was 3 times. Also, this was sort of the minimum period for conversion. So I guess my question is when I think about the conversion ratio and the stock price, does that have any impact on the future version that you're expecting potentially by 2025, meaning is the lower conversion ratio more accretive, is a higher stock price more or less accretive? Just how should I be thinking about that?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

In terms of the conversion ratio itself that doesn't have really a bearing on the accretion at all because the accretion calculus is based upon the cash flow effectively that's going to those SP units. So I mean, just in simple math, if you look at the SecurCare SP units this year, we're going to be paid over $12 million of SP distributions. They also receiving over $3 million of management fee profitability. So that's $15 million that would have gone to SecurCare in 2020 that's now basically going to NSA but NSA now has $7.7 million more shares outstanding. So it's true that the conversion ratio will drop once SecurCare is out of there, but that's just the math because its conversion ratio is higher than other PROs and future conversion ratios will depend on how well PROs do. If a PRO does really, really well, their conversion ratio can keep it going up and be very high. And if they do average, it might just stay around 1. So it really varies by PRO.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. And what about the NSA's stock price play anything into the accretion or not so much?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

It doesn't actually have any bearing on the issue except for the management fee acquisition part of it because that 4 times EBITDA, then you divide by the stock price to get the number of shares issued, but remember the SP equity is already in NSA equity and it's just this conversion ratio where it converts from one form of NSA equity to another and we always put that in the fully diluted share count in table 4 -- schedule 4 of our supplemental.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. That's helpful. And then I think we -- you guys touched on sort of a net G&A benefit, but is there just above and beyond sort of what you mentioned, is there other sort of either revenue or expense synergies that could potentially be had down the line from internalizing this transaction maybe branding marketing costs, whatever, is there anything else above and beyond that we haven't thought of?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

I do anticipate that there will be as we go long-term by basically looking at combination of some of the marketing activities in certain markets, common branding in markets where we have overlap, but we have not put that in any of our forecasts. Those are more just additional possibilities in the future. I will say though that SecurCare has been very active in using the vast majority of our PRO best practices and so those are largely implemented. But as we continue to add more and improve those PRO best practices that's additional accretion that can come about from that.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great, that's helpful. If I could switch gears over to on expenses a little bit. So, the first is just on the property taxes, I think you talked about sort of a tough comp this year for 2020 driving all of same-store expenses. How should we think about that in the out years in terms of what sort of a normalized rate that we should think about for the property tax growth going forward?

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Yes. Ronald this is Brandon. So my remarks earlier were about both the fourth quarter, which had some tax expense benefit that really related to the '19 year where maybe we had budgeted higher and then got final bills or assessments in fourth quarter. And so it was an adjustment for the '19 numbers. But throughout the entirety of '19 we also had benefits of close to $500,000 that really related to the '18 calendar year and that has to do with jurisdictions where you're getting the final assessments or maybe the result of your appeals in the first part of the year for the year prior. And that's the number that relates to our 2020 same-store pool, that's kind of, we have this $500,000 kind of artificially low '19 number comp. So that affects the 3% to 4% opex growth range that we gave for 2020, that affects that total opex number by about 50 basis points. The property tax expense growth assumption in our numbers for 2020 is 5.5% to 6.5% and that is affected by this $500,000 to the tune of 150 basis points. So like a normalized growth. In other words, would be closer to 4% to 5%. That helps.

Ronald Kamdem -- Morgan Stanley -- Analyst

That's very helpful. And then if I could switch over to just marketing spend. I think I heard 13% year-over-year in the quarter and so forth. How are you guys thinking about that in 2020 and sort of what are you seeing out there? Is there any sort of alleviation in terms of the pressure or is it still sort of upward pressures on those numbers?

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Yes, Ronald. So it was 9% for the quarter. That compares to 12% in third quarter, which were both elevated from the first half of the year. So we have seen an uptick in that spend. For 2020, we're projecting in the 12%, sorry 10% to 12% growth range. So there is pressure and you're seeing that across the sector, but we've been successful in trying to keep that to a manageable level, but that's currently what's baked into our expectations.

Tamara Fischer -- President and Chief Executive Officer

And we think some of that has to do with the markets in which we operate. We don't see the same competition for keywords in some of the smaller and secondary, tertiary markets and we are also getting some benefit from the ongoing evolution of our marketing platform.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. Okay, that's all I had. Thank you so much.

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Ki Bin Kim with SunTrust. Please state your question.

Ki Bin Kim -- SunTrust -- Analyst

Thanks. So Arlen, how much of the internalization of SecurCare was more of a case study to show your other PROs versus something that is more kind of driven by your own personal or the co-founders personal reasons?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

There is no doubt that the internalization, an important part of that was to be leader -- be a leader and demonstrate that to the other pros. I think I'd say you could probably call it may be 50-50 in terms of the way that broke out Ki Bin.

Ki Bin Kim -- SunTrust -- Analyst

And what kind of feedback are you getting from your other PROs about the prospects of internalization because I would imagine that I can't remember exactly it's 3 times the management contract EBITDA or 4 times, but it's a pretty accretive part of that business of being a PRO.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

You're right. And so the general feedback varies a lot by by PRO. I think fundamentally, it comes down to two things, one is their personal situation in terms of if they might have a family member in the business that wants us to continue to manage that PRO for quite a few more years versus if they don't. Obviously, that has a bearing on it, on the timing. And then the other thing is just looking at where we see the opportunities for SecurCare stock. I mean for NSA stock going forward versus remaining as an independent PRO because as when you convert, you give up that disproportionate upside, but you also get the benefit of performing at the rate that the entire company performs and frankly, I'm very bullish on the opportunities for the entire company for NSA's stock, so I like having those SP units converted to OP units and being followed -- following the entire performance of the company. And so that would be part of the analysis of the individual PRO as well, thinking about do I have better opportunity upside looking at how the whole company will do or am I better to just focus my upside, a lot of it is on my specific markets. And so I think that will come into into play as evaluate that.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And in terms of your same-store revenue guidance, you're not really guiding to any type of deceleration in trends. So maybe you can just provide a little more color on what -- what were the kind of various line items that you're thinking about that led you to that pretty good guidance number?

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Hey, Ki Bin, this is Brandon. You're talking revenue specifically? Sorry I might have missed it.

Ki Bin Kim -- SunTrust -- Analyst

Yes.

Brandon Togashi -- Executive Vice President and Chief Financial Officer

So you're right, relative to the number we put up for Q4 of 2.8% growth, the midpoint for full year 2020 is right there. So what went into that was frankly the build -up of our individual PRO property budgets and what they were seeing in their markets and obviously our top down kind of macro view as we went through the budgeting process, but we're, I mean you hit it on the head. It's not much more complicated than that. Were kind of expecting the entirety of 2020 to look more like fourth quarter '19 which you can read through that to say, for our portfolio that's kind of bottoming out, but then something along that bottom for the next year.

Ki Bin Kim -- SunTrust -- Analyst

So I don't want put words in your mouth, but if the pros lead up to a budget. Same-store revenue budget of X percent, is it correct to assume that you guys take like a conservative haircut approach at the high level macro top down, like you said to haircut that number? Is that the way it would work>

Brandon Togashi -- Executive Vice President and Chief Financial Officer

No I wouldn't say haircut Ki Bin, I would say we have the benefit of looking at our whole portfolio. At a macro level, we have the benefit of looking at our iStorage portfolio that pros are focused on. So if we see any discrepancies in a market where our operate and we operate or obviously the numbers we see from our, from our public peers, that's where the dialog happens with our PROs, but there's not really like a topside haircut, it's really just continuous dialog before we finalize on a final number.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

An example of that Ki Bin would be, Tammy talked about at the beginning of 2019, we were seeing Street rates on average 3% to 4% below the year before. At the end of 2019, we're seeing Street rates flat to the year before. So we are seeing that now we're looking at, we've hit the bottom, in our opinion. Now we're not going to get off the bottom for a while, but we see based on the trends in the overall big picture, we have hit the bottom. We believe we're going to stay at the bottom for pretty much this whole year and then start to come out of it as we go into 2021

Tamara Fischer -- President and Chief Executive Officer

So I think when it's all said and done, I mean we'd like to be positive positively surprised on the upside, but we think that our guidance is very realistic.

Ki Bin Kim -- SunTrust -- Analyst

Okay, that's helpful. Thank you and congratulations Arlen.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks Ki Bin.

Operator

Our next question comes from Stephen Mead with Anchor Capital Advisors. Please state your question.

Stephen Mead -- Anchor Capital Advisors -- Analyst

Good morning. Could we go back to the statement that you basically kind of estimate that 45% of your facilities face sort of competition or new competition within five miles. I was wondering how the mix of that 45% is between say smaller operators versus the national chains and does that sort of impact your thinking about things?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Hi, Steve. I think that we definitely have less competition from the national change than most of our peers and it does impact us because we do know for example, there are some of the large chains that if there are new competitors who are extremely aggressive on pricing to fill those properties up and we have some of that, but my guess is, I don't have an exact number, but my guess is of that 45%, it's probably more like 15% to 20% of that is where we're competing with a large national chain and more than half of it is really more of a local or smaller operator that might have five to 15 properties.

Stephen Mead -- Anchor Capital Advisors -- Analyst

So what do you see in terms of the actual kind of crossover point in terms of new supply and a little bit more relief from the standpoint of new construction and I was sort of wondering what the returns on new construction are at this point?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Well the returns on new construction are definitely a lot lower than they were a few years ago and it's because of a couple of things. It's taking a lot longer for them to fill up. And remember, when we say that 45%, we're looking at, if the store has been open in the last three years. So any store opened in 2017, '18 and '19 is included in that pool for us because that's the normal fill up curve. We do think that this year will be the worst, 2020. I don't know if 45% will be the worst or if it goes to 46%, but we should hit the worst sometime this year and then start going down. So whatever that peak is, let's say, it comes out the 46% and then it starts going down and maybe the next quarter, it might be 42% and slowly go down like that. The returns that guys are getting on new development today in most cases in my opinion do not justify the risk. Now, obviously everyone has their own opinion on it, but I personally am not doing any new development and we have none going on in MSA. We have a few PROs that still have a few new development projects under way. But recognizing that the risk on that, it's not a good risk return profile right now to be building new self-storage.

Stephen Mead -- Anchor Capital Advisors -- Analyst

And then post your transaction in terms of the internalization, you were talking about the conversion factor being 1.48. After the transaction, what does that 1.48 go to roughly?

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Roughly, it will go down to around 1.25. It does depend on how each PRO does, but as we just mathematically pull those units out and say the others do the same, it comes down to around 1.25.

Stephen Mead -- Anchor Capital Advisors -- Analyst

Okay, thanks.

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Thanks, Steve.

Operator

Ladies and gentlemen, this concludes today's question-and-answer session. I'll turn it back to Tamara Fischer for closing remarks. Thank you.

Tamara Fischer -- President and Chief Executive Officer

Okay. So this wraps it up for the fourth quarter and for the year 2019 and we're looking forward to 2020 which promises to be a year of growth and transformation for NSA. And just as a reminder, if there are additional details around the internalization of SecurCare in the 8-K we filed yesterday and we encourage you to reach out, if you have any questions about that. Thanks for participating in our call today. We appreciate your continued support of NSA. And we look forward to seeing many of you in the coming weeks. Thank you.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

George Hoglund -- Vice President of Investor Relations

Arlen Nordhagen -- Executive Chairman of the Board of Trustees

Tamara Fischer -- President and Chief Executive Officer

Brandon Togashi -- Executive Vice President and Chief Financial Officer

Jon Petersen -- Jefferies -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

RJ Milligan -- Robert W Baird -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Michael Bilerman -- Citi -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Stephen Mead -- Anchor Capital Advisors -- Analyst

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