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Extra Space Storage Inc (NYSE:EXR)
Q2 2020 Earnings Call
Aug 5, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Extra Space Storage, Inc. Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Jeff Norman. Thank you. Please go ahead, sir.

Jeffrey Norman -- Investor Relations

Thank you, Oren. Welcome to Extra Space Storage's Second Quarter 2020 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, August 5, 2020. 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.

Joseph D. Margolis -- Director and Chief Executive Officer

Thank you, Jeff, and thank you, everyone, for joining us on today's call. The second quarter presented unique challenges to our country, our industry and Extra Space. I am incredibly thankful to our employees who have continued to operate our stores, service our customers, grow our company, strengthen our balance sheet and to do all the day-to-day blocking and tackling that allows us to optimize our performance. All this good work was done in unusual and sometimes difficult working situations and often with added personal and family stress and uncertainty. It is said that crisis does not create character but reveals character. And I could not be prouder of the character the Extra Space team has shown during these past several months. This quarter also presented a stark reminder of racial injustice in our country. Approximately 40% of our teammates are black or other people of color. And I am proud that recruiting, developing and retaining diverse talent has been a focus of our company for many years and is not a new initiative.

However, the tragic events of the last two months reinforced to me that while Extra Space is a values-driven company with a great inclusive culture, we can do better. In response, we have enhanced our existing diversity and inclusion initiatives and have taken several concrete steps to improve as a company. These steps are consistent with our company values. And I'm committed that our response will not be limited to making statements or temporary steps, but we'll be continuing and substantive. Turning to our performance in the second quarter. Most importantly, we were able to grow FFO in the quarter on a year-over-year basis. We have started to see several positive trends on which Scott will provide further detail. Our platform is able to find and capture high-value customers. Rentals have normalized and vacates remain muted. As a result, our occupancy is at an all-time high and prices have begun to move in the right direction. Where we can, we have resumed more normal pricing, operational practices and auctions. However, these positive trends should not obscure the macro and industry-specific risks we still face. There are still uncertainties with respect to the course and length of the virus, its economic impact and its effect on consumers and their willingness to pay for storage.

While our occupancy is at an all-time high, until recently, we have not been allowed to initiate the auction process in several markets, which represent approximately 47% of our same-store NOI. As a result, at the end of June, approximately 150 basis points of our occupancy is from nonpaying tenants due to delays in auction. By the end of July, this inflated occupancy increased to approximately 200 basis points. We are now moving forward with auctions in most states. But due to notice periods, actual auctions in several states won't begin until September, which will be outside of the peak-leasing season for retenanting these units. Occupancy has also benefited from lower-than-normal vacates. I do not personally believe that the moderation in vacates represents a permanent behavioral shift of our customers. Instead, at some point, more historically normal activity will resume, and we will see vacates increase, putting further pressure on occupancy when we may not have our full set of tools available to optimize returns due to government state emergency orders or regulations. Also the non-COVID headwinds that we had coming into 2020 are still present. While we believe that pandemic has delayed new deliveries and may reduce new projects in planning, properties are still being delivered, and there is still excess inventory leasing up in many markets, which is suppressing rate growth.

So while we are encouraged by recent results, there are enough remaining uncertainties and risks that we are not in a position to reinstate guidance. The possible outcomes remain too broad for guidance to be meaningful, depending on how the risks I've outlined play out. We will continue to be transparent on all metrics and answer questions that you may have. And we will continue to work hard every day and remain laser-focused on maximizing shareholders' long-term value.

I'd now like to wish Scott a happy birthday and turn the time over him to walk through some of the metrics that I mentioned.

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Thank you, Joe, and hello, everyone. All of our properties are open and have been fully operating since May. We modified our stores by adding plexiglass partitions stantions to direct the flow of traffic and sanitation stations to provide a safer experience for our customers and our employees. These updates have been effective. And as demand started to pick up through the quarter, our rentals rebounded, improving from a negative 35% year-over-year delta in April to a positive 4% rental growth rate in June. Vacates for the quarter were approximately 17% lower year-over-year, resulting in strong occupancy growth, which went from a negative 60 basis point year-over-year gap at the end of April to a positive 100 basis point gap at the end of the quarter. At the end of July, this has expanded to 150 basis points. However, this increased occupancy came at a price. Our average achieved rate for the quarter was down approximately 17%. And as Joe mentioned, our quarter end occupancy was inflated by 150 basis points from nonpaying customers.

In May, we restarted our collection efforts, which have been successful. Accounts receivable less than 60 days have dropped back to historical levels. However, due to the delayed due to delayed auctions in key states such as California, New Jersey and New York, we are still working accounts receivable greater than 60 days through the system. Today, accounts receivable greater than 60 days as a percentage of rental income are running approximately 325 basis points higher than historical levels. And we have recognized the loss on aged accounts receivable based on estimated collections. All of these factors, together with temporarily pausing existing customer rate increases in March, April and May, will continue to drag on revenue growth in the back half of the year.

While street rates and rental activity have improved significantly, it will take time for the impact of May and June's lower achieved rates to flow through to revenue. And we do not anticipate positive same-store revenue growth in the second half of the year. While we are being proactive with controlling expenses to offset lower revenue, we will continue to have expense pressure from payroll, property taxes and marketing expense. Property-level performance will continue to be challenged in the back half of the year, but we are finding success in other parts of the business and have strengthened our balance sheet. We continue to find ways to grow externally and to accretively deploy capital in the self-storage space. We have closed $52 million in bridge loans year-to-date, with another $170 million under agreement to close in 2020 and 2021. In July, we purchased a $103 million senior mezzanine note at a discount with an anticipated yield to maturity of 6.1%. Our third-party management platform provides capital-light growth, providing management fees and tenant insurance driving nonsame-store income.

We also we are also vigilantly pursuing acquisition opportunities, and we'll act swiftly when we identify transactions that we believe add value to our shareholders. We continue to strengthen our balance sheet with the addition of a new $300 million revolving credit facility and the closing of a $425 million private placement transaction during the quarter. Funds from the private placement transaction will be taken through delayed draw to pay off our convertible notes and will increase our weighted average debt maturity. As Joe mentioned, we haven't been immune to the impact of COVID-19 and the pandemic has had and will continue to have an adverse impact on our business. That said, it is good to be in storage, and our company is well positioned to navigate the current landscape. Our team has a track record of consistent, high level execution and we will continue to find ways to provide value to our shareholders regardless of the economic climate.

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

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Rick Skidmore from Goldman Sachs.

Richard Wynn Skidmore -- Goldman Sachs Group -- Analyst

Hi, good morning, Scott, can you talk about the company's bad debt policy and how you think about expensing and what the amount was in the quarter that you expensed and how you think about the accounts receivable is greater than 60 days going forward?

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Thanks, Rick. So our bad debt has historically run at 1.6 to 1.8 percentage of our revenue. During the quarter, our bad debt expense was about 50% higher than that. And that primarily has to do with the older accounts receivable and the things that have gone to auction. Our policy is to reserve for the majority of all accounts receivable that are 90 days or more past due. So much of what's in the 60 days and certainly almost all of what's in the 90 days or more past due has already flown through bad debt.

Richard Wynn Skidmore -- Goldman Sachs Group -- Analyst

Got it. And then maybe just shifting, Joe, to supply growth. You've talked about supply. What are you seeing in terms of perhaps delays in supply growth and deliveries and which particular markets do you see that supply growth particularly challenging currently?

Joseph D. Margolis -- Director and Chief Executive Officer

So we do see delays in delivery of new product. One of the reasons well, we did have a good quarter with respect to new properties taken into our management platform, it was a little less than anticipated because some projects were delayed and won't be taken on until later in the year. But we absolutely are both experiencing and seeing delays in new products being delivered. The markets that we're concerned with are still the same markets that we were concerned with before. It's Texas and Florida, Portland, Boroughs of New York City and some markets like that. They're really COVID hasn't changed the markets that are faced with supply versus the ones that aren't.

Richard Wynn Skidmore -- Goldman Sachs Group -- Analyst

Thank you very much.

Operator

And our next question comes from Rose from Citibank. It's SME at Citi.

Smedes Rose -- Citigroup Inc. -- Analyst

I wanted to ask you just a little bit more about the existing customer rate increases. I think in June, you provided an update where you were able to increase rates in 27 out of 40 states in which you are operating. What is that now? And I guess, what percentage of customers are have been or are expected to receive rate increases? And maybe you could just talk a little bit about the acceptance rate, what you've seen so far as you push out rate increases for those who can get them?

Joseph D. Margolis -- Director and Chief Executive Officer

So there's six states now where we're prohibited from issuing existing customer rate increase notices. And a few of those states, we have some meaningful exposure to. And then there's another 14 states where our ability is limited to a certain percentage. And in some case, that percentage is so high. It's a meaningless limit. So far, we as we have reinstituted existing customer rate increase notices, we have not seen any change in behavior. We have not seen increased move outs in response to those notices. Although I would also caution you, it's something we're closely monitoring, and we're probably still early in that game. We're interested to see what happens if and when the additional unemployment insurance runs out and factors like that. So something we're watching closely, Smedes.

Smedes Rose -- Citigroup Inc. -- Analyst

Okay. And then could you just talk a little bit more about the mezz loan that you mentioned that you purchased. Is that backed by a portfolio of assets? And kind of how are you thinking about that investment? Is it kind of loan to own or just to get the yield? Or just maybe a little more color there.

Joseph D. Margolis -- Director and Chief Executive Officer

Sure. So it's absolutely a portfolio of 64 self-storage assets. They're in markets that overlay our footprint. And as with any loan we make, if we end up having to own the assets, we're fully capable of operating them and adding value, and that's not a negative experience for us.

Smedes Rose -- Citigroup Inc. -- Analyst

Will they be added to your go ahead, I'm sorry.

Joseph D. Margolis -- Director and Chief Executive Officer

So we are always looking for opportunities to smartly invest our shareholders' money in an accretive position with a good risk posture. Where our position in the first year is about $53 a square foot. So we feel pretty good about that. We think we're getting a fair return, and we're very comfortable with the risk pass-through the investment.

Operator

And your next question comes from Mr. Jeff Spector from Bank of America.

Jeffrey Alan Spector -- BofA Merrill Lynch -- Analyst

I appreciate, Joe, your balance comments in your introductory remarks. And just trying to think about many of the lessons you learnt during some of the worst months we've seen, let's say, March, April into May and recognizing, of course, the risks in the coming months, would you do anything different in the coming months, let's say, if the reopenings or closings continue versus what you initially did?

Joseph D. Margolis -- Director and Chief Executive Officer

So I can't tell you we were perfect, right? We certainly did things and learned lessons that we will apply in the future. One thing that I will tell you that a company like Extra Space that has a large portfolio has an advantage is we don't have to guess too much of things. So as we were going as we were faced with many of these new situations, we very quickly tried different things in a test basis in several hundred stores and learned what worked and what didn't. So we didn't have to make kind of final decisions for the whole portfolio. And that was very beneficial because we were faced with new customer situation, new customer behavior. We were able to quickly get to what perform best. And we'll certainly take those lessons with us in the future and also take our testing culture and approach to new situations with us as well.

Jeffrey Alan Spector -- BofA Merrill Lynch -- Analyst

And I mean, again, just thinking about the comments, in particular, the risk of with the auctions and a lot of them, let's say, happening in September outside peak leasing. I mean, we've heard other sectors, people comment that this year that maybe there's no peak leasing. Maybe there's just a steady leasing. Maybe there's even pent-up demand, like again, I'm just trying to get a feel for your comments, and I totally respect and get the comments that we need to be cautious here, there's still a lot of risk. I think expectations coming into the year, by the way, were pretty low but I mean, do you think that there actually was a peak leasing? Or is this just a could the fall surprise us?

Joseph D. Margolis -- Director and Chief Executive Officer

I agree with you. I think we don't know. I think we're in a new situation, and we don't know if there will be steady leasing, if there is pent-up demand or if we'll see the more traditional leasing patterns. And it's one of the reasons we're uncomfortable providing guidance on what's going to happen for the rest of the year because there are these unknowns.

Operator

And our next question comes from Mr. Todd Thomas from Keybanc Capital Market.

Todd Michael Thomas -- KeyBanc Capital Markets -- Analyst

Just first question, following up on the bad debt expense. Scott, you indicated that historically, the reserve is 1.6% to 1.8% of revenue. So 50% greater this quarter, an incremental 80 to 90 basis points of bad debt, is that going to trend higher in future quarters? Or will that normalize beginning in third quarter as you work through some of the auctions and delinquencies?

Scott Stubbs -- Executive Vice President and Chief Financial Officer

So we would I think July will be a little bit higher, but we would expect it to normalize going forward. And what we're basing that on is if you look at our 0 to 60 ARs, they're back to historical norms. They're not continuing to grow. So assuming that continues, that trend continues, those 0 to 60's become your 60-plus if they were not paying. And so the fact that they've gone back to historical norms. Hopefully, everything else goes back to historical norms from here. So by the end of July, you've recognized the majority of your bad debt related to this.

Todd Michael Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then the delayed auction activity that's causing this inflated sort of physical occupancy. Have you started getting back units at all or with notice periods, as you mentioned, is that process really just beginning now? And then as we think about the auction activity increasing in the months ahead, is that going to result in an influx of rentable units and effective sort of increase in supply coming back to the market over the next few months? Or is that not the right way to think about it?

Joseph D. Margolis -- Director and Chief Executive Officer

So we have one of the negatives of the delay in auction is the opportunity cost to not being able to get the unit back. So we actually absolutely will try where we can to work with our tenants and make some arrangement where they turn the unit back to us so we can retenant it. But the majority of the units have to go through the auction process. We won't get them back until late in the third quarter. And at that point, we'll have to retenant them. And kind of similar to Jeff's question earlier, we'll see what the environment is then to do so.

Todd Michael Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then can you just comment on what the recovery rates or, I guess, the collection rates have been like on the ARs here? Are you seeing bigger write-offs that you have historically. Is there any information you can share on that?

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Todd, our recoveries have actually been slightly better than the historical norm. We'll see if that continues, but that's been our experience so far in the auctions that have happened.

Todd Michael Thomas -- KeyBanc Capital Markets -- Analyst

What do you attribute that to?

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Some of these people might just be choosing not to pay. And so they may just be paying late versus having a true problem. I don't know for sure. That's some of our speculation.

Joseph D. Margolis -- Director and Chief Executive Officer

One thing we see across other asset classes is when the government tells you, you don't have to pay or the government tells you there's no penalty if you don't have to pay, some people just choose not to do so.

Operator

And our next question comes from Mr. Samir with Evercore.

Samir Upadhyay Khanal -- Evercore ISI Institutional -- Analyst

Scott, as we think about the headwinds we're facing now, and you've talked about the occupancy for being inflated, 200 basis points to 325 basis points of AR, which could potentially be bad debt, is this a set up to a quarter, the third quarter where things are going to get worse before they get better? Or do you think the second quarter is sort of the trough in revenue growth? And then there's sort of enough tailwinds where we start to see improvement going into the back half of this year, where things are still negative but less bad.

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Yes. So first of all, I think just to clarify one thing, that AR, the majority of that has a large majority of that has already been written off. So you basically reserved for it in the second quarter. Once they hit that 60 to 90 days, especially the 90 day, accounts receivable have been reserved for. So we don't expect that to be a negative in the third quarter to the degree it was in the second quarter. We do expect those units coming back online to be a potential headwind for us.

Samir Upadhyay Khanal -- Evercore ISI Institutional -- Analyst

And what about just kind of following up with the tailwinds, do you think there's enough sort of tailwinds here to see some improvement in revenue growth, where things are going to be less negative? Or that's too early to say right now?

Joseph D. Margolis -- Director and Chief Executive Officer

So we I mean, we always hope for, and we have confidence in our team and our systems that we're going to get every dollar we can and optimize performance. But I would tell you there's enough uncertainties in macro economy and other factors that we can't say for certain now.

Samir Upadhyay Khanal -- Evercore ISI Institutional -- Analyst

Okay. And I guess just another question for me, and I know this was addressed a little bit earlier on ECRIs. But just maybe a little bit more color, California is well documented with sort of a 10% max or increase in that. And I think some of the other states and municipalities have applied restrictions as well. But do you think how should we think about sort of the pushbacks you're getting from states and municipalities. And it's not really a question for this year's growth, but as we think about maybe growth in the next year, how should we think about growth from the ECRI perspective?

Joseph D. Margolis -- Director and Chief Executive Officer

Well, we would hope that these restrictions would be lifted, and we can go back to our normal operating practice with respect to ECRI auctions. But we don't control that. So our job is to control what we can control and maximize performance and follow the law in other places.

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Samir, the other thing I would maybe add there is, they're not necessarily additive in a normal year. But in a year like this, where they are going to be below average, if you have certain states that either don't allow them or allow them to a limited amount, it does make it difficult to continue to grow your revenues, especially for customers who came in at a level significantly below street rate. It's difficult for us to move them more quickly to the average rate there.

Operator

Our next question comes from Mr. Ryan Lumb from Green Street Advisors.

Ryan Gregory Lumb -- Green Street Advisors -- Analyst

Joe, last quarter, you shared the view that we're likely to see a good number of distressed C of O deals or stores in some stage of lease-up coming to market, given the stress in the market. Given what appears to be at least some improvement in demand in recent weeks, do you still anticipate the same volume of distressed assets coming to market maybe this year or next?

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. I think there's going to be a number of stores that were not stabilized that the owner or the lender or the equity investor is going to force some type of capital then. So I would say yes.

Ryan Gregory Lumb -- Green Street Advisors -- Analyst

Okay. And then I think you had mentioned in the past that when the operating margin changed so dramatically in March and April that many of the rules or relationships that govern sort of the revenue management system were either sort of less effective or not applicable to the very new environment. And the approach to revenue management had to sort of temporarily be reworked. Just curious any color would be great. To what extent has the approach to revenue management sort of returned to normal? Or are we still operating in sort of a this time is different, just trying new things?

Joseph D. Margolis -- Director and Chief Executive Officer

Well, I guess part of my answer is, I would say, at Extra Space, we're always trying new things. We're always testing, innovating, trying to make the tools a little sharper and seeing what works. As I said earlier, I think we've learned a lot through this experience, some of which may the permanent lessons and some may just be temporary. We are seeing more return to normal in terms of customer behavior. So for example, our walk-in traffic has improved significantly. And that's an important metric that we look at and govern some of our behaviors.

Operator

[Operator Instructions] Our next question comes from the line of Mr. Mike Mueller from JPMorgan.

Michael William Mueller -- JPMorgan Chase & Co -- Analyst

A couple of questions, and I've had phone issues, so I apologize if this was addressed earlier. First, can you disclose, if you haven't already, what the rate is on the mezz investment that you made? And then second, if you're looking at C of O deals in the market today, have you seen any meaningful changes to pricing?

Joseph D. Margolis -- Director and Chief Executive Officer

So we have not approved a new C of O deal, certainly, in 2020, maybe even for 12 months. I'd have to think about that. But we have not certainly not approved a new C of O deal in 2020. They just pricing doesn't seem to make sense for us now. The rate the base rate on our note is 5.5% and the yield to maturity is 6.1% on the senior mezz note that we bought.

Piljung Kim -- BMO Capital Markets -- Analyst

I think, Scott, you mentioned expense pressure on payroll, which I thought was interesting just given the unemployment rates. But I was wondering if you can comment on that as well as the potential ability to more permanently alleviate this cost with either touches leasing or variable employee hours.

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Yes. So the payroll cost comes the pressure on payroll comes more from a tough comp from last year. Our payroll was actually very low last year in one or two quarters, I believe we were negative. So it's tough comps is the main comment there. In terms of what we're looking at, and we think our managers are important. We think they're an important part of the sales process. We're always looking for opportunities to go touchless and deliver our customers the product in the manner that they would like to consume it. So the example I would give you is pre-COVID, I think most people enjoyed working with a manager, liked their managers. They were very successful in leasing units. Since this has happened, we've gone to a touchless process where our managers are involved via telephone. And we have expanded that even further where they can do a complete rental online at 3:00 a.m. with no manager involvement. And that's at, I believe, about 1,200 of our stores as of today. So we continue to evolve that.

Piljung Kim -- BMO Capital Markets -- Analyst

Okay. And then you also mentioned that you're actively or more actively pursuing acquisitions. I was wondering if you could elaborate on how pricing has moved and if you're seeing more interesting opportunities in newly developed products, stabilized assets or more potential net investments?

Joseph D. Margolis -- Director and Chief Executive Officer

So I'll clarify my remarks. I didn't mean to give the impression we are more actively pursuing acquisitions. We're always pursuing acquisitions. We're always looking for ways to smartly grow this company and we're lucky to be in a great capital position where we have plenty of capital of all different sorts to pursue any acquisition that we think makes sense. The acquisition market has been somewhat muted in terms of things coming to the market and particularly things that seem to make sense for us. But we're always trying to find smart ways to present a good risk profile for us to grow the company. So whether that's acquisitions, acquisitions and ventures, reinvesting in our existing properties through expansions, bridge loans, buying the mezz loan that we just bought. We're just going to try to be smart allocators of capital.

Piljung Kim -- BMO Capital Markets -- Analyst

How has pricing moved?

Joseph D. Margolis -- Director and Chief Executive Officer

So I don't think pricing has moved for stabilized properties. And there's not a ton of comps out there. But if you have a stabilized self-storage asset, it's going to attract in a good market, it's going to attract a very low cap rate, because people understand the stability of cash flow that comes from the self-storage assets, rates are low and the alternatives are not as good. So I think cap rates are still low. What is much more difficult to say is on a lease-up asset one's view of the cap rate depends on one's view of the timing and rate on which you can lease-up that store, and people can have very, very different views of what that is. And I would say pricing is uncertain.

Operator

And our next question comes from Ronald with Morgan Stanley.

Ronald Kamdem -- Morgan Stanley -- Analyst

Two quick ones from me. One was just going back to sort of the bad debt. I know the apartment peers reported some variations geographically. Just curious, when I think about states like New York, New Jersey, California, was there any sort of notable differences there versus sort of the average of the portfolio? Or any other color you could provide?

Joseph D. Margolis -- Director and Chief Executive Officer

So some observations we can make, we are seeing higher ARs at stores that are in markets with lower household income. And also it stores if there's more cash-paying customers as opposed to credit cards. But the biggest impact is if you kind of get the trifecta of lower household income, lots of cash-paying customers and you're in a state where we can auction, that's where we have the highest.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. That makes sense. The other question was, we're hearing a lot more about theme of deurbanization, i.e., people moving from urban to suburban. And just curious when you think about your portfolio, are you seeing that translating into potentially more traffic or more demand in your on the margin for your suburban versus the urban part of the portfolio? Or it's just too tough to tell?

Joseph D. Margolis -- Director and Chief Executive Officer

So I would say we're seeing good demand across our portfolio. And if there is that trend, it is probably too early to tell. But one of the advantages of having a broadly diversified portfolio across a lot of primary and secondary or urban and suburban however want to characterize them, growth markets is we should be in a good balanced position to benefit from that if it occurs.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. And the last one if I may, you mentioned July occupancy, did you provide July achieved rates as well?

Scott Stubbs -- Executive Vice President and Chief Financial Officer

We did not. Let me just kind of give you a little history of the rates through the quarter and how they progressed. Negative 10% in April, negative 20% in May, and this is our achieved rates, negative 16% in June and then July, our achieved rates were effectively flat. Now that sounds great, if you don't put that in context. And the context I would give you is, one, July was an easy comp. Last year, we actually dropped rates in July to increase our occupancy. And then 2, we've seen a shift in channel in July, where we've seen more tenants coming walking in and renting an effective through our highest channel. It's our highest-priced channel. So we're encouraged by July and especially the trend of going from being so negative in May to being flat in July, but I think that it probably helps that little context there.

Operator

And our next question comes from Mr. Rose from Citi.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

It's Michael Bilerman here with Smedes. Joe, you made the SmartStop preferred investment last October, $150 million, which had a $50 million add-on feature. Had you did you invest that in the quarter? Or do you have plans due by October, which I think was the 1-year time line?

Joseph D. Margolis -- Director and Chief Executive Officer

So that decision SmartStop will make. We can't force them to take that money, they have the option to take that money.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

And your discussions with them will make that likely or unlikely? Would you which way are they going to draw that capital? And do you have any sort of details on how the portfolio is trending?

Joseph D. Margolis -- Director and Chief Executive Officer

So SmartStop would be the appropriate folks to ask if they want to take the capital or not. I don't want to speak for them. And we do monitor their portfolio. And I think they're I mean they're a good manager, and they're performing similar to other good managers in the country.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

And how do you when you look at the competitive landscape, what are you seeing from the larger or institutionally owned platforms versus the smaller operators? And what sort of opportunities but also challenges does that present in still a pretty dispersed set of owners in terms of the competitive landscape?

Joseph D. Margolis -- Director and Chief Executive Officer

It's a difficult question to answer, Michael, because there's not a lot of clarity as to how some of the real small folks are behaving. You really don't know what their occupancy rate expenses are until they want to sell it, and you can take a look at their financials. In general, when we see smaller operators either because they want us to take over management of their stores or because they're putting their store for sale, we can do better than they can. It's just as simple as that. We can run the stores better, we can fill them up more and we can get higher rates. And I don't think that has changed at all because of COVID. If anything, I think maybe because more customers are now accessing storage through the web, our advantages may have improved.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

And then you said the yield on the mezz was in the 5s with, I think, the 6.1% yield to maturity, where you stand within the capital stack. I think you talked a little bit about the per square foot sort of value, but can you talk about the capital structure, the yield and I recognize rates are low, but the yield for mezz just seems light. So maybe you can just talk through the dynamics a little bit?

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. So I can't really talk about capital, but it's the question I would ask, right? It's a great question. What percentage are you, but I can't really talk about that because I don't want to talk about our valuation of the portfolio. But if you think about self-storage and a $53 a square foot number, it will tell you we're in a pretty secure, very secure part of the capital stack.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

So maybe just talk about the capital structure without I mean without giving us the equity value, maybe just talk through how much debt is there? Is there other sort of loans that are outstanding? Is there a pref? Just to understand the pieces that are in front of you or behind you?

Joseph D. Margolis -- Director and Chief Executive Officer

So there is about $100 million first. There's our piece, and then there's a junior mezz of about $82 million, and then there's the equity. So our loan-to-value is much lower than a traditional mezz where you would expect to see a higher interest rate.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

Right. Where you have that $82 million of junior. So it's the thing's got to fall pretty dramatically for you to be in the ownership position versus just getting repaid?

Joseph D. Margolis -- Director and Chief Executive Officer

Correct.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

But you got to blow through that $82 million of junior mezz?

Joseph D. Margolis -- Director and Chief Executive Officer

That's correct.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

And then is there anything on the valet storage side that you've witness sort of during this pandemic. Has that increased at all? Are you finding that an increased competitive source at all as people want to maybe just store their goods and let someone else grab it from them?

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. I would not say we've seen increased competition from valet during the pandemic. We've not observed that.

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

I certainly wouldn't want something coming to my home. But I just didn't know whether there was just given the movement of people, whether that was being used by others.

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. We

Operator

And our next question comes from the line of Jonathan Hughes with Raymond James.

Jonathan Hughes -- Raymond James & Associates -- Analyst

On the external growth front, have you guys looked at any large portfolios lately or just one-offs? I know you mentioned you always look at external growth opportunities. We did see a big portfolio transact recently. Curious if you looked at that one or if it's more of a focus on the one-off opportunities.

Joseph D. Margolis -- Director and Chief Executive Officer

So we're an active acquirer every year of storage. And because of that, we are brought and we see every opportunity in the market. We underwrite them all. We look hard at them. And where we think that we can acquire it in an accretive fashion, we'll try to execute. And if not, we'll let it go. So we I feel confident saying that we see and analyze everything that's out there.

Jonathan Hughes -- Raymond James & Associates -- Analyst

Okay. And then can you quantify the NOI exposure to those six states that are prohibiting the rate increases? Is that similar or maybe identical to the, I think, 47% of NOI under auction restrictions?

Joseph D. Margolis -- Director and Chief Executive Officer

It's much less than the 47% looking at the stage now. I don't have a number for you. We can get that. We just we'll get that number to you.

Operator

Our next question comes from Mr. Steve Sakwa with Evercore ISI.

Stephen Thomas Sakwa -- Evercore ISI Institutional -- Analyst

Just wanted to ask about new supply and kind of the pipeline. I guess the macro data still shows it being relatively elevated and kind of the future pipeline is still high as well. Joe, I'm just curious if you kind of think that, that data is accurate or kind of overstate? And what do you think it really takes to see the pipeline materially come down? Because I know some of the starts and completions got delayed. But it still seems like there's new projects going in, which sort of seems hard to think that they pencil today, but just curious on your thoughts moving forward.

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. So macro data is always interesting, but it's important to remember that we're in a very, very micro market business. So the fact it's much more interesting where the stores are going, then how many of them are going. So if development turns off in a market that has seen oversupply, that market will recover even if the macro data shows development is in other markets. So we see the macro data that's available, it is a little overstated. It is also subject to delays. Even in non-COVID years, there's been substantial delays. I think they don't take projects off their list that get killed as quickly as they could. It's not a criticism, it's hard information to get. But I'm not disagreeing with your point that we're still in the development cycle. There still are going to be projects that are going to be delivered, and it's still something we're going to have to operate through in many markets.

Stephen Thomas Sakwa -- Evercore ISI Institutional -- Analyst

And I guess, just maybe as a follow-up, I mean, when would you expect kind of the I guess, a sharper fall off of new supply in your submarkets? Is that more or like the back half of 2021? Or are you really looking more like a '22 at this point?

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. I think it's going to be a gradual decline in deliveries across all markets as opposed to development's going to fall off a cliff, and there'll be no more development anymore. So I didn't give you a year on purpose, I'm sorry about that.

Operator

And ladies and gentlemen, at this time, we have no further questions. Mr. Joe, would you like to have any last remarks?

Joseph D. Margolis -- Director and Chief Executive Officer

Yes. So thank you, everyone, for your interest. As I said earlier, we have some headwinds. We're battling through them. We will control, we can control and focus all our efforts on enhancing shareholder value regardless of what gets thrown at us. I hope everyone and their families are well. We will get through this, and we will have better time soon. Thank you very much.

Operator

Yes. So thank you, everyone, for your interest. As I said earlier, we have some headwinds. We're battling through them. We will control, we can control and focus all our efforts on enhancing shareholder value regardless of what gets thrown at us. I hope everyone and their families are well. We will get through this, and we will have better time soon. Thank you very much.

Duration: 49 minutes

Call participants:

Jeffrey Norman -- Investor Relations

Joseph D. Margolis -- Director and Chief Executive Officer

Scott Stubbs -- Executive Vice President and Chief Financial Officer

Richard Wynn Skidmore -- Goldman Sachs Group -- Analyst

Smedes Rose -- Citigroup Inc. -- Analyst

Jeffrey Alan Spector -- BofA Merrill Lynch -- Analyst

Todd Michael Thomas -- KeyBanc Capital Markets -- Analyst

Samir Upadhyay Khanal -- Evercore ISI Institutional -- Analyst

Ryan Gregory Lumb -- Green Street Advisors -- Analyst

Michael William Mueller -- JPMorgan Chase & Co -- Analyst

Piljung Kim -- BMO Capital Markets -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

Michael Jason Bilerman -- Citigroup Inc. -- Analyst

Jonathan Hughes -- Raymond James & Associates -- Analyst

Stephen Thomas Sakwa -- Evercore ISI Institutional -- Analyst

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