Life Storage, Inc. (LSI) Q1 2021 Earnings Call Transcript

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Life Storage, Inc. (LSI)
Q1 2021 Earnings Call
May 5, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Life Storage first quarter earnings release.

It is now my pleasure to turn the floor over to your host, David Dodman, Senior Vice President of Investor Relations and Strategic Planning. Sir, the floor is yours.

David Dodman -- Vice President of Investor Relations

Good morning, and welcome to our first quarter 2021 earnings conference call. Leading today's discussion will be Joe Saffire, Chief Executive Officer of Life Storage; and Andy Gregoire, Chief Financial Officer. As a reminder, the following discussion and answers to your questions contain forward-looking statements. Our actual results may differ from those projected due to risks and uncertainties with the company's business. Additional information regarding these factors can be found in the company's SEC filings. A copy of our press release and quarterly supplement may be found on the Investor Relations page at lifestorage.com.

[Operator Instructions] At this time, I'll turn the call over to Joe.

Joseph V. Saffire -- Chief Executive Officer and Director

Good morning, and thank you for joining this morning's call. I am very pleased to report another solid quarter and a great start to this year. With record occupancy of 94% at quarter end, we have managed to grow occupancy by 460 basis points year-over-year, an incredible accomplishment, and I'm very proud of the entire Life Storage team. With this level of occupancy, we have been aggressively pushing asking rates while also decreasing free rent, resulting in higher net effective rates, which were up roughly 20% for the quarter. Further, we have been very active on the acquisition front, with 33 stores acquired or under contract since the beginning of the year. These stores are a blend of lease-up and stabilized and as a group, will be immediately accretive and growing thereafter. We also continue to see strong growth in our third-party platform with 18 new additions during the quarter and a very robust pipeline as more and more owners consider Life Storage as a leading candidate to manage their stores. And we continue to see further traction in Warehouse Anywhere with a significant contract for our Enterprise product.

This product is unmatched in the self-storage industry, and we continue to drive more corporate business to our unique solution. These enterprise customers would unlikely be using self-storage for their inventory needs, if it were not for Warehouse Anywhere brings to the table. Our newer Lightspeed product also continues to expand with now three fully operational micro fulfillment centers and three more in the works to open over the coming months. Revenue for this business will continue to grow as we add more and more clients to our last mile fulfillment solution. This solution is also unmatched in the self-storage industry. With all of this success and growth, we exceeded our expectations for the quarter, and as such, are increasing our guidance for the remainder of the year. We are raising the midpoint of our estimated adjusted funds from operations per share by more than 3% to $4.37 this year, which would be 10.1% growth over 2020.

And with that, I will hand it over to Andy to provide further details on the quarter and revisions to our guidance.

Andrew J. Gregoire -- Chief Financial Officer

Thanks, Joe. Last night, we reported adjusted quarterly funds from operations of $1.08 per share for the first quarter, an increase of 16.1% year-over-year. First quarter same-store revenue accelerated significantly again to 7.3% year-over-year, up 240 basis points from the 4.9% growth produced in the fourth quarter. Revenue performance was driven by a 410 basis point increase in average quarterly occupancy. That occupancy is augmented by positive rent roll up. In the quarter, our move-ins were paying almost 6% more than our move-outs, which is a significant improvement from the rent roll down that we experienced in the same quarter last year. Our move-ins have been paying more than our move-outs for six straight months, with March move-ins paying almost 8% more than move-outs. Same-store operating expenses increased 4.7% year-over-year for the quarter.

The largest negative variance during the quarter occurred in repairs and maintenance, which increased primarily due to higher snow falling expense and miscellaneous repairs following record cold weather earlier this year. Payroll and benefits, again, remained well controlled, up only 1.8% year-over-year, while advertising and Internet marketing costs were down 2.6%. The net effect of the same-store revenue and expense performance was an increase in net operating income of 8.6% for the quarter. Our balance sheet remains strong. We supported our acquisition activity and liquidity position by issuing approximately $180 million of common stock via our ATM program in the first quarter. Our net debt to recurring EBITDA ratio decreased to 5.5 times, and our debt service coverage increased to a healthy 4.9 times at March 31. At quarter end, we have $457 million available on our line of credit, and we have no significant debt maturities until April of 2024 when $175 million becomes due. Our average debt maturity is 6.7 years. Regarding 2021 guidance, we've increased our same-store forecast, driven by higher expected revenues and unchanged expense expectations.

Specifically, we expect same-store revenue to grow between 5.5% and 6.5%. Excluding property taxes, we continue to expect other expenses to increase between 2.25% and 3.25%, while property taxes are expected to increase 6.75% to 7.75%. The cumulative effect of these assumptions should result in 6.5% to 7.5% growth in same-store NOI relative to our original guidance of between 3.75% and 4.75%. We have also increased our anticipated acquisitions by $175 million to between $550 million and $600 million. Based on these assumptions changes, we anticipate adjusted FFO per share for the 2021 year to be between $4.33 and $4.41.

And with that, operator, we can now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question today is coming from Todd Thomas at KeyBanc. Your line is live.

Todd Thomas -- KeyBanc -- Analyst

Hi, Thanks. Good morning, First question on acquisitions. Joe, I was hoping that you could provide some color on the investments completed in the quarter, and what's under contract in terms of where you're finding these opportunities? Are they mostly single asset transactions? Or are there some portfolios in the mix? And then given the increased competition out there for investments, are you confident in Life's ability to continue acquiring at this pace moving forward?

Joseph V. Saffire -- Chief Executive Officer and Director

Hi, Todd, yes, I am confident to answer the second question first. We've been at this game since our inception. We've got a lot of relationships out there in the market. We've been working these relationships for years, and we feel very confident. I think about 80% of the deals that we've closed or are under contract are off-market, so there's no broker involved. For example, the Florida portfolio is a family run business, eight stores. We've been calling them for over three years. And when they're ready to sell, we were there with the phone call, and that's a wonderful opportunity for us.

At the same time, a lot of the deals that were -- are in the lease-up side, so about half of our product that we are under contract or have bought are about lease-up and half are stabilized. A lot of the lease-up are stores that we know were -- there are third-party stores, and we know the owners, and we've been able to get the majority of those off-market as well. So yes, we feel pretty confident that there'll be more opportunities like this. This is -- three years now, we've had a lot of good acquisitions, and I'm pretty confident there's going to be more to come.

Todd Thomas -- KeyBanc -- Analyst

Okay. In terms of pricing, just given the mix of, I guess, lease-up and stabilize in the acquisition pool here. Can you comment on cap rates and provide a little detail on the yields there?

Joseph V. Saffire -- Chief Executive Officer and Director

Sure. Sure. The -- what we've closed on in the quarter, year one is about a 4.1% cap, growing many of them north of 5% to 6%, depending on where they are. But if we combine that with what we have under contract, subsequent to the quarter, those are a little bit better, about 4.8% cap. So the blended cap rate of all 33% is about a 4.5% cap. And again, half of those are lease-up. So pretty -- we're very pleased with that.

Todd Thomas -- KeyBanc -- Analyst

Okay. That's helpful. And then I just wanted to touch on Warehouse Anywhere. I was wondering if you could provide a little color on the contract and provide an update, I guess, on the outlook for fee income related to Warehouse Anywhere. And maybe in that context, you could just talk a little bit about the pipeline and demand and what you're seeing there relative to the 300-unit agreement that you announced this quarter?

Joseph V. Saffire -- Chief Executive Officer and Director

Sure. So Todd, as you know, Enterprise is really our initial product, aside from our -- just the storage management piece, where there's no technology. And we've been working on that business for a few years, and it's really a longer sales cycle because you're really focused on larger corporations who need that product. And we're now starting to talk about Enterprise as being almost our mature product compared to Lightspeed because we are starting to see the traction.

The word is getting out. This particular contract was an RFP that our team was able to bid on. And it was an RFP that none of the other storage companies would know about it or bid on it. We're really competing with some other types of logistics companies. And it was not a slam dunk that we would win it. Even though we had them as an initial customer, they were working with us for a while. But this is a big jump, 300 more spaces, almost double the number of current spaces we have entirely, not totally double, but close.

So a very significant win for us. We're very excited about it. This particular contract, it will roll out over the course of this year. It takes some time to work with the client and get it up all and running. But when it's all done and implemented, the fee income should be about $2 million a year. It's a multiyear contract. And on top of that, we would get the premium right as well.

Todd Thomas -- KeyBanc -- Analyst

Okay. The $2 million is just from this 300 unit agreement?

Joseph V. Saffire -- Chief Executive Officer and Director

Yes.

Todd Thomas -- KeyBanc -- Analyst

Got it. And just lastly, the -- can you talk a little bit -- it sounds like you mentioned it was a multiyear agreement. Can you share a little bit of detail around the length of lease and sort of how the rates stack up versus non-Warehouse Anywhere customers for the storage units and maybe provide a little bit more detail on the economics.

Joseph V. Saffire -- Chief Executive Officer and Director

Sure. What we like about our Warehouse Anywhere customers is typically, we do have -- it's not a month-to-month lease. This one, in particular, is a three year lease. It has some escalators incorporated into it. And typically, we -- the rent is at a premium, maybe 10% more than what we would typically get from a consumer who walks in the door.

So it's a great product, both for the fee income from the inventory technology, but also as a tenant. I mean that's just why we love this business. We love commercial customers. They tend to stay longer. They pay premium rents. We can hopefully upsell the inventory tracking. And it's a great use of our storage assets.

Todd Thomas -- KeyBanc -- Analyst

Thank you.

Joseph V. Saffire -- Chief Executive Officer and Director

Thanks.

Operator

Thank you, Our next question today is coming from Samir Khanal at Evercore ISI. Your line is live.

Samir Khanal -- Evercore ISI -- Analyst

Hey, Joe, just getting back to Warehouse Anywhere and not really just focusing on this customer that you signed with, but just looking at sort of the big picture. Just trying to understand how big of an opportunity set is this for you as you think about sort of the financial impact and maybe just trying to put some numbers around the platform here?

Joseph V. Saffire -- Chief Executive Officer and Director

Well, it really has come down to two different types of businesses. Our Enterprise business, which is the one that is more mature, which I just spoke to. That one has been growing at a nice clip. I think, over the last year, we increased the number of customers by 50% growth. And we added nine new customers. And that's the type of business it is. These are kind of bigger customers, and you're not going to bring in hundreds of new customers, but it's been growing, what, any, 10%, 20% or so. The Lightspeed is the one where we're building out the micro fulfillment centers. And again, it's -- we want to see how these things do. But early indications are very exciting for us. We have the three opened. We started with Atlanta. We opened up Vegas. We opened up Chicago, and we're already expanding Atlanta.

So it tells us that as these things are open and we get everything we need in there to properly function and operate as a three PL, that the volume will pick up. And that's pretty much what's happening right now. We started off a little bit slow in Chicago and Vegas as we work out kind of the kinks. And now we're seeing the volume really starting to pick up in both of those new fulfillment centers. And we're on track to open up another one on the West Coast, another one in Texas, and hopefully, one in Florida as well. So we're really excited about it, Samir, but we don't want to put a number in terms of how big we think it can get. This year is really about kind of building out sort of our regional locations. And at the same time, we're still building out our technology. We are really excited about the technology that's going to allow us to have a proper warehouse management system to connect to the likes of Shopify, so that we can attract more and more direct customers who are selling online, and that's the idea.

Samir Khanal -- Evercore ISI -- Analyst

Okay. And I guess my second question is around revenue growth and sort of the cadence of revenue growth over the next several quarters as we think about second quarter and kind of the second half, especially in particular occupancy and maybe you can provide some color on that?

Andrew J. Gregoire -- Chief Financial Officer

Yes, Samir, the second quarter, you will see very strong results in the industry, right? We have an easier comp but we're also going into it in a very strong place. Obviously, occupancy at all-time highs. Rates moving quicker than we had expected just a few months ago. When you saw January rents were up, Street rates up 9%. And then we saw February grow 15% and March 27%, April more than that.

So they're accelerating. So we would expect very strong numbers Q2. We have increased what we expect in the second half of the year, but we still expect to return to normal seasonality. So we would -- we're going to be a little bit higher in mid-summer than we expected, but we do expect that by the end of the year, we would be occupied on slightly lower than we were last year. Again, rates climbed from July to December last year, very unusual and so did occupancy. It held relatively flat. We do expect to return to normal seasonality in the second half of the year.

Samir Khanal -- Evercore ISI -- Analyst

Thank you.

Andrew J. Gregoire -- Chief Financial Officer

Your welcome.

Operator

Thank you. Our next question today is coming from Jeff Spector at Bank of America. Your line is lived.

Jeff Spector -- Bank of America -- Analyst

Good morning. My first question is a follow-up on the last discussion on the revenue guidance bump. Given it was so significant, what gave you the comfort to boost it so much right now? Maybe you could tie that into comments around traffic or things you're seeing on the ground? And maybe the second part would be any regional breakouts you can discuss?

Andrew J. Gregoire -- Chief Financial Officer

Sure. Jeff, I think there's a few things we've seen over the last few months that gave us the confidence to bump guidance. Number one was we have seen no evidence of elevated move-outs. We expect that at some point, we'd start to see those elevated move-outs. And obviously, our move-outs for the quarter are down 5% year-over-year, which was pre-pandemic, were comparable. So it was a straight comparable, and our move-outs just remain lower than expected. And our move-ins are pretty much acting as they would in a normal season. So we had thought potentially we had pulled some demand forward to the fourth quarter of last year. We're not seeing that. We're seeing a very similar busy season start that we saw in any other year prior to 2020. We're also seeing the length of stay of our customers. Move-out customers have still been with us about 16 months, the average for those that have moved out.

But the customers that moved in for the first nine months of last year are staying -- the median length of stay is 1.5 months longer than our typical median, which is usually about 6.5 months. They're now staying -- those have stayed eight months. So that's given us more comfort. And then the faster acceleration in rates, like I said, we were up 9% in January; by March, we were up 27%; and in April, significantly higher than that. Rates are going in the right direction.

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. And I think, Jeff, it's Joe. Just on the regional comment, again, we're seeing strong demand coast to coast. But some of our biggest markets, we're excited about Miami for the first quarter, top 10 market. Asking rates are up 40%. Houston, they're up 25%; Chicago, up 22%; New York, up 20%. Texas, in general, we're quite pleased about what we're seeing there. Occupancy is improving in places like Dallas, which was really one of our concerned market.

Occupancy was up 600 basis points to 96.5%. Houston was up 260 basis points to 93. And Austin is doing great with up 540 basis points to 95%. So obviously, our Texas markets are doing very well, excited about that. We're excited about being there. And obviously, our Florida markets as well doing well as well.

Jeff Spector -- Bank of America -- Analyst

Thank you, My one follow-up would be, are you seeing less-than-expected pressure from supply that was delivered, let's say, last year or the prior year or even this year?

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. Last year was a quiet year with some of the delays. I think it was 46 stores that came on. And that's -- I think there was about 200 a year before that. And this year, we're seeing maybe 100 stores come on, so still less than 2019 volume. And when we look at what's out there, I mean, it's not an exact science. But when we look out to 2022, we think it might be just about another 100 or so. So still a couple of good years in terms of new supply coming on in the foreseeable future.

And there's a lot of things for that. I mean, obviously, the cost of construction has gone to the roof. The money that is required to make some land acquisitions and get it properly zoned is increasingly more difficult. There might be other uses of that land such as multifamily as there's a shortage of housing. So I think there's a lot of good things to point out that might keep new supply at bay for 18 months or two years.

Jeff Spector -- Bank of America -- Analyst

Thank you.

Joseph V. Saffire -- Chief Executive Officer and Director

Your welcome.

Operator

Thank you, Our next question today is coming from Juan Sanabria at BMO. Your line is live.

Juan Sanabria -- BMO -- Analyst

Hi, Good morning. I was just hoping you could speak a little bit about the acquisition market. And any interest in stuff that's outside of the U.S., maybe in Canada, are you seeing any opportunities there? And if you could talk to maybe valuation differences between the U.S. and Canada, and if that's an interesting opportunity for you?

Joseph V. Saffire -- Chief Executive Officer and Director

Hi, Juan, well, we obviously operate up there. We manage a few stores for a good partner of ours who we've known for many years in the U.S. COVID has kind of put a little bit of a pause on our acquisition efforts up there. But we are getting to the point where we'd like to get our brand. Right now, we manage a third-party brand. We would like to do a couple of deals up there, get our brand up there, buy into the REIT or do some JVs. It's just that the border has been closed. Canada is hurting right now. The strength of the self-storage business in the U.S., it's not comparable in Canada. They've had much more of a lockdown, especially the GTA, and it's a bit of Tale of Two Cities, to be quite honest. So -- but yes, we do like that market. We think there will be opportunities. We've basically learned how to operate under there -- up there.

So if the right opportunity comes across, we will be able to participate and hopefully get up there. But for now, we're very busy in the U.S., extremely busy, probably the most acquisition deals that we're looking at in many years. And the pipeline looks very good. Obviously, we're not going to win everything, but we're in a very good position, I think, to continue to find good deals, both lease-up and stabilize, and all of which will support our expectations to grow FFO.

Juan Sanabria -- BMO -- Analyst

And then just on the occupancy front, has -- have you continued to build occupancy into April from kind of the period end in March? Or is it stabilized or...

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. No, I believe our occupancy -- yes, go ahead.

Andrew J. Gregoire -- Chief Financial Officer

Yes, it grew another 50 basis points. So it was 94.5% at the end of April, which is 480 basis points more than last April. So we continue to see some nice traction on the occupancy front.

Juan Sanabria -- BMO -- Analyst

Okay. And then just the last one for me, just on Jeff's question about supply. What kind of visibility do you have on 2022 at this point? I guess, what's the earliest that a new wave of supply do you think could start given the situation today?

Joseph V. Saffire -- Chief Executive Officer and Director

You know, It is a little bit difficult. What we try to do, we have our own ways of managing new supply. We look at what's in construction, and we keep an eye on that. And there's some pretty good sources out there that we also leverage. But we -- in terms of what's coming up 18 months later, we look at what's in planning, and we kind of take a ballpark percentage of what we think is in planning.

And we'll take a percentage of that, which actually goes into construction. So based on what we're seeing and based on kind of our construction pipeline and where it is, we think, right now, 2022 is showing roughly 100 stores in our markets that would come on in 2022. And I think I might have said 200 in 2019, it was more like 170 stores in 2019. So still far less than what we saw in 2019.

Juan Sanabria -- BMO -- Analyst

Thank you.

Operator

Thank you, Our next question today is coming from David Balaguer at Green Street. Your line is live.

David Balaguer -- Green Street -- Analyst

Good morning, thank you for taking my question. Just flipping back to Warehouse Anywhere. Understanding it's a pretty small portion of the business right now. But just looking toward the future, to what extent do you see that business line beneficial from sort of a customer diversification standpoint, perhaps in some markets that might face some supply moving forward in some of the out years?

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. David, it's a great question. I mean what we really like about Warehouse Anywhere is it's allowing us to attract more commercial clients. We love commercial clients. The industry is roughly 18%, 20% of stores is business related, it can be landscapers and so forth. We'd like to grow that. We're probably around 25%, given our focus on commercial. We'd like to get that up north of 25% because commercial customers are, as you point, with new supply coming on, they're -- it's a great new addition to a store. They're less seasonal, right? So it could take out some of the seasonality of your business. They tend to rent more than one space, and Warehouse Anywhere customers renting more than one market. Obviously, we have technology we can upsell, so we can attract fee income. So we're really excited about it. But there -- we have a solution to attract commercial customers. We can't just say, hey, we're going to get some more of these e-commerce customers to use our stores.

You really need to know how to attract them. And that's what we're doing with the micro fulfillment centers. We're providing them the services they need to look at self-storage as the actual partner for their inventory needs. They need the technology for their product to be put into a storage unit, to be controlled, to pick, pack and ship it and we have all of that. We have contracts with shipping companies to pick up packages and deliver them in an MSA. And that's what really is differentiating us. We are competing with companies out there that are trying to do what we're doing. Companies like ShipMonk and Flexe and Shipup, all of these companies are out there and what they don't have is real estate, which is what we have.

They have technology, which is what we're developing, but they're raising a lot of money. I think ShipMonk just raised nearly $300 million, Flowspace raised about $50 million, Flexe raised about $140 million, and that's who we're competing with. And we've got a great solution, and I think we're making really good progress on that. This is a really good year for us to build out that technology our -- we're learning a lot with our partner deliver, and we're going to get better at it. And we're going to have a nice business, I believe.

David Balaguer -- Green Street -- Analyst

Got it.Thank you. And then maybe just shifting gears back to cap rates, just looking nationally. As you look at deals, have you seen more relative compression in primary or secondary markets over the last quarter or two? And where do you see that moving forward?

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. I mean, for sure. I mean, obviously, there's a lot of demand for storage assets as some new players, private equity, and it is getting more competitive out there, especially for marketed deals. But we are seeing -- we're seeing some new construction in some secondary markets being planned. You've seen the performance in some of those markets do really well. I mean some of our secondary markets are doing extremely well. The question is, how long will they do well? So if you're a developer, you may not want to take that risk. So that might keep some new supply at bay for a while. But we are seeing the cap rates, and they're justified. I mean the rates are up, occupancy is up. So some of the cap rate compression is not just in the primary markets, it's also in secondary markets.

David Balaguer -- Green Street -- Analyst

Great, Thank you.

Operator

Thank you.

[Operator Instructions]

Our next question today is coming from Smedes Rose at Citi. Your line is live.

Smedes Rose -- Citi -- Analyst

Hi, thanks. I just had one question around. If you've heard anything from private owners around any reactions to potential changes in the tax structure with the doubling of capital gains, the elimination of the step-up, potential elimination of 1031 exchange. I mean is that percolating at all with owners? And are you having conversations over that? Or is it kind of too soon?

Joseph V. Saffire -- Chief Executive Officer and Director

I think it's still too soon, Smedes. I'm sure it's on everybody's mind. But I think it -- hopefully, we feel confident that the 1031 would remain with our ability to offer upgrade units. Would be a nice vehicle to defer tax. But it's still, I think, a little bit too soon. But with that said, we are seeing a lot more product come to the market, and that may just be a factor of where cap rates are today.

So -- and I think we're also getting to the point of maybe some generational change with some stores that you're starting to see some portfolios come up. There was a big one on the market, as you know. The one we were able to acquire in Florida, it was family run. So some of that is coming into play. So again, we think there's going to be more opportunities to grow. And this is our expertise. We're very good at acquiring. We've never been busier, and we think we're going to continue to get more than our fair share of deals.

Smedes Rose -- Citi -- Analyst

Ok, Thank you thats all for me.

Joseph V. Saffire -- Chief Executive Officer and Director

Thanks, Smedes.

Operator

Thank you, Our next question today is coming from Ki Bin Kim at Truist Securities. Your line is live.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks, Good morning. Just a couple of follow-ups here. On the Warehouse Anywhere now, you've got 300 locations. Are those 300 going into your portfolio? Or is that going into the network that you're managing?

Joseph V. Saffire -- Chief Executive Officer and Director

Hi, Ki Bin Kim. Yes, we have a 12,000 store network. It's still a little too early to say. We're plotting it out. We think at least 30% will be in our stores. And then the ones that are in our partner stores, we would get all the income from the inventory management piece and then we get a premium or a piece of the rental income. So it's really fantastic. That's why the solution is so unique. It's not just our 900-plus stores, soon-to-be 1,000 stores, hopefully, this year. It's our 12,000-plus network that is really attractive for customers looking for solutions for their logistics and inventory needs in every single market, which is what we can provide.

Ki Bin Kim -- Truist Securities -- Analyst

Okay. And the rent that you would get from those stores if they stayed in your network, your own portfolio, that would go into same-store revenue. And because you said rents are a 10% premium, I'm discussing in the near term, it might be additive to your growth as those come online?

Andrew J. Gregoire -- Chief Financial Officer

Yes, Ki Bin, the rent does go to the same-store, if that store is in the same-store pool. Obviously, some of those will go into some of the same-store, some will go into our managed stores. But the piece that is relative to same-store pool would be in the same-store rent, just the rent, not the fees. The fees don't go through that. But the rental income goes through the store.

Ki Bin Kim -- Truist Securities -- Analyst

Got you. And just last question. So one of your bigger competitors committed to doing a lot more development on a long-term basis. And I would assume that's not isolated to them. I mean the business has been fantastic, and market rents are up a lot. You marched through two recessions, pretty much unscathed the industry. Do you think that might prompt more development to come online, where as abatement is just maybe short lived?

Joseph V. Saffire -- Chief Executive Officer and Director

Well, again, I think -- we feel pretty good about the new supply that's going to come on this year and into 2022. But obviously, if this sector continues to grow demand, and if we're successful in attracting more commercial and e-commerce business, we're probably going to need more demand. Obviously, we're able to do some nice expansions, which are doing very well for us. We do $60 million to $70 million of those. If something came along, we would have the capability to develop ourselves, not that we have a program, but we do have the know-how. So we will watch it, Ki Bin, but I think for the next 18 months or so, I don't fear a new wave. It takes time, right? And things kind of started to slow down in 2018, 2019.

It's going to take some developers a little bit of time to find -- decide -- make those decisions, what they should do, given where the cost of construction is. And then also, they're going to do some budgets, what rates do they use. Do they use rates which is seen today or is it going to come back to earth, nobody really knows. So I think that's good news for any concerns about a wave of new supply in the immediate 18 months or so.

Ki Bin Kim -- Truist Securities -- Analyst

And to the extent you can talk about it, when you underwrite deals for acquisitions, how do you guys mentally think about what type of rent to model in, especially for 2022, do you assume like moderate growth in 2022 when you're doing underwriting on average or something more mean reverting?

Joseph V. Saffire -- Chief Executive Officer and Director

Yes. I mean it's a great question. Obviously, we take a lot of things into consideration. We look at what's being built in that -- near that store. We look at where rates are. We are putting -- we're not getting too aggressive here. We -- everything we actually underwrote is actually doing better than what we underwrote. So these cap rates that I mentioned, I think they're pretty good because we're seeing some nice growth for obvious reasons this year. But we still have a conservative angle to it, and we're being careful. But again, these stores we're finding, the majority of them are off-market and -- which is great.

I think what you have to be careful of is when you're bidding on a marketed deal, and that's where it can get aggressive and you can probably make some mistakes if you're assuming that this occupancy or these rates will remain for the next three years. You've got to be a little bit more reasonable when you're looking at those deals because it's getting pricey, as you know, some of these deals out there.

Ki Bin Kim -- Truist Securities -- Analyst

Ok, Thank you.

Operator

Thank you. We have no further questions in the queue at this time. Mr. Saffire, do you have any closing remarks you'd like to finish with?

Joseph V. Saffire -- Chief Executive Officer and Director

I'd just say thank you all for dialing in this morning. And the world opening up, hopefully, we'll get to see each other face-to-face sometime this year. Thank you.

Operator

[Operator Closing Remarks].

Duration: 38 minutes

Call participants:

David Dodman -- Vice President of Investor Relations

Joseph V. Saffire -- Chief Executive Officer and Director

Andrew J. Gregoire -- Chief Financial Officer

Todd Thomas -- KeyBanc -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Jeff Spector -- Bank of America -- Analyst

Juan Sanabria -- BMO -- Analyst

David Balaguer -- Green Street -- Analyst

Smedes Rose -- Citi -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

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