Extra Space Storage inc (EXR) Q3 2021 Earnings Call Transcript

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Extra Space Storage inc (EXR -0.60%)
Q3 2021 Earnings Call
Oct 28, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to Extra Space Storage Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Jeff Norman, Senior Vice President of Capital Markets. Sir, the floor is yours.

Jeffrey Norman -- Vice President of Investor Relations & Corporate Communications

Thank you, Joanna. Welcome to Extra Space Storage's Third Quarter 2021 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, October 28, 2021. 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 would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Thanks, Jeff, and thank you, everyone, for joining today's call. Well, we had an exciting quarter. I'm not sure how else to describe it. Among other accomplishments, we celebrated the addition of store #2000 to our portfolio. We were recognized by Inside Self-Storage as the Best Third-Party Management company in the industry, and we achieved some of the strongest operating results in our company's history. Same-store occupancy once again reached a new all-time high during the quarter at over 97%, with vacates continuing at lower-than-historic levels. Our strong occupancy resulted in exceptional pricing power. Achieved rates to new customers in the quarter were 43% higher than 2020 levels and 41% greater than 2019 levels. In addition to the benefit from new customer rates, we have continued to bring existing customers closer to current street rates as state of emergency rate restrictions continued to be lifted throughout the country. Other income improved significantly year-over-year, primarily due to increased late fees contributing 30 basis points to revenue growth in the quarter. We had modestly higher discounts due to higher street rates, but their impact was offset by lower bad debt. These drivers produced same-store revenue growth of 18.4%, a 480 basis point acceleration from Q2. And same-store NOI growth of 27.8%, an acceleration of 760 basis points. In addition, our external growth initiatives produced steady returns outside of the same-store pool, resulting in FFO growth of 41.2%. Turning to external growth. The acquisition market remains very active but expensive in our view.

Our investment team has never been busier, and we have found the most success acquiring lease-up properties and/or acquiring stores with the joint venture partner. While most of our transactions have been in relatively small bites, the total is adding up, allowing us to increase our investment guidance to $700 million for the year. Also, our approach has resulted in better-than-market average yields. But we are much more focused on FFO per share accretion than total acquisition volume, and we plan to continue to be selective in the current environment. We continue to look at all material transactions in the market and we have plenty of capital to invest when we find opportunities that create long-term value for our shareholders. We had an incredibly strong quarter on the third-party management front, adding 96 stores. Our growth was partially offset by dispositions where owners sold their properties. It is worth mentioning that oftentimes, we are the buyer of these properties, and they are simply moving from one ownership category to another. In the quarter, we purchased 11 of our managed stores in the REIT or in a joint venture for a total of 30 stores purchased from our third-party platform through September. Fundamentals have remained even stronger than our already positive outlook, allowing us to raise our annual FFO guidance by $0.28 at the midpoint. While we still assume a seasonal occupancy moderation, it has been less than our initial estimate of 300 basis points from this summer's peak. Our revised guidance now assumes a 200 basis point moderation which would result in 2021 year-end occupancy generally similar to that of 2020. We expect continued strong growth in the fourth quarter to cap off what has been an incredible year for Extra Space Storage.

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

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Thanks, Joe, and hello, everyone. As Joe mentioned, we had an excellent quarter with accelerating same-store revenue growth, driven by all-time high occupancy and strong rental rate growth to new and existing customers. Core FFO for the quarter was $1.85 per share, a year-over-year increase of 41.2%. Property performance was the primary driver of the beat with additional contribution from growth in tenant insurance income and management fees. As a result of our strong FFO growth, our Board of Directors raised our third quarter dividend an additional 25% after already raising it 11% earlier this year, a total increase of 38.9% over the third quarter 2020 dividend. We delivered a reduction in same-store expenses in the quarter, including a 3% savings in payroll, 42% savings in marketing and a 4% decrease in property taxes due to some successful appeals. Despite the payroll savings we've enjoyed this year, like most companies, we've felt material wage pressure across all markets, including our corporate office. Some of the payroll reduction has been the result of higher turnover and longer time to fill -- and longer time required to fill vacant positions. We will experience continued payroll pressure in 2022 as we have raised wages to retain and recruit the best team in the storage industry. This will also impact our G&A expense. In the second quarter, we completed our inaugural investment-grade public bond offering. And we completed a successful second offering in the third quarter, issuing another $600 million 10-year bond at a rate of 2.35%. We also refiled our ATM in the quarter, and we have $800 million in availability. Our access to capital has never been stronger. And between net operating income and disposition proceeds, our leverage continues to be reduced.

Our quarter end net debt to EBITDA was 4.5 times, giving us significant dry powder for investment opportunities while maintaining our credit ratings. Last night, we revised our 2021 guidance and annual assumptions. We raised our same-store revenue range to 12.5% to 13.5%. Same-store expense growth was reduced to negative 1% to 0%, resulting in same-store NOI growth range of 18% to 19.5%. These improvements in our same-store expectations are due to better-than-expected rates, higher occupancy and lower payroll and marketing expense. We raised our full year core FFO range to be $6.75 to $6.85 per share. Due to stronger lease-up performance, we dropped our anticipated dilution from value-add acquisitions and C of O stores from $0.12 to $0.11, even after adding a number of additional lease-up properties to our acquisition pipeline. We are excited by our strong performance year-to-date and the success of our team driving our growth strategies across our highly diversified portfolio. As we often say, it's a great time to be in storage.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Juan Sanabria of BMO Capital Markets. Your line is open.

Juan Carlos Sanabria -- BMO Capital Markets -- Analyst

Hi good morning. Given the strength in the -- that you've had year-to-date and exceeding expectations, just curious if you could speak to the earn-in as we start to think about '22 if you assume kind of occupancy holds steady versus what you've achieved year-to-date and/or how you guys think about that.

Joseph Daniel Margolis -- Chief Executive Officer & Director

So it's always important to remember, and -- we've talked about this before that occupancy is just one metric. So we -- if occupancy does better, then what we've assumed for our guidance, I assume we'd also have good rate pressure -- rate power, and we would be set up to have a strong 2022.

Juan Carlos Sanabria -- BMO Capital Markets -- Analyst

But is there any way to estimate given the results you've had to date and how much of the portfolio has had the rate increases and given average length of stay, what's kind of locked in to start the year next year, given the results to date?

Joseph Daniel Margolis -- Chief Executive Officer & Director

So -- I mean we'll certainly make all of those estimates and come up with guidance for 2022 and talk about that early in the first quarter next year.

Juan Carlos Sanabria -- BMO Capital Markets -- Analyst

Okay. And then just a more strategic big picture question. You guys talked about the acquisitions environment being very heavy at this point and prefer to do kind of singles or doubles and working with joint venture partners. But given the scale you're now 2,000 stores, any interest in pursuing development on balance sheet and building out the capabilities in-house?

Joseph Daniel Margolis -- Chief Executive Officer & Director

So yes to the first part of that question. We're not adverse (sic) [averse] to pursuing development on balance sheet. We have a very small number of developments underway that we're committed to. We believe for us, and I know other companies executed it different way, which makes sense for them, the best way for us to do development is with joint venture partners, where we can be the partner with the best local or regional developer who brings their particular local skills, something that we don't have across the country. And the other advantage that gives us is through structure, we can allocate the specific risks of development, entitlement risk, cost risk, delay risk, completion risk, fairly between the development partner and ours, so we don't take all of those risks when those are, frankly, more in the development partner's control. So we believe development is a great way to make money in any real estate business. We believe if it's structured right, you can control the risk. And we believe it's very important to make sure you're in the right time in the market cycle to be heavy in the development business.

Juan Carlos Sanabria -- BMO Capital Markets -- Analyst

Thanks Joe!

Joseph Daniel Margolis -- Chief Executive Officer & Director

Thank you.

Operator

Your next question is from Michael Goldsmith of UBS. Your line is open. Michael if you're on unmute, please unmute your line is open.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Good morning, thanks a lot for taking my question. Same-store revenue growth for the year is now expected to be 12.5%, 13.5%. That implies something in the fourth quarter that's above what you saw in the first half of the year, but maybe slower than the third quarter. So the comparison from last year in the fourth quarter is maybe 400 basis points more difficult. So how much of the implied slowdown in same-store revenue growth is a reflection of starting to lap more difficult comparisons compared to underlying trends? And how much more -- how much of an impact should this more difficult comparison have going forward?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Yes. So fourth -- you hit it right on the head, in that, the fourth quarter is a much more difficult comp. If you look at where -- looking back to 2020, I mean second quarter, we had negative rates; third quarter, we moved to low to mid single digit, achieved rate growth. In the third quarter, we had close to double-digit rate growth. And in the fourth quarter, we really started moving rates significantly. So much more difficult comp in the fourth quarter. In addition, some of the occupancy goes away. The occupancy benefit, we're expecting occupancy at the end of the year to be flat, but to still have a positive occupancy benefit, but not as strong in the -- as what we had in the second and third quarter. But most of it is from rate and the comp.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Got it. And how much of your portfolio now is up near these kind of new market rates? Or said another way, like how much upside is left from passing along ECRIs and marking your existing customer portfolio up to these market rates?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Okay. So I think we've made up most of the room. There's still some states where we're limited. And as rates go up, the gap continues. But I would say most of it's in the rearview mirror.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Got it. And if we could just touch on costs for a second. The costs were well contained in the quarter. Same-store expenses were down 4%, though the decline was driven primarily by lower marketing. Like as we look forward, are there any expense items that could pressure the business? You mentioned payroll insurance was up big. Can you kind of walk through kind of where you see expense pressure and kind of -- to the extent that you can talk about the magnitude of that, that would be extremely helpful.

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Yes. Let me maybe start with property taxes. I mean we had a negative quarterly comp and that's not going to continue. Property taxes, we would expect to grow in the 5% to 6% range as we continue to see pressure. And I think that's partly with lower cap rates, higher valuations, we would expect municipalities to continue to assess. We would expect that to continue into next year. We -- obviously, we're not ready to give guidance on property taxes, but that will continue. The second one I would point to is marketing. We wouldn't expect it to be down 40% again this year. We would expect next year to maybe be a little bit more normal, and it's a lever we will use as we see opportunities to grow our revenues by using marketing. The third one I would point to just because of the size of the expense is payroll. So this year, we've had a negative payroll comp, and it's been by us being proactive partly. So we've done things to decrease hours to optimize our payroll. But we've also had some, what I would call, a negative benefit. And what I mean by that is we've seen our payroll go down because we've had higher turnover, and we've had a longer time to fill. So not necessarily a good thing. We've had lower payroll as a result of that.

We continue to see pressure on wages. So that's at the stores, that's in our corporate office, and we would expect that to be -- we would expect that to continue into next year. I think every company in America is experiencing that. The other thing I would point to on the expense side is it's a good thing to be in storage. And what I mean by that is we're in a high-margin business. So payroll, for instance, even if we see significant payroll pressure, you're still sub-6% as a percentage of revenues. And so if you're an inflationary market, we do have the ability to push our rates as their month-to-month leases.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Very helpful. thank you very much.

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Thanks Michael.

Operator

Your next question is from Todd Thomas of KeyBanc Capital. Your line is open.

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

Hi thanks. Just first question, following up on rates in-place versus street. Joe, you said your efforts in the quarter on rate increases helped bring in place customer rents closer to street. What's the spread look like today? And can you remind us what that spread between in-place and street rates looked like sort of back in 2019, maybe before the pandemic, or maybe on average over sort of the 10-year period perhaps heading into the pandemic?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure. So it's seasonal, as you know, and it's -- our spread is the highest in the summer. I think it was the high teens when we had our last call. It's closer to flat to slightly positive 1% now. And if you look historically, we would be negative now.

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And -- right. So you've -- historically, you've increased in-place customer rents above street rates. And so where did that sort of peak in the prior cycle?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Todd, would you just repeat that, please? You're saying.

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

So you've increased in-place customer rents above street historically, right, which resulted in the negative spread that you've historically had. What was that spread like in sort of -- where did that spread peak in the prior cycle? I guess I'm trying to understand how much room you might have on the in-place customer rent increase program to take contractual rents higher, even if asking rents are sort of flattish from here on a seasonally adjusted basis.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So I think the other factor you may not be picking up is street rates can go down. So it's not only increasing existing customers that causes the gap. It's -- street rates are the highest in the summer, and they have a seasonal decline, and that causes some of the gap. Scott, do you know, off the top of your head, the percentage that he's looking for in prior years?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Don't know that it's a number we've ever given, Todd. We've always referred to in-place versus street. We've talked about how they're -- they go in a cycle, where you peak in the summer in terms of that gap. It's typically high single digits in the summer, that gap, and then it goes maybe high single digits in the winter. So you peak in July, you bottom out in February. This year, we peaked 19%. As Joe mentioned, we're typically starting to go negative now. We have a -- our street rates are as strong as they've ever been.

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

Okay. All right. And then just with regards to the in-place customer rent increases that you're passing through, can you talk about the magnitude or rate growth that you're pushing through to customers? And whether you've changed the frequency of those rent increases that eligible customers are receiving? I think it historically has been sort of month five and then maybe every nine months thereafter or something to that extent. Is that still the schedule or has that changed at all?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So we're at very unusual times, right? We had significantly discounted rates during the height of COVID and brought in people at some really low rates. And then we had government restrictions that prevented us from moving those folks to where we thought they should be. And the third factor is we had really impressive street rate growth. So that caused us to have some customers that had very, very large gaps between where they were and what street rate was. And we've been trying to move those customers more toward street rate. And as I said in the earlier question, we've done a lot of that. Most of that is in the rearview mirror. But that's kind of led us to have -- experience numbers that are very different than our historical practice because we're not in normal times.

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

Ok alright, thank you.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Thanks Todd.

Operator

Thank you. Your next question is from Caitlin Burrows of Goldman Sachs. Your line is open.

Caitlin Burrows -- Goldman Sachs Group, Inc. -- Analyst

Hi good morning team. I guess, first, with rent per square foot continuing to rise, how price sensitive are you finding customers? And do you have an idea what portion of move-outs today are due to price and how that compares versus history? Just wondering if it's gone up at all as rates have also increased.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. Very, very, very modestly. We track move-outs of customers who did and did not receive rate increase notices. And as you could tell by our occupancy, the customers are not very price sensitive and those are -- who are, we're able to backfill very, very quickly.

Caitlin Burrows -- Goldman Sachs Group, Inc. -- Analyst

Got it. Okay. And then on the cash flow growth side, it's obviously been very strong, which has reduced your leverage and you guys mentioned earlier that it's now 4.5 times. So what's your view on being able to kind of redeploy capital in an attractive way, of course, to get leverage above 5 times? Is that something that you want to do?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. I would love to be able to invest more and increase our leverage back toward our targeted rate -- or targeted range, but not at the expense of doing deals that we don't think are good long-term deals for our investors. So we're going to remain disciplined. We look at everything out there. Our investment teams, as I said, are really busy. We have a lot of exciting things we're playing with. But we're not going to invest just to get our leverage up. We're only going to invest when we think the risk reward is attractive to us.

Caitlin Burrows -- Goldman Sachs Group, Inc. -- Analyst

Ok, i guess thats a thats a good position to the end [Indecipherable] Thanks.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Thank you.

Operator

Your next question is from Smedes Rose of Citi.Your line is open.

Smedes Rose -- Citigroup Inc. -- Analyst

Hi thanks. I just wanted to ask you a little bit about the acquisition volumes. And obviously, they've come up a lot as we've -- from what your expectations were coming into the year, and we've seen that across the industry in general. And -- I mean besides favorable pricing for sellers, what do you think are a few things that are kind of driving more folks to come to market? Is there any sort of theme that you're seeing when you talk to the sellers?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Well, clearly, the first and most important is what you mentioned, is very favorable pricing, very low cap rates. That brings people out of the wood work, want to sell. I think there's also some concern that the tax regime is going to change and that maybe it's better to pay your taxes now than in the future.

Smedes Rose -- Citigroup Inc. -- Analyst

Okay. So just those -- I mean -- OK, nothing else in particular. I was just wondering if you felt like independents are losing their -- the competitive advantages of these larger portfolios that they get bigger and bigger is maybe impacting them, but you think it's probably more sort of tax and pricing that's driving that?

Joseph Daniel Margolis -- Chief Executive Officer & Director

I do, Smedes.

Smedes Rose -- Citigroup Inc. -- Analyst

Okay. And I wanted to ask you as well just in terms of -- given that fundamentals are so strong, has it changed at all, the sort of level of inbound inquiries into bringing you on as a third-party manager? I mean are other folks that are not part of these larger systems doing sort of similarly as well and are maybe not as inclined to come to you for management? Or how -- are there any changes there, I guess?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. I mean, Smedes, you hit it right on the head. If you look at the consolidation in the industry four or five years ago versus now, it's up almost 50%. Maybe from the low 20s to the low 30s percent of stores in the country are owned or managed by the big public companies. And we've seen that significantly. And -- I mean we brought on 96 stores in our third-party management platform in the third quarter, 196 through the year. There's been a lot of sales of which we've bought a bunch, but we're still over 100 net growth in our third-party management platform. And that's a mix of the single one-off owner who wants professional management or are more quasi institutional partners who we have good relations with and keep growing their portfolio. So it's -- the growth in that business across all types of owners has been really, really strong, and I expect it to continue to be so.

Smedes Rose -- Citigroup Inc. -- Analyst

Okay. And then just final question from us. You mentioned your guidance underwrites about 200 basis points of occupancy declines through the fall, I think, or the winter. Have you started to see that moderation in October so far to date?

Joseph Daniel Margolis -- Chief Executive Officer & Director

So today, we're sitting at 96.7% occupancy. So we've had pretty modest vacates or decline in occupancy since June 30, but -- or September 30. So that's where we are today.

Smedes Rose -- Citigroup Inc. -- Analyst

Ok thank you guys.

Operator

Your next question is from Samir Khanal of Evercore. Your line is open.

Samir Upadhyay Khanal -- Evercore ISI Institutional Equities -- Analyst

Hey good afternoon. So when I look at your occupancy for some of the major gateway markets, it has not been impacted at the end of September with sort of the return-to-work factor in place. So I'm just wondering as how you're thinking about that dynamic of return to office and the impact it can have in your portfolio in some of the major markets, whether it's New York or Boston or even kind of the L.A. area, maybe in 4Q and into next year.

Joseph Daniel Margolis -- Chief Executive Officer & Director

So I think it's a little early to really call that. I mean all -- the first thing I think it's important for everyone to remember is all our markets are doing phenomenally well. If you look at our bottom five markets for revenue growth, they're all above 13%. So there's no market that's really struggling. But our bottom markets do include New York, Boston, L.A. and San Francisco. And there's a lot of variables, I think, between the stronger markets and the weaker markets. A couple of things that we think are consistent is markets that had state of emergencies in place longer and are just coming out are performing less well than other markets.

Samir Upadhyay Khanal -- Evercore ISI Institutional Equities -- Analyst

Okay. And then I guess my second question is, I guess, Joe, given the -- given where you are from an occupancy standpoint, I mean it's sort of that 96%, 97%, how are you thinking about your strategy in terms of pricing, let's say, going into the next six months, right? Or how are you managing the business differently given the level of occupancy today versus sort of pre-COVID here?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So we don't really look six months out. Our models are pricing units in stores every day. And we'll react on a daily basis to not only what's going on, but what is projected to go on. So clearly, in an environment where we're 96.7%, we're going to reduce marketing expenses and we're going to keep the gas pressed on rates.

Samir Upadhyay Khanal -- Evercore ISI Institutional Equities -- Analyst

Ok thanks.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure.

Operator

Your next question is from Ki Bin Kim of Truist. Your line is open.

Ki Bin Kim -- Truist Securities, Inc. -- Analyst

Thanks. Congrats on a great quarter. So when you look at where your rates are versus your micro submarket, your -- versus your competitors, where are you today versus your competitors? And has that changed a whole lot over the past year or so?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

I think everybody has higher rates today. We're on the higher end. When we look at them compared to 2019, as Joe mentioned, our rates are up 40%. Our achieved rates in the third quarter were 40% above where they were in 2019. So I think everybody is pushing rates. We are pushing rates as our occupancy stays strong and as demand stays strong.

Ki Bin Kim -- Truist Securities, Inc. -- Analyst

Got it. And going back to the topic about submarket performance, I know you mentioned some locations that had to say -- kind of the governmental orders that restricted rent growth, having a different impact on these markets. But how much of the performance difference between submarket is being driven by simply kind of population migration? And do those markets that saw an influx in population, do they just have a longer tail than the New Yorks or San Franciscos?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. It's really hard for us to divide performance, to disaggregate performance between population movement and stay-at-home orders and new -- effective new supply. It's really hard to figure out how much each of those variables and many, many other variables contribute to the performance of different markets.

Ki Bin Kim -- Truist Securities, Inc. -- Analyst

Okay. Got it. And if I could squeeze in a quick third one. You're talking about the payroll increases that we should expect going forward, like what kind of magnitude were you thinking?

Joseph Daniel Margolis -- Chief Executive Officer & Director

So I would say greater than inflation. I don't want to give you a specific number because that's the rate Scott will then ask for.

Ki Bin Kim -- Truist Securities, Inc. -- Analyst

Ok thank you.

Joseph Daniel Margolis -- Chief Executive Officer & Director

I wanna give you a specific number cause thats the [Indecipherable]

Operator

Your next question is from Elvis Rodriguez of Bank of America. Your line is open.

Elvis Rodriguez -- BofA Securities -- Analyst

Hi and thankyou for taking the questions. Congratulations on the quarter. What's your update on the supply outlook in your markets through 2022 now that we're an extra quarter from your last update?

Joseph Daniel Margolis -- Chief Executive Officer & Director

So our projections for 2021 from our last update is actually slightly higher. I think the last quarter, we said 3-year rolling, '19 to '21, was about 70% of our same-store pool is going to be affected -- or our stores. And that's up to about 73%. So a little bit of an increase. 2022, we see a larger decline. 3-year rolling, '20, '21 and '22, we think about 64.5% of our stores are going to be affected. And we'll continue to gather that data and get better. But we do see moderation in 2022. My concern is, given the great, great performance of the sector, the amount of capital that wants exposure to storage, low interest rate that we are going to get ourselves back into a development cycle and the line will start to go in the other direction maybe in 2023 and beyond. Now that's not all bad, right? Development creates bridge loan and management and acquisition and development, participation opportunities for us. But it's also a challenge for the stores that have new supply coming in their trade area, and we'll manage through that just like we managed through the last cycle.

Elvis Rodriguez -- BofA Securities -- Analyst

Great. And then just a follow-up question on the bond deals. So you got better pricing in longer term this time around, but your leverage is also lower quarter-over-quarter. How are you thinking about funding your business going forward? You didn't issue any equity in the quarter. So just curious on how you think about using those levers, specifically since you started using the bond market this year.

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Yes. We're kind of in a unique market where we have a lot of good options. You have cheap debt, you have a stock price that's holding up. And we've always said we'd use equity if we have a place to put it in the near term. So far this year, we haven't had a great place to put equity. And we've been delevering as our NOI has grown and as we had some sales into joint ventures or outright sales. So I think equity is always an option, but I think we'll look to the debt markets first.

Elvis Rodriguez -- BofA Securities -- Analyst

Thank you.

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Thanks Elvis.

Operator

Your next question is from Spenser Allaway of Green Street. Your line is open.

Spenser Bowes Allaway -- Green Street Advisors, LLC -- Analyst

Thank you. In terms of the occupancy losses that you're assuming for the full year, can you just talk about which consumer segments you expect could drive this? For instance, I know that college students have recently contributed to occupancy move. So I'm just curious if you have a view on what might cause some of the deterioration moving forward.

Joseph Daniel Margolis -- Chief Executive Officer & Director

So clearly, as was mentioned earlier, if return-to-work picks up, people come back to the major cities, that could cause some loss in occupancy. I don't think that everyone who established a home office or an extra room is going to automatically reverse that. So I think it will be gradual. Other than that, I think it's kind of your normal churn of storage, right? Most of our customers are somewhere in the moving process. And when at some point after they're done moving, they don't need storage anymore, they eventually get around tempting their stuff up. So other than kind of return to office or return to the big city, I don't think there'll be anything unusual.

Spenser Bowes Allaway -- Green Street Advisors, LLC -- Analyst

And, Spenser, the other thing I would maybe add is we have a 200 basis point assumption in there. That's based somewhat of historical trends. We're kind of in an odd year this year. It seems like everything that's happened in the past hasn't necessarily happened this year. So it's a number, it's our assumption. I think that we'll see how it plays out. Okay. Thank you, And then just given residential space is the closest substitute to storage from a consumer standpoint, do you think that rising residential prices have contributed to your pricing power? Just curious if this is something that you guys pay attention to or have absorbed over the years.

Joseph Daniel Margolis -- Chief Executive Officer & Director

So I think the theory is sound, right? If it gets more expensive to rent the larger apartment, people may rent a smaller apartment and use storage. It makes sense and we see anecdotal evidence of it. We don't have a whole lot of data where we can correlate rising real estate pricing and demand for storage. And I think we need more time and more data before we be real specific about that.

Spenser Bowes Allaway -- Green Street Advisors, LLC -- Analyst

Thank you.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure.

Operator

Your next question is from Mike Mueller of JPMorgan. Your line is open.

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

Yes hi thanks. Curious, what's the pace of lease-up that you're seeing in your C of O properties? And when you're underwriting new transactions today for those types of deals, what sort of yields are you underwriting to?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

So the pace of lease-up is faster. I mean one of the things we pointed to in my comments was that we have less dilution this year than we originally forecasted. That's largely to do with the pace of lease-up. It also has to do with rates being higher. We continue to look at C of Os. I think that those vary wildly by market and by how far out they are. Yes, some of the recent things that we've approved this year have been 7.5% range. But I think that we are also looking at where we are in a cycle and trying to make sure that we risk adjust for that, too.

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

Got it. So back to the pace. So if we're thinking about underwriting to a stabilization, is it around a 4-year time frame you're thinking about and you're seeing?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

We haven't changed our assumptions in terms of lease-up. So even though we benefited from shorter lease-ups, we recognize that, that can change. It can also change depending on new supply in the market. We try to look at what's coming in the specific market we're looking at. But the markets are dynamic and -- so we assume historical norms in terms of lease-up of those properties.

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

Got it, ok that was it thank you.

Unidentified Speaker

Thank you.

Operator

Your next question is from Rob Simone of Hedgeye Risk Management. Your line is open.

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

Hey guys, thanks for taking the question. I hope all is well. I had a question about the management platform to the degree you're able to answer it. So you guys are over 800 -- I guess like close to 830 strictly third-party managed stores now and close to 1,100 in total. I guess, what is the long-term target if there is one? And what's kind of the path to get there? And the reason why I asked that, if I look at your property management fees as a percentage of your G&A, it's starting to trend back up over a longer time frame toward like the 70% range, meaning you're getting closer to effectively paying for your corporate layer with fees. And I guess from like a structural premium standpoint, you know you guys have already had one. I'm curious like how you guys think about like getting to that number or eclipsing it? I think it's like $63 million on $100 million now. And kind of how could that gap narrow over time?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So good question. Thank you. So we don't target a number of stores. We're not trying to get to 1,000 or 2,000 or whatever number you want to think of. What's important for us is we maintain our profitability, right? We can get a lot more stores if we reduced our fees. But we want to maintain our profitability. And we also want to have the right stores, right? A store with an owner that plans to hold for 10 years is of much more value to us than a store where it's a developer and they're going to build it and flip it. A store in a $40 market is much more valuable to us than a store in a $9 market. So we're really focused on the economics and the relationships that this business brings to us as opposed to the outright number of stores. And if, keeping within that discipline of maintaining our margins, we can grow the management fee revenue that it covers our G&A or more than covers our G&A, we're going to grow it as big as we can.

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

So it's kind of like a lifetime value of the customer concept as opposed to just straight growing the top line. I think that's what you're saying?

Joseph Daniel Margolis -- Chief Executive Officer & Director

That's it.

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

Got it. Okay. Yes, that makes sense. I don't know. Is there time to ask one more? I don't want to take so much of your guys time?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure.

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

Okay, sure. Yes. So I guess as it relates to an earlier question, so with -- I mean your rental rates are flying off the page here, right? It's obvious to everybody. I guess how do you guys internally think about your customers "like propensity or wherewithal to pay?" I mean I know it's spread over thousands of leases or tens of thousands of leases even. But do you guys look at like how income-to-rent ratios change? Or -- I'm just curious how you guys think about that like in terms of what's like the upside and longer customers wherewithal to like continue paying higher rates?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So a couple of things. One is we have over 1.2 million customers. So we're highly, highly granular on this topic. Secondly, when storage gets more expensive and our tenants complain they can't afford, our store managers are really good about talking to them about do you really need a 10 x 10 or can we get you into a 10 x five or maybe a unit that's upstairs, further away. So we can have other tools to solve their problems. Third is, if it does get more expensive and they move out, that's not a problem for us today. We have plenty of demand to backfill their space. And then lastly, most of our customers don't think they're staying very long. Now they end up staying about 50% longer than they think they're staying. But most of them that added cost they believe is temporary and they can swallow hard. It's only those real long, long-term tenants that you have that -- more of that problem.

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

Got it, thanks Joe appreciate it. Thanks for taking the question.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure.

Unidentified Speaker

Thanks Rob.

Operator

Your next question is from Kevin Stein of Stifel. Your line is open.

Kevin Stein -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Hey good morning guys. So revenue accelerated in the same-store quite a bit since 2Q. And I was just wondering if there's any maybe like new demand drivers or if it's just the existing demand drivers that are increasing or if it's just more of your confidence in being able to increase rental rates more.

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

So I would tell you it's steady demand combined with low vacates. So people are staying longer today. The people that have rented with us have been sticky. So I think we did see an increase in demand last year. We saw -- if we look -- ask our customers why? They said they were out of space. If you ask them today, that's moved back more toward I'm moving. So those are kind of the reasons they give for moving or for storing with us. And vacates throughout this entire period have been very, very low. So we have less units that need to be rented each month because people are staying longer and vacating less today.

Kevin Stein -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Okay. Do you have a sense of -- so I guess, like -- I'm not sure what's your average length of stay, but for the industry, it's maybe like now 15, 16 months. So I guess that imply like roughly 7% of customers will be moving out on average. Do you know like how many -- do you give a number on how many -- what percentage of your portfolio turns over in a month?

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

We haven't, and that's going to vary by property type. So what I mean by that is a new property is going to have a much shorter length of stay than a property that's 30 years old. You have more and more long-term customers of that, a much lower churn. What we have seen is churn has gone down through COVID. So that -- if you're referring to 7%, it's lower than that, and it continues to go lower as the vacates are lower.

Kevin Stein -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Ok thanks.

Operator

Your next question is from Ronald Kamdem of Morgan Stanley. Your line is open.

Ronald Kamdem -- Morgan Stanley -- Analyst

Hey. Just a quick question on just e-rentals. Can you just remind us what percentage is coming through that channel? And maybe have you seen anything different from that customer relative to the rest of the portfolio? Thanks.

Joseph Daniel Margolis -- Chief Executive Officer & Director

So we're at about 25% today. We were, I think, 20% or 21% at our last call. So we've seen a slight increase in customers' use of that channel. Customers report very high satisfaction rates with it. So that's good for us. And there's really not a very meaningful difference in the customer that I could describe to you.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great thats all my question, thank you.

Unidentified Speaker

Thanks Ron

Operator

Your next question is from Michael Goldsmith of UBS. Your line is open.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Hey. One more for me. You're going to get $100 million back of your preferred investment from JCAP maybe as early as next week. How do you go about replacing the investment's 12% return? And what do you plan on doing with these funds?

Joseph Daniel Margolis -- Chief Executive Officer & Director

Yes. So we are going to continue doing what we've been doing, which we'll continue to look for our bridge loan opportunities. We'll continue to invest both on a wholly owned and joint venture basis. And when unique opportunities come up like that preferred investment, we'll consider those as well.

Michael Goldsmith -- UBS Investment Bank -- Analyst

Ok great thank you guys.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Sure.

Operator

Speakers, I am showing no further questions at this time. I'd like to turn the call back to Mr. Joe Margolis, Chief Executive Officer.

Joseph Daniel Margolis -- Chief Executive Officer & Director

Great. Thank you, everyone, for participating today. We appreciate your interest in Extra Space Storage. We're really happy to report the results that we've been able to report this quarter. And the only reason we can do it is because of the hard work of all the folks at Extra Space, starting with the folks in the store who deal with the customers every day, but also all the people in the call center and here in the corporate office. I'm extraordinarily proud of them and their dedication and hard work. So thank you. I hope you and all your families are well. Take care.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Jeffrey Norman -- Vice President of Investor Relations & Corporate Communications

Joseph Daniel Margolis -- Chief Executive Officer & Director

P. Scott Stubbs -- Executive Vice President & Chief Financial Officer

Unidentified Speaker

Juan Carlos Sanabria -- BMO Capital Markets -- Analyst

Michael Goldsmith -- UBS Investment Bank -- Analyst

Todd Michael Thomas -- KeyBanc Capital Markets Inc. -- Analyst

Caitlin Burrows -- Goldman Sachs Group, Inc. -- Analyst

Smedes Rose -- Citigroup Inc. -- Analyst

Samir Upadhyay Khanal -- Evercore ISI Institutional Equities -- Analyst

Ki Bin Kim -- Truist Securities, Inc. -- Analyst

Elvis Rodriguez -- BofA Securities -- Analyst

Spenser Bowes Allaway -- Green Street Advisors, LLC -- Analyst

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

Robert Matthew Simone -- Hedgeye Risk Management LLC -- Analyst

Kevin Stein -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

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