Extra Space Storage Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Jeffrey Norman, Senior Vice President of Capital Markets
• Joseph D. Margolis, Chief Executive Officer
• Scott Stubbs, Executive Vice President and Chief Financial Officer

Analysts

• Jeff Spector, Bank of America Co.
• Michael Goldsmith, UBS Group AG
• Juan Sanabria, BMO Capital Markets
• Todd Thomas, KeyBanc Capital Markets
• Samir Khanal, Evercore ISI
• Keegan Carl, Berenberg Bank
• Caitlin Burrows, The Goldman Sachs Group, Inc.
• Ki Bin Kim, Truist Financial Co.
• Spenser Allaway, Green Street
• Smedes Rose, Smith Barney Citigroup
• Mike Mueller, JPMorgan Chase & Co.
• Ronald Kamdem, Morgan Stanley

Presentation

[Operator]

Good day, and welcome to the Q1 2022 Extra Space Storage, Inc. Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Jeff Norman, Senior Vice President, Capital Markets.

[Jeffrey Norman, Senior Vice President of Capital Markets at Extra Space Storage]

Thank you, Ashley. Welcome to Extra Space Storage's First Quarter 2022 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, May 4, 2022. 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 D. Margolis, Chief Executive Officer at Extra Space Storage]

Thanks, Jeff, and thank you, everyone, for joining today's call. We are off to a great start in 2022. And Year-over-year same-store revenue growth in the quarter was 21.7%, a new all-time high for Extra Space, driving same-store NOI growth of 27.6%. This was achieved primarily through year-over-year rental rate growth, partially offset by a modest decrease in year-over-year occupancy. Industry fundamentals continue to be strong, operational performance has been exceptional in all markets, and we are well positioned for another strong summer leasing season. A few weeks ago, we met with over 220 of our third-party management and joint venture partners in Austin, Texas for a few days of company updates and industry news.

Most importantly, provided a forum to explore opportunities for Extra Space and our great partners to grow together. These partnerships and relationships continue to be an important part of our external growth strategy. as shown in our first quarter results. Like last year, most of our acquisition activity consisted of nonstabilized stores acquired from existing relationships. Total first quarter investment by Extra Space was ahead of our expectations at $229 million. We also closed $138 million in bridge loans and we added 37 additional stores grossed to our management platform. All of our various internal and external growth channels are working. We continue to find opportunities despite the competitive market and we have strong pipelines for each of these platforms. Our property NOI plus our external growth efforts resulted in core FFO growth of 34% which allowed our Board to increase our first quarter dividend to $1.50 a share; 20% over the previous quarter's dividend and 50% over the first quarter 2021 dividend. It continues to be a great time for the storage sector and particularly for Extra Space. All aspects of the machine are working really well and we are looking forward to a very successful 2022.

I'll now turn the time over to Scott.

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Thanks, Joe, and hello, everyone. As Joe mentioned, we had a great first quarter with our same-store performance and FFO both coming in above our expectations. Our outperformance relative to our guidance was driven by stronger property performance and higher-than-expected interest income. Our external growth in the quarter was capitalized by draws on our revolving lines of credit, and we issued $41 million in common stock as part of an acquisition. During the quarter, we termed out $400 million of revolving balances through our third public bond offering, further laddering our debt maturities and freeing up additional revolver capacity. Our balance sheet has never been stronger. Our unencumbered pool is now approximately $13 billion and our net debt-to-EBITDA is 4.4 times. We have access to many types of capital, and we have significant debt capacity to support future growth.

In addition to our first quarter results, we also updated our 2022 full year guidance. We've increased our same-store revenue and NOI forecast based on our first quarter outperformance and improved outlook heading into the summer leasing season. Same-store revenue guidance increased to 13% to 15%, driven primarily by rental rate growth. Same-store expense increases in the quarter were driven primarily by payroll, credit card fees and snow removal. As a result, we have increased our expense guidance to 6.5% to 8% for the full year. Our revenue and expense guidance results in a same-store NOI growth range of 15% to 18%. As Joe mentioned, acquisition activity in the sector remains elevated, and we are ahead of our original guidance for both year-end closings as well as our full year pipeline. While still competitive, it appears that the number of bidders pursuing any given deal is lower, potentially due to the increasing interest rates.

As a result, our capture rate has improved, especially on nonstabilized one-off stores. We expect to continue to acquire through joint venture partnerships and we have increased our 2022 guidance to $800 million in Extra Space investment. We also expect higher bridge loan activity, and we have increased guidance to $150 million in retained new balances in 2022. We've increased our interest income guidance by approximately $7 million since our preferred investment in NexPoint remains in place and due to higher bridge loan volume and interest rates. Due to the increase in interest rates as well as higher acquisition volume, we've increased our interest expense guidance by $13 million at the midpoint. The sum of these adjustments results in an increase in core FFO, which is now estimated to be between $8.05 and $8.30 per share. We anticipate $0.20 of dilution from value-add acquisitions and C of O stores, down $0.03 from our original guidance due to stronger-than-expected performance at these properties. We're having a great year, and we look forward to another great leasing season.

And with that, operator, let's open it up for questions.

Questions and Answers

[Operator]

[Operator Instructions] Your first question comes from the line of Jeff Spector with Bank of America.

[Jeff Spector, Analyst at Bank of America]

Hi, good afternoon and congratulations on the quarter. I know, Joe, I consider you to be conservative and your opening remarks, I feel like, were maybe the most positive opening remarks I've heard in all these years. I guess what's the -- if there was a number 1 or number 2 big surprise versus what you were thinking last year, how would you describe the environment? I guess, what's turned more positive in your view? Or what's been the upside surprise?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

Thanks, Jeff. I appreciate the comment. I think the customer has behaved differently than we projected when we did our initial guidance, both in terms of elongated lengths of stay and the move-out rate in response to ECRI to existing customer rate increase notices. Both of those things have been better than expected and helped us both achieved better than predicted results and increase our forecast for the entire year.

[Jeff Spector, Analyst at Bank of America]

Great. And then just to confirm, I guess, if you can characterize the customer, I mean, I think the number sum it up. But -- so I assume at this point, I think the comment was all the regions or markets are performing well sort of confirm you're not seeing pushback on the rental increases you're sending out, including, I guess, at this point through April?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So I wouldn't say we're not seeing pushback from the rental rates we're sending out. Our vacate activity in response to rate increases is probably double of what it normally is. But demand is so strong and our ability to backfill those tenants is consistent across the country that it hasn't affected us in terms of results, in terms of performance.

[Jeff Spector, Analyst at Bank of America]

Great, thank you.

[Operator]

Your next question comes from Michael Goldsmith of UBS.

[Michael Goldsmith, Analyst at UBS Group]

Good afternoon, thanks for taking my question. Sticking with the topic of ECRIs, relative to your peers, I think your occupancy took a little bit more of a hit, but you saw your rent growth accelerate further. So I guess the question is, did you push harder on ECRI than you had in the past? And then -- which is generating the greater revenue growth. And then as you think of kind of as you head into this period with tougher comparisons, does that change how hard you can push on the ECRIs?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So we're in a unusual, unprecedented situation where we've had several years where we've been restricted in many, many jurisdictions from how much we can increase rates and how much we can -- both to existing customers and to new customers. The last two of those restrictions in California were just lifted in February. So we had a greater gap between what many customers were paying and what the market price for our product was. And we tried to make progress towards closing that gap. In the future, I don't expect that gap to be as large and consequently, ECRIs won't be as large.

[Michael Goldsmith, Analyst at UBS Group]

So it's fair to say that the maybe the acceleration is just -- is primarily driven by a step-up just based on how you process ECRIs in California rather than a change in like the overall program? Is that fair?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I mean, the increase -- the restrictions were lifted in New York and New Jersey in the fourth quarter of 2021 and that takes a while to roll through to the rent roll. So it's not all California, but your general statement is true.

[Michael Goldsmith, Analyst at UBS Group]

That's helpful. And as my follow-up, you took your guidance up for acquisitions. I think in the past, you had talked about doing more deals within the JV. And it seems like the transaction is being done for being wholly owned. So I'd like to kind of dig into kind of what you're seeing in the acquisition market, the competitive nature of it and I guess the impact of rising interest rates and how that has impacted other potential buyers of self-storage properties and portfolios.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

Yes. All great questions. So it is true we have found more properties than we anticipated that met our return requirements for wholly owned properties. So we have been more active on the wholly owned side. Those are almost exclusively unstabilized lease-up stores where we're looking at a fairly low initial yield, but we think long term will be very accretive. We are also very busy on the joint venture side. While we only closed two in the first quarter, we have closed one since the end of the first quarter and have 12 scheduled to close for the rest of the year in joint venture. If you look at what's been approved in our committee for the first quarter, we've approved 21 deals in joint ventures versus 18 wholly-owned deals. So we're active on both sides. Turning to your pricing question, it's been a little bit of a surprise for us. As interest rates go up, we would have expected cap rates to also go up. We have not seen a lot of evidence of that yet. I think it's because there is so much pent-up demand for self-storage, so much capital from many, many different sources, trying to get exposure to this property type. What we have seen though is either fewer initial bidders or as the process goes on, the leverage buyers seem to drop out. But there's enough other buyers, that there's still a lot of interest in the properties. Prices are pretty consistent with what they've been towards the end of last year. And there's a lot of volume. There's just a lot on the market. We don't see the big mega portfolios. But absent that, it's as busy as it's ever been in the first quarter.

[Michael Goldsmith, Analyst at UBS Group]

Thank you very much. Good luck in the second quarter.

[Operator]

Your next question comes from Juan Sanabria of BMO Capital Markets.

[Juan Sanabria, Analyst at BMO Capital Markets]

Hey guys, thanks for the time. Just hoping you could give an update on any trends you can share on April, whether it be occupancy or moving rates? And if you can comment on moving rates, how that trend compares relative to what you saw through the first quarter.

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes, Juan. So occupancy at the end of April is just over 100 basis points lower than where it was last year. So down slightly from the end of March, but not anything unexpected. In terms of rate, in the first quarter, we averaged about 15%. Our achieved rate for new customers was 15% ahead of where it was last year. Today, in the last 15 to 30 days, it's been -- well, in the last two weeks, it's been moderating to where it's about mid-single digits today -- low to mid-single digits.

[Juan Sanabria, Analyst at BMO Capital Markets]

Okay. Great. And then just curious on the rate restrictions coming off, if there's any change to the quantum or the size of impact to same-store revenue guidance as you've been able to maybe capture some of that sooner given how strong the market has been. Has that changed at all given the first quarter and what you've seen to date in the second?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

Yes. I think you see that change in our increased guidance.

[Juan Sanabria, Analyst at BMO Capital Markets]

Okay. But is the impact, I guess, just isolating the rent restrictions rolling off the 50 bps you talked about at the fourth quarter when you set guidance, is that now 100 basis points? Or is it still...

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I'm sorry, I didn't understand your question. So we thought that on a portfolio-wide basis, we would get a 200 basis point boost from ECRI. And that's probably now closer to 400 basis points. In California, we said 50 basis points. And we, as I said earlier, underestimated both the move-out rate in response to that and then the length of stay of tenants who get it. And so that's considerably higher also.

[Juan Sanabria, Analyst at BMO Capital Markets]

So just to tie the two ends there. The 2 times move-out rate that you noted on to Jeff's earlier question, is that more tied to California because that sounded a little alarming just in a vacuum, but is that just as a result of California and moving people closer to market and not really a warning sign?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

No. It's a function of everywhere where we have moved people to market. There's two factors. One is the rate restriction, which keeps the existing rate down but the other is the large increase in street rates. So if someone comes in at an Internet special rate and they're paying 15%, just as an example, below street rate on day 1, and rates are going up, Scott said 15% in the first quarter achieved rates, you have a pretty big gap there even in a state without a rate restriction. So we are also experiencing the type of behavior that I described in those states.

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

And Juan, maybe to clarify, this isn't a new trend. And we saw this in the last year. We saw higher move-outs as we executed on higher rate -- larger rate increases.

[Juan Sanabria, Analyst at BMO Capital Markets]

Thanks for that, appreciate it.

[Operator]

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

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Hi, thanks. First question, Joe or Scott, I guess, back to investments. Can you comment on whether EXR has changed its return hurdles at all going forward as you underwrite new deals? And I realize you increased your guidance for acquisitions by $300 million. But just curious, I guess, if your appetite from here has really changed at all just given the increase in debt and equity cost for the company or perhaps in response to your view around the economic growth outlook?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So we haven't changed our underwriting discipline or processes in any way. As you point out, our average cost of debt has increased slightly. Our cost to equity has increased slightly. So our weighted average cost of capital, the hurdle we have to jump over, has gone up. But we've still been able to find deals either through a wholly-owned basis or structured through a joint venture to enhance those returns that makes sense for our shareholders.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Okay. And it sounds like you talked about utilizing joint venture capital, perhaps a little bit more here in the near term. What's the appetite like from your joint venture partners? And are they -- is there appetite for new deals pretty steady here? Or are you seeing them sort of pull back a little bit and perhaps change their return hurdles and expectations?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

No, we have great joint venture partners who have significant capital resources and appetite for storage exposure. And in the event we ever got to the point where they were full or wanted to take a pause, there's plenty of folks out there who would be really happy to partner with Extra Space Storage. So we're in a great position now where we have plenty of access to joint venture capital. We have plenty of access to all different types of debt capital where we feel the restricting metric on our growth is availability of good deals. It's not finding the appropriate type of capital to capitalize on it.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Okay. Just last question. Scott, within the guidance revision and sorry if I missed this, but can you speak to the increases in interest income and also JV income, what the drivers -- the primary drivers are behind the increases in those assumptions, which totaled about $0.10 or so?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. So in the interest income, it's a couple of things. One is the bridge loan program is just really doing well. It's been successful. We're placing lots of bridge loans. We're keeping more on balance, and it's taking maybe a little more time to spell the A piece of that. So the assumption is higher from that aspect. It also is higher because of the JCAP assumption. So we are assuming now that we keep that through May and then do a blend and extend after May. And then that -- in addition to that, you have higher interest rates. And so the bridge loans are more profitable as interest rates go up. So that's kind of what's in the next three quarters. In the first quarter, we did have the benefit of some onetime type transactions where we sold the $103 million note, we unwound an unamortized premium that benefited us. And so we had more -- first quarter was higher than the remainder of the year will be. And then the second one -- [Indecipherable] equity and earnings piece is primarily getting into the promote on some of the JVs with the performance of the properties. It is going to move us in to promote of some of those -- those JV budgets were done late -- earlier than the wholly owned properties. And as we've gone back through and looked at the performance of those, we feel like they should outperform where we had originally estimated.

[Todd Thomas, Analyst at KeyBanc Capital Markets]

Okay, that's helpful. Thank you.

[Operator]

Your next question comes from Samir Khanal with Evercore ISI.

[Samir Khanal, Analyst at Evercore ISI]

Hey Scott, you talked about sort of the length of state continuing to expand here. Can you remind us where that is today and versus, let's say, even a year ago or even what's been the trend on that?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

So our trend continues to extend. If you look at customers that are in our properties today, the length of stay is about 42 months. It's just over 40 months. It depends on the period. That has gone up through COVID, but if you look at our customers that have moved in and moved out, the average length of stay there is about 16 months. I think that you're probably up as much as 10% over the last two years.

[Samir Khanal, Analyst at Evercore ISI]

Got it. And then, Joe, I just want to get your thoughts on sort of the business customer. I mean has there been any shift in demand from that segment? I mean there's clearly been talk about sort of that last mile delivery. I mean are you seeing sort of that segment or an increased demand pickup at all?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

The last mile delivery is not a significant part of our business at all. I think that's kind of interesting talk. But realistically, that's not meaningful to us.

[Samir Khanal, Analyst at Evercore ISI]

And what about the business customer in general? Have you seen sort of the pickup in demand from that segment generally?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I think the business demand is steady. I wouldn't say we've seen pickup in it. It's an increasingly smaller piece of our business. because as we grow the portfolio and add more stores that are current generation storage that are multi-story, the percentage of units that most business customers seek, right, large outside access units is a much smaller percentage of our portfolio. So therefore, that customer becomes a much smaller piece of our business. But in terms of demand and behavior, there's really been no change.

[Samir Khanal, Analyst at Evercore ISI]

Okay, thank you.

[Operator]

Your next question comes from Keegan Carl with Berenberg.

[Keegan Carl, Analyst at Berenberg Bank]

Hey guys, thanks for the time. So just first, I know it's a needs-based business, but how much of an impact from the current inflationary pressures are you factoring into your price increases going out?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

So with the ability to adjust rates month-to-month, I mean I'm guessing some of our rate increases in the overall economy is going to be attributable to inflation. But ours is more demand-based. And so as demand increases, you have the ability to move up your street rates and move up your existing customer rates. So it's really difficult to attribute what amount is to inflation versus demand.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

We don't do very much forward price predicting because we change the rates on every unit, every day based on data that has come in as to what happened. So it really doesn't help us to try to figure out what a 10 x 10 is going to be priced 30 days from now. The machine and the algorithms and the people who work on that are going to adjust prices constantly to try to optimize revenue.

[Keegan Carl, Analyst at Berenberg Bank]

I think I asked that poorly. So let me rephrase that. I guess, something more -- the economy could become more of a challenge given what's going on with inflation. So mean how sensitive are you in factoring what that's going to do to potential consumer balance sheets when you're sending out these price increases?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So every time we send out price increases, we keep back a control group. So for example, if we send out 100,000 price increases a month, we'll keep back 1,500 or 2,000 folks who should have gotten a price increase. And then we'll track their move-out rate versus the folks who did get the price increase notice. And that's the way we can constantly check to see if we are pushing too hard and actually harming the business. Is that helpful?

[Keegan Carl, Analyst at Berenberg Bank]

Yes, [does make] sense. So I guess shifting gears here. I mean, obviously, your third-party management platform is strong and growing. So how much of an appetite are you truly seeing for that? What sort of conversion rate are you having on its pipeline versus what you're actually closing on?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So last year was an unusual year, right, because we had added 104 properties net. We bought 58 properties of the portfolio, too. But we had 104 net including a large 59 or 60 property portfolio. So if you look at our activities today versus historically, without that large portfolio, we're right on track. We did 187 new property projections in the first quarter and approved 52 new contracts. That's right in line with our averages over the last couple of years, excluding that large portfolio. In the first quarter, we added 19 stores net. We bought six and added 19 net. So that's what a run rate of 76 properties. That's a good -- if we can grow this business by 75 to 100 properties net a year, that's pretty consistent with what we've done in the past and pretty strong.

[Keegan Carl, Analyst at Berenberg Bank]

Got it. Thanks for the time guys.

[Operator]

Your next question comes from Caitlin Burrows with Goldman Sachs.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

Hi guys. Maybe just a question on the demand side. I feel like there's a thought out there that just with the amount of life change that's happened over the past 2-plus years with COVID that there's no way it can kind of stay this elevated. So I was just wondering maybe if you could give your thoughts on why demand is so high, maybe why it can or can't stay so elevated and just where we go from here.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

So I think demand can stay elevated in a changing economic environment, which is, I think, what you're asking is because the drivers of demand -- there are some drivers that occur in all economic situations, right? People still get married, they still have babies, etc. And then there's drivers that occur in bad economic conditions where I can't afford my apartment, I need to move back in with my parents, I have to downsize my business. So because of the diverse demand drivers, I think we can maintain healthy demand through all economic cycles. And that's not just the theory, right? We saw in 2008, 2009 that we didn't really have a demand problem. We had a vacate problem. And there's been consistent demand through that period. There's been consistent demand through 2020 and '21. So we're bullish on the demand side.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

I guess just as a follow-up on that vacate issue that was seen in the past, would you say then that your kind of systems have improved that much since then, so you would be better positioned to address it? Or how could that play out differently going forward?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I couldn't have said it any better. We just -- we try to sharpen the tools every day and become a little bit better at optimizing performance in response to what's happening. So I think you're absolutely right.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

Okay. And then maybe just one on the higher bridge loan activity. I think you've mentioned a few times it was higher in the quarter than you were expecting and it seems like it could remain high. Wondering if there was any specific reasons you could give that might be driving it and how sustainable that is?

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I don't think there's a specific reason. I think it's just largely a relationship business. And as our relationships grow and as we do repeat business with borrowers, it tends -- it's like a snowball rolling down a hill, it just tends to increase. And we've seen that. We really started this business in 2019. We only did nine loans, and we did 27 the next year and 34 last year and we're on track to continue to just increase this business. So I don't think it's a change in the market. It's just a natural growth in the business and relationships and repeat borrowers.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

Got it, thanks a lot.

[Operator]

Your next question comes from Ki Bin Kim with Truist.

[Ki Bin Kim, Analyst at Truist Financial]

Thank you, good morning. Just going back to the comments about the mid-single-digit rate increase in April, I was just curious if it's taking more marketing dollars or promotions to keep that? Or is that pretty apples-to-apples in terms of pricing power indications?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. Ki Bin, our demand has been strong enough, but our marketing is actually down. So it's encouraging that we're able to increase rates, demand is so good and the customer rate increases are sticking.

[Ki Bin Kim, Analyst at Truist Financial]

Okay. And in terms of your balance sheet, your variable rate debt represents about 25% of that spec. Now I don't want to miss the big picture. That's been a winning formula for the past, I'll say forever, and just maybe [for the fear] that may not be a winning formula. So I was just curious if you're having larger picture thoughts on what you intend to do with that variable rate debt.

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. Our variable rate debt has been something that we've had for a long time. We typically manage that 20% to 30%. It gives us the flexibility to buy things. Typically, what we'll do is we'll draw on the line of credit, we have acquisition opportunities, and then we'll look to term that out. You saw us do that earlier this year. Clearly, you like variable rate debt more when interest rates are falling than when they're rising. But we'll continue to manage that. We do have a bit of a natural hedge with our bridge loan program where those are also variable rate loans go in the other direction.

[Ki Bin Kim, Analyst at Truist Financial]

Okay, thank you.

[Operator]

Your next question comes from Spenser Allaway with Green Street.

[Spenser Allaway, Analyst at Green Street]

Thank you. Apologies if I missed this, but can you comment on how your expectations for supply pressure have changed or not since last quarter? It seems as though the increasing pressure on construction financing, coupled with permitting backlogs, etc., continue to push deliveries out. But just wanted to get your updated thoughts on what you guys are seeing on the ground.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

Yes. We have seen a moderation in our expectations of new deliveries. When we look at our same-store pool and what's going to be delivered this year, our estimate now is below 20% of our new -- of our same-store pool is going to have new deliveries, and that's down somewhat from last quarter as we see some of the things you mentioned is delays and projects not going forward. So supply is certainly moderating. It's not a nonissue. There are still things being delivered. We have a very diverse portfolio. So we'll be able to manage through it as we'll have some properties, having to deal with new supply, which we know how to do and in other markets, not. But I still believe even with cost increases and more difficulty in entitlements that we are going to see more development in the future. The performance of the project -- of the product is very strong. It's just too good. The amount of capital is unprecedented and people are going to find ways to build and it may take longer, but I think it's going to happen. And we know this because I mentioned we did 187 new property projections in the first quarter on the management side. 74 of those were for new development. So people are trying to get it done, and hopefully, the industry as a whole will be smart about it.

[Spenser Allaway, Analyst at Green Street]

That's very helpful, thank you.

[Operator]

Your next question comes from Smedes Rose of Citi.

[Smedes Rose, Analyst at Smith Barney Citigroup]

Hi, I just wanted to ask you on the joint venture opportunities you talked about increasing your activity there. Are you generally working with the same partners and pools of capital? Are you bringing in new folks, you mentioned a lot of pent-up demand and a lot of capital up there.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

We do have two new joint venture partners that we have or will close ventures with this year. I guess one is closed, one is about to close. It's a juggling act, right, because we want to be a good partner and be able to satisfy everyone's needs, but we never want to run out of joint venture capital. So we're always trying to have sufficient capital, but not have too many mouths to feed.

[Smedes Rose, Analyst at Smith Barney Citigroup]

Okay. And then I mean just on that, do you -- I mean, when you go into the joint venture, is it your view that you would just sort of stay joint venture partners kind of sort of some very long timeline? Or do you set up agreements where each can have the opportunity to potentially exit or just trying to think about, I guess, the timeline for the joint ventures or maybe there's not one.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

It's a great question, and it's something we focus on a lot. It's one of the most important things, the table stakes to form a joint venture partner is that we have similar investment criteria. So our joint venture partners are general accounts of insurance companies, odyssey, core odyssey funds that have kind of unlimited lives and unlimited holding periods. We don't want IRR-driven partners that are going to want to pull the sale button in three years. We're looking for people who are looking at these assets just like we are as quasi-permanent holds for cash flow that we can grow year after year after year. Now that being said, no one can promise they're going to hold forever. At some point, our partners do want to sell. We have rights in all of our joint venture partners upon exit to have an opportunity to purchase. But much more important than what's in the legal document is that we partner with people who are like-minded with us and have similar investment goals.

[Smedes Rose, Analyst at Smith Barney Citigroup]

Got it, thank you.

[Operator]

Your next question comes from Mike Mueller with JPMorgan.

[Mike Mueller, Analyst at JPMorgan Chase & Co.]

Yeah, hi. I have two quick ones, and I apologize if I missed this before. But did you comment on what move-in versus move-out rates were in the first quarter? And then for the operating properties that were acquired in the first quarter, what was the average occupancy?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. So move-in rates versus move-out rates were about 10% below. Our move-in rates were 10% below our existing customers, which is very typical for this time of year. So no concerns there. And then our average occupancy, we're pulling...

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

I got it. The average occupancy on the wholly-owned stores was 76% with the projected 13 months to stabilization, and that's economic stabilization, not physical occupancy stabilization. The joint ventures were [higher in] occupancy.

[Operator]

Your next question comes from Ronald Kamdem with Morgan Stanley.

[Ronald Kamdem, Analyst at Morgan Stanley]

Two quick ones. First on expenses. Just looking at property taxes were up 1% and payroll, I see 8%. Just can you comment on both of those line items on the property taxes front and how payroll is trending?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. Property taxes were maybe a little lower than perhaps maybe some people expected. That has more to do with timing of appeals than you'd like to think you're doing some type of Jedi mind trick or something to keep those rates low, but I don't think that it's -- anything other than those appeals coming through when they did. In terms of payroll, we did increase rates for our employees by about 8% at the end of last year when you take their annual rate increase as well as a onetime adjustment. And then our staffing has largely returned to normal. So those are -- that's a little bit more clarity on those two items.

[Ronald Kamdem, Analyst at Morgan Stanley]

Great. And then my second question was just trying to understand how to think about looking at the entire portfolio and what the mark-to-market is today. You made some comments earlier that people are moving in maybe 10% below portfolio rents which is helpful. But if I take a step back and try to get at that calculation where rents are in the portfolio today where -- versus the market, how should we think about that?

[Scott Stubbs, Executive Vice President and Chief Financial Officer at Extra Space Storage]

Yes. So that 10% number is obviously a time of year type of thing. So if you have a customer that moves in last summer at a higher rate, typically, you do see street rates go down in the fall and through the winter and then they go back up in the summer. Those existing customers that moved in last summer last fall are going to be getting rate increases. So that's going to contribute to your growth going forward. So not uncommon, all part of the rate cycle.

[Ronald Kamdem, Analyst at Morgan Stanley]

Great, thanks so much.

[Operator]

There are no further questions at this time. I will now turn the call back to Joe Margolis, Chief Executive Officer.

[Joseph D. Margolis, Chief Executive Officer at Extra Space Storage]

Great. Thank you, everyone, for taking the time to listen, and thank you for your interest in Extra Space. We're really happy to be able to deliver these types of results for our shareholders. But it happens because there's over 4,000 people at Extra Space, who are working really hard every day from in-the-stores to the data science folks to the accountants, all the investment people to -- the entire team just works hard and works well together, and they need a lot of credit and shout out for the results they're delivering. Thanks, everyone. I hope you have a good day.

[Operator]

[Operator Closing Remarks]