Wes Golladay: Okay. Then how should we think about, call it, the floating rate exposure? I think you mentioned some swaps are coming offline. You did some buybacks. You may have some dispositions. You may be buying some more assets. So a lot of moving parts over the calls and the balance of the year. Where do you think the floating rate exposure ends the year?
Brandon Togashi: Well, I guess, let me say it this way. We’re — as I mentioned in the opening remarks, about $200 million drawn on our revolver, which is our only current variable rate exposure. We have the $250 million of swaps that expire middle of the year. That could go to floating or between now and then we could enter into new swaps and fix that. So that’ll be or pick out a place replacement bet. So those are options to us. If you factor in the $250 million of swaps that burn off, let’s just assume that that goes to floating. It puts our total debt, that’s subject to variable less as a percent of our total, it’s around 14% — 13%, 14%. We’ve been comfortable in the past up to 20%, sometimes 25%. So I think if I had to tell you, I’d say between 10% and 20% of our total debt stack of a little over $3 billion could be floating rate by the end of the year.
Wes Golladay: Okay. Thanks for that.
Brandon Togashi: Sure.
Operator: Thank you. [Operator Instructions] Our next question is from the line of Tayo Okusanya with Deutsche Bank. Please proceed with your questions.
Tayo Okusanya: Hi. Yes. Good afternoon. Quick question, the Captive pipeline from the PROs, is there any way that can potentially be acquired by the JVs or you can’t do that legally or because of tax implications, something like that would not work?
Dave Cramer: Well, certainly, I think, you touched on the point is that, the Captive pipeline people would probably, they could sell to anybody. They could sell it to a JV, they could sell it to our JV, they could sell it. If we turn the property down and decide we own it, they could sell it wherever they want. I think they’re really looking for the tax treatment and the OP unit is one of the primary drivers behind that Captive pipeline and that group of sellers. And so that makes it hard, we can’t spin it into the JV in that aspect is the answer to that, I guess, short answer.
Tayo Okusanya: Okay.
Brandon Togashi: And Tayo, the only other thing I would say is, Todd, in his question referenced the debt maturities as a driver, which is true, but there’s also assets in that Captive pipeline that our PROs manage, but they don’t outright control. They may just completely manage them only or maybe they have a minority ownership interest and also manage them. So, to the extent that those other owners, if their pattern changes and if they wanted to be a cash seller, the JV could be an option. We haven’t seen that yet. And I think it’s less likely as Dave said, but I just wanted to provide some additional color on some of the different arrangements.
Tayo Okusanya: Okay. That’s helpful. And then could you also kind of give a general sense on overall tenant credit, maybe what you’re kind of seeing in regards to, increasing auctions, increasing delinquencies or decreasing auctions and decreasing delinquencies?
Brandon Togashi: Yeah. I mean, no real changes in the first quarter from the previous several quarters in terms of delinquencies. We track bad debt as a percent of revenue and that’s historically been in the round of 2.5% range. So, we’re very much in line with those levels for Q1. Something we’re certainly watching closely, but haven’t seen any significant changes in payment patterns or payment timing from the customer. So, all indicators are very healthy customer base intact.
Tayo Okusanya: Great. A solid work on the capital allocation from this quarter.
Brandon Togashi: Thank you.
Dave Cramer: Thank you.
Operator: Our next question is coming from the line of Brendan Lynch with Barclays. Please proceed with your questions.
Brendan Lynch: Great. Thanks for taking the question. I want to go back to the focus on internal operations and the people process and platforms that are being upgraded and evaluated. I’d imagine this is a perpetual focus to a certain extent, but to the extent you can define, are we reaching the end of that process for certain components of it and maybe just more broadly where you are in the transition overall?
Dave Cramer: Yeah. Really good question and I would categorize it as, yes, we are in — we are reaching the end of the current development cycle of what we’ve worked on. And so, but it will be done here shortly. We’ve upgraded the operating platform. We’ve upgraded our data center and our capabilities around data and AI and technology. We’ve upgraded the call center platform and we’ve updated the web experience. And so, we’ve touched all four of those, which were very big lists for this company. The teams have worked extremely hard and extremely diligent in their efforts. Couldn’t be more proud of all that we’ve accomplished. And so, to me, we’ve got the platform, the foundation really, really solidly built and this launches us into the next chapter of this company’s life as we look forward on utilizing what we’ve developed, utilizing the technology we’ve developed and really having the tools for the talent to really excel.
Brendan Lynch: Great. That’s helpful. And then it looks like here, you had about a 32% increase in marketing spending. Can you talk about the components that went into that? I’d imagine paying for Click is part of it, maybe some call center considerations as well?
Brandon Togashi: Yeah. You touched on them. I mean, our call center is included in our marketing expense. And I think we think about it today, you’re in a very competitive environment. The marketing spend has come back to a level that we’re very comfortable with as a percentage of revenue. And as we continue to implement technology and we continue to look at how we staff our stores and the payroll around our stores, obviously the call center and the customer touch points change. Digitally, we’re moving more people to more of a digital experience. Our customers are transacting much more with us digitally than they have in the past. And the call center volume I was talking about is also a function of that where we are meeting the customer on how they want to transact.
And so the comp is tougher because last year we were not spending at the level from a digital spend, paid search. Some SEO work around that piece of it was not as vigorous as it is this year. We’ll start to annualize that paid search and some of those marketing costs, the hard costs that go around Google and those things. Really, as we head into the second quarter, third quarter, we really start to annualize that year-over-year spend and that comp will not look as pronounced as it is today.
Brendan Lynch: Okay. Very good. Thank you.
Dave Cramer: Thank you.
Operator: Our next question is from the line of Eric Luebchow with Wells Fargo. Please proceed with your questions.
Eric Luebchow: Great. Thanks for taking the questions. So, it sounds like with some of your new revenue management systems you put in place, you’re being a little more dynamic in terms of new rates and offering lower rates to customers to generate some additional occupancy, which is reflected in some of your web scripts as well. So any early learnings on how that strategy is progressing compared to other types of promotions that you might give like one month free rent?
Dave Cramer: Yeah. Really good question. It’s — I would tell you to start at the top of that is what we’re discovering and I don’t think it’s new to all of us is, the customer price sensitivity is mattering more now in the rental process than it did a year ago and even six months ago. And so, the consumer from their entry level are looking for a little bit sharper promotion, discount, price reduction, however you want to look at that. We are — we have been primarily focused on lowering entry rate and then trying to make that up through a little bit more of the ECRI program, but we are finding success now, looking a little bit more back to what we used to do as an industry around promotion, where it’s maybe 30% off or a third off for the first three months or half off for two months, and a little easier to implement that with the consumer, a little more visibility around that piece of it as far as here’s your discount, your rent is this and you get 50% off for the next two months and then it’s going to that.
And as far as the consumer standpoint, that’s a pretty easy point of sale, pretty easy to understand and take a little bit of pressure off those large increases after 60-day or 90-day period of being with us. And so, we are testing and we’re finding a path around probably a little bit more promotions use and maybe not as steep of rate decreases as where we’re heading with this. And so, I would tell you having the technology, having the testing, having the testing environment, I’ve been around a long time, I’m really excited about what we can see and the data points we have and how we can test and react and how nimble we can be. We are much farther down the path of where we ever used to be and it’s a good thing to be excited about, it’s also a good way to learn, and hopefully, again, find the best efficiencies we can find when we’re trying to attract new customers.
I do want to shift back to also our existing customer base has been very, very sticky. We had long length of stays. And so, on the flip side of that technology attracting — we talk a lot about attracting customers, but our existing customer base is really healthy, really stable and it’s been very accepting of the ECRI program that we have in place.
Eric Luebchow: Great, Dave. That’s very helpful. And I guess just one follow up, just to confirm the midpoint of your same-store revenue guidance assumes we don’t have a typical seasonal uplift and move-in rents from the troughs of winter to the spring and summer. I just wanted to confirm that. And do you think that seems like the right assumption just based on what you’ve seen and kind of early spring through late March, early in April?
Brandon Togashi: Yeah. That’s correct, Eric. I mean, maybe we modeled a variety of scenarios. So in some of those that would incorporate a little bit of uptick in rate due to seasonality, but nothing like the typical norms that we’ve had in historical years. And I would agree with what you said. Yeah, nothing that we’ve seen so far makes us feel like we should or need to change those assumptions.
Eric Luebchow: Okay. Great. Thanks for the questions.
Dave Cramer: Yeah. Thank you.
Operator: Thank you. At this time, we’ve reached the end of our question-and-answer session and I’ll turn the call back to George Hoglund for closing comments.
George Hoglund: Thank you all for joining the call today. We appreciate your continued interest in NSA and look forward to seeing many of you at the REIT Week Conference next month.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
