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On the other hand, as we mentioned on our previous earnings calls, we have both tougher comps and greater impact from new supply in our markets in the back half of the year and that's playing out just as we thought. Approximately 40% of our portfolio is being impacted by new supply within a 5-mile radius, up from 39% last quarter. And again, this supply is predominantly impacting stores in the top 50 MSAs.

However, we are seeing signs that the development pipelines in markets like Portland, Dallas and Austin, appear to have peaked, which leads us to believe that new deliveries in 2020 will decline from 2019 levels. Fundamentally, we're not seeing any softness in demand as the consumer remains healthy.

In addition, as we discussed on our last call, private equity interest in self-storage properties continues to increase, as experienced by the enormous amount of equity capital competing to invest in self-storage, driving historically low cap rates. As a result, we've lost out on a handful of deals which have gone at prices that leave us scratching our heads a bit.

Given this tough acquisition environment, I'd like to highlight a few points first, NSA remains committed to disciplined underwriting. We will not grow just for growth's sake. We invested $36 million in 6 properties this quarter, bringing year-to-date acquisitions to $416 million. At the same time, we've passed on a number of deals where the pricing didn't make sense and wouldn't have been accretive to NSA shareholders.

Second, keep in mind the timing of acquisitions is lumpy. We enjoyed robust acquisition volume in the first half of 2019. We knew that our acquisition activity would be front-end loaded, so our pace in the back half of the year is in line with our expectations. Nonetheless, we continue to be active in underwriting deals and remained pleased with how proactive our PROs have been in bringing potential deals to the table.

Third, we're confident we'll generate solid acquisition volume going forward, given our 4 acquisition drivers, which are, first, the addition of new PROs, and we added 2 PROs earlier this year; second, our captive pipeline, which totals over 100 stores, valued at over $1 billion. In addition, we drive much of our growth by buying third-party acquisitions from individual sellers. And finally, new joint ventures as well as the future opportunity to buy out our current JV partners, which is currently valued at over $1.5 billion.

Once again, I am very pleased with our strong quarter, and we remain confident that acquisitions will continue to be a substantial driver of accretive FFO per share growth in the future.

With that, I will now turn the call over to Tammy.

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Tamara D. Fischer, National Storage Affiliates Trust - President, CFO, Treasurer & Secretary [4]

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Thanks, Arlen. I'll first spend a few minutes on fundamentals. On average, fundamentals in our portfolio remained healthy, so we acknowledge the cumulative impact from new supply is weighing on street rates and has driven intense competition on the Internet marketing front.

Although we're becoming more efficient with our overall marketing spend, we're seeing the need to step up our efforts in certain markets, and our spend this quarter was up 12% compared to Q3 last year. Meanwhile, we continue to push mid- to high single-digit rent increases to in-place customers, which is currently a key driver of our revenue growth.

Occupancy is up year-over-year, and although street rates were negative by 1% to 2% in the third quarter, that represents a slight improvement from the negative 3% to 4% we saw earlier this year.

So far, in the fourth quarter, street rates continue to move in the right direction. Move-in volumes were down slightly in the quarter, partially offset by move-outs that were also down.

Discounting is about flat year-over-year. And as we've mentioned, average length of stay is steadily increasing and is now over 15 months. We expect the strength of our PRO structure, combined with our evolving revenue management and digital marketing platforms, will continue to drive operational upside

Next, let me comment on a few specific markets. Our leading MSAs in terms of same-store revenue growth include Riverside, San Bernardino, Atlanta and Las Vegas, where demand growth has exceeded supply growth. Keep in mind that storage is a local game, so despite seeing new supply on an MSA level, our efforts may be concentrated in areas that are more or less impacted by the supply.

Lagging markets in our portfolio included Portland, Dallas and Tulsa, which continue to feel the headwinds from elevated new supply. We're also seeing increasing pressure from new supply in West Florida. Worth noting, all of our top 10 MSAs generated positive same-store revenue and NOI growth in the third quarter.

While the operating environment is no doubt challenging due to elevated new supply, we continue to believe we'll deliver sector-leading growth in same-store NOI and core FFO per share.

I'll now turn the call over to Brandon to address third quarter results, recent balance sheet activity and guidance.

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Brandon S. Togashi, National Storage Affiliates Trust - Senior VP & CAO [5]

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Thank you, Tammy. Yesterday afternoon, we reported solid results for the third quarter with core FFO per share of $0.40, which represents an increase of 11.1% over the prior year period. This growth was fueled by a combination of healthy same-store NOI performance, strong year-to-date acquisition volume and increased fees from our JV platform.

For the third quarter, same-store NOI increased by 4.2% over prior year, driven by 3.7% in same-store revenues and 2.7% growth in property operating expenses. Our rate increases to existing tenants drove a 3.3% increase in average annualized rent per square foot, and same-store average occupancy increased 30 basis points to 90.2% during the quarter.

Regarding same-store OpEx growth for the quarter, the 2 largest expense categories were well controlled, with property taxes up 3.5% year-over-year, which was lower than expected; and personnel expenses up 3.1% year-over-year.

Repairs and maintenance costs increased 9.2%, mostly due to timing, and marketing costs increased 12% over prior year. These increases were partially offset by a decrease in utilities and insurance costs. We expect overall expenses to pick up in the fourth quarter. However, property taxes are coming in lower than we have previously projected, which is a key driver of the reduced OpEx guidance.

Now turning to the balance sheet. As we noted on last quarter's call, we successfully completed our inaugural private placement transaction during the third quarter, which funded on August 30. We also completed the recast of our credit facility, increasing the borrowing capacity and lowering the cost. The details of these transactions are in the press release.

Our balance sheet is very well positioned with a weighted average cost of debt at quarter end of 3.5%, with all of our outstanding debt currently fixed rate or swapped to fixed. Our weighted average maturity is 6.2 years, and our net debt-to-EBITDA ratio was 5.7x at the end of the third quarter, toward the lower end of our target range of 5.5 to 6.5x. With only a nominal amount of debt maturing between now through 2022 and the full availability of our revolver, we have ample capacity and flexibility to execute our acquisition strategy.

Now moving on to guidance. We're pleased by our third quarter performance and expect same-store operating expense growth to remain muted for the remainder of the year. Property taxes have been lower than expected, and our PROs have done a good job of managing advertising and personnel expenses. We expect revenue growth to continue to moderate in the fourth quarter, primarily due to tougher comps and the cumulative impact of new supply.

Taking all of this into consideration, we've updated our full year 2019 guidance as follows. We project full year same-store revenue growth in the range of 3.5% to 4%, which is unchanged. However, we're confident in achieving the top half of that range.

We lowered the midpoint of same store operating expense growth by 50 basis points to 2.5%, and we now project the same-store NOI growth midpoint of 4.5%, an increase of 50 basis points. We also narrowed our full year 2019 wholly-owned acquisition guidance with the midpoint remaining $450 million.

Finally, we're also increasing our guidance for full year 2019 core FFO per share to a range of $1.52 to $1.54, up from our previous range of $1.51 to $1.54. These updated assumptions are outlined in our earnings release.

Thanks, again, for joining our call today. We'll now turn the call back to the operator to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Smedes Rose with Citi.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [2]

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I wanted to just follow up on your remarks where you talked about sector-leading NOI growth, same-store NOI growth. So I mean, is it your view that NSA can kind of maintain the sort of similar spreads, if you will, to same-store NOI in 2020 to the other public storage companies that you've seen across the course of this year?

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [3]

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Smedes, this is Arlen. I would say that we couldn't necessarily maintain the same spreads from the standpoint that a lot of our peers are getting close to 0, and we are seeing slight deceleration. But I'm very confident we'll continue to have the highest same-store NOI growth in the sector. And that's really because of a couple reasons, one is the fact that our markets. We have a lot more of our stores in the smaller MSAs where we see significantly less new supply competition. And the second is that, frankly, we've been at the game a lot shorter, so we're still rolling out a lot of new platform tools and refining those platform tools that a lot of our peers have been doing for a lot longer than we have. And so we have that ability to keep honing the upside in the properties.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [4]

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Okay. And then you just -- you mentioned steep competition to -- for acquisition. I think last quarter, you talked about 6.25% to 6.5% cap rates for acquisitions that you were able to complete. Are you still able to buy in that range? And maybe just some commentary around what you're seeing overall in terms of pricing and kind of the quality of the product that's coming to market, if you will.

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [5]

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Yes. I would say, we cannot buy at that same range. It has come down 25 to 50 basis points in terms of cap rates for the same assets. The quality of assets that we see is pretty comparable of what we have seen. And there are some large portfolios out there that have come up as well, although a lot of those have been nonstabilized properties and that is not focus at NSA. We try to focus on buying stabilized properties because our experience is that in high-supply markets, the risk level of the nonstabilized assets is substantially greater and in my experience has not been worth the price. The risk is just too great. So we stayed away from any of the C of O deals and done very small number in the nonstabilized assets.

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Operator [6]

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

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [7]

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Arlen, your comments about development activity, specifically in the Portland market. I think you commented that you're encouraged, you see some activity there peeking, which, I guess, is future activities, permitting, I suppose. But given how many deliveries there have been in recent quarters and sort of what's in the pipeline here to be delivered near term, how would you expect rents and occupancies to trend in that market over the next several quarters?

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [8]

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Well, definitely, Portland is going to continue to be a -- I'll call it, a flat market. It's challenging to just maintain occupancy and revenues in the very close to 0% to 1% type range. We've actually -- if you go back for the last 4 to 5 quarters, we've really been in that kind of level. And we went up to 1.9%, I think, last quarter and down a little this quarter. And before that, we were around 1%. But it's really been there 0% to 1% for quite a while. And it's just this constant bombardment of new supply.

I think our PRO there has done a really good job of competing as effectively as possible. But I think there's still excess supply there and coming, even though the demand there is great. It's a very good demand market. You just can't build 8 years' worth of supply and think it's going to fill up overnight. So this is going to be a long process. But it won't go hugely negative. It'll just stay pretty close to 0%.

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Tamara D. Fischer, National Storage Affiliates Trust - President, CFO, Treasurer & Secretary [9]

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And Todd, the only thing I would add to that, this is Tammy, is that we continue to be successful in processing rate increases for our in-place customers. And so that's helping us kind of hold the line on revenues.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [10]

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Okay. But we look at occupancy rates in that market and we're looking at sort of third quarter numbers here and it's kind of trending sub-85%. So we have a couple of quarters now of occupancy loss during the off-peak season. Is it possible that we see occupancy fall below 80% sort of at the lows of the off-peak season here in Portland?

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [11]

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That would probably be pushing it a little bit, at least for our portfolio. But we will see seasonal declines, as always, in the fourth quarter and first quarter. It's always lower than in the second and third quarter, but I don't see it going below 80%. And we're effectively competing to keep in that 80% to 85% range from the lowest to the highest peak, I think, 88% or something like that. So...

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Steven B. Treadwell, National Storage Affiliates Trust - Executive VP & COO [12]

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Todd, it's Steve. The seasonal trends remain in place in Portland. It is not a deteriorating market per se. It's a market where we're going to struggle to grow. But occupancy is, frankly, holding very similar to where it was a year ago and we see the normal seasonal Q4 decline. And street rates are also holding very close to where they were a year ago. So I don't want to be too positive on Portland, but I also don't want to be too negative. I think we're going to struggle there, but we expect to keep it above 0% in terms of revenue growth.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [13]

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Okay. And then in terms of the acquisition environment, your comments around the competitive landscape for investments. You discussed how revenue growth is sort of trending lower across the industry here and growth is sort of flattening out. Do you expect some of the capital that's investing in the space today or looking to invest in the space? Do you expect some of that capital to sort of step away if conditions remain challenging or grow a bit more challenging from here?

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [14]

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Well, I would certainly say that we are seeing capital that's ending towards new development is declining. That is definitely true. I haven't seen it stepping away of capital that's trying to focus on acquiring stabilized or existing assets yet, and that's why the pricing has been tight on that. I think from a IRR standpoint, it's obvious that you're not going to hit the same IRRs if you're going to have same-store revenue growth only averaging 3% a year, where the industry, as opposed to a few years ago when it was running 7% or 8% a year. Obviously, your IRRs are going to be lower. But we are in a much lower interest rate environment, and so it's still very challenging.

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Operator [15]

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Our next question comes from Ronald Kamdem with Morgan Stanley.

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Ronald Kamdem, Morgan Stanley, Research Division - Research Associate [16]

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The first one was just on value-enhancing CapEx. One, can you just remind us a little bit what the opportunity is there? So obviously, I see the spending year-to-date, but just trying to get a sense, is that something -- is that 10% of the portfolio? Is that 20% of the portfolio? What's the opportunity really there to drive that? And what kind of returns you guys get on that?

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Brandon S. Togashi, National Storage Affiliates Trust - Senior VP & CAO [17]

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Ronald, this is Brandon. I'll give you a little detail on what's in there currently, and then Tammy or Arlen might remark on total opportunity. Currently, if we have any expansions, that's going to be in that number. We rely on our PROs to identify those opportunities to add space or to convert nonclimate to climate-controlled. We also, last year around this time, announced an initiative to do an LED lighting product portfolio-wide. So we have that rolling through the portfolio now. So those dollars are in that year-to-date spend you see. And there is obviously a certain ROI threshold that we have on that, a pretty high number on that to make the dollars make sense.

So that's what's in there now. I can't say that we've necessarily quantified portfolio-wide on a percentage basis, what the opportunities are, but it's a continuous evaluation between us and constant communication with our PROs.

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [18]

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And I would say, as it relates to the whole portfolio, typically, the highest returns you can have will be on doing expansions of an existing site where you've already got the land or you have land next door, you've already got the management team and all of that running it. But of course, you've got a caveat that with is this market already overbuilt?

And so, I would say, we would probably limit most of those to markets in the smaller MSAs from number 50 on up, where we don't see nearly the number of new supply coming into the market. But then those are also our low-rate markets, and so you have to be cognizant of the economics that come into play. But usually, the expansions on those make good sense. So I wouldn't say that it's -- it's more than 10% of our portfolio in terms of a potential opportunity, but it's nothing like 40% or 50% of our portfolio that has that kind of opportunity.

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Ronald Kamdem, Morgan Stanley, Research Division - Research Associate [19]

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Great. That's helpful. Not to beat the acquisition question to death, but just taking a step back. Obviously, I'm not asking for guidance here. But when I think about $450 million of wholly owned, you talked about that, obviously, cap rates are under pressure, there's a lot more competition. Is that -- how hard is that number to make in a year, right? So meaning like, do you still have sort of that opportunity to stay at that run rate going out 3, 4, 5 years if the environment is getting so competitive? Or should we either expect that number to come down? Or will you guys try to sort of just pay up for the deals that you need? Just trying to get a sense of that.

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [20]

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Well, our target remains that we want to continue to grow our asset base by about 10% per year, which means around $500 million of acquisitions per year. And we do believe we can do that because, remember, that's comprised of a lot of those different categories that I mentioned.

First of all, it's obviously third-party acquisitions from totally independent sellers, but we've got a huge captive pipeline from our PROs already. That's $1 billion that can come in over the next 5, 6 years or so. We've also got the ability to add new PROs, which -- those can bring in big slugs of properties all at one time, $100 million to $1 billion than an individual PRO can bring in. And then finally, the joint venture, both new opportunities for joint ventures as well as buying out our JV partners. So we look at this on a long-term gain, and we see that we want to continue to grow and acquire $500-plus million per year on average over the next 5 to 10 years.

Now it's not going to be every single year that we can hit that, but I do believe over the long term, we can do that. Because remember, there are still 35,000 independent mom-and-pop owners in the U.S. that own 1 to 3 properties. Now we don't want to buy all of those properties, but we certainly would like to buy a lot of them that are in markets -- that are good institutional quality assets in markets where we have a good PRO presence.

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Ronald Kamdem, Morgan Stanley, Research Division - Research Associate [21]

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Helpful. Just my last question is, look, we -- we've seen some of your sort of major market peers dial up the sort of online marketing expense spending quite significantly year-over-year. I guess I'm just curious, in some of the markets that -- some of the major markets that you overlap, clearly, a lot of the portfolio does not overlap with that. But just in those top markets in the portfolio, are you feeling more competitive pressure? Do you sort of feel that in the operations or not so much?

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Steven B. Treadwell, National Storage Affiliates Trust - Executive VP & COO [22]

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We definitely feel that competitive pressure when it comes to paid search, online marketing spend. And it is definitely more pronounced in a primary market versus a secondary or tertiary market. The way we've been able to mitigate it so far is simply just being more effective with our paid search strategies and our bidding strategies and more effective with our conversions. So we're also looking to really amp up the contribution of our [SCR] or our unpaid lead sources. And that has helped tremendously as well.

So yes, it's competitive. Yes, we will see increased spending going forward, and it doesn't look like our competitors or our peers are ramping down anytime soon either. So it's, frankly, just one of the levers you have to pull if you want to be competitive in an oversupplied market. And so we are playing the games to best of our ability to keep the revenues going.

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Operator [23]

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(Operator Instructions) Our next question comes from Todd Stender with Wells Fargo.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [24]

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Your margins are up nicely, but just going to get a sense of how much you're spending, I guess, on the marketing side, specifically in the competitive markets like Portland and Dallas? And then maybe counter to that, Inland Empire and Las Vegas seem to be doing well. How do you kind of balance that overspending due to competition, but also taking your foot off the gas and maybe you should keep it on? How do you kind of think about marketing spend at this point?

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Steven B. Treadwell, National Storage Affiliates Trust - Executive VP & COO [25]

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Yes. I would say it's honestly day-to-day, and in some cases, hour-to-hour in terms of how we decide what to spend where. We do utilize machine learning and artificial intelligence. And we let the machine help us optimize our spend to fund the best opportunities, and that can change very rapidly. So we're cognizant of differentials, and we're focused on investing where we're going to get the best return in terms of lifetime value of the customer that we're going to acquire. So to go into a market-level discussion of what we're doing where would be inaccurate because it will change as soon as I get done.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [26]

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Got it. And then how about just switching to discounts. Your occupancy has reached 90%. So you're entering kind of the slow season now, but you also want to keep it as high as you can going to the spring leasing season just for better pricing power. How are -- any trends you can share so far into October? And maybe just talk about discounting, in general.

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Steven B. Treadwell, National Storage Affiliates Trust - Executive VP & COO [27]

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Yes. So discounting, in general, and it feels like it's been for almost 2 years now that we've been saying it's basically flat year-over-year. It continues to be flat. I think it's a tool that everyone is using. We certainly use it where we think it makes sense to gain a new occupant or a new -- sign a new lease. And so we've been using these tools regularly where they make sense for a couple of years now, and our competitors are doing the same. I think, in general, the sector has probably largely plateaued when it comes to discounting, mostly because everybody's using the same type of discounts out there, first month free being the most popular. So I don't expect to see many changes on discounting going forward. I think we'll continue to see more flatness ahead, and Q4 is no different so far.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [28]

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Okay. And just finally, Arlen, your comments about private equity being pretty steep competition. I would imagine that wouldn't impact your ability to make and source investments within JVs, you probably have some contracts within there. But the guidance did drop for acquisitions within JVs. So is that just a timing issue? Any color around your joint venture investments?

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Arlen Dale Nordhagen, National Storage Affiliates Trust - Chairman of the Board of Trustees & CEO [29]

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Yes, you're right. That really is more of a timing issue. We have very good support from our JV partners and commitments from all of them as well as ourselves that we want to continue to make investments in our existing JVs and expand those. And so the timing relates to those JVs have very defined territories where they make those investments. And so if good investment opportunities don't come up within those territories, then it just doesn't happen at that time. And so we've had some deals that were just overpriced and we said we weren't going to pay that, and other deals that were just outside of those territories. But I'm confident we'll continue to have good JV volume of acquisitions in the year ahead. So...

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Operator [30]

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Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to Tamara Fischer for closing remarks.

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Tamara D. Fischer, National Storage Affiliates Trust - President, CFO, Treasurer & Secretary [31]

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Thanks, again, everyone, for joining NSA's Third Quarter 2019 Earnings Call. We appreciate your continued interest in and support of National Storage Affiliates, and we look forward to seeing many of you at the upcoming NAREIT Conference in a couple of weeks. Thanks.

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Operator [32]

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Thank you. This concludes today's call. All parties may disconnect. Have a good day.

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