Joseph Russell: Thanks.
Operator: We’ll take our next question from Keegan Carl with Wolfe Research. Your line is open.
Keegan Carl: Hey, guys. Thanks for the time. Maybe first here, just any more color in your development pipeline, particularly those assets are completed from 2018 to 2020. It seems as if occupancy levels are below your portfolio average by decent margin, but yet they should have stabilized at this point based on your press release commentary. So just any sort of color on what’s driving and if it’s maybe market specific would be helpful.
Tom Boyle: Yes, I’d characterize as the performance of those assets to be pretty strong, right? I mean anything we delivered over that time period has benefited from really strong demand drivers. And frankly, they’ve been exceeding our expectations. Your comments around occupancies, I think, some of those vintages are a touch under 90%, but they’ll certainly stabilize above 90%. One of the things that I’d remind you is that occupancy is only one part of the equation of stabilization and rental rates is certainly the other. And we’re seeking to maximize revenue from those pools of assets the same way we do our same-store pool. So occupancy will ultimately get over 90%, but I think more importantly the rate growth there has been exceptionally strong and likely has several more years of strong rate growth compared to the same-store pool from that group of assets.
And you can see the yields that we’re achieving there. It continues to reinforce the strong risk-adjusted return of that program and it leads to our increase in desire to continue to build moving forward. So the development pipeline now is sitting over $1 billion as we seek to grow that program.
Keegan Carl: That’s helpful. And then one thing I noticed in the supplement, just your commentary on credit card fees stood out. Just kind of curious, is there a way for you guys to charge a higher rate on those using credit cards to offset that? Or do you just now want to take the risk of them bulking given those people on auto pay tend to be better customers?
Tom Boyle: Yes, I’d say for the most part the increase in credit card fees relates to the increase in revenues and that’s by far and away the contribution. So as revenues increase, you’re going to see those payment processing fees go higher. From an operational standpoint, we do spend time thinking about ways to incentivize our customers to use attractive payment patterns for them, but also one that may be cheaper for us to process. And so that’s an ongoing kind of year in and year out attempt through different operational methods. But to your point, we love to move people in and achieve that auto pay and ultimately it’s much more important to achieve that move-in than it is to focus on the payments process.
Keegan Carl: Got it. Super helpful. Thanks for the time, guys.
Operator: We’ll take our next question from Steve Sakwa with Evercore ISI. Your line is now open.
Steve Sakwa: Great. Thanks. Good morning. I’m sure you guys are disappointed in the outcome with Life Storage, but does that sort of change kind of your view at all about kind of large-scale M&A? Or do you feel like this kind of puts pressure for you to find other transactions of size to kind of keep your lead in the industry?
Joseph Russell: Yes, Steve. Clearly, we are well positioned to continue to grow in all different shapes and sizes. And we feel every bit, if not more, confident that opportunities will continue to arise going forward. So we’re very focused on that. We are looking at many different alternatives going into future opportunity scenarios. But we feel that, again, the reset to whatever degree happens in the sector by virtue of the LSI and ESR combination. At the end of the day, it doesn’t change the landscape from a competitive standpoint. One of the things that we’ve learned over time scales one part of efficiency and optimization, but many other things play through as well, that we continue to invest in that lead to our industry-leading margins, the things that we’ve done to enhance our own brand, the effectiveness of the presence we have market-to-market, and we feel very confident we’re in good shape going forward, and we’ll continue to make those investments.
Steve Sakwa: Great. And then, I guess, secondly, on development, we continue to hear that development should be coming down given all the challenges in the lending environment. You guys have remained, I think, active I’m just curious, are you sort of changing kind of how you guys underwrite development today? Have you changed your hurdles? Are you changing anything in the, I guess, the framework and the way you evaluate new development projects?
Joseph Russell: Yes. The – first of all, development is a long game, right? So we’re typically looking at scenarios that – well without question, go in and out of all kinds of different ranges of economic cycles, et cetera, when you’re thinking about total time periods to actually put a property to a point of not only opening, but stabilization, I mean you can easily be at a five-year plus mark asset to asset. So that I think, is a good headwind, particularly in this environment where, again, many owners are seeing different headwinds around cost of capital, availability of capital, component costs. I mentioned the amount of timing it takes to get approval, city-to-city, and we’ve been talking about for some time is far more difficult today than it’s ever been on that front.
And literally almost everywhere. I can’t even name a market where it’s easier to develop today than it was one, two or three years ago. So you’ve got to be, again, ready to work through those kinds of demands or those kinds of factors, those kinds of risk components. We feel very well suited to do that. In this environment, where we’re actually seeing the opportunity to pull more interesting properties into our own pipeline that potentially have far less competition from a land standpoint or even a repurposing standpoint. So the team is working hard, and we’re finding some good opportunities. I’ll let Tom talk a little bit about how our underwriting process play through as well. But that’s something that always is reflective not only the current environment, but the long-term environment.
Tom Boyle: Yes. And just to piggyback on that, I think we’re consistently looking to try to improve our underwriting processes year in and year out. And if you recall at Investor Day, our data science leader talked about some of the tools that, that team has helped develop with – for use with our development and acquisition team. Those processes continue to be underway. We try to use our wealth of data internally to give us advantages on picking those sites and adding in new development. So underwriting process is consistently evolving in a positive way. In terms of hurdles and the like, obviously, we do with acquisitions as well as development and think about what our cost of capital is and evaluate that in the context of the returns that we expect on new capital allocation.
But I’d point you to a relatively consistent trend, which we said that we’re seeking to build new sites that will generate a yield on cost of circa 8% plus at delivery, and that’s not significantly changed over the last several years.
Steve Sakwa: Great. Thanks.
Joseph Russell: Thanks, Steve.
Tom Boyle: Thanks, Steve.
Operator: We will take our next question from Ki Bin Kim with Truist. Your line is open.
Ki Bin Kim: Thanks. Good morning. Did you guys provide an update on April moving rates? Sorry if I missed it.
