Inflation: What Is It and How Do We Hedge Against It?

Video Transcript

Matt Blackwell: All right, good afternoon. As people log in here, we'll get started in just a couple of minutes. All right. Looks like we still have people logging in. We'll get started in just a couple of minutes here. All right, go ahead and get started. Looks like a few people are still joining us, but we'll start to kick this off. I'm Matt Blackwell with Reliant Real Estate.

We appreciate you joining us and we're going to talk about inflation. What is it and how do we hedge against it? And, our director of ceremonies here is going to be Kris Benson, our Chief Investment Officer, and I'm going to go ahead and turn it over to him.

Kris Benson: Thanks Matt. Afternoon everybody. I appreciate you joining us. We're going to start doing - for those of you guys who are not investors with us, we're going to start doing an educational webinar, kind of, on a bi-weekly basis. You'll see different members of our team talking about different topics.

Really just giving you an understanding of what we do and what we think about on a day-to-day basis. So, the first one we thought was a pretty timely topic with inflation. As, you know, this is something you see a lot in the headlines. It's definitely something - I'm not sure how people view it as a good thing, as a bad thing. So, we'll try to give you an overview of that. But, for those of you guys who don't know us and just ended up on our distribution list somehow. Reliant Real Estate is a vertically-integrated storage operator. So we buy and manage self-storage properties primarily across the southeast.

Matt and I are talking to you from our office today in Roswell, Georgia. So we're just north of Atlanta, about 20 miles. We've been doing self-storage for a long time. We bought our first property back in 2007. As of today, we have 54 properties across 8 states: Florida, Georgia, Carolinas, Alabama, Tennessee, make up the bulk of our portfolio.

And just to give you a sense of scale in the marketplace. We're the 27th largest storage operator in the US. So, we're certainly not the largest. We're not the smallest and we have a lot of experience buying and selling these assets. We've sold 38 properties in our history and have had a fantastic track record to date. Part of that has been market, but certainly we are a good operator on our side as well.

And so today, inflation is one of those things that I think certainly affects how we think about the world. And so we wanted to share some information on inflation. Everybody has different levels of knowledge on this topic. So, our agenda is pretty broad-based. We're going to talk about what inflation is and then generally, how is that measured in the greater world? Like how do people look at that? And then also, how has it typically been controlled from a government side of things.

We're going to base that strictly on the US as that's where we're based and that's what I understand. And then we'll look at some of the causes and the mechanisms for inflation. There's really 3 categories and we'll walk through each of these: demand-pull, cost-push and then built-in inflation. How they happen and then more importantly, are we seeing that in today's market? And then finally, we'll talk about what to do about it. How to hedge against inflation. We have a really interesting paragraph that I'm going to read from 1980 which was the year I was actually born, but still very relevant to what we're going through today.

An ideal scenario - this is how we would affect inflation. I think you'll see, when we read this paragraph, in the US, we're probably not going to be willing to do what this gentleman suggests that we do. So, we'll talk about some other opportunities to to hedge against inflation. Specific real assets, how they've performed historically, how we should think about that. Stocks and equities and then real estate is what I know best. And certainly, self-storage is - we think there's some unique opportunities within self-storage. And then we'll turn it over to Q&A.

Matt's going to manage our Q&A portion of it. There's a chat box and then also a Q&A box that you'll see down on your taskbar in Zoom. Please use the Q&A box to submit your questions. Then at the end, Matt will bring those in and we'll try to get through them, as many as we can. So, let's kick it off with - what is inflation? And, you know, it's a pretty basic thought process. Inflation is essentially the decline of purchasing power of a given currency, over a period of time.

And we just have this infographic. This was actually sent out in the invitation email. But, think about it this way. When you bought a cup of coffee in 1970, in this particular graphic, we're showing it costing a quarter. In 2019, that average cup of coffee was a $1.59. So, the dollar was much more powerful in 1970 than it was in 2019. And essentially, as an economy grows, there's an increase in spending and as there's an increase in spending, things inflate in price because the demand is increasing.

And so, what happens with inflation is when you have this large increase in spending without an increase in production in goods. It's, kind of, an artificial "bubble" around this spending increase and it drives up prices and in turn is reducing the power of the dollar or of the currency that you're using. Obviously, most of us probably on the webinar are here in the US, so we'll reference the dollar. But generally, that's what's happening. The purchasing power is getting whittled away over time. And if you think about it. You hear your parents talking about how much their house cost when you moved into it, perhaps, when you were a child versus where home prices are today. That's just natural inflation over time. Appreciation of those assets and potentially the purchasing power of your currency going down because the house is going to cost more now than it did 20 years ago.

The second part of that question is, how are we measuring it? It's this, kind of, ambiguous term out there. There's a few pricing indexes but generally what's happening is, in the US, we use something - The Bureau of Labor statistics. They put together a few pricing indexes or indices and the one that most people hear about and what the media references the most is the CPI, the consumer price index. Essentially what it is, is just a basket of goods that are calculated on a monthly basis and then they're tracking the pricing on these goods to see; are we generally those prices going up, which would be inflation or going down, which would be deflation.

And so, that consumer price index is what we've just talked about. Here's a good look at some of the 8 major groups of the things that they're checking on. And generally think about it as, it's not perfect, right? But it's the 8 major categories that affect most of our lives. We're all generally buying a majority of the things that you see here in this infographic. They're tracking about 80,000 individual items, each month and how they do it is literally, there's either "secret shoppers" that they hire to go out and check prices in stores. Or, they're calling in to get those pricings from service providers like cable, airlines, car rental, those types of things.

And generally, they're pulling all that pricing back together and giving us a look at: Ok, what is happening - what are the trends that are happening with the pricing on these particular items. And, you know, if all of these things are going up - if your house costs more, your food costs more, your medical care costs more, and you're not necessarily changing the value of our currency, well then, the amount of money you made this year buys less of all of those. Inherently, that is inflation.

And so, I guess the question is: what is the CPI telling us today? So let's use that as the indice or the index that we're looking at and there's a number of them out there, depending on your facet of the world. You can dig into some pricing indexes on almost anything. But, what the CPI is telling us today is that generally prices are increasing. So, when compared to the year prior, the full CPI index increased 5.4% and this is through June of 2021 which is the largest 12-month increase from back in September of 2008. And, I'm sure you guys have seen these headlines. They're scary and they definitely, in the world of eyeballs or media companies chasing eyeballs, they definitely - it's easy to click on something that says: "Inflation Climbs Higher than Expected."

Well what does that mean. Is it good? Is it bad? And, we'll kind of dig into a little bit of that today. But I think it's fair to say, most people would agree that, generally prices are rising and we're seeing that in our own lives. And the question is, OK, so if that is what's happening, if we can agree that generally prices are going up.

How historically has the US government, in our case, managed inflation? What are the levers that they have to pull to traditionally offset some of the things that we see with inflation? Because, obviously inflation can be really bad. One of the earliest examples of inflation was when the Spanish explorers essentially decimated the Aztec population and they took all of the gold and silver that they got from the Aztecs back to mainland Spain and flooded the market with essential currency. In those days, it was precious metals.

And when they did that, the value of the currency went down the tubes because there was so much of it. So, I'm sure you guys have also read about pre- World War II Germany where a loaf of bread costs 60,000 deutschmarks or the dollar or the numbers just become ridiculous. I think Zimbabwe has an actual fiat currency of 100 trillion dollar bill because just a single dollar is not worth anything.

So, generally governments are trying to control this and there's two ways - two big levers that they're pulling. They fall under something called contractionary monetary policy. So, the idea is, generally inflation is happening when there's a lot of capital in the market - when there's a lot of flow of cash in the particular market. So, what the Fed or, in our case the Fed or a US central bank tries to do is, reduce that money supply within an economy. Now, there's a couple of ways they can do it.

But, the idea is to limit how much cash is out there so that people are not spending as much and prices start to come down. Well, the two things that stand out to me are: are interest rates rising? The Fed can raise interest rates and if they raise interest rates, well then less investment happens because it's more expensive to borrow debt. As consumers, we may go out and spend less on a car or a house because it costs us more to get those particular loans.

And so, what's interesting is, interest rates rising are part of a contractionary monetary policy. Well, are we raising interest rates? No, not right now we're not. Fed Reserve announced in June, there's no change to their policy as of June 2021 - their June 2021 meeting even though the BLS, the Bureau of Labor Statistics reported CPI was up 5% through May. And I know I just came from a slide that said it was up 5.4 through June. So, that's trending in the wrong direction, right? Prices are continuing to rise. So, even though the Fed is seeing that, they're saying, nah, that's not really an inflationary problem, we're going to be OK so we won't raise interest rates.

OK. Is the Fed limiting the flow of money in the economy? Well, if you've been paying attention at all, in the last 12 - 18 months, you know, we've had a tremendous stimulus package released in the US economy, here in the last 12 plus months. So, in January 6 of 2020, the US Fed Reserve had about 4 trillion dollars. A year later, that number was 6.7. Now, that came from printing of additional money, right? And what the Fed is doing there is essentially creating liquidity in the marketplace to try to stimulate growth. So as the COVID pandemic, kind of, took hold, and we were concerned about the contraction of our economy, they flooded the market with cash to say: OK guys, here is a bunch of money to continue to go out and invest and give many of the US citizens stimulus packages so that they could continue to pay bills and buy groceries and do those types of things.

But generally, when you think of this from the filter of inflation, absolutely not. We are not trying to limit the flow of money in the economy. OK. So those two levers that the Fed is not doing, right? We know that generally, neither lever has been pulled by the Fed Reserve Bank as of today. So, if that's the case, we're saying there is this increased supply of money, which is the root of most inflation and money is losing its purchasing power, then the question is, how is it working?

How is it creating this loss of purchasing power in the economy? And there's really three categories: demand-pull, cost-push and built-in. The demand-pull inflation really is when the demand for goods exceeds production capacity. So, think of it this way: if you just got $10,000, $100,000, $500,000, a million, it doesn't really matter. Depending on your particular situation, generally, you're going to go spend a portion of that. And in our world that exists today in the US, we just had a lot of people get extra money. So, they're going out and spending a portion of that. So, it's exceeding the production. And then cost-pushes: are there production costs that are going up and driving up the increase rate in prices? We'll take a look and see if that's been the case here in the US. And then built-in inflation is, as prices are rising, wages are coming up too, to maintain living costs, right?

So, if milk costs $10 bucks instead $5, employers are going to have to pay employees more to come work so that they can pay for their living expenses. And the question is, are we seeing these: like, the Fed has not limited cash in the economy. So, are we seeing these things in the US? Well, let's look at it one at a time. So, the demand- pull inflation. Are there things, and I'm just pulling one example where the demand is outpacing supply. Yes. Cars are a great example of that. If you look at pricing on used cars right now, it's out of control. In some cases, there are used cars that are worth more than the new version of them.

And, it's very interesting to see the reason why is because the demand is outpacing the production. So, cars are being sold before they're even produced, for a number of reasons but most of it has been built around supply issues. During COVID, many of the car manufacturers shut down because they thought that no one was going to be out buying cars. And we're still ramping up production to catch up.

And there's also been issues with the supply chain. So, I just read an article last week where cars are waiting on microchips. And so obviously, as you guys know, most of our cars today have a significant amount of computer processing in them. And so, there are literally vehicles sitting in lots waiting for the appropriate chips so they can ship these out to the dealer. And so what's happening is, it's basic supply and demand. You don't have enough supply. Prices are going crazy.

And so, the demand-pull is definitely happening. So, let's think about cost-push, that second inflationary mechanism. Are there situations where supply costs are increasing the costs of particular goods? Housing is a great example. I'm sure you've read about lumber issues, supply chain and the costs of lumber. Even for us, the consumer, if you go buy 2 X 4, at the Home Depot, it's still obnoxiously expensive. And obviously for people who are building homes, that's a huge line item in their supply costs. And so, this is just a particular article from CNBC saying that they're adding close to $40,000 to the cost of a new home, because these lumber costs are going so high. And so, again, it pushes up prices and so now, I don't have the ability - my money doesn't have the ability to purchase that particular home. So we're seeing cost-push as well. The last one: built-in.

Are we seeing wages rising alongside of it? And the answer is yes. So this chart, up at the top, is from our friends at the BLS, that Bureau of Labor Statistics, that actually produced the CPI interest. That's just showing the percentage change of civilian workers in total compensation. And you'll see this spike here, right about halfway through 2020, wages start to skyrocket. And so, what that does is, allows people more money to go out and spend, which in turn, if production is lower, pushes prices up. So, it's an interesting time, right now in the US where, we're seeing all of these mechanisms or all of these indicators that would suggest inflation is coming. Yet, we have nothing on the government side as far as levers being pulled economically to try to combat that. And so, I added this slide and I'm breaking all the rules of presentations here, where you're never supposed to put a whole bunch of text all on one slide, but, this one's a really good one and I'm going to read it.

And, I'm a pretty quick reader, but, this is from a paper titled, "Why Inflation Is Like Alcoholism". And, it's by a Nobel Prize winner, economist. His name is Milton Friedman. This was published back in 1980 but I think it's still very relevant to where we are. So, I'm just going to get into it. So, "Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later. That is why in both cases there is a strong temptation to overdo it. Drink too much or print too much money. When it comes to the cure, it's the other way about. When you stop drinking or you stop printing money, the bad effects come first and the good effects only come later.

That's why it's so hard to persist with the cure. In the United States, four times in the 20 years after 1957, we undertook the cure, or in this case stopped printing money, but each time we lacked the will to continue. As a result, we had all the bad effects and none of the good effects. Japan on the other hand, by sticking to a policy of slowing down the printing presses for five years, was by 1978 able to reap all the benefits: low inflation and a recovering economy. But there is nothing special about Japan. Every country that has had the courage to persist in the policy of slow monetary growth has been able to cure inflation and at the same time achieve a healthy economy. So, I wanted to put that in there just because I think it's very relevant and this is me overlaying my personal views of our political system. What he is describing is pain. To fix inflation, we have to go through a period of pain. It's like ripping off the band-aid. And in the beginning, it's not going to be very good. But the long-term benefit is there.

And unfortunately, in our world where our politics are built around getting votes for the next election cycle, it's very challenging for someone to do something that we know is going to create that short-term pain. And, it's hard for us as consumers, or constituents, to accept that. So, my opinion is, we have all of these indicators saying, hey, inflation is coming. We're not really willing to do anything about it yet. And so, if that's the case, what do we do, as investors? I know, most of us on the call are interested in investing or have done it in the past and are just looking for a way to protect themselves against this potential inflation.

And so, let's think about, how do we do that? In my opinion, real assets is where the best protection against inflation is, right? Tangible assets that, generally, if prices increase, the value of those assets is going to rise as well. And so, I just added an Asset Class Returns slide here and this is a pretty big data set from 1975 through 2021. And, if you look across the top, you'll see that, there's 5 individual categories that we're tracking on this graph. The first one is CPI. So, as we just learned about. We're watching this CPI increase slowly but surely and just look at the increments here. So, this is 5,000% so, it doesn't look like it's risen very much, but on a scale of 5,000, it's grown pretty substantially. And, what has kept pace with that inflation?

So, as CPI indexes has creeped up, what has kept pace? One thing I hear a lot about is gold, precious metals. That is a tangible asset that exists. You can hold it in your hand, put it in a safe at home. It's always going to have an intrinsic value. Well, you can see, it's definitely kept pace with the CPI index as prices have gone up, but not as great as some of the other categories that we're going to look at here. So, gold is an option. Investment grade bonds. Look, I'm not a bond-trader and I'm by no means a financial professional. I understand real estate pretty well and you should talk to your own financial advisors about these strategies. But, investment grade bonds have done well because traditionally interest rates are going to go up, bonds will generally pay better.

So, they're a good inflationary hedge. But remember, if how we fix inflation is raising interest rates, that may be an issue moving forward where maybe the Fed is not willing to do that or can't because we won't be able to cover our own debts in the US, if we raise our own interest rates on them. So, investment grade bonds has kept pace with inflation. The S&P 500 index. So, let's just use this as a category of equities. You know, stocks are generally a tangible asset. You're investing in a piece of a company that is a real company with real assets and so, in this case, you can see how the S&P 500 has kept pace with inflation and, in this case, has outpaced it pretty substantially. And so, S&P, the equities market may be a good option, too, to hedge against inflation.

And then, you'll see that gray line there, which is REITs and that's real estate investment trusts. So, for those of you who are not familiar with real estate investment trusts, basically, that's a publicly-traded company, or they can be private. But most people know them as a publicly-traded company. That by a portfolio of properties and those portfolio of properties produce the returns. So, if you know about a mutual fund, which is just a collection of stocks and the portfolio of those stocks produces the return, a REIT is the same thing, except they're buying a collection of properties and it's those collection of properties that produce the return. And you can see, historically REITs have outperformed, pretty much every asset class and certainly outpaced inflation. And so, I'm a real estate guy. Reliant is a real estate company. We work with real estate investors. So we're obviously biased. But, we believe that real estate is probably one of the best hedges when it comes to the specific or hedging against inflation. And, the question is why?

And here's - if you're not familiar with the valuation of commercial real estate, the key thing to think about is, residential versus commercial. With a commercial real estate asset, the value is based off of the income that property produces. With a commercial asset, it's based off comparables. So, if you were to sell your single-family home today, in your neighborhood, and you hired a broker. The broker would come in and say, OK, I've pulled the 20 comparable sales.

So, homes that look and feel like yours, in the marketplace, here's what I think the price per square foot would be for your home. And then you apply your price per square foot and that's your value. In commercial real estate, it's a little bit different in that, no one cares about comps. They generally care about, how much income the property is producing. And in our world, specifically with storage and other commercial assets, they're looking specifically at net operating income. And all net operating income is, if you take gross revenues, subtract out all the expenses, except for debt. So, anything above the line on your P&L - on your profit and loss statement, above the debt service. When you look at that number - NOI, you divide it by, what's called a cap rate, and that's where the value comes. We won't get into cap rate today. We'll save that for another webinar.

But, let's assume cap rates stay constant for the next five years. Well, if that happens, if cap rates stay constant and let's assume inflation is happening. So, prices are generally going up. Well, rents go up as prices go up. So, if you're renting an apartment, usually your rent is going to go up. If you are renting industrial space, your rent is going to go up. Well so, what's happening is, the property starts to produce more income naturally with that push from inflation. And so, if all other things stay constant, your value of your property is intrinsically going up as well. And that's why most people think that real estate is a great inflation hedge. Because, if prices are going up everywhere, well, so are rents and if rents are going up, then the values are going up.

Which means, what you've invested in, has become more valuable. Now, that's in a vacuum. There's a lot of other things happening there. If interest rates start to rise, cap rates can rise and values can come down and I know that and there's certainly some nuance to this. But, generally speaking, most people think of real estate as a great hedge. And, I'm going to pitch a little bit for self-storage because that's what we do. But, just to give you some sense of why self-storage is a great inflationary hedge is, we are unique in that, our leases are 30 days. So, let's just compare us to multifamily, for example. So, if you rent an apartment unit, most of the time, you're going to sign a 12-month lease. Which basically just says, look, you're going to pay a $1,000 a month for 12 months.

Well, that's great. It locks you into that rate for you as the consumer and as the landlord it's great because I can generally, if you're a good credit risk, I can count on you paying me that amount of money. Well, the downside to that is, in an inflationary environment where inflation may be rising 5-6% a year, you have not built that into your rent. Now, you can make up for it in month 13, when you have your tenant sign a new lease or you bring a new tenant in to sign a lease. That's where you can make up for it. But in that 12 month window, your locked. In storage, they're 30 day leases. So generally, I mean, if we wanted, we could raise rents every month. Now, we wouldn't have very many tenants. But, it allows us to be very nimble in the marketplace where, as prices are rising, we can keep pace quickly and we don't have to wait for our lease to expire, a year down the road.

And think about it this way. In some asset classes, we have a self-storage property where we own some retail space in the building where the storage is. We just renegotiated a lease, in that building, for 8 years. Now, there's some rental rate elevators in there. We're going to charge more each year but, generally, we're tied into that rate for 8 years. So, if inflation goes crazy, we're losing out on that deal and the tenant is making making out pretty well there. So, an interesting nuance of storage gives us that 30-day lease which allows us to be very nimble and then look, as an asset class historically - and what you're looking at here is, the compounded 10-year average annual returns of storage versus other asset classes. And, storage has done very well.

This is all of the publicly-traded REITs. So, the REIT average is just over 12.5%, 12.6%. Storage did just under 17% - only outperformed by homebuilder REITs and manufactured home REITs. So, you've had this really strong historical performance and also this recession resiliency. And what I'm showing you here is, this is all of the publicly-traded REITs here, on the left hand side, by category. So, health care REITs, lodgings - this would be like hotels, resort REITs, retail REITs and showing what they did in 2020 which, I think we can all agree was a pretty tough year. Storage outperformed all other asset classes other than data centers. And so, we've seen this in the last 2 economic cycles, both, the Great Recession - 2007, '08 and '09 and through COVID if we're through it or not. With the delta variant, I don't really know how to to position COVID-19 right now. But, through 2 distinct recessionary cycles, self-storage has done very well and I think the reason is: storage demand is created when we have transition in our lives.

We use the term, the 4 D's. Death, dislocation, downsizing and divorce. When that's happening in your life, generally, you're going to need storage. And fortunately for us, and unfortunately for the general public, you know, COVID-19 created a lot of all of that. Death, dislocation, downsizing. People were moving all over the place and unfortunately, divorce. And so, we have been the beneficiary of that, not just us, but certainly the entire asset class. So, you have this really nice historical return and the recession resilience. And so, that's my pitch for why self-storage is a great investment hedge. And so, you know, what I would leave you with is, and I'm just going to give a slight pitch for a minute and a half. If you're interested in understanding how to invest in self-storage, we're currently raising equity through a 50 million dollar equity fund. So, think of it like that mutual fund of self-storage properties. We currently have 8 properties in the fund. We're closing on the 9th in the beginning of September.

And then there's 2 more that we'll add and then most likely close the fund. So there's 11 properties that will basically produce that return for you as an investor. And, our projected returns and we'll also have this deck available. If you have specific questions, we can send you the investment summary. I don't want to make this a pitch fest for the fund. It's just a gentle pitch. So, projected return is between 12 and 15% a year. $100,000 investment is projected to return between $172,000 and $190,000 after a 6-year hold period. So, if you are interested in creating some of that inflationary hedge and you believe in the story around why self-storage may be a good hedge, you can reach out to Matt or I and we can certainly get you additional information.

You can check out our website at You can certainly find more information on us, our track record, the fund, and we can go from there. So, Matt with that, I'm going to turn it over to questions. If you have additional questions, please throw them in the Q&A box. Hopefully that was a good overview of what inflation is, how people are tracking it, what we're seeing in today's economy and in today's market and understanding, even though we may not be doing the economic things necessary to quell inflation, are we on a path that maybe that ship has already sailed and we should be thinking about how to protect ourselves of that? So, I'm going to turn it over to you and we can throw out a couple of questions that we have. We'll try to get through as many as we can without holding people up too much.

Matt Blackwell: All right. So, our first question is about the fund and what is the split of profits from limited partner/general partner. What does Reliant get?

Kris Benson: Yeah. Fair question. So, in the fund, there's an 8% preferred return and then it's - we have 3 classes of share in the fund, depending on your investment minimum. So, for most of our retail investors, somebody who - maybe $50,000 - $100,000. The investment minimum is $50,000 and the split is 70/30 above the 8 pref. So, the first 8% goes to the investor. Anything above that gets split 70/30. And then, if we meet a 15% IRR hurdle, then the split goes to 50/50. So, it just means that we're incentivized to outperform.

Matt Blackwell: All right, next question. Do storage units have an opportunity for re-fi's, like apartments, before the end of the hold period.

Kris Benson: Yeah, they sure do. Again, back to how you calculate value in a commercial asset, our opportunity from a storage side of things is, if you can create value, whether that's from rental prices increasing or potentially, we do a lot of value-add self-storage. So, we're actually going in and building additional square footage and then getting those units leased-up. That's where you can create that additional value and then have the opportunity to refinance some of that equity back and return capital to us and to our investors. What I would say is, we never underwrite refinances into our financial modeling because there's a lot of assumptions in there that that are hard to predict. But, the opportunity for refinance is certainly there.

Matt Blackwell: All right, next question. How do other asset classes - I know you touched on this a little bit, but specifically office and retail compared to the rental periods, the lease terms and being able to adjust with inflation.

Kris Benson: Yeah, it's a great question. So, we talked about that 30-day lease period with storage and the ability of it to to essentially be nimble in the marketplace. For example, retail. I use the example for a facility we own in Jacksonville, Florida. We have two retail tenants in the building where our storage facility is. And, one of them, we just renegotiated an 8 year lease with, which is great. We can lock-in that money and say, assuming they don't go out of business, we can count on that rent every month. But, the hard part about that is, if we're in that inflationary environment, our rental rate increases may not be enough to cover inflation. So, if that happens, the tenant has no incentive to renegotiate the rates with us. So, for us, or for the retail side, there's definitely a risk there. But, savvy retail operators see what's happening in the world too and generally are trying to give themselves opportunities to renegotiate those rents if possible. And then, office is the same way Matt, it depends. I'm certainly not an expert in office, but, generally, office leases are a little bit longer term and the costs of building out a new office space are expensive. So, generally, landlords are trying to lock people up for a longer period of time so that they don't have to go in and rehab the office to get a new tenant in. So again, you have that risk where the term of your lease may be a little bit longer than your ability to keep pace with inflation.

Matt Blackwell: All right. Let's see. I've got a few more questions. Who benefits from inflation? And, I'll go ahead and jump in on that one, if you don't mind.

Kris Benson: Sure, sure.

Matt Blackwell: So, if you have a lot of debt, theoretically, you are going to benefit from inflation if you borrowed a lot of money, because now there is more money in the markets. It's worth less. You can pay off that debt. Granted, your wages and your share of that goes up with the inflation. And then the inverse of that is, lenders are the ones who are getting really hurt because they've lent. They're locked in at a rate that they've lent that money at. And so, they're locked in at 8% but inflation goes up 5%, they're really only earning 3% on that money. The inflation is eating into their returns. All right, I've got another one, Kris here. We're going to try and stump you. What happened in 2009 when a lot of money was dumped in the economy and there was no inflation?

Kris Benson: So that's the argument of why it's OK to just print cash, right? In 2009, Great Recession, I think it was called "TARP". The TARP program and I don't remember exactly what it stood for. But, Obama and their administration basically bailed out a boatload of financial companies to try to mitigate the impact of the subprime mortgage crisis. That's the argument. All right - we dumped a bunch of capital in 2009 and we didn't really see inflation. My opinion, and again, I'm not saying I'm right. I'm just saying, hey, here's how it works. This is what I'm seeing. I think there's going to be inflation and for whoever wrote that, I would love to get your feedback if you believe the opposite is true. But, from my perspective on it is, two things. One, we've dumped much, much more money than we did in 2009. And again, I'm going off memory and I'm not prepared for the question, but I think the number was somewhere in the 700 - 900 million dollar range, which is a huge - sorry, 700 - 900 billion dollar range, which is a huge number, but not relative to what we just did. I believe the Fed added, close to 3 trillion dollars to the balance sheet. So, different scales of opportunity as far as how much liquidity we created in the marketplace. The second thing is, we've had a heck of a run since then, where inflation doesn't usually happen if there's a ton of capital, but production is also increasing. So, the short answer to your question is, that is the argument that many people are using to say it's OK to do what we just did. My opinion is more like the economists that I quoted, in that, it's like drinking. It's OK in the beginning. You know, we're going to have a good time together. I'll pull it back up here. But, eventually, this thing's going to bite you in the butt. And, you know, for our particular environment, it's hard for me to understand how you can just print money, create liquidity, without some consequence. It may not be short term. It may not be a 3-year window, but it's hard to imagine that there is no consequence. So, if whoever wrote that has context as to why they think the opposite will happen, you know, that there won't be any inflation, I'd love for them to chat back and we can certainly think about that too. Because, I'm not saying I'm right. I'm just telling you what I'm reading, seeing and how I think the world works.

Matt Blackwell: Fair enough. And I think with that too, right now, we're seeing, in my opinion as well, the perfect storm of the different types of inflation, the different causes that you showed. We're seeing the the results of those, where we did in 2009. We're seeing the price increases. We're seeing the large wage increases. The demand for lumber as you showed in the pricing. So, we'll see. Another question. Will this work with the self-directed IRA? And the answer to that is, yes. We do work with all custodians, so you can invest with a self-directed IRA. And the other question is, can we get some more information on Fund 2? And, everybody registered, we'll go ahead and send out the link to this, in case you want to watch it again, you enjoyed it so much and we'll send some information on Fund 2 as well.

Kris Benson: Yeah and you can certainly reach out to Matt or I via email. On our website, there's some Contact Us pages as well, but. Yeah, let us know if you have additional questions. We'll send out the recording of this webinar to everybody who may not have had the opportunity to listen to the entire thing. Matt, anything else? Any other questions or anything else you think we should we should leave with?

Matt Blackwell: I think we are good. We're coming up on 45 minutes here. So, I think that's it, unless somebody has a last minute question. Going once, going twice. All right, well, thank you for joining us. And as Kris mentioned, we are going to try to make this a bi-weekly event where we discuss just different topics in self-storage. Sorry, in real estate and try to do an educational piece just to help you as you invest, whether you're looking at deals with us or anyone else. Just so you can understand a little bit better, and the opportunities that are out there.

Kris Benson: Sounds good. Thanks, Matt. Thanks, guys. I appreciate you jumping on today.

Matt Blackwell: Have a great day.