Q2 2021 Extra Space Storage Inc Earnings Call
Thank you for standing by and welcome to the Q2, 2021 extra space storage earnings conference.
<unk> call at this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero and I would.
And I'd like to hand, the conference over to your House Senior Vice President capital markets, Jeff Norman. Please go ahead.
Thank you Latif.
From the extra space storage is second quarter, 2021 earnings call and.
In addition to our press release, we have furnished unaudited supplemental financial information on our web.
Site.
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.
<unk> 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 managements estimates as of today July 28.2021 the.
The company assumes no obligation to revise.
Companies 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.
Thanks, Jeff and thanks, everyone for joining the call before I turn to the results I wanted to take a moment and congratulate the entire.
<unk> extra space.
1 of our goals for this year was to get to 2021 stores in the year 2021, and we've achieved that which is a great thing.
And when I first started with extra space, we had 12 stores and it's incredible to see the exceptional growth of this company.
Fire value, we've created for our shareholders. So online and thank all the folks at extra space, who contributed to our achieving deco.
I'm also happy to announce that we recently published our 2020 sustainability report with disclosures and information related to the company's environment.
<unk> total social and governance initiatives.
And I invite our listeners to review the report on the sustainability page of our Investor Relations website.
Heading into this core I'm, sorry, heading into the second quarter, our management team had high expectations due to our record high occupancy.
Currency levels.
Significant pricing power and a relatively easy 2020 comparable and.
And actual performance far exceeded these elevated expectations.
Same store occupancy set another new high watermark at the end of June at 97%, which is incredible.
And as you consider the diversification of our national portfolio.
The elevated occupancy led to exceptional pricing power with achieved rates to new customers in the quarter over 60% higher than 2020 levels.
While this is inflated by an artificially low prior year comp.
Achieve rates were over 30% greater than 2019 levels and accelerated through the quarter.
In addition to the benefit from new customer rates, we have continued to bring existing customers closer to current street rates as more of the state of emergency rate restrictions.
Comp are lifted throughout the country.
Other income is no longer a drag on revenue due to late fees and improving year over year, and actually contributed 20 basis points to revenue growth and the quarter.
And finally higher discounts, primarily due to higher rates were offset by.
Lower bad debt.
These drivers produced same store revenue growth of 13, 6% and 900 basis point acceleration from Q1.
And same store NOI growth of 22% and acceleration of over 1300 basis points.
In.
In addition, our external growth initiatives produced steady returns outside of the same store pool, resulting in <unk> per Boe growth of 33, 3%.
Turning to external growth the acquisition market continues to be and our view expenses.
Given the pricing we are seeing and the market. We have listed and an additional 17 stores for outright disposition, which we expect to close during the back half.
'twenty 'twenty 1.
We continue to be actively engaged and acquisitions, but we remain disciplined year to date, we've been able to close.
Clothes or put under contract acquisitions totaling $400 million of extra space investment.
These are primarily lease up properties and several of the properties came from our bridge loan program.
We have increased our 2021 acquisition guidance to $500 million in extra space and.
Looking forward many of our acquisitions will be completed and joint ventures, and we have plenty of capital to invest if we find additional opportunities that create long term value for our shareholders.
We were active and the third party management front, adding 39 stores and the quarter.
And a total of 100 stores through the first 6 months, our growth was partially offset by dispositions where owners sold their properties.
And the quarter, we purchased 11 of these stores and the REIT or and 1 of our joint ventures.
Our first half outperformance coupled with steady external growth.
And the improved outlook for the second half of 2021 along.
Allowed us to increase our annual <unk> guidance by 50 cents or 8.3% at the midpoint.
While we still assume a seasonal occupancy moderation of approximately 300 basis point points.
From this summer's peak to the winter trough the moderation will begin from a higher starting point than we previously expected.
As a result, we assume minimal impact on revenue growth from the negative occupancy delta and the back half of the year.
Our guidance assumes moderating.
Eating but still strong rate growth for the duration of 2021, which should result, and another great year for extra space storage.
I would now like to turn the time over to Scott.
Thanks, Joe and Hello, everyone.
As Joe mentioned, we had an excellent quarter with accelerating.
Same store revenue growth driven by all time high occupancy and strong rental rate growth to new and existing customers core F. F. O for the quarter was $1.64 per share a year over year increase of 33, 3% property performance for the primary driver of the beat with additional contract.
Contribution coming from growth and Canada insurance income and management fees. Despite.
Despite property tax increases of 6%, we delivered and a reduction and same store expenses and the quarter. These increases were offset primarily by 13% savings and payroll and a 31% sales.
Rings and marketing our guidance assumes payroll savings will continue throughout the year, however at lower levels due to wage pressure across the U S.
Marketing spend will depend on our years of this lever to drive topline revenue, but it should also remain down for the year.
And may we completed and our inaugural.
And investment grade public bond offering issuing $450 million and 10 year bonds at 255% access to the investment grade bond market provides another deep capital source at low rates and will allow us to further extend our average maturity.
Our year to date dispositions.
Equity issuances and NOI have resulted in a reduction and our leverage our quarter and net debt to EBITDA was 4.8 times, giving us significant dry powder for investment opportunities since we generally target a range of 5 and half to 6 times on this metric.
Last night, we revised our 2021 guidance and annual assumptions, we raised our same store revenue range to 10% to 11% same store expense growth was reduced to zero to 1%, resulting in same store NOI growth of 13, and a half to 15, 5% a 7.
750 basis point increase at the midpoint vs.
These improvements and our same store expectations are due to better than expected achieved rates higher occupancy and lower payroll and marketing expense.
We raised our full year core <unk> range to be $6.45 to $6.
<unk> per share a 50 cent or 8.3% increase at the midpoint due to stronger lease up performance, we dropped our anticipated dilution from value add acquisitions and CMO stores from 14 to 12.
And we're excited by our strong.
And sick performance year to date and the success of our customer acquisition revenue management operational and growth strategies across our highly diversified portfolio.
With that let's turn it over to Latif to start our Q&A.
Thank you as a reminder to ask a question you will need to press.
Strong for 1 and your Touchtone telephone and again Thats Star 1 and your telephones ask a question to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Jeff Spector of Bank of America. Your line is open.
Good afternoon, and congratulations on the quarter.
Joe My first question is on the point you discussed.
And seasonal occupancy and the moderation you're still building into guidance for 300 basis points are there any sign and close right now pointing to that or.
Star BPI would you say that there is still some conservatism here.
Thanks, Jeff Thanks for the question and for your kind words.
So far we don't see any signs of it and we.
And actually over 97% occupied in July so.
Still waiting for.
That moderation to begin, but we do believe that slowly over time customer behavior will revert to normal.
And.
Okay.
And I guess, let's flip the question and then on the other side and customer acquisition, I mean, where are the surprises coming from because.
Because we've been talking about the moderation.
And it and of course this past year, it's been much stronger than expected.
I guess, let's talk about customer acquisitions.
Is it particular regions where are they coming from any any changes.
What are the nice surprises you've seen just even though let's say the.
The last quarter last month.
Yeah, it's really on the vacate side I would say our Q2 Vacates were 10% below 2019, Vacates right to use 2000, Twenty's a comp doesn't really help so we still see people staying staying and the units.
And it.
It gives us fewer units to rent up and more pricing power and it's all good.
Great. Thank you.
Thanks Chuck.
Thank you. Our next question comes from Juan <unk> of BMO capital.
Cash and please.
Hi, Good morning, just hoping we could touch on on rate growth.
How are you guys thinking about that growth going forward the year over year comps have been clearly impacted by.
Covid discounting for your in place rents are at record levels near 18.
Youre quite a square foot.
If we look back to 2015 and 16, you had kind of 2 years of rate growth of about 6.5% do you think we could see something similar in terms of the quantum and duration.
The year over year growth and in place rates.
Yeah, what I can maybe walk you through some of our assumptions and.
And I'm not sure I can tell you exactly what's going to happen I think thats the net.
And the Big question here and we've seen very good rate growth. If you look at our rates year over year. We mentioned that we are 60% ahead of where we were last year last year was and at comp. If you look at it compared to 2019 year, 30% of Ed.
So we continue to.
Push our.
Street rates and the expectation is that we will continue to push them through the year, we do come up against a more difficult comp at the end of this year as we started pushing rates at the end of last year. So that is 1 thing that we're looking at as we move into the fall a couple of other maybe data points discount.
And are up slightly and the quarter, mainly due to low rates being higher our discounting strategy Hasnt changed significantly we will continue to use them as a tool, but we'll we'll continue to monitor those also are existing customer rate increases are running above where they've historically been and part.
Accounts and odd comp again from last year, where last year, you and many state of emergencies, where we paused rate increases and so from a year over year perspective, those existing customer and customer rate increases are contributing more than they were last year.
And if you guys just look at the net.
Part of that is for new customers have you seen any sequential deceleration and the pace of that growth through July.
No significant change in July from what we've seen in June.
Perfect. Thank you very much.
Thanks Juan.
Thank you. Our next question comes from Todd Thomas of Keybanc Capital markets. Your line is open.
Yes.
Hi, Thanks.
In terms of the revised guidance and Joe I appreciate the comments around revenue growth and the back half for the year, but I'm just curious.
And.
Guy can chime in here, but what are you anticipating.
For same store revenue and same store NOI growth as you as you exit the year. If you can maybe provide some detail around the trajectory throughout the balance of the year based on what's implied by the revised guidance that would be helpful.
Yes.
Without.
And may be siding and exact kind of monthly sequential here I'll just give you a few data points.
We are seeing rate contributing more in terms of the overall percentage as the occupancy delta wears off.
By the end of the year occupancy won't be benefiting us and it's all coming from rate, but we do not expect it to accelerate significantly.
Secondly through the rest of the year, but also contribute through the remainder of the year as we come up against these tougher comps.
Okay, and what's the spread right now between rates for customers moving out and and the achieved rates on customers moving in.
The disclosure, we've given maybe a little bit different than that where we've typically disclosed is our in place rents compared to our new move ins and that right now is high teens.
And I would tell you right now is exceptional and you know typically in the summer months, it's flat to slightly positive, meaning customers moving in and pay slightly more.
In place rents and this year, it's high teens, which is as good as we've seen.
Okay and just.
Last question for Joe Your comments on investments I think you mentioned you know you characterized the market as expensive and said that you would look to do more investments through.
More than our ventures, and the joint venture platform it used to be a bit bigger and you've been acquiring assets from within the the JV platform.
With all of the capital looking to invest and storage would you would you look to do something of size and maybe.
And maybe generate premium returns and backfill the pipeline a bit at the same time.
Who joined.
So.
Our.
Governor and what we're willing to do is and how big or small it is.
And what we view the risk.
And returns to be so we will do as big a deal and we have capital to do as big a deal as necessary or is available and provided.
Adjusted returns are good or will buy 1 off stores and historically, we've done both and we're we're not focused on.
And what's too big of what's too small we're just.
Fully focused on what we believe the risk adjusted returns to our shareholders are.
The risk of cash should we expect investments going forward to to be primarily weighted towards joint ventures versus on balance sheet investments.
I think that's a fair assumption given where pricing is today, we can significantly improve the price the.
The returns to our shareholders by investing and the joint venture structure, which makes deals that we would look at as dilutive I'm, a wholly owned basis be accretive cash and a joint venture structure.
Yeah.
Alright, thank you.
Sure.
Thank you. Our next question comes from Smedes Rose of Citi. Your line is open.
Hi, Thanks.
I was just wondering you mentioned existing customers are coming closer to kind of overall.
Market levels of sharing what so what sort of percent I guess of the portfolio.
Maybe it will still be subject to more.
Rent increases I guess, maybe its restrictions come off for or is that pretty much behind you now.
So we only have a few markets that have restrictions in place. So there are very limited.
Specific California markets that have reached restrictions.
And as they go back to fires from several years ago you have.
A few others across the U S that are between 10 and 20%. So the majority of the portfolio is open to rate increases and there are a few that still have some limit.
Okay, Thanks and.
And that strength could you.
You talk just a little bit more about what youre seeing on the labor side, you mentioned some of the savings.
<unk>, what you're seeing there, but I mean are you having to pay people more is are you, having trouble staffing or just a little more color around how that's working out.
Yes, it's a significant issue that they were working with.
We have fewer applicants per open spots it takes longer to fill and.
And it's more expensive so we're working real hard to try to.
The appropriately staffed with quality people, we do see debt.
As supplemental unemployment insurance burns off and certain states the problem gets better so I'm sorry, the problem Ameliorates. So.
We're hoping that that pattern continues but we absolutely are aware of that.
There is wage pressure we're feeling.
Selling it and it's going to be an issue, we're going to have to deal with.
Okay. Okay, and then just last question and that just interested to see that you did not.
Re up here at your ATM and the second quarter and you mentioned that you went through and the third quarter was for a reason for not doing it during the second quarter.
Yes speed, we were focused on getting.
And our inaugural bond offering done we then turn to re recasting our credit facility for both the.
Both projects were done during the quarter, we feel like we had a great quarter getting those done and then we will.
We filed the ATM as we finished the quarter and file the Q.
Okay.
Okay. Thank you.
Thanks Mitch.
Thank you. Our next question comes from Michael Goldsmith of UBS. Please go ahead.
Good afternoon, and thanks, a lot for taking my question. How are you thinking about managing the interplay between occupancy and rate I understand the goal is to maximize revenue.
For your models thinking about pushing rate and maybe at the expense of occupancy in this environment.
Yes, so it's a great question and you're right to focus and the different lever did lead to maximizing revenue, but I would suggest there's many others, it's not just the occupancy and rate.
Right its marketing spend it's discounting and it's days, you'll allow customers to reserve a unit. There's many other tools, we can use to maximize revenue.
And the debt.
Data scientists and the algorithms.
And take all.
Like how it factors into play in setting daily pricing and occupancy targets to try to maximize revenue.
That's helpful and what are you seeing on the supply front, given the strength of trends and they've remained strong to supply pressure inevitably come back and if so how.
All of these theory from that.
And we have really good question. So you know based on what we see on the ground that affects our same store pool, so that national statistics things we care about.
We continue to believe that.
There is going to be some moderation of deliveries in 2021 from 2020, just like there was from 2019 to 2020.
But that being said I think we're going to see more development and the future. Just just this week I talked to 2 developers who had price.
Ex that did not hit underwriting they were making no money and they're selling them and they get bailed out by current pricing and I ask both of them what they can do with the proceeds and they said we're going to go stick short and ground.
So between great fundamentals low interest rates lots of capital.
Projecting into this space, albeit I get the costs are higher and I.
I think we're going to continue to see development and it's going to be something we're going to have to deal with just like we've been dealing with for the past 4 or 5 years no no difference.
And that being said I'd point out that 1 of the advantages.
Flow of having a broadly diversified portfolio like extra space is we have exposures to many many different markets some of which are heading into a development cycle. Some of which are coming out of a development cycle some of which had never been affected by development and all those markets are and some different.
And each and because of that diversification, our returns and smoothed out.
Very helpful.
And just if I can squeeze 1 last and.
And the acquisition front has there been any change and market conditions from the first to the second quarter and are you seeing any new bidders.
Im not sure Theres, new bidders from the first to the second quarter I mean.
And.
Theres certainly a lot of new entrants and the market and it's hard for me and top my head to think about 1 that appeared in the second quarter.
I don't see any material change I think theres a lot of.
State and there's a lot of capital and interest rates are low and self storage has proven itself to be a great investment.
Thank you very much and good luck and the second half.
Thank you so much.
Thank you. Our next question comes from Samir Khanal of Evercore Your question.
Yes.
Thank you for taking my question I guess, just sticking on supply them and are there any just elaborate a little bit more on maybe the markets that are bit.
Any indication or a natural kind of concerns that you're seeing and any markets to call out.
I think our list of markets is pretty similar to the list.
And play markets with and in the past the boroughs of New York, We continue to.
Be concerned about and we continue because of that new development NAV results. There that are below our portfolio average northern New Jersey.
And Vegas, maybe and new market on the list were starting to watch.
Philadelphia also may be a new market those are I would say the markets that where we have significant exposure there where we're focused on right now.
And I guess my second question is really around.
Other disposition side, I mean could you see yourself bring more assets to market considering.
List and how strong pricing has been here.
So we've we we closed the disposition of 16 assets into a joint venture and we expect to close the second half of that transaction shortly to reduce our.
Interest and and adventure.
And we have another 17 assets and the market now for outright sale.
We have a couple of odds and ends that we're working on to get in a position to sell but nothing major.
And you know we're constantly looking at the portfolio and trying to.
For <unk> what moves would.
You know be optimal to rebalance to have the right amount of exposure and different markets.
So we will always consider it but that's that's what we have on the plate now.
Got it thanks, so much.
Sure.
Thank you Ron.
Decision guns from Caitlin Burrows of Goldman Sachs. Your question. Please.
Hi, everyone and maybe just a question on the bridge loan program and the guidance now assumes that you retain a $100 million of bridge loans. This year, but it seems like you're running below that pace, considering what you've closed and sold so far this year. So wondering.
Next question you can go through the outlook, there and what visibility you have to activity and the second half.
Yeah. That's a great question. So yeah. We are we are behind our initial projections in terms of timing are we.
We are confident we're going to achieve our guidance it is going to be more backend loaded.
Wondering if we currently have $200 million worth of loans with signed term sheets and deposits to close and the back half for this year and the beginning of next year. So.
Nothing is guaranteed but I'm pretty comfortable we will get to our guidance.
Got it okay and.
And just in terms.
<unk> customers I know you mentioned that you're finding debt, there's lower vacates than you've had in the past, but just wondering if you could talk a little bit about the new interest that youre seeing for space, that's helping that occupancy to do you have any insight into what's driving customer storage needs. This year and how that compares to the past.
So.
So this is more of a longer term answer and not just this year, but we saw during the pandemic.
The reasons people gave us for storage you know.
Traditionally the number 1 reason has been there somewhere and the moving process and then that declined and what increase.
So.
The pandemic was lack of space and that became the number 1 reason for a while those lines have since crossed again.
But we.
We interpret lack of space as well.
Hi, I'm at home and I need a bedroom 2 for homeschool her and home office.
During our workout room, or I'm gonna finally, clean the garage or whatever.
And those customers tend to stay longer than customers who give.
The reason of staying is moving so I would point to that as why we.
Why.
Seeing currently.
Decline and Vacates.
And I don't think all of those customers eventually take their stuff out of storage and convert the home office back from our bedroom or whatever I think some of not all of them, but I think some portion of them will be longer term customers.
Sure.
Okay. Thank you.
Sure.
Thank you. Our next question comes from Spenser Alloway of Green Street. Your question. Please.
Thank you and just going back and the transaction market and 1 where have you guys observed any shift and pricing spreadsheets and trying for quality or.
And any notable outliers in terms of geography.
Yeah.
So we're not very very active in tertiary markets. So it's hard for me to comment about that I would tell you that for good stores and primary and secondary markets. There is very very.
Or and the spread and.
And pricing.
Okay.
And then just and Chinese.
And you are not world public bond offering and what role should we anticipate the unsecured market playing for you guys in terms of its source of funds and moving.
For it.
So I think that Youll see us be a repeat issuer going forward theres, 2 or 3 things driving that I mean, obviously youre always looking at the rate and youre trying to get the lowest rate possible.
I think that we're looking to extend the tenor tenure of our debt.
And then we want to have as many capital sources as possible. So we are going to.
To access the capital source that we feel like is the most advantageous to us.
Thanks for answer.
Thank you. Our next question comes from Mike Mueller of J P. Morgan. Please go ahead.
You talked about.
Buying lease up assets. So I was curious for the 500 million and that's b.
And the acquisition guidance can you give us a sense as to what an average going in cap rate or average occupancy would be.
So.
Talk about our recent deals because.
Does it take to talk about deals that we signed up last year that closed this year is probably not.
Not indicative of current pricing.
So.
Or for the wholly owned lease up deals. We have recently approved our first year yield is 3.1% low threes with an average 17.
17 months to stabilization and an average stabilized cap of 6%. So we're we're happy to accept are willing to accept that initial dilution because we have confidence and our ability to underwrite lease up and get to those accretive returns.
For the deals we've done and ventures.
<unk>, the first year yield to extra space not at the dealer level is 7.2% 13 months average to stabilization and a stabilized yield of almost 11%. So you can see how the venture structure significantly helps.
And returns.
Yeah.
Got it got it and is that what's the typical.
Occupancy on the wholly owned where you're getting that 3% initial versus the 7 per cent for the JV is at a comparable it's not a comparable occupancy going and occupancy would it be.
Hopes are.
So the occupancies.
We're higher than you would imagine a lot of them were in the Sixty's our eighties.
But that physical occupancy and we look at stabilization when you get to both.
Physical occupancy.
He and rate stabilization.
We have 1 net a couple that are and the nineties physical occupancies, but have significant rate gross before they get to economic stabilization.
Got it okay that makes sense.
And that correctly.
Thanks Al.
And you can fix up.
That was it thank you.
Thank you. Our next question comes from Ronald Camden of Morgan Stanley.
Your line is open.
Hey, Thanks for taking my questions just going back to the E Cri.
And question that was asked earlier.
You're thinking about the entire portfolio number 1 just what what percentage is still have some sort of restrictions and on it is it 5 is it 10% and the second question is are you able to sort of charge, even higher ECR I than you than you have historically given the rate environment.
Yeah.
And we don't have the exact percent in front of me, but it's a small percent of very low percentage. So even in California, it's not a majority.
Got it and then on the ability to push the east or the rating.
Paces.
Are you seeing sort of and ability to do it at a higher and faster level then.
And then historical given sort of the record rate environment.
That is what we're currently doing we're pushing things more towards street rate today and part of that has to do with the fact that sometimes you have had right.
And caps in place or state of emergencies, and rent and place setup.
Hindered our ability to raise rates for the past.
12 months to 18 months, depending on the location and so we have brought them up more significantly as well as the fact that many of these customers moved in a very steep discounts that were.
And it also.
Got it makes sense and then my last question was just on the preferred investments.
Is there anything that changes or is there any call risk what sort of the pricing environment and that that youre seeing today.
And those preferreds or are they sort of.
And that till maturity.
Thank you.
So 1 of the things we changed and our guidance. This year is there is 100 million dollar piece of the preferred to J cap that opens and.
And the end of October I believe and.
Our initial guidance had assumed that was.
And I'm pressed ending for the entire year and given how well the properties are doing the company is doing we have changed our assumption that that gets paid off.
Prior to year end and reducing our our dividend income from that so I think it's.
Safe assumption that that company will want a retired 12% money and.
And as soon as it can.
Makes sense. Thank you.
Sure.
Thank you again to ask a question. Please press star 1 and you touched on telephone and again Thats star.
<unk>, 1 and your touch tone telephone to ask a question.
And you have a follow up question from Smedes Rose of Citi. Your line is open.
Hi, Thanks for just 2 more quick ones. So first 1 I wanted to ask it looks like the third party managed platform the number of assets under management declined sequentially.
And net basis.
I'm just wondering is that just you just see that as the normal ebb and flow of business or is there anything in particular that went on during the quarter.
And then the second question was could you just talk about length of stay I think last on your last call. You mentioned that length of stay has shortened a little bit.
And I was just wondering is it returning back to maybe.
And I've seen.
Historically.
So smedes I think you're right to observe that we have a lot of churn and our.
Management platform a lot of people are taking advantage of pricing and the market and selling but even given that churn. We continue to grow that platform. We ended the year at 7.
What you and 24 properties, we ended the first quarter at 763.
We ended the second quarter at 768 and that includes 19 properties does not the platform that we bought so we continue to grow that we have a very very healthy pipeline, we project to add.
700, net 100 to 130 properties. This year that guaranteed we don't know what else is going to sell but we continue to grow that quarter after quarter and expect to continue to do that.
It means I think that also might be a little confusing when you look at the buckets, where moving sometimes between buckets and so when you take.
At Boto of JV and third party. It actually did move slightly as we had some JV partner sell some of the assets in the quarter, but the third party management business just the third party management actually saw net increase.
And then the second question speeds on the length of stay.
And our length of stay is now back up we saw it tick down slightly and then it's back up today.
Okay. Thank you.
Thanks Mitch.
Thank you. Our next question is a follow up from 1 summer Bria of BMO capital. Your question. Please.
Hi.
A follow up on the balance sheet, which you notice and they're very strong position for 8 times at the end of June.
How should we expect that to trend and where do you see capital going and it's a kind of a side question, how much and proceeds should we expect.
Please from the 17 assets that are now being marketed for disposition.
So the 17 assets that are being marketed for disposition or over $200 million.
In terms of where we expect to spend our next dollar and where we expect tomorrow I think it will depend on the opportunities to invest I think that we'll look at the cheapest.
That's the capital well.
Other that debt I think that we typically want to operate in that 5.5% to 6 times today. We're sub 5 so we do have a lot of capacity there and I think depending on the size of the deal you would also consider equity at times, but.
Right now we do have leverage capacity.
Okay, but the focus for incremental spend it sounds like it's on on acquisitions for you at the joint ventures and Theres not.
It's early and new investments debt that could be used as.
As you think about kind of take it a balance sheet to where you want to or from that from a target leverage perspective.
So the with the exception of the second.
Of the joint venture.
Sale that recapitalization, and if you will that I mentioned earlier.
We believe future joint venture acquisitions will not be out of our portfolio and there'll be from the market. So it won't it won't produce additional investable dollars for us we will invest a portion.
And had and of the acquisition price.
Got it got it thank you.
Thanks Juan.
Thank you and next question comes from Kevin Stein of Stifel. Please go ahead.
Hey, Good morning, guys I was just wondering on the.
Portions and no.
And marketing and payroll expenses were down I was just wondering.
If you could give some color on what's driving that and how sustainable that is going for it.
Yeah on the expense side, we mentioned that you had an increase of property taxes property taxes are running about 6% year over year on the payroll.
But we have seen a decrease that's driven by a couple of things 1 is a year over year comparable that is quite easy from last year last year.
First half of the year, you were essentially fully staffed and we were providing some where.
We're generous and the Covid benefits, making sure that our employees were taken care of.
In terms.
<unk> going forward and the sustained and how sustainable that decline and payroll is I think it's to be seen we expect some benefit but not necessarily to the degree we saw and the first and second quarter. As we are expecting some wage pressure and we have more difficult comps and the back half for the year.
Of the marketing we are expecting.
Gain a benefit but again, if that's always the wildcard and it's to some degree and that if we do see and opportunity to spend on marketing we will use that if we feel like we can get a higher rate and higher occupancy.
Okay. That's helpful. Thanks.
Thanks, Kevin.
Yeah.
Expect.
Thank you. Our next question comes from Caitlin Burrows of Goldman Sachs. Your line is open.
Hi.
Follow up question again on the acquisitions you guys gave some detail earlier about how.
In the wholly owned properties you are looking at the initial yield was 3.1%.
And stabilized with Saks, and then and the JV properties. It was 7.2 initial and stabilized almost 11, well just wondering if there was any real detail you could give us into what's driving that difference is it just fees that you earn in the joint venture and something else.
So the primary driver is we collect and manage.
And on fee from the joint venture and we retain honored percentage that tenant insurance income.
<unk>.
We're retaining all of that income against the much smaller capital investment versus a 100% capital investment and some of our ventures, we do get acquisition fees or other fees.
Management, we also have the opportunity to earn promotes and in some of our older ventures, we are earning promoted cash flow promotes but that's not assumed and any of these numbers.
Got it Okay and then just.
And maybe obvious but in raising the acquisition guidance for the 500 million than debt.
This means that the sheer volume of transaction will be that much higher just your portion is going to be $500 million got it.
Correct that's correct.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Todd Thomas of Keybanc capital markets.
That line is open.
Hi, Thanks, 2 quick follow ups here first I think the comments from earlier, where that rate growth does not accelerate and the second half of the year, but the revenue growth for our guidance for the second half for the year implies an increase versus the first half and you talked about the contracts.
Yeah listen from occupancy gains diminishing as we move further into the back half of the year. So it would seem that rate growth is expected to accelerate can you just clarify those comments or perhaps I misheard.
Yeah, So I think really what you're what I'm, saying is Q3 is better than Q1. So Q1 is dragging it down.
Contribute 3 will bring it up Q4 will also be better than Q1, but I am saying theyre not accelerating from where they are today.
In June and into July.
Okay.
And then.
And then seasonally what what's typically the.
King of the off peak season for for you where move outs are higher than move ins and.
Are you expecting any.
Anything different from a seasonality standpoint this year with.
And with schools.
And returning to schools relative to last year.
And at peak.
We're beginning to see from a month and perspective is July for.
And actual when it peaks it mid August, but then you do see some quant decline of students move out and we are expecting some of those students to move out and typical student volatility.
Yeah.
Occupancy, okay and that begins that coincides with that mid August timing.
Correct.
Okay, Alright got it thank you.
Thanks Todd.
Thank you at this time I'd like to turn the call back over to CEO, Joe Margolis, Joe Margolis for closing remarks.
Sir.
Thank you thanks, everyone for participating in the call and your interest and support of extra space I mean, obviously, we're having and fantastic year, all time high occupancy.
Exceptional new customer rate growth, we're continuing our innovative external growth strategy.
Marks as well as innovating at the store level and we expect to have a very strong same store and core <unk> growth. This year. Thank you again and have a good day.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
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Yes.
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