Q2 2021 CubeSmart Earnings Call
Good day and welcome to the Cube Smart second quarter 2021earnings call.
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I would now like to turn the conference over to Josh Shuster, Vice President of Finance.
Please go ahead.
Thank you Sarah good morning, everyone welcome to <unk> second quarter, 2020.1 earnings call participants on today's call include Chris Marr, President and Chief Executive Officer, and Tim Martin Chief Financial Officer on.
Our prepared remarks will be followed by a Q&A session.
In addition to our earnings release, which.
Which was issued yesterday evening supplemental operating and financial data is available under the Investor Relations section of the company's website at Www Dot keeps mark dotcom and.
The company's remarks will include certain forward looking statements regarding earnings and strategy that involve risks uncertainties and other factors that may cause the actual results to differ materially from.
From these forward looking statements.
The risks and factors that could cause our actual results to differ materially from forward looking statements are provided and documents the company furnishes to or files with the Securities and Exchange Commission specifically the form 8-K, we filed this morning together with our earnings release filed with the form 8-K, and the risk factors section of.
The company's annual report on form 10-K.
In addition, the company's remarks include reference to non-GAAP measures a reconciliation between GAAP and non-GAAP measures can be found and the second quarter financial supplement posted on the company's website at Www Dot cube Smart Dot Com I will now turn the call over to Chris.
Yeah.
Thanks, Josh and.
Good morning, everyone.
I wish to recognize all of my fellow cube smart teammates for each of their contributions to our outstanding performance and the second quarter.
And based consumer demand for our space when combined with positive trends and customer behavior has contributed to our record levels of physical occupancy and and extreme.
STREAMWAY strong pricing power across our portfolio.
These positive trends when combined with our award winning customer service and innovative technology resulted and 14% same store revenue growth and the second quarter, the highest such growth and our history rates to new customers were up 47% over 20.
19 levels during the quarter, and we were more aggressive and rate increases to existing customers.
And this pricing power has continued into the third quarter and is contributing to our significantly raised expectations for the back half of the year.
We are growing externally and a disciplined manner.
<unk> made 45 third party managed assets and the platform during the quarter, our pipeline remains full and consistent with levels. We have experienced over the last few years.
The interest of our owners have and selling has certainly ramped up and this compressing cap rate market and we expect to continue experiencing a high level of churn and are managed.
We added folio.
Our acquisition team is as busy as ever underwriting opportunities. However, we believe that the market for stabilized deals does feel a bit pricey.
We were active during the quarter within our joint venture structure, focusing on lease up opportunities and as evidenced by our increased guidance for external growth.
Manage me anticipate sourcing additional opportunities for non stabilized assets, both on balance sheet and within our joint venture structure.
Positive operating fundamentals talented teammates and sophisticated systems have positioned us well as we conclude the summer rental season and.
And we believe we are well positioned to drive strong performance.
The balance of the year.
I'll now turn it over to Tim for a more detailed commentary on our great quarterly results and improved outlook Tim.
Thanks, Chris and thank you to everyone on the call for your continued interest and support.
As Chris touched on operating fundamentals were incredibly strong during the second quarter and.
For the continuing into the back half of the year. All of this strength was reflected in our earnings release last evening that reported a strong beat the second quarter expectations, and a meaningful raise and our guidance for the full year.
Same store performance included headline results of 14% revenue growth 6.6% expense growth yielding.
And by growth of 17, 6% for the quarter.
Average occupancy and the second quarter was 95, 6%, which is up 300 basis points year over year and quarter ending occupancy was 96, 1%.
Strong demand was evidenced not only and physical occupancy, but also and strong pricing power.
Power higher effective net effective rates to new customers customer staying longer and existing customer rate increases all contributed to the 14% growth and same store revenues.
Same store expense growth for the quarter was in line with our expectations at 6.6% year over year.
Expense growth is partially due to tough comps from.
And last year continued pressure on real estate taxes, and property insurance and opportunistic marketing spend offset by efficiencies and personnel costs and lower utility costs.
All of the same drivers of our same store growth showed up and the performance of our non same store portfolio and third party management business.
Lastly, on and all of that growth, we reported <unk> per share as adjusted of <unk> 50 per the quarter, which represents 22% growth over last year.
Adding to Chris's comments, we remain active and disciplined and our pursuit of external growth opportunities and are extremely busy underwriting a lot of potential opportunities.
And some of those that we've looked at have been very aggressive and cap rates are clearly compressed.
We continue to find select opportunities that we find attractive that fit our disciplined investment strategy, we opened up 2 new developments and the quarter, 1 and New York 1 in Pennsylvania, We closed on 1 wholly owned store acquisition and Maryland for $22.1 million.
And on the co investment fund and we were active and 3 separate ventures that acquired stores, and Minnesota, Connecticut, Illinois and Florida.
Looking at total investment volume so far this year, we've either closed or have under contract $352.7 million of transactions.
$55 million of that is wholly owned.
And on some on $297.6 million through co investment entities and so we've been quite active while remaining disciplined on.
On the third party management front, we added 45 stores and the second quarter and ended the quarter with 718 third party stores under management.
Our balance sheet position remains very strong as we.
To focus on funding our growth and a conservative manner consistent with our triple BBB <unk> credit ratings.
We continue to raise equity capital through our aftermarket equity program during the quarter raising net proceeds of $42.4 million.
Our conservative leverage levels and revolver capacity have us well positioned to pursue X.
External growth opportunities.
Details of our 2021 revised earnings guidance and related assumptions were included in our release last night.
Based on the strong operating fundamentals we've discussed we've increased our guidance range for the full year of <unk> <unk> per share by nearly 10% or <unk> 18 per share.
At the midpoint.
Much of that guidance increase is based on an improved outlook for our same store revenue growth for the year, which essentially doubled to a revised range of 10.25% to 11.25% growth over 2020 levels.
Safe to say that it's certainly a great time to be on the self storage business. Our team continues to.
To best position, our portfolio for growth and all parts of the cycle and we believe our results continue to validate the strength of the cube smart brand and the strength of the cube smart platform.
Thanks again for joining us on this morning's call at this time, Sir why don't we open up the call for some questions.
A work hard and we will now begin the question and answer session to ask a question you May Press Star then 1 on your touched on zone.
And are using a speakerphone. Please pick up your handset before pressing this is Tim.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble on roster.
Our first question comes from Jeff Spector with Bank of America. Please go ahead.
Good morning, and congratulations on the quarter.
And I guess the first question is just kind of big picture I mean, just again kind of unprecedented demand, Chris you talked about the consumer trends and pricing.
Rice and power.
Is there a period of time that you could compare to.
In the past to kind of.
And give us an idea of how long this may last and particular pricing power trends are the consumer trends.
Hi, yes, good morning, thanks for the compliment.
No.
No not really this is.
It's hard to compare I go back to $19.93.1994.
And certainly we've been through quite a number of cycles, but the.
The combination of.
Pandemic.
Created need for space with movement.
Across the United States.
Robust housing market.
On a little bit of inflationary pressure.
And has absolutely created.
The best.
And I've seen them.
And so I don't as it has and ever happened and I don't see it.
Moving to some sort of screeching halt I think I think this positive momentum continues and we do continue to to have a belief that some level of.
Environment typical seasonality will eventually return to the industry.
I have yet to see that occur.
But I'm Super optimistic about about what the future holds here for for storage.
Yes.
Thank you.
And then I'm.
I'm sorry, if I missed this just a detailed question on on the marketing expenses I think they were up about 29%. This quarter I'm. Sorry did you did you comment on that I guess do you see this trend continuing and I guess, how do you think about advertising in terms of your revenue.
Optimization here.
Yeah, Great Great question.
And thanks, So our strategy has been to continue to increase spend where it is beneficial to do so.
In order to in essence fill the funnel and then we choose to limit demand through high prices as opposed to limiting demand through lower spend.
When you think about our pricing system, which includes a marketing spend component to it.
It would suggest that with demand and pricing currently at all time highs for the industry spending more absolute marketing dollars to capture higher value rentals will continue to drive top line revenue growth over time.
So certainly our data.
Suggested that some of our competitors pulled back pretty significantly on spend and paid search auctions during Q2.
And we looked at that as it created an opportunity for us to spend a bit more at really attractive CPC and CPA is we've got a significantly improved.
On value of our customer.
In terms of the fact that that rates are up so significantly and so from our perspective, it's really the long game I'll compare it to discounting and any given quarter. If you were to shut off first month free certainly the growth and that quarter would look super.
Tracking but over the long term.
Youre potentially harming the trajectory of your revenue growth. So we're pleased with.
And with what we're able to do and the second quarter comfortable with the levels of spend and believe that as you can see and our outperformance over the course and the end of last year and.
Lifestyle station for this year.
And we would expect that it will continue to price.
And very positive longer term revenue growth results for our portfolio.
Thank you.
Your next question comes from Samir now.
And with Evercore. Please go ahead.
Hi, Chris and I guess my question is sort of just a little bit broad based as well I mean, do you think the industry and sort of achieve these sort of high single digit revenue growth and even next year and when Youre looking at.
Occupancy what will clearly normalize, but if youre still having these pretty good too.
X from rate growth kind of what you saw and maybe in 2016, I mean, and what do you think you can hit those levels of top line growth.
And.
Well I, certainly think robust levels of top line growth going into the beginning of next year or appear to be a very reasonable.
Aylwin.
And the conclusion to draw.
The question that is a real challenge to answer and it is just difficult given the nature of our business is.
What type of normal seasonality should we expect when when when and if it does that return.
And you.
<unk> does that do then too.
And to the overall pricing environment, but but I'm pretty bullish that that these positive trends continue at a minimum into the beginning part of next year and again, assuming they do then we are set up for a great <unk>.
Number of rental season next year, and then you're all the way back to the question.
What what happens in August and September of 'twenty 'twenty, 2 is that when we start to see.
A return to some of the more typical seasonality.
Got it and then and I guess, maybe talk around a little bit on supply I mean <unk>.
Clearly with fundamentals being strong and you would think you.
Question and I'll see some indications simple and maybe not into 'twenty, 2 but kind of kind of what's your updated view on on that front.
So from from 'twenty, 1 and 'twenty two's perspective, again, we see 'twenty, 1 lower deliveries than 20 and 19 in line with with what our expectations have been.
<unk> and.
Start to 2022 is going to be constructive from a new supply perspective, as well I would have to agree with you that a continued trend of very positive operating fundamentals certainly will draw more attention to the <unk>.
And to the industry on offset again to that is.
Is is cost it's a it's extraordinarily expensive to construct nowadays.
Given difficulties and sourcing raw materials and difficulties in hiring labor so that will serve as a bit of a buffer to interest I. Also think you are seeing and had been seeing a bit of a shift.
From primary markets the secondary markets in terms of that supply.
And I would think that would also be a continuing trend. So we're going to continue to watch, but again my expectation would be if at all and this would be 23, our current.
Thanks, so much.
Our next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Okay.
Hi, Thanks.
A couple of questions I guess, Chris.
Chris you talked about the growth and rates during the quarter.
How is that how did that trend throughout the quarter.
And into June July and then can you also provide and occupancy update where you're just about at the end of the quarter here and have them.
Can you share where occupancy is today and what that year over year spread looks like.
Yeah, so the the trend.
Relative to 2019 as I referred to access.
Much created through the quarter. So it was a.
High 30, Percents and April high Forty's, and May and that high fifties and June.
And you think about where we are 2 day relative to us.
But I have yesterday, we are.
We.
Sellers have grown occupancy to 96, 3% physical and same store AR as of yesterday, So about 20 basis point growth from the end of June.
Okay.
And.
And I guess.
And I was sort of asking the question another way.
I'm, just kind of curious looking out with where rates are today.
Clearly there seems to be a pretty big Mark to market. If you will customers moving in are paying much higher rents and customers moving out and.
And you said that you are being a little bit more.
We have on on ECR is if rate stay steady if they if they held where they are add on sort of a seasonally adjusted basis.
And how many years would it take to sort.
Sort of churn through the portfolio so that in place rents.
Catch up to asking rents.
More aggressive and interesting question, Todd I mean, I think the.
I guess the simple answer is that with a 13 month line length of stay I guess it would take 1 year until you lap that but I might not be thinking about that the exact right way.
You're correct, though that while we don't manage the business by looking at that churn, it's certainly something that we get asked.
Ask about quite a bit and you are correct and that.
And we have seen it flipped typically typically our in place customers.
Our higher than our and our asking rates to new customers and that range is anywhere from low single digits mid mid double digits.
Depending on the time of the year as we sit here.
And the environment that we find ourselves and that has flipped to the other direction.
I'm trying to think about when you lap it it's going to it's going to.
And it's going to take a little bit longer.
And then I guess, the average length of stay but not something that we're that we're focused on.
Okay.
And then just a last question I guess curious about New York.
Solid result.
For New York and the portfolio.
And 1 of your peers I think characterize it as 1 of the slightly more challenging markets for them clearly and that was a relative statement still growing double digits, but can.
Speak to the New York, MSA, a bed and expand on what's happening there with <unk>.
Return to office and sort.
Population movements and the reopening and everything.
Chris <unk> Chris.
Chris I think your line might be on mute I think.
Thank you I'm sorry on <unk>.
And let me try let me try again on Io Io the mute part $5 I <unk> New York.
And you can see and the supplemental performing strike quite strong for us the MSA from a.
And a <unk>.
Same store revenue growth perspective the.
The.
Can you just situation varies by burrow so.
I if you think about the Bronx are just to start there.
No new supply so I E a sub market for us or a borough for us that.
And that is an experienced and supply and I think it is.
Indicative of why we are so bullish on the market.
Because I think as supply.
Across all of the Bureau boroughs.
Becomes more muted going forward I think the.
The 16 or I'm, sorry, yeah, 16% same store revenue.
Growth, but that borough produced in the second quarter is indicative of what you can drive and in New York City.
Absent the impact on supply.
If you then sort of look at Queens, where we've had.
A bit of supply, but it is a little more spread out and not impacting.
And all of our stores.
And revenue growth, there and the quarter at 12, and a half and then you go to Brooklyn, which is experiencing as we knew going into the year.
The impact of new supply I think there are 8 new stores opened and every 1 of them compete with 1 of our existing stores.
And in spite of that 10, 5% revenue growth and occupancy growth and our Brooklyn, and same store portfolio and.
And then.
1 store and Staten Island.
And.
And performing.
Quite well I think it had 17% same store revenue growth so.
Good.
Trends are not seeing any consumer behavior, and New York that is different frankly than we see in the rest of the country.
And the supply impact and Brooklyn.
We had anticipated and the reality is leasing up faster that I'm sure. The owners would have expected and therefore the actual impact.
We're experiencing is a little bit more muted than we would have thought it would have been going into the year.
Okay alright, thank you.
Our next question comes from and that is rose with Citi. Please go ahead.
Alright, Thanks, just actually to follow up on the New York question are there changes and the.
And the tax laws and the high cap that's been a while and look a little bit behind this and are you seeing any impact of that in terms of new supply that might've been on.
On Brexit is maybe calling out of the market or.
And as and sort of color.
Impact.
And certainly it certainly all of that activity.
And as having an impact on any new projects that werent already approved before all that happened on.
Our.
Few to none.
And so I think the impact will be felt.
As we get into 2.
They're too and into 'twenty 3 when all of the existing projects that debt net we're ahead of that cutoff get delivered and get leased up I think the real benefit youre going to see from that is going to be.
You know 2.3 years out once the existing supply is complete.
Complete being absorbed and stabilizes and Youre looking at a landscape.
<unk> thousand 10, and and the next 2 to 3 years that basically has no new supply competing I think that's when you'll really start to feel the tailwind of all of that activity.
Okay, Okay, and then on the acquisitions for you mentioned.
Pressing.
Are you hearing maybe more towards properties and.
And lease up or would you focus more on joint ventures or kind of how would you how do you expect to meet you.
We're slightly weighted target for the year.
Sure.
Given what looks like and more difficult environment.
Yes, it's on.
It's actually kind of it.
It's it's.
And theres 2 sides to it and it's actually a pretty exciting environment.
And because theres, an awful lot of opportunity and there are a lot of things that that will trade hands. There will be a lot of transactions. So there's an awful lot to look at and underwrite. So that's the positive side I think the challenge is is that you have a pretty deep pool of buyers theres, an awful lot of interest and the sector.
Because of <unk>.
Recent performance I think.
And it was very very attractive for a lot of reasons, including potential for inflation.
Yet another yet another part of the cycle that demonstrates how strong the cash flows are.
And the self storage sector. So it's attracted a lot of buyers and that's where you know that's where it gets interesting and somewhat challenging from the standpoint of.
The SEC you are in an environment, where underwriting can be can be tricky given.
Still impact of new supply you have had an incredible push and physical occupancies and rates.
And.
And there are times, where it would appear that some folks are being extraordinarily aggressive and thinking about their.
Cutting assumptions given the environment that we're in and our view.
All of that said that more directly to your question. We're not focused on pursuing any particular type of opportunity. We're looking at opportunities that complement our portfolio that complement our investment strategy that have attractive risk adjusted returns and our view.
And our underwriters could come in the form of lease up opportunities that could come in the form of stabilized opportunities that could come in the form of developments on a very selective basis. I think all of that said I think where we have where we're seeing opportunities here on the short term.
And are probably weighted a little bit more towards lease up than stabilized because the very aggressive bid.
At the moment it seems to be coming more on stabilized and opportunities then and opportunities that have some some level of lease up.
Okay. Okay and then just final question are you seeing and its a firm.
On the wages side or staffing side, given a lot of headlines and 16 around and labor shortages and general.
Ah so so hiring folks.
And is an absolute challenge.
And both in the stores and.
And our sales center and in our corporate office.
We are attacking the situation much like.
And many other folks and in.
Businesses that are somewhat similar to ours.
And we push very hard for teammate referrals.
Having and existing teammate refer a friend or family member or someone they've Matt is a very good source for us and we know we're getting somebody of that.
There's a good cultural fit as well.
And we're looking at other ways that probably aren't that dissimilar to what youre seeing and other industries to attract talent and.
And we're also somewhat hopeful that as we get into the post August timeframe post labor day that the.
The scale back or elimination of the additional unemployment payments and.
And and opportunity for working families with children for the children to be back and in person school and create an opportunity for folks to return to the work force. So it's a challenge as it is and most industries today.
But we we continue to have a great group of teammates who are who are digging in.
And try and help us serve.
Great. Thank you.
Thanks.
Yes.
Our next question comes from Spencer I'll away with Green Street. Please go ahead.
Thank you I'm just looking at your third party management platform.
And in sourced 45 stores on the quarter, but it appears there was some attrition there as well and is this just a function of continued selling into strong private market pricing or can you just speak to that.
Hey expense, so thats exactly what it is.
And it's part of being in the third party management businesses that we.
And.
So you go ahead and were hired.
Due to do a good job of creating value for our third party customers and.
And we're doing just that and so we.
We don't like when our doors change color to some other color or the or the or the sign in front of the and front of the property changes.
But.
It is assigned and we've done a great job and what we were hired to do which is to create value for third party owners and I think.
I think we are.
We're doing just that and so the attrition or the or the losses that we've had off the third party platform are almost entirely.
Stores that have that have changed.
Changed hands and so.
Sold them oftentimes, we have an opportunity to to be the.
Acquiring party and in some cases, we are not as aggressive.
The better is as someone else that's out there.
Okay, and just going back to ECR is for a second and I know you guys can't provide specific numbers here.
But can you just give us a sense as to how and the magnitude of increases fares this year relative to prior years.
So when you think about the.
The pricing system, it's going to take all the factors and in.
And here, including on the lack of inventory.
Asking rate for that new customer coming in and how long the existing customers been in their cube and and what their rate is and what their past history of rate increases has been and combine all of that together so given the market we're in with high occupancy.
And play and high rate it just by by its nature.
The cri raises up higher so the momentum is up.
And if you know and the past we talked about high single digits low double digits in terms of increases they've moved up a few percentage points.
Points from there given.
Given the current climate.
Okay. Thank you.
Our next question comes from Keybanc Kim with curious please go ahead.
Thanks.
Going back to the underwriting.
Right and question on how do you even go about underwriting acquisition and this type of moment in the cycle and so if you're buying something with a rent of 20, obviously that's been inflated because of the demand were seeing do you.
And I know it depends on the market and asset, but like what kind of growth of and underwriting or EBITDA opposite do you try to underwrite.
Alright, and normalization back down and how do you even go about all of that.
Hey, Kevin Thanks for the question. So it is the underwriting approach is unchanged from what it would have been over the past. Many many years, which is we're trying to underwrite.
Just on our expectations as to how the property is going to perform in.
And are under under our management on our platform and as we've talked about at the the 3 biggest variables and then underwriting are.
Where does occupancy stabilize and win.
Where where our rates to new customers ultimately.
And where does the real estate tax.
Few chat too so the.
The approach is the same the challenges there is there's an awful lot of variability and and.
And volatility and some of those and some of those areas, which can have a meaningful impact on 1 party's underwriting versus and other parties underwriting. So there's no specific answer to your question to say are we are we looking at rates and growing them by <unk>.
Bill resent it depends on the opportunity some opportunities have a have a really clear path that they are not competing and so any new supply and and all the work that we do to look for potential new supply that would compete against that subject. If we see a pretty a pretty clear path. There we may be a little bit more bullish on where.
Rates can grow from from where they are today on the other you know you could have the opposite where there is some concern about about that particular opportunity where it's positioned within its micro market, where the demand is going to come from versus the competition.
You can look at pricing strategies on subject properties that somebody may have been.
Incredibly aggressive to try to get to try to get occupancy at a very low rate.
You can have stores that youre looking at that have the opposite so it is it is a big challenge given the fact that you have different strategies. You have do you have an awful lot of variability and those assumptions. So overall approach is the same the challenge and and executing.
And.
Is is candidly probably as tough as it's ever been and given given all of that changed, especially because you have the impact of supply and then you have a lot of this growth and physical occupancy and growth and rates.
And and you're trying to take all that into consideration.
And he used to be pretty typical that brokers would price opportunities using it.
12 month NOI and.
And then that started to switch and this environment people would use a trailing 6 month NOI.
And I almost day to spit take when I was on a meeting last week and a broker suggested that they were gonna start pricing on a trailing 1 month NOI, which is absurd, but I mean, that's the type of world and we find ourselves and because things are changing so rapidly.
Trailing and so.
And so that was a helpful answer.
Right.
And when you look at your same store revenue performance across the markets I mean, it's been about a year and a half net COVID-19 started.
Obviously all of the markets are doing well, but you know some are plus 10 per cent of same store revenue somewhere plus 20 ish.
At least common denominator that might push 1 margaret to be better than others.
No, it's it's going to be unique to the market and in some instances it supply.
San Antonio and Nashville, and.
In some instances.
Is it just a lack of supply Vegas and other instances, it's just a.
Maybe a bit more movement or stickiness than we would've seen in the past, but nothing.
And nothing beyond that.
So no kind of noticeable.
A bowl.
Beyond supply just the demographic or customer profile and that's driving any of this.
Now it's a it's been you know again as we talk about its broad based I mean, we're getting.
We're getting customers from.
All of the obvious all the obvious needs to.
And to store their belongings and again the customers. We have are are a bit stickier than they were pre pandemic.
Okay. Thank you.
Our next question comes from Jonathan Hughes with Raymond James Financial Please go.
Go ahead.
Hey, good morning.
I don't know if I missed this but can you maybe share where move in rates are today versus your in place rents across the portfolio.
And we had talked Jonathan about where the the churn rate.
And rates were versus move out rates.
Which are which are trending and positive.
Positive, where they would typically be negative engine now.
And certainly then.
On that that same answer would apply to where our rates to new customers or versus in place across the.
We're moving.
Pretty consistent answer there.
Sorry did you give like the actual percentage is it like I know, it's up what I mean is it like a low single digit and it was at a double digits.
Maybe that's what I was asking.
And so I mean again, if you think about that trend right typically.
The board.
And again this is a metric that I know you all asked a lot about we don't run our business that way, because we can't control, who vacates and but if you think about the actual percentage typically it would be negative for the majority of the year.
It'll flip slightly positive for.
Typically a couple of weeks here and the summer and then go back to negative today.
We're up light positive were up 3005 hundred basis points from what we would've seen last year, it's in the mid teens positive.
Okay.
And that's helpful.
I was looking for thank you and then.
John back to me this discussion on labor per.
Personnel expense growth was basically flat and the quarter I thought that might have dropped year over year, and maybe being flat is not a bad thing and major succeeding and finding individuals to appropriately staffed.
Half the properties, while others are having more trouble.
How should that personnel expense line item growth trend through year end.
Yeah, I would think I would think that you know flat to.
The 2 a little bit up as we think about the the comp from last year and getting from June 30 to the end of the year is.
<unk> is reasonable you know the biggest challenge as you pointed out is just filling vacancies.
Hmm.
Okay.
And then just.
And more from me on on capital allocation.
Why why did you choose to raise equity.
Via the ATM and the quarter leverage today is under 4.5 turns and I think using EBITDA from later this year that's embedded.
Just want and it's probably closer to the low force I think thats well below target levels. So I guess my question is are you are you prepping the balance sheet for.
Acquisition opportunities that could be debt financing and the future lowered target leverage just trying to get a better understanding of.
And guidance to raise equity this quarter.
Yes, it's certainly positioning ourselves to have a on awful awful lot of Optionality as we look forward. We expected we expected 2021 to be a pretty robust environment for for acquisition opportunities.
Really starting from.
Why is the simple fact that the peak of the development cycle for deliveries.
2018, and so naturally as those stores start to stabilize.
Many of those developers and owners on up forever holders of that real estate and so it would have been and natural expectation that 'twenty, 1 acquisition opportunities would've been elevated.
And because of that chunk of new supply, becoming stabilized when you add to that then.
And so a lot of that was just anticipating and making sure that we were best positioned as we can be.
From just to be opportunistic when we find things that.
That are attractive to us.
So not really any not really any change from what we've done over a long period of time, which is to try to operate at the very conservative and of our credit metrics. So that we have the flexibility and the ability to be nimble when we find external growth opportunities.
Okay and can you just remind us what the target Leverages is it like 5 to 5 and a half.
Yeah, it's all of the metrics that would be consistent with a strong triple b.
The <unk> II rating, which is in that range yet.
Okay, alright, thanks for that and I appreciate it.
Thank you.
Our next question comes from Michael Mueller with JP Morgan Chase. Please go ahead.
Yeah, Hi, I was wondering in terms of looking at the same store revenue guidance, what's implied in there for the back half of the year. When it comes to I guess moving rates or market rent growth. However, you want to think about it.
Do you basically imply what level you ended Q2 with Youre kind of static are you assuming you know more and more market rate growth or are you, having a moderate zone and then second part is where do you have occupancy ending as well it ended the year.
And thanks for the question.
And Unfortunately, you would be disappointed my answer because we don't know we don't guide to those individual components of revenue growth or our revenue growth assumptions take into consideration a lot of different things a potential range of where occupancies could go on potential range of where of where rates could go and potential range.
And you marry all of that up with marketing spend as Chris touched on earlier so.
So overall, we expect there to be continued strength and pricing power.
We expect some seasonality from a physical occupancy standpoint to return.
Although our best guess would be that that we would still.
Be tracking levels of physical occupancy for the balance and the year that are that are higher than they were last year getting closer and closer to last year as we get later in the year.
Implicit in our revenue guidance and expectation that the back half of the year gross 10% to 12% as a result of a combination of all of those assumptions and.
And its actually when.
When you take a step back and think about the fact that the the growth and the second quarter was off of our easiest comp from last year because last year, we get stopped as you know we had stopped doing.
A lot of things that we would typically do like vacating customers and and and having auctions and passing them on rate increases.
And the comp for US gets it gets more difficult on the back half of the year for those reasons and the fact that we on a relative basis outperformed.
And the back half of last year, so the comp gets more difficult and despite that we're still guiding to 10% to 12% type growth and the back half of the year.
And with just speaks to.
And the fact that there is strength across all of those different components of revenue growth, Although we don't guide to each of them specifically.
Sure I mean, if we if we pass aside the comp idea and just thinking about okay rates have been moving here and I appreciate the back and specifically guide to the individual.
And so patricks, but in general is it your sense that you.
You know the.
And moving rates the market rates are still accelerating and the back half of the year or do you think that growth kind of moderates or kind of flatlined and to a degree.
Yeah, I I would think and are in the range of our expectations is some modest degree of.
Slow down in and asking rate, either and asking rate growth and absolute asking rates is embedded because we do expect that and we will.
We'll see some form of a more typical fall and winter seasonality from a consumer perspective, as we get into the back half of the year.
Got it okay.
Great that's helpful. Thanks.
Thank you.
Our next question comes from Kevin.
Kevin Stein with Stifel. Please go ahead.
Okay.
Hi, Good morning, My question and I'm, just wondering about how much of a person power it was coming from low vacates versus a surge and demand.
Yeah, it's it's it's.
It's really both.
We're seeing you know absolute levels of customer interest and and our rentals are up.
As our Vacates are down and so we're seeing and we're getting we're getting a win on on both sides. We've got <unk>.
And again this gets to the question on rate increases to existing.
Customers because the vacate of the existing customer we've got and some cases are waiting list them and other customer ready to come in and so it's strong and it is helpful on both sides of that equation.
Okay. Thanks.
This concludes.
And question and answer session and I'd like to turn the conference back over to Chris Marr for any closing remarks.
Okay. Thank you everyone. Its a very appreciative of all of the positive comments you you all shared we do appreciate the recognition and are pleased.
With the quarter the industry is doing quite well.
And we look forward to a very solid back half of the year on a strong 2022 so.
All very positive I'll leave you with our best wishes for continued health and safety and look forward to talking to all of you after.
After our third quarter results take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.