Q2 2023 National Storage Affiliates Trust Earnings Call

Greetings and welcome to the National Store to fillet's second quarter 2023 conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Greetings and welcome to the National storage affiliates second quarter 2023 conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.

If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is a production of the National Center for Disease Control

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As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, George Hoagland, Vice President of Invest Relations for National Storage Affiliates. Thank you, Mr. Hoagland.

It is now my pleasure to introduce your host George Hoglund, Vice President of Investor Relations for National storage affiliates. Thank you. Mr. Hogan you may begin.

We'd like to thank you for joining us today for the second quarter, 2023, our names conference call of National Storage Affiliates Trust. On the line with me here today, our NSA's president and CEO , Dave Pramer, and CFO Brandon Tagashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to one question and one follow-up, and then return to the queue if you have more questions.

We'd like to thank you for joining us today for the second quarter 2023 earnings conference call of National storage affiliates Trust on the line with me here today are NSA as president and CEO , Dave Cramer and CFO brands into Gushy following.

Following prepared remarks management will accept questions from registered financial analysts. Please limit your questions to one question and one follow up and then return to the queue. If you have more questions.

In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the investor relations section on our website at nationalstorageaffiliates.com.

In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at national storage affiliates dotcom.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, August 8, 2023.

Today's call management's prepared remarks and answers to your questions may contain forward looking statements that are subject to risks and uncertainties and represent managements estimates as of today August eight 2023.

The company assumes no obligation to revise or update any forward-looking statement because of changing market conditions or other circumstances after the date of this conference call.

<unk> assumes no obligation to revise or update any forward looking statement because of changing market conditions or other circumstances. After the date of this conference call.

If company cautions that actual results may differ materially from those projected in any forward-looking statement.

Company cautions that actual results may differ materially from those projected in any forward looking statements.

For additional details concerning our forward looking statements, please refer to our public filings with the SEC.

For additional details concerning our forward looking statements. Please refer to our public filings with the SEC.

We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, core FFO, and net operating income contained in the Supplemental Information Package available in the investor relations section on our website and in our SEC filings. Joe Henneberg reporting.

We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as F. F O horrify bow and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings.

I will now turn the call over to Dave.

Thanks George and thanks everyone for joining our call today. I would like to start by acknowledging and thanking all of our team members here at NSA and our pros for their continued dedication and hard work. It is a significant contributions from our team members to drive our success. We appreciate everyone's effort.

Thanks, George and thanks to everyone for joining our call today I would like to start by acknowledging and thanking all of our team members here at MSA and our pros.

<unk> dedication and hard work it is a significant contributions from our team members to drive our success and we appreciate everyones efforts.

Our continued focus on people, process, and platforms is allowing us to improve our performance as we navigate very challenging comps and unusual environments for our sector. Our teams did a good job balancing the changing demand environment by effectively using all levers available to create rental opportunities and drive conversions.

Our continued focus on people process and platforms is allowing us to improve our performance as we navigate very challenging comps and unusual environment for our sector. Our teams did a good job balancing the changing demand environment, especially using all levers available to create rental opportunities and drive convergence.

Customer base remains very healthy. Portfolio is well positioned for long-term success. And our focus on key initiatives will enhance our ability to remain a leader in the self-story tech.

Our customer base remains very healthy our portfolio is well positioned for long term success and are focused on key initiatives will enhance our ability to remain a leader in the self storage sector.

Looking at the second quarter, we had a number of operational data points that we were pleased with, including three rate growth to 3.4% over the first quarter. Contract rate growth increased 1% sequentially and 7% year over year.

Looking at the second quarter, we had a number of operational data points that we were pleased with it including street rate growth of three 4% over the first quarter.

Contract rate growth increased 1% sequentially and 7% year over year.

Our existing customer base remains resilient with average length of stay remaining well above historical norms. 50% of our customer base has now been with us for greater than 2 years. With that in perspective, on average, our current tenant base has now been with us for over 40 months.

<unk> customer base remains resilient with average length of stay remaining well above historical norms, 50% of our customer base has now been with us for greater than two years.

But that in perspective on average our current tenant base has now been with us for over 40 months.

Our ability to implement ECRIs remains strong at about pre-pandemic levels.

Our ability to implant ECR is remained strong at above pre pandemic levels.

And an insurance penetration continues to improve, increasing over 10% year-to-date.

And in insurance penetration continues to improve increasing over 10% year to date.

At that was 2.1% of revenue, and concessions were 2% of revenue, both below pre-pandemic levels. Overall, our operational performance is strong in many areas, and our customer base remains stable over the quarter.

And that was two 1% of revenue.

Sessions were 2% of revenue well below pre pandemic levels overall, our operational performance was strong in many areas at our customer base remains stable over the quarter.

It's worth pointing out that street rates in July were still 18% above 2019 levels and contract rates in July were 30% above 2019 levels.

It's worth pointing out that street rates in July we're still 18% above 2019 levels and contract rates in July were 30% above 2019 levels.

We had a couple of areas that did not meet our expectations. The spring leasing season was weaker than we originally forecasted resulting in occupancy levels that were below our initial projections.

The spring leasing season was weaker than we originally forecasted, resulting in occupancy levels that were below our initial projections.

Moving activity was below the levels we'd anticipated due to several external facts.

Move in activity was below the levels, we had anticipated due to several external factors.

First, we experienced a disappointing change in the amount of move-in demand due to the slowing housing market. Home sales are down across most of our markets.

We experienced a disappointing changing the amount of move in demand due to the slowing housing market home sales were down across most of our markets.

This change in volume of housing sales has temporarily decreased the demand for self-storage, which impacted our spring leasing season. Although we expect this housing trend to eventually subside, it has put short-term pressure on our business.

Change in volume of housing sales is temporary decrease the demand for self storage, which impacted our spring leasing season, Although we expect this housing trend eventually subside.

Short term pressure on our business.

We also had a very competitive environment for the acquisition of new customers. Our teams were navigating a dynamic street rate environment along with elevated marketing spend across the sector.

They also had a very competitive environment for the acquisition of new customers.

We're navigating a dynamic street rate environment, along with elevated marketing spend across the sector.

number of rental opportunities generated was below our expectations.

And we'll have rental opportunity generated was below our expectations.

Not only did the rising interest rate environment put pressure on storage demand, it also put pressure on our interest expense, leading to less than expected core FFO for the second quarter.

And all he did the rising interest rate environment put pressure on storage demand. It also put pressure on our interest expense leading to less than expected <unk> for the second quarter.

We expect interest rates to remain a headwind for the remainder of the year.

We expect interest rates to remain a headwind for the remainder of the year.

These factors have led us to revise our guidance, which Brandon will discuss later in the call.

These factors have led us to revise our guidance, which granted will discuss later in the call.

As we cycle past historically tough comps in the back half of the year, we are confident our portfolio remains well positioned for future success.

As we cycle pass historically tough comps in the back half of the year. We are confident in our portfolio remains welfare is well positioned for future success.

I want to highlight a few areas where we are focused on delivering both internal and external growth going forward.

I'll highlight a few areas, where we are focused on delivering both internal and external growth going forward.

First, we remain focused on enhancing our customer acquisition and revenue management process and platforms. We continue the strength in our team, and we're excited about the initiatives underway to optimize the online customer experience and front-end price.

First we remain focused on enhancing our customer acquisition and revenue management process and platforms. We continue to strengthen our team and we're excited about the initiatives underway to optimize the online customer experience and front end pricing.

Second, our investment in an approved data warehouse and the use of AI technology will continue to improve our ECRI program which drives our revenue growth once the customer is in the door.

Second our investment in an improved data warehouse in the use of AI technology will continue to improve our CRA program, which drives our revenue growth once the customers in the door.

Third, we are actively working on repossessioning our balance sheet. We are exploring various capital sourcing strategies that will enable us to become more opportunistic when the time is right.

Third we are actively working on a repositioning of our balance sheet, we're exploring various capital sourcing strategies.

They will become more opportunistic when the time is right.

We are confident in our strategies we'll position the NSA to deliver healthy growth as we have demonstrated since our IPO.

We are confident in our strategies will position the NSA to deliver healthy growth as we haven't demonstrated since our IPO.

I will now turn the call over to Brendan.

Thank you, Dave. Yesterday afternoon, we reported Porra Foper share of $6,8 for the second quarter of 2023. It represents a decrease of 4.2% over the prior year period.

Thank you Dave yesterday afternoon, we reported four four per share of 68 cents for the second quarter of 2023, which.

This represents a decrease of four 2% over the prior year period.

The year-over-year decline, despite 3.4% growth in same-store ROI and 7.4% growth in adjusted EBITDA, was due primarily to elevated interest expense given the rising rate environment.

The year over year decline, despite 3.4% growth in same store NOI was seven 4% growth in adjusted EBITDA was due primarily to elevated interest expense given the rising rate environment.

We delivered positive revenue growth of 2.8% on a same-store basis, driven by 7% contract rate growth.

We delivered positive revenue growth of two 8% on a same store basis, driven by 7% contract rate growth.

occupancy in the quarter at 90% up 20 basis points from Q1 and down 450 basis points year over year.

Occupancy ended the quarter at 90% up 20 basis points from Q1, and down 450 basis points year over year.

Similarly, July occupancy finished relatively unchanged at 89.9%, which is also 450 basis points below last July .

Similarly July occupancy finished relatively unchanged at 89, 9%.

Which is also a 450 basis points below last July .

Our team did a tremendous job controlling expenses, such that our growth in the second quarter was just 1.4%.

Our team did a tremendous job controlling expenses such that our growth in the second quarter was just one 4%.

Payroll declined 3.4% from the prior year period. A property taxes were down 1.5%.

Payroll declined three 4% from the prior year period, our property taxes were down one 5%.

These cost savings were offset by marketing expenses that grew 34% and insurance that grew 41%. Due to the policy renewal we had on April 1st in a tough market, which we discussed on our last call.

These cost savings were offset by marketing expenses that grew 34%.

In insurance that grew 41% due to the policy renewal we had on April 1st in a tough market, which we discussed on our last call.

We will continue to focus on minimizing our controllable expenses, allowing us to slightly lower our guidance range for same-store op-X growth.

We will continue to focus on minimizing our controllable expenses, allowing us to slightly lower our guidance range for same store opex growth.

On the acquisition front, the second quarter was fairly quiet given the wide bid-ask spread and elevated cost of capital.

On the acquisitions front, the second quarter was fairly quiet given the wide bid ask spread and elevated cost of capital.

During the quarter, we acquired two facilities totaling $14 million, that will be run as annexes to existing locations. And therefore not increase our store count. A larger of these acquisitions was from...

During the quarter, we acquired two facilities totaling $14 million will be run as annexes to existing locations and therefore not increase our store count.

Larger of these acquisitions was from our captive pipeline.

Upsilquit the quarter in. We acquired one property for $18 million, also out of our captive pipeline.

Subsequent to quarter end, we acquired one property for $18 million also out of our captive pipeline.

Going forward, we'll remain opportunistic inpatient as we look to continue to grow externally.

Going forward, we will remain opportunistic and patient as we look to continue to grow externally.

Turning to the balance sheet.

During the second quarter, as previously announced, we issued $120 million of five-year-unsecured notes in a private placement at a face coupon of 5.61%. And an effective rate to us of 5.75%, inclusive of the impact of pre-issue hedges.

During the second quarter as previously announced we issued $120 million of five year unsecured notes in a private placement with a face coupon of 561%.

And an effective rate to us of 575%.

Loosen up the impact of reissue hedges.

Subsequent quarter in, $175 million of swaps expired, and we entered into new swaps with a noional value of $100 million, resulting in a net $75 million of incremental floating rate exposure.

Subsequent to quarter end.

$75 million of swaps expired and we entered into new swaps with a notional value of $100 million, resulting in a net $75 million of incremental floating rate exposure.

Today, approximately 20% of total debt is variable rate, mostly related to our revolver. Going forward, as Dave mentioned, we will take further steps to free up some capacity on our line of credit, which will naturally reduce our floating rate exposure.

Today, approximately 20% of total debt is variable rate mostly related to our revolver.

Going forward as Dave mentioned, we will take further steps to free up some capacity on our line of credit, which will naturally reduce our floating rate exposure.

At quarter end, our leverage was 6.1 times net debt to Ibadah, down sequentially from 6.3 times at the end of the first quarter, and comfortably within our range of 5.5 to 6.5 times.

At quarter end, our leverage was six one times net debt to EBITDA now.

Sequentially from six three times at the end of the first quarter and comfortably within a range of five five to six five times.

Now moving on to guidance. As Dave mentioned, when we initiated for your guidance for 2023, we assumed that occupancy would return to more typical seasonal patterns. With the trough in February , and then rising a few hundred basis points until peaking in the summer months.

Now moving onto guidance as Dave mentioned, when we initiated full year guidance for 2023, we assume that occupancy would have returned to more typical seasonal patterns with the trough in February and then rising a few hundred basis points until peaking in the summer months.

Instead, occupancy has been relatively flat all year. This caused our Q2 results to be below our internal projections and led us to revise expectations for the remainder of the year.

Instead of occupancy has been relatively flat all year.

Cause our Q2 results to be below our internal projections led us to revise expectations for the remainder of the year.

Our updated guidance ranges as outlined in the yearnings release are as follows.

Our updated guidance ranges as outlined in the earnings release are as follows.

Full year same store revenue growth of 1.5 to 2.75% with a new midpoint of 2.13%.

Full year same store revenue growth of 1.5% to 275% with a new midpoint of 2.13%.

Same store operating expense growth, but 4.5 to 5.75% down modestly from the previous midpoint.

Same store operating expense growth of 4.5% to 5.75% down modestly from the previous midpoint.

And we now project same store NOI growth of 0.25 to 1.75% with a new midpoint of 1%.

And we now project same store NOI growth of two 5% to 1.75% with a new midpoint of 1%.

This leads to a core FFO per share range of $2.63 to $2.69 with a midpoint of $2.66.

This leads to a core <unk> per share range of $2 63 to $2.69 with a midpoint of $2.66.

While the midpoint represents a 5% decline from 2022 results, primarily due to interest expense, and also represents an increase of 73% over our FFO per share in 2019, the year prior to the pandemic related impacts on our business.

While the midpoint represents a 5% decline from 2022 results primarily due to interest expense.

It also represents an increase of 73% over our ethical per share in 2019.

Year prior to the pandemic related impacts on our business.

Assumptions that we've modeled into the midpoint of our revised guidance is a return to normal seasonality. This includes 250 to 300 basis points of occupancy lost by year end and street rate moderation of 8 to 10 percent from the end of the second quarter.

Assumptions that we've modeled in some of the midpoint of our revised guidance is a return to normal seasonality.

This includes 250 to 300 basis points of occupancy loss by yearend and street rate moderation of 8% to 10% from the end of the second quarter.

Any deviation from these assumptions up or down would move us away from the midpoint.

Any deviation from these assumptions up or down would move us away from the midpoint.

Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator.

Thanks again for joining our call today, let's now turn it back to the operator to take your questions operator.

Yeah.

Thank you. At this time, we'll be conducting a question and an answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

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As another reminder, we ask that you each keep to one question and one follow up thank you.

Our first question comes from the line of Michael Goldsmiths with UBS. Please proceed with your question.

Our first question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good afternoon. Thanks a lot for taking my question. In a repair remarks, you mentioned you were looking to reposition your balance sheet. Can you provide a little bit more detail into what you expect to do and how that's going to free up capital?

Good afternoon, and thanks, a lot for taking my question in your prepared remarks, you mentioned you were looking to reposition your balance sheet can you provide a little bit more detail.

And into what you expect to do it and how that's going to free up capital.

Good morning, Michael. How are you? Thanks for joining the call and Steve. Yeah, I'm happy to dig in that a little bit. You know, I think of it this way. Since our IPO, you know, Annas, he's been a leader in external growth on a relative basis. You know, much of that has been dreams or a multifaceted acquisition strategy. And we've increased the size of our company substantially. You know, with that growth, we've built a really nicely diversified portfolio across 43 straights in Puerto Rico with exposure in primary and secondary market.

Good morning, Michael how are you thanks for joining the call it's Dave.

Yeah, Hi died happy to dig into that a little bit.

I think of it this way since our IPO and he has been a leader in external growth on a relative basis, how much of that has been driven through our multifaceted acquisition strategy and we've increased the size of our company substantially.

With that growth, we built a really nicely diversified portfolio across 43 states and Puerto Rico with exposure in primary and secondary markets and you know that external growth has led to obviously attractive at that point NOI growth, which has benefited all of our shareholders.

that external growth has led to obviously attractive if I've fallen in a wide growth, which has benefited all of our shareholders.

Currently the external growth opportunities are limited in the time we're in today. It's time to really evaluate our internal asset management. And as we look going forward, we intend to look very closely at our portfolio. To determine if their properties or portfolios are even marketed or non-cortar strategic focus.

Currently the external growth opportunities are limited and the time, we're in today I mean, it's time to really evaluate our internal asset management and as we look going forward, we intend to look very closely at our portfolio.

Eminent there are properties or portfolios or even markets that are noncore to our strategic focus.

This will give us an opportunity to unlock by selling properties and unlock value, recycle capital and the court gross strategies, or even help us to leverage our balance.

This will give us an opportunity to unlock by selling properties and unlock value recycle capital in the core growth strategies are even help us deleverage our balance sheet.

Also a track of asset opportunities inside the portfolio. We're studying very hard expansion opportunities, redevelopment opportunities, and really looking at our unit configurations to see if we can find opportunities to crevally grow FFO and really push occupancy to higher levels in doing unit reconfiguration.

Also attractive asset opportunities inside the portfolio, we're studying very hard expansion opportunities redevelopment opportunities and really looking at our unit configurations to see if we can find opportunities to creatively grow ethical and really push occupancy to higher levels and doing unit reconfigurations.

We continue to explore their avenues to capital. You know, we look and enjoy venture opportunities with private capital partners. We have a abundance of people looking to get in this industry. These mentors would give us access to capital to fund future growth, possibly due to the lever as opportunities present themselves. You know, the portfolio recapitalization is a great access to capital without going into the capital market.

We continue to explore other avenues of capital you know, we look at joint venture opportunities with private capital partners. We have an abundance of people looking to get into this industry. These ventures would give us access to capital to fund future growth, possibly delever as opportunities present themselves and they are portfolio recapitalization as a great access to capital without.

Equity capital markets.

We could contribute wholly on properties in an in-new joint venture, you know, vehicle with the private institutional investor. We could then re-employ that new capital and opportunities and deliver to our balance, because that's the right opportunity. You know, adding these areas to the focus, to our focus on people processing platform, and issues that we have, we believe will well position us for future opportunities and success.

We could contribute wholly owned properties and our new joint venture you know vehicle with the private institutional Investor. We can then redeploy that new capital and opportunities and deleverage our balance sheet. If that's the right opportunity you know, adding these areas to the focus our focus on people process and platform initiatives that we have we believe will well position us for future opportunities and success.

Got it. That's really helpful. And my second question is on ECRIs. As we understand it, street rates play a role in the ECRI strategy, as you looked in with customers back to or above street rates. So at what point does the pressure on street rates start to weigh on the ECRI strategy to the point where you may need to reduce the magnitude of rent increases from it?

Got it.

That's really helpful and my second question is on E C. Our eyes as we understand it street rates play a role in the E. C. O R. Ice strategy as you look to move customers back to or above street rate. So.

What point does the pressure on street rates start to weigh on the E. C. R ice strategy to the point, where you may need to reduce the magnitude of rent increases.

Really, really good question again, Michael. You know, what I'm happy to report, and I think what we're pleased with is, you know, our cadence and a level of rate increases that we're giving today still remain above pre-pandemic levels. And we haven't had to alter that cadence at all. We're not getting any type of pressure from consumers. Our move out activity isn't changing as far as the test groups and the non-test groups. And so we're pleased with that cadence.

Really really good question again, Michael you know what.

What I would I'm happy to report and I think what we're pleased with as you know our cadence and in level of rate increases that we're giving today still remain above pre pandemic levels and we haven't had to alter that cadence at all we're not getting any type of pressure from consumers our move out activity isn't changing as far as the test groups and the non test groups and so we're pleased with that.

We're not afraid to be above street rate. I mean street rates are very volatile, and I think this year they've been more volatile than I've seen in a long time.

<unk>, we're not afraid to be above street rate I mean street rates are very volatile and I think this year they've been more volatile than I've seen in a long time and and you know we're open the back half of the year.

And we're hoping the back half of the year, people will find their footing in the street rate volatility will settle down a little bit. And I think that'll give us strength as we go to the back half of the year as far as that rate volatility. But right now, we have a better platform we've ever had. We've invested a lot of, a lot of dollars around new team members and additional team members and new platforms.

We will find their footing in the street rate volatility will settle down a little bit and I think that'll give us strength as we go into the back half of the year as far as that rate volatility, but right now we have a better platform with you ever had we've invested a lot of a lot of dollars around new team members and additional team members and new platforms and you know that ECR program is really really strong for us and paying dividend.

that ECR program is really, really strong for us and paying dividends on our existing customer base. Thank you very much, good luck.

On our existing customer base.

Thank you very much good luck in the back half.

Thanks for joining today appreciate it.

Thank you. Our next question comes from line of just specter with Bank of America. Please pursue

Thank you. Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.

Great, thank you. On the last call you discuss some market that were a bit weaker, I think we talked about Vegas Phoenix Portland, Colorado Springs. I get, what are you seeing today in those markets or are there other new week markets or maybe even opposite strong markets that discuss?

Great. Thank you on the last call you discussed some markets that were a bit weaker I think we talked about Vegas, Phoenix, Portland in Colorado Springs.

But what are you what are you seeing today in those markets or are there other new weak markets or maybe even opposite strong markets to discuss.

Really good question, Jeff, and thanks for joining. I'll kind of break it down as Mark Achew discussed. We actually have found a little bit of traction in Portland, where we've been talking about Portland for quite a while, having a lot of supply, a number of years of supply, starting before the pandemic, and obviously the pandemic helped.

Really good question, Jeff and thanks for joining I'll kind of break it down as markets. You discussed we actually have found a little bit of traction in Portland works. You know, we've been talking about Portland for quite a while having a lot of supply a number of years as supply starting before the pandemic and obviously the pandemic help mask some of that supply pressure and as.

you know, mass some of that supply pressure. And as we come out of the pandemic, we've found a little traction around occupancy. We've found a little traction around rate. And Portland actually had composited revenue growth, you know, for the second quarter, which we're pleased with. Still lots of ways to grow. Still needs to grow out of that supply piece. But, you know, we think we've come maybe just a little bit of footing of maybe some stabilization and now we'll have to work through the existing supply.

We come out of the pandemic, we are on a little traction around occupancy we've had a lot of traction around rates and Portland actually had some positive revenue growth for the second quarter, which we're pleased with so a lot of ways to grow still needs to grow out of that supply piece, but we think we've found maybe just a little bit of footing of maybe some stabilization and now we'll have to work through the existing supply Vegas in.

Vegas and Phoenix are really, they were a red hot markets during the pandemic. There was a lot of supply coming online in 1920 and 21 in both those markets.

Phoenix are are really there are red hot markets. During the pandemic. There was a lot of supply coming online in 19, 2020 one in both of those markets. They're also feeling pressure from the housing slowdown both really good markets, we're very happy with those markets or our portfolios are well diversified in the markets, but theyre going to face some near term pressure because of the supply and really this.

They're also filling pressure from the housing slowdown. Both really good markets. We're very happy with those markets. Our portfolio is a well diversified in the markets, but they're going to face some near term pressure because of the supply and really the change in the housing market and around movement and going around in our country. We point out some hot markets. You know, we're really pleased with South Texas, down around Macau and Brownsville. And those places, well above portfolio average, Oklahoma City, well above portfolio average.

And the housing market in the random movement, that's going around in our country I'm putting out some hot markets. You know, we're really pleased with south Texas down around Mcallen and Brownsville. Most places you know well above portfolio average, Oklahoma city, well above portfolio average.

And I would also point to Atlanta to market we've been talking about having some supply pressure, but Atlanta had, you know, probably our one of our largest occupancy decreases at, you know, on the average of what were of 710 basis points, but still put out a 4.8% revenue growth. So I think our teams did a wonderful job balancing occupancy rate, marketing spend against a very tough occupancy confidence.

I would also point to Atlanta Tomorrow, we'd been talking about having some supply pressure, but Atlanta had you know probably our one of our largest occupancy decreases that you know in an average of about 710 basis points, but still put out a 4.8% revenue growth. So I think our teams did a wonderful job balancing occupancy rate marketing spend.

Against the very tough occupancy comp in that market.

Okay, thank you very helpful. So my follow up then I guess is on the occupancy loss and just you know confirming exactly what's happening there because you talked about the strength in existing customers. We heard that from your peers.

Okay. Thank you very helpful and my follow up then I guess is on the occupancy loss and just you know confirming exactly what's happening there because you talked about the strength in the existing customers, we heard that from your peers I.

I guess maybe focusing on Atlanta or pick anywhere like then what exactly is happening with the occupancy loss? Because it is a bit more severe than what your peers have seen year to date.

I guess, maybe focusing on Atlanta or pick anywhere like.

Then what what exactly is happening with the occupancy loss because it is a bit more severe than what your peers have seen year to date.

Yeah, it's a good question. And one, we talk often about it in our shop. You know, I think about the pandemic, our run up from an occupancy perspective game was probably double that of our peer group. I mean, from our portfolio starter pre-pandemic to where it finished, we group 850 basis points in occupancy, which is uncharacteristic for our portfolio and our market.

Yeah, It's a good question and you know.

And when we talk often about it in our shop.

If you think about the pandemic are run up from an occupancy perspective game was probably double that of our peer group I mean from where our portfolio started pre pandemic to where it finished we grew eight 850 basis points in occupancy, which is uncharacteristic for our portfolio in our markets and as we come out of the pandemic, we've talking about how do we.

And as we come out of the pandemic, we've talked about how do we, you know, where are we gonna settle back down and where do we find our soft landing? And we think we've found that occupancy level that we think most of our markets are gonna be comfortable operating in.

What are we going to settle back down to where do we find our soft landing and and we think we've found that occupancy level that we think most of our markets are going to be comfortable operating in and so.

In some ways you might think that this has been a prolonged summer season where it started in ActCafford 2020 and ran all the way through 2022 and now we're coming off those highs. And so for us, I think the occupancy loss looks worse because our portfolios were not as occupied going in. And we're operating in our markets today. We're finding our footing between the revenue goal because that's what we're trying to solve for and the balance of occupancy and rate.

In some ways you might think of it as there's been a prolonged.

Summer season, where it started in back half of 'twenty 'twenty and ran all the way through 2022 and now we're coming off those highs and so for US I think the occupancy loss looks worse, because our portfolios were not as occupied going in and when we operating in our markets. Today, we were finding our footing between the revenue goal because that's what we're trying to solve for.

And the balance of occupancy and rate and most of our markets are pretty well you know, we're operating with well within the comfortable levels of occupancy that we take our markets.

Most of our markets are pretty we know we're operating as well within the comfortable levels of Occupancy that we take our markets

Really operated and Hey, Jeff. This is Brandon the other thing I would just add as you know for the second quarter, our sunbelt markets outperformed the non sunbelt, so they sunbelt markets.

And he Jeff, this is Brandon. The other thing I would just add is for the second quarter, our Sunbelt markets outperform the non-Sunbelt. So they fund all markets.

you know, on that revenue growth of 2.8, they were above that portfolio average, the non-submarx markets were below. And then similarly, our secondary markets call it the, MSA is outside the top 25, they were above portfolio average.

On that revenue growth of 2.8, they were above that portfolio average for non sunbelt markets were below and then similarly are secondary markets call. It msas outside the top 25, they were above portfolio average outperforms the top 25 markets in our portfolio, which were below that 2.8% Rev growth. So just from like a we've taken the question.

outperform the top 25 markets in our portfolio, which were below that 2.8% revenue. So just from like we've taken questions about how those secondary markets are performing and pure point about relative to peers, I just wanted to point that out because that was the case for Q2, very consistent with Q1 and we included.

About how those secondary markets are performing and to your point about relative to peers I just wanted to point that out because that was the case for Q2 very consistent with Q1 and we included.

and five year trailing information on seamstor performance.

Some five year trailing information on same store performance across those splits in the June NAREIT deck. That's on our website. So I just wanted to call that out.

cross-lost splits in the June , and they read back the Thunder website, so I just wanna call that out.

Thank you, that's very interesting. I know it's two questions, but if I could just then ask, I'm occupant so you're saying, you feel like you have stability today, where you stand. Let's say through the rest of the year, it sounds like you have found that stability, just to confirm.

Thank you that's very interesting I know its two questions, but if I could just ask on the occupancy you're saying.

And you feel like you have stability today, where you stand, let's say through the rest of the year. It sounds like you found that stability just to confirm.

It's, you know, we are still forecasting. So if you look at our guidance to the back half of the year, we're still forecasting a normal seasonality of loss of occupancy in the back half.

We are still forecasting so if you look at our guidance for the back half of the year, we're still forecasting a normal seasonality of loss of occupancy in the back half of the year, we did not peak as high as we thought in the summer and that's around you know what we discuss you know moving around the country and in all the things around the rate environment and stuff that were going on in the spring leasing.

We did not keep as high as we thought in the summer. And that's around, you know, we discussed, you know, moving around the country and all the things around the rate environment and stuff that we're going on in the spring leasing season. But, you know, we think conservatively, we have in our midpoint of our guidance really forecasted 200 to 300 basis points of luck and we fall off in the back half of the year. Which would be consistent to historical trends pre-pandemic.

Season.

But we think conservatively we have in our midpoint of our guidance really forecasted 200 to 300 basis points of occupancy fall off in the back half of the year, which would be consistent to historical trends pre pandemic well.

But lower than last year, Jeff. So last year we lost 450 basis points, and that's where we do, you know, at that midpoint of the guide projections, we do believe that the negative delta on occupancy year over year will tighten, but it will still end negative at the midpoint of what we've got it to. Okay, thanks for clarifying.

The lower than last year, Jeff So last year, we lost 450 basis points and that's where we do you know at that midpoint of the guide projections, we do believe that the negative delta in occupancy year over year will tighten, but it also and negative <unk> <unk>.

Point of what we've guided to.

Okay. Thanks for clarifying.

Thank you thanks for joining us.

Thank you. Our next question comes from line of Cassandra Fiber with Truest Securities. Please proceed with

Thank you. Our next question comes from the line of Cassandra fiber with <unk> Securities. Please proceed with your question.

Hi, thanks for taking my questions. You mentioned in EuroProport remarks that street rates were of 3.4% substantially. Can you tell us what street rates were in the second quarter year over year and the cadence in July ?

Hi, Thanks for taking my question you mentioned in Europe with her remarks that street rates were up 3.4% sequentially can you tell us what street rates were in the second quarter of year over year and the cadence in July .

Yeah, good question. You know, the striaries are down about 9% year over year, as we've all talked about, you know, slow cycling, some really large dock and p-coms and stririer-a-coms. So the stririer, which are down about 9%, until I they fell just a little bit more and that's still around the comp. If you remember last year...

Yeah. Good question you know, we the street rates are down about 9% year over year as we've all talked about still cycling some really large occupancy comps and it's doing great comps in Australia, which are down about 9%. So why they felt this a little bit more and that is still around the comp. If you remember last year, we held street rates very steady.

We held street rates very steady through the third quarter. And so as we look at our comp against three rates this year, I think we're going to be, you know, show a little bit more negative comp for the next couple of months. And then we started going back into where we adjusted street rates now at the back after the year. Really.

Through the third quarter and so as we look at our comp against re rates. This year I think we're gonna be you know show a little bit more negative comp for the next couple of months and then we started going back into where we adjusted street rates down at the back half of the year.

Really the back quarters okay.

Okay, got it. And then can you comment on promotions and marketing dollars in the second quarter? Maybe also in July and what your strategy is there for the remainder of 2023?

Okay got it and then can you comment on promotions and marketing dollars in the second quarter or maybe also in July and what your strategy is there for the remainder of 2023.

Good question. So certainly, the marketing dollars themselves have been elevated. We're seeing that across the sector. We're seeing that a lot of our markets is very market-specific and the teams have done a good job using marketing dollars to generate lead activity.

Good question. So certainly you know the.

The marketing dollars themselves.

They haven't been elevated were seeing that across the sector. We're seeing it a lot of our markets. It's very market specific and the teams have done a good job using marketing dollars to generate lead activity.

And we've got more sophisticated programs than we've ever had. We've got more team members in that seat than we've ever had. And so we're pleased with the way we deployed marketing dollars. Really through the first half of the year and finding our putting on the balance of spend versus lead generation.

And.

We've got more sophisticated programs than we've ever had we've got more team members in that seat than we've ever had and so we're pleased with the way we deployed marketing dollars really through the first half of the year and finding our footing on the balance of spend versus lead generation.

The discounting remains muted below pre-pandemic levels, you know, around 2% of revenue right now, and pre-pandemic it was 3.5 to 5. Right now...

The discounting remains muted below pre pandemic levels at around 2% of revenue right now in pre pandemic. It was three five to five right now.

Our information is telling us the rate is a little bit better trigger than discount. And I think that's probably why you're seeing a little bit more muted discounts versus historical. And that's just the fact of having better tools and better information.

Our information is telling us the rate is a little bit better trigger then discount and I think that's probably why you're seeing a little bit more muted discounts versus historical and that's just a pack of having better tools and better information.

Okay. That's helpful. Thank you.

Thank you I appreciate you joining us.

Thank you. Our next question comes from the line of Todd Thomas with keeping capital markets. Please proceed with your question.

Thank you. Our next question comes from the line of Todd Thomas with Keybanc Capital markets. Please proceed with your question.

Hey guys, it's AJ on for Todd. Just a couple of questions, some to follow up with, sorry, the asset, in a sense. So just going back into the marketing and web dollars, were the web hits and phone inquiries, did you see a decrease there or was the conversion rate lower with the sense that customers were shopping around more and being perhaps a little more rate?

Hey, guys. It's a J on her Todd I'm, just a couple of questions. Some two follow up what's already been asked.

In a sense, so just going back into the marketing and web dollars are where the web hits and phone inquiries inquiries did you see a decrease there or what's the conversion rate lower with the sense that customers are shopping around more and being perhaps a little more rate sensitive.

Good question and hey thanks for joining. You know, the session activity, the very very top of the funnel was less than we expected. And so...

Good question on Hey, Thanks for joining.

The session activity, the very very top of the funnel was less than we expected and so we were very careful not to over deploy marketing dollars. It's a big year over year increase the last year, you've got to consider we weren't spending a lot of marketing dollars. So that large increase it looks a little outsized, but the team did a good job focus on conversion rate as you touched on.

We were very careful not to over deploy marketing dollars. You know, it's a big year over year increase, but last year you got to consider we weren't spending a lot of marketing dollars. So that large increase looks a little outside, but the team did a good job focused on conversion rate as you touched on and keeping our conversion rate where we felt comfortable with the amount of spend.

And keeping our conversion rate, where we felt comfortable with the amount of spend.

But the top of the sessions funnel, particularly early in the second quarter, April was probably our sluggish month. It was our sluggish month around moving activity to expectation. And we improved through May and June and July has improved as well. But the top of the funnel is what I would tell you on session.

But the top of the sessions funnel, particularly early in the second quarter April was probably our slowest month. It was our sluggish months around moving activity to expectation and we improved through May and June and July has improved as well, but our top of the funnel is what I would tell you on sessions.

Okay, that's helpful. And then a question just going back to Portland. So should we think about Portland as a bit of a leading indicator or perhaps a roadmap to sorts for how the other markets of the portfolio of the portfolio overall may perform over the next few quarters. Is that a good way to think about it?

Okay. That's helpful. And then a question just going back to Portland, So should we think about Portland as a bit of a leading indicator or you know, perhaps the roadmaps of sorts for how the other markets of the portfolio of the portfolio I'm overall may perform over the next few quarters is that a good way to think about.

Got it.

I think Portland's a tough one because Portland still has an over abundance of supply.

I think Portland is a tough one because Portland still has an overabundance of supply buildup. We're happy that it's kind of found a subtraction. So that's good but I would point you more to the markets like Oklahoma City Tulsa.

You know, even to some of the South Texas stuff. I mean, if you look at Oklahoma City, relatively low new supply over the past three or four years, you know, in the pandemic, it was not as red as some of the other markets because they didn't have the influx of housing. And if you look at its performance today, that's what a stable market that's really kind of cycled all the activity of what's gone on the last couple of years and then our ability to really implement our revenue management plan.

Even if some of that South Texas stuff I mean, if you look at Oklahoma City relatively low new supply with the past three or four years.

And the pandemic it was not as red hottest and some of the other markets because they didn't have the influx of housing and if you look at its performance today.

It is a stable market.

It's really kind of cycled all of the activity what's going on in the last couple of years and then our ability to really implement our revenue management platform.

Okay, that's helpful and then real quick if I could squeeze in one more. Just where was occupancy at the end of July and what was it year over year?

Okay. That's helpful. And then real quick if I could squeeze in one more just where was the occupancy at the end of July and what was it year over year.

I think as Brandon stated it was 89.9 and it was down still 450 basis points year over year Perfect

I think as Brandon stated it was 89 nine and it was down still 450 basis points year over year.

Perfect. Thank you I appreciate the time.

Yeah, Thanks for joining us.

Thank you. Our next question comes from Laine, a SMEDE's Rose with City. Please proceed with your question.

Thank you. Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Hi.

You've answered a lot of these, but I guess I just want to understand the guidance a little more because it sounds like I think if I'm doing this right, your second half seems to showing a why we'll contract.

You've answered a lot of things, but I guess I just wanted to understand the guidance a little more because it sounds like I think if I'm doing this right. Your second half same store in Hawaii, well contracts at the high end and then even more at the low end and we've seen downward you know a downward bias I think for the group overall, you know for a lot of the reasons that people have already talked about.

at the high end and then even more at the low end. And we've seen downward bias, I think, for the group overall.

you know, for a lot of the reasons that people have already talked about. But I'm wondering why your seems more kind of pronounced if you're pushing through the same level of rate increases.

But I'm wondering why yours seems more kind of pronounced if you're pushing through the same level of rate increases and occupancies are going back to kind of what you saw pre pandemic levels I'm trying to figure out like what you know what piece are we missing that's driving here because he is saying.

and occupant teams are going back to kind of what you saw pre-pandemic levels. I'm trying to figure out like what, you know, what piece are we missing that's driving there to see things trying to like contraction and effect.

Trying to why contraction in the second half.

Yes, me, it's Brandon. You know, probably a little tough for us to comment relative to the peers. I think you really got to...

Yeah, Smedes, it's Brandon you know probably a little tough for us to comment relative to the peers I think you really got a.

parse the, you know, what was everyone dealing with a year ago and what did that growth look like? And frankly, Dave kind of hit it. His remarks earlier in response to a question in the sense that, I mean, for us, we've really been looking at things on a tree and four-year basis because you had so much volatility, especially across certain markets.

Parse the you know what was everyone's dealing with a year ago, and what does that growth look like and frankly, they've kind of hit it on his remarks earlier in response to a question in the sense that I mean for US we've really been looking at things on a three and four year basis, because you had so much volatility, especially across certain markets starting in 2020, all the way through.

starting in 2020 all the way through now. So I think that's, you know, half the answer relative to the peers. I mean, we are absolutely growth rate in the first half of the year is below peers, right? And so if we're moderating and decelerating on growth as everyone is implying, we're starting lower. And so I think that's where the back half might apply lower than the others. I can tell you just to give a little more color on what we are expecting for the back half. I mean, it's certainly somewhat dependent on whether or not we do experience that 250 to 300 basis.

Now so I think that's part.

Hefei answer relative to the peers I mean, our our absolute growth rate in the first half of the year is below peers right and so if were moderating and decelerating on growth as everyone is implying we're starting lower and so I think that's where our back half might apply lower than on the others. I can tell you just to give a little more color on what we are expecting for the back half I mean, it's.

It's certainly somewhat dependent on whether or not we do experience that 250 to 300 basis basis point occupancy decrease that I mentioned in the opening remarks, and if we do you know when do we experienced that we we lost a good chunk of occupancy I said it earlier.

basis point occupancy decrease that I mentioned in the opening remarks and and if we do you know when do we experience that we we lost a good chunk of occupancy i said it

earlier 450 basis points last year and a lot of that came in August and September .

Earlier 450 basis points last year and a lot of that came in August and September .

Dave mentioned that we didn't see this year that typical spring, summer occupancy uptick that we typically might. And so I think naturally a question we were expecting today in a question we've asked ourselves, is are we gonna lose as much occupancy as historical? And it is very challenging to predict right now. We've baked that into the midpoint. I think.

Dave Dave mentioned that.

We didn't see this year that typical spring summer market occupancy uptick, we typically might and so I think naturally a question we were expecting today and a question. We've asked ourselves is are we going to lose as much occupancy as historical and it is very challenging to predict right now we've baked that into the midpoint I think if you asked me how do we get to the high end I think it's well.

If he asks me how do we get to the high end, I think it's well, you know, maybe we're a little conservative and there's opportunity and some optimism that we won't see that 250 to 300 basis point decline in occupies.

Now, maybe we're a little conservative and there's opportunity and some optimism that we won't see that 250 to 300 basis point.

On an occupancy.

Okay, and then you just mentioned increase in insurance penetration in the quarter or just wondering what is the, what percentage of customers are taking kind of the insurance now?

Okay, and then you just mentioned the increase in insurance penetration in the quarter I was just wondering what what is the what percent of customers are taking tenant reinsurance now.

Good question, Spain. You know, over 80% take it at move in. And we have pushed our portfolio to that level as well. So we've, he's done a good job with a lot of initiatives. And so both those metrics are sitting above 80 today.

Yeah. Good question Smedes, you know over 80% take it at move in and we have pushed our portfolio to that level as well. So we've teams done a good job with a lot of initiatives in so we're both those metrics are sitting above 80 today.

Thank you Sam penetration.

Thanks for joining us.

Okay.

Thank you. Our next question comes from the line of Juan Somalia with BMO Capital Markets. Please proceed with your question.

Thank you. Our next question comes from the line of Juan Sanabria with BMO capital markets. Please proceed with your question.

Hi, Robin Hainvelin here with Juan. I'm gonna touch and expense this. Payrolls and R&M will both down year over year. What's the expectation for balance over the year and how many more personal hours can you take out from here?

Hi, Robyn Haynesville unheard of a qualm.

Plus in expense the paywall.

Payrolls in R&M were both down year over year.

What's the expectation for balance of the year and how many more personnel hours can you take out mhm.

Yeah, good question. So I'll answer the specific line I was, but maybe just speak broadly. Operating expenses for the full year we forecast property taxes to be in the five to seven percent range.

Yeah. Good question. So on I'll, just I'll answer the specific line items, but maybe just speak broadly operating expenses for the full year, we forecast property taxes to be in the 5% to 7% range.

Personnel the next biggest line item as you point out was relatively flat for the first six months

Personnel. The next biggest line item as you pointed out was relatively flat for the first six months, we expect that to similarly be essentially flat plus or minus a percent on either side in the back half of the year.

We expect that to similarly be essentially flat, you know, plus or minus a percent on either side in the back half of the year.

And then I would say the two biggest other line items in terms of growth are gonna be marketing and insurance, which you saw in the Q2 Actuals up over prior year. To my earlier comments about controlling the controllables, see what teams do in a great job with R&M and other spend at the store level that we contain.

And then obviously the two biggest other line items in terms of growth, we're gonna be marketing in an insurance, which you saw in the Q2 actuals up over prior year Tomorrow.

To my earlier comments about controlling the controllable and that team is doing a great job with with R&M. Another their spend at the store level that we should contain.

In terms of potential incremental efficiencies, I would say that the team has done a tremendous job on a new staffing model that we've been working on for the better part of the past year, I would say we're further along than I would have expected a year ago at this time. And that's credit to the team that goes to what they've talked about in terms of us focusing a lot internally on operations, be it all fronts, the 10-inch administration we've remarked on, staffing at the stores.

In terms of potential incremental efficiencies I would say that the team has done a tremendous job on our new staffing model that we've been working on for the better part of the past year I would say, we're further along than I would've expected a year ago at this time and that's credit to the team that goes to what Dave talked about in terms of us focusing a lot internally on.

On operations be it on all fronts, the tenant insurance penetration we've remarked on staffing at the stores block. The the average employee per store is already pretty low so there's only so much.

Look, the average employee per store is already pretty low, so there's only so much additional room you can make on that. However, I will say our portfolio is, they've pointed out the beginning is benefiting from the scale that we've added over the last couple of years.

Additional room you can you can make on that however, I will say our portfolio as Dave pointed out the beginning is benefiting from the scale that we've added over the last couple of years, our same store pool. This year as it was up 13 million square feet from what it was last year and that goes to show the benefits of scale that we've added over the past couple of years.

Our same store pool this year is up 13 million square feet from what it was last year. And that goes to the benefits of scale that we've added over the past couple of years. Cool.

And a follow up to that.

wondering on the pro structure. Does it in any way act as a deterrence or poison pill in an M&A scenario? And what rights it then does the pro's have in change of control?

Wondering on the pro structure does it in any way our access to their parents or poison pill in an M&A scenario and right what rights. It ended up the pros have and change of control.

You know, good question and thanks for asking it. You know, our board is keenly focused on adding shareholder value, and they focus on that constantly. Our pro-structured does not prevent a deal from taking place with the NSA.

Good question and thanks for asking it you know our board is keenly focused on adding shareholder value and they focus on that constantly our pro structure does not prevent a deal from taking place with the NSA.

We covered that a lot in previous calls and so I think I'll leave it at that.

Thank you.

Mhm.

Yeah.

Thank you. Our next question comes in line of Steve Sakewa with Epochor RSI. Please proceed with your question.

Thank you. Our next question comes from the line of Steve <unk> with Evercore ISI. Please proceed with your question.

Yeah. Thanks, a lot of questions have been asked and answered, but I guess following up on that question on the pros Dave I'm, just curious given that you've gone from being a big night bite or two now potentially being a net seller to what extent does that change the dynamics with the pros, who likely signed up thinking that they would be able to.

Really grow their business in concert with you and you know now you're you're capital starved and don't have good access to capital you know how does that change the dynamic with the pros.

Yeah, really good question. And we've spent a lot of time with our pros, as we really started this cycle, 12 months ago when we saw a rising interest rates and cost of capital changing. And these pros are very seasoned. They've been at this a long time. They realize there's still a disconnect between seller and buyer. And even though our capital has moved around and things have happened, there's also this disconnect where you wouldn't be buying properties as an environment.

Yeah really good question and we've spent a lot of time with our pros as we really started this cycle you know 12 months ago, and Nissan are rising interest rates and cost of capital changing and and you know these pros are very season, they've been out that's a long time, they realize there's still a disconnect between seller and buyer and even though our capital has moved around and things have happened. There's also this.

Disconnect, where you wouldn't be buying properties in this environment given that our what I would tell you is what the pros do a wonderful job is outside of the REIT. There outside you know, they're all buying maybe development properties. There about working on development properties, they may be buying less than occupied or less stabilized properties and theyre growing those outside of the REIT and so they still have room.

Given that, what I would tell you is what the pros do a wonderful job is, outside of the REIT, they're out buying maybe development properties, they're about working on development properties, they may be buying less.

Then occupied, you know, less stabilized properties and they're growing those outside of the reate. So they still have resources available to them. They're very good at this. And we look at as they're restocking our captive pipeline. And so if you notice to the assets we've bought, that we talked about in our quarter that we bought, one in the quarter one thereafter which came out of the captive pipeline.

Sources available to them, they're very good at this and we look at it as a restocking our captive pipeline and so if you noticed that two of the assets. We bought that we talked about in our quarter that we bought one in the quarter. One thereafter was came out of the captive pipeline and we think that's a strength of ours. It sits at you know almost a one to one $5 billion of properties that are not in the REIT yet.

And we think that's a strength of ours. It sits at, you know, almost, I don't know, one to one and a half billion dollars of properties that are not in the re yet. And the pros are very actively working outside of the re today to find good properties, acquire good properties, or build new properties, which will then eventually come into that chapter five.

The pros are very actively working outside of the REIT today to find good properties acquired good properties or build new properties, which will then have basically come out of that captive pipeline.

and Steve, this is Brandon, I would just add, you know, long term, we're still nutmires.

Steve This is Brandon I would just add you know long term, we're still not Myers.

And the pro model very much allows us to do that in an outsized way. I think actually the way I would characterize it is the fact that

And in the pro model very much allows us to do that in an outsized way I think actually the way I would characterize it is the fact that.

The opposition of our portfolio in the way it's evolved to be a little more heavily weighted on corporate is what allows us near-term to take advantage of some of these asset management opportunities that they have alluded to because we're talking about

Composition of our portfolio and the way it's evolved to be a little more heavily weighted on corporate is what allows us near term to take advantage of some of these asset management opportunities that they have alluded to.

Because you know we're talking about.

you know, generally corporate managed stores that we've acquired in portfolios, that you know, one off assets that we think we could selectively discharge strategically. And so...

Generally corporate managed stores that we've acquired in portfolios, but you know one off assets that we think we can selectively this.

Discard strategically and so I think all that hangs together with what they said and as he pointed out pretty much everything that we have acquired going back to fourth quarter of last year has been from a pro cap the pipeline or pro source. So they're still very much a part of the story and allow us to grow when we can.

I think all that hangs together with what they said. And as he pointed out, pretty much everything that we have a choir going back to fourth quarter of last year has been from our ProCaptop pipeline or ProSource. So there's still very much a part of the story and allow us to grow when we...

Okay, and then just maybe a follow up on Dave, you're comment about, I guess, kind of pursuing asset sales and dispositions. You know, I don't know if that's more one off, if that's kind of markets perhaps that, you know, are, I guess, things are maybe not as enamored with long term. I guess is all that money that you would take in, can be redeployed into a new acquisition, be that paydown or see, you know, or share buybacks at all on the table.

Okay, and then just maybe a follow up on your comment about I guess kind of pursuing asset sales and dispositions.

Don't know if that's more one off if that's kind of markets. Perhaps that you know are or I guess things are maybe not as enamored with long term. I guess is is all of that money that you would take in gonna be redeployed into a new acquisition be a debt pay down or see you know our share buybacks at all on the table.

Good question and you know we don't see this as a large scale but when you go through and bought three billion dollars Of the properties in the last 24 months. You certainly have picked up portfolios that have assets that aren't in your strategic plan

Good question and you know we don't see this as a large scale, but when you go through and bought $3 billion of the properties in the last 24 months you certainly have picked up portfolios that have assets that aren't in your strategic plan.

We certainly have also been around long enough to know that there may be markets that have one or two assets in a market and we've not been able to grow. And so we may decide to leave that market because we're not able to grow in that market. Or you may look around where we have a massive amount of scale in a market where we think there's a couple assets we want to just reposition and re-deploy that capital and the better assets.

We certainly have also been around long enough to know that there may be markets that have one or two assets in a market that we've not been able to grow and so we may decide to leave that market, because we were not able to grow in that market.

Look around where we have massive amount of scale in a market, where we think theres a couple of assets, we wanted to reposition and re read redeploy that capital into better assets.

If I rank how you I guess kind of deployed it, I mean we want to recycle capital. We are we are buyers. We want to be buyers. Today is not the greatest environment to be buyers in so we're being smart with our asset management and taking advantage of you know there are transactions selling one-offs. We see quite a bit of one-off activity in some of these markets. We think it's a good time to sell these assets.

If I rank, how you I guess kind of deployed it I mean, we want to recycle capital. We are we are buyers we want to be buyers today is not the greatest environment to be buyers in so we're being smart with our asset management and taking advantage of you know there are transactions selling one offs, we see quite a bit of one off activity in some of these markets. We think it's a good time to sell these assets.

fade on your debt now and you're to deploy it at a different time. And so we think it's a good time to be doing this. We think it's a smart time to be doing this. And we're going to be very patient around the external acquisitions activity until we see market conditions really come our way. And we want to buy properties that are attractive to our return and media hurdles. We upset for ourselves.

Pay down your debt now need to redeploy it at a different time and so we think it's a good time to be doing this we think its a smart thing to be doing this and we're going to be very patient around the external acquisitions activity until we see market conditions really come our way and we want to buy properties that are very attractive to our return and meet our hurdles and we have set for ourselves.

Great. Thanks, that's it for me.

Thank you.

Yeah.

Thank you. Our next question comes from the line of Keegan Carl with Wolf Research. Please proceed with your question.

Thank you. Our next question comes from the line of Keegan Karl with Wolfe Research. Please proceed with your question.

Thanks. I mean, just following up with Steve's question on the share by Vax, I was curious what your thoughts are, the current environment. You bought a lot back in Q1 and obviously the mold pulls lower now. So I'm just kind of curious where your heads are.

Thanks, I mean, just following up with it was steves question on the share buybacks I'm just curious what your thoughts are in the current environment you bought a lot back in Q1, and obviously the multiples lower now so I'm just kind of curious where your head's at.

You know, it's certainly an option. It's available to us. We still have additional sharebacks that the board has approved. My back's that the board has approved. You know, I think it's kind of answered the previous question. I think we'll look at all the opportunities available to us. You know, I think it's important to make sure that our balance sheet is positioned should an opportunity come that we've have the bill to take advantage of.

But it's certainly an option that's available to us we still have additional share backs that the board has approved buybacks at the board has approved.

I think it's kind of answered the previous question I think we will look at all the opportunities available to us.

I think it's important to make sure that our balance sheet is positioned should an opportunity come that we have the ability to take advantage of it and so I think all of the things. We just talk about Mike leaves us a little bit more towards you know do we have a little more capacity on our revolver availability. So open opportunity were to come our way, we could exercise that opportunity share buybacks, when I'm not saying no to.

And so I think all the things we just talk about might, you know, leave us a little bit more towards, you know, do we have a little more capacity on our revolver availability? So if an opportunity were to come our way, we could exercise that opportunity. Chair by maximum, I'm not saying no to it. I just think, you know, as we think about what we're trying to work towards, it may be a little bit lower our list.

I just think you know as we think about what we're trying to work towards it.

It may be a little bit lower on our list at this point.

Got it and shifting gears at our nae-read meeting. One of the topics you guys brought up is that you're looking at potentially starting your own third party management platform. Just curious where you're at in that process today.

Got it and then shifting gears at our NAREIT meeting one of the topics you guys brought up is that you're looking at potentially starting your own third party management platform I'm, just curious where you're at in that process today.

It's a good question. You know, we constantly evaluated it. You know, we've added a member of our team will count to really look at strategic initiatives. And this is one that's on his plate, along with Derek, to really evaluate the pros and cons of third party management. You know, our pros are doing it today. We do it on a limited scale today. We think it is an opportunity that is worth a lot of evaluation. And if we see an opportunity, I would not be surprised as he has entered that market more meaningful than what we do today. But at this point, time still under evaluation.

Yeah.

It's a good question.

Constantly evaluated.

We've added a member of our team will calling to really look at strategic initiatives and this is one that's on his plate along with Derek too to really evaluate the pros and cons of third party management, our pros are doing it today, we do it on a limited scale today. We think it is an opportunity that is worth a lot of evaluation and if we see an opportunity I would not be surprised to see us enter that mark.

More meaningful than what we do today.

But at this point in time still under evaluation.

Got it thanks for the time guys.

Thank you.

Thank you.

Thank you. As a reminder, if you'd like to join the question, Q, it's Star One on your telephone keypad. Our next question comes from line of Eric Loubeteau with Wells Fargo. Please proceed with your question.

Thank you as a reminder, if you'd like to join the question queue at Star one on your telephone keypad. Our next question comes from the line of Eric <unk> with Wells Fargo. Please proceed with your question.

Great, thanks for taking the question. I know you're not providing guidance for 2024 quite yet, but just...

Hi, great. Thanks for taking the question.

I know, you're not providing guidance for 2024 quite yet, but just maybe you could frame some of the puts and takes of the business as we kind of fast forward to <unk>.

Maybe you could frame some of the puts and takes to the businesses we kind of fast forward.

uh, to 2024. Obviously based on the new guidance, you'll end the year to lower run rate, but

24, obviously based on the new guidance, you'll end the year at a lower run rate, but it does seem like supply growth construction starts getting more constructive into next year negative comps in street rates, maybe lessening from where they've been at so maybe you could just kind of talk a little bit about you know the trajectory of the business and how you see things evolving.

You know, it does seem like supply growth construction starts getting more constructive in the next year. Negative constant street rates may be lessening from where they've been at.

So maybe you could just kind of talk a little bit about, you know, the trajectory of the business and how you kind of see things evolving into 2024. As Pete

Into 2024.

Yeah, thanks for the question. Certainly we're not going to talk about 24 guidance, but you're on the, you're on how we're thinking about how we finished the back half of the year. I think our comps are getting easier. One of the things that we've really been battling for the last 12 months is this elevated occupancy level.

Yes. Thanks. Thanks for the question certainly we're not going to talk about 'twenty two for guidance, but you're on the you're on how we're thinking about how we finished the back half of the year I think our comps are getting easier I.

One of the things that we've really been battling for the last 12 months is this elevated occupancy level.

some of the best pricing power we've had as far as three rates and an ability to push on the ECRIs. And so the back half of the year, if you look at our portfolio, we've felt pretty substantial in occupancy. We actually adjusted three straights pretty substantial. So our comps will get better. And I think that positions is to the first part of next year to where you're in a little more level playing field as far as occupancy and rate.

Some of the best pricing power, we've had as far as street rates and an ability to push on the ECL rise and so the back half of the year. If you look at our portfolio, we felt pretty substantially in occupancy we actually adjusted treat street rates pretty substantially so our comps will get better and we think that positions us to the first part of next year or two where you are in a little more level.

Playing field as far as occupancy and rate.

So, you know, the Brandon's point earlier, what's the unknown right now, or you know, little foggy for us right now, is that we're gonna have the aquancy loss that you would normally have in a normal seasonality.

And so you know the Brandon's point earlier, what's the unknown right now or you know a little foggy for US right. Now is are we gonna have the occupancy loss that you would normally happen in normal seasonality.

And I think if you don't have that, you know, with both well, how you start 2024. And then everybody finds their footing on where they want to land on their revenue projections. Maybe the rate environment calms that a little bit as well. And so that would be things that I think we're looking at that, you know, as you look towards 2024, better comps and hopefully a little more less volatility, I guess, is what I would say.

If you don't have that you know with bode well how you start 2024, and then it's everybody finds their footing on where they want to land on their revenue projections, maybe the rate environment calms down a little bit as well and so that would be things that I think we're looking at that you know as you look towards 2024.

Better comps and hopefully a little more less volatility I guess is what I would say.

Okay, great. I appreciate that. And then just to touch on the link to stay topic, it sounds like that's remained, you know, at very healthy levels. Could you talk about whether that's continuing to elongate or are you starting to see a plateau? And do you think we're kind of at peak levels there? Can you extend it even further, which would give you, you know, more room to run on the ECRI program?

Okay, Great I appreciate that and then just to touch on the length of stay topic. It sounds like that's remained at very healthy levels could you talk about whether that's continuing to elongate or are you starting to see a plateau.

And do you think we're kind of at peak levels. There can you extend that even further which would give you more room to run on E Cri program.

You know, as far as the people who have moved out, and if you look at that number, it's starting to stabilize, you know, at more than 17 months. You know, there was a time it grew a little bit higher than that, but it's not fallen off tremendously.

You know as far as the people who've moved out and if you look at that number it's starting to stabilize.

North of 17 months, you know there was a time it grew a little bit higher than that but it has not fallen off tremendously.

We believe at this point we've seen nothing that's changed our opinion on the length of stay changing. You know, as we talked about the health of our consumer, it's very strong. And I think that's the positive amount of all of this. You know, there may be a housing, some housing movement around occupancy, new occupancy demand.

We do believe at this point, we've seen nothing that's changed our opinion on the length of stay changing as we talked about the health of our consumer made some very strong and I think that's a positive out of all of this you know there may be a housing some housing movement around occupancy new occupancy demand, but our consumer base is very healthy and all those things.

but our consumer base is very healthy. And all those things that we want to do with them, that computer base is sticky. And so...

We want to do within that computer basically are sticky and so at.

At this point, we don't see anything that's disrupting that length of stay in any of the buckets we're tracking whether it be over a year over two years total portfolio.

At this point, we don't see anything that's disrupting that length of stay in any of the buckets, we're tracking whether it be over a year over two years total portfolio.

Okay, great. Thanks, Thanks for that.

Thank you.

Thank you. Our next question comes from a line of West Holiday with Bear. Please proceed with your question.

Thank you. Our next question comes from the line of Wes Golladay with Baird. Please proceed with your question.

Hey everyone, I just want to go to the part about getting the balance sheet position for maybe some opportunity down the road. Are you seeing the potential right now for distress when you look at maybe debt maturities or anything into conversations with operators?

Hey, everyone I just want to go to the part about getting the balance sheet position for maybe some opportunities down. The road are you seeing the potential right now for distressed when you looked at maybe debt maturities or anything in your conversations with the operator.

I'll ask a question. We've seen more product come to market. We're certainly underwriting more deals than we have been in the last six to eight months.

Oh, that's good question, we've seen more product come to market, where certainly underwriting more deals and then we have been in the last six to eight months.

The types of the deals we're seeing, some of those do represent a little bit of for a capital partners deciding where they want to stay in for the long term or they want to get out now. Some of that's around how mature the properties are, how filled up the properties are, but we've seen some portfolios and some individual properties where I think people are making a decision. And I wouldn't call it this stress. I didn't think it's a decision on, do we write it out for two more years and try to fill the property effort or do we try to take our chips off the table and sell the property today?

The types of the deals we're seeing some of those do represent a little bit of for our capital partners deciding where they want to stay in for the long term or they want to get out now some of that's around how mature. The properties are you know how filled up the properties are but we've seen some portfolios in some individual properties, where I think people are making a decision and you know I wouldn't call. It distressed I just think it's a decision.

You know do we write it out for two more years in trying to fill the property up or do we try to take our chips off the table and sell the property today.

We're seeing quite a bit of transaction activity, particularly in smaller markets, one-off properties. So transaction activity we believe is picking up.

We're seeing quite a bit of transaction activity, particularly in smaller markets one off properties.

Transaction activity, we believe is picking up we're still as we underwrite and we're still being very patient about what we want to buy when we want to buy I mean, we still think there's still a little bit of bid ask spread.

We're still, as we underwrite, and we're still being very patient about what we want to buy when we want to buy. I mean, we still think there's still a little bit of good-ask spread that, you know, has not materialized yet, and that this will take time if interest rates stay up. Pricing will have to adjust to expectations of people's returns, and that just takes time. Or sometimes sellers just don't sell at all, right? They just say, all right, enough of that, and we'll hang on to it.

Has not materialized, yet and that this will take time, if interest rates stay up pricing will have to adjust to expectations of People's returns and that just takes time.

Sometimes sellers just don't sell at all right. So, let's say all right enough of that multiple hang onto it.

And then you mentioned competition for new customers. Is this still mainly from some of these aggressive leaf steps? Are you starting to see maybe owners of legacy assets as they get more vacancies? You start to get more aggressive as well.

Okay, and then you mentioned the competition for new customers is it still mainly from some of these aggressive lease ups are you starting to see a baby owners of legacy assets as they get more vacancy you start to get more aggressive as well.

I think it's market-specific. You know, certainly in markets where there's been a lot of product introduced and there's obviously a lot of product needs to be filled up. We've seen those markets be more volatile than are more stable markets. And so I don't think, you know, like Rapunzel, Oklahoma, City before, has been a tremendous amount of supply brought in there. And so our pricing power and our occupancy levels have maintained a little bit more reasonable.

I think it's market specific.

Certainly in markets, where there's been a lot of product introduced and there's obviously a lot of product needs to be pulled up we've seen those markets be more volatile than.

More and more stable markets and so I don't think you know and I referenced Oklahoma City before not hasnt been a tremendous amount of supply brought in there and so our pricing power and occupancy levels are maintained a little bit more reasonable.

you know, cadence based on history and that's because they don't have some of these pressures to fill properties up. And so I would answer it. I think it's more volatile than markets where supplies really put pressure in.

Cadence based on history, and that's because they don't have some of these pressures to fill properties out and so on.

I I would answer it and I think it's more volatile and the markets where supply is really putting pressure in.

Okay. Thanks for the time.

Thank you.

Thank you. Our next question comes from a line, a Ronald Camden with Morgan Stanley . Please proceed with your-

Thank you. Our next question comes from the line of Ronald Camden with Morgan Stanley . Please proceed with your question.

Great, hey, two quick one, hopefully you can hear me. So the first one is just going back to sort of a guide and I think historically we sort of talked about.

Great Hey, two quick ones hopefully you can hear me.

So the first one is just going back to sort of the guidance I think historically, we've sort of talked about the end of the year run rate it sort of him. Good luck for 2024 as others have sort of mentioned on the call.

the end of the year run rate, it's sort of a good look for 2024, as others have sort of mentioned on the call. So I guess the question really is, based on the N-O-I guidance in the second half of the year, it suggests 2024 should be negative. So can you just remind us what the puts and takes are? Is it the cops? Like, how do you get comfortable with that?

The question really is.

Based on the NOI guidance in the second half of the year suggest 2024, it should be negative. So can you just remind us what the puts and takes are with a comp like how do you get comfortable that you know what are the offset to that next year. Then I think you were trying to highlight thanks.

you know, what are the all sets of that next year that I think you were trying to highlight? Thanks.

Yeah, we're on all the, not sure if I'll say anything that's too wildly different from what we set earlier in terms of not speaking too much about 2024, but I obviously agree that the exit rate in 23 kind of sets you up for how we'll be thinking about 24. Frankly, a lot will be determined as we see how the back half of this year plays out. I mean, that's kind of a big unknown. And so I don't know if I have too much more to comment, you know, from what we've set earlier, unfortunately.

Yeah, Ronald I'm not sure if I'll say anything that's too wildly different from what we said earlier in terms of not speaking too much about 'twenty 'twenty four but obviously agree at the exit rate in 'twenty three kind of sets you up for how we'll be thinking about 'twenty for frankly, a lot will be determined as we see how the back half of this year plays out I mean, that's kind of.

The big unknown.

And so I don't know if I have too much more to comment you know from what we said earlier Unfortunately.

Got it. And then my second question is just taking a big step back.

Got it.

And then my second question is just taken a big step back.

And I think the average portfolio rent is probably at all time highs. Just trying to get a sense of what you guys are doing internally. It gets comfortable that you're not at that point where the tenants are not taking any more pricing. So what sort of tests went to income ratios? Like, would you look at the good comfortable that they're still sort of a little bit more juicity add on the pricing side?

I think the average portfolio rents are broadly at all time highs.

Trying to get a sense of what you guys are doing internally to get comfortable that you're not at that point, where tenants are not taking any more pricing right. So what sort of task rent to income ratios like when you look at to get comfortable that there you know that theyre still sort of a little bit more juice to be had on on the pricing side.

That really good question, you know, certainly we have test groups and these test groups is experiencing maybe no rate increases or maybe a mid-level rate increase or maybe a little higher level increase. And we're certainly studying the...

Yeah really good question and certainly we have test groups. In these test group is experiencing maybe no rate increases or maybe a mid level rate increase or maybe a little higher level increase and we're certainly studying the <unk>.

The effects of those on that consumer base and the more data we gather and the more times we do this, the smarter the machine gets and what we're really looking towards is a risk core. And we're looking at the risk core of if we do this and we do it at this level, what's the risk that the tenant's going to react and potentially have a move out to it.

The effects of those on that consumer base and the more data, we gather and the more times. They do this the smarter than machine gets and what we're really looking towards is it a risk score and were looking at the risk or if we do this and we do it at this level, what's the risk that the tenant is going to react and potentially have a move out to it thus.

You know, thus far I would tell you, you know, gosh, you know, if I was doing this job 20 years ago and we didn't have the tool, our knee jerk reaction would pull back and don't do the rate increases and don't do some of the things we're doing today. The fact that we have the technology is proving out that we can still...

Thus far I would tell you you know gosh going be if I was doing this job 20 years ago, we didn't have the tool or knee jerk reaction, we pull back and don't do the rate increases and they'll do some of the things. We're doing today. The fact that we have the technology is proving out that we can still.

you know, it's a needs-based business. The customers here because they need to be here and we need to obviously work the ECRA program effectively during that cycle. And so our tools are helping us.

You know, it's a needs based business it does for us here because it needs to be here and we need to obviously work the CRA program effectively during that cycle and so our tools are helping us.

Determine and actually make better decisions and I think we're having better results out of it Nothing yet has has really knocked us off and except the fact we put guardrails on the top end I mean at some point time you have customers going with you long enough it may be

German and actually make better decisions and I think we're having better results out of it.

Nothing yet has really knocked us off in the except the fact, we put guardrails on the top in I mean at some point in time, you have customers who've been with you long enough it may be.

The third or fourth rate increase and maybe they're elevated above a replacement cost that you do not want to take the risk of running about the door. And so that's some of the guardrails we're reinstalling now.

The third or fourth rate increase and and maybe they are elevated above replacement cost that you do not want to take the risk of running them out the door and so that's some of the guardrails were reinstalling now.

Helpful. Thanks, so much.

Yes. Thank you.

Thank you ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Kramer's final comment.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Kramer for final comments.

Thanks. As we move past the near-term challenging comps and housing market impacts on demand, we remain confident that our folks on people process and platform initiatives combined with our exposure to attract to some of our markets. Position us well for continued success. We want to thank you all for joining the call today and your continued interest in the NS.

As we move past the near term challenging comps in housing market impacts on demand, we remain confident that our focus on people process and platform initiatives combined with our exposure to attractive sunbelt markets positioning us well for continued success I want to thank you all for joining the call today and your continued interest in the MSA.

Thank you. This concludes the conference call. You may disconnect your lines at this time. Thank you for your participation.

Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.