CubeSmart (CUBE) Q2 2021 Earnings Call Transcript

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CubeSmart (CUBE)
Q2 2021 Earnings Call
Jul 30, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the CubeSmart Second Quarter 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Josh Schutzer, Vice President of Finance. Please go ahead.

Joshua Schutzer -- Vice President of Finance

Thank you, Sarah. Good morning, everyone. Welcome to CubeSmart's second quarter 2021 earnings call. Participants on today's call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company's website at www.cubesmart.com.

The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in events the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the second quarter financial supplement posted on the company's website at www.cubesmart.com.

I will now turn the call over to Chris.

Christopher Marr -- President & Chief Executive Officer

Thanks, Josh, and good morning, everyone. I wish to recognize all of my fellow CubeSmart teammates for each of their contributions to our outstanding performance in the second quarter. Broad-based consumer demand for our space, when combined with positive trends in customer behavior, has contributed to our record levels of physical occupancy and an extremely strong pricing power across our portfolio. These positive trends when combined with our award-winning customer service and innovative technology resulted in 14% same-store revenue growth in the second quarter, the highest such growth in our history.

Rates to new customers were up 47% over 2019 levels during the quarter, and we were more aggressive in rate increases to existing customers. This pricing power has continued into the third quarter and is contributing to our significantly raised expectations for the back half of the year. We are growing externally in a disciplined manner. We added 45 third-party managed assets to the platform during the quarter. Our pipeline remains full, consistent with levels we have experienced over the last few years. The interest our owners have in selling has certainly ramped up in this compressing cap rate market and we expect to continue experiencing a high level of churn in our managed portfolio. Our acquisition team is as busy as ever underwriting opportunities. However, we believe that the market for stabilized deals does feel a bit pricey. We were active during the quarter within our joint venture structure, focusing on lease-up opportunities and as evidenced by our increased guidance for external growth, we anticipate sourcing additional opportunities for non-stabilized assets, both on balance sheet and within our joint venture structure.

Positive operating fundamentals, talented teammates and sophisticated systems have positioned us well as we conclude the summer rental season, and we believe we are well positioned to drive strong performance for the balance of the year.

I'll now turn it over to Tim for a more detailed commentary on our great quarterly results and improved outlook. Tim?

Timothy Martin -- Chief Financial Officer

Thanks, Chris, and thank you everyone on the call for your continued interest and support. As Chris touched on, operating fundamentals were incredibly strong during the second quarter and are continuing into the back half of the year. All of this strength was reflected in our earnings release last evening that reported a strong beat the second quarter expectations and a meaningful raise in our guidance for the full year.

Same-store performance included headline results of 14% revenue growth, 6.6% expense growth, yielding NOI growth of 17.6% for the quarter. Average occupancy in the second quarter was 95.6%, which is up 300 basis points year-over-year and quarter ending occupancy was 96.1%. Strong demand was evidenced not only in physical occupancy, but also in strong pricing power, higher effective -- net effective rates to new customers, customers staying longer existing customer rate increases all contributed to the 14% growth in same-store revenues. Same-store expense growth for the quarter was in line with our expectations at 6.6% year-over-year. Expense growth is partially due to tough comps from last year, continued pressure on real estate taxes and property insurance and opportunistic marketing spend, offset by efficiencies in personnel costs and lower utility costs. All of the same drivers of our same-store growth showed up in the performance of our non-same-store portfolio and third-party management business. And combining all of that growth, we reported FFO per share as adjusted of $0.50 for the quarter, which represents 22% growth over last year.

Adding to Chris' comments, we remain active and disciplined in our pursuit of external growth opportunities and are extremely busy underwriting a lot of potential opportunities. Pricing on some of those that we've looked at have been very aggressive and cap rates have clearly compressed. We continue to find select opportunities that we find attractive that fit our disciplined investment strategy. We opened up 2 new developments in the quarter, one in New York, one in Pennsylvania. We closed on one wholly owned store acquisition in Maryland for $22.1 million. And on the co-investment front, we were active in 3 separate ventures that acquired stores in Minnesota, Connecticut, Illinois and Florida.

Looking at total investment volume so far this year will be closed or have under contract $352.7 million of transactions. $55 million of that is wholly owned and $297.6 million through co-investment entities. So we've been quite active while remaining disciplined. On the third-party management front, we added 45 stores in the second quarter and ended the quarter with 718 third-party stores under management. Our balance sheet position remains very strong as we continue to focus on funding our growth in a conservative manner, consistent with our BBB/Baa2 credit ratings. We continued to raise equity capital through our aftermarket equity program during the quarter, raising net proceeds of $42.4 million. Our conservative leverage levels and revolver capacity have us well positioned to pursue external growth opportunities. Details of our 2021 revised earnings guidance and related assumptions were included in our release last night.

Based on the strong operating fundamentals we've discussed, we've increased our guidance range for the full year of FFO per share by nearly 10% or $0.18 per share at the midpoint. Much of that guidance increase is based on an improved outlook for our same-store revenue growth for the year, which essentially doubled to a revised range of 10.25% to 11.25% growth over 2020 levels. Safe to say, that it's certainly a great time to be in the self-storage business. Our team continues to work hard to best position our portfolio for growth in all parts of the cycle, and we believe our results continue to validate the strength of the CubeSmart brand and the strength of the CubeSmart platform. Thanks again for joining us on this morning's call.

At this time, Sarah, why don't we open up the call for some questions?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jeff Spector with Bank of America.

Jeff Spector -- Bank of America -- Analyst

Congratulations on the quarter. I guess the first question is just kind of big picture. I mean, just again, kind of unprecedented demand. Chris, you talked about the consumer trends and pricing power. Is there a period of time that you could compare to in the past to kind of give us an idea of how long this may last, in particular, pricing power trends or the consumer trends?

Christopher Marr -- President & Chief Executive Officer

Yes. Thanks for the compliment. No, not really. This is -- it's hard to compare. I go back to 1993, 1994, and certainly, we've been through quite a number of cycles. But the combination of pandemic created need for space with movement across the United States, a very robust housing market a little bit of inflationary pressure, has absolutely created the best environment I've seen. And so I don't -- as it hasn't ever happened, I don't see it coming to some sort of screeching halt. I think this positive momentum continues. We do continue to have a belief that some level of more typical seasonality will eventually return to the industry, have yet to see that occur. But I'm super optimistic about what the future holds here for storage.

Jeff Spector -- Bank of America -- Analyst

And then I'm sorry if I missed this, just a detailed question on the marketing expenses. I think they were up about 29% this quarter. I'm sorry, did you comment on that? I guess do you see this trend continuing? And I guess, how do you think about advertising in terms of your revenue optimization here?

Christopher Marr -- President & Chief Executive Officer

Yes. Great question. Thanks. So our strategy has been to continue to increase spend where it has been efficient to do so in order to, in essence, fill the funnel. And then we choose to limit demand through high prices as opposed to limiting demand through lower spend. So when you think about our pricing system, which includes a marketing spend component to it, it would suggest that with demand and pricing currently at all-time highs for the industry, spending more absolute marketing dollars to capture higher value rentals will continue to drive top line revenue growth over time. So certainly, our data suggested that some of our competitors pulled back pretty significantly on spend in paid search auctions during Q2.

We looked at that as it created an opportunity for us to spend a bit more at really attractive CPCs and CPAs. We've got a significantly improved lifetime value of our customer in terms of the fact that, that rates are up so significantly. And so from our perspective, it's really the long game. I'll compare it to discounting. In any given quarter, if you were to shut off first month free, certainly, the growth in that quarter would look super attractive. But over the long term, you're potentially harming the trajectory of your revenue growth. So we're pleased with what we were able to do in the second quarter, comfortable with the levels of spend and believe that, as you can see in our outperformance over the course of the end of last year, and our expectation for this year, we would expect that it will continue to a very positive longer-term revenue growth results for our portfolio.

Operator

Our next question comes from Samir Khanal with Evercore.

Samir Khanal -- Evercore ISI -- Analyst

Hi, Chris. I guess my question is sort of just a little bit broad-based as well. I mean do you think the industry can sort of achieve the sort of high single-digit revenue growth into even next year? I mean you're looking at occupancy will clearly normalize, but if you're still having these pretty good tailwinds from rate growth kind of what you saw maybe in 2016, I mean, do you think you can hit those levels of top line growth?

Christopher Marr -- President & Chief Executive Officer

Well, I certainly think robust levels of top line growth going into the beginning of next year, appear to be a very reasonable conclusion to draw the question that's a real challenge to answer and is just difficult given the nature of our business is what type of normal seasonality should we expect? When if does that return? And what does that do then to the overall pricing environment? But I'm pretty bullish that that these positive trends continue at a minimum into the beginning of next year. And again, assuming they do, then we are set up for a great summer rental season next year, and then you're all the way back to the question of what happens in August and September of 2022, is that when we start to see a return to some of the more typical seasonality?

Samir Khanal -- Evercore ISI -- Analyst

Got it. And then -- and I guess, maybe talk around a little bit on supply. I mean, clearly, with fundamentals being strong, you would think you'd start to see some indications supply, maybe not into '22, but kind of what's your updated view on that front?

Christopher Marr -- President & Chief Executive Officer

From '21 and '22's perspective, again, we see '21 lower deliveries than '20 and '19, in line with what our expectations have been. And I think 2022 is going to be constructive from a new supply perspective as well. I would have to agree with you that a continued trend of very positive operating fundamentals, certainly, will draw more attention to the industry. An offset again to that is cost. It's extraordinarily expensive to construct nowadays given difficulties in sourcing raw materials and difficulties in hiring labor. So that will serve as a bit of a buffer to interest I also think you're seeing and had been seeing a bit of a shift from primary markets to secondary markets in terms of that supply. And I would think that would also be a continuing trend. So we're going to continue to watch. But again, my expectation would be, if at all, this would be a '23 occurrence.

Operator

Our next question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

A couple of questions. I guess, Chris, you talked about the growth in rates during the quarter. How is that -- how did that trend throughout the quarter and into July? And then can you also provide an occupancy update, we're just about at the end of the quarter here end of the month, can you share where occupancy is today and what that year-over-year spread looks like?

Christopher Marr -- President & Chief Executive Officer

Yes. So the trend relative to 2019, as I referred to, accelerated through the quarter. So it was high 30% in April, high 40s in May and then high 50s in June. If you think about where we are today relative to [Indecipherable] but I have yesterday, we are -- we have grown occupancy to 96.3% physical in same-store as of yesterday, so about 20 basis point growth from the end of June.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And I guess, sort of asking the question another way. I'm just kind of curious, looking out with where rates are today, clearly, there seems to be a pretty big mark-to-market, if you will, customers moving in are paying much higher rents than customers moving out. And you said that you're being a little bit more aggressive on ECRIs. If rates stay steady, if they held where they're at on sort of a seasonally adjusted basis, how many years would it take to sort of churn through the portfolio so that in-place rents catch up to asking rents?

Christopher Marr -- President & Chief Executive Officer

That's an interesting question, Todd. I mean I think the -- I guess the simple answer is with a 13-month length of stay, I guess, it would take 1 year until you lap that, but I might not be thinking about that the exact right way. You are correct, though, that while we don't manage the business by looking at that churn, it's certainly something that we get asked about quite a bit, and you are correct in that we have seen it flip. Typically our in-place customers are higher than our asking rates to new customers, and that ranges anywhere from low single-digits to mid-double-digits depending on the time of the year as we sit here in the environment that we find ourselves and that has flipped to the other direction. Trying to think about when you lap it, it's going to take a little bit longer probably than I guess the average length of stay, but not something that we're focused on.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then it was just last question, I guess curious about New York. A solid result for New York in the portfolio. I think one of your peers, I think, characterized it as one of the slightly more challenging markets for them. Clearly, it was a relative statement still growing double-digits. But can you just speak to the New York MSA a bit and expand on what's happening there with return to office and sort of population movements and the reopening and everything.

Timothy Martin -- Chief Financial Officer

Chris, I think your line might be on mute. I think you're...

Christopher Marr -- President & Chief Executive Officer

I'm sorry. Yes. I'm sorry, let me try again. I owe the mute pot $5. New York, as you can see in the supplemental performing strike, quite strong for us, the MSA from a same-store revenue growth perspective. The situation varies by borough. So if you think about the Bronx to start there, no new supply. So a submarket for us or a borough for us that that isn't experiencing supply, and I think it is indicative of why we are so bullish on the market because I think as supply across all the boroughs becomes more muted going forward, I think the 16 -- or I'm sorry, yes, 16% same-store revenue growth that, that borough produced in the second quarter is indicative of what you can drive in New York City absent the impact of supply. If you then sort of look at Queens, where we've had a bit of supply, but it's a little more spread out and not impacting all of our stores, revenue growth there in the quarter at 12.5%. And then you go to Brooklyn, which is experiencing as we knew going into the year, the impact of new supply. I think there are 8 new stores open and every one of them competes with one of our existing stores. In spite of that 10.5% revenue growth and occupancy growth in our Brooklyn same-store portfolio.

And then, one store in Staten Island performing quite well, I think it had 17% same-store revenue growth. So good trends, not seeing any consumer behavior in New York that is different, frankly, than we see in the rest of the country. and the supply impact in Brooklyn, we had anticipated, and the reality is it's leasing up faster than I'm sure the owners would have expected and therefore, the actual impact we're experiencing is a little bit more muted than we would have thought it would have been going into the year.

Operator

Our next question comes from Smedes Rose with Citi.

Smedes Rose -- Citigroup -- Analyst

Just actually to follow up on the New York question. Are there changes in the -- in the tax laws and the ICAP that's been a while look a little bit behind. Are you seeing any impact of that in terms of new supply that might have been on deck that is maybe falling out of the market? Or any sort of color there?

Timothy Martin -- Chief Financial Officer

Yes. Certainly, all of that activity is having an impact on any new projects that weren't already approved before all that happened are few to none. And so I think the impact will be felt as we get into '22 and into '23, when all of the existing projects that were ahead of that cutoff, get delivered and get leased up. I think the real benefit you're going to see from that is going to be 2, 3 years out once the existing supply is complete being absorbed and stabilizes and you're looking at a landscape then in the next 2, 3 years that basically has no new supply competing. I think that's when you'll really start to feel the tailwind of all of that activity.

Smedes Rose -- Citigroup -- Analyst

Okay. And then on the acquisitions front, you mentioned cap rates compressing. Are you gearing maybe more toward properties in lease-up or would you focus more on joint ventures? Or kind of how would you -- how do you expect to meet your slightly raised target for the year, given what looks like a more difficult environment?

Timothy Martin -- Chief Financial Officer

Yes. It's actually kind of -- it's -- there's 2 sides to it. It's actually a pretty exciting environment because there's an awful lot of opportunity. There are a lot of things that will trade hands. There will be a lot of transactions. So there's an awful lot to look at and to underwrite. So that's the positive side. I think the challenge is, is that you have a pretty deep pool of buyers. There's an awful lot of interest in the sector. Because of recent performance, I think the sector is very, very attractive for a lot of reasons, including potential for inflation. Yet another part of the cycle that demonstrates how strong the cash flows are in the sub storage sector. So it's attracted a lot of buyers. And that's where it gets interesting and somewhat challenging from the standpoint of you're an environment where underwriting can be tricky given still impact of new supply. You've had an incredible push in physical occupancies and rates. And there are times where it would appear that some folks are being extraordinarily aggressive in thinking about their underwriting assumptions given the environment that we're in, in our view.

All of that said that more directly to your question, we're not focused on pursuing any particular type of opportunity. We're looking at opportunities that complement our portfolio that complement our investment strategy that have attractive risk-adjusted returns in our view. Those could come in the form of lease-up opportunities. They could come in the form of stabilized opportunities. They could come in the form of development on a very selective basis. I think all that said, I think where we have -- where we're seeing opportunities here in the short term, are probably weighted a little bit more toward lease-up than stabilized because the very aggressive bid at the moment seems to be coming more on stabilized opportunities than opportunities that have some level of lease up.

Smedes Rose -- Citigroup -- Analyst

Okay. And then, just final question. Are you seeing any issues on the wages side or staffing side, given a lot of headlines we've seen around labor shortages in general?

Christopher Marr -- President & Chief Executive Officer

So hiring folks is an absolute challenge, both in the stores, at our sales center and in our corporate office. We are attacking the situation much like many other folks in businesses that are somewhat similar to ours. We push very hard for teammate referrals, having an existing teammate refer a friend or family member or someone they've met is a very good source for us, and we know we're getting somebody that is a good cultural fit as well. And we're looking at other ways that probably aren't that dissimilar to what you're seeing in other industries to attract talent. And we're also somewhat hopeful that as we get into the post August time frame post Labor Day that the sale back or elimination of the additional unemployment payments an opportunity for working families with children for the children to be back and in-person school and create an opportunity for folks to return to the workforce.

So it's a challenge as it is in most industries today, but we continue to have a great group of teammates who are digging in and trying to help us through.

Operator

Our next question comes from Spenser Allaway with Green Street.

Spenser Allaway -- Green Street Advisors -- Analyst

Just looking at your third-party management platform. So you guys sourced 45 stores in the quarter, but it appears there was some attrition there as well. Is this just a function of continued selling into strong private market pricing? Or can you just speak to that?

Timothy Martin -- Chief Financial Officer

Spenser, that's exactly what it is. It's part of being the third-party management businesses that we -- were hired to do a good job of creating value for our third-party customers, and we're doing just that. And so we don't like when our doors change color to some other color or the sign in front of the property changes. But it is a sign that we've done a great job in what we were hired to do, which is to create value for our third-party owners. And I think I think we're doing just that. And so the attrition or the losses that we've had off the third-party platform are almost entirely stores that have changed hands and sold. Oftentimes, we have an opportunity to be the acquiring party. In some cases, we are not as aggressive or better as someone else that's out there.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. And just going back to ECRIs for a second. I know you guys can't provide specific numbers here, but can you just give us a sense as to how the magnitude of increases fares this year relative to prior years?

Christopher Marr -- President & Chief Executive Officer

So when you think about the pricing system, it's going to take all the factors in play here, including the lack of inventory, the asking rate for that new customer coming in, how long the existing customer has been in their cube and what their rate is and what their past history of rate increases has been and combine all that together. So given the market we're in with high occupancy and high rate, it just by its nature, the ECRI raises up higher. So the momentum is up. And if in the past, we talked about high single digits, low double digits in terms of increases. They've moved up a few percentage points from there given the current climate.

Operator

Our next question comes from Ki Bin Kim with Truist.

Ki Bin Kim -- Truist Securities -- Analyst

Going back to the underwriting question, how do you even go about underwriting acquisitions in this type of moment in the cycle or if you're buying something with a rent of 20, obviously, that's been inflated because of the demand we're seeing. Do you -- how do you -- and I know it depends on the market on asset, but like what kind of growth are you underwriting? Or is it the opposite? Do you try to underwrite a normalization back down? Like how do you even go about all that?

Timothy Martin -- Chief Financial Officer

Kevin, thanks for the question. So it is -- the underwriting approach is unchanged from what it would have been over the past many, many years, which is we're trying to underwrite based on our expectations as to how the property is going to perform in the future under our management on our platform. And as we've talked about in the past, the 3 biggest variables in that underwriting are where does occupancy stabilize and when, where are rates to new customers ultimately? And where does the real estate tax bill reset to. So the approach is the same. The challenge is there's an awful lot of variability and volatility in some of those areas, which can have a meaningful impact on one party's underwriting versus another party's underwriting. So there's no specific answer to the question to say, are we looking at rates and growing them by x percent? It depends on the opportunity. Some opportunities have a really clear path that they are not competing in any new supply and all the work that we do to look for potential new supply that would compete against that subject. If we see a pretty clear path there, we may be a little bit more bullish on where rates can grow from where they are today. On the other -- you could have the opposite where there's some concern about that particular opportunity where it's positioned within its micro market where the demand is going to come from versus the competition. You can look at pricing strategies on subject properties that somebody may have been incredibly aggressive to try to get occupancy at a very low rate. You can have stores, you're looking at that to have the opposite.

So it is a big challenge given the fact that you have different strategies you have an awful lot of variability in those assumptions. So overall, approach is the same, the challenge in executing it. is candidly, probably as tough as it's ever been, given all that change, especially because you have the impact of supply and then you have a lot of this growth in physical occupancy and growth in rates and you're trying to take all that into consideration. We've -- it used to be pretty typical that brokers would price opportunities using a trailing 12-month NOI. And then that started to switch in this environment to people use a trailing 6-month NOI. I almost did a spit take when I was in a meeting last week and the broker suggested that they were going to start pricing on a trailing 1-month NOI, which is, I just spit. But I mean, that's the type of world that we find ourselves in because things are changing so rapidly.

So hopefully, that's a helpful answer.

Ki Bin Kim -- Truist Securities -- Analyst

All right. And when you look at your same-store revenue performance across markets, I mean, it's been about 1.5 years since COVID started. Obviously, all the markets are doing well, but some are plus 10% same-store revenue, some are plus 20%. Is there any common denominator that might push one market to be better than others?

Christopher Marr -- President & Chief Executive Officer

No, it's going to be unique to the market. In some instances, it's supply, San Antonio, Nashville. In some instances, it's just lack of supply, Vegas and other instances. It's just maybe a bit more movement or stickiness than we would have seen in the past, but nothing beyond that.

Ki Bin Kim -- Truist Securities -- Analyst

So, no kind of noticeable beyond supply just the demographic or customer profile that's driving any of this?

Christopher Marr -- President & Chief Executive Officer

No. It's been -- again, as we talk about, it's broad-based. I mean we're getting customers from all the obvious needs to store their belonging. And again, the customers we have are a bit stickier than they were pre-pandemic.

Operator

Our next question comes from Jonathan Hughes with Raymond James Financial.

Jonathan Hughes -- Raymond James -- Analyst

I don't know if I missed this, but can you maybe share where move-in rates are today versus your in-place rents across the portfolio?

Timothy Martin -- Chief Financial Officer

Yes. We had talked, Jonathan, about where the churn rate where move-in rates were versus move-out rates, which are trending positive where they would typically be negative, as you know. Certainly, then that same answer would apply to where rates of new customers are versus in place across the board, pretty consistent answer there.

Jonathan Hughes -- Raymond James -- Analyst

Sorry, could you give like the actual like percentage I know it's up, but I mean is it like low single-digits? Is it double-digit? Maybe that's what I was asking. Sorry.

Christopher Marr -- President & Chief Executive Officer

Yes. So I mean, again, if you think about that trend, right, typically -- and again, this is a metric that I know you all asked a lot about. We don't run our business that way because we can't control who vacates. But if you think about the actual percentage, typically it would be negative for the majority of the year. It will flip slightly positive for a couple of weeks here in the summer and then go back to negative. Today, we're up like positive. We're up 3,500 basis points from what we would have seen last year. It's in the mid-teens, positive.

Jonathan Hughes -- Raymond James -- Analyst

Okay. That's helpful that I was looking for. And then going back to Timothy's discussion on labor, personnel expense growth was basically flat in the quarter. I thought that might have dropped year-over-year. Maybe being flat is not a bad thing. It means you're succeeding in finding individuals to appropriately staff the properties while others are having more trouble. But how should that personnel expense line item growth trend through year-end?

Christopher Marr -- President & Chief Executive Officer

Yes. I would think that flat to a little bit up as we think about the comp from last year and getting from June 30 to the end of the year is reasonable. The biggest challenge as you pointed out is just filling the vacancies.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And then just one more for me, on capital allocation. Why did you choose to raise equity via the ATM in the quarter? Leverage today is under 4.5 turns. And I think using EBITDA from later this year, that's embedded in guidance, it's probably closer to the low 4s. I think that's well below target levels. So I guess my question is, are you prepping the balance sheet for acquisition opportunities that could be debt financed in the future? Have you lowered target leverage, just trying to get a better understanding of why you chose to raise equity this quarter?

Timothy Martin -- Chief Financial Officer

It's certainly to position ourselves to have an awful lot of optionality as we look forward. We expected 2021 to be a pretty robust environment for acquisition opportunities, really starting from just a simple fact that the peak of the development cycle for deliveries was 2018. And so naturally as those stores start to stabilize, many of those developers and owners are not forever holders of that real estate. And so it would have been a natural expectation that '21 acquisition opportunities would have been elevated because of that chunk of new supply becoming stabilized. When you add to that, then the operating environment that we find ourselves in, now all of a sudden a lot of 2019 development opportunities are probably going to come to market. And so a lot of that was just anticipating making sure that we were as best positioned as we can be to be opportunistic when we find things that are attractive to us. So, not really any change from what we've done over a long period of time, which is to try to operate at the very conservative end of our credit metrics, so that we have the flexibility and the ability to be nimble when we find external growth opportunities.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And can you just mind us what the target leverage is? Is it like 5 to 5.5?

Timothy Martin -- Chief Financial Officer

It's all of the metrics that will be consistent with a strong BBB to Baa2 rating, which is in that range. Yes.

Operator

Our next question comes from Michael Mueller with JPMorgan Chase. Please go ahead.

Michael Mueller -- JPMorgan Chase -- Analyst

Just wondering, in terms of looking at the same-store revenue guidance, what's implied in there for the back half of the year when it comes to I guess, moving rates or market rent growth, how do you want to think about it? Do you basically imply what level you ended Q2 with? You're kind of static, are you assuming more market rate growth or are you having a moderate sum? And then second part is, where do you have occupancy ending as well at the end of the year?

Timothy Martin -- Chief Financial Officer

Thanks for the question. Unfortunately, you'll be disappointed with my answer, because we don't guide to those individual components of revenue growth. Our revenue growth assumptions take into consideration a lot of different things, a potential range of where occupancies could go, a potential range of where rates could go, a potential range of how you marry all that up with marketing spend as Chris touched upon earlier. So overall, we expect there to be continued strength in pricing power. We expect some seasonality from a physical occupancy standpoint to return. Although, best guess would be that we would still be tracking levels of physical occupancy for the balance of the year that are higher than they were last year, getting closer and closer to last year as we get later in the year. But implicit in our revenue guidance is an expectation that the back half of the year grows 10% to 12% as a result of a combination of all of those assumptions.

And it's actually -- when you take a step back and think about the fact that the growth in the second quarter was off of our easiest comp from last year, because last year we had stopped as you know -- we had stopped doing a lot of things that we would typically do, like vacating customers and having auctions and passing on rate increases. And so the comp for us gets more difficult in the back half of the year for those reasons and the fact that we, on a relative basis, outperformed in the back half of last year. So the comp gets more difficult, and despite that, we're still guiding to a 10% to 12% type growth in the back half of the year, which just speaks to the fact that there's strength across all of those different components of revenue growth, although we don't dive into each of them specifically.

Michael Mueller -- JPMorgan Chase -- Analyst

Sure. I mean if we tossed aside the comp idea and just think about, OK, rates have been moving here, and I appreciate that you're not going to specifically guide to the individual metrics. But in general, is it your sense that moving rates, the market rates are still accelerating in the back half of the year? Or do you think that growth kind of moderates or kind of flat lines to a degree?

Christopher Marr -- President & Chief Executive Officer

Yes, I would think in the range of our expectations, some modest degree of the slowdown in asking rate -- either in asking rate growth or an absolute asking rate, is embedded because we do expect that we will see some form of more typical fall and winter seasonality from a consumer perspective as we get into the back half of the year.

Operator

Our next question comes from Kevin Stein with Stifel. Please go ahead.

Kevin Stein -- Stifel -- Analyst

My question, I'm just wondering about how much of the pricing power is coming from low vacates versus a surge in demand?

Christopher Marr -- President & Chief Executive Officer

Yes, it's, really both. We're seeing absolute levels of customer interest and our rentals are up as our vacates are down. So we're seeing it -- we're getting a win on both sides. We've got -- and again, this gets to the question on rate increases to existing customers, because they vacated, the existing customer. We've got in some cases, a waiting list of another customer ready to come in. So it's strong and it's helpful on both sides of that equation.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Marr for any closing remarks.

Christopher Marr -- President & Chief Executive Officer

Okay. Thank you, everyone. It's very appreciative of all of the positive comments you all shared. We do appreciate the recognition and are pleased with the quarter. The industry is doing quite well. And we look forward to a very solid back half of the year and a strong 2022. So all very positive.

I'll leave you with our best wishes for continued health and safety. And look forward to talking to all of you after our third quarter results. Take care.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Joshua Schutzer -- Vice President of Finance

Christopher Marr -- President & Chief Executive Officer

Timothy Martin -- Chief Financial Officer

Jeff Spector -- Bank of America -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Smedes Rose -- Citigroup -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

Jonathan Hughes -- Raymond James -- Analyst

Michael Mueller -- JPMorgan Chase -- Analyst

Kevin Stein -- Stifel -- Analyst

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