Q2 2023 CubeSmart Earnings Call
Participants
Christopher P. Marr; CEO, President & Trustee; CubeSmart
Joshua Schutzer; Director of Financial Analysis; CubeSmart
Timothy M. Martin; CFO & Treasurer; CubeSmart
Eric Thomas Luebchow; Associate Analyst; Wells Fargo Securities, LLC, Research Division
Hongliang Zhang; Analyst; JPMorgan Chase & Co, Research Division
Jeffrey Alan Spector; MD and Head of United States REITs; BofA Securities, Research Division
Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Keegan Grant Carl; Research Analyst; Wolfe Research, LLC
Ki Bin Kim; MD; Truist Securities, Inc., Research Division
Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division
Samir Upadhyay Khanal; MD & Equity Research Analyst; Evercore ISI Institutional Equities, Research Division
Spenser Bowes Allaway; Senior Analyst of Net Lease, Gaming and Self-Storage; Green Street Advisors, LLC, Research Division
Todd Michael Thomas; MD & Senior Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division
Unidentified Analyst
Presentation
Operator
Good morning and afternoon, ladies and gentlemen, and welcome to the CubeSmart Second Quarter 2023 Earnings Call. (Operator Instructions) Also note that the call is being recorded on Friday, August 4, 2023. And I would like to turn the conference over to Josh Schutzer, Vice President of Finance. Please go ahead, sir.
Joshua Schutzer
Thank you, Sylvie. Good morning, everyone. Welcome to CubeSmart's Second Quarter 2023 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 documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K.
In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found 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 P. Marr
Thank you, Josh, and good morning to everyone. Thanks for joining the call. We remain confident that CubeSmart is well positioned to continue to grow our position as a leader in the self-storage market. We believe in the power of our scale within top demographic markets, our high-quality portfolio and our differentiated platform.
Over the past decade, we have executed on our disciplined investment strategy. which positions us to drive superior long-term cash flow growth. This strategy is rooted in growing our leading market positions in the top 40 MSAs, enhancing our state-of-the-art technology and continuing to strengthen our unwavering commitment to customer service. We also believe the excellent demographics inherent in our portfolio will continue to provide a strong demand backdrop into the future.
Our second quarter results highlight the value of our differentiated platform. Our urban and [closed-in] suburban lower beta portfolio provided growth and stability during the quarter. As expected, our high beta markets that were reliant upon household movement came down off of their COVID-induced population inflow and were impacted by a significant slowdown in the existing home sale market largely due to rapidly rising mortgage rates.
In the boroughs of New York, which is our dominant market, overall demand trends and elongated length of stay should continue to support modestly positive pricing for new customers relative to 2022 levels. This favorable pricing environment in combination with physical occupancy is remaining slightly above 2022 levels has helped us drive same-store revenue growth in our most important market.
Supporting these trends is a more favorable supply environment as the headwinds from stores and lease up, especially in Brooklyn, have been less impactful than anticipated. We expect our New York market will continue to benefit from these trends for the balance of the year. We continue to be disciplined in our approach to evaluating growth opportunities. Currently, many of the acquisition opportunities available in the market are of inferior quality and would be dilutive to our current portfolio quality.
As a result, we are being patient and disciplined, waiting to deploy capital until we are confident in the ability to realize attractive risk-adjusted returns. As buyer and seller expectations adjust, there will be attractive opportunities to deploy capital, and we will be ready. In the meantime, we continue to grow in other ways: adding new stores to our platform.
During the first half of 2023, we added 83 new stores to our management platform, and we continue to have a robust pipeline of future new stores. Owners of self-storage facilities seeking a third-party manager have many brands from which to choose. Our operational expertise, differentiated platform and winning culture make us a preferred third-party management provider.
At CubeSmart, we have always put our customer first, and we attribute our outsized success in the 3PM business to our unwavering commitment to that customer service. For example, during the quarter, we rolled out our latest version of our state-of-the-art data portal, which gives our owners access to every key performance indicator relevant to their property at a click of a button.
Turning to guidance for the year. As noted in our earnings release, demand during the rental season has been very price sensitive. We have adopted what we believe is a prudent and realistic posture on guidance for the balance of the year. Looking further out into next year, there are several encouraging signs for a positive backdrop for self-storage in 2024.
A stabilization in mortgage rates along with continued household formation could lead to an increase in existing home sales. Continued relief in the supply chain and cost of raw materials may accelerate the delivery of new homes and the ongoing decline in openings of new self-storage facilities will be a positive contributor.
We believe CubeSmart's balance sheet portfolio and operating platform are well positioned to navigate through these dynamic market conditions, just as we have done historically. We are excited to continue delivering differentiated performance from our uniquely focused and well-positioned assets and to extend our track record of superior value creation.
Thanks for that. And now I'd like to turn the call over to Tim Martin, our Chief Financial Officer.
Timothy M. Martin
Thanks, Chris, and thank you to everyone for taking the time to join us on today's call. The second quarter saw the continuation of the expected deceleration off of the highs over the past 2 years. That natural deceleration, when combined with an uncertain macro environment, led to pretty inconsistent trends from week to week. Demand is there, but with more price sensitivity for new customers than the optimistic range of our expectations would have contemplated.
For the quarter, we reported FFO per share as adjusted of $0.66, which represents 6.5% growth over the second quarter last year. Same-store NOI growth of 5% for the quarter was driven by a 4.6% increase in same-store revenues and a 3.6% increase in same-store expenses, so the strong demographic profile of our portfolio continues to support performance throughout all phases of the cycle. Our expense control initiatives continue to bear fruit even against tough comps and in an inflationary environment.
We were quiet again in the second quarter, as Chris mentioned, on the external growth front, at least with on-balance sheet acquisitions. There weren't that many high-quality opportunities in our target markets that have traded this year. We're starting to see a little bit of a pickup here in recent weeks, but overall, we expect to remain disciplined and work hard to find great opportunities that have risk-adjusted returns that make sense and enable us to create shareholder value.
On the third-party management front, we continue to add to the platform. We've added over 130 third-party managed stores in each of the last 6 years, and we're on pace to surpass that number again here in 2023. We added 58 new stores in the quarter, bringing us to 83 stores added year-to-date. Our conservative balance sheet positions us well to pursue attractive opportunities when we find them. and of course, has also positioned us well to avoid near-term earnings pressure as we have a very well-staggered maturity schedule and very modest exposure to floating rate debt.
Our average debt maturity is 5.8 years. 98% of our debt is fixed rate. We have no significant maturities until November of 2025, and our leverage levels remain very low at 4.3x debt to EBITDA. Details of our 2023 earnings guidance and related assumptions were included in our release last night. Our updated guidance reflects where we are positioned coming out of the summer rental season with pricing power consistent with the lower half of our prior guidance range for same-store revenues.
Thanks again for joining us on the call this morning. At this time, Sylvie, let's open up the call for some questions.
Question and Answer Session
Operator
(Operator Instructions) And your first question will be from Todd Thomas at KeyBanc Capital Markets.
Todd Michael Thomas
First question, I just wanted to ask about the revised same-store revenue guidance. You're at 5.7% year-to-date, and the guidance assumes a rather modest deceleration in the back half of the year here, I guess, particularly versus some of your peers that have reported so far.
I realize New York City, which is a little more than 20% of the same-store, is expected to be more stable than other markets, but can you speak to what's embedded in the guide for the New York City segment of the portfolio and the balance of the portfolio that gives you comfort around the back half and a little bit of a less severe deceleration that you're forecasting?
Christopher P. Marr
Todd, it's Chris. As it relates specifically to New York, we expect that trends there continue to be constructive. We see, as I mentioned in my opening remarks, it is the market where we are still seeing opportunities to have price for new customers at levels modestly above what we were able to achieve last year. We continue to have physical occupancies that are slightly above where we were in 2022. Again, I think that's to the unique nature of a customer in that market.
We tend to see, obviously, less of the pure seasonal household mover. We've seen a very low vacate rate in that market, so remain pretty constructive there. And I think the positive trends we've seen in New York we're pretty confident will continue into the third and fourth quarter of this year. I think for the balance of the portfolio, obviously, some continued modest deceleration overall as we go into the third and fourth quarter. But I think for our portfolio, perhaps that deceleration flattens out as we as we get into the fourth quarter of this year.
Todd Michael Thomas
Okay. And you characterized the environment as uneven or maybe a little bit volatile, I guess it sounds like, maybe month-to-month. How does this impact your revenue management system and all of the tools that you use, whether for pricing and just revenue management in general and really also for budgeting purposes? How different are these patterns? And has this cycle been relative to the last 10 or 15 years, which I guess I suspect is a lot of the data and information that the system's relying on?
Christopher P. Marr
Yes. So I've used the word inconsistent. The only consistent thing we've seen here in '23 has frankly been inconsistency. It was an odd March. It was an odd June. It has been, by historical standards, a bit of a positively unusual July in the first 4 days here of August. As we noted in the release, we saw occupancy trends in July quite positive, certainly relative to the gap to last year. That's continued here into August, where I think today, the gap to last year is now down a little bit below 130 basis points. So it's just been very, very inconsistent.
And so to direct to your question, it has made it very challenging, from a data science perspective, to forecast. And so we deal with those on a week-to-week basis, sometimes a day-to-day basis, and you're trying to find that balance in market between price relative to your competitors who are finding the same challenges and are making changes to their pricing models in real time just as we are.
So I think the answer, the short answer to your question is it's made it very difficult to manage on that side of the business relative to certainly pre-2019 levels. But then I would say, you know what, over the last 5 years, I'm not sure any year has been "normal" as it relates to my almost now 30 years in the business.
2018 and '19 were abnormal due to just the volume of supply that we saw coming on all at one time, and then obviously, the first half of '20 with COVID and then the back half of '21 and '22 being spectacular years for self-storage. So we've been dealing with this for a couple of years, and I think we've been dealing with it pretty well considering the fact that it's been so inconsistent by historical standards.
Todd Michael Thomas
Okay. Are you responding to competitor price cuts by dropping decreasing rates in your portfolio? And do you feel that the price cuts are having a positive impact on driving move-in demand?
Christopher P. Marr
Yes. I think macro, we're, as an industry, coming down off of, again, that 2021 and '22 of just spectacular COVID-related demand, which created historically high occupancies. So as an industry, as we're coming down off of those historical high occupancies, there's more inventory. There are more cubes then, as a result, available for a customer at stores. which gives the customer more optionality and more choice. And one tool, one lever to capture that customer into your portfolio is price.
And across the board, whether it be a large operator or a regional operator or a small operator, how they choose to -- how we all choose to put pressure on that lever varies. And we need to factor in within the micro market of our store how we see pricing move by our competitors, what our inventory looks like, what do we have available at our particular store, and then put that into the system accordingly. And those data points are used to produce the recommended price for that day or that week.
So we have to take everything into consideration. But I think if you take your question up to the high level, we're just working through a period here where there's just more availability relative to last year, and that will be the case here for a couple of more weeks or so. And then I think you do see, as you saw last year, trends started to normalize pretty sharply in mid-August of last year. And so I think the comps get easier as you go forward here after the next week or so.
Operator
Next question will be from Juan Sanabria at BMO Capital Markets.
Juan Carlos Sanabria
Can you guys just comment on the street rate trends you guys saw throughout the second quarter and into July, just maybe backing off of Todd's question?
Christopher P. Marr
Yes. I mean trends relative to last year, if you just look kind of month by month throughout the quarter, pretty consistently for new customers basically down relative to last year in the mid-teens. That percentage didn't deviate all that much as we went through the quarter. There was a stretch in June, where we were pushing rate a little more aggressively. And the reality is what we saw was a slowdown in rental volume.
Juan Carlos Sanabria
Okay. And then just a question on in-place rents in the same-store portfolio. You had [back] straight quarter of sequential decline. So just curious what's baked into guidance for the back half of the year with regards to average in-place same-store rents. And is that being impacted by the move-in rates? Or has there been any diminution in ECRIs given softer street rate trends that you'd expected in the peak leasing season?
Christopher P. Marr
The sort of take it from the back and work backwards, the expectation in terms of pricing from a macro perspective for the balance of the year is that we will continue to see price being the lever that folks are using to try and get to try and get rentals. And so our -- again, as we noted in the release, the expectation is that price will continue to be an issue, and therefore the adjustment in our guidance range.
As you sort of compare that then to last year, I think as I noted in my response to the prior question, we did start to see a fairly sharp decline in asking rents for new customers about mid-August of last year, and then that continued on for the balance of the year. So we continue to expect some narrowing of the gap between where rates will be from August to December of this year and where they were last year.
The biggest impact on the metrics that you had in your question is lower move-in rates. The ECRI program continues to be pretty strong and strongly ahead of where we were last year. And as you saw in the disclosure, the vacate rate from that hasn't changed. Again, I think part of that is the unique nature of our portfolio. So I think the range of outcomes for in-place rent is going to be the driver as we do expect move-in rates to gradually close that gap to last year throughout the course of the balance of the year.
Operator
Next question will be from Michael Goldsmith at UBS.
Michael Goldsmith
Chris, in your opening remarks, you said that the demand is there but with more price sensitivity for new customers. So how is that translating -- like how is that -- or how is that like playing out for the customer? Is it that they're being less receptive to promotions or they're requiring a lower rate in order to move in? Our perception has always been that this has been a product type that is need-based, and so when you need it, you need it, and so you take the price that's available. So how is that exactly playing out for you guys?
Christopher P. Marr
Yes. I think you've got a couple of things there to unpack. I think depending upon the market and the submarket, you do have an impact of that need-based, as you pointed out. So again, I think in the more outer suburban stores who typically have relied on that more seasonal customer who arrived in May and exits in August because of a household change, you're definitely seeing the impact of this frozen existing home market situation.
I think -- not to sound like a retailer, but certainly in some of the Southwest markets, you can't discount the temperatures above 110 degrees for 30 or 40 consecutive days not impacting the marginal storage customer who may have a choice to move in, but also, obviously, a choice to move out on brutally hot days. So I think that's got to be playing into some of the Southwest activity.
But overall, you have more inventory due to the fact that you're seeing occupancies coming down across the industry. And so a customer has more optionality in terms of trying to find what they believe they need to store their possessions. And you're reacting to some degree to overall price in the marketplace.
And so all those dynamics are at play that result in the situation we're in, which is if you are price competitive, you're going to get more than your share of customers because you're definitely going to get them from the smaller operators who don't have the marketing budgets to be top of funnel and get those customers in.
And that's kind of the situation that we're working ourselves through here at the moment. To your promotion question, promotions are down in our portfolio, but there's definitely more competition then for those customers that exist in that marketplace.
Michael Goldsmith
And my follow-up is you talked about some of the positive catalysts for 2024, like potentially lower rates and greater housing turnover. I guess you've been seeing decelerating trends on the operating metrics this year. So -- and that's kind of continued through the first half, and the guidance probably continues through the back half. So what is the impact on 2024 numbers from some of the pressures that you're seeing now?
Christopher P. Marr
I think there's just a -- any time in any business where you have the rapid increase in both price and utilization or in our case, occupancy that you saw in '21 and '22, as those trends normalize, the deceleration is just the output of that. And so I think, as I said, the back half of last year is where you began to see that normalization.
And as we get into '24, your year-over-year comparisons eventually become more traditional, more normal. So you go to the just general health of our customer, and I think the health of our customer remains quite strong. We certainly see it in length of stay. We see it in payment history in auctions, et cetera.
So gives you confidence that you have a consumer who still seems to be pretty healthy. You have certain things going on, particularly in the housing market, which I do think have a bit of a headwind in the near term to self-storage in general. And so if you start to see normalization there, plus a healthy consumer, plus more normal year-over-year comparisons, I think you can paint a backdrop for a fairly constructive 2024 for the self-storage industry.
Operator
Next question will be from Samir Khanal at Evercore.
Samir Upadhyay Khanal
Just on the expense side, Tim, I know you lowered the guide for the year. Maybe talk around the drivers for that. It looks like personnel may have been a factor. And then as a follow-on, maybe talk about as we think about the pressures in demand here into next year, I mean, how do we think about personnel, marketing costs and even insurance costs into next year?
Timothy M. Martin
Thanks, Samir. Yes, it -- largely on the personnel side, we continued to squeeze out some efficiencies. I think as we've discussed in prior quarters, that fruit gets higher and higher up in the tree although we're still finding some good opportunities there to be even more efficient as to how we staff stores and combine that with still providing great customer service.
We've talked in the past about the pressure on -- from an insurance, property insurance perspective. That's certainly going to create a little bit more pressure in the back half of this year than the front half. Marketing expense is always the wildcard. When we find great opportunities to spend, we do. When we find less compelling opportunities from a return on that spend, we tend to dial it back.
But overall, nothing really new from a -- where the drivers are. From a real estate tax perspective, this year, we're doing a little bit better than we would have thought entering the year. We've had some success there with some appeals and the like, which have marginally helped the real estate tax number being a little bit better from a growth year-over-year perspective than we would have thought starting the year.
Samir Upadhyay Khanal
Got it. And then just in terms of the external growth opportunities that you mentioned, I know your guide is still at kind of $100 million to $200 million for acquisitions. Maybe walk us through or talk about what that pipeline looks like at the current time, considering that it's August. I'm just trying to figure out what that pipeline looks like for you.
Timothy M. Martin
Yes. The traditional deals, we've talked on prior calls also that there's a lot of seasonality in the typical acquisition market. Most sellers, certainly private sellers, believe that they are best positioned to sell their store at peak occupancy and peak rates in the middle of the summer. So not unusual for there to be more opportunities in kind of mid-July through late August is when if somebody is coming to market traditionally, that's seasonally when more stores are brought to market than other parts of the year.
And that is true again this year. Up to this point, we haven't seen a whole lot of compelling opportunities of high-quality assets in markets that we are attracted to. So we are seeing some of those opportunities present themselves. The wild card right now is will they trade at a number that makes sense to us from a risk-adjusted return standpoint relative to our cost of capital? So that's very difficult to predict.
So we're starting to see some things in the market that we like. Not sure that we will like the price at which the seller will be interested in selling them to us. So a lot of uncertainty around what our ability to actually transact here in the back half of the year is. We have an appetite to do so, but at a return that it's hard to predict whether that will make sense for both buyer and seller.
Operator
Next question will be from Smedes Rose at Citi.
Unidentified Analyst
This is [Maddie] on for Smedes. So I just wanted to ask about supply. We've been hearing that there could be some new supply coming to Manhattan's West Side. And so just wondering if you're seeing any other pockets of supply growth across your markets overall. And maybe just some updated thoughts on supply more generally.
Christopher P. Marr
Sure. So overall, supply continues to be more muted for all the reasons that you can surmise. You have an operating backdrop that is normalizing off of the spectacular few years that we experienced. You have a supply chain still creating issues as it relates to raw materials and labor. You have inflationary pressures on those raw materials and labor that have not abated.
And so you're seeing a significant number of hypothetical opportunities out there that are not being moved forward or pausing. So no change. I think that those trends continue, which I think makes us quite constructive on overall supply. In the New York market, again, take Manhattan, and I'll take that question separately.
In the New York market, broadly, remain very positive on the decline in supply there. In the boroughs, in particular, you're just seeing the couple of deals that I talked about last quarter working their way to completion. And then I think very, very minimal, if any, going forward for a while here, at least. Manhattan, a little bit of a different beast in that you never had the tax incentives there and the opportunity there that you had in the outer boroughs.
So the removal of those beneficial zones or at least the more difficult opportunity for storage in those zones never -- isn't an impact in Manhattan. So you are seeing some supply certainly in Manhattan. I think the -- for better or worse for us, we have the one store on 55th Street, and frankly, it's been performing incredibly well here over the course of 2022.
So we are thrilled with that 2023. Sorry, we're thrilled with that store. But yes, you are seeing at least some talk in a couple of new stores that have been on in planning and known to be being built there in Manhattan. So that's going to put some pressure on some other operators in that market.
Unidentified Analyst
Great. And are you seeing any increase in conversion properties given what seems to be an uptick in big box vacancy?
Christopher P. Marr
Yes. There's an awful lot of talk and not a lot of action in terms of that concept. It's in the office business for those poor folks fighting through this existing time, they're just scratching and clawing to try to figure out how to get somebody to use their product. And so there's always the conversation about self-storage. It's just challenging from a floor load and the ability to have a loading area, et cetera. So a lot of talk. Haven't seen any particular uptick in action.
Operator
Next question will be from Jeff Spector of Bank of America.
Jeffrey Alan Spector
Great. Chris, just trying to think about the positives and negatives you've laid out and really what's changed, I guess, since we saw you and the team early June, and appreciate very much some of the uncertainty and difficulties to forecast, especially given the tough comps.
But I guess, bottom line, I guess, to be blunt, how comfortable are you now with this latest guidance? I know I'm sure it was disappointing to cut. How do you feel about this latest guidance given some of the comments you made about, I guess, we're finishing peak leasing season, et cetera?
Christopher P. Marr
Yes. Thanks, Jeff. Appreciate the question. So the way we think about expectations in what has been a very inconsistent year, frankly, inconsistent years. We established a range of expectations back in the beginning of the year that contemplated the scenarios that we could envision playing out from a customer demand perspective and from a pricing perspective, et cetera, for the balance of the year. We went through the -- our busiest time of the year. It was a very oddly sort of slow June, as I mentioned. Things have picked up here in July, but it is a very price-sensitive customer.
And so -- when we looked at those range of expectations, we were clearly still comfortable that the bottom end of what we had expected in terms of establishing a range back in February was still valid, and we still had confidence in that part of the range, and that the top end, which contemplated a more robust environment seemed out of reach. And so we can use the word cut. We prefer to use the word that we simply lowered the top end of our expectations, dealing with the reality of what we've seen here so far for the first 7 months.
Jeffrey Alan Spector
Fair. And just to clarify an earlier question again on the impact, potentially, the lower street rates are having on ECRI, to confirm, I believe you're saying there's no impact on the ability to push on existing.
Christopher P. Marr
The ability to push hasn't been impacted. The current street rate in that store, in that market at the time that your systems are producing recommended increases to the existing customers and input is going to be where our current market rate's trending. And so that will put some pressure on the magnitude per se. But again, if you want to look at it year-over-year, we were seeing that pressure, if not more, in the back half of 2022 as well. So the relative percentage doesn't move all that much.
Jeffrey Alan Spector
And then to confirm on -- you talked about in July again, more price-sensitive customer lowering the rate. So -- and obviously, occupancy has moved higher. So are you just -- is it working? Are you pleased with, I guess, the results you're seeing into August on how you are pulling in new customers and competing?
Christopher P. Marr
Yes. I think we've felt like through the whole year, we've been quite pleased with what we've been able to generate in terms of rate increases to the existing customers and revenue growth overall with the backdrop that we're competing in. And so we're trying, to an earlier question, week-to-week, day-to-day, you're trying to fine-tune everything to find that sweet spot between asking rate and promotion and what the demand that you achieve from that is.
Obviously, in July, we were in a decent spot from getting that demand at price. We'll continue to see where there are opportunities for the rest of the year to continue down that path. So certainly feel as if things kind of balanced out more in July. Again, the inconsistencies have been there all year, and we can go back to the first quarter and say March was an oddly slow month, and then April picked up really, really nicely. So it's just been a very inconsistent year.
Operator
Next question will be from [Cassandra Cyber] at [Truist] Securities.
Unidentified Analyst
A follow-up on the external growth. Could you talk a little bit more about what your assets need to have to meet your quality standards? And could you offer more specifics what your return thresholds are?
Timothy M. Martin
Yes. Pretty consistent answer as to what our strategy has been for more than a decade. We focus on Class A facilities in the top 40 MSAs. And so we are a little bit snobbish when it comes to quality, quality, both of market and quality of assets. And so we are trying to find opportunities to expand our footprint and have good competitive market share, if not leading market share in some of those top 40 MSAs.
So we're trying to find assets that complement our existing footprint. And that's -- my comments earlier were alluding to the fact that year-to-date, in the back half of last year, we just weren't finding that many opportunities for things that were for sale or we weren't able to convince folks to be sellers for assets that fit that description at price tags that make sense to us versus our cost of capital.
And so if you think about where interest rates were when we had been more active from an investment standpoint and you think about the move from where interest rates are today relative to them and our cost of equity capital, clearly, our return needs to be a little bit different. The cap rate, the yield requirement for us to buy those attractive assets has certainly gapped out.
And we've been talking here for several quarters about having a disconnect. It was 20%, and we talked last quarter about it being kind of a 15% gap between where we see an opportunity to invest in those attractive assets at returns that make sense to us on a risk-adjusted basis versus where sellers' heads were or where other buyers were.
So our optimistic view here for the back half of the year is that we start to find some of those opportunities at price types that make sense for us. No guarantees. Hard to predict how successful we'll be, but what we can say is that we will continue to be disciplined. We will continue to be mindful of -- we won't grow for growth's sake. We'll grow in a way that is complementary to our strategy and in a way that we can create shareholder value.
Operator
Next question will be from Keegan Carl at Wolfe Research.
Keegan Grant Carl
So you mentioned that more operators are looking for third-party managers to navigate a challenging operating environment. I know you mentioned it seems like it's a good thing for the pipeline. So I guess I'm curious, one, what your expectations are for the balance of the year? And then two, how much market share do you actually think you can gain?
Christopher P. Marr
So great question. So when you think about -- Tim mentioned numbers in his remarks around what we have done historically. And I think we would expect to be able to generate those similar type additions to the portfolio of third-party managed assets when we get to the end of this year for the full year as we have in the past, and I think that's roughly been adding plus or minus around 150 or so stores per year.
I think what you see, if you think about this business, is that you have 2 drivers. You have the development cycle where you have a brand-new store and that developer is looking for a professional third-party to manage, and they interview bearing folks, and you have an arrangement. And assuming the store gets built, that's an addition to the platform. And we certainly have pipeline of new developments that are continuing to -- that will continue to come into the program, albeit that pace, obviously, as we've talked about supply in general, is slowing.
The existing open and operating stores, they tend to move somewhat with the business cycle. And so if operating results for that owner are very solid, and quite frankly, business is easy, they're a little bit less inclined to be thinking about the idea of turning over the management to a larger operator. As you get into a more a more challenging competitive, I'll call it, market, you start to see more of those folks thinking about it and having the conversations with us.
And so we're seeing that happening in our pipeline, and I think that gives us some good confidence as we go through the balance of this year and then also into next year that, that will continue to be able to grow that at a nice pace and make it continue to be very additive, given the fact that we don't have to allocate capital in order to get those points of distribution within our system.
Keegan Grant Carl
Super helpful color. And maybe one for Tim here. Can you just remind us what sort of macroeconomic backdrop is embedded in your guidance range?
Timothy M. Martin
Yes. We discussed at the beginning of the year that we weren't really focused on providing guidance, trying to be predictive of broad macro environment because that environment tends to not have a direct short-term impact on storage fundamentals. It's a little bit longer term as it relates to whether we're soft landing or not in '23. Probably has more of an impact on '24 performance than it does on '23.
So we weren't trying to -- in our initial guidance, trying to build in whether there is going to be a recession, how many interest rate hikes there were going to be. We took a view to say, over the next 12 months, we think realistically, this is the range in which we think the business will perform. And as we've talked about here multiple times during this call, we're still in that range. We're just at the more conservative end of a lot of those underlying assumptions than we were 6 months ago.
Operator
Next question will be from Spenser Allaway at Green Street.
Spenser Bowes Allaway
Not to belabor the ECRI questions, but you did note that there's been a bifurcation in market performance, so some of those higher beta markets come down off the highs of the last 2 years. Can you just comment a little more specifically on how wide the range in terms of the magnitude of ECRI rises across different MSAs?
Christopher P. Marr
Yes. Interesting question. Thank you. It -- actually, the delta or the range between in terms of just percentage increases to those existing customers at this point has not gapped out all that much, because the range to customers overall is pretty broad, right? Because you've got an array of customers who are getting personalized increases based on a variety of factors within the MSAs, then it's not that it's not that broad per se.
Spenser Bowes Allaway
Okay. And then just as you guys are kind of sitting on the sidelines a little bit more right now, I think, as it relates to acquisition activity, any thoughts in regards to redevelopment, expansion opportunities in terms of just like your capital allocation priority list? Just curious if there's anything or any opportunities in the portfolio you could kind of take advantage of, given that acquisitions are a little bit slower?
Timothy M. Martin
Yes. They're -- those tend to be very attractive opportunities. When they make sense and they pencil out, they tend to be really nice returns oftentimes, because when we think about comparing it to doing something ground up on a separate parcel, you already have the land. And so your land base is fairly -- it's already a fixed cost. You already have it. So we look for those opportunities all the time for expansions.
There are some of those opportunities. They're not needle moving, I wouldn't say. But at this point in time, they are the best use of our capital for those reasons. So when we can find opportunities that are complementary, that add square footage where it makes sense to add square footage, focused on it all the time, wish we had a bigger opportunity for more of them.
Certainly, on our legacy portfolio, we would have taken advantage of a lot of those opportunities over time. We are deep in exploring many opportunities that came with our portfolio acquisition in late 2021. The Storage West portfolio does have some embedded opportunities for us to do some expansions and some improvements that have some nice returns. Just -- it's not hundreds of millions of dollars of opportunity, but the returns on the opportunities that we do find are pretty attractive.
Operator
Next question will be from Eric Luebchow at Wells Fargo.
Eric Thomas Luebchow
Maybe you could touch on the average length of stay dynamics in the portfolio today. It sounds like it's still at or around record levels. Do you think it can stay at those record levels? Are any signs of some of the move-out activity happening with some of your longer-tenured customers? Just trying to think how that could impact some of the rental roll downs that you typically see from move-outs versus move-ins.
Christopher P. Marr
Yes. So the length of stay has definitely begun to stabilize versus and well ahead of, obviously, where we were with the pre-pandemic norms. The customers here greater than a year is about in the mid-60% range, 2-year customers in the mid-40% range. Down a bit seasonally from Q1, but certainly ahead of historical averages.
Our focus from a pricing perspective on reducing the discount usage has helped us to attract what we would call kind of a higher-quality customer in terms of length of stay metrics, and that's been a purposeful strategy for a while. I also think, again, the more -- the higher demographic nature of our portfolio, the use case of our customers tends to lend itself to a longer length of stay.
I think the inconsistent trends here in '23 from, certainly, June, where you would see a lot of seasonal -- May, June, where you would see a lot of more seasonal customers who are highly likely to vacate after a relatively short length of stay, that could have a positive impact then as we get into the back half of the year. You just don't see -- you won't see that churn, perhaps, that we had seen in more historic normal times.
Eric Thomas Luebchow
Okay. Great. And just one follow-up. One of your peers alluded to this yesterday that we haven't really seen kind of a normal storage year since maybe 2018. So does the fact seasonal occupancy didn't move up quite as drastically as it has in the spring and summer months perhaps suggest we may not see as much of a seasonal downturn later in the year? Is it just too difficult to say? We're just trying to figure out if we shouldn't expect the same degree of seasonality that we're typically accustomed to.
Christopher P. Marr
Yes. I think it's a really challenging question to answer given the inconsistencies throughout the year, to my prior comment. The fact that you may have seen customers coming into the portfolio, not the quantity of that more seasonal customer, could lead to a bit of an unusual lack of vacate activity than in the third or fourth quarter, which could overall kind of smooth things out.
So I think you've got to -- unfortunately, I'm just going to tell you, you got a range going into the back half of could be the more traditional kind of seasonality. It could, in fact, be less seasonal just given the activity that has taken place thus far this year.
Operator
Next question will be from Hong Zhang at JPMorgan.
Hongliang Zhang
I have to imagine you and your peers are leaning more toward online to acquire customers at this point. And if there's more competition, will naturally raise the cost of online advertising. I was wondering if you talk a little bit about your expectations for the remainder of the year.
Christopher P. Marr
Not necessarily a big shift in how we think about attracting customers and getting them into the portfolio. It's a need-based product, as you know. And so the customer self-identified that they need a safe and secure place to store their valuable possessions for a period of time, and they begin that process generally with a digital search. So from that perspective, it's a lever, along with price and promotion, to drive revenue growth.
And so we look at marketing on a very data-driven basis as we look at all aspects of our business. And when there are opportunities to utilize an increased allocation of capital to marketing and get attractive ROIs on that, we certainly will do that. We look at that lever, in conjunction with price and discounts, to try to get that balance that drives the highest level of revenue maximization from that customer at that store.
So I think it is one of those areas that's very dynamic. We look at it again, week-to-week, day-to-day and toggle accordingly. It's another area much like, much like price and promotion, where we need to be cognizant of what other storage operators are doing in the markets in which we operate, and try to find opportunities to maneuver where we can take advantage of whatever actions we may see in the bid market and produce some attractive returns.
We also obviously use other means of customer attraction that -- whether that be social, et cetera, that we can get good returns out of as well, and certainly, we allocate spend there as appropriate. So again, it's an interesting time, and I think what we do very well and what we focus on is being data-driven and nimble and being able to move and do what we think makes sense to drive ultimately maximization of that revenue from that each individual customer.
Operator
Next question will be from Ki Bin Kim at Truist.
Ki Bin Kim
So my first question relates to how long it takes for the changes in street rates to be fully impacted in same-store revenue. So if we assume the street rate comps are basically flat from here on out, I guess when you start looking forward, how long does -- how much does the deceleration in street rates before that start to bleed into next year's results? Meaning even if market rents are flat, does same-store revenue start off minus 2%, minus 3%, if you get my drift?
Timothy M. Martin
I'm not sure I do get your drift. I'm trying to keep up with the...
Ki Bin Kim
Well, one thing is that...
Timothy M. Martin
Part of it is going to come down to the mathematical exercise of thinking about lengths of stay. And so a shorter-tailed customer is going to have a shorter-term impact, a longer-term customer is going to have a longer-term impact. So I would think that the ultimate answer to your question is, it's going to take well in excess of the average length of stay, I would think.
Ki Bin Kim
Okay. And where are your street rates today versus 2019 levels?
Christopher P. Marr
Versus 20 -- hold on one second. High teens, low 20s greater than 2019.
Ki Bin Kim
And if you compare where your same-store revenue is versus 2019, I'm just trying to get a sense of like what the fall in same-store revenue could be to get to that number. Do you have that handy?
Christopher P. Marr
Trying to pull it here. Same-store revenue growth?
Ki Bin Kim
No, same-store revenue just absolute levels here versus 2019. So if street rates are at up 20%, then same-store revenue is up 30%, then maybe one can assume that there's a 10% gap. Just trying to get that sum.
Christopher P. Marr
Yes, I don't have that handy, Ki Bin. I think some of these questions are probably better served if you want to give Josh a call off-line and work through some of this minute detail. Thanks.
Operator
Thank you. And at this time, we have no further questions registered. Please proceed with closing remarks.
Christopher P. Marr
Okay. Thank you, everybody, for joining us this morning. Certainly, it has been an interesting first half of 2023. We look out and can promise you that we will continue to do what we always have, which is focus in on controlling what we can control, making sure that we're operating as efficiently as we can, continue to focus in on ways to generate incremental value for our shareholders through how we position the portfolio to how we capture and maximize value from each individual customer, and how we make sure that we're keeping our costs under control.
All things that, historically, we've been very good at and would anticipate continuing to focus in on delivering on that promise going forward. So thank you very much for joining us, and we look forward to speaking with everybody after we report our third quarter results. Take care.
Operator
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
