Good day. Welcome to the CubeSmart second quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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.
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 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'll now turn the call over to Chris.
Thanks, Josh. 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 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 more detailed commentary on our great quarterly results and improved outlook. Tim?
Thanks, Chris. Thank you to everyone on the call for your continued interest and support. As Chris touched on, operating fundamentals were incredibly strong during the second quarter and 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 to 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 net effective rates to new 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. 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's 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 discipline investment strategy. We opened up two 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. On the co-investment front, we were active in three separate ventures that acquired stores in Minnesota, Connecticut, Illinois, and Florida. Looking at total investment volume so far this year, we've either closed or have under contract $352.7 million of transactions. $55 million of that is wholly owned and $297.6 million through co-investment entities. 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 continue to raise equity capital through our at-the-market 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%-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?
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jeffrey Spector with Bank of America. Please go ahead.
Good morning. Congratulations on the quarter. I guess the first question is just kind of big picture. 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?
Good morning. Thanks for the compliment. No, not really. It's hard to compare. I go back to 1993, 1994. Certainly, we've been through quite a number of cycles. 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. 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. I'm super optimistic about what the future holds here for storage.
Thank you. 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?
Yeah. Great question. Thanks. Our strategy has been to continue to increase spend where it is beneficial to do so in order to, in essence, fill the funnel. We choose to limit demand through high prices as opposed to limiting demand through lower spend. When you think about our pricing system, which includes a marketing spend component to it 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. Certainly our data suggested that some of our competitors pulled back pretty significantly on spend and 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 rates are up so significantly. 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. We're pleased with what we are 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 provide very positive longer-term revenue growth results for our portfolio.
Thank you.
Our next question comes from Samir Khanal with Evercore. Please go ahead.
Hi, Chris. I guess my question is sort of just a little bit broad-based as well. Do you think the industry can achieve these high single-digit revenue growth into even next year? 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, do you think you can hit those levels of top-line growth?
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? What does that do then to the overall pricing environment? I'm pretty bullish that these positive trends continue at a minimum into the beginning part of next year. Again, assuming they do, 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.
Got it. I guess maybe talk around a little bit on supply. Clearly with fundamentals being strong, you would think you'd start to see some indication of supply, maybe not into 2022, but kind of what's your updated view on that front?
From 2021 and 2022's perspective, again, we see 2021 lower deliveries than 2020 and 2019, in line with what our expectations have been. 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. 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. I would think that would also be a continuing trend.
We're going to continue to watch, but again, my expectation would be, if at all, this would be a 2023 occurrence.
Thanks so much.
Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Hi, thanks. A couple questions, I guess. Chris, you talked about the growth in rates during the quarter. How did that trend throughout the quarter and into July? Can you also provide an occupancy update where you're just about at the end of the month? Can you share where occupancy is today and what that year-over-year spread looks like?
The trend relative to 2019, as I referred to, accelerated through the quarter. 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 that I have yesterday, we have grown occupancy to 96.3% physical and same store as of yesterday. About 20 basis point growth from the end of June.
Okay. 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. 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?
That's an interesting question, Todd. I think the simple answer is with a 13-month length of stay, I guess it would take one 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. 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 in, that has flipped to the other direction.
I'm trying to think about when you lap 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.
Okay. It was just a last question, I guess, curious about New York. A solid result for New York in the portfolio. I think one of your peers characterized it as one of the slightly more challenging markets for them. Clearly, it was a relative statement, still growing double digits. 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?
Chris, I think your line might be on mute. I think you're coming in.
I'm sorry. Yeah. I'm sorry. Let me try again. I owe the mute pot $5. New York, as you can see in the supplemental, performing quite strong for us, the MSA, from a same-store revenue growth perspective. The situation varies by borough. If you think about the Bronx, to start there, no new supply. A sub-market for us or a borough for us that isn't experiencing supply. 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% 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 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%. You go to Brooklyn, which is experiencing, as we knew going into the year, the impact of new supply. I think there are eight 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. The one store in Staten Island performing quite well. I think it had 17% same-store revenue growth. Good trends. Not seeing any consumer behavior in New York that is different, frankly, than we see in the rest of the country.
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. Okay. All right. Thank you.
Our next question comes from Smedes Rose with Citi. Please go ahead.
Hi, thanks. Just actually to follow up on the N.Y. question, are there changes in the tax laws and the ICAP that's been a while, like a little bit behind the curve? Are you seeing any impact of that in terms of new supply that might have been on deck but is maybe falling out of the market, or any sort of color there?
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. I think the impact will be felt as we get into 2022 and into 2023 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 two, three years out, once the existing supply completes being absorbed and stabilizes, and you're looking at a landscape then in the next two, three years that basically has no new supply competing. I think that's when you'll really start to feel the tailwind of all of that activity.
Okay. Then on the acquisitions front, you mentioned cap rates compressing. Are you veering maybe more towards properties in lease-up, or would you focus more on joint ventures? Kind of how do you expect to meet your slightly raised target for the year, given what looks like a more difficult environment?
There's two 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, there's an awful lot to look at and to underwrite. That's the positive side. I think the challenge 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 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 self-storage sector. It's attracted a lot of buyers, and that's where it gets interesting and somewhat challenging from the standpoint of you're in an environment where underwriting can be tricky given still impact of new supply.
You've had an incredible push in physical occupancies and rates. 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 our view. All of that said, 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 developments on a very selective basis.
I think all that said, I think where we're seeing opportunities here in the short term are probably weighted a little bit more towards 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.
Okay. 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?
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.
We're also somewhat hopeful that as we get into the post-August timeframe, post-Labor Day, that the scale back or elimination of the additional unemployment payments and an opportunity for working families with children, for the children to be back in in-person school and create an opportunity for folks to return to the workforce. It's a challenge, as it is in most industries today. We continue to have a great group of teammates who are digging in and trying to help us through.
Great. Thank you.
Thanks.
Our next question comes from Spenser Allaway with Green Street. Please go ahead.
Thank you. Just looking at your third-party management platform. 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?
Hey, Spenser. That's exactly what it is. Part of being in the third-party management business is that we're hired to do a good job of creating value for our third-party customers, and we're doing just that. We don't like when our doors change color to some other color or the sign in front of the property changes. 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. I think we're doing just that. 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 of a bidder as someone else that's out there.
Okay. 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?
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's been in their cube and what their rate is and what their past history of rate increases has been, and combine all that together. Given the market we're in with high occupancy and high rate, it just by its nature, the ECRI raises up higher. The momentum is up. 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.
Okay. Thank you.
Our next question comes from Ki Bin Kim with Truist. Please go ahead.
Thanks. Going back to the underwriting question, how do you even go about underwriting acquisitions in this type of moment in this cycle? If you're buying something with a rent of $20, obviously that's been inflated because of the demand we're seeing. I know it depends on the market and asset, but what kind of growth are you underwriting, or is it the opposite? Do you try to underwrite a normalization back down? How do you even go about all that?
Hey, Ki Bin. Thanks for the question. The underwriting approach is unchanged from what it would've been over the past many years, which is we're trying to underwrite based on our expectations as to how the property's going to perform in the future under our management on our platform. As we've talked about in the past, the three biggest variables in that underwriting are, where does occupancy stabilize and when? Where are rates to new customers, ultimately? Where does the real estate tax bill reset to? 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. There's no specific answer to your question to say, are we looking at rates and growing them by X%? Depends on the opportunity.
Some opportunities have a really clear path that they are not competing against any new supply. In 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. 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 that you're looking at that have the opposite. It is a big challenge, given the fact that you have different strategies.
You have an awful lot of variability in those assumptions. 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. You're trying to take all that into consideration. 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 to use a trailing six-month NOI. I almost did a spit take when I was in a meeting last week and a broker suggested that they were going to start pricing on a trailing one-month NOI, which is absurd. That's the type of world that we find ourselves in because things are changing so rapidly.
Hopefully that was a helpful answer.
Right. When you look at your same store revenue performance across markets, it's been about 1.5 years since COVID started. Obviously, all the markets are doing well, but some are +10% same store revenue, some are +20%. Is there any common denominator that might push one market to be better than others?
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. In other instances, it's just maybe a bit more movement or stickiness than we would've seen in the past, but nothing beyond that.
No kind of noticeable, beyond supply, just the demographic or customer profile that's driving any of this?
No. Again, as we talk about, it's broad based. We're getting customers from all the obvious needs to store their belongings, and again, the customers we have are a bit stickier than they were pre-pandemic.
Okay, thank you.
Our next question comes from Jonathan Hughes with Raymond James Financial. Please go ahead.
Hey, good morning. I don't know if I missed this, but can you maybe share where move-in rates are today versus your in-place rents across the portfolio?
Yeah, 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, that same answer would apply to where rates to new customers are versus in place across the board. Pretty consistent answer there.
Sorry, did you give the actual percentages? I know it's up, but is it a low single digit? Is it a double digits? Maybe that's what I was asking. Sorry.
Yeah. Again, if you think about that trend, right? Again, this is a metric that I know you all ask a lot about. We don't run our business that way because we can't control who vacates. If you think about the actual percentage, typically it would be negative for the majority of the year. It'll flip slightly positive for a couple of weeks here in the summer and then go back to negative. Today, we're up positive. We're up 3,500 basis points from what we would've seen last year. It's in the mid-teens positive.
Okay. That's helpful. That's what I was looking for. Thank you. Going back to Smedes' 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. How should that personnel expense line item growth trend through year-end?
Yeah, 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.
Okay. Just one more from 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. 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.
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 the simple fact that the peak of the development cycle for deliveries was 2018. Naturally, as those stores start to stabilize, many of those developers and owners are not forever holders of that real estate. It would've been a natural expectation that 2021 acquisition opportunities would've 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.
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. 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.
Okay. Can you just remind us what the target leverage is? Is it like 5-5.5?
Yeah. It's all of the metrics that would be consistent with a strong BBB to Baa2 rating, which is in that range, yeah.
Okay. All right. Thanks for the time. Appreciate it.
Thank you.
Our next question comes from Michael Mueller with JP Morgan. Please go ahead.
Hi. I was wondering, in terms of looking at the same-store revenue guidance, what's implied in there for the back half of the year when it comes to, I guess, move-in rates or market rent growth, however you want to think about it? Do you basically imply what level you end in Q2 with? You're kind of static. Are you assuming more market rate growth, or are you having it moderate some? Second part is, where do you have occupancy ending as well at the end of the year?
Yeah. Thanks for the question. Unfortunately, you're going to be disappointed in 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. 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.
Implicit in our revenue guidance is an expectation that the back half of the year grows 10%-12% as a result of a combination of all of those assumptions. 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. 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.
The comp gets more difficult, and despite that, we're still guiding to a 10%-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 guide to each of them specifically.
Sure. If we toss aside the comp idea and just think about, okay, 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 the move-in 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?
Yeah. I would think in the range of our expectations, some modest degree of a slowdown in asking rate, either in asking rate growth or in absolute asking rates 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.
Got it. Okay. Appreciate it. That was helpful. Thanks.
Thank you.
Our next question comes from Kevin Stein with Stifel. Please go ahead.
Hey, good morning. My question, I'm just wondering about how much of the pricing power is coming from low vacates versus a surge in demand.
Yeah. It's really both. We're seeing absolute levels of customer interest, and our rentals are up as our vacates are down. We're getting a win on both sides. We've got. Again, this gets to the question on rate increases to existing customers because the vacate of the existing customer, we've got, in some cases, a waiting list of another customer ready to come in. It's strong and it's helpful on both sides of that equation.
Okay, thanks.
This concludes our question and answer session. I would like to turn the conference back over to Chris Marr for any closing remarks.
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. We look forward to a very solid back half of the year and a strong 2022. 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.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.