Welcome to the Extra Space Storage 4th Quarter Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Norman, Vice President of Capital Markets.
Thank you. Please go ahead, sir.
Thank you, Cindy. Welcome to Extra Space Storage's 4th quarter 2020 earnings call. In addition to our press release, we have furnished Please remember that management's prepared remarks and answers to your questions May contain forward looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated These forward looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, Forward looking statements represent management's estimates as of today, February 23, 2021. The company assumes no obligation to revise or update any forward looking statements because of changing market conditions or other circumstances after the date of this conference call.
I would now like to turn the call over to Joe Margolis, Chief Executive Officer. And Joe, you may be on mute. Or operator, do
we have Joe's line connected? Thanks, Jeff. Can you hear me now?
Yes, we hear you now. Thank you.
Sorry, everyone. Thanks, Jeff, and thank you, everyone, for joining today's call. I hope everyone and their families remain healthy and that year 2021 is off to a good start. In my 35 years in real estate, I Can't remember another year, but there's many positive and negative twists and turns in such a short period of time as we saw in 2020. The range of emotions I felt from March, when I was worried about the daily safety of our employees and customers, to April, I wondered when rental demand in our sector would return to September, when we saw some of the strongest occupancy and rental rate fundamentals in our company's history I am proud of our team's resilience and how well they responded to 2020's unprecedented challenges.
Our team's efforts, together with our balanced portfolio, sophisticated platform and innovative external growth efforts yielded a great result in the Q4. We ended the year with same store occupancy of 94.8%, Our elevated occupancy has given us significant pricing power, which we have experienced since August and a return to positive same store revenue growth in the Q4 of 2.3%, the 3 80 basis point acceleration from the 3rd quarter. We also had excellent expense control With a 0.6% decrease in same store expenses, resulting in 3.4% NOI growth in the quarter. Our return to positive NOI gains, coupled with strong external investment activity, Yielded core FFO growth of 16.5% in the quarter. Despite the challenges of the year, The Q4 was full of accomplishments, including completion of 2 preferred equity investments totaling $350,000,000 the $147,000,000 in acquisitions, dollars 168,000,000 in bridge loan closings, the addition of 44 stores to our management platform and receipt of NAREIT's Leader in the Light Award, the recognizing extra space for its sustainability efforts, this is the first time a storage company has received this award.
While we are excited about the accomplishments of 2020, we are even more optimistic this discussion, we will be conducting a question about how our efforts have positioned us for 2021. Rentals continue to be steady and vacates continue to be muted. We are heading into 2021 with the highest occupancy we have ever experienced at this time of year and expect rental rates to remain strong. We have already added 51 third party management stores in 2021 and our acquisition, management and bridge loan pipelines We believe that vacates may eventually return to more normal levels, And we recognize that the challenges related to new supply have not subsided completely and will continue to suppress rate growth in many markets. As in the past, our team is prepared to use all our available tools to optimize performance in the face of any risks, In short, despite significant turbulence, we had a very successful 2020 And look forward to an even better 2021.
We continue to execute on our strategy to maximize shareholders' long term value the end of the call, I would now like to turn the time over to Scott.
Thank you, Joe, and hello, everyone. As Joe mentioned, we had a great Q4 with reaccelerating same store revenue growth, Driven by all time high occupancy and strong rental rate growth to new customers. Late fees and other income continue to be lower year over year And partially offset rental income, but we saw improvement in both line items from levels experienced in the 3rd quarter. We lowered expenses in all controllable expense categories in the quarter, and despite property tax increases of 6.4%, this, we still delivered a reduction in same store expenses overall. This resulted in same store NOI growth of 3.4%.
Core FFO for the quarter was $1.48 a year over year increase of 16.5% And well above consensus estimates. Our same store performance was the primary driver of the outperformance With additional contribution from growth in tenant reinsurance income, management fees and interest and investment income. This, we continue to evolve our balance sheet to reduce secured debt and increase the size of our unencumbered pool. Our efforts resulted in Moody's issuing extra space of Baa2 credit rating on January 28, our 2nd investment grade credit rating Now providing us access to the public bond market. We are excited to add another capital option to finance future growth, reduce total cost of debt And further latter our maturities.
At year end, we had higher than normal revolver balances and variable rate debt Due to the elevated capital activity that took place in the Q4, including settling our convertible notes, completing preferred equity investments And closing substantial bridge loan and acquisition volume. A significant portion of these transactions were temporarily funded by draws on our revolving lines. We were comfortable doing so knowing we were actively issuing on our ATM, had pending bridge loan sales And are recapitalizing stores into a JV, which bring our revolver balances down to historical levels. Last night, we provided guidance and annual assumptions for 2021 with ranges that are wider than in previous years to address some of the uncertainty related the COVID-nineteen and its impact on customer behavior and government regulation. Our new same store pool includes a total of 8 60 stores, Which is essentially flat with last year.
The number of new stores added to the pool was generally offset by sites removed Due to disposition or redevelopment, we anticipate the changes in the same store pool will benefit our 2021 same store revenue growth this call, we will now begin by approximately 20 basis points. Same store revenue is expected to increase 4.25 percent to 5.5 percent, Driven by higher occupancy in the first half of the year and elevated rates in new and existing to new and existing customers. Same store expense growth is expected to be 3.5% to 4.5%, primarily driven by higher property tax expense. Our revenue and expense guidance results in same store NOI growth range of 4.25% to 6.25%. The acquisition market continues to be expensive, and we will remain disciplined but opportunistic.
We expect to do significant acquisition volume I plan to close a number of transactions with joint venture partners. Our guidance assumes $350,000,000 in extra space investment, Approximately $180,000,000 of which is closed or under contract. We also expect to close approximately $400,000,000 of bridge loans And plan to retain 20% to 25% of those balances or approximately $100,000,000 in 2021. We have plenty of capital to invest if we find additional opportunities that create long term value for shareholders, And we will be creative as we deploy capital in the sector. Our full year core FFO is estimated to be between $5.85 this quarter, we anticipate $0.16 of dilution from value add acquisitions or C of O stores, the down $0.04 from 2020.
We also added additional guidance related to our expected interest income for 2021, As well as notes clarifying the recognition of our preferred investments in SmartStop and NexPoint, which can be found in the outlook tables of our earnings release. As Joe mentioned, 2020 has been a memorable year for Extra Space. We are excited to turn the page and are already on our way to a very strong 2021. And with that, let's turn it over to Cindy to start our Q and A.
Our first question comes from Oluya Asgharabic with Bank of America.
Hi, everyone. Thank you for taking my questions and congrats on a great quarter. And it looks like 2021 is going to be great for you guys as well. So I just want Start off and ask a little bit more on what you guys are expecting for revenues this year. So how are you thinking about occupancy for the first half versus the second half and A little bit more on the rental rates assumptions.
Yes. Alou, this is Scott. I can give you a little bit more detail in terms of what our guidance assumes. We're assuming that our occupancy stays strong. So in January and into February, our GAAP has actually the expanded to be just over 300 basis points.
So what's happened is January February typically have lower occupancy declining occupancy. We haven't seen that. So we moved from 2 40 basis point delta in occupancy to over 300 basis points where we are today. So we're assuming that occupancy holds at this high level through the end of the summer, at which point we expect occupancy to fall more to historical levels, so last year in Q4, 3rd Q4, we saw occupancy 200 to 300 basis points higher than normal. This year, we expect that to be a 1 to 200 basis point headwind for us.
So we expect it to be lower in the fallback more to historical levels. We expect the Q1 to be strong in terms of revenue growth continuing to accelerate from the Q4. The Q2 should be the peak, And that is mainly due to some easy comps from last year and then continued good into the 3rd quarter with the end of the Q3 and Q4 being challenging.
Got it. Okay. Makes sense. And then I guess just a little bit more on the 3rd party management for 2021. You mentioned that you already added 51 new stores.
Can we expect a large acceleration in 3rd party management compared to 20202019?
So the this is Joe. And thank you for your kind words about our performance. It's not Scott and me. It's over 4,000 employees who every day bring their best to work and have really done an outstanding job. With respect to 3rd party management, our activity in January February was 51 stores added is a little elevated because we took the in connection with the JTAP transaction.
So I would expect the Our 2021 activity to be similar to our 2020 activity in terms of gains.
Okay, Got it. Thank you so
much. Thanks, Lila.
Your next question comes from Spenser Allaway with Green Street.
Hi, thank you. Can you guys just provide a little
bit of color on how existing customer rate increases have been trending just relative to your historical norms? The question and answer session, do you suspect that you're going to be able to continue pushing these pretty aggressively in 2021?
So we're still subject to restrictions on existing customer rate increase in many markets across the country. And that we abide by all those regulations and that of course is a limit to us. Absent that, our ECRI increases average high single digits 10%, about the same as always. And interestingly, we continue to monitor move out rates in response to ECRI, and we have seen no increase in move out So hopefully at some point those regulations restrictions are lifted and we can get back to the fully normal behavior, but we are limited now. We understood that and took that into account in our guidance.
And hopefully, we can get back to normal sooner rather than later.
Okay. Okay, thank you. And then Just on the external growth front, are you guys currently seeing more opportunity with stabilized assets or with assets in some sort of lease up right now?
I'm sorry, more opportunities with what type of assets? I couldn't understand you.
Stabilized this, we have
some form of lease up.
Yes. Thank you very much. So, I'm sorry about that. So what we've bought is more Lease of assets stabilized the pricing on stabilized assets is very hard for us to make sense of. We will probably be more active on that front in 2021 with Joint Venture Partners just to make the pricing Make sense to us, but everything we bought in 2020 was lease up.
I think on average, we were in the mid-3s 1st this year and stabilized on average in 17 months in the mid-sixes. So I think that's
Your next question comes from Rick Skidmore with Goldman Sachs.
Good morning, Joe and Scott. Question on Joe for the on the supply growth. How are you seeing supply across your markets? You mentioned kind of flattish, But are there any particular markets where you're seeing outsized supply growth? Or how are you thinking about supply in 2021 and into 2022?
Thank you.
Sure. Thanks. Great question. So supply is still an issue. That's the short answer.
We did see Substantial pullback in 2020 due to COVID, we I'm going to speak to our same store pool, not national statistics. I'll speak to what matters to us. We had And when you look at the actual numbers, it was only around 21%. So almost a third got pushed to cancel because of COVID. And in 2022, we project the 22% of our same store pool will be impacted by new stores.
And I think that will be like there is every year, some number of those stores get delayed So we are seeing an incremental decrease in new supply and that's good news, But I would caution you on two fronts. One is, we still have significant supply delivered in many markets over the last several years, and we're working through that, and that the and secondly, with the performance of storage, particularly in comparison to other asset classes, I would not be surprised if that attracts more capital, more developers to the market. So new supply isn't going away. It's not in any every market, but in the markets where it is, it's something we need to deal with.
Thank you.
And then Joe, just maybe one other follow-up on the bridge loan program. You mentioned, I think, dollars 400,000,000 Targeted for 2021, is that sort of in the pipeline or is that an aspirational goal? Maybe help us And then how you think about the path forward from some of these bridge loan and other investments that you're making to help With the FFO growth?
So we have about $196,000,000 in the pipeline. So We believe $400,000,000 is an achievable goal. And the bridge loan program It is very accretive for us because the whole note rates may be in the 5% to 6%, but by the time we sell the A and the The rate we're getting is 9%, 10%, 11%, plus we're getting management of the stores and the economics there. We also hope to buy a bunch of these and I think we bought 1 in F2 that we're targeting to buy. And it's an immature program, but as we get deeper into it, I hope it turns into an acquisition pipeline as well.
Thank you.
Your next question comes from Mead Rose with Citi.
Hi, thanks. I wanted to ask you, so migration has been a big topic over this period, this pandemic. And I was just wondering, are you starting to across your portfolio? And does it make you sort of change where you're thinking about where you might want to invest
Thanks, Neet. So we haven't seen differential in performance between the markets that have been called out as People are fleeing San Francisco or people are fleeing New York and the markets that people are supposedly fleeing to. And I don't know if that's because people are storing their stuff in Manhattan before they go out to rural New Jersey. And at some point that will unwind. But as of now, we don't see performance differential based on that reported phenomenon.
What we do see is performance different based on new supply, if you go back to the previous question. That's where we have the weakest I'll also tell you, there's been a number of articles coming out recently that question whether The urban flight is as widespread as been reported in COVID. I just read an article that most of the people leaving San Francisco are settling in the counties around San Francisco. They're not going to Utah or Florida or And then lastly, and this is just one man's opinion, I don't believe COVID is the death of New York I believe young people like to live in cities. Cities have a lot of advantages.
And I don't believe This is the depth of the big cities. So to answer your question, we're much more focused on micro markets as we Look to buy things and we're not we have not yet adjusted our investment strategy based on urban flight.
Okay. Thank you for that. I just want to ask you 2, your net adds in the Q4 for 3rd party management We're quite a bit lower than the growth addition. So I just was wondering what sort of caused that churn and is that something that you would
So We had 38 stores leave our platform in the Q4 and 87 leave our platform in 2020. Almost all of them were because of sales. Very, very We bought 15 of those 87 stores, not a huge percentage. And the issue is pricing. We try to remain disciplined and not overpay in our view for things.
There's also some subset of these stores that are not of a quality we want to own. We have to manage to not own. So given where prices is, I would expect that we continue to have sales. I hope we can do a better job through structures that we buy more of them. But our number one goal is not to do something that's dilutive to our shareholders' value.
So if pricing gets beyond what we think is reasonable, we're going to do our best to transition the store to the new buyer.
Okay. Thank you. Appreciate it.
Your next question comes from Todd Thomas with KeyBanc Capital Markets.
First question, Scott, apologies if I missed this, but what were move in rates Or move in rate growth, I guess, in the quarter and in January. And what are you seeing early in February?
So our achieved rates in the Q4 and really for the back half of the year were about 10% ahead of where they were prior year and in the Q1 of this year, January February, we're seeing rates be at very similar levels, about 10% ahead where they were last year.
Okay. And then just following up on rental rate trends and just given how the tightened up here over the last couple of quarters, and you've seen a lot of rent growth during the off peak season, which Joe, I think you noted began in August. As we think about the peak leasing season ramping up now, Is it possible that we see rate increases similar to what Extra Space and the industry has experienced historically during The peak periods from where rates are today and is that factored into guidance?
So We are assuming that the Q1 we continue these rates that we've been experiencing. 2nd quarter, our achieved rates, we would expect to be very strong. Because if you remember in the Q2, when things really dropped, we dropped rates 20% to 30%. And so when you're looking at a rate that was the 20% to 30% lower and then it's already 10% above, you're going to see some significant rate growth for customers that move in at April, May, Even into early June, and those are all factored into our guidance.
Okay. How far above Where are rates today relative to sort of that March, April, May timeframe?
So I'll just give you one point of reference, and that's our achieved rate compared to our in place rents, and this isn't necessarily the move out rate versus the move in rate. Our in place this, we will be discussing the move out rate versus the move in rate. Our in place rents are actually above our achieved rates today. Now remember, this is the time of year when this is usually the most negative, meaning your achieved rates in January, February, It's the highest your existing customer rates are compared to your achieved rates on an annual basis. So the fact that our rates are up 10% the year in February is good.
So our in place rents are about high single digits above
And then just one question, the taxes in the TRS that are forecast to be up to about $19,000,000 to $20,000,000 I know in the past you've executed on sort of a variety of different strategies to minimize that tax expenses. Are there any opportunities that you see today
So we are continuing to take advantage of some solar opportunities. We continue to use it from An ESG perspective and a sustainability perspective as well as some tax benefits, that's the big one that we have today.
Okay. Do you see any potential downside to that, the tax expense in the TRS going forward?
So I think it will depend a little bit on where rates tax rates go and then also what happens with solar credits. I think that you've seen them burning off. I would expect with the change in President, they could initiate additional credits, But those are we'll continue to monitor this.
Okay. All right. Thank you.
Your next question comes from Ki Bin Kim with Truist.
Thanks. Great quarter and great guidance. So I'm curious, are the the kind of rent increase ceilings that California and other cities might have put in place, What is implicit in your guidance in terms of those policies loosening up? Are you assuming that you can push rates Further in the back half in California or is that just going to be upside potential upside to guidance?
So we don't assume that we get relief from those in the first half of twenty twenty one. The back half of twenty twenty one, I believe we still are moderating some of those rates. So there is some upside to that, but there's also downside if something turns in the wrong direction and additional restrictions are put into
Got it. And just going back to the supply topic, you talked about the percent impact to your same store pool, but I'm curious about the depth of the impact, so not just 30% being impacted or 21% being impacted, but The definite impact is, at the end of the day, when all is said and done, if the definite impact is actually even better?
Not sure I understood the question. So we've tried to be clear on this call and others that Supply is the biggest factor that's impeding our performance in that in markets like the the boroughs in Northern New Jersey and Texas market, Florida markets, etcetera, our ability to raise rents, We can fill the stores up. We can keep them in at very high occupancy rates. It's our ability to raise rent
Well, you said, I think, about 21% of your senior store pools impact Quebec Supply, but that could mean 10% more supply coming to those markets or it could mean 2% more spike in those markets. So that's all I was trying to gauge, if it's
Yes. Listen, this is a micro market business and that's a Stu comment. It varies widely. We've had situations where we've had properties come in very close to an existing property, brand new development. And because of traffic patterns or barriers like bridges or rivers or whatever specific reason, We've had absolutely no impact on our property.
We also see that it's better for a store to new store to come into a market where it's 10 square feet per person and 2 square feet per person because the percentage increase on a market that's full And as 10 square feet per person, you only have to capture a marginal part of everyone's demand to fill your store up, If it's only 2 square foot per person and you're increasing supply by 50%, that's a more difficult at least in the short term, a more difficult problem. So it is absolutely a we get these numbers 21%, 30%, whatever. It is a market by market, store by store analysis, and that's how we do it for our guidance. We create individual budgets based on what we know is going to happen In the markets for each store, we do our best to project performance and we roll that all up and that becomes our
Your next question comes from Todd extender with Wells Fargo.
Hi, thanks. Just listening to your posture calling for some moderation in occupancy. Certainly, these are historic highs and it's probably prudent to do so. But what drives that move lower? Are you the Assuming some housing transaction slowing, is it frozen consumer behavior that begins to thaw and people naturally start to move out after 13 or 14 months?
The What do you kind of point to?
So Todd, I would tell you it's go ahead, Joe.
Sorry, Scott. So our elevated the one of the very important factors is moderation in vacates. And at some point, COVID is going to be in the rearview mirror the And we believe customer behavior will return to normal. Now I don't think that means there's going to be an end of COVID day and Someone's going to flip the switch and everyone runs to move out of their storage. We know that our customers are have a great deal of inertia.
It's not high on their list and it may take them some time. We know that the largest increase reason for storage we've seen over COVID is decluttering of the house. And I don't think just because COVID is over, people are going to want to reclutter their the this may be a more permanent change. But with all that being said, we do believe the HH will eventually get back to more normal levels And that will cause a reduction in occupancy.
Understood. Thanks, Joe. One more just in the terms of maybe just sticking with bridge loans. You did sell some of your bridge loans. It looks like you have a little bit more So it gives you a seat at the table when you want to go acquire a property, but now you've sold some.
Does that now limit your ability To acquire on that deal and that's 1. And then 2, how liquid is that market if you guys are trying to lighten up on loans or maybe Risk mitigation effort, maybe just some context there.
So there once we have sold an 8 piece and we have sold 76 the 1,000,000 of additional 8 pieces in 2021, it does complicate the purchase because we can waive our the portion of the prepayment penalty, but the APE's holder is not going to do that because they're not getting any benefit from our purchase. So that is the challenge, obviously, as you get closer to maturity and those burn off, it's less of a challenge. The The second part of the question, when we started this program, we had a co lending partner that we would co originate the loans and at closing close them with the where we only held the PPs. And we found that better execution over time was for us to close and hold both pieces, Package up the As into more meaningful chunks and then sell them. So that means we hold the As on our balance sheet for some period time, and you saw in the Q4 how having those sold elevated our debt somewhat.
But it gives us better execution, particularly because now we have 2 buyers of the A Note, so there is some competition and redundancy for that and that seems to be working really well for us.
Your next question comes from Mike Mueller with JPMorgan.
Yes. Hi. Scott, I want to go back to when you were talking about occupancy being strong, up to 300 through the summer and then you made a comment about Headwind down to 100. Were you implying that by year end, the occupancy comp was going to be a negative 100 or your 300 positive was going to shrink to 100 positive.
So in the back half of twenty twenty, it was 200 to 300 basis point benefit. And we are assuming that in the back half of twenty twenty one, it is a 1 to 200 basis point headwind. So it's a negative the year, we expect to see the same period in the back half of twenty twenty one.
Got it. Okay. That's helpful. And then,
when you were talking about the the portion or the markets where you still run into rental increase restrictions, how significant is that As a percentage of the whole portfolio?
So I think how to measure Some of the rental rate restrictions are at a level that it's not that meaningful, the In Alabama, you can't increase your rates more than 25% or Kansas is 25%. Now those aren't biggest states, the But that gives you the idea. In others like California, where it's 10% and it's a meaningful the state for us that is much more of a restriction. So we think the opportunity cost, if you will, In 2021 because we're not able to raise the rates is meaningful. It's likely over $10,000,000 But it's all included in our guidance.
Got it. Okay. That was it. Thank you.
Your next question comes from Ronald Kimdin with Morgan Stanley.
Hey, congrats on the quarter. Just two quick ones from me. One is just on the same store expense guidance.
If you could just If you haven't already, just
talk about how should we think about sort of the property taxes and the payroll, which are sort of the largest items
So I
can give you our assumptions in our guidance. The over the About 55% of the increase actually relates to payroll to property tax increases, and we are assuming that they're about 5 point the quarter, we are confident that we will be able to get a better the 10%, and then we are assuming R and M is going up. We've had a couple of years with it down, and we've had some benefit from lower comps With snow removal, so we think that's going to be a tough comp. We've seen some of that in the Northeast already to date. So that's some of the larger assumptions in the 2021
guidance. Got it. My second question was just on the 4 assets that were sold. The Just any color around there, maybe cap rates or why was it sold? Was it just a great offer?
Just curious what the situations were there.
Thanks. I would tell you, we thought the pricing was very good. Otherwise, we wouldn't have sold. We retain management of the stores. We retain certain right of first refusal to buy them if they the I would tell you it was a tax motivated buyer, and we were able to
Helpful.
Your next question comes from Michael Lehmann with Evercore
Just a quick follow-up on supply. How much of your outlook includes the possibility of conversions from retail the storage with the amount of kind of reliance on e commerce that's been happening.
So when we know about it, it's absolutely included in our projections. Our folks in the field Are charged with knowing what's going on in their micro market and what can be converted. That being said, I think that is and we've done a bunch of that. We have a number of stores that are old retail centers. There's challenges to that.
I don't think that's going to be a giant source of new self storage. The Some of the dark retail is dark retail for a reason. We don't we wouldn't want to put a storage site there. Some of these dark retail, but not zoned properly for storage. And there's a lot of other the physical issues with doing that.
So there certainly will be some of that, but I don't see a wave, a giant wave of new supply from retail conversions.
Your next question comes From Ki Bin Kim with Truist.
I didn't realize I'll be back so quick. Just wanted to talk a big picture about your bridge loan program, Not just like what's in 2021 guidance, but just longer term, should we view this program as Going to be in place for the definite indefinite future or is this more there's a market opportunity that You're taking advantage of, so maybe in 3 years, it really winds down. I'm just trying to understand the scope of the program long term.
So we don't have a perfect crystal ball. Our belief is that there will be a demand Understand where the capital voids are in the market and how we can make good risk adjusted returns based on those capital voids. So if our current the program gets smaller in the future because that capital need is not as great. I hope that our team and I expect that our team to find the next opportunity. One thing I think Extra Space has done well over the years is being innovative with the external growth.
That means not executing the same strategy regardless of where you are in the market cycle. The trying to understand that market cycle and see where you can make outsized returns at acceptable levels of risk. Right now, that's bridge loans and
Right. And obviously, I'm assuming there's a pretty wide funnel and what The closing is pretty selective. But just curious, can you just describe like the deals that you've actually Turn down and how big that funnel is at the top?
Sure. So the I think the the 2 biggest limitations on the funnel at top is we won't make construction loans. We could make lots and lots of loans if we're willing to make construction loans. But The great thing about the bridge loan program is if it goes bad and we have to take the property over, that's 75% or 80% of underwritten value. We already operate it.
We're happy to own it. That's not a bad result. As opposed to taking over a the half built defaulted construction project, we have no interest in that. So that's one limitation on the top of the funnel. The second is we have to manage the store.
And that's some people are self managed and want to continue that and they don't want us to manage the store and the Then we won't do it. After that, we get to property quality, location, Underwriting, we can't get to the proceeds that the borrower wants. But there's We have a substantial pipeline and we feel confident we can hit our guidance for this year.
Okay. Thanks again.
Sure. Thanks, Ki Bin.
I'm showing no further questions at this time. I would like to turn the conference back to Mr. This, Joe Margolis, Chief Executive Officer.
Great. Thanks, everyone, for your interest in Extra
the
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.