Earnings Call Transcript - NSA Q2 2025

Operator, Operator

Greetings, and welcome to the National Storage Affiliates Trust Second Quarter 2025 Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host George Hoglund, Vice President of Investor Relations. Thank you, George. You may begin.

George Andrew Hoglund, Vice President, Investor Relations

We'd like to thank you for joining us today for the second quarter 2025 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to one question and one follow-up and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, August 5, 2025. 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. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings. I will now turn the call over to Dave.

Dave Cramer, President and CEO

Thanks, George, and thanks, everyone, for joining our call today. During the second quarter, we generated sequential improvement in occupancy, moving contract rates and our rent roll-down spreads. However, our same-store NOI and core FFO per share results fell short of our expectations for several reasons, including: first, there's been no meaningful improvement in the overall macroeconomic conditions, including housing transition as interest rates remained elevated and affordability remains challenged; second, the interest rate and overall inflationary environment have been more challenging than what was contemplated in our guidance, which has weighed on interest expense and repair and maintenance expense; third, there is continued pressure from new supply in several of our markets and is having a greater impact than expected. Fourth, it is taking longer to realize the benefits from the pro internalization as we work through the changes to revenue management strategies, brand consolidation, and management procedures. Finally, the elevated use of concessions during the quarter was a near-term drag on revenues. Taking all these factors into account, in addition to our assumptions that we will now be a net seller of assets for the year, we've adjusted our guidance ranges accordingly, which Brandon will detail in his remarks. Moving to the transaction environment. We sold 10 properties, which were all former pro properties in non-core markets where we did not have scale and were therefore inefficient to manage. We exited 4 states with this transaction, making a total of 5 states that we've exited year-to-date. We also acquired one property in Texas and an annex to an existing property in California, which was completed as a 1031 exchange. During and subsequent to the quarter, our 2023 JV acquired 2 properties, one in New York and one in Tennessee. After acquisitions, net proceeds of $40 million were used to pay down the revolver. Although there remains a steady flow of opportunities coming across our desk, we remain very disciplined in the use of our capital and are focused on improving our balance sheet metrics. Overall, we remain confident in the outlook for NSA. We still expect to realize the full benefits in the pro internalization. And as the housing market loosens, we expect to realize outsized benefits given our geographic exposure to Sunbelt and suburban markets and will be more impacted by a housing recovery. Lastly, new supply is projected to decline over the next few years to levels well below historical averages, which will support an improving supply/demand backdrop. We continue to focus on improving our portfolio and occupancy position with increased marketing spend and the use of concessions. We've increased repair and maintenance spend as we address these in the portfolio that will enable us to improve performance. Although these actions add near-term pressure to revenues and expenses, we believe these are the right decisions in light of our current operating environment. With that said, I do believe that we've hit bottom in fundamentals and that we're just starting to hit our stride operationally. Some of the positive trends that we saw in the quarter and ended July are as follows: occupancy increased 140 basis points sequentially during the second quarter to finish at 85% and further increased in July to 85.3%. This is a noticeable difference from July last year when we lost 40 basis points of occupancy from the current same-store pool. Year-over-year occupancy has narrowed to 150 basis points at the end of July from 220 basis points at the end of June. RevPar has grown for 5 consecutive months ending July with the year-over-year delta improving down from 4.2% in February to 2.2% in June and now down to 1.6% in July. On a same-store NOI basis, 2 of our reported MSAs, Houston and San Juan, inflected positive for the quarter. Bad debt expense grew on a year-over-year basis and remains in line with historical averages. We are seeing the benefits of technology in our call center with 15% of our total incoming call volume now handled by AI, and the evolution of our paid search model is driving more opportunities and leading to higher-value rentals. Further, our existing customer base remains healthy. We continue to be pleased with the overall success of the ECRI program, and length of stay remains above historical averages. While the pace of our progress was slower than expected in the first half of the year, we are encouraged by the positive trends that we experienced in June and July. We are focused on maintaining that momentum throughout the rest of 2025 and into 2026. I'll now turn the call over to Brandon to discuss our financial results.

Brandon S. Togashi, CFO

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.55 for the second quarter, an 11% decline from the prior year period, due primarily to a decrease in same-store NOI and an increase in interest expense. For the quarter, same-store revenues declined 3%, driven by lower average occupancy of 240 basis points and a year-over-year decline in average revenue per square foot of 30 basis points. Expense growth was 4.6% in the second quarter. The main drivers of growth were property taxes, marketing, repair and maintenance, and utilities, partially offset by a decrease in personnel costs. Property taxes were elevated mainly due to a tough comp as we had successful appeals in the prior year period. Marketing was up 39% versus the prior year given the competitive environment and targeted spend on markets with rebranded stores. Repair and maintenance was higher largely due to cost inflation, addressing deferred maintenance, and some weather-related items. These revenue and OpEx results led to same-store NOI growth of negative 6.1%. Going forward, we expect some of these expense pressures to ease, and we expect sequential improvement in the year-over-year revenue growth, which is reflected in our guidance. Now speaking to the balance sheet. We have ample liquidity and maintain healthy access to various sources of capital. We have no maturities of consequence until the second half of 2026 and our current revolver balance is $400 million, giving us approximately $550 million of availability. As Dave referenced earlier, we expect to be a net seller for the year, and the use of near-term asset sale proceeds will pay down the revolver, which, combined with improving fundamentals, will help to bring leverage down over time. Net debt-to-EBITDA was 6.8x at quarter end, down slightly from 6.9x in Q1. Turning to guidance. Based on year-to-date actuals and taking into consideration the factors impacting performance that Dave highlighted in his remarks, we have adjusted our guidance ranges for 2025 for same-store growth and core FFO per share and now expect same-store revenue growth of negative 2% to 3%, same-store OpEx growth of 3.25% to 4.25%, same-store NOI growth of negative 4.25% to 5.75%, and core FFO per share of $2.17 to $2.23. Additional guidance assumptions are detailed in the earnings release. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions.

Operator, Operator

Our first question comes from Michael Goldsmith with UBS.

Michael Goldsmith, Analyst

My first question is about the updated guidance. At the beginning of the year, you outlined various scenarios that support the midpoint and the higher end at the low point. With this updated range, can you explain the scenarios needed to reach the different figures, including the high end, low end, and midpoint, along with the macro expectations for the second half that are necessary to stay within that range?

Brandon S. Togashi, CFO

Yes, Michael, this is Brandon. Thank you for your question. I will center my comments around the same-store revenue growth, as that was the most significant change impacting the same-store NOI, which is the main factor in adjusting our core FFO per share guidance. For same-store revenue, at the midpoint, we expect to be at or near the peak occupancy levels typical for this time of year, followed by a decline as we move into the latter half of the year. Dave noted that at the end of July, our occupancy was down 150 basis points. We are forecasting an occupancy trend at the midpoint that is similar to last year's, including a typical seasonal decline that would keep us around that year-over-year difference of minus 150 basis points, give or take. We also anticipate a seasonal decline in street rates, which will affect the rate roll-down between move-ins and move-outs. Overall, we expect our contract rates to follow a similar trend to last year, where we were flat year-over-year on in-place contract rates. Assuming our predictions hold, we expect to remain relatively flat year-over-year. Additionally, we expect higher discounts and concessions to continue on a year-over-year basis. These factors contribute to our expectation of a 2% decline year-over-year in the second half of the year, which, when combined with our first-half negative 3%, leads us to a midpoint full-year estimate of negative 2.5%. The high and low ends depend on whether conditions improve or worsen compared to what I outlined. I wanted to emphasize the core midpoint of our guidance. In response to your last question, the midyear revision is much less reliant on the macro environment than it was at the start of the year. We now have six months of reported information and seven months of operational data as of July. We're only projecting five months ahead, and we've seen how the key spring and summer leasing season has unfolded, whereas at the beginning of the year, our projections were more influenced by anticipated macro improvements.

Michael Goldsmith, Analyst

Just as a follow-up, given where your shares are trading, how are you thinking about share repurchases? And there was a little bit of a maybe lower volume of acquisitions. So maybe walk through kind of the capital allocation thought process and between share repurchases and acquiring new properties.

Brandon S. Togashi, CFO

Yes, absolutely. The opportunity for us to buy back our shares is present. We have a strategy that we reestablished late last year. We find the current stock price to be very appealing and significantly below its fair value. However, as you pointed out, we'll weigh those decisions against our capital plans and available resources. The acquisition landscape is quite competitive, as Dave mentioned, and he can elaborate on that later. The costs associated with acquiring single properties versus investing more broadly in our own operations are all factors we need to consider. Nonetheless, we will proceed carefully and maintain a disciplined approach while also keeping our balance sheet metrics in mind.

Operator, Operator

Our next question comes from the line of Samir Khanal with Bank of America.

Samir Upadhyay Khanal, Analyst

I guess, Brandon or Dave, given some of the pressures you've talked about in the markets, whether it's Atlanta or Phoenix, how are you addressing your ECRI strategy? I mean have you seen any sort of customer behavior changes and maybe even an increase in churn I guess just around your ECRI strategy would be helpful?

Dave Cramer, President and CEO

Yes. Thanks for the question, and thanks for joining today. I'd say, on a whole, we've seen no significant changes in the program, the acceptance of the level of expected turn created by the ECRI program and then the net output of the revenue gains we're getting out of it as a whole, no changes. We've actually dialed in a little more areas where maybe we could be a little more assertive on maybe a magnitude just based on risk factors and things like that. I would tell you, as we went through the pro transition in the back half of last year and really the first quarter of this year, the team worked very hard at working through that backlog of customers that hadn't had a rate increase. And so we pushed quite a few rate increases through really the last couple of months of last year and the first part of this year and had good success there. But I think we learned a couple of things just we work through the magnitude of those customers and how many rate increases we push and understanding what that churn looks like, we're able to dive in a little bit more on our risk scores about maybe pushing some longer-term tenants in that existing pro base. But we're happy with the outcome. But again, every time you get more data points, you learn, but the program as a whole is still very stable and doing what we needed to do.

Samir Upadhyay Khanal, Analyst

Got it. And another topic that has come up is the dividend, right? I mean, given we'll see where our numbers shake out for next year from an AFFO perspective, but how should we think about the dividend given where the AFFO payout ratio is?

David G. Cramer, President and CEO

Yes, good question. We certainly know that we're at a higher payout ratio than we've ever been, and we're currently above the payout that we're earning. And I would tell you, our Board is very thoughtful as we are as a leadership team on how we evaluate the dividend policy and the payout ratio. We routinely discuss the current state of our business as well as the near and long-term outlooks. Our Board has insights to our initiatives, our strategies, and what the company is deploying. They have very deep knowledge of the self-storage sector and the dynamics of the self-storage sector. I would tell you, I think the Board understands the long-term plan as well as the impact of the cycles of the sector. So I think it also plays into our ability to really make a meaningful improvement in a relatively short time frame because of the short contract rates that we have and the short month-to-month leases we have. I think our Board has a long-term view and has a good understanding of where we're at and where we're headed.

Operator, Operator

Our next question comes from the line of Eric Wolfe with Citibank.

Eric Wolfe, Analyst

For your move-in rent data on Page 21 of your supplemental, I was just curious if you could tell me sort of what concessions or promotions are included in that number? And whether you think that number is a good forward indicator of where your average annualized rental revenue will eventually go? So actively, if we look at the sequential or year-over-year changes, and those moving rents, does that kind of eventually tell us where you think that annualized rental revenue will eventually go?

Brandon S. Togashi, CFO

Yes, Eric, this is Brandon. I don’t have a specific adjustment to the move-in contract rate since it reflects annual discounts. We evaluate discounts on a total dollar basis, and historically, we have discussed it in terms of the percentage of total revenue from discounts. This percentage was lower for a long time during the pandemic when the fundamentals were stronger. We're now returning to more normalized discount levels, typically between 2% and 3% of revenue. Recently, we’ve been strategically using discounts to minimize the immediate impact of ECRI on customers, especially given the challenges in the last few years, which have introduced reputational risks in the industry. We're exploring various methods to acquire customers and adjust their in-place rates. Regarding your second question, the move-in rate does not necessarily predict the long-term in-place contract rate due to the variability of street move-in rates and the influence of ECRI. With our recent disclosures on move-in and move-out rates, you can see the trends. We've maintained stability in the contract rate, if not slight improvements, over the past few quarters due to ECRI. Therefore, it's possible to sustain a strong long-term in-place contract rate even if street rates are currently lower.

Eric Wolfe, Analyst

I understand. As a follow-up, in your opening remarks, you mentioned the revenue per available square foot for each month, noting it was improving in the second quarter and reached negative 1.6% in July. RevPar typically serves as a solid indicator of revenue growth, but there might be some differences. I just want to confirm that your same-store revenue was indeed improving throughout the second quarter and reached about negative 1.6% in July.

David C. Cramer, President and CEO

Yes, that's correct. This is Dave, Eric. We experienced a decline of 4.2% in February, 2.2% in June, and then 1.6% in July. For us, RevPar is crucial for our overall revenue. Your mention of concessions impacts that as well. Additionally, we've adjusted our asking rents and market position to facilitate a more manageable rent reduction while maintaining our desired customer count and attracting the right clientele. Implementing discounts is a short-term tactic. If we're able to secure better asking rents and maintain the desired move-in volumes, utilizing a one-time discount or half-off the first month will help, though it does not reflect in the rate and effectively drags down revenue. We are pleased with our current rent roll-down, which has decreased to around 20 from a peak of 38 last October. We are focused on aligning our ECRI perspective, customer account goals, and discount strategies to attract the right customers and achieve the value we're seeking from rentals.

Operator, Operator

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

Robin Magnus Haneland, Analyst

This is Robin Haneland, sitting in for Juan. Just curious, could you discuss the competitive landscape from public payers and institutional portfolios in your markets?

Dave Cramer, President and CEO

Yes, certainly. This is Dave. Thanks for the question and for joining. This year, we believe that the new supply and the amount being added has likely peaked in many of our markets. As a result, from a competitive standpoint, there's not a significant increase in new supply; rather, we're focusing on absorbing what is already in the markets. This situation has contributed to greater stability in asking rents. The first half of the year and into July has shown more consistency in the competitiveness of asking rents. It seems that occupancy levels have been maintained through the first six months, allowing for a slightly better pricing position due to this stability. We've noticed this trend in our portfolio as well. In July, we actually managed to increase occupancy, which was something we didn't achieve last year, and we also saw street rates hold steady and improve. We expect the street rates to show a year-over-year positive change in October, September, and August due to competitive comparisons from last year. Overall, we are pleased with the stability in asking rents and how we are able to position them in the market.

Robin Magnus Haneland, Analyst

And could you elaborate on the green shoots in your new marketing strategy? And what gives you the confidence on the implied second half same-store revenue to accelerate?

Dave Cramer, President and CEO

Yes, that's a great question. As we transitioned to Pro, we made significant branding updates in many markets, including the launch of nsastorage.com, which consolidates all our brands under one domain. This rebranding effort can introduce some disruptions in our market positioning and visibility, particularly how Google perceives us and our visibility scores, which affects how customers find us. Consequently, we've increased our marketing spend in those rebranded markets, particularly within the pro segments. We've also enhanced our paid search strategy by better positioning our ads and utilizing more automation and advanced technology than before. This has resulted in higher marketing expenditures, but we're seeing significant improvements in demand at the top of the funnel. We're now focusing on converting that demand into actual sales. Some positive indicators of this are that we achieved occupancy growth in July, which is a contrast to last year, and we successfully onboarded more customers in late June and throughout July. Early data from August also shows stability, which we find encouraging. Overall, we feel optimistic about our ability to attract and acquire new customers.

Brandon S. Togashi, CFO

And Robin, I want to address your question about our confidence regarding the latter half of the year. Referring back to what we discussed with Eric, I want to clarify that the negative RevPar figure of 1.6 we mentioned does not account for concessions. Therefore, I do not anticipate the year-over-year revenue growth in July to be exactly negative 1.6. It will likely be worse due to discounts, and that RevPar figure also omits bad debt and various fees and ancillary income. However, I expect the July year-over-year revenue growth to exceed the negative 3% we recorded in the first six months. I just want to provide some specific data points alongside what Dave mentioned to explain why we have confidence in the overall trend and the sequential improvement.

Operator, Operator

Our next question comes from the line of Michael Griffin with Evercore ISI.

Michael Anderson Griffin, Analyst

Could you provide more insight on the delays regarding the benefits of the pro transition? It appears that the properties are consolidated on one platform, which might indicate they aren't competing for revenue. Are there backend synergies at play? I'm trying to understand the reasons behind the delays in realizing the benefits you had anticipated earlier in the year.

Dave Cramer, President and CEO

Thank you for joining. That's a great question. In our view, we really got everything organized by December of last year. From our team's point of view, this is the first time I've been with NSA in a public capacity, stepping away from the private side of secured carrier in five years, where we haven't encountered a transition involving store absorption or some internalization change. The team has now had four to five months of focused effort, which is important as we move into this transition phase. We acquired a significant number of stores over a short period of five to six months, consolidated them into centralized portfolios, and overhauled all the technology. As I assess our progress, we anticipated being slightly further along, but external factors such as economic conditions and the housing market have affected us. Many of these pro stores are located in the Sunbelt, which also presents challenges. We have Florida, the Gulf Coast of Florida, the West Coast, Phoenix, Dallas Fort Worth, and Las Vegas in this mix. These markets pose difficulties. As mentioned previously, rebranding is a time-consuming and effort-intensive process. I believe the team has performed well, but there is still room for improvement, and we will continue to work on that to gain more momentum. The introduction of a new domain name, brand consolidations, and the integration of new brands and end markets collectively contributed to us falling behind our initial expectations.

Michael Anderson Griffin, Analyst

Dave, appreciate the context there. And then I know you mentioned that at least in your call center sort of trying to leverage AI to see some benefits there. But I'm curious from a customer acquisition standpoint. I mean I imagine that most of your inbounds are still through kind of traditional Google search means, but are you able to kind of see any impact or benefit from searching with AI tools, whether it's ChatGPT or anything of the like. Just wondering kind of how that customer is attracted to potentially renting a storage unit?

Dave Cramer, President and CEO

It's an excellent question. I think it's too soon to fully grasp the effects of chat and AI technology on consumer shopping behaviors. Clearly, consumers have adjusted their shopping habits, now using their phones to ask more complex questions. Consequently, the technology needs to provide better, more sophisticated responses. From our perspective, our team has invested considerable time and continues to analyze how to achieve desired outcomes. Essentially, Google's goal is to understand user queries and guide them to results. We're revisiting our website content to ensure it is well-phrased, user-friendly, and optimized for chat interactions so that when a customer searches for a storage facility, we present ourselves effectively. This landscape is rapidly evolving and will continue to be dynamic. We aim to stay updated on these developments and adapt accordingly. Internally, we're pleased with how our platform is used, particularly with our agent, Alexis, who has successfully managed 15% of all calls to our call center, resolving queries without the need to transfer them elsewhere. This efficiency allows our team to focus on calls that require a personal touch. Additionally, we have introduced My Storage Navigator in our stores, enabling customers to scan a QR code with their cell phones and complete transactions without needing a manager on site. Currently, it operates through a web-based platform but can also be launched as a downloadable app. We are committed to understanding how consumers prefer to interact with us and adapting our technology accordingly.

Operator, Operator

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

Todd Michael Thomas, Analyst

I just wanted to follow up on a few things related to the pro transitions and the consolidation of banners. With regard to the web search and some of the comments that were made, where are search rankings and conversion rates today relative to where they were before the pro transition? Can you give us a sense how far maybe some of those metrics fell off and sort of where they stand today?

Dave Cramer, President and CEO

Yes, Todd, it's Dave. Thank you for the question. We have definitely improved our visibility score, which is a key metric for us in all the markets where we've consolidated brands and transitioned them to a single domain name. This has significantly enhanced our performance in keyword searches and our overall rankings, making it easier for consumers to find us. We're aiming to be in the top three range and are making strides towards that goal nationally. For example, in Florida, our visibility score was nearly 11 before the transition and now it's at 6. While we're seeing improvements in our desired markets, this is an ongoing process. It's not solely reliant on paid search; it also involves factors like review scores, our presence in local search results, and organic reach. We've made notable progress there. Due to the platform switch, we don’t have all the consolidated data from the previous websites, but on our platform, we've seen about a 13% to 14% increase in traffic to the top of the funnel compared to a year ago, indicating that more people are visiting our website for shopping. This increase has resulted in a 6% to 7% rise in opportunities, such as reservations or quotes, among the stores for which we have year-over-year data. Overall, we believe that the initiatives we've implemented are yielding positive results, but we're committed to continuous improvement as we learn and move forward.

Todd Michael Thomas, Analyst

Okay. And then with regards to the use of concessions and discounts, did that increase throughout the period and into July? Or have you now been able to ease up a little bit? And was the implementation and response from the use of concessions, was that more broad-based across the portfolio? Or was it primarily in the markets that remain a little bit softer?

Dave Cramer, President and CEO

I believe we were more assertive in the softer markets. In the last couple of months, as we discussed in NAREIT, we focused on specific unit types and sizes. We not only reduced prices but also decreased the square footage by about 5 or 6 square feet per rental. We were detailed about the use of concessions related to unit types and sizes, and we conducted some promotions on our website for particular unit sizes, which proved to be successful. We found traction in renting and targeting specific unit types and sizes, and many of the concessions were focused on that aspect.

Operator, Operator

Our next question comes from the line of Jon Petersen with Jefferies.

Jonathan Michael Petersen, Analyst

On the same-store revenue guidance, call it, about 250 basis points. Are you able to parse out, I guess, how much of that is related to the housing market being weaker than your initial forecast? And how much of that you would ascribe to the pro internalization challenges?

Brandon S. Togashi, CFO

It's challenging, Jon, as you can imagine. However, when we provided guidance in February, we mentioned that the lower end of our projections was based on a lack of significant improvement in housing and muted demand compared to the midpoint and higher end of our guidance, which anticipated stronger occupancy gains. At the midpoint, we projected a 250 basis point increase in occupancy from peak to trough, which we didn't see this year. Given the macro situation, we were clear in February that if you looked at existing home sale data as one indicator, it's not the sole source of our demand, but as a related data point, we can see that it hasn't improved significantly over the past six months. So, based on that, you would be at least at the lower end of our previous range. Additionally, when you consider the unexpected prolonged challenges that Dave mentioned regarding the pro transition, that leads us to our revised range now.

Jonathan Michael Petersen, Analyst

Okay. All right. That's really helpful. And then I guess on the pro internalization challenges, is it specific pro portfolios that are harder than others maybe to integrate? Or would you describe the challenges as more broad-based across all the pro portfolios?

Dave Cramer, President and CEO

I think we've experienced success, but it's likely more influenced by market conditions than by specific pro properties. As I mentioned earlier, some of these portfolios have a higher concentration of pro stores in particularly difficult markets. Take Phoenix, for example, where we only operated two corporate stores, while the remaining stores were managed by pros. We had to bring in as many team members as possible and add leadership to that market, followed by a rebranding effort. On top of that, it's an extremely competitive market with a lot of new supply and various developments happening in Phoenix. So, considering all these factors, I wouldn't say it's just one specific set of pro stores that are facing greater challenges; it seems to be more about the market as a whole.

Operator, Operator

Our next question comes from the line of Spenser Glimcher with Green Street.

Spenser Bowes Glimcher, Analyst

Maybe just 1 for me. On the disposition front, can you just talk about how many properties you currently have earmarked for sale just over the near term? And then where has pricing been in terms of cap rates on recent acquisitions or dispositions, excuse me?

Dave Cramer, President and CEO

Thank you for joining us and for your question. We have identified a list of stores we are examining for either a potential disposition strategy or ways we can invest capital to enhance their market positioning. We expect to provide more details on this in future calls. Our Board and leadership team are still working on a strategy for reinvesting in our portfolio, focusing on its long-term health and success, and how we can better utilize our existing assets. We are pleased with the progress we're making on sales. Recently, we successfully sold 10 properties located in smaller markets where we didn’t have significant scale. These properties sold at a cap rate below 6%, reflecting the strong demand for the assets we are offering. There is a robust interest from buyers in the products we are working with, and we are satisfied with how things are proceeding.

Operator, Operator

Our next question comes from the line of Ravi Vaidya with Mizuho Securities.

Ravi Vijay Vaidya, Analyst

I wanted to ask a bit about the Portland market. It really stood out as a positive same-store revenue growth. And maybe I just wanted to know what are some of the demand drivers here? And maybe what led to that outsized result versus maybe some of the other markets that are inflicted with higher supply?

Dave Cramer, President and CEO

Yes. Good question, Ravi. It's Dave. I think Portland is really a story if you think about self-storage as a sector and what happens in self-storage. We have a lot of well-positioned assets. It's a market we've been in for a long time, starting back with the original brow and the Northwest South storage. A lot of knowledge there, a lot of success there. But Portland went through an over-development cycle just prior to COVID there in '19, where there was just a tremendous amount of new supply built and supply got out in front of demand. And Portland had to cycle through COVID helped mask kit for a couple of years, but Portland really had to cycle through a tremendous amount of new supply. The reason I say that is it shows you the strength of the sector when everything comes back in balance. Portland itself as a market seems to be stabilizing, and it seems to be a little more healthy than maybe it has been in the past 2 or 3 years. But what really has come back in balance is the supply-demand ratio of product and consumer looking for product. And it's allowed us to obviously get occupancy back. It's allowed us to have some pricing strength, not just us. I think everybody, if you heard calls reported that Portland is one of the markets that was starting to perform well. So probably why I like this sector. I mean, if you keep supply and demand in balance, things work very well. And when you get it overbuilt, and if building slows down like a cycle we're going to head into where new supply is starting to come off its size, the sector will grow into itself, and you'll have good output when you're done.

Ravi Vijay Vaidya, Analyst

Got it. That's really helpful. Maybe just one more here on your acquisitions guidance. I guess, why lower it right now and maintain the disposition guidance? Why not match fund the 2 of them? Or do you see better opportunities to use the disposition capital at this time?

Dave Cramer, President and CEO

Yes, that’s a great question. There are a few factors at play. We're being very patient and disciplined with our capital. If the right properties come along, we would definitely consider buying. We’re reviewing many deals, but the current environment makes it tough to align our cost of capital with the types of opportunities available. As I mentioned earlier, we're also focused on reinvesting in our existing portfolio to enhance performance. When considering how to utilize our capital, some funds will be directed toward our own assets, which could yield better returns than purchasing unknown external properties. We plan to stay active in the market. Our joint venture is eager to acquire properties, which provides us a solid source and cost of capital. However, the balance sheet situation is a bit more complex right now.

Operator, Operator

Our next question comes from the line of Ron Kamdem with Morgan Stanley.

Ronald Kamdem, Analyst

Just 2 quick ones. Going back to sort of the pro internalization, maybe can you just remind us what the sort of occupancy and rent delta was that you were trying to close? And I could appreciate that may be a little bit delayed. But how far along are you? Are you 20%, 30% of the way? Just trying to get a sense of how much more upside there is to go?

Dave Cramer, President and CEO

Yes, Ron, thanks for joining. Good question. I'll start with the occupancy. We've not been able to meaningfully close the gap on occupancy yet broadly. We've had some markets where we've had successes. But overall, as you can see from our initial guidance to where we're at today with our full portfolio, we did not see a spring leasing season we thought we'd see in volume. And obviously, the pros are in more challenging markets. So obviously, a lot of pressure around building occupancy there. So I think there's a lot of upside as things turn and as opportunities present themselves and the conditions change to close that occupancy gap. We still believe in that. We still believe there's room to grow there. And the marketing spend and the rebrand start to take hold, some of those things will start to help that. From a rate perspective, we did a good job getting through the existing tenant base, and we're able to work fairly well through the ECRI piece of that and so we're able to move contract rates in those particular pro stores and move RevPar from those pro stores because of the existing cement base. So I'd say we're probably 70% through with the first wave of that, and then we'll start to roll them into the traditional platform where you have cadence and magnitude following what our platform is. So more upside on occupancy but still some to go on rate.

Ronald Kamdem, Analyst

Really helpful. And then my second question was just on expenses. I think you've talked about sort of the marketing spend, but maybe just updated thoughts on just property taxes and any other sort of line item. I know it was a pretty small move on the same-store expenses, but just any color there.

Brandon S. Togashi, CFO

Yes, Ron. Regarding property taxes, we faced a challenging comparison because of a one-time benefit we had in the second quarter last year. Without that, the 8.5% year-over-year growth we reported for the second quarter would be closer to 3%. For the first six months, we nearly reported a 7% increase year-over-year, but if we exclude that one-time benefit from the previous year, it’s around 4%. So, we expect that growth to fall into the 3% to 4% range for the full year, indicating a decline in year-over-year growth in the latter half of the year. On marketing, as Dave mentioned, we were actively leveraging that along with discounts. We've been assessing the effectiveness of our paid search campaigns by market, and we believe there’s potential to reduce spending in some markets where we haven’t seen as much success compared to others. Year-over-year, marketing will still be the fastest-growing expense category, but it won’t match the significant growth seen in the second quarter. For the entire year, we still anticipate a growth rate of around 25% to 30% for marketing. One more point on personnel: you may notice that this line item is expected to decrease in 2025 compared to last year due to adjustments in staffing levels at the legacy pro managed stores, an initiative we began last July. Additionally, as we took over those stores, there was a bit of attrition in our employee base, which we have now stabilized at the beginning of this year. As we approach the second half of the year, looking at the trailing five-quarter data, we expect tougher comparisons. We experienced negative growth in personnel in the first half, but we anticipate low to mid-single-digit positive growth in the latter half of the year.

Operator, Operator

Our next question comes from the line of Wes Golladay with Baird.

Wesley Keith Golladay, Analyst

I just want to go back to the My Storage Navigator. Has that been rolled out at all the properties? And what is your goal for that over the next 2 or 3 years for a percentage of leases done through that system?

Dave Cramer, President and CEO

Good question, Wes. It has been rolled out and is currently in its early stages. We're closely monitoring customer behavior, such as how often they approach the door and at what times during the day. I believe this tool can be an effective way to enhance how customers transact with us. At the moment, it seems that this tool could account for about 4% to 5% of our rental volume at the store level in the next six months. Those who visit the store are likely to use this tool around 4% to 5% of the time, and I think that number could increase significantly. It's user-friendly, effective, and customers are expressing a preference for this method of transaction today. If we consider the situation from before COVID to now, we weren't completing leases online before the pandemic. Currently, approximately 65% of our total rental volume is processed through some digital platform without ever involving the store, and around 40% is done entirely by the customer themselves. We see substantial opportunity in this area.

Wesley Keith Golladay, Analyst

Okay. And then one more on the AI. Is this still too soon to put numbers on the aggregate opportunity, whether it's the cost savings from the call centers or the leasing you just talked about, what are you thinking about as far as the total opportunity?

Dave Cramer, President and CEO

It's too early to make any definitive statements, but I'm enthusiastic about it. There are numerous possibilities to explore, such as call volume and the effectiveness of that volume, as well as how it can assist our call center agents and store staff in performing better. Let's observe how it develops, and we'll continue to share any relevant statistics we gather, but I believe it's still premature to assess its full potential.

Operator, Operator

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Unidentified Analyst, Analyst

This is Sam on for Tayo. I hope I didn't miss this, but can you guys talk about how synergies come in versus the initial expectations as it relates to the pro integration?

Dave Cramer, President and CEO

Yes, Sam, thanks for joining. We've discussed operations and costs quite a bit during the call. We've achieved good payroll savings and encountered the general and administrative savings we anticipated with the pro internalization. We were pleased with those initial results. However, when it comes to potential upsides in revenue and NOI improvement, we haven't yet realized what that could be. This is largely related to the rebranding process and how long it's taken to gain traction. Additionally, market conditions in many of these areas remain challenging, so we haven't been able to significantly improve revenue and NOI. Once we do, it could represent a substantial portion of our NOI, as those stores account for nearly 40% to 45% of it. But currently, the expected synergies in revenue and NOI have not materialized as quickly as we hoped.

Operator, Operator

Our last question comes from the line of Brendan Lynch with Barclays.

Brendan James Lynch, Analyst

You had a lot of good color in there about My Storage Navigator and AI agents and the new website. When you think about your technology suite as a whole in your data analysis and the algorithms, how effective do you think it is now versus where you want it to be at some point in the future when it's honed to perfection for lack of a better term? Like what is the gap between where it is now and where you're trying to get it?

Dave Cramer, President and CEO

That's a great question. I like to compare it to baseball; we're in the early to middle stages of development for many aspects. Having the necessary tools established is a significant achievement for us, and being past the development phase is also a major milestone. The real performance improvement comes when we start applying data, allowing it to learn, and making adjustments as needed. For example, our new paid search bid model represents an opportunity for growth. Overall, I believe there are still many opportunities for us to explore concerning our website, AI technology in the call center, and how we appear and conduct transactions online.

Brendan James Lynch, Analyst

Maybe just to follow up on that. If I understand correctly, it sounds like what you need more so than anything else now is data. Given the size of your portfolio, it's just data collection over a longer period of time relative to maybe some of your larger peers that can collect a wider swath of data at any given point in time? Like are you going to be able to catch up to them just with the passage of time?

Dave Cramer, President and CEO

Yes. And I think in today's world, we'll catch up quicker because of the systems that are available. If we were doing this 10 years ago, you would not have the sophistication of modeling, sophistication and machine learning that we have today. So yes, time will help. Every time you run a month worth of paid search and you watch the keyword results and the success of the results and where your money went, that model adapts and it learns and it learns at a very fast pace. So yes, time will certainly help us, and it's always beneficial to have an extra data point, but I think we can close the gap very rapidly versus if we were trying to do this 10 years ago.

Operator, Operator

There are no further questions at this time. I'd like to pass the call back over to George for any closing remarks.

George Andrew Hoglund, Vice President, Investor Relations

Thank you all for joining our call today, and we look forward to seeing many of you at the various conferences in September.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.