Q4 2019 Earnings Call

Markets that experience the impact of new Supply early in the cycle are seeing a solid slow down and expected future deliveries in New York City. We expect deliveries to taper off through 2020 and those expected deliveries are increasingly in submarkets where they will not directly compete with an existing CubeSmart store. Looking ahead factoring in our ongoing Innovations in technology pricing and marketing as well as assuming our current Supply Outlook hold and no downturn in the US economy the deceleration in our same-store Revenue growth should begin to stabilize in the latter half of this year and we are cautiously optimistic about a gradual strengthening of fundamentals in twenty Twenty-One. Now turn the call over to Tim Martin to walk through our information in more detail Tim.

thanks, Chris and

Thanks to everyone on the call for your continued interest and support as Chris touched on our first quarter results rounded out of busy and successful year across many fronts same-store performance included headlines result of 1.6% Revenue growth and 4.6% expense growth yielding noi growth of 4% for the quarter for the full-year same-store revenues grew 1.9% of expenses grew 4% leading to growth of 1.1%

Average occupancy in the fourth quarter was 91.7% up ten basis points year-over-year and quarter ending occupancy was also off ten basis points closing out at 91.2%

Same-store expense growth for the fourth quarter was in line with our expectations property taxes were again this quarter a large component of the increase in overall expenses up 5.1% over last year our marketing increase 22.1% in the quarter and our Property and Casualty Insurance costs were up again following our annual renewal back in May.

we

Ffo per share is adjusted of $0.42 for the quarter which was at the high end of our guidance range for the year reported ffo per share of a dollar sixty-nine was a 3% increase over 2018.

We we remain active and disciplined in our pursuit of external growth opportunities during the fourth quarter. We closed on the purchase of five properties for 59.6 cuse me 57.9 million and that brought our full-year acquisition activities at 29 stores for 246.6 million.

During the quarter. We also completed the sale of one store in Texas for a total sales price of 4.1 million.

On the third party management front we finished off another productive year by adding 46 stores in the fourth quarter bringing our 2019 total to $199 new stores added to our program. We ended the year with 649 managed stores allowing us to enhance our Market position and expand to CubeSmart brand.

on the balance

Cheat we continue to focus on funding our growth in a conservative manner that's consistent with our Triple B B Double credit ratings.

We did not issue any shares under our at-the-market Equity program during the fourth quarter for the year. We raised 196.3 million of proceeds selling shares at an average price of $33,000.64.

In October, we access the public debt markets issuing 350 million dollars of 10-year unsecured senior notes with a 3% coupon Arbonne deal in the fourth quarter continues to demonstrate our commitment to Europe using the fixed-income market as a primary source of capital to fund our growth and was and was our second Bond issuance of 2019 bringing our total to seven hundred million of new issue during the year off.

In addition to our 2019 ATM activity and bond issuances your recall that we extended and expanded our unsecured revolver earlier in the year two seven hundred fifty million all of this activity further strengthen our balance sheet as we closed out the year and at year end, we had only 3% of our debt maturing and mm twenty and Twenty-One combined a weighted average Years Years maturity of 6.4 years. We had no floating rate debt less than 2% secured debt to gross assets and leveraging coverage metrics that have us in a very strong balance sheet position with significant liquid.

and

We announced a 3.1% increase to our quarterly dividend bringing our dividend to a dollar 32 per share on an annualized basis and based on the midpoint of our 2020 Guidance the increased divorce and suggest some ffo payout ratio of 78.1%

details of our 2020 earnings guidance and related assumptions were included in our release last evening our 2020 same-store property pool increased by eleven stores. Same Stone new guidance assumes little impact from occupancy and is again overwhelmingly driven by expected growth and met effective rates.

Consistent with prior years. Our forecasts are based on a detailed asset by asset ground-up approach and consider the impact at the store level if any of competitive new Supply delivered in 2018, June 2019 as well as the impact of 2020 deliveries that will compete with our stores.

Embedded in our same-store expectations for 2020 is the impact of new Supply that will compete with approx 45% of our same-store portfolio. So from a trendline perspective in in 2017, we had 25% of same stores impacted by Supply guy that grew to 40% in 2018 then grew again to 50% in 2019. So it at 45% for 2020 we're starting to see signs of a lessening impact from new supplies. We move forward that said obviously the impact of new Supply to operating fundamental still being felt the impact to an individual store facing new competition and its competitive trade Rank and range based on many factors, but overall we expect the group of stores impacted by new Supply to have Revenue growth 200 to 300 basis points lower than the stores that that are not impacted by new Supply.

our newly-developed stores and

Stores and Lease up continue to make progress from an occupancy standpoint in line with our expectations. We believe our development Pipeline and non-stabilized store Acquisitions will create meaningful nav growth at stabilization. But of course in the short-term those Investments create a drag to our ffo per share our ffo guidance for 2020 is impacted negatively by seven to eight cents per share as a result of this delusional you'll note that the dilution in 2020 is down about two cents per share compared to 2019 as stores are leasing up unless it's been added to our development pipeline.

Our guidance includes the impact of Acquisitions. We've closed to date or have under contract but does not include the impact of any speculative acquisition or disposition activity as levels of activity and timing or difficult to predict.

Thanks again for joining us on the call this morning at this time Sean. 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 start then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to our question today will come from Shirley. Woo with Bank of America Merrill Lynch, please go ahead.

Hey, good morning out there.

Good morning. My first question is on revenues. So we're up 10 basis points quarter-over-quarter eventually, but your guy doesn't 505 that's for the celebration into next year. So I'm just trying to get a little bit more color on while they're what happened with that Ford number whether that indicates stabilization or that contain deceleration on Thursday and what you're seeing in 1 q u a date in terms of demand indicate one or the other.

I'll start with the with the Top Line growth rate. Thanks for the question. It is a as we've been discovered. We spoke about a lot of meetings at read and and our prior calls as we get deep into he's into the development cycle. There's obviously a a big focus on growth rates year-over-year and the reality is our expectation as we as we get here. And and and think about the trough in impact on top-line growth, you know being at least in sight is that we're not going to see a clear inflection points than likely in our portfolio and likely and others to where you you get to a point and and you see re acceleration and from there it grows in a linear fashion. We don't expect it to be linear the growth rate in to 2020 to be in a linear fashion. I think it'll bounce around a little bit I think early in 2020 week Thursday.

Play some some positive impact and then I think RX.

As you would see growth rates flattened out in the back half of 2020 and surely I think your second question was was along the lines of what we've been seeing so far this year in 2020 from an operating perspective and you know, the the the answer is it's it continues to be very encouraging positive performance from and physical occupancy perspective as we sit here today our occupancy Gap to last year is in the plus 30 basis-point range. So we have seen we've seen we've seen good demand for what is traditionally kind of the slower part of of our Industries Year and that continues however to be you know with its challenges from a pricing perspective given all the new Supply that we've talked about Ad nauseam. So it's encouraging as we start to see the beginnings birth.

You know over the horizon for the busy rental season that if we can head into that with with some good occupancy performance here in the slower times. That is an encouraging sign as we get into the busy rental season both on overall performance, but certainly also from a pricing perspective but you know, we've got another another month or so to go off before we can have have more confidence in that got it that makes sense and visiting to like sense that so you're more expensive to go up 5% in the quarter which was a little bit surprising. So just curious as to what you're seeing on the marketing side as well as your expectations for 2020.

Sure, so it's it's obviously a very competitive playing field across the industry. You've seen significant growth in in in marketing costs across the industry as we have a significant amount of vacancy across the industry to fill we found opportunities in queue for them to productively spend and generate what we would consider to be an accept an acceptable return on that expenditure in terms of the lifetime value of our customers as we head into twenty-twenty embedded in our overall same-store expense expectations and Tim can provide more detail. We would continue to expect to spend aggressively and marketing again, assuming that that we can that we can deliver that customer at a wage.

double cost and that

You know range could be plus or minus in kind of the growth you saw in Q4 and we could see that continue on through the next couple of quarters here and in 2020 Tim any additional color off provide that yeah, I think that's right. I think I think the levels that we've seen in the fourth quarter overall is about plus or minus where we where we would expect the marketing expense line item to be in 2020 page again, not all that dissimilar to the to my commentary on the top line growth. It's going to bounce all over the place based on what we did in 2019 and opportunities that we find in 2020 as we as we enter the years, I would expect I would expect the second and third quarters just for my perspective to have to have the highest growth rates in marketing spend and and the 1st and 4th for orders to be uh, well certainly fourth-quarter be a little bit lower as we ramped up spend here in the fourth quarter of nineteen. The comp will be a little bit different than the balance of the year.

Got it. Thanks for time-pass. Thank you.

Our next question will come from Todd Thomas with keybanc capital markets, please. Go ahead. Hi. Thanks. Good morning. First question. Just following up on the same store guy dead. So it sounds like you expect growth to improve earlier in the year with I guess growth and the first half being higher than the second half is the second half deceleration that you see in the model. Is that more rate drugs or would you expect occupancy to be a little bit more pressured?

Yeah, it's not it's not on the opposite side. I think I think part of what makes the everything bounced around is is it's rate and it's the it's the nature of how we achieve the effective rate given birth strategies both in the period in 2019 and then pricing strategies which are you know yet to be determined as the year plays out in 2020. That's that that often time is what creates some of the month, you know, the volatility and growth rates bouncing bouncing around a little bit.

Okay, and can you just you know, I appreciate the comments on on New York City a little bit but just in terms of the overall same-store forecast. Can you just comment on how you know New York and and also could be Miami in Chicago, you know sort of fit into that, you know those Miami and Chicago both saw sequential improvements as well. I'm just curious if you expect to see, you know continued stabilization there. And in fact, if you look at times have you looked at everything relative to our overall portfolio same-store guidance for how long for 20 20 on the revenue line? We would expect the New York MSA and really even just the individual boroughs collectively to perform in line with the range of expectations. We've provided for the the overall pool. I think the pressure in the New York MSA dead.

For our portfolio is likely.

To be a little bit more pressure in in the suburbs. So North Jersey is seeing Supply Westchester and Long Island are seeing Supply and I think that's the sort of natural outgrowth of the fact that the opportunities and the borough's have largely bulbs and taking advantage of the the change in the in the opportunity Zone legislation is removed about half the available square footage for storage to be built in in the in the borough. So folks am moving out into North Jersey and Long Island. So so again in general I think New York will be in line with the with the same store expectations, Miami.

The markets that saw a supplier early in the early in the cycle, Miami Chicago Dallas, you know generally speaking. I think we'll perform better in 20 than 19 You Know by and large and I think again perhaps towards the higher end of our expectations for the same stock portfolio as a whole those markets that have yet to see Supply particularly in California. We would expect outperform interests the same store expectations taken as a whole. I think again, we continue to see limited new Supply in the markets in which we operate in California and you know, barring wage the impact of of the of the split roll on the ballot here in November and in terms of its impact on real estate taxes and again for our portfolio we suck.

I expect that to be a much.

Lesser impact than it would for for many of our peers who have a a lot bigger problem than we will I think California will continue to outperform and you know, the the the markets in Florida outside of Miami, you are seeing some impact of Supply in a more material way from Tampa all the way down to Naples and I would think those would be some markets that would underperform in in 2020.

All right, that's helpful. And just one last one in terms of the seven to eight sense of dilution from Lisa properties that's embedded in the guidance. Does that include any additional investments in in life? And can you come in on the appetite before for doing additional, you know development here or adding projects to the value creation pipeline? Yeah, the seven to eight cents dilution that's included in the package in the guidance does not contemplate any speculative activity. And so

Then second party question.

What is our appetite we we are consistently looking for the best opportunities to to grow our footprint and and make attractive Investments on a risk-adjusted basis. I think that you know, certainly what you've heard from some of our peers we would we would echo in that the the market for stabilized broker transaction is is is pretty Progressive. And so those yields are are are awfully tight. We're not seeing a tremendous amount of of distress or despair. But certainly there's going to be continuing interest and and likely of accelerated interest of folks that have participated in this development cycle and have stores that are in some form of of early-stage lease up and if those opportunities present themselves at attractive risk-adjusted returns will will continue to be focused on underwriting them and and to the extent that they make sense for us. We'll be opportunistic dead.

Tom just add on to that when you think of

Now where we've been willing to take develop and risk, you know, principally, New York, Boston, Washington, DC.

There's nothing on the radar near-term that would that would pencil out attractively that were pursuing at this time.

Okay. Thank you.

Thanks. Our next question will come from Jeremy with BMO Capital markets, please go ahead.

Hey guys. Good morning, Tim. Sorry if I missed this did you say yet or can you give us an update on his effective rent and all they trended in the four corner? And what sort of Trends you're seeing so far here in 2020.

Jeremy thanks. For the question. I'm going to have my call Button let Chris take that one and I'm sorry and in the struggling a bit here, we're hoping not with the coronavirus the the wage effective rents both in Q4 and and so far this year in in 2020 or or mirroring what we saw basically throughout the years, you know positive and those markets I talked about that haven't seen Supply a little bit less negative and seeing some green shoots and you know, Austin Dallas Houston, even Denver Chicago and then you know seeing seeing the pressure in in Boston in South Florida particularly on the west coast in Brooklyn a little bit better in the Bronx than what we've been seeing in United all together and effective rents are down give a range of

you know 2 and 1/2 to

Percent over what we would have seen in Q4 18 verses nineteen and and basically in about that same range thus far this year.

That's helpful. And on the expense side taxes in particular. This has been you know, a multi-year reassessment cycle. It's obviously causing meaningful pressure on that line. That's just where we at in that process, you know is you know, what's embedded in 2020. Is it another kind of 5% type of increase and you know, how does that impact your outlook going off as we kind of moved Beyond? Hey Jeremy, it's Tim. So thinking about real estate tax expense. If you think about the trend line here over the last couple of years for our same-store pull in 76 in taxes grew 4.3% $18, 7.1% $19, 5.4% And so obviously we've been on a trend line of above inflationary increases as you're well aware of our expectation for 2020 is we're still in that range somewhere in the 5 to 7% range is our expectation for increase in real estate taxes for 2024 the same stores.

You see it getting better as we look a little further out. Yeah, you know, I we talk about that a lot in meetings and I think it's one of those interesting questions because the the oil pressure on real estate taxes are coming from the fact that while while growth is is decelerating from our Peak levels, you know back before the before the development cycle started. We're am still seeing growth and analyze which contributes to higher property values and and higher assessed values. You're also seeing cap rates if they're moving their compressing tighter, which also gives further evidence found and ammunition for taxing authorities to increase assessed values. So, you know, it's it's one of those things to some extent that it's a be careful what you wish for question because the time at which we had ammunition to to go back and Challenge and try to get tax assessment, you know assessed values reduced. We're not going to be talking about real estate taxes. We're going to be talking about like operates are going up or Wireless or are going down.

and so, you know, I don't see anything in the near-term here and and by near-term I would say one two, maybe even three years out that would lead me to believe that there's no

Evidence that real estate taxes are going to get back even to inflationary type increases. I think you're still looking at probably three to five percent type increases over the next couple of years. That doesn't seem that doesn't mean that we're not going to aggressively challenge them and look for opportunities to to offset that through through through challenging the assessed values and and hopefully being successful in some some appeals and obviously all this excludes, California, because what's correct one out there would obviously change the game. That's right. Yeah, hopefully in last question for me Chris is we think about Thursday in your comments on a tapering off. You know, how much of this is is a shift down in capital looking to invest and developers really leaving the market versus major markets being saturated. It is pouring. So that's optionality and capital generally just shifting out in the secondary markets where relative relative to your footprint. It's clearly not as impactful, but perhaps wage

Opportunity remains. Yeah, I think I think that's a great question you I mean, I think it's I think it's just a very nuanced combination of all of the above when you think about my commentary.

About about some of the north Jersey and and Long Island development. It's a mix it's it's folks who may have started by looking in in more urban markets more of the boroughs of finding out that things aren't penciling there or the opportunity is too challenging and and so they kind of move to the to the bordering opportunities. You also then have folks who, you know, look at the data on Supply relative to population population growth et cetera, and you know, look for opportunities in those North Jersey and Long Island markets who are quote out-of-towners. You don't usually have folks who you know who will shift from from a North Jersey Focus to deciding they're they're going to focus in Des Moines, Iowa.

It it usually doesn't operate that way now for those who are Market agnostic, I would think they are starting to and we're seeing the third-party program. They are starting to look at life, you know the more secondary markets.

those markets

That may have not experienced the impact of supply and and exploring some opportunities there to be fair. We don't spend a lot of time digging into that data or trying to assess that because of those those stores are third-party opportunity for us. But other than that, they won't impact are owned portfolio very much so long again, I think there are there will there there should be some levels of Supply being delivered, you know in 21 and 22, assuming the economy remains healthy. I would suspect you would see that start to move into the more secondary markets and away from the you know, the top ten msa's in the US.

Thanks for the time.

Our next question will come from Smith roads with City, please go ahead. Hi. Thanks. I just I wanted to ask you for your your the way you define the New York City folio. What what percentage is actually in New York City versus in the in the suburbs roughly. Yeah from a guy from a percentage of wage by and again, we have some things that will come online this year and aren't stabilized yet, but plus or minus 14% of the light comes from New York City itself.

Okay.

And the rest of it would be more sort of surrounding areas. The rest of it is of the balance of the MSA, which is yeah principally Westchester North Jersey and Long Island. Okay, that's why you would see New York being involved with the overall portfolio, I guess because it's really waited for outside of the city where you're seeing all this new Supply. We were saying that we were seeing a greater impact of new Supply in twenty-five terms of just twenty expected deliveries in North Jersey Long Island and Westchester and we are in in the borough's themselves. Okay, and then I just want to ask you in terms of just pricing strategies and markets where you're maybe seeing or have seen Peaks apply now or is there any kind of change in the way you think about it more maybe occupancy driven so lowering asking rates to get folks in or off even more discounts or how how is this sort of strategy change versus maybe other markets?

Yeah, yeah, there are really two schools of thought that we that we see in the industry.

You have Model A which is really Draconian reductions in market-rate for the customers are coming in. Not not talking about months free. Although we are seeing some folks go with the 50% off the first three months type concept or even a couple months free, but it's generally more, you know, a pretty dramatic cut in the actual rate on the lease in order to gain that occupancy early on in the lease up with the other model is is our preferred model, which is a healthier balance between asking rate and at any sort of incentive. Um, and the reason is it's just impossible mathematically to get that customer who comes in at forty or fifty percent below the existing Street rate for the competitor properties dead.

To ever imagine a path other than just a a very difficult, you know customer relation move where you're giving somebody the bait-and-switch and saying move in at $50 and thirty or forty five days later. You're raising their rent to $100. It's just impossible to ever get them back to Market. So we continue to prefer an approach that is a more gradual wage at higher effective rents. And again, all of our models would tell us for the for the long-term investor that's going to produce the best. I are on that particular development. Now if your motivation is to sell the asset within eighteen to thirty months, you may have a different a different view, which is I want to get some customers into the cubes and then I'm hoping the greater fool Theory will play out and I can convince a buyer to pay me for the opportunity to try to age.

Those in place customers back.

The market over some period of time, but that's that's basically the way your question sort of operates within markets. Thank you. Thanks.

Our next question will come from Cuban Kim with SunTrust. Please go ahead and just going back to your comments about the acquisition markets being tight. You've seen some of your peers go into International markets like Canada or possibly Australia using your peers do like Bridget loans for preferred Investments. What are you guys thinking internally about your external growth opportunity set?

Yeah, we think we have an awful lot of opportunity here domestically and and in more traditional more traditional means looking at Thursday for us on a risk-adjusted basis. If it's attractive, you know, first on the list would be a an open operating stabilized store at an attractive return them because the risk profile relative to any other opportunity is much lower. Those are challenging opportunities to find today where we do think we'll start see more opportunities is something that has a little bit of hair on Thursday, which is in some stage of lease up and coming out of the development cycle getting on the tail end of it here. There's a tremendous amount of opportunity. It may not present us a lot of opportunity in 2020, but I think certainly present a lot of opportunity for consolidation here in the next two to three years.

Okay, and have you noticed any incremental changes to customer Behavior? Whether that be a response to rent increase letters or just shopping more for a price before they move in for a new customer and maybe that's reflected in things like the time they spend on your website, you know versus previous years.

No, no significant change in customer behavior. When we think about health we think about you know, are they paying their rent on time? You know, how do we see Trends in defaults and auctions? All of those metrics have been have been very consistent over the last many quarters am certainly the the the shift we see in all you know sectors retail Etc from from desktop to mobile is real and the ability for that phone number on a mobile device to be able to Simply and quickly price shop is real typically our customers tend to look at three options three providers within their trade ring that hasn't changed over the last many quarters the amount of time they're spending at the margin money.

is is shrinking but

I think that just goes to the gradual maturing of our industry and our product customers are just getting more and more used to shopping online in general more, um shopping on a mobile device and then more comfortable with our with our Industries product and how to use it.

Okay. Thank you. Thanks.

Our next question will come from Jonathan. He's with Raymond James, please go ahead. Hey, good morning, Chris. Thanks for your comments on Revenue growth Outlook in the year end of next year. I think you said Street rates are down two and a half to 5% today. Where do you expect that rate Gap to be by year-end in your Revenue growth Outlook. Is it is it flatters the burn off of promotions on the existing tenants largely getting you to that slowing deceleration in Revenue growth by year end Jonathan. I'll start with a clarification and then and then I'll I'll turn it over to Tim. I'm not Street Race Street rates again, what we're asking face rate for that customer to come in are all over the place and and I would think across the portfolio likely a little bit higher right now than they were at this point last year. The question that I was asked was just effective range when you look at any sort of Internet concession along with any dead.

On a free rent, where's that net?

And that was the number that I I had given and I'll I'll ask him to sort of address the nuances of from from a from a nuanced perspective job that we don't Guide to the individual components up a new growth primarily because they're going to bounce all over all over the place as well. You know, the pricing the pricing system is going to is going to own a property property unit by unit basis try to maximize revenue and at times that'll be driving a little bit more from a from a volume perspective or occupancy perspective discounts going to move all over the place depending on what's the most effective tool at the time and so we you know overall I think the the trend line is likely to be similar to what I described in overall Trends in Revenue growth. And so I think as as as overall Revenue growth flattens out year-over-year in the back half of the year, I think I think that's likely to be the trend in that effective France as well.

Got it. Have you have you looked at?

Greasing the magnitude of frequency of renewal rate increases since existing tenants or seemingly stickier than ever as a way to you know offset those weaker effective rates, you just mentioned wage. Yeah, and and that's something that we have been focused on for a very long time. And so I would I would I would Echo your your your statement that that thing not as sticky as ever and so if they were sticky four years ago, we believe that our systems were maximizing the ability to push at the appropriate at the appropriate time at the appropriate volume to max as the impact that we can achieve from rate increases to existing customers in a way that doesn't impact move out rates in a way that that becomes negative. And so I think to a large we continue to try to find efficiencies on the margin but from from an overall big picture approach standpoint, I think we've been pretty aggressive for a pretty long time. Yeah Johnson, I think those yep.

those industry

Operators who who you know would generally be considered best-in-class have for some time now recognized that that that that's hanging fruit from years back on on the existing customer base thinking about how they may react using technology and systems to test varying options being sophisticated about how we use the data that we have to pass along increases or not. And at what rate and when to the existing customers am looking for ways to use technology to remove fat out of the operating expense lines and and create a more lean process, you know, the reality is a lot of that has been done over the last several years and that sort of low-hanging fruit for those of us who, you know, we're certainly ahead of the curve from a sophistication perspective that low-hanging fruit is is just not they're dead.

Okay.

And then just one more for me. Are you getting any pressure from any of these third-party management owners to you know address the the management fees. Am I know there was a big transition recently, but I've heard anecdotally that maybe some have been lowered by some operators, you know, four to five percent of revenues just due to the increased competition out there any changes being in that in that market? I think certainly you see you see some folks who are trying to build scale and and third-party management page on the on the more aggressive side of of what is market which, you know feels appropriate if you were in any type of business. That's what you would do. We have we have over 200 third-party relationships and and work very hard to to provide value for those customers and I would say the overwhelming majority are wage.

Happy with the with the economic arrangement.

They have with the value that we can provide on the CubeSmart platform relative to the cost that they pay for the value that we're helping them create is a pretty good deal for them.

All right, that's it for me. Thanks for the time. Thanks. Our next question will come from Samir with evercore, please. Go ahead.

Yeah, Chris, good morning. Can you provide some more color on on Houston? I guess do you do you expect that market to stabilize this year seen an improvement in Revenue sequentially for your home spending a lot better if any card would be helpful.

Sure, you know Houston like all of the Texas markets has obviously been impacted by new developments also been impacted by weather and a variety of of other things. So we would expect I that new openings in Houston will will decline 2025 or 2019 not Draconian lie, so you're still seeing new Supply being delivered again. It's a very significant, you know top 5 Ms. Am so that's not that's not unexpected. What you're seeing is that the stores are leasing up occupancies are growing and we would expect relative to our overall guidance. And again, we only have 14 stores in Houston same-store pool that we would see positive occupancy growth birth.

in Houston

In twenty-twenty relative to 2019. We we do not expect to see net effect of rents flip positive. They are gradually getting better off but there's still an awful lot of pressure. And so when you think about where we would expect the same store revenues in Houston on Jun 14 stores, you know relative to what we saw in 2019 going into twenty-twenty. We actually think the combination of some occupancy gains and some off and some lesser impact on net effective rent declines will produce a much more positive result for our portfolio in 2020 than we saw in 2016. I think long-term, you know, the question that I would have for Houston, which is really not any different than the same question. I've been asking about Miami is dead.

Is are we?

Going to see the ability for cities like that to transform themselves into 24-hour Urban downtown cities, you know traditionally in Houston in Miamisburg, the the the downtown areas where where you went to work it was doctors and lawyers. I'm sorry. It was Lawyers and accountants. No doctors who were them during the day they left and went home to the suburbs in the evening. So you're seeing a lot of condo development and an awful lot of vertical self-storage development. So the question is for someone in Houston, who are they going to want to live in a condo in downtown and work there? What demographic is that going to be and if it's an older demographic who wanted me to transportation and entertainment options. Does that older demographic want to pay the 20-plus dollar rents that these stores need to achieve in order to meet their development years?

Or they going to be perfectly happy leaving their possessions.

Outside drive up store in in the suburbs at a lower rent. I I think over the next couple of years those two markets in particular are going to be interesting test cases on how the bulb demographics of our customer may change.

Thanks for that. I guess shifting gears Tim. You know when I look at your guidance, we're GNA. It was up on my math about 10% here and it's certainly higher than a quarterly run rate and 2 4 just want to make sure I'm not missing anything there. Yeah, I think it's I think it's somewhere at eight 8 to 9 % and is reflective of us continuing to build out our our teams in our systems as we've grown our platform bye-bye much more than eight or nine percent.

Okay. Thanks for that. Thanks.

Our next question will come from Ryan with Green Street advisors, please go ahead.

Great thing so ad spending in the quarter picked up as you mentioned just curious if that was more of a volume of ads placed the you know, I assume this is paid search them the number of ads online or if this is a price inflation, you know cost per cost-per-click inflation. It's it's a combination of the two but more heavily weighted towards towards spend for auction keyword. So how we would think about how much we're willing to pay wage and how long we were what's the budget during the course of that day for those keywords drove the majority of the increase.

Okay, and would you assume you know, so the midpoint of expense guidance assumes an acceleration expense growth for the year is that primarily driven by marketing or or what are the what are the drivers there for expense growth next year real estate taxes it real estate taxes. I certainly the biggest one we talked about earlier that's in the you know our expectations that's in the five to seven percent range. And then you're you're obviously seeing we have an expectation in that, you know twenty to thirty percent type range for marketing expense growth throughout 2020 on Average Joe's your last pressure point is personnel and certainly with the economy where it is very very healthy. We're seeing, you know, we're seeing some some pressure on hiring as well.

Okay. Great. Thanks. Thanks.

Our next question will come from Michael Miller with JPMorgan, please go ahead. Yeah. Hi, I guess looking at your acquisition guidance of the 75 to 150. You talked about different types of jobs, you know Investments whether it's stabilized or low cap rate stop or maybe value-add. What are you contemplating in that in that range? I'm assuming it's probably not the fully marketed low cap rate stabilized factions, but is it properties where you're going to have a very low going in yield or you're looking for something with an immediate inhaled? How should we be thinking about that?

Thanks for the question and and and welcome.

To to our earnings call the the guidance that we provide is more of an indicator as to as we're entering the year, you know from a big picture standpoint. Where do we think God where do we think volume of opportunities are likely to present themselves. The the impact of of any speculative acquisition activity is not in our ffo guidance. And the reason it's not because the answer your question is very very difficult. We're not targeting necessarily any particular type of acquisition. We're targeting attractive risk-adjusted returns, and if we don't find any we won't buy anything if we find five hundred million dollars worth of attractive opportunities, and that's what we'll do and so, you know, it's really difficult question to answer. It's going to depend on what we can find on on an attractive risk-adjusted basis.

Got it. Okay, and then on the development front, what are you underwriting for a time frame to stabilize the projects that opened in 2019 and our opening in 20?

Yeah, for the more for the more recent we would expect again given the strong demand profile that the physical occupancies. We still am looking at first level of of physical occupancy sometime between you know month 36 and and months 45 depending upon the time of year may stay open given where where rental rates are and then bringing those customers we brought in up to to the market, you know about another 12 months after that for True economic first first level of stabilization.

Got it. Okay. Is that was it? Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to mr. President and CEO for any closing remarks. Okay. Thank you everyone for participating in the call. Obviously our business has some cyclic ality to it in terms of our customers. But as I said we're encouraging how the year has began. We look forward to entering into the busy season with our team and our process and our systems suck to go to take advantage of all of the opportunities that we believe will present themselves, and we certainly believe that it's a very bright future for Self Storage industry June for CubeSmart. So we certainly appreciate you participating in the call today. We look forward to seeing many of you over the next couple of weeks the various industry events, and we will speak to you again when we report fraud.

Quarter earnings. Thank you.

This concludes today's conference. Thank you for attending and you may now disconnect.