Q4 2022 CubeSmart Earnings Call
Good morning. Thank you for attending today's cube Smart fourth quarter 2022 earnings call. My name is Alicia and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question.
Please press star one on your telephone keypad I would now like to pass the conference over to your host Josh Shuster, Vice President of Finance with Cube Smart you May now proceed.
Thank you Alicia good morning, everyone welcome to keep as much fourth quarter 2022 earnings call participants on today's call include Chris Marr, President and Chief Executive Officer, and Tim Martin Chief Financial Officer, our prepared remarks to be followed by a Q&A session. In addition to our earnings release, which was which was issued yesterday.
Supplemental operating and financial data is available under the Investor Relations section of the company's website at Www dot keeps smart darker the.
The company's remarks will include certain forward looking statements regarding earnings and strategy that involve risks uncertainties and other factors that may cause the actual results to differ materially from these forward looking statements.
The risks and factors that could cause our actual results to differ materially from forward looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission specifically the form 8-K, we filed this morning together with our earnings release filed with the form 8-K, and the risk factors section of the company's annual report on Form 10-K. In addition.
The company's remarks include reference to non-GAAP measures a reconciliation between GAAP and non-GAAP measures can be found in the fourth quarter financial supplement posted on the company's website at Www Dot cube Smart Dot Com I will now turn the call over to Chris.
Thanks, Josh good morning, everyone.
Thanks for joining our fourth quarter results capped off another excellent year of performance by our keeps smart platform and I. Thank all of our teammates.
For their dedication and outstanding customer service.
Same store revenue growth for the year came in at the high end of our guidance.
Our focus on operational excellence contained expense growth to an annual rate of 3%.
Resulting in same store NOI growth at 16, 7% for the year coming in above our guidance.
As we have performed our business planning and the related financial forecast each of these last three years.
We certainly have had to do so facing significant uncertainties surrounding the impact of COVID-19 and the resulting changing consumer behaviors.
Entering 2023, while many aspects of our business, such as seasonality and delinquency or return.
So more typical historical patterns.
We certainly are faced with domestic economic uncertainty and the potential for Geo political shocks.
We believe that our strategy of owning a high quality portfolio in the best markets.
Maintaining a high quality balance sheet with conservative leverage and well staggered fixed rate maturities.
And the fact that we foster an innovative culture, consisting of high quality people and systems as well.
Over the long term produce above average risk adjusted returns throughout economic cycles.
I message today will therefore sound familiar to those of you who have been valued stakeholders and cube over these last few years of robust outperformance.
We believe our high quality stores located in Submarkets with sector, leading demographics habits in an excellent position entering 2023.
The New York MSA, our largest market.
It is beginning to positively experienced the waning impact of new supply.
Operational performance remained steady.
And we are starting to see the green shoots from recent supply deliveries leasing up nicely and the new delivery pipeline has almost been exhausted.
Our expectation is for absolute levels of growth to remain steady and by the back half of the year. The New York City boroughs will be performing above the portfolio average.
For one year on from the storage West transaction, and we couldnt be more pleased with the assets and the strategic fit on our platform.
As expected.
Despite the stabilized occupancies of the assets there was significant upside to rents on our platform.
These properties saw accelerating growth through the back half of 'twenty two.
And they are well positioned for continued growth into 2023 and beyond with an expectation that they will be achieving a mid fours yield.
At the end of the year and generating meaningful accretion.
Given that we were able to lock in long term capital exceptional low rates, including our $1 billion bond deal, which had a weighted average yield of 245% and an average tenure of eight four years.
We enter 2023 with 98% of our debt being fixed rate.
With a weighted average maturity of just over six years and net debt to EBITDA of four three times.
We have and will continue to focus on being operationally excellent.
We entered 2022 with a thesis that businesses that operate lean and agile will be best positioned to succeed during a period of economic uncertainty.
Our sector low expense growth and margin expansion in 2022, and our outlook for 2023 are reflective of that focus on operational efficiency.
Such heady times as we've experienced over the last few years can make many strategies appear clever.
We are seeing the benefit of our strategy as our sector, leading portfolio demographics continue to generate stable growth.
While secondary and tertiary markets may generate elevated growth in boom times, there is increased risk and volatility of those cash flows during times of uncertainty and we believe our focus on our high quality portfolio in top markets will generate the most attractive long term risk adjusted returns.
There is no doubt that when viewed through a historical lens 2021, 2022 and in my opinion 2023 will be judged among the best years for our business.
In spite of uncertainty in the world.
I believe that the industry and cube, specifically are well positioned entering 2023 to produce operating metrics above the historical 20 year average.
We think this makes us an attractive option for investors and we appreciate our valued stakeholders support.
With that please allow me to turn it over to Tim Martin, Our Chief Financial Officer for additional commentary on the quarter and on the year ahead.
Thanks, Chris Good morning, everyone. Thanks for taking a few minutes out of your data spend it with us.
Piling onto Christmas commentary <unk>.
In the fourth quarter reflected a continuation of what we've seen throughout the year.
A steady return to more normal seasonal patterns and overall solid operating fundamentals.
<unk> results included same store revenue growth of nine 5%.
Expenses grew two 3%.
And NOI was growth was at 12, 1% for the quarter.
Same store occupancy levels remain very healthy down 120 basis points compared to last year as we expected given the continuing returned to more normal seasonality.
Same store occupancy averaged 92, 8% in the fourth quarter and ended the quarter at 92, 1%.
Yeah.
Our consistent focus on managing what we can control on the expense side showed up in our results all year in the fourth quarter was no exception same store expense growth of two 3% for the quarter was better than expected with the main drivers being continued efficiencies in personnel costs and some nice wins from all the work we do to challenge our property tax.
Estimates across the country.
We reported <unk> per share as adjusted of <unk> 67 for the quarter, representing 16% growth over last year.
During the quarter, we also announced a 14% increase in our quarterly dividend up to an annualized $1 96 per share.
On yesterday's close that represents a four 4% dividend yield.
On the external growth front in the fourth quarter, we saw a continuation of what we talked about last quarter.
Slow down of transaction activity and a lack of attractive.
A lack of attractive opportunities for us.
Our team remains busy looking to find deals that fit our model at pricing that works.
Our disciplined investment strategy is naturally resulted in us being less transactional over the last year, where the return profile of available opportunities.
It does not meet the necessary risk adjusted returns required in today's elevated cost of capital environment.
On the third party management front, we added 28 stores in the fourth quarter and ended the quarter with 668 third party stores under management.
Our balance sheet position remains strong as we continue to focus on funding our growth in a conservative manner, that's consistent with our triple BBB <unk> credit ratings.
As discussed last quarter in October we closed on a new expanded revolving credit facility.
Size of the revolver grew to $850 million. The maturity was extended to February 27, and the pricing improved by 17 five basis points based on our current credit ratings and leverage levels.
Our conservative balance sheet and financing strategy has really paid dividends as we entered into the current volatile capital market environment.
All of our debt, except the revolvers fixed so as Chris mentioned Thats only 2% of our outstanding debt was variable rate as we started 2023.
We face no significant maturities until November of 2025 and have a weighted average maturity of six three years.
Our leverage level is very low at four three times debt to EBITDA.
And we have ample capacity and liquidity to finance future growth opportunities when attractive ones present themselves.
Looking forward details of our 2023 earnings guidance and related assumptions were included in our release last night or.
2023 same store pool increased by 73 stores, including 57 stores from the storage West portfolio acquisition that we closed in late 2021.
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 2021 22 as well as the impact of 23 deliveries that will compete with our stores.
Embedded in our same store expectations for 2023 is the impact of new supply that will compete with approximately 30% of our same store portfolio.
For context that 30% is down from 35% of stores impacted by supply last year and down from the peak of 50% of impacted stores back in 2019.
Our <unk> guidance does not include the impact of any speculative acquisition or disposition activity as levels of activity and timing are difficult to predict.
Wrapping up thanks to all of our hard working talented teammates to help lead us to the successful execution of our business objectives throughout 2022.
As a team we're in a great position to continue our pursuit of operational excellence and to maximize on the opportunities we see in 2023.
Thanks again for joining us this morning on the call at this time, Alicia why don't we open up the call for some questions.
Thank you.
To ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
As a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question what policies briefly ask questions are registered.
The first question comes from the lineup, Jeff Spector with Bank of America, You May now proceed.
Great. Good morning, Thank you.
Can we talk about I guess, what youre seeing through February Chris and Tim here, clearly theres a lot of confidence here as you've started 23.
Your approach to guidance does seem to be a bit different than a couple of your peers just trying to figure out. If that's you know more company specific industry specific or again, just recognizing youre not seeing right now any signposts of recession.
Yes, thanks, Jack so so I can't comment on others portfolios or how they're viewing their outlook I think from our consumer perspective, we continue to see.
Pretty good signs of strength I think our portfolio and its construct.
The length of stay continue to elongate pad.
Pattern of Vacates has been relatively muted so we're encouraged by that.
The outlook.
Obviously as I said in my in my opening remarks, the outlook as you get past the second quarter is a little bit less certain more certainly trying to think about what the back half of the year may look like the same challenge.
In 'twenty, one and 'twenty two.
And I think our guidance ranges capture that the.
The expectation of how our consumer will.
Will react in the back half of the year I think from a more macro perspective, we don't really do our planning by.
Thinking about whether we're going to enter into a recession or we're not at a macro level I think we look more at how well our consumer response.
We're out the year in terms of their need for our product, which.
As we all know is created by a whole host of life events that that may or may not have anything to do with what the broader economy is doing at that time. So.
I think our process is a bottoms up process.
And I think we've kind of captured a range of outlook.
For the year.
And I think certainly I'm sure everybody is looking at it to say the.
The first half is a little bit more clear in the back half a little more cloudy, but.
But we feel good about where we are today in February and January .
The results were at or better than what our expectations were when we started the year. So that's encouraging off to a good start.
And we'll see how the quarter.
Evolves.
Looking forward to the beginning of the busy season.
Which I think will.
Tell us a lot about how we think the balance of the year will unfold.
Thank you that's very helpful. My second question, Chris could we dig in a little bit more on your comments about.
Demographics versus let's say tertiary and secondary markets, we get lots of questions on that the importance of demographics versus market positioning can you talk a little bit more about what you were referring to in terms of the strength of your demographics versus let's say tertiary secondary markets and I guess as you've seen.
We're hearing of issues in tertiary or secondary.
So when we look at.
Yes long term risk adjusted returns markets with.
Significant populations.
Lower levels of supply of self storage on a square foot per capita basis.
A good household incomes.
Good percentage of our customers living in and rental housing versus versus homeownership.
Those tend to create a backdrop of stable cash flow over a longer period of time and again I think you could use as an example, when you think about as we sit here today of our major markets the market, where we have physical occupancy.
Higher today than where we were at this point last year as the New York City assets. When you think about a market that has.
Net effective rents on new customers that are higher than where we were at this point last year that is New York City, you can contrast that with.
Some of the markets.
In the southwest.
Where you're just seeing that shift as the Covid demand had waned then youre seeing.
A bit lower occupancy than where you were last year and a bit lower.
Lower asking rents than we were last year. So I think I think you could then delve into secondary and tertiary and our expectation is over time, they're more susceptible to new supply and Theyre, just more volatile markets and so as we expect.
You know things to more normalize I think the the strong demographic markets will outperform.
Thank you.
Thank you Mr. Spector.
The next question comes from the line of Michael Goldsmith with UBS you May now proceed.
Okay.
Good morning, Thanks, a lot for taking my question.
Digging into New York, a little bit more sequentially.
MSA underperform the portfolio average same store revenue growth, but maybe outperforms the coincidently on same store NOI growth.
As you think about the outlook for this market.
Coming here.
Are you thinking that this is going to be an outperformer.
Due to the stability of the market.
Trends toward a moderate or.
Another another thought process that you have on this key MSA for Ya.
I think I think as we look out I think the strength of the.
New York market is a combination.
Waning supply impact.
The positive demographics as I as I answered in response to previous question you know create a customer profile that is.
That is stickier than in other parts of the country.
I think he's got good.
A good backdrop in terms of demand drivers.
And I think the portfolio is obviously best in class and is well positioned to capture the demand that exists in that market.
So I think it's it's going to continue to get better.
I think we talked about on the third quarter call, we had a relatively easy comp in 'twenty one in the third quarter. So the third to fourth quarter.
Slight deceleration was not.
Was it was a 100% everything we expected it to do I would say the portfolio in Q4 in the New York MSA and more broadly.
<unk> exceeded our expectations just a bit so.
Ended on a high note starting in a real good spot here for January and February and and just again think about about as other high flying markets return to more normalized levels.
New York will bubble up to the top of our performers.
That's really helpful. And then you noted that the percentage of your portfolio impacted by supply is expected to be down five percentage points. This year is there a good benchmark of how how much. This can add to same store revenue growth is there.
Is that a fifth.
Yeah, So there's 500 basis points.
No.
Does that have moved out and does that translate to like 50 or 100 basis points of same store revenue growth and do you have the number the change.
So.
Supply impacting your locations in the New York Metro. Thanks.
Ah Okay.
So a lot of time back let me try some of these.
Yeah.
The impact of that.
Decline from 35% exposure to 30% is difficult.
Quantify in any way when we think about doing it from a budgetary perspective, it's a range. It can go from frankly, it's such a wide range. We have some properties that have the impact of new supply that actually outperform for.
Market Submarket local market reasons, and then we have other properties that are more directly impacted it's largely also dependent upon the brand of the competitor and their pricing strategy as they try to lease up assets. So that can have an impact positively or negatively.
So it is hard to put a specific number of basis points on that on that impact.
When you think about when.
When you think about New York City.
And the <unk>.
Yeah.
You know I answer it by just focusing in on the expectation in 'twenty three I think by borough the Bronx, the impact of new supply has been and it is in the rearview mirror, we don't expect any of our.
Cube stores to be impacted by new supply in 'twenty, three and Brooklyn, we're getting closer to the end and I think that's part of the narrative of.
Continued improvement throughout 2023.
There is one new opening in 'twenty three that we'll compete with an existing cube.
And then in Queens.
I think we will continue to have a declining but there'll be an impact in 2023 on.
On our stores I think there are two new openings in Queens that will that we expect to have an impact on on an existing cube smart. So as I said in the opening remarks that is really starting to wane and work. We're very excited about about the future there.
Thank you very much good luck in 2023.
Yeah.
Thank you I appreciate it.
Thank you Mr. Smith.
The next question comes from the line of Spencer Alloway with Green Street Advisors you May now proceed.
Thank you and can you provide a little color on what's being underwritten for occupancy at both the high and low end of guidance.
Yeah, Spencer, we don't normally we don't normally again.
Oaken record guidance revenue occupancy rather as the output not the input.
I think we got browbeat last year in the into.
And they're throwing out a number as to where we finished at the end of the year and as Tim noted, we we beat that by a pretty good amount. So it will depend I think the expectation for the new pool is that will range from <unk>.
Our occupancy being down.
150 basis points to what it was in the prior year and then that will narrow as we go throughout the year and I think we'll end the year within 50 basis points or so of of where we ended 2022 on that new pool.
Okay.
Thank you and then maybe just circling back to supply again for a second and maybe without focusing on NOI expectations, but can you just comment on whether there are any markets that stand out as more concerning due to current pricing power in those markets or our current occupancy levels utilization.
Yeah, I think I think that the impact of supply.
Both the.
Volume of new stores and then the brands are of those new stores and their you know their approach to how they want to lease those stores up will likely be felt the most in our portfolio in.
The greater Philadelphia area.
Where it is in fact sarnie today in Malvern.
The Washington D C area, and then pockets of Northern Virginia.
Sorry pockets of Northern New Jersey.
Okay. Thank you so much.
Thanks.
Thank you Ms alloy.
The next question comes from Atlanta, Juan Sanabria with BMO capital markets. You May now proceed.
Hi, good morning, and thanks for the time just wanted to hit on the cadence of growth.
It is should we expect as you report the quarters that growth will accelerate or decelerate throughout the year.
And if you can comment within a subset of that how New York would fare as part of that is part of that answer.
Yeah, I think I think for our portfolio and then as Youre trying to look at obviously rates of growth. So comparing to what the cadence was in 2022, we would expect that our same store revenue growth will be at its peak in terms of the growth in.
Q1, and then a steady deceleration as we go out through 2023, obviously, we have the most clarity.
Into Q1, and the lease clarity into the Q4.
Results. So we'll see how the busy season starts out and progresses here.
For.
For New York City the overall.
The overall trend.
It would be consistent with that just that.
That market will then end up outperforming on a relative basis. The overall pool as we get into the back half of the year.
And then I just wanted to switch gears to the investments or acquisitions.
You sounded a bit more enthusiastic about opportunities in your press release that correct me if I'm wrong I don't want to put words in your mouth.
But I guess, what what's the confidence you can invest capital in.
What types of opportunities are you looking at or is it more at least separate stabilized and any.
Sense of the geographic focus it seem to be talking about more of your coastal markets.
At least the southwest for some of your comments earlier in the call.
Yeah.
Hey want I mean, I think from a from a where are we looking it shouldnt be any surprise, we've been awfully consistent and the markets in which we're looking to to grow and expand primary focus in many many of the top 40.
<unk> continues to be our focus.
High quality solid demographic markets.
I'm not sure I'm not sure that our our expectation of.
That was included in our in our releases as optimistic or pessimistic I think.
We think it's achievable.
Market conditions are are awfully volatile out there as you know.
And if 2022 as an indicator as I believe it is we expect to be pretty disciplined.
Hope and expect that we'll be able to find some opportunities here or there.
But the guidance range or the external.
External growth number that we put in our releases is not a giant number.
It's something that we'll team's working hard we're looking for opportunities that fit our investment strategy at yields that makes sense to us relative to our cost of capital and.
Our hope.
If it's maybe more hope and expectation is that we'll find a little bit more opportunity to have some external growth in 'twenty three than we did in 'twenty two.
Yeah.
If I could just sneak in extra went in here can you just comment on the street rates or net effective rates in the fourth quarter than what you've experienced year to date.
Certainly so net effective rents for new customers in the fourth quarter were down.
Over the same period in 'twenty, one about 10% they were down in December about 10%.
And for the month of February and it has.
Yesterday, we've been running down just a little bit below 9%.
Thank you guys.
Thanks.
Thank you Mr. Santa Maria.
The next question comes from the line of Smedes Rose with Citi. You May now proceed.
Hey, good morning, this is matti on freeze needs.
Could you talk a little bit about the components of cost increases.
How are you thinking about labor and benefits increases property taxes and other line items.
Yes, thanks for the question.
We continue to probably anticipate the most pressure on operating expenses and the.
In the insurance area property insurance renewal for US comes up in May and we certainly expect there to be pressure on.
On property.
Property insurance.
It's probably consistent with most of the most of the real estate industry, we continue to express.
Goodness gracious easy for me to say, we continue to expect pressure on the utility line item as cost of utilities electric gas continue to.
Continue to be higher than inflationary levels I think from a from a personnel cost standpoint, there's certainly pressure on wage.
But we continue to have.
It's a great focus on finding continued opportunities to drive efficiencies and margin improvement primarily in that line item.
And our and are doing more with less from an efficiency standpoint, as we staff stores and so that has helped US a lot from an expense control standpoint in 2022, and we expect many of those initiatives will continue.
To bear fruit as we as we get into 2023 real estate taxes of course are are in areas that are it's an awful big line item and it's difficult to predict at times, but we think as.
We think that is an area that we'll continue to be in that range that we've talked about for several years and that four.
4% to 7% range of pressure on real estate tax increases.
Great. Thank you.
Thanks.
Thank you. Thank you Ms Brown.
The next question comes from the line of Todd Thomas with Keybanc Capital markets. You May now proceed.
Hi, Thanks, good morning.
First I was just wondering I apologize if I missed this but are you able to share where occupancy in the portfolio is today and what that looks like year over year from the new same store pool.
Yes, you Didnt Miss it so for the new same store pool.
As of yesterday, the occupancy in that portfolio is.
Running around a lot at the end of January rather at 91, three which is down about 130 basis points from that new pool occupancy at the end of January .
Okay.
Okay.
Okay.
And so.
So that's a little bit of.
<unk> decrease from.
Where you are at the end of the year when as occupancy starting to pick up a little bit at this point.
Ahead of the peak rental season, I know the peak rental season doesn't really begin for a little bit longer here, but are you starting to see that uptick in occupancy and also in rents.
Yeah, we haven't really seen the beginnings of the of the rental season, yet February obviously still dealing with.
Whether in all sorts of other other things I mean, it's hard to say that I don't think your statement that sequence is factually correct that sequentially. That's 10 basis points that might be you just have an entirely different.
It's a pretty different pool, so it's kind of apples to oranges, but yeah, no I haven't seen it yet March.
Early March mid March I think is when we typically start to see.
The spring moving season.
Start to kick in I think on the on the rent side as I think I answered in a prior question.
You are starting to see the positive movement in rents as we've moved past January .
Yeah.
Okay and then.
Back in New York City.
I hear the comments around new supply.
Diminishing a little bit having a positive impact there on on on activity.
Can you talk a little bit about rental rates in New York City and rental demand in.
You know what you're expecting in terms of occupancy trends there throughout the year.
Yeah, I mean again the answer to some prior question Occupancies are up.
50 basis points or so over last year and in the New York City same stores.
It's the only market with positive occupancy versus prior year rent.
Rents are up to new customers about 3% and it's one of.
A small number and I think the only of the top five markets, where we've got rents that are in.
Positive place at this point relative to what we were doing then in January and February of 'twenty two so.
Demand is pretty good occupancies are good.
Vaca pattern there continues to be very constructive.
Well, well well will you be able to increase rents to existing customers and the New York portfolio.
Sort of an outsized rate relative to the balance of the portfolio. This year and also relative.
Within New York relative to what you did last year.
Yeah, I'm not sure necessarily at any higher rate than what we did in 'twenty, two but I do think relative to.
Other markets.
That are seeing a different shift in.
And the way population is moving I think we have a greater opportunity in the urban markets New York in particular than we do in some of the.
And some of the suburban markets.
Okay.
Alright, thank you.
Yes.
Thanks. Thank.
Thank you Mr. Thomas.
The next question comes from the line of Keegan Carl with Wolfe Research you May now proceed.
Thanks for taking the questions guys. Maybe first one here just what's your anticipated cadence and magnitude of ECR I throw out twenty-three how's that going to stack up versus what you guys did in 'twenty two.
Yeah our hour.
Process, there I would call is quite dynamic. So every day, we've got a customer in our portfolio who is having.
Our rate increase proposed to them so from a cadence perspective.
Pretty dynamic don't expect significant change, but we are testing a wide variety and continue to.
Of both timing and amount.
The portfolio by market and.
In terms of of the kind of general magnitude of our expectations for those.
It will continue to be above the historical average, but our expectation embedded in our guidance is that we would be passing along on a percentage basis lower than what we did.
What we did last year and I think that's just reflective of the fact that we're seeing that normalization as we described off of demand coming out of what was an incredible robust 'twenty, one and first half of 2002.
Yeah.
Got it maybe shifting gears third party management platform is kind of curious where you know where you're seeing demand out for it today and kind of what the expectations are going forward I know one of your peers mentioned to you.
Year to date their demand is better than expected just curious if you guys are seeing the same.
Yes.
Yeah, we have a nice we have a nice pipeline.
Potential opportunities to add to add new stores to add new management contracts are certainly continuing to see a shift that as a percentage of those a little bit less than by way of new developments as I think the development cycle gets a little further away from the peak.
But we have a we have a high level of interest from from from a number of third party owners, who are looking for us to be able to come in and and add our platform to help create value for <unk>.
For their storage property I think what we also expect to see in 2023, which is a little bit of a result of earlier commentary on on the transaction market is is we do expect to see less churn in the portfolio. As there are just fewer and fewer sales of properties coming on so so perhaps stores that are on our math.
<unk> platform.
We will stay on our platform a little bit longer as the transaction market has cooled off a bit.
Great. Thanks for the time guys.
Thank you. Thank you Mr. Carl.
The next question comes from Atlanta seat, Steve <unk> with Evercore you May now proceed.
Yes.
Great. Thanks, just circling back on the transaction market. Chris can you, maybe just talk about where the bid ask spread is today, how has pricing changed and I guess, how close do you think you are to you now.
Finding sellers willing to accept but presumably you know higher expected yields from from public companies such as yourself.
Hey, Steve It's Tim.
Yes, I think there are just fewer overall transactions in the market right now in there.
The Mark.
The deals that are out there the hit rate on how many of those are closing and being able to bridge.
Bridge that gap between buyer and seller expectations.
Little bit cloudy.
Certainly it certainly a whole different world today than it was than it was back certainly in 2021, we tend to find ourselves from where we believe things that trade trade often often were off were off by 15% to 20% on many deals that that trade and it's hard to know it is hard to know.
For sure whether that's the exact right number. It's also hard to know what's driving that is that a difference and is that a difference in the way somebody is underwriting expectations for that particular <unk>.
<unk> relative to the way, we're underwriting expectations is it a difference in their.
Our cost of capital or return expectations relative to ours really difficult for us to.
To triangulate it through all of that.
But.
And then combine it with from our perspective, the things that have been in the market frankly, just haven't been on average of as high a quality as the opportunities that presented themselves in the cup.
The years that preceded the last 12 months to 18 months. So it's a combination of a lot of things that that that led to us being fairly low.
On our investment opportunities in 2022, where as I mentioned earlier, where we're hopeful that we will start to see some things that fit our strategy.
And.
And can find those opportunities at pricing that makes sense to us relative to our cost of capital.
Yes.
Okay, and then maybe just circling back I know there was a question on expense growth and Chris you talked touched a little bit on the employee side, but I'm. Just curious you know from a technological perspective.
As you kind of use more technology, I guess, how much more cost savings or FTE savings do you sort of get at the property from here going forward.
Yeah. That's that's the that's the evolving question I think it relates on both sides what does.
What and how does the consumer of our product.
What do they want to use and how do they want to be engaged with.
And we are doing an awful lot of work in an awful lot of testing to figure out that balance.
It's not surprising and it's.
And it's not necessarily.
Entirely demographically related but there is a portion of our customers who.
Are entirely comfortable.
With a self service model no different than you know than that our kids texting from upstairs asking what time dinner is.
And there's a segment of our population.
Hey, who absolutely want that in person in person service and want to know that there is a store team made available to assist them with their storage needs and to try to find that balance.
Is what we've been really focused in on and it's a combination of video.
It's a combination of chat and it's using smart rental more efficiently.
So we're going to continue to navigate through that to date.
We've been able to find some really good operational efficiencies through the testing that we've done and we're just going to continue to attack that here in 2023, I just don't think are our model ever.
It ends up being one where it's it's entirely self service I said I don't think we ever end up in a model where it's entirely.
And in person store team and I think ultimately it will vary by market and by property.
And we'll find that balance I think there's still good opportunity, though for us to continue to be more efficient.
Great. Thanks, that's it for me.
Thanks.
Thank you Mr <unk>.
The next question comes from the line of.
Keven Kim with Truest you May now proceed.
Thanks, Good morning, just a couple of questions on the expense front.
In <unk> your personal personnel expenses were down 9% I'm curious if that's a.
Efficiency driven type of metric or.
Were you just not fully staff I'm, just trying to understand kind of the the forward path for that line item.
Yeah, I wouldn't I wouldn't overreact to that being a four or a path that has.
Yeah.
It has a little bit to do with.
With the comp issue from last year. So I think it's less to do with what we were doing this year and a little bit more to do with what we've done last year and and creating an easier comp.
Only 3%, beating your guidance and even for 2023.
Your expense guidance is lower than your peers.
So I'm curious if you think that's a little bit of a geographic driven.
Item or.
Going back to your other comments is it other things you're working on that are keeping those expenses lower.
Yeah, Kevin I guess, Chris I can't comment on what our peers are doing you have to ask them.
For for what their.
Focus is but back to my opening comments, we had a thesis at the beginning of 'twenty two that.
Those companies that.
Focusing on operational excellence being lean and agile are going to be best positioned to navigate through uncertain economic times and institutionally we.
At a keen focus on just doing things.
More efficiently.
Operating smarter.
And I think you combine that with the answer to the previous question in terms of.
How do you think about.
How do you think about how the customer wants to be served and I think we found ways to to.
To continue that.
So to be as lean as we possibly can and I think we've got some continued possibilities there and not in 2023 we will as we always do we will test and try a variety of different techniques.
And some of them will work some of them will not will learn and learn from those that don't and move on so it's for US. It's just a focus and if you focus on something with the right people on it you can you can do great things.
And.
Your repairs and maintenance expenses and your same store pool accounted about account for about 1% of total revenues.
At the lower end when I look at some other.
Competitors that might be at higher 3% I'm curious if that's like a weather driven snow snow removal costs driven type of item or.
Some other things that you've been working on.
Yeah again don't don't have any idea what how to answer of what other folks do you'd have to ask them why.
Theirs is and I'm sure they'll help you out from our perspective.
We take we have great properties, obviously best in class in our industry, we take great care of them.
And so when things need to be repaired, we repair them immediately and perhaps that saves us from having to incur incremental costs over the longer term by trying to ignore those.
Those day to day thing so it's a it's always been a point of focus our facility services team is world class.
And obviously, we believe in providing our customer with an excellent product and part of being an excellent product is making sure you're maintaining your stores.
And the best way possible.
Okay. Thank you.
Thank you Mr. Kim.
And the last question comes from the line of Mike Mueller with Jpmorgan you May now proceed.
Yeah, Hi, Chris I guess your comment earlier on about New York performance being a little bit better than the portfolio average I guess was that a more of a 2023 comments as you move through 2023 or was that intended to be a little bit more of a multi year outlook for the next few years.
You know the back half of 2023 of the boroughs.
As I said in the opening comments I think will.
We'll outperform.
And I think that again in <unk>.
Our expectation for a more normalized environment versus what we saw in 'twenty, one and the first couple of months of 'twenty two.
I think the the low beta.
High quality demographic markets the more urban markets.
Will tend to outperform.
Some of the markets that that saw great performance in.
In 'twenty, one and into the beginning of 'twenty two.
Got it Okay and then.
Last question you have a couple of developments coming online beginning of next year.
Can you talk about the pipeline are we likely to see any starts this year.
How do you think that will evolve.
Hey, Mike its Tim.
It's an area that we that we look at and if you look historically our development pipeline has been very focused on just a handful of markets.
And the markets that we have been focused on have seen a fair amount of I have seen a fair amount of new supply.
And we think that new supply will continue to diminish we are focused on trying to find opportunities that are great infill locations for us that are complementary to our existing portfolio, where there where there is a need or a pocket. So that we can expand and enhance.
Already dominant position.
The handful of markets that we've developed in the past so hard to predict whether we'll be able to find opportunities to add to the development pipeline, but clearly it's it's tapered off here over the past several years, but we don't expect it to taper off to zero, we're looking for we're looking for opportunities.
And you shouldn't be surprised to see a couple of projects pop up on that list as the year plays out.
Got it okay. Thank you.
I appreciate it.
Yeah.
Thank you Mr Mueller.
There are no further questions registered at this time I'll pass the conference back to management team for closing remarks.
Thank you everyone for joining us today.
Our high quality.
Properties balance sheet people.
An industry that is a that is just simply wonderful.
And the great teams that we have serving our customers in our stores throughout the country have us well positioned for <unk>.
<unk> 2023, we look forward to a to another successful year. We appreciate your continued support and look forward to speaking to many of you over the coming weeks and months. Thanks for your.
Participation.
That concludes today's conference call. Thank you for your participation you may now disconnect your line.