Q1 2023 CubeSmart Earnings Call

Speaker 1: Don.

Speaker 2: quarter 2023 earnings call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question please press star followed by one on your telephone keypad. I will now hand over to our host Josh Shuter, Vice President of Finance to begin. Josh please go ahead.

Speaker 3: Thank you, Charlie. Good morning, everyone. Welcome to CubeSmart's first quarter 2023 earnings call. Participants on today's call include Chris Smarr, president and chief executive officer, and Tim Martin, chief financial officer.

Speaker 3: Our prepared remarks will be followed by a Q&A session.

Speaker 3: In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company's website at www.keepsmart.com.

Speaker 3: 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.

Speaker 3: 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 8K we filed this morning together with our earnings release filed with the Form 8K and the Risk Factors section of the company's annual report on Form 10K.

Speaker 3: 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 first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the poll over to Chris.

Speaker 3: Thank you, Josh. Good morning, everyone. Our first quarter of 2023 can be characterized as solid performance across all of our key performance metrics.

Speaker 3: Funds from operations per share came in at the high end of our guidance as steady occupancy trends coupled with our continued focus on expense control helped to generate strong same store net operating income growth.

Speaker 3: Our customers are resiliently navigating an uncertain post-COVID economy.

Speaker 3: while the Fed pushes up interest rates to cool inflation.

Speaker 3: The unemployment rate remains historically low.

Speaker 3: Volatility in mortgage rates has created an uncertain housing market.

Speaker 3: as prices remain stubbornly high, resulting in a slowing single-family home purchases and sales.

Speaker 3: We believe our portfolio focus on top markets and strong demographics.

Speaker 3: has us well positioned to perform throughout all macro environments.

Speaker 3: Low unemployment, continued wage growth, and solid household balance sheets.

Speaker 3: metrics across our customer base.

Speaker 3: During the first quarter, delinquency metrics such as late fees charged and receivables over 30 days past due are at levels below what we experienced in the first quarter of 2019.

Speaker 3: Another bright spot continues to be the stickiness of our existing customer base.

Speaker 3: Vacates during the quarter, we're down 3.3% to the first quarter of last year.

Speaker 3: and down 9.5% on a comparable store basis to the first quarter of 2019.

Speaker 3: 47.9% of our customers have been with us longer than two years, up 230 basis points from this time last year. This results in a larger pool of customers to potentially receive a rate increase.

Speaker 3: Top of funnel demand trends have been less consistent with historical patterns than we expected.

Speaker 3: We had a solid first couple of months as same store rentals through February were consistent with the same time period last year.

Speaker 3: In March, trends slowed as weather, bank failures impacting consumer confidence, and existing home sales weighed on March storage demand.

Speaker 3: March occupancy trends were mostly in line with last year, but that was driven by lower vacate activity, offsetting slower than expected rental activity.

Speaker 3: which led us to a more cautious approach to rental rates.

Speaker 3: As we've moved into April , trends have been on a more normal trajectory.

Speaker 3: Rental and reservation activity has returned back in line with last year's levels as we've seen stabilizing signs in both the housing market and with consumer competence.

Speaker 3: As a result, we have grown our occupancy, narrowing the gap to last year to 141 basis points.

Speaker 3: and we are moving up rental rates as the busy season begins to ramp up. We have experienced unusual trends so far this year. The demand momentum we saw in January and February slowed in March.

Speaker 4: only to show signs of reigniting in April .

Speaker 4: Recent trends have us cautiously optimistic, but as we noted during our prior earnings call, the outlook for the back half of the year is heavily dependent on performance during the next few months of the rental season.

Speaker 4: Touching briefly on market level performance.

Speaker 4: The New York MSA was our most resilient MSA.

Speaker 4: with our borough properties experiencing positive growth in both occupancy and net effective rents to new customers compared to the first quarter of last year.

Speaker 4: This was offset somewhat by softness and supply impact in North Jersey and Long Island markets within the overall MSA.

Speaker 4: While decelerating off of their tremendous 22 levels, we continue to experience above average revenue growth in our Florida, Texas, and Southern California markets.

Speaker 4: We experienced below average growth.

Speaker 4: in the supply-impacted DC Virginia Maryland markets and in Arizona, where COVID-induced migration has clearly waned.

Speaker 4: We continue to underwrite a good number of transactions, but seller expectations for assets that meet the quality requirements of our portfolio strategy are still disconnected from our current cost of capital.

Speaker 4: We are finding ways to accretively deploy capital within our existing portfolio as full-scale redevelopments and cost-saving upgrades to high-efficiency building systems.

Speaker 4: are proving to be the best opportunity for capital deployment in this part of the cycle.

Speaker 4: We remain a third-party partner of choice, as our reputation in the industry has consistently maintained our robust pipeline of new management opportunities.

Speaker 4: Our operating platform is primed to maximize performance no matter the

Speaker 4: our differentiated strategic focus on quality across our portfolio and platform positions as well to generate shareholder value over the long term.

Speaker 4: Thanks for listening, and I will now turn the call over to Tim Martin, our Chief Financial Officer for his remarks.

Speaker 4: Thanks, Chris, and thank you to everyone on the call for your continued interest and for spending a few minutes of your time with us today. As Chris touched on, operating fundamentals during the first quarter were largely in line with our expectations and we continue to experience a return to more normal seasonality in the business, consistent with our discussion over the last several quarters.

Speaker 4: We reported FFO per share as adjusted of 65 cents for the quarter, which was at the high end of our guidance range and represents 12.1% growth over the first quarter last year.

Speaker 4: Our continuing focus on being as efficient as we can be, along with a mild winter resulted in 1% same store expense growth.

Speaker 4: which when combined with 6.9 percent revenue growth, produced a healthy 9.1 percent growth and same store net operating income.

Speaker 4: Months to month occupancy trends during the quarter largely mirrored those of the first quarter of 2022. Our same store portfolio gained 60 basis points of occupancy sequentially from the fourth quarter ending the first quarter at 91.9 percent.

Speaker 4: We remain disciplined in our pursuit of external growth opportunities with no transaction activity to report in the first quarter.

Speaker 4: Our investments team continues to be active, although deal volume that went through our underwriting process was down about 30% compared to the first quarter of 2022.

Speaker 4: We continue to generally see a disconnect in the bid ask spread, and we're generally not seeing the high-quality opportunities that we were seeing over the past couple of years.

Speaker 4: On the third party management front, we added 25 stores in the first quarter, bringing our total third party managed store count to 676.

Speaker 4: In the current environment, no news is good news when it comes to corporate balance sheets and our balance sheet remains very healthy, putting us in a great position to pursue external growth opportunities when we see attractive relative returns. Our average debt maturity is six years, 98% of our debt is fixed rate.

Speaker 4: We have no significant maturities until November of 2025, and our leverage levels remain very low at 4.4 times debt to EBITDA. Details of our 2023 earnings guidance and related assumptions were included in our release last night. Our forward guidance for the year remains consistent with the guidance we provided in late February . For more information, visit EBITDA.gov

Speaker 4: So wrapping up, good inline first quarter, balance sheets in great shape, patient and ready to find attractive external growth opportunities, and our team is ready and energized heading into our sectors busy rental season here in the summer. Thanks again for joining us on the call this morning. At this time, Charlie, why don't we open up the call for some questions? Of course, thank you. If you'd like to ask a question via the telephone lines, please press star followed by.

Speaker 5: Good morning. Thanks a lot for taking my question. My first question on what you're seeing in April , it sounds like March was slower. April kind of has returned to a more normal trajectory. We've run our rates back in line. I guess like... CH

Speaker 5: Can you provide a little bit more color about where does the demand is coming from? I think you talked a little bit about the housing market. You talked about rates moving higher. Can you kind of quantify that and then as well, did your ECRIs kind of come down during the slowdown in March and how are you thinking about that back?

Speaker 5: Now that things are more normal in April .

Speaker 4: Sure, thanks. That was a little bit to unpack there. Let me see if I can remember all the questions and answer them all. Going backwards, I think, from a rate increase to the existing customer perspective, we averaged 1%, 2%, 4% on to the budget document on one of these.

Speaker 3: mid-teens in the first quarter. That was consistent with our average for the fourth quarter of last year and down from the high teens that we would have averaged in the first quarter of 2022.

Speaker 4: So, as we expected, if you think about kind of a historical expectation, so 1 Q19, we keep pointing to as a pre-COVID metric, you know, we averaged in in around the 12% range in the 1st quarter of 19. So, as we have talked about, I think earlier in the year, the expectation is that the.

Speaker 4: rate increases to the existing customers will continue to outpace pre-COVID, but come down from what we saw in a historically great 2022. In terms of customer demand,

Speaker 6: It is it is obviously varies a lot by market. So absolutely thrilled with the performance in the New York boroughs there. You have a.

Portfolio construct that is just made for this type of a climate. We have a very sticky customer there and a customer there that is not.

That is not so focused transactionally on moving. And so that market, as we would have expected continues to perform. Quite well, in in the current conditions, rest of the country, I would say the.

You know, the, the performance and where the customers are coming from continues to be, you know, from what you would have expected historically. Certainly in some of the Sunbelt markets. March, you know, we just didn't see the. The shorter term moving customer we're starting obviously, we picked up the college students at this point and that will continue here for a little bit.

a little bit about it is just kind of on New York, you know, same store.

same store NLI was down 300 basis points sequentially for the portfolio, but New York was up 120 basis points sequentially. Now, you also added eight properties to the same store pool. So I'm just kind of curious about the trends going on in New York. And is this, you know, you've often talked about how at a time of moderation, New York is a market that outperforms. Is that kind of playing out as you expected?

You know, you are suffering a little bit of supply impact in North Jersey and out on on Long Island, but the stores in the boroughs. You know, again, we're thrilled with the performance. Um, we expected a good year and it's playing out so far.

you know, at that expectation or better. Thank you very much.

Thank you, our next question comes from Samir Kanal of Evercore. Samir your line is open, please go ahead.

Thank you. Hi, Chris. So occupancy cell year-over-year, is that correct? Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes.

But we also saw the in-place rent decline sequentially. And you haven't seen that in a while. I think many quarters, maybe even going back to 18. I guess how much of this decline is related to?

the sort of normal seasonality versus the business starting a week in here. Maybe you can help us unpack this. Thanks.

Yeah, on the on the occupancy again, you've got, you've got to make sure you're focused on the fact that the. The 2023 pool obviously changed on January 1st. So if you think about.

Where we started the year on an apples to apples basis, occupancy was down January 1 versus January 1 last year by about the same as it was at the end of March. So the occupancy during the quarter didn't really change.

which is more normal relative to trends 2019 and earlier. If you just look at seasonality from 2017 to 2019, rates typically fall and did every quarter, every year rather, from Q4 to Q1. The patterns that you see in Q1, if you...

You know, if you adjust for the change in the pool are very typical to pre-COVID type pattern. Thank you for that and I guess my 2nd question, Tim, I just wanted to ask about expense growth. When I look at last year, you did 3% for the year, but you guided, I think was close to 6% as part of your initial guidance.

It's all relative to your expectation, I suppose. But I think we're proud of the results. And we have been focused, as Chris has touched upon, for several quarters now on always controlling what we can control. And there are many of the line items from an expense standpoint that we can do just that.

The first quarter we saw the benefit of a mild winter, which showed up in both lower than expected snow removal costs and lower than expected utility costs. I think as we think about how the rest of the year plays out, while we had a nice surprise there on winter costs, we've also had a negative surprise.

of the year and you think about a line item like marketing expense, we're seeing some good opportunities to deploy marketing spend with attractive returns. So that's an area that we'll continue to push on at times when it makes sense for us to do so.

I think the line item that really jumps out at you over the past couple of quarters has been on the personnel side, and we've continued to find ways to to combine our operational platform with technology, with how we staff stores, store hours, how we're using our sales center, how we're using.

our online tools to help our customers rent with us and a lot of that has continued to show up in the personnel line item. Of course, we're going to start to have more difficult comps on that line item as we get later in the year, but those are the big areas of focus and again, we're pleased to report 1% same store expense growth.

Thank you.

Thank you. Thanks. Thanks.

Our next question comes from Smead Rose of City. Smead your line is open, please go ahead.

Hi, thanks. I just wanted to ask you as you go into your kind of busy season, asking me, it sounds like consumers are maybe a little more cautious based on some of the remarks that you've said. So would you maybe go lower in order to get folks in or how are you thinking about that?

Yeah, week to week means that's really the point of focus here as we're.

looking out over the next couple of months is, we have great properties and great demographic markets. From a customer perspective, we know they're going to see us. When they make that decision to rent, we're really keenly focused on getting them into the top of the funnel, and then making sure that our. Music.

Conversion of that, you know, that reservation or that customer inquiry to a rental is is operating as efficiently as possible. And that were then pricing in a way that maximizes that opportunity. And so it's a week to week decision as we go through as we think about April .

From the beginning of April through essentially today, we've increased rates about 8%.

That is about consistent with what we would have done last year. We are going to continue on that focus as long as the demand and conversion continues to support it. It has been an unusual year to date. Again, we are going to have that keen focus week to week.

and make sure we're maximizing that opportunity.

Okay, thanks. The other thing I just wanted to ask you, I know you added 25 stores, but it looks like it was more like eight on a net basis to the third party management platform. Are you just continuing to see volatility with just assets being sold or I'm just surprised because it sounds like there hasn't been a lot of volatility.

you know, being marketed. There have been a handful over time. And again, as we said in the past, it's one of those bittersweet things we hate to see. We hate to see our name come down off of the sign. At the same time, in those cases, we've done a good job and done what our third-party clients expect us to do, which is to help create value for them. And they realize that upon a sale.

of is keeping that pipeline of new stores coming onto the platform very healthy. And we do have a very healthy... So, thank you very much.

pipeline right now of owners who are seeking third-party management services and are viewing us as one of those premier providers of that service. And just to give you a little bit of data there, of the stores that left the platform, I think I know 15.

muted. Certainly there were 15 transactions that took place, you know, that closed during the quarter.

Okay, thank you guys.

Okay, thank you guys.

Our next question comes from Juan Cenabria of BMO Capital Markets. Juan, your line is open please go ahead.

Hi guys, thank you for the time. I'm curious if you can give us the April trends.

1st street rates and occupancy just kind of where the spot sits and for street rates. If you don't mind giving us. How that trended year over year throughout the quarter just to help contextualize.

Sure, so rate trends in the first quarter, net effective rates for customers compared to that same time period last year, again, bounces around week to week, but range down from the low to the mid teens.

When we got again to March.

Similar trend, we're in the mid teens down in March.

And then in April , as I mentioned, we've pushed rates up through today, 8% since the 1st of the month. Which is just slightly more than we did last year. So the gap to April of 22 remains in that. And a mid teens type of range from a, from an occupancy perspective, we've picked, we've reduced.

you maybe are testing in some capacity.

asking customers to stay for a period of time, maybe four months or so.

Yeah.

I guess, locking in that initial rate. Just curious on how that testing has gone, why you chose to offer that option out.

Just some thought around the strategy that would be helpful. Yeah, one thanks. Good question. We test quite a significant number of different.

strategies for two reasons. The most important of which is we want to get a sense from the consumer as to what their behaviors are and get some additional insight through decisions they make as to how they're thinking about using our product.

and what's important to them. And then obviously the second is it's always strategies around, you know, how can you maximize revenue across.

All of our customer segment base, you know, that particular test. Would have been designed to see if a customer was more inclined to make a commitment for a longer period of time. Um, and would they be more inclined to do so knowing what?

It's very helpful for us from a data perspective to just get a good sense of where that customer behavior kind of shakes out. And then all of these are ongoing at some point in stores throughout the portfolio.

Just as a quick follow-up, are customers willing to sign up for the four months? I'm assuming you were trying to weed out customers who were just in and out for a month, but just curious on the take-up versus expectations.

Yeah, I would say, you know, again, it is still in process in certain properties. So, so the absolute answer to the question, we don't, we don't have a definitive 1 at this point. It certainly does attract a customer who knows, or is certain, at least in their own minds, that their intention is to stay.

Longer it also has a, a, an attraction of a customer though, who has more certainty around the move in and move out. So you tended to see the vacate span at the end of that 4 month time period. So, again, it's 1 of many things that we continue to test it at an array of properties across the country and, you know, we'll continue to do so to.

to again, always try to find ways to creatively maximize revenue for each customer we get.

I appreciate it Chris, thank you.

Thanks, and good morning. So to follow up on the last question, I'm curious about the cadence of demand.

that you saw throughout the quarter and into April , was it a top of the funnel type of dynamic where you just had less touch points coming into you guys or was it more of a market share dynamic? Yeah, from our perspective felt like top of funnel demand and I was-

As we would have expected in January and February , and then was was less than we would have expected in March.

now has returned to expectation. Okay, and so what will cost to pick up in April ?

What causes the decline in March, right? I, it's that. You know, you certainly can look at things that occurred in March on a macro basis and we can look at. You know, housing, for example, so 1 of the larger publicly traded.

Home builders on their earnings call last week commented that March was unusually slow for them. They've now seen a pickup in demand in April . So was it weather? Was it banking crisis? Was it. warrants, or qu MAT movie, or is it mortgage rates?

Don't know and again, we're trying to navigate through a post COVID.

Trends that have been anything, but consistent over the last several years, you know, 21 was odd and 22 was odd and certainly March of of 23 relative to. You know, what we, what we would have expected was a bit was a bit odd April seems a lot more normal.

Okay, and second question I wanted to ask you about your leverage and capital allocation. Your balance sheet is 4.4 times leverage, obviously in great shape, and I appreciate your press release comments about being disciplined on price. Can you just help us understand?

what the gap is, the bid-ask spread, how wide or narrow it might be. And if you can remind us of your latest thinking on capital allocation, is it still from an asset quality or market standpoint? Is it still kind of demographically driven or has your scope widened a bit to include other assets that?

maybe you traditionally didn't want to own.

Yeah, it's we haven't we haven't changed our areas of focus. We are we are as we have been focused on attractive markets typically in the top 40 MSAs.

looking for those great in-fill complementary opportunities to our existing footprint. There are some markets that we're not in that we would love to be. Haven't found attractive opportunities to do that. The bid-ask spread, it's difficult. Lower amount of total transaction activity, so it's a little bit difficult to know exactly where they are.

15-20% off of where, at least for a broker transaction, where a broker would suggest a deal needs to trade. And so, that feels like a little bit of a gap, but it can change. And we are, as I mentioned in my prepared remarks, we're quite active and underwriting an awful lot of opportunities.

we would love to see some high-quality opportunities that were just a little bit closer to a price point that made sense for us on a risk-adjusted basis. Where we are open for a wide spectrum of opportunities is at the right return, we would look at something that's fully stable all the way to something that just came out of the ground. So we don't have any restrictions or for

or limitations to our desire to take on some lease up or to look at stabilized acquisitions. But the markets and the quality assets that we're looking for is pretty consistent from what you've heard from us for some time.

That's great color. I was asking about these other markets because lately the

the one that changes that we've seen from the software companies including you is touchless internet-based leasing and if that would perhaps expand what you would want to own like in secondary markets where you can use technology versus you know having a lower margin business with people.

But thank you. Yeah, kind of flavor of the day, right? I mean, to me.

The idea of not having an office at a store is been around since 1968. So. You know, whether it be the phone or whether it be some use of technology, the concepts not new. And so again, it's been out there. We continue to look at.

Where that might apply certainly in the more urban. And the dense suburbs, it's.

it's much less applicable than it is in tertiary areas. So it's not new. Certainly it's generated a lot of conversation over the last several months.

Thanks again.

Thanks. Our next question comes from Hong Shang of JP Morgan. Hong, your line is open. Please proceed. Yeah. Hey, guys. I guess on the personnel expense side, you talked

you know, we continue to look at ways to

to meet our customer where they want to be met in terms of closing the transaction with them. And, you know, again, no surprise when you do focus groups and you talk to your customers, they at this point in the life cycle continue to...

It's my kids texting from their bedroom to ask what time dinner is instead of walking down the stairs and having a face-to-face conversation. We have another third of the customers who, not surprisingly, are at the complete opposite end of the spectrum. They want to have a conversation. They want to interact with a store teammate. They want to know that they can ask any questions they want to a person live.

As they're going through their decision making process, and then the other third kind of fall into that. You know, into that digital key at a hotel kind of group of folks, they're happy to use it as long as it works the way they think it should and seamlessly. If it's not. You know, when you get to that 13th floor, the hotel and your and your phone doesn't work at your room, you're kind of frustrated. You want to come back down to the.

you know, the level of customer service that we're known for and we'll continue to do that. Obviously, I think, you know, the rate of savings or improvement there will slow as the, you know, as the fruit from the tree gets higher up.

Got it. And then as it relates to other properly revenues, particularly late fees, it seems like post COVID there's just been a step function down on delinquencies and late fees. Do you think that's just a new normal given auto pay and all that?

Yeah, that's a great question. We definitely have seen.

On that side of the equation, lower revenues than we would have seen in some of the prior years.

It's a two-part issue. One is, as I said, health of the customer is really good, which is a positive. Receivables are down. Delinquencies are down. That translates into lower late fees, but a higher quality customer per se from a credit perspective.

And then, you know, on the technology side, as we can push folks into, or they choose to go through smart rental or self-service rental in some way, shape or form, talk to one of our service reps, you know, either from their phone or from a kiosk. They tend to be auto-pay customers. They tend to be more ACH customers.

Thanks, and great quarter.

Thanks, and great quarter. Thank you. Thank you.

Our next question comes from Spencer Allaway of Green Street. Spencer, your line is open, please go ahead.

We continue to hear that private market players are burdened with high interest expenses on construction loans and as such they could be looking to offload or sell some of these properties. Have you started to see these opportunities arise or is it still fairly quiet? I know you mentioned there were some transactions that occurred.

I think the reality for our sector, when you do this throughout different parts of the cycle, is that what that might translate into is probably some motivation. At least there might be a more motivated seller who would look to have their store clear the market versus somebody who's...

who's, as I alluded to earlier, somebody who will sell for a really high price. So you might have a more motivated seller. I don't think you're going to have a desperate seller. I think our business is just too good. I think operating fundamentals are too good and people have options. So they don't have to, I don't think anybody would suspect that there would be a fire sale opportunity on a whole bunch of things for folks that are like that. But perhaps, and again, maybe more wishful thinking from our perspective, but perhaps that there was some kind of fire

you'll have a little bit more motivated seller. And if those were in opportunities and markets and high quality assets that we're looking for, that would be fantastic for us.

Okay, that's helpful. And thank you for all the color you provided at the market level, but just maybe looking at some of the markets with lower occupancy, maybe such as Vegas and Phoenix. Just curious if you have any color, you know, on operating trends in these markets or what might be driving the lower than average occupancy. How does that

When you think about those markets, it is a return to more normal after seeing just a tremendous amount of movement, certainly a tremendous influx of folks in those markets. It would also be the markets where you saw

And certainly those markets in the Sunbelt in general, you would have seen rather the most significant push in rates over that time period. So, you know, give you a point of example, you know, when you just think about when you think about.

Sunbelt markets, Phoenix, for example, rates versus where we were in the first quarter of 2019 are still up about 30%. About 20% in Tucson. You know, even you get into the South Florida markets, Miami, Fort Lauderdale are up about 44%. So.

Just the markets that would have seen really, really strong push on rates are just starting to normalize more, you know, starting to normalize. And you're not seeing again, you're also not seeing the same movement in in those markets that you would have seen in 21. Point two.

more broad-based across the country, across the portfolio? It was really broad-based across the portfolio. If there's an outlier again in this kind of a climate, it would have been the New York City borough assets, which as I mentioned, were the assets in the market really where we saw occupancy gains over the first quarter of last year and rental rates that were performing very strongly in the corporate market loichbuff credit Libby sector thanks to Bangladesh, Bella, the Navigation Config,

that asking rates or street rates did decrease a little bit. I think you were in the low double digits. You mentioned March moved into the sort of mid teens or high teens, I believe, but net net, how did results compare to your budget for March? Did it create a setback in any way, maybe a benefit?

what happened in March as a result of that volatility.

Yeah, we would have expected in March net slightly better performance than what we were able to deliver. Hi Exp differential gnostics and my dream engine thread is free.

Okay, so results in March fell slightly below your budget, sort of within the context of the year so far. Yes. Okay. Okay, and then just last question.

stepping back and looking at the guidance, which you maintained, you previously talked about growth decelerating gradually throughout the year, revenue growth, right? So, starting the year higher, ending the year lower. Do you see potential stabilization mid-year or later in the year, I guess? Has your view changed around?

of deceleration across the entire Sam store pool as we go through the quarters. Again, you look at last year, obviously the first half of the year, the comps were more challenging than the second half.

Okay, great. Thank you.

Okay, great. Thank you. Next time.

Our next question comes from Jonathan Hughes of Raymond James. Jonathan your line is open, please go ahead.

Hey, good morning. Was hoping you could talk about performance in the 73 properties that were added to the same store pool this year, most of which I believe is the Storage West portfolio. Yes, it was added.

50 bits or so to revenue growth, 100 basis points to NOI growth. When you back into metrics for those properties, it looks like almost all that growth is from higher rent and expense savings, but occupancy is almost 500 bits lower than the 2022 same store pool.

So maybe there was a rate versus occupancy trade off there, but I'm just a little surprised by the occupancy of that portfolio. Can you just update us on the outlook, maybe for occupancy recovery and those properties since storage west was in the mid 90 percent range 18 months ago.

Hey, you're spot on. I mean, you're talking about assets in those markets. I think I responded to a previous call in some of the markets that saw a significant inflow of.

Population and movement, we were very, very aggressive on rate continued to be. Reasonably aggressive on rate as we went through the 1st quarter saw a give back in terms of some of that occupancy. And as we go forward here again, we'll see how demand trends work.

in those markets, April through July and try to balance out where we are on the rateside versus where we are on the occupancy. But during the quarter we absolutely were focused in on rate and we're willing to sacrifice some of the occupancy as a result.

Very much in line with the expectation at the start of the year.

Okay. And then on…

capital allocation. You mentioned the lack of high quality acquisition opportunities out there and talked about that in Keevin's question and your prepared remarks. The balance sheet is in great shape, leverage near the lower end of the table.

I think the four to five times target range seems to run away growth is driving organic de-levering and the stock today is trading 10% below consensus NAV and a high 5% implied cap rate. So my question is if acquisition opportunities don't come to market as hoped and that discounted valuation dynamic continues.

for the next six or 12 months, would the board consider repurchasing shares given you have the leverage capacity? With more under

Yeah, I think we have a, we have a an in place.

program to be able to repurchase shares. We have not utilized that program yet. And I think as we've discussed before, I think there is a...

Certainly there's a time and a place to consider share repurchase program. I think for us, some of the ingredients that you touched on are there. I think it's the duration for that dislocation. We remain optimistic that we'll be able to put our high quality balance sheets.

All right, thanks for the time. Appreciate it.

it. Thank you.

Our next question comes from Jeff Specter of Bank of America. Jeff, your line is open. Please proceed. Great. Thank you. Chris, my first question is just on consolidation in the industry and how you're thinking about that in terms of cube strategy.

or just the industry as a whole, third party management.

What type of impacts do you expect or really minimal on your portfolio?

I'm sorry, Jeff, could you try that one again so I'm making sure I'm answering the specific question? Yeah.

I'm sorry, Jeff, could you try that one again so I'm making sure I'm answering the specific question? Yes... Century time? Yes.

Basically, I was just asking about given the consolidation in the industry.

You know, from your seat, how are you thinking about that? In terms of your strategy, you know, does it change anything on 3rd party management side? We're giving your scale in your markets. There's really. Minimal impact on on your business.

I think when we think about just consolidation in general, again, and we can look at that from a whole bunch of different angles, because certainly today there's more assets under third party management than ever. There's certainly no shortage of third party management providers, both public and private.

I think when you just think about consolidation or scale or however you want to term it, I think there absolutely are benefits. But again, I think over time when you think about Cube, our strong density and scale within our markets and our focus on building the tools that benefit our market Ren swell and all those other ideas. What we as elecers were MLKgood to"? Wow I think these insights really Roses those insights. These discs components are someone within their lunch conferences. Then we'll turn everything back into an engaging kit. Let's look at our experience today with buying graduating faculty integrating electrical,5G, and Frisbee engineering and we'll talkWhat are your2 chance that the experiment could Minister of led flashes on the

I certainly think with fewer choices, especially on the third party side, that could create a nice opportunity for us to. To grow that program at perhaps a rate faster than we would have anticipated as we, as we entered as we entered 2023. Great, thank you.

And then I just wanted to clarify kind of the, you know, thinking about the second half of the year and the initial guidance. You know, again, it sounds like in April things have normalized again.

We've been discussing the tougher comps or decel into the second half. I can't remember when you provide the initial guidance.

Did you say that the bottom half did reflect recession or you really didn't comment on that? And didn't really tie top or bottom necessarily directly to macroeconomic conditions. I think it's a range of outcomes.

Really based on our expectation of consumer behavior and then how that consumer behavior translates into customers. Or self storage across. You know, across however, the economy may move here, you know, whether it and how it impacts movement basically.

but nothing tied directly to one specific economic outcome.

Okay, thank you. Thank you. We now have a follow-up from Smeeds Rose. Smeeds, your line is open. Please go ahead. Thank you. This is actually Nick Joseph here with Smeeds. Appreciate you taking the time.

lending environment. Yeah, certainly what's going on in the lending environment directly impacts self storage developers and how they think about, you know, how they think about starts or how they think about projects going forward. I think you've got obviously the tailwind.

to new development being continued strong fundamentals within self storage. I think again, the headwind against that is cost, raw material and labor delays.

with supply chain and raw materials and certainly cost of capital, particularly the lending at the regional and local level. While we've seen issues with certain banks and you've seenShort case studies in the Agriculture Department A examining or monitoring a

The larger money center banks talk about overall commercial real estate exposure. I think there are other product types that are causing a lot of problems for, for lenders. Self storage is not one of them. So, I think it's a healthy balance. I think it certainly put some, you know, some headwinds in front of development. I think as a result.

Thank you. Our final question of the day comes from Juan Sinabria of BMO Capital Markets and it's a follow-up question.

Thanks for the time, guys. Just on one of the points that was raised at the top of the Q&A on the net effective in-place rates for existing customers that ticked down sequentially, I guess how should we think about that?

for the balance of the year in terms of what's assumed in guidance from a modeling perspective. Is that going to now re-accelerate and take up, or should we expect that to continue to moderate or just how are you guys modeling that from your perspective?

Yeah, we expect rates for the new customer to be at lower levels. I'm sorry, were you were the new customer existing customer that you were asking about?

Existently the in place rep for square foot that it ticked down.

sequentially this quarter, just how that should evolve for the balance of the year as per your guidance or assumptions and guidance. Yeah, so the existing, the in place should grow as it normally does seasonally here throughout the balance of the year.

Thank you. You're welcome. Thank you. That's all the questions we have time for. So I'll hand back over to Chris Ma for any final remarks.

Thank you and thanks for listening. Our portfolio construct, we believe, really shines in the types of markets that we're seeing and the type of economy that we're seeing right now in the United States. Really thrilled with the performance, particularly of our urban portfolio.

We think that customer is and the customer base there really performs well in this climate and we are you know we are looking forward to speaking to you again when we end the second quarter. So thank you and have a great weekend. Ladies and gentlemen this concludes today's call. Thank you for joining.