Q3 2024 CubeSmart Earnings Call
Thank you for standing by my name is John and I'll be your conference operator today at this time I would like to welcome everyone to the cube Smart third quarter 2000, and it's better for earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star.
Speaker Change: But the number one on your telephone keypad, if you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Josh <unk> Vice President of Finance. Please go ahead.
Josh: Thank you John good morning, everyone.
Josh: Welcome to keep its March 3rd quarter 2024 earnings.
Participants on today's call include Chris Marr, President and Chief Executive Officer, Tim Martin Chief Financial Officer, our prepared remarks will be followed by a Q&A session.
Josh: 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 Dot keeps smart dock.
Josh: The company's remarks I'll 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 filed with the Securities and Exchange Commission.
Josh: Specifically the form 8-K, we filed this morning together with our earnings release filed on a form 8-K, and the risk factors section of the company's annual report on Form 10-K in.
Josh: 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 third quarter financial supplement posted on the company's website at www Dot keeps smart dot com I will now turn the call over to Chris.
Chris: Thank you Josh good morning.
Chris: Solid third quarter as we continue to focus on maximizing the opportunities in a competitive market environment.
Chris: Overall store performance was in line with our range of expectations entering the quarter.
Chris: Once customers enter our portfolio. They continue to have elevated lengths of stay and credit metrics in line with historical norms.
Chris: Our lower lower beta urban markets continue to outperform the Sun belt.
We are very grateful and thankful to have been extraordinarily lucky with both hurricanes, our teammates are safe and our stores avoided any major damage.
Chris: Our New York MSA significantly outperformed the balance of our portfolio.
Chris: Despite facing tougher comps and being weighed down by the supply impact in the North Jersey segment of the overall MSA.
Chris: In the overall New York MSA.
Chris: Rentals.
Chris: We're up year over year.
Chris: Demonstrating the continued solid demand profile in this key urban markets.
This year over year increase in rentals was led by our portfolio and the New York City boroughs.
Up seven 4%.
Offset by rentals being down 11, 6% and our northern New Jersey portfolio.
Chris: A similar story in same store revenue growth.
Chris: With the New York MSA generating our second highest growth within our major markets.
Chris: Led by the Bronx at six 6% followed by Brooklyn at five 8% and again weighed down a bit by our northern New Jersey lagging negative one 1%.
Chris: Our top performing major market was the DMV district of Columbia, Maryland, Northern Virginia, as it rebounds from the headwinds of new supply.
Chris: The MSA had both a solid three 2% year over year same store revenue growth as well as 110 basis point sequential improvement in revenue growth from the second quarter.
Chris: Weaker performing markets are in Florida, and Arizona markets that experienced significant gains during the pandemic, while also experiencing and continuing to experience the impact of new supply.
Speaker Change: As Tim will discuss and provide more color in his remarks, we remain a third party manager of choice.
Speaker Change: 2024 will be our eighth straight year of adding 130 or more stores annually to our portfolio.
We will remain disciplined in our capital allocation decisions and are prepared to move decisively and with conviction for opportunities that fit our investment thesis.
Speaker Change: Thank you and I'll now turn it over to Tim Martin for his comments.
Tim Martin: Thanks, Chris Good morning, everyone. Thanks, as always for taking time to join US on today's call. The third quarter as Chris mentioned was was very solid for cube smart as we hit the midpoint of our guidance range business remains challenging as we continue to face a competitive pricing environment for new customers with.
Tim Martin: With slower rental volumes, but overall store performance was in line with our range of expectations.
Tim Martin: Same store revenues declined <unk>, 8% compared to last year with average occupancy for our same store portfolio down about 120 basis points to 98%.
Tim Martin: Same store operating expenses grew five 3% over last year, driven by continued pressure on property insurance, but the biggest driver of expense growth during the quarter was on the marketing line item.
Tim Martin: We continually evaluate our overall strategy and the interplay between rate promotions and marketing spend and then the third quarter, we pushed on the marketing lever as we attempted to drive top of funnel demand in this current competitive environment.
Tim Martin: So negative <unk>, 8% revenue growth combined with five 3% expense growth yields negative three 1% same store NOI growth and we reported <unk> per share as adjusted of <unk> 67 for the quarter, which was at the midpoint of our guidance range.
Tim Martin: From an external growth perspective, we have started to see a little momentum here late in the year as we are under contract to acquire two stores in the fourth quarter and we have a number of other transactions that we are actively pursuing.
Tim Martin: The certainty and timing of the closing those other transactions is still up in the air but as we've been discussing for the last quarter or so acquisition activity is beginning to become much more constructive from our perspective.
On the third party management front as Chris touched on we had another productive quarter. We added 24 stores to the platform, bringing us to 893 stores under management at quarter end.
Tim Martin: No notable changes during the quarter to our strong balance sheet position low leverage no floating rate exposure and the full capacity of our line of credit has us in a great position to pursue external growth opportunities.
Tim Martin: We raised $32 8 million of proceeds under our at the market equity program during the quarter for an average sales price of $54 20 per share.
Tim Martin: From a full year guidance perspective, not really any changes as the third quarter was in line with our expectations and the remainder of the year continues to track within the ranges we provided last quarter.
Tim Martin: Given third quarter results, we narrowed our full year <unk> per share range, while maintaining the midpoint of our expectations.
Tim Martin: Thanks again for joining us on the call. This morning at this point, Jon why don't we open up the call for some questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. If he our thoughts and would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
Speaker Change: Our first question comes from the line of Jeffrey Spector from Bank of America. Please go ahead.
Jeffrey Spector: Great. Thank you first question for Chris Chris There is a nice healthy debate on the very I guess exact conditions today and forward thoughts on <unk>.
Jeffrey Spector: Finishing out the year into 25, it's 25 peak leasing season.
Jeffrey Spector: You've heard on other calls stabilization.
Jeffrey Spector: So I'm, saying, maybe even expecting some improvement you.
Speaker Change: I feel like you always called as it is I mean, what do you think the state of the state is as we finished 24 and headed to 'twenty five.
Speaker Change: Yeah, I think I think we're in a.
Speaker Change: Relatively.
Speaker Change: High beta.
Speaker Change: Environment at the moment, we have.
Speaker Change: Some weeks during the quarter, where you see.
Speaker Change: Some green shoots and feel like we are starting to.
Speaker Change: See some positive signs and then honestly you have some weeks that you scratch your head and wonder a little bit where all the <unk>.
Speaker Change: Demand wet so I think we've got a big event next Tuesday.
We've got a lot going on in terms of interest rates and the federal reserve. We've had obviously an incredibly volatile 10 year. If you just think about it from that perspective.
Speaker Change: And I think that makes it just a very difficult question to answer with conviction, one way or the other so I will say.
Speaker Change: Continuing to sort of operate in an environment, where we're taking it week by week.
Speaker Change: Okay. Thank you that's fair.
Speaker Change: And then can you discuss move in move out rate spread in the quarter.
Speaker Change: Yeah in the quarter.
Speaker Change: That churn GAAP was a negative 27, 4%.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Michael Goldsmith with UBS. Please go ahead.
Michael Goldsmith: Good morning, Thanks, a lot for taking my questions, Chris I'd like to dissect kind of your opening remarks about maximizing opportunities in a competitive environment. So starting about maximizing opportunities. It looks like you stepped on the.
Michael Goldsmith: Advertising lever advertising marketing lever a little bit, but can you just talk about.
Michael Goldsmith: How you think about investing in price and marketing.
Michael Goldsmith: Versus Wade in this environment in <unk>.
Michael Goldsmith: How youre looking to be positioned kind of heading into the slower season.
Speaker Change: Thank you so I.
Speaker Change: I think against a backdrop just to put things in perspective, if you look at our.
Our investment our spend in marketing on a nine month basis.
Speaker Change: Last year for the first nine months of the year that grew about 10%.
Speaker Change: And this year for the first nine months of the.
Speaker Change: The year, it's grown about 10% so.
Speaker Change: The the investment there kind of a growth rate basis year to year has been a little bit different in terms of.
Speaker Change: The quarters in which we have chosen to.
Speaker Change: Push a little bit harder or take our foot off the gas, but the overall trend.
Speaker Change: Trend has been.
About the same for the first nine months.
But to your to your more.
Speaker Change: More of a high level question.
That is again back to my week to week, we're looking at.
Speaker Change: Where are the opportunities given the fact that I think everybody accepts we have the highest quality portfolio in the industry, where do we look to also get the highest quality customers that we can get those customers who are willing to pay a premium rates.
Speaker Change: Who then and our data stay longer.
Speaker Change: Or less.
Speaker Change: Sensitive to rate increases over a long period of time.
Speaker Change: And that that is a task lather rinse repeat week to week.
It is certainly challenging in this very competitive market.
Speaker Change: To figure out exactly where we have that.
Speaker Change: That best mix.
And that's something that obviously the team and the folks on the on the data science team are looking at every day as we're adjusting prices and making some decisions on the marketing side.
Speaker Change: Good about the marketing investment in the quarter, we saw web sales traffic up about 26% on all stores during the quarter. So.
Speaker Change: Satisfied with the return again, it's just trying to balance out as you said that that marketing investment relative to price relative to.
Speaker Change: ECR is to get what we think is going to be the best result, both near term and long term.
Speaker Change: I appreciate the color.
As my follow up right like the second half of your opening statement was on the competitive environment are you seeing.
Speaker Change: Are you seeing any of the competition start to fade, a little bit it hasn't stepped up I'm, just trying to get a sense of who.
Speaker Change: What you are trying to manage through.
Speaker Change: Yeah, again, I think it's really.
Speaker Change: Market by market, where obviously a local market business.
But it is I think it is fair to say that you feel like.
There is a bit of stabilization in <unk>.
Speaker Change: Some markets around competitive pricing and how folks are thinking about.
Speaker Change: Attracting.
Speaker Change: That new customer and then the flip side is we have markets certainly the west coast of Florida is easy to pick on where you just have that significant impact of new supply and that's creating a little bit of an overhang as it relates to pricing to new customers.
Speaker Change: Thank you very much good luck in the fourth quarter.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Juan Sanabria from BMO capital markets. Please go ahead.
Speaker Change: Hi.
Speaker Change: Just piggybacking on the comments.
Speaker Change: On a prior question.
Speaker Change: Where have you seen any deterioration in customer behavior.
Speaker Change: The changes in the quality of the customer if you discount versus not or if there is.
Speaker Change: Differences within the kinds of discounting whether it's.
Speaker Change: Alright, one month free and you're kind of well below street rich just curious on what youre seeing in terms of who you're getting and how long they stay depending on where you offer them upfront.
Speaker Change: Yes.
Speaker Change: Our data would tell us that.
Speaker Change: A customer who for example to take it to one end of the extreme moves in.
Speaker Change: For free or moves in for a dollar.
Speaker Change: Is it just your lowest.
Speaker Change: Your lowest quality customer from a probability perspective that customer is attracted to that.
Speaker Change: Offer.
Speaker Change: For a variety of reasons that tends to lead to lower lengths of stay and higher credit issues over time.
Speaker Change: Vice versa sort of common sense your customer who is not sensitive to price on the front end also tends to be one who ends up statistically staying longer and being much less sensitive to.
Speaker Change: Future rate increases so it is a balance.
Speaker Change: Between how do you think about that discount or offer to.
Speaker Change: To attract and Youre really trying to do that on a.
Speaker Change: On a local store level relative to the inventory that you have at that store so to the extent that.
Speaker Change: You have a significant vacancy perhaps in a specific unit type.
Speaker Change: There you may be open to offering some sort of a.
Speaker Change: Some sort of a discount or or or <unk> or whatever you want to call it to try and get that customer in.
Speaker Change: And just recognize that statistically the odds of that customer being a long term stay in a high quality or low but you are willing to accept that churn. So I think I think that's that's.
Speaker Change: That's the way our data will tell us it plays out and those are the kind of decisions you are making at our local market level every day.
Great and then just to come at <unk>.
Speaker Change: On guidance you tightened <unk> left.
Speaker Change: The same store unchanged is there any.
Speaker Change: Comfort level within the ranges with.
Speaker Change: 10 months out of the year Don.
Same store revenue or NOI, specifically at this point.
Speaker Change: Well I think.
Speaker Change: By default good morning by the way I think by default when you have 10 to 12. So the answer you have a little bit more comfort that he does at the beginning of the year I mean overall our guidance ranges.
Speaker Change: Interestingly haven't really changed all that much from the beginning of the year till now we started the year with.
Speaker Change: Wider array of.
Speaker Change: Potential outcomes and as the year plays on that you tend to narrow those in.
Speaker Change: And no adjust other than tightening the <unk> per share range as you noted.
Speaker Change: The balance of the guidance ranges.
Speaker Change: We left unchanged from a quarter ago, we feel like.
Across the board, we're still tracking to fall within within all of those respected ranges. So really not much commentary because nothing much has changed in the quarter was very much in line with our expectations.
Speaker Change: And we have two months left in the year and on Chris's points.
Speaker Change: So.
Speaker Change: Some weeks some weeks, we get more optimistic in some weeks it feels like youre, given a little bit of it back, but we think the <unk>.
Speaker Change: Ranges that we have out there right now are appropriate.
Speaker Change: And one is Chris just to piggyback a little bit on Tims comments. When you when you do look back both for cube and the industry at.
Speaker Change: Expectations are being set at the beginning of the year and if you just focus on the low ends which you know off the top my head we were negative one in a quarter I think everybody else was kind of around there are worse.
Speaker Change: And we talked about like drivers and how the year would have to play out for that to be the result.
Speaker Change: What's interesting to me as we focus on a housing market that that would be no worse.
Speaker Change: And then what we saw in 2023 to kind of get to those lower and then obviously there were some other macro factors and here. We said in November 1st and in fact, the housing market actually is worse. This year than it was last year and yet for cube and the industry as a whole were not performing at those really low levels.
Speaker Change: That low end of those original expectations and I think it just goes to that again the long term resilience.
Speaker Change: What a great business self storage is that in spite of the fact that we.
Speaker Change: We didn't get anything from some of those drivers that we thought would be helpful. We were still able to find other ways to kind of take advantage of whatever opportunity is presented to maximize the results.
Speaker Change: Just a plug for self storage theyre self serving.
Speaker Change: Okay. So just to recap kind of the ending commentary the low end it seems like it's off the table, it's more of the mid and the high end then.
Speaker Change: Yeah again, we're just providing a range of expected outcomes.
Speaker Change: For the for the <unk>.
Speaker Change: For the balance of the year that we're comfortable with that we will at some point in the year and be within those ranges, it's hard to get specific between one or the other I think specifically Chris is referring to the low end of the range that we started the year with and we contracted that range from a number of perspectives last quarter.
Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of sensor Glimcher with Green Street. Please go ahead.
Speaker Change: Thank you you mentioned in the press release that the transaction markets become more constructive can you just provide some additional color here and maybe you can take that particularly on the types of opportunities you're seeing.
Speaker Change: Good morning Spencer.
Speaker Change: From a couple of different perspectives, we have seen an increasingly attractive opportunity set from a quality of.
Speaker Change: Quality of the opportunity and Thats.
Speaker Change: Individual quality of assets, but also the quality of the opportunities within markets that are that are attractive to us and our strategy. We have seen a continuation of some compression in the bid ask spread from where it had been two or three or four quarters ago to a much more constructive.
Speaker Change: <unk> today, where there seems to be a reasonable.
Speaker Change: GAAP at least when you startup process between where we want to be as a buyer and where and where a seller is.
Speaker Change: As willing to transact and so as those two things start to get closer and closer together. It certainly feels like a much more constructive environment that being said.
Speaker Change: Anything can feel more constructive versus nothing for 18 months.
Speaker Change: So I guess, it's all it's all relative but we are we're energized and.
Speaker Change: And you can certainly see that we're moving in a direction here at least at the moment into a much more constructive environment for us to put our balance sheet to work and to be able to focus on those external growth opportunities.
Speaker Change: Okay. That's helpful and I know I think industry participants are talking about a bid ask spread in like the 10% range.
Speaker Change: I won't speak for you guys, but just curious Mike if youre, saying.
Speaker Change: A little bit of compression there can you provide a range or are you able to quantify maybe what youre seeing in todays environment in terms of that bid ask spread.
Speaker Change: As such such a generalization each each opportunity is obviously different we were able to get to stores as you saw on our release under contract I mentioned I mentioned previously we are actively working on them on a handful of other opportunities that.
Speaker Change: We have a chance to get across the finish line here. It's hard it's hard to say the only ones that matter, where you where they're zero bid ask spread.
Speaker Change: And the opportunity set being of higher quality is I think the more compelling component to all of that for cube smart.
Speaker Change: Because you do get you do get a lot.
Speaker Change: Pencil skirt a lot sharper when something is attractive and fits our investment strategy.
Speaker Change: Okay. That's fair. Thank you so much.
Thanks.
Our next question comes from the line of Daniel <unk> with Scotiabank. Please go ahead.
Speaker Change: Hey, good morning, absolute pleasure to be here, Chris to your comments a few answers ago.
Speaker Change: <unk> market being even worse this year, but the guidance unchanged.
Speaker Change: The resiliency of the businesses is that a testament to the <unk> program.
Speaker Change: And if so can you just talk to that and and how you'd see that evolving in an environment, where maybe moving rates start to improve.
Speaker Change: Yeah. Good morning. Thanks for the question. So I think it's a testament to.
The fact that.
Speaker Change: Our customer base as everyone. While at least every one that's an adult.
Speaker Change: And our customer base has such a diverse.
Speaker Change: Use case that we can be.
<unk> resilient, regardless of what macro factors are.
Speaker Change: Happening in the world at that time.
Speaker Change: So I think that's the first piece of it we're not we're not reliant upon job growth, we're not reliant upon.
Speaker Change: One specific factor to generate a need for our product simply somebody who has discovered that we are an excellent solution to place their treasured possessions for a period of time I think the reality is that period of time as always.
Speaker Change: Most times is longer than our customer thinks about it when they first enter the portfolio. So I think it's a combination of that and then obviously.
Speaker Change: Rate environment for new customers that we've been experiencing here for the last.
Speaker Change: 18 months or so.
Speaker Change: That existing customer base resilience is also helpful and important.
Speaker Change: We continue to see.
Speaker Change: A sticky customer base lengths of stay.
Speaker Change: Pretty consistent after having elongated through COVID-19.
Speaker Change: And a customer who's.
Accepting those rate increases and continuing to stay in the portfolio. Thereafter, So I do think macro it's a combination of.
Speaker Change: Of those two factors that I think is what makes storage such.
Speaker Change: A special and long term outperformance.
Speaker Change: Great. Thank you for that and just on.
Speaker Change: Follow up.
Speaker Change:
Speaker Change: At promotional dollars being up a little bit, but just curious and I know, there's puts and takes there, but where was the Q3 in October moving rate year over year gap I think it was 11 down 11 in Q2.
Speaker Change: Yeah.
Speaker Change: Hi.
Speaker Change: The October at the Q2.
Speaker Change: Was in that.
More like that 13 kind of percent range.
Speaker Change: October was 11.
Speaker Change: But I'm sorry, Q3 was 11 on average.
Speaker Change: The last two weeks.
Speaker Change: Of October.
Speaker Change: Its been right around nine point.
Speaker Change: So we've seen that contract part of that is certain market seeing a little bit more.
Speaker Change: More helpful pricing to new customers. The other hand of that is in October starting around mid October of last year.
Speaker Change: We have had a strategy last year, where we were trying to hold onto a rate a little bit longer past the busy season.
Speaker Change: And we did not bring rates down last year until about mid October so part of it is the comp part of it is.
Speaker Change: Some markets a little more constructive pricing.
Speaker Change: Great. Thanks for the time.
Speaker Change: Thank you.
Speaker Change: All right.
Speaker Change: Eric Wolfe with Citi. Please.
Speaker Change: Please go ahead.
Speaker Change: Thanks, It's Nick Joseph here with Eric just we'll go back to your comments on the New York area I know it saw sequential decline in Sao performance shrunk.
Speaker Change: Versus the broader portfolio, so curious to get your expectations for that market going forward and if tougher comp comps could weigh on it next year.
Yes, when you think about when you think about the New York MSA Q2 of last year of 6%.
Speaker Change: Same store revenue growth plus or minus couple of basis points Q3 of last year, 6% same store revenue growth plus or minus couple of basis points. So the MSA as a whole has tough comps.
So.
Speaker Change: When you think about it from that perspective, I think our overall same store portfolio of rentals were down about 5%.
Speaker Change: And you contrast that with the New York MSA rentals were up about 5% So long term health Fabulous.
Speaker Change: Supply in the Bronx in Brooklyn Super helpful going forward still dealing with a little bit in Queens.
Speaker Change: And certainly North Jersey, then from an MSA perspective as.
Speaker Change: Is pulling down our results a bit because of the supply impact there.
Speaker Change: I think when you look out into next year that supply impact in North Jersey will certainly begin to lessen the supply impact in.
Speaker Change: And some of them against some of our properties in Queens, particularly long Island city, hopefully will begin to lessen so.
Speaker Change: So I think you have puts and takes there in New York, but.
Speaker Change: So I can't comment today on where we see acceleration or deceleration, but I can comment that that is.
Speaker Change: It's just an absolutely fantastic self storage market through all parts of the cycle, but it's going to be low beta we're going to see that market. Unlike.
Speaker Change: Unlike a phoenix or some of the higher beta markets Youre, just not going to see the big swings there up or down as you do in other parts of the portfolio.
Speaker Change: Thanks, that's helpful and then.
Speaker Change: The $29 million of other property income how much of that is administrative and late charges.
Speaker Change: Versus insurance income and solar credits.
While there is no there is no insurance in there. So it's it's predominantly on the fee side.
Speaker Change: Okay.
Speaker Change: Okay are there any.
Speaker Change: The solar run through there.
Speaker Change: It runs through there it's not a it's not a big component of it it does run through that line item it's not.
Speaker Change: The solar credits were.
Speaker Change: More impactful to the year over year growth in the second quarter than they were in the third.
Speaker Change: Great. Thank you very much.
Speaker Change: Of course, thank you.
Speaker Change: Our next question comes from the line of Thomas from Keybanc Capital markets. Please go ahead.
Speaker Change: Hi, Thanks, good morning.
Speaker Change: Wanted to follow up on the questions around the guidance. So you maintain the same store forecast you narrowed the <unk> range a bit but the fourth quarter guidance <unk> ranges is a little wider it's at 67 to 70 cents of <unk> range.
Speaker Change: With just two months left I think you've generally had a two cent range.
Speaker Change: Is that just the week to week volatility that you that you are seeing in an indication that uncertainty is it.
Speaker Change: Real high levels higher than it's been or is there something else specific that we should be thinking about from an <unk> standpoint, as we make our way through the end of the year.
Speaker Change: No great question, Todd, but nothing nothing is smaller of the eye.
Speaker Change: I think the ladder I was get mixed up with the former and the latter more of the latter of your of your two answers to your question. It is.
Speaker Change: It's just the range that we feel appropriately captures the potential outcomes, obviously upset a high end at the low end to get to somewhere.
Speaker Change: And the Middletown.
Speaker Change: That tends to make sense.
Speaker Change: Also have a little bit of a disconnect between the annual guidance in the quarterly guidance because of just the dominator with utilizing the ATM a little bit but.
Speaker Change: Nothing you should read into that range other than.
Speaker Change: I was trying to provide a range that captures the volatility and the potential outcomes here as we close out the year.
Speaker Change: Okay, and sorry, if I missed it but can you comment on October occupancy.
Speaker Change: And where that stands and what that looks like on a year over year basis.
Speaker Change: Yes at the end of October yesterday, 89, 9% in the same store pool of 130 basis points behind last year.
Speaker Change: Okay alright, thank you.
Speaker Change: Our next question comes from the line of almost Tayo Okusanya with Deutsche Bank. Please go ahead.
Speaker Change: Hi, Yes, good morning, everyone.
Speaker Change: Just was hoping you could talk a little bit about kind of what.
Speaker Change: Average ECR increases were in the queue as well.
The.
Speaker Change: Street rates kind of how much they were down year over year.
Speaker Change: On average for the quarter and also as the quarter progressed, what was happening with those two metrics.
Speaker Change: Yeah. Thanks for the question I answered the street rate question.
Speaker Change: Question previously.
Speaker Change: We had come down into the last couple of weeks of October down about 9% nine 4% that was down from.
Speaker Change: 11.
Speaker Change: Average for the quarter.
Speaker Change: In terms of the.
Speaker Change: The ECR is that really has not changed.
Speaker Change: From the cadence or the or the percentage increase on average across the portfolio.
Speaker Change: And a bit here it continues to be kind of that high teens.
Speaker Change: Average increase.
Speaker Change: To those customers who are receiving one.
But again, that's the average the range is quite wide.
Thank you.
Speaker Change: Question comes from the line of key bin Kim Truest. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Can you just talk about the impact of supply on your portfolio.
Speaker Change: Thats shaping out in 'twenty, four and as you think about next year, how that might look.
Yeah, I'll, let Tim or Josh gave you the percentages of the portfolio that is being impacted by.
Speaker Change: By new supply here in 'twenty, four and maybe a little help on how that cadence had happened as we look out to.
Speaker Change: Two next year.
Speaker Change: Again, we will update that and provide.
Speaker Change: A new.
Speaker Change: Percentage impact.
Speaker Change: As it relates to the same store pool, when we provide guidance in February.
Speaker Change: As I sit here today, and you look across the country.
Speaker Change: I do feel like that that percentage is going to come down.
Speaker Change: As it has over the last couple of years. So suppliers is helpful and constructive I think in terms of trying to shape. The narrative for 2025 on a macro basis, there will continue to be.
Speaker Change: Some markets like Washington D C.
Speaker Change: Where we've taken the pain, we don't see a significant amount of DC, Maryland, Virginia, We don't see a significant amount of additional supply coming on.
Speaker Change: And so you would see a market like that we would think would benefit more so.
Speaker Change: And then as I mentioned you have.
Some markets on the West coast of Florida that are going to see and have seen a reasonable amount of deliveries this year.
Speaker Change: Which we would expect that will be weighed on.
As we go through 2025.
Speaker Change: Tim or Josh I don't know if you know.
Speaker Change: The percentages are Keith yes, happy too.
Speaker Change: We peaked out the number of our stores that were impacted by new supply was at its peak in 2019 at 50% of our stores and since that time. It has steadily decreased the percentage of our stores impacted that again, we think about that for stores that that opened up.
Speaker Change: In the year that we're focused on and in the prior two year, so kind of a 253 year rolling impact because that's the period of time.
Speaker Change: In which a store that opens up that is competitive with your store. We believe has the biggest impact from from.
Speaker Change: From a pricing standpoint, so that 50% in 2019 has steadily come down in 2024 that number is down to 27%.
Speaker Change: As Chris touched on we'll we'll update that number as we complete our ground up.
Processes for the 2005 number when we provide guidance in February.
Speaker Change: Okay, and maybe I can ask that a different way if you look at our new construction start activity.
Speaker Change: Might be likely.
Speaker Change: And then kind of similar thinking.
What does that look like.
So if you if we had to kind of look out a few years trying to get a sense of how low that can scale.
Yes.
Speaker Change: And again in our core markets you continue to see the overall level of starts decline.
Speaker Change: You certainly have folks who have.
Speaker Change: Projects, they would they would like to start.
Speaker Change: But when you look at cost of capital.
Speaker Change: Capital availability on the lending side.
The competitive rate environment, we're in for new customers.
Speaker Change: As always it's a micro market business. So there are sites in locations that still makes sense in spite of that but overall, we would expect that we need to work through both sides of the equation cost of capital.
Speaker Change: And rental rate.
Speaker Change: To be able to have a lot of sites.
Speaker Change: Pencil out and makes sense here over the next I'm going to guess over the next 12 to 18 months and then you think about that trend line and 25, what we're looking at is new deliveries in 25 would be added to two impacting our stores, but then in our minds falling out would be all of those deliveries in 'twenty two so when you're thinking about that.
Speaker Change: Incremental impact overall, youre, saying, our 2025 deliveries in our markets that are competitive with our assets more or less than deliveries that we saw in 2022 sure feels like it's going to be less in particular, when you get into some of the assets that Chris touched on a few questions ago, which are.
Speaker Change: What's something opened up and one of the.
Speaker Change: Outer boroughs of New York, and Brooklyn, Queens Bronx, It tended to not impact one of our stores, but many of our stores because the assets are so clumped together.
So there are a lot of things moving around but certainly we feel like supply is becoming less and less of a headwind as we go your question of what could it eventually be that's an interesting hypothetical question because.
Speaker Change: We experienced that period of time in 2011 through 2014, where the industry saw almost zero.
Speaker Change: And that was fabulous from the impact on operating fundamentals, but the reason it was zero was because there were a lot of other things that were going on in the world and in the sector.
Speaker Change: I wanted to go to zero, because zero implies or something else that's wrong.
You would almost rather see supply get down to a level where it approximated.
Speaker Change: Growth in demand.
Speaker Change: And in the places where demand is growing of course, that's wishful thinking because thats number the way it works in the real world, but ultimately you would like to see.
Speaker Change: Some level of supply that mirrors growth in demand I E population growth and movement around the country that would be I think that would be ideal from from a sector perspective.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Oh by the way before I am sorry, pre prime for the next question I wanted to go back to a question that Nick Joseph asked a little while ago about.
Speaker Change: About weather tenant insurance was was included in other income and just for clarification I took that in the context of in the same store portfolio and so for our same store portfolio tenant insurance is not included in other income on a consolidated basis when you think about.
Speaker Change: Total results not just same store tenant insurance does show up in the other income line item. There. So I want to make sure I was misleading and my answer to that question.
I'm sorry, John you can probably for the next question.
John: Thank you.
Speaker Change: And for our next question, we have Mike Mueller with Jpmorgan. Please go ahead.
Hi, just a quick one on the two acquisitions that you announced can you talk about how well occupied properties are and.
Speaker Change: Going in expected yield.
Speaker Change: Yes, sure. So interestingly they are two very separate transactions on different sides of the country, but some of the statistics are homeless interestingly and coincidentally about the same each of these opportunities were stores that were built three three and a half years ago. So theyre not completely stabilized as we bring each of them into the portfolio each of them they range.
Speaker Change: And occupancy coming when they come onto our platform there'll be in.
Speaker Change: 70%, 75% type of occupancy so theres, one more leg of lease up and each of those opportunities combined with.
Combined with.
Speaker Change: Springing.
Speaker Change: Some value into things like tenant insurance and getting them fully economically stabilized. So we're looking at each of those assets and a cap rate at stabilization kind of year to right around a six cap for each of those opportunities plus or minus.
Speaker Change: But coming coming on they are not fully stabilized so it's a little bit lower than that.
Speaker Change: Got it okay. Thank you.
Speaker Change: Sure. Thank you.
Speaker Change: Our next question comes from the line of Eric <unk> with Wells Fargo. Please go ahead.
Speaker Change: Hi, Thanks for the question.
Speaker Change: You bet.
Speaker Change: Answered several questions about the acquisition market, but maybe you could talk about what youre kind of seeing in the pipeline is it more of the kind of single asset deals that you've executed on over the last year or are there some larger portfolio deals that you see.
Speaker Change: And your funnel as well.
Speaker Change: Yes. Thanks for the question. It is it really is all over the place I think what is consistent.
Speaker Change: Today is what we've been talking about here for several quarters as I do think there is a.
Speaker Change: There is an awful lot of.
Of inventory that is building up for folks that that either want or need liquidity at some point.
Speaker Change: So I think when when.
When the floodgates open up to the extent that they that they open up I think youre going to see a variety of opportunities ranging from that single asset opportunity to small to medium sized portfolios to potentially even something a little bit it's a little bit larger I think large portfolio transactions are.
Speaker Change: Our little bit more difficult I think the line of potential buyers is shorter certainly than it was in 2021 given.
Speaker Change: Given the cost of debt and debt availability to many potential buyers of larger portfolios.
Speaker Change: That positions that positions us and some others like us perhaps to be in a nice in a nice spot because we do have access to capital and.
Speaker Change: It would be great to be on the buying side of the table and have a shorter line of folks on that side of the table.
Speaker Change: But I don't think I don't think youre going to see opportunities that are that are just small assets or just large portfolios I think it's across the board as theyre just pockets of pockets of capital that don't have forever time horizons associated with us they are self storage investments and they need to find liquidity at some point.
Speaker Change: Fair enough and then just.
The piggyback on that I mean, you did raise a little bit of equity in the quarter. So just thinking as you think about the potential for external growth to pick up like how are you thinking about.
Speaker Change: Funding that from a from a leverage perspective, maybe tapping the market. If you see opportunities to issue equity just any comments there would be helpful. Thanks.
Speaker Change: Yes, certainly so so we've worked hard for very long time to create a balance sheet that has.
Speaker Change: That is that is low risk and also has capacity for us to support that external growth part of our.
Speaker Change: Of our strategy and so at third quarter with debt to EBITDA down at four times. It gives us a tremendous amount of capacity to use debt to the extent that we find opportunities to.
Speaker Change: To use that leverage bullet and.
Speaker Change: We could we could comfortably be within the credit metrics that we target long term for our credit rating, a full turn higher than where we sit today. So you translate that that means that we could do we could acquire roughly $1 billion worth of assets fully levered and still have credit metrics that worked for us.
Speaker Change: We were to do that hypothetically, we would then work to bring it back down and create the capacity so that we would be in a position to.
Speaker Change: To be in the same position we're in today, you've seen us do that repeatedly here over the past 10 to 15 years. So when we see an opportunity like we have in front of US right now and we can match fund and equity component of that.
Speaker Change: At pad.
And an equation that makes sense, given where our equity cost of capital is where the opportunity set is.
We love to continue to maintain that capacity.
Speaker Change: At the same time, we're more than happy to use that capacity if the math makes sense from that standpoint, so we really feel fortunate to be well positioned to go and a lot of different directions, depending on depending on the environment, we find ourselves in at the moment and the opportunity set that's out there.
Speaker Change: Okay, great appreciate it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Brendan Lynch with Barclays. Please go ahead.
Great. Good morning. Thanks for taking my question you mentioned, the New York Metro is particularly strong so I'm curious on the 30% occupancy.
Brendan Lynch: Of the two stores that delivered last quarter, how that compares to your expectations and how it compares to past new development lease up trends.
Speaker Change: Yes, thanks for the question.
Speaker Change #100: Both of those stores.
Speaker Change #100: Performing <unk>.
Speaker Change #100: I would say in line with.
Speaker Change #100: With our expectations on.
Speaker Change #100: On the occupancy side.
Speaker Change #100: As they've come into the into the portfolio.
Speaker Change #100: No surprises for us on either of those one way or the other.
Speaker Change #101: And maybe a follow up there what is your appetite for new development starts versus other potential uses of capital.
Speaker Change #101: Yes.
Speaker Change #101: We obviously are.
Speaker Change #101: We.
Speaker Change #101: Are interested in continuing to grow the portfolio, where appropriate and where it makes sense as I shared on a macro basis, it's challenging today to find attractive sites.
Speaker Change #101: In the small number of markets, where we're interested in in development and taking that that risk for that reward.
Speaker Change #101: But on a micro basis, yes, there are certainly neighborhoods where storage.
Speaker Change #101: As as low square foot per capita.
We believe a project would do well and.
Speaker Change #101: And we continue to pursue those opportunities. It has just been challenging for us to find that combination of those special sites.
Speaker Change #101: With a site that makes sense economically.
Speaker Change #102: Great that makes sense. Thanks.
Speaker Change #103: As there are no further questions at the queue. At this time. This concludes our Q&A session I would like to turn the call over back to create smart for closing remarks.
Speaker Change #104: Okay. Thank you so I think as I mentioned then.
Speaker Change #105: In the in the release, we recently recognized our 20th anniversary as a New York Stock Exchange traded company. So I would like to thank everyone who has been involved.
Speaker Change #105: Over that journey.
Speaker Change #105: From from 20 years ago through today with a special thank you to our teammates.
Speaker Change #105: Who are with us today and were with us.
Speaker Change #105: Two decades ago and deeply appreciate their commitment to our company and their commitment to customer service.
That shout out we'll wrap it up.
And thank everybody for your participation and have a great and safe weekend.
Speaker Change #106: This concludes today's conference call. Thank you for your participation. You May you may now disconnect have a pleasant day everyone.
Speaker Change #106: [music].
Speaker Change #106: Sure.
Speaker Change #106: Okay.
Speaker Change #106: [music].
Yes.
Speaker Change #106: [music].
Speaker Change #106: Okay.
Speaker Change #106: Okay.
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