Q4 2024 CubeSmart Earnings Call
Karen: Thank you for standing by. My name is Karen and that will be our conference operator today.
Speaker Change: Thank you Karen good morning, everyone welcome to acute smart fourth quarter 2024 earnings call participants on today's call include Chris Marr, President and Chief Executive Officer, and Tim Martin Chief Financial Officer, our prepared remarks will be followed by a Q&A session.
Speaker Change: 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 Q smart Dot com.
Speaker Change: 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 Change: 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 to.
Chris Marr: 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 Companys website at Www Dot keeps smart dot com I will now turn the call over to Chris.
Chris Marr: Thank you Josh good morning, welcome to the call thanks for participating.
Chris Marr: We believe that's where our portfolio in the fourth quarter of 2024 may have marked an inflection point and the trend of decelerating same store revenue growth that we and the industry have been experiencing since reaching the COVID-19 induced peaked in the second quarter of 2022.
Chris Marr: From their trough in November of last year, our year over year growth in same store revenues has begun to slowly improve.
Chris Marr: Specific trends of note include the.
Chris Marr: The year over year same store occupancy gap narrowing from a 100 basis points negative at year end 'twenty four to negative 50 basis points as of the end of February.
Chris Marr: Rents being achieved for new customer rentals have improved their year over year negative gap.
Chris Marr: From the average in the fourth quarter of negative 10, 3%.
Chris Marr: Two last week, averaging negative seven 4% we are generally positive about the economic health of our existing customers all key metrics write offs et cetera.
Chris Marr: <unk> to perform along historically normal levels.
Chris Marr: We are watching these metrics closely recognizing core inflation remains stubbornly high.
Chris Marr: Our base case expectations for revenue growth in 2025 as soon across all of our major markets that we continue the gradual pattern of improvements from our fourth quarter metrics.
Chris Marr: Our lower beta urban markets continue to outperform the sunbelt our expectation is our New York City performance continues to be a bright spot remaining at the top of our highest growing markets.
That being said today, we do not see a near term obvious catalyst that would sharply reaccelerate organic growth in 2025.
Chris Marr: The last two years, we've met in the industry are included a mix of optimism and hope around housing market improvements and other trends that would provide significant stimulus to the busy season demand for our product.
Chris Marr: In hindsight. These bull case forecasts have proven to be overly optimistic.
Chris Marr: While we are encouraged by our metrics through February and believe that overall trends are stabilizing.
Chris Marr: Being in our opinion.
Prudently cautious in our initial 2025 outlook.
Chris Marr: We remain very optimistic about the long term health of our business.
Chris Marr: For almost two decades, a hallmark of our team as our culture of out hustling to find creative methods to grow externally.
Chris Marr: But our viewpoint that operating fundamentals are stabilizing in February we were pleased to successfully close out one of our joint venture investments.
Chris Marr: Acquiring our partner's interest in an accretive transaction.
Chris Marr: Planning for the opportunity in late 'twenty, four we opportunistically raised equity capital at attractive valuations on our ATM program.
Chris Marr: But the net debt to EBITDA of four times, we took advantage of a portion of that leverage capacity to fund the balance of the purchase.
Chris Marr: Portfolio is deliberately constructed between 2017 and 2021 to include assets that had been recently constructed in tier one markets are planned from inception was to bring these properties onto our balance sheet and our investments team has skillfully executed on that strategic objectives.
Chris Marr: Most business executives will describe the current macro economic and Geo political environment as uncertain.
Chris Marr: Beginning over 30 years ago, and continuing to this day members of our leadership team has successfully navigated through cycle in times of great uncertainty.
Chris Marr: Over that period self storage has demonstrated its resilience we are confident in the future and remain focused on providing an outstanding experience to our valued customers and maximizing the opportunities presented.
Chris Marr: Now I'd like to turn the call over to Tim Martin, who will walk you through.
Tim Martin: Our investment activity, our fourth quarter results and our outlook for 'twenty, five and a bit more detail Tim. Thanks, Chris Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us.
Tim Martin: Chris mentioned.
Tim Martin: I'll quickly review fourth quarter results talk about some investment activity.
Tim Martin: And provide some additional color on our on our 2025 expectations and guidance.
Tim Martin: Same store NOI declined three 7% in the fourth quarter same store revenue growth was negative one 6% for the quarter driven by continued pressure on asking rates along with occupancy levels, dropping 120 basis points on average compared to last year.
Tim Martin: Same store expenses grew four 7% during the quarter driven largely by the real estate tax line item, which grew 17, 5% over last year's fourth quarter.
Tim Martin: As we've discussed throughout the year the year over year increase in the quarter was expected as we received some significant refunds and tax reductions in the fourth quarter of last year. So there's nothing new or recurring that impacted this year's tax number just a tough comp from last year is good news.
Tim Martin: For the year real estate taxes grew five 7%, which was actually a little bit better than we have projected entering the year.
Tim Martin: We reported <unk> per share as adjusted of <unk> 68 for the quarter.
Tim Martin: <unk> announced a 2% increase in our quarterly dividend up to an annualized $2 eight per share on yesterdays close that represents a four 9% dividend yield.
Tim Martin: On the external growth front in the fourth quarter, we closed on the previously announced store acquisitions in Oregon in Pennsylvania for a combined investment of $22 million.
Tim Martin: We also closed on our acquisition of an 85% interest in a 14 store portfolio in the Dallas MSA we.
We had an existing third party relationship.
Tim Martin: With the owners and this transaction was a really good example of our investments team getting creative to find a solution for a group of investors some of whom were looking for liquidity and some who wanted to maintain their position and capture the remaining value creation opportunities that the portfolio presents over time, we're very excited about this.
Tim Martin: Accretive transaction as the assets are incredibly complementary to our existing Dallas portfolio footprint.
Tim Martin: We also announced that subsequent to year end as Chris touched on that we acquired the remaining 80% interest in one of our unconsolidated joint ventures known as <unk> for.
Tim Martin: As Chris mentioned the venture was formed in 2017 with the objective of acquiring non stabilized early stage lease up stores.
Tim Martin: From 2017 to 2021, the venture acquired 28 stores predominantly in top 30 Msas.
Tim Martin: The structure of the venture allowed us to participate in a broad portfolio of lease up opportunities by being a minority equity investor while minimizing earnings dilution during lease up through fee income and ultimately being able to earn an outsized return on our investment to the promote structure.
Tim Martin: Our ultimate goal has always been to own. These assets are 100% on balance sheet, which our recent acquisition of our partner's interest allows us to do some.
Tim Martin: Some additional details around the numbers and consideration for the transaction there was $222 2 million of venture level debt at closing that was repaid.
Tim Martin: Our 20% share of that debt was $44 5 million.
Tim Martin: After debt repayment, we paid $408 3 million for our partner's 80% interest in the venture.
Tim Martin: So the $44 5 million of debt repayment, plus the $408 3 million for the remaining 80% interest totaled $452 8 million, which is the total consideration we paid at closing to bring this portfolio on balance sheet free and clear of any property level debt.
Tim Martin: We're excited to bring another strategic joint venture to a successful close. This one was seven years in the making creating meaningful value for both parties.
Tim Martin: Ultimately for US, we have an accretive transaction and attractive basis in a geographically diverse recent vintage portfolio with perfect underwriting and still yet a little bit of outsized growth as some of the assets fully stabilized.
Tim Martin: In anticipation of these external growth opportunities, we raised $85 6 million in net proceeds during the quarter and $118 3 million year to date, using our aftermarket equity program.
Tim Martin: Our average sales price for those sales for the year was $51 25 per share.
Tim Martin: Transitioning that and looking forward to details of our 2025 earnings guidance and the related assumptions. Those are included in our release last evening.
Tim Martin: Our 2025 same store property pool increased by eight stores.
Tim Martin: Embedded in our same store expectations for 25 is the impact of new supply that will compete with approximately 24% of our same store portfolio.
Tim Martin: For context that 24% is down from 27% of stores impacted by supply last year and down from peak levels that we're at 50% of our stores were impacted back in 2019.
Tim Martin: Our guidance range for same store revenue assumes that the fundamental operating environment. In 2025 is similar to the last two years with no material changes, including to the housing environment.
Tim Martin: The high end of our revenue guide assumes that the rental season is strong enough to cause us to inflect positive in occupancy and positive in rate in the back half of the year.
Tim Martin: While the low end of our guidance assumes that the current negative year over year gaps in both rate and occupancy maintained throughout 2025.
Our baseline expectation falls in the middle of those two bookends.
Tim Martin: And would look something like occupancy levels being slightly down on average compared to 2024 and rates improving but still down in the mid single digits as we compare rates. This year on average to two rates in 2024.
Tim Martin: Shifting to expenses not a lot to talk about we're expecting continued pressure in property insurance, but other than that we're we're expecting more of the same of what we've seen over the last few years.
Tim Martin: Real estate taxes are always a wildcard, but we don't have the same difficult comp to deal with this year like we did in 2024 and in the fourth quarter in particular.
Tim Martin: Our <unk> per share expectation for 2025 is a range of $2 50 to $2 59, with a midpoint of $2 54 and a half.
Tim Martin: That's down about nine from our 2024 <unk> per share of $2 63.
Tim Martin: When you think about the driver of that nine cent decline. It really is anchored by performance of our core same store portfolio.
Tim Martin: Looking at same store NOI guidance, our midpoint expectation is down 3%.
Tim Martin: That 3% decline in same store NOI equates to <unk> <unk> per share. So then everything else outside of our same store performance is netting to a zero impact year over year at the midpoint.
Tim Martin: We have a little bit of drag from properties in lease up one to two.
Tim Martin: Is the range, we provided in our guidance, we have about a penny of <unk> <unk> per share drag from growth in G&A expense at the midpoint of our guidance.
Tim Martin: And embedded in our interest expense guidance, we have a negative impact from our need to refinance our upcoming bond maturity. This year as our 2025 senior notes have a 4% coupon.
Tim Martin: Offsetting those items is the earnings accretion from our external growth activities, including our recent transactions that I outlined a few minutes ago as well as some modest growth in property management fee income at the midpoint of our provided guidance range, but big picture again, we're looking at same store NOI down 3% at the midpoint of our expect.
Patients that generally leads to down 3% <unk> per share at the midpoint of that guidance range.
Tim Martin: So that concludes our prepared remarks, thanks again for joining us on the call. This morning at this time, Karen why don't we open up the call for some questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: The first question comes from Danielle <unk> from Scotia Bank.
Speaker Change: <unk>.
Danielle: Good morning team I appreciate the time I'm wondering if some of the JV transaction curious CPC other similar opportunities with existing partners today.
The motivating factors from your partners in the each VP for to sell and also other NOI upside opportunity. So for these assets I know it's <unk>.
Danielle: Relatively young portfolio. So curious if there is maybe more decent squeeze there. Thanks.
Danielle: Yes. Good morning, Thanks for the question so.
Danielle: No no imminent opportunities for four other joint ventures. This is.
Danielle: Our partner in this venture at their investment in a in a closed end vehicles. So they have been we have been talking about a liquidity event for them over the past couple of years and so we've been navigating what has been a fairly choppy environment looking at looking for an opportunity that made sense for our partner and made sense for us.
Danielle: We arrived at that point, so that was the motivation for four wide transact now from from their perspective was need based I think from an opportunity set as you mentioned the assets are.
They are generally stable and that we have acquired them as mentioned back in 2017 through 2021 that said.
Assets don't fully mature until you.
Danielle: Add them and you have a stable tenant base for a number of years. So we are expecting both in our underwriting not only for 2025, but a little bit more juice in 'twenty six or for some of those assets to fully stabilize and for us to fully.
Capture all of the opportunity that that's embedded in those in those assets.
Speaker Change: Thanks for that Chris could you could you quickly share the the cap rate to get to or the initial yield.
Speaker Change: To get the the acquisition to be accretive in year one.
Speaker Change: Yes, so as we think as we think about the HCP for transaction.
Speaker Change: And our basis and our expectations for 2025.
Speaker Change: We're looking at we're looking at a.
Speaker Change: 2025 yield.
Speaker Change: Let's call it mid to high fives, two five and three quarters as a member.
Speaker Change: Great appreciate the time thanks.
Speaker Change: Thank you.
Speaker Change: Question comes from Michael Goldsmith from UBS. Your line is open.
Michael Goldsmith: Good morning, Thanks for taking my questions.
Speaker Change: Any initial an initial remarks, you talked a little bit about <unk>.
Michael Goldsmith: Obvious catalyst for the year.
Speaker Change: Which I think is baked into your guidance. So can you can you just.
Speaker Change: Talk a little bit about what youre looking for lets see.
Is it just housing is it more than that.
Speaker Change: I'm, just trying to get a better understanding of what Youre looking for.
Jon Stewart: Jon Stewart.
Speaker Change: Demand.
Speaker Change: Accelerate the algorithm sure.
Speaker Change: Yeah, I think I think it's a mixture.
Speaker Change: <unk>.
Speaker Change: Clarity.
Speaker Change: Mortgage rates.
Speaker Change: And.
Speaker Change: I think it's kind of a combination of the two of those as you think about our consumer I think right now.
Speaker Change: People are.
Speaker Change: Generally trying to navigate through a lot of conflicting information right. The price of your AG is ridiculous the price at the pump is very high.
Speaker Change: But unemployment is very low and last year in the.
Speaker Change: Public sector in which case, you're dealing with a lot of uncertainty today. So I just think we need to get.
Speaker Change: Universally just some clarity so people can make decisions.
Speaker Change: I think the reality on housing with P&L have the folks who are currently occupying.
Speaker Change: Single family homes, having mortgage rates that are 4% or below.
Speaker Change: Again, I think we're just going to need either clarity that this is the new world and therefore acceptance.
Speaker Change: Or we're going to need to see something that will.
Speaker Change: Just those mortgage rates, which which means the long end of the curve has to improve which ultimately comes back to how do we fund the U S government and what is the treasurys view on selling long dated securities. So I think we need clarity and when you sit here today I just don't know how anyone could have the confidence.
Speaker Change: They have visibility into the self storage busy season that would give you that.
Speaker Change: Belief instead of hope that.
Speaker Change: That catalyst is there now I do think given the way the world works.
Speaker Change: A lot has to be done.
Speaker Change: Nationally between now and July.
Speaker Change: And so.
Speaker Change: I certainly im optimistic that if.
Speaker Change: If a lot of the initiatives that are being talked about in the newspapers everyday.
Speaker Change: <unk> become clear put in place and that gives you.
U S consumer and U S businesses, more clarity, which leaves the confidence I think that could be a real bright spot for our customer and that could create some movement that.
Speaker Change: It is certainly very helpful to the business is just very difficult on February 28 to see.
Speaker Change: What what would what would clearly be.
Speaker Change: An outcome to kind of where we sit today.
Speaker Change: I appreciate the thoughtful response Crimson and as a follow up you did talk about how the fourth quarter will mark.
Speaker Change: Mark an inflection point in the decelerating same store revenue growth so.
Speaker Change: <unk>.
Speaker Change: It is.
Speaker Change: Are you expecting same store revenue to accelerate through 2025, and then also.
Speaker Change: I think you still have an easy comparison in other revenue in the first quarter and it gets a little bit more difficult.
Speaker Change: How might that impact the same store revenue growth.
Speaker Change: Yes, I think based on the trends that we saw particularly beginning.
Speaker Change: December <unk>, then kind of continuing through today.
Speaker Change: At fourth quarter down one 6% we think is.
Speaker Change: Possible to be.
Kind of kind of.
Speaker Change: All other things being equal where are we where we would have hit that trough trough and then.
Speaker Change: We're going to we're going to slowly.
Speaker Change: Improve on that through throughout the year, how the back half of the year plays out.
Speaker Change: Either direction I think today is where there is that uncertainty and I think we are.
Speaker Change: Being appropriately cautious in terms of our outlook.
Speaker Change: Thank you very much good luck in 2025.
Speaker Change: Thank you.
Jeff Spector: The next question comes from Jeff Spector from Bank of America. Your line is open.
Speaker Change: Great. Thank you and Chris as always appreciate the transparency around the current conditions and your thoughts I guess to ask about thinking about street rate are you concerned in.
Speaker Change: In 25, just based on the current conditions that we could see another street rate war or because we're past the bottom, let's say you talked about an inflection point in DSL.
Speaker Change: Are you less worried about that that Street war, let's say war, but bottom line.
Competitors cutting street rate.
Speaker Change: To bring in new customers and 25.
Speaker Change: Yes, again I don't know concerned is the right word. Thanks for the question I think I think we're just being cautious in terms of how we think about that the last three months have been.
Speaker Change: More constructive.
Speaker Change: As it relates to rates to new customers I mentioned, we've been running the last week or so last couple of weeks down in that kind of seven ish percent range over last year, which is certainly improvement from what we saw in November.
We just need to see it consistently and so again don't want to I.
Speaker Change: I don't want to try to extrapolate today.
Speaker Change: That April through through July busy season, I think that's where in the range of expectations on the one hand, we assume there is continued modest improvement in that negative spread for our portfolio between where we are in last year and.
Speaker Change: At the other end of the of the expectations is just a more cautious approach that.
Speaker Change: The improvements we've seen stall and don't continue and I think thats kind of how we've chosen at the moment to bookend. The two ends of our expectations.
Speaker Change: Okay. That's fair thanks.
Speaker Change: And my follow up question, then is again just thinking about the mindset when you decided to put out this guidance.
Share your thoughts.
Speaker Change: Anything happened anything Thats happened in recent weeks, whether it was nine posts of housing softness or.
Speaker Change: You see the administration and some of their policies and changes you talked about the uncertainty I mean, you would have to argue right. There is more uncertainty today than a couple of months ago did anything recently.
Speaker Change: Your view or or form review to come out more cautious today or this is how you really been thinking the last couple of months. Thank you.
Speaker Change: You are welcome.
Speaker Change: I think again as always it's somewhere in the middle So again very very encouraging trends in December January and February.
Speaker Change: But I think I've talked about on this call before or we saw periods of encouraging trends in <unk>.
Speaker Change: 2023, and 2024, and I think us and the industry as I said came out in early 'twenty three and we came out early last year and articulated sort of a range, where the more optimistic and of that assumed a recovery and demand right and.
Speaker Change: And at that time, I think we would've looked at housing and said Okay housing in 'twenty four like it can't get worse than it did in 2003 and then it did.
Speaker Change: So I think I think theres just this element of frankly, hope's not a strategy and so.
Speaker Change: We've tried to be realistic as we introduce guidance here at the end of February.
Speaker Change: And again it'll be six weeks from now we will be back in front of you and we will update you on trends at that point.
Chris Marr: Thanks, Chris.
The next question comes from Spenser <unk> from Green Street. Your line is open.
Chris Marr: Thank you.
Speaker Change: Sorry, if I missed this but did you provide an update on kind of a move in rents are trending thus far into <unk>.
Speaker Change: Yes, no worries.
Speaker Change: So move in rents what I said in my opening remarks is we've gone from.
Speaker Change: Kind of that fourth quarter average, which again.
Speaker Change: The bottom of that was in November of negative 10, 3% and then over the last week were at week or two we're running in the quoted negative seven four we'd been running between.
Between seven and seven and a half and Thats just gradually come down as we've seen trends improve here since December one.
Speaker Change: Okay, great. Thanks, sorry about that and then can you provide some color on what youre seeing just more broadly in the transaction market just in terms of scale.
Gil next whether their portfolios are more one off stabilized versus on stabilized.
Speaker Change: And then more active recently, but just curious what youre seeing even if things haven't gotten across the finish line.
Speaker Change: Yes, good morning, Spencer nothing nothing has really changed there is an awful lot continued to be an awful lot of price discovery.
Speaker Change: There are rumors that a lot.
Speaker Change: <unk> coming and I think part of that is in a lot of folks are waiting to try to time and trying to think about what the rate environment is if youre a seller to bring something to market.
Speaker Change: Thank you.
Speaker Change: You get mixed messaging, if you talk to some of the brokers I think they have very full plate and there. They are anxious to bring out a lot of stuff that they are working on can you talk to some other brokers and they don't seem to have as much they might be doing some some.
Speaker Change: Indications of value or things like that but they don't seem to have a lot of stuff that's eminent to market. So.
It's not the time of year, where you would expect there to be an overwhelming.
Speaker Change: Supply of new opportunities, so seasonally I would say, it's kind of at or slightly below where you would expect it to be from an opportunity standpoint, just don't feel like that many things are trading at the moment.
Speaker Change: A lot of concern about about where interest rates are where interest rates might be going and clearly that has an impact on <unk>.
Speaker Change: <unk> folks on both sides of the table and their expectations of of where they would like to be from a from a cap rate perspective.
Speaker Change: Okay excellent thanks for the time.
Speaker Change: Thanks.
Todd Thomas: The next question comes from Todd Thomas from Keybanc Capital markets. Your line is open.
Todd Thomas: Hi, Thanks, Good morning, Chris maybe Tim Thanks for the updated and.
Todd Thomas: And recent trends in moving rents can can you provide an occupancy update as well as of.
Speaker Change: Today, and then Chris its a little hard to tell from your comments, but it sounds like you're encouraged so far year to date.
Speaker Change: Performance through February it sounds likes running slightly ahead of.
Speaker Change: The guidance midpoint, but that youre not ready to extrapolate that throughout the peak season and balance of the year is that the right read is that what you are.
Speaker Change: Sort of seeing so far year to date.
Speaker Change: Hey, Todd Good morning on your occupancy question, Yeah. The occupancy gap to last year is close to 50 basis points negative the outright occupancy on the new same store pool is 89 and a half.
Speaker Change: And to your comment yes, I think again, it's been it's been encouraging what we've seen December January and February both in terms of.
Speaker Change: The continued stickiness of the existing customer.
Speaker Change: Our move in volumes and then the rate at which we're able to get new customers into the portfolio.
And then on our existing customer base again, the health. There is good we're watching that very closely given.
Speaker Change: As I said the core inflation continues to be quite problematic.
And our rate.
Speaker Change: The pace of those increases by and large continues to be about the same so.
Speaker Change: Sitting here today feel you know as I always do confident in the longer term health of self storage, it's been a choppy couple of years and.
Speaker Change: We elected this year to be as realistic as possible in our in.
Speaker Change: Our expectations given that given that choppy backdrop.
Speaker Change: Okay. That's helpful and then I wanted to ask about the the.
Speaker Change: The first quarter guidance.
Speaker Change: The sequential change in <unk> from <unk>.
Speaker Change: Based on that guidance it seems a little outsized 68 this quarter to 62 at the midpoint so high.
Speaker Change: High single digit almost a 10% sequential decline.
Speaker Change: And that's despite the investments completed in the fourth quarter and early this year I'm just wondering if there's anything else to consider.
Speaker Change: Moving from <unk> to <unk>, Besides the normal seasonality that you typically experience.
Todd Thomas: Yes, Todd Thanks for the question.
Tim Martin: I'll, let Tim.
Todd Thomas: Sort of dive into that for you.
Todd Thomas: I'm trying to think if theres anything different in there Todd.
Todd Thomas: Really is primarily the same seasonal type of decline.
Todd Thomas: You would've seen last year.
Todd Thomas: So I'm not thinking that theres anything in there in that in that sequential move that's anything other than typical seasonality.
Todd Thomas: Okay.
Speaker Change: If I could sneak one last one Tim what do you have assumed in the guidance relative to that.
Speaker Change: 300 million November maturity, a 4% coupon what what's assumed in guidance in terms of timing.
Speaker Change: And right.
Speaker Change: I'm, sorry, you broke up a little bit there, but I think I got the gist of the question. So we obviously have.
Speaker Change: We have our 2025 senior note maturity is in November and that that note has a 4% coupon our range of expectations and interest expense contemplate.
Speaker Change: As you would expect a range of timing that could be.
Speaker Change: As early as <unk>.
Speaker Change: Very early in the second quarter, all the way too.
Speaker Change: If we had some other.
Speaker Change: Opportunities, perhaps to think about timing being a little bit closer to maturity. That's not one of those things where I would ever expect us to wait until the day before it matures.
Speaker Change: Matures to raise that capital so.
Speaker Change: Weighted sometime between between early in the early in the second quarter towards a little bit later in the third quarter as the timing and then and then the range of potential outcomes from from where we might price.
Speaker Change: The refinancing is also contemplated within the range today, if we were to replace it with.
With a 10 year note, we'd be we'd be looking today at somewhere in the mid fives, hopefully hopefully a little bit tighter than that.
Speaker Change: But our range Thats why our range of interest expense assumptions is as wide as it is because both in timing and rate.
Speaker Change: A little bit of a little bit of.
Speaker Change: A little bit of a range of potential outcomes there.
Speaker Change: Alright, thank you.
Speaker Change: Thanks, Tom.
Speaker Change: Next question comes from <unk> <unk> from BMO capital markets. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: Just hoping you could talk a little bit further about the confidence.
Speaker Change: In bottoming in kind of same store revenue declines.
Speaker Change: Moderating because if I look at it take your point that occupancy has improved year to date, but if we just look at the fourth quarter the <expletive>.
Speaker Change: A decline in average in place rates.
Speaker Change: It seems kind of gapped out again in the fourth quarter is that kind of.
Speaker Change: A one off and we should expect that.
Speaker Change: To close as well as we go through 'twenty five or just.
Speaker Change: Any commentary on that particular.
Speaker Change: Item would be helpful.
Speaker Change: Yes, well I do think again in the fourth quarter.
Speaker Change: Yes.
Speaker Change: We saw things kind of soften in November.
Speaker Change: From a rate perspective, and then.
Speaker Change: Which which we kind of thought was done in October it went about a month longer than I think we would.
Speaker Change: Would have five.
Speaker Change: Going into the quarter and then our expectation of things starting to firm just based on demand trends that we saw and then.
Speaker Change: Pricing from a competitive perspective around our stores the trends that we were anticipating started.
Speaker Change: To be achieved in December and that have continued into January and February so the confidence would be in that.
Speaker Change: We saw it.
Speaker Change: We were just probably off by about 30 days in terms of when it started to happen and then when it began to happen.
Speaker Change: And our systems reacted.
Speaker Change: Proactively accordingly.
Speaker Change: It continued now for the last.
And almost 90 days so.
Speaker Change: That's kind of how we think about.
Speaker Change: <unk>.
Speaker Change: Framing the downside case for 2025.
Speaker Change: Thanks, and then for my follow up.
Speaker Change: It looks like the third party property management fee income is expected to be up about 4%.
Speaker Change: And 25.
Speaker Change: Just curious on the assumptions underlying that because im assuming youre going to lose some fee income.
Speaker Change: By buying out a couple of our JV in the fourth quarter and what you've done year to date here.
Speaker Change: Yeah, Great question. So so.
Speaker Change: Certainly, we're anticipating losing property management fees on our 80% of property management fees on 28 stores as we brought them on board our assumption also assumes.
Speaker Change: Our mix of adding stores and obviously in anticipation, we don't know, which while we know those 28 stores, but other than that quite certain that there will be stores that leaves that leave our third party management platform throughout 2025, So our range of expectations is again, our best guess on when you net.
Speaker Change: New stores being coming on board offset by an estimate of stores that perhaps could leave the platform and then overlay on top of that obviously revenue expectations and fee expectations on those stores that we do manage that all of those.
Speaker Change: Are the variables that go into us formulating the range that we provided.
Speaker Change: Thanks, and if I can just be a little greedy Tim could you just clarify the funding plans for the HBV for.
Speaker Change: Acquisition, we've completed year to date.
Yes, so broadly when we first start thinking about it as.
Speaker Change: As we were contemplating the transactions.
Speaker Change: Was one of the drivers on why we started to aggressively.
Speaker Change: To use the ATM program in the back half of 2024. So I gave you the numbers we raised significant portion it's all fungible, but we raised a significant portion of <unk>.
Speaker Change: What we kind of.
Earmark for that on the ATM at share prices above $51. So thats part of it.
Speaker Change: That was all raised at year end, so if youre trying to model it.
Speaker Change: The proceeds would would show up today on our incomes around on our balance sheet on the on the revolver.
Speaker Change: So we'll have we'll have some revolver.
Speaker Change: Revolver borrowings when we get to the end of the first quarter.
Speaker Change: Which we haven't had for a while but that's why you have so that's why you have the capacity.
Speaker Change: And then over time, we will do what we always do which is we're a little bit under Levered. We ended the quarter at four times or four one times that number will will move up as we utilize some of the capacity up to up into the high fours over time, then we would.
Speaker Change: It's what we typically tend to do is think about ways to use free cash flow and opportunistically raise capital when appropriate to bring that down and create the capacity and do it all over again. So that's the that's the longer term that's the longer term objective.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Kevin Kim from <unk> Securities. Your line is open.
Kevin Kim: Hey, good morning, this is Kevin.
Kevin Kim: So going back to your guidance I was wondering if I can ask it a different way.
Kevin Kim: What typically happens to rates.
Kevin Kim: The winter period to the spring leasing season the increase.
Kevin Kim: And I guess, what's in your what's embedded in guidance.
Kevin Kim: Maybe you can put it in perspective like what happened last year. Thank you.
So they.
Kevin Kim: They do increase seasonally I guess a lot of the numbers that we're referring to are the year over year Delta right. So so theres always going to be.
Kevin Kim: Seasonal trend and pricing that once you get to kind of trough pricing late late January early February you start to see movement up on pricing that happened that happens all the time the degree to which it happens is obviously been all over the place here over the past.
Kevin Kim: Four years.
Kevin Kim: Dating back to massive spike in those rates to now much more modest growth.
Kevin Kim: From a seasonality perspective, so embedded in our expectations for the year.
Kevin Kim: That are in the middle of our range would be an expectation that the gap between rental rates throughout the year.
Kevin Kim: Continues to compress.
Kevin Kim: But but on average still trails last year's seasonal trend on average by mid single digits.
Kevin Kim: Well I think the challenges when we look at it from a year over year standpoint.
Kevin Kim: Sometimes this due to comps.
Kevin Kim: What I was asking if you expected rates to increase.
Kevin Kim: Now normally are 15% and 25% 10%.
Kevin Kim: Which is why I was asking about that kind of sequential seasonality and your midpoint.
Kevin Kim: The same complexity for you is just the same complexity and providing an answer that's helpful. Because I.
Speaker Change: I just want him speaking.
Kevin Kim: On average right on average Thats whats going to happen you could.
Kevin Kim: You always have weird comps on you did something last year and Youre doing something different this year, but on average we would expect Chris just mentioned that that those that that gap today is in that seven to seven 5% range.
Kevin Kim: Over over the past couple of weeks months or so and then we would expect there will be ebbs and flows.
Kevin Kim: Got below that might go down a little bit but on average we would expect that to continue to contract and on average.
Kevin Kim: That gap would be would be lower over the course of the year than it is today.
And maybe I'll try a little differently. If you just think about.
Kevin Kim: Historical norms right you would normally see.
Kevin Kim: From your lowest.
Kevin Kim: Right to new customers not year over year, just your lowest rate and then you go sequentially through.
Kevin Kim: The busy season and the demand that historically has generated there.
Kevin Kim: Raise that rate about 20% and then you would begin to bring that back down as you get into the back half of the year and the slower times over the last couple of years that instead has been more like 15% 16%.
Kevin Kim: I think again, when we think about.
Kevin Kim: The range of outcomes here Theres, just nothing that we see today that would indicate to us that it's going to be 20.
Kevin Kim: But again in that range contemplates that it might be at one end at least modestly better than the 15 or 16.
Kevin Kim: Okay, great and.
Can you remind us do you have a share repurchase authorization.
Kevin Kim: Live and.
Kevin Kim: I guess your implied cap rate today is somewhere around 6% and compare it to some of the deals that you bought recently.
Kevin Kim: How do you.
Kevin Kim: I guess, what the metal calculus in terms of buybacks versus something like the ABP.
Kevin Kim: Acquisition.
Kevin Kim: Yes, we do have we.
Kevin Kim: And we do have an authorized share repurchase program.
Kevin Kim: Yes.
Kevin Kim: The overall philosophy around around thinking about that is that if there is a significant disconnect.
Kevin Kim: In valuations, which one could argue that that you have that.
Kevin Kim: And the second piece from our perspective is for a prolonged period of time and that's the piece today that we don't have we.
Kevin Kim: We were just we were just raising equity capital less than 90 days ago.
Kevin Kim: At prices that we found very attractive relative to where we can deploy that capital. So.
Kevin Kim: The challenge for us not the challenge that our perspective on share repurchases.
Kevin Kim: We don't look at it as an opportunity to be a market timer, we look at it from a standpoint of.
Kevin Kim: If we had a disconnect in valuation for a prolonged period of time clearly that would be an attractive use of capital for us we don't feel like we have all those variables today.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thanks, Kevin.
Speaker Change: The next question comes from Eric <unk> from Wells Fargo. Your line is open.
Speaker Change: Hi, Thanks for taking the question.
Speaker Change: Could you guys, maybe touch on the New York market, a little bit I know that's continued to grow.
Speaker Change: Above the portfolio average, although the growth rate has decelerated a bit I know you've had some pockets of supply in certain regions within the MSA. So how are you thinking about that market. This year in terms of moving right in terms of occupancy how we should think about that throughout 2025.
Speaker Change: Yes, we're really optimistic about.
Speaker Change: About the MSA as a whole and continued optimism about the boroughs. So if you parse it between the two.
Speaker Change: The boroughs continue to perform.
Speaker Change: Very well, we have a dominant presence we have a dominant brand and that translates into premium pricing that we have been able to maintain throughout this more challenging last couple of years I think the other bright note about the boroughs.
Speaker Change: No supply so when you think about.
Speaker Change: About Brooklyn, Queens and.
Speaker Change: The Bronx, nothing opened in the fourth quarter.
Speaker Change: We saw two openings really not competitors to <unk>.
Speaker Change: And all of 2024 low to minimal expectation of anything being delivered in 2025. So.
Continued.
Speaker Change: Positive trends, there and we expect those trends to continue through the out 2025.
Speaker Change: A little more constructive than we have been on Westchester Long Island, North Jersey, North Jersey in particular.
Speaker Change: I think we again, we today believe that the brunt of the supply which has been a headwind for our performance. There again I think that also kind of peaked in the fourth quarter and we started to see those stores.
Speaker Change: Which have been producing negative same store revenue growth start to close that gap again slowly and our.
Speaker Change: The expectation is that continues.
Speaker Change: In 2025 does it again at one extreme.
The more bullish and that starts to become.
Just the least bit positive as we get into.
Speaker Change: For the year and then at our at our mid point and more bearish case, we assume those assets just continue to sort of chug, along where they are so.
Speaker Change: Constructive from a supply perspective, probably the most constructive that we've been.
Speaker Change: In a long time around the overall MSA continues to be really.
Speaker Change: Helpful. In the boroughs as we've talked about last year or so.
Speaker Change: So again, great market continue and expect it to be our best performer in 25 of our major markets.
Speaker Change: Great. Thank you guys.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: Next question comes from Mike Mueller.
Speaker Change: From Jpmorgan your line is open.
Mike Mueller: Yes, Hi, two quick ones first looking at operating expenses and markets like Atlanta.
Mike Mueller: Austin, Chicago, where they were up 30% to 50% how much of that was the tax comp that you were talking about versus something else going on and then the second question is do you think ECR levels 25 will be similar to 2004.
Speaker Change: I'll take the expense part on.
Mike Mueller: On your expense question your intuition was exactly right.
Mike Mueller: The 17, 5% increase that we saw overall in real estate taxes, obviously it was concentrated in a handful of areas. The ones that you mentioned, where we're where it happens so thats why you see a.
Mike Mueller: Kind of an odd print.
Mike Mueller: And a few geographic regions, that's where we had that's why we had good news at the end of at the end of 2023, which created a tough comp as we got to the end of 2024.
Mike Mueller: And I think as it relates to.
Mike Mueller: As it relates to rate increases for the existing customer base.
Mike Mueller: I think again at the at the midpoint, one should assume that they are fairly consistent with.
Mike Mueller: What we saw in 2024.
Mike Mueller: At the more.
Mike Mueller: At the more optimistic and.
Mike Mueller: Would just be.
Mike Mueller: Some of the testing that we're doing always.
Mike Mueller: In the consumer health improves our stays the same and we get.
Mike Mueller: And are able to generate a little bit incremental and then at the at the more bearish and again assumes that this.
Mike Mueller: Core inflation and other things that are going on within the customer base causes us to bring matters.
Mike Mueller: Those increases back down a little bit but.
Mike Mueller: Modestly in either direction would be fair to say.
Mike Mueller: Got it thank you.
Mike Mueller: Thanks.
Speaker Change: The next question comes from Eric Wolfe from Citi. Your line is open.
Eric Wolfe: Hey, Thanks, I think your advertising spend was down.
Eric Wolfe: Significantly from last year in the fourth quarter versus up.
Eric Wolfe: Good bit in the third quarter can you just talk about what drove those specific those decisions and maybe the different approach. If you will and whether that might have caused some of the weakness in October and November.
Eric Wolfe: Yes, no no impact from that in terms of.
Anything that happen necessarily in the in the quarter I think when you look at.
Eric Wolfe: Timing of that that's.
Eric Wolfe: That is always.
Eric Wolfe: Again, driven by the system to see an opportunity between its that balance between rate.
Eric Wolfe: And search, particularly on the paid side. So the SCO efforts are sort of more.
Eric Wolfe: Consistent and ongoing throughout the year and then.
Eric Wolfe: The panel on the paid side.
We think about relative to the opportunity.
Eric Wolfe: And.
Eric Wolfe: So, it's just going to always be a little bit lumpy quarter to quarter as we continue to see the signals and then and then move accordingly, we were a little heavier.
Eric Wolfe: Last year.
Eric Wolfe: Again, I think in the third quarter. It was the opposite so when you look at it for the year up four 5% I think that's.
Eric Wolfe: Kind of in line with our normal expectations heading into the into every year.
Eric Wolfe: That flows quarter to quarter can be a little bit more.
Eric Wolfe: <unk>.
Got it that's helpful. And then within your same store revenue guidance can you maybe just tell us what you are factoring in for.
Eric Wolfe: Other property related income I think it contributed 40 basis points.
Eric Wolfe: It's 2024 and I was just curious if.
Eric Wolfe: If that was sort of a sustainable and repeatable in 2025.
Eric Wolfe: Yes, what is sustainable and repeatable.
Eric Wolfe: We spoke about earlier in 2020 for call it may timeframe.
Eric Wolfe: We had the culmination of a lot of initiatives that looked at.
Eric Wolfe: At various components of fee income, which ends up in the line item that youre looking at and those those range from administrative fees to late fees to convenience fees and we made some adjustments there and thinking about how we priced rent rental rates compared to fee structure, and we made some adjustments there and so you've seen outs.
Eric Wolfe: <unk> growth since that period of time year over year, we're going to lap that here when we get to May of this year. So you should expect to still see outsized growth in the first quarter.
Eric Wolfe: 2025, and then you should see it stable stabilize out but to be clear, it's not it's not temporary in nature, it's a more permanent shift in.
Eric Wolfe: And where we're getting revenues from we believe it to be very sticky and recurring youre just going to get once we lap may.
Eric Wolfe: In this year than I do.
Eric Wolfe: Don't think it will be an area that is confusing from a modeling standpoint, if that if that's helpful.
Eric Wolfe: Yes.
Eric Wolfe: Makes sense. Thank you.
Eric Wolfe: Yes. Thank you.
Speaker Change: Your next question comes from Jon Petersen from Jefferies. Your line is open.
Jon Petersen: Great. Thanks, maybe if I could just pick a little bit at your operating expenses. So if I'm going back and just looking at the past few years I think some of the pressure that you've had on property taxes and property insurance have been at least somewhat offset by lower personnel expense, but it kind of looks like we're back to a normal inflation growth level there.
Jon Petersen: I'm just I guess the broader question I'm getting at is is there any more operational efficiencies that we should think about that can be squeezed out of the opex line in the business or is this more tied to inflation going forward.
Jon Petersen: Okay.
Jon Petersen: Yeah. Thanks for the question when you when you do look back typically storage from an operating expense perspective overall tends to run at inflationary levels as we continue to.
Jon Petersen: Implement a service first approach to customer service.
Jon Petersen: Looking at the right staffing in the stores looking and we do believe in a staffed model just to be clear, we don't ever intend to be a vending machine of self storage.
Jon Petersen: And when we look at opportunities using AI for example, too.
Jon Petersen: Reduce repetitive tasks for our sales center teammates in our in our store teammates there will be savings.
Jon Petersen: I think it's fair to say the low hanging fruit so to speak has been picked.
Jon Petersen: I do expect that.
Jon Petersen: We will continue to find some savings again, then the pressure points on the opposite side.
Jon Petersen: Continue to be where we end up on the real estate tax side.
Jon Petersen: And then property insurance certainly isn't easy wanted to pick on it. So overall again I think our range of.
Jon Petersen: Expectations for <unk>.
Jon Petersen: For 2025 and at the midpoint of all of those expenses is kind of plus or minus inflationary.
Jon Petersen: Okay, and then on the property taxes I know every jurisdiction has a little bit different but.
Speaker Change: What would you say the delay is that because I would think of the asset value is probably have an increase as much in the past couple of years as it did before so.
Speaker Change: What's the tail on that being a pressure point.
Speaker Change: Yes, really difficult question to answer.
Speaker Change: Sometimes sometimes detailed doesn't exist.
Speaker Change: And sometimes there are municipalities that don't really catch up.
More recently, we certainly have some some evidence in our favor when we think about.
Speaker Change: If an assessment where to be increased I mean, obviously as we're as we're looking at is we're looking at pressure on the topline and forecasting.
Speaker Change: Negative growth.
Same store NOI, we can certainly point, we can certainly point to that from a valuation standpoint interest rates and cap rates are not what they were two or three years ago. So.
Speaker Change: I appreciate your question I wish I had a way to quantify it for you. The tail is impossible to predict which is one of the many parts about trying to predict that line item.
Speaker Change: That's fair Alright, Thank you I appreciate it.
Speaker Change: Thank you.
Speaker Change: Your last question comes from Kevin Kevin Kim from <unk> Securities. Your line is open.
Speaker Change: Thanks for allowing me back just.
Kevin Kim: Just a couple of quick follow up given that you've already provided <unk> guidance I was curious if you can provide what same store NOI could look like in the first quarter.
Kevin Kim: [laughter] would be.
Kevin Kim: What are the only ones who provide a as.
Kevin Kim: As far as I know, we are the ones, who can provide the <unk> guidance for the quarter and how you want us to give you a underlying assumptions but.
Kevin Kim: No.
Kevin Kim: I mean, Chris has already given you where we stand through goodness two thirds of the quarter. So.
Kevin Kim: That's where it will stop for prognosticate, Okay first quarter metals.
Kevin Kim: And.
Kevin Kim: Youre welcome.
Kevin Kim: And then just going back to like.
Kevin Kim: The potential job changes or turmoil and DC tied to like Trump those in cost cutting.
Kevin Kim: There's obviously lots of factors if those cost plus.
Kevin Kim: Lead to lower inflation, and lower Treasury, I mean, theres a lot of different factors, but I was curious.
Kevin Kim: Job cuts and the local MSA with a bad economy is playback for storage, but do you have some early thoughts on potential job cuts in D C, but with a better economy broader economy could that be evenly.
Kevin Kim: Actual net positive for storage in D C.
Kevin Kim: I think the unfortunate reality is that answer is yes. So here's. The example, you have the probationary employees.
Many many many of which are recent college graduates who relocated or moved to Washington are got a job in Washington.
Kevin Kim: That has now been taken away from them.
Kevin Kim: And they've got an apartment and they bought possessions to furnish and fit out that apartment and now theyre unemployed. So.
What do they do it.
Kevin Kim: The sadness is that many of them either need to return all of our otherwise figure out how to replace the job that they that they lost and that oftentimes leads to dislocation, which leads to a need for.
Kevin Kim: For our products so.
Kevin Kim: I think I think sadly the the outlook for storage and in the district of Columbia.
The Dnb in general is probably a little bit more positive as a result of what's going on.
Speaker Change: Okay, great. Thank you guys.
Thanks Steven.
Speaker Change: Yes.
Speaker Change: Our Q&A session I will turn the call over to Chris Marr for closing remarks.
Yeah. Thanks, everybody is speaking on behalf of our team we are optimistic in the future of our business, our customer and the economic health of our country.
Speaker Change: These last few years have presented certain challenges, but I'll end with.
As Warren Buffett famously said, you don't know who's swimming naked until the tide goes out so it's easy to do well when theyre a helpful tailwind the strength of our people our culture and our platform become clear and obvious during periods of uncertainty and volatility.
Speaker Change: So thanks for being part of the call and we look forward to seeing many of you in person next.
Speaker Change: Have a great weekend.
Speaker Change: Ladies and gentlemen.
Speaker Change: <unk> com. Thank also joining and you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].