CubeSmart (CUBE) Q2 2019 Earnings Call Transcript
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CubeSmart (NYSE: CUBE)
Q2 2019 Earnings Call
Jul 26, 2019, 11:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the CubeSmart Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded.
I would now like to turn the conference over to Charlie Place, Director of Investor Relations. Please go ahead, sir.
Charles Place -- Director of Investor Relations
Thank you, Rocco. Hello, everyone. Good morning from sunny Malvern, Pennsylvania. Welcome to CubeSmart's Second Quarter 2019 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. 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.cubesmart.com. 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 those forward-looking statements.
The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents that 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 in the Risk Factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the second quarter financial supplement posted on the company's website at www.cubesmart.com.
I will now turn the call over to Chris.
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thanks, Charlie. Our primary purpose is creating long-term value for our stakeholders. As we demonstrated this quarter, we will continue to be creative and opportunistic in growing our cash flow, FFO per share and our portfolio through an array of investments while remaining committed to our discipline strategy. We have raised capital and expanded our revolving credit facility to be in position to efficiently execute on attractive opportunities as they present themselves. Demand trends are solid, and we remain bullish on our business model. We will continue to unlock value by leveraging our JV relationships and third-party management program to grow our platform. In our Charlie's catchphrase about sunny Malvern, it's certainly a treat today with blue skies and moderate temperatures, and it got me thinking about how varied the weather has been as I've traveled in the last few months, visiting properties across our markets.
From the June gloom in Southern California to record heat in Chicago and violent thunderstorms in D.C. and Boston, I was struck by how much the weather changed market by market and day by day as I flew around the country. So I'm going to try out a little weather theme to my comments this morning. We continue to navigate a landscape resplendent with new self-storage developments, none of which are unexpected, the only variable being the timing of the grand opening date. Our same-store metrics remained in line with the expectations we provided as we entered 2019, and therefore, our guidance as it relates to our same-store results for the year remains unchanged. It continues to be a challenge with about 50% of our same stores being impacted by new supply.
The operators of many of these new developments are being very aggressive in rate and discounting, and our revenue management team is nimbly navigating the delicate balance between effective rate and physical occupancy with the objective always being to maximize revenue over the long term. Consistent with the commentary we provided when we introduced 2019 guidance, those same stores being impacted by new supplier, experiencing revenue growth 200 to 300 basis points lower than the same stores not impacted by new supply. This delta is almost entirely attributable to rate as occupancy growth is roughly the same in both poles. Slightly longer lengths of stay and continued acceptance of in-place customer rate increases continue to be a positive performance factors.
In addition to top line pressure on rate, new competition is putting pressure on customer acquisition costs as we see continued escalation in digital marketing costs. Our marketing team remains disciplined in allocating spend in a manner that generates a positive return relative to lifetime value of the customer. So as I mentioned, the impact of supply, similar to the weather, varies greatly from city to city across the country. The weather patterns range from sunny clear skies in those markets that thus far have escaped oversupply to dark and stormy weather in those markets right in the thick of the impact of the significant new store openings. So to give you the AccuWeather forecast currently, we see sunny clear skies in Boston, Tucson and Las Vegas, mostly sunny weather in New York. While we continue to brace ourselves for the impact of supply, particularly in Brooklyn, thus far, our thesis on the resiliency of this market remains intact.
Partly sunny skies in Washington D.C. and Chicago, partly cloudy in Dallas and Austin, with Dallas of all of the markets having weather changing hour to hour. Cloudy with an expected chance of showers in Phoenix and Atlanta and dark clouds and stormy in Houston and parts of South Florida. Continuing with the weather theme, the future forecast for new supply looks promising with the sun starting to peek out from behind the clouds. We remain consistent in our outlook on new supply across our top 12 MSAs with our expectation remaining at 2019 is a peak and that we will experience a decline in 2020 in both the sequential number of deliveries as well as based on our current data in the rolling 3-year impact. The second quarter highlight was clearly our outstanding accomplishments in external growth in capital sourcing. When we entered into our HVP III joint venture in 2015, we did sell as a strategic solution to address portfolio acquisition opportunities where a portion of the assets were attractive to acquire for our own portfolio.
However, there were a good number of assets that did not fit our investment criteria. Through excellent execution by our partner and our investment team, we achieved our objective. In addition to this successful transaction, we utilized our strong balance sheet to recast our credit facility, increasing its size, improving the covenant package and improving the pricing. Finally, we opportunistically sold common shares under our ATM program, enabling us to fund our 2019 closed and under contract external growth commitments on a leverage-neutral basis.
Now I will turn the call over to Tim Martin, who will delve into more details on the second quarter results and these exciting transactions.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Thanks, Chris, and thanks to everyone joining us on the call for your continued interest and support. We reported second quarter 2019 results last evening that were very much in line with our expectations. Headline result of $0.42 per share of FFO as adjusted was at the high end of our provided guidance range. Same-store NOI of 1.3% was driven by a 2% increase in revenue and a 3.8% increase in operating expenses. Same-store revenue growth was impacted by a few different drivers during the quarter. We rented units at rates that were 1.3% higher than last year, offset by a slight decline of 20 basis points of average physical occupancy down to 93.1% for the quarter and slightly elevated levels of discounting as discounts as a percentage of projected rent increase from 3.4% last year to 3.6% this year. As Chris mentioned in his weather report, results across of our stores are certainly impact by the 50% of our stores that are facing new supply.
Expense growth for the quarter reflects continued pressure on the real estate tax line, greater than inflationary pressures in personnel costs and a new item of note, our property insurance costs. Our insurance renewal was effective in mid-May, and we experienced significant increases across most line of coverage, and you will continue to see pressure on this line item over the next 3 or 4 quarters. As Chris mentioned, the second quarter was quite busy on the investment and capital raising fronts. So starting with investments, we opened for operation 2 new development stores, one in Queens, New York and one in Bayonne, New Jersey for a total investment of $72.6 million. We acquired 2 stores in Florida and 1 in Phoenix for a total investment of $20.6 million. And then what kept our team very busy during the quarter were multiple transactions related to our HVP III joint venture. First, a brief history of the venture. The venture was formed in 2015 and was seeded through the acquisitions of 2 separate portfolios, which totaled 68 stores.
Each of these portfolios contained several assets that were a good fit for our own balance sheet investment strategy and each of the portfolios contained more assets that weren't a great fit for us from a demographic and market perspective. Our investment strategy at the onset of the venture was to invest 10% along with our partner, put modest levels of the debt on the assets, achieve good fee income for our management services, share in the value creation through a promoted infrastructure upon achieving specific return thresholds and then ultimately, be in a good position to own outright the assets that best fit our investment strategy. We and our partners started conversation a little over a year ago about strategies and timing related to unwinding the venture.
That all led to 2 transactions that ultimately closed in early June. For the 18 assets we targeted for acquisition on balance sheet, we negotiated a valuation with our partner that we found attractive on a stand-alone basis. We then marketed the 50-asset portfolio and received significant interest as the opportunity represented the largest nonmerger, fully marketed transaction the industry has seen. Ultimately, the venture sold the 50-asset portfolio to an unrelated third party for $293.5 million. All of the venture's debt obligations were repaid and the venture recognized a gain of $106.7 million. The next day, we acquired the 18 targeted assets by buying out our partner's 90% interest in the venture. The sale to a third party of the 50 assets and the negotiated value of the 18 assets allowed us to unlock our promoted interest, which we effectively used to reduce the amount of consideration we needed to buy out our partner. We continue to managed the 50-asset portfolio through quarter end on an interim basis after closing while the new owner prepared the transition to stores to their own self-managed platform.
Management of several of the stores have been transitioned to the new owner in July, and we expect to transition management of all 50 stores by the end of the year. Intuitively, one might think that being part of an -- maybe selling 50 assets along with losing management fee income on 68 stores that this transaction would be dilutive to our earnings. But with the attractive investment yield we achieved on the 18 acquired stores, we were able to not only offset that dilution, but actually achieve a little less than $0.005 of FFO per share accretion on an annualized basis when you net the entire transaction together. So if you break down the transaction, we really like it from 3 different perspectives.
First, we acquired 18 core assets at an attractive stand-alone valuation. Second, we were able to capture or unlock the value creation over the last 3.5 years and use that to achieve an even lower basis on the acquired assets. And finally, by structuring the transaction as a buyout of our partner's interest, we were able to get the added benefits of a very tax-effective structure to gain full ownership of the assets. So a very busy quarter on the investment front, and also a very busy quarter of capital raising. From an equity perspective, we remain focused on funding our external growth and maintaining our conservative credit metrics and strong balance sheet. And during the quarter, we were active selling common shares under our aftermarket equity program, selling 3.4 million shares at an average price of $33.30 per share, raising net proceeds of $110.5 million.
And then from a debt perspective, we successfully amended our unsecured revolving credit facility, increasing the size from $500 million to $750 million; decreasing our borrowing rate; adding flexibility to our financial covenants and extending the maturity from 2020 to 2024, a year that we have almost no other debt maturity. So we've increased our capacity and flexibility to fund future growth, decreased our overall borrowing rate, maintained our well-staggered debt maturity schedule and extended our average time to maturity to 6 years. So to wrap up our prepared remarks, the second quarter was very busy and productive as we strengthened our balance sheet, improved and grew our portfolio and positioned ourselves to capitalize on future opportunities.
While the operating environment remains challenging, our results were in line with our expectations, and our outlook on performance for the balance of the year remains consistent with previous assumptions. The only changes to our prior guidance were a $0.005 increase in the annual FFO per share as adjusted at the midpoint as well as an increase to our overall external growth expectations. Thanks, again, to everybody for joining us on the call this morning.
At this point, Rocco, let's open up the call for some questions.
Questions and Answers:
Operator
[Operator Instructions] And today's first question comes from Jeremy Metz of BMO Capital Markets. Please go ahead.
Jeremy Metz -- BMO Capital Markets -- Analyst
Hey guys. Good morning. Chris, in your opening remarks, you touched broadly on the supply topic in markets where it's sunny versus stormy. But as you look at the future pipeline, if you look at developer behavior, what you're seeing on the financing front, are you seeing any real notable shifts here across any of those? Or is the expectation that supply slows just based on some of these bigger metros maxing out some -- so supply just naturally comes down as less product really gets going into those?
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Yes, Jeremy, thanks for the question. So I think it's a combination of everything you described. So you have, what started like, a market like Chicago. I think there, you're just seeing -- supply showed up earlier. You saw a big ramp-up in deliveries in 2015 and 2016. In Chicago, it leveled off and the deliveries were actually fairly consistent '17, '18 and expected '19. And then a real sharp drop to not much activity, frankly at all, being anticipated right now for over '20. To a market like Miami, where I just think that the overall deliveries in '18 and '19 were very significant -- expected in '19 very significant and the performance has been quite challenging. So I just think you're starting to see folks pull back a bit from a market like that.
So I think it's a combination of asking rates declining over the last several years in the markets that have seen significant supply, so it's making it much more challenging for deals to pencil out. I think you're seeing more and more difficulty finding attractive sites in the markets that have seen significant new supply as -- just the obvious, the attractive ones were taken advantage of first and it's becoming more difficult. I don't think the financing environment has yet changed materially, but you are starting to see transactions come to market where bids for deals that are, say, 18 to 30 months into their lease-up, where you're seeing bids that are below cost.
And so that's starting to put a little bit of a damper on the market as people realize that it's becoming more challenging to make the profit you thought you were going to make on any individual deals. So I think it's a combination of all of that. I think there are folks who have the capacity and the capability are moving now out of the top 15 MSAs and starting to focus their attention on the smaller markets. So I do think there continues to be opportunity to develop and develop in a way that's profitable. I just think you're going to start to see a shift in where those new developments in 2020 and '21, '22, assuming the economy continues on, started to be focused, and I think you'll start to see a lot of the secondary market, start to see the impact of supply.
Jeremy Metz -- BMO Capital Markets -- Analyst
That's helpful. And you mentioned some of the development deals midway through coming to the market, but can you just talk about what you're seeing, I guess, more broadly on the acquisition front? If you exclude the JV deals, you did a couple here in the quarter, you have a few more in the pipeline. Your currency was obviously attractive to execute further deals. It just seems like with some of the -- kind of the talk about what you're seeing on supply, The street rate challenges are out there that more stabilized product would be coming on to the market. And maybe there is either just doesn't for your checklist with all the moving pieces of the JV in the quarter, your focus is there. But wondering what you're seeing on that front, how active it is?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Hey Jeremy it's Tim. I mean certainly, there are always a mix of opportunity that are out in the market at any one time. It remains a challenge at times to figure out what is really for sale because at times there such a price GAAP between buyer and seller expectations. I do think what we've seen come across our desks here over the last 3 to 6 months is certainly a lot more opportunity on nonstabilized assets. When a stabilized asset does come to market, the bidding tends to be awfully aggressive. We and our partner took advantage of that, and also a portfolio premium on the transaction that we discussed in our prepared remarks. But you haven't seen as much activity from a stabilized asset perspective as you have from the lease-up perspective, there's no doubt.
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
I think one of the things, Jeremy, on a stabilized asset is, you are dealing with 2 things. One is, in some instances, the stabilized owner's desire to sell is because of the either impending or existing significant new competition that has appeared in their submarket. And so you have to sort of take that into account and that create some challenges in negotiating seller's expectations and a buyer's expectation. I think the second challenge is in some of these markets where you have seen a decline in asking rents. That seller of a stabilized deal has all their customer in at significant premium to current market, and you have to factor that into your underwriting, which also creates some challenges as it relates to negotiating between buyer and seller. So I think it's a very interesting time.
You certainly have to have that question in the back of your head, are there going to be better opportunities in the future than what we're seeing today, given some of the issues that I just described. And you want to make sure you're balancing how you're thinking about allocating capital to make sure you have the capacity to take advantage of those in the future, should they arrive.
Great. And then just the last one for me, just in terms of rents. I know there's obviously various components here. Tim, you mentioned Street rates being up a bit, discounts trending a little higher as well. If we blend all that together, where your achieve rates in the quarter come in on a year-over-year basis. I think you were flattish last quarter. And if -- it sounds like maybe that trend more or less held.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes, it's -- we tend to focus on the 3 components, as you talked about. And just to reiterate those, we had -- we rented units at 1.3% higher rates this quarter than we did the same quarter a year ago. Discounts were up from 3.4% as a percentage of projected rent to 3.6% and average occupancy was known 20 basis points. When you blend all that together, I think net effective rates were little negative.
Jeremy Metz -- BMO Capital Markets -- Analyst
And is that holding so far in July?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
It is.
Jeremy Metz -- BMO Capital Markets -- Analyst
Appreciate the time. Thanks.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Thanks Jeremy.
Operator
And our next question today comes from Smedes Rose of Citi. Please go ahead.
Smedes Rose -- Citigroup -- Analyst
Hi thanks. I was just wondering if you could talk a little bit more about the JV valuation on the portfolio that you sold? And kind of how much the promote was able to help your going-in rate on the 18 properties that you retained or bought?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Smedes, it's Tim. Thanks for the question. We would be delighted to talk about this transaction for as long as you would like. We're delighted with the result, and we're happy to talk about and shed some more light on it. So we ultimately had to agree with our partner for a valuation on the 18 stores that we bought, even though we owned a portion of them already. We were able to do that. We also then obviously marketed the 50-asset portfolio. Each of those, if you think about the 50 by themselves, the 18 by themselves had valuations that are effectively in the high 5s from a cap rate perspective, which is very attractive to us from a lot of different perspectives, given the the quality of the 18 stores that we acquired and targeted from the onset. So then when you work that all the ways through the venture and the structure and how it was set up to share in the value creation over time, we invested originally a little bit north of $10 million.
And ultimately, when you run all that through, create -- had value creation for CubeSmart of right around $30 million, $13 million of which was our pari passu return on all of that value creation, and a little bit more than $17 million was reflected in our promoted interest that we earned through the structure. So we were able to take all of that profit, for lack of a better term, and effectively roll that into a much-reduced basis for our investment in 18 stores. And when we rolled in and invested an incremental $128 million into the 18 stores, we're effectively then able to invest that at a high 6 yield, which obviously in today's market for those 18 asset is awfully attractive for us.
Smedes Rose -- Citigroup -- Analyst
Okay. Thank you. That's helpful. And then just with the remaining joint ventures that you have, I mean would that -- this sort of structure be how you would eventually think about maybe exiting those? Or just sort of unique to that -- this particular one?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes. I mean each venture stands on its own. Some ventures have a -- don't really have a lifespan in mind when they're started. They're a longer-term investment. This one had a -- our partner had a shorter time frame in mind. Our HVP IV venture that we're currently in and are seeing that with a lot of lease-up assets, at the onset, while there's no stated term for that agreement, had a 4-, 5-, 6-year type time horizon as the -- at the onset. While we acquired the lease-up stores, they ultimate lease-up to stabilization and then we'll see what happens to monetizing capture value from that venture here in a couple of years. I would think that if we are able to get the returns that we are able to achieve and our partner is able to get the returns that they weren't able to achieve on HVP III, we'll do this repeatedly because it was a win-win for both parties.
Smedes Rose -- Citigroup -- Analyst
Thanks. And then just the -- your management fee income guidance is unchanged. So I'm just wondering, with those 50 stores coming out, had you sort of anticipated that in the guidance going into the year? Or are you adding at a faster clip than you expected? Or maybe just shed some more color on that.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
That's a great question. I think it's a little bit of combination of a couple different things. We always anticipate that we're going to lose some stores off of our platform. That's the nature of the business that we're in. When owners sell their assets, those -- that fee income, more often or not, goes away. That's offset by the fact that we've been able to continue to grow and add stores. And so I would say, overall versus our expectations at the beginning of the year. We've lost a few more store than we expected at the beginning of the year. And the flipside of that is we've been able to add a few more stores than we had in the plan. So largely, at the end of the day, we get to remaining comfortable at the range that we have provided.
Smedes Rose -- Citigroup -- Analyst
Okay. All right. Thank you.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Thanks.
Operator
And our next question today comes from Todd Thomas of KeyBanc. Please go ahead.
Todd Thomas -- KeyBanc Capital Markets -- Analyst
Hi.Thanks. Good morning. Just first question. You mentioned that net effective rents were negative in the quarter. If I look and see that the in-place rents per occupied square foot fell $0.10 from the first quarter. So typically, that metric does increase into the peak leasing season. I'm just curious if you can talk about that specifically? Maybe provide some thoughts around how you think that might trend from here?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
I haven't really thought about that metric in that context, Todd. So I don't have a -- there are multiple different variables that are going to impact that. It's going to impact that on how occupied you are in higher-rent markets and relative to where your occupancy trends in the lower-rent markets. It's obviously going to be impacted by the fact that our net effective rents trended negative in the quarter. So I would think largely it will be tied to the direction of growth and net effective rents, but could be impacted by shifts in occupancy levels in high-rent markets versus low-rent markets. It can also shift from where occupancy is versus smaller units to larger units. So there actually a handful of different variables that can impact that, and I don't have anything off-the-cuff that would dig into how to even think about breaking out into those components.
Todd Thomas -- KeyBanc Capital Markets -- Analyst
Okay. And then can you talk about the rent increase strategy to existing customers here? There's certainly some markets that are softer than others. But sort of on balance, what's happening to your ECRI strategy across the portfolio, are you dialing back a little bit either on the percent increase that's being pushed through to customers or the frequency of rate increases or sort of the number of customers that are eligible across the portfolio?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
We're really not changing, Todd. The portion that remains very consistent over a very long period of time is that, that in-place customer is pretty agnostic to what's going on in the market from a supply perspective, from a rate growth perspective to new customers. You have an in-place customer and the methodology for the timing and the amount of rate increase to an existing customer and their resulting behavior really hasn't changed through the great recession, through the period with no supply to now entering pretty deep in the new supply portion of the cycle. So really haven't seen much change in the behavior of our customer. Therefore, we haven't changed much in our approach to how often and how much we are passing along rate increases to existing customers. I do think, given the fact that our length of stay is elongating a bit, is that we're able to get a little bit more because the population of customers that are with us for longer has increased, so we have an ability to pass along a bit more by way of rate increases because we have more people that are in that population.
Todd Thomas -- KeyBanc Capital Markets -- Analyst
Okay. And just, Chris, lastly, you said that there's pressure on customer acquisition cost and digital marketing spend, which is consistent with what we're sort of hearing across the industry. But expenses were up just -- advertising costs were up just 2.4% in the quarter, so not such a large increase. Can you just reconcile that? And then in terms of the lifetime value of a customer, as you think about that, where is that metric in the portfolio today that you mentioned? And how is that trending year-over-year?
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Yes. I mean, to answer your last question from a 100,000 foot level. If you think about the average customer is with us a little bit longer. They rent it 10 x 10. They pay roughly $100 a month and now they're staying closer to 14, 15 months and 13, 14 months. So the value of that customer is going up based on a longer length of stay. But the math is, as I described. The reality of what's happening right now from a digital marketing perspective is that we are seeing an increase in bids across the various markets that we operate in, both being more aggressive in the dollar amount of bidding from some of the folks who have been active in this space for a long time, so they're willing to take that customer at increasingly a thinner margin. And you're also seeing more entrants into the bidding process from some of the regional folks and from -- particularly in California and New York, from some of the nontraditional storage operators. So it is putting pressure.
The decision you have to make is you want to remain rational in terms of customer acquisition cost relative to their value and see if some of this loses steam. There's only so much capital to be spent from some of these operators, or do you want to chase. We've been trying to be nimble, and we've been really focused on intelligently bidding in a way that we think delivers the right long-term answer for our stakeholders. It is becoming increasingly challenging. So in the quarter, I think you just had the math of some spend in the second quarter of 2018 for some of our out-of-home campaign that being the timing of billboards and subway and bus tales, et cetera, in -- particularly, in New York. That had us in a more modest growth. I think it is our expectation as we go into the third and fourth quarter of this year is that you will see, as a percentage growth, the growth in spend in digital marketing and overall advertising moving up at a pace much more rapidly than inflation.
Operator
And our next question today comes from Jonathan Hughes of Raymond James. Please go ahead.
Jonathan Hughes -- Raymond James -- Analyst
Good morning from sunny Florida this morning.
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
What part of Florida you're in.
Jonathan Hughes -- Raymond James -- Analyst
True nice in Tampa.
Good morning from sunny Florida this morning. Tim, you gave some rate and occupancy trends throughout the quarter earlier in the call. But can you give some more details on customer trends like traffic and conversion rate? And I don't think I heard what Street rates are today versus a year ago. If you wouldn't mind disclosing that.
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Yes. I'll start with customer trends. If you look at it across the 1,100-plus stores that we own and manage, continue to see solid demand for the product. Rentals, again, across the portfolio quite strong relative to the number of stores that we've added. I think again, you're seeing the fill-up or the lease-up of newly development stores certainly not what we were able to get it in '15 and '16, but pretty healthy continued lease-ups. So I think the demand environment is good across the portfolio. The customer length of stay, Tim talked about. When we think about it, units going to auction, accounts receivable, other signs of how healthy the customer is, they're all still greenlights. I think from an industry perspective, our customer continues to be in a good spot. I think when you think about the second part of your question, rental rates, as we trended into the third quarter, Street rates are still up slightly. But again, this is one of those where it is the tale of markets, as I described. We'll see good 4%, 5% type Street rate growth in the markets seeing no supply. And then in markets like Houston and Miami, 10%, 15%, 17% decline in rental rates as we go through the third quarter.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
And then from a customer conversion standpoint of your question, Jonathan, we don't disclose for competitive reasons where each of these targets are, but we obviously track it from a bunch of different perspectives. We track the conversion rate for folks that click onto the website, renting a unit. We track conversion on a sales call that comes into our sales center and the rate at which we're able to convert those sales calls into reservations. And then ultimately, we then have conversion rate for reservations and how many of those reservations converted into actual rentals at the store. Each one of those rentals -- each one of those conversion ratios is pretty consistent with where we were a year ago and all of them are meeting our internal targets.
Jonathan Hughes -- Raymond James -- Analyst
Okay. That's helpful. Then just one more for me. Given that relationship between self-storage and housing, do you have any thoughts or concerns on the impact of the New York apartment rent control legislation and subsequent impact on your self-storage fundamentals? Or is it too early to really form an opinion there?
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Yes. Jonathan, I think it is too early to form an opinion. I think, in general, the overriding attractiveness of New York is the low supply per square foot, the constant movement in and out and around and the dynamics of that market. The fact that the customers in that market are continuing to find our product as a good solution for the bigger life issues around living in the smaller space and wanting to be flexible. So I think the outlook long term for storage in New York City and the surrounding continues to be quite positive in spite of some of the other issues that they're facing.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
And there's biological connection over some period of time that if there is rent control on housing like -- somehow that can trickle into impacting our business, I think that would be really difficult to see how and when that would ever have an impact on us in the near term.
Jonathan Hughes -- Raymond James -- Analyst
Okay fair enough. Appreciate it. Thanks.
Operator
And our next question today comes from Eric Frankel of Green Street Advisors. Please go ahead.
Eric Frankel -- Green Street Advisors -- Analyst
Thank you. Maybe you can just comment on the profile of the buyer of the 50 properties with the joint venture, just get a sense of institutional investor interest in the sector?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes. The profile is -- that it was partly funded with a private operator and institutional capital. And respectful to them, I'll stop there.
Eric Frankel -- Green Street Advisors -- Analyst
Thank you.
Operator
And our next question today comes from Todd Stender of Wells Fargo. Please go ahead.
Todd Stender -- Wells Fargo -- Analyst
I hopped on late, sorry, if you've already covered this. Are the 21 properties you've
acquired outright, are they separate from the 18 you got from the JV sale?
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
No, 18 from the JV and then 2 in Florida and 1 in Phoenix.
Todd Stender -- Wells Fargo -- Analyst
Got it. All right. Just shifting to development pipeline. You identified your New York asset, I guess, as the East Meadow project in the quarter, if that's the same one from the Q1 pipeline. The budget went up and timing got pushed back. Any color there?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes. The color is, it is not the same project. So the east Meadow Project is new to our development pipeline. And the store that you are referring to was a development store that had been on the schedule for a couple of years that we have exited that development project at this point. So in fact, it is an apples-and-oranges comparison, 1 fell off, 1 came on.
Todd Stender -- Wells Fargo -- Analyst
Okay. What happens to the investment that you had in that one? It looks about $5 million or so?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes. So that project was one that really started to shift over time. There were significant delays in demolishing the existing structure, getting the approvals to build what the plants had called for, there were shifts in the cost profile and hence, the return profile for us. And we started having conversations with our development partner. And as the deal started to move in a direction that we weren't comfortable with, gave them the opportunity to try to raise some equity to take us out, which they were able to do, and we were able to get a return of every dollar that we had invested in and wished them the best of luck and moved our capital in a different direction.
Todd Stender -- Wells Fargo -- Analyst
Got it. And then can you characterize the East Meadow, looks like a pretty good size investment. What's your percentage? And maybe just talk about your JV partner.
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Yes. It's a very consistent structure and it is a very consistent partner with the overwhelming majority of our developments in the New York boroughs and MSA. So very consistent risk profile, quality of asset that you're seeing coming through our pipeline here over the last 4, 5 years.
Todd Stender -- Wells Fargo -- Analyst
All right. Thank you.
Operator
And our next question comes from Steve Sakwa of Evercore. Please go ahead.
Steve Sakwa -- Evercore -- Analyst
Thanks. Good morning Chris, you mentioned in your comments that you thought that the rolling 3-year supply issue would kind of peak this year and next year would be lower. Can we infer from that, that you kind of -- and perhaps the industry -- or likely kind of put the bottom in on fundamental this year? Or you do you think there's a drag of that into next year as well?
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Yes. I think in terms of same-store metrics, using that specifically as fundamentals, it will drag into next year.
Steve Sakwa -- Evercore -- Analyst
Okay. Thank you
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thanks.
Operator
And our last question is a follow-up from Eric Frankel of Green Street Advisors. Please go ahead,
Eric Frankel -- Green Street Advisors -- Analyst
Yes. I'd just maybe like to talk about the joint venture structure a little bit further. Do you have the capacity and the willingness to engage in this type of joint venture again, even if you hold that for relatively short term?
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Absolutely. I think ventures for us are always for a particular strategic objective and the ability to accomplish that. As we are now at the end of HVP III venture, that, at a point in time, was a great opportunity for us to ultimately accomplish what we did, which was there were 2 portfolios that were for sale. We were interested in a small portion of those assets. We were able to create a structure with our partner to be able to invest in those, tie them up, earn that management fee income, have a promoted infrastructure and ultimately, end up with the 18 assets that we would have -- that we weren't able to buy 3.5 years ago because they were a part of larger portfolio. The current venture that we are in, HVP IV, has the strategy that we talked about a little earlier that we -- that, that venture is formed and is targeting assets that are in relatively early stage of lease-up.
That gives us the ability as a 20% partner to invest in 5 -- for the same amount of capital to invest in 5 lease-up stores instead of 1, spreads our risk out, allows us to get 20% ownership in lot of assets that we would ultimately like to own 100% of. And then when our partner and we decide that we get to the end of that, we will have not a contractual right, but certainly, a front seat at the table for being able to -- to be in a position to buy the 80% of the asset that we don't currently own at the time that those assets will be fully stabilized. And so if we had a different strategic objective that we could find a great partner like the ones that we have to accomplish that, we would absolutely be interested in being accretive in ways that can, on a risk-adjusted basis, we believe, provide greater returns for our shareholders.
Eric Frankel -- Green Street Advisors -- Analyst
Okay. Thank you
Operator
And ladies and gentlemen, this concludes question-and-answer session. I'd like to turn the conference back over to Christopher Marr for any closing remarks.
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Okay. Thank you. Thank you, everyone, for participating today. I think we're entering some really interesting times for our industry. I think as we move forward into 2020, 2021, things are clearly becoming more challenging on the development front, more challenging on the operating front and I think that's going to create some really high-quality opportunities for those companies that have the balance sheet and the operating platform to take advantage of it. I think a little stress and a little difficulty is going to be a good thing for CubeSmart. I think as we look out, it's going to be more and more difficult for the local entrepreneurs to make projects make sense, and I think it's going to be more and more difficult for the smaller operator to compete in those markets that have seen the pressures of new supply.
And I think both of those create advantages for us. I think we're going to have some good advantages on the third-party side to continue to grow that platform as folks are struggling. I think we're going to have a really good opportunity to do some good acquisitions here as we move forward for deals that are having difficulty meeting their along covenants or otherwise refinancing out. And I think some of the money that has been very active in this space in all likelihood will find it too difficult and move elsewhere. So I think there is a -- I think there are very sunny skies and looking ahead from all aspects and I thank everyone for their continued interest in CubeSmart, and I look forward to talking to you again at the end of the third quarter. Thanks.
Operator
[Operator Closing Remarks]
Duration: 47 minutes
Call participants:
Charles Place -- Director of Investor Relations
Christopher P. Marr -- PRESIDENT AND CHIEF EXECUTIVE OFFICER
Timothy M. Martin -- CHIEF FINANCIAL OFFICER
Jeremy Metz -- BMO Capital Markets -- Analyst
Smedes Rose -- Citigroup -- Analyst
Todd Thomas -- KeyBanc Capital Markets -- Analyst
Jonathan Hughes -- Raymond James -- Analyst
Eric Frankel -- Green Street Advisors -- Analyst
Todd Stender -- Wells Fargo -- Analyst
Steve Sakwa -- Evercore -- Analyst
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