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CubeSmart (NYSE:CUBE) Q3 2023 Earnings Call Transcript

CubeSmart (NYSE:CUBE) Q3 2023 Earnings Call Transcript November 3, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the CubeSmart Third Quarter 2023 Earnings Call. At his time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, November 3, 2023. And I would now like to turn the conference over to Mr. Josh Schutzer, Vice President of Finance. Please go ahead.

Josh Schutzer: Thank you, Aena. Good morning, everyone. Welcome to CubeSmart's third quarter 2023 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 The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements.

The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the third quarter financial supplement posted on the company's website at I will now turn the call over to Chris.

Chris Marr: Good morning, and thank you for joining the call today. Our third quarter results reflect the core attributes of our quality focused strategy. Our portfolio with its sector-leading demographics is demonstrating its resilience led by our urban markets with particular strength in New York City. Our operating team is leveraging our sophisticated technology to develop creative ways to meet our customers' evolving needs, while simultaneously gaining efficiency and minimizing expense growth. Our balance sheet is in excellent condition with a well-staggered maturity schedule having us primed to take advantage of the external growth opportunities that inevitably arise after periods of capital market volatility. As we look ahead, we expect trends in the near to medium-term to remain less consistent with a tight housing market, macro uncertainties and a very competitive street rate environment being somewhat counterbalanced by the resilience and economic health of our existing customers.

What we experienced in the third quarter and what we expect we will continue to experience during this period of inconsistency is the relative outperformance of our properties located in the more urban markets as the demographic makeup of those customers tends to skew more towards renters and the use cases tend to lend themselves to lower churn and longer lengths of stay. Our portfolio construct combined with a continuing decline in the impact of new supply and a healthy existing customer supporting our rate increase program are positive factors heading into next year. While difficult to predict timing with any amount of certainty in the current log-jam and single-family home sales is broken through any combination of buyers and sellers coming together on pricing expectations, a relaxation of interest rate policy or a pullback in costs creating an acceleration in the construction of affordable new homes, our portfolio will most certainly experience a rapid acceleration in top line growth, as that pent-up demand creates movement and customers.

A row of self-storage units in a self-storage complex, showing the affordability and security offered by the company.
A row of self-storage units in a self-storage complex, showing the affordability and security offered by the company.

We see the same opportunity on the external growth front, as buyer and seller expectations are gradually coming closer together, along with the need for developers to refinance recent projects, our expectation is we will deliver meaningful external growth, and we have the balance sheet and team in place to capitalize on that opportunity when presented. In the meantime, we remain focused on capturing customer demand in a manner that maximizes the revenue opportunity, while controlling our costs and providing the outstanding customer service our brand is known for delivering. Thanks, and I'll now turn the call over to our Chief Financial Officer, Tim Martin.

Tim Martin : Thanks, Chris, and thank you to everyone for taking the time to join us on today's call. Overall, the third quarter results were in line with our expectations entering the quarter. As expected, we continue to experience the top line deceleration we've been seeing throughout the year, as we continue to normalize post pandemic and face headwinds from a volatile macroeconomic environment. As we move through the quarter, the pricing environment for new customers became increasingly more competitive, and more competitive than we were anticipating in our prior same-store revenue guidance. As a result, we reduced rates a bit more than we had expected in September and then into October. Net effective rates to new customers were down year-over-year 16.9% during the quarter and that gap widened out in October to 18%, reflective of a more aggressive pricing environment.

Same-store occupancy ended the quarter down 170 basis points year-over-year at 91.4% with the more aggressive pricing our year-over-year occupancy gap narrowed throughout October and we reduced the 170 basis point gap at quarter end to 130 basis point occupancy gap at the end of October. Same-store revenues increased 2.3% for the quarter and 4.5% year-to-date. Based on the impact of the more competitive pricing environment we're seeing here in the latter part of the year we adjusted our annual expectation for same-store revenues to a range of 3% to 3.5%. We continue to see the positive impact of our technology initiatives and our focus on expense controls. For the quarter, same-store expenses grew 3% and are up just 2.6% year-to-date. For the quarter, we reported FFO per share as adjusted of $0.68, which represents 3% growth over the third quarter of last year.

From an investment standpoint, we had no acquisition activity during the quarter. We continue to take a patient and disciplined approach to capital deployment given current market conditions. As those conditions stabilize, we do believe there will be a period that presents meaningful attractive opportunities for us to invest and grow. Our balance sheet, our partner relationships, and our investment team have us well positioned to execute when the time is right. Meanwhile, our third-party management platform does give us the opportunity to leverage our operating platform in the current environment. We added 41 new stores in the third quarter bringing us to 124 stores added year-to-date and 763 total managed stores at quarter end. Our conservative balance sheet continues to be a source of strength positioning us to be opportunistic, and also to avoid headwinds or earnings pressure over the next 24 months.

Our average debt maturity is 5.6 years, 99.5% of our debt is fixed rate. We have no significant maturities until November 2025 and our leverage levels remains very low at 4.1 times debt to EBITDA. Details of our 2023 earnings guidance and related assumptions were included in our release last evening. Overall, we maintained the midpoint and narrowed the range of our full year FFO per share as adjusted and expect the year to be between $2.65 and $2.67 per share. Thanks again for joining us on the call this morning. Apologies to some of you who had a little bit of a difficulty getting in the queue but it looks like everybody is good. At this time Ynna, let's open up the call for some questions.

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