CubeSmart

Good day, everybody, and welcome to the CubeSmart first quarter 2020 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. If your question has been answered and you wish to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Mr. Josh Schitzer of Senior Director of Finance. Please proceed, sir.

Thank you, Eric. Hello, everyone, and welcome to QSMART's first quarter 2020 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 risk, 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 Security and Exchange Commission, specifically the Form 8K we filed this morning, together with our earnings release filed with the Form 8K, and the risk factors section of the company's annual report on Form 10K. In addition, the company's remarks include reference to non-GAAP measures. Reconciliation between gap and non-gap measures can be found in the first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris. Good morning. Thank you to everyone participating and listening to this call. We are thinking of you during these difficult times. Our thoughts and prayers are with you and our CubeSmart teammates, their families and friends, our customers, and our communities. While this pandemic has impacted our lives and loved ones in many difficult and challenging forms, we are lifted up by the courage, compassion, and innovative spirit that we have witnessed in our over 3,100 teammates and 600,000 customers. Personally, I'm confident that our mission, our values, and our incredible teammates are going to endure through this time and make us stronger together. It's happening already. The world is changing around us and we're adapting with those changes. We're simplifying the challenges created by this life event by coming together, creating innovative solutions, delivering unparalleled service, and holding each other up with genuine care. While it seems a lifetime ago, Our first quarter was off to an extremely solid and encouraging start. Same store rental volume through the end of February was running ahead of last year and our plan. Same store physical occupancy at the end of February was 50 basis points ahead of last year. Net effective rate on rentals were slightly higher compared to 2019 during January and February. We had a positive bias on customer demand heading into the beginning of the busy rental season. All of this changed in March. As stated in our earnings release, same-store average occupancy for the first quarter was up 20 basis points over last year, while quarter-ending same-store occupancy at 91.8 was down 20 basis points over last year. While student rentals, as a result of school closings, benefited occupancy during the first two weeks of March, we experienced a significant decline relative to both last year and planned during the last two weeks of the month, ending March with same-store rentals down 11% the last year. In mid-March, we paused both rate increases to existing customers as well as our delinquency procedures, and later in the month, suspended customer use of rental trucks. April results reflect a full month of altered policies and procedures, as we adapted to a new manner of operating and working within each municipality's unique orders. Same store occupancy ended April at 91.8%, consistent with March and 50 basis points below last year. Same store rentals were down 28% compared to April of 2019, while same store vacates were also down significantly, 26% below April of last year. The same-store average net effective rate on April rentals was 13% below April of 2019. I must say that what is encouraging is the more recent rental trends. The early days of stay-at-home orders brought very low levels of activity in our stores, but the last two weeks have seen a steady uplift in rental volume. Over the last seven days specifically, same-store rentals are only down 12% compared to last year, a significant improvement from April trends. When examining recent activity by region, the trends have been consistent, with Dallas, Phoenix, Houston, Philadelphia, and Fort Myers, Florida performing the best, and the balance of our remaining MSAs all performing relatively the same. This unprecedented time has been called a generation-defining moment. We at CubeSmart believe it will also be viewed as a company defining moment. How we respond to the crisis matters most. We have completely transformed our service delivery in a matter of days and weeks. 100% of our rentals have been contactless since we rolled out that capability nationwide on April 2nd. The investments we quietly made over the last few years in our technology, our point of sale systems, and our people laid the foundation for us to pivot and rapidly introduce Smart Rental, our contactless, completely online process for our customers. On April 27, we introduced Smart Rental nationwide. Smart Rental awareness has been rapidly increasing over the last eight, 10 days, and we are extremely pleased with the customer adoption rate. In New York City, Our customers now have the option to access the gates and keypad access doors contactless through their smartphones. We are working on several other innovative technological solutions that will be rolled out over the next few months. We are confident that when this pandemic is viewed through the lens of hindsight, our ability to combine our award-winning customer service culture with an array of cutting-edge technological solutions in an amazingly compressed timeline and under extraordinarily challenging circumstances, will further solidify our position as an industry leader and preferred brand. I'd like to now turn the call over to Tim Martin, our Chief Financial Officer, for him to share his thoughts on the quarter and moving forward.

Tim? Thanks, Chris, and thank you to everyone on the call for your continued interest and support. We're hoping you and your families, friends, and colleagues are all healthy, safe, and not going too stir crazy in your new work environments. Picking up on Chris's comments, the first quarter was certainly an odd one. And while it does feel at times like this state of emergency, lockdown, stay-at-home environment started months and months ago, it's all still pretty new and didn't really start to impact our behaviors until mid-March. We started adjusting several of our operating practices by stopping our lien sales and pausing on our rent increases to existing customers, among other things. Those actions are clearly going to have a financial impact, but from a timing perspective, they didn't have much of an impact on first quarter results. The impact will come in the second and the third quarter results and possibly beyond. Overall for the quarter, we reported results in line with our expectations, FFO per share of 41 cents, Same-store revenue growth of 1.7%, same-store expense growth of 3.8%, and same-store NOI growth of 0.8%. Year-to-date, from an external growth perspective, we closed on three acquisitions for $74.7 million. And during the quarter, we added 66 stores to our third-party management platform. All that said, clearly, investor focus is less on what happened in the first quarter and more on two things. First, what's going to happen next? for our second quarter results and on through the rest of the year? And second, how strong is the company's balance sheet to provide flexibility and capacity to navigate through all of this uncertainty? Taking those in order, let's start with guidance. The major challenge that we and many, many other companies had this quarter is that there are simply too many unknowns and uncertainties to factor in to provide a range of estimates per our normal practice. Major questions impacting forward guidance include How long until we're able to fully get back to normal operations, including conducting lending sales and passing along rate increases to existing customers? What will demand look like for the self-storage customer when we come out the other side of this? How successful will we be in collecting past due rents from our customers? And what happens overall with the U.S. economy? These are all questions, of course, that at this time no one has the answers to. As some municipalities begin to lift stay-at-home orders, we are starting to reinstitute delinquency processes and rate increases to existing customers on a market-by-market basis as regulations allow, but we'll continue to monitor the situation and adjust as necessary. All of these factors will be meaningful drivers of our financial results in coming quarters. So as a result of all this uncertainty, we, along with many others, elected to not provide forward earnings guidance at this time. And then the second main area of focus is on balance sheet strength. That's an area that we can provide quite a bit more certainty and confidence. We are extremely well positioned to weather this storm. We have an unsecured credit facility with $750 million of capacity at the end of the quarter. and we have very little debt maturing through the end of 2021. Only 3% or 56 million of our debt is coming due through the end of next year. In addition, at quarter end, our leverage levels remain conservative at 39% debt to gross assets. Our debt to EBITDA was 4.9 times, and our fixed charge coverage ratio was 5.5 times. So as many companies are dealing with major issues in addressing upcoming maturities, funding their operations, and paying their dividends, we're focused on how to position ourselves to be nimble and opportunistic, taking our strong balance sheet and using it to grow our company as we come out of this in the quarters ahead. We also have the benefit here at QSmart of having a team that has been through tough times before. As a team, our collaborative culture, our experience, our compassion, our customer service focus, and our ability to innovate will position us well to differentiate ourselves in the industry and to do so in a way that sets us up for years of continued success. Thanks again for taking the time to join us for today's call. At this point, Eric, why don't we open up the line for some questions?