CubeSmart

Good morning and welcome to the CubeSmart third quarter 2020 earnings call. All participants will be in 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. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Josh Schutzer, Senior Director of Finance. Please go ahead.

Thank you. Hello, everyone. Good morning from Malvern, Pennsylvania. Welcome to QSMART's third 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.kubesmart.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 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 8K we filed this morning, together with our earnings release filed with the Form 8K and the risk factor section of the company's annual report on Form 10K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the third quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.

Thanks, Josh, and good morning, everyone. The self-storage industry provides a convenient and efficient solution to a wide range of our customers' requirements and as such has proven, yet again, to be an exceptionally resilient business. At CubeSmart, coming off significant pandemic-related challenges in the second quarter, our best-in-class portfolio demonstrated a strong recovery in the third quarter, and that positive momentum continues into November. Our physical occupancy remains at record highs with the same store occupancy gap to last year expanding and ending October at a positive 211 basis points. Demand from high quality customers remains extremely solid and our average length of stay continues to elongate. Strong consumer demand, lower vacates and elevated occupancies are being reflected in gains in year-over-year average offered net effective rates. The percentage rate gap expansion to last year continued building throughout the third quarter. Across our major markets, as we end October, the percentage gap to last year ranges from the low teens to the mid-20s. Our New York portfolio had a very solid quarter, posting occupancy and revenue growth above our overall same-store average and that strength has accelerated into the fourth quarter. Strong demand trends have helped accelerate the lease up of recently opened stores in many markets, helping to stabilize the operating environment. The supply outlook continues to gradually slow as the number of properties in the pipeline declines. After a pause, our investment activity also picked up steam during the quarter. In addition to our previously announced agreement to acquire eight of the highest quality stores in Brooklyn, the Bronx, and Queens from Storage Deluxe, we also noted in our earnings release that we have nine additional properties located in Florida, Long Island, Nevada, and Texas under contract, and we expect to close by year end. We continue to be pleased with the positive impact our technology initiatives are having on our operating results. On average, approximately 30% of our rentals are coming through SmartRental, our quick, convenient, contact-free rental system. We introduced our CubeSmart mobile app during the quarter, an industry-leading tool that provides our customers the ability to access their gate codes, pay their bills, manage their settings, and receive important notifications, all in the palm of their hands. In summary, the self-storage industry continues to demonstrate its resilience, At CubeSmart, we are proud to be able to offer innovative solutions that serve our customers in the manner they find most comfortable. My continued thanks and appreciation to our over 3,000 teammates who strive to provide those innovative customer solutions with a spirit of genuine care. With that, I will turn the call over to Tim Martin, our Chief Financial Officer, for his comments. Tim? Thanks, Chris, and thank you to everyone on the call for your continued interest and support. Picking up on Chris's comments, operating fundamentals in the self-storage sector have rebounded and rebounded in a pretty big way. Demand for our product is strong as evidenced by historically high levels of physical occupancy and solid pricing power. Overall for the quarter, we reported FFO per share of 44 cents, same store revenue growth of 0.1 percent, same-store expense growth of 4.2%, and same-store NOI growth of negative 1.6%. And there are some encouraging trend lines in those numbers. Same-store revenue growth for our portfolio was 1.7% in the pre-COVID first quarter of the year, followed by a 2.2% decline in the most heavily COVID-impacted second quarter. So our 0.1% growth in the third quarter is a 230 basis point improvement sequentially, driven by our ability to largely resume normal operating practices in areas like lean sales and existing customer rate increases throughout the quarter, combined with a considerably stronger consumer demand on a seasonal basis. All of these signs are positive and point to continued strength heading into the fourth quarter from a same-store revenue growth perspective. Our teammates have been fantastic, as Chris mentioned. We were quick to adjust to the challenges presented to our business from the pandemic, Longstanding practices and policies had to be adjusted quickly to adapt. Pricing and marketing strategies had to adapt. How we attract customers and provide excellent customer service had to adapt. We quickly developed and rolled out new technologies with our online smart rental program and our CubeSmart customer app. Just as importantly, as things shifted in a more positive direction, we quickly pivoted again. Our systems were quick to identify changing trends, and we adjusted pricing upward accordingly. we were swift in resuming those traditional practices of customer rate increases and lean sales where appropriate. Sometimes it takes some disruption and chaos for these things to become more evident. We have a strong team, sophisticated systems, and a very high-quality portfolio. And when combined with a nimble approach, I believe has led to some real outperformance on a relative basis over the last six months. Collections and accounts receivable have returned to normal historical levels and, again, speak to the quality of the cash flows in our sector, the quality of the self-storage customer, and the high levels of customer diversification in our business. In the third quarter, from an external growth perspective, we added 37 new stores to our third-party management platform. And while we didn't close on any acquisitions, we were certainly very busy getting a significant amount of transactions lined up for closing in the fourth quarter. We have under contract and expect to close by year end the acquisition of 17 stores for an aggregate investment of $643.9 million. Part of that total is the eight property storage deluxe transaction we announced early last week. We provided a good bit of detail on that transaction in an investor presentation that can be found on our website. Of the $540 million purchase price, $201.7 million will be paid in cash, $154.6 million through the assumption of existing debt, and notably $183.7 million in the form of operating partnership units. We expect to close that transaction in two pieces during the month of December. Outside of that transaction, we have nine additional stores under contract, and those stores are located in Florida, Texas, Nevada, and on Long Island. We were also busy after quarter end on the balance sheet. On October 6th, we closed a $450 million unsecured bond issue with a long 10 year term maturing in 2031 and a yield of maturity of 2.1%. This offering demonstrates our ongoing commitment to this market and we appreciate the strong support we received from our fixed income investor base. The bond deal was partially opportunistic from a refinancing perspective, and partially to create capacity to support external growth. On the opportunistic side, we used proceeds to support the redemption of our debut $250 million bond offering from back in 2012 that had a coupon of 4.8%. That redemption was completed on October 30th and included a $17.6 million make-whole payment. The balance of the proceeds were used to repay amounts drawn on our revolver and provide funding for much of the external growth we've talked about. So we've been busy on the external growth and balance sheet fronts. We remain very healthy and are well-positioned to fund our near and medium-term commitments. And we also have plenty of capacity, financial flexibility, and access to attractive capital to support the pursuit of additional external growth opportunities. So thanks again for taking the time to join us for today's call. At this point, Ailee, let's open up the call for some questions.