CubeSmart

Good day and welcome to the CubeSmart second quarter 2021 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 Schuster, Vice President of Finance. Please go ahead.

Thank you, Sarah. Good morning, everyone.

Welcome to QSMART's second quarter 2021 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 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 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 second quarter financial supplement posted on the company's website at www.cubesmart.com. I'll now turn the call over to Chris. Thanks, Josh, and good morning, everyone. I wish to recognize all of my fellow CubeSmart teammates for each of their contributions to our outstanding performance in the second quarter. Broad-based consumer demand for our space when combined with positive trends in customer behavior has contributed to our record levels of physical occupancy and an extremely strong pricing power across our portfolio. These positive trends when combined with our award-winning customer service and innovative technology resulted in 14% same-store revenue growth in the second quarter, the highest such growth in our history. Rates to new customers were up 47% over 2019 levels during the quarter, and we were more aggressive in rate increases to existing customers. This pricing power has continued into the third quarter and is contributing to our significantly raised expectations for the back half of the year. We are growing externally in a disciplined manner. We added 45 third-party managed assets to the platform during the quarter. Our pipeline remains full, consistent with levels we have experienced over the last few years. The interest our owners have in selling has certainly ramped up in this compressing cap rate market, and we expect to continue experiencing a high level of churn in our managed portfolio. Our acquisition team is as busy as ever underwriting opportunities. However, we believe that the market for stabilized deals does feel a bit pricey. We were active during the quarter within our joint venture structure, focusing on lease up opportunities. And as evidenced by our increased guidance for external growth, we anticipate sourcing additional opportunities for unstabilized assets, both on balance sheet and within our joint venture structure. Positive operating fundamentals, talented teammates, and sophisticated systems have positioned us well as we conclude the summer rental season, and we believe we are well positioned to drive strong performance for the balance of the year. I'll now turn it over to Tim for more detailed commentary on our great quarterly results and improved outlook. Tim? Thanks, Chris, and thank you to everyone on the call for your continued interest and support. As Chris touched on, operating fundamentals were incredibly strong during the second quarter and are continuing into the back half of the year. All of this strength was reflected in our earnings release last evening that reported a strong beat to second quarter expectations and a meaningful raise in our guidance for the full year. Same-store performance includes a headline result of 14% revenue growth, 6.6% expense growth, yielding NOI growth of 17.6% for the quarter. Average occupancy in the second quarter was 95.6%, which is up 300 basis points year over year, and quarter ending occupancy was 96.1%. Strong demand was evidenced not only in physical occupancy, but also in strong pricing power. Higher net effective rates to new customers, customers staying longer, existing customer rate increases all contributed to the 14% growth in same store revenues. Same store expense growth for the quarter was in line with our at 6.6% year over year. Expense growth is partially due to tough comes from last year, continued pressure on real estate taxes and property insurance, and opportunistic marketing spend, offset by efficiencies in personnel costs and lower utility costs. All of the same drivers of our same-store growth showed up in the performance of our non-same-store portfolio and third-party management business. And combining all of that growth, we reported FFO per share as adjusted of 50 cents per quarter, which represents 22% growth over last year. Adding to Chris's comments, we remain active and disciplined in our pursuit of external growth opportunities and are extremely busy underwriting a lot of potential opportunities. Placing on some of those that we've looked at have been very aggressive and cap rates have clearly compressed. We continue to find select opportunities that we find attractive that fit our discipline investment strategy. We opened up two new developments in the quarter, one in New York, one in Pennsylvania. We closed on one wholly owned store acquisition in Maryland for $22.1 million. And on the co-investment front, we were active in three separate ventures that acquired stores in Minnesota, Connecticut, Illinois, and Florida. Looking at total investment volume so far this year, we've either closed or have under contract 352.7 million of transactions, 55 million of that is wholly owned, and 297.6 million through co-investment entities. So we've been quite active while remaining disciplined. On the third-party management front, we added 45 stores in the second quarter and ended the quarter with 718 third-party stores under management. Our balance sheet position remains very strong as we continue to focus on funding our growth in a conservative manner consistent with our BBB-882 credit ratings. We continue to raise equity capital through our at-the-market equity program during the quarter, raising net proceeds of $42.4 million. Our conservative leverage levels and revolver capacity have us well positioned to pursue external growth opportunities. Details of our 2021 revised earnings guidance and related assumptions were included in our release last night. Based on the strong operating fundamentals we've discussed, we've increased our guidance range for the full year of FFO per share by nearly 10% or 18 cents per share at the midpoint. Much of that guidance increase is based on an improved outlook for our same store revenue growth for the year, which essentially doubled to a revised range of 10.25% to 11.25% growth over 2020 levels. Safe to say that it's certainly a great time to be in the self-storage business. Our team continues to work hard to best position our portfolio for growth in all parts of the cycle, and we believe our results continue to validate the strength of the CubeSmart brand and the strength of the CubeSmart platform. Thanks again for joining us on this morning's call. At this time, Sarah, why don't we open up the call for some questions?