CubeSmart

Good morning and thank you for attending today's CubeSmart fourth quarter earnings call. My name is Jason and I'll be your moderator for today's call. All lines will be needed during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Josh Stutzer, Vice President of Finance with CubeSmart.

Thank you, Jason. Good morning, everyone. Welcome to CubeSmart's fourth 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. 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 filed with the Securities and Exchange Commission, specifically the Form 8K we filed this morning together with our earnings release filed on the Form 8K. and the risk factor section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. The reconciliation between GAAP and non-GAAP measures can be found in the fourth quarter financial supplement posted on the company's website at www.cubasmart.com. I'll now turn the call over to Chris. Thank you all for joining us at the end of what has been a very unusual and turbulent geopolitical week in our world. We are proud to announce our fourth quarter and year-end results last evening. It was an extraordinary quarter for our company, wrapping up a truly memorable year. Our strong operating fundamentals continued in the fourth quarter. Sequentially, from the third quarter, we grew realized rent 170 basis points, boasting 16.1% growth. We were all alone at the top of our sector in generating sequential same-store revenue growth, gaining 20 basis points from our third quarter results. All of our markets continue to perform well. Pandemic-induced trends seem to have normalized first in the Acela corridor. Our outlook for 2022 assumes a gradual return to more traditional seasonality across most of our markets. In my 27 years in our industry, 2021 stands out as one of, if not the most remarkable periods I have experienced from all aspects of our business. Many of our customers inform us that they wish to be served in a more personalized manner than we have historically. Our teammates desire more flexibility in how and where they do their work. Operating fundamentals across all metrics, surpassed previous record highs. Investment opportunities were the most plentiful I can recall, seemingly surpassing even the 1994-1997 period of rapid consolidation in the post-RTC world. Attractive debt and equity capital was readily available to fund that external growth. Overall, it was very rewarding to see the industry be recognized as a great business, to be able to serve our customers and help relieve the stress that they feel in their life events, and for our CubeSmart teammates to be able to deliver the positive results we are all here to speak about today. It is an exciting time to be in our industry. The pandemic has introduced us to new customer segments. We have matured as a sector. This has resulted in many new shareholders, institutional investors, and entrepreneurs entering our space. Many of these are our customers, our competitors, and sometimes both. I believe we are living through a turning point in the perception of self-storage, and this time period will be viewed historically as the shift from a niche business to a respected core member of the real estate industry. Thank you, and I will turn the call over to Tim. Thanks, Chris, and thank you to everyone on the call for your continued interest and support. As Chris touched on, the fourth quarter wrapped up what was, by almost any measure, the best year in the history of the self-storage sector. Our team at CubeSmart was busy across all aspects of the business, and our strong team, platform, and portfolio put us in a position to capitalize on the opportunities that incredibly strong operating fundamentals presented. Same-store performance for the quarter included headline results of 15.8% revenue growth, 4.2% expense growth, yielding NOI growth of 20.6% for the quarter. Average occupancy in the fourth quarter was 93.8%, and we ended the quarter with occupancy of 93.3%. Same-store revenue growth at 15.8% continued to be very robust with our markets in the southeast and southwest parts of the country leading the way. We continue to see the ability to push rental rates across the portfolio to achieve our growth. Strong operating fundamentals also led to solid performance across our non-same-store portfolio and our third-party management business during the quarter. Combining all of that internal growth along with external growth, we reported FFO per share as adjusted of 58 cents for the quarter, representing 23.4% growth over the last year. We remain active and disciplined in our pursuit of external growth opportunities, and the fourth quarter was a very busy quarter for our team on that front. During the fourth quarter, we closed on the $1.7 billion acquisition of Laco Limited, the owner of the Storage West self-storage platform. This 59-store portfolio concentrated in Arizona, California, Nevada, and Texas was a great strategic fit for us as it enabled us to acquire high-quality, well-positioned stores that and to diversify our portfolio into several markets that we've historically been underweight in. Also during the quarter, we acquired five additional stores for $85.8 million, opened a development store in Massachusetts for $20.8 million, acquired a store in New York for $33.1 million in one of our joint ventures, and we sold a store in Texas for $5.2 million. Integration of all of these acquired stores is complete and went incredibly smoothly. So, very active quarter on the investment front then, not surprisingly, leads to a very active quarter on the capital raising front. We funded our growth in a manner consistent with our conservative investment-grade balance sheet strategy. During the quarter, we completed an equity offering of 15.5 million common shares at $51 a share, raising net proceeds of $765 million. We also issued over a billion dollars of unsecured senior notes in two tranches, a $500 million issue of 10-year bonds with a 2.5% coupon, and $550 million of 7-year bonds with a coupon of 2.25%. Proceeds were used to fund our investment activity and also to redeem $300 million of notes that were due in 2023. So that's obviously a lot of moving pieces. We detailed all of this in our supplemental package that we released last evening. But importantly, it all adds up to us being in a great position from a balance sheet perspective entering 2022. We funded the meaningful growth we experienced at the tail end of 21 and are prepared to be opportunistic going forward if we can identify attractive opportunities that will allow us to continue to execute on our discipline growth strategy. Looking forward, details of our 2022 earnings guidance and related assumptions were included in our release last night. our 22 same-store property pool increased by 17 stores. Consistent with prior years, our forecasts are based on a detailed asset-by-asset, ground-up approach and consider the impact of the store level, if any, of competitive new supply delivered in 2020, 2021, as well as the impact of 2022 deliveries that will compete with our stores. Embedded in our same-store expectations for 2022, is the impact of new supply that will compete with approximately 35% of our same-store portfolio. So from a trendline perspective, you'll recall that when we first introduced this metric back in 2017, we had 25% of our stores being impacted by supply. That 25% grew to 40% in 2018, then grew again to 50% in 2019. We then started to see the impact decline as impacted stores fell to 45% in 20, 40% last year, and now in 2022, we see that coming down to 35%. So we're continuing to see signs of a lessening impact from new supply as we move forward. Our FSO guidance does not include the impact of any speculative acquisition or disposition activity as levels of activity and timing are very difficult to predict. So wrapping up prepared remarks, Thanks to all of our hardworking, talented teammates who helped lead us to the successful execution of our business objectives across many, many fronts in 2021. It was indeed an extraordinary year for the sector and for our company, and we're energized and ready for 2022. Thanks again for joining us on the call this morning. At this time, Jason, let's open up the call for some questions.

Thank you. If you'd like to ask a question, please press star followed by one in your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. If you're streaming today's call, please dial in and enter star one. As a reminder, if you're using speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question is from Juan Sanabria with BMF. Juan, please proceed.