CubeSmart

Hello everyone and welcome to the CubeSmart first quarter 2023 earnings call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I will now hand over to our host, Josh Schutzer, Vice President of Finance to begin. Josh, please go ahead.

Thank you, Charlie. Good morning, everyone. Welcome to CubeSmart's first 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 www.keepsmart.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 first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.

Thank you, Josh. Good morning, everyone. Our first quarter of 2023 can be characterized as solid performance across all of our key performance metrics. Funds from operations per share came in at the high end of our guidance. as steady occupancy trends coupled with our continued focus on expense control help to generate strong same-store net operating income growth. Our customers are resiliently navigating an uncertain post-COVID economy. While the Fed pushes up interest rates to cool inflation, the unemployment rate remains historically low. Volatility in mortgage rates has created an uncertain housing market as prices remain stubbornly high, resulting in a slowing single-family home purchases and sales. We believe our portfolio focus on top markets and strong demographics has us well positioned to perform throughout all macro environments. Low unemployment, continued wage growth, and solid household balance sheets translate into historically good credit metrics across our customer base. During the first quarter, Delinquency metrics such as late fees charged and receivables over 30 days past due are at levels below what we experienced in the first quarter of 2019. Another bright spot continues to be the stickiness of our existing customer base. Vacates during the quarter were down 3.3% to the first quarter of last year and down 9.5% on a comparable store basis to the first quarter of 2019. 47.9% of our customers have been with us longer than two years, up 230 basis points from this time last year. This results in a larger pool of customers to potentially receive a rate increase. Top of funnel demand trends have been less consistent with historical patterns than we expected. We had a solid first couple of months as same store rentals through February, were consistent with the same time period last year. In March, trends slowed as weather, bank failures impacting consumer confidence, and existing home sales weighed on March storage demand. March occupancy trends were mostly in line with last year, but that was driven by lower vacate activity offsetting slower than expected rental activity, which led us to a more cautious approach to rental rates. As we've moved into April, trends have been on a more normal trajectory. Rental and reservation activity has returned back in line with last year's levels as we've seen stabilizing signs in both the housing market and with consumer confidence. As a result, we have grown our occupancy, narrowing the gap to last year to 141 basis points, and we are moving up rental rates as the busy season begins to ramp up. We have experienced unusual trends so far this year. The demand momentum we saw in January and February slowed in March only to show signs of reigniting in April. Recent trends have us cautiously optimistic, but as we noted during our prior earnings call, the outlook for the back half of the year is heavily dependent on performance during the next few months of the rental season. Touching briefly on market level performance, the New York MSA was our most resilient MSA with our borough properties experiencing positive growth in both occupancy and net effective rents to new customers compared to the first quarter of last year. This was offset somewhat by softness and supply impacted North Jersey and Long Island markets within the overall MSA. While decelerating off of their tremendous 22 levels, We continue to experience above average revenue growth in our Florida, Texas, and Southern California markets. We experienced below average growth in the supply impacted DC, Virginia, Maryland markets and in Arizona where COVID induced migration has clearly waned. We continue to underwrite a good number of transactions, but sell our expectations for assets that meet the quality requirements of our portfolio strategy are still disconnected from our current cost of capital. We are finding ways to accretively deploy capital within our existing portfolio as full-scale redevelopments and cost-saving upgrades to high-efficiency building systems are proving to be the best opportunity for capital deployment in this part of the cycle. We remain a third-party partner of choice as our reputation in the industry has consistently maintained our robust pipeline of new management opportunities. Our operating platform is primed to maximize performance no matter the macro environment. Our differentiated strategic focus on quality across our portfolio and platform positions as well to generate shareholder value over the long term. Thanks for listening, and I will now turn the call over to Tim Martin, our Chief Financial Officer, for his remarks.

Thanks, Chris, and thank you to everyone on the call for your continued interest and for spending a few minutes of your time with us today. As Chris touched on, operating fundamentals during the first quarter were largely in line with our expectations, and we continue to experience a return to more normal seasonality in the business, consistent with our discussion over the last several quarters. We reported FFO per share as adjusted of 65 cents for the quarter, which was at the high end of our guidance range and represents 12.1% growth over the first quarter last year. Our continuing focus on being as efficient as we can be along with a mild winter resulted in 1% same-store expense growth, which when combined with 6.9% revenue growth produced a healthy 9.1% growth in same-store net operating income. Month-to-month occupancy trends during the quarter largely mirrored those of the first quarter of 2022. Our same-store portfolio gained 60 basis points of occupancy sequentially from the fourth quarter, ending the first quarter at 91.9%. We remain disciplined in our pursuit of external growth opportunities with no transaction activity to report in the first quarter. Our investments team continues to be active, although deal volume that went through our underwriting process was down about 30% compared to the first quarter of 2022. We continue to generally see a disconnect in the bid-ask spread, and we're generally not seeing the high-quality opportunities that we were seeing over the past couple of years. On the third-party management front, we added 25 stores in the first quarter, bringing our total third-party managed store count to 676. In the current environment, no news is good news when it comes to corporate balance sheets, and our balance sheet remains very healthy, putting us in a great position to pursue external growth opportunities when we see attractive relative returns. Our average debt maturity is six years, 98% of our debt is fixed rate, We have no significant maturities until November of 2025, and our leverage levels remain very low at 4.4 times debt to EBITDA. Details of our 2023 earnings guidance and related assumptions were included in our release last night. Our forward guidance for the year remains consistent with the guidance we provided in late February. So wrapping up, good in-line first quarter, balance sheets in great shape, patient and ready to find attractive external growth opportunities, and our team is ready and energized, heading into our sector's busy rental season here in the summer. Thanks again for joining us on the call this morning. At this time, Charlie, why don't we open up the call for some questions?

Of course, thank you. If you'd like to ask a question via the telephone lines, please press star followed by one on your telephone keypad now. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Michael Goldsmith of UBS. Michael, your line is open. Please go ahead.

Good morning. Thanks a lot for taking my question. My first question on what you're seeing in April, it sounds like March was slower. April kind of has returned to a more normal trajectory with rental rates back in line. I guess, like, can you provide a little bit more color about where the demand is coming from? I think you talked a little bit about the housing market. You talked about rates moving higher. Can you kind of quantify that? And then, as well, you know, did your ECRIs kind of come down during this slowdown in March, and how are you thinking about that back now that things are more normal in April?

Sure, thanks. That was a little bit to unpack there. Let me see if I can remember all the questions and answer them all. So going backwards, I think, from a rate increase to the existing customer perspective, we averaged mid-teens in the first quarter. That was consistent with our average for the fourth quarter of last year. and down from the high teens that we would have averaged in the first quarter of 2022. So as we expected, if you think about kind of a historical expectation, so 1Q19 we keep pointing to as a pre-COVID metric, we averaged in around the 12% range in the first quarter of 19. So as we have talked about, I think earlier in the year, the expectation is that the Great increases to the existing customers will continue to outpace pre coded, but come down from what we saw in a historically great 2022 in terms of customer demand. It is, it is obviously varies a lot by market. So absolutely thrilled with the performance in the New York boroughs there. You have a. portfolio construct that is just made for this type of a climate. We have a very sticky customer there and a customer there that is not so focused transactionally on moving. And so that market, as we would have expected, continues to perform quite well in the current conditions. Rest of the country, I would say the you know, the performance and where the customers are coming from continues to be, you know, from what you would have expected historically. Certainly in some of the Sunbelt markets, March, you know, we just didn't see the shorter-term moving customer. We're starting, obviously, we've picked up the college students at this point, and that will continue here for a little bit. And again, signs in April that perhaps that moving customer is you know, returned or March was an anomaly, you know, we'll continue to pay close attention to that as we get into May and June.

That's very helpful. And on my follow-up question, you talked a little bit about it. It's just kind of on New York, you know, on the same store... Same store NLI was down 300 basis points sequentially for the portfolio, but New York was up 120 basis points sequentially. Now you also added eight properties to the same sewer pool. So I'm just kind of curious about the trends going on in New York. And is this, you know, you've often talked about how at a time of moderation, New York is a market that outperformed. Is that kind of playing out as you expected?

Yeah, it is playing out in the city as we expected. Those stores, I think on the old pool accelerated 50 basis points and the new pool as reported in the city. The MSA, you are suffering a little bit of supply impact in North Jersey and out on Long Island, but the stores in the boroughs You know, again, we're thrilled with the performance. We expected a good year, and it's playing out so far, you know, at that expectation or better.

Thank you very much.

Thank you. Our next question comes from Samir Canal of Evercore. Samir, your line is open. Please go ahead.

Thank you. Hi, Chris. So occupancy fell year over year, but we also saw the in-place rent decline sequentially. And we haven't seen that in a while. I think many quarters, maybe even going back to 18. I guess how much of this decline is related to sort of normal seasonality versus the business starting to weaken here? Maybe you can help us unpack this. Thanks.

Yeah, on the occupancy, again, you've got to make sure you're focused on the fact that the 2023 pool obviously changed on January 1st. So if you think about where we started the year on an apples to apples basis, occupancy was down, you know, January 1 versus January 1 of last year by about, the same as it was at the end of March. So the occupancy during the quarter didn't really change, which is more normal relative to trends 2019 and earlier. If you just look at seasonality from 2017 to 2019, rates typically fall and did every quarter, every year rather, from Q4 to Q1. So the patterns that you see in Q1, if you you know, if you adjust for the change in the pool, are very typical to pre-COVID type patterns.

Thank you for that.

And I guess my second question, Tim, I just wanted to ask about expense growth. When I look at last year, you did 3% for the year, but you guided, I think it was close to 6% as part of your initial guidance. This year, you're guiding a four and a half, and you did one to 2%, depending on the same store pool you look at. Can you walk us through the things you're doing from an expense control standpoint? And is there more you can do that could actually end up surprising us to the upside as the year goes by? Thanks.

Well, I don't know what would surprise you. It's all relative to your expectation, I suppose. But I think we're proud of the results. And we have been focused, as Chris has touched upon for several quarters now, on always controlling what we can control. And there are many of the line items from an expense standpoint that we can do just that. The first quarter, we saw the benefit of a mild winter, which showed up in both lower than expected snow removal costs and lower than expected utility costs. I think as we think about how the rest of the year plays out, You know, while we had a nice surprise there on winter costs, we've also had a negative surprise, I suppose, that offsets it as we think about our property tax or property insurance, rather, renewal process that we're going through. Those costs are going to come in a little bit higher for the year than we would have thought even 60 days ago. So those kind of offset each other. I thank you. I think you then look into the balance of the year and you think about a line item like marketing expense. We're seeing some good opportunities to deploy marketing spend with attractive returns, so that's an area that we'll continue to push on at times when it makes sense for us to do so. I think the line item that really jumps out at you over the past couple quarters has been on the personnel side, and we've continued to find ways to combine our operational platform with technology, with how we staff stores, store hours, how we're using our sales center, how we're using our online tools to help our customers rent with us. And a lot of that has continued to show up in the personnel line item. Of course, we're going to start to have more difficult comps on that line item as we get later in the year. But Those are the big areas of focus, and again, we're pleased to report 1% same-store expense growth.

Thank you.

Thanks.

Our next question comes from Smeets Rose of Citi. Smeets, your line is open. Please go ahead.

Hi, thanks. just i wanted to ask you as you go into your kind of busy um asking leads uh it sounds like consumers are maybe a little more cautious based on some of the remarks that you you've said so would you maybe go lower in the in order to sort of get folks in or how are you thinking about that yeah week to week smears that's really the uh the point of focus here as we're

looking out over the next couple of months is we have great properties and great demographic markets. And so from a customer perspective, we know they're going to see us. So when they make that decision to rent, we're really keenly focused on getting them into the top of the funnel and then making sure that our conversion of that reservation or that customer inquiry to a rental is operating as efficiently as possible and that we're then pricing in a way that maximizes that opportunity. And so it's a week to week decision as we go through. As we think about April, from the beginning of April through essentially today, we've increased rates about 8%. And that's about consistent with what we would have done last year. So we're going to going to continue on on that focus um as long as the demand and and conversion continues to support it uh but it's been an unusual you know it's been an unusual year to date and so again we're going to have that keen focus week to week and and uh and make sure we're maximizing that opportunity okay thanks the other thing i just wanted to ask you i know you added 25

stores, but it looks like it was more like eight on a net basis to the third-party management platform. Are you just continuing to see volatility with just assets being sold? Or I'm just surprised because it sounds like there hasn't been a lot of transaction activity. So just maybe you could comment on that.

Yeah. Hey, Smedes. We're starting to see the pace of stores, which is a good thing, pace of stores that have our brand on them. uh you know being marketed there have been a handful over time and and again as we said in the past it's it's one of those bittersweet uh things we hate to see we hate to see uh our name come down off of the sign at the same time we've you know in in those cases we've done a good job um and done what our what our third party clients expect us to do which is to help create value for them and and they realize that upon upon a sale Many of them we would love to keep with the CubeSmart brand and acquire them on balance sheet. We haven't been particularly active as we touched on earlier. So I think it's hard to predict the net number because hard to predict when stores are going to come off the platform. What we can control and what we've done a good job of is keeping that pipeline of new stores coming onto the platform very healthy. And we do have a very healthy pipeline right now of owners who are seeking third-party management services and are viewing us as one of those premier providers of that service.

And just to give you a little bit of data there, of the stores that left the platform, I think 15 of the 16 were actual sales where the stores were sold to another party. Who either chose to self manage or had a different 3rd party management relationship. So, while activity is muted, certainly there were 15 transactions that took place that closed during the quarter.

Okay, thank you guys. Thanks.

Our next question comes from Juan Sanabria of BMO Capital Markets. Juan, your line is open. Please go ahead.

Hi, guys. Thank you for the time. Just curious if you can give us the April trends for street rates and occupancy, just kind of where the spot sits. And for street rates, if you don't mind giving us how that trended year over year throughout the quarter, just to help contextualize.

Sure. So rate trends in the first quarter, net effective rates for customers compared to that same time period last year, again, bounces around week to week, but ranged down from the low to the mid-teens. When we got, again, to March, similar trend, more in the mid-teens down in March. And then in April, as I mentioned, we've pushed rates up uh through today eight percent since the first of the month um which is just slightly more than we did last year so the gap to april of 22 remains in that kind of mid-teens uh type of range from uh from an occupancy perspective we've picked we've reduced the gap to last year to from uh 150 basis points i believe at the end of march to 141 basis points as of yesterday

Thanks. And then I just wanted to ask, it seems like you maybe are testing in some capacity, asking customers to stay for a period of time, maybe four months or so, but I guess locking in that initial rate. Just curious on how that testing has gone, why you chose to offer that option out and Just some thought around the strategy that would be helpful.

Yeah, Juan, thanks. Good question. We test quite a significant number of different strategies for two reasons. The most important of which is, you know, we want to get a sense from the consumer as to, you know, what their behaviors are and get some additional insight through decisions they make as to how they're thinking about using our product, you know, and what's important to them. And then obviously the second is it's always strategies around, you know, how can you maximize revenue across all of our customer segment base? You know, that particular test would have been designed to see if a customer was more inclined to make a commitment for a longer period of time, and would they be more inclined to do so knowing what could happen in terms of their rate at the end of that four-month time period. It's one of many different things that we have and will continue to test Again, it's very helpful for us from a data perspective to just get a good sense of where that customer behavior kind of shakes out. And all of these are ongoing at some point in stores throughout the portfolio.

Just as a quick follow-up, are customers willing to sign up for the four months or

i'm assuming you were trying to weed out customers who were just in and out for a month but just curious on the take up versus expectations yeah i would say you know again it is still in process in certain properties so so the absolute answer to the question we don't we don't have a definitive one at this point um it certainly does attract a customer who knows or is certain at least in their own minds that their intention is to stay longer. It also has an attraction of a customer, though, who has more certainty around the move in and move out. So you tended to see the vacates then at the end of that four month time period. So, again, it's one of many things that we continue to test at an array of properties across the country. And, you know, we'll continue to do so to, again, always try to find ways to creatively maximize revenue for each customer we get.

Appreciate it, Chris. Thank you.

Thank you. Our next question comes from Ki Bin Kim of Truist. Ki Bin Kim, your line is open. Please go ahead.

Thanks, John. Good morning. So to follow up on the last question, I'm curious about the cadence of demand that you saw throughout the quarter and into April. Was it a top of the funnel? type of dynamic where you just had less touch points coming in to you guys or was it more of a market share dynamic?

Yeah, from our perspective, it felt like top of funnel demand was as we would have expected in January and February and then was less than we would have expected in March. Now has returned to expectations. Okay.

And so what caused the pickup in April?

What caused the decline in March, right? You know, you certainly can look at things that occurred in March on a macro basis. And we can look at, you know, housing, for example. So one of the larger publicly traded home builders on their earnings call last week commented that March was unusually slow for them. They've now seen a pickup in demand in April. So was it weather? Was it banking crisis? Was it mortgage rates? Don't know. And again, we're trying to navigate through a, you know, post-COVID trends that have been anything but consistent over the last several years. You know, 21 was odd and 22 was odd. And certainly March of 23 relative to, you know, what we would have expected was a bit odd. April seems a lot more normal.

Okay. And second question, I wanted to ask you about your leverage and capital allocation. You know, your balance is 4.4 times levered, obviously in great shape. And I appreciate your press release comments about being disciplined on price. Can you just help us understand what the gap is, the bid-ask spread, how wide or narrow it might be? And if you can remind us of your latest thinking on capital allocation, is it still from an asset quality or market standpoint, is it still kind of demographically driven or has your scope widened a bit to include other assets that maybe you traditionally didn't want to own?

Yeah, we haven't changed our areas of focus, Keevan. We are, as we have been, focused on attractive markets, typically in the top 40 MSAs, looking for those great infill complementary opportunities to our existing footprint. There are some markets that we're not in that we would love to be. I haven't found attractive opportunities to do that. Um, the bid ask spread, it's, it's difficult, lower, lower, lower amount of total transaction activity. So it's a little bit difficult to know exactly where things are because many of the things that are out there, um, I think are for sale, um, at a price. And sometimes I think a crazy price. And so some of the, some of the things aren't trading at all. So it's a little bit difficult to know exactly where you are, but I, I would say, um, you know, we quite often end up being 15, 20% off, uh, off of where. at least for a broker transaction where a broker would suggest a deal needs to trade. And so, you know, that feels like a little bit of a gap, but it can change. And, you know, we are, as I mentioned in my prepared remarks, we're quite active in underwriting an awful lot of opportunities. We would love to see some high-quality opportunities that were just a little bit closer to a price point that made sense for us on a risk-adjusted basis. So where we are open for a wide spectrum of opportunities is at the right return, we would look at something that's fully stable all the way to something that just came out of the ground. So we don't have any restrictions or limitations to our desire to take on some lease up or to look at stabilized acquisitions. But the markets and the quality of the assets that we're looking for is pretty consistent from what you've heard from us for some time.

Oh, that's a great color. And I was asking about these other markets because, you know, lately the one that changes that we've seen from the self-storage companies, including you, is kind of touchless, you know, internet-based leasing. And if that would perhaps expand, you know, what you would want to own, like in secondary markets where you can use technology versus, you know, having a lower margin business with people.

thank you yeah kind of kind of flavor of the day right i mean to me the idea of not having an office at a store is you know been around since 1968 and so you know whether it be the phone uh or whether it be you know some use of technology the concept's not new um and so again it's been out there we continue to look at where that might apply um certainly in the more urban and the dense suburbs it's it's much less applicable than it is in in tertiary areas so it's uh it's not new um certainly it's got a lot of uh it's got it's generated a lot of conversation over the last several months thanks again thanks

Our next question comes from Hong Shang of JPMorgan. Hong, your line is open. Please proceed.

Yeah.

Hey, guys. I guess on the personnel expense side, you talked about technology savings. Are there any further savings we should expect in that line going forward, or do you think that's largely capped?

Hey, it's Chris. And, you know, we continue to look at ways to meet our customer where they want to be met in terms of closing the transaction with them. And, you know, again, no surprise when you do focus groups and you talk to your customers, they at this point in the life cycle continue to to be about one-third each in three categories. It's the category of customer who's very used to using technology, is very comfortable transacting without a face-to-face interaction. It's my kids texting from their bedroom to ask what time dinner is instead of walking down the stairs and having a face-to-face conversation. We have another third of the customers who, not surprisingly, are at the complete opposite end of the spectrum. They want to have a conversation. They want to interact with a store teammate. They want to know that they can ask any questions they want to a person live as they're going through their decision-making process. And then the other third kind of fall into that into that digital key at a hotel kind of group of folks. They're happy to use it as long as it works the way they think it should and seamlessly. If it's not, when you get to that 13th floor of the hotel and your phone doesn't work at your room, you're kind of frustrated. You want to come back down to the lobby and have a conversation and have your problem solved immediately. We're working through all of that as we do. We've obviously continued to find ways to create efficiencies, we think, while also providing the level of customer service that we're known for. And we'll continue to do that. Obviously, I think the rate of savings or improvement there will slow as the fruit from the tree gets higher up.

Got it. And then as it relates to other property revenues, particularly late fees, it seems like post-COVID there's just been a step function down on delinquencies and late fees. Do you think that's just the new normal given auto pay and all that?

Yeah, that's a great question. We definitely have seen on that side of the equation lower revenues than we would have seen in some of the prior years. It's a two-part issue. One is, as I said, health of the customer is really good, which is a positive. Receivables are down. Delinquencies are down. That translates into lower late fees, but a higher quality customer per se from a credit perspective. And then on the the technology side as we can push folks into or they choose to go through smart rental or or self-service rentals in some way shape or form talk to one of our service reps uh you know either from their phone or from a kiosk they tend to be auto pay customers they tend to be more ach customers and again they're they're paying on time which is great but the you know the the late fee uh will come down is that you know, is that going to change as we go through economic cycles? I would suspect that at least the first part of that answer will as we see, you know, differing parts of the economic cycle over the next couple of years.

Scott, thanks. Great quarter.

Thank you. Thank you.

Our next question comes from Spencer Alloway of Green Street. Spencer, your name, sorry, your line is open. Please go ahead.

Yeah, thank you. We continue to hear that private market players are burdened with high interest expenses on construction loans, and as such, there could be, you know, they could be looking to offload or sell some of these properties. Have you started to see these opportunities arise, or is it still fairly quiet? I know you mentioned there were some transactions, you know, that occurred in the quarter, but just curious if you could elaborate a little bit further.

Good morning, Spencer. It is a, I would say not quite yet. I mean, I think there's a little bit of chatter and I think it's more, at this stage, I think it's more discussion of, you know, you would think that there would be some of that activity. I think the reality for our sector, you know, when you do this throughout different parts of the cycle is that, you know, what that might translate into is probably some motivation. At least there might be a more motivated seller who would look to you know, to have their store clear the market versus, you know, somebody who's, as I alluded to earlier, somebody who will sell for a really high price. So you might have a more motivated seller. I don't think you're going to have a desperate seller. I think our business is just too good. I think operating fundamentals are too good and people have options. So they don't have to I don't think anybody would suspect that there would be a fire sale opportunity on a whole bunch of things for folks that are like that. But perhaps, and again, maybe more wishful thinking from our perspective, but perhaps you'll have a little bit more motivated seller. And if those were in opportunities and markets and high-quality assets that we're looking for, that would be fantastic for us.

Okay, that's helpful and thank you for all the color you provided at the market level, but just maybe looking at some of the markets with lower occupancy, maybe such as Vegas and Phoenix. Just curious if you have any color on operating trends in these markets or what might be driving the lower than average occupancy.

Yeah, when you think about those markets, it's a return to more normal after seeing just a tremendous amount of movement, certainly a tremendous influx of folks, you know, in those markets. They would also be the markets where you saw the most aggressive push in 21 and 22 in market rate. So when you think about, you know, changes in market rate over the last couple of years, Those markets in Phoenix and certainly those markets in the Sun Belt in general, you would have seen rather the most significant push in rates over that time period. So, give you a point of example, when you just think about when you think about Sunbelt markets, Phoenix, for example, rates versus where we were in the first quarter of 2019 are still up about 30%, about 20% in Tucson. You know, even you get into the South Florida markets, Miami, Fort Lauderdale are up about 44%. So just some markets that would have seen really, really strong push on rates are just starting to normalize more, you know, starting to normalize. And you're not seeing, again, you're also not seeing the same movement in those markets that you would have seen in 21 and 22.

Thank you.

Our next question comes from Todd Thomas of Key Corp. Todd, your line is open. Please go ahead.

Hi, thanks. Good morning. I just wanted to circle back to the trends that you discussed that you experienced in March. Was that concentrated in certain geographies, or was it more broad-based across the country, across the portfolio?

Yeah, it was really broad-based across the portfolio. You know, if there's an outlier, again, in this kind of a climate, it would have been the the New York City borough assets, which, as I mentioned, were the assets in the market, really, where we saw occupancy gains over the first quarter of last year and rental rates that were in positive territory relative to the first quarter of last year, but the rest of the country all kind of moved the same.

Okay. And so net-net, you know, if we think about what happened, you know, you mentioned the volatility and move-ins and move-outs. It sounded like both were down, so less movement altogether. But you mentioned that asking rates or street rates did decrease a little bit. I think you were in the low double digits. You mentioned March, you know, moved into the sort of – you know, mid-teens or high-teens, I believe. But, you know, net-net, how did results compare to your budget for March? Did it create a setback in any way, maybe a benefit? What happened in March as a result of that volatility?

Yeah, we would have expected in March net-net, slightly better performance than what we were able to deliver.

Okay, so results in March fell slightly below your budget sort of within the context of the year so far.

Yes.

Okay. And then just last question, just stepping back and looking at the guidance. um which you maintained you you previously talked about growth decelerating gradually throughout the year revenue growth right so starting the year higher ending the year lower do you see potential stabilization uh mid-year or or or later in the year i guess has has your view changed around the trajectory of of growth throughout the year as we we sit here today you know at the end of april

No, I mean, the view from a high level has not changed in terms of that expectation that we will continue to see some level of deceleration across the entire same store pool as we go through the quarters. Again, you look at last year, obviously the first half of the year, the comps were more challenging than the second half.

okay great thank you next time our next question comes from jonathan hughes of raymond james jonathan your line is open please go ahead hey good morning um was was hoping you could talk about performance in the 73 properties that were added to the same store pool this year most of which i i believe is the storage west portfolio yeah those added 50 bps or so to revenue growth, 100 basis points to NOI growth. When you back into metrics for those properties, it looks like almost all that growth is from higher rents and expense savings, but occupancy is almost 500 bps lower than the 2022 same-store pool. So maybe there was a rate versus occupancy trade-off there, but I'm just a little surprised by the occupancy of that portfolio. Can you just update us on the outlook you know, maybe for occupancy recovery in those properties since storage west was, you know, in the mid 90% range 18 months ago.

Hey, you're spot on. I mean, you're talking about assets in those markets. I think I responded to a previous call in, you know, some of the markets that saw a significant inflow of population and movement. We were very, very aggressive on rate, continued to be. reasonably aggressive on rate as we went through the first quarter, saw a give back in terms of some of that occupancy. And as we go forward here again, we'll see how demand trends work in those markets, you know, April through July, and try to balance out, you know, where we are on the rate side versus where we are on the occupancy. But during the quarter, we absolutely were focused in on rate and were willing to sacrifice some of the occupancy as a result.

Okay. And was the benefit from, you know, those new stores in the pool, I mean, was that in line with the expectations at the start of the year or surprise to the upside or downside?

Very much in line with the expectation at the start of the year.

Okay. And then on capital allocation, you mentioned a lack of high-quality acquisition opportunities out there and talked about that in Kevin's question and your prepared remarks. You know, the balance sheet's in great shape, leveraged near the lower end of, I think, the four to five times target range. Seems to run away growth is driving organically levering. And the stock today is trading, you know, 10% below consensus NAV and a high five percent applied cap rate so my question is if acquisition opportunities don't come to market as hoped and that discounted valuation dynamic continues for the next six or twelve months would the board consider repurchasing shares given you have the leverage capacity yeah i think we we have a uh we have a an in place

program to be able to repurchase shares we have not utilized that program yet and i think as we've discussed before i think there is a certainly there's a time and a place um to to consider share repurchase program um i think for us it is uh you know some of the ingredients that you touched on are there i think it's the duration for that for that dislocation we are we remain optimistic that we'll be able to put our high quality balance sheet to work to find those external growth opportunities. But if we were in the environment and it were exacerbated and it were for a longer period of time, then of course that's something that we would look at and consider.

Okay. All right. Thanks for the time. Appreciate it. Thank you.

Our next question comes from Jeff Spector of Bank of America. Jeff, your line is open. Please proceed.

Great, thank you. Chris, my first question is just on consolidation in the industry and how you're thinking about that in terms of cube strategy or just the industry as a whole, third party management. What type of impacts do you expect or really minimal on your portfolio?

I'm sorry, Jeff. Could you try that one again so I'm making sure I'm answering the specific question?

Yes. Basically, I was just asking about given, you know, the consolidation in the industry, you know, from your seat, how are you thinking about that in terms of your strategy? You know, does it change anything on third-party management side? or given your scale in your markets, there's really minimal impact on your business.

I think when we think about just consolidation in general, you know, again, and we can look at that from a whole bunch of different angles, because certainly today there's, you know, there's more assets under third-party management than ever. There's certainly no shortage of third-party management providers, both public and private. You know, I think when you just think about consolidation or scale or however you want to term it, you know, I think there absolutely are, you know, are benefits. But again, I think over time, when you think about Cube, you know, our strong density and scale within our markets and our focus on building a high-quality portfolio in those top-quality markets and our coverage within those markets, You know, the scale and brand recognition that we have on a sub market level is is quite significant. And I think that's where it's. You know, most impactful, I think, in, in terms of opportunities for us. I certainly think with fewer choices, especially on the 3rd party side, that could create a nice opportunity for us to. to grow that program at perhaps a rate faster than we would have anticipated, you know, as we entered 2023.

Great. Thank you. And then I just wanted to clarify kind of the, you know, thinking about the second half of the year and the initial guidance. You know, again, it sounds like in April things have normalized again. We've been discussing, you know, the tougher comps or decel into the second half. And I can't remember, you know, when you provided the initial guidance, did you say that the bottom half did reflect recession or you really didn't comment on that?

Yeah, it didn't really tie top or bottom necessarily directly to macroeconomic conditions. I think it's a range of outcomes. really based on our expectation of consumer behavior and then how that consumer behavior translates into customers or self-storage, you know, across, you know, across however the economy may move here, you know, whether it and how it impacts movement, basically. But nothing tied, you know, directly to one specific economic outcome.

Okay, thank you.

Thank you. We now have a follow-up from Smedes Rose. Smedes, your line is open. Please go ahead.

Thank you. This is actually Nick Joseph here with Swedes. Appreciate you taking the call at the end. There was a question earlier on the impact of kind of regional banking and lending broadly on maybe acquisition opportunities. And so just curious, kind of similar idea, but on supply and new starts and how you'd expect those to trend, maybe given the contraction in the lending environment.

Yeah, certainly what's going on in the lending environment directly impacts self-storage developers and how they think about, you know, how they think about starts or how they think about projects going forward. I think you've got obviously the tailwind to new development being continued strong fundamentals within self-storage. I think, again, the headwind against that is cost, raw material and labor. delays with supply chain and raw materials and certainly cost of capital, particularly the lending at the regional and local level. While we've seen issues with certain banks and you've seen the larger money center banks talk about overall commercial real estate exposure, And I think there are other product types that are causing a lot of problems for lenders. Self-storage is not one of them. So I think it's a healthy balance. I think it certainly puts some, you know, some headwinds in front of development. And I think as a result, you know, what we're seeing in the numbers and our expectation continues to believe that new supply will continue to slow in terms of deliveries here over

uh over you know 24 and 25 given where things are today thank you very much thank you our final question of the day comes from juan sinabria of bmo capital markets and it's a follow-up question thanks for the time guys just um

On one of the points that was raised at the top of the Q&A on the net effective in place rates for existing customers that tick down sequentially, I guess how should we think about that for the balance of the year in terms of what's assumed in guidance from a modeling perspective? Is that going to now reaccelerate and take up or should we expect that to continue to moderate or just how are you guys modeling that from your perspective?

Yeah, we expect rates for the new customer to be at lower levels. I'm sorry, was it new customer or existing customer that you were asking about?

Existingly, the in-place rep for square foot that it ticked down sequentially this quarter, just how that should evolve for the balance of the year as per your guidance or assumptions and guidance.

yeah so the existing the in place should grow uh as it normally does seasonally here throughout the balance of the year thank you you're welcome thank you that's all the questions we have time for so i'll hand back over to chris ma for any final remarks thank you uh and thanks for listening you know our portfolio construct We believe really shines in the types of of markets that we're seeing and the type of economy that we're seeing right now in the United States. So really thrilled with the performance, particularly of our of our urban portfolio. We think that customer is and the customer base there really performs well in this climate and we are. know we are looking forward to speaking to you again uh when we end the second quarter so thank you and uh have a great weekend ladies and gentlemen this concludes today's call thank you for joining you may now disconnect your line