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spk00: Good morning, ladies and gentlemen, and welcome to the CubeSmart first quarter 2024 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, April 26, 2024. I would now like to turn the conference over to Mr. Josh Schutzer, Vice President of Finance. Please go ahead, sir.
spk02: Thank you, Laura. Good morning, everyone. Welcome to Q-SMART's first quarter 2024 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 first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.
spk20: Thank you, Josh. Good morning, and thank you all for joining the call. as it was well into the first quarter when we shared our thoughts on our 2024 and first quarter guidance, as one would expect our first quarter performance metrics were in line with our expectations. Rental rates to new customers followed their historic pattern, reaching their seasonal low in mid-February before beginning their gradual move up into the end of March. Our key metrics related to consumer health, those being write-offs, receivables, units at auction, all remained in line with historic norms. Against the backdrop of a healthy consumer and typical first quarter seasonality and asking rates, our existing customer rate increases during the quarter were consistent in both timing and magnitude. Demand activity during the quarter varied by market. Our more urban-oriented markets, such as the New York MSA and its Connecticut suburbs, Chicago and Boston, experienced growth in year-over-year rentals san diego county also experienced positive year-over-year rental volumes no doubt continuing to benefit from the storage west transaction sunbelt markets such as atlanta and all of our major florida markets experienced a decline in year-over-year rentals some supply impacted markets such as northern virginia and nashville seem to be bottoming out from that supply impact and are beginning to show signs of stabilization. Phoenix is also showing signs of turning the corner with positive year over year growth in rentals and occupancy, albeit at rental rates well below 2023 levels. While Tucson continues to struggle to find its footing while being impacted by new supply. New York continues to be our top performing market with consistent positive performance metrics across the boroughs and positive and improving performance in supply impact in Staten Island and North Jersey. Overall, trends are more constructive in our urban stores, which tend to attract a customer solving for their smaller living space. As we move through April, trends thus far have our negative rate and occupancy gaps to last year narrowing from their first quarter levels. As we expected entering the year, the environment over the next three months will be highly impactful on how the entire year plays out. The macroeconomic data over the last few months has certainly been very volatile. It seems every week we receive conflicting data, most recently an unexpected slowdown in first quarter GDP growth. Other industries, such as intermodal transportation, warehouse leasing, used car dealers, home retailers have expressed cautionary views on consumer demand. One factor that makes our business so resilient is that there are countless life events that create demand for self storage. Obviously, one demand driver of the many for our industry is single family home sales. Over the last few months, the housing data has also been inconsistent. According to realtor.com, the number of homes actively listed for sale in February was 15% higher than the same month last year. They also note that the week of April 14 is the optimal time to list your home for sale, as the third week of April brings the best combination of housing market factors for sellers. On the other hand, March home sales were disappointing, and mortgage rates have climbed above 7%. Then you have yesterday's Commerce Department report and a possible positive sign for the housing market. Residential investment surged 13.9%, its largest increase since the fourth quarter of 2020. So while housing stats are certainly volatile, consensus remains for modestly increased activity over the historical lows experienced in 2023. Another of the many demand drivers for our product is movement within multifamily housing. In the multifamily sector, headwinds from new supply are contributing to rents that are flat or slightly declining in Sunbelt markets. According to RealPage, rents are down year-over-year in Atlanta, Nashville, Austin, Dallas, Orlando, and Fort Lauderdale, which may spur existing apartment renters to move or increase demand from first-time renters. Both are good for our industry. On the supply side of the equation, new store openings in our top markets continue their pattern of declining every year since their 2019 peak. The period between now and the end of July will be both illuminating and impactful on our expectations for full-year 2024 performance. We remain confident in the long-term fundamental drivers of our business continuing to generate solid growth. Thank you for listening, and I will now turn it over to Tim Martin, our Chief Financial Officer, for his insights into our first quarter.
spk03: Tim? Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. First quarter results were right down the middle of what we were expecting for the quarter. Same store revenues were flat compared to last year, with average occupancy for our same store portfolio down about 130 basis points to 90.4%. Same store operating expenses grew 5% over last year, driven by continued pressure on property insurance, as well as a good bit more snow removal costs this year when you compare that to last year. Offsetting those were lower marketing expenses relative to last year, but as we've discussed in past quarters, that's a line item that will bounce around a little bit depending on what opportunities we're seeing in the market to be efficient and to maximize our return on that spend. Flat revenue growth combined with 5% expense growth yielded negative 1.9% same-store NOI growth for the quarter, and we reported FFO per share at the midpoint of our range at 64 cents for the quarter. On the external growth front, we closed on the previously announced acquisition of a two-store portfolio in Connecticut for 20.2 million. We continued our disciplined approach to finding external growth opportunities that make sense for us on balance sheet. On the third-party management front, we had a record first quarter, adding 68 stores to our platform. That's the most third-party stores added in a quarter since our debut in the third-party management business 14 years ago. As a result, our third-party platform grew to 860 stores under management at quarter end. Balance sheet remains in excellent shape, nothing to do there in the short to medium term other than to continue to look for growth opportunities to utilize the liquidity and leverage capacity we've created over the last several years. Details of our 2024 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. Thanks again for joining us on the call this morning. At this time, Lara, why don't we open up the call for some questions?
spk00: Thank you, sir. Ladies and gentlemen, you will now begin the question and answer session. Should you have a question, please press star, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift your hands up before pressing any key. Our first question comes from the line of Spencer Alloway from Green Street. Please go ahead.
spk08: Yeah, thank you.
spk12: I was just wondering if you could provide some color on how move-in rents are trending this far into the second quarter and just any color you can share, just if there's any Trends geographically, but yes, just any color on move-in rents would be will be great.
spk20: Thank you Sure Spencer. Thanks. So new customer rates in April are down 11% from last April an Improvement from the 13% at the end of q1 and they were at 14% negative in q4 so we're seeing a a combination of what occurred last year and obviously a little bit of improvement this year in that negative gap on new customer rates.
spk12: Okay, great. Thank you. And then are you able to provide or share the initial cap rate on the two assets that are required in the quarter?
spk08: Yeah, they're stabilized assets that we know well, and it's in the low sixes. Okay.
spk01: Thank you so much.
spk00: Our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.
spk13: Good morning. Thanks a lot for taking my question. My first question is just on demand and how that trended through the quarter. You know, I think, you know, when you reported fourth quarter provided guidance, you had good visibility into what seemed like solid trends. How did the rest of March play out and what have you seen on the demand side during April?
spk20: Yeah, Michael, as I said, it's market by market as it went through the quarter. We saw consistently strong demand in those more urban-oriented markets. So growth quarter over quarter continuing into April on the positive side in the New York MSA and Connecticut suburbs, Chicago, Boston, San Diego County, Phoenix. And then the markets that you're having a little bit more challenge on the demand side, primarily all the major Florida markets, Atlanta, and then some of the smaller Sunbelt markets. So again, if you think about it, the markets that had the largest uplift through COVID are now the ones that are closer to the bottom of that chart. And those markets that were more lower beta during COVID are at the top of that chart.
spk13: Thanks for that, Chris. And my follow-up is just on the guidance. You know, first quarter came in line with expectations. Just given what you've seen now, given what you've seen kind of since you last guided, you know, how has that environment changed your outlook for the year? I mean, you didn't move it, but, you know, are know as you think about the moving pieces of it has anything changed on how you expect the rest of the year to play out or is it just still too early uh given kind of like the week-to-week nature of the business recently and which doesn't provide you the level of insight you need to really update your expectations yeah michael the latter part of your question is exactly where we are um
spk03: You know, we provided that guidance with a range of expectations six weeks ago, and nothing's happened in the last six weeks that would, you know, that would cause us to change that view. As we sit here, still in April, we have the whole summer rental season ahead of us, as Chris mentioned and you alluded to. And so, you know, we still have that range of expectations that, you know, that we introduced six weeks ago.
spk08: Thank you very much.
spk00: Our next question comes from the line of Samir Kunal from Evercore ISI. Please go ahead.
spk05: Hey, Chris. Maybe on guidance again, I know in the last call you spoke about the high end assuming some sort of improvement in the housing market. I guess given what rates have done, how do you think about the high end today? And my question is if the housing market does not improve, I mean, do you feel that there's enough in that sort of ECRI push to make up for that difference? Thanks.
spk20: So as I mentioned in my earlier, you know, preface remarks, the housing market is one driver. I mean, the beauty of our business and why we're so resilient is that everyday life events are what creates a demand for storage. And so those everyday life events and certainly movement within multifamily continue to exist. So our focus is on attacking what we can control, which is making sure we're efficient in capturing the customers who have identified a need for self-storage and converting them to become a CubeSmart customer. So again, the housing market is one of those factors. Our range of expectations certainly implies varying degrees of demand across the spectrum at both ends. And as we sit here, again, at the very, very early stages of the busy season, we still see those bookends of our expectations as where we think the likely outcome for the year will be. Again, as I mentioned, the facts, as I understand them, the third week of April is your peak listing for existing home sales. If you think about That house sells quickly. You're closing late May. It sits on the market for a couple weeks. You're well into June. And that's when we would expect to see, you know, the busy season for us, May, June, July. And obviously, as Tim said, that's going to be very impactful on how we see the whole year play out.
spk05: Okay, got it. And I guess my second question, Tim, is on the advertising expense. I mean, that was down roughly about 15%. You know, that was a little bit surprising to me, given that demand still remains challenging. I guess, you know, maybe talk around that strategy. Thanks.
spk20: Yeah, sorry. I'll jump in for Tim there. You know, when you think about the evolution of our investments over the last couple of years and continuing as we go forward into refining the technology and the customer data platform that we have, Now, that CDP is increasing efficiency of paid for new customer acquisition, and we're beginning to see the fruits of that. So we're able to avoid wasted advertising on those obvious suppression segments, exclude those customers for whom, again, they're within a set amount of time of rental. We're able to be more targeted through automated personalization, using AI, using machine learning to make sure that we can try and segment and identify that customer on the front end and target the response to their inquiry that has the highest potential conversion rate. And we're seeing the benefits of that in the ROI that we're achieving on marketing. Now, all that being said, it does not mean to imply that over the course of the year, that our marketing spend will not grow from the levels that we had in 2023, but it absolutely is reflective of all of the investment we've made in our CDP and other things over the last couple of years starting to bear fruit.
spk08: That's it for me. Thanks, Chris.
spk00: Our next question comes from the line of Todd Thomas from KeyBank Capital Markets. Please go ahead.
spk04: Hi, thanks. Good morning. Chris, I just wanted to follow up first on move-in rents. I appreciate the detail early on here in the call that you provided. You know, I think you mentioned that the move-out to move-in spread narrowed through April. Can you just quantify where that is today, what the change looked like sort of throughout the quarter and into April and where that stands today?
spk20: Yeah, Todd, just to be clear, what I had talked about was just the new customer rate. So that new customer move in on a quarter-over-quarter basis was down about 14% in Q4 and then 13% in Q1, 11% in April. In terms of just that delta between the customer moving out and the customer moving in, that continues to be around 33%, 34%, and that has not really moved all that much since what we reported last quarter. As we get into the more seasonal timeframe here, where obviously our rates to new customers are moving up, then we do expect that gap to narrow as we move through the busy season.
spk04: Okay, got it. And then the occupancy build during the period, it appears as though it was a little bit below average when compared to prior years, just moving from the quarter average to the quarter end. Can you speak to where occupancy is today? And also, vacate activity was a little bit higher year over year. Are you seeing any change at all in terms of move outs? And can you talk about vacate activity, how that trended throughout the quarter and thus far into April?
spk20: Yeah, as we've moved through April, we've We've seen, as I mentioned, both the year-over-year gap in occupancy, and we just talked about the year-over-year gap in rate contracting, same thing on the occupancy side. So today we sit at 90.8%, up 40 bps from the end of March, and that gap the last year has contracted back to about 120 basis points. Month-to-day rentals in April are flat to last year. And then when we see on the move outside, you know, move outs continue to, well, they obviously bounce around by market, but are fairly in line with what we saw last year. The period of time certainly coming out of COVID where we saw increasingly longer lengths of stay, that's really started to trend closer back to stabilization. And in some cohorts, you know, we're seeing that start to contract a little bit.
spk04: Okay. Does the normalization there in terms of length of stay or maybe, you know, a little bit of an uptick in vacate activity, does that, you know, give you a pause at all in terms of the company's ECRI strategy or have you rethink at all, you know, the pricing for existing customers around, you know, the sensitivity there to rate increases?
spk20: So obviously something that we continue to pay very, very close attention to. But the overall lengths of stay, while they're down a bit from all-time highs, they remain well ahead of historical levels. Customers in our portfolio for over a year, 62%. Two years, just over 44%. So down a little bit seasonally, but still, you know, three to 500 basis points above historical averages. So the customer behavior that we're witnessing does not at the moment give us any cause to alter our sort of recent strategy as it relates to increases for that existing customer cohort.
spk08: Okay. Thank you. Thanks, Todd.
spk00: Our next question comes from the line of Jeff Spector from Bank of America. Go ahead, please.
spk15: Great. Thank you. Chris, my first question, just given your length of experience, as I think about the conversation so far and the start of this peak leasing season, it still feels like there's a lot of uncertainty. If you go back to pre-COVID, is this in line with historically what you would normally see entering spring leasing? Or would you say it is fair based on your comments on the week-to-week changes in the economic data that still the 24 spring leasing season uncertainty is still high?
spk20: Yeah, Jeff, I think it's fair to say that the uncertainty is quite high. I chuckle a little bit because I'm trying to think about what's normal, right? We would have sat here in 2018, 2019, and while the demand was normal, we had such elevated supply that, you know, the concern was, are you going to have enough demand to be able to fill up all the development that had come online? And obviously we had the beginning of COVID, which was quite dysfunctional, and then the surge in demand that we saw in late 20 and all through 21 to the early parts of 22. The fact that interest rates remained elevated, the fact that we have the housing market that we've spoken about ad nauseum, certainly that's one segment of everyday life events that is challenged at the moment in terms of mobility. If I had to sit and look back at a normal trend over my 30 years in doing this, I would say we're obviously missing or not quite yet seeing that one segment. So it does feel a little bit more muted across the country than what we would have seen in whatever we would define as a more normal environment. But that uncertainty is, so again, that's kind of where we are here. The next couple of months are going to be you know, as I said, very informative.
spk15: Thank you. That's helpful. And then I just want to clarify again, I have that the higher end of the guidance reflects a stronger spring leasing season and improving price sensitivity. Is that correct? Is that still the case that the higher end reflects that?
spk08: It is, Jeff, that your recollection is correct.
spk15: Okay, thanks. And then third, if I could just ask, I'm curious on Florida in particular or the markets that benefited from the pandemic and movement, just given there's still such strong, there is still healthy population growth in these markets. It's definitely slowed, but still population growth. I guess, can you provide some insights on what you think is happening in some of these markets that, you know, they're, They're more challenged because you didn't cite them necessarily as supply, but you, Chris, you specifically said, you know, these are markets that saw the big boom during the pandemic.
spk20: Right. Yeah, I think what you're saying is a combination of things in Florida. You obviously have reduced inbound movement from what we saw in the COVID couple of years. You had supply on the west coast of Florida, pretty significant. Miami, that was introduced in 19, 2021. That had benefited from all of that inbound COVID customers, but it's still there and is still weighing a bit on those markets. You had natural disasters in terms of like the Cape Coral area, huge benefit from the hurricane. And now you're on the other side of that. You have pricing in Florida from some of our larger competitors that has not been super constructive over the last couple of quarters. So I think there's just a variety of factors that are impacting Florida as it starts to come down off of what was just tremendous performance for, you know, two years.
spk15: Great. Thank you.
spk00: Our next question comes from the line of Eric Wolf from Citi, Canada. Go ahead, please.
spk10: Hey, good morning. As part of your guidance, it looks like you're expecting the second half of the year to step up to 68 cents of quarterly core FFO versus 64 cents in the first half. I'm just wondering if you could talk about what's driving that increase in the back half of the year.
spk03: It's a pretty natural trend line for us historically in our sector overall that the back half tends to step up from the front half just naturally with the weighting of revenue increases throughout the summer rental season. So not a surprise and pretty consistent with past trends that the back half has more earnings than the front half.
spk10: Okay. And if I think about sort of, yeah, I mean, to your point, I mean, you normally see like a nice step up and sort of realize we're in preoccupied foot in the third quarter versus second quarter. So I was just sort of curious, you know, based on what you're seeing thus far in terms of street rates, you know, do you think you'll see that sort of normal step up in the third quarter? I guess I'm effectively just trying to understand what you need to see from a street rate from ECRI perspective to get to that that normal increase that you see in the third quarter?
spk03: I think we certainly would expect to see an increase in our ability to push on rates to new customers as you get into the summer rental season. The range to which we're able to do that is going to be dependent on all the things that we've been talking about on the call thus far, which is the underpinning the range in our overall same-store revenue guide is going to be to what extent are we able to get closer to a more normal seasonality on one end of the guidance and on the other end of the guidance if we have a repeat of what we saw last year, that kind of defines the other side of it. So the answer is really consistent with our overall same-store revenue guide. It's just going to depend on all the things that we see here over the next couple of months.
spk10: And then maybe just one other one, you know, if you look at the scraping data, which maybe isn't accurate, but it looks like the public rates have sort of lower pricing than non-REITs. I guess, is there any concern that, you know, you're sort of creating a little bit of a race to bottom in terms of the street rates? And I guess thinking long-term about, you know, how you'll evaluate the strategy of maybe having lower street rates at the beginning, a bit more aggressive ECRIs versus, you know, the more traditional approach, you know, how will you evaluate whether this strategy is working or not.
spk20: I think from our perspective and all of the data that we are accessing and have been looking at over the past several years, as I mentioned, you're seeing that sequential improvement in the year-over-year gap in rates. We're seeing rates from the competition that we have within the trade ring of our stores moving up seasonally as you would expect and and we're seeing more constructive pricing in regards to individual strategies again the the objective to our revenue maximization system is to produce you know the highest revenue that we can from each individual customer over their lifetime with us and we'll continue to fine tune the models and continue to look at different ways to achieve that. But that's, you know, ultimately the objective. I think your comment about the non-REIT operators, you know, the reality is the gap in number of customers and in balance sheet capacity and the ability to execute on things as I described in terms of, you know, automate lookalike targeting and being able to deliver a more relevant and personal experience across omni-channels. It's just things that the larger companies can do that are very difficult for the smaller ones to replicate, and therefore you're always going to have that big operational gap between the REITs and the other competitors in the marketplace.
spk08: That's helpful. Thank you.
spk00: Our next question comes from the line of Key Bin Kim from True Securities. Go ahead, please.
spk06: Thank you. Good morning. Chris, when you look at the move-in rent trends from the beginning of the year until now, how does that compare to, I know it's difficult to say what normal is, but a normal seasonal pattern?
spk20: Yeah, again, I think everything is a little bit more muted than what you would expect as to however we want to define normal. which goes to my comments at the beginning of the call around just the volatility in the customer, the volatility in the data, the volatility in the macroeconomic backdrop.
spk06: And typically, you realize rents would increase in two Q versus one Q, it makes sense. But given some of the volatility and some weakness in pricing,
spk08: Do you think in 2Q, sequential rents realized can increase? Yeah, I think, again, I think that is possible.
spk20: As we sit here at the end of April, you know, we've got a lot of information we're going to get over the next couple of months that will be, as I said, very instructive as to how the year plays out.
spk06: Thanks, Tommy. If I could squeeze a third one here. No, you can't. well for you guys, but it did slightly decel from last quarter and two quarters ago. Just wondering if you can provide any color and how we should think about this going forward.
spk20: I'm sorry, Keevan. At the very beginning there, the connection sort of zapped a little bit, so I didn't hear the first part of your question.
spk06: I said your New York City market is obviously doing well for you guys, but it has shown some deceleration over the past couple quarters. So I was wondering if you can provide any color and just how we should think about this moving forward in New York City.
spk20: Yeah, I mean, the New York market in total and New York City boroughs specifically, we continue to expect will be, you know, the leader of our portfolio in terms of those metrics around growth. You know, how they progress is going to be highly impactful by what the next couple of months. look like. But I think the trends that we're seeing in New York are very positive to us. But some of the same pressures you're seeing in North Jersey as it relates to supply, those continue to be there. Westchester and Long Island also have a little bit of supply. So the boroughs continue to do quite well and are leading overall in the MSA. The Westchester, Long Island, and North Jersey suburbs will bounce around here a little bit as we deal with the impact of supply.
spk08: Okay, thank you.
spk00: Our next question comes from the line of Keegan Carl from Wolf Research. Go ahead, please.
spk18: Yeah, thanks for the time, guys. Maybe first, I know you maintained your outlook on your state of store revenue range, but I'm just curious if there's any change in your underlying assumptions on occupancy, street rate, and ECRIs given the year-to-date performance.
spk03: No, really no change at all. The first quarter, as we mentioned, came in right down the middle of the fairway from what we expected. And then, again, just to reiterate it again, the expectation for the rest of the year is going to be highly dependent on the next couple of months. We haven't seen it yet. So really nothing has changed in the guidance range overall or, frankly, on any of the underlying assumptions that support it.
spk18: Scott, in shifting gears, supply has been a pretty big focus in our discussion with investors. Just curious what you're seeing out there for the balance of this year in 25, and are there any markets in particular that you think your plans or your assets will be impacted in an outsized manner?
spk20: Yeah, as I mentioned on the opening remarks, you know, overall, supply is continues to decline and remains pretty constructive in terms of its impact on us. I think when you, again, there is supply, it's not zero, as it shouldn't be in a healthy economy. But when you think about individual markets, we would expect to continue to see some impact in Philadelphia and the Philadelphia suburbs as one that is seeing it. I mentioned North Jersey. I think when you look out across the rest of the country, there'll be pockets here and there in terms of new development deliveries, but nothing that stands out as extremely impactful. Again, we have some markets where those deliveries that are on the docket may or may not actually happen, just given how much things have changed in terms of cost of capital and cost of raw materials.
spk08: Got it. Thanks for the time, guys.
spk07: Thanks.
spk00: The next question comes from the line of Eric Litchell from Wells Fargo. Go ahead, please.
spk19: Eric Litchell Great. Thanks for the question. So I know last quarter you said for potential acquisitions you were seeing the bid-ask spread narrow a bit versus last year. But just wondering, given the recent, you know, backup in interest rates and market volatility, are you finding it's still pretty tough to find attractive M&A opportunities in the market?
spk03: Yeah, certainly we saw that there was a bit of a head fake, you know, a couple months back as rates were coming down and brokers were at that point signaling probably more wishful thinking, I guess, from their perspective that there was going to be a lot of stuff coming to market. And then that turned out to be a little bit of a head fake. I think the challenge right now is that the bid-ask spread is pretty hard to gauge because just because there's so little transaction volume at the moment. I think folks are generally speaking trying to take a couple months here and see where things land. All that said, clearly there are some transactions that need to trade, whether they're held in closed-end funds or they're held in a structure where that group needs some liquidity, something's got to give at some point. And what we do is continue to work hard to underwrite every deal that we can get our hands on. And ultimately, we want to put the balance sheet to work because we've created an awful lot of capacity to fund external growth when we find those opportunities. So if I had to guess, I would say that the bid-ask spread hasn't got back out. But it's really difficult to say. There's just so little that's trading at the moment. We had also spoken to many brokers. Some of them would suggest that if you go back to a pre-COVID normal type of year, that things that came across their desk that they would take to market, they would have an expectation that 80% to 85% of those deals would trade. Those same brokers today see that about 25% or 30% of the things that they list actually trade. So even a lot of the stuff that you underwrite that you end up not being successful on, it's not that you're successful and somebody's bidding more than you. It just doesn't trade at all. So difficult to evaluate from that perspective.
spk19: Gotcha. That's a helpful caller. I guess not to harp on the supply question too much, but I think last quarter you said across your whole portfolio about 27% of stores had been impacted by supply. And I believe that is looking at like a trailing three-year basis, if I recall correctly. So if you look at actual deliveries this year versus the previous two years, and then kind of what's under construction or new starts, do you think that 27% goes even lower in 25 and 26, just based on what you see shovels in the ground on new construction today?
spk20: Yes, based on what we see today and certainly in our top 15 markets, which generate about 75% of our revenues, we would expect that trend from 40% in 2021 to 35% in 2022, down to 30% in 2023, 27% in 2024 would continue to decline as we get into 2025 and 2026 at this point.
spk08: All right. Thank you, gentlemen. Thanks.
spk00: Our next question comes from the line of Juan Sanabria from BMO Capital Markets. Go ahead, please.
spk09: Hi. Just wanted to ask about the pace or predictability of demand kind of through April year to date. You talked about kind of the back end of last year. be more comfortable about normal customer behavior. But just curious what you would say to some of the privates that said January and February was stronger. March seems to kind of fall off a bit and whether you experienced that and if the customer behavior is still quote unquote normal as you see it, which was the case at the end of last year.
spk20: I think in terms of demand across the portfolio versus our expectations, the first quarter played out, as Tim said, right down the middle of the fairway. There wasn't an identifiable nor expected catalyst to alter demand trends during the first quarter. So again, versus our expectations, things played out right down the middle. As I mentioned, April, month to date i gave you the occupancy info and you know rentals are flat to last year so trends uh there's nothing from the trends in the first you know three months plus the 26 days of april that are giving us any particular insight into what's going to happen over the next three months so um not to be a broken record but you know the next three months are going to be highly enlightening and very impactful on how we think about the year
spk09: And then just the government put out new overtime pay rules. I know storage as a whole has been very efficient in the use of labor or van hours. Just curious if there's anything we should be thinking about with regards to those new overtime rules and the impact on storage OPEX costs going forward.
spk20: And nothing specific related to the new rules as it relates to our business. Obviously, we are competing for talent in our stores with retailers and other businesses that have the same types of skill sets as we value in our stores. store and district teammates, and that continues to be a pretty competitive environment. But from our perspective, nothing has really changed in terms of that environment.
spk09: And just one last one for me. The third-party management, very strong first quarter. What's the visibility for the balance of the year, and should we expect that kind of above-trend growth to continue for the foreseeable future?
spk03: Yeah, so we did have, thanks for letting me have the opportunity to say it a second time, but 68 stores in the first quarter was the most that we've onboarded in 14 years in a single quarter. So that was fantastic. We have a very healthy pipeline. This will surely be year number eight of us being able to add at least 130 new stores to the platform. I think on the other side, when you think about churn on the third-party management platform, which is a normal and healthy thing, Because the transaction market is slow, we do have an expectation that fewer stores will leave the portfolio because the transaction market is muted. So we expect to have another very productive year on the third-party management front. The reality is that when you have times like this where the operating environment isn't normal and it becomes more challenging, existing owners are more likely to recognize the need and the value that a sophisticated operating platform like ours provides. And so the math around the value of our services becomes a lot easier for those folks when times get a little bit challenging. So bad news that fundamentals aren't as robust as they were in 2021 and 22. Good news is it allows those of us who have a lot of great tools and data and a really well-staffed and powerful platform to really show that value at times like this, apart from times where everybody's doing well.
spk14: Thank you.
spk08: Thank you.
spk00: Our next question comes from the line of Brendan Lynch from Barclays. Go ahead, please.
spk16: Great. Thanks for taking the question. I wanted to circle back to the advertising spend being down And you're talking about the kind of improved conversion rates and return on invested capital improving. Can you just quantify the order of magnitude that you have seen so far in those changes and what the potential opportunity is going forward?
spk20: Sure. So when I think about, you know, taking it backwards, when you think about the potential opportunity going forward, it continues to be a focus on how can we use the tools that are available to us both through our CDP as well as through things like, you know, Google's Performance Max, which is, you know, an AI-powered campaign. help supplement our traditional paid search campaigns by exposing those qualified users to cube smart ads across multiple Google placements. And there are countless things like that under the hood that we continue to work on and refine to make our marketing spend as efficient as possible. And I think that we are in the early stages of beginning to see the benefits of those investments that we've made historically and those that we'll continue to make here over the next couple of years. In terms of just numbers, when you think about web visits are up 6% or so over where they were last year, the conversion rates about 530 basis points better than it was last year. We're reducing our cost per clicks by, you know, in the magnitude of around 9%. So those are some data points against that, but it is a rapidly changing environment. Obviously, we have the impact of the removal of cooking that has now been somewhat deferred into next year, but that will also change the landscape for those of us who rely heavily on digital marketing for customer capture. So Exciting stuff going on here at cube and I think in the in the in the digital world in general And we're highly focused on finding ways for it to you know, reduce our costs and help improve customer capture and revenue maximization Great that's helpful and one more on Expense items on property insurance
spk16: the increase is the most acute in markets with weather risk or is it pretty even across the board and do you have just property insurance or do you also have business disruption insurance as well it's difficult to it's difficult to answer the first question because we have a approaches is across the entirety of our portfolio so getting visibility into
spk03: into market by market, it's a little bit challenging because it's quoted for the entirety of the portfolio. Obviously, it's going to be influenced by those areas that are more impacted by some of the recent activity and some of the other pressures just more broadly on commercial costs of insurance. Florida comes to mind.
spk05: And then it was Business disruption.
spk08: We do have business interruption as part of our overall coverage. Okay, great. Thanks for the call. Thank you.
spk00: Our next question comes from the line of Tayo Okunzanya from Deutsche Bank. Please go ahead.
spk14: Good morning. Thanks for taking my question. There was a comment earlier on just about ECRI trends in terms of you know, frequency and magnitude kind of being similar to kind of where you've been experiencing. Could you just provide a little bit more color around that in terms of, you know, ECRI is generally up, again, you know, still, you know, in the teens or high, you know, low double digits or give us a sense of what's happening there and if anything is changing in terms of just frequency, how quickly you're doing it, especially for kind of new tenant capture. Sure.
spk20: Over the last three quarters or so, there's really been no change to the magnitude or the frequency of that program for CUBE. And it continues to be running on average at about that mid-teens level in terms of the average increase that a customer may receive across the portfolio.
spk11: Gotcha. That's helpful.
spk14: And then in terms of just customer behavior, whether it's activity you're seeing with credit card payments or payments by other means, anything changing on that end, any kind of increases in bad debt, any kind of increases in delinquencies or anything of that nature?
spk20: No, nothing in terms of change in trends in our customer and our existing customer health as it relates to those areas of credit for the self-storage business, looking at units going to auction or customers greater than 30 days past due, write-offs, et cetera.
spk08: All trends continue to be in line with historical Great. Thank you.
spk00: Our next question comes from the line of Mike Mueller from JPMorgan. Go ahead, please.
spk17: Yeah. Hi. Just a really quick one. For the, I guess, the Portchester development, it looks like the timing was pushed back a few quarters. Just curious what happened there.
spk03: typical of any development. It's a pretty normal thing that things get pushed back. It's a variety of factors, including just timing of getting permits, the timing of getting certain subs in there. Nothing of particular note other than development timeframes are always subject to change.
spk08: Got it.
spk18: Okay. That was it. Appreciate it. Thank you.
spk08: Thank you.
spk00: Our next question comes from the line of Michael Goldsmith from EVF.
spk11: Go ahead, please. Two quick clarifications.
spk13: First, on street rates, you know, we talked about the year-over-year change. Are you able to provide kind of what the sequential change in street rates were for March and for April?
spk08: Yeah, Michael, I'm sorry.
spk20: I don't happen to have that sequential change at my fingertips other than it continued to move sequentially up over that time period. I don't have the exact number.
spk13: That's fine. I'll follow up. And then just another clarification. I think you said that it's possible rates improve sequentially in the second quarter. Is that street rates or is that in-place rents?
spk08: Street rates should continue to grow during the second quarter, as should realize rents continue to improve through the course of the year.
spk07: Thank you very much. Thanks, Michael.
spk00: This concludes our question and answer portion of the day. There are no further questions at this time. I'd now like to turn the call back over to Mr. Chris Marr for final closing comments.
spk20: Thank you. Thank you, everyone, for participating in the call. I think the industry as a whole continues to demonstrate its resilience. Our customers come to find us with everyday life events, and I think our industry continues to deliver a valuable service. to help remove some of the stress from those everyday life events and provide folks with a safe and secure place to store their cherished possessions until they need them back. So we're confident in the long-term growth of our industry, confident in CUBE maximizing the opportunities that are presented to us. Obviously, there are economic factors and other things that are outside of our control. But what we can control is focus on delivering that perfect rental every single time to our cherished customer base. And that's what you can be assured we are keenly focused on here, especially over the next several months of our busy season. So thank you all for participating. And we look forward to seeing you in person or speaking to you again at the end of the second quarter. Take care.
spk00: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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