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CubeSmart
2/28/2025
have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star followed by the number one on your telephone keypad. To withdraw your question, press star followed by the number one again. I will now turn the call over to Josh Scherzer, Vice President of FINA. Please go ahead.
Karen, good morning, everyone. Welcome to QSmart's fourth 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.qsmart.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 8-K we filed this morning, together with our earnings release filed with the Form 8-K, and the risk factor section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the fourth quarter financial supplement posted on the company's website at www.keepsmart.com. I will now turn the call over to Chris.
Thank you, Josh. Good morning. Welcome to the call. Thanks for participating. We believe that that for our portfolio, the fourth quarter of 2024 may have marked an inflection point in the trend of decelerating same store revenue growth that we and the industry have been experiencing since reaching the COVID induced peak in the second quarter of 2022. From their trough in November of last year, our year over year growth in same store revenues has begun to slowly improve. Specific trends of note include The year-over-year same-store occupancy gap narrowing from 100 basis points negative at year-end 24 to negative 50 basis points as of the end of February. Rents being achieved for new customer rentals have improved their year-over-year negative gap from the average in the fourth quarter of negative 10.3% to last week averaging negative 7.4%. We are generally positive about the economic health of our existing customers. all key metrics, write-offs, et cetera, continue to perform along historically normal levels. We are watching these metrics closely, recognizing core inflation remains stubbornly high. Our base case expectations for revenue growth in 2025 assume, across all of our major markets, that we continue the gradual pattern of improvements from our fourth quarter metrics. Our lower beta urban markets continue to outperform the Sun Belt. Our expectation is our New York City performance continues to be a bright spot, remaining at the top of our highest growing markets. That being said, today, we do not see a near-term obvious catalyst that would sharply reaccelerate organic growth in 2025. The last two years, we and the industry have included a mix of optimism and hope around housing market improvements and other trends that would provide significant stimulus to the busy season demand for our product. In hindsight, these bull case forecasts have proven to be overly optimistic. While we are encouraged by our metrics through February and believe that overall trends are stabilizing, we are being, in our opinion, prudently cautious in our initial 2025 outlook. We remain very optimistic about the long-term health of our business. For almost two decades, the hallmark of our team is our culture of out-hustling to find creative methods to grow externally. With our viewpoint that operating fundamentals are stabilizing, in February, we were pleased to successfully close out one of our joint venture investments by acquiring our partner's interest in an accretive transaction. In planning for the opportunity, in late 24, we opportunistically raised equity capital at attractive valuations on our ATM program. But the net debt to EBITDA of four times, we took advantage of a portion of that leverage capacity to fund the balance of the purchase. The portfolio was deliberately constructed between 2017 and 2021 to include assets that had been recently constructed in tier one markets. Our plan from inception was to bring these properties onto our balance sheet and our investments team skillfully executed on that strategic objective. Most business executives would describe the current macroeconomic and geopolitical environment as uncertain. Beginning over 30 years ago and continuing to this day, members of our leadership team have successfully navigated through cycles and times of great uncertainty. Over that period, self-storage has demonstrated its resilience. We are confident in the future and remain focused on providing an outstanding experience to our valued customers and maximizing the opportunities presented. Now, I'd like to turn the call over to Tim Martin, who will walk you through our investment activity, our fourth quarter results, and our outlook for 25 in a bit more detail. Tim?
Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. As Chris mentioned, I'll quickly review fourth quarter results, talk about some investment activity, and provide some additional color on our 2025 expectations and guidance. Same Store NOI declined 3.7% in the fourth quarter. Same Store revenue growth was negative 1.6% for the quarter, driven by continued pressure on asking rates, along with occupancy levels dropping 120 basis points on average compared to last year. Same Store expenses grew 4.7% during the quarter, driven largely by the real estate tax line item, which grew 17.5% over last year's fourth quarter. As we've discussed throughout the year, the year-over-year increase in the quarter was expected as we received some significant refunds and tax reductions in the fourth quarter of last year. So there's nothing new or recurring that impacted this year's tax number, just a tough comp from last year's good news. For the year, real estate taxes grew 5.7%, which was actually a little bit better than we had projected entering the year. We reported FFO per shares adjusted of 68 cents for the quarter, we announced a 2% increase in our quarterly dividend up to an annualized $2.08 per share. On yesterday's close, that represents a 4.9% dividend yield. On the external growth front, in the fourth quarter, we closed on the previously announced store acquisitions in Oregon and Pennsylvania for a combined investment of 22 million. We also closed on our acquisition of an 85% interest in a 14-store portfolio in the Dallas MSA. We had an existing third party relationship with the owners and this transaction was a really good example of our investments team getting creative to find a solution for a group of investors, some of whom were looking for liquidity and some who wanted to maintain their position and capture the remaining value creation opportunities that the portfolio presents over time. We're very excited about this accretive transaction as the assets are incredibly complimentary to our existing Dallas portfolio footprint. We also announced that subsequent to year end, as Chris touched on, that we acquired the remaining 80% interest in one of our unconsolidated joint ventures known as HVP4. As Chris mentioned, the venture was formed in 2017 with the objective of acquiring non-stabilized early-stage lease-up stores. From 2017 to 2021, the venture acquired 28 stores, predominantly in top 30 MSAs. The structure of the venture allowed us to participate in a broad portfolio of lease-up opportunities by being a minority equity investor while minimizing earnings dilution during lease-up through fee income and ultimately being able to earn an outsized return on our investment through the promote structure. Our ultimate goal has always been to own these assets 100% on balance sheet, which our recent acquisition of our partner's interest allows us to do. Some additional details around the numbers and consideration for the transaction. There was $222.2 million of venture level debt at closing that was repaid. Our 20% share of that debt was $44.5 million. After debt repayment, we paid $408.3 million for our partner's 80% interest in the venture. So the $44.5 million of debt repayment plus the $408.3 million for the remaining 80% interest totals $452.8 million, which is the total consideration we paid at closing to bring this portfolio on balance sheet free and clear of any property level debt. We're excited to bring another strategic joint venture to a successful close. This one was seven years in the making, creating meaningful value for both parties. Ultimately for us, we have an accretive transaction, an attractive basis, and a geographically diverse recent vintage portfolio with perfect underwriting and still yet a little bit of outsized growth as some of the assets fully stabilize. In anticipation of these external growth opportunities, we raised $85.6 million in net proceeds during the quarter and $118.3 million year-to-date using our at-the-market equity programs. Our average sales price for those sales for the year was $51.25 per share. Transitioning then and looking forward to details of our 2025 earnings guidance and the related assumptions. Those were included in our release last evening. Our 2025 same store property pool increased by eight stores. Embedded in our same store expectations for 25 is the impact of new supply that will compete with approximately 24% of our same store portfolio. For context, that 24% is down from 27% of stores impacted by supply last year and down from peak levels that were at 50% of our stores were impacted back in 2019. Our guidance range for same store revenue assumes that the Fundamental operating environment in 2025 is similar to the last two years with no material changes, including to the housing environment. The high end of our revenue guide assumes that the rental season is strong enough to cause us to inflect positive in occupancy and positive in rate in the back half of the year, while the low end of our guidance assumes that the current negative year-over-year gaps in both rate and occupancy maintained throughout 2025. Our baseline expectation falls in the middle of those two bookends and would look something like occupancy levels being slightly down on average compared to 2024 and rates improving but still down in the mid-single digits as we compare rates this year on average to rates in 2024. Shifting to expenses, not a lot to talk about. We're expecting continued pressure in property insurance, but other than that, we're expecting more of the same of what we've seen over the last few years. Real estate taxes are always a wild card, but we don't have the same difficult comp to deal with this year like we did in 2024 and in the fourth quarter in particular. Our FFO per share expectation for 2025 is a range of $2.50 to $2.59, with a midpoint then of $2.54.5. That's down about $0.09 from our 2024 FFO per share of $2.63. When you think about the driver of that $0.09 decline, it really is anchored by performance of our core same-store portfolio. Looking at same-store NOI guidance, our midpoint expectation is down 3%. That 3% decline in same store NOI equates to $0.09 of FFO per share. So then everything else outside of our same store performance is netting to a zero impact year over year at the midpoint. We have a little bit of drag from properties in lease up, $0.01 to $0.02 is the range we provided in our guidance. We have about a penny of FFO per share drag from growth in G&A expense at the midpoint of our guidance. And embedded in our interest expense guidance, we have a negative impact from our need to refinance our upcoming bond maturity this year as our 2025 senior notes have a 4% coupon. Offsetting those items is the earnings accretion from our external growth activities, including our recent transactions that I outlined a few minutes ago, as well as some modest growth in property management fee income at the midpoint of our provided guidance range. But big picture, again, we're looking at same-store NOI down 3% at the midpoint of our expectations that generally leads to down 3% FFO per share at the midpoint of that guidance range. So that concludes our prepared remarks. Thanks again for joining us on the call this morning. At this time, Karen, why don't we open up the call for some questions?
At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. The first question comes from Daniel Tricarico from Scogie Bank. Your line is open.
Good morning, team. Appreciate the time. I want to ask about the JV transaction. Curious if you see other similar opportunities with existing partners today. What were the motivating factors from your partners in the HVP4 to sell? And also, are there NOI upside opportunities still for these assets? I know it's
know a relatively young portfolio so curious if there's you know maybe more juice to squeeze there thanks yeah good morning thanks for the question so um no no imminent opportunities for for other joint ventures this is a um our partner in this venture had their investment in a in a closed-end vehicle so they they have been we have been talking about a liquidity event for them over the past couple of years And so we've been navigating what has been a fairly choppy environment, looking for an opportunity that made sense for our partner and made sense for us. And we arrived at that point. So that was the motivation for why Transact now, from their perspective, was need-based. I think from an opportunity set, as you mentioned, the assets are generally stable in that we have acquired them as as mentioned back in in 2017 through 2021 that said um you know assets don't fully mature until you've you know you've had them and you have a stable tenant base for for a number of years so we are expecting uh both in our underwriting not only for 2025 but but a little bit more juice in 26 or for some of those assets to fully stabilize and for us to fully you know capture all of the opportunity that's embedded in those in those assets
Thanks for that, Chris. Could you, like, quickly share the cap rate to get to or, you know, the initial yield to get the acquisition to be accretive in year one?
Yep. So, as we think about the HVP4 transaction and our basis and our expectations for 2025, we're looking at a 2025 yield of – call it mid to high fives. Pick five and three quarters as a number.
Great. Appreciate the time. Thanks. Thank you.
Question comes from Michael Goldsmith from UBS. Your line is open.
Good morning. Thanks a lot for taking my questions. In the initial remarks, you talked a little bit about the lack of an obvious catalyst for the year, which I think is baked into your guidance. So can you talk a little bit about what you're looking for? Is it just housing? Is it more than that? Just trying to get a better understanding of what you're looking for that can help jumpstart demand and accelerate the algorithms here.
Yeah, I think it's a mixture of clarity, mortgage rates, and I think it's kind of a combination of the two of those as you think about our consumer. I think right now, people are uh generally trying to navigate through a lot of conflicting information right the price of your eggs is ridiculous the price at the pump is very high uh but unemployment is very low unless you're in the public sector in which case you're dealing with a lot of uncertainty today so i just think we need to get uh universally just some clarity so people can make decisions i think the reality on housing with you know half the folks who are currently occupying uh single-family homes having mortgage rates that are you know four percent or below um again i think we're just going to need either clarity that this is the new world and therefore acceptance uh or we're going to need to see something that will adjust those mortgage rates, which means the long end of the curve has to improve, which ultimately comes back to how do we fund the U.S. government and what is the Treasury's view on selling long-dated securities? So I think we need clarity. And when you sit here today, I just don't know how anyone could have the confidence that they have visibility into the self-storage busy season that would give you that you know, belief instead of hope that it, that catalyst is there. Now, I do think given the way the world works, a lot has to be done nationally between now and July. And so I certainly am optimistic that if a lot of the initiatives that are being talked about and in the newspapers every day become clear, put in place, and that gives the U.S. consumer and U.S. businesses more clarity, which leads to confidence, I think that could be a real bright spot for our customer, and that could create some movement that is certainly very helpful to the business. It's just very difficult on February 28th to see what would clearly be an outcome to kind of where we sit today.
I appreciate the thoughtful response, Chris. And as a follow-up, you did talk about how the fourth quarter may have been marked an inflection point in the decelerating seems for revenue growth. So is that reflected in, like, are you expecting seems for revenue to accelerate through 2025? And then also, I think you still have an easy comparison in other revenue in the first quarter, and it gets a little bit more difficult
going forward how might that impact the same sort of new growth yeah i think based on the trends that we saw particularly beginning uh december 1st and kind of continuing through today that fourth quarter you know down 1.6 percent we think is possible to be the uh you know kind of kind of all other things being equal, you know, where we would have hit that trough. And then, you know, we're going to slowly improve on that throughout the year, how the back half of the year plays out in either direction. I think, you know, today is where there's that uncertainty. And I think we're, you know, again, being appropriately cautious in terms of our output.
Thank you very much. Good luck in 2025. Thank you.
The next question comes from Jeff Spector from Bank of America. Your line is open.
Great. Thank you. And Chris, as always, appreciate the transparency around the current conditions and your thoughts. I guess to ask about thinking about street rate, are you concerned in 25 just based on the current conditions We could see another street rate war, or because we're past the bottom, let's say you talked about, you know, an inflection point in decel, are you less worried about that street rate war? I say war, but bottom line, you know, competitors cutting street rates to bring in new customers in 2025.
Yeah, again, I don't know if concerned is the right word, thanks for the question. I think we're just being cautious in terms of how we think about that. The last three months have been more constructive as it relates to rates to new customers. I mentioned, you know, we've been running the last week or so, last couple weeks down, you know, in that kind of seven-ish percent range over the last year, which is certainly improvement from what we saw in November. we just need to see it consistently. And so, again, I don't want to try to extrapolate today to that April through July busy season. I think that's where in the range of expectations, on the one hand, we assume there is continued modest improvement in that negative spread for our portfolio between you know, where we are in last year. And, you know, at the other end of the expectations is just a more cautious approach that, you know, the improvements we've seen stall and don't continue. And I think that's kind of how we've chosen at the moment to bookend the two ends of our expectations.
Okay, that's fair. Thanks. And my follow-up question then is, again, just thinking about the mindset when you decided to put out this guidance and and, you know, share your thoughts. Has anything happened, anything that's happened in recent weeks, whether it was signposts of housing softness or, you know, you see the administration and some of their policies and changes, you talked about the uncertainty. I mean, you'd have to argue, right, there's more uncertainty today than a couple months ago. Did anything recently change change your view or form your view to come out more cautious today, or this is how you've really been thinking the last couple months? Thank you.
Yeah, you're welcome. So I think, again, as always, it's somewhere in the middle. So again, very, very encouraging trends, December, January, and February. But I think I've talked about on this call before, we saw periods of encouraging trends in 2023 and 2024. And I think us and the industry, as I said, came out in early 23 and we came out early last year and articulated sort of a range where the more optimistic end of that assumed a recovery in demand, right? And at that time, I think we would have looked at housing and said, okay, housing in 24, Like it can't get worse than it did in 23, you know, and then it did. So I think there's just this element of, you know, frankly, hope's not a strategy. And so we've tried to be realistic as we introduce guidance here at the end of February. And again, it'll be six weeks from now. We'll be back in front of you and we'll update you on trends at that point.
Thanks, Chris.
question comes from Spencer Grinter from Green Street. Your line is open.
Thank you. Sorry if I missed this, Chris, but did you provide an update on how move-in rents are trending this far into 1Q?
Yep, no worries. So move-in rents, what I said in my opening remarks is we've gone from Kind of that fourth quarter average, which again, the bottom of that was in November of negative 10.3%. And then over the last week, we're at week or two, we're running in the, I quoted negative 7.4. We've been running between seven and seven and a half. And that's just gradually come down as we've seen trends improve here since December 1st.
Okay, great. Thanks. Sorry about that. And then can you provide some color on what you're seeing just more broadly in the transaction market, just in terms of deal mix, whether they're portfolios or more one-off, stabilized versus unstabilized? I know you guys have been more active recently, but just curious what you're seeing, even if things haven't gotten across the finish line.
Yeah. Good morning, Spencer. Nothing's really changed. There's an awful lot, continued to be an awful lot of price discovery. there are rumors that, that a lot's coming. And I think part of that is, uh, you know, a lot of folks are waiting to try to time and try to think about what the right environment is. If you're a seller to bring something to market, I think, uh, you get mixed messaging. If you talk to some of the brokers, I think they have very full plates and they're, they're anxious to bring out a lot of stuff that they're working on. You talk to some other brokers and they don't seem to have as much, they might be doing some, some, you know, indications of value, things like that, but they don't seem to have a lot of stuff that's imminent to market. So it's not the time of year where you would expect there to be an overwhelming supply of new opportunities. So seasonally, I would say it's kind of at or slightly below where you would expect it to be from an opportunity standpoint. Just don't feel like that many things are trading at the moment. A lot of concern about where interest rates are and where interest rates might be going, and clearly that has an impact on folks on both sides of the table and their expectations of where they would like to be from a cap rate perspective.
Okay, excellent. Thanks for the comment.
Thanks. The next question comes from from KeyBank Capital Markets. Your line is open.
Hi, thanks. Good morning. Chris, maybe Tim, you know, thanks for the updated and recent trends and move-in rents. Can you provide an occupancy update as well as of today? And then, you know, Chris, it's a little hard to tell from your comments, but it sounds like you're encouraged so far year to date. You know, performance through February, it sounds like it's running slightly ahead of the guidance midpoint, but that you're not ready to extrapolate that throughout the peak season and bounce of the year. Is that the right read? Is that what you're, you know, sort of seeing so far year to date? Hey, Todd, good morning.
On your occupancy question, yeah, the occupancy gap to last year is closed to 50 basis points negative. The outright occupancy on the new same store pool is 89 and a half. And to your comment, yeah, I think, again, it's been encouraging what we've seen December, January, and February, both in terms of the continued stickiness of the existing customer, our move-in volumes, and then the rate at which we're able to get new customers into the portfolio. And then on our existing customer base, again, the health there is good. We're watching that very closely given, you know, as I said, the core inflation continues to be quite problematic. And, you know, our rate and pace of those increases by and large continues to be about the same. So, you know, again, sitting here today feel, you know, as I always do, confident in the longer term health of self-storage. It's been a choppy couple of years and, you know, we elected this year to be as realistic as possible in our expectations, given that choppy backdrop.
Okay, that's helpful. And then I wanted to ask about the first quarter guidance. The sequential change in 1Q from 4Q, based on that guidance, it seems a little outsized, 68 cents this quarter to 62 cents at the midpoint. So, you know, a high single digit, almost a 10% sequential decline. And that's despite the investments completed in the fourth quarter and early this year. I'm just wondering if there's anything else to consider in moving from 4Q to 1Q besides the normal seasonality that you typically experience.
Yep, Todd, thanks for the question.
I'm going to let Tim sort of dive into that for you. Yeah, I'm trying to think if there's anything different in there, Todd. It really is primarily the same seasonal type of decline as you would have seen last year. So I'm not thinking that there's anything in there in that sequential move that's anything other than typical seasonality.
Okay. If I could sneak one last one in, Tim, what do you have assumed in the guidance that's related to that $300 million November maturity, the 4% coupon? What's assumed in guidance in terms of timing and rate?
I'm sorry, you broke up a little bit there, but I think I got the gist of the question. So we obviously have our 2025 senior note maturities in November, and that note has a 4% coupon. our range of expectations and interest expense contemplate, as you would expect, a range of timing that could be as early as very early in the second quarter all the way to if we had some other opportunities perhaps to think about timing being a little bit closer to maturity. It's not one of those things where I would ever expect us to wait until the day before it matures to raise that capital. you know, waited sometime between early in the second quarter towards a little bit later in the third quarter is the timing. And then the range of potential outcomes from where we might price the refinancing is also contemplated within the range. Today, if we were to replace it with a 10-year note, we'd be looking today at somewhere in the mid fives, hopefully a little bit tighter than that. But our range, it's why our range of interest expense assumptions is as wide as it is, because both in timing and rate, a little bit of a range of potential outcomes there. All right. Thank you.
Next time.
Question comes from Juan Sanabria from BMO Capital Markets. Your line is open.
Hi. Good morning. Just hoping you could talk a little bit further about the confidence in bottoming and kind of same-store revenue declines moderating it? Because if I look at, I take your point that occupancy has improved year to date, but if we just look at the fourth quarter, the decline in average in-place rates seem to kind of gap out again in the fourth quarter. Is that kind of a one-off and we should expect that to close as well as we go through 25 or just Any commentary on that particular item would be helpful.
Yeah, well, I do think, again, in the fourth quarter, you know, we saw things kind of soften in November from a rate perspective. And then, which we kind of thought was done in October, it went about a month longer than I think we, would have thought going into the quarter and then our expectation of things starting to firm just based on demand trends that we saw and then pricing from a competitive perspective around our stores the trends that we were anticipating started to be achieved in December and then have continued into January and February so the confidence would be in that we saw it Uh, we were just probably off by about 30 days in terms of, of when it started to happen. And then when it began to happen, uh, and our systems reacted, uh, proactively accordingly, uh, it, it continued now for the last, uh, I don't know, almost 90 days. So, uh, that's kind of how we think about, uh, you know, framing the downside case for 2025.
Thanks. And then for my follow-up, looks like the third-party property management fee income is expected to be up about 4% in 25. Just curious on the assumptions underlying that, because I'm assuming you're going to lose some fee income by buying out a couple of the JVs in the fourth quarter and what you've done year-to-date here.
Yep, great question. So certainly we're anticipating losing property management fees on or 80% of property management fees on 28 stores as we brought them on board. Our assumption also assumes a mix of adding stores and obviously an anticipation. We don't know which, well, we know there's 28 stores, but other than that, quite certain that there will be stores that leave that leave our third party management platform throughout 2025. So our range of expectations is, is again, our best guess on when you net new stores being, you know, coming on board offset by, by an estimate of stores that perhaps could leave the platform and then overlay on top of that, obviously revenue expectations and fee expectations on those stores that we do manage that all of those are the variables that go into us formulating the range that we provided.
Thanks. If I can just be a little greedy. Tim, can you just clarify the funding plans for the HPV4 acquisition that you've completed year to date?
Yeah. So broadly, when we first start thinking about it, as we were contemplating the transaction, that was one of the drivers on why we started to aggressively start to use the ATM program in the back half of 2024. So I gave you the numbers we raised. Significant portion, it's all fungible, but we raised a significant portion of what we kind of earmarked for that on the ATM at share prices above $51. So that's part of it. That was all raised at year end. So if you're trying to model it, I mean, the proceeds would show up today on our incomes or on our balance sheet on the revolver. So we'll have some revolver borrowings when we get to the end of the first quarter, which we haven't had for a while, but that's why you have the capacity. And then over time, we will do what we always do, which is we're a little bit under levered. We ended the quarter at four times or 4.1 times. That number will move up as we utilize some of the capacity up to up into the high fours uh over time then we would uh if it's the it's what we typically tend to do is think about ways to use free cash flow and opportunistically raise capital when appropriate to bring that down and create the capacity and and do it all over again so that's the uh that's the longer term that's the longer term objective thank you thank you
question comes from Kevin Kim from Tourist Securities. Your line is open.
Hey, good morning. This is Keevan. So going back to your guidance, I was wondering if I can ask it in a different way. What typically happens to rates from the winter period to the spring leasing season, the increase? And I guess what's embedded in guidance and maybe you can put it in perspective, like what happened last year? Thank you.
So they do increase seasonally. I guess a lot of the numbers that we're referring to are the year-over-year delta, right? So there's always going to be a seasonal trend in pricing that once you get to kind of trough pricing late January, early February, you start to see movement up on pricing. That happens all the time. The degree to which it happens has obviously been all over the place here over the past four years. dating back to a massive spike in those rates to now much more modest growth from a seasonality perspective. So embedded in our expectations for the year are that in the middle of our range would be an expectation that the gap between rental rates throughout the year continues to compress, but on average still trails last year's seasonal trend on average by mid-single digits.
Well, I think the challenge is when we look at it from a year-over-year standpoint, sometimes it's due to comps. That's why I was asking, you know, if you expected rates to increase normally or 15 percent, is it in 25, 10 percent, which is why I was asking about that consequential seasonality in your midpoint.
The same complexity for you is the same complexity in providing an answer that's helpful because it Again, that's why I'm speaking on average, right? On average, that's what's going to happen. You always have weird comps on when you did something last year and you're doing something different this year. But on average, we would expect, Chris just mentioned that that gap today is in that 7% to 7.5% range over the past couple of weeks, month or so. And then we would expect there will be ebbs and flows that might go up a little bit, might go down a little bit. But on average, we would expect that to continue to contract And on average, you know, that gap would be lower over the course of the year than it is today.
And maybe I'll try a little different. If you just think about historical norms, right, you would normally see from your lowest rate to new customers, not year over year, just your lowest rate, and then you go sequentially through the busy season and the demand that historically is generated there, you'd raise that rate about 20%, and then you would begin to bring that back down as you get into the back half of the year and the slower times. Over the last couple of years, that instead has been more like 15%, 16%. I think, again, when we think about the range of outcomes here. There's just nothing that we see today that would indicate to us that it's going to be 20. But again, in that range, it contemplates that it might be at one end at least modestly better than the 15 or 16.
Okay, great. And can you remind us, do you have a share repurchase authorization live? And I guess your implied cap rate today is around 6%. I'm comparing it to some of the deals that you bought recently. So how do you – I guess what's the mental calculus in terms of buybacks versus something like the HBP acquisition?
We do have an authorized share repurchase program. The overall philosophy around thinking about that is that if there is a significant disconnect in valuations, which one could argue that you have that, And the second piece from our perspective is for a prolonged period of time. And that's the piece today that we don't have. We were just raising equity capital less than 90 days ago at prices that we found very attractive relative to where we could deploy that capital. So the challenge for us, not the challenge, our perspective on share purchases is that we don't look at it as an opportunity to be a market timer. We look at it from a standpoint of If we had a disconnect in valuation for a prolonged period of time, clearly that would be an attractive use of capital for us. We don't feel like we have all those variables today.
Okay. Thank you, guys. Thanks, Keevan.
The next question comes from Eric from Wells Fargo. Your line is open.
Hi. Thanks for taking the question. Could you guys maybe touch on the New York market a little bit? I know that's continued to grow. above the portfolio average, although the growth rate has decelerated a bit. I know you've had some pockets of supply in certain regions within the MSA. So how are you thinking about that market this year in terms of moving rate, in terms of occupancy, how we should think about that throughout 2025?
Yeah, really optimistic about the MSA as a whole and continued optimism about the boroughs. So if you parse it between the two, the boroughs continue to perform very well. We have a dominant presence, we have a dominant brand, and that translates into premium pricing that we have been able to maintain throughout this more challenging last couple of years. I think the other bright note about the boroughs, no supply. So when you think about Brooklyn, Queens, and the Bronx, nothing opened in the fourth quarter. We saw two openings, really not competitors to Cube in all of 2024, low to minimal expectation of anything being delivered in 2025. So continued positive trends there, and we expect those trends to continue throughout 2025. little more constructive than we have been on westchester long island north jersey north jersey in particular uh i think we again we today believe that the brunt of the supply which has been a headwind for our performance there again i think that also kind of peaked in the fourth quarter and we started to see those stores uh which have been producing negative same store revenue growth start to close that gaps again slowly and our you know expectation is that continues in uh in 2025 does it you know again at one extreme at the more bullish end you know that starts to become uh just the least bit positive as we get into uh the year and then you know at our at our midpoint and more bearish case we assume those assets just continue to sort of chug along where they are so uh constructive from a supply perspective probably the most constructive that we've been uh in a long time around you know the overall msa continues to be really helpful in the boroughs as we've talked about the last year or so uh So, again, great market. Continue and expect it to be our best performer in 25 of our major markets.
Great. Thank you, guys. Thanks.
Next question comes from Mike Mueller from J.P. Morgan. Your line is open.
Hi. Two quick ones. looking at operating expenses and in markets like Atlanta, Austin, Chicago, where they were up 30 to 50%, how much of that was the tax comp that you were talking about versus something else going on? And then the second question is, do you think ECRI levels in 25 will be similar to 24?
I'll take the expense part on, on, on your expense question. You, you, your intuition was exactly right. The, um, The 17.5% increase that we saw overall in real estate taxes obviously was concentrated in a handful of areas. The ones that you mentioned were where it happened. So that's why you see kind of an odd print in a few geographic regions. That's where we had good news at the end of 2023, which created the tough comp as we got to the end of 2024.
And I think as it relates to... As it relates to rate increases for the existing customer base, I think, again, at the midpoint, one should assume that they're fairly consistent with what we saw in 2024. At the more optimistic end would just be, you know, some of the testing that we're doing always and the consumer health improves or stays the same and we get and are able to generate a little bit incremental, and then at the more bearish end, again, assumes that this core inflation and other things that are going on within the customer base causes us to bring those increases back down a little bit, but modestly in either direction would be fair to say.
Got it. Thank you. Thanks.
question comes from Eric Wolf from Citi. Your line is open.
Hey, thanks. I think your advertising spend was down pretty significantly from last year in the fourth quarter versus up a good bit in the third quarter. Can you just talk about what drove those decisions and maybe the different approach, if you will, and whether that might have caused some of the weakness in October and November?
yeah no no impact from that in terms of uh of anything that happened necessarily in the in the quarter i think when you look at timing of that that's uh that is always uh you know again driven by the system see an opportunity between you know it's that balance between rate uh and search uh particularly on the paid side so the the seo efforts are sort of more consistent and ongoing throughout the year. And then the pedal on the paid side, we think about relative to the opportunity. And so it's just going to always be a little bit lumpy quarter to quarter as we continue to see the signals and then move accordingly. We were a little heavier last year. uh again I think in the third quarter it was the opposite so when you look at it for the year up you know four and a half percent I think that's kind of in line with our normal expectations heading into the into every year um how that flows quarter to quarter can be a little bit more clunky got it that's helpful and then
within your same-store revenue guidance, can you maybe just tell us what you're factoring in for other property-related income? I think it contributed like 40 basis points to 2024, so I was just curious if that was sort of sustainable and repeatable in 2025.
Yeah, what is sustainable and repeatable? We spoke about earlier in 2024, call it the May timeframe, we had the culmination of a lot of initiatives that looked at at various components of fee income which ends up in the line item that you're looking at and those those range from the administrative fees to late fees to convenience fees and we made some adjustments there and thinking about how we priced rent rental rates compared to fee structure and we made some adjustments there and so you've seen outsized growth since that period of time year over year We're going to lap that here when we get to May of this year. So you should expect to still see outsized growth in the first quarter of 2025, and then you should see it stabilize out. But to be clear, it's not temporary in nature. It's a more permanent shift in where we're getting revenues from. We believe it to be very sticky and recurring. Once we lap May in this year, then I don't think it'll be an area that is confusing from a modeling standpoint, if that's helpful.
No, that makes sense. Thank you. Yeah, thank you.
The next question comes from John Peterson from Jefferies. Your line is open.
Oh, great. Thanks. Maybe if I could just pick a little bit at your operating expenses. So I'm going back and just looking at the past few years, I think some of the pressure that you've had on property taxes and property insurance have been at least somewhat offset by lower personnel expense. But it kind of looks like we're back to a normal inflation growth level there. I'm just I guess the broader question I'm getting at is, is there any more operational efficiencies that we should think about that can be squeezed out of the OPEX line in the business? Or is this more tied to inflation going forward?
Yeah, thanks for the question. When you do look back, you know, typically storage from an operating expense perspective, you know, overall tends to run at inflationary levels. As we continue to implement a service-first approach to customer service, you know, looking at the right staffing in the stores, looking, and we do believe in a staffed model, just to be clear. We don't ever intend to be a vending machine of self-storage, And when we look at opportunities using AI, for example, to reduce repetitive tasks for our sales center teammates and our store teammates, there will be savings. I think it's fair to say the low hanging fruit, so to speak, has been picked. But I do expect that we will continue to find some savings. Again, then the pressure points on the opposite side um you know continue to be where we end up on on the real estate tax side and uh and then property insurance certainly is an easy one to pick on so overall again i think our range of expectations for uh for 2025 and at the midpoint of all those expenses is you know kind of plus or minus inflationary okay and then on the property taxes i know every jurisdiction is a little bit different but
What would you say the delay is there? Because I would think the asset values probably haven't increased as much in the past couple of years as they did before. So I guess what's the tail on that being a pressure point?
Yeah, really difficult question to answer. Sometimes the tail doesn't exist. And sometimes there are municipalities that don't really catch up. I mean, more recently, we certainly have some some evidence in our favor when we think about if an assessment were to be increased. I mean, obviously, as we're looking at pressure on the top line and forecasting negative growth in same-story NOI, we can certainly point to that from a valuation standpoint. Interest rates and cap rates are not what they were two or three years ago. I appreciate your question. I wish I had a way to quantify it for you. The tail is impossible to predict, which is one of the maddening parts about trying to predict that line item.
Yeah, that's fair.
All right.
Thank you. Appreciate it. Thank you.
The last question comes from Kevin Kim from TruList Securities. Your line is open.
Thanks for allowing me back. Just a couple of quick follow-ups. Given that you already provided 1Q FFO guidance, I was curious if you can provide what Sam Sarno-White could look like in the first quarter?
That would be – we're the only ones who provide a – as far as I know, we're the only ones who provide you an FFO guidance for the quarter. Now you want us to give you underlying assumptions. But, no, I mean, I think – I mean, Chris has already given you where we stand through, goodness, two-thirds of the quarter.
um that's where we'll stop for prognosticating the first quarter but thanks um and yeah you're welcome uh and then just going back to like the potential job changes or turmoil in dc tied to like trump doge and cost cutting um there's obviously a lot of different factors if those cost cuts you know lead to lower inflation and lower treasuries i mean there's a lot of different factors but i was curious you know, job cuts in a local MSA with a bad economy is probably bad for storage. But do you have some early thoughts on potential job cuts in D.C., but with a better economy, broader economy, could that be even a potential net positive for storage in D.C.?
Yeah, I think the unfortunate reality is that answer is yes. So here's the example. You have the probationary employees many, many, many of which are recent college graduates who relocated or moved to Washington or got a job in Washington that has now been taken away from them. And they've got an apartment and they've bought possessions to furnish and fit out that apartment and now they're unemployed. So, you know, what do they do? And the sadness is that many of them either need to return home or otherwise figure out how to replace the job that they lost. And that oftentimes leads to dislocation, which leads to a need for our product. So, you know, I think sadly the outlook for storage in the District of Columbia and, you know, the DMV in general is probably a little bit more positive as a result of what's going on.
Okay, great. Thank you, guys.
thanks stephen sour tuning session i will turn the call over to chris marr for closing remarks yeah thanks everybody speaking on behalf of our team you know we are optimistic in the future of our business our customer and the economic health of our country these last few years have presented certain challenges but i'll end with As Warren Buffett famously said, you don't know who's swimming naked until the tide goes out. So it's easy to do well when there are helpful tailwinds. The strength of our people, our culture, and our platform become clear and obvious during periods of uncertainty and volatility. So thanks for being part of the call, and we look forward to seeing many of you in person next week. Have a great weekend.
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