Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CubeSmart (CUBE, Financial) reported a 1.8% increase in rentals in its same-store portfolio compared to the second quarter of 2023.
- Same-store occupancy ended June at 91.9%, gaining 150 basis points during the quarter.
- The company added 39 stores to its third-party management platform, bringing the total to 879 stores under management.
- CubeSmart (CUBE) maintained a strong balance sheet with a 4.3 times debt to EBITDA ratio and effectively no floating rate exposure.
- The company opened two development projects in New York for a total cost of $61.8 million, demonstrating disciplined external growth.
Negative Points
- Same-store revenues grew only 0.3% compared to last year, with average occupancy for the same-store portfolio down about 110 basis points to 91.5%.
- Same-store operating expenses grew 4.2% over last year, driven by continued pressure on property insurance and timing issues related to repair and maintenance costs.
- The company reported a negative 1.2% same-store NOI growth due to the disparity between revenue growth and expense growth.
- Asking rates in the same-store pool began the quarter down roughly 13% to the prior year and ended June negative 9.8% compared to the end of June last year.
- CubeSmart (CUBE) experienced softness in key markets such as the West Coast of Florida, Atlanta, and Tucson, Arizona.
Q & A Highlights
Q: Can you provide an update on where move-in rents have trended thus far into 3Q? And if you have any additional color you could share on how ECRIs have been trending and customer sensitivity?
A: The rate gap in July moved down about 100 basis points from where we ended June, so high negative 10% range. The existing customer base continues to be healthy, with length of stay higher than pre-pandemic levels. Auction activity and receivables are slightly increasing but remain in line with pre-COVID levels.
Q: You lowered the guidance for expense growth. Can you elaborate more on different components or where you are seeing less pressure on the expense side?
A: Our revised and improved expense guidance reflects our year-to-date performance and updated information on real estate tax growth in three large states, which is not as high as initially expected.
Q: Has there been any change in customers' willingness to accept higher ECRIs?
A: We have not seen any discernible change in behavior as existing customers receive rate increases. However, we are closely monitoring consumer trends.
Q: Can you talk about the trends you're seeing in New York City and how sustainable you think this outperformance is?
A: We expect some deceleration in New York as we move through the year. The boroughs like the Bronx and Brooklyn are performing well, while Manhattan remains competitive due to supply. New Jersey is stabilizing, but Long Island and Westchester still face some challenges.
Q: Are new customers more price-sensitive, and are you seeing any changes in conversion rates or top-of-funnel demand?
A: No change in conversion rates. Top-of-funnel demand is lower than expected, particularly in markets like the West Coast of Florida, due to new supply and less movement.
Q: What drove the strong growth in other income during the quarter?
A: Growth in other property-related income was driven by additional fee income, including administrative, late, and payment convenience fees, as well as benefits from our expanded solar program.
Q: What does the transaction environment look like, and how do you think about other forms of capital return?
A: The bid-ask spread has narrowed, but we haven't closed any transactions yet. We remain patient and optimistic. Our dividend policy is consistent, and we focus on redevelopment opportunities.
Q: What drives the implied back-half acceleration in FFO guidance?
A: The seasonality of our business typically results in higher FFO per share in the second half of the year, driven by the strength of the rental season.
Q: How do you expect the evolution of in-place rent per occupied square foot from here?
A: We need to see new customer rates increase to drive overall results. This will depend on market forces, supply, consumer health, and demand drivers. We expect this to happen, but the timing is uncertain.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
