CubeSmart Q3 FY2025 earnings call

• Chris Marr noted a solid third quarter with guidance increases, existing customer KPIs strong, diminishing headwinds from new supply, better pricing environment, and consumer health. Top performers were urban, Mid-Atlantic, and Northeast markets, while some sunbelt markets were stabilizing.
• Tim Martin discussed FFO per share adjusted at $0.65, updated full-year guidance with FFO per share midpoint raised, improved same-store revenue and expense growth guidance, successful $450 million 10-year senior unsecured notes issuance, conservative leverage with net debt to EBITDA at 4.7x at quarter end, and third-party management growth with 863 stores under management.

For the quarter, same-store revenues declined 1% compared to last year. Average occupancy for the same-store portfolio was 89.9%, down 80 basis points. Same-store operating expenses grew just 0.3% over last year, and negative 1% revenue growth combined with 0.3% expense growth yielded negative 1.5% same-store NOI growth for the quarter. External growth included being under contract to acquire three stores in the fourth quarter, completing a joint venture development in Port Chester, New York, and adding 46 stores to the third-party management platform, bringing the total to 863 stores under management at quarter end.

• Updated full-year expectations with FFO per share adjusted midpoint raised by $0.01. Improved midpoint of same-store revenue guidance range. Revised expense growth midpoint to 1.5% for the year. Improved same-store NOI midpoint to negative 1.25%. Guidance implies negative revenue growth in Q4 but acceleration from Q3. Anticipates trends to continue stabilizing through remainder of year, putting the company on better footing heading into 2026.

• Risks include factors causing actual results to differ from forward-looking statements as detailed in SEC filings, non-GAAP measures, and market uncertainties affecting supply and demand. Risks are outlined in the company's Form 8-K, earnings release, and annual report on Form 10-K.

Q: How are you thinking about the balance between rate and occupancy right now in an environment where demand seems to be stable?

A: Ultimately, the systems are focusing in on maximizing the revenue from each customer and so trying to find that balance, and it varies by market. When you think about those two levers, rate and occupancy, you have the elasticity of demand that one has to deal with. And so when we look at those markets that we would describe as having been solid for a while, kind of the rock stars in this part of the cycle where you're getting both rate and occupancy, I'd call out New York City, Washington, D.C. MSA, Chicago, then you have those markets that are stabilizing. So their rate and occupancy are moving in a good direction, albeit still perhaps down year-over-year. And those examples would be Miami and L.A., Los Angeles. And then those markets that are still trying to find their footing where, again, the systems every day are trying to navigate through that dynamic of new move-in customer rate versus occupancy and testing is the demand there at any price. And those would be the same markets we've talked about all year, Atlanta, Phoenix, Cape Coral, Charlotte, the sunbelt market. So really varies quite a lot by market as the systems try to find that balance.

Q: What percentage of leads and bookings are now AI influenced today? And how does overall the cost per AI leads compared to traditional search engine leads so far?

A: The leads coming through the LLMs, which is primarily ChatGPT at this point for us are about less than 1%.

Q: Just on the acquisition side, a couple of your peers have become more aggressive, talking more about more opportunities or deal flow. Just curious what you're seeing and/or willingness or appetite to increase the external investments?

A: Thanks, Juan. I appreciate the question. I guess we have three stores under contract, so that's movement in the right direction. I think what we have seen and we've talked about here for the past several quarters is pretty consistent view from the buying side of the table as to what return thresholds look like. I don't think that's changed much at all. It hasn't for us. I don't think it's changed much for others either. I think the change is that the seller side of the equation has gotten a little bit more constructive from the buyer's perspective, and you're starting to see things move a little bit. I think you saw that from some of our peers. I think you see that from us with the three stores that we have under contract. So nothing -- I wouldn't say there's any earth-shattering move other than the market becomes a little bit more constructive as the gap between buyer and seller has shrunk to the point where you're starting to see some things get done.