CubeSmart Q1 FY2026 earnings call

Key Messages - First quarter showed continuation of late last year trends, with same store revenue growth inflection seen. Expect continued gradual improvement in 2026 without macro catalyst. Positive move-in rates and same-store revenues supported by steady demand and lessening new supply headwinds. Wave of new stores leasing up with lighter forward pipeline. Quality focus strategy working, primary markets outperforming. 240% increase in net rentals helped narrow occupancy gap. Existing customer metrics strong. Pricing trends positive with move-in rates and asking rates up. 21 of top 25 MSAs saw sequential improvement in same-store revenue growth. Acela corridor, Midwest, and some Sunbelt markets had different performance. Operations team well positioned for busy season. Committed to building highest quality portfolio. - Tim Martin noted first quarter results encouraging, high end of expectations. Same store revenue growth 0.6%, move-in rates positive, occupancy gap narrowed. Demand varies by market. Same-store operating expenses grew 5.8%, with snow removal costs a factor. Marketing expense growth due to low prior year comp and attractive return opportunities. Personnel expense growth due to focus on customer service. FFO per share at high end of guidance. Executing on disciplined capital allocation strategy, repurchased shares, closed first store in CBRE IM joint venture. Added 33 stores to third-party management platform, ended quarter with 854 third-party stores under management. Balance sheet well positioned.

Same store revenue growth was 0.6% over last year. Net rentals increased 240% for the quarter. Occupancy gap narrowed to 20 basis points by end of April. Existing customer metrics remain strong. 21 of top 25 MSAs saw sequential improvement in same-store revenue growth. Acela corridor, Midwest markets, and some Sunbelt markets showed different performance trends. Same-store operating expenses grew 5.8% over last year, with snow removal costs accounting for about 120 basis points of quarterly same store expense growth. Revenue growth of 0.6% combined with 5.8% expense growth yielded negative 1.5% same-store NLI growth for the quarter. FFO per share as adjusted was 63 cents for the quarter, at the high end of guidance.

Guidance - First quarter performance was encouraging and in line with expectations, resulting in no change in guidance range and underlying assumptions, with a slightly lower share count due to share repurchase activity. Guidance implies accelerating NOI growth throughout the year with top line potentially growing and expense growth trends being considered. The first quarter had an expense growth anomaly with difficult comps, but the guidance embeds the expectation of accelerating NOI growth throughout the year.

Risks - The company's remarks include forward-looking statements regarding earnings and strategies that involve risk, uncertainties, and other factors that may cause actual results to differ materially from these forward-looking statements. Risks and factors that could cause 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, such as Form 8K, earnings release, and risk factor section of annual report on Form 10K. Weather conditions can impact move-in and move-out, though trends tend to work itself out over time. The disconnect between public and private market valuations persists, affecting capital allocation decisions. Transaction market hit rate on closing remains lighter than historical levels. Uncertainty regarding when third-party managed stores are sold and whether the company is the acquirer.

Question and Answer - Q: Looking at advertising expense growth and occupancy, when to see impact and if expect ramp up in 2Q?

A: Marketing spend ROI is combination of occupancy and rate. Seeing positive trends in rate and occupancy, expect trend to continue. Full year marketing as percent of revenue expected to be in line with historical trends. - Q: Talk about demand trends in New York and supply?

A: New York a star performer, almost no new supply in outer boroughs, challenging rental housing market leads to folks using self-storage, outer boroughs perform well, Manhattan some stores softer. - Q: Break down 240% increase in net rentals and trends going forward?

A: Rentals in first quarter down 1.8%, April rentals up about 1% year over year. Vacates down 3.9% in quarter, existing customer base staying longer. - Q: Guidance reaffirmation thought process?

A: First quarter played out as expected, no change in guidance as nothing in first quarter caused reevaluation of full year impact. - Q: Thoughts on broader regulation and price moratorium in New York?

A: Not engaged directly in conversations, believe offer valuable solution, focus on customer service and value. - Q: Fee income driving factor?

A: Fee income from merchandise sales, locks, boxes, fees, truck rental income. First quarter higher than full year growth expected, continue to look for ways to provide services to customers. - Q: Dichotomy between 26 earnings guidance acceleration and flat same-store revenues?

A: Guidance implies accelerating NOI growth throughout year due to top line growth potential and expense trends. - Q: Third-party management net number shrinkage?

A: Continue to add stores to platform, team focused on finding owners, stores leave platform due to transactions, job well done as create value for owners. - Q: April rentals on net rentable square foot basis and occupancy quantification?

A: Rentals or move-ins up just shy of 1% throughout April. Occupancy from March to April grew sequentially about 20 basis points, occupancy gap at end of April shrunk to about negative 20 basis points. Rent through April average rent rate on rentals was plus 2%. - Q: Improvement in Sunbelt markets and future?

A: Miami wave of supply absorbed, Phoenix and Atlanta starting to show positive momentum but cautious, expect Acela corridor to be top of pack for year. - Q: Benefits of being larger in storage sector?

A: Value to having scale in market, benefits diminish at national level relative to scale in market. - Q: Buybacks funding and leverage?

A: Generate ~$100 million in free cash flow, use free cash flow for share repurchases with no impact on leverage initially. For above $100 million, consider disconnect between public and private market valuations and long-term equity capital needs. - Q: Rate increases to existing customers and customer pushback?

A: Magnitude and pace of increases unchanged from last year, no measurable change in consumer behavior. - Q: Transaction market and buybacks funding leverage?

A: Transaction market hit rate lighter than historical levels, share repurchases more attractive given portfolio quality. Joint ventures make dollar go further for enhanced returns. - Q: Addressing September 2026 note maturity and timeline?

A: Likely evaluate seven or ten year bond, pricing for seven year around five, ten year low to mid-five. Monitor markets and be opportunistic. - Q: Weather impact on move-in and vacate?

A: Weather impacts move-in and vacate as deferrals, but trends work out over time. Impact of supply on move-in declining. - Q: Use of large language models in advertising and customer space efficiency?

A: Early stages of LLMs in advertising, creating opportunity for longer tail search. LLMs may help customers make right space decision, reducing operational frictional cost. - Q: Co-ownership/JV structure focus assets?

A: Likely look for assets outside top 40 MSAs or outer ring of top 40 MSAs, consider markets and asset performance. - Q: Acquisition cap rates and development opportunities?

A: Acquisition cap rates in low fives, development challenging due to cost and underwriting. - Q: ECRI and move-outs?

A: No change in customer behavior regarding ECRI, overwhelming reason for customer leaving is no longer need for storage. - Q: AI usage and third-party management for smaller operators?

A: Larger players likely winners in AI evolution, business development team needs to explain platform's advantages to smaller operators.