CubeSmart Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2025

Key Takeaways

  • Inflection point in Q4 same‐store trends: occupancy gap narrowed from 100 bps negative at year‐end to 50 bps negative by February, and new‐customer rent declines improved from –10.3% to –7.4%.
  • Q4 same‐store NOI fell 3.7% as revenue dropped 1.6% and expenses rose 4.7%, driven by a 17.5% year‐over‐year jump in real estate taxes due to tough prior‐year comps.
  • 2025 guidance assumes gradual stabilization with same‐store NOI down ~3% and FFO of $2.50–$2.59 per share (midpoint $2.54), reflecting no clear near-term demand catalyst.
  • Closed an accretive HVP4 JV acquisition—paid $452.8 million debt-free for 80% interest—adding 28 recent-vintage stores to the balance sheet at an expected 2025 yield of ~5.75%.
  • Continued external growth with $22 million in Oregon and Pennsylvania store buys plus an 85% interest in a 14-store Dallas portfolio, funded by an $85.6 million ATM equity raise and net debt/EBITDA of ~4×.
AI Generated. May Contain Errors.
Earnings Conference Call
CubeSmart Q4 2024
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Operator

Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the CubeSmart 4th Quarter 2024 earnings call. All lines 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 Schutzer, Vice President of Finance. Please go ahead.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thank you, Karen.

Josh Schutzer
Josh Schutzer
VP of Finance at CubeSmart, L.P.

Good morning, everyone. Welcome to CubeSmart's 4th 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.

Josh Schutzer
Josh Schutzer
VP of Finance at CubeSmart, L.P.

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 4th Quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thank you, Josh. Good morning. Welcome to the call. Thanks for participating. We believe that for our portfolio, the 4th 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 2nd 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 2024 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 4th Quarter of negative 10.3% to last week averaging negative 7.4%. We are generally positive about the economic health of our existing customers.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

All key metrics, write-offs, etc, 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 4th 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 re-accelerate 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.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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, a 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 a creative transaction. In planning for the opportunity in late 2024, we opportunistically raised equity capital at attractive valuations under our ATM program. With net debt to EBITDA of four times, we took advantage of a portion of that leveraged capacity to fund the balance of the purchase.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

The portfolio was deliberately constructed between 2017 and 2021 to include assets that had been recently constructed in Tier 1 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 4th Quarter results, and our outlook for 2025 in a bit more detail. Tim?

Timothy Martin
CFO at CubeSmart, L.P.

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 4th 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 4th 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 4th 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 4th Quarter of last year.

Timothy Martin
CFO at CubeSmart, L.P.

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 share as adjusted of $0.68 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 4th 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.

Timothy Martin
CFO at CubeSmart, L.P.

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 complementary 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 HVP IV. 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.

Timothy Martin
CFO at CubeSmart, L.P.

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.

Timothy Martin
CFO at CubeSmart, L.P.

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.

Timothy Martin
CFO at CubeSmart, L.P.

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 2025 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.

Timothy Martin
CFO at CubeSmart, L.P.

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 maintain 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.

Timothy Martin
CFO at CubeSmart, L.P.

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 4th Quarter in particular. Our FFO per share expectation for 2025 is a range of $2.50-$2.59, with a midpoint then of $2.545. 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.

Timothy Martin
CFO at CubeSmart, L.P.

We have a little bit of drag from properties in lease-up. $0.01-$0.02 is the range we provided in our guidance. We have about $0.01 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.

Timothy Martin
CFO at CubeSmart, L.P.

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?

Operator

At this time, I would like to remind everyone, in order to ask a question, press star and then the number one 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 Scotiabank. Your line is open.

Daniel Tricarico
Daniel Tricarico
Analyst at Scotiabank

Good morning, team. Appreciate the time. I wanted 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 HVP IV to sell? And also, are there NOI upside opportunities still for these assets? I know it's a relatively young portfolio, so curious if there's maybe more juice to squeeze there. Thanks.

Timothy Martin
CFO at CubeSmart, L.P.

Yeah, good morning. Thanks for the question, so no imminent opportunities for other joint ventures. Our partner in this venture had their investment in a closed-end vehicle, so 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, they are generally stable in that we have acquired them, as mentioned, back in 2017 through 2021. That said, assets don't fully mature until you've had them and you have a stable tenant base for a number of years.

Timothy Martin
CFO at CubeSmart, L.P.

So we are expecting, both in our underwriting, not only for 2025, but a little bit more juice in 2026 for some of those assets to fully stabilize and for us to fully capture all of the opportunity that's embedded in those assets.

Daniel Tricarico
Daniel Tricarico
Analyst at Scotiabank

Thanks for that, Chris. Could you quickly share the cap rate to get to, or the initial yield to get the acquisition to be accretive in year one?

Timothy Martin
CFO at CubeSmart, L.P.

Yeah, so as we think about the HVP IV 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.

Daniel Tricarico
Daniel Tricarico
Analyst at Scotiabank

Great. Appreciate the time. Thanks.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thank you.

Operator

Question comes from Michael Goldsmith from UBS. Your line is open.

Michael Goldsmith
Michael Goldsmith
Analyst at UBS

Good morning, . Thanks 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 vision. So can you talk a little bit about what you're looking for? What's the? 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 jump-start demand and accelerate the algorithms here.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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 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, 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 universally just some clarity so people can make decisions.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

I think the reality on housing with half the folks who are currently occupying single-family homes having mortgage rates that are 4% or below, again, I think we're just going to need either clarity that this is the new world and therefore acceptance, 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 belief instead of hope that that catalyst is there.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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.

Michael Goldsmith
Michael Goldsmith
Analyst at UBS

Appreciate the thoughtful response, Chris. And as a follow-up, you did talk about how the 4th Quarter may have been marked an inflection point, and the sell rate and same-store revenue growth. So, is that reflected in? Are you expecting same-store revenue to accelerate through 2025? And then also, I think you still have an easy comparison in other revenue in the 1st Quarter, and it gets a little bit more difficult going forward. How might that impact the same-store revenue growth?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. I think based on the trends that we saw, particularly beginning December 1st and kind of continuing through today, that 4th Quarter down 1.6%, we think, is possible to be the kind of all other things being equal, where we would have hit that trough, and then 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 today is where there's that uncertainty, and I think we're, again, being appropriately cautious in terms of our outlook.

Michael Goldsmith
Michael Goldsmith
Analyst at UBS

Thank you very much. Good luck in 2025.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thank you.

Operator

The next question comes from Jeff Spector from Bank of America. Your line is open.

Jeffrey Spector
Jeffrey Spector
Managing Director at Bank of America

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 2025 just based on the current conditions that we could see another street rate war, or because we're past the bottom? Let's say you talked about an inflection point in DOGE, but you're less worried about that street rate war. I say war, but bottom line, competitors cutting street rate to bring in new customers in 2025.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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 we've been running the last week or so, last couple of weeks down in that kind of 7-ish% range over last year, which is certainly an improvement from what we saw in November. We just need to see it consistently. And so again, don't want to try to extrapolate today to that April through July busy season.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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 where we are in last year, and at the other end of the expectations is just a more cautious approach that 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.

Jeffrey Spector
Jeffrey Spector
Managing Director at Bank of America

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 share your thoughts, has anything happened? Anything that's happened in recent weeks, whether it was signposts of housing softness or 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 of months ago. Did anything recently 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 of months? Thank you.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. You're welcome. So I think, again, as always, it's somewhere in the middle. So again, 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 2023, 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 2024, it can't get worse than it did in 2023," and then it did. So I think there's just this element of, frankly, hope's not a strategy. And so we've tried to be realistic as we introduce guidance here at the end of February.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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.

Jeffrey Spector
Jeffrey Spector
Managing Director at Bank of America

Thanks, Chris.

Operator

Next question comes from Spencer Glincher from Green Street. Your line is open.

Spenser Glimcher
Spenser Glimcher
Analyst at Green Street

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?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yep. No worries. So, move-in rents. What I said in my opening remarks is we've gone from kind of that 4th Quarter average, which again, the bottom of that was in November of negative 10.3%. And then over the last week or two, I quoted negative 7.4%. We've been running between 7% and 7.5%, and that's just gradually come down as we've seen trends improve here since December 1st.

Spenser Glimcher
Spenser Glimcher
Analyst at Green Street

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.

Timothy Martin
CFO at CubeSmart, L.P.

Yep. 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 a lot's coming. And I think part of that is 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 you get mixed messaging if you talk to some of the brokers. I think they have very full plates, and 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 indications of value or things like that, but they don't seem to have a lot of stuff that's imminent to market.

Timothy Martin
CFO at CubeSmart, L.P.

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.

Spenser Glimcher
Spenser Glimcher
Analyst at Green Street

Okay. Excellent. Thanks for the call.

Timothy Martin
CFO at CubeSmart, L.P.

Thanks.

Operator

The next question comes from Todd Thomas from KeyBank Capital Markets. Your line is open.

Todd Thomas
Todd Thomas
Analyst at KeyBanc Capital Markets

Hi. Thanks. Good morning. Chris, maybe Tim, thanks for the updated and recent trends in move-in rents. Can you provide an occupancy update as well as of today? And then, Chris, it's a little hard to tell from your comments, but it sounds like you're encouraged so far year to date. 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 balance of the year. Is that the right read? Is that what you're sort of seeing so far year to date?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Hey, Todd, good morning. On your occupancy question, yeah, the occupancy gap to last year has closed to 50 basis points negative. The outright occupancy on the new Same-store pool is 89.5. 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, as I said, the core inflation continues to be quite problematic. And our rate and pace of those increases, by and large, continues to be about the same. So again, sitting here today, feel, as I always do, confident in the longer-term health of self-storage.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

It's been a choppy couple of years, and we elected this year to be as realistic as possible in our expectations given that choppy backdrop.

Todd Thomas
Todd Thomas
Analyst at KeyBanc Capital Markets

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, $0.68 this quarter to $0.62 at the midpoint, so 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.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yep. Todd, thanks for the question. I'm going to let Tim sort of dive into that for you.

Timothy Martin
CFO at CubeSmart, L.P.

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 as it relates 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 maturity is in November, and that note has a 4% coupon.

Timothy Martin
CFO at CubeSmart, L.P.

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. So 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-5s, hopefully a little bit tighter than that.

Timothy Martin
CFO at CubeSmart, L.P.

But that'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.

Todd Thomas
Todd Thomas
Analyst at KeyBanc Capital Markets

All right. Thank you.

Timothy Martin
CFO at CubeSmart, L.P.

Thanks, Todd.

Operator

Question comes from Juan Sanabia from BMO Capital Markets. Your line is open.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

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 2025? Or just any commentary on that particular item would be helpful.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. Well, I do think, again, in the fourth quarter, we saw things kind of soften in November from a rate perspective, 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. We were just probably off by about 30 days in terms of when it started to happen. And then when it began to happen and our systems reacted proactively accordingly, it continued now for the last, I don't know, almost 90 days.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

So that's kind of how we think about framing the downside case for 2025.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Thanks. And then for my follow-up, looks like the third-party property management fee income is expected to be up about 4% in 2025. 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 JVs in the fourth quarter and what you've done year to date here.

Timothy Martin
CFO at CubeSmart, L.P.

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 those 28 stores. But other than that, quite certain that there will be stores that leave our third-party management platform throughout 2025. So our range of expectations is, again, our best guess on when you net new stores coming on board, offset 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. All of those are the variables that go into us formulating the range that we provided.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Thanks. And if I can just be a little greedy, Tim, can you just clarify the funding plans for the HVP IV acquisition that you've completed year to date?

Timothy Martin
CFO at CubeSmart, L.P.

Yeah. So broadly, when we first started 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 a 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 income 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.

Timothy Martin
CFO at CubeSmart, L.P.

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 into the high fours. Over time, then we would. 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 do it all over again. So that's the longer-term objective.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Thank you.

Timothy Martin
CFO at CubeSmart, L.P.

Thank you.

Operator

The next question comes from Ki Bin Kim from Truist Securities. Your line is open.

Ki Bin Kim
Ki Bin Kim
Analyst at Truist

Hey, good morning. This is Ki Bin. 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.

Timothy Martin
CFO at CubeSmart, L.P.

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 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.

Ki Bin Kim
Ki Bin Kim
Analyst at Truist

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 if you expected rates to increase in a normal year 15%, is it in 2025 10%? Which is why I was asking about that kind of sequential seasonality in your midpoint.

Timothy Martin
CFO at CubeSmart, L.P.

The same complexity for you is the same complexity in providing an answer that's helpful because it's why I'm speaking on average, right? On average, that's what's going to happen. You always have weird comps on 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%-7.5% range over the past couple of weeks, month or so. We would expect there will be ebbs and flows. It might go up a little bit, might go down a little bit. But on average, we would expect that to continue to contract. On average, that gap would be lower over the course of the year than it is today.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Ki Bin, and maybe I'll try a little different way. 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, contemplates that it might be at one end at least modestly better than the 15 or 16.

Ki Bin Kim
Ki Bin Kim
Analyst at Truist

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 HVP acquisition?

Timothy Martin
CFO at CubeSmart, L.P.

Yeah. 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 repurchases 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.

Timothy Martin
CFO at CubeSmart, L.P.

We don't feel like we have all those variables today.

Ki Bin Kim
Ki Bin Kim
Analyst at Truist

Okay. Thank you, guys.

Timothy Martin
CFO at CubeSmart, L.P.

Thanks, Ki Bin.

Operator

The next question comes from Eric Luechow from Wells Fargo. Your line is open.

Eric Luebchow
Eric Luebchow
Analyst at Wells Fargo

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?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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. A little more constructive than we have been on Westchester, Long Island, North Jersey.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

North Jersey in particular, 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, which have been producing negative same-store revenue growth, start to close that gap again slowly. And our expectation is that continues in 2025. Does it, again, at one extreme, at the more bullish end, that starts to become just the least bit positive as we get into the year? And then at our midpoint and more bearish case, we assume those assets just continue to sort of chug along where they are.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Constructive from a supply perspective, probably the most constructive that we've been in a long time around the overall MSA continues to be really helpful in the boroughs as we've talked about the last year or so. Again, great market, continue and expect it to be our best performer in 2025 of our major markets.

Eric Luebchow
Eric Luebchow
Analyst at Wells Fargo

Great. Thank you, guys.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thanks.

Operator

The next question comes from Michael Mueller from JPMorgan. Your line is open.

Michael Mueller
Michael Mueller
Managing Director at JPMorgan Chase & Co.

Yeah. Hi. Two quick ones. The first, looking at operating expenses in markets like Atlanta, Austin, Chicago, where they were up 30%-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 2025 will be similar to 2024?

Timothy Martin
CFO at CubeSmart, L.P.

Yeah. I'll take the expense part. On your expense question, your intuition was exactly right. 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.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

I think 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 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. 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. Modestly in either direction would be fair to say.

Michael Mueller
Michael Mueller
Managing Director at JPMorgan Chase & Co.

Got it. Thank you.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Thanks.

Operator

The next question comes from Eric Wolfe from Citi. Your line is open.

Eric Wolfe
Eric Wolfe
Vice President and Equity Research Analyst at Citi

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 or November?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. No impact from that in terms of anything that happened necessarily in the quarter. I think when you look at timing of that, that is always, again, driven by the system seeing opportunity between it's that balance between rate and search, particularly on the paid side. So 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. Again, I think in the third quarter, it was the opposite. So when you look at it for the year up 4.5%, I think that's kind of in line with our normal expectations heading into every year.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

How that flows quarter to quarter can be a little bit more clunky.

Eric Wolfe
Eric Wolfe
Vice President and Equity Research Analyst at Citi

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.

Timothy Martin
CFO at CubeSmart, L.P.

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 various components of fee income, which ends up in the line item that you're looking at, and those range from administrative fees to late fees to convenience fees, and we made some adjustments there in thinking about how we priced 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.

Timothy Martin
CFO at CubeSmart, L.P.

It's a more permanent shift in where we're getting revenues from. We believe it to be very sticky and recurring. You're just going to, 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.

Daniel Tricarico
Daniel Tricarico
Analyst at Scotiabank

Yep. No, that makes sense. Thank you.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. Thank you.

Operator

The next question comes from John Petersen from Jefferies. Your line is open.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Oh, great. Thanks. Maybe if I could just pick a little bit at your operating expenses. So if 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 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?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. Thanks for the question. When you do look back, typically storage from an operating expense perspective overall tends to run at inflationary levels. As we continue to implement a service-first approach to customer service, 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 continue to be where we end up on the real estate tax side.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

And then property insurance certainly is an easy one to pick on. So overall, again, I think our range of expectations for 2025 and at the midpoint of all those expenses is kind of plus or minus inflationary.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

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 tale on that being a pressure point?

Timothy Martin
CFO at CubeSmart, L.P.

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 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-store 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. So 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 demanding parts about trying to predict that line item.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Yeah. That's fair. All right. Thank you. Appreciate it.

Timothy Martin
CFO at CubeSmart, L.P.

Thank you.

Operator

The last question comes from Ki Bin Kim from Truist Securities. Your line is open.

Steven Martinez
Steven Martinez
Analyst at Truist Financial Corporation

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 same-store NOI could look like in the first quarter.

Timothy Martin
CFO at CubeSmart, L.P.

That would be, we're the only ones who provide, 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, Chris has already given you where we stand through, goodness, two-thirds of the quarter. So that's where we'll stop for prognosticating the first quarter. But thanks.

Steven Martinez
Steven Martinez
Analyst at Truist Financial Corporation

And.

Timothy Martin
CFO at CubeSmart, L.P.

You're welcome.

Steven Martinez
Steven Martinez
Analyst at Truist Financial Corporation

And then, just going back to the potential job changes or turmoil in DC tied to Trump, DOGE, and cost-cutting, there's obviously a lot of different factors. If those costs lead to lower inflation and lower treasuries, I mean, there's a lot of different factors. But I was curious. Job cuts in a local MSA with a bad economy just play back for storage. But do you have some early thoughts on potential job cuts in DC, but with a better economy, broader economy? Could that be even a potential net positive for storage in DC?

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

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 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 I think, sadly, the outlook for storage in the District of Columbia and the DMV in general is probably a little bit more positive as a result of what's going on.

Steven Martinez
Steven Martinez
Analyst at Truist Financial Corporation

Okay. Great. Thank you, guys.

Daniel Tricarico
Daniel Tricarico
Analyst at Scotiabank

Thanks, Steven.

Operator

That concludes our Q&A session. I will turn the call over to Chris Marr for closing remarks.

Chris Marr
Chris Marr
President and CEO at CubeSmart, L.P.

Yeah. Thanks, everybody. Speaking on behalf of our team, 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.

Executives
    • Josh Schutzer
      Josh Schutzer
      VP of Finance
    • Chris Marr
      Chris Marr
      President and CEO
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