Earnings call transcript: CubeSmart Q4 2024 misses EPS forecast, stock dips

CubeSmart (NYSE:CUBE), a leading self-storage company with a market capitalization of $9.4 billion, reported its fourth-quarter 2024 earnings, revealing a slight miss on Wall Street expectations. The company posted earnings per share (EPS) of $0.45, just below the forecast of $0.46. Revenue for the quarter was $231.41 million, falling short of the projected $265.29 million. Following the earnings announcement, CubeSmart’s stock declined by 2.95%, closing at $42.53. According to InvestingPro analysis, the company currently appears overvalued relative to its Fair Value, with a P/E ratio of 23.25x.

Key Takeaways

• CubeSmart’s Q4 2024 EPS was $0.45, below the forecast of $0.46.
• Revenue for the quarter was $231.41 million, missing the expected $265.29 million.
• The stock price dropped by 2.95% in response to the earnings miss.
• Same store NOI declined by 3.7%, with revenue growth down by 1.6%.
• The company remains cautiously optimistic about 2025, with a focus on operational efficiency.

Company Performance

CubeSmart’s performance in the fourth quarter of 2024 reflects ongoing challenges in the self-storage market. Despite a slight increase in the quarterly dividend and efforts to optimize operations, the company faced a decline in same-store NOI by 3.7% and a 1.6% drop in same-store revenue growth. The company also experienced a significant rise in real estate taxes, which grew by 17.5% during the quarter.

Financial Highlights

• Revenue: $231.41 million, below the $265.29 million forecast.
• EPS: $0.45, missing the forecast of $0.46.
• Same store NOI: Declined by 3.7% year-over-year.
• Dividend: Increased by 2% to $2.08 annually.

Earnings vs. Forecast

CubeSmart’s actual EPS of $0.45 was slightly below the forecast of $0.46, representing a miss of approximately 2.17%. Revenue missed expectations by a larger margin, coming in at $231.41 million against a forecast of $265.29 million, a shortfall of about 12.75%. This marks a deviation from the company’s previous performance trends, where it has generally met or exceeded market expectations.

Market Reaction

In response to the earnings miss, CubeSmart’s stock fell by 2.95%, closing at $42.53. This decline places the stock closer to its 52-week low of $39.80, with the stock now trading 25% below its 52-week high of $55.14. The broader self-storage sector has been stabilizing, yet CubeSmart’s stock movement suggests investor concerns about the company’s ability to meet future growth targets. With a beta of 0.88, the stock has historically shown lower volatility than the broader market.

For comprehensive technical analysis and detailed valuation metrics, investors can access CubeSmart’s full research report on InvestingPro, which includes advanced charting tools and peer comparison features.

Outlook & Guidance

CubeSmart has set its 2025 FFO per share guidance between $2.50 and $2.59, with a midpoint of $2.54. The company anticipates gradual improvement in same-store revenue, although occupancy and rates are expected to decline slightly. With no immediate catalysts for significant growth, CubeSmart is focusing on operational efficiencies and monitoring housing market trends closely.

Executive Commentary

Chris Marr, CEO of CubeSmart, emphasized a cautious approach to the 2025 outlook, stating, "We are being, in our opinion, prudently cautious in our initial 2025 outlook." He further noted, "Hope is not a strategy," underscoring the company’s focus on strategic planning and resilience in the self-storage market.

Risks and Challenges

• Rising real estate taxes: A significant increase of 17.5% in Q4 could impact profitability.
• Market stabilization: The self-storage market is stabilizing, which may limit growth opportunities.
• Economic factors: Fluctuations in the housing market and mortgage rates could affect demand.
• Operational costs: Increasing expenses, particularly in staffing and property taxes, pose a challenge.

Q&A

During the earnings call, analysts inquired about the impact of potential job cuts in Washington, D.C., on storage demand, motivations behind recent joint venture transactions, and the company’s advertising spend strategy. Executives also addressed concerns regarding property tax pressures and the broader economic environment.

Full transcript - CubeSmart (CUBE) Q4 2024:

Karen, Conference 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 Fourth Quarter twenty twenty four Earnings Call. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Josh Schwedser, Vice President of Fina.

Please go ahead.

: Thank you,

Josh Schwedser, Vice President of Finance, CubeSmart: Karen. Good morning, everyone. Welcome to Q Smart’s fourth quarter twenty twenty four 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 and 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 eight ks we filed this morning together with our earnings release filed with the Form eight ks and the Risk Factors section of the company’s annual report on Form 10 ks. 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.cubesmart.com.

I will now turn the call over to Chris.

Chris Marr, President and Chief Executive Officer, CubeSmart: Thank you, Josh. Good morning. Welcome to the call. Thanks for participating. We believe that for our portfolio, the fourth quarter of twenty twenty four 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 twenty twenty two.

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 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, etcetera, 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 Sunbelt. 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, many 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 twenty twenty four, we opportunistically raised equity capital at attractive valuations on our ATM program. With 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 thirty 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 2025 in a bit more detail.

Tim?

Tim Martin, Chief Financial Officer, CubeSmart: 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 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 fourth quarter, we closed on the previously announced store acquisitions in Oregon and Pennsylvania for a combined investment of $22,000,000 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 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 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 $222,200,000 of venture level debt at closing that was repaid. Our 20% share of that debt was $44,500,000 After debt repayment, we paid $408,300,000 for our partner’s 80% interest in the venture. So the $44,500,000 of debt repayment plus the $408,300,000 for the remaining 80% interest totals $452,800,000 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 in 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 $85,600,000 in net proceeds during the quarter and $118,300,000 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 ’twenty five 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 on 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

Tim Martin, Chief Financial Officer, CubeSmart: 2024. Comp (WA:CMP) 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 $2.5 to $2.59 with a midpoint then of $2.54 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 0.01 of FFO per share drag from growth in G and 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?

Karen, Conference Operator: The first question comes from Daniel Tricarico from Scotiabank (TSX:BNS). Your line is open.

Daniel Tricarico, Analyst, Scotiabank: 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 HVP for to sell and also other NOI upside opportunities still for these assets?

I know it’s relatively young portfolio, so curious if there’s maybe more juice to squeeze there. Thanks.

Tim Martin, Chief Financial Officer, CubeSmart: Yes. Good morning. Thanks for the question. So, no imminent opportunities for other joint ventures. This is a our partner in this venture had their investment in a closed end vehicle.

So 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 TRANZACT now from their perspective was need based. I think from an opportunity set, as you mentioned, the assets are 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.

So we are expecting both in our underwriting not only for 2025 but a little bit more juice in ’twenty six or 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, Analyst, Scotiabank: Thanks for that, Chris. Could you like quickly share the cap rate to get to or the initial yield to get the acquisition to be accretive in year one?

Tim Martin, Chief Financial Officer, CubeSmart: Yes. 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 5.75 as a number.

Daniel Tricarico, Analyst, Scotiabank: Great. Appreciate the time. Thanks.

: Thank you.

Karen, Conference Operator: Question comes from Michael Goldsmith from UBS. Your line is open.

Michael Goldsmith, Analyst, UBS: Good morning. Thanks for taking my questions. In the initial remarks, you talked a little bit about like the lack of an obvious catalyst for the year, which I think is baked into your guidance. So can you just talk a little bit about like what you’re looking for? You know, what’s the, you know, is it just housing?

Is it more than that? Just trying to get a better understanding of what you’re looking for that that could help jump start on demand and and, accelerate the algorithms here.

Chris Marr, President and Chief Executive Officer, CubeSmart: 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.

I think the reality on housing with half the folks who are currently occupying single family homes having mortgage rates that are four percent 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 gonna 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 US 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 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

Chris Marr, President and Chief Executive Officer, CubeSmart: 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 US consumer and US 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 28 to see what would clearly be an outcome to kind of where we sit today.

Michael Goldsmith, Analyst, UBS: Appreciate the thoughtful response, Chris. And as a follow-up, you didn’t talk about how the fourth quarter may have been marked in an inflection point and the decelerating same store revenue growth. So is that reflected in like are you expecting same store revenue to accelerate through 2025? And then also how 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. Just how might that impact the the same sort of new growth?

Chris Marr, President and Chief Executive Officer, CubeSmart: Yeah. I think based on the trends that we saw, particularly beginning December 1 and kind of continuing through today, that fourth 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 is that uncertainty and I think we’re again being appropriately cautious in terms of our outlook.

Michael Goldsmith, Analyst, UBS: Thank you very much. Good luck in 2025.

: Thank you.

Karen, Conference Operator: The next question comes from Jeff Spector from Bank of America. Your line is open.

0: 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 decel, are you 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, President and Chief Executive Officer, CubeSmart: 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 seven ish percent range over last year, which is certainly 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, 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.

0: 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, President and Chief Executive Officer, CubeSmart: 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 ’twenty three and we came out early last year and and articulated sort of a range where the more optimistic end of that assumed a recovery in demand, right?

And and at that time, I think we would have looked at housing and said, okay, housing in ’twenty four, like it can’t get worse than it did in ’twenty three, and then it did. So I think there’s just this element of, frankly, hope is not a strategy. And so we’ve tried to be realistic as we introduce guidance here at the February. And again, it will be six weeks from now, we’ll be back in front of you and we’ll update you on trends at that point.

0: Thanks, Chris.

Karen, Conference Operator: Question comes from Spencer Glintzer from Green Street. Your line is open.

1: Thank you. Sorry if I missed this, Chris, but did you provide an update on how move in rents are trending as far into 1Q?

Chris Marr, President and Chief Executive Officer, CubeSmart: Yes, 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 between seven and seven point five and that’s just gradually come down as we’ve seen trends improve here since December 1.

1: 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 their portfolios are 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?

Tim Martin, Chief Financial Officer, CubeSmart: Yes. Good morning, Spencer. Nothing has 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, 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.

Karen, Conference Operator: Okay. Thanks, and thanks for the color.

Michael Goldsmith, Analyst, UBS: Thanks.

Karen, Conference Operator: The next question comes from Todd Thomas from KeyBanc Capital Markets. Your line is open.

2: Hi, thanks. Good morning. Chris, maybe Tim, thanks for the updated and recent trends and 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, President and Chief Executive Officer, CubeSmart: Hey, Todd. Good morning. On your occupancy question, yeah, the occupancy gap to last year has closed 50 basis points negative. The outright occupancy on the new same store pool is 89.5. And to your comment, yeah,

Tim Martin, Chief Financial Officer, CubeSmart: I think

Chris Marr, President and Chief Executive Officer, CubeSmart: 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, 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, we elected this year to be as realistic as possible in our expectations given that choppy backdrop.

2: 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 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, President and Chief Executive Officer, CubeSmart: Yes. Todd, thanks for the question. I’m going to let Tim sort of dive into that for you.

Tim Martin, Chief Financial Officer, CubeSmart: Yeah. It’s I’m trying to think if there’s anything different in there, Todd. It’s, 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.

2: Okay. If I could sneak one last one in, Tim. What do you have assumed in the guidance that’s available to that $300,000,000 November maturity, the 4% coupon? What’s assumed in guidance in terms of timing and rate?

Tim Martin, Chief Financial Officer, CubeSmart: 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 twenty twenty five 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 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 ten year note, we’d be looking today at somewhere in the mid-5s, hopefully a little bit tighter than that. But our range 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.

2: All right. Thank you.

: Thanks, Todd.

Karen, Conference Operator: Question comes from Juan Sanadilla 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. 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, seems to kind of gap out again in the fourth quarter. So is that kind of a one off and we should expect that to close as well as we go through ’twenty five or just any commentary on that particular item would be helpful?

Chris Marr, President and Chief Executive Officer, CubeSmart: Yes. Well, I do think again in the fourth quarter, we saw things kind of soften in November from a rate perspective and then which 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 thirty 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 ninety days. So that’s kind of how we think about 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 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 the JVs in the fourth quarter and what you’ve done year to date here?

Tim Martin, Chief Financial Officer, CubeSmart: Yes, 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, 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 by an estimate of stores that 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. And 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?

Tim Martin, Chief Financial Officer, CubeSmart: Yes. 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 twenty twenty four. So, again, 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 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.

: Thank you.

Chris Marr, President and Chief Executive Officer, CubeSmart: Thank you.

Karen, Conference Operator: The next question comes from Kevin Kim from Truist Securities. Your line is open.

: Hey, good morning. This is Kevin. 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.

Tim Martin, Chief Financial Officer, CubeSmart: 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.

: 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 in a normal year 15%, is it in 25%, ten %, which is why I was asking about the consequential seasonality in your midpoint.

Tim Martin, Chief Financial Officer, CubeSmart: The same complexity for for you is is the same complexity in providing an answer that’s helpful because it again, which is why I’m speaking on on on average, right? On average, that’s what’s gonna happen. You could you always have weird comps on 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 those that that gap today is in that 7% to 7.5% range, over 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, that gap would be lower over the course of the year than it is today.

Chris Marr, President and Chief Executive Officer, CubeSmart: 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 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 gonna 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% and compared 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 HBT acquisition?

Tim Martin, Chief Financial Officer, CubeSmart: Yes, 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 we were just raising equity capital less than ninety days ago at at at prices that we found very attractive relative to where we could deploy that capital. So, the the challenge for us, not the challenge, that our 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.

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

: Okay. Thank you, guys.

: Thanks, Kean.

Karen, Conference Operator: The next question comes from Eric Liptchao from Wells Fargo (NYSE:WFC). 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 move in rate, in terms of occupancy, how we should think about that throughout 2025?

Chris Marr, President and Chief Executive Officer, CubeSmart: Yes, 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, about Brooklyn, Queens, and The Bronx, nothing opened in the fourth quarter.

We saw two openings, really not competitors to Qube 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, 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.

Again, at one extreme, the more bullish end that starts to become just the least bit positive as we get into, the year. And then, you know, at our midpoint and more bearish case, we assume those assets just continue to sort of chug along where they are. So, constructive from a supply perspective, probably the most constructive that we’ve been, 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. So again, great market continue and expect it to be our best performer in 25 of our major markets.

: Great. Thank you, guys. Thanks.

Karen, Conference Operator: Next (LON:NXT) question comes from Mike Mueller from JPMorgan. Your line is open.

: Yes. Hi. Two quick ones. The first, looking at operating expenses 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 do you think ECRI levels in ’twenty five will be similar to ’twenty four?

Tim Martin, Chief Financial Officer, CubeSmart: 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, it was concentrated in a handful of errors. The ones that you mentioned were where it happened, so that’s why you see a kind of an odd print in a few geographic regions. That’s good news at the end of 2023, which created the tough comp as we got to the end of ’20 ’20 ’4.

3: And I think

Chris Marr, President and Chief Executive Officer, CubeSmart: 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. And then at the at the more bearish end, again, assumes that this, you know, core inflation and other things that are going on within the customer base causes us to bring those, those increases back down a little bit, but modestly in either direction would be fair to say.

: Got it. Thank you.

Michael Goldsmith, Analyst, UBS: Thanks.

Karen, Conference Operator: The next question comes from Eric Woll 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?

Chris Marr, President and Chief Executive Officer, CubeSmart: Yes, 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 to see an opportunity between, it’s that balance between rate and search, particularly on the paid side. So the the SEO efforts are sort of more, consistent and ongoing throughout the year. And then the 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. 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?

Tim Martin, Chief Financial Officer, CubeSmart: Yes. 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 twenty twenty five 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. 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.

: Yes. No, that makes sense. Thank you.

: Yes. Thank you.

Karen, Conference Operator: The next question comes from John Peterson from Jefferies. Your line is open.

3: Great. Thanks. Maybe if I could just pick a little bit at your operating expenses. So, 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, President and Chief Executive Officer, CubeSmart: Yes. Thanks for the question. When you do look back, 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, you know, opportunities using AI, for example, to, reduce repetitive tasks for our sales center teammates and our and our store teammates, there will be savings. I think, you know, 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 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.

3: 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 that 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?

Tim Martin, Chief Financial Officer, CubeSmart: 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 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. 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 maddening parts about trying to predict that line item.

3: Yeah, that’s fair. All right. Thank you. Appreciate it.

: Thank you.

Karen, Conference Operator: The last question comes from Kevin Kim from Truist 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 same store NOI could look like in the first quarter?

Tim Martin, Chief Financial Officer, CubeSmart: That would be, 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,

Tim Martin, Chief Financial Officer, CubeSmart: I mean, I think 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, everybody.

: And you’re welcome. And then just going back to like the potential job changes or turmoil in D. C. Tied to like Trump, Doge and cost cutting, there’s obviously a lot of different factors if those cost cuts 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 is probably back 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 DC?

Chris Marr, President and Chief Executive Officer, CubeSmart: 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 the the sadness is that many of them either need to return home or otherwise figure out how to replace the job that they that they lost. And that oftentimes leads to dislocation, which leads to a need for, for our product. So, you know, I think I think sadly, the the outlook for storage in, 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.

: Okay, great. Thank you, guys.

2: Thanks, Stephen.

1: That

Karen, Conference Operator: concludes our Q and A session. I will turn the call over to Chris Marr for closing remarks.

Chris Marr, President and Chief Executive Officer, CubeSmart: Yes, 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.

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