With occupancy rates at peak levels and consumer demand for self-storage growing, CubeSmart is getting much more aggressive on rental rates.
Christopher Marr, CEO of the Malvern, PA-based self-storage REIT, said the current operating environment is an unprecedented time for the company and other self-storage operators.
“The transition from occupancy to rate was one that the industry I don’t think had a great historical playbook for, “ Marr said during a recent conference call with analysts.
Marr said that knowing what they know now, the company would have pushed rates harder in 2014.
“We would have gotten more aggressive both in reducing the amount of discounts offered as well as pushing the pedal harder on our rates for new customers,” Marr said.
Average rent during the second quarter was $14.42 per square foot, up 4.9 percent from the same quarter last year when the average was $13.75 per square foot.
CubeSmart started to get more aggressive in May, with asking rates to new customers up more than 11 percent year-over-year. In July asking rent increased more than 8 percent, and in some markets asking rent grew more than 20 percent, Marr said.
Marr said the company is also aggressively increasing rates on existing customers that are below market rents knowing that there is a queue of new customers waiting to take their place.
“We’re really bullish on the rate side of our business going forward and I think it will be reflective of very strong growth,” Marr said.
Occupancy during the second quarter averaged 93 percent, up from 91.1 percent last year.
Meanwhile, leasing activity at newly opened CubeSmart stores is exceeding expectations. During the quarter the company opened a new joint venture facility (pictured at top) in Arlington, VA that is already 36 percent occupied after being open for 91 days.
“The store in Arlington, Virginia, which has over 100,000 square feet rentable—the occupancy and the customer growth there has been nothing short of amazing,” Marr said.
The company had a line of customers on opening day, Marr said.
“Particularly in Northern Virginia, you have a significant amount of multifamily people living in smaller spaces with a need for the product,” Marr said.
CubeSmart invested $17.1 million to develop the Arlington property.
Another example of surging demand is a facility in McKinney, TX, which the company bought empty nine months ago. That location is already 90 percent occupied. Other new stores are leasing up at a traditional pace or slightly faster than normal, Marr said. The traditional lease up period for a new facility is about 36 months.
“What is important is that we are leasing them up faster at pro forma rents. So we are not giving it away in order to get the physical occupancy,” Marr said.
Marr said that the lack of new supply, the scale of the REITs and more consumer awareness of the product continue to drive occupancy.
CubeSmart is readying a pipeline of new facilities to meet the rising demand. The company has contracts to purchase four new facilities upon completion for a total price of $90.2 million. Two of the facilities are located in Texas and the others are in New York and Florida.
During the quarter, the company purchased a newly constructed self-storage facility in Dallas for $15.8 million.
The company also has five joint venture construction projects underway, with their share of development totaling $122.9 million. Four of the facilities are located in New York and one is in Washington D.C.
The company continues to acquire existing facilities as well, picking up two facilities in Florida and one in Arizona for $27.9 million during the second quarter. Since June 30, the company purchased two facilities in Maryland and one in Texas for $50.4 million.
During the second quarter CubeSmart generated revenue of $109.9 million, a 19 percent increase from the same period last year. Net income grew to $13.87 million during the quarter, up more than 73 percent from $7.99 million last year.
Same-store revenue grew 7.1 percent during the quarter compared to last year, while same-store net income grew 8.4 percent.