CubeSmart is facing pressure from new supply competition in some markets, but CEO Christopher Marr remains upbeat on overall growth going forward.
“While we are obviously experiencing record levels of top line growth beginning to slow, our customer remains healthy and demand for our product remains solid,” Marr said during the company’s recent earnings conference call.
The company increased same-store revenue 6.2 percent and net operating income 9.3 percent during the third quarter compared to the previous year. Last year at this time revenue was up 7.4 percent, and NOI was also 9.3 percent
Marr said revenue growth is being affected by a variety of reasons that vary on a market-by-market basis—but new supply is often among those reasons, especially in certain cities where developers are most active.
Windy City
Chicago, for example, saw same-store revenue growth of 3.3 percent and NOI growth at 6.2 percent year-over-year. Marr said the company tracked the opening of 16 new competitor stores opening this year and another nine under development for 2017.
“Sixty percent of that supply is going to compete with a CubeSmart location,” Marr said.
Marr said other factors affect performance in that market, including economic, social and statewide budgetary issues. Chicago is CubeSmart’s second largest market with 34 locations.
Other Markets
Dallas-Fort Worth is among the markets seeing the biggest increases in new self-storage construction. Marr said 24 new stores opened in the market this year, and another 31 are on way in 2017. Dallas revenue grew 5.3 percent, and NOI grew 6.3 percent.
“You are going to have pockets there where supply is an issue,” Marr said.
In Houston, CubeSmart saw 11 newly developed facilities open and expect another 13 facilities to open there in 2017. A muted energy sector is also having an impact. Revenue grew here by 3.5 percent, while NOI grew 3.7 percent
Denver saw revenue growth decline slightly by three basis points and NOI increased by only half a percent. While the Mile High City has seen some development recently, Marr mostly attributed slower growth there to extremely aggressive rental rates last year.
CubeSmart saw its strongest same-store revenue growth in Sacremento (14.7 percent), Las Vegas (13.2 percent), and Cape Coral-Fort Myers, FL (12.9%). Each of those markets have fewer than 10 locations.
“Markets are going to move and submarkets are going to move, independently of each other,” Marr said.
Development and Acquisition Mix
Marr indicated that the company might be doing fewer certificates of occupancy deals, in which a finished facility is purchased from a developer after completion.
“We have a challenging time finding deals that pencil,” Marr said. “When you are looking at the risk you are taking, relative to the asking price from sellers in that line of business, it’s pretty thin today.
The company has three facilities under contract to purchase at certificate of occupancy in 2017 for a total of $43.3 million. The company has purchased five since fourth quarter of 2014.
Marr said the company has always been disciplined in choosing C of O deals, but that they are even more “selective and choosy” than they have been in the past.
The company has seven of its own developments underway, five of which are with joint venture partners. CubeSmart’s total investment in those is expected to exceed $300 million. The company has completed two new developments this year, both in New York City.
During the quarter CubeSmart also purchased five facilities, totaling $75.2 million; the facilities are located in Maryland, Texas, New York and New Jersey. The company has four additional facilities under contract for $60.2 million.
Following the end of the third quarter, CubeSmart exited the El Paso, TX market, selling seven facilities there.
