Self-storage REIT CubeSmart expects its same-store portfolio to feel increasing pressure from new supply in 2018.
In a Feb. 15 call to discuss 2017 financial results with Wall Street analysts, Tim Martin, chief financial officer of Malvern, PA-based CubeSmart, said 40 percent of its same-store portfolio will face competition from new facilities this year, up from 25 percent in 2017.
Overall, CubeSmart anticipates 2018 revenue growth among the locations affected by new supply to be 200 to 300 basis points lower than the locations not affected by new supply.
CubeSmart CEO Chris Marr said the markets projected to bear much of the new-supply brunt in 2018 include Atlanta, GA; Dallas, TX; Miami, FL; and Washington, DC. Among the markets where new supply isn’t likely to be as much of a concern are Austin, TX; Houston, TX; New York City, NY; and Philadelphia, PA.
Hard out here for a REIT
Of course, CubeSmart isn’t the only self-storage operator being threatened by new supply. Across the country, around 950 construction starts were reported in the self-storage industry in 2017, according to the Argus Self Storage Sales Network and CBRE
Martin noted that although the self-storage sector is being “clearly impacted” by new supply in many markets, “consumer demand for self-storage remains strong and broad-based.”
“We believe our high-quality real estate portfolio and operating platform position us well to perform throughout all parts of the cycle,” he added.
Indeed, CubeSmart performed pretty well in 2017. It recorded same-store revenue growth of 4.4 percent for the year ended Dec. 31, 2017, while NOI rose by 5.1 percent. Marr said six of CubeSmart’s top 10 markets posted same-store revenue growth that was higher in the fourth quarter of 2017 than it was in the third quarter of 2017.
In the face of new supply coming online, CubeSmart is forecasting same-store revenue growth of 2 percent to 3 percent in 2018, with projected same-store NOI growth ranging from 1.5 percent to 3 percent.
CubeSmart closed 2017 owning 484 facilities with a physical occupancy rate of 89.2 percent.
Managing just fine
One silver lining to the surge of new supply? More third-party management contracts.
Over the course of 2017, the REIT added 160 facilities to its management program, allowing entry into new markets like Kansas City, MO; Pittsburgh, PA; St. Louis, MO; and Seattle, WA. CubeSmart finished the year with 452 managed facilities.
In 2018, CubeSmart expects third-party management fees to range from $19 million to $21 million, representing a little over 3 percent of total revenue. CubeSmart collected $14.9 million in third-party management fees in 2017, or nearly 2.7 percent of total revenue.
Revenue in 2017 rose to $560 million, up from $510 million the previous year.
Here are a couple of other financial highlights from 2017:
- The REIT bought four facilities for a total of $40.4 million.
- CubeSmart invested $208.3 million in new facilities, including three certificate-of-occupancy projects, two wholly owned projects and two properties developed through joint ventures.
All in all, Marr said, “2018 seems to be shaping up much like 2017.”