2018 is shaping up to be a record-breaking year for the third-party management program at self-storage REIT CubeSmart, President and CEO Chris Marr told Wall Street analysts July 27.
During the second quarter, CubeSmart added 41 facilities to the third-party management platform, Marr said during the Malvern, PA-based REIT’s quarterly earnings call. Thirty of those facilities were newly built locations, and the remaining 11 were existing locations.
In the first half of 2018, CubeSmart signed up a total of 88 facilities for its third-party management program.
“We continue to focus a lot of energy on identifying opportunities that are coming out of our third-party management platform,” Marr said.
“Excellent pipeline” for acquisitions
At the end of June, CubeSmart tallied 535 facilities in its third-party management portfolio, representing 35.3 million rentable square feet. By comparison, the number of company-owned facilities was 486, containing 33.9 million rentable square feet.
Marr said the third-party portfolio remains “an excellent pipeline for acquisition opportunities.”
Two of the facilities that CubeSmart purchased during the second quarter through its joint venture were part of the third-party management platform, Marr said, and the one wholly owned acquisition made during the quarter also came through the third-party management program.
“Looking ahead to the next two quarters, our pipeline of third-party management contracts is greater than at any point in our history,” Marr said, “and we see no signs of a slowdown.”
Management deal coming to a close
However, Marr noted that CubeSmart has mutually agreed with a self-storage owner to cancel a third-party management contract involving 42 facilities in Louisiana, Mississippi and Texas. The deal with the unidentified owner is set to wrap up at the end of October.
“We’re working together to transition the relationship,” Marr said, “and have factored the impact into our unchanged annual guidance for property management income.”
Marr declined to specify why the third-party relationship is winding down.
Positive outlook on fundamentals
Other than cancellation of the 42-facility management deal, Marr and other CubeSmart executives delivered mostly positive news during the second-quarter earnings call.
“Overall, as we approach the conclusion of our busiest time of the year, we are incrementally more positive on our operating fundamentals,” Marr said.
- CubeSmart recorded 3.2 percent growth in both same-store revenue and same-store expenses during the second quarter, resulting in same-store NOI growth of 3.3 percent. Average occupancy and discounts as a percentage of rent were flat during the quarter, said Timothy Martin, CubeSmart’s chief financial officer.
- So far this year, the New York and New England metro markets have exceeded expectations in terms of occupancy rates, rental rate and revenue growth, according to Marr.
- Thanks to a strong economy, good population growth and limited new supply, the California market “continues to perform well,” Marr said.
- Same-store occupancy averaged 93.6 percent during the second quarter, which was on par with the same period last year.
- Comparing 2018 with 2019, CubeSmart expects to see a “fairly good drop-off” in new supply in markets like Chicago, IL; Dallas-Fort Worth and Houston, TX; and Denver, CO, Marr said.
- In 2019, the overall effect of new supply in the REIT’s key markets should look similar to the effect in 2018, Marr said. “We will remain focused on executing against our business plan,” he said, “and we see a bright future for both Cube and the self-storage industry.”