CubeSmart CEO: New supply nearing an “inflection point”

John Egan
October 29, 2018

With an overall decline in delivery of new supply projected for its top 12 metro markets in 2019 compared with this year and last year, self-storage REIT CubeSmart is bullish about the outlook for same-store revenue growth. In fact, the REIT’s CEO said he thinks the new-supply situation is nearing an “inflection point” in those markets.

In light of CubeSmart’s analysis of proprietary supply data for its top 12 metro markets, CEO Chris Marr said Oct. 26 that “the impact of new supply does not appear it will have the draconian impact on same-store revenue growth that some have feared.”

In the third quarter, CubeSmart reported a 3 percent increase in same-store revenue compared with the same period last year. While the REIT has “seen a fairly consistent and relatively modest quarter-to-quarter deceleration” in same-store revenue growth through the quarter that ended Sept. 30, Marr noted that 3 percent same-store revenue growth would be “the envy of many CEOs of other property types.”

Peak impact

Speaking with Wall Street analysts during CubeSmart’s third-quarter earnings call, Marr said it’s “starting to look like we’ll, over the next year, be getting deep enough into this development cycle that we will feel the peak impact of the supply in the major markets and reach an inflection point.”

Marr pointed out that the Chicago and Dallas markets experienced an earlier start to the current development cycle and, therefore, are expected to witness “significant declines” in new supply in 2019 compared with 2018.

Marr also observed that markets with higher-than-average square footage per capita going into this development cycle that have absorbed “significant levels” of new supply while relying on population growth to balance out supply and demand “will likely recover more slowly” than other markets. He didn’t cite any specific markets.

Marr went on to say that well-located facilities in markets with attractive demographics “will be able to more smoothly navigate through the impact of new supply.”

“I don’t think you’re going to see distress in self-storage. It’s just [that] the product is too darn resilient,” Marr said. “I think you’ll just see some folks who were just a little bit disappointed in the outcome relative to their hopes when they first put pen to paper.”

Quarterly performance

CubeSmart’s third-quarter revenue growth of 3 percent, coupled with a 0.6 percent uptick in property operating expenses, contributed to a 3.9 percent rise in same-store NOI compared with the same period in 2017.

Other highlights of the third quarter include:

  • Average same-store occupancy of 93.3 percent.
  • Three acquisitions totaling $59.6 million — one each in Nevada, North Carolina and Washington, DC.
  • Acquisition of two facilities through its HVP IV joint venture — one each in Florida and Georgia — for $20.5 million.
  • Opening of one development project at a cost $91.5 million.
  • Addition of 60 facilities to its third-party management platform, bringing the third-party count to 582 facilities across 38.8 million square feet.
  • Tightening of the projected range of same-store revenue growth for 2018. The previous estimate was 2.75 percent to 3.25 percent. It’s now 3 percent to 3.25 percent.
  • Reduction of the projected range of same-store expense growth for 2018. The previous estimate was 3.5 percent to 4.5 percent. It’s now 3 percent to 3.5 percent.
  • Increase of the projected range of same-store NOI growth for 2018. The previous estimate was 2 percent to 3 percent. It’s now 2.75 percent to 3.25 percent.
  • Hike of the projected range of acquisitions in 2018. The previous estimate was $100 million to $150 million. It’s now $167 million to $172 million.
  • Lowering of the projection for certificate-of-occupancy acquisitions in 2018. The previous estimate was $40 million. It’s now $19.2 million.

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