Self-storage REIT CubeSmart expects about half of its same-store pool to be hit in 2019 by the continuing wave of new supply.
During the REIT’s Feb. 22 earnings call, Tim Martin, chief financial officer of CubeSmart, said the estimated 50 percent of the same-store portfolio that will compete with new supply this year compares with 40 percent in 2018 and 25 percent in 2017. For 2019, CubeSmart predicts facilities that are grappling with new supply to post revenue growth 200 to 300 basis points lower than facilities that are not coping with new supply.
“While we firmly believe that we’re in the very late stages of this development cycle,” Martin told Wall Street analysts, “the near-term headwinds for stores facing new supply are front and center and are a daily focus for our team.”
Martin said that in the fourth quarter of 2018, markets that felt the most pressure from new supply also felt the most pressure in terms of street rents on a year-over-year basis — with rates down eight percent to 11.5 percent. Those markets include Austin, TX; Charlotte, NC; Denver, CO; Miami, FL; and Nashville, TN.
By contrast, markets that have experienced “minimal” levels of new supply have seen growth in street rates of 5 percent to 10 percent, Martin said. Among those markets are Las Vegas, NV; Philadelphia, PA; and Tucson, AZ.
“We believe those markets impacted by [new] supply that are characterized by strong demographics and, thus, do not heavily rely on population growth to absorb the new supply will continue to be more resilient,” CEO Chris Marr said. “We believe that the market demand for self-storage remains very solid and that the new stores being delivered will lease up.”
During the earnings call, Malvern, PA-based CubeSmart also reported:
- $227.5 million worth of acquisitions in 2018. For 2019, the REIT foresees acquisition activity of $75 million to $150 million.
- The addition of 209 facilities to its third-party management program last year, bringing the total to 593 as of Dec. 31, 2018.
- Revenue of $20 million from its third-party management program in 2018, compared with $15 million the previous year.
- Same-store revenue growth of 3.3 percent in 2018 compared with 2017. Same-store revenue for 2019 is projected to rise 1.5 percent to 2.5 percent.
- Same-store NOI growth of 3.3 percent in 2018 compared with 2017. The REIT predicts same-store NOI will increase 1 percent to 2.25 percent in 2019.
- Same-store growth in operating expenses of 3.5 percent in 2018 compared with 2017. In 2019, same-storage operating expenses are expected to jump 3 percent to 4 percent.
- Average same-store occupancy of 92.7 percent in 2018, down from 92.9 percent in 2017.