Edited Transcript of CUBE.N earnings conference call or presentation 8-May-20 3:00pm GMT

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Cleveland Jun 16, 2020 (Thomson StreetEvents) — Edited Transcript of CubeSmart earnings conference call or presentation Friday, May 8, 2020 at 3:00:00pm GMT * Christopher P. Marr * Timothy M. Martin Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst KeyBanc Capital Markets Inc., Research […]

Cleveland Jun 16, 2020 (Thomson StreetEvents) — Edited Transcript of CubeSmart earnings conference call or presentation Friday, May 8, 2020 at 3:00:00pm GMT

* Christopher P. Marr

* Timothy M. Martin

Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst

KeyBanc Capital Markets Inc., Research Division – MD and Senior Equity Research Analyst

Good day, everybody, and welcome to the CubeSmart First Quarter 2020 Earnings Call. (Operator Instructions) Please note, todays event is being recorded.

I would now like to turn the conference over to Mr. Josh Schutzer, Senior Director of Finance. Please proceed, sir.

Thank you, Eric. Hello, everyone, and welcome to CubeSmart’s First Quarter 2020 Earnings Call. Participants on today’s call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session.

In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company’s website at www.cubesmart.com. The company’s remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically, the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K and the Risk Factors section of the company’s annual report on Form 10-K.

In addition, the company’s remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the first quarter financial supplement posted on the company’s website at www.cubesmart.com.

I will now turn the call over to Chris.

Christopher P. Marr, CubeSmart – CEO, President & Trustee [3]

Good morning. Thank you to everyone participating and listening to this call. We are thinking of you during these difficult times. Our thoughts and prayers are with you and our CubeSmart teammates, their families and friends, our customers and our communities.

While this pandemic has impacted our lives and loved ones in many difficult and challenging forms, we have lifted up by the courage, compassion and innovative spirit that we have witnessed in our over 3,100 teammates and 600,000 customers. Personally, I’m confident that our mission, our values and our incredible teammates are going to endure through this time and make us stronger together.

It’s happening already. The world is changing around us, and we’re adapting with those changes. We’re simplifying the challenges created by this life event by coming together, creating innovative solutions, delivering unparalleled service and holding each other up with genuine care.

While it seems a lifetime ago, our first quarter was off to an extremely solid and encouraging start. Same-store rental volume through the end of February was running ahead of last year and our plan. Same-store physical occupancy at the end of February was 50 basis points ahead of last year. Net effective rate on rentals were slightly higher compared to 2019 during January and February.

We had a positive bias on customer demand heading into the beginning of the busy rental season. All of this changed in March. As stated in our earnings release, same-store average occupancy for the first quarter was up 20 basis points over last year, while quarter ending same-store occupancy at 91.8% was down 20 basis points over last year.

While student rentals, as a result of school closings, benefited occupancy during the first 2 weeks of March, we experienced a significant decline relative to both last year and planned during the last 2 weeks of the month, ending March with same-store rentals down 11% to last year.

In mid-March, we paused both rate increases to existing customers as well as our delinquency procedures and later in the month suspended customer use of rental trucks. April results reflect a full month of altered policies and procedures as we adapted to a new manner of operating and working within each municipalities’ unique orders.

Same-store occupancy ended April at 91.8%, consistent with March and 50 basis points below last year. Same-store rentals were down 28% compared to April of 2019, while same-store vacates were also down significantly, 26% below April of last year. The same-store average net effective rate on April rentals was 13% below April of 2019.

I must say that what is encouraging is the more recent rental trends. The early days of stay-at-home orders brought very low levels of activity in our stores, but the last 2 weeks have seen a steady uplift in rental volume. Over the last 7 days, specifically, same-store rentals are only down 12% compared to last year, a significant improvement from April trends.

When examining recent activity by region, the trends have been consistent with Dallas, Phoenix, Houston, Philadelphia and Fort Myers, Florida, performing the best and the balance of our remaining MSAs all performing relatively the same.

This unprecedented time has been called a generation-defining moment. We at CubeSmart believe it will also be viewed as a company-defining moment. How we respond to the crisis matters most. We have completely transformed our service delivery in a matter of days and weeks. 100% of our rentals have been contactless since we rolled out that capability nationwide on April 2.

The investments we quietly made over the last few years in our technology, our point-of-sale systems and our people laid the foundation for us to pivot and rapidly introduce SmartRental, our contactless completely online process for our customers.

On April 27, we introduced SmartRental nationwide. SmartRental awareness has been rapidly increasing over the last 8 to 10 days, and we are extremely pleased with the customer adoption rate.

In New York City, our customers now have the option to access the gates and keypad-access doors contactless through their smartphones. We are working on several other innovative technological solutions that will be rolled out over the next few months.

We are confident that when this pandemic is viewed through the lens of hindsight, our ability to combine our award-winning customer service culture with an array of cutting-edge technological solutions in an amazingly compressed timeline and under extraordinarily challenging circumstances will further solidify our position as an industry leader and preferred brand.

I’d like to now turn the call over to Tim Martin, our Chief Financial Officer, for him to share his thoughts on the quarter and moving forward. Tim?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [4]

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Thanks, Chris, and thank you to everyone on the call for your continued interest and support. We’re hoping you and your families, friends and colleagues are all healthy, safe and not going too stir-crazy in your new work environments.

Picking up on Chris’ comments, the first quarter was certainly an odd one. And while it does feel at times like this, state of emergencies, lockdowns, stay-at-home environments started months and months ago, it’s all still pretty new and didn’t really start to impact our behaviors until mid-March.

We started adjusting several of our operating practices by stopping our lean sales and pausing on our rent increases to existing customers, among other things. Those actions are clearly going to have a financial impact. But from a timing perspective, they didn’t have much of an impact on first quarter results. The impact will come in the second and the third quarter results and possibly beyond.

Overall, for the quarter, we reported results in line with our expectations. FFO per share of $0.41, same-store revenue growth of 1.7%, same-store expense growth of 3.8% and same-store NOI growth of 0.8%. Year-to-date, from an external growth perspective, we closed on 3 acquisitions for $74.7 million. And during the quarter, we added 66 stores to our third-party management platform.

All that said, clearly, investor focus is less on what happened in the first quarter and more on 2 things. First, what’s going to happen next for our second quarter results and on through the rest of the year? And second, how strong is the company’s balance sheet to provide flexibility and capacity to navigate through all of this uncertainty?

Taking those in order, let’s start with guidance. The major challenge that we and many, many other companies had this quarter is that there are simply too many unknowns and uncertainties to factor in to provide a range of estimates per our normal practice. Major questions impacting forward guidance include: how long until we’re able to fully get back to normal operations, including conducting [lean] sales and passing along rate increases to existing customers? What will demand look like for the self-storage customer when we come out the other side of it? How successful will we be in collecting past-due rents from our customers? And what happens overall with the U.S. economy? These are all questions, of course, that at this time, no one has the answers to.

As some municipalities begin to lift stay-at-home orders, we are starting to reinstitute delinquency processes and rate increases to existing customers on a market-by-market basis as regulations allow, but we’ll continue to monitor the situation and adjust as necessary.

All of these factors will be meaningful drivers of our financial results in coming quarters. So as a result of all this uncertainty, we, along with many others, elected to not provide forward earnings guidance at this time.

And then the second main area of focus is on balance sheet strength. That’s an area that we can provide quite a bit more certainty and confidence. We are extremely well positioned to weather this storm. We have an unsecured credit facility with $750 million of capacity at the end of the quarter, and we have very little debt maturing through the end of 2021, only 3% or $56 million of our debt is coming due through the end of next year.

In addition, at quarter end, our leverage levels remain conservative at 39% debt-to-gross assets, our debt-to-EBITDA was 4.9x, and our fixed charge coverage ratio was 5.5x. So as many companies are dealing with major issues in addressing upcoming maturities, funding their operations and paying their dividends, we’re focused on how to position ourselves to be nimble and opportunistic, taking our strong balance sheet and using it to grow our company as we come out of this in the quarters ahead.

We also have the benefit here at CubeSmart of having a team that has been through tough times before. As a team, our collaborative culture, our experience, our compassion, our customer service focus and our ability to innovate will position us well to differentiate ourselves in the industry, and to do so in a way that sets us up for years of continued success.

Thanks, again, for taking the time to join us for today’s call. At this point, Eric, why don’t we open up the line for some questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Jeff Spector with Bank of America.

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Unidentified Analyst, [2]

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This is [Alexa] for Jeff Spector. I was wondering if you guys can just talk a little bit about expenses going forward. Anything you can tell us on taxes or how you’re thinking about marketing in this situation? And then maybe something on payroll and how we should look at that in the coming months?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [3]

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Sure. Happy to. This is Tim. Thanks for your question. Of all of the things that have happened here since all of this started, the consistency is that expenses aren’t really impacted much at all. So we — when we had provided guidance previously and talked about our thought about 2020 and thinking about real estate taxes are the biggest area of pressure, we expect that they will continue to be. They are the largest line item from an expense standpoint for us, and there’s nothing in the near term that would change our expected trajectory of those expenses. From a marketing perspective, we’ve continued to ramp up our marketing spend. Our team does a great job of adapting and evolving and continuing to find attractive ways to spend marketing dollars to continue to attract customers, and we’re still seeing good returns on our marketing investments. From a payroll perspective, we’ve worked very hard, and our teammates worked very hard to keep our stores open, to continue to staff them in a way that we can serve our customers. And so from a payroll perspective, again, we didn’t see much of an impact looking back in the first quarter and don’t expect much of an impact versus what our expectations would have been pre-COVID-19 crisis.

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Unidentified Analyst, [4]

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Okay, great. And then a question on the SmartRental. So how many of your rentals in the past few days have been coming from that platform?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [5]

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Yes. This is Chris. So the platform was introduced, as I said, only about 8 days ago in terms of the SmartRental product permitting the customers to be able to complete their entire process online. Earlier in April, as I mentioned, we went to a contactless process and 100% of the rentals were coming through that. So in the last 8 days, we’ve seen SmartRental grow from 0. Yesterday, 17% of our rentals came through that platform. So the growth has been exponential in the last 8 or 9 days, and we expect that to continue as brand awareness and the awareness of that option permeates throughout our customer base.

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Operator [6]

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Our next question will come from Smedes Rose of Citi.

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Smedes Rose, Citigroup Inc, Research Division – Director & Senior Analyst [7]

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I wanted to ask you just on the contactless program as it grows. Are there any kind of margin assumptions there? Does it cost you less to run that program?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [8]

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So Smedes, I think as we think about the delivery model for us, certainly, we have a new paradigm. Concepts such as greeting the customer with a bottle of water in the parking lot, our success is one of them will shake. So we’ve had to revamp that model fairly significantly. I think as we move forward, our intention is to continue to deliver a high-quality customer service experience and that likely will continue to require our store teammates to be an integral part of that, but just perhaps in a different way. So if we look out over time, and again, we’re going to have to figure out how this new normal continues to change business offerings, I think we’re prepared to continue to offer a low-touch or no-touch experience, or frankly, go back to something more traditional if health conditions permit. So too early to tell. But certainly, I think, again, the optionality that we have, I think, will serve us very well to be able to pivot between both ends of the spectrum as we move forward.

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Smedes Rose, Citigroup Inc, Research Division – Director & Senior Analyst [9]

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Okay. And then just — I wanted to ask you, when you look back to the last recession, what sort of fallout was there, I guess, in terms of the pipeline or kind of — I imagine there must have been elevated attrition rates? And do you think that is something that could be similar going forward now?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [10]

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I’m sorry, just to clarify the question, pipeline and elevated attrition rates relative to customers?

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Smedes Rose, Citigroup Inc, Research Division – Director & Senior Analyst [11]

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No. Just in the last recession, I think it was a period where there had been a lot of deliveries and a lot of deliveries on deck as well. And I’m just wondering, at that time, were you able to track kind of what the pipeline ultimately declined to contracted? And I guess you expect kind of a similar situation now?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [12]

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Got it. In terms of supply?

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Smedes Rose, Citigroup Inc, Research Division – Director & Senior Analyst [13]

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Yes. Potentially supply.

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [14]

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I think the difference that makes it a challenging comparison is the majority of the supply that was coming had been delivered sort of immediately before The Great Recession. And so the volume in the pipeline, you got into kind of ’09, wasn’t quite as deep. I think and we’re already seeing it through the third-party platform, I think you have a couple of things going on. One, obviously, unrelated to COVID-19, but in New York City, the legislation that was passed, eliminating the ability for self-storage to use ICAPs in our opinion, will bring self-storage development in New York City basically to a halt. It just makes underwriting to a yield that makes any rational sense almost impossible. And I suspect that those deals that are able to cross the hurdle and have a CO, or I’m sorry — have a building permit before July 1, will get finished and we will see a grind to a halt in New York. In the rest of the country, it’s a mixed bag. Those who have the ability to either pause or reevaluate projects, what we’re seeing through the third-party platform, they’re absolutely doing that. Those deals that are underway, unfortunately, and we feel horrible for them in many municipalities, they’re not allowed to continue construction. So they’re sitting. In other areas, where you can continue construction, progress continues. So I think no doubt, this will have an impact of reducing the pipeline of new supply as we move forward. To what degree? Again, I think, is really difficult to tell at this point.

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Operator [15]

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Our next question will come from Jeremy Metz with BMO Capital Markets.

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Robert Jeremy Metz, BMO Capital Markets Equity Research – Director & Analyst [16]

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Chris, in your opening, you mentioned being encouraged by recent rental activity. Can you talk about the trends on the other side in terms of move out? Have any of those pent-up moves also started to happen? And then any color on effective rents here as well in that same context versus what you noticed for April in terms of the 13% fall?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [17]

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Sure. In terms of rentals, that has been, as I said, incredibly encouraging over the last 7, even 14 days. The trend in vacates relative to April really has not changed. So we have not seen any significant increase in that level of vacates, which has been, as I mentioned, quite significantly below last year.

In terms of rate, rates — net effective rates on rentals, I would say, have gapped out additional, call it, 400 basis points from that percentage I quoted in April.

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Robert Jeremy Metz, BMO Capital Markets Equity Research – Director & Analyst [18]

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Absolutely helpful. Wondering what the latest thinking is just broadly on New York in light of what’s going on and given the supply that’s still in the pipeline. Are you getting more aggressive on raising discounting in this market and maybe some of those broader comments or trends on where occupancy and rates have trended across April across the company?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [19]

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No. I would say, again, a shout out to our teammates and to our customers and to the population of the Boroughs, New York has been extraordinarily — they should be extraordinarily proud, and our teammates are extraordinarily proud. The customers have been great. We continue to see traction, albeit, much less than last year. But if you look at New York relative to, say, Miami or Chicago, Orlando, even to some degree, Metropolitan Washington, D.C., performance has been about the same. Collections have been about the same. Customer behavior has been about the same. So again, I think the resiliency of the population of New York is going to be a real positive as we come through this.

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Robert Jeremy Metz, BMO Capital Markets Equity Research – Director & Analyst [20]

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Great. Last one for me. Tim, you’ve always brought up that the math is the math. I’m thinking about deceleration, et cetera. So the question for you and Chris here, I think, do some simple math, I mean you got a fall-off in occupancy, effective rent down quite a bit here, you paused the [NCRI] program, you’re still dealing with a heavy amount of supply. You mentioned the expenses. We got a lower starting point. You just wrap all that together and you suggest a pretty meaningful falloff here. And it would point to something worse than what we saw in the GST. So just wondering how do we think about that? What sort of goalpost to help you provide in terms of — should we be thinking about a potentially sharper reset? What would be some of the puts and takes on either side of that?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [21]

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Jeremy, its Tim. Thanks for the question. I am a big fan of math, and I’m a big fan of reporting results and providing some good color on guidance. The challenge, of course, is that for all of those things, even trying to set goalposts within any reasonable range or so incredibly dependent upon all of the factors that you mentioned, big ones, including getting back to pass along rate increases to existing customers, what level of demand do we continue to see, what pricing, what level of discount. But the biggest one is time, how long does this continue? And so for something like the rate increases to existing customers, it’s a compounding impact. Every month that you don’t do it, builds and builds and builds until such time as you’re able to then start to go back and reinstitute those rate increases. And so providing guidance is all mathematically based, and it’s — I’m sorry, just tried to address in the opening remarks. And of course, it’s no surprise, everybody also seeing the same things. There’s just such a wide range of potential outcomes, primarily due to the biggest input as to how long does this last and when can we revert to more normal operating procedures. So I wish I had some math to provide you, but it’s all inherent on why we pulled our guidance and aren’t providing it at this time.

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Robert Jeremy Metz, BMO Capital Markets Equity Research – Director & Analyst [22]

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Yes. I think that’s all fair. And I guess I would just ask, just an opinion then can you feel — Chris, can you feel better today? I mean, is it — then you did back then just about the potential here? Or is it again, is there so much uncertainty that it’s hard to see if you feel better or worse. Do you actually feel a little worse as to how acute everything is happening?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [23]

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Yes. Jeremy, its Chris. I think it’s different, but frankly, I think we feel better about where we are because, again, we’re able to offer the customer an opportunity to use our products on a contactless basis, which is pretty unique relative to almost every other business. So to be able to provide the customer with an opportunity to use self-storage in that manner, I think, creates an opportunity for us to meet the demand that is there. Fundamentally, our behavior pattern is going to change, et cetera, they are. I could give you a glass half, full approach, which is, we’re all sick and tired of looking at the same 4 walls that we now work in, eat in, play in, socialize in via virtual methods, and that if my apartment lease was coming due in the next couple of months and I hadn’t ordinarily thought about moving, I may want to move just for a change of scenery. If I’ve been home for 14 weeks organizing and finding a different use or maybe I need a room in the house now for my homework that I think is going to be in some longer time period, I may need a safe and secure, contact-free place to be able to store my possessions. And we can deliver on that for that customer. So there’s an option here, again, depending upon the timing that you could see a relatively nice bounce back in demand over the next weeks and months, but it’s going to largely depend upon what happens by municipality. And so I think about those states that are reopening, and in those states, we are beginning to start to go back to normal in terms of our operating process, working with the customers who are in arrears and focusing in on rate increases to those existing customers at some point over the next couple of months. So again, I think, if we continue to reopen the country in a safe manner, then I think we can get back to something in this new normal over the summer, but it’s just impossible. It’s how this is going to ebb and flow.

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Operator [24]

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Our next question will come from Todd Thomas with KeyBanc Capital Markets.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division – MD and Senior Equity Research Analyst [25]

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Chris, sticking with some of the comments that you just made and thinking about New York specifically, where you sound encouraged by the trends in New York that you’ve seen in the near term, but it’s a relatively large and outsized exposure for the company. Any preliminary thoughts on how this pandemic may or may not change consumer and employment preferences? And how that — those changes might impact the way you think about allocating capital longer term?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [26]

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Yes. Great question. So I think Marty McFly from Back to the Future was the first one to confuse density and destiny. And I will say statistics do not show a consistent connection between big city and coronavirus impact. So if you think about the world’s most heavily settled places, Hong Kong, Singapore, they’ve provided — they proved to be very formidable at containing the virus while small towns in Georgia and Louisiana suffer. So I think about New York City as an opportunity for urban planning to use this, and as we have done in our country since day 1, we are an incredibly innovative and can-do society. And I think ultimately, the New York City issue isn’t density, it’s crowding. Many people think it’s the same thing, but it’s not, right? Density is how many people live and work in how much land — how many people live and work on how much land. Crowding, crowding is literally how close everyone is to one another at any given time and place. So you think about New York and unfortunately, the most dense portions of New York City have fared better than Staten Island (inaudible) in terms of impact of COVID per capita. So again, I think density done well supports the existence of quick emergency responses, walkable services, et cetera, and that’s what makes cities attractive. Again, I don’t view — we don’t view this as something that is going to ultimately make cities viewed as less attractive. I can point to no number of — no small number of cities around the world who have been able to plan in a way that paints a very rosy picture going forward. So I’m still and we’re still all in on New York City and on the urban nature of our portfolio, and ultimately believe that planners will find a way to create less crowding and will help continue to make cities attractive for all the reasons that they always have been.

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Timothy M. Martin, CubeSmart – CFO & Treasurer [27]

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And then from a — just from a fact checking standpoint, it wasn’t Marty Mcfly. It was his Father George Mcfly who confused density with destiny.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division – MD and Senior Equity Research Analyst [28]

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Okay. That’s helpful. And appreciate the detail on the rental trends and net effective rents. But can you tell us what the average spread in rates is between move-outs and move-ins during the first quarter? And how that trended during April or more recently, if you have that information?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [29]

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Yes. As you know, the first quarter, just by seasonality always has the largest spread between the move-in and move-out nature of our business. And in the first quarter of this year relative to the last several years, that spread widened out about 5% more than usual. So a little bit wider than what we had seen. But again, I think when you look at the net effective rents on the rentals themselves relative to last year, pretty tight. So I would say, overall, given what we’re working with here, pretty satisfied with how that’s played out.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division – MD and Senior Equity Research Analyst [30]

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Okay. And just one last one, if I could. In terms of the — you’ve been successful growing the third-party management platform. And I’m wondering with regard to the tenant insurance income that, that program generates and sort of your tenant insurance efforts overall. Is it appropriate to consider thinking about transitioning to a captive solution? What’s the current thinking there?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [31]

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Todd, it’s a good question. It is — the balance and the trade-off for our current approach compared to a captive approach is something that we look at every year and think about the economics and the economics on a risk-adjusted basis for the trade-off between our current approach and a captive approach. And again, it will be something that we continue to look at. To date, we have not found a compelling time or opportunity or fact set on a risk-adjusted basis to transition to a captive. It’s something that we’re very knowledgeable on and continue to look at, and we’ll see what the future brings.

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Operator [32]

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Our next question will come from Ki Bin Kim with SunTrust.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division – MD [33]

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Going back to the existing customer rate increase program, could you just remind us, in any given year, what percent of your tenant base gets a rent increase? And if there’s a seasonality aspect to it so does it happen more in the summer versus other quarters?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [34]

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Yes. So a simple way to think about it, Ki Bin, is that we — our practice has been to pass along — in normal times, our practice has been to pass along a rate increase to our customer who has been with us for 6 months and then every 12 months thereafter. And so with a median length of stay for us that hovers right around 6.5 months, that means roughly half of our customers are going to get that rate increase — half of new customers will get that rate increase. And then you layer on top of that, 60% of our customers have been with us more than a year. 40% — a little bit north of 40% have been with us for more than 2 years. So you think about all of that math as to who and how many folks are getting it. From a seasonality perspective, given move-in trends are more weighted towards summer move-ins, that means there are more people than they come up on that 6-month mark in the fall and winter time. So we see a little bit more in the way of rate increases. It’s a little lumpier in the fall and the winter, given our practice.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division – MD [35]

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Okay. And is the basic math that we know that the [ECRI] program doesn’t really add to the same sort of NOI growth rate because you’re doing it every year. But if you stop, obviously, you’ll notice a bigger impact. So is the basic math that if half your customers are getting it and if the rent increase is 8%, 9%, that’s basically the math of how much same-store NOI would be at risk?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [36]

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Yes, versus the customers who will be receiving in that particular month. So it would be 8% or 9% of some set of the population. And then the biggest wild card to all that then is what I mentioned in an earlier response, which is it’s going to depend materially on how long this impacts because if you don’t do it for 1 month, that’s a little bit. If you don’t do it for the second month, it’s more, and then it continues to build from there. And then it gets really complicated when you try to model it out because 6 months from now, if all of this continues, our move-in volume is a little bit lower. So there will be less people in 6 months that will be exposed to it because there are less folks moving in. So it’s not the easiest thing to model out. Needless to say, it is — of all of the variables, it is probably in the short-term here. It’s probably the biggest variable that would impact our results here in the near term.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division – MD [37]

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Okay. And just last question today. As municipalities start to open up, are you thinking about reimplementing the [ECRI] program and lock-step basically? Or are there other things that would maybe cause some more volatility?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [38]

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Yes, again, it’s consistent with what you’ve heard from others. We’re actively monitoring stay-at-home orders, state-emergency orders and behaviors within markets. And ultimately, we want to get back to business as normal as soon as we can. We want to get back to sending out rate increase letters to customers per our normal practice. And we’re monitoring all of those things to find the appropriate time to do it. And then, of course, we’ll have to continue to monitor because things could revert, as we all know. So we’ll carefully stay on top of that as we have been since all this started. So difficult to forecast. Our goal would be to get back to business as normal as quickly as we can.

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Operator [39]

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Our next question will come from Hong Liang Zhang with JPMorgan.

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Hong Liang Zhang, JP Morgan Chase & Co, Research Division – Analyst [40]

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I was wondering how much of your April-end occupancy was affected by you not doing Walker auctions (sic) [actions] or delinquency actions?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [41]

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Yes, it’s Chris. I would say that it’s about 50 basis points of occupancy is probably a conservative number relative to the lack of auction.

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Operator [42]

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Our next question will come from Jason Belcher with Wells Fargo.

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Jason Belcher, Wells Fargo Securities, LLC, Research Division – Analyst [43]

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Back on the acquisition front, just wondering if you could provide a little more detail on those 3 facilities you’ve acquired year-to-date? And maybe just tell us what markets they’re in and how mature they are? What size they are in terms of square feet?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [44]

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Yes, happy to do it. So we closed on one acquisition during the quarter, as you saw on the release. That store was in San Antonio. It was a lease-up store that we are very excited about. And then subsequent to quarter end, we had 2 stores under contract, both with long-standing existing relationships, one in Jessup, Maryland, and one in Hoboken, New Jersey. And those are great additions to our portfolio. They fill in really nicely with our existing assets. Again, deals that we’ve done with 2 separate parties, but folks that we have long-standing relationships with and are familiar with taking over those stores. And we’re incredibly excited. In each of those cases, also, those are stores that are — they were each in the, call it, 65%, 70% occupied range. So not early stage lease-up but still in lease-up. And so all 3 assets for us are a great fit and consistent with our investment strategy. And then you probably also saw that we invested in a joint venture that closed. That joint venture involved 14 assets, 6 in Atlanta, 3 in Charleston and then 1 in Tampa and 1 in Fort Myers. And so that’s another co-investment that we’ve made that allows us to expand our management platform as a stake in some of these assets get a leverage return from our perspective from a management fee standpoint. And there are some opportunities for us to do some nice work there to add those stores to our platform and create, we believe, some pretty significant value there.

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Jason Belcher, Wells Fargo Securities, LLC, Research Division – Analyst [45]

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And then on that JV — the new JV, is that a new JV structure with an existing partner or a new JV partner altogether? And then could you just remind us how many JV partners in total you have now?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [46]

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Yes. So that is a new joint venture with a partner that we have done joint ventures with many times. And so that portfolio was such that it was put into a separate venture, has debt specific to that venture. From an overall standpoint, we have joint ventures with a handful of folks, largely driven by — on development projects. And so we have multiple of the stores that you see in our development pipeline of those 5 stores. They have 4 separate partners on an unconsolidated joint venture — or they’re all consolidated, but they’re all development joint ventures. And then we have one partner that we’ve done a lot of other ventures with them.

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Operator [47]

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Our next question will come from Steve Sakwa with Evercore ISI.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [48]

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Just a quick question or a couple. What — first, what is the percentage of auto pay that you currently have? And are you seeing a meaningful difference in the pay between the auto pays and the cash pay?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [49]

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Steve, so we hover right around 50% of our customers are on auto pay, and we’re not seeing a — I mean, obviously, auto-pay customers pay, that’s — hence the auto pay. But for the balance of our customers who pay via credit card but not on auto pay and cash customers, we’re not seeing a material difference in those collections. Collections have actually gone pretty well. I think some of the numbers that have been shared by others are going to be meaningfully impacted by companies who are first of the month and companies who are anniversary date. But at this point, we’re pretty pleased with where we are, especially because we have not been actively pursuing collection efforts. And so as we start to, as things ease up here a little bit, feel pretty good about where we stand as we resume and start to approach getting back to some normal operating procedures.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [50]

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Right. What is — I mean, when you sort of look back historically, when a person gets delinquent by, I don’t know if it’s 60 days, 90 days, 120 days, what is the — what’s the point of kind of no return where you just don’t feel like you can collect or the goods aren’t worth what they owe you? I mean, what sort of that day of reckoning? How far out do you have to get or keep that before you start to run into a bigger collection problem?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [51]

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Yes. The simple answer to that question would be probably at the 60-day mark, but what’s really difficult today is to think about that historical answer and how to necessarily apply it to today. Because as we have been trying to exercise genuine care for our customers and trying to be understanding of the situation that many are in with stay-at-home orders and unemployment and the like, we’ve been — we haven’t been performing lean sales. We haven’t been going through the normal delinquency process. So if the answer was 60 days 6 months ago, I’m not sure that the same behavior is going to happen because we haven’t been doing the same things that we have been doing before. So I expect that we’ll collect somethings over 60 days that we wouldn’t have previously because of what we’ve been doing. But hopefully, that’s helpful to answer your question.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [52]

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Okay. And then lastly, Chris, this new joint venture, I’m just curious, there’s a lot of capital that’s been wanting to get into self-storage. You guys have a very good platform, third-party management can take advantage of that. I’m just curious, how do you evaluate new transactions today? I realize the market is probably not that fluid, but how do you sort of go about underwriting new deals today given the uncertainty over rates and occupancy trends?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [53]

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Yes. It’s extraordinarily challenging, which is why you’ve just seen sort of a pretty sharp slowdown in activity. The deals that were brought to market kind of at or around mid-March, a couple of them have gone under contract and I would say, at pretty robust prices. So there’s no shortage of capital out there, particularly private capital, who remain very bullish on the long-term prospects and are willing to transact. We are taking, and I think we see it across our peers, a very cautious approach. And I think at this point, frankly, most folks are going to wait until they can get a better handle on what buyers and sellers, a better handle on what reopening looks like and how that may translate into operating fundamentals before we start to see much of a restart. I think on the — as I mentioned to a previous question on the development side, I think that’s even more difficult. But I think if you haven’t started construction or you’re not committed, our sense is that most of those folks are definitely pausing and waiting to see what happens. Obviously, the lending institutions are also getting more cautious.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [54]

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Okay. And then last question, just on back on the SmartRental and the industry kind of moving more online, kind of here out of necessity. How do you see that sort of changing just over time staffing needs and levels? And what does that do to the on-site personnel costs down the road?

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [55]

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Yes. I think, again, not to sound like a broken record, but I think it depends. I think it’s going to depend upon how much of what we’re experiencing today is a paradigm shift and how people like to operate. JFK didn’t wear a hat, and all of a sudden, hat sales in American men went down the toilet. So is the handshake a thing in the past, is the definition of customer service going to radically change here. So I think it depends. It certainly gives us the optionality to blend a self-service contact-free approach with more direct customer service and to be able to pivot between the 2, depending upon the market, the store and where we are in battling this pandemic. So a long answer to basically say, unsure at the moment, but the optionality is there. And we always said about online rentals that if it made sense for us to do it, we, in the industry, certainly compared to many of our peers believe we had a technology stack that would allow us to pivot and do that in a very short period of time. I don’t think we thought it would be weeks. We thought it would be months. But the team pulled together, and we introduced something pretty unique in a couple week period of time. I think as we go forward, if we have to shift back and forth between different service models, I think we’ve proven we have the platform to do that.

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Operator [56]

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Our next question will come from Spenser Allaway with Green Street Advisors.

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Spenser Bowes Allaway, Green Street Advisors, LLC, Research Division – Analyst of Retail [57]

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I know you guys mentioned this briefly in your opening remarks, but can you just elaborate a little more on the recently passed changes to ICAP and how this would impact views just on your fundamentals longer term, maybe specifically just on how you think it could impact your ability [to push rates]?

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Timothy M. Martin, CubeSmart – CFO & Treasurer [58]

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I think picking up on some of Chris’ comments earlier, the ICAP legislation effectively makes deals that aren’t already permitted or don’t get permitted by July 1. It changes the economics in such a meaningful way that it’s hard to imagine any time in the medium-term that it doesn’t effectively have the impact of shutting down any new development in the boroughs for years to come. And so obviously, as a company who has participated in a lot of development and we’ve built in an incredibly valuable portfolio of assets in New York, it’s not great that, that shutdown from a developer standpoint, from an existing operator and from the company that has the largest market share of assets in the Boroughs of New York, from that perspective, it’s really compelling positive news, in that once this new supply that’s underway gets leased up, there effectively will be no more. And so one would think then that in the years to come, once the existing stuff gets leased up, our ability then to be in an environment that we would expect would continue to have good, steady demand growth won’t have the other side of that and supply growth should position us and our market-leading presence in New York should be incredibly valuable in the years to come as a result.

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Operator [59]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Chris Marr for any closing remarks.

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Christopher P. Marr, CubeSmart – CEO, President & Trustee [60]

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Thank you very much for participating in the call. Please stay safe, and we look forward to speaking with you again on our second quarter earnings call. Take care.

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Operator [61]

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The conference has now concluded. Thank you very much for attending today’s presentation. You may now disconnect.

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