Q3 2024 CubeSmart Earnings Call

Thomson Reuters StreetEvents2024-11-02

Participants Josh Schutzer; Vice President - Finance; CubeSmart Christopher Marr; President, Chief Executive Officer, Trustee; CubeSmart Timothy Martin; Chief Financial Officer, Treasurer; CubeSmart ...

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Thank you for standing by. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CubeSmart third-quarter 2024 earnings call.  I would now like to turn the call over to Josh Schutzer, Vice President of Finance. Please go ahead.Thank you, Josh. Good morning. It was a solid third quarter as we continue to focus on maximizing the opportunities in a competitive market environment. Overall store performance was in line with our range of expectations entering the quarter. Once customers enter our portfolio, they continue to have elevated lengths of stay and credit metrics in line with historical norms. Our lower beta urban markets continue to outperform the Sunbelt. We are very grateful and thankful to have been extraordinarily lucky with both hurricanes. Our teammates are safe and our st","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"CUBE":"CubeSmart"},"translate_title":"2024年第三季度CubeSmart收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CUBE":1},"content_text":"Participants\nJosh Schutzer; Vice President - Finance; CubeSmart\nChristopher Marr; President, Chief Executive Officer, Trustee; CubeSmart\nTimothy Martin; Chief Financial Officer, Treasurer; CubeSmart\nJeffrey Spector; Analyst; BofA Securities\nMichael Goldsmith; Analyst; UBS\nJuan Sanabria; Analyst; BMO Capital Markets\nSpenser Glimcher; Analyst; Green Street\nDaniel Tricarico; Analyst; Scotiabank\nNicholas Joseph; Analyst; Citi\nTodd Thomas; Analyst; KeyBanc Capital Markets\nOmotayo Okusanya; Analyst; Deutsche Bank\nKi Bin Kim; Analyst; Truist\nMichael Mueller; Analyst; JP Morgan\nEric Luebchow; Analyst; Wells Fargo\nBrendan Lynch; Analyst; Barclays\nPresentation\nOperator\n Thank you for standing by. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CubeSmart third-quarter 2024 earnings call. (Operator Instructions) I would now like to turn the call over to Josh Schutzer, Vice President of Finance. Please go ahead.\nJosh Schutzer\n Thank you, John. Good morning, everyone. Welcome to CubeSmart's third-quarter 2024 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 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 the documents that the company furnishes to or filed with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed on 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 third quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.\nChristopher Marr\n Thank you, Josh. Good morning. It was a solid third quarter as we continue to focus on maximizing the opportunities in a competitive market environment. Overall store performance was in line with our range of expectations entering the quarter. Once customers enter our portfolio, they continue to have elevated lengths of stay and credit metrics in line with historical norms. Our lower beta urban markets continue to outperform the Sunbelt. We are very grateful and thankful to have been extraordinarily lucky with both hurricanes. Our teammates are safe and our stores avoided any major damage. Our New York MSA significantly outperformed the balance of our portfolio despite facing tougher comps and being weighed down by the supply impact in the North Jersey segment of the overall MSA. In the overall New York MSA, rentals were up year over year, demonstrating the continued solid demand profile in this key urban market. This year-over-year increase in rentals was led by our portfolio in the New York City boroughs, up 7.4%, offset by rental is being down 11.6% in our northern New Jersey portfolio. A similar story in same-store revenue growth with the New York MSA, generating our second highest growth within our major markets, led by the Bronx at 6.6%, followed by Brooklyn at 5.8% and again, weighed down a bit by our northern New Jersey lagging at negative 1.1%. Our top-performing major market was the DMV, District of Columbia, Maryland, Northern Virginia, as it rebounds from the headwinds of new supply. The MSA had both a solid 3.2% year-over-year same-store revenue growth as well as 110 basis points sequential improvement in revenue growth from the second quarter. Weaker performing markets are in Florida and Arizona markets that experienced significant gains during the pandemic while also experiencing and continuing to experience the impact of new supply. As Tim will discuss and provide more color in his remarks, we remain a third-party manager of choice. 2024 will be our eighth straight year of adding 130 or more stores annually to our portfolio. We will remain disciplined in our capital allocation decisions and are prepared to move decisively and with conviction for opportunities that fit our investment thesis. Thank you, and I will now turn it over to Tim Martin for his comments.\nTimothy Martin\n Thanks, Chris. Good morning, everyone. Thanks as always for taking time to join us on today's call. The third quarter, as Chris mentioned, was very solid for CubeSmart as we hit the midpoint of our guidance range. Business remains challenging as we continue to face a competitive pricing environment for new customers with slower rental volumes. But overall store performance was in line with our range of expectations. Same-store revenues declined 0.8% compared to last year, with average occupancy for our same-store portfolio down about 120 basis points to 90.8%. Same-store operating expenses grew 5.3% over last year, driven by continued pressure on property insurance. But the biggest driver of expense growth during the quarter was on the marketing line item. We continually evaluate our overall strategy and the interplay between rate promotions and marketing spend. And in the third quarter, we pushed on the marketing lever as we attempted to drive top-of-funnel demand in this current competitive environment. So negative 0.8% revenue growth combined with 5.3% expense growth yields negative 3.1% same-store NOI growth. And we reported FFO per share as adjusted of $0.67 for the quarter, which was at the midpoint of our guidance range. From an external growth perspective, we have started to see a little momentum here late in the year as we're under contract to acquire two stores in the fourth quarter, and we have a number of other transactions that we are actively pursuing. The certainty and timing of closing those other transactions is still up in the air. But as we've been discussing for the last quarter or so, acquisition activity is beginning to become much more constructive from our perspective. On the third-party management front, as Chris touched on, we had another productive quarter. We added 24 stores to the platform, bringing us to 893 stores under management at quarter end. No notable changes during the quarter to our strong balance sheet position. Low leverage, no floating rate exposure, and the full capacity of our line of credit has us in a great position to pursue external growth opportunities. We raised $32.8 million of proceeds under our at-the-market equity program during the quarter for an average sales price of $54.20 per share. From a full-year guidance perspective, not really any changes as the third quarter was in line with our expectations and the remainder of the year continues to track within the ranges we provided last quarter. Given third-quarter results, we've narrowed our full-year FFO per share range while maintaining the midpoint of our expectations. Thanks again for joining us on the call this morning. At this point, John, why don't we open up the call for some questions?\nQuestion and Answer Session\nOperator\n (Operator Instructions) Jeffrey Spector, Bank of America.\nJeffrey Spector\n Great. Thank you. First question for Chris. Chris, there's a nice healthy debate on severity -- I guess, exact conditions today and forward thoughts on finishing up the year into '25 -- into '25 peak leasing season. We've heard on other calls stabilization, saying maybe even expecting some improvement. I feel like you've always called it as it is. I mean, what do you think the [speed] of the state is as we finished '24 and head ino '25?\nChristopher Marr\n Yes, I think we're in a relatively high beta environment at the moment. We have some weeks during the quarter where you see some green shoots and I feel like we are starting to see some positive signs. And then honestly, you have some weeks that you scratch your head and wonder a little bit where all the demand went. So I think we've got a big event next Tuesday, we've got a lot going on in terms of interest rates in the Federal Reserve. We've had, obviously, an incredibly volatile 10-year, if you just think about it from that perspective. And I think that makes it just a very difficult question to answer with conviction one way or the other. So I will say I'm continuing to sort of operate in an environment where we're taking it week by week.\nJeffrey Spector\n Okay, thank you. That's fair. And then can you discuss move-in, move-out reach spread in the quarter?\nChristopher Marr\n Yeah, in the quarter that churn gap was negative 27.4%.\nJeffrey Spector\n Great. Thank you.\nOperator\n Michael Goldsmith, UBS.\nMichael Goldsmith\n Good morning. Thanks for taking my questions. Chris, I'd like to dissect kind of your opening remarks about maximizing opportunities in the competitive environment. So starting about maximizing the opportunities. It looks like you stepped on the advertising lever -- advertising marketing lever a little bit, but can you just talk about how you think about investing in price in marketing versus [weighted] in this environment and then how you're looking to be positioned kind of heading into the slower season?\nChristopher Marr\n So I think against a backdrop, just to put things in perspective, if you look at our investment, in our spend in marketing on a nine-month basis, last year for the first nine months of the year, that grew about 10%. And this year for the first nine months of the year, it's grown about 10%. So the investment there kind of in a growth rate basis year to year has been a little bit different in terms of the quarters in which we have chosen to push a little bit harder or take our foot off the gas, but the overall trend has been about the same for the first nine months. But to your more of a high-level question, that is, again, back to my week to week, we are looking at where are the opportunities, given the fact that I think everybody accepts we have the highest quality portfolio in the industry. Where do we look to also get the highest quality customers that we can get? Those customers who are willing to pay our premium rates, who then, in our data stay longer are less sensitive to rate increases over a long period of time. And that is a test lather, rinse, repeat week to week. It is certainly challenging in this very competitive market, to figure out exactly where we have that best mix. And that's something that obviously the team and the folks on the data science team are looking at every day as we're adjusting prices and making some decisions on the marketing side. Felt good about the marketing investment in the quarter, we saw web sales traffic up about 26% on all stores during the quarter. So I'm satisfied with the return. Again, it's just trying to balance out, as you said, that marketing investment relative to price relative to (inaudible) to get what we think is going to be the best result, both near term and long term.\nMichael Goldsmith\n Appreciate the color. And then as my follow-up. The second half of your opening statement was on the competitive environment. Are you seeing any of the competitions start to fade a little bit? It hasn't stepped up. I'm just trying to get a sense of what you're trying to manage here. Thanks.\nChristopher Marr\n Yah. Again, I think it's really market by market. We're obviously a local market business. But I think it is fair to say that you feel like there is a bit of stabilization in some markets around competitive pricing and how folks are thinking about attracting that new customer. And then the flip side, as we have markets, certainly the West Coast of Florida is easy to pick on where you just have that significant impact of new supply. And that's creating a little bit of an overhang as it relates to pricing to new customers.\nMichael Goldsmith\n Thank you very much. Good luck in the fourth quarter.\nOperator\n Juan Sanabria, BMO Capital Markets.\nJuan Sanabria\n Hi, just piggybacking on the comments on the prior question. Have you seen any deterioration in customer behavior or changes in the quality of the customer if you discount versus not? Or if there's differences within the kinds of discounting whether it's one month free or kind of more below street rates? Just curious on what you're seeing in terms of who you're getting and how long they stay depending on what you offer them upfront?\nChristopher Marr\n Yeah. Our data would tell us that a customer who, for example, to take it to one end of the extreme moves in for free or moves in for a dollar. It's just your lowest quality customer, from a profitability perspective, that customer is attracted to that offer for a variety of reasons that tends to lead to lower lengths of stay and higher credit issues over time. Vice versa, sort of common sense, your customer who is not sensitive to price on the front end also tends to be one who ends up statistically staying longer and being much less sensitive to future rate increases. So it is a balance between how do you think about that discount or offer to attract? And you're really trying to do that on a local store level relative to the inventory that you have at that store. So to the extent that you have a significant vacancy perhaps in a specific unit [time]. There, you may be open to offer some sort of a discount or [teaser] or whatever you want to call it. To try and get that customer in and just recognize that statistically the odds of that customer being long-term stay and a high-quality are low, but you're willing to accept that churn. So I think I think that's the way our data will tell us it plays out. And those are the kind of decisions you're making at a local market level every day.\nJuan Sanabria\n And then just to comment -- or a question on currency tightened FFO, (inaudible) the same-store unchanged. Is there any comfort level within the ranges 10 months after you're done on same-store revenue or NOI specifically at this point?\nTimothy Martin\n Well, I think by default, -- good morning, by the way. I think by default when you have [10 months, 12 months], so the answer is you have a little bit more comfort there at the beginning of the year. I mean, overall, our guidance ranges -- interestingly, it hasn't really changed all that much from the beginning of the year till now. We started the year with a pretty wide array of potential outcomes. And as the year plays on, you tend to narrow those. And I know it's just other than tightening the FFO per share range, as you noted, the balance of the guidance ranges -- we've left it unchanged from a quarter ago. We feel like across the board, we're still tracking to fall within all of those respective ranges. So really not much commentary because nothing much has changed. The quarter was very much in line with our expectations, and we have two months left in the year. And on Chris's points, it is some weeks, some weeks we get more optimistic, and some weeks, it feels like you're giving a little bit of it back, but we think the ranges that we have out there right now are appropriate.\nChristopher Marr\n And Juan, it's Chris. Just to piggyback a little bit on Tim's comments. When you do look back both for Cube and the industry we're at, expectations being set at the beginning of the year and if you just focus on the low end, which, off the top, my head, we were at negative [1%] in the quarter. I think everybody else was kind of around there or worse. And we talked about like drivers and how the year would have to play out for that to be the result. What's interesting to me is we focus on a housing market that would be no worse than what we saw in 2023 to kind of get to those lower ends. And obviously, there were some other macro factors. And here we sit in November first. And in fact, the housing market actually is worse this year than it was last year. And yet, for Cube and the industry as a whole, we're not performing at those really low levels or that low end of those original expectations. And I think it just goes -- again, the long-term resilience and just what a great business self-storage is, that in spite of the fact that we didn't get anything from some of those drivers that we thought would be helpful. We were still able to find other ways to kind of take advantage of whatever opportunities are presented to maximize their results. Just a plug for self-storage, [there is] self-service.\nJuan Sanabria\n Okay. Just to recap kind of the ending commentary. The low end seems like it's off the table. It's more in the mid and the high end then?\nChristopher Marr\n Yes, again, we're just providing a range of expected outcomes for the balance of the year that we're comfortable with, that we will look at some point in the year and be within those ranges. It's hard to get specific between one or the other.\nTimothy Martin\n Yeah, I think specifically, Chris is referring to the low end of the range that we started the year with, and we contracted that range from a number of perspectives last quarter.\nJuan Sanabria\n Thank you.\nOperator\n Spenser Glimcher, Green Street.\nSpenser Glimcher\n Thank you. You mentioned in the press release that the transaction market has become more constructive. Can you just provide some additional color here? And maybe particularly in the types of opportunities you're seeing?\nTimothy Martin\n Yeah. Good morning, Spenser. From a couple of different perspectives, we have seen an increasingly attractive opportunity set from a quality of the opportunity, and that's -- individual quality of assets, but also the quality of the opportunities that within markets that are attractive to us and our strategy. We have seen a continuation of some compression in the bid-ask spread from where it had been two, three, four quarters ago to a much more constructive environment today where there seems to be a reasonable gap, at least when you start a process between where we want to be as a buyer and where a seller is willing to transact. And so, as those two things start to get closer and closer together, it certainly feels like a much more constructive environment. That being said, anything can feel more constructive versus nothing for 18 months or so. So I guess it's all relative, but we're energized and you can certainly see that we're moving in a direction here, at least at the moment, into a much more constructive environment for us to put our balance sheet to work and to be able to focus on those external growth opportunities.\nSpenser Glimcher\n Okay, that's helpful. And I know I think [industry] participants are talking about bid-ask spread in like a 10% range, I won't speak for you guys. But just curious, like if you're saying there's been a little bit of compression there? Can you provide a range? Are you able to quantify maybe what you're seeing in today's environment in terms of that bid-ask spread?\nChristopher Marr\n Such a generalization. Each opportunity is obviously different. We were able to get two stores, as you saw in our release, on the contract. I mentioned previously, we're actively working on a handful of other opportunities that we have a chance to get across the finish line here. It's hard to say. The only ones that matter where you where there's [zero] bid-ask spread and the opportunity set being of higher quality is I think the more compelling component all that for CubeSmart because you do get a lot -- pencils get a lot sharper when something is attractive and fits our investment strategy.\nSpenser Glimcher\n Okay, that's fair. Thank you so much.\nOperator\n Daniel Tricarico, Scotiabank.\nDaniel Tricarico\n Hey, good morning. Absolute pleasure to be here. Chris, your comments a few answers ago. The housing market being even worse this year, but the guidance unchanged, the resiliency of the businesses, is that a testament to the ECRI program? And if so, can you just talk to that and how you'd see that evolving in an environment where maybe move-in rates start to improve?\nChristopher Marr\n Yeah, good morning. Thanks for the question. So I think it's a testament to the fact that our customer base is everyone, or at least everyone that's an adult. And our customer base has such a diverse use case that we can be very resilient regardless of what macro factors are happening in the world at that time. So I think that's the first piece of it. We're not reliant upon job growth. We're not reliant upon one specific factor to generate a need for our product. It's simply somebody who has discovered that we are an excellent solution to place their treasured possessions for a period of time. I think the reality is that period of time is always -- most times it's longer, then our customer thinks about it when they first enter the portfolio. So I think it's a combination of that. And then obviously, in a rate environment for new customers that we've been experiencing here for the last 18 months or so, that existing customer base resilience is also helpful and important. We continue to see a sticky customer-based lengths of stay. Pretty consistent after having [elongated] through COVID. And a customer who's accepting those rate increases and continuing to stay in the portfolio thereafter. So I do think macro, it's a combination of those two factors that I think is what makes storage such a special and long-term outperformer.\nDaniel Tricarico\n Thank you for that. Just a follow-up. Promotional dollars being up a little bit, but just curious and I know there's puts and takes there, but where is the Q3 in October move-in rate year-over-year gap? I think it was down 11% in Q2.\nChristopher Marr\n The October at the Q2 was in that more like that 13% kind of range. October was 11%. But all in -- I'm sorry, Q3 was 11% on average. The last two weeks of October, it's been right around 9.4%So we've seen that contract. Part of that is certain markets seeing a little bit more helpful pricing the new customers. The other hand of that is in October, starting around mid-October of last year, we have had a strategy last year where we were trying to hold onto our rate a little bit longer past the busy season and we did not bring rates down last year until about mid-October. So part of it is the comp, part of it is some markets, a little more constructive pricing.\nDaniel Tricarico\n Great. Thanks for the time.\nOperator\n Eric Wolfe, Citi.\nNicholas Joseph\n Thanks. It's Nick Joseph here with Eric. I just want to go back to your comments on the New York area. I know it's on a sequential decline and sales performance shrunk versus the broader portfolio. So curious to get your expectations for that market going forward and if tougher comps could weigh on it next year?\nChristopher Marr\n Yeah, when you think about the New York MSA, Q2 of last year, 6% same-store revenue growth plus or minus a couple of basis points; Q3 of last year, 6% same-store revenue growth plus or minus a couple of basis points. So the MSA, as a whole, has tough comps. So when you think about it from that perspective, I think our overall same-store portfolio rentals were down about 5%. And you contrast that with the New York MSA rentals were up about 5%. So long-term health, fabulous supply in the Bronx and Brooklyn, super helpful going forward. Still dealing with a little bit in Queens and certainly North Jersey then from an MSA perspective is pulling down our results a bit because of the supply impact there. I think when you look out into next year, that supply impact in North Jersey will certainly begin to lessen the supply impact in some -- again, some of our properties in Queens, particularly Long Island City, hopefully will begin to lessen. So I think you have puts and takes there in New York. So I can't comment today on where we see acceleration or deceleration. But I can comment that that is a -- it's just an absolutely fantastic self-storage market through all parts of the cycle, but it's going to be low beta. We're going to see that market, unlike our Phoenix or some of the higher beta markets, you're not going to see the big swings there up or down as you do in other parts of the portfolio.\nNicholas Joseph\n Thanks, that's helpful. And then, of the $29 million of other property income, how much of that is administrative and [late] charges versus insurance income installer credits?\nTimothy Martin\n Well, there's no insurance in there, so it's predominantly on the fee side.\nNicholas Joseph\n Okay. Are there any -- the solar runs through there?\nTimothy Martin\n It runs through there. It's not a big component of it. It does run through that line item. It's not (inaudible) the solar credits were more impactful to the year-over-year growth in the second quarter than they were in the third.\nNicholas Joseph\n Great. Thank you very much.\nOperator\n Todd Thomas, KeyBanc Capital Markets.\nTodd Thomas\n Hi, thanks. Good morning. I just wanted to follow up on the questions around the guidance. So you maintain the same-store forecast. You narrowed the FFO range a bit, but the fourth-quarter guidance FFO range is a little wider. It's at $0.67 to the $0.70, so $0.03 range. With just two months left, I think you generally had a $0.02 range. Is that just the week-to-week volatility that you're seeing and an indication that uncertainly, is it real high levels higher than it's been? Or is there something else specific that we should be thinking about from an FFO standpoint as we make our way through the end of the year?\nTimothy Martin\n Great question, Tom. Nothing, nothing -- it's more of the I think the latter. I was getting mixed up with the former in the latter. More of the latter of your two answers to your question. It's just the range that we feel appropriately captures the potential outcomes. Obviously, you have to set a high end and a low end to get to somewhere in the middle 10s. That tends to make sense. We also have a little bit of a disconnect between the annual guidance and the quarterly guidance because it has been dominated with utilizing the ATM a little bit. But nothing you should read into that range other than us trying to provide a range that captures volatility and the potential outcomes here as we close out the year.\nTodd Thomas\n Okay. And sorry if I missed it, but can you comment on October occupancy and where that stands and what that looks like on a year-over-year basis?\nChristopher Marr\n At the end of October, yesterday, 89.9% in the same-store pool, 130 basis points behind last year.\nTodd Thomas\n Okay. All right, thank you.\nOperator\n Omotayo Okusanya, Deutsche Bank.\nOmotayo Okusanya\n Hi. Yes, good morning, everyone. I just was hoping you could talk a little bit about some of the -- what average ECRI increases were in 3Q as well as the simply kind of how much they are down year over year? On average for the quarter, and also as the quarter progressed, what was happening with those two metrics?\nChristopher Marr\n Yes, thanks for the question. I answered the street rate question, a question previously. We have come down into the last couple weeks of October, down about 9.4%, that was down from 11% average for the quarter. In terms of the ECRIs, that really has not changed from the cadence or the percentage increase on average across the portfolio in a bit here. It continues to be kind of that high-teens average increase to those customers who are receiving one. But again, that's the average. The range is quite wide.\nOmotayo Okusanya\n Thank you.\nOperator\n Ki Bin Kim, Truist.\nKi Bin Kim\n Thanks, good morning. Can you just talk about the impact of supply on your portfolio, how that's shaping out in '24? And as we think about next year, how that might look?\nChristopher Marr\n Yeah, I'll let Tim or Josh give you the percentage of the portfolio that is being impacted by new supply year in '24 and maybe a little help on how that cadence has happened. As we look out to next year, again, we'll update that and provide a new percentage impact as it relates to the same-store pool when we provide guidance in February. As I sit here today and you look across the country, I do feel like that percentage is going to come down as it has over the last couple of years. So supply is helpful and constructive. I think in terms of trying to shape the narrative for 2025 on a macro basis, there will continue to be some markets like Washington, D.C., where we've taken the pain. We don't see a significant amount of D.C., Maryland, Virginia. We don't see a significant amount of additional supply coming on. And so, you would see a market like that we would think would benefit more. And then as I mentioned, you have some markets on the West Coast of Florida that are going to see and have seen a reasonable amount of deliveries this year, which we would expect that will be weighed on as we go through 2025. But Tim or Josh, I don't know if you know the percentages for our (inaudible)\nTimothy Martin\n Yeah, I'd be happy to. So we picked out a number of our stores that were impacted by new supply was at its peak in 2019. That had 50% of our stores and since that time, it has steadily decreased the percentage of our stores, the impact. And then again, we think about that for stores that opened up in the year that we're focused on and in the prior two years. So kind of a 2.5-, 3-year rolling impact because that's the period of time in which a store that opens up that is competitive with your store, we believe has the biggest impact from a pricing standpoint. So that 50% in 2019 has steadily come down. In 2024, that number's down to 27%. And as Chris touched on, we'll update that number as we complete our ground-up processes for the 2025 number when we provide guidance in February.\nKi Bin Kim\n Okay. And maybe I can ask that in a different way. If you look at a new construction start activity that might be likely, any kind of similar thinking? What does that look like? So if have to kind of look out a few years, can I get a sense of how low that --\nChristopher Marr\n Yeah, I mean, I think and again, in our core markets, you continue to see the overall level of starts decline. You certainly have folks who have projects they would like to start. But when you look at cost of capital, capital availability on the lending side, the competitive rate environment where (inaudible) are new customers, as always, it's a micro market business. So there are sites and locations that still makes sense in spite of that. But overall, we'd expect that we need to work through both sides of the equation, cost of capital, and rental rate to be able to have a lot of sites pencil out and make sense here over the next, I'm going to guess, over the next 12 to 18 months.\nJosh Schutzer\n And then you think about that trend line. In '25, what we're looking at it is new deliveries in '25 would be added to impacting our stores. But then in our minds, calling out would be all of those deliveries in '22. So when you're thinking about that incremental impact overall, you're saying our 2025 deliveries in our markets that are competitive with our assets more or less than delivers that we saw in 2022, sure feels like it's going to be less. In particular, when you get into some of the assets that Chris touched on a few questions ago, which are -- with something opened up in one of the outer boroughs of New York and Brooklyn, Queens, the Bronx, it tended to not impact one of our stores, but many of our stores because the assets are so clumped together. So there's a lot of things moving around. But certainly, we feel like supply is becoming less and less of a headwind as we go. Your question of what could it eventually be? That's an interesting, hypothetical question because we experienced that period of time in 2011 through 2014 where the industry saw almost zero, and that was fabulous from the impact on operating fundamentals. But the reason it was zero was because there were a lot of the things that were going on in the world and in the sector, you kind of never wanted to go to zero because zero implies there something else that's wrong. You'd almost rather see supply get down to a level where it approximated growth and demand. And in the places where demand is growing, of course, that's wishful thinking because that's never the way it works in the real world. But ultimately, you would like to see some level of supply that mirrors growth and demand, (inaudible) population growth and movement around the country. I think that would be ideal from a sector perspective.\nKi Bin Kim\n Okay. Thank you.\nTimothy Martin\n Oh, by the way, I'm sorry, before we come to the next question, I wanted to go back to a question that Nick Joseph asked a little while ago about whether tenant insurance was included in other income. And just for clarification, I took that into context of in the same-store portfolio. And so, for our same-store portfolio, tenant insurance is not included in other income on a consolidated basis. When you think about total results, not just same-store tenant insurance, it does show up in the other income line item there. So I want to make sure I wasn't misleading in my answer to that question. I'm sorry, John, you can (inaudible) for the next question.\nOperator\n Mike Mueller, J.P. Morgan.\nMichael Mueller\n Hi. Just a quick one. On the two acquisitions that you announced, you talked about how well-occupied the properties are. Are they going in on expected yields?\nJosh Schutzer\n Sure. So interestingly, there are two very separate transactions on different sides of the country, but some of these statistics are almost interestingly and coincidentally, about the same. Each of these opportunities were stores that were built three and a half years ago, so they're not completely stabilized as we bring each of them into the portfolio. Each of them, they range in occupancy coming -- when they come onto our platform, they'll be in the 70%, 75% type occupancy. So there's one more leg of lease-up in each of those opportunities combined with us bringing some value into things like tenant insurance and getting them fully economically stabilized. So we're looking at each of those assets in a cap rate of stabilization kind of [year two] right around a [6%] cap for each of those opportunities plus or minus. But coming on, they're not fully stabilized. So it's a little bit lower than that.\nMichael Mueller\n Got it. Okay. Thank you.\nOperator\n Eric Luebchow, Wells Fargo.\nEric Luebchow\n Hi. thanks for the question. I know you've answered several questions about the acquisition market, but maybe you could talk about what you're kind of seeing in the pipeline? Is it more of the kind of single asset deals that you've executed on over the last year? Or are there some larger portfolio deals that you see in your funnel as well?\nChristopher Marr\n Yes. Thanks for the question. It really is all over the place. I think what is consistent today is what we've been talking about here for several quarters. Because I do think there's an awful lot of inventory that is building out for folks that either want or need liquidity at some point. And so, I think when the floodgates open up to the extent that they open up, I think you're going to see a variety of opportunities ranging from that single asset opportunity to small- to medium-sized portfolios to potentially even something a little bit larger. I think large portfolio transactions are a little bit more difficult. I think the line of potential buyers is shorter certainly than it was in 2021, given the cost of debt and debt availability to many potential buyers of larger portfolios. That positions us and some others like us perhaps to be in a nice spot because we do have access to the capital, and it will be great to be on the buying side of the table and have a shorter line of focus on that side of the table. But I don't think you're going to see opportunities that are just small assets or just large portfolios. I think it's across the Board as there are just pockets of capital that don't have forever time horizons associated with the self-storage investments and the need to find liquidity at some point.\nEric Luebchow\n Fair enough. And then, just to piggyback on that, I mean, you did raise a little bit of equity in the quarter. So just thinking -- as you think about the potential for external growth to pick up, like how are you thinking about funding that from a leverage perspective, maybe tapping the market if you see opportunity to issue equity? Just any comments there would be helpful. Thanks.\nTimothy Martin\n Certainly. So we worked hard for a very long time to create a balance sheet that is low-risk and also has capacity for us to support that external growth part of our strategy. And so, at third quarter with debt to EBITDA down at 4 times, that gives us a tremendous amount of capacity to use that to the extent that we find opportunities to use that average bullet. And we could comfortably be within the credit metrics that we target long term for our credit rating, a full turn higher than where we sit today. So you translate that. That means that we could acquire roughly $1 billion worth of assets fully levered and still have credit metrics that work for us. If we were to do that, hypothetically, we would then work to bring it back down and create the capacity so that we would be in a position -- to be in the same position we're in today. You've seen us do that repeatedly here over the past 10 to 15 years. So when we see an opportunity like we have in front of us right now, and we can match fund and equity components of that, in an equation that makes sense, given where our equity cost of capital is where the opportunity set is, we love to continue to maintain that capacity. At the same time, we're more than happy to use that capacity if the math makes sense from that standpoint. So we really feel fortunate to be well-positioned to go in a lot of different directions depending on the environment we find ourselves in at the moment and the opportunity set that's out there.\nEric Luebchow\n Okay, great. Appreciate that. Thank you.\nOperator\n Brendan Lynch, Barclays.\nBrendan Lynch\n Great. Good morning. Thanks for taking my question. You mentioned the New York metro was particularly strong. So I'm curious on the 30% in occupancy of the two stores that delivered last quarter, how that compares to your expectations and how it compares to past new development lease-up trends?\nChristopher Marr\n Yes. Thanks for the question. Both of those stores are performing, I would say, in line with our expectations on the occupancy side. As they've come into the into the portfolio, no surprises for us on either of those one way or the other.\nBrendan Lynch\n Maybe a follow-up there. What is your appetite for new development starts versus other potential uses of capital?\nChristopher Marr\n Yeah, we obviously are interested in continuing to grow the portfolio where appropriate and where it makes sense. As I shared on a macro basis, it's challenging today to find attractive sites in the small number of markets where we are interested in in development and taking that risk for that reward. But on a micro basis, yes, there are certainly neighborhoods where storage is low square foot per capita. We believe a project would do well, and we continue to pursue those opportunities. It has just been challenging for us to find that combination of those special sites with a site that makes sense economically.\nBrendan Lynch\n That makes sense. Thanks.\nOperator\n As there are no further questions at the queue at this time, this concludes our Q&A session. I would like to turn the call over back to Chris Marr for closing remarks.\nChristopher Marr\n Okay. Thank you. So I think as I mentioned in the release, we recently recognized our 20th anniversary as a New York Stock Exchange traded company. So I would like to thank everyone who has been involved over that journey from 20 years ago through today, with a special thank you to our teammates who are with us today and were with us two decades ago. Deeply appreciate their commitment to our company and their commitment to customer service. So with that shoutout, we'll wrap it up and thank everybody for your participation and have a great and safe weekend.\nOperator\n This concludes today's conference call. Thank you for your participation. You may now disconnect. 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