CubeSmart (CUBE) 2016 Q1 法說會逐字稿

Good morning and welcome to the CubeSmart first quarter 2016 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Charlie Pace, Director of Investor Relations. Please go ahead.

Thank you, Danielle. Hello, everyone. Good morning from Melbourne, Pennsylvania. Welcome to CubeSmart's first quarter 2016 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 a 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.

Thanks, Charlie, and thanks, everyone, for joining us. A very solid quarter. Our organic growth remains robust as our strong operating platform is functioning at a very high level and is buoyed by solid industry fundamentals to achieve exceptional results. We continue to push on both rate and gain occupancy. Our operating expenses benefited from weather and our focus on energy reduction through solar lighting upgrades and the installation of energy management systems. Our investment team continues to source opportunities across our three areas of focus -- existing asset acquisitions, JV development, and purchase of CO opportunities.

We have found more value recently in the acquisition of assets that have been developed in the past year or two. The blended yield on our closed acquisitions and acquisitions under contract is approximately 4.1%, so we are absorbing a little bit of dilution here in 2016, about $0.01 over the balance of the year. But we're finding great opportunities that we think create very, very strong long-term value for our shareholders.

Our busy rental season is now about 13 days old, and the results continue to be very solid. Occupancy at our newly developed facilities was fabulous thus far in April, with our Tremont asset in the Bronx growing 830 basis points, and our two new assets in Queens growing 470 and 500 basis points, respectively, from their March 31 results.

Our overall same-store pool as of this morning experienced a 30-basis-point improvement from the end of March, and our rates are up about 1.6% here in April compared to what they were at March 31. So again, we continue to both gain occupancy and the ability to push street rate.

Our team is excited and well prepared for the busy next 100 days, and so at this point, I'd like to just turn the call over to Tim for detail on our quarter and the increases in each component of our guidance.

Thanks, Chris. Our first-quarter results again reflect the formula that has been repeating itself over the last several years -- when you take strong fundamentals in the sector and add our sophisticated operating platform, that equals continued performance well in excess of historical levels. And in this quarter, you add the impact of a mild winter in most of the country, and the result is the second-highest same-store NOI growth quarter in our Company's history.

Same-store NOI of 12.9% during the quarter was driven by an 8.4% increase in revenue and a 1% decline in operating expenses. Revenue growth was driven primarily by growth in net effective rents as well as a 150-basis-point increase in average occupancy to 91.9% during the quarter. The decline in operating expenses was mostly attributable to lower snow removal and utility costs compared to last year.

Our reported FFO per share as adjusted of $0.32 met the high end of our guidance range and represents 14.3% growth over last year. We were busy on the external growth front, investing over $216 million during the quarter. Of that activity, $135.9 million came from the acquisition of nine operating facilities through six separate transactions. We also acquired a property in Brooklyn in CO for $48.5 million, and we opened up a JV development property in Queens for $31.8 million. We continue to see attractive opportunities to execute our disciplined growth strategy, with $23 million of acquisitions so far in the second quarter and another $58.5 million of acquisitions under contract. Additionally, our value creation pipeline of JV developments and acquisitions at CO provides another $270 million of future growth, as detailed on page 23 of our supplemental information package.

From a balance sheet perspective, we continue to focus on funding our growth in a conservative manner that's consistent with our BBB/BAA2 credit ratings, and during the quarter, we sold 2 million shares under our aftermarket equity program for net proceeds of $63 million.

Guidance ranges were revised upward in our release last evening, reflecting continued positive trends in our markets. For 2016, we raised our estimate for same-store revenue growth to 6.25% to 7%, driven by net effective rent growth. We lowered our same-store expense growth expectations to 2.5% to 3.5%, driven by the good news in the first quarter from the mild winter. And those changes are reflected in our higher same-store NOI growth expectations of 7.75% to 8.75%.

We also raised our annual FFO per share guidance by $0.005 at the midpoint to a range of $1.36 to $1.40 per share, and we introduced second-quarter FFO per share guidance of $0.34 to $0.35.

As Chris mentioned, thanks again to everyone for joining us this morning and for your continued interest and support. That wraps up our introductory remarks. So, Carrie, why don't we open up the call for some questions.

(Operator Instructions.) Gaurav Mehta, Cantor Fitzgerald.

Chris, I want to go back to your comment on finding value in recently developed assets. Are you referring to the CO deals, or these are the assets that other people developed and you want to sell?

I'm specifically in that instance referring to how we disclose the acquisitions. So it's the $163-odd million we closed on this year, plus the ones that Tim referred to under contract.

Okay. And then going back to your revenue guidance, if I look at the 1Q growth rate of 8.4% and if I assume that 2Q will be higher than 1Q, that brings that average for (inaudible) much higher than what your guidance is currently. So I was hoping that you could provide some color on your expectations for second half. Are you expecting a meaningful deceleration?

Yes, so, I mean, the math is the math, and you can do that. I think as you think about our process, we feel very good about our forecasting ability in a business that is challenging to forecast. We have about 6% to 7% of our customers vacate every month. We need to replace those customers. And, obviously, to grow revenues, we need to replace more than just those who are vacating. We need to, obviously, constantly assess rates and inducements in each market.

So when we provided guidance, it was just a short 60 days ago. What has occurred in the first quarter has been very positive, as I said. Very optimistic, I think, about how April has started off. But we're 10 days, 15 days, into the rental season. And so a lot of hay is going to get put in the barn in the next 100 days. And so at this point, I would consider this management team to be fairly conservative, always, in our outlook. We'd rather underpromise and overperform. So we're providing guidance with the best available information we have at this time, and certainly would be very pleased to be in a position, when we get back to you after June, to be able to move that guidance in a very positive manner.

Great. And then lastly, on the (inaudible) and JV, I was just wondering if you could provide more detail as to when you're looking at assets to acquire, how you're deciding between what's going to the JV and what's going on your balance sheet. Is it really the quality of the asset that you don't want on your balance sheet that's going to the JV?

Yes, thanks for that question. So in this particular instance, these were assets that we had been managing for the last several years. If they are in markets that don't fit the profile of how we think about on-balance-sheet, fully-owned assets, our customer, in this instance, came to us. They were exploring a disposition. We thought that the assets in these markets -- Charlotte, Charleston, et cetera -- would be possibly good long-term holds for our JV partner. That proved to be the case.

And so it was a very seamless transaction in that all of the assets were branded CubeSmart. We had been managing them, and so transferring them into the venture, continuing to provide that management for a fee, taking a small equity stake in the properties to be able to capture what we think is some pretty good remaining upside. The assets were about 87% occupied because there had been some recent expansion. We were very confident in our ability to lease up those expansions and hit very high physical occupancies. And so it just worked.

And I know there's been activity in the last two quarters. I wouldn't read into that. It was, again, it was a situation that just presented itself to us. We knew the assets and the owner, and it just made sense to offer that opportunity to our partner, and it made sense for them to execute on it.

Great. Thanks for taking my questions.

Jana Galan, Bank of America Merrill Lynch.

I was wondering if you could comment on what you're seeing in New York City, the supply outlook, a lot of which you're bringing to the market. And is there a lot of overlap in the trade areas versus your new developments and what you currently own?

Yes, thanks for that question, Jana. And I guess I'll take that question and expand a little bit even beyond New York City, if that's okay with you.

So again, when we think about New York, and in our supplemental package, we provide MSA disclosures. So we're showing the 48 assets and the same-store pool that are in the boroughs, north Jersey, Long Island. Specifically of those 48 assets, 23 of them are in the boroughs we currently operate in -- Staten Island, Queens, Brooklyn, and Bronx. Their performance was extremely solid in Q1, those 23 assets -- 8.4% revenue growth, minus 4.3% expense growth, 13.2% NOI growth. So from a market perspective, the Atlantic Coast -- New York, Philadelphia, Boston -- continues to perform quite strong.

From a supply perspective, then, if you start to look at supply in our seven major markets -- and so that would be the New York, north Jersey, Long Island market, broadly, greater Chicago land, from Baltimore, Maryland, all the way through northern Virginia, Arlington, Loudoun County, Dallas/Fort Worth, Houston, Miami, Fort Lauderdale, and Boston -- our work tells us that thus far in 2016 in those markets, there have been 28 new store openings not controlled by Cube. And then of those 28, eight compete within existing CubeSmart assets. The primary market for that supply would be the Dallas/Fort Worth area that had eight new stores open, three of which compete with us.

Then when we roll forward and we look at what we define as in development -- and so when we think about in development, we think about assets that are under construction, that have received all of their approvals but not begun construction yet, or have received or are in permitting but have not received their approvals yet -- what we see in those seven broadly defined markets at this point are 96 non-Cube-controlled assets that meet that definition. 33% of those are in Dallas/Fort Worth.

The next most significant market would be the broad New York/New Jersey/Long Island. But when you break that down, because it's a very, very highly populated area, and you look at the boroughs specifically, we currently see 14 assets non-Cube-controlled in the boroughs -- two in Queens, eight in Brooklyn, one in the Bronx and three in Staten Island. And then of those 14, four will directly compete with an existing Cube. So from a supply perspective, again, we remain very comfortable with the overall supply in those seven markets.

I think when you look at where things appear to be moving in volume the quickest, clearly, it's the Dallas/Fort Worth area. I think we have a large competitor who has six projects just on their balance sheet going in Dallas, Fresno, Plano, and Louisville. So it's certainly got its attention, and I would put Houston right behind that.

So not worried at all about the boroughs, not worried at all about New York/New Jersey/Long Island. Again, when you think about those markets and you think about square foot per capita -- and again, we remind folks, in the Bronx, if you look at all the storage in the Bronx, 2.2 square feet per capita; Brooklyn, 1.47; Queens, 1.6 -- if you boil it down to Cube and, again, put it in a different perspective, if you look at our stores in the Bronx, we have one Cube to rent for every 82 households; in Brooklyn, one Cube to rent for every 97 households; and in Queens, one Cube to rent for every 57 households. So it continues to be an undersupplied market.

I think there would have to be a significant amount of new supply, way beyond what we see today, to get that market to be of any concern. And again, I'll remind folks, when you think about the national average of 7.35 rentable square foot per person, and the two markets with the highest square feet today per person are Dallas at 7.9 and Houston at 7.6, and that's where we're seeing most of the new supply. So hopefully, that not only answered your question, but more than answered the supply question from our perspective.

Thank you, Chris. And then maybe just if you had a few comments on the Chicago, Cleveland, or Bridgeport, Connecticut, which were some of the lower-performing MSAs.

Yes. So the Midwest, Chicago and Cleveland, continue to move at a slower pace. I think consistent with what you may have heard on some other calls, in Chicago, it's not really an occupancy issue. It is the ability to get rate. And it's both in our north side of Chicago and south side of Chicago assets. Occupancy ticked up about 60 basis points, but we just weren't able to get much rent.

We had a little bit of an anomaly in Chicago that altered the growth a little bit in the same store in the first quarter. We have an expansion going on at our Killdeer facility, and so we took down a building, about 100 Cubes. We don't remove the store from the same store or alter our disclosure for that. And then we had one customer, a military customer who we finally resolved an outstanding receivable, and while we reserve for these things at the REIT level, at the store level the write-off hits same store. If you take those two things and back them out, the growth in revenue in Chicago in the quarter was 3.9% and the NOI was 6.2%, so slightly better than what's reported here.

But it just continues to be a market where a customer moves out, we're able to replace him. We're just not able to replace him at significantly higher rents. Same situation in Cleveland. Bridgeport's just a small -- it's a small sample size -- so there, I think it's just a timing issue.

Thank you very much.

Todd Thomas, KeyBanc.

First, a question about the HVP venture. With regard to pricing on acquisitions, do you have different underwriting criteria for JV acquisitions versus wholly-owned deals in terms of how competitive you might be?

No, we look at them the same. Whether we're taking a very small minority stake or whether we're putting the asset on our balance sheet, we have to like the pricing. So it's consistent.

Okay. And then the most recent acquisition by the venture, the 31 properties -- was that one seller, or was that multiple sellers from within the third-party portfolio? And then how active are you in reaching out to third-party-managed property owners to gauge their interest for acquisitions?

Yes, I'll take those in reverse order. That was an inbound -- you know, their business plan had them being an active developer in their markets, and so they were looking for capital. So that came in. We obviously review at year end, with all of our customers, their strategy for the asset, which began a conversation. And so it comes and goes both ways -- some inbound, some where we're recruiting.

In terms of the first question, it was one seller for whom we managed 31 assets.

Okay. And then shifting to the New York Metro assets, performance clearly was strong at those properties, as you mentioned. New York's one of the markets where a handful of full-service storage operators have targeted to establish operations. And I'm just curious whether you have a sense of how those companies are doing, whether you're seeing any impact at all from those operators and maybe what some of your guys on the ground in New York are telling you.

And, Todd, just to clarify, you're talking about the valet storage concept?

Correct.

Yes. So it's interesting, because we had piloted and run for a while CubeSmart Direct, which was essentially that concept. The only twist is that we would store your possessions in your own designated Cube at one of our Bronx or Brooklyn stores, Queens stores. And we learned that it moved pretty quickly into most of the customers seeking a full-scale moving and storage experience. So it moved fairly quickly from a tote or some other designed device to hold a small number of possessions to, "I would like you to just move my one-bedroom apartment."

We also learned that the logistics involved in the business, not to mention the parking tickets, created an unprofitable opportunity. So we look at that business and suspect that it will be the way we feel about pods -- a niche business. There may be a survivor in some of the more established urban markets, but don't see it, and the guys on the ground don't feel it. We may be feeling it. Again, I can't point to anything, given how solid the performance has been. But you may feel it in the locker-sized Cubes that we have at our stores for those folks who have the quantity of possessions that would ordinarily fit in there that may choose to use this service. But, boy, I would say we're skeptical of the long-term competitive nature of that as it relates to self-storage.

Okay. Just lastly, do you have any sense from at the properties that you own and operate in the boroughs, what percent of renters are living in Manhattan?

Yes, we do. I don't have that off the top of my head. We zip code map everyone. Obviously, an exterior at 135th Street. And again, the other problem, I guess, with that, Todd, is that while we know the zip code on which they have on the lease, we don't know if that's their business, their residence, et cetera. So we do know we have an address in Manhattan on a lease. And you would see that 135th Street exterior. You see it in some of the stores we have off the Jackie Robinson, where I would guess they're probably businesses that store wine, et cetera, there. But I don't have a percentage for you handy right now.

Okay, thank you.

Ki Bin Kim, SunTrust.

Thank you. So if I look back at what you guys have been able to achieve in increasing the scheduled rents last year in the summertime, around 7% to 8%. I know it's early and it's just April, but I was wondering if you could provide some April stats on occupancy or scheduled rents and to basically -- is there any reason to think that 8% is not achievable in the summer?

Yes, Ki, that's in the opener, but I'm happy to mention it again. I said the same-store pool as of this morning was at 92.6% occupied, so had grown, I think, about 30 basis points from the end of March. I mentioned rents were up 1.6% from where they were at the end of March. And so it is feasible to assume -- and again, I've got to think about where rents went last April, May, and June in terms of the delta -- but is it achievable to have a delta that climbs up into the 7% to 8% range? Sure. Again, I think that's -- it's all the moving pieces, as we always say. Part of it's going to be occupancy; part of it's going to be rates; part of it's going to be inducements.

Yes, sorry, I missed the first three minutes of the call.

It was spectacular, so I would go back and pique your interest.

The reason I asked this is it seems like in the second quarter last year that sequential, as we talked about changing scheduled rents, was 6.8%. So maybe that's more back-end weighted to May-June, but that's the reason I asked that.

Yes, we said last year on that point, Ki Bin, that we felt like maybe we were a little slow to the draw in the April-May timeframe in terms of rents. And so certainly it's a focus this year to make sure we get out in front of it.

Okay. And thanks for color on the development and supply out there. But if you changed that definition from things that are being started or worked on in the pipeline and instead looked at maybe the -- I don't want to call it discussions, but something that's more solidly in the plan -- maybe not started, but where you can reasonably expect to start -- how does that pipeline look like, and is it accelerating in the recent half-year?

Yes. I think when you expand that, you get into -- you just get into the pipedreams at this point and people talking, et cetera. I don't know that that's meaningful. So we go back as far as in the permitting process which, again, some of those are going to drop out because you're not going to get your permit. So between under construction, you've received your approvals or in permitting, those to us are real. I think when you get beyond that -- contract negotiation or whatever -- our data's less than perfect, our certainty is less than perfect, and it's probably not meaningful.

Okay. Thank you, guys.

Smedes Rose, Citigroup.

I just wanted to ask you, when you talk about new competitions, particularly in the boroughs, how are you defining stuff that's competing directly against your properties? How do you think about the competition zone or set?

When you think about the boroughs, generally it's a mile circumference around that store, depending upon -- in Queens, it may go out as far as a mile and a half. When we think about it in Dallas, Houston, et cetera, a mile and a half to three.

Okay. And then I don't know if you have this handy, but you mentioned the number of facilities being built in the boroughs. But do you have a sense of just what is the total increase in the square footage that's coming online?

No, but I think generally, I mean, there was obviously a large asset built in the Bronx, et cetera. But I think if you look at 60,000 to 70,000 square feet per facility and use the numbers that I read off, you can get pretty close.

Okay. And then just my final question, just bigger picture, have you seen any changes in the quality or the quantity of assets that are on the market for sale, and maybe any pricing changes?

Yes, pricing continues to grind down 25 to 50 basis points, depending what's on the market. Quality, no change. You're always going to see a mixed bag. I would say the strategy of, "Let me try to accumulate some assets and then bring that accumulation of assets to market, and as a result, I feel like I can get a premium for the bulk" -- clearly, there are some folks out there who are trying to execute on that strategy.

Okay, that's helpful. Thank you.

George Hoglund, Jefferies.

This is still a question on the recent acquisitions. I guess you had mentioned the 4.1% cap rate. I guess, besides C of O deals, what is the average occupancy of recent acquisitions, and how are existing rental rates versus market rental rates?

Yes, the occupancies are going to be all over the place. We've got some that have operated for one leasing season, and they'll be in the 30% range. We have some that have been open for six to nine months, and they may be as low as 10%. We have some that are 75% to 80%. So it's all over the place. They're just not -- my point, really, in bringing that up was from a modeling perspective. We just didn't want folks to get too far out ahead of us and assume that all of those assets were at market yields going in, just because we're finding value in these other types of assets.

And I would say, again, generally speaking, they're run by non-REIT operators, and non-REIT operators tend to price a little bit more conservatively, certainly when they're trying to lease up. So we would see the value creation in these both from our confidence in growing the occupancy, and I rattled off how we've been doing it at our newly opened stores. And we are highly confident in our ability to put these into the machine and get them leased up very quickly, and then also our ability to continue to push on rents simultaneously.

Okay, thanks. And then just one more thing. On the transaction environment in general, are you seeing any large portfolios out there for sale?

I guess it depends upon large in this business. We continue to look at everything that's out there. And as I said, I think this idea of trying to accumulate assets and bring them quickly to market is clearly a business strategy of a few folks. And so I would not be surprised if you saw a couple of larger opportunities present themselves over the course of the year.

All right, thanks.

Jonathan Hughes, Raymond James Financial.

Earlier you mentioned that 6% to 7% of tenants vacate each month. But could you comment on how many of those leave due to not wanting to pay renewal rate bumps? And have there been any changes in tenant retention over the past year or two years?

Yes, to your first question, we don't know why they leave. So we track our rate increases to existing tenants and then look at how those tenants behave or customers behave. And we have not seen any significant difference in our customer behavior from the rate increase side.

When you think about length of stay, it continues to move out modestly. So we continue to see a little bit longer length of stay. But it is in days, not in weeks.

And then what kind of rates are you pushing on renewals in terms of expiring versus the new rate?

Yes, we're in the low double digits, so 10%, plus or minus. Obviously, we have some customers for whom they've been enjoying a below-market rent for a bit and we've got high occupancy, and we've got a keen interest in getting them to market or getting them out, and we'll bring them out at least close to market. And sometimes that's a 20% increase. But for the most part, it's low double digits.

Okay, thanks for the color. Appreciate it.

Gwen Clark, Evercore ISI.

I saw a recent article about Cube's investment in some eco-friendly initiatives. Can you talk about what you're doing today and where you see that going in the future?

Sure. Thank you for that question. So we're obviously interested in doing what we can to help the environment. We are just such a low-impact use. The items in our tool belt are not as significant as they are in some of the more energy-intensive products. So we've really focused in, in a few areas. First, from a customer perspective, we do have a program where we will plant a tree for each customer if they elect to take advantage of that. And I think we've planted 90,000 trees plus with our partners in that program.

From a facility perspective, we've done lighting upgrades at the overwhelming majority of our stores, where we had some older lighting and have replaced it with much more energy-efficient lighting. We have a store in Austin, Texas, that we manage that is the first zero-energy self-storage facility in Texas, and we're proud to be associated with that. We have an Envirotrol system at many of our stores, which helps us reduce peak energy usage. We agree to allow some overrides and to monitor our systems so that we are not exacerbating the situation during peak times. And then we have solar, where it makes sense for us and increasingly doing more of that, where we are self-sufficient in terms of the energy that we're producing at those stores.

So doing our part, and where we can, but we are a very low-impact use to begin with. So some of it's at the margin.

Okay, that's helpful. Just last, to follow up, is it possible to quantify the future cost savings from this stuff? It seems like it might be small, but anything you have to offer?

Well I think it's -- I mean, you're seeing it in the utility expense, although that was also weather helped. So we're seeing returns that we expect on the invested dollar in the low 20% range, so it's very good returns. It just has a very small positive financial impact on our overall operating expenses.

Okay, got it. Thank you.

Ryan Burke, Green Street Advisors.

Chris, there is a billion-dollar-plus portfolio being shopped. What's your level of interest, particularly given that the geographic concentrations are primarily in Texas and Chicago?

Yes, Ryan, we tend not to comment on transactions that are rumored to be in the marketplace.

Sure. It was worth a shot. Separate, but I guess related, your HVP joint ventures, minority stakes in these two portfolios now -- does this represent a concerted effort to build scale while minimizing balance sheet exposure? Should we expect more of this type of thing, moving forward?

Yes, I wouldn't consider that to be the only motivation. I think the motivations are across a few areas. First, where we saw in the first transaction a portion of a portfolio that we liked, this was an efficient way for us to be involved in the transaction without having to absorb assets in some markets that we don't target and then worry about the disposition or some other solution for those. I think in the second transaction, it was an opportunity to participate in what we saw as a little -- was upside in the stores while also continuing the fee stream.

So I think in general, the idea is it's a very attractive return vehicle for us for properties that don't fit 100% in our on-balance-sheet strategy. But it has been more unique to each individual opportunity being presented to us. And the first one got us down the path to create the venture. The second one just was a likely candidate to be in the venture. And so it's just impossible for us to predict whether or not that's it or whether it continues to have some other opportunities as they present themselves to us in the future.

Sure. And what was the tenant insurance penetration rate on the two portfolios?

I don't have that percentage off the top of my head. We had been operating the most recent deal for a few years, so I would guess that's somewhere between 50% and 60%. And in the first portfolio, the previous managers had a program, and they were certainly looking at it. So I would have to guess in that instance, it was more in the 60% to 70% range. That's, as I said, it's a guess.

Okay, thanks. Last question. I wanted to just go back to the Manhattan boroughs. You've made it clear that you're not too worried about supply there. But just looking at the Bronx and the Long Island facilities, they only gained about, call it 150 basis points on occupancy on average over the last six months. I think you provided some updated numbers in prepared remarks. I didn't quite catch those, but what specifically is happening on those two sites?

Yes, so Tremont, as I said, it's at 78% at the end of April, so we picked up about 830 basis points there in April. So I would look at that and say it's just timing. We have competing assets in that marketplace, and we had a three-year lease-up. It's now beginning year 3 at 78%. We'll get to stabilization here over the next 10 months or so, I think.

And then on Long Island City, it picked up another 80 here in April. That's a larger facility at 44% after being placed in service not that long ago. We're obviously pleased with the lease-up. I mean, we're getting spoiled here a little bit with the spectacular nature. But, again, early customers tend to rent the larger Cubes. The last 10% to 12% of occupancy are also starting to see early customers vacate. It's a little bit more challenging. And in that instance, we have a non-REIT competitor that opened about the same time we did directly across the street. So we've got a little pressure in that submarket right now in terms of available square footage.

So I guess in general I would say by historical standards, we're really pleased with all of them. By recent standards on some of our assets, I think we're getting a little spoiled.

Okay, thanks. Appreciate the insights.

Todd Stender, Wells Fargo.

Chris, just to stay on that theme, can you speak about the Brooklyn C of O deal that you acquired in the quarter? Just wanted to get a sense of what your lease-up strategy's going to be. Maybe there's a defined discounted rate compared to market rates, and maybe what your time horizon will be to get to that kind of a stabilized level.

Yes, again, we've been underwriting a three-year lease-up to first level of stabilization on these assets. The Brooklyn asset that we acquired at CO, a little bit larger than our normal footprint at about 110,000 square feet. That's in Coney Island. We obviously own another asset in that same competitive marketplace. It's our highest rent-per-square-foot asset in our portfolio. That asset opened during the quarter and has really grown pretty nicely in its first couple of months of operation, currently at 18% occupancy.

Now, we offer a little inducement. Again, it's unique to the underlying asset. But I think in terms of face rate for that store, it's priced at a face rate about the same as its neighbor. It will just have a little bit more opportunity on the free rent side or some other form of inducement.

The other asset in Brooklyn, we don't have a competitive Cube around there. It's a smaller store at about 57,00 square feet. So that one really doesn't have a competitive self-storage facility around it. So that one, we are a little bit less inclined to provide any sort of inducement there. Hopefully, that was along the lines of what you were looking for.

Yes, it sure is. And then just to stick on that theme, in your prepared remarks you gave some pretty good occupancy gains, I think, for a few of the New York City assets since what it sounds like was March 31. They're very good moves. I want to see, were you comparing it to the average occupancy in the quarter, or was that at a quarter end? Because it sounded like there were core --

That was quarter end. And again, these are in various points of their seasoning. So in Tremont in the Bronx saw the biggest move at 830 basis points. We've had that store in the portfolio since the first of 2014. And then the other stores I mentioned were some of the more newly opened stores. Again, it's not uncommon to see some bigger moves in the first year of operation. Then you start to fight both the available inventory as well as you start to see vacates after the first nine months or so.

Got it. Thank you.

(Operator Instructions.) Ki Bin Kim, SunTrust.

Could you just comment on your plans for funding future acquisitions or developments funding for this year?

So, Ki Bin, thank you for asking that, because Tim has been sitting here, patiently waiting to talk. So Tim?

My answer's the same as I give every single time, which is very consistent with what we've done over the past several years. We would look to fund all of our growth, whether it's development or otherwise, with a combination of debt and equity that would be consistent with our credit metrics that support our rating. So you would expect to see us continue to utilize our free cash flow for the first $130 million worth of growth. And beyond that, our playbook has been utilizing our ATM, which again, we used in the first quarter to the tune of about $63 million to fund the equity portion of our growth. We have a $500 million revolver that we have available to us. And as we start to grow the debt balance on that, we have been programmatically looking to term that out on a longer-term fixed-rate basis, most recently over the last couple of years by accessing the unsecured senior notes market.

Okay. But I would say, and hopefully, this is just a temporary thing, but the equity markets have been, especially for self-storage, have been a little bit choppier. Maybe this isn't necessarily --

Temporary like today? Like this morning temporary?

Like today. But I guess if the stock prices continue to be a little volatile or stay temporary like today where they are, I would just guess that it makes the equity leverage just less attractive. What's the Plan B if that happens?

Yes, part of our rating equity capital, through the ATM or otherwise, is guided towards looking at commitments that we have made. So we have a $270 million pipeline, and because of that and other commitments we have made, if you look at our credit metrics, our credit metrics look an awful like a BBB+ company as opposed to a BBB company.

So we're operating at leverage levels and credit metrics that are awfully conservative for our rating, translated into we view it that we have effectively funded a lot of our commitments in advance, and we expect to do so in times where we have good visibility into our cost of capital, particularly equity cost of capital when we're making those commitments. So we certainly prefunded a portion of that on a basis that is at a lower leverage level than we can run longer term. So if there were a prolonged period where our equity capital was not attractively priced in our view, we would use a modest amount of leverage to complete our existing commitments. And at some point if that were to continue, you pause.

Okay, thank you.

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

Thank you. Thank you all for participating. As we sit here in April, late April of 2016, it does feel a lot like 2015 and 2014. So we've got great industry fundamentals. We continue to perfect our platform. We think we've got best-in-class people and systems on the operating side. We are in an environment where new supply, while it is certainly happening, continues to be very modest. And we are excited about what the future holds here, particularly over the next few months. So we'll look forward to talking to all of you again at June 30, seeing those of you at NAREIT, and thank you for participating in the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.