CubeSmart (CUBE) 2017 Q2 法說會逐字稿

Good morning, and welcome to the CubeSmart Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Charlie Place, Director of Investor Relations. Please go ahead.

Thank you, Anita. Hello, everyone. Good morning from Malvern, Pennsylvania. Welcome to CubeSmart's second quarter 2017 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 those 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 second quarter financial supplement posted on the company's website at www.cubesmart.com.

I will now turn the call over to Chris.

Thank you, Charlie, and good morning to everyone. As we reached the halfway mark of the year, things are playing out much as we expected as our key metrics, including same-store revenue and net operating income growth along with funds from operations per share continue to be in line with the guidance we provided entering the year.

The properties we acquired in 2015 and 2016 that are not included in our same-store pool, along with the development assets that have been placed in service and the assets that we have acquired at completion and certificate of occupancy issuance are performing very well relative to our expectations as we experienced significant lease-up through the rental season.

As a result of our performance through midyear, we are modestly increasing the midpoint of our FFO per share guidance. Tim will delve more deeply into financial performance and future outlook with his prepared remarks.

I will share now what we are experiencing with our customers in our markets and what our extensive research is informing us about new supply in our top markets as well as expanding on our success in our -- in adding assets under management through our third-party management program.

Starting with our customers. We evaluate the strength of our new customer demand through various metrics. Obviously, one such metric is occupancy, and at June 30, we set a company record high of 94.6% for our same-store portfolio.

Same-store rental volume remains healthy. With our year-to-date rentals through June 30 slightly exceeding our rental volume for the first 6 months of 2016. While year-over-year asking rent growth was muted, it is important to note that we were able to push rates approximately 9.5% sequentially from January through the end of June.

We evaluate the health of our current customers through a different set of metrics. As of June 30, 40% of our customers in our same-store pool have been with us greater than 2 years, up 150 basis points from last year. The average length of stay expanded 16 days or about 4% from the second quarter of last year. The number of cubes that went to auction during the quarter fell 4% from last year and our write-offs remain consistent with the comparable quarter of last year. We continue to pass along rate increases to our existing customers at a consistent relative percentage increase in frequency, and we remain confident in the future viability of this rate increase program.

Transitioning to commentary on our markets. We believe our geographically diverse portfolio of high-quality assets and high-quality markets, along with our unparalleled focus on customer service, allows us to maximize the opportunities presented in each of our unique submarkets.

Looking across our markets, the story varies, but in general, rate and revenue growth have been fairly well correlated to the impact from supply. In our highest-performing markets with minimal supply impact, specifically California, we have seen outsized revenue growth driven by asking rate growth in the low double digits. Other strong markets such as Phoenix and Tucson, have also driven strong revenue growth through high single-digit rate growth. On the East Coast, our stronger markets, such as Washington, D.C. and our assets in Boston and Providence, Rhode Island are experiencing mid-single-digit street rate growth to continue driving revenue growth.

On the flip side, the Texas markets have struggled, as we see significant pressure on rates. In Houston, rates were down in the high single digits, while the rest of the state was down mid-single digits, driven by new supply and other competitive pressures. Denver was our only market with negative revenue growth as asking rents were down in the low double digits. It is no coincidence that these more challenging markets are also among our markets more impacted by new supply. So with that, I will segue into discussing the supply picture.

We are heavily focused on identifying and tracking new supply in our top 12 MSAs. Those top 12 produce approximately 70% of our revenue, and we believe we have very accurate picture of what is to be delivered in '17 and '18 in those markets. Completion dates for stores expected to open in the fourth quarter of this year certainly could slip into 2018, and likewise, late '18 deliveries could slip into 2019, but what we see today suggests fewer deliveries in '18 compared to 2017 in our top 12 markets.

Our visibility to 2019 is limited outside of New York, where the average time from land closing to completion and C/O is about 3 years, and therefore, projects desired to be completed by 2019 are more easily identified. That being said, in both New York and the visibility we have to the other 11 markets, 2019 appears to be on track for less supply than 2018.

As we have suggested on prior calls and meetings, the more pertinent question, given the 3-year average lease-up for the first level of stabilization, in fact, may be how many stores will be delivered in '18 relative to those delivered back in 2015? On that measure, we do expect more deliveries in 2018 compared to the 2015 deliveries. So our takeaway, is that new supply will continue to impact existing assets in 2018, but current data suggests that impact becomes more benign in 2019. It is worth noting that in our top 12 MSAs, we project square foot per capita to grow from approximately 4.6 square feet per capita to 5.0, still meaningfully below the national average of roughly 7.

Specifically addressing our New York City markets, we see similar trends in supply to our overall top markets, with new supply in 2018 above levels from back in 2015, and 2019 showing a fairly sharp drop in deliveries from 2018. And below that supply that was introduced in 2016. Our solid performance in New York in light of the new supply, along with our ability to continue to build a dominant market share through both owned and managed assets, we believe will create significant value for our long-term shareholders.

During the second quarter, the New York MSA performed well with same-store revenue growth of 3%. And from a submarket perspective that growth ranged from 90 basis points down in the Bronx, to low double-digit growth in Staten Island, with Brooklyn, Queens, North Jersey and Long Island in between. Overall, occupancies were up 60 basis points and asking rents were down very similar to the Dallas/Fort Worth MSA in the mid-single digits.

My final point of commentary is on growth in our third-party platform. During the first 6 months of the year, we've expanded our third-party management platform by 26%, adding 81 stores and bringing our total managed store count to 390. The split noted 81 additions between existing and newly built stores is roughly half and half, with 40% -- 47% of our additions in the first half of the year coming from owners selecting us to manage existing, open and operating stores and the balance from owners selecting us to manage their newly built asset. Available data suggests our platform is the fastest-growing in the industry.

In many cases, the self-storage asset our owners select us to manage, is the most significant component of their personal net worth. Owners and developers have choice in whom they select as their management company, including other public REITs and private regional and national management firms, and we know that our owners usually run a process that includes receiving presentations and pitches from many of our competitors. We see our disproportion to growth in this platform as a validation of the strength of our brand, our customer service and our technology. Our owners share with us that they select CubeSmart because we provide them with the most comfort and maximizing value from their most meaningful investment.

I will now turn the call over to Tim Martin, our Chief Financial Officer.

Thanks, Chris, and thanks to everyone joining us for the call, for your continued interest and support. We've reported second quarter 2017 results last evening, including a headline result of $0.39 per share of FFO as adjusted, and that was at the high end of our provided guidance range and represents 8.3% growth over last year.

Same-store results were right in line with where we projected them to be. For the quarter, our same-store revenue grew 4.2%. Revenue growth was mainly driven by a 3.8% increase in revenue per occupied square foot along with a modest contribution from occupancy as our portfolio ended the quarter at 94.6%, the highest level in our company's history. Discounts as a percentage of in-place rents were 3.2% for the quarter, up slightly from the 3.1% in the same quarter last year. Same-store expenses grew 2.5% year-over-year, driven by expenses in real estate taxes and personnel costs, offset by year-over-year savings in advertising and insurance costs. The resulting same-store NOI growth was 5% for the quarter.

So at the midpoint of the year, we can take a look back at our initial guidance for 2017. We expected and continue to expect same-store revenue growth of 3.75% to 4.75%. Our revenue growth year-to-date has been 4.8%. So implicit in our guidance is the expectation that same-store revenue growth will continue to decelerate in the second half of the year. No surprise there.

When we provided our initial guidance, we mentioned that approximately 25% of our same stores would be impacted by new supply, and that the supply impacted stores would trail the nonsupply impacted stores by 200 to 250 basis points of revenue growth. That is in fact, exactly the way this played out so far in 2017. Our 2017 same-store expense growth guidance remains unchanged at 4% to 5%. Biggest driver in our expectations is continued meaningful growth in real estate taxes, no surprise there either.

The only change to our guidance is the modest increase in the midpoint of our FFO as adjusted per share guidance, as we increased the low end of our range by $0.01 reflecting first half results.

On the external growth front, we announced the acquisition of 2 stores for $21.9 million, and still expect full year levels of acquisitions in the $25 million to $75 million range and dispositions in the $0 million to $50 million range. While that feels like a modest amount of external growth, it's important to remember that we've built a very healthy value-creation pipeline through our joint venture developments and our remaining 3 stores that we will acquire at completion. That pipeline of just over $387 million over the next 7 quarters, along with the $154 million of investments that have come online through that pipeline over the past 6 quarters provides us a great opportunity to grow our cash flows as the stores stabilize.

Also important to note, is that we expect to be able to fund the remaining commitments for our development pipeline by utilizing free cash flow and modest levels of line borrowings without impacting our leverage levels. We continue to have meaningful growth in our third-party management platform adding 37 stores to the program during the second quarter. We now manage 390 stores, totaling 25.5 million square feet. We appreciate the confidence these owners have placed in CubeSmart, as Chris mentioned, and we believe there's no greater validation of the relative quality and effectiveness of our people and systems than having an increasing number of owners choose the CubeSmart team.

As we discussed on our call last quarter, in early April, we completed the issuance of $100 million of senior unsecured notes. The transaction enabled us to bring our 2023 and 2025 notes up to $300 million in total, keeping each of those tranches as index eligible, with the new higher minimum size requirement. The $50 million we added to the 2023 notes, priced at a 3.495% yield to maturity, and the $50 million added to the 2025 notes, priced at a 3.811% yield to maturity. Proceeds were used to repay our $100 million unsecured term loan that was scheduled to mature in 2018.

We remain disappointed with the absolute and relative valuation of our shares. Despite the widening gap between public and private market valuations, we will remain disciplined in our execution of our business plan, which is focused on creating long-term shareholder value. Our balance sheet is in great shape with no maturities until 2019. And as I mentioned, we have the ability to fund our pipeline of external growth on a leveraged neutral basis without the need to raise proceeds through issuing common equity. We have not sold any shares under our at-the-market equity program, since the third quarter of last year.

Thanks, again, for joining us on the call this morning. At this point, Anita, let's open up the call for some questions.

(Operator Instructions) The first question comes from Gwen Clark with Evercore ISI.

Can we just start out and talk about what you're thinking about in terms of rate growth and occupancy throughout the back half of the year, specifically for 3Q and 4Q, individually?

Gwen, it's Tim. From an occupancy perspective, we have more currently tracking in July at a little bit of a positive compared to where we were last year, but we certainly expect that the occupancy count for us in the second half of 2017 is much more difficult than the first half, where we were able to continue to grow and achieve record-high occupancy levels, as we mentioned in our prepared remarks. So a bit tougher comp from an occupancy perspective. And your other question was on rate growth? And I think, from a rate growth perspective, I think, the reality is, is that rate growth has as much to do as what we do this year as obviously, as it does what we did last year. And last year, we reduced rate a little bit earlier than the back half of the year, than we expect to this year, and potentially at greater amounts. So I think, we have a tougher occupancy comp. And I think we have potentially, an easier rate comp in the second half of this year than we have so far in the first half.

Okay. So it seems like as we think about the pace of rate growth, the decel that you guys saw sequentially from 1Q to 2Q should diminish over the rest of the year?

Yes. I mean, I think, that's -- I think that is a likely outcome. Although pricing is something we look at every day. So it's -- there are a range of potential outcomes that are contemplated in our guidance and our expectations.

The next question comes from Gaurav Mehta with Cantor Fitzgerald.

So following up on revenue, I was wondering if you could comment on if you expect the revenue deceleration to stabilize in the second half? Or you expect that to spillover into 2018?

Well, from a -- as I mentioned, in my remarks and implicit in our guidance would suggest that revenue growth continues to decelerate in the back half of the year. And then, we haven't provided any 2018 guidance, but what we have talked about pretty consistently, and Chris touched on, in his remarks, is that the impact of supply across the country, across our markets, is likely to be a little bit more impactful in 2018 than it was in 2017. So I think that would point directionally to continued pressure/difficult comps as you think about the sectors performance and likely performance in '18 relative to '17.

Okay. And I think in your prepared remarks, you also talked about valuation gap between private markets and public market. I was wondering if you could comment on what kind of cap rates you're seeing in your top 5 markets?

Gaurav, thanks. This is Chris. Yes, from a cap rate perspective, we really haven't seen much movement at all in the last 6 months from the primary markets. So again, there's been very minimal trades. Obviously, there was a big portfolio in Arizona that traded at a cap rate at or below 5. But on an individual asset basis, you continue to see seller expectations to be in that 5 to 6 cap range depending upon the unique market in the primary markets with no real -- with no real change. So either deals are not getting done and sellers are taking the property off the market or going back and rethinking their strategy or you've got some private capital for whom their cost of capital hasn't materially changed going in and transacting.

The next question comes from Nick Yulico with UBS.

This is Trent Trujillo on for Nick. First, I guess to follow-up on that last series of questioning, given what seems to be a slower acquisition market, how would you classify the product that actually is available in terms of quality, location and pricing and you mentioned as [secondary] to this that seller expectations are in the 5 to 6 cap range, and its precluding deals from happening. So what level of adjustment between buyer and seller expectations do you think is necessary in order to enable an increase in activity?

So let me -- thanks for the question. So let me take the second one first. There is -- there definitely are assets trading, but what you're seeing is the capital being provided to acquire those assets is largely more on the private side than the public side, which makes intuitive sense if you think about the fact that on the private side, the equity return expectations haven't really changed, and I could argue that their cost-to-debt capital either hasn't changed or in some cases, has likely gotten a little bit less expensive. I think where -- what has to happen, obviously, going forward to bring the public companies back into the market is obviously, a correction in the valuations relative to us and our peers. I think the fact that we're trading at below NAV or published NAV seems difficult to get your mind around, given the quality of the assets and where the private market is pricing. So I think, you just have to have a shift in expectations on one side or the other to make things appear to be more attractive. And I think the variable there is simply time.

Okay. And I guess, another question if you don't mind, maybe a more broad question. What are you seeing on the demand front? And how are you continuing to attract customers in the face of new supply popping up?

So as I mentioned in my preliminary remarks, we look at a couple of metrics as we measure demand and certainly, from the rental volume side, as I said, rentals were just up a tiny bit from what we experienced in the first 6 months of last year. So that's one metric that tells us the new customer continues to be very interested in the product. We also look then at the health of our existing customers and as I mentioned, we had fewer units go to auction, write-offs are consistent, no change in behavior on rental rate increases. So I think our customer remains healthy. Movement continues. As it relates to dealing with new supply, it really is an individual store fact pattern. A lot depends upon who controls the new supply and how rational or irrational they are about pricing, while they're trying to lease-up, but we believe that our outstanding customer service and our great locations, wonderful technology, crack revenue management team have done an excellent job in navigating this supply environment, and the numbers speak for themselves. We're able to put up pretty strong top line growth in the face of new competition.

The next question comes from Smedes Rose with Citigroup.

You mentioned fewer deliveries coming into your top 12 markets next year versus this year. I was just wondering, could you share the actual number that you guys are seeing in terms of facilities being delivered this year, next year in your top markets?

Yes. If you think about again, there's the macro and then there's the number that directly compete with a new cube. So in those top 12 MSAs, right now we're tracking 77 deliveries in '17 and 49 in '18.

And that's -- those are for the broader markets. And then is there sort of a subset that you feel is competitive to your facilities?

No. I'm sorry. That was the subset that we feel competitive with our facilities. And the broader number, we're tracking 184 in '17 and 105 in '18.

Okay. And then just on that, are you seeing any changes in availability of capital for new facilities? Is that one reason why we're seeing -- you're expecting fewer deliveries next year?

Well, I think the -- I think on the debt side, your major banks are certainly evaluating overall real estate exposure. But your local and regional banks continue to make relationship loans. So they're really lending to the borrower not to the project. On the equity side, I think as we see this current rental rate environment to the extent that rental rate growth remains muted, certainly, some of these projects are going to have a hard time penciling out their pro formas and drop. We also just see the challenges with zoning and entitlements and deals just drop. So I think it's a combination of all the above.

The next question comes from Juan Sanabria with Bank of America Merrill Lynch.

Just a quick question as a follow-up from Smedes. Just given your last commentary, any change given the flatter rents on expected yields on developments and C/O deals upon stabilization? And what are you guys targeting now?

No. No change in what we're targeting. Certain markets, certainly with where rental rates have moved, Houston would be a great example, Denver would be another. Probably, a lot less interest certainly from CubeSmart in looking at any sort of development or buyers buy C/O opportunity in those markets.

Okay. And what's the kind of average you're expecting to achieve then, if they didn't change? What about the expectations for what's in the pipeline now?

Yes. For what's in the pipeline continues to be depending upon, obviously, when it was put in, the cost base, et cetera. We're 200 to 300 basis points above the stabilized cap rate in the particular submarket.

Okay. And then just a conceptual question. Street rates have obviously flattened out. All else being equal, at what point -- how long would it take for same-store revenues, if occupancy, everything else stays flat, for same-store revenues to get to that flat street rate growth, if that holds out just theoretically?

I think from a theoretical basis, if you held every other variable constant and street rate growth across the portfolio were to be 0, I would think, it would take you somewhere between 4 and 6 quarters. And everything else being held equal until your revenue growth would ultimately decelerate to that 0 -- theoretically.

That's helpful. And just -- I have one more strategic big picture question, if you don't mind. You guys obviously, talked about cap rate differential public versus private and just being -- just made at your discount to NAV. Any thoughts on kind of strategic alternatives to get that to close? Whether it be asset sales, buyback or anything else?

So certainly, we evaluate all of our opportunities to drive value. I think it's worth noting that it wasn't but about 3 months ago that we were trading at net asset value, so this has not been a significantly long period of dislocation. And we would hope that, at some point, the market realizes the opportunity to buy a very high-quality portfolio by investing in CubeSmart shares at a great price. But all strategic options around share buybacks are -- and how to fund them are always considered. I think the question again comes to we like our leverage. We like our leverage where it is and the idea of borrowing to do such a thing would be down the road. Certainly, we throw off a lot of free cash flow. Right now, that's dedicated towards the completion of our development pipeline, but we could also look at potentially some asset sales. Although again, we really like our portfolio. So as with everything, we take a look at a broad menu of alternatives.

The next question comes from Todd Thomas with KeyBanc Capital Markets.

This is Drew on for Todd today. I'm just curious, your advertising expense decreased meaningfully double digits. I'm wondering if you could talk about what you're seeing or what you're doing differently, considering your peers seem to be increasing ad spend. And just if you could give us some color on that?

Sure, this is Chris. So I think, you had a combination of things in the quarter. Some of it is timing. When you look at the fact that we were a -- we were growing our physical occupancy through the quarter. We were certainly seeing customers at the top part of the funnel, and so we elected to throttle back a bit on spend, really sort of knowing we would have those funds in Q3 or Q4 if necessary. So from the Cube perspective, we would still expect total advertising costs for the year to be higher than they were last year. But within the quarter, it was kind of a combination of timing as well as how strong our performance was on the customer attraction side. It didn't make any sense to spend inefficiently.

I see. And then just one more. In terms of existing customer rent increases, what was the contribution of revenue growth from those? And have you seen any changes in the pool of customers that's eligible for increases?

There really hasn't been much change to -- well, there hasn't really been any change to our approach. We still constantly test and continue to verify that our timing and amount of increase is the most effective given other alternatives. The contribution to revenue growth is very, very modest because we have consistently applied that approach for many years, and so the contribution to revenue growth is very, very modest because of the consistency.

Got it. And what were the rent increases in the quarter?

We tend to push along rate increases in the high single digits at the 6-month mark and every 12 months thereafter.

The next question comes from Jonathan Hughes with Raymond James.

This is kind of an extension of the prior one. But a few quarters, you mentioned -- a few quarters ago you mentioned that half of tenants were above current street rates. What's that number today and how many of those are eligible for rent increases?

Yes. So today, a little bit more than half of our in-place customers are below street rate. And so again, it kind of goes to my confidence in the fact that we're going to continue to able to pass along rate increases. Now that percentage is going to vary a lot quarter by quarter and street rates vary a lot quarter by quarter. And I'm sorry, I didn't recall -- I can't recall the second part of the question if there was one.

It was just the percentage of that -- those half tenants that were eligible for increases. I mean, if street rates are flat, eventually that pool gets smaller and smaller if it can actually be passed on, increases, correct?

I will hand -- yes, Tim why don't you take that one?

No. It's not because -- it's not. That would imply that we would not pass along a rate increase to somebody who is above street rate, which is not the case, we would. We would pass along a rate increase to somebody even if they were above street because our scientists would show that the likelihood that somebody is going to move out -- again, it's a captive customer. Somebody is not going to take a Saturday typically to go move out of their storage, which is a need-based product for what could be an $8 rent increase per month and a product that they don't expect to stay in forever and ever and ever. So it's a -- you do have a captive audience with most of your customers, so the rent increases are pretty sticky even when you give them to somebody who is already above street rate.

Okay. I mean, at some point though, like if you're say, 30% above street, would you not pass on an increase?

Again, you're getting into sort of specific customer-by-customer across several hundred thousand customers. I can give you the example. In 2012, we made a decision to tweak our pricing strategy and at one point, I believe, we reduced asking rents across the board 10% to 15%. That didn't alter our willingness to continue to pass along 8% to 10% rate increases to that existing customer pool. It didn't change their behavior. So while your economic theory, I completely understand. You have to put yourself in the shoes of our customer for whom that rate increase is more than offset by not only the value of their time, but also they're actually out of pocket cost, to hire a mover, to rent a truck, et cetera. So you just have to kind of think about it from our customer perspective.

Okay. Fair enough. And then just one more. Yes. I know we always talk about New York, given it's your largest market, but South Florida is another big one. Could you just discuss your Miami portfolio? Give us your estimate of supply per capita there and expectations for deliveries that will compete with your cubes over the next, say, 18 months?

Sure. So stores that we have in the Miami MSA continue to perform quite well. I think in the supplemental revenue growth was up 4.5, I'm sorry -- yes, about 4.5 and the NOI up 5. When you think about what we see from a supply perspective there, not surprisingly, a pretty significant ramp up this year relative to 2016. The reality is a good portion of that for better or worse doesn't directly impact an existing CubeSmart Store. And then, we see a pretty sharp drop off next year in terms of those that would compete. So in terms of numbers, we're tracking 13 new Cube competitors in 2017. That number dropping to 7 in 2018.

Then next question comes from David Corak with FBR.

Can you talk about your thoughts on the progress made on de Blasio's plan in New York and the potential impact that, that could have on your portfolio?

Sure, David. Thanks for the question. It continues to percolate. The ultimate impact is positive. In the context of, we generally are not targeting those zones for new development, and it will in fact, reduce an already increasingly reduced number of sites eligible for self-storage in the boroughs. Now the slippery slope, is once one starts to arbitrarily pick on self-storage in that manner, it does open the door for the product to be singled out in other ways, and we don't think that's fair. I think there is a bit of a misperception in the outer boroughs that the self-storage is being built there and that the customers are coming from Manhattan to use it. We don't see that in our portfolio. Manhattan customers tend to stay in Manhattan.

Okay. And then just sticking with New York. I apologize. I might have missed this in your prepared remarks. But do you anticipate the supply in the boroughs to be more or less impactful on your portfolio in 2019 versus 2018?

Yes. We would expect it to be less impactful in the boroughs in 2019 versus 2018.

Okay. That sounds good. And then again, staying on New York. What was the same-store revenue growth for 1Q and 2Q excluding the 5 stores that you added to the same-store pool this year?

Yes. I'm sorry, I don't have that information in front of me. Yes, I'm sorry. I don't have that information. Certainly, something Charlie can follow-up with you on.

The next question comes from Steven Kim (sic) [Ki Bin Kim] with SunTrust.

This is Ki Bin. So just a couple of follow-ups here. The supply growth numbers you gave, what does that look like in percentage terms above inventory for the kind of sub-micro supply radius versus the metro?

Yes. The overall growth is about 7%. I'm not sure what sub-micro versus metro means.

I mean, you gave like stats on the top 12, 77 properties 2017, 49 2018, your immediate competing radius and then you said 184 and 105 in the broader market. That's what I meant.

Yes. And that's about -- I'm still not sure what the question is.

So [7%] inventory growth in 2017. Is that what you're saying?

16% to 18% is what I'm -- is that growth.

Sorry, just to clarify, the percent of new supply as a -- the new supply as a percentage of inventory.

Oh, yes. I don't have that number. I quoted a square foot growth, which was -- I think we said, we expected the square foot per capital, although that's not going to directly answer your question either because the population is growing. But in those markets growing from 4.6 to 5. That's helpful.

Okay. Yes, that's close enough. And the street rate growth that you -- that's in your press release, is that pretty consistent throughout the quarter? Because I know that's usually a snapshot at the end of a quarter.

Yes. It really is not. I think, if you go through the -- if you go through each month, we would have ranged from -- at some point we were down for a period of weeks about 2% versus last year, and then there was a period of weeks where we were up a little bit more than 2% over last year. So it kind of bounced around between those 2 extremes.

Okay. That's good to know. And just last one, I know if you look at the supplemental schedule rents were higher than realized in place. Is that a very good proxy for the rent roll down or rent roll up you're experiencing throughout the quarter? So using that number, you would assume that you're rolling up rents as people move in and move out?

No. Only because of the -- of how -- it's so dependent upon each individual customer and the size of the cube that they're renting. So during the quarter, we would have overall experienced a rental roll down on the new customer. So if you were looking at that implying a rent roll up, that's not the case.

Yes. It's almost always a roll down because customers that are moving out, oftentimes have gotten that rate increase. So you're almost always rolling down customers moving out taking a higher rate than those moving in, but that's always been that way.

The next question comes from George Hoglund with Jefferies.

So 2-part question. I guess, first part, you guys have seen solid growth year-to-date in the third-party management business. So first off, do you continue that pace of growth, continued in the back half of the year? And then second part is, how much of a benefit does the growing third-party management business have in sort of muting overall expense growth? You've been able to spread costs over a larger portfolio. And then given just [how you] allocate costs among assets.

Yes. I'll take the first part of that one on growth in the platform and Tim can take a shot at the second part. We would expect to see, based on the pipeline that we have, continued very strong growth in the back half of the year. Again, it's a pretty nice balance between existing, open and operating assets and newly developed assets. I'm not sure it's going to match the 81 that we brought onboard in the first half, but it could. And so again, some of this is going to relate to what may slip into '19. But if you look out over the next 12 months, we have a very robust pipeline of opportunities that are in our -- that are waiting to enter our platform.

And from a cost perspective, it's an area that you need to look at over a longer period of time. But certainly having 390 additional stores, 390 additional stores are contributing to support your infrastructure. You're able to leverage the platform over that many more locations. You have that many stores that are participating in and contributing to your marketing efforts. You have that many more stores that allow you to improve your SEO, your search engine optimization because you have more points on the map. And so overall, there is certainly a benefit from an overall cost structure to having those stores on the platform.

The next question is a follow-up from Gwen Clark with Evercore ISI.

Just really quickly, I'm sorry, I think I may have missed it. Can you just run through the asking rate trends throughout the boroughs? And also the markets within Texas?

Yes. I talked a bit of that, Gwen, in the prepared remarks. That across the boroughs, we were down, very similar to what we saw in Dallas, which is about mid-4% range. And again, that's going to vary from the Bronx being the toughest comp, with Brooklyn and Queens being a little bit of a better comp. And then generally, in Texas, I did talk about, overall, Houston down in the high single digits, the rest down in the mid-single digits. So hopefully that's helpful for you.

Okay. So just to be clear. Austin and Dallas, they're doing slightly better than Houston?

Yes.

Okay. And then within Brooklyn and Queens, is one of those beating the other?

Within Brooklyn and Queens, we are seeing, yes, Queens, definitely a little bit better than Brooklyn.

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

Okay. Thank you, all for participating in our call. We remain very committed to the strategy that we have consistently articulated. Maximizing our internal growth opportunity through outstanding people, who provide industry-leading customer service and continuous improvement in our systems and processes. Maintaining a conservative capital structure, balancing maximum flexibility with the lowest possible cost of capital and being disciplined in our external growth, continuing to focus on owning and operating high-quality assets in high-quality markets. We believe all of this will result in significant value creation for our long-term stakeholders. Look forward to talking to you at the end of the third quarter. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.