CubeSmart (CUBE) 2011 Q3 法說會逐字稿

Good morning and welcome to the CubeSmart Third Quarter Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. I now would like to turn the conference over to Dean Jernigan. Mr. Jernigan, please go ahead.

Good morning.

The Company's remarks this morning will include certain forward-looking statements regarding earnings and strategy that involve risk, uncertainties, and other factors that may cause the actual results to differ materially from these forward-looking statements. The risk and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the Company files with the SEC, specifically form 8-K, together with the earnings release filed with the form 8-K, and the business 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 can be found on our Company's website.

Good morning again to all of you. Thanks for joining us this morning. As usual, Chris Marr, President, and Chief Investment Officer is here with me, along with Tim Martin, our Chief Financial Officer. I would like to take a very few minutes here, and speak about the sector. I'd like to -- as I like to do, go up to 30,000 feet, and I would also like to look back today. Look back at how well the sector has performed in the last 3, 3.5 years. When we went into the recession in December of '07, and we stayed in recession through '08. The sector, if you look back at the performance of the four public companies, really did not feel the recession. You don't see if the numbers until the fourth quarter of '08. Of course, we know we went negative in '09 as a sector, but to a very small degree, only about 3% to 3.5% down in revenue, as a sector.

We roll into 2010, all 4 public companies report positive revenue gains in 2010. And now we find ourselves reporting third quarter results in 2011, which I think are outstanding as a sector. So I would like to suggest that we were 1 of the first sectors out of the recession, the great recession. We were one of the few sectors to not even feel the recession for the first 3 quarters that we were in the recession. And now we are one of the first sectors to really flourish at the end of the recession, are coming out the back end. Flourish is a mild word, really when you think about the sector having average NOI growth of 7.9% for the 4 public companies. Could not before pleased with the sector.

We are, of course, taking market share as I've been discussing now for seems like about 2 years now. The market share is coming to us through our great marketing platforms, our marketing departments with a lot of smart people executing on their business plan with adequate marketing dollars. And that of course, as you heard me say many times, separates us from the smaller players in our sector. Also, we are really starting to see the early stages, but seeing those stages very clearly, of consolidation. We talked about that over the years as well, and it's very clear for anyone to see just looking at third quarter results, and subsequent to third quarter results, of the 4 public companies that we are in fact consolidating the sector. And that is a tremendous opportunity for our shareholders going forward.

When I look back through our reports at all the markets that we operate in across the country, we only had one storage facility open up during the third quarter as a new property. And of course, you have seen all of the reports of all 4 public companies now with all the acquisition activity during Q3, and subsequent to Q3. And that is clearly a consolidation, and that is a big, big opportunity for the 4 public companies going forward. So, we couldn't be more pleased with the sector. Could not be more pleased with our Company's performance. I will let Tim and Chris speak to that.

As you all know on this call, we have been very busy, subsequent to the quarter end, with our Storage Deluxe. The contract negotiations, and subsequent closing of those 16 properties, that first launch of that acquisition. Chris will get into that more in detail. Tim and his team leading our equity raise, which we are very pleased with the results of. It has been a very busy few weeks here. The team has performed exceptionally well. Very pleased with the results, and I couldn't be more happy with the Storage Deluxe acquisition, that I am going to turn it over to Chris now, let him talk more about. Chris?

Okay. Thanks, Dean. Now as Dean mentioned, this is a bit of a unique call, in that we have shared most of the information released last night, either in 8-Ks or press releases or road show presentations over the last few weeks. The new information that we disclosed yesterday was that the first tranche of the Storage Deluxe portfolio acquisition did close, as Dean mentioned. We invested approximately $357 million in 16 unencumbered assets. We funded a portion of the closing with the common and the preferred equity capital we had previously raised. I'm just going to provide a little additional color on the recent investments and financings, and then turn it over to Tim, who will update you on guidance, more specifics on our debt capital raising expectations for the fourth quarter, and our expectation on how the New York City acquisitions will impact our 2012 expectation.

If you go all the way back to the beginning of 2008, we had a plan for our Company to improve the quality of our cash flow. We articulated a vision of having more than 50% of our results being produced by assets in our defined core markets. Markets such as the Boston to Washington, DC corridor, Miami, Dallas, and Chicago. Markets characterized by strong demographics, high barriers to entry, high household incomes, high rents, and a proven history of being able to produce revenue growth in excess of other, less attractive markets. At the beginning of 2008, only 42% of our cash flow was derived from those defined core markets.

We began to dispose of assets in our non-core markets, and from that time, through the $43.5 million sale of assets in Canton, Ohio, Cleveland, Ohio and Indianapolis, that we completed this most recent quarter, we have generated $234 million in disposition proceeds from low growth, low barriered entry markets. We also began in '08 to execute on our strategy of sourcing acquisition opportunities in our core markets. We spent most of '08 and '09 identifying assets that we believed would generate stable long term growth and cash flow, and we re-established ourselves as a qualified buyer.

Our entry into the third party management business gave us a pipeline of direct deals, and excluding this most recent closing that we did yesterday, 60% of our acquisitions have come from assets we were managing. Extremely pleased with that program as you saw in the release, we added 19 additional contracts. We are up over 100 properties that we manage for third parties at this point. And that continues to be both a good fee stream for us, a good way to leverage our operating platform, and an excellent source of acquisition opportunities. When you think about then on the investment side, as of June 30 of this year, we had deployed $228 million in acquisitions into our core markets. And we had grown that 42% of our cash flow coming from core, to 53% of our cash flow coming from our core markets.

The Storage Deluxe transaction has transformed our portfolio such that pro forma for the closing of both tranches, we will have slightly more than 60% of our cash flows coming from our targeted markets, with the top 5 contributors being the greater New York metro area, the Miami, Florida area, Washington, DC metro area, Chicago and Dallas Fort Worth. After closing on the Storage Deluxe acquisition, we will not only have improved the quality of our cash flows, but our owned portfolio will have sector leading population density with over 200,000 people within a 3 mile ring around assets, and we will have increased the percentage of renters within our third trade ring by 12% to 39% from the previous 34.5%.

The scalable nature of self storage, and the high market rental rates of the Storage Deluxe portfolio will create future improvements in both our NOI and our EBITDA margins. The portfolio we are acquiring has been actively managed, and we anticipate being able to continue that momentum into 2012 and beyond. We outlined our high level expectations in our supplemental package, and I encourage you to read that. We've also outlined in our supplemental package the financing for this transaction, and I'm pleased to turn the call over to Tim to discuss how we think about the impact of this on our fourth quarter results and 2012 results. Tim?

Thanks, Chris, and thanks to everyone joining today's call for your continued interest and support. It certainly has been an exciting few months since our last call back in August. We introduced our new brand and corporate name. We completed $20.6 million of acquisitions during the quarter. We sold 18 assets for $43.5 million. We invested $15 million in a joint venture with Harrison Street. Our third quarter results not to be overshadowed, exceeded our guidance with FFO per share at $0.18. Our same store occupancy gained 310 basis points year over year, and we reported same store NOI growth of 7.9%.

Over the last several years, we've not only been focused on improving the quality of our real estate portfolio, we've also been very focused on improving the quality and flexibility of our balance sheet. Over 63% of our NOI during the quarter came from our unsecured properties. We have a well-staggered debt maturity schedule, and we have limited exposure to variable interest rates. Over the last several years, we have significantly reduced our debt-to-gross assets from 51% at the end of 2008, down to 36% at the end of the third quarter. In July, we were assigned a Baa3 investment grade issuer rating from Moody's Investor Services.

As Chris discussed, our financing of the Storage Deluxe acquisition is comprised of a blend of about half permanent capital, and half from a combination of unsecured and secured debt. The permanent capital has already been raised, including the $202 million of common equity proceeds, and the $70 million preferred share issuance. The debt portion of the financing comes from the assumption of $88 million in secured debt, that has an 8 year average maturity, and a blended 5.4% coupon, as well as $200 million of unsecured debt that we anticipate being in the form of 5-year unsecured term loans with a hedged all-in fixed rate of between 3.5 and 4%. We've detailed our anticipated sources and uses and related costs on page 24 of our supplemental information package.

We are committed to maintaining our investment grade balance sheet, and as we contemplated the financing of this transaction, and every transaction, for that matter, we focus on the combination of financial metrics and other factors that influence the rating. We reviewed the Storage Deluxe transaction and related funding with Moody's, and following our announcement of the transaction, Moody's issued a comment that the transaction is a net positive, citing the acceleration of our portfolio repositioning efforts, our significant position in New York City, and the resulting margin in rent per square foot improvements, all positives in their view. Our earnings release includes the details of our revised 2011 earnings guidance and related assumptions.

We've adjusted our full year expectations for our same store portfolio, by increasing the revenue growth assumptions to 3.7% at the midpoint. We improved our expectation for expense growth down to 1% at the midpoint. And we increased our expectation for NOI up to 5.5% at the midpoint. We increased our full year FFO per share expectations to a range of $0.62 to $0.63, and we introduced fourth quarter guidance of $0.15 to $0.16. This guidance includes the impact of our improved expectations for our same store portfolio, our common equity offering of 23 million shares that closed on October 28. Our $70 million preferred equity offering that closed on November 2, and yesterday's closing of the first tranche of our Storage Deluxe portfolio acquisition, totalling $357.3 million. Our guidance does not include the impact of acquisition related costs, or a non-recurring period cost related to financing and re-financing activities.

As you may have seen, our supplemental information package includes additional information, and assumptions related to the Storage Deluxe transaction, including the historical and anticipated revenue growth of the portfolio, the significance of the other income relative to our existing portfolio, and our operating margin expectations. As mentioned earlier, we also provided details on our assumed capital structure, and the related costs. When you put all this together, depending on your starting point for 2012 expectations, we would expect most people would model out the incremental impact of this acquisition, and the related financings to range from flat to down a penny or 2 compared to their pre-transaction expectations.

To wrap up, it truly has been a transformational quarter for CubeSmart. We have an energized team who have delivered outstanding results across all of our functional areas. That concludes our prepared remarks. Thanks again for joining us this morning, and at this time, Keith will open up the call for questions.

(Operator Instructions)

And the first question comes from Christy McElroy of UBS.

Good morning.

With regard to the term loan you are working on, why not do something longer than 5 years, given where rates are? Lock it in longer, especially since you already have about $100 million coming due in that year, 2016.

Yes, Christie, it's Tim. Thanks for the question.

The term loan that we are targeting will actually have a 2017 maturity, which fits very nicely in our debt maturity schedule, as we have no existing maturities in 2017. We are focused on the 5-year piece, because it is a very attractive and available term of debt from our bank groups, similar to the ones we did earlier in the year. And then ultimately, we would envision terming our balance sheet out further later in 2012, with a potential debut public bond issue. So, we believe the combination of the permanent capital that we raised, including the 8-year average secured debt, and the 5-year term loan, to be a good and appropriate balance of funding for the transaction.

Okay. And then, with regard to the lease-up properties and the Storage Deluxe portfolio, it seems like many of the assets have been in service for a while. What tactics would you expect to employ to boost occupancy end rents that were different from what the prior management had been doing?

Christy, this is Chris.

If you look at the average when those assets came online in their current square footage, some of them were introduced in stages. So, the current square footage has been in place for about 4 years. If you think about the fact that, in late 2007, for the most part, these assets came on board. You had a decent ramp up in 2008, and then you had some slowdowns, given the economic conditions that were occurring in the world in 2009. It began to pick up and accelerate 2010, and for the first 8 months of 2011. So it's -- they are clearly going to benefit from our scale. They are going to benefit from our systems and our processes. But they are also just going to benefit, as they have been over the last 8 months, from a good robust demand in those markets, and a lack of supply.

I think the only asset that is a little bit -- was an outlier for the previous team, and fits right into our sweet spot, is the Pennsylvania asset. That didn't fit, obviously, well into their geography. We obviously have a strong presence here in the Philadelphia area, and I think we will be able to significantly ramp up that asset, just given the fact that it's more in our sweet spot than it was in theirs.

Okay. And then I understand the 6% to 8% revenue growth projections for 2012. With this acquisition, how much do you think you're improving the longer term NOI growth rate? On your portfolio, your overall portfolio?

I think when you look at our overall portfolio, and if you just wanted to look out over time -- and, again, this is, say, through 2015. I think, from an NOI perspective, it improves our internal expectations by 110, 120 basis points in terms of the growth that we think the blended portfolio will get versus standalone Cube.

Okay, that's helpful. And then lastly, I'm having a little bit of trouble with, Tim, your comment about expectations for 2012 being flat to down $0.01 or so. In terms of dilution from the transaction, I guess it seems like versus what expectations would have been for the fourth quarter, given what you have done this year, operationally. It seems like there's a little bit more dilution than that in there. I understand it's not the full impact of the transaction, but I would've thought that, even with a 6% to 8% revenue growth projection for the Storage Deluxe portfolio, that it would've been a little bit more dilutive than that in 2012. Can you help me reconcile that?

Yes, Christy, happy to.

It's really a blend of thinking about what we have been talking about, from going in cap rate expectation on 2012 numbers in that 5.7%, 5.8% range. And then, combining that with the combination of the permanent capital and the debt capital that we've alluded to. The levels of other income as a percentage of the revenue, as well as our margin expectations. I think that math gets you to -- if you think about the range of pre-transaction expectations that are out there on first call for across the group that follows the Company -- when you blend all of those assumptions on top of that starting point, I think when you work through the map, it should result in that down to flat type of change incrementally on top of the pre-transaction expectations.

Is there any expectation for growth in that other income component?

I think it is embedded in our expectation of the cap rate in 2012 on the acquired properties.

Okay. Thanks, guys.

Sure, thank you.

Thank you; and the next question is from Todd Thomas of KeyBanc Capital.

Hello. Good morning. I'm here with Jordan Sadler as well.

Good morning.

Just a couple of questions about the profile of the Storage Deluxe properties. I was wondering what the historical existing customer rent increases look like, and how much you think you will be able to push rent at these properties?

The historical has been quite strong in terms of, if you think about the demographics of a New York market, as we look at what we have been able to do across our portfolio, in those higher-rent markets, and the ability to push rent at levels in the 8% to 10% range. I think this portfolio, particularly the Metro New York assets, can handle that type of exist-in-place tenant rent increases quite nicely.

Okay. And then, do these properties, or do you plan to employ any different strategies with regard to concessions or free rent?

No. This has been pretty consistent with what we have done again in other high-rent markets. You tend to burn -- you tend to pull back, specifically on unit types, as your occupancies grow, and for those assets that are still in lease-up, the first month free concept has the same impact on a customer in New York, as it does anywhere else in the country.

Okay. Then, 1 more here.

Is the profile of the customer similar in terms of length of stay and turnover? Is there any difference there in these properties, or the New York Metro properties that you currently own, relative to the balance of your portfolio?

It depends upon the unique location and sub-market. We have more commercial customers at certain stores in the boroughs, particularly ones that have good access to thoroughfares that can get people back and forth between the boroughs, back and forth between Manhattan. They tend to stay longer. They tend to rent more space. The Connecticut assets, and the Westchester assets tend to be the more typical residential/commercial blend.

Okay, that's helpful.

And then, Dean -- you talked about the limited supply in the sector in your prepared remarks. I was just wondering what your view is of conversions, maybe from warehouses, light industrial, or flex space into storage, particularly in the New York Metro and some other urban infill markets?

Good morning, Todd.

I think it's -- to me that's just supply growth, any way you cut it. Whether it's Greenfield development or conversions. I don't see much in 2012. We would REC that activity if anything were going to surface in 2012 as far as new supply is concerned. I do anticipate some new supply in 2013 in certain sub-markets around the country. Nothing to get concerned about. But I do think it is going to be 2013 before we start seeing anything of any significance.

But it will be sub-market driven where there is demand; and we still have the vast majority of our sub markets around the country still have plenty of supply, plenty of vacancy to rent out before the numbers really start to work for the developer.

Okay. Great, thank you.

Thank you; and the next question comes from Eric Wolf from Citi.

Hello guys, it's actually Nick Joseph here with Eric and Michael.

I was wondering if you tell me your current percentage of commercial tenants is? And I guess how high you can see that number getting, and over what period of time?

Sure.

Our most recent study was done about 6 months ago; and this was somewhat of an exhaustive study. It showed us that 20% of our customer base -- that group, those were our commercial customers, about 20% -- and they were renting 30% of our space. And that is -- again it was 6 months ago, in times when we had lost a lot of our commercial customers, I think, especially our home builders, small subcontractors. I do think we have a great opportunity to grow that, not only through just the economy coming back, but also with our focus through our Superstore concept now, and our additional services even at our other stores that are not Superstores. I think those services really attract the commercial customer.

We do a general manager survey prior to this call, each quarter. And I was very happy to see 30% of our general managers across the country think that their commercial customer base has regained its footing, and now they are back at pre-recession levels. That's only about a third of the country, but that is significantly -- that's up significantly from previous quarters.

And so we have high expectations to be able to effect our business plan through our Superstore concept, with our additional services, to growing that commercial customer base. And I think I said once or twice already, and I'll continue to say that, as that commercial customer base grows -- and I do think ultimately it can get up into the 50% range -- that really will start to take the seasonality out of our product, when we have that large of a commercial customer base. That is a number of years away, but we are starting to chip away at it, as we speak.

Okay, great, and I guess, following up on that -- which of your Superstore amenities have been received favorably so far, and which are not gaining that much traction?

All services have some traction. We have customers who have taken advantage of all services that we offer. There are some surprises. The shredding is 1 that filled the void that surprised me. Some that are not surprising -- the shipping, packing and shipping, has traction and will do well. Everyone loves our free wi-fi service. The amenities we offer in the office to give them a place just come in and sit down and work on their computer has been very well received.

Our courier service is 1 that is picking up. It is something that still most of our customers are not aware, our existing customers are not aware of exactly how to use the service. So as we use our marketing campaigns to further educate our customers, I'm confident that would be a big winner for us. Still, yet 50% of our customers in a transition from -- some transition regarding their household. They are really appreciating that additional services we are offering, through Penske, and Two Men and a Truck, and Beacons as far as helping them with that transition.

I'm really quite pleased. It's all anecdotal at this point in time. Although we have received testimonials from some of our good customers, commercial customers, as to how great these additional service offerings are. In fact, we have testimonials from 3 very large ones, who say they have come to us to rent their storage -- and in some cases, multiple storage units across the country -- from us because of these additional services. So we are quite excited, very early out of the gate, but quite excited at this point.

Great, and then finally, as you put in your press release, and on the call again today, you have announced a lot of transformational change in the last couple months. I was wondering if there is anything else you have on your agenda?

I will take that one.

We have been quite busy. We are very pleased with the direction we are headed with all of these initiatives, and I think the answer to your question is no. We will keep pushing hard on the initiatives we have, but nothing up our sleeves at this point in time.

All right, great. Thanks, guys.

The next question comes from Paul Adornato from BMO Capital Markets.

Hello. Good morning.

Good morning.

With respect to Storage Deluxe, was wondering if you could tell me what the rebranding timeframe is going to look like, and if any stores right off the bat will be outfitted as Superstores?

Yes, this is Chris, Paul.

The rebranding is happening as we speak. The initial stages, we will be able to replace permanent signing at certain stores. We will have to put some temporary signage up while we get some permits at the other stores. But our objective is to have all of these stores branded CubeSmart as rapidly as the permitting process will permit. From a Superstore perspective, these are, as we said -- and we are going to get everyone out to see them -- these are fabulous assets, many the majority of which were ground-up development. The offices are absolutely perfect as they currently exist to support the Superstore concept, and we would expect that certainly all of the Borough assets and many of the others will be Superstores ASAP.

Okay. And there are a bunch of other Storage Deluxe properties out there. Were they corporately owned? Did you look at those, or were they third-party owned?

There are 4. For a variety of reasons, they were unable to transact with those assets at this time. So they will continue to operate those 4.

And, is that a possibility down the road or --?

Yes, we would believe, and I believe they were articulate that the process we went through here, where we were able to do all of our work under the radar, and able to do it in a very positive and non-disruptive way -- I would certainly believe they would be interested in talking to us, if and when they determine they would like to sell those last 4.

Were those third party owned, or were those also owned by the same management?

They are owned by the same management.

Okay. And I guess -- you are talking, Dean, a little bit about grabbing market share, and as you roll out the Superstore concept, was wondering how you will be able to tell the return on the Superstore concept versus just regular spruce-up and other initiatives that you have going on.

I think as we go forward, Paul, we will start to see larger commercial customer bases in those Superstores than with the balance of the portfolios. So, I think that part will be fairly clear. I think just to put some numbers on what you suggest as far as taking market share -- if you subscribe to the -- it's now Kushman-Wakefield/SSDS Report -- it showed in the last quarter that where we gained 3.1% in fiscal occupancy year over year, the small operators only gained 0.1%. And our asking rates, of course, were up 2.2%, and theirs were down 1.1%.

So, it really is -- it's not intuitive; it is not anecdotal; that it's very clear to me in the numbers. Each quarter, not only us, but the other large REITs are taking market share from the small players. And that, of course, is bringing about consolidation. I hope that is responsive.

Yes it is, thank you.

Thank you. And the next question comes from R.J. Milligan from Raymond James.

Good morning.

Dean, on your comments on the new supply in 2013 by market, do you expect that to be more suburban markets or more infill?

I would think it would be more infill, R.J. You can pick them out around the country. There are some sub-markets -- for example, Washington, DC -- 1 or 2 that could take 1 or 2 properties today, but it's going to be very small supply growth. It'll be by sub-market, and initially it will be infill, because the infill properties are the ones who are experiencing the best operating metrics today, and that's, of course, where you are going to get the supply growth.

So, when you were underwriting the Storage Deluxe acquisition, obviously some of the properties were fairly new with the 2007 average build. Did you underwrite the transaction in terms of, you would expect some new supply there? Or, given what we've seen over the past 2 years, you wouldn't expect any new supply in those markets?

Yes, this is Chris.

We certainly would expect that there would be some new supply. But when you look at the populations, and you look at the demographics, we've got very comfortable that the market could absorb that without missing a beat.

Okay. That's all I have. Thanks, guys.

Thank you, and the next question comes from Todd Stender from Wells Fargo.

Good morning, guys.

Now that you have rolled out the Superstore concept, how have conversion costs compared with what you originally forecast? I think the estimate, or the original cost, is $50,000 per store. That is part 1. And 2 is -- your original expectations for about a 10% return -- how are those looking versus your original expectations?

Hello, Todd.

The costs are nailed down. So, the $50,000 average is still a good number, and will be a good number, as these costs are not going to vary that much. Most of it is technology, as you recall. I was pointing that out on visits to our new Superstore. So, that cost is pretty simple. As far as the returns are concerned, it is early on. I would think maybe this time next year we will start to report maybe some returns on that for you, and break out some revenue streams for you. That's going to be easy, that 10% -- we've given ourselves a low hurdle there, to jump over. That's going to be easy to generate, and we will point that out to you at the appropriate time.

Okay, thanks.

And just sticking with you, Dean -- I think you mentioned in your prepared remarks, you opened up a facility in the third quarter. Where is that facility, and what is your expectations on when or how long it will take to get a stabilized occupancy?

You misheard me, or I misspoke. That was not us opening up a facility, that was our friends out in Salt Lake City opening up a very nice facility in the suburbs of Denver. I will let them answer that question for you. But that was the only property that opened up across the country during this third quarter that competed with any of our properties.

Sorry if I misheard that. And you answered my question on the new supply. Just refresh my memory with the Storage Deluxe deal -- any adjacent land parcels that came along with that portfolio?

No. No adjacent land parks.

Okay, thank you.

(Operator Instructions)

And the next question comes from Paula Poskon from Robert W. Baird.

Thanks, good morning everybody.

Good morning.

I apologize if I missed this -- in the Storage Deluxe properties, do any of those offer opportunity for expansion?

Yes, Paula, this is Chris.

Not in terms of additional land, but in terms of being able to do some additional smaller units, particularly locker-sized units, which are very attractive to the tenant base there. We have some opportunity to do that; and then, at one of our assets in Queens, there is a small 4000 square foot buildout that we could do to add additional storage.

Thanks, Chris.

To turn back to the rebranding strategy -- what has been the reaction among your third party owners? And now that, that strategy has been launched, will you consider requiring of them to re-brand to the Cube Smart brand?

Hello, Paula.

Hello, Dean.

We are still not going to require, but we are going to strongly suggest. It's compelling now. And we held off on doing this when we cranked up our third party management program, because we were already in the middle of our rebranding process, so it made no sense to compel them to change the brand, if we knew a new brand was coming.

First of all, let me go back to the first question. The response has been really pleasing, in that we, right out of the box, third party owners come to us, and say we want to be part of your brand now. So that was encouraging, but now we have a compelling story to show them, and tell them, about what makes sense to re-brand. We do not plan to pay for their cost to rebranding. That will be their cost. But we do expect many, if not most, and if not all of our third-party properties to ultimately re-brand Cube Smart.

Okay, thank you Dean, I appreciate that.

And then, Tim, just a housekeeping question for you. What is the balance on the line today?

The balance as of September 30 was zero.

Yes? And what is it today?

Today, it is $93 million. $93 million, in conjunction with closing on the first tranche of the Storage Deluxe transaction.

Great, thank you very much. That's all I have.

Thanks, Paula.

And the next question comes from Shahzeb Zakaria from MacQuarie.

Good morning, guys.

Good morning.

I was wondering if you could talk a little bit about what you're seeing in different markets -- specifically about Arizona and Ohio. It seems like in Arizona your occupancy went down 350 bps, and in Ohio, it was up 350 bps, but that was probably related to the assets that you sold. So, if you could talk a little bit about what you're seeing in these markets, that would be great.

Good morning, this is Dean.

Those 2 particular markets -- Arizona is really coming back nicely. I'm sure the variances you are speaking of do have almost everything to do with the assets we sold. But in Arizona, we are actually starting to see some home building start. Of course, we are concentrated in Phoenix and Tucson, and those properties are enjoying good year-over-year revenue growth. So, totally out of the woods in Arizona as far as I'm concerned, and looking forward to a great year next year.

As far as Ohio is concerned, that really is somewhat of a conundrum for me, in that everything you read about Cleveland, and Columbus, especially, is all negative. But both in Northern Ohio and Southern Ohio, we've performed exceptionally well, and I'm going to give credit to our management team out there. We have 2 wonderful District Managers in Sue Cook and Monica Edwards running Ohio for us, and those 2 ladies have just really performed exceptionally well in spite of the macroeconomic times in Ohio. So, those properties are performing well today -- exceptionally well today.

I only really have 1 market today that I have the least little bit of concern, and it is Las Vegas. We really only have 2 storage facilities, and 1 business park there, so it's not a big market for us. But Las Vegas continues to be challenged. In the past I've suggested Orlando was a challenging market for us, and it has been, but we are also starting to see some growth in Orlando.

So the rest -- just to hit the rest of the country concerned -- the rest of the country. We have had our best growth in the northeastern region, from Washington to Boston. And particularly in the New York Boroughs area, because of new Storage Deluxe acquisition, and the results we have been having recently in those markets. I think that will perform exceedingly well for the Company.

As far as other large markets across the country, just to hit those quickly. Atlanta is coming back. Florida is doing well. Dallas always was doing well. Houston struggles somewhat with the oil patch, how it's doing down there; but okay. Austin, San Antonio doing well. Denver has continued all through this malaise, if you will, to do well. And Southern California, North San Diego County, and Orange County, and L.A. County are fine, and we are even seeing good performance numbers now out of the San Bernardino Riverside area. Of course the comps are very easy, year over year, but our senior D.M. out there is doing a real good job for us.

So, we are generally very pleased across the country. I know you did not ask that whole question, but it gave me the opportunity to kind of cover the country.

No, but that was really helpful, thank you. My last question is, if you could provide the CapEx for the assets sold in Ohio and Indiana, that would be great.

The assets that we sold in Ohio and Indiana, we sold in the high 7s.

Got it. Thank you so much guys.

Thank you.

Thank you, and we have a follow-up question from Paula Poskon from Robert W. Baird.

Thanks.

Dean, just a follow-up again on the third-party asset pool. Are there any assets that you're currently managing that you wouldn't want branded as a Cube Smart, that might necessitate your terminating some contracts?

No. That is a simple answer, Paula, because that asset has to clear the hurdle, earlier, of us wanting to own that asset sometime in the future. We manage properties that we want to own, and we do turn down assets to manage that we don't want to own. So, clearly, if we want to own it, the brand would go up. So that is an easy no.

And what percentage of your existing portfolio would lend itself -- would lend themselves, I should say -- to the Superstore strategy?

As we have said, we have done 25 now, and the next group is about another 75, we are going to do; and then on top of that, we are doing the 22 Storage Deluxe properties. We are going to pause after that, and that will be probably Q3 next year. We are going to pause after that, and monitor the performances, and see where we go from there. We certainly will be able to add some more.

But as I have said in the past, we are also adding a lot of additional services to our non-Superstore properties, and so many of them have the advantages of the additional services -- may not have the nice large office, may not have climate control, which are kind of two aspects of our Superstore that we have to have in order for it to be a Superstore. So, we have up-sited all of our facilities with these additional services. Right now, I see us going to about 125 or so, and then we are going to pause, and let you know from there.

Thanks very much, that's all I have.

Thank you, and we have also a follow-up question from Todd Thomas from KeyBanc Capital.

Hello.

Apologies if I missed this discussion, but in terms of acquisitions going forward -- does the Storage Deluxe deal fill your appetite for the time being, or should we expect to see you continue to be active? And then, on the flip side, are you still looking to dispose of some non-core properties, or is that process largely complete as well?

Todd, this is Chris.

We will continue to be active. We have 3 assets under contract at the moment waiting for closing, that will close before the end of this year in the Washington, DC, area, and in Houston. As we look out into the future, we definitely will continue to be in the game. We don't expect to see anything at all, obviously, to the size that we just did. From a disposition perspective, the heavy lifting is done. As we look at the portfolio, there is still some tweaking that we would like to do. And as some assets come out of the CMBS loans that mature mid to late next year, some of those are on our list for disposition. So, we will continue to be active, but I think you'll see us more along the pace of what we had done this year prior to the large acquisition.

Okay, and the 3 properties in DC and Houston, what is the gross acquisition amount about on those?

The gross acquisition on those is about $36 million.

Okay great. Thank you.

You're welcome.

And as there are no more questions at the present time, I would like to turn the call back over to management for any closing remarks.

Okay, we can wrap-up. One question did not get asked today I just want to cover. There was some concern about our switchover with our brand, how that was going to affect our Internet business, and our leads from our website. And in fact, September ended up being the best month of the year, and the best month this Company has ever had as far as website visits. Our unique visitors were up 37% year over year, and our web reservations at our website were up 60% year over year. So I think we not only got over -- it was really only about a 2- or 3-day period there, where the transition was being made, at the search engines. So, it went quite well.

The last question that wasn't asked -- occasionally I get questions on the network. We now have 824 facilities in our network. So far this year, we provided 4,397 call leads to those network partners, and we created 416 reservations for those partners. That program continues to work exceedingly well, just as we've always planned, and we're very pleased with that. We are equally thrilled with the quarter, and with our Storage Deluxe acquisition, and we hope you are as well. Look forward to seeing you soon. Have a good day.

Thank you. The conference is now concluded.