CubeSmart (CUBE) 2014 Q1 法說會逐字稿

Good day, and welcome to the CubeSmart first quarter 2014 earnings call and webcast.

(Operator Instructions)

Please note, this event is being recorded.

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

Thank you, Kate. Hello, everybody. Good morning from Malvern, Pennsylvania.

Welcome to CubeSmart's first quarter 2014 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 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 last evening 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 would now turn the call over to Chris.

Thank you, Charlie.

We are very confident, based on the way we executed in the first quarter, that we are well-positioned to enjoy a strong rental season. In looking at the first quarter rental trends, we experienced slightly reduced activity in January and February, which we attribute to weather. As the customers arrived in droves during a very strong March, we ended at 89.5% occupancy on same-store pool, up 390 basis points over the prior year.

Asking rents to new customers continue their upward trend. We pushed asking rent each month throughout the quarter, and, comparing to first quarter of last year, same-store street rates averaged 2.4% growth during the quarter. Discounts as a percentage of rents declined on the same-store pool to 5% from 5.3% in the prior year's quarter.

We're very pleased with our operating expense growth in light of the weather related costs incurred. Our 9% same-store net operating income growth and 25% funds from operations per share growth were very solid and at the upper end of our expectations. It was a very productive external growth quarter.

Competition for deals is very strong, and we continue to be disciplined in our approach. Our focus on select opportunities to acquire built to suit stores and coinvestment development is bearing fruit as we announced opening of a new store in the Bronx during the quarter. New supply in our core markets remains muted, and all signs point to another solid year for our company and our industry.

At this point, I'd like to turn the call over to Tim Martin, our Chief Financial Officer, for his commentary. Tim?

Thanks Chris, and thank you to everyone on the call for your continued interest and support.

We had a great first quarter, and we're well-positioned as we head into the rental season. Our reported same-store NOI growth of 9% was the result of 7% growth in revenues and a 3.2% increase in operating expenses. Occupancy gains across our portfolio continue to be the primary driver of revenue growth, as same-store portfolio physical occupancy averaged 400 basis points higher than in the first quarter of 2013. The more severe winter in 2014 primary driver of our 3.2% same-store expense growth, causing higher utility and snow-removal costs.

Our financial performance for the first quarter beat the high end of our expectation, as we reported FFO-per-share as adjusted of $0.25. The [beat to our] expectations came from a combination of a few things. As Chris mentioned, we had a strong March on the rental front, and additionally we benefited from the timing of several items, including our marketing spend, repair and maintenance expense, real estate taxes, and G&A. These are all timing related and don't change our full year expectations for any of those line items.

Our same-store pool properties was reset on the first of the year, as per our historical practice. We added 48 stabilized assets to the same-store pool in 2014, increasing the pool to a total of 346 properties that represented 91% of our NOI during the first quarter. Our same-store results were modestly impacted by the newly added properties, as you can see in our newly added disclosure on page 17 of our supplemental information package that we released last evening.

We follow the lead of one of our peer storage companies in providing this additional disclosure, as we believe it provides much better visibility and comparability to same-store results that have been very difficult to compare across companies given disparate policies on adding non-stabilized assets to the results. Kudos to Sovereign for the additional disclosure, and we would encourage others to follow suit and provide better visibility and comparability of same-store results.

On the investment front, we've been very active year to date, closing on 16 property acquisitions through 14 separate transactions for an aggregate purchase price of just over $187 million. Of that total, $103 million closed during the first quarter and $84 million closed subsequent to quarter end.

We remain focused on maintaining and improving our credit metrics that support our investment-grade balance sheet. Accordingly, we continue opportunistically raise equity capital to support our growth under our aftermarket equity program. We raised $46.2 million of net proceeds under the program, selling $2.7 million shares during the first quarter, bringing dollars shares and operating partnership units outstanding to $144.5 million at quarter-end.

At the end of the quarter, we have 3.7 million shares remaining on our existing ATM program. You will see a disclosure from us early next week, along with our quarter-end filings, that will expand the number of shares authorized under our plan up from 12 million to total of 20 million to create additional capacity going forward.

Also, on financing front, yesterday we closed on the debt financing of our unconsolidated joint venture. You'll recall that when we closed the joint venture transaction late last year, we did so without any debt at closing and anticipated financing the venture with modest leverage at a future date. Consistent with those expectations, the venture closed on a $100 million seven-year secured loan, with a fixed interest rate of 3.59%. As our share of the venture is 50%, we received half of the loan proceeds. That will be used to reduce borrowings and create additional capacity under our revolving credit facility.

From a guidance perspective, we increased our annual FFO-per-share expectation up to a revised range of $0.99 to $1.02 and provided second quarter of $0.25 to $0.26. We also announced improved expected ranges in our same-store revenue expense and NOI to reflect our first quarter results and revised expectations entering the rental season. Our FFO guidance ranges are on an as-adjusted basis, and exclude the impact of acquisition related costs given the unpredictability and non-recurring nature of those costs.

We increased targeted acquisition volume for the year up to a range of $250 million to $300 million, and consistent with our historical practice, we include the impact of announced transactions in our FFO guidance, but exclude the impact of future speculative activity. Overall, a very good first quarter, and we remain confident in our ability to execute our business plan to maximize internal growth, continue to enhance our portfolio through disciplined investment approach, and maintain a conservative capital structure.

That concludes are prepared remarks. Thanks again for joining us today. Kate, at this point, let's open up the call for questions.

(Operator Instructions)

Our first question comes from Christine McElroy, Citigroup.

Good morning, guys.

Good morning.

Tim, I just wanted to follow up on your comments on guidance. I understand that the beat in Q1, there was some timing related items there. But, just In terms of the guidance assumptions, the overall range was up only about a half a penny at midpoint, but you increased NOI growth by 50 basis points, you've got all of these additional acquisitions under your belt. I realize that is net of the ATM issuance. I'm trying to get a sense for why guidance wasn't up a little bit more. It seems like with the better core growth overall and the greater acquisitions, it should have been up a little bit more.

Sure. Thanks, Christine. I think it's a multi-pronged answer here. The first one that you heard was the penny beat was largely timing. We don't anticipate, as I mentioned, an overall change to most of those line items. It was simply a shift from first quarter to later periods in the year. That's part of it. You got that part.

On the investment side, we include in our guidance the impact of announced deals. So, of the $187 million of activity today, $73 million of that was included in our prior guidance, as we announced that in conjunction with our initiation of the 2014 guidance last quarter. That leaves you with $114 million of incremental activity.

As we have seen in prior years, our investment activity is combination of stabilized acquisitions and lease-up opportunities. As you noted, we continue to remain very focused on proactively raising equity capital through our ATM. Oftentimes, we're raising that capital in advance of closing the acquisitions.

We remain very excited about the opportunities we are finding and expect to create great long-term value for our shareholders. The reality is, when you combine all those variables together, the impact to near-term earnings is pretty negligible. Again, longer-term we are very excited about the long-term [NEV] accretions and value creation.

Finally, on the core component of it, we did have a strong March. We feel good entering the rental season. We still have not great visibility into our ultimate ability to push on asking rates and have any higher than expected levels of discount reductions. As we sit here, we are certainly more comfortable with the high end of our guidance, today, than we would have been a quarter ago when we initiated the guidance. I think all of that stuff combines.

I understand your question. I appreciate it. It all comes down to the point where, with what we know right now, we believe our guidance range is appropriate as we sit today.

Okay. If I'm understanding correctly, if I think about the acquisitions in terms of the blended initial yield versus the blended cost of capital, initially it's sort of FFO neutral, but more accretive over time.

That is right. When you combine that also with the fact that in many cases and in our expectations, oftentimes, we are actually raising the capital in advance. You have a bit of a drag because you've funded it before you've closed.

Okay. As I think about funding, I realize it's not in guidance, but in terms of the range that you projected that you think you could do in the year, how do you think about funding that? Is that more ATM issuance?

Certainly, we would expect a component of it would be funded through equity as we remain focused on maintaining our metrics. Again, it's going to be a combination of looking at where public and private market valuations are, where we trade, whether we are opportunistically raising that capital in advance or being a bit more patient.

It's hard to predict that exact timing. Generally speaking, we're expecting to raise that capital at or before the closing of the acquisition, is typically been our strategy.

And then lastly on the expense side. Chris, you talked about being pleased with the expense growth despite the weather. Tim, you mentioned it as well. You had some of the lowest expense growth in the sector despite the weather. Was there any muted weather impact given some of your centers our more urban? Was their anything in the year ago number that made the comp a little bit easier?

No. I think we were certainly expecting the result that we derived there. I think the difference versus our expectations came in a lot of those other line items that I mentioned. One of which would be repairs and maintenance. There were many, many projects that were delayed as a result of the weather, but the weather cost themselves, no surprise to us.

Okay. As we think about expense growth for the year, somewhat below that, but got you. Okay. Thank you guys.

Thanks.

Our next question comes from Gaurav Mehta, Cantor Fitzgerald.

Good morning. Following up on acquisitions, you mentioned that you are seeing higher than expected level of activity in the market. Can you talk about the product flow and any impact on the [CapEx]?

Sure. This is Chris. Good morning. The theme that you've heard is it's a pretty competitive market out there. We continue to see good opportunities in our core markets both from our third-party managed platform, as well as deals that we source on a direct basis. That continues to be our preference and our bread and butter. Cap rates continue to be pushed down.

There is a lot of interest in storage, as one would expect given the very, very strong performance as an industry. As a result, we are comfortable with our guidance. We obviously had a nice pipeline of deals from the fourth quarter that carried over and closed into the first. We have pretty good visibility here on a single asset basis throughout the balance of the year and are comfortable at the levels that we described.

I think the upside to our expectations would likely come from a portfolio transaction that may come to market and make sense for us from a quality perspective and then from a pricing perspective. That combination of quality pricing has been difficult to come by and very difficult to predict.

I think, common theme here on this call, we are very confident in our ability to deliver within our guidance, both externally and internally. Very confident towards the upper end of all of that, but are, again, at this stage in the year, being cautious in not getting ahead of ourselves.

Great. Second question I have is on occupancy. How much more upside do you think you have in your portfolio? And what occupancy levels would you expect too see stronger rent growth?

Yes. The levers all move together. We're real pleased with the ability to continue to push street rents up in the first quarter, continue to get up into that 2.5% range overall. When you look at that from a market perspective, that goes from markets with significantly higher opportunities to push on street rates.

We have seen particularly strong results in Dallas, Fort Worth, street rates were up a little bit north of 8%. Chicago has continued to be a strong market, up about 5.5%. All Florida markets, really led by the Miami area, have been very strong as well. Really, our only challenging market, and one day I will stop picking on it, but it continues to be El Paso where, fortunately, we have been able to see very good occupancy gains there, but nothing on rate side. So, they move together.

Same thing with reduced levels of discounting. We said last quarter and nothing has changed, this same-store portfolio should be able to get into that 92%, perhaps as much as 93% at its peak. Certainly, as we have better visibility into that, you can get a little more confidence built in on your ability to both push on rates to new customers and on discounts, but they all move together.

Our objective is not to maximize one individual component of that. Our objective is to work the three together to get to highest level of revenue possible in our portfolio.

Great. That is all I had.

Thanks.

Our next question comes from Ross Nussbaum from UBS.

Hello, Jeremy Metz on with Ross.

Based on what you had just said, if we take higher rate growth, lower discounts, occupancy blended all together, can you give us color on how realized rents for move-ins in Q1 trended on year-over-year basis, and then how did those realized rates compare to move-outs in kind of [mark-to-market] in the quarter?

The effective rents for customers moving in were up about 3%, is one way to answer that question. The other way is that if you look today and said someone's vacating 10 by 10, someone's moving into that exact same cube, the person moving in is moving in at about 1.5% higher face rate than the person who is vacating.

Okay. Thanks. Just on comp basis for the 2013 pool, the 298 assets. If we strip out tenant re-insurance and other income, what was the year-over-year trend there in rental income? So, the components of that 6.50% same-store revenue growth.

Yes. That's a figure I don't have at my fingertips. I think my sense of that is that the trend doesn't change any, given that growth in other and the growth in rental have been not that inconsistent. We can have a follow-up on that. It's not a number we have at our fingertips. I would suspect the trend's not that different.

And then last for me. Looking at your guidance, you had 7% same-store revenue growth in Q1. Obviously, guidance of 5.25% to 6.25% suggests a slowing into year-end. Can you give us some additional detail just on what you're baking into guidance for the progress of that, quarter by quarter?

The biggest impact there is if you look at the fact that we have talked about the contribution of our revenue growth as coming half, maybe a little bit more than half as coming from occupancy. Clearly, our occupancy comps get more difficult as this year plays on. We're at 400 basis points higher occupancy today. As Chris just touched upon, if we were to peak somewhere in the 92%, 93% range, and you just for argument's sake picked the middle of that range, this portfolio occupancy peaked last year at just shy of 91%.

You would be looking at, for the back half of the year, arguably, having a gap in occupancy year over year of something in the 150 basis point to 200 basis point range instead of the 400 basis point range that we are enjoying today. So, there's clearly a more difficult occupancy comp. Apart from that, we are expecting some continued contributions from rates to new customers and the role that Chris spoke of, and reduced levels of discounting, all that combining to get us into the range we expect.

Okay. I guess, we'd look at how that will trend. That, in theory, could get you down to 4% level, 4.50% level by year-end. Is that fair?

Yes, I think that's a little bit -- this is Chris. I think that's a little bit light. The reality of our expectations is that we can see the path to the occupancy. In general, I would say we're being very cautious in our expectations about our rate growth, effective rate growth relative to the reduced discounting and higher street rates. I think the margin of error is definitely more on the upside than the downside.

Okay. Great. Thanks guys.

Thanks.

Our next question comes from Todd Thomas, KeyBanc Capital Markets.

Hello. Good morning. First question, just following up on the investment pipeline. I just wanted to talk about the landscape overall from a competition standpoint. I was just curious if you could talk about the capital that is on the sidelines. Is it private equity, individuals, or private operators? Who are you really bumping up against most at this point? Who is coming in with the most competitive bids?

Hey, Todd, it's Chris. You certainly have the other three [REIT's] who are very active. Particularly on a portfolio basis. You have that competition, which has -- which was there last year as well. Private equity continues to show up. To my knowledge, there has not been a significant transaction yet.

I think, again, back to my comments earlier, the industry is doing so well and expected to continue to do so well that it is clearly drawing the attention of a disparate array of capital coming into the space. Now, all of the challenges that come along with that, obviously starting with the need for a sophisticated operating platform. Again, the current environment, the aggressive cap rates makes penciling out returns somewhat challenging for folks who have high-octane capital. On a single asset basis, still not seeing a significant amount of competition from the local or regional operator.

I think deals in the markets that we focus are priced out for their cost to capital. I don't think -- other than the addition of, perhaps, a few new names from the private equity world, I think the overall landscape is about the same as it was in the latter half of last year.

Okay. Chris, you've mentioned portfolio a couple of times here. Is there something out on the market or anything out there that you are looking at today that you could maybe put some context around in terms of size or location?

Yes, there's nothing out there at this moment that Cube is interested in. There is one portfolio in the market of reasonable size. I'd hate to put a number on that for you at this point because we are not in the mix.

There is one transaction that we are aware of out there. We will kind of see how that all shakes out. I would suspect that there would be some public disclosure of where that is before everybody reports second quarter results.

Okay. And then, regarding the build-to-suit opportunities, I was just wondering how big the Company's appetite is for these types of deals, and what sort of volume we might expect to see over the next several quarters?

Yes, when we look at that risk, whether it be coinvestment development where cube is taking some risk from acquiring the land through completion and then lease-up, or just us taking the risk on the lease-up portion of that spectrum, I will put it in two different buckets. I think, on each, $50 million to $75 million a year of closings is an area where we get comfortable.

Right now, we have three projects that fit into that build-to-suit that will close between -- if everything happens according to plan, will close in 2015 and 2016. We have four development projects where we are actually involved from the moment the land is acquired that will all, if they move according to schedule, open in late 2015. The total of those two buckets is about $200 million.

Okay. That is helpful. One last question for you. I was looking through the markets that you list out. Boston, revenue growth was down slightly year-over-year, sort of standing out within the portfolio given most markets did pretty well. You only have three properties there, and I was wondering if that performance is due to a lack of scale in that market or if there was something else going on?

Well, it's a combination of factors there. One, we had a competing property go from a private ownership to public ownership, and that definitely improved the performance of that store and that had small near-term impact on us. And then from other factors, I think that may be a market I would describe as us getting a little bit ahead of ourselves in terms of rate. We saw a blip in occupancy and we have reacted.

I think weather probably has a little bit to play in there. I think those properties, one of which is a heavy student property, will have started to rebound quite nicely in April. I think we will have a good summer. Boston is a good market.

Okay, great. Thank you.

Our next question comes from Jana Galan with Bank of America.

Curious, on the supply front, what are you hearing about construction lending for private developers?

Hey, its Chris. How are you?

No real change. I think it is fair to say on the supply front that getting construction financing is the biggest impediment at the moment. I think that will continue until the regional banks decide to change that, and I don't know what would be their impetus to do so. That continues to be a frustration for folks who would like to develop.

When we look at supply across all of our markets, it continues to be very muted. We see very little happening. If I go through all of our core markets, we had one store that opened in the fourth quarter in Washington DC. Just given the general lack of supply there, you would have to consider that a competitor to our two stores, even though they are not that geographically convenient. We didn't see much of a [bip] there. It did impact you.

We lost about 1% of occupancy relative to where we would have thought we would have been. As that store leases up, and I'm sure it will quite nicely, Washington is an under-served market and everybody will be fine. We look in New York, there was two private operators. One opened a store in Queens, one in the Bronx. I would not consider either of those to be competitors to our existing inventory.

Then I look at the rest of the country, and you had three openings in Chicago. One all private, two REIT's. The two REIT's stores, we would consider to be within a ring that would be competitive to us. We have not seen any impact on our Chicago portfolio from that. The private operator is in a location we would not consider to be a competitor.

If you look at that in terms of all the way across the country, that is a deminimus amount of product. So, continues to be challenging. There absolutely is a lot of discussion around it. It continues to be very challenging for folks to get product into the market. I don't see that changing at least for the next 12 months.

Thank you. When you think about your two developments, how are you forecasting lease-up and potential stabilization there?

Yes, we continue -- theme here is conservatism. We continue to be conservative in our expectations. We are looking at 36 month lease-ups for both stores.

The store in the Bronx has been open for about 40 days, it's 10% occupied. Our store here in Malvern is about 34% occupied. It has been open since the beginning of January.

Both are moving faster than expected. We don't bank on that. Again, I think the marketplace, if you are in the right submarket, we would think, again, the bias is that lease-up would possibly be faster than our expectations rather than slower.

Great. Thank you, Chris.

Our next question comes from Ki Bin Kim from SunTrust.

Thanks. Going back to the trend in occupancy, can you just help paint a little bit more clear picture? You've had a big benefit from year-over-year occupancy gains. How does this trend down throughout the end of the year? I know you mentioned wanting to do [200], but do you think you have pushed street rates high enough in time to take up the difference?

So, Ki Bin, you are asking us whether your premise is correct?

Yes.

( laughter)

I don't know how to answer your question other than back to there are multiple levers of how to maximize revenue growth. Our focus here has been, through the past 18 to 24 months, has been heavily weighted toward that occupancy gain. We did that back in 2012 with some pretty significant adjustments to our asking rates.

That has cycled through to an extent. Our mix of contributors to our revenue growth is, perhaps, different than some others. We believe that it is the combination that maximizes revenue for our portfolio.

Hey, Ki Bin, it's Chris. I think, as you know, if you look at your levers and then impact of those levers in terms of quarter to quarter, the most immediate is sell-through discounting. For example, if you were to completely shut off discounting in a particular quarter, you could show quite robust revenue growth because every customer you are getting is coming in at full pay. You may take it on the chin in terms of your occupancy because you are turning you away a portion of the consumer for whom that portion of free rent is an attractive play. Your near-term results could be impacted quite positively.

Rental rates to new customers flow in -- the positive impact of that obviously flows into the portfolio slower because you're relying on that churn every month in order to get the impact there. Probably stating the obvious, but that's just the reality of how those various levers impact quarterly results.

Okay and sticking with that, along that same line of thought. On promotions, what percent of your customers are receiving promotions today? What percent of new customers? It depends on how you want to describe it, but maybe could you talk about are those promotions 50% lower, the promotions that people get? Maybe some kind of parameters around that?

Yes. It is, again, you have a two-part question. Last year in the first quarter on the same-store basis, about 82.2% of our customers received a discount. This year in the first quarter on same-store basis, 81.6% of customers received a promotion. So, the number of customers receiving a promotion is going down.

The absolute value of that promotion, obviously, moves with where your rental rates are moving as well. You have two pieces there, but I think the direction, you can say, is less customers getting promotions, and promotions as a percentage of rents, as I described, has continued to decline down to 5% in first quarter.

Thank you for that. Last quick one. Where do you think that 81% can go down to in the summer?

Yes, it's again, we don't selectively pick one lever. So, again, it could go to zero if you, in fact, then found that by dramatically reducing you asking rents to new customers you are still able to attract folks to your offer. It could stay where it is, but you could push or street rates up dramatically.

That customer and that submarket may be more appealing for them to come with a modicum of free rent and they are willing to pay the higher rent in the future. It really is going to depend upon what our systems tell us is the highest probability of maximizing the overall revenue.

Okay. Thank you.

Our next question comes from Ryan Burke from Green Street Advisors.

Thank you. The new same-store performance breakdown is very insightful. It does seem to indicate that the 2012 and 2013 additions to the same-store pool actually provided a drag on NOI growth for the quarter. Which, seems like that is probably a counter-trajectory as to what most would have expected. Backing into the numbers behind those actual additions, it implies some pretty strong expense growth across those properties. I assume some of that is geography related, but hoping you could speak to that. If we did see a drag from those properties this quarter, what should we expect moving forward?

Hey, Ryan, it's Tim. Thanks for the question. The primary driver of what you are seeing there is exactly as you suggested. The new additions to our same-store pool over the past two years have been predominately in our focused investment markets that are predominantly Northeast, which were heavily impacted by the snow.

The percentage of assets that were newly added are clearly way disproportionately weighted in the markets that had the big snow increase. When you look at the NOI mathematically, you are correct, that they actually had slight drag impact on the overall, but it's almost entirely related to where they are on a relative basis and the impact of the severe winter.

Okay. You think that drag from this quarter is not necessarily something that happens going forward and that potentially turns positive?

That would be my expectation.

Okay. Great. That's all I had. Thanks.

Thanks.

Our next question comes from Paul Adornato from BMO.

Thanks. Was wondering, as kind of a follow-up. Was wondering if you could talk about how long after a new acquisition is integrated into the portfolio does the property continue to outperform in terms of having your systems benefit the property?

Hey, Paul. It's Chris.

The first 12 to 24 months you capture the low hanging fruit. The very lowest you would capture fairly quickly. Obviously, the longer tail items -- if you had an acquisition were the prior owner was not offering tenant insurance, so you had zero penetration, it is a challenge to go back to the existing customer base and sign them up. That's one, for example, that would tend to positively impact the acquisition over a longer tail period because you're churning those customers and the new ones coming are picking up insurance.

Occupancies, Rental rates and discounts, you could have an immediate impact. Obviously, branding and marketing has a more immediate impact. I would say the immediate items from month 1 and possibly out as far as month 14, and then some of the other items tend to benefit the store for a more elongated time period.

Okay. Great. If we were to look at drill-down to the specific unit sizes, how often does your revenue management system bump up against full occupancy with respect to a specific unit size?

(laughter) Today.

Certainly, the standard sizes are very appealing to most of our customers. So you start with a 10 by 10, a 5 by 5. Those are the sizes that appeal to most customers. In a market like our great exposure in New York. We hit a point here fairly soon where there is a scarcity to that cube size and the availability tends to be in the lockers or the smaller size cubes and/or something that is unusually large.

Okay. Thank you.

(Operator Instructions)

Our next question comes from Paula Poskon, Robert Baird.

Thanks. Good morning, everyone.

Good morning, Paula.

Following up on the same-store discussion and the trends there. On page 16 where you have the trailing five quarters, the net rental income for the five quarters, what would that number have been for this pool of assets in December 2012? If you were going to take that trailing six quarters instead of five?

I don't have that in front of me, partially because all of the stores that are in this pool we did not own in the fourth quarter of 2012. I don't have that, and I'm not sure I could get to it because I don't have that population to compare to.

What percentage would you say, Tim, of this pool of assets did you not own through 4Q 2012?

In the fourth quarter? I would have to go back and look. So you can see that we added 48 properties. Of those 48 properties, how many of those were acquired in the fourth quarter of 2012? I don't have that at my fingertips, we might be grab it here quickly.

We can follow-up off-line. Thank you very much. Bigger picture question, it's been a few years now since you've embarked on the supercenter concept with all of the offering all the ancillary services with the hope of increasing your penetration with business customers, as well as the rebranding initiative. What has been the results of that? Do you feel like you've obtained the benefits that you hoped for? Has it exceeded your expectations? Fell short?

Yes, I would say that, again, depending upon which of those two items you wanted to look at, and it's hard to parse the two. The Overall benefit has met or exceeded our expectations. The power of the brand, and you look in a market like New York City where, in the first quarter, we just experienced extraordinarily strong organic growth in terms of customers finding us online through non-paid search items. So, said a different way, customers in the boroughs are increasingly finding us by going directly to CubeSmart as opposed to searching for self storage.

So, there is a market where the brand is fresh, it's clean, it's interesting, it's catchy, you remember it. Is having a huge benefit for us in terms of search and how we find our customers. You add that to the employee morale boost, the pleasure they have in being involved with the brand. You look at our overall performance, then, and I think the best way to look at it is going from occupancies in the 70's to occupancies in the 90's. You look at the kind of revenue growth that we have and all of that, certainly, has had a contribution from those things that you mentioned.

What percentage of your customer base would you say is -- are businesses versus individuals?

Businesses, we would say again, it's little bit of an inexact science because many of our business customers are small businesses who rent in their own names. Again, it's in that 30% range. The overall movement up has not been a significant change, but the individual stores that have features and locations that appeal to a business customer continue to gain a good share of that type of customer, who is a great customer for us because they stay longer and tend to use more services.

What is the average length of stay now overall versus, say a year ago?

Very little change. I think it's elongated on the median by about 6 days. So again, you still have customers on average who are with us about 14 months.

Okay. Finally, what percentage of your third-party managed assets have adopted the CubeSmart brand?

Yes, at this point about 10% of our total pool is branded CubeSmart.

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

Paula, it's Tim. Just a real quick follow-up to your question. We acquired five assets in the fourth quarter of 2012. I know that. I don't know what the impact would've been to answer your other question, though, because I don't have -- that would've been a different pool that we would've never looked at that way.

Okay. Thanks.

Thanks.

Next we have a follow-up from Christine McElroy from Citigroup.

Just a really quick sort of modeling question, and maybe we can follow-up on this off-line. Do you have what you're unconsolidated JV NOI was in Q1? I'm looking for the NOI number.

By utilizing what's disclosed, you can take the loss number, the equity and losses of real estate ventures number from the income statement, and then if you go to the FFO reconciliation, there is an add-back of depreciation expense attributable to the venture.

Yes.

If you add those two together, this quarter, it will give you a pretty good approximation of NOI -- our half of the NOI to venture level. What that won't include is the management fee income that we earned by managing the venture.

Starting next quarter, you won't be able to do that anymore, because the debt that we just closed on yesterday will run through that as well. That number will be impacted next quarter by a partial quarter of interest expense, and then in the third quarter it will be impacted by a full quarter of our share of the interest expense on the secured debt.

Starting next quarter, can you have a break out of the reconciliation to get to that equity and income number?

I think we do it in the 10-Q. I will double back to make sure. We are happy to give enough information for you to get what you need for your model.

Okay. Thanks so much.

Thanks.

Next, we have a follow-up from Russ Nussbaum from UBS.

Hello, it is Jeremy again. Just two quick ones. Sorry if I missed this. What are the renewal of rent increases you are sending out to in-place customers right now?

Hey there, it's Chris. The rate increases, the general pattern has not changed in the past. We continue to average around a 9% increase to our existing customers. When you think about our pattern there, that is unchanged. We provide a notice of an increase will be effective in the sixth months, and then every 12 months thereafter. So, about 5% to 6% of our rent roll receives a rate increase each month.

That is been pretty steady in terms of the amount of customers?

It has. Obviously we have more customers who are paying a higher rate than they were before, but the process has been the same, and the average has been about the same.

Okay. Last one. Can you remind us how you determine or decide when an asset is considered stabilized and therefore should be included in the same-store pool?

We look at an asset too see that it was stabilized in the entirety of both periods presented. We have view stabilized to be a market stabilization. The occupancy that defines stabilized is different per market and, candidly, is much different in today's environment than it was four years ago.

For us to pick a hard number for occupancy that dictates stabilization, we believe, is a little bit too stringent and doesn't allow us to appropriately set our same-store to have a comparable number that has stabilized performance in one year versus stabilized performance in another year. There is some subjectivity to us to determine whether our property was stabilized in both periods presented.

So that occupancy threshold has increased as the portfolio occupancy industry amongst the public REIT's has increased?

Absolutely true. Yes.

Perfect. Thanks, guys.

Next we have Todd Thomas from KeyBanc Capital Markets.

Hello, thanks. One follow-up. When we think about rent growth and, going back to your example about the New York properties where there are very few 5 by 5 and 10 by 10 units available, I am assuming you are offering very few discounts on those units. I was wondering, what kind of rent growth are you seeing on those units, specifically? We can try and get a sense for once everything is pealed back, how much demand there is and what kind of pricing power you have?

I think to just answer that question, macro not just in New York, but it applies there as well. You look across all of our markets, and you look for what is an average at a store in terms of how high you can push asking rates not see impact on occupancy or customer behavior.

We have markets. Colorado Owned and Managed is a great example where we are in that 10% to 13% push on street rates to new customers. It can get that high in a market. I would say for the desirable cubes in New York, you can push along those lines and not miss a beat.

Okay. And just one more, Chris. I think you mentioned the 1.50% rent spread when someone moves out relative to a new customer coming in today. Just two things on that. Where was that over the last couple of quarters? Where is that coming from? Also, how quickly does that metric change day in and day out or week in, week out, I guess?

If you look at that in the first quarter of last year, it was 0.3%. It has gone from 0.3% to about 1.8%. You can change in a day. Obviously, it changes on both sides. If you have two 10 by 10's next to each other, you may be passing a rate increase to the person on the left and you're pushing street rate, the asking rents for the empty cube on the right. They both moved, but they can change daily.

Okay. Are those numbers the 0.3% in the first quarter of 2013 and 1.8% in first quarter of 2014, here? Are those averages for the quarter? Or they spot numbers at the end?

Averages for the quarter.

Got you. Okay. Great. Thank you.

Yes.

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

Thank you all. Thank you for listening to my first quarter conference call as Chief Executive Officer of CubeSmart. I'm extremely aware that you've invested in our company and we are focused on delivering and executing on our business plan for you.

In keeping with the theme of being conservative, I did underestimate the percentage of our third-party stores that are branded CubeSmart. Paula, the answer to that is 50% of our stores, approximately 50% of our stores are branded CubeSmart. I apologize for that.

Thank you all for listening. Thank you for your interest in our company. We look forward to talking to you again with our second quarters earning release.

Have a great day.

The conference has now concluded.

Thank you for attending today's presentation. You may now disconnect.