CubeSmart (CUBE) 2022 Q3 法說會逐字稿

Good morning. Thank you for attending today's CubeSmart Third Quarter 2022 Earnings Call. My name is Foram, and I will be your moderator for today's call. (Operator Instructions)

It is now my pleasure to pass the conference over to our host, Josh Schutzer, Vice President of Finance. Mr. Schutzer, please proceed.

Thank you, Foram. Good morning, everyone. Welcome to CubeSmart's Third Quarter 2022 Earnings Call. Participants on today's call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer.

Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company's website at www.cubesmart.com. The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically, the Form 8-K, we filed this morning together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K.

In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the third quarter financial supplement posted on the company's website at www.cubesmart.com.

I will now turn the call over to Chris.

Thanks, Josh. Welcome, everyone. Thanks for participating in our third quarter call.

I'd like to start off by thanking and recognizing all of our CubeSmart teammates, who led by example and demonstrated genuine care and serving our customers during the hurricane. Thankfully, all of our teammates are safe, and we are working diligently to repair the physical damage that we experienced. I know all stakeholders of CubeSmart are -- CubeSmart proud of our truly world-class customer service teams, and we're deeply appreciative of all their hard work.

Turning to the quarter and business. I would say it was a very positive quarter across all segments of our company. Our markets are experiencing the expected gradual return to more normal seasonality. I will say, albeit at a slower pace than we would have expected as we entered the year. So that's a positive.

While conditions have normalized, the baseline is so much higher and operating metrics and cash flows are a substantial leg up over pre-pandemic levels. If you look at a few facts comparing same-store in the third quarter of '22 to the pre-pandemic third quarter of 2019, our occupancy is up 130 basis points, our asking rates are up 36%. The percentage of our customers who have been with us for more than 2 years is up about 640 basis points and the percentage of our stores impacted by new supply has declined by about 15%.

Our customer behavior continues to be quite positive. Our receivables and write-offs in the third quarter have continued to normalize, but still remain at or below our Q3 2019 levels.

Turning to look at specific major markets. The MSAs in Florida continue to be very strong. Given the timing, the third quarter results did not see any impact from customers as a result of the hurricane. However, overall demand trends during the quarter were very solid. The New York MSA benefited from a relatively easier comp comparing to the third quarter of '21 and consumer demand trends remain very solid. The Washington, D.C. MSA continues the battle with new supply, and it is certainly weighing on results.

Overall, as embedded in our guidance for the balance of the year, as we continue to normalize and the quarter-over-quarter comps become more challenging, we expect same-store revenues to decelerate across all of our markets in Q4 and throughout 2023.

The highlight of our investment activity during the quarter was a significant shareholder value that we delivered through the sale of the assets in one of our joint ventures. Acquisition activity was muted during the quarter, and we expect it to remain so for the balance of the year as buyers and sellers are in a period of price discovery. Our balance sheet is in excellent shape, plenty of capacity and low leverage, and we believe this sets the table nicely for us to take advantage if and when opportunities are presented to create accretive external growth.

Certainly, economic conditions are unsettled. CubeSmart is lean and agile with a great balance sheet and an experienced management team who has been cycle-tested. Historically, self-storage has been a relative outperformer during the weak economy, and we are confident we are well positioned entering 2023.

With that, I'll turn the call over to our Chief Financial Officer, Tim Martin, to go into some more detail about the quarter. Tim?

Thanks, Chris, and thank you to everyone on the call for your continued interest and support. As Chris touched on, results in the third quarter continue to reflect a very constructive backdrop for strong operating fundamentals, all of that in the context of a slow return to more normal seasonality. Our results for the quarter were a bit better than our expectations, leading to an improved outlook for performance through the end of the year. Headline results included same-store revenue growth of 12.2%. Expenses grew 4.3% and NOI growth was 15.4% for the quarter.

This quarter marks the 6th consecutive quarter of double-digit same-store revenue and same-store NOI growth. Same-store occupancy levels remain very healthy while continuing to return to more normal seasonal patterns throughout the year averaging 94.4% in the third quarter and ending the quarter at 93.8%. Same-store expense growth at 4.3% for the quarter was in line with our expectations and continues to be driven by pressure on real estate taxes, utilities and property insurance, offset by efficiencies and personnel costs and lower advertising spend.

We reported FFO per share as adjusted of $0.66 for the quarter, representing 18% growth over last year. On the external growth front, no surprise and not unique to our sector, we've certainly seen a slowdown of transaction activity over the last couple of months given interest rate volatility and macroeconomic uncertainty. That said, our investments team remains very busy underwriting a good number of opportunities.

We acquired one store in Atlanta during the quarter for $20.7 million, but from a transactional perspective, as Chris mentioned, the most notable activity for us during the quarter was related to the sale of the assets in one of our joint ventures. Back in March of 2020, we were looking at a 14 store portfolio that was on the market and determined that it wasn't a great fit for our on-balance sheet investment strategy given the markets and asset quality. But we did see a good bit of upside that we could capture by bringing those stores onto our platform.

So as we've done many times, we looked for a creative solution and ended up acquiring the stores along with a partner with Cube being the minority 10% of the equity in a structure that gave us a promoted interest opportunity.

Roll the calendar forward then to this past summer, our partner agreed that it was a good time to bring the portfolio back to market as we had repositioned the assets, pushed rents and improved occupancy levels.

Ultimately, we closed on the sale of all 14 assets to an unaffiliated third-party buyer in August. From a return standpoint, for our position in the transaction, we invested -- back in March of '20, we invested $5.6 million. Ultimately, we received $51.5 million of distributions during including the sale in August of '22, for a net cash to us of $45.9 million over a 2.5-year period. Of course, those gains don't show up in our same-store results. They don't show up in our reported FFO numbers. But obviously, it's a transaction that created a meaningful tangible value for our shareholders and provides additional capacity for us to be opportunistic as we look forward.

On the third-party management front, we added 39 stores in the third quarter and ended the quarter with 663 third-party stores under management. Our balance sheet position remains strong as we continue to focus on funding our growth in a conservative manner that's consistent with our BBB/Baa2 credit ratings.

Subsequent to quarter end, actually, just 2 days ago, this Wednesday, we closed on a new expanded revolving credit facility. The size of the revolver grew to $850 million, the maturity was extended to February of 2027, and the pricing improved from our standpoint, 17.5 basis points based on our current credit ratings and our current leverage levels. The new revolver further improves what was already a really solid balance sheet position as this pushes the revolver maturity from 24 to 27, leaving only about $30 million of maturities in each of 2023 and 2024 and then we don't have another maturity until the very end of 2025 when our '25 senior notes are scheduled to mature.

The revolver recast went smoothly, and we genuinely appreciate the support we received and for the relationships that we have with the banks in our bank group. Details of our 2022 revised earnings guidance and related assumptions were included in our release last evening.

Based on continued strong operating fundamentals, we've increased our guidance range for full year FFO per share by $0.02 at the midpoint. We also provided an improved outlook for our same-store revenue growth for the year with a new bidding point of 12.5% growth over 2021 levels and an improved same-store NOI range with a new midpoint of 16% growth. We believe we're set up really well to wrap up a strong 2022 and are really well positioned heading into the uncertainties that 2023 might bring with our high-quality platform, our high-quality portfolio and our high-quality conservative balance sheet.

So thanks again for joining us on the call this morning at this time, Foram, why don't we open up the call for some questions.

(Operator Instructions)

Our first question comes from the line of Michael Goldsmith with UBS.

Same-store revenue growth in the quarter was strong, but decelerated about 180 basis points from second quarter. That's -- it had more than what you saw in the deceleration from the first quarter to the second quarter. The guidance for the fourth quarter implies anywhere between 8% and 9%. So that implies a larger deceleration of the same-store revenue growth. So I'm just trying to better understand kind of the cadence and magnitude of the deceleration in some of the operating metrics going forward?

Yes, Michael, good question. I'll take the beginning part of that. Obviously, for 2023, we're not at a point here to delve into details of expectations, but your math is correct. And so you're going to see that decel embedded in our guidance across all of our markets from the third quarter to the fourth quarter. It's driven by the fact that while occupancies are down and our expectation, I think as of yesterday, we were 85 to -- somewhere between 85 and 90 basis points below last year at this time. So occupancy has stayed pretty consistent in that range. We've talked before, we don't guide the occupancy, but our expectation by the end of the year is somewhere between 100 and 150 basis points below last year. So you're seeing that occupancy come down, which causes some of the deceleration.

And then from a rental rate perspective, net effective rates for new customers year-over-year during the third quarter across all markets, we were down high single digits. I think the good news is that's about where we were as of this week. So it really hasn't deteriorated further. But you would expect that as the comps become more difficult, given that last year was the abnormality in terms of limited seasonality, but deceleration will continue.

I think the pace will not be consistent. I think you'll see some quarters, again, you're looking at growth rates. So some quarters will be a little bit higher than others. But we're optimistic because we're going to start '23, as you implied, in that high single-digit same-store revenue growth. So that momentum will continue into the first quarter and I guess, to some degree into the second quarter of next year. And we're still working through the details on our expectations and what's going to happen with the economy, et cetera. But macro, if you think about a 20-year average of same-store revenue growth, I think there's a case that can be made that 2023 results when they're all in, will very possibly be higher than the 20-year average, but certainly decelerating from where we've been this year and last year.

I mean just to pile on, Chris, I made a point in my prepared remarks to talk about our sixth consecutive quarter of double-digit same-store revenue growth because I might not get a chance to say a 7. So those levels of growth, double digit for 6 consecutive quarters are clearly not sustainable. I think the question is a great one, and it's the question probably on everybody else's mind that's on the call is trying to delve into '23 guidance and try to figure out exactly the pace of that. And I would say that looking back, and Chris touched on in his opening remarks, I think looking back, the pace of deceleration throughout this year has been a pleasant surprise to us and I think for the balance of the industry.

That's really helpful color, guys. And just as a follow-up, we've seen street rates sort of moderate and we've seen street rates moderate, the revenue growth has recently been driven a lot by ECRI. So I guess like the question here is, can we continue to push ECRI at a similar intensity that you have been in a more moderating and maybe pressured street rate environment?

Yes. I mean, again, another great question then comes into the inputs as we try to get our minds around 2023 here and do our bottoms-up budgeting all these things we're thinking about. The consumer, as I mentioned, the health of the consumer today remains very good and all of our key metrics that we use to evaluate that remain in a very good spot. I think as we look out. Part of the question is going to be household savings. Obviously, you can listen to the CEOs of the major banks who believe that, that savings is going to be there at least through the third quarter of next year.

If that's the case, and we continue to see strong employment, and we look backwards at how storage has performed during brief recessions. I think the industry is pretty well positioned to put up results that on a relative basis will be very good. And that's kind of where we are at this point. But plenty of data yet to come here for November and December as we continue to refine our expectations for next year.

Our next question comes from the line of Juan Sanabria with BMO.

Just hopping on the back of Michael's last question, just on the ECRIs. How do you think about street rate growth in ECRIs, the interplay between those 2. It seems like over the last couple of years, ECRIs have been larger than average given you had some room to catch up existing customers given the big increase in street rates, but that seems to be waning. So just curious kind of trying to -- a second go here at the ECRI question. Will ECRIs naturally come down just because you've closed that gap and street rate growth has slowed, and therefore, that will be part of the normalization looking out 12, 18 months? Or any color you could provide there would be helpful.

Great question, Juan. Historically, we would think about decoupling the street rate environment from the existing customer rate increase environment. It is an input. It is not an overweighted input and not certainly the only input. You think about that specific customer in that specific cube and how long they've been with us, what the occupancy is at the store, the market in that cube size, the pattern of their behavior as it relates to payment.

You think about the size of the cube they're in and so the absolute dollar amount that they're paying on a monthly basis, and there are various other factors that go into the algorithms to determine the most appropriate timing and amount of increase for that specific customer.

Certainly, what adjoining customers may be paying or when a new customer coming in may be asked is an element. But with pricing strategies, related to potential length of stay, related to the varying types of discounts or incentives we may provide. It's challenging for a customer to do a pure kind of apples-to-apples comparison. And obviously, as we've talked about ad nauseam customers are not particularly inclined to move from one storage facility to another. So I think the thesis that as economic conditions potentially tighten, as household savings are depleted, as we have the potential for perhaps some increased unemployment the current ECRI levels may naturally start to come down. But I think it is too soon to say that. And I don't think it's magnitude -- as we sit here today, we would not expect that magnitude to be overly material in any given sequential month.

And then just as a follow-up, could you just talk about geographic performance. I'd assume you're getting some benefit from Hurricane Ian in the Southeast, in particular, the middle of the state of Florida. So that would be part one of the second question. And then secondly, are you seeing any impact in the slowdown in the housing market in some of the hot markets cooling off at all? I think boys use like a poster child there.

So when you think about the hurricane and the timing and the overall occupancies pre-hurricane in our Florida MSAs. We didn't have a lot of vacancy to begin with. And the timing is such that we are certainly beginning to see customers who are coming in, who had wind damage. The possessions are still dry and in good shape. But the physical structure of their home or residence is not. So that will definitely be a seasonal benefit to the latter part of October and into November here, and that's in our expectations.

From a rest of the country in the housing market, the markets that saw significantly above average growth in same-store revenues and occupancy and in net effective rates like a Phoenix or a Tucson are those that are coming down then in the deceleration part of the curve much faster than you're slow and steady markets like a Chicago or in New York. So that's kind of the trends that we're seeing at the moment.

Our next question comes from the line of Smedes Rose with Citi.

I wanted to ask you maybe just on the advertising and marketing side of the business as trends have decelerated into next year and get back to more normalcy, would you expect that Cubes to start ramping up again back to more kind of like kind of pre-COVID levels?

Yes. That one is a challenging question because we're making decisions on a week-to-week basis here based on a return on each invested dollar and particularly on each incremental dollar when it relates to paid search. I think we look at it -- that the levers are sort of intertwined. You have -- how we think about net effective rate to the new customer, so that street rate and that discount or offer if one is made. What channel the customer is coming through, and then we look at that as a lifetime value opportunity and then what's going on in the -- particularly in the paid search market.

I think as you're seeing softening, as I'm sure you've seen in the headline results with Google and Facebook and others from an advertising perspective more globally, which created some opportunities to be a little more efficient and to see some lower costs in the bid market, that's offset by what our peers, both larger and smaller choose to do market by market with their spend.

So as we look out into the fourth quarter and next year, again, I think that will be a little bit more of a volatile number than some of our other expenses, which are more easily predictable and consistent quarter-to-quarter. We would certainly expect to see some growth next year in marketing spend, but not necessarily outsized, that's our thesis at the moment. Again, the whole '23 planning process is in process.

Okay. And then I wanted to ask you, at least on the data that we get, it looks like the supply -- the pipeline, it looks like it's actually sort of ticking up a little bit, which I thought was kind of surprising. I was just wondering if you were seeing that in your market, maybe you could just kind of talk about competitive supply additions that you're looking at coming on over next year?

Yes. We're not seeing that in our top 12 MSAs. I think we're seeing delays. So without a doubt, you're seeing deliveries that we would have expected at the beginning of the year, the timing continues to get pushed out. I think that's a positive because I think it is allowing for a better pace, which is creating an opportunity for the stores that do come on to get leased up a bit before the next one comes on instead of deliveries happening one rate after another. So I think that's been a positive this year. I think that trend will continue next year. But as we look out, it's slightly down right now in terms of our expectation going from '22 to '23 in our top markets.

In terms of deliveries, we'll have a better sense of what these delays and how many fourth quarters get pushed out into next year, although I would say about the same, we would expect to get pushed from late '23 into '24. So I think it's still a constructive supply in the major markets. I think the data that some of the high-quality folks are producing that track supply nationally. I think that may paint a different picture given that what we're seeing on the ground from our third-party owners is that those markets that may not have seen new supply in the last cycle, the more secondary markets are starting to get more and more attention.

Our next question comes from the line of Samir Khanal with Evercore ISI.

Chris, on the expense side, I mean, you've certainly done a good job controlling expenses this year. I guess how sustainable are sort of low expense growth numbers into next year, right? I'm looking at sort of efficiencies that you've done on the personnel side. I mean, how much more is there that you can do on that end? Just trying to get a better hold of sort of expense trends over the next sort of, let's call it, I don't know, 6 to 12 months?

Samir, it's Tim. Good question. I think trends in expenses -- our expectation from a high level is that most of those trends are likely to continue in the next year, sort of providing guidance here. I think our expectation is that you'll continue -- not only for us, but for others, continue to see pressure on the property tax line, Chris just explained, marketing is going to be opportunistic as we look at that. From a personnel standpoint, we are still balancing -- we're still balancing the fact that there's pressure on wage.

It continues to be a challenge to staff in certain markets, although not nearly the challenge that it was a year or 18 months ago, but some of those pressures and on healthcare costs. But a lot of these pressures, we continue to find ways to be efficient with technology, to be efficient with how we staff the stores to offset that somewhat. And I think we'll be able to continue to do that. But overall, the lower-hanging fruit on that tree is starting to get pretty well picked. Expect to see continued pressure on utility costs as we think about our planning for next year. So I would say from a high-level standpoint, more of the same would be what we would expect over the next 6 to 12 months.

That's great color, Tim. And then I guess, just to shift over to New York. When you look at sort of revenue growth and NOI growth, it's certainly trending better than we all thought. I think sort of going into the beginning of this year. I guess, Chris, can you elaborate a bit more on sort of what you're seeing from a demand side? And even maybe extend -- talk a little bit about supply trends you're seeing in that market and how you think that landscape sort of plays out over the next 12 months?

Yes. So on the demand side, as you can see with the physical occupancy point, I think we're down 10, 20 basis points in the MSA. It has been at least through a point during the third quarter, our only major market where occupancy was running a bit higher than last year. The stores that we have opened in New Jersey and Long Island, Westchester and the boroughs, both Cube and third-party managed have leased up really nicely ahead of plan from an occupancy perspective.

So the consumer demand, in the MSA as a whole and in the more urban areas, specifically continues to be good. We didn't see in the MSA the same level of rent growth in '20 and '21 as you would have seen in, say, a Tucson or a Phoenix, so you're just not seeing the same deceleration in that metric at the same rate as you are in some of the South and Southwest markets. From a supply perspective, we continue to be cautious, and we will caution everyone, particularly on Brooklyn and Queens that there is an impact, and there will be an impact. But I will say, I am getting more and more confident that we will be able to navigate through this just fine.

I think when you look at the specifics, store by store, market by market, we have 1 new competitor who's going to open in a crowded Long Island City market directly next to -- directly across the street from us. One of our stores, impact 2 of our other stores. So that one store may be problematic. It's been underway for years and years. It looks like it's finally going to get built and open. So that will put some pressure on that particular little pocket.

We have a store that is supposed to open late '23 in Gowanus, Brooklyn that will have an impact on our owned and managed stores in that market, where it's exactly situated, it's likely to draw customers from a segment of that market that, frankly, for New York have to travel a bit of a way to get to us. So I think that impact will definitely be there, but the geography may be a bit helpful to us. And then there's another store in Brooklyn that will impact us at one of our stores. That's pretty adjacent. So that will have an impact. But you're talking about 6, 7 stores in the entirety of our borough exposure that should have a comp that will present a little bit of a challenge for us late in '23 and that's against a portfolio in those 3 boroughs of 50-ish stores when you think about -- or more when you think about owned and managed. So it's going to be there. But I think we're going to be okay again as we navigate through this.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I wanted to ask about investments a little bit. You've been a little bit more conservative or disciplined, I guess, on the investment front. Can you just talk a little bit about the pipeline of deals that you're looking at today? What deal flow looks like in general? And in terms of underwriting investments, whether or not you're changing your IRR hurdles and how you're thinking about underwriting deals today, whether there's changes in sort of your market rent growth forecast or otherwise?

Todd, it's Tim. Thanks for the question. As you would expect, and as I mentioned in the previous remarks here, the activity has certainly slowed. It went for -- it went through, I would say, the middle part of the summer where there's quite a bit of price discovery, but -- and the buyer pool started to shrink a little bit, but you still had a handful of folks seemingly on every deal that we're still pursuing pretty aggressively. And then as you got later into the summer and into the early fall, started to hear some rumblings about some deals that we're starting to fall apart and folks walking away or retrading or walking away from deposits.

And again, not unique to our sector. I think that makes a lot of sense when there's the volatility that we've seen broadly in the capital markets. I think then where you are is absolutely in a period of price discovery where sellers had grown accustomed to what the market looked like 6 months ago. And buyers are trying to adjust to where they think the market is going to be in 6 months from now. And so I think you've seen a little bit of a slowing down of opportunities that have come across our desk to underwrite. I think what we have seen is a continuation throughout 2022, that the opportunities that we have looked at are just not of the same quality that we saw in 2021. That's been consistent throughout the year.

There are a handful of deals that are super attractive to us based on market and physical quality. But overall, the opportunity that has been of lower quality this year, which has been a big driver in our appetite and the volume that you've seen from us. I think that touched on most of your question, but was there anything else that you wanted to talk about?

Have you changed your return requirements? I mean are you seeing -- can you talk a little bit about price trends, cap rates, I guess, going in cap rates are not always relevant, obviously, but maybe IRR hurdles and what you're seeing in the market and how you've adjusted your underwriting?

Yes, sure. The underwriting itself has actually, over the past year or 2 has actually gotten to be a lot more fun. It used to be fairly simple to underwrite a storage facility. And then several years back when you start to get into the heat of the development cycle that we're now on the tail end of that created some complexity in the variables that go into underwriting and opportunity. Throw on top of that, the volatility that we've seen in asking rate growth largely coming through the COVID demand, trying to calibrate your underwriting to think about where rate growth will continue to go or how it will moderate.

So the process of underwriting a opportunity hasn't changed. The variability and the volatility of the input certainly has, which makes it more interesting to go through. Certainly, from a return standpoint, we are -- we've adjusted the returns that we're requiring across the spectrum of early-stage lease-up all the way through stable based on our cost of capital, both equity and debt.

We look for opportunities that are perfect infill, high-quality, complementary to our existing high-quality portfolio. And we have the luxury and the flexibility of having very low levels of leverage and a lot of availability of capital that we don't necessarily have to look at the stock price every day for a 1 or 2 or 3 asset portfolio. But we're very disciplined. We'll be patient, and we think that there are likely to be some great opportunities for us in the coming months and quarters.

Okay. Can you share how asking rents trended during the quarter and through October on a year-over-year basis? And then can you talk about what kind of market rent growth you might think is reasonable to expect in '23? Any sense?

Todd, it's Chris. So as I mentioned earlier, the NER for new customers in the quarter was down high single digits, and that's where we are across markets as of this week. So fortunately, and I think positively hasn't declined further as we've gotten here into October. But as we've gone through the year and the comps from last year, which had no seasonality, just get tougher and tougher, that's gone from down 2%, 3% to 4%, 5% and now we're kind of averaging in that high single digits.

As we look out and try to underwrite, as Tim said, for the future, it's really market specific. So I think it's fair to say over the near term, as we try to get back into a more normalized trend of seasonality and customer behavior and you look at the comps to last year and into the first quarter of this year, it will be challenging comps as you think about trying to project out. But that's really -- again, since we're doing everything at an asset level here, it depends upon where we're seeing the opportunity. What stage of lease-up that asset is in and what we see unique about that particular market or submarket.

Our next question comes from the line of Lizzy Doykan with Bank of America.

I wanted to ask about just the new extension on the revolving credit facility. I believe you said the discussions went well with the banks. I'm just wondering what you're noticing out there in terms of going out and obtaining financing given how tough the market conditions are, do you foresee, I guess, how are your discussions with the banks going now? Or what do you kind of see with -- in your relationships with them?

Lizzy, thanks for the question. Yes, it was a -- in a normal course for us, given the 2024 maturity for the revolver, and I would say, different more normal, less volatile times, we probably would have waited to recast our facility for probably until the middle part of 2023. But looking at and always having a view on derisking that side of the business when we feel like it's appropriate to do so. We had -- we started the process several quarters ahead of when we normally would just in case the market continues to move in a direction where lenders are a little bit stricter or have a little bit less flexibility or it's just, frankly, not as much of a borrower's market as it has been. And so we have very strong, very long-standing relationships with a really high-quality bank group. And work hard to have great partnerships with those institutions.

And I think as a result of that, we had a fairly smooth process at a time where I do believe that obtaining financing is getting and it's going to get more challenging here in the coming months and coming quarters. So we're happy to have closed it here earlier this week and again, just derisk and not have to really worry about our maturity schedule here until very late in 2025 and facing down some uncertain times. We feel like that's a pretty good position for us to be in.

That's great color. And then I just wanted to ask about the sales from the [Fund V] JV. How are you thinking about your focus with regards to capital allocation, particularly with use of your joint venture partnerships I guess, what makes the most sense? Does it kind of depend on the opportunities. Specifically, I know with this deal, the assets where you said they were not in line with what's been on your balance sheet. But I just want to kind of get a better understanding of how you gauge opportunities with your partnerships?

Yes, I'd say it starts for us with -- we have had, we believe, a very, very well articulated and consistent strategy as to what we want to have on our balance sheet. Our desire is to have the highest quality portfolio in the highest quality markets. And so when we find opportunities to do that, especially on stabilized assets, our preference is to buy those on our own 100% owned simple capital structure, easy for shareholders and investors to understand.

Once you get past that, then we have found many opportunities for many different reasons to look at co-investment vehicles, ranging from more recently having ventures that are focused on stores that are in early-stage lease-up because we've had a lot of opportunities to bring third-party managed stores from our platform onto our balance sheet in some way, but frankly, in early-stage lease-up in a venture structure, we can bring on 5 in a venture for every one that we could bring on balance sheet and to manage the dilution, ideally set that up in a way that when those stores stabilize, our partners hold period will have -- lines up pretty well with when they stabilize, and then ideally, we would then have the opportunity to buy in their position and achieve our original overall objective.

In the case of the one that we just exited, as you touched on, it was unique in that it didn't really fit that category, but we thought we found an opportunity to bring it on to our platform, add a lot of value, and it worked out fabulously partially due to great timing. But we've had co-investment structures for a variety of different reasons and would expect to use them going forward for similar reasons.

Our next question comes from the line of David Balaguer with Green Street.

I wanted to touch on the New York market again. As you mentioned something about the occupancy being a bit stickier relative to other markets, but rent growth, at least on a relative basis lagging a little bit compared to some other markets and wanted to touch on that phenomenon. Is that just a length of stay difference in New York compared to other markets? And what does that difference look like?

Yes. I think broadly, it's just a consumer in many of our stores in all of the boroughs who is in the neighborhood and uses the product on a, I'll call it, a more regular basis. So it does just tend to be attractive to folks living in very small residences who will use CubeSmart and visit us frequently as opposed to just an overwhelming customer base at a particular store that is just the typical mover. So I think as a result, you just get a stickier customer. And again, I think just the phenomenon we saw not just in New York, but across all of our urban stores, in most markets is that you just didn't see quite the rent growth in '21 as you would have seen again in the more suburban or as I pointed out, some of the Southwest markets that saw big shifts in the population.

Great. And with that occupancy being a bit sticky, would you expect moving forward to the extent we see a lot of the hot markets slow down, would you think that the positive rent growth trends in New York might be a bit stickier than some of those other markets?

Yes. I think as you see, again, the decline in the deceleration in some markets, on a relative basis wouldn't expect in the urban markets to see it at the same rate.

Got it. And just shifting back in moving rates, can you remind us what that typical sort of peak to trough decline and move-in rates in a normal year looks like from, say, the peak summer months to slower winter months?

Yes. It's a pretty wide range when you just think about A time and B markets, but call it in that 10% to 20% range.

Our next question comes from the line of Ki Bin Kim with Truist.

Just one more question on the New York City supply topic. When you look at some of the data providers out there, they're showing about the 19% figure on supply growth. Obviously, that includes stuff that would never get built, probably plenty of that. And then I try to marry that versus some of your commentary, you're providing that supply risk, doesn't look that bad. Can you help us bridge that gap? And I know it's not your job to know what other data providers are saying, but it just seems to be a pretty wide spread between what you're seeing and what some of the data providers are showing.

Yes. Thanks, Ki. One, I think -- and again, this is, again, not -- I believe when you're looking at that data, it is the MSA, not the boroughs particularly. So you're picking up all of Jersey, Long Island, Westchester as well as Manhattan, Brooklyn, Queens and Staten Island. So again, when you look at that supply and its competitive impact, particularly on Cube, many of those stores that are going to open are just in markets, submarkets where we don't have a presence. So when I'm looking at it, I am specifically looking at what we know is entitled and either under construction or some sign of movement that tells us it's actually going to get done in the next 18 months or so in markets where we'll create some competition to Cube.

So when I think about that, and I answered the question relative to Brooklyn, Queens and the Bronx, there is, as I said, 1 store in Long Island City, 1 in Gowanus, 1 in East New York and 1 kind of on the very edge of Atlantic Avenue that will have -- assuming they get completed here at the latter part of '23, will have -- we'll be competitors in one way, shape or form to Cube. Again, given the dynamics of New York City, they will also be competitors to, I think each of the other public REITs who also own a store management store in that same general area. As you get into New Jersey, Long Island, Westchester, it's a lot -- obviously, it's a much larger area and stores tend to be not clustered as they are in the boroughs.

Great. And the second question, going back to the topic about expenses and how we should think about that for next year. Texas and Florida are some of your biggest markets, and we've seen property taxes go up a lot, maybe more for homes than maybe self-storage product, but I was curious, in your thinking for next year if you're -- what are you expecting for property taxes in markets like that.

We're expecting them to go up for sure. I think some of those areas, we're still waiting to finalize and see what the impact is for 2022 as we're finally getting bills in for some of those. So hard to look at exactly where those are going to be, but those are certainly markets that are under pressure that have been and are likely to continue to be. And we'll try to provide some color on that next quarter when we provide '23 guidance.

And if you look at real estate tax expense. Yes, if you look at real estate tax expense growth over the last years, the range of growth has been fairly consistent, and I don't think as you look forward right now, at least our expectation is that's going to change all that month.

And if I could squeeze a third one here. What other promote opportunities are there in your JVs?

Yes. Many of our JVs, if not most, have some type of promoting either in our favor or our partners' favor, oftentimes on our development ventures, our partner actually has a promoting interest. So it's a fairly common -- it's a fairly common component to many of our ventures, and we can be on either side of it. This one, obviously, that we touched on that we monetized here this quarter was one that we were on the side of -- we were in a position to be the big value add by bringing it on and doing all the hard work to get the stores prettied up and professionalized and leased up. And so that was a great opportunity that we were on that side of the equation. But it can be -- it can go in either direction depending on the opportunity.

Our final question comes from the line of Michael W. Mueller with JPMorgan Chase.

I just have one question. Has there been any change to the percentage of customers that have been in place over a year and over 2 years? Anything material?

So great question. And factual answer is for the greater than 1 year, the change has been minimal. So those customers, both greater than 6 months and greater than 1 year, it's been pretty consistent. For those that are greater than 2 years, it has gone up about 5%.

And that's over what time period?

That is comparing this year to -- yes, year-over-year.

Those are all the questions we have registered in the queue. This concludes the question-and-answer session. I will now pass back to Chris Marr for closing remarks.

All right. Thanks, everybody, for a very good call. I really appreciate the interest and the questions, enjoyed sharing our thoughts with you. As I said, we -- the team is in good shape. We have the appetite to find external growth. We have the balance sheet capacity to execute on that appetite, but we will remain disciplined. We will remain focused on finding opportunities that are accretive to our portfolio, to our customer base, to our earnings. And so we will be patient. As we try to look out into 2023, certainly, the change in the debt capital markets and potentially some changes in economic conditions could create some attractive opportunities for us. And if that's the case, we are ready to take advantage of them. Meanwhile, from an internal growth perspective, I think we're confident that storage and cube will continue to perform well.

We're confident that our portfolio is well positioned on a relative basis to achieve that performance and the team certainly is focused. So thank you all for your attention and participating in the call. Look forward to speaking to many of you in person out in the West Coast here at NAREIT and looking forward to speaking to you again when we report end of year and produce our expectations for 2023. Thanks again. Take care.

This concludes today's CubeSmart third quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.