CubeSmart (CUBE) Q2 2026 earnings call transcript

I will now hand the call over to Josh Schuster senior vice president of finance. Josh please go ahead. Thank you Sarah good morning everyone. Welcome to CubeSmart 2nd Quarter 2026 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. keepsmart. 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 that company furnishes to or files with the security and exchange commission specifically the form 8k we filed this morning together with our earnings release filed with the form 8k and the risk factor section of the company's annual report on form 10k. In addition the company's remarks include reference to non-gatt measures a reconciliation between gap and non-gatt measures in the second quarter financial supplement post on the company's website at www. keepsmart. com. I will now turn the call over to Chris.

Thank you Josh and thank you everyone for joining us this morning. 2026 marks a year of inflection as we return to positive growth throughout the year following a stabilization in operating fundamentals in 2025. We saw same store revenues inflect positively in early 2026. Our base case expectation is for continued acceleration in revenues that will lead to a return to positive earnings growth in the second half of 2026 providing a strong setup entering 2027. Our key performance indicators are flashing green showcasing the resilience of the self-storage business and the value of having such a wide range of need-based demand for our product benefiting us from not being overly reliant on any one source. Same store revenues continue their positive momentum reflecting the strength of our customer base the declining impact of new supply in many of our core markets and the quality of our portfolio and operating platform.

Macro volatility is impacting the US consumer however our customers health remains strong with lower vacate activity elongating lengths of stay and continued solid credit metrics. This environment continues to showcase the strength of our quality focus strategy with primary markets outperforming and showcasing their lower beta characteristics. We had a positive and productive spring and summer busy rental season closing the occupancy gap to 2025 by the end of June and that momentum has continued into July.

Second quarter move-in rates for new customers at a year-over-year positive 1.7% improved sequentially by 80 basis points and all other factors held constant provides an attractive setup for the back half of the year and heading into 2027.

There continues to be a wide dispersion and move-in rates for new customers across our major markets. Strength continues in the ASELE corridor, Boston, Stanford, New York, and Philadelphia. In the Midwest, Chicago, Columbus, and Cleveland and very positive improving trends in our West Coast markets with our Inland Empire and Los Angeles properties exhibiting very strong sequential improvement and swinging second quarter same store revenue growth on a year-over-year basis back into positive territory. With another solid quarter of sequentially improving trends, we are optimistic for continued gradual recovery in our major Sunbelt markets. These markets are experiencing the most pressure from supply as well as macro economic factors impacting the consumer, resulting in a challenging new customer pricing environment.

We have maintained our discipline capital allocation strategy. During the quarter we executed against several objectives we articulated earlier in the year including a new joint venture, the continued execution of our share repurchase program, and the recast and increased capacity in our credit facility. And I know Tim is very excited to share the details with you during his prepared remarks. As we come to the end of July, our rental volumes are elevated over last year.

As of July 30, our same store physical occupancy is 91.1 percent, a 30 basis point increase over July 30, 2025. Our pricing algorithms have informed us that it is optimal to maintain seasonal pricing trends and build physical occupancy as we move into the fall.

Self-storage remains a tremendously resilient business as we continue to benefit from the diverse set of needs-based use cases for the product, even against a backdrop of volatile consumer competence. We are optimistic about the outlook for our business as we continue to see steady acceleration and fundamentals. Our high quality portfolio, our sophisticated operating systems, and our customer service focus team are well positioned to continue to drive us forward as we inflect back to positive earnings growth in the second half of 2026. I'll now turn it over to Tim for more details on the quarter and our positively updated guidance ranges. Tim.

Thanks Chris. Good morning everyone. Thanks as always. We appreciate you taking the time to join us on the call today. Second quarter results were reflective of the positive environment that Chris touched on with broad-based improvement across most markets as demand trends remain steady while headwinds from new supply continue to dissipate. Same store year over year revenue growth accelerated from 0.6 percent in the first quarter to 0.8 percent in the second quarter, moving rates grew 1.7 percent year over year while the occupancy gap improved to flat by the end of the quarter. Those stabilizing trends and first half results led us to improving our four-year same store revenue guidance range to a new range of 0.5 percent to 1.25 percent, which implies at the midpoint our expectation that same store revenue growth will continue to accelerate in the back half of the year.

Same store operating expenses grew 4.4 percent over last year in line with our expectations. As we previously discussed, we had some tough expense comps after four straight years of industry leading expense control, especially in the first half of the year. We modestly improved our full year guidance range for same store expenses to a new range of three and a quarter percent to four and a half percent, reflecting our expectation of moderating expense growth in the back half of the year. Revenue growth of 0.8 percent combined with 4.4 percent expense growth yielded negative 0.7 percent same store NOI growth for the quarter. We reported FFO per share as adjusted of 63 cents for the quarter, which was at the midpoint of our guidance entering the quarter.

As discussed last quarter, we continue to execute on our discipline capital allocation strategy looking for creative ways to create shareholder value in an environment that continues to have a disconnect between public and private market valuations. We announced last evening a new joint venture with Heitmann, where we will be contributing 15 non-core assets to a newly formed joint venture in which we'll have a 20 percent ownership stake. The contributed assets were identified as non-core, meaning either they were in isolated markets or they were in outer ring locations in core markets. This transaction allows us to unlock value at a market rate for these assets, continue to participate in upside potential through both future growth as well as fees with a partner we have a very long and successful history with.

It also improves the overall quality of our on-balance sheet portfolio. This initial transaction in the venture provides the seed portfolio with the opportunity to grow in the future, giving us yet another avenue for future external growth in addition to our on-balance sheet activity as well as our previously announced J. B. with CBRE.

Proceeds from the transaction will be used to fund share repurchases, giving us a leverage neutral opportunity to accretively invest in our shares as they trade at implied valuations that are disconnected from where high quality storage assets are trading in the private market.

We had additional share repurchases during the second quarter totaling 42.5 million, bringing us to 75.8 million year to date with much of that activity done with the heightman J. B. in mind. The relative value of our portfolio has continued to make it our most attractive investment option. On the third party management front we added 25 stores to the platform in the second quarter and ended the quarter with 872 third party stores under management. Also during the quarter we closed on our extended and expanded revolving credit facility extending the maturity from February of 27 to June of 2030. We increased the capacity of the facility from 850 million to 1 billion and improved the pricing.

Quick thank you to to our entire high quality bank group we always appreciate your continued support. Our balance sheets in great shape we have a bond that matures next quarter and we've been actively monitoring the debt markets and will continue to do so in the coming months. The expanded capacity on the revolver combined with no debt maturities in 2027 gives us a lot of flexibility as we navigate through the next several quarters. Details of our 2026 earnings guidance and related assumptions were included in our press release last evening.

Big picture operating fundamentals continue to improve across most markets. Demand trends are steady. Headwinds from new supply continue to dissipate. We saw improvements in move-in rates as well as occupancy levels and our customers remain strong with lower vacate activity, elongating lengths of stay and no change to credit metrics.

Our baseline expectation is for continued gradual improvement in top line growth for the balance of 2026. Our same store expense guidance implies lower expense growth for the rest of the year. The midpoint of our same store in OI range implies returning to positive growth in the second half of the year and the midpoint of our FFO for shares adjusted guidance range also implies returning to positive earnings growth in the back half. So when you add it all up we feel great about where we're positioned and see positive trends that are leading to a really nice setup for us in 2027. Thanks again for joining us on the call this morning at this time, Sarah. Why don't we open up the call for some questions?

Yeah, thanks Michael. I think it's it's that full menu. We're seeing very good type of funnel demand with a diverse set of use cases for the product. We're continuing to see the existing customer health as we mentioned, credit metrics, etc. be very positive. We're continuing to see those existing customers stay with us on their story journey a bit longer each as time goes by. We're seeing some good trends across the board strengthen in the east coast and the middle part of the country, some improving green shoots in the Sun Belt on customers moving rates.

I think on the on the off-x side, as Tim said, we're seeing the trends as we would have expected get better as we go in the back half of the year. So I think just broadly feel very good about where we are at this point in the year.

Thanks, Michael. Yeah, I mean, I consider the share repurchases and the transaction that we just announced with Heitman to absolutely be playing offense. It's playing offense in the context of the environment that we're in. It gives us a great opportunity to be consistent with our operating strategy of improving the quality of our portfolio. It allows us to take advantage of being able to contribute these assets at a market valuation, which I would characterize to your first question in the mid-fives from a cap rate perspective, and being able to use those proceeds to take advantage of the disconnect of what we're seeing out there. So that's a bit redundant to my prepared remarks, but that's the gist of the approach.

And then again, it gives us yet another vehicle to look at future growth opportunities along with Heitman. Now that we have this seed portfolio in this venture, it gives us yet another path. I think the market is starting to open up and we're ready to get to that part of the offensive playbook as well when the time is right for us.

I am optimistic. The first part of the year here has been pretty strong and broad based in terms of the demand. And I think again, to my comment, I think we've lost a little bit of our focus on how resilient the business is. It's every day acts of life that create an opportunity for a customer to experience the joy of self-storage. And so I think we're just seeing that. I think we also have maybe lost a little bit of the focus on the fact that the number one, two, three issue for our industry is and always has been supply. And I think what we're experiencing is we're really starting to see the benefits of that reduction in the impact of supply in many markets.

I can pick to Cape Coral, Florida, which may take years and years to finally overcome the burden of the amount of new deliveries there. But as you take it broadly across, we're starting to be positive about the direction that we're moving here at CUBE. I think we're also obviously seeing the positive impact of the highest quality portfolio that we have. And I think that portfolio.

Problems don't know when disconnected there, Michael, because I was on fire. But to just, I think, pick up on the back half of your question on cadence of timing. I think as we not going to pick a date specific, I think we see trends that have been very positive and those positive trends continuing. So whether that's at some point in the third quarter or the fourth quarter, on average over the past half of the year, we do see a return to both positive cash, low growth and positive earnings growth.

So, you know, the CUBE smart way, if you just think about how we operate, is we strongly, with all of our stakeholders and all of the municipalities in which we operate or wish to operate, we believe in an open, professional, responsible and reasonable dialogue with our stakeholders in those municipalities, whether that be around a proposed new development of self-storage and having a discussion about, you know, certainly why we would believe that self-storage in that location is an ideal use, or whether it be how we operate our stores in those markets and getting that feedback. So, the reality is, often but not always, those are productive and healthy dialogues where we see, you know, everybody's point of view.

And so, specific to New York, but frankly, any municipality in which we operate, as long as that dialogue exists in a responsible and open way, we obviously want to listen to the points of view of the stakeholders, and we want to share our points of view with the hope we get to a reasonable place. And as often in those discussions, it's ideal if both parties feel like they, you know, didn't get everything they wanted, but we reach a good meeting of the minds. So, I think it specifically relates to that pricing. We will continue to look at how we price the tools that we used and be respectful of any sort of guardrails that are set up in the municipalities in which we operate.

Hey, good morning. Thanks for your question. So, yeah, a couple of things going on there. If you recall from last quarter, we had some pretty heavy winter expenses that impacted the first quarter. So, that created some pressure on the run rate. You also had last quarter a pretty big year-over-year increase in marketing spend, which had a lot to do with timing of when we deployed marketing spend last year versus when we did this year. So, some of our marketing spend was a little front-loaded this year. So, I think you'll see a moderation on those two line items. We had a successful property insurance renewal in May. So, a little bit of that flows through to some lower property insurance premiums in the back half of the year.

And then also touched on, we expect a little bit of moderation on the personnel line items. So, it's not really one line item in particular. It's across a bunch of them. And it's just this year we happen to have a little bit of pressure when comparing year-over-year in the first half of the year. And if you look through the guidance, you nailed it. There's a pretty big moderation and expense growth. And I appreciate you asking the question so I can say it again. Thank you.

Thanks, Juan. So, when you think about July, as I mentioned in my prepared remarks, as of yesterday close, we were at a physical occupancy of 91.1%. That's 30 basis point increase over July 30 of 2025. Our rentals for the month of July were 3% higher than they were through the 30th, than they were through the 30th of July last year. And on the vacate side, our vacates are also negative 3%, down 3% from where we were through the 30th of July last year.

On the cadence, obviously we continue to see, as I said, green lights that are encouraging and getting a very optimistic about next year, the exact pace and how we hit it is obviously going to be pretty varied based on a variety of factors. So, I think we just continue to see that steady growth. We have that inflection to positive cash flow and earnings in the back half of this year, and then continue to build off that each quarter through 2027.

Yeah, as we think about, as I mentioned, our pricing systems are optimizing by leaning a bit more towards volume versus rate, which is a little bit different than this time last year. This has been built into our expectations. So, we would expect in our base case that early third quarter, we don't see growth year over year in asking rents, and then those metrics return to positive as we get deeper into the third quarter and through Q4. And I'll caveat all that with the fact that we price in real time.

So, that's it for now for us on finding opportunities to sell or contribute assets into a venture. I wouldn't consider this necessarily portfolio burning. We really like our portfolio. This transaction was more geared towards in the current environment. What can we do to increase our ability to fund shared repurchases in a way that's leverage neutral? And this was a good opportunity for us to accomplish a number of things from a strategic standpoint, improving the portfolio, having an additional pat for future external growth with a long-term partner and heightman. And leverage standpoint, the venture does expect to put leverage on the venture. The amount and the timing of that is still a little bit up in the air.

We don't expect to close on this until the fourth quarter. So, there's a little bit of time to settle all those moving pieces, but it wouldn't surprise me if ultimately we ended up having somewhere in the neighborhood of 50% leverage on the venture, but that's still to be decided.

And that's it. Thank you.

Thanks. Great question. So, the trends we have seen are not quite at those levels that, you know, again, we always struggle with what's normal here looking backwards. But if you think about that 2016-2018 sort of time period, typically, you know, we would have seen peak a little bit deeper into July. So, this is a lot closer to that than certainly we've seen over the last three years, not all the way back there. So, as we, you know, base case expectations, we would assume as we get into August here and we start to see the college students vacate and go back to school and the other typical patterns that we'll have. We see good green lights for August, but don't expect to see any aberration in sort of normal behavior.

And then that's sort of our base case expectation as we get through the fall and into the winter. So, because of the positive trends, again, I go back to the resilience of the business and the fact that we're not reliant upon one particular source of demand. So, I think it is just this continued awareness of the product, continue awareness of our brand, and I think continued reduction in the impact of new supply, which, you know, again, I would place as probably the primary reason for why we're just experiencing.

Does that sort of change the landscape in New York City at all in your view? I think the thing that it changes in the landscape in New York City is, you know, unfortunately, and we feel bad for the smaller operators. I think it's, you know, the ultimate burden is significantly higher on them. When you think about the types of things that are being discussed, many of them are already ingrained in the day-to-day practices of us and our larger peers. So, I think it only will make it more attractive for folks to look at Cube and our position and our execution in that market. And, you know, you can see the metrics that are disclosed. We are outperforming in the New York MSA.

And I think we will continue to do that. And that will make us even more attractive as an option, either as an owner of that asset, if that small operator wishes to sell or as a third party manager, if they wish to park her up with it.

Yeah. At this point, anything, we have not done anything meaningfully different than we have been doing in New York State or elsewhere in the country. I think we're all sort of navigating through all of this as it's sort of evolving, but have not identified anything yet. That would be a material deviation to our normal practices.

Maybe a little higher. We are actively monitoring the markets. The 10-year obviously has been has been pushing up a little bit here in recent weeks, and there's an awful lot of volatility in the world. That's the not so great news. The good news is that we have a tremendous amount of flexibility as we have additional capacity on the revolver and we have nothing maturing in 2027. We have a good bit of time to be patient and opportunistic as we think about long-term strategy from a debt perspective.

So Chris, outside of COVID, when you look back at recoveries over the past 30 plus years or so, what was the largest seems for a revenue increase that you remember seeing in a single year? 30 years a long time. So I'm not sure I'm going to get this 100 percent, but I think if you eliminate the COVID year, something in that 7 to 8 percent kind of quarterly same store revenue growth was probably the next highest. And I think that was for a couple straight years. I think that was like 2012, 13, 14 coming out of GFC and there was no supply. So the complete lack of supply led to multiple years of 7 plus percent type top line growth.

That wasn't 7 percent revenue improvement here, was it? No, my memory is not that good. I think, again, I think if you even if you think about COVID and how quickly that happened, it's because of the churn, right? There's only so many customers being cheating each month, which is, you know, that churn is lower than it was historically. It takes a couple of quarters to get elevated to that level.

Certainly supply can't come back online fast enough to impact next year. Chris, you also mentioned the resiliency of the self-storage demand. We've seen lots of countercyclical demand drivers in past challenging macro environments. So I guess the question is, what are the risks that could cause a deceleration relative to the outlook that you're kind of presenting here today? Yeah, great question. Again, I'll keep coming back and pounding the drum that, you know, the biggest headwind for storage isn't always has been supply. And as you noted, we don't see at this stage of 2026 any material increase in supply or its impact certainly in 27. So at this stage, I would say that risk is low. I think the second risk that has always created a near term for our industry is any sort of Black Swan event that causes the consumer to freeze in place.

So you think about some of the unfortunate events, you know, the onset of COVID, the GFC and related bankruptcies go all the way back to 9-11. Those typically have a short term impact on move-ins as consumers tend to freeze in place and stop making decisions. They also then tend to have the corresponding effect where you see vacate volumes decline. And it takes, you know, a while until the consumer recovers. But those type impacts have typically been weeks, if maybe a month or two months, and then the industry tends to bounce right back.

That's helpful. And then maybe one for Tim, just on calibrating labor, do you suggest that there's going to be some moderation in the year-over-year comfort personnel? Just walk us through your thoughts on running a little bit leaner on the labor front versus maybe adding a little bit more headcount to maintain the in-person relationships in the facilities themselves.

Yeah, I think it's always that balance of trying to find the optimal staffing levels. To provide the level of customer service that we insist on providing. And it changes and the evolution on that line item really dates back to things that we did last year. And so later in 2025, we saw a little bit of pressure on that line item as we were adding back some store hours and making some adjustments that increased the level from where we had reduced it to. And so I think what you're going to see here in the back half of the year is just getting up against those comps. And so the first half of the year saw a more difficult comp for adjustments that we made over time during 2025.

We feel like we're in a great spot right now from a combination of staffing technology and our approach to attracting new customers and making sure that we're providing great service to our existing customers. And so nothing that we're doing today, more stuff that we did about a year ago.

Yeah, I think as everyone knows, this is a micro market business. So even within Sunbelt markets, we see pockets that are improving more rapidly than others, likely and largely due to, you know, again, that impact of the new construction, the new supply that has been brought on board, you know, adjacent to those same stores in those markets. So I think it's improving, you know, if you look at the sequential results, as we mentioned, you're saying, you know, the same store revenues going in a good direction. I think it will be unique to each individual market. Like, let's use Miami as an example. There you had an awful lot of supply, but, you know, an attractive and continues to be an attractive place, both for individuals and businesses to work and live.

And I think we saw that supply get absorbed fairly expediently and you've seen results in Miami move a little bit quicker towards an into positive growth territory. I think the major Texas markets and the Southwest, it will be a bit slower and gradual, how to predict, you know, which quarter or which things flip positive. That's really difficult to say, but I do think we'll just kind of see this continued gradual recovery throughout the balance of 2020.

Those two ventures would acquire and the over market going forward to grow. And I think Kim, you said something about like a thawing or something in your prepared remarks and just curious if you could elaborate on that. Yeah, I think the most likely the most likely avenue for growth and each of those ventures would be open market opportunities, perhaps things that we manage currently that we can find a home for. And each of those ventures and each of those partners have areas of focus that range from the type of opportunity as far as return profile, early stage lease up, stable estate, stabilized, looking at different markets. And so the great thing for our investment team, having each of those partners gives us the ability to pursue a pretty wide range of opportunities.

And that's pretty exciting. I think the...

Yeah, it hasn't thought all that much for us, but I think you're starting to see some momentum in a lot more things that are... I think the brokerage community is pretty excited about the things that are starting to come across their plates. I think there continues to be an evolution that the market is what the market is. And I think sellers understand where buyers are and vice versa. And it feels like it's getting a little bit more constructive. And the thing that hasn't changed is that it certainly feels like there's a wave of opportunity that is coming. And we've talked about that in prior quarters. I just think you have an awful lot of self-storage assets that are held by folks who want liquidity, some who are going to need liquidity.

You have things enclosed and funds that ultimately have to close. And you've had a fairly modest amount of transactions here now for two years running. And so certainly feel like the dam is going to break. And when it does, there's going to be an awful lot of opportunity. And from a cute, smart perspective, we want to make sure that we're in the best position we can be in to take advantage of that. And that's what we're preparing to do.

On the labor front and the wages, just curious on where you think we are in the optimization of FTEs or what have you and are we at a max in terms of efficiency gains or what you think the future may hold? I think that's an area that is likely subject to continued evolution. I think on the service delivery front and especially in our more dense urban markets, you continue to see the value of having our teammates in the stores, keeping them clean and providing great customer service. I think as we continue to involve in our utilization of AI, looking for ways where that can enhance customer service. Many of those with our teammates delivering, so would expect that that will likely translate into revenue gains on the efficiency side more than necessarily focused on the cost side of things.

But at the markets, that the analogy and the opportunities to serve and then also our customers' preferences continue to evolve. I would expect that.

I will now turn the call back to Chris Maher for closing remarks. I think today we apologize for the technical disease. I'm told that we can blame Michael Goldsmith if we need to. As we look forward here, we are excited about the return to growth. Return to growth in cash flows, return to growth in earnings, returning to growing our assets under management, whether that be through our excellent third-party management platform, acquiring stores with our partners or on balance sheet. We will continue to execute on that growth in a very disciplined way, laser focused on creating shareholder value.

Thank you all. I look forward to seeing you in the future and talking to you again next quarter.