CubeSmart (CUBE) Q1 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the CubeSmart First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. And now I would like to turn the conference over to Daniel Ruble. Ruble, please go ahead.

Thank you, Keith. Hello, everyone. Good morning from Wayne, Pennsylvania. Welcome to CubeSmart's First Quarter 2013 Earnings Call. Participants on today's call include Dean Jernigan, Chief Executive Officer; Chris Marr, President, Chief Operating Officer and Chief Investment 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 information 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 in 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 on the company's website at www.cubesmart.com. Now I'll turn the call over to Dean.

Okay. Thanks. Good morning to everyone. Thanks for joining us today. I am in another reflective mood today. I want to kind of go back 29 years ago when I first found Self Storage and I was thinking this morning about what really brought me to this sector. And I remember it being impressive margins and cash flow structure, revenue growth profiles, stable demand characteristics and long-term external growth opportunities through development and consolidation. I look at those 4 bullet points and I think really not too much has changed over the last 29 years. In fact, I've never been more attracted to this sector than I am today. During those years, we've successfully weathered 3 recessions, including the Great Recession just a few years ago. So it's just been a remarkable, remarkable sector for 29 years in my opinion. We see demand improving today across all customer types as mobility increases and customers gain confidence and commercial customers become more active. All 4 public REITs are experiencing terrific robust revenue growth. We see deepening advantages for the large operators. We talk about this a lot, about our scale and sophisticated operating, marketing, revenue management platforms. Some of us talk a little bit more about our platforms and others. But to make no mistake about it, all of us have very sophisticated revenue management and marketing departments and all of us have state-of-the-art call centers. We also continue to see the capitulation of the private owners as they turn to CubeSmart and other large operators for management expertise or an exit. And despite the fundamental strength that we're seeing on the demand side of the equation, there is still very limited new supply to offset this uptick in demand. So how is my crystal ball looking now for the next 24 years? It looks very, very clear. The only headwind I see over the next 24, I say, years, the next 24 months, the only headwind I see in the next 24 months is just a little bit of new supply. That will impact a property from time to time or a submarket from time to time, but it is not at all going to dramatically impact a portfolio as large as ours. And so that supply is really dwarfed by historical standards as far as the number of starts. I'd like to talk about arrows in our quiver and they haven't changed for us here at CubeSmart. We still have the occupancy era. We've gained a lot of occupancy, but we still have a lot of room yet to grow our occupancy. As that occupancy increases, our discounts will moderate -- moderate further. And then we'll start to get the opportunity to pass along good rate increases. So today, at CubeSmart, we still have all 3 of those arrows in our quiver, and we look forward to using those. So as most of you know, I'm wrapping up my career here at CubeSmart at the end of this year and I am confident that this year will be the best year for fundamentals in my entire career. What timing -- I just have to reflect on that -- what great timing I seem to have here wrapping up my career on such a year. Q1 is in the books and I really look forward to seeing the next 3 quarters. Chris, August?

Thanks, Dean. As Dean mentioned, our operating results in the first quarter continued their sequential strengthening, maintaining the positive momentum we experienced throughout last year. One of the short-term objectives that we outlined on our last earnings call was to enter the rental season with the same-store physical occupancy spread over March 31 of last year of 360 basis points or better at scheduled rents equal to or higher than those in place at June 30 of last year. As you can read in our earnings release and supplemental presentation, we exceeded both of those targets. Physical occupancy of our same-store assets ended the quarter at 85.7%, 640 basis points ahead of the March 31 '12 level. Notably, this marked the 90-basis-point sequential improvement from the year end '12 levels despite what is typically a seasonally weak quarter. Our scheduled rent at quarter end of $13.05 per square foot is up 1.2% over our benchmark June 30 '12 scheduled rents of $12.89. Our same-store revenues grew 6.8% over the first quarter of last year, continuing the acceleration we experienced last year and reaching the highest quarterly same-store growth we have ever experienced. Our team is focused on the details and executing on our business plan over the upcoming rental season, and we believe this focus on operational excellence is directly reflected in our sequentially improving results. Our marketing efforts have resulted in an increasing number of customers entering our sales funnel. The number of unique shopping visitors to our website increased more than 20% in the first quarter of '13 compared to the first quarter of '12. Once the customer enters the funnel, we are increasing our effectiveness at converting them to a reservation, with a 59% growth in Web reservations year-over-year. Those customers who find us through search and desire to speak to a customer sales agent and call our national sales center are also being converted at higher rates. Our sales center experienced a more than 25% increase in call volume over the comparable quarter of last year. We continue to set all-time-high sales call conversion rates and we secured 22% more reservations in the first quarter compared to the first quarter of 2012, and that is a great foreshadowing of good things to come here in the second quarter. As a result of more customers entering the sales process across all channels and success at converting the inquiry to a reservation and the reservation to a rental, we experienced a 13.2% year-over-year increase in same-store rentals. Our information technology team continues to custom develop software applications that increase our cash flow and improve the customer experience. During the first quarter, we introduced our internally developed paperless lease software. After evaluating off-the-shelf products, we designed and developed our own software solution for a fraction of the cost. In addition to saving on paper and toner, the customer feedback has been extremely positive as they appreciate the efficiency and the residual benefit of a more green process. We continued our testing during the quarter of enhancements made to our revenue management module and are encouraged by the early results. Street rates across the same-store pool at the end of March were flat to last year. By the end of April, they were up 70 basis points compared to last year, and that trend will accelerate into May. Discount dollars per new rental declined 10.9% from the first quarter of last year. We experienced strong occupancy and revenue growth across the majority of our significant markets. Performance standouts, consistent with last quarter, include our Denver and Salt Lake portfolios, with a 770 basis point increase in physical occupancy, 410 basis point increase in sequential scheduled rents and an 11.6% gain in revenue. In addition, Atlanta, with a 610 basis point increase in physical occupancy flat scheduled rents and an 8.7% gain in revenue showed particular strength, both in the latter part of last year and continued into the first quarter. All of our Florida markets are performing very well in the quarter, with the 51 stores posting 860-basis-point gains in occupancy, flat scheduled rents and an 8.2% gain in revenue. We believe during the latter portion of last year that we were seeing signs of a recovery in Phoenix, that our Tucson team had turned the corner and that we had hit the bottom in El Paso. Our first quarter results have validated those beliefs. Our Phoenix stores posted 6.3% revenue growth on a 560-basis-point occupancy gain while holding firm on asking rents. This is our third consecutive quarter of strong revenue growth in our Phoenix stores. Tucson showed a 2.2% revenue gain on a 370-basis-point improvement in occupancy. And El Paso, while having a 2.2% revenue decline, did gain 180 basis points in physical occupancy. And in the month of March, the 7 El Paso properties posted revenue growth of 2.7% over March of '12 and we anticipate positive revenue growth from these stores over the balance of the year. We are focused on our long-term objective of disciplined capital allocation into acquisition opportunities in our core markets and disposing of assets that offer less attractive long-term cash flow profiles. We are extremely bullish on our external growth prospects and our ability to continue to source transactions that meet our objectives. Finally, I would like to recognize and thank our 1,400 teammates here in Wayne and across the country for their outstanding commitment to customer service. We recently won 3 gold awards for sales and customer service. These included Contact Center of the Year, Innovation in Customer Service and Customer Service Department of the Year, matching Delta Air Lines as the only nominated company to take on 3 first-place awards in this prestigious event. With that, I'll turn it over to Tim.

Thanks, Chris, and thank you to everyone as usual on the call today for your continued interest and support. We had a great quarter and are positioned nicely as we head into the rental season. Our financial performance for the first quarter was at the high end of our expectations as we reported FFO per share of $0.20, a 25% increase over last year. We continue to see an acceleration of our same-store portfolio net operating income and reported 7.6% growth over the first quarter of last year. Same-store revenues grew 6.8%, making it 4 consecutive quarters that our revenue growth percentage has improved sequentially over the prior quarter. Revenue growth, again, this quarter was driven primarily through increased occupancy, with an offset coming from modest year-over-year declines in rates. As the year progresses, we expect the occupancy comp to get more difficult, but our rate comp to get a bit easier as we adjusted the rate downward during the first and second quarters last year. On the expense front, results for the quarter were generally in line with our expectations as expense growth over last year was significantly impacted by utilities and snow removal costs during this year's more historically normal winter compared to last year's very moderate temperatures and below normal snow removal costs for our portfolio. Also contributing to expense growth during the quarter were continued repairs and other costs associated with Hurricane Sandy. Coming off the solid first quarter and heading into the rental season, we remain optimistic about performance for the second quarter and the remainder of the year. This is reflected in our upward revisions to guidance. Our press release last evening detailed our FFO expectations and the underlying assumptions. We raised our full year FFO per share guidance to a revised range of $0.81 to $0.86 and introduced the guidance range for the second quarter of $0.21 to $0.22. We now expect same-store NOI growth of 5.75% to 6.75%, and that's driven by revenue growth of 5.5% to 6%, partly offset by higher expense growth of 4% to 5%. Changes to our same-store revenue guidance reflect higher-than-expected levels of occupancy as we enter the rental season, and our revised same-store expense guidance contemplates several expense line items. Discussed earlier, the first quarter impact of a very difficult winter comp in both utilities and snow removal costs. And that of course, is embedded in our full year expectations. Real estate taxes are our biggest expense line item and also, the most difficult to forecast. We remain concerned about upward pressure in taxes in multiple markets across our portfolio, and we don't get good visibility in the rates on several large states until late in the year. We constantly review assessed values across our portfolio and challenge for reductions whenever and wherever we can. The good news is that we were successful in several appeals last year and benefited in last year's results. The bad news, of course, is that we've created a very difficult comp to compare against this year. We're feeling the impact of Hurricane Sandy, again, as we head into our property insurance renewals. Last year's events are putting pressure on renewal rates and our guidance reflects higher expectations for expenses on that line item. Incentive compensation for our store managers is based in part on driving revenue growth and also on building occupancy levels. So as we outperform their targets, the store level incentive compensation is increasing over our originally budgeted expectations. And finally, credit card fees are increasing as the credit card companies are starting to chip away at the big fee reductions we experienced a little bit more than a year ago. We continue as a team to be very diligent in controlling expenses at every opportunity. Over the past 4 years, we've averaged 0% increase in same-store expenses. Of course, those results are unsustainable over the long term. As we talked about when we introduced 2013 guidance, this is the year we expect to see more inflationary-type increases across most line items and a bit higher than that on the line items that I just reviewed. We had a relatively quiet quarter from a transactional perspective. During the quarter, we closed on 1 acquisition in Phoenix, we sold 4 properties in Houston and completed our exit of Indianapolis by selling our final asset in that market. Our balance sheet position remains strong. We entered the first quarter with nearly $270 million available under our revolving credit facility and only $24 million of debt maturities remaining for 2013. We are well positioned to fund external growth as we continue to seek attractive opportunities while maintaining our disciplined investment approach. That concludes our prepared remarks. Thanks, again, for joining us today. And Keith, at this point, let's open up the call for Q&A.

[Operator Instructions] And the first question comes from Todd Thomas with KeyBanc Capital Markets.

I'm on with Jordan Sadler as well. I just wanted to dig into the updated guidance a bit. Same-store NOI growth came in almost a full percent ahead of the full year range and the peak leasing season is just getting started with a nice momentum on the occupancy front. I understand the comments around the expense comps. But it also seems like that the comps get a little bit better throughout the balance of the year. Is there something to think about that might suppress same-store NOI growth later in the year?

I'm sorry. Something that would suppress the growth from current levels downward?

Yes, right. To get back down into the revised range for same-store NOI growth,

Yes. Our expectations are based on a good solid leasing season and what we would typically think about from a seasonal perspective. We had, as you know, we had big occupancy gains throughout 2012. So our occupancy comps certainly gets more difficult as the year goes on, making it more difficult to drive revenue growth at the levels that we achieved in the first quarter. The offset of that is from a rate perspective, as we are at higher occupancy levels, that opens up the opportunity to look at rates and also at discounting levels. Our expectations in that area are pretty moderate expectations. Perhaps there's some upside there.

Hey, Todd, it's Chris. I think we had a very, very solid April and are incredibly optimistic as we go into May. And as you know, May, June and July is when we put hay in the barn. So we have visibility, but there are 3 very important months to us coming up. And I think, obviously, we'll get through those 3 months and we'll have much better visibility into how the whole year will shake out after we report Q2.

Okay. And then a question on the non-same-store properties, particularly the Storage Deluxe properties that are in that bucket. I was just wondering if you can give us a sense as to how they've been performing generally and sort of relative to your expectations throughout the winter and kind of heading into the spring here.

Those properties have performed very much in line with our expectations and I think it's a continuation of what we talked about last year. I think they are -- they remain 6 to 9 months behind our original expectations. But they're performing very much in line with what we expected of their performance in 2013.

Okay. And then just last question. I was just wondering on the acquisition in Phoenix. I was wondering if you could share with us what the cap rate was for that deal and what occupancy was?

Yes. When we do single asset transactions, we're trying not to get into that kind of disclosure for various competitive reasons. I think if you just look across the marketplace, in terms of what we're seeing generally, it's consistent with what you have heard from the other calls. In a market that we're very interested in, these are 6% to 7% cap markets for stable assets. This asset in Phoenix was a reasonably stabilized asset. I think we've got some upside on rent given our portfolio there in the market and in line with that kind of a range for cap rate.

Okay. When you say stabilized occupancy, is that sort of low 80%? So is that more...?

No, this would have been in the low 80s. So we would expect to gain -- to improve that yield over the course of this year and next year, certainly from both some occupancy upside as well as in this particular instance on the rate.

And the next question comes from Christy McElroy with UBS.

I think that you're the only storage REIT that provides exact asking rents. Can you share with us how you calculate asking rents each quarter? Is it the average of days leased over the quarter? Or is it the average of where each available space is quoted?

So what we would refer to in our supplemental disclosure as scheduled annual rent per square foot in that $13.05 number, that is the rate that a new customer would be quoted by coming into rent a cube at one of our stores.

Is it online quotes or call center quotes or a mix of both?

It would be the asking rent if you walked into the store.

Okay. And do you know what the year-over-year change was in space that was actually leased and the rent that was actually leased in Q1 versus Q1 of '12?

I would think that, that would be the revenue per -- or the in-place annual rent per occupied square foot. So the $13.11 in our supplemental would be the contractual rate. So that's the rate on the lease, not taking into...

So I guess that's impacted by discounts, though, right?

No, that's the rate on the lease not impacted for promotional discount.

Got you. Got you. Okay. And then Chris, I think you mentioned up 13% year-over-year in same-store move-ins. Can you say what the year-over-year change was in move out?

Yes. The actual change in nets, obviously, because of the smaller numbers that you're looking at, they were up about 50%. Vacates, quarter-over-quarter, were up 2%.

Vacates quarter-over-quarter. Do you have that year-over-year?

Yes, I'm sorry. First quarter of last year versus first quarter of this year were up 2%.

Up 2%. Okay. And then are you still pushing existing customer rents by 6% to 8%?

Yes.

And the next question comes from David Toti from Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: Chris, I just want to follow up on some of your comments on the transaction markets. We hear from a number of our broker affiliates that storage assets are among the more heated of the asset classes today in terms of cap rate compression, appetite, number of bidders. Are you guys seeing that in your deal flow? And do you think that will have any sort of negative impact into the volumes that you're expecting for the year going forward?

Yes. In terms of your first question, are we seeing it? Absolutely, yes. And that is historically why for a traditionally brokered bid process, we are not generally the winning bidder. To your second question about our volumes, as we sit here today, directly sourced deals that are in our pipeline, either under contract or in contract negotiations, will, comfortably, we believe get us to the low end of our acquisition target and the low end of our disposition target. So I think the low end of the targets are in hand. And we feel confident that, again, based on our relationships and our reputation that we'll be able to find transactions in the markets that we're attracted to outside of the traditional brokered process that will get us more momentum as we go through the year. So as we sit here today, we feel very, very good about our prospects. David Toti - Cantor Fitzgerald & Co., Research Division: Okay. And then just along those lines, as we go through the year, if we fast forward to year end, we see additional cap rate compression, maybe, tougher bidding market. Would that -- would you guys be inclined to potentially allocate capital to development at that point, given we're in the fifth year of no supply and rising demand occupancies at north of 90%?

Dave, we've been consistent on that topic in saying that if you refer to development in a more traditional, fully integrated staffing up and executing on the land acquisition, the development construction, et cetera that we don't think that's the best route for us. That's -- in terms of finding partners in our highly attractive core markets who we could enter into some form of a partnership where we provide obviously capital and our expertise having been in the business for quite some time, they provide the on-the-ground knowledge and resources and we use our operating platform to lease up the store and leverage off of our brand. We are looking at those type of transactions in a small number of markets and we'll continue to do so. David Toti - Cantor Fitzgerald & Co., Research Division: Okay, I just have one last question and it goes back to the pricing power question in sort of the second half of the year comps. How do you guys view pricing power building across the remainder of the year in terms of optimal occupancies at which point you can start to ratchet up rent significantly into a meaningful growth? Or was that really a '14 phenomena at this point?

Yes. I think as you look at the latter half of the year, you got a couple of different things unique to our portfolio. One is, as I mentioned, we got to the end of March and our asking rents were on top of our asking rents from last year. We've now moved to the other side of that equation in April where we're 70 bps up. Our asking rents are now higher than our -- than the rent at the in-place customer is paying. So we've moved from a roll down situation that we experienced from the spring of last year through February of this year to a roll up, where we're replacing a tenant moving out, will begin to be replaced by a tenant moving in paying a higher street rate. So that's CubeSmart specific. As you look at the industry as a whole, what we're seeing is that second lever being pulled is on the discounting side. So naturally, as the number of cubes that you have of a specific size type begins to shrink, you are removing the level of free rent that is being offered. And I think that's the second half of this year opportunity. I think the overall increase in asking rents to new customers somewhat depends upon our results, but it also depends upon what the other competitors in the marketplace do. And our hopes is those more highly occupied competitors will be as aggressive as possible in increasing their asking rates to new customers and we'd be happy to draft right in behind there.

And the next question comes from Michael Knott from Green Street Advisors.

Dean, I guess, since you linked fundamentals improving with your pending retirement, do you wish you'd retired sooner?

I'm not sure it directly correlates, Michael. But I appreciate the question.

Dean, we've known you for a long time. And as you've been leading CubeSmart for several years now, it seems like you guys have gone back and forth between focusing on pricing first and occupancy second. And more recently, you've had a lot of success with focusing on the occupancy first or so it seems -- that seems to be the focus. I guess, as you think about your final thesis on Self Storage, is that the right answer in all circumstances? And maybe why didn't we flip that switch earlier?

I still think it's the right answer. We could have gotten into the price war and spiraled down accordingly as -- brought our street rates down dramatically. But I'd go back to my example that I've used before. If you've got a property that's 90% occupied, it's clicking along just fine and someone opens up a new one right across the street from you, you got to wait for that property to fill up. And you're going to lose some occupancy. You got to wait for that property to fill up. But you don't want to just start getting into a pricing war with a guy across the street because you'll both end up giving your product away for nothing. And so what you're going to see in the next 2 years at this company, I think, is dramatic outperformance, when in fact that we have that occupancy now to rent. And we also have the discounts that will be rolling off and we'll be pushing rates as well, as Chris has just said. So it's a timing thing. We could've taken rates down dramatically as did some of our competitors, held on to some occupancy. But I'm still pleased with where we are today.

Okay. And then on the scheduled rent comments. I think it shows a minus 2.5% at the end of this quarter year-over-year, which is I think a pretty market improvement from I think it was minus 6% last quarter, if I remember it correctly. So it seems like that's improved. Is that just a function of comps getting easier? Or are you seeing some pricing power improvement as well?

It is a function of both. But first off, the rate adjustments last year primarily occurred in the beginning part of the second quarter. So you're seeing some benefit from some rate adjustments we made in March of last year. But you'll see, as I said in my prepared remarks, that, that comp will flip positive and will begin to roll up here in this part of the year. But in addition, you can see the modest improvements that occurred since June of last year. We've gone from $12.89 to $13.03 to $13.05 if you sort of look across. And that's indicative of pushing on street rates in those markets that have indicated an ability to handle it. So I think if you look at New York City in particular and you look at where we were in June of last year and where we are today, I think we're up about 11% in asking rents and you see that in the stronger markets across the United States.

Okay. And then just a couple of questions on Storage Deluxe. I appreciate the information on Page 17 of the supplemental on the non-same-store. And I see that Storage Deluxe is about half of that pool. But how much -- what percentage of Stores Deluxe is now in the same-store pool? Any stores just that ballpark?

I'm trying to -- I don't have it right in front of me, Michael. I think we brought in...

As your pool changed, right?

We brought in 8 of the 2011 closings into the same-store pool and I think that represents about 40% of the transaction is in our same-store pool and the balance is -- remains in non same store.

Okay. So it won't be until next year when that's fully in same store?

That's correct. The vast majority of it will be in same store as we reset the pool on 1/1/14, with the exception of, at least, the development asset. Because we don't bring things into our same store until they're fully stabilized in both periods. We think that presents the best comp. So the development property that we acquired won't enter in until this 2015 because it won't be stabilized.

Okay. And then just 2 more quick ones on Storage Deluxe. Is the yield that you're going to achieve in 2013 still about 6.0%, if I recall it correctly.

For this year, for the entirety of the pool, yes, that's in the ballpark maybe a little north of that.

Okay. And you're still targeting a stabilized 6.5%? Or is that number moving north now?

Well, I'll really be able to give you a lot more clarity on that one in 3 months. The assets that are stable are currently pushing 87% physical and I talked about the rent growth that we're getting there. The ones that aren't stabilized are in the lower 80% range and that's the pool, really, that proof will be in the pudding a little bit here over the next 3 months.

And the next question comes from Paula Poskon from Robert W. Baird. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Just to follow up on that last question just for clarity. So is it only the one, that one development, Storage Deluxe asset, that's not yet stabilized? Or are there more assets that don't fit your definition of stabilized?

They certainly didn't fit the definition of -- the ones that we closed in November of '11 that aren't in the same-store pool did not meet our definition of stabilized to be entered in this year. So that... Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Right. But how is that progressing is my question, I guess.

Yes. The evaluation will be then as we think about the pool for next year to evaluate whether we believe that they were stabilized throughout '13 to be brought in, and our expectation is that they will be. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then how much, I'll call it, frictional occupancy exists in the portfolio in terms of the weaker assets that are part of the CMBS portfolio?

Not much. So if you sit here today, it's a little bit North of 86% in the quarter. And you look at us entering the peak leasing season and you look across the portfolio, you're certainly going to have your higher octane markets very low supply like a Washington D.C. or a Metro New York that will move significantly up into the 90s. But even those markets that I talked about, Tucson, Phoenix, El Paso, the expectation is that they will move up into the mid-80s if not higher and help kind of the overall same-store pool hit or beat our objectives.

And the next question comes from Todd Stender from Wells Fargo.

Can you speak to the quality and the just the general volume of acquisition opportunities that came your way in the first quarter? And if you are passing on deals, maybe what are some of the reasons? Any trends you're seeing?

Yes. The first quarter was slow. I think if you look at kind of what's out there today, where we pass on opportunities is largely based on the markets that we're focused in on. So we've been very firm in our conviction on our core markets. And where there are transactions there, we move on that very aggressively. Again, our best scenario is where we're being brought a trade, not one that is being broadly marketed and we're competing with all the other operators, plus the various other sources of capital. Where there are pools of assets and the seller is unwilling to split those up into individual transactions, again, we need to get comfortable that -- those assets or end markets that we find attractive for the long term. So we generally aren't a aggressive bidder in those cases. So I think it's a very robust transaction market, as someone pointed out earlier, and we continue to evaluate deals with a very disciplined focus on our portfolio cash flow quality improvement strategy.

Okay. That's helpful. Just looking at specific markets, notably the Inland Empire, occupancy in that region is coming off a pretty low base, but it's very robust in Q1. Any general comments on the macro picture in that market? And what more upside do you think we can expect in the Inland Empire? And then couple that with maybe your updated thoughts on how that market fits into your long-term strategy.

Yes. We have a fantastic team on the ground there in the Inland Empire. We have a very nice quality product and it's clearly a high beta market. So I think our marketing efforts, the equality of our product and our team and pricing all have come to produce very, very strong revenue growth. You see we're up 8.8% and the occupancy is up from 72.4% to 83.4%. So I think there are still upside as we move through this rental season in both in occupancy certainly in revenues and we continue to see a very positive trend there. Long run, as we've talked about, we'd like to have our West Coast portfolio more coastal. That's easier said than done in terms of finding the deals that work for us in some of those markets. But I think in the long run, that's one that I would put on, on the list of great performer continue to see good legs to that performance through this year and I think even into next year, and we'll continue to evaluate.

Okay. And any changes in your CapEx assumptions, whether it be the same-store pool or the Storage Deluxe assets? And just any changes to that as you're looking out just based on how strong the market trends have been this year?

Recurring CapEx, Todd?

Yes.

No, no change. The main parts haven't changed. It's primarily focused on roofs and drive aisles and paint and so nothing -- no costs have changed in any significant way. So no change in our outlook for that.

And we have a follow-up question from Paula Poskon from Robert W. Baird. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Any particular properties that you think will make -- offer good redevelopment opportunities?

Yes, Paula. That's a great question. We have been spending a significant amount of time looking at that. We have identified a number of assets that fit that description, whether they be additional square footage, additional climate control space, et cetera, and we will begin attacking those here this year. So you will definitely hear from us on that opportunity. We have stores that are extremely well located and in good markets where we've rented all the space and that's one example we're absolutely looking at opportunities to expand square footage and take advantage of customer demand. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Appreciate that, Chris. And then just a big picture question for you, Dean. I love hearing you wax philosophical as you're winding up your storage career. What's left undone?

Well, as far as what's on my to do list, Paula, almost nothing is left. I'm really, really pleased as to where the staffing is today, with where our portfolio is today, our departments that have come along so nicely. So I use the analogy -- I've talked to you about how to fly airplanes and helicopters before. And when you're an instructor pilot, those last few hours, you're sitting there. You're just watching the other person turn the knobs and fly the airplane. And so that's what I'm doing here today for these last few months at CubeSmart. This staff is flying this airplane today. This staff is making the decisions and running this company. I'm here for advice and an occasional comment here or there. But there's basically nothing left to do, Paula. The only thing -- Chris and I walked around our new office building that we're building with the state-of-the-art if not somewhat futuristic storage facility attached to it. That's going to be completed in the fourth quarter. I look forward to that. But other than that, I feel like my job is done here. Thanks for the question.

And we have a follow-up question from Todd Thomas with KeyBanc Capital Markets.

Just last quarter, Dean, and then this quarter again, you made some comments about the consolidation in the industry accelerating. And I was just wondering now were a few months from your last comments and you guys added 9 management contracts to the platform. I was just wondering if you have any additional thoughts on that business. And where that might sort of grow to by the end of the year?

Well, I'm not going to get to the specifics at this point in time, but I can speak from a perspective of 25,000 or 30,000 feet. And as I said, that's going to continue to grow and grow dramatically not only for us, but for the other sophisticated players in this sector. Consolidation is absolutely for real, and we're going to enjoy the benefits of it. Just we try to take on management jobs that we eventually want to own the asset. We just -- we don't take on every management job that might come our way in markets that we don't want to be in. So we'll be selective as we're very selective in what we're buying. But, clearly, the consolidation play is here for a long term in our sector. I'm going to be interested in maybe coming back in 10 years and seeing these guys here and look at how very, very large these 4 public companies are because of that consolidation.

Okay. Is the demand from third-party owners today? I mean, would you say that, that has been increasing steadily here over the last few months?

Yes. It -- well, I'll let Chris speak to the specificity. But what I will say is, I have seen it increasing since I started talking about it in January 2-plus years ago. It has been on a steady climb, but I'll let Chris get into the specifics.

Yes, Todd. The inbound continues to build. The opportunities that we took advantage of in Q1 are very exciting to us because it's a nice blend of operators who are coming to their own conclusion that it's time to reach out to a large player and reap those benefits. So we're very encouraged. We had a 20%, 30% targeted growth last year and we exceeded that. And I think we will be very pleased with how that program proceeds this year. Same thing on the acquisition side. I think we're extremely encouraged by the opportunities that we're seeing. And so I would suggest that nobody, yet, too concerned about a quiet first quarter.

Thank you. And as there are no more questions at the present time, I'd like to turn the call back over to Dean Jernigan for any closing remarks.

Okay. That's it from Wayne today. Thank you very much for your interest, and we all look -- we look forward to seeing you all soon. Thanks, good day.

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