CubeSmart (CUBE) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the CubeSmart Third Quarter 2013 Earnings Call and webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Daniel Ruble, Vice President of Finance, and Investor Relations. Mr. Ruble, please go ahead.

Thank you, Keith. Hello, everyone. Good morning from Wayne, Pennsylvania, and welcome to CubeSmart's Third 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 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 strategies 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 on the company's website, again, at www.cubesmart.com. I'll now turn the call over to Chris.

Thanks, Daniel. We continue to execute on all phases of our business plan, delivering robust organic and external growth for our shareholders. Our portfolio is in exceptional shape, with approximately 70% of our NOI coming from our core investment markets and substantially all of our near and medium-term repositioning objectives completed. Same-store results remained at very high levels of performance. We had extremely strong cash flow growth during the quarter. Our funds from operations increased 44% over the same quarter last year, and our FFO per share grew 32% over the same quarter of last year. This strong cash flow growth is a direct result of both our internal growth, attributed to our ability to drive and capture demand through our advanced marketing and revenue management platforms, and our company focus on delivering exceptional customer service. We generated 10% growth in same-store NOI, our second consecutive quarter of double-digit, sector-leading same-store NOI growth. And our transformation of our portfolio to one of best-in-class quality with depth and operational scale in attractive markets. The cash flow goal was achieved while also focusing on continuing to improve the quality of our already conservative capital structure. We grew FFO and FFO per share 44% and 32%, respectively, while reducing our leverage, defined as debt-to-gross assets, by 240 basis points from 42.8% at September 30, '12 to 40.4% at September 30 of this year. We also continued -- we also see continued gains in profitability as our NOI margin increased to 170 basis points year-over-year to 67.4% for the third quarter. Our 10% NOI growth was a result of operating strength across the board. Same-store revenue growth of 7.2% was largely driven by average occupancy gains of 500 basis points. We also reaped more value from every occupied square foot with same-store revenue per occupied square foot contributing the balance of our growth primarily as the result of reduced discounting and sequential strength in realized rent per occupied square foot. From a market perspective, all of our regional markets generated positive same-store revenue gains, with our East Coast and Texas portfolio demonstrating particularly strong revenue growth as our New York City, Atlanta, Florida and Dallas, Houston, Austin stores posted 8-plus-percent increases. Overall, we are pleased we executed on our goal to maintain our same-store occupancy in the 90% range from June 30 to September 30 while maintaining rents. With Dean's retirement, it seems an appropriate time to look at the transformation in our portfolio under his tenure. Since Dean's arrival, we have sold 143 assets for proceeds of $440 million. This represents a disposition of nearly 1/3 of the portfolio that existed at the end of '06. We have reinvested those proceeds, along with additional capital, into $1.5 billion of acquisitions. So as we sit here today, properties we have acquired under current management represent nearly half of our gross asset value. We currently derive approximately 70% of our NOI from those top-tier markets that we characterize as core investment markets, nearly doubling from 2006 levels. Focusing on 2013, we've been able to accretively recycle capital. On transactions that have closed, realizing a 50-basis point positive spread between the yield on dispositions and the yield on stabilized acquisitions. We announced last Friday, we have entered into a contract to acquire 36 stores, primarily in Houston and Austin, Texas. We are in due diligence, and assuming all goes as planned, we would close in a JV structure in mid-December. We are excited about adding these high-quality, core market assets to our portfolio and leveraging our equity capital through a co-investment vehicle, creating additional accretion for Cube. This transaction supports our portfolio objectives and has the added benefit of entrenching our competitive position in the Houston and Austin markets, enhancing the performance opportunity for existing cube assets in those markets. With that, I will turn it over to Tim Martin for commentary.

Thanks, Chris. Good morning, everyone, and thanks for joining us on today's call and for your continued interest and support. As Chris outlined, our third quarter results reflect the continuation of our business plan execution and our strong operational platform. We reported FFO per share of $0.25, which was a $0.01 higher than our guidance entering the quarter. The outperformance was across the board: revenue growth was strong across the platform, as we had a very successful rental season; and our continued focus on expense control led to solid results. The outperformance was reflected not only in our same-store portfolio, with another double-digit 10% NOI growth, but also through very strong results across our non-same-store properties. Revenue growth continues to be largely driven by year-over-year occupancy gains, but we're seeing increasing contributions from realized rents through both reduced levels of discounting and opportunities to increase our average asking rents across the portfolio. Focusing on guidance. As outlined in our release last evening, our strong rental season has led us to raise our FFO guidance and the underlying assumptions. Our revised FFO per share range of $0.90 to $0.91 is at the midpoint, up 3% over our guidance last quarter, and up 9% over our guidance at the beginning of the year. We also adjusted the guidance ranges for the underlying assumptions, improving the ranges for same-store revenues and expenses, leading to a revised full year NOI growth expectation of 8.75% to 9.25%. Our revised full year and fourth quarter guidance includes the impact of both investment activity that is closed to-date, as well as the impact of all of our announced activity expected to close by year-end. From a timing perspective, it's important to note that the $90 million disposition of 22 assets closed in the early part of the fourth quarter, while we expect to close on the large portfolio transaction Chris mentioned very late in the quarter. Our balance sheet position remains strong, and we continue to focus on maintaining credit metrics consistent with our investment-grade credit rating and focus on an attractive blended long-term cost of capital. We continue to fund our external growth through free cash flow, disposition proceeds, our "at-the-market" equity program and an appropriate amount of debt financing. During the quarter, we raised $32.1 million under our ATM program, selling 1.9 million shares at an average price of $17.41 per share. We have a well-staggered debt maturity profile that averages over 5 years to maturity. We have a diverse mix of both current and available capital sources and a secured debt-to-gross asset ratio of just 8%. In September, our balance sheet position and improved credit metrics were recognized by Moody's as they upgraded their outlook on our BAA3 from stable to positive. Overall, a great quarter, and I'll pause there. And thanks, again, for joining us today. And at this point, Dean, I will turn the call to you.

Okay. Thanks, Tim. Good morning to all. I will admit, I had hoped for a more positive trading day on my last conference call. So, I guess, I can start with what is the market missing, from my perspective. I did pull out my crystal ball for my last final crystal ball day and I polished it up some. And I want to talk about the wonderful earnings that CubeSmart has announced, as well as the rest of the sector, over this past week. And, of course, the trading has not reflected the incredible positive results that we've all encountered. So obviously, the market sees -- doesn't see something in the future that I think that the companies see as very real, right around the corner. So first, you heard me talk over the years about the different arrows in our quiver. We've always had the occupancy arrow, and we have played that. That is the only arrow in our quiver that we have played, and quite frankly, the other 3 public companies as well. We still have the opportunity to reduce substantially, if not eliminate almost completely, all of our free rent, all of our promotions. Those are very large numbers. I listened to the other calls and I hear you talking about this, but make sure you factor that into your models, because those are very large numbers. With diminished promotions, come higher rents. And on top of higher rents, the consolidation that we're starting to see now, that we've been talking about now for a couple of years, is real and is going to continue. So as the 4 public companies get larger and we all take our platforms that we have and the mechanics we have within those -- built in those platform to reduce promotions, maintain our occupancies, reduce our promotions, and push our higher rents, I think those are sustainable revenue gains over the next 2 years that the market is missing right now. Substantial revenue gain opportunities over the next 2 years using those other arrows. The other -- there's a couple of other things. One is that how is this different from what we saw with the multifamily sector over the last couple of years? Well, there's 1 huge difference, and that is no new construction of storage facilities. Write that down and underline it, because that is fact. The crystal ball is very clear on this. We have a dearth, shortage, deficiency, whatever you want to call it, of new construction of storage facilities. And my crystal ball is very clear that we will not have any kind of headwind for another 20 -- at least another 24 months from new construction. So big difference between storage and multifamily there. No storage developer goes into a zoning office or pulls up their zoning atlas online -- no storage developer can find zoning that's really appropriate for self storage, like the multifamily guys do when they go into a new market. We have to go in and get the entitlements ourselves with our special use permits, and that, more often, will not take upwards of a year. So those 2 elements alone speak to continued growth on the revenue line. You see how -- where everyone has their margins now. The margins are outstanding in this sector. And that resulting number, dropping through to FFO, will continue to be good for CubeSmart and its other 3 public company peers. I want to discuss just another subject and that's about cap rates. With the ramp up in acquisitions, everyone's focused on what are you paying? Are you overpaying? Where they're going in cap rates? And I want to tell you that going in cap rates are normally irrelevant. Unless it is a stabilized asset, the going in cap rate is really irrelevant. And I cannot really think of a circumstance over the years, where I have supported my friend, Ron Havner, in some comments publicly like this. But when he said on his call, these cap rates are between 0 and 8, I mean, that's what he was speaking to, the irrelevance of it. The question -- you're asking the wrong question. You should be asking what will be the unlevered yield to the company at stabilization? And maybe you want to ask, how long will it take you to get to stabilization? That's how we buy. That's what's important to us. So if the cap rate's 0, we're not actually buying a property we think has 0 value. So talk about how long it takes to get to stabilization and what will the yield be on stabilization. So those are some things that I think the market is missing right now in our sector. You're going to see continued outstanding performance in this sector. And if it is reversing to the mean, so be it in our sector. You can look back at the website and look back to 1994, at almost any period of time you want to look at, be it 19 years, 10 years, last 5 years, last 3 years, last 1 year, self storage has been at the top in virtually every quarter, every year throughout those years, as we have performed against other real estate property types. So the mean is outstanding for self storage. But I'm going to tell you, it's too early to be talking about the reversion to the mean with the self storage product because of the items that I've just talked about, because I think the readers and people interested in investing in our sector are missing. So I'll leave our sector and talk about our company just for a second. I had a question asked the other day, how will things be at CubeSmart after my departure at the end of the year, and my answer was, "Even better". And I say that because CubeSmart has a management team that I will be leaving, that is ready to take this company to the next level and beyond. Chris Marr has been a CEO in the making for at least 15 years. He's performed every role in an exceptional, outstanding manner that I've asked him to perform, really, all the way back to since 1994, when Chris joined our company. He's had direct responsibility for finance and accounting as CFO, asset management as Chief Investment Officer, and for the last 2 years, as Chief Operating Officer, operations, which is huge. All the great results -- and look back over the last 2 years, great operating results we have -- we have enjoyed, Chris and his team gets all that credit. So he knows how to operate. He has been an outstanding CFO and outstanding CIO. He's had indirect responsibility in that he's had department heads of HR, Marketing report to him for many years, and at CubeSmart, for all these years, the General Counsel, our Chief Legal Officer, Jeff Foster, has reported directly to Chris. He's eminently qualified to take the range of this company on January 1. I will remain a long-term shareholder of the company. I look forward to working in a consulting manner with Chris on a continued basis going forward. And the stage is set for my exit, and quite frankly, I could not be more pleased with CubeSmart with where it stands today and what the -- optimistic the future is going forward, after 12/31 for me. So thank you for your support. I look forward to seeing many of you next week out in San Francisco. And with that, operator, we will start with the questions.

[Operator Instructions] And the first question comes from Shahzeb Zakaria from Macquarie.

So first of all, could you please quantify the impact of the incremental acquisitions and disposition on your guidance?

Specific to the fourth quarter, Shahzeb -- it's Tim, the impact is, as I mentioned, is influenced by the timing of the transaction. So our disposition has already closed and was weighted towards the beginning half of the quarter. And our acquisitions happened very, very late in the quarter. So when you add those together, the near-term or the impact on the fourth quarter is to pull down the quarterly results by, give or take, about a $0.01 a share.

Okay, got it. And if I could ask 1 more, would you be willing to share the cap rate range for the dispositions that you've enhanced, and perhaps the stabilized cap rate range for the acquisitions?

Sure. If you think about the entirety of our disposition activity for this year, the disposition cap rate is right around 6.75% and then if you look at stabilized acquisitions that have closed, single-asset transactions, as I said in my opening comments, it was about a 50 basis point positive spread to that disposition cap rate. And then when you look at the assets that we've acquired this year that were at -- that were unstabilized, so relatively newly-built product that was in lease-up, I think on average, we'd be targeting a stabilized yield in the, call it, mid to high-7s. And that stabilization period for that pool of assets is plus or -- a little bit north of 3 years.

Did you say that's sort of a single asset?

That's correct.

And you would be willing to provide the one for the JV transaction next quarter?

Yes, we've talked about that. That's a market deal. The way we have looked at Cube's return is on an unlevered basis relative to our equity invested through the JV structure. So we are obviously, leveraging our platform and leveraging our equity through the fee stream. And we've talked about, in year 1, slightly north of 6% yield on our equity from the underlying real estate, as we said, a market deal and for market deals of an asset quality, quality locations of the type of stores that we're buying. It's -- market for that is in the mid-5s and we think this is a market transaction.

And the next question comes from Todd Thomas with KeyBanc Capital Markets.

Jordan Sadler's here with me as well. I just wanted to focus on the revenue growth a little bit. So occupancy gains are starting to diminish, and you mentioned that rents are rising. And Tim, you outlined that you're seeing both reduced discounts and higher asking rents, but I'm just wondering if you can talk about your expectations for rent growth for street rents as you look ahead. Do you think that we can start to see an increase in asking rents such that there can be a smooth handoff from the revenue growth that we've seen from the occupancy gains starting to come through more from the rental rates side?

Yes, Todd, this is Chris. I mean, the common sense answer is, absolutely. When you look at the 4 REITs and their reported occupancies, all of us, 90% and north. As you go into the busy rental season of next year, here at Cube, I'm sure it's similar at the other companies, the focus is on holding on to as much of that occupancy as we can, as we go through the slower time period here in terms of activity so that you have that limited amount of inventory to provide to our customers in the busiest time of the year. Clearly, with our high levels of occupancy, the trickle-down of folks who are looking for particular sized cubes in a market and cannot find them because the larger operators are full, is benefiting the smaller guys who you have to find an answer for your need. And so, the belief is that rental rate growth should be there, combined with then, obviously, the continued ability to reduce the amount of free rent. And the proof of that, obviously, is going to be in that time period next year between April 1 and August 1 when we see the bulk of our rental activity.

Okay. Are the private operators -- so outside of the 4 public REITs is your competition in many markets. Are you seeing them raise street rates as well?

Yes, I think we're in a time of year where -- again, it's hard to generalize because, certainly, market by market, you see different activity. But we're in a time of year where, generally speaking, I would say street rates are fairly consistent. But I would say that's a positive relative to where we had been last year and a few years before that where you would have seen some rate decreases being utilized to try to hold onto the occupancy. So we look at the relatively consistent street rates from, call it, end of August through today, to be a positive sign that folks are able to hold onto their occupancy without having to resort to reducing rates.

Okay. And then just 1 more question for me and then I think Jordan has 1. I was just curious, the same-store pool decreased by about 30 properties, the ones sold during the quarter and that were held for sale, that were sold earlier this quarter. I was just wondering if you could tell us what same-store NOI growth and revenue growth of the current same-store pool was last quarter?

Yes, I don't have the exact number in front of me, Todd. But we've looked at each of the metrics, occupancy, same-store revenue, same-store expense, same-store NOI and looked at it with and without, and on every 1 of those metrics, it's 10 basis points or so difference. Some positive, some negative. So it's really not impactful, the difference between the same-store results with and without the assets that were moved into discounts.

And Todd, just to even add on to that, we do restate the rolling 5-quarter table that's in the supplemental. So that is reflective of the current same-store pool going back 4 more quarters. So you can actually see the trend for this pool.

It's Jordan. Dean, I did want to say congratulations and good luck. You'll be missed. But I also wanted to sort of give you a final opportunity. You touched on sort of the trading today in the market and not storage, not being apartment. So I'm kind of curious, I mean, I think the issue for -- and physically, that's pretty obvious. But I guess in trading, what we think may be happening today is the market views your results and your peers' results as in a stage or phase of potentially rolling over, meaning so while the best has not set upon us, when you may see higher peak revenues, et cetera, the pace of growth or the rate of growth may be rolling over or slowing. So you do 7.25% same revenue growth this year, probably it looks like, on a day like today, that market's expecting that, that will slow next year. And Todd was touching on it, and rent growth and the ability to do that. But I don't think folks seem to lack a little bit of conviction in terms of what kind of rent growth you can get from here because we haven't really seen it in the numbers. So any sort of comments on that, slowing rate of growth next year in terms of rents or revenue?

Sure Jordan, and thanks for your comments. Yes, Todd's question was touching on that, and I do have something to add. We've been here before and it's pretty clear to me that when you got your occupancy 90% and there's no new development, you're going to stop giving away free rent and you're going to push rates. So what does that mean? Well, you can look and see what it could mean in diminished promotions for each of the companies. But so set that aside. Just add that -- some part of that to the bottom line and set that aside. Then let's talk about increased rents and that's the beauty -- one of the beauties of the self storage product. Average unit size 10 by 10, right? Average price, call it, $100, maybe $110. You pass -- well, you want a 7% revenue growth off that, you pass along $7 per month increase to your asking rents. So the guy comes in next year, pays $107 versus $100 this year. We know that we do not have the discretionary customer back to us yet. So all of our customers we have today need storage. They're not renting storage just for kicks, they need storage. So do they walk in next spring and walk out because the rate is $107 versus $100? Absolutely not. Been there before, seen it and I will tell you -- and I know answer, absolutely not. So can these companies, going forward, get substantial asking street rate increases? Yes is my answer.

And the next question comes from Christy McElroy with Citi.

Dean, just wanted to echo Jordan's comments. Being it's your last call, I just wanted to say it's been a pleasure working with you, and I hope we cross paths again in the future. My first question just wanted to follow up on occupancy, just to touch on seasonality. As we head into a little bit of a slower seasonal period, I know that you and your peers have been working a bit to reduce some of that seasonal impact from occupancy, can you talk a little bit about that and give us your expectations for how much of a dip you anticipate in occupancy this winter? So I guess, what are you seeing in October and November so far? And would you expect the year-over-year occupancy delta could narrow further from the current level of about 500 bps or hold fairly steady through the winter?

Yes, our objective would be to hold on, obviously, to as much of the occupancy that we have. At the end of October, we were down to about 30 bps. So I think we're 89 7 on a same-store basis, which is fairly consistent with what we saw last year. Again, market by market, we had some Sandy impact to the positive on some properties in New York and Connecticut last year. That would really be the only thing that was a little bit different about last year than this year in those particular markets. So the objective is to hold onto it and to hold onto it at current pricing levels. But I would suspect that, obviously, seasonally, we would lose some of our September 30 occupancy as we get into December 31 and then pick back up from there.

Okay. And then with regards to the acquisitions that you have on your contract, would you anticipate issuing any equity from the ATM to sort of match fund the equity on the deal? I think that in the 8-K you mentioned cash on hand and your revolver, but I didn't know if you would potentially make up some of the revolver by issuing on the ATM?

Yes. As we look at all our annual activity, we want to be able to have the funds necessary to close on our acquisitions and to focus on our objective of improving the balance sheet metrics ultimately to a notch higher rating than we currently have. The beauty of the structure for this particular transaction is the amount of equity necessary is half the deal size given the venture structure. And then we also obviously have the proceeds from the sale of the properties that has already closed. So there is not a need for us to raise additional capital in order to achieve all of our objectives and close on this transaction. Now that being said, at attractive points, we always look at the ATM program as a very effective way to raise modest amounts of equity capital to fund our growth.

Okay. And then just lastly, when you guys -- back when you did the Storage Deluxe deal, I remember hearing something about the potential for a pickup in property taxes in the portfolio over the following few years as the properties are reassessed. Is that sort of a non-issue, or could we potentially see a pickup in the tax bill on those properties?

Yes, I don't recall New York being that issue. The property tax pressure that we're seeing is in -- is definitely not in New York. It's in markets more like Chicago.

And your next question comes from Ki Bin Kim with SunTrust.

I guess first of all, thanks, Dean, for everything, and good luck to your second chapter. So I had a couple of questions regarding your same-store revenue trends going from 9% last quarter to 7.2% increase year-over-year. At this occupancy level, what is your price on system telling you guys like what you should do? And do you guys typically just follow what the output is? And, I guess, the second part of that question is I did notice that you guys cut your advertising spend by 14% year-over-year, whereas your peers increased it some by 17% year-over-year. I'm just curious, how much is your -- how much is it all tied into your pricing system? Or is advertising budgets almost separate?

Okay. I'll answer the last one first. The advertising is really based on where can we invest and get an acceptable return. And so, if we can invest less, generate more rentals at a lower cost per rental, then we absolutely do that. So I would look at the advertising to say that we have been more productive and more efficient in every dollar that we've chosen to invest, and as a result, did not have to incur the same levels of spend as we did last year. When you look at pricing at this time of year, the models would suggest, again, market by market, that we're appropriately priced to hold on to the occupancy that we have. We would use the discount lever really first to see if that can stimulate some additional rental activity by increasing the amount of promotions in some markets, and in other markets, we still see an opportunity to throttle back on that level of discounting. And then ultimately, there is a grassroots human input, market by market, to what the pricing models are suggesting to make sure that what's actually happening on the ground is we're having those interactions with our customers on a daily basis, as being reflected in our pricing.

So maybe if I could ask that in a slightly different way. I just remembered maybe a couple of years ago, you guys, in a similar pattern, kind of cut advertising budget spending in the quarter year-over-year, and your same-store revenue took a hit, probably a bigger hit relative to your peers. Just curious if -- was there a not expected outcome with your revenue coming down a little bit more than expected via -- due to maybe cutting advertising spending, that was unexpected.

Yes, our revenue actually outperformed our expectations, obviously, since, as Tim discussed, we raised our same-store revenue guidance. So the revenue outperformed, and the operating expenses relative to marketing were in line with what our plan was. As we've seen greater efficiencies throughout the year we've been able to invest with a better return.

And your next question comes from Paul Adornato with BMO Capital Markets.

Dean, you will be missed. You're wit and wisdom on the calls was always very refreshing. So good luck to you. Looking at the non-core properties, Chris, I think you said that about 30% of NOI is coming from non-core markets or non-core properties, how should we think of those properties? Should they be considered kind of a source of funds, if you will? Or how will you dispose of those over time?

Yes, I don't know that we will dispose of them. I think, again, we use this word core to define 7 to 10 markets that are very high on our list from on investment perspective. We own assets, I would say today, everywhere that we would like to be. So we're very comfortable with where our assets are located, the quality of those assets. So I don't perceive us to be a significant disposer of assets from this point forward. Obviously, if we were to get a ridiculous offer on something or we continually evaluate on an annual basis the portfolio and look for opportunity. But I think while we define markets like New York City, Houston, Miami as core, our presence in Orlando, Jacksonville, Nashville, Columbus, we're very pleased with. So we're very, very pleased with where the portfolio is today, and I wouldn't expect significant amounts of dispositions in the foreseeable future.

Okay. And looking at the Storage Deluxe portfolio, I was wondering if maybe you could provide a little bit more color on some operating metrics isolating those properties? How is occupancy tracked or revenue growth?

Sure. The -- again, you've got some of the assets that are more stabilized. You've got those that are less stabilized. But if look at the ones that are stable, they continue to put up overall revenue growth in excess of our same-store results. The occupancies for the Storage Deluxe assets are slightly higher than the overall same-store pool and they actually peaked a little bit higher than the same-store pool did at the end of July. So the performance in New York has been very, very strong. Again, the same themes. We've been able to get occupancy, we've been able to get rent, we've been able to reduce the discounting, and the brand awareness that we have there is extremely strong and we continue to build off of them.

That's good. And finally, could you just remind us or tell us what sort of promotions remain at your properties?

Yes. Again, it's going to be unique asset by asset, but generally speaking, it's -- depending upon the vacancy by cube size. It will range from 0 to half a month free to 1-month free, and I would say those are the half-month and the 1-month are generally what is being offered across the country.

And maybe just to generalize, would you say that promotions are 1/3 less than what they were a year ago? Or how can we maybe quantify that a little bit?

Yes, well discount dollars are down nearly 10% year-over-year. If you look at the third quarter and you look at why they're down, you've got 2 components. One is a the decline percentage of customers receiving a promotion, which is down about 4 percentage points year-over-year, and then you've also got a decline in the dollar value of each discount, again, as we're moving from a full month of free rent to 1/2 month of free rent.

The next question comes from Ross Nussbaum with UBS.

I want to follow up on 2 questions that have been asked before. The first was on Christy's question on the taxes on Storage Deluxe. We were under the impression that there was a tax abatement on those assets that was set to expire at some point, is that not the case?

Those properties that have abatements, the expiration dates are 10 years out.

10 years out. Okay. And nothing imminent. Second question following up on what Paul was just asking, can you give us the actual dollar amount of discounts that were provided in the quarter? I'm just trying to get a sense for how much lower they can really go.

Sure. So discount dollars per new rental were $72.50.

What's -- and that number, you think a year ago, based on what you just said, it was down 10%. Is that about right? So you're talking that number was closer to $80 a year ago?

Yes, a little $80 and change.

And if you were looking out this time next year, I mean, do you think -- obviously, you're going to be -- I assume you're giving out fewer discounts because your occupancy rate is higher. Do you think a similar magnitude in terms of the decline over the next year or so?

Yes, I think that's achievable.

Okay. And then the last question for me, and this really speaks to the ability to push rents across the entire industry, I was looking at U-Haul's conference call, I guess yesterday or the day before. They're 82% occupied, right. So do you have 1 of the larger players in the sector with an occupancy rate meaningfully below the REITs. You've got a whole bunch of private guys out there who still represent the vast majority of this industry who are not 90-plus-percent occupied and who, historically, don't manage as well as you do and play for occupancy more than rent. So in that type of environment where you're got a huge chunk of the industry with occupancy rates well below you, I guess the big question we're all asking is, how aggressive can the REITs really be if the rest of the industry isn't playing ball?

Yes, I think your question's on point. The counter to that is business is extremity strong across the board, granted they may not all be 90%, but you certainly have packets of operators, particularly in the more core markets, who are 90%. And then for those folks who are -- so again, we're not competing against a significant portion of those folks whose occupancies are struggling, if there really are any strugglers out there. And then you've got to find those people. So what's interesting is we've been running some different tests and once a customer gets to CubeSmart's website and they move through the funnel, they would prefer to continue to try to find the size code they're looking for at any CubeSmart location that's within, say, a 10-mile radius, then come out of the funnel and move on when provided with that opportunity. So I think -- again, I think your question's on point. I think the public companies have an advantage in terms of how we capture the customer that should give us the ability to be more aggressive on street rents. I also think, again, where most of us are competing against the smaller operators, I think their occupancies are higher than the industry average.

Chris, let me jump in and just add something to that, Ross. The smaller player, only a handful across the country, actually put their rates on their websites. And so, if you can, in fact, find them -- I mean, they're not going to be on Page 1 normally, of Google, but if you do get to their website somehow, you're not going to see their rates. And so, the only way to get their rate is pick up the telephone and call them, or walk in to the facility. And so it's those -- and then also, one other factor. We raise our rates, I assure you -- and we're across the street for them, they're going to raise their rates. I mean, that's just the drafting that's always done in our sector. So first of all, it's very difficult to find them. When do you do find them, you can't get their rates without calling them.

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

Chris, unless we've overlooked something here, I believe you become CEO, President, COO and CIO on January 1, unless we see a further announcement. Can you provide an update on succession plans sort of beyond the CEO position, with Dean stepping away at the end of the year?

Sure. So I will be President and Chief Executive Officer on January 1. The CIO and COO titles will be temporarily retired as we -- and then re-filled as appropriate. But we have, as Dean mentioned, a very, very strong team of folks. Jonathan Perry running our investment group. Joel Keaton and team on the operations side. Very talented divisional vice presidents in the East and West and Central parts of the country. So there's a significant amount of talent that you don't always see and hear from on a daily basis, but we are well-positioned to be able to make this transition seamlessly.

Okay, so no specific name changes as of right now, but people are sort of working in different capacities to make sure that the transition is smooth?

That's right, and have been all year. So it will be -- it has been a very, in our opinion, a very well-done process by our Board to have a seamless transition.

Okay. Couple of quick questions on capital allocation that you have touched on briefly. If you could just walk us through the specific thought process in bringing the JV partner on, on the portfolio relative to your alternative options to funding that transaction?

Sure. We like the assets. We like the markets. We also see the benefit of being able to leverage our equity capital with property management, asset management fees. We look at it as also a spreading of the risk. And when we look at a venture structure, it really, for us, starts with the fact that we don't look at that as an opportunity to overpay for assets. So it was important for us that it was a market rate -- a market transaction, and then the ability to bring in a partner that we've worked with before and have a lot of respect for to participate in half the deal with us. We looked at it as a way to leverage our returns. And then at some point in the future, we would be the obvious buyer for the other half of those assets. And I think, we've sort of managed the cap rate risk there. If cap rates continue to move down, then we would have purchased today at 1 and a little bit higher price in the future. If cap rates move up, then the inverse. So for us, it was a good way to increase our returns, as well as be able to manage our risk.

Got it. And then on the continued use of the ATM, you spoke a little bit about use going forward. But if you could just touch on specific use during the quarter, and why hit the ATM to fund those uses?

I'm sorry, Ryan, over the past quarter or looking prospectively?

Over the past quarter.

Yes, I mean, we look at our overall credit metrics and think about the continuum of deals that we have in the pipeline and what we envision the pipeline to be in the future. And look at the fact that, that growth comes with the need for an equity component that gets funded through a combination of free cash flow and raising equity through some means in the future. So at attractive points in the cycle, we opportunistically will look at the ATM to fund our growth today to date, and at some level, prefund or de-lever in anticipation of future growth.

And the next question comes from Paula Poskon from Robert W. Baird. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Can you give me -- can you give us some idea of how many non-core assets you still have that are not tied to the CMBS maturity in 2015?

Less than a handful.

Less than a handful. Okay. Are you getting any inbound calls from developers looking to partner with you on new developments? And is that something you're open to?

Yes and yes. Consistent with our commentary last quarter, there are a few, less than a handful markets where we would be interested in exploring a co-investments type opportunity. Obviously, what we bring to the table is expertise in brand management. So being a passive provider of capital is not what we do and we don't pursue that. But an opportunity to co-invest in some format and/or be a take out at CO for someone who we have a good respect and relationship for, is something we would also do. So those are active conversations. Nothing material to-date. But I would expect we would begin to expand on what we see opportunities and hopefully have a few things more further down the field when we get into the beginning of next year. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: And a couple of housekeeping questions for you, Tim. The 36 acquired assets that you're going to put into the JV with a 50% interest, are you going to consolidate that or keep it unconsolidated?

Yes. As we work through the final phases of both diligence and the details underlying the joint venture agreement, that hasn't reached a conclusion. The business deal that underlies the transaction is what's important to us, and the effective business deal is that is a 50-50 joint venture and we have equal voting rights and the like. So I would say that if I had to wager a guess today that it would be unconsolidated. But whether it's consolidated or unconsolidated is really not of concern to us. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Okay, Tim. And the -- small amount of maturities in the first quarter next year, have you paid those off already or you'll just pay them when they're due?

Yes, typically a lot of those loans that you see have provisions generally that allow us to repay them without any type of cost anywhere from 60 to 90 days in advance. So the answer to your question is we already have, yes. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then final question, on the mortgage for YSI 35 that's subject to reset, is there a floor on the reset, given it's almost a 7% rate?

There is no floor. That agreement provides for both parties reaching a mutual agreement as to what the market rate is at the date that it resets. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And Dean, just a final one for you. It's been more than 2 years since the re-branding effort that you launched, has that effort accomplished what you had intended? Do you think it's too early to tell? And what do you -- is there anything that you wish you would have done differently around that?

Paula, it has accomplished everything that I hoped for, and the only thing that I wish I'd done differently was would be to have done it sooner, earlier. It has clearly become a brand that our customers like, associate with. But even more importantly, I think all of our associates, our employees around the country love the brand, associated our little mascot, Cubie. It's real rallying point. And so I'm really, really pleased with the brand that we have today. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: And I'll echo everyone's comments. Wish you well in retirement. We'll miss working with you, and it's been a pleasure, sir.

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

I just like to hear your thoughts on how deep the private buyer pool of capital is out there? I mean, with you guys and your REIT peers generally able to provide surety of closing to sellers with your lines of credit, how are the private buyers financing their deals? I'm just trying to get a feel for how much support the private buyers have and the legs going forward. Are you mostly seeing cash buyers out there?

It's a mixture. Now I will say that the buyer of our $90 million portfolio was an all-cash buyer. So there was no financing contingency there. They intended to finance in whatever manner they chose post closing, so they can take big bites. So I would say there is a deep pool of private buyers out there, backed by a variety of equity capital. And then the markets for debt financing kind of open and close, but when they're open, for stabilized assets, there is more than ample debt financing for private buyers.

And these are the nontraditional folks. Would you say, generically, that they're priced out of some of the core property types, and so if they can find something, even if it is in the 6% cap rate range or 6.75%, I think you mentioned, is that typically who you're seeing?

Yes, yes.

Well, I got to jump in Todd. I think we're seeing people attracted to the sector. I mean, clearly, forget the other property types. We have institutional capital attracted to our sector today because of the performance of the sector and because of what they see going forward.

So is the cash flow, it's the reduced CapEx, I guess, relative to other property types, that kind of metrics?

It's a spread of the risk to any one -- our few tenants. It's a fragmentation in a positive way across all markets across the country. All the positives associated with storage. We now have institutional capital, understanding that and willing to make investments because of it.

That's helpful, Dean. Your realized rent per square foot has made a pretty good move over the last couple of years from just about $11, to now, over $12.60, at least for the same-store pool. Just trying to get a feel for where it's headed. Can you provide a delta on what the rent per square foot was on those dispositions? And then what the Houston portfolio looks like?

Sure. So there was about a $0.30 per square foot delta on the dispositions and the Houston assets' realized rent per square foot mid-teens, $14, $15 a foot.

Okay. And Chris, I think before you gave us 6%, was that the unlevered return, was that on portfolio acquisition? I think it was 6%.

That was the unlevered return on the Cube's equity in the venture. So as I said, it was a market cap rate for the assets themselves, and then we enhanced our return through the fee stream on the assets.

And you're projecting to get some debt financing for that. I think you highlighted that in the press release.

Yes, low leverage, 30% to 40% type financing, and that will all happen post closing. We'll figure out the characterization of that after closing.

The next question's a follow-up from Ki Bin Kim with SunTrust.

Just a couple of quick follow-ups. On your profession plans for the COO and CIO role, it sounded like you're ruling out external candidates, is that correct?

We have a very deep bench of internal folks and have been active the whole time. So I don't perceive us going outside of the company, no.

Okay. And last question, on your supplemental, Page 11, I was wondering if you could kind of help me understand, your in-place annual rent per occupied square foot is actually down year-over-year, but if I look at the other 3 -- I guess, 3 other metrics, it looks like they're up. So I was just wondering first, which -- I guess, first, which one is the best indicator for where street rates are today, and maybe help us reconcile the different trends?

Scheduled annual rent per square foot, $13.64, is what you would refer to as street rates. Our in-place is the contractual rent after -- not including promotional discounts or fees. So there, you're just seeing the impact of the reduction a year ago or a year and 3 months ago of street rates. So as customers have been rolling in and out, we had a period of time last year and through, really, the first half of this year where a customer departing us was taking a higher rent than a customer moving in. And so, we're in a period where we're moving the opposite direction. The new customer coming in is paying slightly more than the customer that is vacating.

Okay, so maybe next year that they should converge, the trend?

That's correct.

You can see that the trend reversed last quarter Ki Bin. That you look at the $13.55, it reversed and went up sequentially from $13.40 last quarter, up to $13.48 this quarter. So you can see that it already has reversed.

[Operator Instructions] There are no more questions at the present time, so I'd like to turn the call back over to Mr. Jernigan for any closing comments.

Okay. Thanks for all your kind comments toward me today. I look forward to seeing many of you next week in San Francisco. Good day.

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