CubeSmart (CUBE) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the CubeSmart’s Fourth Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please also note that this event is being recorded. I would now like to turn the conference over to Charlie Place, Director of Investor Relations. Please go ahead.

Thank you, Andrea. Hello, everyone. Good morning from all the sunny Malvern, Pennsylvania. Welcome to CubeSmart’s fourth quarter 2016 earnings call. Participants on today’s call include Chris Marr, President and Chief Executive Officer and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company’s website at www.cubesmart.com. The company’s remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from those forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K and the Risk Factors section of the company’s annual report on Form 10-K. In addition, the company’s remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the fourth quarter financial supplement posted on the company’s website at www.cubesmart.com. I will now turn the call over to Chris.

Thank you, Charlie. And good morning. Our fourth quarter with 8.1%, same-store net operating income growth and 15.2% growth in funds from operations per share, capped off another fabulous year of results for our company. Full year 2016 same-store net operating income growth of 10.2% represented our highest internal growth rate over this last five year period of extremely strong storage fundamentals. Our 2016 FFO per share growth of 15% was our sixth consecutive year of double digit FFO per share growth. In recent years it was occasionally tempting to get caught up in the excitement of some of the larger deals. We continue to be disciplined in our external growth, targeting opportunities that expand our market presence and have upsides or occupancy and rate growth as a result being added your platform. Interestingly of the 25 stores we acquired in 2016, 18 were single asset transactions. We closed on two portfolios of two assets each and one portfolio of three assets. This speaks to the debt of our industry relationships and a proven ability to scour the market for attractive one-off investment opportunities. Our third-party management program had a spectacular year in 2016. We ended the year managing 316 stores containing 19.7 million square feet. To put this in perspective, third-party stores represent nearly 40% of our portfolio at year end, creating a growing source of fee income, adding tremendous scale to our operating platform and n providing an excellent source of future growth. Needless to say, we are extremely excited by the performance of this program. Looking forward, we are acutely aware that challenging waters we must navigate. On the internal growth front, we are experiencing a reduced contribution to our growth from physical occupancy gains and lower levels of discounting. We are facing new supply entering our markets, therefore our proficiency in engaging the customer at the very beginning of their exploration of self storage and pricing the offer we present is of critical importance. We believe our people and systems and the marketing and revenue management departments are first class and up to the challenge and our more than 2200 teammates across the country will continue to differentiate the CubeSmart experience through best in class customer service. The current share price and seller expectations makes for a challenging acquisitions environment. We plan on remaining diligent with an intense focus on finding opportunities, source directly into our third party platform that will create value for our shareholders in this challenging environment. We are willing to be patient and find deals that meet our criteria. Our balance sheet is in great shape and we have the capacity to fund our development commitments without modifying our leverage profile. We have a proven track record of disposing of asset and recycling capital, as well as utilizing private capital in the venture structure and we will continue to use this experience to maximize value for our stakeholders. Our business had a very solid start to 2017 and we are cautiously optimistic that we will be able to smoothly navigate through these headwinds that I've outlined continue to produce solid results for our shareholders in 2017 and beyond. Tim, I'd like to now turn the call over to you.

Thanks, Chris and thank you to everybody as always for your continued interest and for joining us today. As Chris touched on, our fourth quarter results rounded out a very successful year across many fronts. Same-store performance included headline results of 5.8% revenue growth and .0.2% expense growth, yielding NOI growth of 8.1% for the quarter. For the full year same-store revenues grew 7%, expenses actually declined by 0.3% to yield a very robust NOI growth of 10.2%. From an investment standpoint, we closed on the acquisition of four stores for 52 excuse me, $52.8 million in the quarter, resulting in a total of 25 stores acquired for the year, totaling $334.2 million. We acquired an additional three stores at CO and opened two JV development stores during the year for a total investment of $133.4 million. In mid-December, we closed on a newly formed joint venture that acquired 13 store portfolio in the New England states for $87.5 million, CubeSmart is a 10% partner in the venture contributing $3.8 million. This structure is identical to several of our recent transactions and allows us to expand our footprint, earn fee income, leverage our operating platform and achieve attractive all in returns on a minority ownership position. In November, we redeemed all of our outstanding perpetual preferred shares at par for 77.5 million. As part of redemption we recognize the non-cash charge of $2.9 million which we do not include in our FFO per share as adjusted. The preferreds were effectively refinanced with a portion of the proceeds raised from our notes offering back in August. In December we announced a 28.6% increase to our quarterly dividend bringing our dividend to a $1.08 on an annualized basis. Based on the midpoint of our 2017 guidance, the increase dividend suggests an FFO payout ratio of 70%. We do not raise any capital there or at the market equity program during the fourth quarter. Our balance sheet is well positioned with only $6 million in debt maturities in '17 and modest maturities of $100 million in 2018. We have the ability to fund our existing development commitments on a leverage neutral basis over the next two years without raising any additional equity capital or utilizing our expected free cash flow. Details of our '17 earnings guidance and related assumptions were included in our release last night. Our 2017 same-store property fully increased by 26 stores or around 6%. Same-store revenue guidance assumes little impact from occupancy and is again overwhelmingly driven by expected levels of asking rates, promotions and discounting activities. Our forecasts are based on a detailed asset-by-asset ground-up approach and consider the impact at the store level if any of competitive new supply delivered in '15, '16, as well as the impact of 2017 deliveries that will compete with our stores. In 2016 our same-store expense growth was a source of very good news throughout the year, as our same-store expenses actually declined by 0.3% as I mentioned earlier. That good news in 2016 creates an awfully high bar, or a tough comps heading into 2017. Our same-store expense guidance reflects our expectation of a return to more historically normal levels of snow removal and seasonal expenses. We also benefited last year from coming in better than expected on real estate taxes. Some of that beat was from successful appeals and some of the bigger increases we anticipated in 2016, we now expect to hit us in 2017. Excluding real estate tax expense, we expect all other expenses as a group to grow in the 2% to 3% range. We remain very pleased with the lease up progress of our newly developed stores and were proceeding likely through the construction phase of our in process development assets. The expected deliveries timing is shifted slightly for a few projects, as is typical, given the complexities of developing in the markets we target. Our development pipeline will create meaningful NAV accretion of stabilization, but of course in the short term it creates a drag to our FFO per share, as when properties open all capitalization of costs and the store opens [indiscernible] with no revenue and essentially a full expense load. Our FFO guidance for '17 is impacted negatively by $0.06 to $0.07 per share as a result of this dilution. Our guidance does not include the impact of any acquisition or disposition activity and as levels of activity and timing are very difficult to predict. Echoing Chris's comments, 2016 was a strong year of execution across all aspects of our business, core internal performance exceeded expectations as our people and our systems continue to demonstrate the ability to deliver market-leading performance. We remain disciplined in executing our focused external growth strategy and also leveraged our operating platform and created future growth opportunities through successful efforts in expanding our third-party management program. We also remain focused on our balance sheet objectives raising equity capital early in the year and attractive valuations to pre-fund our development commitments and also to ensure our balance sheet is set for the long-term there are fourth bond issuance and preferred share redemption. We are well-positioned on all fronts to face the challenges and opportunities that 2017 is likely to present. Thanks again for taking the time this morning to join us and at this time Andrea why don’t we open up the call to questions.

[Operator Instructions] Our first question comes from Smedes Rose of Citigroup. Please go ahead.

Hi, good morning.

Good morning.

Good morning. I wanted to ask you as always it's great to hear a little bit about what you're seeing on the supply front and I wanted specifically if you could cover maybe just your top five markets, which are about 50% of your NOI of kind of how you are thinking about New York, Chicago, Miami, Dallas, and Washington? And then in New York, just also curios of your thoughts of this new PSA [ph] facility that’s I think in the process of opening now, the largest in the country and do you feel like that would have any impact on your New York City assets or do you feel like its kind of out of the area for your typical customers?

Okay. Thanks, Smedes. If you think about supply, and I guess I'll start at the very high level and then drill in for you. So if you start and I'll take the top 12 markets which represent approximately 75% of our 2016 same-store revenue, so you got the New York, MSA Chicago, Miami, Dallas, DC, Northern Virginia, Baltimore, Atlanta, Philadelphia, Riverside, San Bernardino, Houston, Phoenix, et cetera. If you look at those markets by our tracking there were 125 new properties delivered in 2016 and then we expect 180 stores to be delivered in 2017. So if you think about that as sort of a headline for that group of MSAs and then you go one - you dig a little bit deeper. The square foot per capita then in those markets is expected to grow about 5% from 4.6 square feet to 4.9. So then you go a little bit deeper and you take that information and you say okay, how does that you know, relate to the national average, so the national averages is roughly 6.8 square feet per capita. So you're seeing some supply, you are seeing it increase the square foot per capita in these markets. However, these top 12 markets still will be less supplied on a square foot per capita basis then the top 12. So if you start to dig in then and you look at where you seeing significant or square footage per capita growth at its peak, its kind of interesting to me because you literally move away from those top 12 and in the leader in the markets that we track which is about an additionally eight or nine on top of that is Raleigh, Durham, Chapel Hill, which is expected to get a 17% increase in the square foot per capita going from 6.1 to 7.2. That’s followed by Miami, Fort Lauderdale at 8.2% going from 5.08 to 5.49 followed by Dallas Fort Worth at 7.7, you’ve also got the Washington DC, Baltimore, Northern Virginia area at 7.7 and then you have New York City, Westchester, Long Island, North Jersey at 7.4. So that's sort of a one way I think that’s very helpful for us to think about looking at supply. If you just look at the five, and you dig into just the five boroughs specifically you know what we're seeing right now is an increase of new supply that will - that will increase the square foot per capita from 1.3 to 1.6. So while a still under supplied market you know, obviously that math gets you to about a 24% increase in that supply. So we think it is – and again CubeSmart is self supplying a decent percentage of that growth. So New York is going to have to pressure in the near-term on the existing stores to the extent that any of that new supply competes and in New York City many of them will. And so it is manageable, albeit, it will definitely have some impact on the same-store results in that market in the near term. To your question on a very large development, yet our understanding PSA is doing a very large store, much like their drawers [ph] store in Jersey City in and we all expect necessarily a whole lot of people to travel out of five boroughs to Jersey City to store. So we don't see that having a material impact on our New York exposure.

Okay. That’s great. I appreciate it. And I just wanted to ask you just one more question if I could, have you in your transactions when you're looking at of product, have you've seen any sort of change in the quality of products, or in cap rates and in general pricing, as you're looking at things you might acquire?

So if you just look at that since the last time we were altogether in October, the short answer would be no, clearly there is a near term here disconnect between rising cost of capital for Cube and seller expectations which is not closed. And so stating the obvious, either our cost to capital has to come down or seller expectations have to come down, one or the other, but in the interim have not seen much of a change.

Okay. Thank you very much.

Thanks.

Our next question comes from Gwen Clark of Evercore. Please go ahead.

Hi. On the disposition, can you talk about the assets you maybe looking to sell and also the rationale behind it?

Sure. Hey, Gwen. The stores that we - first of all, we look at markets where we don't have adequate scale, and don't see it half to adequate scale. And so there are few small Southwest markets that we are considering for exit. And then on an individual store basis, we always rack and stack our portfolio. We look at those that fall into that bottom quartile AND evaluate what the hold IRR would be relative to selling at a market cap rate and redeploying those proceeds. We have some stores in the middle part of the country, in the Midwest that meet that criterion and we would explore disposition of those stores.

And do you have an idea what the pricing on those would be?

Now too early to tell you know, if I had to pick a range it would be a large range, but somewhere between six and seven cap is probably the range we would respect to trade.

Okay. Thank you very much.

Yeah.

Our next question comes from Juan Sanabria of Bank of America. Please go ahead.

Good morning, guys. Thanks for the time. I was just hoping if you could speak briefly about what your expectations are for new lease growth and renewals and I think Chris you started out by saying 2017 is off to a kind of solid start, if you could quantify, kind of what that means and any way that [indiscernible]? Thank you.

Sure. So I guess I'll take it – good morning, Jaun, I'll take it backwards. In terms of 2017, January was fantastic and I'm not usually this bubbly, but rentals over January of last year on a same-store basis were up 7%, and it was our best net rental performance, rentals, plus vacates in our history as far as we could go back for the month of January. So January was extremely strong from a demand perspective and in line with our expectations on a vacate perspective, which ended up with a great result. From a pricing perspective, today effective rents approximately 1% higher than they were at this point last year. So again, great rate on the demand, about 1% on the effective rent side. As we go through the year, you know, I think as I said in my opening remarks, the opportunity on the discount side is reduced. If you just think about the pattern of discounts as a percentage of rents for CubeSmart over the past year, you know, we saw the middle two quarters of year. Q2 and Q3 where that was at 3%, we saw in Q4 at 3.5% which was a 30 basis points contraction from levels we experienced in the fourth quarter of 2015. So we were able to continue to bring down discounts to really historically low levels throughout 2016 and would anticipate in our modeling for 2017 that you know there's not much of that opportunity, not much of that opportunity left if any. So pricing in the face, you look at inflation and arguably we always feel like we should be able to get something at or slightly above that is a base case, when we think about renewals the - rate increases the existing customers, that process hasn’t changed and we've seen no change in customer behavior, we continue the model of passing along increases at the six month and every 12 months thereafter and they've ranged or they have quite wide range, but they've averaged in the high single-digit percentage increases.

If I heard you right, Street rate growth should be kind of inline or slightly above inflation?

You know, that’s what we would target as a top line, again that comes in a question and where you see discounting, and you know, as I said I would expect that to be in a range from either kind of at what we were able to do in 2016 or maybe we need to open that funnel up a little bit more as we go through 2017.

Okay. Just one more quick question from me if you don’t mind there, any early thoughts or views on how 2018 supply could stack at, do you think it could be higher than the levels you are seeing in '17 or expecting '17?

I if you again look at the 12 markets that we talked about at the beginning and you look at what we would see as anticipated openings in that year, it’s starting to look like 2018 certainly would be no worse than 2017 or no more supply than 2017.

Okay. Thanks a lot.

Our next question comes from Gaurav Mehta of Cantor Fitzgerald. Please go ahead.

Yes, great. Thanks, good morning. So you touched about upon your third party management platform a bit in your prepared remarks and in 2016 you added 115 stores to that platform, so I guess going forward in 2017 what kind of pace should we expect as far as third party expansion a concern?

Hey, Gaurav. I think we would anticipate continuing to grow that program at a fairly good clip, not quite ready to say it’s over a 100 new stores, but I certainly think that we should be able to deliver more than 50. And that's kind of what we see in the pipeline right now. Its a really nice balance of inflow between existing and operating stores where the owner is starting to run up against that occupancy ceiling and is discovering that the absence of the sophistication on managing rate is creating slower growth, and they like in they are contacting us and then we have a nice pipeline of stores that are being contemplated, being developed. And so the real challenging one for us estimate is on the developed side, because as you know, the barriers are high and projects tend to get pushed back. So I think we're going to be in that north of 50. It would be great if we are able to duplicate another hundred plus, but not ready to go there yet.

Okay. Second question that I have is on 2017 revenue guidance, I was wondering if you could comment on how you expect that to trend over the year, are you expecting first half to be better than second half or vice versa?

Hey, Gaurav, yes. This is Chris. Yes, we would – as we sit here today our modeling would expect that the first half of 2017 revenue growth is higher than the second half of 2017 revenue.

Okay. And then lastly for the acquisition that you're targeting $25 million to $75 million in 2017, is that one wholly-owned acquisitions or it also includes any assets that you may acquire by JV?

Yes, we don’t get into that specificity, but it could be either I guess, is the right answer.

Okay. Thank you.

Our next question comes from Ryan Burke of Green Street Advisors. Please go ahead.

Thanks. Chris, are you able to specifically quantify what rent and occupancy assumptions are underpinning the same store revenue growth guidance, you’ve talked about it sort from a qualitative perspective, but some quantification would certainly be helpful for everyone?

Hey, Ryan. It’s actually Tim. Embedded in that range is very little impact from occupancy. So our same store revenue guidance is almost entirely based on our expectations or our ability to grow net effective rate.

Okay. So maybe slightly positive to flat occupancy, as opposed to occupancy loss, right?

Yes, I think it's in a range from – if there is an occupancy loss, it’s a very small one, two, if there is an occupancy gain it’s a very small one.

Okay. And you role in a relatively similar, both number and dollar value of properties into the same-store pool, this year as you did last year, is it going to have a major impact on your reported growth, revenue or NOI?

No, not in a material way. I think it’s slightly additive, but it's pretty immaterial difference.

Okay. On the acquisition size, the 13 property portfolio, that that was the Casey [ph] portfolio and you acquired it in a joint venture, but alongside an existing JV partner, is that correct?

That’s correct.

Same structure.

Would you have – if you had a more favorable cost to capital right now, would you have been more inclined to buy that property or that portfolio outright or how does that process work between you and the JV partner?

Yes, it really was very similar to the two other deals that we had done. There were a portion of the assets that were attractive to us from an on balance sheet perspective, it was not a – it was not a transaction that we were able to parse the portfolio. And so we elected to have the conversation with our partner as to their interest and obviously they were interested and we transact it. If we were forced to acquire – if the only option was to acquire the entire portfolio on balance sheet, I don't believe we would have.

Okay. And should we take from your earlier comments that you probably would have paid a similar cap rate 12 months ago on that portfolio, as you alternately paid in December?

Yes, plus or minus, yes.

Okay. Thank you.

Thanks.

Our next question comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Hi, thanks. Good morning. Just circling back to discounting and concessions, you said that there's not much of an opportunity there in 2017, that 2016 marked the trough. What's the impact to revenue growth you know, in guidance for 2017 from discounting and free rent?

Yes, not much, when we look at our expectations for '17 you know, that’s as I said, flat to maybe a little bit more aggressive on the discounting side, but it doesn't have a meaningful impact on our modeling few basis point.

Okay. And then, in the supplement where you show five quarters of scheduled annual rent per square foot, which is asking rents. Two questions I guess, first, is that a quarter average or is it end of period snapshot? And then that spread versus the realized annual rent per occupied square foot has been narrowing a little bit, it was just 2.9% in the quarter, about half of what it was in the fourth quarter of last year and I'm just curious what we should be reading from that trend if anything?

The calculation is the average of the month and asking rents for the three months within the quarter. And I think the narrowing simply reflects the more aggressive increases to the existing customers relative to the case of increase in that schedule rent to new customers.

Okay. So with that spread narrowing, does that impact the pool of customers that you would be increasing rents to existing customer rent increases and and/or the rate - of rate increases across the - that segment of a portfolio?

No, not materially, because again its rooted in that – and the fact that the cost to vacate or the cost to relocate to that customer is fairly significant, not only the financial cost, but the time and energy and most customers again perceive that they are only going to be in the space for a short period of time once they get that rate increases. At some point you can't be passing along or you're more sensitive about what you have so long relative to today's market. But you know, very similar to cell phones or other cable television, you know - the deal being offered to the new customer or people seem to accept is unique to that new customers proposition.

Okay, got it. And just lastly, your comments about how revenue growth should trend throughout the year, you said it will be higher in the first half, relative to the second half. Are you expecting it to stabilize by the end of the year or do you think there could be a little further softening as we head into '18, just given the new supply pipelines that you are seeing in some other trends that you're thinking about?

I mean, right now its expected to stabilize as we get into the last half of this year, if we just focus in on July through December, not ready yet to prognosticate on a team will have a much better feeling as we see how we move through the first part of this busy season.

Okay. Got it. Thank you.

Our next question comes from Jeremy Metz of UBS. Please go ahead.

Hey, guys, good morning. It’s been already been addressed, I was just wondering did you happen to mention all the impact on the revenue side from the change in the same store growth?

Yes. Hey, Jeremy. It’s Tim. We touched on that briefly with only 25 stores and 6% it has a very, very minor positive impact and you'll see that as we report all of the different pools as we go through the year, I think it might be 10 basis points more because of the added stores, but nothing material.

Okay. And I did want to stick the revenue trajectory, I guess I would have thought if anything given the really hard comps you guys are facing in the first half of the year that it would have accelerated here, you know, probably started lower and accelerate in the back half of the year. I guess that’s not exactly what's happening. Is that somewhat you said you get a little further along here in the year and occupancy starts to narrow and maybe some – you talked about discounting as supply comes on, is that what should really kind of drive that sort of starting higher in the first half and slowing a little bit more towards the back half of the year, is that the right way to be thinking about, what are the trajectory, what's impacting it?

I think its – if you start to oversimplify things and just say there's zero, just for illustration, zero impact of occupancy, zero impact of discounts and ultimately you're just following how increases to Street rates or move-in rates flow through over time, given up six month medium length of stay and a 13 month average length of stay. You go back to the middle part of 2015, when we had the second and third quarters had our highest levels of ability to push on Street rate. And so the three and four quarters that followed that benefited from the impact of those very, very high levels of Street rate growth in the middle part of '15 flowing through and as the ability and the levels at which Street rates have grown has come down from his record level in middle part of '15, that just has a lower rate of growth, then coming through in the quarters that follow. So I think - I think over simplistically that's what you're seeing and that’s the deceleration if you will, is the flow-through impact over time of the way our ability to push on rent is flowed.

And Jeremy, this is Chris, I think the other component to that is again, we sit here, we know how January played out and feel like we can be more accurate in how we think about changes in effective rents here in the near-term, you get out into July through December and you're going to have to be cautiously optimistic about how things go there and we'll update as we go through the year.

All right. Appreciate that. And just you know, one more for Tim, just in guidance you talked about some long-term capital funding for the debt maturities you have coming up and some of the CO deals and developments, so I am just wondering, should we think about that in terms of a possible unsecured offering here, maybe early end of the year?

Yes, I think there are a range of potential things, starting from my other comment, that we don’t have to do anything, we're in great position. We have a lot of capacity under our line. We have – I am sorry Jeremy, I am getting a lot of background noise.

Yes, sorry.

Okay.

I don’t if that was yet - I was just trying to figure out how we should think about if there should be a better bond offering that’s baked into guidance and that’s something that maybe a little bit of drag down on numbers and how we should think about some of those sources in use of the capital?

So on one end, we would do nothing, on the other end as we have done over the past couple of years, we will opportunistically look at our balance sheet, look at $100 million that we have maturing next year, look at the potential impact or opportunities that the Barclays index going from 250 to 300 and whether that crates any opportunities for us to access that market. And so are our guidance range contemplates a lot of things, including us doing nothing to perhaps as being opportunistic on continuing to be mindful of extending and looking at our debt maturity profile and also minimizing our long-term cost of debt capital.

Great, thanks.

Thanks.

Our next question comes from Ki Bin Kim of SunTrust. Please go ahead.

Thanks. First off, when you see net effective rents were 1% positive, is that just rebates or is that combining changes in promotions?

That’s combining changing in promotions.

Okay. Thanks. And just going back to your guidance, you touched on a lot of points, but maybe you can help clarify, you how much are you expecting Street rates to grow in 2017 and how much contribution does existing customer rate increase program make to that same store revenue guidance?

We don’t specifically guide to the components for Street rate we touched on earlier, we touched on the fact that occupancy is likely to provide very little impact in total of our revenue growth. We touched on the fact that levels of discounts are expected to have a very small contribution. I would add to that, that the impact of passing along increases to existing customers, given the fact that we have done those increases very consistently over the years, both in frequency and in dollar amount in total across all customers who receive an increase, that component is also likely to be a very small contributor. So what you're left with then is the combination of Street rates, Street rates, discounts, promotions, and our ability to push on those, not only this year, but the impact that flows into '17 from our ability to do so last year.

And I think that’s maybe a tricky part for I want to understand is that, are you saying that because of your existing customer rate increase program has been consistent over the past few years that, we look at the people who get it, and people who leave and go down to Street rates that the contribution to same store revenue growth is over time comes down to very low numbers, is that correct?

Yes, its additive to revenue, its – you get into that esoteric conversation of its not as additive to revenue growth rates as some people might think, but its certainly additive to revenues. If you were to stop doing it, it would be pretty bad, your revenues would decline and your revenue growth rate would decline. But if you're consistent in your approach, the overall impact to growth rates is pretty limited.

Okay. And just last one here. You mentioned that January was pretty good. Can we just take that to understand that your occupancy should benefit so far in the year versus where you ended in the fourth quarter? And is there anything that you did differently in terms of you marketed your asses to get that uplift?

Yes, to the question that it was additive to occupancy. We had a net positive January. It was the best net, as far back as we could go. I think it's a combination of finding the right price for the customer, obviously there has to be some impact in markets from what competitors maneuvers may have been and a continued improvement in our ability to get back customers eyeballs on the front end and then continue to convert them into a reservation and ultimately around. So it's - its one of the challenges in our business is the month-to-month changes in the movement, it could look at weather, absent Maine through Massachusetts, we had a relatively mild January across the country. We didn't have significant storms outside of that region. And so you had – you had or had some benefit from that. February is going to be interesting because we lose a day, last year was a 29 day month and we had a pretty significant amount on rentals on that last day of February in 2016. We won't have that extra day here in 2017.

Okay. Thank you, guys.

Thanks.

Our next question is from George Hoglund of Jefferies. Please go ahead.

Hey, good morning, guys. Since you maintained a very conservative balance sheet, you are well-positioned to be opportunistic if some attractive acquisitions, opportunities or distress comes to the sector. One, what's the likelihood you think some attractive opportunities come up, or that’s just more just stress? And then two, assuming there isn't – if that doesn't come to fruition and pricing maintains very competitive on assets, do you look at potentially doing a share buyback since you have the strong balance sheet or increasing your appetite on the development you see in both side?

Hey, George, good morning. Its Chris. I'll take them backwards. I think the exposure we have at this point in the cycle relative to our balance sheet size from a development or speculative acquisition perspective is where we're comparable. I don't anticipated all that we would choose to ramp up the exposure at this stage in the cycle. In terms of a share repurchase, we have a plan in place. We have had one place for quite some time. We have never elected to use it to date. But certainly that is in the tool belt. However, I would put it this way. I do not perceive us levering up in order to execute on a share repurchase program. And then in terms of your first question, how do we see the opportunities playing out for somethings that look very attractive, we'll put it that way, I think its just going to be some time period here before we see those type of thing happening. I think you've got a few markets, I named a few of them in response to the first question, that are going to experience in the near-term a significant submarket level of supply, I think those stores are going to obviously compete against one another, along with the existing supply in the market. I think there is going to be some lower than anticipated lease up and again I think we want to be in position and have the balance sheet in great shape within to take advantage. I would suspect that that duration of time for capitulation is going to be longer than 2017. I would think that more likely is a 2018 opportunity.

Okay, thanks. And then just one more, in terms of the New York market or in the greater New York Metro area are your able to give any sort of guidance around or just a range around potential same-store NOI outcomes in '17?

Yes, we don’t tend to want - go in market-by-market and dig into that level of detail. But from a general 30,000 foot kind of perspective, our expectation for next year in New York is going to be positive NOI growth, positive revenue growth at a level that will be below our expectations for the same-store pool as a whole.

Okay. Thanks, Chris.

Thanks.

Our next question comes from Jonathan Hughes of Raymond James. Please go ahead.

Hey, good morning. Thanks for taking my questions. I don’t think I heard this, maybe personally you didn’t say it, but what percentage of your tenants are both Street rates?

Wow! I am going have to guess for you on that one, it’s not a number I have off the top of my head, as I am going to guess is 60%...

Okay, 60% above the current Street rate, Street…

That’s a huge guess.

Okay. And then I guess searching to the expense side, you mentioned guidance of 2% to 3%, excluding property taxes and I think that implies something like 7% to 8% tax hikes for the years, is that right?

Yes.

Help me, how aggressively are you feeling some of those tax increases, I know you said that you had some success last year and that would impact this year, but just curious if that gets skewed to the downside if you get more aggressive in success or on fighting some of these assessments?

Yes, its - we have been for many years, very aggressive looking for opportunities or looking for areas that we think are you know, assessments that are too onerous where we think we have good data to go and fight and appeal and challenge. Oftentimes those challenges it’s not a quick process, in a lot of places it takes - it takes oftentimes multiple years to get resolution. But candidly we're not fighting any harder today than we always have been, it’s always been an area of focus and we dedicate a fair amount of resources to doing it. It’s a big line item that we're continually focused on.

Okay. And then switching to acquisitions, could you just let us know what the spread is that you're underwriting or expected yields for CO deals and development, project versus stabilized acquisitions and if that’s moved over the past 12 months?

It has expanded out a little bit. I would say the one additional deal that entered the pipeline in Florida, we had some enhanced expectations on that spread in order to transact. So you know, that one, you know, no more looking at a 250 basis point spread to stabilize in that market. On the developments you know, those have stayed in the 225 to 275 kind of range.

And where was that – so that spreads been, I guess, the onerous [ph] has been to the upside over the past 5, 6 months?

Yes, slightly, not a big move, more lack of transaction.

Sure. And then looking at some lease up of properties in and around Dallas, it looks like that you've kind of slowed in the quarter and obviously some of that’s due to seasonality, but you were there any new openings in direct competition of these properties, and you know Chris you mentioned Dallas in your supply projections in your first question, but you know, how many of those 180 opening in 2017 are in the Dallas area?

Yes. The two stores leasing up in Dallas were not impacted by any additional supply of one, was impacted by road construction around the store. So as part of the development in the submarket there is quite a lot of road construction and infrastructure, as well as multifamily construction and that has made it challenging to access the store, when we originally entered our anticipation was that most of that work would be finished simultaneously with our opening of the store. I mean, actually the stores opened prior to all that being finished. So that’s more of a contributor, they are not supply. In terms of new supply in Dallas, relative to that 180 we're seeing about 60 stores in the in Dallas and Fort Worth.

60 and then would you mention, I guess, like how many stores are in that entire market?

I am sorry, I misspoke, its 28, 28 stores in Dallas, Fort Worth. Is part of that 180.

Okay. All right, that’s it from me. Thank you, guys.

Yes. Thanks.

Our next question comes from Paul Adornato of BMO Capital Markets. Please go ahead.

Hi, good morning. I was wondering, if given the higher level of incentives and perhaps more volatility in rate, that we might see a return of greater seasonality throughout the year?

Yes, great question. Paul. Good morning. I think the muting of seasonality has had more to do with the divergence on the marketing side of the equation and it has had to do so much on the pricing side of the equation. I think you’ve seen muting of seasonality because again, if you think about it simplistically you need at ten by ten in July and you go online and search in your ZIP Code, the likelihood of the major brands having one available is low, and so you continue your search till you have a need, until you locate a store that meet your needs. When you get into the shoulder seasons and you go online try to find a – you try to find a ten by ten, the larger brands usually have some availability and they tend to take that customer. So I think it's more - the muting is been more the ability to have a larger brand taking more than their share of demand in the softer times, the slower times than it has necessarily had to do with price.

And looking at the development I was wondering if the development model is -- will change going forward, you know, there used to be no appetite for development of any kind in the storage industry. I was wondering if we might see more C of O deals versus joint venture? How do you think about the risk profile of development going forward?

Thanks. Again, I think when you really look at it, the impact to your FFO or your P&L from adding a property is the same whether you buy something that has been purposed built for you and built to suit type of arrangement and you acquire it empty or if you develop it yourself or with a partner and acquire it empty, the impact to the FFO per share in the P&L is the same, you're dealing with a - as Tim noted, the store that’s empty and has no revenue, but has a full expense load. The difference is obviously on the risk side, taking a lot more risk as soon as you try to purchase the land and put a shovel in the ground - on the pure development side then you are in the built to suit. I think industry wide as we move forward, I still think the vast majority of stores that will be developed will be developed by the local entrepreneur. That's been the case, I don't see that changing. I think when you look at the impact that the REITs have had on supplies from a development perspective or even from REITs buying stores in that build to suit type arrangement it's really been a de minimus portion of the overall growth, I think if you count all the CO deals that have been at least announced by the REITs, you are talking about less then 20, relative to the volume of new supply that have been tossed around. So I think again it just a difficult model for a national plan and I think it will always be a more around local market entrepreneurial business on the development side.

Great. Thank you.

Our next question comes from David Corak of FBR Capital. Please go ahead.

Morning, guys. Most of my questions have been answered but just on expense growth. You sort ever answered this but I'm going to ask it any way. If the snow removal and property tax increases were to end up comparable to 2016 levels, where would your annual expense growth number shakeout?

Somewhere in the 2% to 3% range, probably hovering, yes,

Towards the 2.

Okay. Okay. So comparable to what you said before. Okay. Fair enough. And then appreciate your comments on environment but have you seen a material move in any particular market and what seems to be driving that if you have?

Yes, we have not, I think you’ve seen the REITs deal with a change in our cost of capital by being more selective and demanding, you know a higher yield. We've yet to see sellers match up with those demands and I think in the secondary and tertiary markets you’ve seen the usual suspects on the private side, those folks tend to be the more levered buyers and frankly the cost of that capital hasn't moved that materially I just think going forward, you see the types of growth that is being expected. I think that puts pressure on underwriting. I would suspect that people start to reduce their expectations in terms of how rapidly they can grow rate. And I think that probably creates an environment where a significant number of deals just don't get done, particularly on the development side,

Okay. Great. And kind of on that front, do you think there is a shift in the development opportunity set from primary to secondary tertiary markets or vice verse or a shift…

Well, you know, again, I touched on Raleigh-Durham as a decent amount of supply coming on a per square foot basis. I think, again, its certainly easier to develop in the lower barrier to entry markets, may be more conducive again to that local entrepreneur, arguably a lower land cost, which means a lower all in cost, which bring down, they just sheer dollar amount of equity that that developer has to bring. So I – we don't track the tertiary markets. But I would suspect you would see some continuing activity in those markets.

Fair enough. Thanks, guys.

Next we have a follow up question from Ki Bin Kim [SunTrust] Please go ahead.

Thank you. Just a quick one. Is your schedule of rents that you disclose in your subs, is that weighted average or simple average? Meaning are the properties that are more -- are higher in rent like in New York do they have a bigger weighting or is that just simplified?

That question is almost above my – almost above my pay grade there Ki Bin. I think the right answer is, it’s a weighted look at the rates the way formulae works. It’s not a simple average to weighted average.

Okay. All right. Thank you.

Sure.

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

Andrea, thanks. Hey, its Tm Martin first, I wanted to go back Smedes had touched on many, many questions, he had to turn something out there, but I just wanted to get back to and that was that 50% of our NOI comes from markets that are thought to be or noted as high supply markets and I think that is - we've heard similar statements to that the in past and I wanted to provide a little bit of additional color on our thoughts around the impact of new supply and its potential impact on our 2017. Embedded in our same-store guides expectations is the impact that competing new supply will have an impact on our stores. In our ground the property level budgeting process, about 25% of our stores are same stores, reflect the impact of competing new supply that came online over the last two years or we know is going to come online in 2017. So that 25% of impacted same-store's is up from last year when approximately 15% of our stores were impacted by new supply and when competing its new supply we typically see pressure on rates, while, don't chase all the way to new competitive pricing. We will typically low our price or bit slightly more promotional to remain competitive. Occupancy is tend to hold flat or decline slightly during the lease up of the competing asset and so the impact on individual store varies sometimes greatly depending on many factors, including the relative amount of new supply coming in that submarket, along with the pricing approach of that new competitor. So when considering all of those factors, on asset by asset basis when we do our budget, revenue growth on the supply impacted stores is expected to be about 200 to 250 points lower basis points lower than revenue growth on the un-impacted stores. So that may be helpful for process think about how to get your minds around the impact of new supply, perhaps a little bit different way than it is often discussed. So hopefully that's helpful from a modeling perspective. So Chris I'll turn it to you for final comments.

Okay. Thanks. Tim one correction is a question on the on the percentage of customers who were above current street rate I get 60%. The answer is it actually 51% of our customers so I meeting that description today, so I'll want to correct that for the record, thank you everyone for participating in the call. I think to paraphrase, I believe Mark Twain, the rumors of the demise of self storage, I think we're greatly exaggerated. We feel very confident heading into '17 that we will be able to navigate these choppy waters. We appreciate everyone taking the time to participate in this call. We look forward to seeing you at the various conferences over the next couple of months and talking to you again when we report first quarter 2017 earnings. Thank you and have a great day.

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