Good morning and welcome to CubeSmart's Second Quarter 2017 Earning's Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference call over to Charlie Place, Director of Investor Relations. Please go ahead.

Thank you, Anita. Hello everyone. Good morning from Malvern, Pennsylvania. Welcome to CubeSmart's second quarter 2017 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 second 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, everyone. As we reach the halfway mark of the year, things are playing out much as we expected. As our key metrics including same-store revenue ended net operating income growth along with funds from operations per share continue to be in line with the guidance we provided entering the year. The properties we acquired in 2015 and 2016 that are not included in our same-store pool along with the development assets that have been placed in service and the assets that we have acquired at completion and the certification of occupancy issuance are performing very well relative to our expectations, as we experience significant lease up through the rental season. As a result of our performance through mid-year, we're modestly increasing the midpoint of our FFO per share guidance. Tim will delve more deeply into financial performance and future outlook with his prepared remarks. I will share now what we are experiencing with our customers in our markets and what our extensive research is informing us about new supply on our top markets as well as expanding on our success in adding assets under management through our third-party management program. Starting with our customers, we evaluate the strength of our new customer demand through various metrics. Obviously one such metric is occupancy and at June 30, we set a company record high of 94.6% for our same-store portfolio. Same-store rental volume remains healthy with our year-to-date rentals through June 30 slightly exceeding our rental volume for the first six months of 2016, while year-over-year asking rent growth was muted. It is important to note that we were able to push rates approximately 9.5% sequentially from January through the end of June. We evaluate the health of our current customers through a different set of…

Thanks, Chris and thanks to everyone, joining us for the call for your continued interest and support. We've reported second quarter 2017 results last evening, including a headline result of $0.39 per share of FFO as adjusted and that was at the high end of our provided guidance range and represents 8.3% growth over last year. Same-store results were right in line with where we projected them to be for the quarter. Our same-store revenue grew 4.2%. Revenue growth was mainly driven by 3.8% increase in revenue per occupied square foot along with the modest contribution from occupancy, as our portfolio ended the quarter at 94.6% the highest level in our company's history. Discounts as a percentage of in-place rents were 3.2% for the quarter up slightly from the 3.1% in the same quarter last year. Same-store expenses grew 2.5% year-over-year driven by expenses in real estate taxes and personnel costs offset by year-over-year savings in advertising and insurance cost. The result in same-store NOI growth was 5% for the quarter. So at the midpoint of the year, we can take a look back at our initial guidance for 2017, we expected and continue to expect same-store revenue growth of 3.75% to 4.75%. Our revenue growth year-to-date has been 4.8% so implicit in our guidance is the expectation that same-store revenue growth will continue to decelerate in the second half of the year, no surprise there. When we provided our initial guidance, we mentioned that approximately 25% of our same stores will be impacted by new supply and that the supply impacted stores would trail to non-supply impacted stores by 200 to 250 basis points of revenue growth that is in fact exactly the way it is played out so far in 2017. Our 2017 same-store expense growth guidance remains…

[Operator Instructions] the first question comes from Gwen Clark of Evercore ISI. Please go ahead.

Can we just start out and talk about what you're thinking about in terms of rate growth and occupancy throughout the back half of the year? Specifically for 3Q and 4Q [indiscernible].

Gwen, its Tim. For an occupancy perspective we have, we're currently tracking in July a little bit of a positive compared to where we were last year, but we certainly expect that the occupancy comp for us in the second half of 2017 is much more difficult than the first half or we're able to continue to grow and achieve record high occupancy levels as we mentioned in our prepared remarks, so a bit tougher comp from an occupancy perspective. And your other question was on rate growth. And I think from a rate growth perspective the reality is, that rate growth has as much to do is what we do this year. As obviously as it does, what we did last year. And last year, we were - we reduced rate a little bit earlier in the back half of the year than we expect to this year and potentially at greater amount. So I think we have a tougher occupancy comp and I think we have potentially an easier rate comp in the second half of this year than we have so far in the first half.

Okay, so it seems like as we think about the pace of rate growth, [indiscernible] that you guys saw sequentially from 1Q to 2Q should diminish over the rest of the year?

Yes, I mean I think that is a likely outcome although pricing is something we look at every day, so it's - there are a range of potential outcomes that are contemplated in our guidance, in our expectations.

Okay, that is helpful. Thank you so much.

The next question comes from Gaurav Mehta with Cantor Fitzgerald. Please go ahead.

The following up on revenue, I was wondering if you could comment on, if you expect the revenue deceleration to stabilize in second half or you expect that to spill over into 2018?

Well from a - as I mentioned in my remarks and implicit in our guidance would suggest that revenue growth continues to decelerate in the back half of the year. And then, we haven't provided any 2018 guidance but what we have talked about pretty consistently and Chris touched on, in his remarks is that the impact of supply across the country, across our markets is likely to be a little bit more impactful in 2018 than it was in 2017. So I think that would point directionally to continued pressure/difficult comps as you think about the sectors performance and likely performance in 2018 relative to 2017.

Okay. And I think in your prepared remarks you also talked about valuation gap between private markets and public markets. I was wondering if you could comment on what kind of cap rates you're seeing in your top five markets.

Gaurav thanks. This is Chris. Yes from a cap rate perspective we really haven't seen much movement at all in the last six months from the primary market. So again there is been very minimal trades. Obviously there was a big portfolio in Arizona that traded at a cap rate at or below five, but on an individual asset basis you continue to see seller expectations to be in that five to six cap range depending upon the unique market in the primary markets with no real deal, with no real change. So either deals are not getting done and sellers are taking the property off the market or going back and rethinking their strategy or you've got, you've got some private capital for whom their cost of capital hasn't materially changed going in and transacting.

Okay, thank you. That's all from me.

The next question comes from Nick [indiscernible] with UBS. Please go ahead.

This is [indiscernible] for Nick and thanks for taking the questions. First I guess the follow-up on that last series of questioning. Given what seems to be a lower acquisition market, how would you classify the product that actually is available in terms of quality, location and pricing and you mentioned, the secondary to this that seller expectations in the first to six cap rang and it's kind of precluding deals from happening. So what level of adjustment between buyer and seller expectation you think is necessary in order to enable and increase in activity.

So let me take the second one first. There definitely are assets trading but what you're seeing is the capital being provided to acquire those assets is largely more on the private side than the public side, which makes intuitive sense if you think about the fact that on the private side the equity return expectations haven't really changed and I could argue that their cost to debt capital either hasn't changed or in some cases is it likely gotten a little bit less expensive. I think where - what has to happen obviously going forward to bring the public companies back into the market is obviously a correction in the valuations relative to us and our peers. I think the fact that we're trading at below NAV or published NAV seems difficult to get your mind around given the quality assets and where the private market is pricing. So I think you just have to have a shifting expectations on one side to the other to make this appear to be more attractive. And I think the variable there is simply time.

Okay, thank you. And I guess another question if you don't mind, maybe a more broad question. What are you seeing on the demand front and how are you continuing to attract customers in the face of new supply popping up?

So as I mentioned in my preliminary remarks, we look at a couple metrics as we measure demand and certainly from the rental volume side, as I said rentals were just up a tiny bit from what we experienced in the first six months up last year. So that's one metric that tells us the new customer continues to be very interested in the product. We also look then at the health of our existing customers and as I mentioned, we had fewer units go to auction, right offs or consistent. No change in behaviour on rental rate increases, so I think I think our customer remains healthy movement continues, as it relates to dealing with new supply, it really is an individual store fact pattern, lot depends upon who controls the new supply and how rational or irrational they're about pricing while they're trying to lease up. But we believe that our outstanding customer service and our great locations, wonderful technology, crack revenue management team have done an excellent job in navigating this supply environment, the number speak for themselves were able to put up pretty strong top line growth in phase of the new competition.

Okay, that's all from me. Thank you very much.

The next question comes from Smedes Rose from Citigroup. Please go ahead.

You mentioned few deliveries coming into your top 12 markets next year versus this year. I was just wondering could you share the actual number that you guys are seeing in terms of some of these being delivered this year, next year in your top markets.

If you think about again there is the macro and then there is number that directly compete with a new cube. So in those top 12 MSAs right now we're tracking 77 deliveries in 2017 and 49 in 2018.

And those are for the broader markets and then if there is sort of subset like that you feel is competitive to your facilities.

No, I'm sorry. That was the subset that we feel competitive [indiscernible] - the broader number we're tracking 184 in 2017 and 105 in 2018.

Okay, thank you. And then just on that. Are you seeing any changes in availability, if capital for new facilities is that one reason why we're seeing if you're expecting fewer deliveries next year?

Well I think on the debt side, your major banks are certainly evaluating overall real estate exposure, but your local and regional banks continue to make relationship loan. So they're really lending to the borrower not to the project. On the equity side, I think as we see this current rental rate environment to the extent that rental rate growth remains muted certainly some of these projects are going to have a hard time penciling out their pro formas and drop, we also just see the challenges with zoning and entitlements and deals just drop. So I think it's a combination of all the above.

Okay, all right. Thank you very much.

The next question comes from Juan Sanabria with Bank of America Merrill Lynch. Please go ahead.

Just quick question, follow-up up from Smedes just given your last commentary. Any change given the flatter rents on expected yields on developments and fewer deals upon stabilization? What are you guys targeting now?

No change in what we're targeting, certain markets certainly with where rental rates have moved. Houston would be a great example. Denver would be another. Probably a lot less interest certainly from CubeSmart in looking at any sort of development of buyers [indiscernible] opportunities in those markets.

Okay and what's the kind of average you're expecting to achieve benefit [indiscernible] expectations in the pipeline now.

For what's in the pipeline continues to be depending upon obviously when it was put in the cost base etc. we're 200 to 300 basis points above the stabilized cap rate in the particular sub market.

Okay and then just a conceptual question. Street rates have obviously flattened out. All else being equal, at what point, how long would it take for same-store revenue if occupancy everything else stays flat or same-store revenues to get to that flat street rate growth. If that holds up just theoretical.

I think from a theoretical basis, if you held every other variable constant and street rate growth across the portfolio were to be zero, I would think it would take you somewhere between four and six quarters everything else being held equal until your revenue growth would ultimately decelerate to that zero. Theoretically.

Okay, that's helpful. Thank you. And just one more strategic big picture question, if you don't mind. You guys obviously talked about cap rate differentiate public versus private and just being and just made it your discount to NAV. Any thoughts on kind of strategic alternatives to get that to close whether to be asset sales, buy back or anything else?

So certainly evaluate all of our opportunities to drive value. I think it's worth noting that it wasn't, but about three months ago that we were trading at net asset value. So this is not been a significantly long period of dislocation and we would hope that at some point the market realizes the opportunity to buy a very high quality portfolio by investing in CubeSmart chairs at a great price. But all strategic options around share buybacks are and how to fund them are always considered. Having to question again comes to, we like our leverage where it is and the idea of borrowing to do such a thing would be down the road. Certainly we throw off a lot free cash flow right now that's dedicated towards the completion of our development pipeline, but we could also look at potentially some asset sales although again we really like our portfolio. So as with everything, we take a look at a broad menu of alternatives.

Thank you.

The next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead.

This is Drew on for Todd today. I'm just curious your advertising expense decreased meaningfully double digits. Just wondering if you could talk about what you're seeing or what you're doing differently considering your peers seem to be increasing heads spent and if you could give us some color on that.

Sure. This is Chris. So we had a combination of things in the quarter, some of it is timing. When you look at the fact that we were growing our physical occupancy through the quarter. We were certainly seeing customers are the top part of the funnel and so we elected to throttle back a bit on spend, really sort of knowing we would have those funds in Q3 or Q4, if necessary. So from the Cube perspective we would still expect total advertising costs for the year to be higher than they were last year, but within the quarter it's kind of combination of timing as well as how strong our performance was on the customer attraction side, it didn't make any sense to spend inefficiently.

I see and then just one more, in terms of existing customer rent increases. What was the contribution of revenue growth from those and have you seen any changes in the pool of customers that's eligible for increases?

There really hasn't been much change to - well there hasn't been any change to our approach we still constantly test them and continue to very that our timing and amount of increase is the most effective given other alternatives. The contribution to revenue growth is very, very modest because we have consistently applied that approach for many years and so the contribution to revenue growth is very, very modest because of the consistency.

Got it and what were the rent increases in the quarter?

We tend to push along rate increases in the high single digits at the six-month mark and every 12 months thereafter.

Great, thanks guys. Appreciate it.

The next question comes from Jonathan Hughes with Raymond James. Please go ahead.

This is kind of an extension of the prior one, but a few quarters ago you mentioned that half of tenants were above current street rates. What's that number today and how many of those are eligible for rent increases?

So today a little bit more than half of our in-place customers are below street rate. So again, it kind of goes to my confidence in the fact that we're going to continue to be able to pass along rate increases. Now that percentage is going vary a lot quarter-by-quarter and street rates vary a lot quarter-by-quarter. And I'm sorry, I can't recall the second part of the question. If there was one.

Yes, it was just the percentage of those half tenants that were eligible for increases. I mean if street rates are flat eventually that pool gets smaller and smaller, if it can be passed on increases. Correct?

Tim, why don't you take that one?

No, it's not because it's not - that would imply that we would not pass along rate increase to somebody who was above street rate, which is not the case, we would. We would pass along a rate increase to somebody even if they were above street because our scientist would show that the likelihood that somebody is going to move out, again it's a captive customer somebody is not going to take a Saturday typically to go move out of their storage which is a need based product for what could be an $8 rent increase per month and product that they don't expect to stay in forever, ever and ever. So it's a - you do have a captive audience with most of your customers. So the rent increases are pretty stick, even when you give them to somebody who is already above street rate.

Okay, I mean at some point though like if you say 30% above street, would you not pass an increase?

Again you're getting into sort of specific customer-by-customer across several hundred housing customers. I can give you the example in 2012, we've made a decision to tweak our pricing strategy and at one point I believe we reduced asking rents across the board 10% to 15%. [Indiscernible] willingness to continue to pass along 8% to 10% rate increases to that existing customer pull, it didn't change, it didn't change their behaviour. So while your economic theory I completely understand, you have to put yourself in the shoes of our customers for whom that rate increase is more than offset by not only the value of their time but also they're actually out of pocket cost to hire a mover, to rent a truck etc. so that's kind of to think about it from our customer perspective.

Okay, fair enough and then just one more. I know we always talk about New York given that your largest market, but South Florida is another big one, could you just discuss your Miami portfolio, give us your estimate of supply per capita there and expectations for - deliveries that will compete with your Cube's over the next say 18 months.

Sure. So stores that we have in Miami MSA continue to perform quite well. I think in supplemental revenue growth was up 4.5, I'm sorry yes, up 4.5 and NOI up 5. When you think about what we see from a supply perspective there not surprisingly. Pretty significant ramp up this year relative to 2016. The reality is a good portion of that for better or worse doesn't directly impact an existing CubeSmart store and then we see a pretty sharp drop off next year in terms of those that would compete. So in terms of numbers we're tracking 13 new Cube competitors in 2017 that number dropping to seven in 2018.

Okay, that's it from me. Thanks.

The next question comes from David Corak with FBR. Please go ahead.

Can you talk about your thoughts on the progress made on the [indiscernible] planning in New York and the potential impact that could have on your portfolio?

Sure. David, thanks for the question. It continues to percolate. The ultimate impact is positive. In the context of, we generally are not targeting those zones for new development and it will in fact reduce and already increasingly reduced number of sites eligible for self-storage in the borough. Now the slippery slope is once, once starts to arbitrarily pick on self-storage in that manner, it does open the door for the product to be singled out in other ways and we don't think that's fair. I think there is a bit of misperception in the outer borough is that the self-storage is being built there and that the customers are coming from Manhattan to use it, we don't see that in our portfolio Manhattan customers tend to stay in Manhattan.

Okay and then [indiscernible] I apologize I might have missed this in your prepared remarks. But do you anticipate the supply in the boroughs to be more or less impactful on your portfolio in 2019 versus 2018.

Yes, we would expect it to be less impactful in the boroughs in 2019 versus 2018.

Okay, that sounds good and then, again [indiscernible] what was the same-store revenue growth for 1Q and 2Q, excluding the five stores that you added in the same-store pool this year.

Yes, I'm sorry. I don't have that information in front of me. Yes I'm sorry, I don't have that information. It's certainly something Charlie can follow-up with you.

Okay, sounds good. Thanks guys.

The next question comes from Steven Kim with SunTrust. Please go ahead.

This is Ki Bin. Good morning, everyone.

I never saw you, Steven.

Well, if you don't call me, Ki. So just a couple of follow ups here. The supply growth numbers you gave, what does that look like in a percentage terms above inventory for the sub micro supply radius versus the metro.

Yes the overall growth is about 7%, I'm not sure what sub micro versus metro means.

I mean you gave like stats on the top 12, 77 properties 2017; 49, 2018. Your immediate competing radius then you said 184 and 105 in the product market, that's what I meant.

Yes. And that's about. I'm still not sure what the question is.

All right, so 7% inventory growth in 2017, is that what you're saying?

2016 to 2018 is that growth.

Just to clarify you. The percent of new supply - the new supply as a percentage of inventory.

I don't have that number. I quoted a square foot growth which was I think we said we expected the square foot per capita, although that's not going to direct me into your question either because the population is growing. But in those market is growing from four six to five, if that's helpful.

Okay, yes that's close enough. And the street rate growth that's in your press release. Is that pretty consistent throughout the quarter? Because I know that's usually a snapshot end of the quarter.

Yes, it really is not. I think if you go through each month we would have ranged from at some point we were down for a period of weeks about 2% versus last year and then there was a period of weeks, where we were up a little bit more than 2% over last year, so it kind of bounced around between those two extremes.

Okay, that's good to know. And just last one, I know if you look at the supplemental the scheduled rents are higher than realized in place. Is that a very good proxy for the rent roll down or rent rollup you're experiencing throughout the quarter? So using that number you would assume that you're rolling up rent as people move in and move out.

Not only because of how, it's so dependent upon each individual customer in the size of the Cube that they're renting, so during the quarter we would have overall experience a rental roll down on the new customer. So if you were looking at that implying a rent roll up, that's not the case. It's almost always a roll down because customers are moving out, often times gotten that rate increase. So you're almost always rolling down customers moving out and taking up higher rate than those moving in, but that's - it's always been that way.

I mean yes, that's helpful. All right that's it from me. Thank you.

The next question comes from George Hoglund with Jefferies. Please go ahead.

So a two part question. I guess first part, I mean you guys have seen solid growth year-to-date in third party management business. So first off, if you continue that pace of growth continue back half of year and then second part is, how much of a benefit does the growing third party management business have and sort of muting overall expense growth and you been able to spread cost over larger portfolio and then given just, how you allocate cost amongst assets?

Yes, I'll take the first part of that on growth in the platform and Tim can take a shot at the second part. We would expect to see based on the pipeline that we have continued very strong growth in the back half of the year. Again it's a pretty nice balance between existing open and operating assets and newly developed assets. I'm not sure it's going to match 81 that we brought onboard in the first half, but it could. And so again some of this is going to relate to what may slip into 2019. But if you look out over the next 12 months, we have a very robust pipeline of opportunities that are waiting to enter our platform.

And from a cost perspective, it's an area that you need to look at over a longer period of time, but certainly having 390 additional stores are contributing support your infrastructure you're able to leverage the platform over that many more locations, you've that many stores that are participating in contributing to your marketing efforts, you have that many more stores that allow you to improve your SEO, your Search Engine Optimization because you have more points on the map and so overall there is certainly a benefit from an overall cost structure to having the stores on the platform.

Okay, thanks guys.

The next question is a follow-up from Gwen Clark with Evercore ISI. Please go ahead.

Just really quickly. I'm sorry I think may have missed it. Can you just run through the asking rate trends throughout the borough? And also the markets within Texas.

Yes, I talked a bit about that Gwen in the prepared remarks that across the boroughs we were down very similar to what we saw in Dallas which was about mid 4% range and again that's going to vary from the Bronx being the toughest comp with Brooklyn and Queens being a little bit of a better comp. and then generally in Texas, I did talk about overall Houston down in the high single digits, the rest down in the mid-single digits. So hopefully that's helpful for you.

Okay, so just [indiscernible] often in Dallas they're doing slightly better than Houston.

Yes.

Okay and then within Brooklyn and Queens is one of those beating other.

Within Brooklyn and Queens we're seeing, Queens definitely a little bit better than Brooklyn.

Okay, thanks. I'm sorry if I missed that in the opening remarks.

No worries. Thanks.

No worries. Thanks.

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

Okay. Thank you all for participating in our call. We remain very committed to the strategy that we've consistently articulated. Maximizing our internal growth opportunity through outstanding people who provide industry leading customer service and continuous improvement in our systems and process. Maintaining a conservative capital structure, balancing maximum flexibility with the lowest possible cost to capital and being disciplined in our external growth, continuing to focus on owning and operating high quality assets and high quality markets. We believe all of this will result in significant value creation for our long-term stakeholders. Look forward to talking to you at the end of third quarter. Thank you.

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