CubeSmart 2026 Q2 Earnings Call

Good morning, everyone. Welcome to CubeSmart's second quarter 2026 earnings call. Participants on today's call include Chris Marr, President and Chief Executive Officer, and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the investor relations section of the company's website at www.cubesmart.com. The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements.

The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K and the risk factors section 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, Josh, and thank you everyone for joining us this morning. 2026 marks a year of inflection as we return to positive growth throughout the year. Following a stabilization in operating fundamentals in 2025, we saw same-store revenues inflect positively in early 2026. Our base case expectation is for continued acceleration in revenues that will lead to a return to positive earnings growth in the second half of 2026, providing a strong setup entering 2027. Our key performance indicators are flashing green, showcasing the resilience of the self-storage business and the value of having such a wide range of need-based demand for our product, benefiting us from not being overly reliant on any one source. Same-store revenues continue their positive momentum, reflecting the strength of our customer base, the declining impact of new supply in many of our core markets, and the quality of our portfolio and operating platform.

Macro volatility is impacting the U.S. consumer. However, our customers' health remains strong, with lower vacate activity, elongating lengths of stay, and continued solid credit metrics. This environment continues to showcase the strength of our quality-focused strategy, with primary markets outperforming and showcasing their lower beta characteristics. We had a positive and productive spring and summer busy rental season, closing the occupancy gap to 2025 by the end of June, and that momentum has continued into July. Second quarter move-in rates for new customers at a year-over-year positive 1.7%, improved sequentially by 80 basis points, and all other factors held constant, provides an attractive setup for the back half of the year and heading into 2027. There continues to be a wide dispersion in move-in rates for new customers across our major markets. Strength continues in the Acela Corridor, Boston, Stamford, New York and Philadelphia.

In the Midwest, Chicago, Columbus and Cleveland. Very positive improving trends in our West Coast markets with our Inland Empire and Los Angeles properties exhibiting very strong sequential improvement and swinging second quarter same-store revenue growth on a year-over-year basis back into positive territory. With another solid quarter of sequentially improving trends, we are optimistic for continued gradual recovery in our major Sun Belt markets. These markets are experiencing the most pressure from supply as well as macroeconomic factors impacting the consumer, resulting in a challenging new customer pricing environment. We have maintained our disciplined capital allocation strategy. During the quarter, we executed against several objectives we articulated earlier in the year, including a new joint venture, the continued execution of our share repurchase program. The recast and increased capacity in our credit facility.

I know Tim is very excited to share the details with you during his prepared remarks. As we come to the end of July, our rental volumes are elevated over last year. As of July 30, our same-store physical occupancy is 91.1%, a 30-basis point increase over July 30, 2025. Our pricing algorithms have informed us that it is optimal to maintain seasonal pricing trends and build physical occupancy as we move into the fall. Self-storage remains a tremendously resilient business as we continue to benefit from the diverse set of needs-based use cases for the product, even against a backdrop of volatile consumer confidence. We are optimistic about the outlook for our business as we continue to see steady acceleration and fundamentals.

Our high-quality portfolio, our sophisticated operating systems, and our customer service-focused team are well-positioned to continue to drive us forward as we inflect back to positive earnings growth in the second half of 2026. I'll now turn it over to Tim for more details on the quarter and our positively updated guidance ranges.

Tim? Thanks, Chris. Good morning, everyone.

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

Same store operating expenses grew 4.4% over last year, in line with our expectations. As we previously discussed, we had some tough expense comps after four straight years of industry-leading expense control, especially in the first half of the year. We modestly improved our full year guidance range for same store expenses to a new range of 3.25%-4.5%, reflecting our expectation of moderating expense growth in the back half of the year. Revenue growth of 0.8%, combined with 4.4% expense growth yielded negative 0.7% same store NOI growth for the quarter. We reported FFO per share as adjusted of $0.63 for the quarter, which was at the midpoint of our guidance entering the quarter.

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

This initial transaction in the venture provides the seed portfolio with the opportunity to grow in the future, giving us yet another avenue for future external growth in addition to our on-balance sheet activity, as well as our previously announced JV with CBRE. Proceeds from the transaction will be used to fund share repurchases, giving us a leverage-neutral opportunity to accretively invest in our shares as they trade at implied valuations that are disconnected from where high-quality storage assets are trading in the private market. We had additional share repurchases during the second quarter, totaling $42.5 million, bringing us to $75.8 million year to date, with much of that activity done with the Heitman JV in mind. The relative value of our portfolio has continued to make it our most attractive investment option.

On the third-party management front, we added 25 stores to the platform in the second quarter and ended the quarter with 872 third-party stores under management. Also, during the quarter, we closed on our extended and expanded revolving credit facility, extending the maturity from February of 2027 to June of 2030. We increased the capacity of the facility from $850 million to $1 billion and improved the pricing. Quick thank you to our entire high-quality bank group. We always appreciate your continued support. Our balance sheet's in great shape. We have a bond that matures next quarter, and we've been actively monitoring the debt markets and will continue to do so in the coming months. The expanded capacity on the revolver, combined with no debt maturities in 2027, gives us a lot of flexibility as we navigate through the next several quarters.