CubeSmart's Q3 2025 Earnings Call: Contradictions Emerge in Customer Behavior, Occupancy, AI Leads, and Discounting Strategies

Date of Call: October 31, 2025

Financials Results

• Revenue: Same-store revenues declined 1% YOY; same-store NOI down 1.5% YOY; guidance implies negative revenue growth in Q4 but acceleration from Q3 at the midpoint.
• EPS: $0.65 FFO per share, as adjusted (reported for the quarter)

Guidance:

• Full-year FFO per share as adjusted midpoint raised by $0.01.
• Same-store revenue growth midpoint improved; Q4 still implied negative revenue growth but accelerating vs Q3 at midpoint.
• Expense growth guidance midpoint revised to +1.5% for the year.
• Revised same-store NOI midpoint of -1.25% for the year.
• Expect stabilizing trends to continue into year-end, putting the company on improved footing heading into 2026.

Business Commentary:

• Stabilizing Market Trends and Revenue Growth:
• CubeSmart reported a positive 2.5% move-in rate year-over-year for the first time since Q1 2022.

• This stability is attributed to diminishing impacts from new supply, improved pricing environments during the busy rental season, and the continued health of the consumer.

• Same-Store Performance and Financial Results:

• Same-store occupancy decreased by 80 basis points to 89.9%, while same-store operating expenses grew by only 0.3% compared to the previous year.

• This was due to keen focus on expense control and favorable variances in utilities and property insurance following a successful renewal.

• Increased Pricing Power and Move-in Rates:

• The company's average rent per occupied square foot increased by 2.4% quarter-over-quarter and was flat year-over-year, outperforming peers.

• This was supported by strategic marketing efforts and portfolio construct, with notable improvements in markets like New York City, Washington, D.C., and Chicago.

• External Growth and Acquisition Activity:

• CubeSmart is under contract to acquire three stores in the fourth quarter and completed a joint venture development in Port Chester, New York.

• This expansion is driven by favorable variances in external growth opportunities, with the market becoming more constructive due to improved return expectations.

• Balance Sheet and Capital Strategy:

• The company successfully issued $450 million of 10-year senior unsecured notes, indicating strong support from investors.
• This issuance was part of a strategic capital plan to extend maturities, maintaining conservative leverage levels with a net debt-to-EBITDA ratio of 4.7x.

Sentiment Analysis:

Overall Tone: Positive

• Management described a “very solid third quarter,” reported FFO/share (adjusted) of $0.65, raised guidance at the midpoint, and repeatedly cited “stabilizing trends” and “encouraging signs” (move-in rent improvement and contracting occupancy gap) that should improve footing into 2026.

Q&A:

• Question from Samir Khanal (BofA Securities): How are you thinking about the balance between rate and occupancy right now as you try to get new customers in the door?
  Response: The company optimizes rate vs. occupancy by market: urban ‘rock star’ markets (NYC, DC, Chicago) are getting both rate and occupancy gains, while sunbelt markets (Atlanta, Phoenix, Cape Coral, Charlotte) remain more price/occupancy constrained.

• Question from Samir Khanal (BofA Securities): Can you provide color on October trends—what were you seeing in October versus the quarter?
  Response: As of late October the occupancy gap narrowed to ~100 bps YoY and October average move-in rent growth was about 1.9% (versus ~2.5% for the quarter).

• Question from Viktor Fediv (Scotiabank): What percentage of leads and bookings are AI-influenced today, and how does cost per AI lead compare to traditional search?
  Response: Leads from LLMs (primarily ChatGPT) are under 1%; no cost-per-lead comparison was provided.

• Question from Viktor Fediv (Scotiabank): Have merchant-builder sellers intensified recently and what does that mean for your acquisition pool?
  Response: No material change observed; some 2022-opened developers are underperforming versus pro formas but sellers and lenders are generally cooperating, so no surge in distress-driven supply.

• Question from Todd Thomas (KeyBanc): Given improving trends, do you expect the improvement to continue into early 2026 and when might same-store revenue inflect positive?
  Response: Assuming consumer health and macro remain stable, trends should continue; management conservatively expects same-store revenue to inflect positive likely in the back half of 2026.

• Question from Todd Thomas (KeyBanc): Did Cube participate in promotions or change discounting strategies during peak season?
  Response: No—the reported 2.5% gross move-in rate increase is also net; promotional levels have not changed.

• Question from Todd Thomas (KeyBanc): Are you changing promotional offerings going forward?
  Response: No.

• Question from Juan Sanabria (BMO Capital Markets): What are you seeing on the acquisition side and appetite to increase external investments?
  Response: Appetite steady; three stores under contract today; buyer return thresholds unchanged but seller constructiveness has increased modestly so some deals are progressing.

• Question from Juan Sanabria (BMO Capital Markets): What allowed you to push rent per occupied square foot relatively stronger this quarter?
  Response: Stronger in-place rents reflect portfolio/asset quality, focused strategy and normal seasonality between Q2 and Q3.

• Question from Eric Wolfe (Citigroup): Why might same-store revenue not turn positive until back half of 2026 despite 2%–3% move-in rate growth now?
  Response: Because of the math: 4%–5% monthly churn means it takes many months for improved move-in rates to flow through the rent roll.

• Question from Eric Wolfe (Citigroup): Does the move-in rent metric include promotions or is that separate?
  Response: The 2.5% move-in rate is gross and for Cube is effectively net because promotions have not changed.

• Question from Michael Griffin (Evercore ISI): Have you seen changes in new-customer behavior or a return of homebuyer-driven customers?
  Response: New customers in urban markets are less price-sensitive and allow higher new-customer rents; homebuyer-driven demand hasn't materially reappeared broadly and sunbelt markets still face supply pressure.

• Question from Michael Griffin (Evercore ISI): Any change in ECRIs or customer sensitivity to rate increases?
  Response: No change—customer health remains generally good, ECRI behavior consistent, and strategy unchanged in 2025.

• Question from Ravi Vaidya (Mizuho): On the third‑party management business—why did stores come off and should we expect net increases?
  Response: Adds remain healthy (130+ stores added this year); net count is unpredictable because stores often leave after asset transactions; management focuses on controlled additions.

• Question from Spenser Allaway (Green Street): Are there markets you prefer or redline for acquisitions given stabilization differences?
  Response: No market blacklisted; underwriting adjusts risk hurdles by market and the team will pursue higher risk-adjusted returns in more challenged markets.

• Question from Spenser Allaway (Green Street): What stabilized cap rates are you underwriting on the three Q4 acquisitions?
  Response: Initial going-in cap rates in the low-5% range, stabilizing around ~6% by year 2–3 for those assets.

• Question from Brendan Lynch (Barclays): Why does NYC continue to outperform other large Northeast markets?
  Response: NYC boroughs have minimal new supply, more need-based customers and high asset quality, supporting stronger pricing and occupancy versus other NE markets with more supply mix.

• Question from Brendan Lynch (Barclays): What would make you more aggressive on development in NYC/boroughs?
  Response: Only highly compelling, complementary locations with demonstrable demand; borough deals are rarer now without prior tax incentives so opportunities must be compelling.

• Question from Eric Luebchow (Wells Fargo): Any trends on average length of stay?
  Response: Lengths of stay remain elevated vs. pre-COVID: customers >1 year are up ~50 bps YoY; >2 years composition down YoY but still above 2019 levels.

• Question from Eric Luebchow (Wells Fargo): In a bull case (housing catalyst), how quickly could growth normalize into 2026–2027?
  Response: If a housing/mobility catalyst occurs, expect pronounced improvement and a return toward more historical growth over 2026–2027; Cube believes it is well positioned to capture that upside.

• Question from Michael Mueller (JPMorgan): How quickly might development supply return as markets improve?
  Response: Supply should return slowly—elevated costs and lender caution will constrain development; expect restraint at least through H1 2027 and ~18 months lead time from restart to delivery.

• Question from Michael Goldsmith (UBS): How did move-in rates trend through the quarter and October—did they peak in October or earlier?
  Response: Move-in rates followed normal seasonality, typically peaking in July then slowing sequentially; market-by-market variation persists.

• Question from Michael Goldsmith (UBS): When you say 'stabilizing trends' and 'encouraging signs,' are you referring to same-store revenue and move-in rates?
  Response: Yes—stabilizing refers to daily KPIs (move-in rates, demand levels, occupancy) which management expects will gradually drive same-store revenue higher over time given low churn.

Contradiction Point 1

Customer Behavior and Revenue Growth

It involves differing expectations regarding customer behavior and its impact on revenue growth, which are crucial for investor expectations and strategic planning.

Have you noticed changes in new customer behavior regarding pricing? - Michael Griffin(Evercore ISI)

2025Q3: Customer behavior has remained consistent, and our approach has been consistent throughout 2025. - Christopher Marr(CEO)

What assumptions were made at the top of guidance that were out of reach? - Samir Upadhyay Khanal(BofA Securities)

2025Q2: As you're aware, we increased pricing to customers in Q1 and Q2 of this year. We've now taken a pause on that as we actually said during the year we would need to pause that and see how the market evolves. - Christopher Marr(CEO)

Contradiction Point 2

Occupancy and Rate Trends

It involves differing perspectives on the occupancy and rate trends, which are critical indicators for the company's financial performance and future growth expectations.

Can you discuss the trends observed in October? - Samir Khanal (BofA Securities)

2025Q3: The occupancy gap to last year has contracted from the end of the third quarter, now down 100 basis points from the same point last year. - Christopher Marr(CEO)

What was occupancy in April, and was there a need to lower rates in response? - Samir Khanal (Bank of America)

2025Q1: Occupancy in April was 89.9%. Move-in rates improved from a decline of 10% year-over-year in Q4 to 8% in Q1, and further improved to 2% decline in April. - Christopher Marr(CEO)

Contradiction Point 3

Demand Trends and Market Recovery

It involves expectations of market recovery and demand trends, which are critical for understanding CubeSmart's strategic direction and financial outlook.

How are you balancing rate and occupancy in a stable demand environment while acquiring new customers? - Samir Khanal(BofA Securities)

2025Q3: The occupancy gap to last year has contracted from the end of the third quarter, now down 100 basis points from the same point last year. Average rent on rentals was around a 1.92% increase in October, similar to the 2.5% quarterly increase. - Christopher Marr(CEO)

Can you provide an update on Q1 move-in rent trends? - Spenser Glimcher(Green Street)

2024Q4: Move-in rents have improved from -10.3% to -7.4%. Consistent improvement since December. - Chris Marr(CEO)

Contradiction Point 4

AI Influenced Leads and Cost per Lead

It involves the utilization and effectiveness of AI-influenced leads, which have implications for marketing strategy and customer acquisition costs.

What percentage of leads and bookings are AI-influenced currently? How does the cost per AI lead compare to that of traditional search engine leads? - Viktor Fediv (Scotiabank Global Banking and Markets)

2025Q3: Less than 1% of leads are from AI-influenced sources, primarily ChatGPT. Cost per AI leads versus traditional search has not been significantly different so far. - Christopher Marr(CEO)

How have sequential rate trends from January to April compared to 2024 and pre-COVID levels? - Daniel Tricarico (Scotiabank)

2025Q1: Rates improved from a decline of 10% year-over-year in Q4 to 8% in Q1, and further improved to 2% decline in April, outperforming last year's trends. - Timothy Martin(CFO)

Contradiction Point 5

Discounting Strategies and Pricing Promotion

It involves the company's approach to discounting strategies and pricing promotions, which directly impact revenue growth and customer acquisition.

Are you using discounting strategies during peak season? How do you approach pricing, promotions, and discounting during off-peak season? - Todd Thomas(KeyBanc Capital Markets)

2025Q3: There has been no change in discounting strategies, and we have not implemented new strategies. Our promotions are consistent. - Christopher Marr(CEO)

What are your plans to drive demand and accelerate growth in 2025? - Michael Goldsmith(UBS)

2024Q4: The last three months have been more constructive, but the future remains uncertain. Extrapolating recent trends is premature. Cautious guidance balances improvement against potential stall. - Chris Marr(CEO)