CubeSmart

NYSE:CUBE

Earnings Call Transcript 2021-Q3

[Operator]

Hello, and welcome to the CubeSmart Third Quarter 2021 Earnings Call. My name is Elliot, and I will be coordinating your call today. [Operator Instructions].

I will now hand over to our host, Josh Schutzer. Josh, please go ahead when you're ready.

[Joshua Schutzer, Director, Financial Analysis]

Thank you, Elliot. Good morning, everyone. Welcome to CubeSmart's Third Quarter 2021 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 filed 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 third quarter financial supplement posted on the company's website at www.cubesmart.com.

I will now turn the call over to Chris.

[Christopher Marr, CEO, President & Trustee]

Thank you, Josh, and good morning. We are pleased to wrap up a very successful quarter for the self-storage industry. Operating fundamentals continue to maintain their positive trajectory supported by our sophisticated systems and solid consumer demand. We have been able to leverage that demand by growing occupancy and maximizing rate for both new and existing customers.

The benefit of the positive consumer demand backdrop is evident in our same-store metrics. The impact of the solid operating environment is also being experienced in our nonsame-store and recently developed properties. Physical occupancy, realized rent, revenue and net operating income in our nonsame-store and development properties well exceeded our expectations during the quarter.

We are particularly pleased with the accelerating same-store revenue performance we have experienced when considering the positive same-store revenue growth we had produced in the back half of 2020, and the teeth of the challenges created by the pandemic. Our same-store revenue growth during the quarter and our outlook for the full year reflect our strategy of balancing marketing, occupancy, rental rate and discounting to produce the maximum sustainable revenue growth over the long term.

Looking forward, we remain bullish on fundamentals as evidenced by our increased guidance, which Tim will get into with more detail in his commentary. Our thesis on supply for the balance of '21 and '22 remains intact. Our current data supports our expectation that supply in our top 12 markets peaked in 2019. We continue to expect new supply in those markets will decline in 2022 compared to the 2021 expected deliveries.

Specific to the outer boroughs of New York, we expect new deliveries to contract significantly from what we have experienced over the past 3 years. Currently, our data suggests 3 openings across Brooklyn, the Bronx and Queens and each of the first and second quarter of next year, dwindling to one in the third quarter of next year and no further openings after Q3 of 2022 currently on our radar.

I want to take this opportunity to thank our store teammates for their dedication to customer service and tremendous resiliency in the face of what seems to be multiple once-in-a-lifetime events. Our team continues to navigate through the pandemic with grace, flexibility and genuine care for our customers.

I want to especially thank our team in the New York MSA for their customer service during and after tropical storm, Ida. We experienced significant water intrusion at several of our stores in Queens, the Bronx, North Jersey and Westchester County. Our teams did an outstanding job assisting our customers in navigating the operational challenges created by the flooding.

I also want to recognize the collaborative efforts of our third-party management and information technology teams who introduced SmartView during the quarter. SmartView is our first of its kind proprietary mobile app, designed to connect our third-party customers seamlessly to key performance metrics for their stores. Yet another example of how we are serving our third-party management clients in innovative ways so that we may continue to keep ahead of the fast pace of change.

The spotlight shining in our industry has increased investors' interest in owning self-storage. This has had a positive impact on our third-party management business as our pipeline of future opportunities remains solid. This wonderful operating environment has also had a positive impact on the acquisition environment and our deal flow is quite robust. We continue to evaluate our external growth opportunities with a focus on achieving attractive risk-adjusted returns and maintaining our position as the highest quality portfolio in our business. Our balance sheet is well positioned to capitalize on opportunities.

Finally, I wish to point out that we published our inaugural sustainability report this morning. We are proud of our work to date and are committed to continuous improvement as sustainability efforts play a key role in our long-term value creation.

Thank you. And I will now ask Tim to share his comments on our quarterly results and outlook. Tim?

[Timothy Martin, CFO & Treasurer]

Thanks, Chris, and thank you to everyone on the call for your continued interest and support. As Chris touched on, results in the third quarter continue to reflect incredibly strong operating fundamentals across our portfolio, leading to another quarter of results that were better than expectations and again, led to a meaningful raise in our earnings guidance going forward.

Same-store performance included headline results of 15.6% revenue growth and 3.9% expense growth, yielding NOI growth of 21.1% for the quarter. Same-store occupancy levels remained unseasonably strong, averaging 95.6% in the third quarter, which is up 150 basis points year-over-year, and we ended the quarter with physical occupancy at 94.8%. Strong demand continued to be evidenced not only in high levels of physical occupancy, but also on strong pricing power. Higher net effective rates to new customers, existing customer rent increases and elongating lengths of stay all contributed to the 15.6% growth in same-store revenue. Same-store expense growth of 3.9% for the quarter was in line with our expectations, driven by continued pressure on real estate taxes, property insurance and opportunistic marketing spend, offset by efficiencies in personnel and lower utility costs.

Similar performance drivers drove results across our nonsame-store portfolio and our third-party management business. And combining all of that internal growth, we reported FFO per share as adjusted at $0.56 for the quarter, representing 27% growth over last year. Our continued meaningful growth in cash flows led to our announcement earlier this week of a 26.5% increase in our quarterly dividend, resulting in an annualized $1.72 per share, and that's up from the previous rate of $1.36 per share.

We remain active in our pursuit of external growth opportunities and continue to be busy underwriting a lot of potential deals. We continue to find select transactions that we find attractive that fit our disciplined investment strategy. During the quarter, we acquired 2 stores on balance sheet for $33 million and another 3 stores in JVs for just under $90 million. We have $85.8 million of on-balance sheet stores under contract and $66.3 million of stores under contract through joint venture investments.

During the quarter, we were active on selective dispositions. We sold 4 stores for $38.6 million and have another store in the contract to sell for just over $5 million. Additionally, subsequent to quarter end, we sold 7 stores from a joint venture for $85 million.

On the third-party management front, we added 33 stores in the quarter and ended the quarter with 706 third-party stores under management. Our balance sheet position remains strong as we continue to focus on funding our growth in a conservative manner that's consistent with our BBB/Baa2 credit ratings. We continue to raise equity capital through our at-the-market equity program during the quarter, raising net proceeds of $57.9 million. Our conservative leverage levels and revolver capacity have us well positioned to pursue external growth opportunities.

Details of our 2021 revised earnings guidance and related assumptions were included in our release last night. Based on the strong operating fundamentals we've discussed, we've increased our guidance range for full year FFO per share by 4.2% at the midpoint. Much of that guidance increase is based on an improved outlook for our same-store revenue growth for the year, which expanded to a revised range of 12.5% to 13.5% growth over 2020 levels.

As Chris mentioned, again, I'd like to also thank our teams across all functions of the company as they continue to work hard and ensure that we're maximizing all of the opportunities that the current environment is presenting. And our results continue to validate the strength of CubeSmart brand and the CubeSmart platform. So thanks again for joining us on the call this morning. At this time, Elliot, let's open up the call for some questions.

[Operator]

[Operator Instructions]. Our first question comes from Smedes Rose from Citi.

[Smedes Rose, Citigroup]

I wanted to ask just a little bit, I guess, about how you're thinking about occupancy at this point, kind of the peak to trough and kind of what's in your revised guidance?

[Christopher Marr, CEO, President & Trustee]

Yes, Smedes, this is Chris. Welcome to the call. I'll take it that and Tim can pile on. So what we're seeing is that the demand is there, vacates from students certainly were there in August and September as school returned to its more normal schedule. So we saw that in some of our student markets such as Boston.

And what we're seeing now as we get into the post Labor Day timeframe as a bit in certain markets of the return to work, return to home type thesis. So we would see the gap to last year. And again, we don't guide specific to the occupancy relative to rate or other levers, but broadly, we would envision that occupancies continue to move back towards last year's level that the gap to last year will continue to shrink.

And I think by the time we get to the end of December here, our expectation is that we will be plus or minus a few basis points to where we ended 2020 in physical occupancy. And then as we move into next year, again, we would consider that gradual return to a more typical pattern to continue up until the beginning of the busy season. And then given where we are in the housing market, in particular, we would envision quite a robust busy season for the industry starting in the typical March, April timeframe of next year.

[Smedes Rose, Citigroup]

Okay. Can you share what October occupancy was?

[Christopher Marr, CEO, President & Trustee]

I can share what the end of October occupancy was. The end of October occupancy -- I had it here.

[Timothy Martin, CFO & Treasurer]

Chris, 94.4%.

[Christopher Marr, CEO, President & Trustee]

Yes, 94.4%. Thank you.

[Smedes Rose, Citigroup]

Great. Okay. And then I just wanted to ask one sort of bigger picture question. I mean all of the other public storage reads significantly up their overall acquisitions outlook for the year. You guys maintained yours. And I was just wondering, is it just a function of pricing? Or kind of what -- maybe why are you may be a little more hesitant to at your overall external growth expectations?

[Timothy Martin, CFO & Treasurer]

Smedes, I can't speak to what others are doing. What I can tell you is that you have likely grown to expect and should continue to expect that we will remain incredibly consistent in our external growth strategy, focus on opportunities that complement or enhance our high-quality portfolio, both in asset quality and market quality. And we do continue to find stores and transactions that fit strategically at risk-adjusted returns that create long-term shareholder value in our view.

If you think about our growth over the past rolling 4 quarters, we've acquired about $1 billion of real estate. So we've been pretty busy and have transacted on things that fit our strategy. As we mentioned in the opening remarks, our balance sheet is well positioned. We continue to underwrite a lot of opportunity at this point. What we've provided in our guidance is what we found that makes sense for us.

[Operator]

Our next question comes from Elvis Rodriguez from Bank of America.

[Elvis Rodriguez, Bank of America Merrill Lynch]

Tim, you mentioned opportunistic marketing spend. And if you look at the year-over-year same-store marketing spend for Cube versus peers, it increased while others decreased. Can you just talk a little bit about what you're doing on the marketing side? And where the benefits are coming from?

[Timothy Martin, CFO & Treasurer]

I would love to address and answer your question, but Chris really wants to do it. So I'm going to let him do it.

[Christopher Marr, CEO, President & Trustee]

I do really want to take it. So I'll take that question. Yes. I mean, obviously, there are some differences in how folks are thinking about balancing the levers of marketing investment relative to price relative to discounting. And when we look at our incremental spend, which is almost entirely in the paid search channels, we look at our incremental spend and the rates then that we are able to get.

And so we're looking at it to say, we're getting somewhere between 8% and 10% higher rates based on the incremental spend. And if you look at in our view, what that will generate over a projected length of stay for those customers who came in from that incremental spend, we look at it over the long term to say that return is 450% to 500% of the investment and will produce low double-digit revenue over that timeframe.

So from our perspective and the data that we compile, it's giving us that rate that we're getting. The issue really -- and we appreciate this is that that's hard to look at quarter-to-quarter, but if you look at it over a longer timeframe, we believe that the return that we're getting on that marketing spend over the longer term is creating those higher rental rates, which -- again, assuming the customers like to say is, what we believe it will be, we'll continue to produce very attractive returns and higher revenue over the next couple of quarters.

[Elvis Rodriguez, Bank of America Merrill Lynch]

And then you touched a little bit on supply and your expectations here specifically in the boroughs. Can you speak more specifically to -- you mentioned only one store in 3Q '21. I believe you mentioned and then none after. Can you speak to what's going to happen over the next 6 months?

[Christopher Marr, CEO, President & Trustee]

Yes. So again, to clarify, my commentary was that we only see one store in Q3 of 2022, and then no stores thereafter. So if you look at expectations that we would have and again, these are based on openings projected as of now, they may happen sooner, they may happen later. But the reality is that we are looking at supply where there are, let's see, 2, 3 stores, I think it is in Brooklyn. 2 or 3 in Queens, coming in the first and second quarter of next year. One store in Brooklyn in the third quarter in next year and then right now 0 thereafter.

[Operator]

Our next question comes from Todd Thomas with KeyBanc Capital Markets.

[Todd Thomas, KeyBanc Capital Markets]

First question, I wanted to just -- I guess, sticking with New York City performed well in the quarter, but it was one of the few markets that saw growth decelerate at about 430 basis points in the quarter on a revenue basis. Chris, you mentioned the supply in some of the boroughs and in New York, you mentioned the rains and the floods that occurred during the quarter. Can you just speak to what you're seeing in the New York City MSA within your portfolio?

[Christopher Marr, CEO, President & Trustee]

Sure. Thanks for the question. So let's do take a look under the hood at the New York MSA performance during the quarter. So in the back half of last year, New York MSA performed exceptionally well, which made it more difficult to generate outsized growth this year. And then as you touched on, there are a few other factors to evaluate.

We've got the impact of Ida and new supply, the performance of our nonsame-store pool and the consumer demand picture. If you start with the rain, the heavy rain from Ida. We had water damage at 9 of our stores in the MSA: 2 in Queens, 3 in the Bronx, 2 in Westchester County and 1 each in Brooklyn and North Jersey.

Unfortunately, the nature of that storm led to isolated pockets of water intrusion, and it was largely as a result of the source systems in capability of absorbing that much rain that quickly. So those 9 stores, we really experienced no new demand during about a month or so as we cleaned up, but we did experience the resulting vacates because sadly, many of the customers' possessions were at a total loss. So we had a bit of an occupancy decline at those impacted stores. And so that was one factor for the quarter.

On the supply side, we've been consistent in our messaging regarding the impact, especially in Brooklyn and Queens, which was as expected and factored in our expectations. So while our same-store results in Brooklyn and Queens are outperforming our expectations on occupancy rate revenue much like Washington, D.C. and Nashville MSA, they're dealing with the headwinds that we're not experiencing markets, not seeing new supply.

I think the upshot to this is that the new development stores then continue to lease up in those markets, particularly in Brooklyn and Queens, well ahead of our expectations. So the customers that we can't accommodate at our highly occupied same stores, we're getting them at the lease-up stores in the boroughs, and those stores are experiencing physical occupancy revenue higher than planned.

Our acquisition last year in the fourth quarter of the Storage Deluxe assets are well outpacing our underwriting. Those are in the same-store pool. So I think you got to look at this holistically.

And then looking at the consumer demand picture, demand remains very solid. We obviously have all-time high physical occupancy. I think it's basically 95.5% in the outer boroughs. We do see the returning population to New York City impact on the vacate side in our Manhattan store and then some of the immediately adjacent stores.

We view that actually as a long-term positive. Near term, we're seeing some vacates from people who would have stored at the beginning of the pandemic long term, that returning population and what we're seeing on the multifamily side, particularly in rate on the multifamily side, we view as a long-term positive as people return to the city. So I think when you factor in the exogenous factors that I described and then the endogenous factors, we're encouraged by the overall results for the quarter and year-to-date. So hopefully, Todd, that gives you some helpful context.

[Todd Thomas, KeyBanc Capital Markets]

Yes, that's helpful. Are you seeing occupancy rebound in New York City a bit in October and early November? And has there been any change to your ECRI program? Or has there been any resistance to rent increases to in-place customers in that region? And then, Tim, within the revised guidance, do you anticipate growth to continue to moderate in New York City in the near term?

[Christopher Marr, CEO, President & Trustee]

So I'll take the first part of that. So when you think about trends, again, occupancy at 95.5% in the boroughs as a whole, we're full. So that's not the issue. Again, as I said, the occupancy in the water damage stores, I think, fell about 170 basis points as a result of those -- of Ida. And we are recovering from that as the stores have been cleaned and the damage has been repaired. And they're wide open for business again, and we're seeing demand return there.

On the -- as I mentioned, on the Manhattan store and then the couple Long Island City and in Park Slope, most of which are not in the same-store pool, you are seeing lower physical occupancies at those stores as they return to New York. And the population returning, I think, has clearly increased vacate at those stores. The outer boroughs stores unaffected by that and continue to perform well. Again, balancing Brooklyn with the supply that is real and certainly, a factor there.

So from that perspective, we are also not experiencing any issues as it relates to existing customer rate increases at any of our stores. And specifically, we are not experiencing any pushback of anything outside of the normal pushback in the New York City stores specifically. And then I'll speak for Tim and I know the answer is going to be, we don't get into more specific, but we are expecting continued solid growth on a relative basis as we move through the year.

[Todd Thomas, KeyBanc Capital Markets]

Okay. All right. And then just one question just back to -- on the acquisitions. I hear your comments on investments and remaining disciplined. It sounds like there's been less of an emphasis on sort of going in yields just because of expectations around upside and outsized growth potential in the near term or in the years ahead, either stabilization in occupancy rates. Both, I suppose. Are you not seeing that same opportunity? Do you think when you're running up against folks on investments? Do you -- are you not seeing that same sort of upside or outsized growth opportunity over the next couple of years relative to what you think others might be factoring in when underwriting potential acquisitions.

[Timothy Martin, CFO & Treasurer]

Yes, that's a tough question to answer, given that -- I mean, we certainly know what we see. I can't speak for what others see and what others bake into their underwriting. We're focused in as we always are on all-in returns on a risk-adjusted basis. So unfortunately, your question is, is multilayered and many of those layers have to do with what others are doing and what others are thinking, and I can't really speak to that, you'd have to ask them. What we have done and what we have under contract are the result of all of our efforts and where we've landed on things that at our strategy and makes sense to us on a risk-adjusted basis.

[Operator]

Our next question comes from Juan Sanabria from BMO Capital Markets.

[Juan Sanabria, BMO Capital Markets]

Just wanted to follow up on the New York City stuff you guys were talking about. Do you have a sense of what the impact to same-store revenues was from Ida? And second part of the question, should we expect any incremental benefit from the eventual inclusion of Storage Deluxe? I think that will happen in the first quarter '22 once that enters the same-store pool.

[Christopher Marr, CEO, President & Trustee]

I'll take the first part of that one. In terms of just broadly, the impact was negative. It's hard to put basis points on what could or could not have happened at those stores not had to closed down and not have to deal with the cleanup. Certainly, again, we lost occupancy. We were unable to accept new customers and it was difficult to accept new customers for a short period of time. So I don't know how to quantify the basis point impact to it. They certainly were amongst the poor-performing stores for the quarter.

[Timothy Martin, CFO & Treasurer]

And on the impact of stuff coming in or out of the same-store pool next year, I mean, we're not going to get into stuff related to 2022 guidance things that come into our same-store pool are stable when they come in. So happy to try to provide some color on that next quarter when we get into '22 guidance.

[Juan Sanabria, BMO Capital Markets]

Okay. And then just one follow-up question for the third-party management business. Do you expect, as you look forward and kind of have a sense of what's either on market today for sale or what could be coming based on your discussions that we'll see continued churn in '22? Or do you expect that to level out to have more net growth going forward?

[Timothy Martin, CFO & Treasurer]

Great question. We certainly expect -- I think, I mean, 2021, as others have said on calls earlier than ours, 2021, obviously, as you know, has been a an incredibly active and robust transaction environment. And we've seen a lot of stores come on to our platform, and we've seen a lot of stores come off as many of our owners have monetized a lot of the value that we've helped to create for them on our platform. I would expect that trend. I think, it's not a 1-year trend.

Many of the stores that are on our platform are stores that were newly developed 3, 4 years ago. Many of the owners that we manage for are not forever holders. So when the right time comes for them to monetize and sell to us or take it to market and potentially sell to somebody else, I think that is a continued trend that is just the reality of the landscape for the third-party management business for us and others who are in it. So difficult to predict whether there would be net growth or net contraction.

We work hard on continuing from a new business development standpoint to attract new customers to the platform. We're still seeing great inbound activity on folks who are interested in our platform. And so that part we can control. The other part candidly is that we're doing a really good job, capitalizing on the opportunities that are in the markets, and we're getting the stores leased up for our owners and again, helping them create value and monetize, which is what they hired us to do. So hard to predict at this point.

[Operator]

Our next question comes from Joab Dempsey from Truist.

[Joab Dempsey, Truist Securities]

Chris, in your prepared remarks, you spoke about supply being manageable going into next year. Clearly, the fundamentals being so strong, you think you start to see some supply coming online. But is there anything in terms of whether it's the entitlement process or the supply chain disruption, making it harder to source construction materials that are keeping a lid on new supply?

[Christopher Marr, CEO, President & Trustee]

Yes. Thanks for the question. So I think you have a nice balance at the moment where operating fundamentals are spectacular, to say the least, and that will inevitably attract folks to our industry. And folks who wish to think about participating in this via development, you're offsetting that with some continued trends, which is in several western markets, particularly in California.

It is incredibly challenging for a whole host of reasons to develop new product, and therefore, you've seen it be fairly muted, and we would expect it will continue to be fairly muted. You have the issues. Obviously, we've talked at length in New York City with the changes in tax law that makes it much hard to develop there.

And again, I've outlined our expectations that, that drives up over time there. I think you have the new issues, as you've described, of cost of raw material, cost of labor, inability to source raw material and inability to get labor and a very, I think, continued constructive, meaning rational lending environment.

I think those factors then make a decision around new development more difficult and certainly, trying to take today's environment and how do you try and forecast what 3, 4, 5 years from now is going to look like from an occupancy and a rate perspective given the fabulous run we're on, I think, is another challenge.

So I think that -- all of those things tend to balance out. That being said, you can still generate attractive returns in many markets if you find the right piece of land or if you've owned that land for quite a while and have a reasonable basis. And I think if you're patient and the way you start potentially until mid to end of next year and see if some of these supply chain issues work themselves out, then I think that will lead to supply in '23 or '24.

Again, I think it's manageable. I think that tells you the industry is performing quite well. And I think we've demonstrated as a sector that we can absorb it, and it's not a doomsday scenario and we'll be just fine. So I think there will be supply -- all of the things being equal, supply will continue, but it will be manageable.

[Joab Dempsey, Truist Securities]

Okay. Great. And then it looks like you sold 4 properties this quarter. With cap rate compression across the industry, how do you think about further recycling of assets and possibly putting that capital to work in other areas, particularly joint venture structures where you're focused on lease-up opportunities.

[Timothy Martin, CFO & Treasurer]

Yes. I mean maximizing return on capital and recycling when appropriate has always been part of the playbook. And what we did here recently was to do just that. We had some assets that on a longer term, if you think about the next 5 or 10 years, we thought that we could redeploy that capital into other opportunities and get a better risk-adjusted return over time.

We don't have a lot of those opportunities because we've worked hard to assemble a portfolio of really high-quality assets, and they're not easy to find. So we're not looking to sell tens of properties, but when we find particular situations where we think we can recycle that capital, we're anxious to do so.

And we did that, as I mentioned, on a handful of opportunities on balance sheet, and then in a co-investment structure, had a similar approach where we're under contract or well, actually, we -- subsequent to quarter end, we closed on the disposition of 7 stores out of one of our joint ventures.

[Joab Dempsey, Truist Securities]

Okay. And maybe I could sneak one final quick one in. How did rate growth trend throughout the quarter and in October?

[Christopher Marr, CEO, President & Trustee]

Yes. Rates continue to be very solid over last year and over 2019. And I think, in October, we were asking that effective is up right about 29% or so over 2020 and 55% over 2019.

[Operator]

Our next question comes from Hong Zhang from JPMorgan.

[Hong Zhang, JPMorgan Chase & Co.]

So you've kept a pretty tight lid on personnel expense so far this year. I guess just looking towards fourth quarter next year, do you expect that to kind of reverse and trend up just given where wage pressures are?

[Christopher Marr, CEO, President & Trustee]

Thanks for the question. Yes, personnel has been a challenge in terms of certainly of hiring side and yet everybody talked about that in not only our industry, but across other service industries. We have always been a little bit more focused on the total reward package for our store teammates and therefore, have traditionally paid and offered benefits that are at the higher end of what we see across the rest of the industry.

So we haven't yet had to make any radical adjustments to our overall compensation, but we're certainly looking at -- we're looking at trends and difficulty in hiring and adjusting accordingly. I think as we get into the next year, it will be a balance of how inflation continues to progress. Is it transitory or is it here to stay for a while. Again, those challenges in certain specific markets, but then overall, on hiring, making sure we're retaining our good teammates and offering them a total rewards package that meets the market and allows us to continue to retain the high-quality people that we have.

And then offsetting that with continued efficiencies, pushing folks to smart rental and self-service, thinking about how we staff and the staffing levels that we have. So my sense, the short answer is that inevitably, personnel expense has to be growing as we move into 2022. And then we're just focused on within what parameters can we maintain or constrain that. I think it's inevitable that it will grow as we move through '22.

[Hong Zhang, JPMorgan Chase & Co.]

Got it. And I'm not looking for guidance, per se, but just even if you end the year at a flat year-over-year occupancy compared to 2020, you still be, call it, 300 basis points higher than where you were going into COVID. Just given where kind of move and move-out trends are, do you expect to retain a portion of that through 2022? Or do you expect to kind of give it all back?

[Timothy Martin, CFO & Treasurer]

From a physical occupancy standpoint?

[Hong Zhang, JPMorgan Chase & Co.]

Yes, from a physical occupancy standpoint.

[Timothy Martin, CFO & Treasurer]

Yes, boy, it's hard to answer that question. Even with your preamble that you were trying not to get into '22 guidance, I'm not sure how to talk about that question. The reality is occupancies are -- occupancies continue to be unseasonably high. We have been, I think, as an industry, all of us on our side of the table or your side of the table have underestimated the strength and the quality of the demand of the customer that has come to us here since the beginning of the pandemic.

So to date, we've all been too conservative in our expectation as to how sticky that customer is and how robust demand is. I think all of those are considerations as to how we think about the sector, how we think about our projections for next year. And again, from a revenue standpoint, occupancy is only one part of the equation. Not sure that I have anything that's particularly helpful for you other than occupancies are higher than they ever have been.

And I would think at some point in the future, I don't know if it's measured in the next couple of months, quarters or maybe years, there will be some expectation, I think, that occupancies would trend at least directionally back towards historical levels.

[Operator]

Our final question comes from Spenser Allaway from Green Street.

[Spenser Allaway, Green Street Advisors]

Amongst your peers, we've heard mixed reviews on existing rates compared to market rates today. I was just wondering if you could provide some color on whether you've caught up with market rates across most of your portfolio? Or is there still some room to kind of catch up here?

[Christopher Marr, CEO, President & Trustee]

Spenser, yes, this is Chris. So specifically related to in-place customers versus where we are pricing for a new customer?

[Spenser Allaway, Green Street Advisors]

Yes. Yes.

[Christopher Marr, CEO, President & Trustee]

Yes. So the move-in rate continues to be in that kind of 6% to 8% range higher than the in-place customers.

[Spenser Allaway, Green Street Advisors]

Okay. And then can you give us an idea of how much of the revenue growth during the quarter was driven by the ECRIs versus those higher move-in rates that you were just speaking about?

[Timothy Martin, CFO & Treasurer]

Spenser, we don't typically get into trying to get through that, but one thing that's fairly predictable as you can see how much of the revenue growth comes from occupancy. Everything else is in that mix of a combination of the things that you're talking about, we don't -- we haven't historically broken it out.

[Operator]

We have no further questions. I will now hand back to Christopher Marr for any closing remarks.

[Christopher Marr, CEO, President & Trustee]

All right. Thanks, everybody, for participating in our call and wrapping up the self-storage earnings season with us. It has been a spectacular earnings season, to say the least. It's been a spectacular year for our industry. I was just reflecting that this call, the third quarter call, I was fortunate enough to participate in my first one 27 years ago this month. And so as I look back over those 27 years, I think it's safe to say that this year has been the best that I've ever had the fortune to participate in from a self-storage perspective. And we're quite bullish on the industry as we move into next year. So thank you all for enjoying this with us, and we look forward to talking with you at the end of the year. Be safe.

[Operator]

This concludes today's call. You may now disconnect your lines, and we thank you for joining.