CubeSmart

NYSE:CUBE

Earnings Call Analysis

CubeSmart reports steady growth despite competitive pressures.

In the third quarter of 2024, CubeSmart achieved stable operational performance amid a competitive market. Rentals in the New York Metropolitan Statistical Area saw a notable 7.4% year-over-year increase, while same-store revenues dipped by 0.8%. The company's focus remains on increasing marketing efforts, resulting in a 5.3% rise in operating expenses. Interestingly, occupancy stood at 89.9%, reflecting a slight decline of 130 basis points compared to last year. For 2024, they maintain their guidance for FFO per share at $0.67 to $0.70. CubeSmart projects external growth through acquisitions and is well-positioned with a solid balance sheet to capitalize on opportunities ahead.

A Solid Third Quarter Performance Amidst Challenges

CubeSmart reported a solid third quarter in 2024, navigating a competitive market environment effectively. Store performance aligned with expectations, reflecting resilient demand. Notably, the New York MSA, a key market, saw rentals rise by 7.4% year-over-year, driven by strong performance in its boroughs like the Bronx and Brooklyn. However, Northern New Jersey struggled, with rentals declining by 11.6%. In contrast, markets in Florida and Arizona continued to face challenges due to new supply impacting previous gains.

Same-Store Revenue and NOI Dynamics

The company experienced a slight overall drop in same-store revenues, down by 0.8% compared to the previous year. Average occupancy also fell by 120 basis points to 90.8%. On the expense side, same-store operating expenses rose by 5.3%, primarily due to pressures on property insurance and increased marketing costs. This combination led to a negative 3.1% decrease in same-store NOI, emphasizing the impact of rising costs even as demand sustains.

Guidance and Future Outlook

CubeSmart maintained its full-year guidance for funds from operations (FFO) per share, now narrowed to a range of $0.67 to $0.70. The management affirmed that the operational performance met their expectations, and they remain confident despite external pressures. They predicted consistent performance, with a focus on navigating weekly fluctuations in demand.

Acquisition and Growth Strategy

The company highlighted its disciplined approach to portfolio expansion. CubeSmart plans to add 130 or more stores annually, looking for opportunities that align with their investment thesis. Recent trends indicate an increasingly constructive acquisition environment, as the bid-ask spread is narrowing, providing opportunities to acquire two stores under contract in Q4 2024. They are actively pursuing additional transactions as market conditions improve.

Competitive Landscape and Market Dynamics

Management noted a challenging but stable competitive landscape, where pricing pressures exist, particularly in new markets due to the impact of new supply. They pointed out that while some markets are experiencing significant competitive pricing, others are stabilizing. This is particularly true for urban markets like Washington D.C., where new supply is less prevalent.

Customer Behavior and Marketing Strategies

Management observed changes in customer behavior linked to promotional strategies. CubeSmart's significant increase in marketing investment—up approximately 10% year-over-year—aimed to enhance customer acquisition amid competitive pressures. Traffic for web sales rose by 26%, suggesting effective outreach and engagement despite downward trends in occupancy.

Long-Term Market Resilience

Despite current challenges and economic factors impacting the housing market, CubeSmart's management expressed confidence in the long-term resilience of the self-storage sector. They emphasized the diverse utility of their services, which caters to a broad range of customers, contributing to stable occupancy rates and a loyal customer base.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CubeSmart Third Quarter 2024 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Josh Schutzer, Vice President of Finance. Please go ahead.

[Joshua Schutzer, executive]

Thank you, John. Good morning, everyone. Welcome to CubeSmart's Third Quarter 2024 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 on 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, executive]

Thank you, Josh. Good morning. It was a solid third quarter as we continue to focus on maximizing the opportunities in a competitive market environment.

Overall, store performance was in line with our range of expectations entering the quarter. Once customers enter our portfolio, they continue to have elevated lengths of stay and credit metrics in line with historical norms. Our lower beta urban markets continue to outperform the Sunbelt. We are very grateful and thankful to have been extraordinarily lucky with both hurricanes. Our teammates are safe, and our stores avoided any major damage.

Our New York MSA significantly outperformed the balance of our portfolio, despite facing tougher comps, and being weighed down by the supply impact in the North Jersey segment of the overall MSA. In the overall New York MSA, rentals were up year-over-year demonstrating the continued solid demand profile in this key urban market. This year-over-year increase in rentals was led by our portfolio in the New York City boroughs, up 7.4%, offset by rentals being down 11.6% in our Northern New Jersey portfolio.

A similar story in same-store revenue growth. With the New York MSA generating our second highest growth within our major markets, led by the Bronx at 6.6%, followed by Brooklyn at 5.8%, and again, weighed down a bit by our Northern New Jersey lagging at negative 1.1%. Our top-performing major market was the DMV, District of Columbia, Maryland, Northern Virginia, as it rebounds from the headwinds of new supply. The MSA had both a solid 3.2% year-over-year same-store revenue growth as well as 110 basis point sequential improvement and revenue growth from the second quarter.

Weaker performing markets are in Florida and Arizona, markets that experienced significant gains there in the pandemic, while also experiencing and continuing to experience the impact of new supply. As Tim will discuss and provide more color in his remarks, we remain a third-party manager of choice. 2024 will be our eighth straight year of adding 130 or more stores annually to our portfolio. We will remain disciplined in our capital allocation decisions and are prepared to move decisively and with conviction for opportunities that fit our investment thesis.

Thank you, and I'll now turn it over to Tim Martin for his comments.

[Timothy Martin, executive]

Thanks, Chris. Good morning, everyone. Thanks as always for taking time to join us on today's call.

The third quarter, as Chris mentioned, was very solid for CubeSmart. As we hit the midpoint of our guidance range, business remains challenging as we continue to face a competitive pricing environment for new customers with slower rental volumes, but overall store performance was in line with our range of expectations.

Same-store revenues declined 0.8% compared to last year, with average occupancy for our same-store portfolio, down about 120 basis points to 90.8%. Same-store operating expenses grew 5.3% over last year, driven by continued pressure on property insurance, but the biggest driver of expense growth during the quarter was on the marketing line item.

We continually evaluate our overall strategy in the interplay between rate, promotions and marketing spend. And in the third quarter, we pushed on the marketing lever as we attempted to drive top of funnel demand in this current competitive environment, so negative 0.8% revenue growth combined with 5.3% expense growth yields negative 3.1% same-store NOI growth, and we reported FFO per share as adjusted of $0.67 for the quarter which was at the midpoint of our guidance range.

From an external growth perspective, we have started to see a little momentum here late in the year as we're under contract to acquire two stores in the fourth quarter and we have a number of other transactions that we are actively pursuing. The certainty and timing of closing those other transactions is still up in the air. But as we've been discussing for the last quarter or so, acquisition activity is beginning to become much more constructive from our perspective.

On the third-party management front, as Chris touched on, we had another productive quarter. We added 24 stores to the platform, bringing us to 893 stores under management at quarter end. No notable changes during the quarter to our strong balance sheet position, low leverage, no floating rate exposure and the full capacity of our line of credit has us in a great position to pursue external growth opportunities. We raised $32.8 million of proceeds under our at-the-market equity program during the quarter for an average sales price of $54.20 per share.

From a full year guidance perspective, not really any changes as the third quarter was in line with our expectations, and the remainder of the year continues to track within the ranges we provided last quarter. Given third quarter results, we narrowed our full year FFO per share range while maintaining the midpoint of our expectations.

Thanks again for joining us on the call this morning. At this point, John, why don't we open up the call for some questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Jeffrey Spector from Bank of America.

[Jeffrey Spector, analyst]

First question for Chris. Chris, there's a nice healthy debate on the very, I guess, exact conditions today and forward thoughts on finishing out the year into '25, into '25 peak leasing season. We've heard on other calls, stabilization, some saying maybe even expecting some improvement. I feel like you always called as it is. I mean what do you think the state of the state is as we finish '24 and head into '25?

[Christopher Marr, executive]

Yes. I think we're in a relatively high beta environment at the moment. We have some weeks during the quarter where you see some green shoots and feel like we are starting to see some positive signs. And then honestly, you have some weeks that you scratch your head and wonder a little bit where all the demand went.

So I think we've got a big event next Tuesday. We've got a lot going on in terms of interest rates and the Federal Reserve. We've had, obviously, an incredibly volatile tenure if you just think about it from that perspective. And I think that makes it just a very difficult question to answer with conviction one way or the other. So I will say I'm continuing to sort of operate in an environment where we're taking it week by week.

[Jeffrey Spector, analyst]

Okay. That's fair. And then can you discuss move-in, move-out rate spread in the quarter?

[Christopher Marr, executive]

Yes. In the quarter, that churn gap was negative 27.4%.

[Operator]

Our next question comes from the line of Michael Goldsmith with UBS.

[Michael Goldsmith, analyst]

Chris, I'd like to dissect kind of your opening remarks about maximizing opportunities in a competitive environment. So starting about maximizing opportunities, it looks like you stepped on the advertising lever -- advertising marketing lever a little bit. But can you just talk about how you think about investing in price and marketing versus rate in this environment? And how that -- how you're looking to be positioned kind of heading into kind of the slower season?

[Christopher Marr, executive]

Thank you. So I think against a backdrop, just to put things in perspective, if you look at our investment, our spend in marketing on a 9-month basis, last year for the first 9 months of the year, that grew about 10%. And this year, for the first 9 months of the year, it's grown about 10%. So the investment there kind of on a growth rate basis year-to-year has been a little bit different in terms of the quarters in which we have chosen to push a little bit harder or take our foot off the gas, but the overall trend has been about the same for the first 9 months.

But to your more of a high-level question, that is, again, back to my week to week. We are looking at where are the opportunities, given the fact that I think everybody accepts we have the highest quality portfolio in the industry, where do we look to also get the highest quality customers that we can get. Those customers who are willing to pay our premium rates, who then in our data, stay longer, are less sensitive to rate increases over a long period of time, and that is a test lather, rinse, repeat week-to-week.

It is certainly challenging in this very competitive market to figure out exactly where we have that best mix. And that's something that, obviously, the team and the folks on the data science team are looking at every day as we're adjusting prices and making some decisions on the marketing side.

Felt good about the marketing investment in the quarter. We saw web sales traffic up about 26% on all stores during the quarter. So satisfied with the return, again, it's just trying to balance out, as you said, that marketing investment relative to price relative to ECRIs to get what we think is going to be the best result, both near term and long term.

[Michael Goldsmith, analyst]

I appreciate the color, Chris. And then as my follow-up, the second half of your opening statement was on the competitive environment. Are you seeing any of the competition start to fade a little bit? Has it stepped up? I'm just trying to get a sense of what you're trying to manage through?

[Christopher Marr, executive]

Yes. Again, I think it's really market by market. We're obviously a local market business. But it is -- I think it is fair to say that you feel like there is a bit of stabilization in some markets around competitive pricing and how folks are thinking about attracting that new customer.

Then the flip side is we have markets, certainly the West Coast of Florida is easy to pick on where you just have that significant impact of new supply, and that's creating a little bit of an overhang as it relates to pricing to new customers.

[Operator]

Our next question comes from the line of Juan Sanabria from BMO Capital Markets.

[Juan Sanabria, analyst]

Just piggybacking on the comments on a prior question. Where -- have you seen any deterioration in customer behavior or changes in the quality of the customer, if you discount versus not? Or if there's differences within the kind of discounting, whether it's one month free or kind of well below street rate? Just curious on what you're seeing in terms of who you're getting and how long they stay depending on what you offer them upfront.

[Christopher Marr, executive]

Yes. Our data would tell us that a customer who, for example, to take it to one end of the extreme moves in for free or moves in for $1 is just your lowest quality customer from a probability perspective. That customer is attracted to that offer for a variety of reasons that tends to lead to lower lengths of stay and higher credit issues over time.

Vice versa, sort of common sense, your customer who is not sensitive to price on the front end, also tends to be one who ends up statistically staying longer and being much less sensitive to future rate increases. So it is a balance between how do you think about that discount or offer to attract and you're really trying to do that on a local store level relative to the inventory that you have at that store. So to the extent that you have a significant vacancy perhaps in a specific unit type there, you may be open to offering some sort of a discount, or teaser, or whatever you want to call it, to try and get that customer in and just recognize that statistically the odds of that customer being a long-term stay in high quality or low, but you're willing to accept that churn.

So I think that's the way our data will tell us it plays out, and those are the kind of decisions you're making at a local market level every day.

[Juan Sanabria, analyst]

Great. And then just a comment or a question on guidance, you tightened FFO a little bit, but left the same-store unchanged. Is there any comfort level within the ranges with 10 months out of the year done on same-store revenue or NOI specifically at this point?

[Timothy Martin, executive]

Well I think by default, when you have 10/12th of the answer, you have a little bit more comfort than you did at the beginning of the year. I mean, overall, our guidance ranges interestingly haven't really changed all that much from the beginning of the year until now. We started the year with a pretty wide array of potential outcomes and as the year plays on, that you tend to narrow those and no adjust other than tightening the FFO per share range as you noted, the balance of the guidance ranges, we left unchanged from a quarter ago. We feel like across the board, we're still tracking to fall within all of those respected ranges.

So really not much commentary because nothing much has changed. The quarter was very much in line with our expectations. And we have 2 months left in the year. And on Chris' point, it is some weeks we get more optimistic, in some weeks it feels like you're giving a little bit of it back, but we think the ranges that we have out there right now are appropriate.

[Christopher Marr, executive]

And Juan, this is Chris, just to piggyback a little bit on Tim's comments. When you do look back, both for Cube and the industry at expectations being said at the beginning of the year, and if you just focus on the low end, which, off the top of my head, we were negative 1.25, I think everybody else was kind of around there or worse, and we talked about like drivers and how the year would have to play out for that to be the result.

What's interesting to me is we focused on a housing market that would be no worse than what we saw in 2023 to kind of get to those lower ends. And obviously, there were some other macro factors. And here we sit in November 1, and in fact, the housing market actually is worse this year than it was last year. And yet, for Cube and the industry as a whole, we're not performing at those really low levels or that low end of those original expectations. And I think it just goes to the -- again, the long-term resilience and the -- and just what a great business self-storage is. And in spite of the fact that we didn't get anything from some of those drivers that we thought would be helpful, we were still able to find other ways to kind of take advantage of whatever opportunity is presented to maximize the results.

So just a plug for self-storage there, self-serving.

[Juan Sanabria, analyst]

Okay. Just to recap kind of the ending commentary, the low end seems like it's off the table, it's more the mid and the high end then?

[Christopher Marr, executive]

Yes. Again, we're just providing a range of expected outcomes for the balance of the year that we're comfortable with, that we will at some point in the year and be within those ranges. It's hard to get specific between one or the other.

[Timothy Martin, executive]

Yes. I think specifically, Chris is referring to the low end of the range that we started the year with, and we contracted that range from a number of perspectives last quarter.

[Operator]

Our next question comes from Spenser Glimcher with Green Street.

[Spenser Allaway, analyst]

You mentioned in the press release that the transaction markets become more constructive. Can you just provide some additional color here and maybe particularly on the types of opportunities you're seeing?

[Timothy Martin, executive]

Yes, its from a couple of different perspectives. We have seen an increasingly attractive opportunity set from a quality of the opportunity, and that's individual quality of assets, but also the quality of the opportunities within markets that are attractive to us and our strategy. We have seen a continuation of some compression in the bid-ask spread from where it had been 2, 3, 4 quarters ago to a much more constructive environment today where there seems to be a reasonable gap, at least when you start a process between where we want to be as a buyer and where a seller is willing to transact. And so as those two things start to get closer and closer together, it certainly feels like a much more constructive environment.

That being said, anything could feel more constructive versus nothing for 18 months. So I guess it's all relative, but we're energized and you can certainly see that we're moving in a direction here, at least at the moment, into a much more constructive environment for us to put our balance sheet to work and to be able to focus on those external growth opportunities.

[Spenser Allaway, analyst]

Okay. That's helpful. And I know I think that industry participants were talking about a bid-ask spread in like the 10% range. I won't speak for you guys. But just curious like if you're saying it's -- there's been a little bit of compression there, can you provide a range or are you able to quantify maybe what you're seeing in today's environment in terms of that bid-ask spread.

[Timothy Martin, executive]

Such a generalization. Each opportunity is obviously different, we were able to get two stores, as you saw in our release, under contract. I mentioned previously we're actively working on a handful of other opportunities that we have a chance to get across the finish line here, it's hard to say.

The only ones that matter where there's zero bid-ask spread, and the opportunity set being of higher quality is, I think, the more compelling component to all that for CubeSmart because you do get a lot -- pencils get a lot sharper when something is attractive and fits our investment strategy.

[Operator]

Our next question comes from the line of Daniel Tricarico with Scotiabank.

[Daniel Tricarico, analyst]

Chris, your comments a few answers ago, housing market being even worse this year, but guidance unchanged. The resiliency of the business, is that a testament to the ECRI program? And if so, can you just talk to that and how you'd see that evolving in an environment where maybe movement rates start to improve?

[Christopher Marr, executive]

Yes. Thanks for the question. So I think it's a testament to the fact that our customer base is everyone, well, at least everyone that's an adult. And our customer base has such a diverse use case that we can be very resilient regardless of what macro factors are happening in the world at that time. So I think that's the first piece of it.

We're not reliant upon job growth. We're not reliant upon one specific factor to generate a need for our product. It's simply somebody who has discovered that we are an excellent solution to place their treasured possessions for a period of time. I think the reality is that period of time is always, most times, it's longer than our customer thinks about it when they first enter the portfolio.

So I think it's a combination of that. And then obviously, in a rate environment for new customers that we've been experiencing here for the last 18 months or so, that existing customer base resilience is also helpful and important. We continue to see a sticky customer base, lengths of stay pretty consistent after having elongated through COVID. And a customer who's accepting those rate increases and continuing to stay in the portfolio thereafter.

So I do think macro, it's a combination of those two factors that I think is what makes storage such a special and long-term outperformer.

[Daniel Tricarico, analyst]

Good. And just a follow-up. Promotional dollars being up a little bit, but just curious -- and I know there's puts and takes there, but where was the Q3 and October move-in rate year-over-year gap? I think it was 11-- down 11 in Q2.

[Christopher Marr, executive]

Yes. The October -- the Q2 was in that more like that 13 kind of percent range. October was 11, but -- I'm sorry, Q3 was 11 on average. The last 2 weeks of October it's been right around 9.4. So we've seen that contract. Part of that is certain markets seeing a little bit more helpful pricing to new customers. The other hand of that is in October -- starting around mid-October of last year, we have had a strategy last year where we were trying to hold on to a rate a little bit longer past the busy season, and we did not bring rates down last year until about mid-October. So part of it is the comp, part of it is some markets a little more constructive pricing.

[Operator]

Our next question comes from the line of Eric Wolfe with Citi.

[Nicholas Joseph, analyst]

It's Nick Joseph here with Eric. I just want to go back to your comments on the New York area. I know it saw a sequential decline and its outperformance shrunk versus the broader portfolio. So curious to get your expectations for that market going forward? And if tougher comps could weigh on it next year?

[Christopher Marr, executive]

Yes. When you think about the New York MSA, Q2 of last year, 6% same-store revenue growth, plus or minus couple of basis points. Q3 of last year, 6% same-store revenue growth, plus or minus a couple of basis points. So the MSA as a whole has tough comps. So when you think about it from that perspective, I think our overall same-store portfolio rentals were down about 5% and you contrast that with the New York MSA rentals were up about 5%.

So long-term health, fabulous. Supply in the Bronx and Brooklyn, super helpful going forward. Still dealing with a little bit in Queens. And certainly, North Jersey then from an MSA perspective, is pulling down our results a bit because of the supply impact there.

I think when you look out into next year, that supply impact in North Jersey will certainly begin to lessen the supply impact in some -- again, some of our properties in Queens, particularly Long Island City, hopefully, will begin to lessen. So I think you have puts and takes there in New York.

But -- so I can't comment today on where we see acceleration or deceleration, but I can comment that, that is a -- it's just an absolutely fantastic self-storage market through all parts of the cycle. But it's going to low beta. We're going to see that market, unlike a Phoenix or some of the higher beta markets, you're just not going to see the big swings there, up or down as you do in other parts of the portfolio.

[Nicholas Joseph, analyst]

That's helpful. And then of the $29 million of other property income, how much of that is administrative and late charges versus insurance income and solar credits?

[Timothy Martin, executive]

Well, there's no insurance in there. So it's predominantly on the fee side.

[Nicholas Joseph, analyst]

Okay. Okay. Are there any -- does solar run through there?

[Timothy Martin, executive]

It runs through there. It's not a big component of it. It does run through that line item. It's not -- the solar credits were more impactful to the year-over-year growth and the second quarter than they were in the third.

[Operator]

Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

[Todd Thomas, analyst]

I just wanted to follow up on the questions around the guidance. So you maintained the same-store forecast, you narrowed the FFO range a bit, but the fourth quarter guidance FFO range is a little wider at $0.67 to $0.70. So $0.03 range with just 2 months left. I think you generally had a $0.02 range.

Is that just the week-to-week volatility that you're seeing and an indication that uncertainty is at real high levels, higher than it's been? Or is there something else specific that we should be thinking about from an FFO standpoint as we make our way through the end of the year?

[Timothy Martin, executive]

Great question, Todd. Nothing -- it's more of the -- I think, the latter. I was getting mixed up with the former and the latter. More the latter of your 2 answers to your question. It is -- it's just the range that we feel appropriately captures the potential outcomes. Obviously, you have to set a high end and a low end to get to somewhere in the middle that tends to make sense.

We also have a little bit of a disconnect between the annual guidance and the quarterly guidance because of the denominator with utilizing the ATM a little bit, but nothing you should read into that range other than us trying to provide a range that captures the volatility and the potential outcomes here as we close out the year.

[Todd Thomas, analyst]

Okay. And sorry if I missed it, but can you comment on October occupancy, where that stands and what that looks like on a year-over-year basis?

[Christopher Marr, executive]

Yes. At the end of October, yesterday, 89.9% in the same-store pool, 130 basis points behind last year.

[Operator]

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

[Omotayo Okusanya, analyst]

I just was hoping you could talk a little bit about kind of what average ECRI increases were in 3Q as well as the street rates, kind of how much they are down year-over-year on average for the quarter and also as the quarter progressed what was happening with those 2 metrics?

[Christopher Marr, executive]

Yes. Thank you for the question. I answered the street rate question previously. We had come down into the last couple of weeks of October, down about 9%, 9.4%. That was down from 11 average for the quarter.

In terms of the ECRIs that really has not changed from the cadence or the percentage increase on average across the portfolio in a bit here. It continues to be kind of that high teens average increase to those customers who are receiving one. But again, that's the average. The range is quite wide.

[Operator]

Next question comes from the line of Ki Bin Kim with Truist.

[Ki Bin Kim, analyst]

Can you just talk about the impact of supply on your portfolio, how that's shaping out in '24? And as we think about next year, how that might look?

[Christopher Marr, executive]

Yes. I'll let Tim or Josh give you the percentages of the portfolio that is being impacted by new supply here in '24 and maybe a little help on how that cadence has happened.

As we look out to next year, again, we'll update that and provide a new percentage impact as it relates to same-store pool when we provide guidance in February.

As I sit here today and you look across the country, I do feel like that percentage is going to come down as it has over the last couple of years. So supply is helpful and constructive, I think, in terms of trying to shape the narrative for 2025. On a macro basis, there will continue to be some markets like Washington, D.C., where we've taken the pain, we don't see a significant amount of D.C., Maryland, Virginia. We don't see a significant amount of additional supply coming on, and so you would see a market like that, we would think would benefit more so.

And then as I mentioned, you have some markets on the West Coast of Florida that are going to see, and have seen, a reasonable amount of deliveries this year which we would expect then will be weighed on as we go through 2025.

But Tim or Josh, I don't know if you know the percentages for it.

[Timothy Martin, executive]

Yes, happy to. It's -- we peaked out -- the number of our stores that were impacted by new supply was at its peak in 2019 at 50% of our stores. And since that time, it has steadily decreased the percentage of our stores impacted. And again, we think about that for stores that opened up in the year that we're focused on and in the prior 2 years. So kind of a 2.5 year, 3-year rolling impact because that's the period of time in which a store that opens up that is competitive with your store, we believe, has the biggest impact from a pricing standpoint.

So that 50% in 2019 has steadily come down. In 2024, that number is down to 27%. And as Chris touched on, we'll update that number as we complete our ground-up processes for the 2005 (sic) [ 2025 ] number when we provide guidance in February.

[Ki Bin Kim, analyst]

Okay. And maybe I can ask that in a different way. If you look at the new construction start activity, that might be likely in a kind of similar thinking, what does that look like? So if we have to kind of look out a few years, trying to get a sense of how low that can go?

[Christopher Marr, executive]

Yes. I mean I think -- and again, in our core markets, you continue to see the overall level of starts decline. You certainly have folks who have projects they would like to start. But when you look at cost of capital, capital availability on the lending side, the competitive rate environment we're in for new customers, as always, it's a micro market business. So there are sites and locations that still make sense in spite of that. But overall, I would expect that we need to work through both sides of the equation, cost of capital and rental rate to be able to have a lot of sites pencil out and make sense here over the next -- I'm going to guess, over the next 12 to 18 months.

[Timothy Martin, executive]

And then you think about that trend line. In '25, what we're looking at is new deliveries in '25 would be added to impacting our stores but then in our minds, falling out would be all of those deliveries in '22. So when you're thinking about that incremental impact overall, you're saying our 2025 deliveries in our markets that are competitive with our assets more or less than deliveries that we saw in 2022, sure feels like it's going to be less.

In particular, when you get into some of the assets that Chris touched on a few questions ago, which are when something opened up in one of the -- out of boroughs of New York and Brooklyn Queens, Bronx it tended to not impact one of our stores, but many of our stores because the assets are so clumped together. So there are a lot of things moving around. But certainly, we feel like supply is becoming less and less of a headwind as we go.

Your question of what could it eventually be? That's an interesting hypothetical question because we experienced that period of time in 2011 through 2014, where the industry saw almost zero. And that was fabulous from the impact on operating fundamentals, but the reason it was zero was because there were a lot of other things that were going on in the world and in the sector, you kind of never wanted to go to zero because zero implies there's something else that's wrong. You'd almost rather see supply get down to a level where it approximated growth in demand. And in the places where demand is growing, of course, that's wishful thinking because that's never the way it works in the real world.

But ultimately, you would like to see some level of supply that mirrors growth in demand, i.e., population growth and movement around the country, that would be -- I think that would be ideal from a sector perspective.

By the way, before -- I'm sorry, before you prompt for the next question. I wanted to go back to a question that Nick Joseph asked a little while ago about whether tenant insurance was included in other income.

And just for clarification, I took that in the context of in the same-store portfolio. And so for our same-store portfolio, tenant insurance is not included in other income. On a consolidated basis, when you think about total results, not just same-store tenant insurance does show up in the other income line item there. So I want to make sure I wasn't misleading in my answer to that question.

I'm sorry, John, you can prompt for the next question.

[Operator]

And for our next question, we have Mike Mueller with JPMorgan.

[Michael Mueller, analyst]

Just a quick one. On the two acquisitions that you announced, can you talk about how well occupied the properties are and the going in expected yields?

[Timothy Martin, executive]

Yes. Sure. So interestingly, there are two very separate transactions on different sides of the country, but some of the statistics are almost interestingly and coincidentally about the same.

Each of these opportunities were stores that were built 3, 3.5 years ago. So they're not completely stabilized as we bring each of them into the portfolio. Each of them, they range in occupancy coming -- when they come on to our platform, they'll be in the 70%, 75% type occupancy. So there's one more leg of lease-up in each of those opportunities, combined with us bringing some value into things like tenant insurance and getting them fully economically stabilized.

So we're looking at each of those assets in a cap rate at stabilization kind of year 2 right around a 6% cap for each of those opportunities, plus or minus. But coming on, they're not fully stabilized. So it's a little bit lower than that.

[Operator]

Our next question comes from the line of Eric Luebchow with Wells Fargo.

[Eric Luebchow, analyst]

I know you answered several questions about the acquisition market, but maybe you could talk about what you're kind of seeing in the pipeline? Is it more of the kind of single asset deals that you've executed on over the last year? Or are there some larger portfolio deals that you see in your funnel as well?

[Christopher Marr, executive]

Yes. Thanks for the question. It really is all over the place. I think what is consistent today is what we've been talking about here for several quarters is I do think there's an awful lot of inventory that is building up for folks that either want or need liquidity at some point. And so I think when the floodgates open up to the extent that they open up, I think you're going to see a variety of opportunities ranging from that single asset opportunity to small- to medium-sized portfolios to potentially even something a little bit larger.

I think large portfolio transactions are a little bit more difficult. I think the line of potential buyers is shorter certainly than it was in 2021, given the cost of debt and debt availability to many potential buyers of larger portfolios. That positions us and some others like us perhaps to be in a nice spot because we do have access to capital and it would be great to be on the buying side of the table and have a shorter line of folks on that side of the table.

But I don't think you're going to see opportunities that are just small assets or just large portfolios. I think it's across the board as there are just pockets of capital that don't have forever time horizons associated with their self-storage investments and they need to find liquidity at some point.

[Eric Luebchow, analyst]

Fair enough. And just to piggyback on that, I mean, you did raise a little bit of equity in the quarter. So just thinking as you think about the potential for external growth to pick up, like how are you thinking about funding that from a leverage perspective, maybe tapping the market if you see opportunities to issue equity? Just any comments there would be helpful.

[Christopher Marr, executive]

Certainly. So we've worked hard for a very long time to create a balance sheet that has -- that is low risk and also has capacity for us to support that external growth part of our strategy. And so at third quarter with debt-to-EBITDA down at 4x, it gives us a tremendous amount of capacity to use debt to the extent that we find opportunities to use that leverage bullet. And we could comfortably be within the credit metrics that we target long term for our credit rating, a full turn higher than where we sit today. So you translate that, that means that we could acquire roughly $1 billion worth of assets fully levered and still have credit metrics that work for us. If we were to do that, hypothetically, we would then work to bring it back down and create the capacity so that we would be in a position to do -- to be in the same position we're in today. You've seen us do that repeatedly here over the past 10 to 15 years.

So when we see an opportunity like we have in front of us right now and we can match fund an equity component of that, in an equation that makes sense given where our equity cost of capital is, where the opportunity set is, we love to continue to maintain that capacity. At the same time, we're more than happy to use that capacity if the math makes sense from that standpoint.

So we really feel fortunate to be well positioned to go in a lot of different directions, depending on the environment we find ourselves in at the moment and the opportunity set that's out there.

[Operator]

Our next question comes from the line of Brendan Lynch with Barclays.

[Brendan Lynch, analyst]

You mentioned the New York Metro is particularly strong. So I'm curious on the 30% occupancy of the 2 stores that delivered last quarter, how that compares to your expectations and how it compares to past new development lease-up trends?

[Christopher Marr, executive]

Yes. Thanks for the question. Both of those stores performing, I would say, in line with our expectations on the occupancy side as they've come into the portfolio. No surprises for us on either of those one way or the other.

[Brendan Lynch, analyst]

And maybe a follow-up there. What is your appetite for new development starts versus other potential uses of capital?

[Christopher Marr, executive]

Yes. We obviously are interested in continuing to grow the portfolio where appropriate and where it makes sense. As I shared, on a macro basis, it's challenging today to find attractive sites in the small number of markets where we're interested in development and taking that risk for that reward.

But on a micro basis, yes, there are certainly neighborhoods where storage is low square foot per capita. We believe a project would do well, and we continue to pursue those opportunities. It has just been challenging for us to find that combination of those special sites with a site that makes sense economically.

[Operator]

As there are no further questions at the queue at this time. This concludes our Q&A session. I would like to turn the call over back to Chris Marr for closing remarks.

[Christopher Marr, executive]

Okay. Thank you. So I think, as I mentioned in the release, we recently recognized our 20th anniversary as a New York Stock Exchange traded company. So I would like to thank everyone who has been involved over that journey from 20 years ago through today with a special thank you to our teammates who are with us today and were with us 2 decades ago, and deeply appreciate their commitment to our company and their commitment to customer service.

So with that shout out, we'll wrap it up and thank everybody for your participation and have a great and safe weekend.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a pleasant day, everyone.