CUBE

Hello everyone. Thank you for joining us, and welcome to the CubeSmart First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question please press star one on your telephone keypad, to withdraw your question press star one again. I will now hand the call over to Josh Schutzer, Senior Vice President of Finance. Josh, please go ahead.

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

The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K, and the risk factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.

Thank you, Josh. Good morning. First quarter showed a continuation of trends from late last year with results that were in line with our expectations. We are encouraged to finally see the inflection in same-store revenue growth this quarter as the stabilization in operating trends we experienced in late 2025 is flowing through the financial metrics. We expect continued gradual improvement throughout 2026, albeit without a projected catalyst coming from the macro environment. Positive move-in rates and same-store revenues were supported by steady demand trends and lessening headwinds from new supply. We are encouraged that the wave of new stores from the last couple of years continues to lease up while the forward pipeline remains lighter. This environment continues to showcase the strength of our quality-focused strategy with primary markets outperforming and showcasing their lower beta characteristics.

Steady demand when combined with fewer vacates resulted in a 240% increase in net rentals for the quarter, helping to narrow the year-over-year occupancy gap to now 20 basis points by the end of April and putting us in a good position entering the spring-summer busy season. Our more stable urban markets in the Northeast and Midwest continue to outperform, while our more transient supply-impacted markets across the Sun Belt and the West Coast are beginning to see green shoots in the form of second derivative improvement. We are also encouraged by pricing trends. Last year, we began seasonally pushing rates a little earlier, which for us created a tougher March comp, but move-in rates have improved throughout the month. They ended the quarter up 2%, and that +2% spread held through the month of April.

Across all markets, our existing customer metrics remain strong with no change to attrition rates or credit. Our pricing and operating strategies when combined with our best-in-class portfolio are attracting a high-quality customer who is remaining in the portfolio longer. Looking at performance across markets, 21 of our top 25 MSAs saw a sequential improvement in same-store revenue growth during the quarter. The Acela Corridor continues its outperformance led by New York, Boston, and Washington, D.C. MSAs. Midwest markets led by Chicago maintain their steady pace of improvement. Major Sun Belt markets showed encouraging signs with Miami swinging to positive same-store revenue growth and Phoenix and Atlanta making meaningful progress in their recovery from the influx of new supply. We are proud of the work our operations team has done to have us well-positioned to capitalize on the opportunities presented as we transition into our busiest time of the year.

We remain committed to our strategy of building the highest quality portfolio in the storage sector. Through cycles, our target markets and their strong demographics produce the best long-term risk-adjusted returns. The strength of our portfolio demographics and density of populations around our stores ensures stability of demand and insulates our portfolio from some of the cyclicality faced by more transient and supply-impacted markets. We are confident that our focus on building the highest quality portfolio in the self-storage sector by acquiring high-quality assets in top markets will create meaningful value for our shareholders over the long term. Thank you, and I'll now turn the call over to our Chief Financial Officer, Tim Martin, for his comments.

Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. First quarter results were encouraging, coming in at the high end of our expectations, giving us a nice positive start to the year. Same-store revenue growth was 0.6% over last year, and as Chris mentioned, nice to see top line growth flip to positive for the first time since mid-2024. Move-in rates remain positive year-over-year, while the occupancy gap further narrowed to down 30 basis points from down 70 basis points at year-end. The early months of 2026 were a continuation of trends from last year, with generally stable overall levels of demand.

Demand does vary across markets and sub-markets, with a continued bifurcation in performance between the outperforming core urban markets in the Northeast and Midwest, and the more volatile performance across the more supply-impacted markets throughout the Sun Belt and Southwest. We have seen second derivative improvement across most markets. Same-store operating expenses grew 5.8% over last year, in line with our expectations. After four straight years leading the industry in expense control, our expectation is for more inflationary type growth this year, with some particularly tough comps early in the year leading to outsized growth in the quarter. We knew snow removal costs were gonna be elevated over the prior year. Those elevated costs accounted for about 120 basis points of our overall quarterly same-store expense growth.

We entered the year with attractive return opportunities across our primary marketing channels and a plan to front-load some of our spending to take advantage. When combined with a tough comparison, as we had historically low spending in the first quarter of 2025, the year-over-year growth was robust. We expect that for the full year, marketing as a percentage of revenues will align with historical trends. Personnel expense growth reflects our continued focus on delivering the experience our customers tell us they desire. Two-thirds of our customers tell us they want some level of in-person service. As we continue to fine-tune staffing based on our data-driven prediction models as well as our first-person customer feedback, we expect personnel expense to grow at current levels throughout the first half of the year, tapering a bit in the back half as year-over-year comparisons ease.

Revenue growth of 0.6%, combined with 5.8% expense growth, yielded -1.5% same-store NOI growth for the quarter. We reported FFO per share as adjusted of $0.63 for the quarter, which was at the high end of our guidance entering the quarter. On the external growth front, we continue to execute on our disciplined capital allocation strategy, looking for creative avenues to attractive risk-adjusted returns in this environment, where the disconnect between public and private market valuations persisted. We again repurchased shares in the quarter as the relative value of our portfolio made it our most attractive investment option.

We own the highest quality portfolio of self-storage assets, and at the low valuation levels during the quarter, the best risk-adjusted return we had was investing in our existing high-quality portfolio rather than the relatively higher private market valuations for what were ultimately inferior assets. Year to date, this has been our most attractive avenue for capital deployment. We also closed on the first store in our recently announced new joint venture with CBRE IM, with a $250 million mandate to invest in high growth markets, allowing us to continue to grow the portfolio with enhanced returns. In the current environment and our current cost of capital, joint ventures such as the CBRE venture are a good investment option for us to pursue.

On the third-party management front, we added 33 stores to the platform in the first quarter and ended the quarter with 854 third-party stores under management. Our balance sheet remains well positioned, with conservative leverage and access to a wide range of capital sources to fund potential growth. We have a bond maturity late in the year that we will address with existing capacity or through accessing the debt markets opportunistically in the coming quarters. Details of our 2026 earnings guidance and related assumptions were included in our release last night. As I opened with, performance in the first quarter was encouraging and in line with our expectations, resulting in no change in our guidance range and underlying assumptions, with the small exception of a slightly lower share count resulting from our share repurchase activity. Thanks again for joining us on the call this morning.

At this time, Paige, why don't we open up the call for some questions?

All right. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from Samir Khanal with Bank of America. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Hey, Chris. Looking at your advertising expense, growth was up, you know, year-over-year. I guess, when do we start to see the impact of that come through? You know, average occupancy was up slightly sequentially. Just help us understand kind of how to think about occupancy with the spend you're doing. Should we expect a bit of a ramp-up in 2Q? Maybe you can unpack that for us. Thanks.

Sure. Thanks for the question. As Tim touched on, there was a lot of variables that went into the marketing growth in Q1. You know, obviously starting with relatively, by historical standards, low spend in the first quarter of 2025, a very difficult comp we knew we had. We were experiencing late last year and going into the beginning of this year, good ROI on the spend across all of our channels. Continue to see some good opportunities through not only paid search, but also, as the LLMs continue to evolve, some interesting opportunities there, as well as in social and those channels. The spend, in terms of a translation, it's always gonna be that balance between occupancy and rate.

Certainly, as we think about the ROI on that spend, it's a combination of those two. Are we getting more customers, you know, into the top of the funnel? That answer is yes. You know, are we able to convert those customers at better rates? That answer is yes. Ultimately, as you've seen in the trends in asking rates, and as I mentioned, that continued to be in positive territory, up about 2% in April. That occupancy gap, as I said, continued to contract, was 20 basis points at the end of April. We're starting to see it fairly quickly in both rate and occupancy, and would expect that trend to continue.

You know, again, that being said, this is a weekly decision, as we think about how to allocate capital to our marketing line item, it will continue to ebb and flow. As we sit here today, as Tim mentioned, for the full year, our expectation is as a percent of revenue, marketing will be in line with what we would have seen from historical trends. Thanks.

Thank you for that. I guess, just my second question is on New York certainly holding up well. Maybe talk about kind of the demand trends you're seeing in New York, and certainly, anything on supply would be great as well. Thanks.

I think New York continues to be a star performer for us. It's why we love the market. Incredibly resilient through cycles. What we're seeing is, you know, almost a complete absence of new supply in the outer boroughs, certainly that competes well overall, and then for stores that compete with an existing Cube. That sharp decline in supply that we've seen now over the last couple of years is being very helpful as we think about the performance of our same stores. We have a very challenging rental housing market in terms of cost in New York, you are seeing folks looking for solutions to that issue. Certainly we are one of those solutions that folks are finding.

Continue to be productive. Manhattan, where we have, you know, one owned and a few managed, they're getting some supply. You are seeing some of those stores, particularly those that may have overweighted the unit mix to the really small, blocker-sized units are a little bit softer there. The outer boroughs continue to perform really, really well.

Thank you.

Thanks.

Our next question comes from the line of Michael Goldsmith. Goldsmith, my apologies, with UBS. Your line is now open.

Good morning. Thanks a lot for taking my questions. Chris, in the, in your prepared remarks, you noted a 240% increase in net rentals in the quarter. Maybe you can break that number down a bit, both the steady demand and fewer vacates and what that could mean for trends going forward.

Yeah. I think the trend in the quarter is pretty consistent with what we had seen historically over the last bit. We disclose it on page 16 of the supplemental package. Rentals in the first quarter were down 1.8%. Here in April, we actually had rentals that were up about 1% year over year, good top funnel demand in April at good prices. Very encouraging trend to start off the second quarter. Vacates were down 3.9% in the quarter. Again, that's just what I think we're seeing a little bit across the industry. The existing customer base is particularly sticky, staying longer than certainly pre-COVID historical trends.

Thanks for that. My final question relates to the guidance reaffirmation. You know, you know, regarding that, is that just a function of it's early in the year, and the peak leasing season is really going to determine the trajectory of the annual results, or is there just a level of conservatism? Just trying to get a understanding of the thought process behind reiterating the guidance. Thanks, Tim.

Thanks. Thanks, Michael. We just provided the annual guidance not all that long ago, the first quarter played out, as we mentioned, very consistently with our expectations on both revenue and expenses and overall from an FFO standpoint, just, you know, ending up at the high end of our guidance for the quarter. Nothing has really changed. Nothing happened in the first quarter that would cause us to reevaluate the impact for the full year. As we sit here getting ready for our primary leasing season, we're in the same place as we were 60 days ago, ready to go and looking to capitalize on all the opportunities that will present themselves.

Nothing has happened in the last 60 days that has had an impact or a change on our overall view for the year.

Thank you very much. Good luck in the second quarter.

Appreciate it. Thanks.

Our next question comes from the line of Ravi Vaidya with Mizuho. Your line is now open. Please go ahead.

Thank you. Good morning. I wanted to ask about your thoughts about broader regulation and maybe price moratorium that may be in New York and maybe a couple other markets. Have you had discussions regarding any sort of pricing restrictions or policy shift or moratorium that you could be anticipating from the current administration here in New York?

Morning. We have not engaged directly in those conversations. You know, as we've seen across a variety of different real estate product types, as well as other industries, certain municipalities have been focused in on varying factors affecting the consumers. You know, we believe that we offer a valuable solution to our customers who are experiencing a need to put their valuable possessions in a self-storage facility for a period of time that they define. We think we provide a good value for that service. From our perspective, you know, we continue to be keenly focused on that customer service element and providing a good value and a solution for their need.

As you know, varying things governmentally ebb and flow, we'll continue to be involved as appropriate.

Thank you. That's really helpful. I wanted to ask also about the fee income realized in the quarter. It was elevated this quarter, also the elevated last quarter. What's driving that? Thank you.

Yeah. On the other property income line item, there are a variety of things that are in that line item. They include merchandise sales, locks, boxes, fees, as you mentioned, truck rental income. We're always looking at ways to enhance and grow our cash flows in those areas. And we've had some success in that in that line item. If you think about the level of growth in that line item in the first quarter, we would expect the first quarter to be a little bit higher than where we would land for the full year as it relates to growth on that line item.

You know, we always continue to look for ways to provide many services to our customers, and some of them show up in that line item.

Thank you.

Thanks.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.

Hi. Good morning. Just hoping you could talk a little bit about the 26 earnings guidance, implies a bit of an acceleration, but flat on same-store revenues. Just hoping you could talk through the dichotomy and the acceleration versus flat between earnings and same-store rev. Thanks.

I'm trying to understand your question. Certainly, our guidance implies that there is, within the range, there is an opportunity for top line to grow throughout the year, and that's gonna be the result of all the trends that Chris touched on, a narrowing gap in occupancy, some better rates to new customers. Looking at top-line growth, that could accelerate a little bit. We talked about the expense, somewhat of an anomaly of some really difficult comps, the snow being part of it, marketing expense year-over-year. The first quarter had an expense growth that's, you know, that's higher than the range. If you're looking at accelerating NOI growth then, throughout the year would be the expectation that's embedded in the guidance.

Was there another portion of your question that I missed?

No, that's helpful. Thanks, Tim. Just switching gears on the third-party management. You guys have had some success on the gross side, growing the relationships, but the net number has seen a little bit of shrinkage. Just curious on how we should think about the net number going forward and the different pushes and pulls in that business.

Yeah. It's a little bit analogous to, you know, to our customers and their length of stay. We continue to add stores to the third-party management platform. Again, 33 more this quarter. We have a great pipeline that looks pretty similar to what it would look like this time of year over the past few years. Our team in the business development side is focused on finding owners or expanding our relationship with existing owners. What we can control is having an attractive offering and providing great services to our third-party owners and adding stores to the platform. What we can't control is when they decide to transact and sell their assets. There are times where we are the acquirer of those assets.

We have, we've bought over $2 billion worth of assets of, you know, from stores that we had previously managed. In an environment where, you know, where we are today, we oftentimes are not the buyer. The majority of the stores that leave our platform are because of a transaction, and they sell to somebody who self-manages or they choose to, you know, they have an existing other relationship that they use to manage their stores for. Very difficult to predict.

It ultimately, when stores leave our platform, in large part it means that we've, you know, job well done because we've managed a store for somebody, helped to create that value to put them in a position to be able to seek liquidity, and they tend to do pretty well as we create a lot of value for them.

Appreciate that. Thank you.

Thank you.

Our next question comes from the line of Todd Thomas with KeyBanc. Your line is open. Please go ahead.

Yeah. Hi. Thanks. First I just wanted to follow up on April. I think, Chris, you said April rentals were up 1% year-over-year. How did that look on a net rental, net rentable square foot basis? Can you discuss occupancy through April and sort of, you know, quantify the move-in rents that you discussed a little bit? You said that rentals were at good prices. Can you just elaborate on that a little bit?

Yeah. Thanks, Todd. I, you know, through the month, we continued to see nice demand in April. The rentals or the move-ins were up just a little bit shy of 1% throughout the month. You combine that with the continued trend in lower vacates and occupancy from March to April, not to confuse these two, 20 basis points. Occupancy from March through April grew sequentially about 20 basis points, that occupancy gap at the end of April to April of last year was also had also shrunk to about -0.2 basis points, -20 basis points.

The rent through April, as I mentioned early on, at the end of March, that last few days of the month, we saw average rent rate on rentals right around 2% for those last couple of days of the week or the last week of March. Those trends continued throughout April, and the average rent rate on rentals in April was +2%.

Okay. That's great. That's helpful. I just wanted to see if you could speak a little bit more around the improvement that you're seeing in some of the Sun Belt markets, some of the more challenged or supply challenged markets, I guess, that you've discussed. You know, do you see that trend improving and continuing as you move through the year, or does it, you know, remain sort of choppy in the near term in your view?

I think as it relates to Miami, does feel as if the wave of supply has been reasonably absorbed. You're still seeing, albeit, the velocity is less than what certainly we saw coming out of 2021, 2022, 2023. The velocity of inbound folks into the Greater Miami is reduced a bit, but still pretty healthy. Feeling pretty good about that MSA. Phoenix and Atlanta, as you think about where they're heading, this is really one of the first quarters where we saw some good positive momentum in those two markets in terms of starting to chew into the negative same-store revenue results that we've seen over the last year or so. Cautious on those two.

Would like to see another quarter or so of that momentum continuing before you would, you would feel much more calm about those two.

Okay. It doesn't sound like you would continue to expect the Acela corridor to be outperforming at year-end. Do you know, see potential for there to be sort of a handoff during the year or late in the year as we start to think about 2027?

Yeah. Maybe a little premature given, you know, as we're starting to get here into the busier season. Certainly, would not be surprised if the Acela corridor from an overall growth for the year, is at the top of the pack.

Okay. Thank you.

Our next question comes from the line of Eric Wolfe with Citi. Your line is open. Please go ahead.

Thanks. It's Scott, make sure it's appear with Eric. We continue to see consolidation within the storage sector. Just curious if you think there are benefits to being kind of larger, or at a certain point, it does it kind of diminish and, you know, once you're large enough, there's not incremental benefits to getting even bigger?

Yeah. I think from our perspective and how we think about portfolio construct, there is value to having scale in market. I think, having a portfolio that has brand awareness and scalable opportunities on both the pricing and the expense side within markets and sub-markets, I think has proven to be a good strategy. I think when you think about scale on a national level, I think those benefits diminish relative to what you can get within scale and market.

Thank you. Just on the buybacks, you know, as you think about funding continued buybacks, where are you willing to take leverage assuming your stock stays at these levels?

Hey, good morning. You know, what we talked about when we, when we executed on the share repurchases, last quarter for the first time is that, we generate roughly $100 million in free cash flow. Kind of the first level of analysis for us when thinking about the share repurchases is, has the valuation been disconnected enough for long enough? When we got to the fourth quarter, they, you know, both of those boxes were checked, and so we started to execute on the share repurchases. A little bit more than $30 million of those purchases in the fourth quarter, another little bit more than $30 million in the first quarter. You know, you kind of think about that tracking towards utilizing that free cash flow that we generate to repurchase the shares, plus or minus.

To this point, we've been repurchasing shares effectively with no impact on leverage. If you were thinking about how you would execute on share repurchases above and beyond that $100 million-ish for us on an annual basis, then you're getting into your question, which is how much leverage would you be willing to use. I think for us then that goes up another level. Not only would the disconnect between public and private market valuations have to be big enough for long enough, you're then also then taking a view on for how long do you think going into the future, because our equity capital is precious to us. We need to raise equity capital to support our growth over time. We don't take executing on our share repurchases lightly from that perspective.

We talked last quarter about how could we then continue to navigate through an environment where there's this disconnect. That's where we started looking at and continue to look at opportunities where perhaps we take some assets that we could contribute to a co-ownership vehicle and take some of the proceeds from that to support additional share repurchases above and beyond kind of that $100 million level. That would be a way for us to continue to navigate and create shareholder value consistent with our long-term strategic objectives of having the highest quality portfolio so we could improve the quality of our portfolio through contributing some of those assets and take advantage of the arbitrage then between public and private market valuations.

It's not super appealing for us to just lever up the balance sheet to repurchase shares for the reasons that I mentioned earlier.

Thank you very much.

Thank you.

Our next question comes from the line of Michael Griffin with Evercore ISI. Your line is open. Please go ahead.

Great, thanks. It seems like existing customer trends continue to be strong, you know, Chris, I'm curious if you can either quantify or give us some color on the rate increases that are going out now versus maybe this time last year. Are you getting more aggressive trying to push on those ECRIs? Have you seen any, you know, customer pushback when it comes to getting those rate increases, or are they still generally pretty willing to swallow them?

Morning. The magnitude and the pace of increases to the existing customers is generally unchanged from what we would have seen first quarter of 25 and here into April on a year-over-year basis. Really no fundamental change. From an overall customer behavior, and this, you know, starts with broadly credit and how we think about, you know, units falling into arrears, receivables, units going to auction, et cetera, have not seen any measurable change in consumer behavior. We certainly watch all of those metrics quite carefully, particularly given some of the macro impacts we're seeing on the consumer.

Thanks, Chris. Appreciate the color there. On the transaction market, I realize that just given where deals are trading right now, maybe relative to your cost of capital on balance sheet acquisitions might not make sense right now. Can you give us a sense of, you know, the deal volume, how investors are receptive to self-storage product out in the market? Is there any way for you to compete on wholly owned acquisitions, or are JV deals probably the more opportune avenue to go down at this juncture?

Yeah. Thanks, Michael. The transaction market hasn't really changed all that much. There are still, there's still a pretty healthy number of assets that are out there, and brokers are representing a lot of potential sellers. I would say the environment has been very similar now for several quarters in that many of the assets that are on the market will trade if they get to the seller's targeted price. Many of them don't. I would say the hit rate on transactions closing remains lighter than certainly historical levels.

You know, our cost of capital, just back to the share repurchase conversation, when you think about choices for us and different items on our capital allocation venue, year to date, year share repurchases have been more attractive given the quality of our portfolio versus the quality of an opportunity that we see out there. Our team, our investments team continues to be very active and very busy underwriting a ton of opportunities. It's just the, you know, the clearing price on where things are trading or where a seller desires them to trade versus a valuation that makes sense for us to acquire that in a creative way, both short, medium, and long-term, just doesn't work right now.

On the joint venture side, what I was alluding to is, we can make our dollar go a lot further in this market by being a piece of a joint venture. Then from our standpoint, we can get some enhanced returns given the fee structures and management fees and the like in our invested dollar in a joint venture investment. I would say that the result of what you've seen for us for the past many quarters is that there are assets that are trading. There is a strong desire from many pockets of capital to be in the storage space, just not evaluations that are attractive to sellers at the moment.

Great. That's it for me. Thanks for the time.

Thank you. Appreciate it.

Our next question comes from the line of Viktor Fediv with Scotiabank. Your line is open. Please go ahead.

Thank you. Good morning, everyone. You mentioned that you'll be addressing the September 2026 note maturity with potentially, like, existing capacity or opportunistic issuance. Given where credit spreads are today, is there a timeline or tenor you're targeting?

Yeah, we have a nice, we have a nice gap in our maturity schedule, seven years out. Anything 10 years or longer is wide open on our maturity schedule. You know, likely paths for us are to evaluate from a tenor perspective, likely either a seven or a 10-year bond. We do have amounts drawn on our line as we started the year. I think we saw a possibility that maybe we would go twice this year, and we still could, and perhaps do a chunk in, of sevens and a chunk of 10s. Obviously the world has been pretty volatile here in the beginning part of the year.

You know, we look at, for us pricing, if we were to go today on a seven-year, would be right around 5%, just a little bit higher. Then on a 10, we would be in the low to, you know, pushing mid-5% range for a 10-year bond. We'll continue to be, you know, to monitor the markets and be opportunistic. We're in a great position that if we don't feel, and if we don't see an attractive window to access that market, we have capacity to address that maturity, and we'll be patient and opportunistic.

Understood. Second question, just a quick follow-up on your churn, 'cause obviously first quarter was impacted by weather conditions, so you saw decline in both move-ins and more substantial on vacates front. You mentioned that so far second quarter is positive territory for move-ins, but still down year-over-year on vacates. Just trying to understand whether we can expect some acceleration in vacates as a kind of flowing through Q1 being slower, or you don't see that in the most recent data?

As it relates to the weather, you know, I think the reality in the storage business is that it impacts both the move in and the move out. If your intention on a miserably snowy Saturday was to vacate, you likely defer, but eventually you're done with the product. At some point when the weather clears and it's comfortable to access, you depart. Similarly, for the most case on the move-in side, it's more of a deferral. Now there, if it was a move-in from someone who's, you know, in transition from point A to point B, then they defer, but they still need to transact.

If it was, if it was a solution to another problem where you had some variability to your need, then perhaps that customer doesn't come back within the near term and, and waits for another day. It has a little bit of an impact in the near term, but over the course of time, I think it tends to work itself out. I think the trends we've seen are very consistent with what has been occurring over the last year or so, which is, you know, the impact of supply has certainly been felt on the move-in side. Customers have more options within a market. I think, as we said on the earlier remarks, that impact continues to decline, and we expect it to continue to decline.

That's been a bit now more of a helpful tailwind than a headwind. On the vacate side, I just think we're seeing a customer base, particularly in the more urban stores, for whom we are a more semi-permanent solution to their particular need as opposed to the more typical, you know, pre-COVID, where it was a transaction in which a customer was simply moving from point A to point B and had a more defined timeline for their length of stay.

Understood. Thank you.

Thanks.

Our next question comes from the line of Brendan Lynch with Barclays. Your line is open. Please go ahead.

Great. Good morning. Thanks for taking the questions. Chris, you mentioned large language models in the context of advertising spending. Can you just give us an update on how Cube is using large language models and how it's changing dynamics for acquiring clients?

Very early stages in terms of certainly our product and how folks are searching for it. We're still seeing only about 1% or 2% of the customer conversions to a rental coming through channels, search channels, not paid search, but increasing gradually. Again, I think it is it's interesting because it's creating an opportunity for sort of a longer tail search that brings in a disparate characteristics in terms of what the customer is searching for. As an example, looking not only for geographic convenience, again, self-storage near me continues to be the most searched term, but also bringing in the more qualitative of not just convenience, but high quality service, good value. It's creating an opportunity to begin to have a bit more of a spatial search.

Help me understand how to store all the possessions in my one-bedroom apartment, et cetera. What feeds into that, though, is not all that different than what we would have seen, you know, as we somewhat evolved from Yellow Pages to paid search. It's, the geography is the geography, but being able to have reviews or other content that enhances and validates that your store has those characteristics that that customer is searching for, good value, great customer service, et cetera. Very early stages, continues to evolve. You know, the monetization of that is not quite there yet either in terms of, you know, how are some of these LLMs ultimately gonna monetize the value of having that customer come through that channel.

Early and interesting, and we're doing a lot of work with, you know, our great team here internally on the marketing side and with a lot of our external partners to continue to make sure that we are well-positioned as this evolves.

Maybe a follow-up on that. Are you finding that customers who are using the large language models can be more efficient in the amount of space that they take? I'd imagine if you didn't have the capability to assess really what amount of space you needed for, say, a one-bedroom apartment. If you ask a large language model and it says you need a 10 by 10, you might have otherwise taken a 10 by 20. Just kind of walk through those considerations about how the customer might be benefiting as well.

Yeah. Again, very, very early in this whole journey, not at a point to draw any conclusions. One of the, you know, one of the headaches, frankly, in our industry is that our customers in general are not always the most spatially aware. It's sometimes difficult to understand how all the contents of your one-bedroom apartment may fit into a 10 by 10 storage cube. To the extent that the LLMs and the various-Inputs help that customer make the right decision on the front end. I think that's very helpful from a frictional cost perspective to us because having to have them begin the journey and then discover that they either went too large or too small and they need to relocate to another cube is a operationally frictional cost to us.

Okay, great. Thanks for the color.

Thanks.

Our next question comes from the line of Eric Luebchow with Wells Fargo. Your line is open. Please go ahead.

Great. Thanks for taking the question. Tim, I know you talked a little bit about potential co-ownership or JV structure to contribute some assets. I guess as you think about that potential structure, would you focus more on your core urban assets in the Midwest or Northeast that have been more stable the last couple years, or potentially look at more, you know, Sun Belt markets where trends have been a little choppier?

Yeah. Appreciate the question. Overall what we would hope to do is to again, be consistent with our long-term objective to have the highest quality portfolio. Most likely what we would do is look for assets that we could contribute that are in, you know, perhaps outside of top 40 MSAs or assets within top 40 MSAs that are more on the outer ring of that particular MSA versus, you know, kind of the core inside. You know, you go through that analysis to say, do you wanna target assets that have- -or in markets that have been, you know, underperforming or under pressure from supply and the like, Would you be, you know, potentially, you know, leaving some meat on the bone for some of those assets as those markets inevitably recover and start to outperform? You know, all of those things are considerations. It's complicated and. We continue to work through that because, you know, at the moment within the current environment, we think it potentially could be a pretty attractive path for us.

Great. Appreciate that. I guess just rough numbers, are you still seeing, you know, acquisition cap rates kind of in the lower 5% range for Class A, or have those kind of moved at all year to date?

No, I think that's a safe characterization, and we're seeing things, some things trade even tighter than that. I would say very low fives, you know, tends to be where things are trading. Sometimes you get into the mid fives. A lot of sellers based on what they're looking for would imply something very tight even inside some of those numbers.

All right. Appreciate it. Thanks, guys.

Thank you.

Our next question comes from the line of Mike Mueller with JPMorgan. Your line is open. Please go ahead.

Yeah. Hi, just a quick one. Are you seeing any pockets of opportunity where starting to see development make more sense at some point and, you know, where we could see activity pick up in the next few years for you?

Good morning. No, is the short answer. I think there are always going to be a unique opportunity in a market where you don't have supply in the trade ring, whether that be ground up or a conversion of an existing asset. So it's not zero, but I think the inputs in terms of costs, and then the ultimate underwriting of rental rate for the new customers to fill up the new store continue to make development quite challenging on a broad scale.

Got it. Okay. Maybe just something on ECRI. I know you talked about the consumer being good and accepting ECRI. If you look at the move-outs that tend to happen, do you have a sense as to what portion leaves, you know, in conjunction with ECRI versus they just don't need storage anymore and maybe the split compares to, I don't know, what you've seen in normal times over the past?

Yeah. The to the best that we can get at that, again, we are. You know, we're observing that customer that gets a rate increase and then their behavior in the weeks and months following that and comparing that to, you know, our expectations based on historical data over a long period of time, and we haven't seen any change in that trend. The stated reason, the overwhelming amount of time for why a customer chooses to leave the portfolio is because they no longer have the need for the storage cube that brought them to us in the first place.

Got it. Okay. Thank you.

Thanks.

Our next question comes from the line of Spenser Glimcher with Green Street. Your line is open. Please go ahead.

Thank you. I appreciate all the color you provided on the third-party management business. Just curious if you think that over time your more sophisticated AI usage or machine learning will bring a greater portion of smaller or operators to your platform?

Yeah, I think you put that in a laundry list or a bucket of a lot of things that we and a handful of sophisticated operators bring to the table. I think that's one of those areas where, you know, Chris touched on a little while ago, we're early stages, but as the search for the product evolves from an AI perspective, opportunities to improve operational efficiencies, pricing systems, the larger players are going to most likely be, you know, be the winners and be on the front edge of a lot of that evolution.

I would think that if I were an owner of a store and looked at how challenging of an operating business that we're in, that those large players like us have those tools, have those advantages. I would just put that in a bucket with a whole bunch of other things that have us stand out as to why our platform is gonna help create the most value for their self-storage asset.

Yeah, that's fair. Do you think it'll be incumbent upon you and the team to go out and make that point, like, very clear to smaller operators as part of just kind of like an outreach and trying to have others see the in-growing value of your platform? Do you think that will just naturally bring smaller operators to you without kind of additional work on your end?

I think it'll be a combination of those things. Certainly our business development team and, you know, we're at trade shows and a lot of our third-party opportunities come from referrals, and so we need to do a good job and continue to do a good job for our existing owners because their referral is one of our most important contributors to adding stores to the platform. At trade shows and our, you know, our quote-unquote dog and pony show, certainly we need to do a good job to explain all the things that we do and how we do them in ways that we believe are superior to the way that others do them.

That, you know, again, that's another piece of that story, and that's another piece of our sophisticated platform that we need to both perform on and do a good job of explaining to potential customers of ours.

Okay. Thanks so much.

Thank you, Spenser.

There are no further questions at this time. I will now turn the call back to Josh for closing remarks.

Hey there, this is Chris. Josh ceded his closing remarks to me. Thank you all for listening. We're very enthusiastic by how the spring has started here for our business and our company. We're quite excited by all of the things we're working on internally, which I think will continue to create value over time and continue to create a great customer service experience for the users of our product. Looking forward to the quarter and seeing how the busy season unfolds here. We'll be excited to report back to you in a few months. Thanks everyone. Have a great weekend.

This concludes today's call. Thank you for attending. You may now disconnect.