Participants

Josh Schutzer; Vice President - Finance; CubeSmart

Christopher Marr; President, Chief Executive Officer, Trustee; CubeSmart

Timothy Martin; Chief Financial Officer, Treasurer; CubeSmart

Daniel Tricarico; Analyst; Scotiabank

Michael Goldsmith; Analyst; UBS

Jeffrey Spector; Analyst; Bank of America

Spenser Glimcher; Analyst; Green Street Advisors

Todd Thomas; Analyst; KeyBanc Capital Markets

Juan Sanabria; Analyst; BMO Capital Markets

Ki Bin Kim; Analyst; Truist

Eric Luebchow; Analyst; Wells Fargo

Mike Mueller; Analyst; JPMorgan

Eric Wolfe; Analyst; Citi

Jon Petersen; Analyst; Jefferies

Presentation

Operator

Thank you for standing by. My name is Karen, and I will be your conference operator today.
At this time, I would like to welcome everyone to the CubeSmart fourth-quarter 2024 earnings call.
(Operator Instructions)
I will now turn the call over to Josh Schutzer, Vice President of Finance. Please go ahead.

Josh Schutzer

Hey, Karen.
Good morning, everyone.
Welcome to CubeSmart's fourth-quarter 2024 earnings call. Participants on today's call include Chris Maher, 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 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 8K and the risk factor section of the company's annual report on Form 10K. In addition, the company's remarks include reference to non-gap measures. A reconciliation between GAAP and non-gap measures can be found in the fourth quarter financial supplement posted on the company's website at www.keepsmart.com. I will now turn the call over to.

Christopher Marr

Chris, thank you, Josh.
Good morning. Welcome to the call. Thanks for participating. We believe that for our portfolio, the fourth quarter of 2024 may have marked an inflection point in the trend of decelerating same store revenue growth that we and the industry have been experiencing since reaching the COVID-induced peak in the second quarter of 2022.
From their trough in November of last year, our year over year growth in same store revenues has begun to slowly improve.
Specific trends of note include The year over year same store occupancy GAAP narrowing from 100 basis points negative at year end 24 basis points to 50 basis points as of the end of February.
Rents being achieved for new customer rentals have improved their year over year negative GAAP from the average in the fourth quarter of 10.3% to last week averaging 7.4%. We are generally positive about the economic health of our existing customers. All key metrics, write-offs, etc.
Continue to perform along historically normal levels.
We are watching these metrics closely, recognizing core inflation remains stubbornly high.
Our base case expectations for revenue growth in 2025 assume across all of our major markets. That we continue the gradual pattern of improvements from our fourth quarter metrics.
Our lower beta urban markets continue to outperform the Sun Belt. Our expectation is our New York City performance continues to be a bright spot, remaining at the top of our highest growing markets.
That being said, today, we do not see a near-term obvious catalyst that would sharply re-accelerate organic growth in 2025.
The last two years, we and the industry have included a mix of optimism and hope around housing market improvements and other trends that would provide significant stimulus to the busy season demand for our product.
In hindsight, these bull case forecasts have proven to be overly optimistic.
While we're encouraged by our metrics through February and believe that overall trends are stabilizing, we are being, in our opinion.
Prudently cautious in our initial 2025 outlook.
We remain very optimistic about the long term health of our business.
For almost 2 decades, the hallmark of our team is our culture about hustling to find creative methods to grow externally.
With our viewpoint that operating fundamentals are stabilizing, in February, we were pleased to successfully close out one of our joint venture investments by acquiring our partner's interest and in the creative transaction.
In planning for the opportunity in late 24, we opportunistically raised equity capital at attractive valuations on our ATM program.
With the net debt to even it out 4 times, we took advantage of a portion of that leverage capacity to fund the balance of the purchase.
The Portfolio was deliberately constructed between 2017 and 2021 to include assets that had been recently constructed in tier one markets. Our plan from inception was to bring these properties onto our balance sheet, and our investment team skillfully executed on that strategic objective.
Most business executives would describe the current macroeconomic and geopolitical environment as uncertain.
Beginning over 30 years ago and continuing to this day, members of our leadership team have successfully navigated through cycles and times of great uncertainty.
Over that period, self storage has demonstrated its resilience. We are confident in the future and remain focused on providing an outstanding experience to our valued customers and maximizing the opportunities presented.
I'd like to turn the call over to Tim Martin, who will walk you through our investment activity, our fourth quarter results, and our outlook for 25 in a bit more detail.

Timothy Martin

Tim. Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. As Chris mentioned, I'll quickly review fourth quarter results, talk about some investment activity and and provide some additional color on our 2025 expectations and guidance.
Same store NOI declined 3.7% in the fourth quarter. Same store revenue growth was 1.6% for the quarter, driven by continued pressure on asking rates, along with occupancy levels dropping 120 basis points on average compared to last year.
Same store expenses grew 4.7% during the quarter, driven largely by the real estate tax line item, which grew 17.5% over last year's fourth quarter.
As we've discussed throughout the year by year increase in the quarter was expected as we received some significant refunds and tax reductions in the fourth quarter of last year. So there's nothing new or recurring that impacted this year's tax number, just a tough comp from last year's good news. For the year, real estate taxes grew 5.7%, which was actually a little bit better than we had projected entering the year.
We reported FFO per shares adjusted of $0.68 for the quarter. We announced a 2% increase in our quarterly dividend, up to an annualized $2.08 per share. On yesterday's close, that represents a 4.9% dividend yield. On the external growth front, in the fourth quarter, we closed on the previously announced store acquisitions in Oregon and Pennsylvania for a combined investment of $22 million.
We also closed on our acquisition of an 85% interest in the 14 store portfolio in the Dallas MSA.
We had an existing third party relationship with the owners, and this transaction was a really good example of our investments team getting creative to find a solution for a group of investors, some of whom were looking for liquidity and some who wanted to maintain their position and capture the remaining value creation opportunities that the portfolio presents over time. We're very excited about this creative transaction as the assets are incredibly complimentary to our existing Dallas portfolio footprint.
We also announced that subsequent to year end, as Chris touched on, that we acquired the remaining 80% interest in one of our unconsolidated joint ventures known as HPP4.
As Chris mentioned, the venture was formed in 2017 with the objective of acquiring non-stabilized early stage lease up stores. From 2017 to 2021, the venture acquired 28 stores, predominantly in top 30 MSAs. The structure of the venture allowed us to participate in a broad portfolio of lease up opportunities by being a minority equity investor while minimizing earnings dilution during lease up through fee income and ultimately being able to earn an outsized return on our investment through the promote structure.
Our ultimate goal has always been to own these assets 100% on balance sheet, which our recent acquisition of our partners' interests allows us to do. Some additional details around the numbers and consideration for the transaction, there was $222.2 million of venture level debt at closing that was repaid.
Our 20% share of that debt was $44.5 million. After debt repayment, we paid $408.3 million for our partner's 80% interest in the venture.
So the $44.5 million of debt repayment plus the $408.3 million for the remaining 80% interest totals $452.8 million which is the total consideration we paid at closing to bring this portfolio on balance sheet, free and clear of any property level debt.
We're excited to bring another strategic joint venture to a successful close. This one was seven years in the making, creating meaningful value for both parties. Ultimately for us, we have an a creative transaction, an attractive basis, and a geographically diverse recent vintage portfolio with perfect underwriting and still yet a little bit of outsized growth as some of the assets fully stabilized.
In anticipation of these external growth opportunities, we raised $85.6 million in net proceeds during the quarter and $118.3 million year-to-date using our at the market equity programs. Our average sales price for those sales for the year was $51.25 per share.
Transitioning then and looking forward to details of our 2025 earnings guidance and the related assumptions. Those were included in our release last evening. Our 2025 same-store property pool increased by e8 stores.
Embedded in our same store expectations for 25 is the impact of new supply that will compete with approximately 24% of our same store portfolio. For contexts, that 24% is down from 27% of stores impacted by supply last year, and down from peak levels that were at 50% of our stores were impacted back in 2019.
Our guidance range for same store revenue assumes that the fundamental operating environment in 2025 is similar to the last two years with no material changes, including to the housing environment. The high end of our revenue guide assumes that the rental season is strong enough to cause us to inflect positive in occupancy and positive in rate in the back half of the year.
While the low end of our guidance assumes that the current negative year by year gaps in both rate and occupancy maintained throughout 2025. Our baseline expectation falls in the middle of those two bookends, and we, and would look something like occupancy levels being slightly down on average compared to 2024, and rates improving but still down in the mid single digits as we compare rates this year on average to to rates in 2024.
Shifting to expenses, not a lot to talk about. We're expecting continued pressure and property insurance, but other than that, we're expecting more of the same of what we've seen over the last few years. Real estate taxes are always a wild card, but we don't have the same difficult comp to deal with this year like we did in 2024 and in the fourth quarter in particular.
Our FFO per share expectation for 2025 is a range of $2.50 to $2.59 with a midpoint then of 254.5. That's down about $0.09 from our 2024 FFO per share of $2.63. When you think about the driver of that $0.09 decline, it really is anchored by performance of our core same store portfolio. Looking at same store NOI guidance, our midpoint expectation is down 3%.
That 3% decline in same store NOI equates to $0.09 of EpiO per share. So then everything else outside of our same store performance is netting to a zero impact year over year at the midpoint.
We have a little bit of drag from properties in Lisa, 1 to $0.02 is the range we provided in our guidance. We have about 1 penny of FFO per share drag from growth and GNA expense at the midpoint of our guidance.
And, embedded in our interest expense guidance, we have a negative impact from our need to refinance our upcoming bond maturity this year as our 2025 senior notes have a 4% coupon.
Offsetting those items in is the earnings decretion from our external growth activities, including our recent transactions that I outlined a few minutes ago, as well as some modest growth in property management fee income at the midpoint of our provided guidance range. The big picture again, we're looking at same store NOI down 3% at the midpoint of our expectations that that generally leads to down 3% FFO per share at the midpoint of that guidance range.
So that concludes our prepared remarks. Thanks again for joining us on the call this morning. At this time, Karen, why don't we open up the call for some questions.

Question and Answer Session

Operator

(Operator Instructions)
Daniel Tricarico, Scotiabank.

Daniel Tricarico

I want to ask about the JV transaction. Curious if you see other, similar opportunities with existing partners today. What were the motivating factors from your partners in the, HVP4 to sell and, also are there NOI upside opportunities still for these assets? I know it's, a relatively young portfolio, so curious if there's, maybe more juice to squeeze there.

Timothy Martin

Thanks. Yeah, good morning. Thanks for the question. So, no imminent opportunities for other joint ventures. This is a, our partner in this venture had their investment in a closed-end vehicle, so they have been, we have been talking about a liquidity event for them over the past couple of years. And so we've been navigating, what has been a fairly choppy environment, looking for an opportunity that made sense for our partner and made sense for us, and, we arrived at that point. So that was the motivation for why Transact now from their perspective was was needbased.
I think from an opportunity set, as you mentioned, the assets are, they are generally stable in that we have acquired them as mentioned, back in 2017 through 2021. That said, assets don't fully mature until you've had them and you have a stable tenant base for a number of years.
So we are expecting, both in our underwriting, not only for 2025, but a little bit more juice in 26 or For some of those assets to fully stabilize and for us to fully capture all of the op opportunity that that's embedded in those in those assets.

Daniel Tricarico

Could you like quickly share the the cap rate to get to or the initial yield, to get the acquisition to be a creative in year one?

Timothy Martin

Yeah. So as we think about the HVP4 transaction and our basis and our expectations for 2025, we're looking at a, a 2025 yield of, call it mid to high fives, pick five and three quarters as a number.

Operator

Michael Goldsmith, UBS.

Michael Goldsmith

In the initial remarks you talked a little bit about like the lack of an obvious catalyst for the year, which I think is baked into your guidance. So can you just talk a little bit about like what you're looking for, what's the is it just housing, is it more than that, just trying to get a better understanding of what you're looking for that that could help jumpstart the demand and, accelerate.

Timothy Martin

The algorithms here.

Christopher Marr

Yeah, I think it's a mixture of Clarity.
Mortgage rates.
And I think it's kind of a combination of the two of those, as you think about our consumer. I think right now, people are, generally trying to navigate through a lot of conflicting.
Information, right? The price of your eggs is ridiculous, the price at the pump is very high, but unemployment is very low, unless you're in the Public sector, in which case you're dealing with a lot of uncertainty today. So I just think we need to get universally just some clarity so people can make decisions.
I think the reality on housing with, half the folks who are currently occupying single family homes having mortgage rates that are, 4% or below, again, I think we're just going to need either clarity that this is the new world and therefore acceptance. Or we're going to need to see something that will, adjust those mortgage rates, which means the long end of the curve has to improve, which ultimately comes back to how do we fund the US government and what is the Treasury's view on selling long dated securities.
So I think we need clarity and when you sit here today, I just don't know how anyone could have the confidence that they have visibility into the self storage busy season that would give you that, belief instead of hope that it that catalyst is there. Now, I do think, given the way the world works, a lot has to be done nationally between now and July.
And so, I certainly am optimistic that if if a lot of the initiatives that are being talked about and in the newspapers every day are are become clear, put in place, and that gives the US consumer and US businesses, more clarity which leads to confidence. I think that could be a real bright spot for our customer and that could create some movement that it is certainly very helpful to the business. It's just very difficult on February 28th to see, what would, what would clearly be, an outcome to kind of where we sit today.

Michael Goldsmith

And as a follow up, you did talk about how the fourth quarter may have been marked an inflection point and the seller rating in terms of revenue growth. So is that reflected in like. Are you expecting things for revenue to accelerate through 2025 and then also how I think you still have an easy comparison and other revenue in the first quarter and it gets a little bit more difficult so forth. How might that impact the the same sort of revenue growth.

Christopher Marr

Yeah, I think based on the trends that we saw, particularly beginning December 1st and kind of continuing through today, that fourth quarter, down 1.6% we think is.
Possible to be the, kind of all of the things being equal, where we would have hit that trough, and then, we're going to slowly, improve on that through, throughout the year, how the back half of the year plays out, in either direction. I think, today is where there's that uncertainty and I think we're again, being appropriately cautious in terms of our outlook.

Michael Goldsmith

Good luck in 2025.

Operator

Jeff Spector, Bank of America.

Jeffrey Spector

And Chris, as always, appreciate the transparency around the current conditions and your thoughts. I guess to ask about, thinking about street rate, are you concerned?
In '25 just based on the current conditions that we could see another street freight war, or because we're past the bottom, let's say you talked about, an inflection point in Dal, are you less worried about that that street rate war, I say war, but bottom line, competitors cutting street rates to bring in new customers in 25.

Christopher Marr

Yeah, again, I don't know, concerned is the right word. Thanks for the question. I think we're just being cautious in terms of how we think about that. The last three months have been more constructive, as it relates to rates to new customers. I mentioned, we're, we've been running the last week or so, last couple weeks down, in that kind of 7%-ish range over last year, which is certainly improvement from what we saw in November. We just need to see it consistently and so again, don't want to, don't want to TRY to extrapolate today to, that April through through July busy season.
I think that's where, in the range of expectations, on the one hand, we assume there is continued modest improvement in that negative spread for our portfolio between. Where we are in last year and at the other end of the expectations is just a more cautious approach that, the improvements we've seen stall and don't continue and I think that's kind of how we've chosen at the moment to book in the two ends of our expectations.

Jeffrey Spector

And my follow-up question then is again just thinking about the mindset when you decided to put out this guidance and, share your thoughts.
Has anything happened, anything that's happened in recent weeks, whether it was signposts of housing softness or you see the administration and and some of their policies and changes, you talked about the uncertainty. I mean, you'd have to argue, right, there's more uncertainty today than a couple of months ago. Did anything recently Change your viewer or or form your view to come out more cautious today, or this is how you've really been thinking the last couple of months.

Christopher Marr

Yeah, you're welcome. So I think again, as always, it's somewhere in the middle. So again, very encouraging trends December, January and February.
But I think I've talked about on this call before. We saw periods of encouraging trends in 2023 and 2024, and I think us in the industry, as I said, came out in in early 203, and we came out early last year and and articulated sort of a range where the more optimistic end of that assumed a recovery in demand, right? And at that time, I think we would have looked at housing and said, okay, housing in 24, like it can't get worse than it did in '23, and then it did. So I think there's just this element of, frankly hope's not a strategy and so we've tried to be realistic as we introduce guidance here at the end of February, and again, it'll be 6 weeks from now, we'll be back in front of you and we'll update you on trends at that point.

Operator

Spenser Glimcher, Green Street.

Spenser Glimcher

Thank you. Sorry if I missed this Chris, but did you provide an update on how moving rents are trending as one you?

Christopher Marr

Yes, no worries. So move in rents, what I said in my opening remarks is we've gone from, kind of that fourth quarter average, which again the bottom of that was in November of 10.3% and then over the last week we're at a week or two we're running in the, I quoted 7.4%, we've been running between. Between 7 and 7.5, and that's just gradually come down as we've seen trends improve here since December 1st.

Spenser Glimcher

Okay, great. Thanks. Sorry about that. And then can you provide some color on what you're seeing just more broadly in the transaction market just in terms of field mix, whether they're portfolios or more one-off stabilized versus unstabilized, I know you guys have been more active recently, but just curious what you're seeing even if things haven't gotten across the finish line.

Timothy Martin

Yeah, good morning, Spencer. No, nothing has really changed. There, there's an awful lot, continued to be an awful lot of price discovery.
There are rumors that that a lot's coming, and I think part of that is, a lot of folks are waiting to TRY to time and TRY to think about what the right environment is if you're a seller to bring something to market.
I think you get mixed messaging if you talk to some of the brokers, I think they have very full plates and they're anxious to bring out a lot of stuff that they're working on. You talked to some other brokers and they don't seem to have as much, they might be doing some.
Some, indications of value, things like that, but they don't seem to have a lot of stuff that's imminent to market, so.
It's not the time of year where you would expect there to be an overwhelming, supply of of new opportunities. So seasonally, I would say it's kind of at or slightly below where you would expect it to be from an opportunity standpoint. Just don't feel like that many things are are trading at the moment. A lot of concern about where interest rates are, where interest rates might be going, and clearly that has an impact on On folks on both sides of the table and their expectations of where they would like to be from a from a cabaret perspective.

Operator

Todd Thomas, KeyBanc Capital Markets.

Todd Thomas

Hi, thanks. Good morning. Chris, maybe Tim, thanks for the updated, and recent, trends and moving rents. Can you provide an occupancy update as well as of, today? And then, Chris, it's a little hard to tell from your comments, but it sounds like you're encouraged so far year-to-date, performance through February, it sounds like it's running slightly ahead of. The guidance midpoint, but that you're not ready to extrapolate that throughout the peak season and bounce of the year is that the right read? Is that what you're, sort of seeing so far year-to-date?

Christopher Marr

Hey Todd, good morning. On your occupancy question, yeah, the occupancy GAAP to last year is closed to 50 basis points negative. The outright occupancy on the new same store pool is 89.5.
And to your comment, yeah, I think again, it, it's been encouraging what we've seen December, January and February, both in terms of the continued stickiness of the existing customer, our move in volumes, and then the rate at which we're able to get new customers into the portfolio, and then on our existing customer base again the health there is good, we're watching that very closely given, as I said, the core inflation continues to be quite problematic, and, our rate and pace of those increases by and large continues to be about the same. So, again, sitting here today, feel, as I always do, confident in the longer term health of self storage. It's been a choppy couple of years and we elected this year to be as realistic as possible in our in our expectations given that choppy backdrop.

Todd Thomas

Okay, that's helpful. And then I wanted to ask about the first quarter guidance, the sequential change in one from 4Q, based on that guidance, it seems a little outsized $0.68 this quarter to $0.62 at the midpoint. So high single digit, almost a 10% sequential decline, and that's despite the investments completed in the fourth quarter and early this year. I'm just wondering if there's. Anything else to consider in moving from 4 to 12 besides the normal seasonality that you typically experience.

Christopher Marr

Yeah, Todd, thanks for the question. I, I'm going to let Tim, sort of dive.

Timothy Martin

Into that for you. Yeah, it's, I'm trying to think if there's anything different in there, Todd. It's, it really is, primarily the same seasonal type of decline as you would have seen last year. So I'm not thinking that there's anything in there, in that sequential move that's anything other than typical seasonality.

Todd Thomas

Okay, if I could sneak one last one in, Tim, what do you have assumed in the guidance that's that 300 million in November maturity, the 4% coupon? What, what's assumed that guidance in terms of timing, and rate?

Timothy Martin

I'm sorry, you broke up a little bit bit there, but I think I got the gist of the question. So we obviously have, we have our 2025 senior note maturity in November, and that note has a 4% coupon. Our range of expectations and interest expense contemplate, as you would expect, a range of timing that could be, as early as, very early in the second quarter all the way to. If we had some other, opportunities perhaps to think about timing being a little bit closer to maturity, it's not one of those things where I would ever expect us to wait until the day before it's, it matures to raise that capital.
So, waited sometime between early in the second quarter towards a little bit later in the in the 3rd quarter is the timing, and then the range of potential outcomes from where we might price. The refinancing is also contemplated within the range. Today, if we were to replace it with a 10 year note, we'd be looking today at somewhere in the mid 5s, hopefully a little bit tighter than that. But our range, that's why our range of interest expense assumptions is as wide as it is because both in timing and rate, a little bit of a range of potential outcomes there.

Operator

Juan Sanabria, BMO Capital Markets.

Juan Sanabria

Hi, good morning. Just hoping you could talk a little bit further about the confidence in bottoming and kind of seems to revenue declines, moderating it because if I look at, I take your point that occupancy is improved year-to-date, but if we just look at the fourth quarter, the decline in average in place rates.
Seem to kind of GAAP out again in the fourth quarter. So is that kind of A one-off and we should expect that to to close as well as we go through 25 or just any commentary on on that particular.
I would be helpful.

Christopher Marr

Yeah, well, I do think again in the fourth quarter, we saw things kind of soften in November, from a rate perspective, and then.
Which we kind of thought was done in October, it went about a month longer than I think we would have thought, going into the quarter and then our expectation of things starting to form just based on demand trends that we saw and then.
Pricing from a competitive perspective around our stores, the trends that we were anticipating started.
To be achieved in December and then have continued into January and February. So the confidence would be in that we saw it, we were just probably off by about 30 days in terms of when it started to happen and then when it began to happen.
And our systems reacted, proactively accordingly. It continued now for the last, I don't know, almost 90 days. So, that's kind of how we think about, framing the downside case for 2025.

Juan Sanabria

Thanks and then for my follow up, looks like the third party property management fee income is expected to be up about 4% in 25. Just curious on the assumptions underlying that because I'm assuming you're going to lose some fee income by buying out a couple of the JBs in the fourth quarter and what you've done here to daycare.

Timothy Martin

Yeah, great question. So, certainly we're anticipating losing property management fees on or 80% of property management fees on 28 stores as we as we brought them on board. Our assumption also assumes a mix of adding stores and obviously in anticipation, we don't know which, well we know those 28 stores, but other than that, quite certain. That there will be stores that leave our third party management platform throughout 2025. So our range of expectations is again, our best guess on when you net new stores being, coming on board, offset by an estimate of the stores that perhaps could leave the platform and then overlay on top of that, obviously, revenue expectations and fee expectations on those stores that we do manage that all of those.
Are the variables that go into us formulating the range that we provided.

Juan Sanabria

Thanks if I can just be a little greedy, can you just clarify the funding plans for the HPV4 acquisition and that they've completed year-to-date.

Timothy Martin

Yeah, so broadly, when we first start thinking about it as we, as we were contemplating the transaction, that was one of the drivers on why we started to aggressively start to use the ATM program in the back half of 2024. So, I gave you the numbers, we raised. Significant, portion, it's all fungible, but we raised a significant portion of what we kind of earmarked for that on the ATM at share prices above $51. So that's part of it. That was all raised at year end. So if you're trying to model it, I mean, the proceeds would show up today on our incomes or on our balance sheet on the revolver. So we'll have some revolve revolver borrowings when we get to the end of the first quarter, which we haven't had for a while, but that's why you have the capacity. And then over time, we will do what we always do, which is, we're a little bit under leverage. We ended the quarter at 4 times or 4.1 times.
That number will move up as we utilize some of the capacity up to Up into the high 4s over time, then we would, if you know it's what we typically tend to do is think about ways to use free cash flow and opportunistically raise capital when appropriate to bring that down and create the capacity and do it all over again. So that's the longer term, that's the longer term objective.

Juan Sanabria

Thank you.

Operator

Ki Bin Kim, Truist Securities.

Ki Bin Kim

Hey, good morning. This is Kevin. So going back to your guidance, I was wondering if I can ask it in a different way. What typically happens to rates, from the winter period to the spring leasing season, the increase, and I guess what's in your, what's embedded in guidance, and maybe you can put it in perspective like what happened last year.
Thank you.

Timothy Martin

So they do increase seasonally. I guess a lot of the numbers that we're referring to are the year over year delta, right? So there's always going to be a a seasonal trend in pricing that once you get to kind of trough pricing late January, early February, you start to see movement up on pricing. That happens all the time. The degree to which it happens has obviously been all over the place here over the past 44 years. Dating back to, massive spike in those rates to now much more modest growth, from a seasonality perspective. So embedded in our expectations for the year are that the are that the, in the middle of our range would be an expectation that the GAAP between rental rates throughout the year continues to compress. But on average, still trails last year's. Seasonal trend on average by mid single digits.

Ki Bin Kim

Yeah, well, I think the challenge is when we look at it from a year to year standpoint, I sometimes it's due to cos that's why I was asking, if you expected rates to increase.
And normally 15%, is it in 25, 10%, which is why I was asking about the consequential seasonality in your midpoint.

Timothy Martin

The same complexity for you is the same complexity in providing an answer that's helpful because it, yeah, that's why I'm speaking on average, right? On average, that's what's going to happen. You could, you always have weird comps on, when you did something last year and you're doing something different this year, but on average, we would expect, Chris just mentioned that those, that GAAP today is in that 7 to 7.5% range, over the past couple of weeks, a month or so. And then, we would expect there will be ebbs and flows that, might go up a little bit, might go down a little bit, but on average, we would expect that to continue to contract. And on average, that GAAP would be lower on over the course of the year than it is today.

Christopher Marr

Even I think, and maybe I'll TRY a little different way if you just think about.
Historical norms, right? You would normally see from your lowest.
Rate to new customers not year over year, just your lowest rate and then you go sequentially through.
The busy season and the demand that historically is generated there, you, you'd raise that rate about 20%, and then you would begin to bring that back down as you get into the back half of the year and and the slower times. Over the last couple of years that instead has been more like 15, 16%.
I think again when we think about the range of outcomes here, there's just nothing that we see today that would indicate to us that it's going to be 20, but again in that range, contemplates that it might be that at one end at least modestly better than the 15 or 16.

Ki Bin Kim

Okay, great. And can you remind us, do you have a share repurchase authorization live, and I guess your implied cap today is around 6%. I'm compared to some of the deals that you bought recently. So how do you, I guess what's the mental calculus in terms of buybacks versus something like the HDP, acquisition.

Timothy Martin

Yeah, we do have a a an authorized share repurchase program.
The overall philosophy around thinking about that is that if there is a significant disconnect, in valuations, which one could argue that you have that, and the second piece from our perspective is for a prolonged period of time, and that's the piece today that we don't have.
We were just raising equity capital less than 90 days ago at prices that we found very attractive relative to where we could deploy that capital. So, the challenge for us, not the challenge, that our perspective on share purchases is that we don't look at it as an opportunity to be a market timer. We look at it from a standpoint of If we had a disconnect in evaluation for a prolonged period of time, clearly that would be an attractive use of capital for us. We don't feel like we have all those variables today.

Ki Bin Kim

Okay, thank you guys.

Timothy Martin

Thanks Keenan.

Operator

Eric Luebchow, Wells Fargo.

Eric Luebchow

Hi, thanks for taking the question. Could you guys maybe touch up on the New York market a little bit? I know that's continued to grow, above the portfolio average, although, the growth rate has decelerated a bit. I know you've had, some pockets of supply in certain, regions within the MSA. So how are you thinking about that market this year in terms of, moving rate, in terms of occupancy, how we should think about, that throughout 2025?

Christopher Marr

Yeah, really optimistic about about the MSA as a whole and continued optimism about the boroughs. So if you parse it between the two.
The boroughs continue to perform very well, we have a dominant presence, we have a dominant brand and that translates into premium pricing that we have been able to maintain throughout this more challenging last couple of years. I think the other bright note about the boroughs.
No supply. So when you think about about Brooklyn, Queens, and the Bronx, nothing opened in the fourth quarter.
We saw two openings, really not competitors.

Timothy Martin

To cube.

Christopher Marr

In all of 2024, low the minimal expectation of anything being delivered in 2025, so. Continued, positive trends there and we expect those trends to continue throughout 2025.
Little more constructive than we have been on Westchester, Long Island, North Jersey. North Jersey in particular, I think we, again, we today believe that the brunt of the supply, which has been a headwind for our performance there, again, I think that also kind of peaked in the fourth quarter and we started to see those stores.
Which have been producing negative same store revenue growth, start to close that GAAP again slowly, and our, expectation is that continues in in 2025. Does it, again, at one extreme, at the more bullish end, that starts to become.
Just the least bit positive as we get into, the year and then, at our midpoint and more bearish case, we assume those assets just continue to sort of chug along where they are, so. Constructive from a supply perspective, probably the most constructive that we've been, in a long time around, the overall MSA continues to be really helpful in the boroughs as we've talked about the last year or so. So again, great market, continue and expect it to be our best performer in in 25 of our major markets.

Timothy Martin

Great, thank you guys.

Operator

Mike Mueller, JPMorgan.

Mike Mueller

Yeah, hi, two quick ones. The first, looking at operating expenses in markets like Atlanta, Austin, Chicago, where they were up 30 %to 50%. How much of that was the tax costs that you were talking about versus something else going on? And then the second question is, do you think ECRI levels and 25 will be similar to 24?

Timothy Martin

I'll take the expense part on your expense question. You, your intuition was exactly right. The 17.5% increase that we saw overall in real estate taxes, obviously it was concentrated in a handful of errors, the ones that you mentioned were where it happened, so that's why you see a. Kind of an odd print in a few, in a few geographic regions. That's where we had good news at the end of at the end of 2023, which created the tough comp as we got to the end of 2024.

Christopher Marr

And I think as it relates to As it relates to rate increases for the existing customer base.
I think again, at the midpoint one should assume that they're fairly consistent with what we saw in 2024, at the more optimistic end, would just be, some of the testing that we're doing always, and the consumer health improves or stays the same, and we get and are able to, generate a little bit incremental and then at the more bearish end, again, assumes that this.
Core inflation and other things that are going on within the customer base causes us to bring those increases back down a little bit, but modestly in either direction would be fair to say.
Got it.
Thank you.

Operator

Eric Wolfe, Citi,

Eric Wolfe

Hey, thanks. I think your advertising spend was down pretty significantly from last year in the fourth quarter versus up a good bit in the 3rd quarter. Can you just talk about what drove those those decisions and maybe the different approach, if you will, and whether that might have caused some of the weakness in October or November.

Christopher Marr

Yeah, no impact from that in terms of of anything that happened necessarily in the in the quarter. I think when you look at timing of that, that's that is always, again, driven by the system to see an opportunity between, it's that balance between rate.
And search, particularly on the paid side, so the SEO efforts are sort of more, consistent and ongoing throughout the year, and then the pedal on the paid side, we think about relative to the opportunity and, so it's just going to always be a little bit lumpy quarter to quarter as we continue to see the signals and then move accordingly. We were a little heavier. Last year, again, I think in the 3rd quarter it was the opposite. So when you look at it for the year, 4.5%, I think that's kind of in line with our normal expectations heading into the into every year, how that flows quarter to quarter can be a little bit more.

Timothy Martin

Clunky.

Eric Wolfe

That it, that's helpful. And then within your same store revenue guidance, can you maybe just tell us what you're factoring in for, other property related income? I think it contributed like 40 basis points, to 2024. So I was just curious if that was sort of sustainable and repeatable in in 2025.

Timothy Martin

Yeah, what is sustainable and reputable, we spoke about earlier in 2024, call it the May time frame. We had the culmination of a lot of initiatives that looked at at at various components of fee income, which ends up in the line item that you're looking at and those.
Those range from administrative fees to late fees to convenience fees, and we made some adjustments there and thinking about how we priced rent rental rates compared to fee structure, and we made some adjustments there. And so you've seen outsized growth since that period of time, year over year. We're going to lap that here when we get to May of this year. So you should expect to still see outsized growth in the first quarter.
Of 2025 and then you should see its stabilize out. But to be clear, it's not temporary in nature. It's a more permanent shift in where we're getting revenues from. We believe it to be very sticky and recurring. You're just going to, you're good, once we lap May, in in this year, then, I don't think it'll it'll be an area that is confusing from a modeling standpoint, if that, if that's helpful.

Eric Wolfe

Yeah, no, that makes that makes sense.
Thank you.

Operator

Jon Petersen, Jefferies.

Jon Petersen

Oh great, thanks. Maybe if I could just pick a little bit at the, your operating expenses. So, I'm going back and just looking at the past few years, I think some of the pressure that you've had on property taxes and property insurance have been At least somewhat offset by lower personnel expense, but it kind of looks like we're back to a normal inflation growth level there. I'm just, I guess the broader question I'm getting at is there any more operational efficiencies that we should think about that can be squeezed out of the op X line in the business, or is this more tied to inflation going forward?

Christopher Marr

Yeah, thanks for the question. When you, when you do look back, typically storage, from an operating expense perspective, overall tends to run at inflationary levels as we continue to implement a service first approach to customer service, looking at the right staffing in the stores, looking, and we do believe in a staffed model just to be clear, we don't ever intend to be a vending machine of self storage, and when we look at, opportunities using AI for example, to, reduce repetitive tasks for our sales center teammates and our and our store teammates, there will be savings. I think, it's fair to say the low hanging fruit, so to speak, has been picked, but, I do expect that we will continue to find some savings again, and then the pressure points on the opposite side, continue to be where we end up on the real estate tax side and then property insurance certainly is an easy one to pick on. So overall, again, I think our range of Expectations for for 2025 and at the midpoint of all those expenses is, kind of plus or minus inflationary.

Jon Petersen

Okay. And then on the property taxes, I know every jurisdiction is a little bit different, but what would you say the delay is there because I would think that asset values probably haven't increased as much in the past couple of years as they did before. So I guess what's the tail on that being a pressure point.

Timothy Martin

Yeah, really difficult question to answer. Sometimes the tail doesn't exist, and sometimes, there are, there are municipalities that don't really catch up.
I mean, more recently, we certainly have some evidence in our favor when we think about if an assessment were to be increased, I mean, obviously, as we're looking at, as we're looking at pressure on the top line and forecasting, negative growth in the same story and why, we can certainly point to that from a valuation standpoint. Interest rates and cap rates are not what they were 2 or 3 years ago. So, I appreciate your question. I wish I had a way to quantify it for you. The tail is impossible to predict, which is one of the mading parts about trying to predict that line item.

Jon Petersen

Yeah, that's fair.

Ki Bin Kim

All right.
Thank you. Appreciate it.

Operator

Ki Bin Kim, Truist Securities.

Ki Bin Kim

Thanks for allowing me back. Just a couple of quick follow-ups, given that you already provided oneQ SFO guidance, I was curious if you can provide what SAM why it could look like in the first quarter.

Timothy Martin

That that would be, that would be, we're the only ones who provide a, as far as I know we're the only ones who provide you an FFO guidance for the quarter, and I want us to give you underlying assumptions, but, no, I mean, I.

Michael Goldsmith

Think.

Timothy Martin

I mean Chris is already giving you where we stand through goodness, 2/3 of the quarter. So, that, that's where we'll stop for prognosticating in the first quarter, but thanks.

Ki Bin Kim

And.
Yeah, you're welcome.
And then just going back to like the potential job changes or turmoil in DC type like Trump, do and cost cutting, there's obviously a lot of different factors if those cost cuts, lead to lower inflation and lower treasury. I mean, there's a lot of different factors, but I was curious, job cuts in a local MSA with a bad economy is probably backward storage, but do you have some early thoughts on Potential job cuts in DC, but with a better economy, broader economy, could that be even a potential net positive for storage in DC?
Yeah.

Christopher Marr

I think the unfortunate reality is that answer is yes. So here's the example, you have the probationary employees.
Many of which are recent college graduates who relocated or moved to Washington or got a job in Washington, that has now been taken away from them, and they've got an apartment and they've bought possessions to furnish and fit out that apartment and now they're unemployed. So, what do they do? And the sadness is that many of them either need to return home or Otherwise, figure out how to replace the job that they lost and that oftentimes leads to dislocation which leads to a need for for our product. So, I think sadly the outlook for storage in in the District of Columbia and, the DMV in general is probably a little bit more positive as a result of what's going on.

Ki Bin Kim

Okay, great.
Thank you guys.

Timothy Martin

Thank you, Steven.

Operator

That so to in a session. I will turn the call over to Chris Moore for closing remark.

Christopher Marr

Yeah, thanks everybody. Speaking on behalf of our team, we are optimistic in the future of our business, our customer, and the economic health of our country.
These last few years have presented certain challenges, but I'll end with As Warren Buffett famously said, you don't know who's swimming naked until the tide goes out, so it's easy to do well when there are helpful tailwinds.
The strength of our people, our culture, and our platform become clear and obvious during periods of uncertainty and volatility.
So thanks for being part of the call, and we look forward to seeing many of you in person next week. Have a great weekend.

Operator

Ladies and gentlemen, Today's call. Thank you all for joining and you may now disconnect.