Key Takeaways: Very high-quality beat-and-raise, with Core FFO of $0.50/share coming in $0.03/share higher than Hedgeye and the Street, 100% of which was driven by better same store rental revenue growth (~70% rate-driven) versus our model (see Figure 1 below), with other property income and SSExp essentially in-line. Similar to EXR, we had modeled SSRev up +8.8% for the quarter and results blew us away at up +14% driving SSNOI up nearly +18% y/y. We suspect that we will hear similar items to EXR on the CUBE call tomorrow driving the upside, namely higher ECRI driving existing customer rates towards rapidly accelerating street rates with longer average length-of-stay. Other highlights:
- The FY21 guidance raise is massive and even larger than EXR's - SSRev moves to a range of +10.25% to +11.25% from +4.75% to +5.75%, SSExp unchanged, SSNOI +13% to +14% from +5.25% to +6.25%. Again, numbers will be revised upwards significantly. Guidance implies similar SSNOI growth rates in 2H21 as seen in the first six months of the year
- CEO Chris Marr's statement in the release pretty much sums it up with customer demand having "positive implications for growth throughout the balance of this year and into 2022"
- Property taxes look to be trending up +4%, but we would imagine personnel expenses down YTD likely to accelerate and turn positive y/y in the back half given the challenges in the labor market and rising wage pressures
- Ending 3PM stores came in at 718 stores inclusive of JV stores versus our 703 and 701 at 1Q21 - with 45 gross additions in the quarter it would be helpful to know why and to whom there was attrition to other managers
- We are revising our position monitor in Figure 2 below and removing EXR as a Best Idea Short as it just does not make sense to hang on with operating trends accelerating in this fashion. With this degree of acceleration in rental rates it is fairly safe to say that the tough 2H21 comps just wont matter as much as we had first feared. EXR joins CUBE as a Long Bias position, with PSA remaining our Best Idea Long in self-storage
Figure 1: CUBE 2Q21 Earnings Variances:
Figure 2: Hedgeye REITs Position Monitor
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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