CubeSmart

Thank you, Sue. Good morning, everyone.

Welcome to CubeSmart's Third Quarter 2012 Earnings Call. Participants on today's call include Dean Jernigan, Chief Executive Officer; Chris Marr, President, Chief Operating Officer and Chief Investment 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 files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with the earnings release filed with our Form 8-K and the Business 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 on the company's website at www.cubesmart.com.

Now leading off today's discussion is Chris Marr. I'll now turn it over to you, Chris.

Okay, thanks, Daniel. The successful implementation of our internal and external growth strategy accelerated through the third quarter, and the positive momentum on both fronts has continued thus far into the fourth quarter.

We have significantly grown physical occupancy at rental rates slightly ahead of where the same-store portfolio was at June 30 of this year. Our same-store revenue growth maintains its accelerating upward trajectory from 2.7% in Q1 to 3% in Q2 to 4.1% in Q3.

We've had robust external growth activity through targeted acquisitions and dispositions, and we are maintaining our investment discipline while positively impacting the quality of our overall portfolio.

Occupancy gains remain the primary driver of our growth in same-store revenue, with the decline from in-place rents being largely offset by gains in ancillary revenues. The components of our occupancy gains remain increased rentals, declining vacates as a percentage of occupied units and continued stickiness of our customer base, with average length of stays consistent with the third quarter of last year.

Overall, same-store portfolio asking rents remained in line with where they were during the second quarter, actually growing 0.6% from $12.03 per square foot to $12.11 per square foot. Same-store discounts, measured by the average promotion dollars extended to each new rental, declined 11% from Q3 '12 compared to Q3 '11.

And so we continue to see improvement on all of the components of our same-store revenue growth.

Our 2011 acquisitions, including Storage Deluxe, achieved a 5.8% yield on cost in the third quarter. We have updated our annual 2012 yield to an expectation of 5.7% from our previous 6% target.

We are very pleased with the overall performance of the deluxe portfolio and the positive impact it has had on our legacy assets in New York.

While the timing has been pushed out 6 to 9 months, our return expectations remain unchanged, and we remain confident in our underwritten yields. The delay in the second closing hurt us, and it has taken us a few months longer than planned to fully achieve the benefits from our scale and platform.

But as a point of reference, the 16 Pool A assets that closed in early November of '11, while they took a few months for us to get into the groove, looking at their performance since March of this year illustrates the positive results we are seeing.

Those 16 assets, their occupancy growth from March through September was 790 basis points, and their revenue growth during that same period was 8.5%. As I mentioned, the other New York City properties that were owned prior to the Deluxe transaction have benefited from the focus in economies of scale and are producing superior results.

If you look at the 5 other stores in the New York City boroughs, along with New Rochelle, that we owned prior to the Deluxe transaction, those stores have produced 510 basis points in occupancy gains and 5.7% revenue growth, both well above what our budgeted expectations were going into the year.

So as expected, the strong marketing efforts and economies of scale generated by this transaction had a transformative effect on the performance of our other New York City properties. Our growth substantially outperformed the rest of the same-store pool both in occupancy and in revenues.

Moving on to superstorm Sandy, our hearts go out to all the communities hardest hit by the storm. We have stores and employees and customers in the impacted areas, and we are working within the communities to provide support in all the ways that we can.

Thus far, in our assessment, we have been extraordinarily fortunate in that our employees are safe, and the damage to our stores was not extensive. They're still working through the financial impact of our damage repairs.

At this time, it appears we only have 2 stores with significant wind damage and 1 store with significant water damage. Somewhat geographically unexpected, we have roof damage at our store in Medford, Massachusetts, and damage at one of our Cleveland, Ohio stores.

Our Hoboken store had water intrusion on the entire first floor.

We have numerous smaller repairs to sidings, flashings and so on throughout the northeastern portfolio. We currently estimate the cost of repairs to be in the $600,000 to $800,000 range.

Fortunately, self-storage is of tremendous assistance to many of those impacted by the storm. So we would expect to see some increase in demand to offset associated costs.

Hurricane Wilma in October of '05, with 20 of our Southwest Florida locations in the affected zone; Hurricane Katrina in August of '05, with 13 of our Gulf Coast facilities in the affected zone; Hurricane Ike in September of '08, with 8 Southwest Texas stores affected and hail and tornado storms in Knoxville, Tennessee in April of '11 with 8 stores affected. All of these areas saw an identifiable positive impact following the storms.

The degree and duration of impact varied substantially by each storm. All saw the benefit after a short lag of a month or so, Katrina had the most significant impact due to the nature of the storm, with so many people displaced for an extended period of time.

For example, in the Knoxville hailstorms, the demand increase was significant and began to taper off after about 6 months. Likewise for Ike, the impact was meaningful and began to taper off after about 6 months.

We have 70 CubeSmart stores in the areas affected by Sandy. These assets represent about 1/4 of our total portfolio revenue, and occupancies are about 84%.

There is an opportunity to accommodate the increased demand that we expect. But as you can see, each one of these storms is unique.

Wind versus water damage clearly makes a difference. Sandy for example, the bulk of the damage was as a result of water, as opposed to wind.

So in those instances, folks are still trying to work through what to keep and what has been damaged beyond repair. So while we do expect to see, as we did with these other storms, a positive impact on our portfolio, we expect that, that positive impact in all likelihood, we don't really start to see for the next month or so.

And given the nature of this storm, the average length of stay for those customers, in our view, is probably closer to the 6-month mark than longer.

Moving on to market performance. When you think about -- when you look at our individual -- some markets in our disclosure, just touching on the highlights of some of our stronger performers and some of our weaker performers.

Southern California, the Inland Empire in Southern California, these combined MSAs continue to outperform at 830 basis points of occupancy growth and 6.8% revenue growth.

We were able to push street rates up a bit, 1.6% sequentially from the second quarter to the third quarter. Our New York and Northern New Jersey markets continue to benefit from the Deluxe transaction, synergies and economies of scale have helped to boost performance at all of our New York City properties.

The same stores in the New York City boroughs, plus New Rochelle posted 9.8% revenue growth and 750 basis points of ending occupancy growth and again, rental rates up just a little bit north of 1%, sequentially.

In Atlanta, we continued to perform well in the third quarter, up 6% in revenue, 470 basis points in occupancy. And here, we were able to push street rates up 2.2%, sequentially.

So those markets continue to perform very well for us. On the other side, some of the markets performing less well, the one that sticks out is El Paso.

It's included in our disclosure under the cap, with some few other assets under other Midwest. The lack of military deployments has hit El Paso hard.

We saw significant negative performance, sharply contrasting with the rest of the company. Revenue was down 13.7%, while occupancy dropped 1,850 basis points.

Rental rates are down there sequentially, almost 6%.

Arizona is really a tale of 2 markets. Arizona has been slow to recover overall, but Phoenix, we've seen substantial improvements through the third quarter, and we think is prime to perform well in Q4.

October occupancy is up 540 basis points, while September revenue was up 4.6%. On the other hand, in Tucson, we've seen almost no movement.

Occupancy ended October flat. September revenue was up just a bit north of 1%.

Rents are flat sequentially in that market. We have added a new hire in that marketing, a new district manager.

And we are keenly focused on it and certainly expect to see some improvements there from additional personnel in that market.

If you think about Arizona and El Paso and their impact on our overall same-store results, El Paso and Arizona served to drag down the revenue growth in our same-store pool by 41 basis points and drag down the occupancy in our same-store pool by 44 basis points.

The last mark to touch on is Tennessee. Tennessee, for us, consists of 3 individual markets, each of which are performing a little bit differently.

We're doing very well in Nashville, revenue up 5.7%, ending occupancy up 590 basis points.

Knoxville is suffering from hard year-over-year comps given the tornadoes and hailstorms that I referred to. Occupancy is down 250 bps for the quarter, although we've recovered and moved up positively in October to a 30-basis-point gain.

And revenues have also started to show some improvement as it was down 2.6% for the quarter but up 0.3% in the month of September alone.

And then Memphis has seen a decline in performance throughout the year, although it also appears to be showing improvements over the past month. August and September were flat in terms of revenues, and occupancy has begin to improve, finishing October 220 basis points ahead of last year.

Moving on to the investment side of the house. We're extremely pleased to have completed the submarket exits we had targeted for this year.

During the year, we have sold our assets in Romulus, Wyoming and Grand Rapids and exited our ownership in Michigan. We sold in Slidell and Baton Rouge, Louisiana, Mobile, Alabama and Gulfport, Mississippi exiting our ownership in the Gulf Coast.

We sold in Carlsbad, Deming, Lovington, Las Cruces, Silver City and Truth or Consequences, exiting Southern New Mexico. And we sold in Mason, Boardman, Centerville, Miamisburg, Dayton and Youngstown, exiting Southern Ohio.

Our sales through yesterday generated approximately $60 million in capital, and we used that as a portion of the funding for our $439 million of acquisitions in Northern Virginia, New York, Miami and our other targeted markets. Heavy trimming of the portfolio we began in 2008 is complete.

Looking ahead, the fourth quarter has gotten off to a strong start. As noted in the release, the occupancy gap has expanded 100 basis points from the end of the third quarter to the end of October.

The same-store guidance presumes continued acceleration of revenue growth into the fourth quarter. We have 4 property acquisitions, totaling approximately $20 million lined up to close in this fourth quarter.

We're 4 months into our strategy of holding on to the majority of our year-over-year occupancy spread, have rental rates consistent with those in place at June 30 and are confident we can continue to achieve that objective from now until the end of March. This will have us in a very good position heading into the summer rental season of 2013.

With that, I'll turn it over to Tim for some additional comments. Tim?

Thanks, Chris, and thanks to everyone for joining us today and for your continued interest and support. Our third quarter report is highlighted by continued strong gains in portfolio occupancy, as Chris had mentioned, results at the high end of our guidance range and nearly $267 million of capital investment during the quarter.

Headline results for the quarter include FFO per share of $0.19, which was at the high end of our guidance range, 4.5% same-store NOI growth driven by 4.1% increase in same-store revenue and a 3.4% increase in same-store operating expenses.

Occupancy growth was driven by significant occupancy gains during this quarter, with average same-store occupancy of 84.9%, representing a 370-basis-point gain over last year. The same-store expense growth was in line with our expectations and was driven by the timing of our marketing spend as we have discussed during our call last quarter.

On a year-to-date basis, our same-store expenses are down 0.5% compared to last year.

On the investment front, we were very active during the quarter, investing nearly $267 million and purchased 15 properties during the quarter, one was the final Storage Deluxe asset for $68.2 million. And 14 other assets were acquired through 8 separate transactions for $85.9 million.

As detailed in our release, we also acquired our partner's interest in 2 separate joint ventures investing an additional $112 million of capital during the quarter and having the benefit of simplifying our ownership structure.

As Chris discussed during the quarter, we sold 7 properties for an aggregate of $12.5 million. As we've discussed on previous calls, our plan is to fund our growth in a manner that allows us to maintain our solid investment-grade credit metrics.

Accordingly, to fund a portion of our growth, we were active issuing common shares during the quarter, using our at-the-market or ATM equity program. We sold 4.7 million shares during the quarter and have [indiscernible] raising net proceeds of $59.1 million.

We ended the quarter with $235 million of availability under our credit facility. We have no debt maturing for the balance of this year and in 2013, our debt maturities are only $26.7 million or roughly 2% of our outstanding debt.

As detailed in our earnings release, we raised our full year FFO guidance to a revised range of $0.72 to $0.73 per share. We introduced fourth quarter guidance of $0.19 to $0.20 per share.

We increased our expectation of full year same-store NOI growth from a range 4% to 5% to a revised range of 5.25% to 5.75%, reflecting stronger core operating performance.

[indiscernible] expectation continued acceleration of our revenue growth during the fourth quarter. We've lowered our same-store expense growth expectations for the year to a range of 0.5% to 1%.

When combining that full year expectation with our year-to-date performance of down 0.5%, implicit there is that we do expect same-store expense growth again in the fourth quarter, once again driven by the timing of our marketing spend.

As Chris discussed, we adjusted our 2012 yield expectation on our Storage Deluxe and other 2011 acquisitions to 5.7%. Integration of those assets has gone smoothly, and our long-term return expectations on those investments remain unchanged.

As is our practice, our FFO guidance ranges are on as-adjusted basis and exclude the impact of acquisition-related costs given the unpredictability and nonrecurring nature of those costs.

Additionally, our guidance does not include period costs related to the damage caused by Hurricane Sandy. At this time, as Chris had mentioned, we estimate those costs could impact our FFO by approximately $0.005 per share, but the timing of that spend could largely lapse into the early part of 2013.

Overall, the third quarter performed in line with our expectations, and the improvements to our guidance metrics reflect the continued execution of our business plan. Thanks again for joining us today, and Dean, at this point, I'll turn the call to you.

Okay, thanks, Tim. Good morning.

I just want to take a few minutes to discuss the economy and the dark cloud hanging over Washington as it relates to this fiscal cliff that we're hearing a lot about nowadays and how that impacts our sector -- potentially impacts our sector and our company.

Hopefully, we'll get some little bit of guidance today when the President speaks at 1 p.m. But even with good guidance coming out of that, I'm not expecting any kind of lovefest to develop in Washington between the Democrats and the Republicans.

And I think this fiscal cliff is for real in the near term, at least. I see in our sector some things that it will impact.

First of all, let's talk about what the fiscal cliff can do to the overall economy. I think for sure, it's going to cause, or can cause some very dramatic job losses, especially in the defense sector, companies like Boeing and Lockheed and others.

I think in fact, those job cuts and just the unwillingness for corporate America to make any kind of investment that would be ready for any kind of growth -- I think a lack of investment by corporate America and possible job losses and just the uncertainty hanging over the economy, could possibly push back into another recession. A 2 or 3-quarter downward recession, I do not think would dramatically impact or negatively impact our sector or our company.

I think we will -- we would go through 2 or 3 quarters down, marginally down with the GAP [ph] during that time and really not feel it and perhaps be out the other side before we determine we had actually been in a recession. So I'm not at all concerned there.

I think there's some opportunity -- continues to be some opportunity for our company and the sector if in fact this fiscal cliff develops into more than words right now.

I think it will keep interest rates low. I think it will be -- cause sellers in our space to be more interested in selling their product to us.

So I think consolidation continues to be a big plus for us with a -- even if the economy contracts some or if it just stays flat with very marginal growth, I think all these things will happen. No growth in interest rates, no growth in supply, no -- consolidation will continue.

And the public companies will continue to take market share from the smaller players.

So I don't see a whole lot of downside if in fact the fiscal cliff really becomes more real to us in the next 60 days and even over into the first quarter next year.

So with that, I'm hoping for better outcomes. But even if we don't get a great outcome from Washington, I think our sector is going to be just fine.

We'll take questions now, if you will, Sue.

First question, in terms of occupancy, you've talked about trying to hold occupancy somewhat steady during the off-peak season. We're almost 2 weeks into November.

Is that what you're seeing thus far, and what gives you confidence that you can hold the line and as much -- as you've seen sort of occupancy fall off sequentially during the off-peak season? And also, can you share with us where same-store occupancy was at the end of October?

Yes, Todd, it's Chris. The hold, just to be clear that we're talking about is holding as much of that gap that we created over the summertime so that we have that going into the summer of next year, not necessarily the absolute.

We will expect to see some seasonal decline, although to answer you, the second part of your question, we saw an increase in our occupancy from the end of September to the end of October by 6 basis points. And then we saw another 5 or 6-basis-point increase through the first 5 days of November.

So we have, in fact, been able to hold that September ending occupancy thus far, which is very encouraging. But we do expect there is some absolute seasonality still to the business.

So it's really holding that gap so that when you think about that peak occupancy of July 31 of next year -- of this year, rather, at 85% to look at having a 360, 400 basis point improvement over that at that same time next year, pushing us up into the very high 80s, which we think is absolutely achievable based on what we're seeing thus far.

Okay, that's helpful. And then on the Storage Deluxe properties, thanks for some of the detail on those properties.

It sounded like the performance is somewhat exceeding expectations, but the delay in closing the final few assets is what caused the overall average yield for the year to be adjusted lower. Can you just clarify, is the yield on Storage Deluxe at year end heading into 2013, is it still projected to be 6% on an annualized basis, or is that trending slightly higher?

Well, I think we put the disclosure of those assets, along with the other 11 at a 6% expectation for Q4. So if you took that and annualized it, obviously, it's at that 6%.

I think your comment is right. I'll just clarify a few things.

One, the delay in closing the 6 clearly was a negative impact to us on a variety of fronts. But we also had -- we had a slower ramp-up to where we wanted to be in the first 4 months or 5 months or so of the original 16.

So the point I was making is that once we hit March of this year, April of this year, we started to hit our stride. And so ultimately, we're going to get to where want to get to.

We're about 6 months behind.

Okay. And then, just last question on the joint venture acquisition in the quarter, the -- on the HSRE venture.

You stepped into that partnership just 4 quarters ago. I was wondering if you could just discuss what the terms of that transaction were today, whether or not you had an option to buy out your partner's interest or if that was sort of negotiated separately and maybe you can talk about the pricing on that acquisition?

Sure. Those assets in the, 3 in the Philadelphia area, 2 in North Jersey, 2 in Fairfax County, Virginia, 1 in the greater New York area and 1 down in Fort Lauderdale, we were a true 50-50 partner in that transaction.

It was a straight up 50-50 partnership. And neither party had any right to acquire out the other at any predetermined amount.

So the evolution there was a desire of the fund for liquidity, our desire to wholly own a portfolio of extremely high-quality assets in core markets. So it was a purely negotiated transaction in terms of us buying out the remaining 50%.

Okay. Any comment then on what the pricing for those properties look like and maybe where occupancy is at the properties?

Yes, for those assets, again in those markets that I described, the yield expectation or the yield going in, rather, for those was a 6 6. And the occupancies were in the high 80s.

Along the same lines of questioning on JV, do you have any other properties that are held under joint ventures that could make sense for you to acquire or make it wholly-owned?

No, we do not have any others that fit that category. Our pipeline from that perspective continues to be the assets that we manage for third parties, but we don't have an equity interest in those stores.

Okay. And second, could you provide details on the operational performance of the assets that you acquired and sold in the quarter?

That -- operational -- I'm sorry, can you help me with the question?

Could you talk about occupancy and rental rates on the assets that you acquired and the assets that you sold?

Oh, sure. The assets that we sold during the quarter, the occupancies in general were at maybe a little bit behind -- I'm sorry, let me clarify.

The occupancies of the assets that had been sold throughout the year, so I'll answer this with not only the second quarter transactions but then subsequent to the quarter, we exited Southern Ohio, and we sold 2 assets in Florida and 1 in Tennessee. And that was the $60 million in total that I talked about.

Their average occupancy of all 27 of those assets was 77%, and their asking rents were in the mid-$8 range. The average of the 52 assets that we have acquired either wholly or bought out our JV partners this year, their average occupancy 83%, and their asking rents in the $16 range.

[indiscernible] trimming in terms of asset-like recycling is pretty much done. So when you look at your portfolio what percentage of your portfolio do you see is still does not fit your core assets?

Yes, when we look at the portfolio right now, again, I think the word for the unencumbered assets is pruning. So there are markets and some markets, much like the exit of 1 asset in Tennessee and 2 in Florida, where just the underlying asset for us doesn't fit into our objectives over the long term.

And we will always do that. There'll always be repositioning opportunities in markets and submarkets that in general we find attractive.

In terms of exits of complete submarkets or complete markets, we've accomplished that with the assets that are unencumbered. We do have some assets, El Paso is a great example, that are in a larger pool, the last CMBS pools that matures in '15.

And we will continue to evaluate those as we get closer to that maturity date.

That's helpful. And last question.

You had a $7 million gain on remeasurement of investment in real estate. When, sir, could you provide details on that?

Sure. This is Tim.

Happy to. That remeasurement gain relates to the -- to one of our joint venture transactions, the HSRE transaction.

And the way GAAP works in that transaction is that we had our initial investment into the first 50% of the equity of those assets back in 2011. And because we were not in a controlling position, that investment on our balance sheet was classified under the equity method and was not consolidated.

And as a result, when we bought out our partner's 50%, those assets now are consolidated on our balance sheet and on our financial statements. And under current GAAP, what happens there is all those assets come onto our books at current fair value.

And so the current fair value of those assets resulted in our prior equity position effectively having a mark-to-market increase. And that increase to mark -- our initial investment to current market is what drove that $7 million gain.

And it is important to note that, that gain, that remeasurement gain, is excluded from our FFO. We do not include that in our FFO for the period.

In looking at your same-store expenses compared to some of the peers, I was wondering if you could help us understand what's going on, why your same-store expenses are not declining like some of your peers'. Is it all advertising?

Or is there something else at work there?

Yes, Paul, this is Chris and I'll let Tim chime in. If you look at our 9-month through September comparison and you look at the driver of our 0.5% decline in same-store operating expenses, it's really the positive impact of multiple items: utilities are almost 8% down; our other operating expenses are $1.2 million or 14% down, and that's all the small items that add up; our property insurance is largely flat; our R&M is up slightly, but it's only $40,000 or $50,000; taxes are flat.

So it's advertising primarily up 12%, about a $500,000 increase. And again, it is largely -- well, exclusively driven by the fact that we are getting good returns on the web spend that we're doing.

And as long as we continue to see good cost-benefit there, we'll continue to invest in our advertising efforts. So that's really the primary driver.

We have some growth in personnel expense. That's largely driven by some positive benefits during the 2011 period as we've made significant improvements in our workers' compensation plan and the focus on training that, that really paid off in 2011, and we saw some unusually low 2011 expenses there.

So it's advertising, and we are 0.5% down for the year. And as I said, we'll continue to invest in our advertising to the extent it continues to provide a good payback for us.

And I would add to that, Paul, that the advertising on a year-to-date basis is up 11% for the reasons that Chris alluded to. And then, of course, within an individual quarter, the timing of when we -- on when we spend those advertising dollars compared to when we spent them last year continues to create comparability issues, as it has for the past several years.

But if you look at our year-to-date, our year-to-date expense decline, it's right in line with what peers have reported. And I think if you look at guidance ranges for the full year, we're pretty much in line as a sector.

I think some of the difference you're -- you also see is that we all don't report things exactly the same way. Our advertising does include all of our Internet spend that benefits the properties, and that's not consistently reported across the sector.

Okay, that's a good point. And so same-store is not going to include any impact of Storage Deluxe at this point, is that correct, including advertising?

The advertising that relates specifically to those assets would not be included in our same-store during this calendar year, that's correct.

And so looking ahead to that portfolio, you mentioned it took a little bit to "get into the groove" of operating that portfolio. Is part of that advertising spend related?

No. Again, the spend there, which, as a resident of New York City, I'm sure you saw the Expect More campaign over the summer where we had a lot of out-of-home, subway bus, billboard, et cetera, driving folks to the CubeSmart brand.

All of that is consistent with what our underwriting was.

Chris, I just wanted to follow up on your Storage Deluxe commentary. You mentioned that part of the reduced yield was due to a slower ramp-up on the 16 assets.

I'm just curious what you think caused that slower ramp-up and whether, I guess, the slowness was specific to a few assets or consistent across all 16.

It was unique asset by asset. And it's the -- it's a lot of little things: it's the cleanup of past-due receivables, it's the cleanup of tenants that had been allowed to string along for a little while, it's getting the right manager and general manager in the store.

So it's just the -- a variety of smaller things that, quite honestly, we thought we would be able to hit the ground and hit our stride right away and it just took a few months to get going. And again, it was unique to some of the assets.

Some of the assets performed quite fine right out of the gate. The delay in the other 6 really had an impact in that many of them are complementary to the original 16.

And so the longer it took to get them into the fold, we lost some of the benefit that we had assumed we would have gotten right out of the gate.

Sure. And would you say that, I guess, the variety of small, little things are all behind you now?

Or is there going to be a little bit more impact going into early next year?

On -- I guess I was making the point on the original 16 in my commentary that when you look at their performance, 8.5% revenue growth, 790-basis-point occupancy gains from March through September, that pool we're definitely hitting our stride, no doubt. The last acquisition was 135th Street, and by the end of this year, we'll have worked through those little things on that one.

So I'm confident, going into the beginning of next year, that we are in a great position with all of those assets.

Great, that's helpful. And then last question.

Just curious for the $123 million of assets that you've purchased this year. So other than the Storage Deluxe and JV interests, how much of that came from assets that you were managing at the time?

Let's see. In terms of quantity, it was 1, 2, 3.

It was 3 individual assets. And in terms of dollars, it was about $23 million.

Okay. And then I guess just one follow-up to that.

Do you typically see a pop in NOI as you bring it from third party into -- I guess you're managing it the entire way, but are there any other efficiencies that you get when you acquire them out of the third-party management platform?

Yes, great question. When we acquire from another operator, we definitely see improvements in the first 4 or 5 months of our management for all the obvious reasons: we put them -- the asset into our marketing platform, we have our policies and procedures and systems that begin to take effect.

So that absolutely happens. On a managed store, it is very unique to the underlying owners.

To the extent that, say, we had a very passive owner who, as long as we were delivering for -- he or she was very happy with what we're doing, then you really don't see that same impact. To the extent that the owner may have been more involved, we tend to get a little bit of upside.

The occupancy gains seemed like the right strategy. But a question for you just on the rents.

Obviously, the realized rents declined again this quarter, and the scheduled rents are 5% below the prior quarter. I know you talked about sort of a sequential comparison, but is it almost a mathematical certainty that the realized rents will continue in coming quarters to go from the 1.6% this quarter closer to the 5.1% on scheduled rents?

Yes, good question. So when we look at what had happened over the last 4 or 5 quarters, in the third and fourth quarter of 2011, there was some continued upward pressure on asking rents.

What we saw in Q3 and thus far in Q4, the asking rents have remained fairly constant. So I guess I'll answer it in 2 ways.

From an absolute basis, the declining asking rent environment has stabilized. And as I said in the prepared remarks, the objective is to hold on to that $12.03 kind of level across the same-store portfolio going into the end of March.

But directionally, rents will roll down, as you described. Now that's going to be somewhat offset by the higher occupancies and the lower levels of discounting based on the fact that we have more cubes occupied.

But directionally, you're correct.

Okay, that's helpful. And then if I can ask about the insurance business.

The other companies seemed to give more disclosure than you guys, and I assume or I understand it's lumped into your other property income. Is there a ballpark estimate of how much of that is insurance?

And then sort of a related question, Extra Space has had dramatic growth in that business as they've gotten fees from partners and whatnot. Are you guys pursuing that type of strategy?

Do you have sort of a similar upside and trajectory on that?

I'll answer the question from the perspective of, yes, we continue to benefit from the tenant Insurance business to the extent that we continue to grow the third-party managed business. Our third-party management platform is fairly consistent with our larger competitors'.

We don't have the JV relationships certainly that the one company you named does, which clearly helps their other ancillary income or tenant insurance income as they take a big portion of that JV partner's share of that business. We're at about 93% and continue to be in that range of new customers coming in who we provide tenant insurance to, and our overall penetration has grown up into the mid-60% range.

So that continues to be an area of profitability for us and an area of focus for us. I'll ask Tim to address the impact of that on the ancillary income line.

Yes, that line item, Michael, the other property-related income for the quarter, for instance, on our same-store, $5.6 million, about 40% of that number comes from our tenant insurance, just to give you an approximate amount of how much of that comes from that line of business.

Okay. And then one other housekeeping item somewhat similar to that is the -- and you talked a little bit about that the marketing or the Internet spend issue, whether it's an operating expense or G&A, when we look at your income statement and we see the property management fee income, is -- any associated expense with that just lumped in G&A?

And is there much -- well, is that roughly a break-even income stream for you?

The -- again, the fee as a percentage of revenues, the district managers that we have that are out in the field and then our internal infrastructure, that fee is designed to compensate us for that as well as provide us with a profit. We've always looked at that to say, well, we're managing stores where we have the capacity to add the store from a field operations level.

The incremental tier in the corporate office is de minimis. So to the extent that we're managing stores and market rents along the line of our same-store portfolio, we look at margins on that in the 40% range in terms of what flows through to the bottom line.

Okay. And then last question for me would be on the equity raise side.

One thing we criticized you guys for last year was on the Storage Deluxe deal, raising a bunch of equity below what we perceived the NAV to be. This quarter, it seems like the opposite, that you raised some equity above NAV.

How do you guys think about when you want to tap the equity market, whether it's an offering or through your ATM? How do you think about sort of your cost of equity and decision to raise new equity?

Well, from a decision to raise new equity, as I mentioned in my prepared remarks, one thing that we're keenly focused on, we worked very hard to get our balance sheet to where it is today with our leverage levels and our various credit metrics. And we're keenly focused on those metrics, maintaining or -- and growing into even improved metrics over time.

So as we pushed through our initial investment targets, if you think about the high end of our initial external growth guidance range of $125 million, the $50 million worth of dispositions, if you net those to assume that we grow by about $75 million, we can do that type of growth on a leverage-neutral basis by utilizing free cash flow. So once we get past that $75 million, we're then at a point in order to maintain that, obviously, it has to come with some form of equity infusion.

And so as we transacted with the joint venture buyout and our overall growth exceeded those initial targets, then the ATM was -- is always a very attractive tool to allow us to effectively match-fund our growth, albeit we're keenly focused on the price at which we issue that equity, and the proximity to our share price versus NAV is certainly a consideration. So as we continue to grow externally and had an opportunity to match-fund through the ATM, that's very attractive and something that we would look to do.

Going forward, we would err on the side of raising a little bit too much equity a little too soon perhaps than waiting and levering up and then sitting in a position to have to look to delever at perhaps an inopportune time from a share price perspective.

So just to follow up on that last discussion. If I look at your current multiple and just applied it to consensus estimate for next year, it implies something like a $15 price target.

So why do you think the stock continues to trade at such a big discount to the peer group?

This is Chris. Again, I think the strides that we've made with our portfolio, its occupancy, the trajectory of its revenue growth have been very meaningful.

And when we look at what we've achieved thus far this year, I think the progression quarter-to-quarter and the confidence we have in how we'll perform next year and the fact that we look at our revenue and NOI growth as sustainable and as something that we do think can continue to have some level of acceleration into next year, all of that is a positive. I think offsetting that is our same-store pool is a legacy pool of assets that were here in 2006, largely.

And the make-up of that pool is such that we have -- we just have a limited number of assets in that pool that are in particularly high-growth markets. So when we look at Boston, for example, our asking rents and our revenue growth there is comparable to some of our other public companies who disclosed at that granular level.

We just own 3 assets there. When we look at our exposure in Phoenix, Tucson and El Paso, we have a reasonable amount of exposure there, and we have other peers who, in their same-store pool, don't have any.

So it is a reality of a tale of 2 portfolios, and I think we work very hard to communicate the message of our growth and of the quality of the assets that have been acquired here over the last few years. And we continue to focus on that every day.

And it's been about a year now, a little more than, since you've announced the new branding initiative. Has -- how is the penetration been there, do you think?

Did that happen faster or slower than you would have expected? Did it take more or less work than you had anticipated?

How's that -- how is it going from your perspective?

Yes, that's a great question. The outcome, as we sit here today, we are extraordinarily happy with the decision to change the brand, to move to CubeSmart.

And I think one way to look at what that has achieved for us is just the activity that we're seeing in terms of our representation, in terms of search, the cost per acquisition declines that we've seen over the last 12 months from what it was back under the old brand, the improvements in our conversion rates, the increase in the level of reservations that we're seeing. So it has clearly hit its stride, and I think it hit its stride in the beginning of the summer of this year.

And so we always expected that the first 4 to 6 months would present a little bit of a challenge in terms of getting folks comfortable with something new. But as we look back, it was absolutely the right decision.

And we're very pleased with where we sit today in terms of brand recognition and, even down to the employee level, the pride and the morale boost that we got out of having a really unique name.

Any further thoughts then around re-branding third-party managed assets?

Yes, that continues to happen on a daily basis. We still do not mandate it, but we do have an increasing number of folks who are electing to make that change for all the benefits that I just described.

But at the moment, we are still of a mindset to not make that a requirement of third-party management.

And then just one final question, and I apologize if you commented on this in your prepared remarks. What was the average spread and the cap rates between what you're buying and selling at this year?

Yes, I did not address that. Historically, in '10 and '11, we talked about roughly 100 basis points spread between the 2.

When we look at the exits that we did this year compared to the acquisitions we did this year, that's very consistent. It gapped out about 10 bps.

So we saw about 110-basis-point delta between the 2.

Michael Knott actually asked most of my questions. I want to follow up on rent hikes to existing customers.

Can you give us a sense of what kind of increases you're sending out still and how often those increases are going out?

Yes, Ross, this is Chris. That practice has not changed over the last 12, 18 months in terms of how we do it.

It hasn't changed in years, but the amount, et cetera. So we continue to pass along increases in your sixth month with us and then again every 12 months thereafter.

And it's a matrix. It ranges from 0 to certain customers, all the way up into the low double digits for others.

So it's a practice that's been very consistent for us over the last bit.

Is there a way to get a median number from you in terms of what that equates to sort of on a weighted average basis here?

Again, it's going to depend -- so we do it every month. It's going to largely depend upon the makeup of the population that [indiscernible] into play on that monthly basis.

Historically, we've talked about increases in the 6% to 8% range.

Okay. [Indiscernible] turnover.

Can you -- or maybe length of stay, another way to say it. At this point, what percentage of your customers are staying long enough to get to that 6 months or the next 12-month rent hike?

Yes, when you think about -- well, I'll answer it this way. When we look at length of stays, the average length of stay has been very consistent.

It's impacted somewhat seasonally by the college students who stay a very short period of time. But in the third quarter of '11, third quarter of '12, the average length of stay remains just north of 13 months.

The median length of stay has also been very consistent at a little bit over 7 months.

Okay. Because where I'm going is I'm trying to figure out -- there's obviously going to be a percentage of your cubes that are going to have rent rolldowns over the next year, and then there's going to be a percentage that are going to see rent increases.

And I guess where I'm trying to get is to figure out how that breaks out.

Yes. Yes.

On average -- again, with an average of 13, medium of 7, you're going to get to a point in the middle to later part of next year where the impact of our move-down in asking rents will have been fully incorporated, and everybody coming and going, arguably at that point, all of the things being equal, are at a consistent rate.

Right. But between now and then, you're going to get that sort of offset?

I mean, is it -- it sounds like it's not quite 50-50 but sort of 60-40 in terms of who's getting bumps and who's rolling down.

Yes, that's a -- you're -- very hard to give you that level of precision given the volume of ins and outs.

Okay. Last question is the one of price elasticity.

You've obviously seen very nice growth off of occupancy gains, as have most of your peers. I guess the question I would have is the -- all the public self-storage REITs, as we go into, frankly, the middle to the later half of 2013, are, I assume, going to have to rely more on rental rate growth than occupancy gains.

And I'm wondering, especially perhaps given Dean's fairly pessimistic view of the world, it sounds like, how you think customers are going to be able to absorb those price increases during still challenging times.

Yes, a couple of observations. One, the absolute dollar amount in terms of the ability to push street rents on any individual cube is still a relatively small dollar amount to that particular customer.

So it's really not as dramatic as you would think about in other products. And then you'll also -- don't forget, you have the reduction-of-discount lever as well, which is also impactful.

Again, as you have higher levels of occupancy, the offerings start to shrink in terms of free rent. So you do have both levers that, at a completely full occupancy, you can pull.

And again, I think from a customer pushback perspective, the absolute dollars are still pretty minimal.

Yes, I just wanted to ask about -- there's been chatter about some IPO candidates trying to consolidate, some properties at least in certain markets. Have you seen that and seen any upward pricing impact from any of that?

We've heard the same chatter. Upward pricing meaning being able to execute on sales with a little more demand?

Or just a tougher time buying assets or prices going up in general because of that?

We don't see it. We see a help on our disposition side.

In general, the market's interest in self storage has expanded the pool of buyers for the assets that we're selling. On the acquisition side, for the markets that we're interested in, it continues to be a small number of bidders, and it's a fairly consistent bid list from what we would have seen even a year ago.

And then just housekeeping. When will Storage Deluxe be in the same-store pool?

There'll be a portion of the assets that will come in, in January 2013.

Just thinking out loud. Would there be any value in sort of breaking all those out together going forward so we can see that?

Or...

Yes, we're working through how to characterize the impact of not only those, but we also bought another $125 million or so of just fantastic assets in 2011. So as we introduce 2013, all those thoughts are in our minds.

Okay. I have none.

Thanks very much for your interest and see all you guys next week. Good day.