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The three big self-storage REITs reported Q3 earnings over the last week of October. And the numbers tell a cleaner story than any preview could.
The Q3 scorecard
Extra Space Storage same-store NOI: plus 4.6 percent. Revenue up 2.7 percent. Expenses down 1.8 percent. Occupancy ended September at 94 percent.
CubeSmart same-store NOI: plus 2.1 percent. Revenue up 1.9 percent. Expenses up 1.3 percent. Occupancy averaged 89 percent.
Public Storage: core FFO of $4.34 a share. Same-store occupancy 92.5 percent. Move-in rents up 1.6 percent — a recovery from Q1’s 2.4 percent drop.
SmartStop: net income $9.0 million, up $3.8 million year over year.
Every company improved. Not every company improved the same way.
The expense question Q2 raised
Back in Q2, the REITs split on expenses in a way that should have gotten more attention. Extra Space cut expenses 0.5 percent year over year. CubeSmart and Public Storage each saw expenses rise 4.4 percent. Same sector. Same tenants. Same economy. A roughly 500-basis-point gap in expense growth.
The question was: is that a structural competitive advantage or a one-quarter anomaly? Q3 answers it.
Extra Space expenses fell again — down 1.8 percent. CubeSmart expenses rose 1.3 percent — still positive, but sharply lower than Q2’s 4.4 percent. The gap narrowed from the CubeSmart side because CubeSmart bent its expense curve. But Extra Space didn’t just hold its Q2 expense discipline — it improved it.
That is two consecutive quarters where Extra Space reduced expenses year over year. That is not a quarter-specific comp. That is a management signal.
What Public Storage’s buying spree says about the cycle
Public Storage closed its National Storage Affiliates acquisition — more than 1,100 locations. In Q3 alone it bought 25 facilities for $258.4 million. Year to date it has bought or contracted 65 facilities for $713.2 million.
That is not a company acting like the cycle is turning down. That is a company acting like the current price level is a buying opportunity. The same thesis works for a smaller buyer: if Public Storage sees the current market as an entry point, a conservative buyer with patient capital is not wrong to think the same way.
What a buyer does with this
Three things. One: pull the Q2 and Q3 expense growth numbers against your underwriting’s expense-growth assumption. If your pro forma projects 3 percent annual expense growth and the REITs are printing negative to 1.3 percent, your model has room. Two: watch the Q4 REIT calls for the same expense question. Three: use the Public Storage buying data as a directional reference. They are buying at this price level. That is a signal worth noting.
Past performance is not indicative of future results. Nothing here constitutes investment advice. The Q3 figures described are historical.
Run the numbers. Take the deal you are looking at right now and stress the expense line against the REIT range. If your model works at expense growth of 2 percent and the best-capitalized operators in the sector are printing negative to 1.3 percent, you have room. If you are projecting no expense growth, your model is optimistic. Run the numbers. Then run them again.
Past performance is not indicative of future results. Figures in these posts are historical results for those specific deals or the cited industry data, not projections, and nothing here constitutes investment advice. The math that decides a deal is the math you do before you sign — underwrite it yourself, or have someone you trust walk it with you.