Earnings Call Transcript - CUBE Q4 2022

Operator, Operator

Good morning. Thank you for joining CubeSmart's Fourth Quarter 2022 Earnings Call. My name is Alicia, and I will be your moderator for this call. I would now like to hand it over to your host, Josh Schutzer, Vice President of Finance with CubeSmart. You may now proceed.

Josh Schutzer, VP of Finance

Thank you, Alicia. Good morning, everyone. Welcome to CubeSmart's Fourth Quarter 2022 Earnings Call. Participants on today's call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company's website at www.cubesmart.com. The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties, and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the fourth quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris.

Chris Marr, CEO

Thanks, Josh. Good morning, everyone. Thanks for joining. Our fourth quarter results capped off another excellent year of performance by our CubeSmart platform, and I thank all of our teammates for their dedication and outstanding customer service. Same-store revenue growth for the year came in at the high end of our guidance. Our focus on operational excellence contained expense growth to an annual rate of 3%, resulting in same-store NOI growth at 16.7% for the year coming in above our guidance. As we have performed our business planning and the related financial forecast, each of these last 3 years, we certainly have had to do so facing significant uncertainties surrounding the impact of COVID and the resulting changing consumer behaviors. Entering 2023, while many aspects of our business, such as seasonality and delinquency have returned to more typical historical patterns, we certainly are faced with domestic economic uncertainty and the potential for geopolitical shocks. We believe that our strategy of owning a high-quality portfolio in the best markets, maintaining a high-quality balance sheet with conservative leverage and well-staggered fixed-rate maturities, and the fact that we foster an innovative culture consisting of high-quality people and systems will, over the long-term, produce above-average risk-adjusted returns throughout economic cycles. Our message today will therefore sound familiar to those of you who have been valued stakeholders in Cube over these last few years of robust outperformance. We believe our high-quality stores located in submarkets with sector-leading demographics have us in an excellent position entering 2023. The New York MSA, our largest market, is beginning to positively experience the waning impact of new supply. Operational performance remained steady, and we are starting to see the green shoots from recent supply deliveries leasing up nicely, and the new delivery pipeline has almost been exhausted. Our expectation is for absolute levels of growth to remain steady. And by the back half of the year, the New York City boroughs will be performing above the portfolio average. We're one year on from the Storage West transaction, and we couldn't be more pleased with the assets and the strategic fit on our platform. As expected, despite the stabilized occupancies of the assets, there was significant upside to rents on our platform. These properties saw accelerating growth through the back half of '22 and they are well positioned for continued growth into 2023 and beyond with an expectation that they will be achieving a mid-4s yield by the end of the year and generating meaningful accretion given that we were able to lock in long-term capital at exceptional low rates, including our $1 billion bond deal, which had a weighted average yield of 2.45% and an average tenure of 8.4 years. We entered 2023 with 98% of our debt being fixed rate, with a weighted average maturity of just over 6 years and net debt-to-EBITDA of 4.3x. We have and will continue to focus on being operationally excellent. We entered 2022 with a thesis that businesses that operate lean and agile will be best positioned to succeed during the period of economic uncertainty. Our sector low expense growth and margin expansion in 2022 and our outlook for 2023 are reflective of that focus on operational efficiency. Such heady times, as we've experienced over the last few years, can make many strategies appear clever. We are seeing the benefit of our strategy as our sector-leading portfolio demographics continue to generate stable growth. While secondary and tertiary markets may generate elevated growth in boom times, there is increased risk and volatility to those cash flows during times of uncertainty, and we believe our focus on a high-quality portfolio in top markets will generate the most attractive, long-term risk-adjusted returns. There is no doubt that when viewed through a historical lens, 2021, 2022, and in my opinion, 2023 will be judged among the best years for our business. In spite of uncertainty in the world, I believe that the industry and Cube specifically are well positioned entering 2023 to produce operating metrics above the historical 20-year average. We think this makes us an attractive option for investors, and we appreciate our valued stakeholders' support. With that, please allow me to turn it over to Tim Martin, our Chief Financial Officer, for additional commentary on the quarter and on the year ahead.

Tim Martin, CFO

Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. Piling on to Chris' commentary, results in the fourth quarter reflected a continuation of what we've seen throughout the year, a steady return to more normal seasonal patterns and overall solid operating fundamentals. Headline results included same-store revenue growth of 9.5%, expenses grew 2.3%, and NOI growth was at 12.1% for the quarter. Same-store occupancy levels remain very healthy, down 120 basis points compared to last year as we expected, given the continuing return to more normal seasonality. Same-store occupancy averaged 92.8% in the fourth quarter and ended the quarter at 92.1%. Our consistent focus on managing what we can control on the expense side showed up in our results all year, and the fourth quarter was no exception. Same-store expense growth of 2.3% for the quarter was better than expected, with the main drivers being continued efficiencies in personnel costs and some nice wins from all the work we do to challenge our property tax assessments across the country. We reported FFO per share as adjusted of $0.67 for the quarter, representing 16% growth over last year. During the quarter, we also announced a 14% increase in our quarterly dividend, up to an annualized $1.96 per share. On yesterday's close, that represents a 4.4% dividend yield. On the external growth front, in the fourth quarter, we saw a continuation of what we talked about last quarter, a slowdown of transaction activity and a lack of attractive opportunities for us. Our team remains busy looking to find deals that fit our model at pricing that works. Our disciplined investment strategy has naturally resulted in us being less transactional over the last year where the return profile of available opportunities does not meet the necessary risk-adjusted returns required in today's elevated cost of capital environment. On the third-party management front, we added 28 stores in the fourth quarter and ended the quarter with 668 third-party stores under management. Our balance sheet position remains strong as we continue to focus on funding our growth in a conservative manner that's consistent with our BBB/Baa2 credit ratings. As discussed last quarter, in October, we closed on a new expanded revolving credit facility. The size of the revolver grew to $850 million, the maturity was extended to February of 27, and the pricing improved by 17.5 basis points based on our current credit ratings and leverage levels. Our conservative balance sheet and financing strategy has really paid dividends as we entered into the current volatile capital market environment. All of our debt, except the revolver, is fixed. So, as Chris mentioned, that's only 2% of our outstanding debt that was variable rate as we started 2023. We face no significant maturities until November of 2025 and have a weighted average maturity of 6.3 years. Our leverage level is very low at 4.3x debt-to-EBITDA, and we have ample capacity and liquidity to finance future growth opportunities when attractive ones present themselves. Looking forward, details of our 2023 earnings guidance and related assumptions were included in our release last night. Our 2023 same-store pool increased by 73 stores, including 57 stores from the Storage West portfolio acquisition that we closed in late 2021. Consistent with prior years, our forecasts are based on a detailed asset-by-asset, ground-up approach and consider the impact at the store level, if any, of competitive new supply delivered in 2021, '22 as well as the impact of '23 deliveries that will compete with our stores. Embedded in our same-store expectations for 2023 is the impact of new supply that will compete with approximately 30% of our same-store portfolio. For context, that 30% is down from 35% of stores impacted by supply last year and down from the peak of 50% of impacted stores back in 2019. Our FFO guidance does not include the impact of any speculative acquisition or disposition activity as levels of activity and timing are difficult to predict. Wrapping up, thanks to all of our hard work and talented teammates to help lead us to the successful execution of our business objectives throughout 2022. As a team, we're in a great position to continue our pursuit of operational excellence and to maximize on the opportunities we see in 2023. Thanks again for joining us this morning on the call. At this time, Alicia, why don't we open up the call for some questions.

Operator, Operator

Thank you. The first question comes from Jeff Spector with Bank of America.

Jeff Spector, Analyst

Can we discuss what you're observing through February, Chris and Tim? It seems there's a lot of confidence as you begin 2023. Your approach to guidance appears to differ somewhat from that of some peers. I'm curious if this is more specific to your company, specific to the industry, or if it's simply that you're not currently seeing any indicators of a recession.

Chris Marr, CEO

Yes. Thanks, Jeff. So I can't comment on others' portfolios or how they're viewing their outlook. I think from our consumer perspective, we continue to see pretty good signs of strength. I think our portfolio and its construct, the lengths of stay continue to elongate, and the pattern of vacates has been relatively muted. So we're encouraged by that. I think the outlook, obviously, as I said in my opening remarks, the outlook as you get past the second quarter is a little bit less certain. We're certainly trying to think about what the back half of the year may look like. Same challenge we had in '21 and '22. And I think our guidance ranges capture the expectation of how our consumer will react in the back half of the year. I think from a more macro perspective, we don't really do our planning by thinking about whether we're going to enter into a recession or we're not at a macro level. I think we look more at how will our consumer respond throughout the year in terms of their need for our product, which, as we all know, is created by a whole host of life events that may or may not have anything to do with what the broader economy is doing at that time. So I think our process is a bottoms-up process. And I think we've kind of captured a range of outlook for the year. And I think certainly, I'm sure everybody is looking at it to say the first half is a little bit more clear and the back half is a little more cloudy, but we feel good about where we are today. In February and January, the results were at or better than what our expectations were when we started the year. So that's encouraging off to a good start, and we'll see how the quarter evolves and really looking forward to the beginning of the busy season, which I think will tell us a lot about how we think the balance of the year will unfold.

Jeff Spector, Analyst

That's very helpful. My second question, Chris, can we dig in a little bit more on your comments about demographics versus, let's say, tertiary, secondary markets. We get lots of questions on that, the importance of demographics versus market positioning. Can you talk a little bit more about what you were referring to in terms of the strength of your demographics versus, let's say, tertiary, secondary markets? And I guess, are you seeing or hearing of issues in tertiary or secondary?

Chris Marr, CEO

Yes. So when we look at long-term risk-adjusted returns, markets with significant populations, lower levels of supply of self-storage on a square foot per capita basis, good household incomes, and a good percentage of our customers living in rental housing versus homeownership tend to create a backdrop of stable cash flow over a longer period of time. And again, I think you could use as an example, when you think about as we sit here today of our major markets, the market where we have physical occupancy, higher today than where we were at this point last year is the New York City assets. When you think about a market that has net effective rents on new customers that are higher than where we were at this point last year, that's New York City. You can contrast that with some of the markets in the Southwest where you're just seeing that shift as the COVID demand had waned, and you're seeing a bit lower occupancy than where you were last year and a bit lower asking rents than we were last year. So I think you then delve into secondary and tertiary, our expectation is, over time, they're more susceptible to new supply, and they're just more volatile markets. And so as we expect things to normalize, I think the strong demographic markets will outperform.

Operator, Operator

The next question comes from the line of Michael Goldsmith with UBS.

Michael Goldsmith, Analyst

Digging into New York a little bit more sequentially, the MSA underperformed the portfolio average on same-store revenue growth, but maybe outperformed sequentially on same-store NOI growth. So as you think about the outlook for this market in the upcoming year, are you thinking if this is going to be an outperformer due to the stability of the market as trends sort of moderate? Or is there another thought process that you have on this key MSA for you?

Chris Marr, CEO

I think as we look out, I think the strength of the New York market is a combination of waning supply impact, the positive demographics, as I answered in response to the previous question, create a customer profile that is stickier than in other parts of the country. I think you've got a good backdrop in terms of demand drivers. And I think the portfolio is obviously best-in-class and is well positioned to capture the demand that exists in that market. So I think it's going to continue to get better. I think we talked about on the third quarter call, we had a relatively easy comp in '21 in the third quarter. So the third to fourth quarter, slight deceleration was not 100% everything we expected it to do. I would say the portfolio in Q4 in the New York MSA more broadly exceeded our expectations just a bit. So ending on a high note, starting in a real good spot here for January and February, and just again think about as other high-flying markets return to more normalized levels, New York will bubble up to the top of our performers.

Michael Goldsmith, Analyst

That's really helpful. You mentioned that the percentage of your portfolio affected by supply is expected to decrease by 5 percentage points this year. Can you provide a benchmark for how much this could contribute to same-store revenue growth? Specifically, as this 500 basis point reduction occurs, does it equate to 50 or 100 basis points in same-store revenue growth? Also, do you have the figure regarding the change in supply affecting your locations in the New York Metro?

Chris Marr, CEO

That was a lot to go over. Let me address some of these points. The effect of the decline from 35% exposure to 30% is challenging to measure. When considering it from a budget perspective, it varies widely. Some properties are actually outperforming due to factors related to the market and submarket. Conversely, other properties are more directly affected. The impact is also influenced by the competitor's brand and pricing strategy as they seek to lease their properties, which can have both positive and negative effects. Therefore, it's difficult to assign a precise number of basis points to that impact. Regarding New York City, specifically in '23 by borough, for the Bronx, the influence of new supply is already behind us, and we do not anticipate any effect on our Cube stores there. In Brooklyn, we are nearing the conclusion of the new supply phase, which aligns with the ongoing improvement throughout 2023. There is only one new opening in '23 that will compete with an existing Cube. For Queens, we expect a continued decline, but there will still be effects on our stores in 2023 due to two new openings that we believe will impact an existing CubeSmart. As I mentioned earlier, this trend is beginning to diminish, and we are optimistic about the future in that area.

Operator, Operator

The next question comes from the line of Spenser Allaway with Green Street Advisors.

Spenser Allaway, Analyst

Can you provide a little color on what's being underwritten for occupancy at both the high and low end of guidance?

Chris Marr, CEO

Yes, Spenser, we typically do not provide specific guidance on occupancy as it's an outcome rather than a starting point. Last year, we felt pressured to give a number for our year-end results, and as Tim mentioned, we surpassed that expectation by a significant margin. The current outlook for the new pool suggests that occupancy may decline by 150 basis points compared to the previous year, but this is expected to improve as the year progresses. Ultimately, I believe we will finish the year within 50 basis points of where we were in 2022 for that new pool.

Spenser Allaway, Analyst

And then maybe just circling back to supply again for a second. Maybe without focusing on NOI expectations, but can you just comment on whether there are any markets that stand out as more concerning due to current pricing power in those markets or current occupancy levels of utilization?

Chris Marr, CEO

Yes. I believe the effect of supply, including the number of new stores and the brands of those stores along with their leasing strategies, will likely be most noticeable in our portfolio in the greater Philadelphia area, where it is sunny today in Malvern; the Washington, D.C. area; and then certain areas of Northern New Jersey.

Operator, Operator

The next question comes from the line of Alina Juan Sanabria with BMO Capital Markets.

Juan Sanabria, Analyst

I wanted to ask about the pace of growth. Should we anticipate whether growth will speed up or slow down over the quarters this year? Also, could you share insights on how New York fits into that outlook?

Chris Marr, CEO

Yes. I think for our portfolio and then as you're trying to look at, obviously, rates of growth, so comparing to what the cadence was in 2022, we would expect that our same-store revenue growth will be at its peak in terms of the growth in Q1 and then a steady deceleration as we go out through 2023. Obviously, we have the most clarity into Q1 and the least clarity into the Q4 results. So we'll see how the busy season starts out and progresses here. For New York City, the overall trend would be consistent with that, just that again, we would expect that market will then end up outperforming on a relative basis, the overall pool as we get into the back half of the year.

Juan Sanabria, Analyst

I wanted to change the topic to investments or acquisitions. You seemed more enthusiastic about opportunities in your press release, so please correct me if I'm misinterpreting your words. What is your confidence level in making capital investments? What types of opportunities are you considering? Are you focusing more on lease-up or stabilization? Do you have any geographical preferences? It seems like you're discussing more in your existing coastal markets rather than the Southwest based on some of your earlier comments in the call.

Tim Martin, CFO

Juan, from our perspective, it shouldn't come as a surprise. We have been quite consistent in the markets where we aim to grow and expand, with a primary focus on many of the top 40 Metropolitan Statistical Areas that feature high-quality, solid demographics. I'm not certain if our expectations were perceived as optimistic or pessimistic in our release, but we believe they are achievable, although market conditions are indeed quite volatile. If 2022 serves as an indicator, which I believe it does, we plan to remain disciplined. We hope to uncover some opportunities here and there, but the guidance range or external growth figure we provided is not substantial. Our team is putting in considerable effort to identify opportunities that align with our investment strategy and yield that make sense in relation to our cost of capital. We hope, perhaps more with hope than certainty, to discover a bit more opportunity for external growth in 2023 compared to what we found in 2022.

Juan Sanabria, Analyst

And if I could just sneak an extra one in here. Can you just comment on the street rates or net effective rates in the fourth quarter and what you've experienced year-to-date?

Chris Marr, CEO

Certainly. So net effective rents for new customers in the fourth quarter were down over the same period in '21, about 10%. They were down in December about 10%. And for the month of February, as of yesterday, we've been running down just a little bit below 9%.

Operator, Operator

The next question comes from the line of Smedes Rose with Citi.

Unidentified Analyst, Analyst

This is Natty on for Smedes. Could you talk a little bit about the components of cost increases? How are you thinking about labor and benefits increases, property taxes, other line items?

Tim Martin, CFO

Thank you for the question. We expect to face significant pressure on operating expenses in the insurance sector. Our property insurance renews in May, and we anticipate pressure on this front, likely similar to trends seen across the real estate industry. We also foresee ongoing pressure in utility costs, including electric and gas, which remain above inflation levels. Regarding personnel expenses, wages are under pressure; however, we are maintaining a strong focus on identifying opportunities for efficiency and margin improvement, especially in this area, allowing us to operate more effectively while staffing our stores. This approach has greatly aided our expense control in 2022, and we expect many of these initiatives to continue to prove beneficial as we move into 2023. Real estate taxes remain a significant line item and can be unpredictable, but we believe they will continue to rise in the 4% to 7% range that we have mentioned in previous discussions.

Operator, Operator

The next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Todd Thomas, Analyst

First, I was just wondering. Apologies if I missed this. But are you able to share where occupancy in the portfolio is today and what that looks like year-over-year from the new same-store pool?

Chris Marr, CEO

Yes. You didn't miss it. So for the new same-store pool as of yesterday, the occupancy in that portfolio is running around at the end of January, rather, at 91.3%, which is down about 130 basis points from that new pool's occupancy at the end of January 22.

Todd Thomas, Analyst

Okay. And so that's a little bit of a sequential decrease from where you are at the end of the year. When is occupancy starting to pick up a little bit at this point ahead of the peak rental season? I know the peak rental season doesn't really begin for a little bit longer here. But are you starting to see that uptick in occupancy and also in rents?

Chris Marr, CEO

We haven't really seen the start of the rental season yet. February is still impacted by weather and other factors. It's difficult to assess because the current situation is different from what we had before. Typically, we start to see the spring moving season pick up in early March. As for rents, there is a positive trend happening now that we've moved past January.

Todd Thomas, Analyst

Okay. And then back to New York City, I hear the comments around new supply diminishing a little bit, having a positive impact there on activity. Can you talk a little bit about rental rate to New York City and rental demand and what you're expecting in terms of occupancy trends there throughout the year?

Chris Marr, CEO

Yes. I think again, the answer to some prior question, occupancies are up basis points or so over last year in the New York City same stores. It's the only market with positive occupancy versus prior year. Rents are up to new customers, about 3%, and it's one of a small number. And I think the only of the top 5 markets where we've got rents that are in positive place at this point relative to what we were doing in January and February of '22. So demand is pretty good. Occupancies are good. Vacate patterns there continue to be very constructive.

Operator, Operator

The next question comes from the line of Keegan Carl with Wolfe Research.

Keegan Carl, Analyst

Maybe first one here, just what's your anticipated cadence and magnitude of ECRI throughout '23? And how is that going to stack out versus what you guys did in '22?

Chris Marr, CEO

Yes. Our process there, I would call, is quite dynamic. So every day, we've got a customer in our portfolio who is having a rate increase proposed to them. So from a cadence perspective, predynamic, don't expect significant change, but we are testing a wide variety and continue to of both timing and amount throughout the portfolio by market. In terms of the kind of general magnitude of our expectations for those, it will continue to be above the historical average, but our expectation embedded in our guidance is that we would be passing along on a percentage basis lower than what we did last year, and I think that's just reflective of the fact that we're seeing that normalization, as we described, of demand coming out of what was incredible, robust '21 and first half of '22.

Keegan Carl, Analyst

Got it. Maybe shifting to your third-party management platform. Just kind of curious where you're seeing demand for it today and what the expectations are going forward. I know one of your peers mentioned that year-to-date, their demand is better than expected. Just curious if you guys are seeing the same.

Tim Martin, CFO

We have a strong pipeline of potential opportunities to add new stores and management contracts. We are noticing a shift, with a slightly smaller percentage of new developments as the development cycle moves further from its peak. However, there is significant interest from various third-party owners who want us to enhance their storage properties using our platform. Additionally, we anticipate that in 2023, due to earlier comments regarding the transaction market, there will be less turnover in the portfolio since property sales are decreasing. This means that stores under our management platform are likely to remain with us longer as the transaction market has cooled down.

Operator, Operator

The next question comes from the line of Steve Sakwa with Evercore.

Steve Sakwa, Analyst

Just circling back on the transaction market. Chris, can you maybe just talk about where the bid-ask spread is today? How has pricing changed? And I guess, how close do you think you are to finding sellers willing to accept what are presumably higher expected yields from public companies such as yourself?

Tim Martin, CFO

Steve, it's Tim. Right now, there are simply fewer transactions happening in the market, and of the deals available, the success rate in closing them and aligning buyer and seller expectations is somewhat unclear. It's definitely a different landscape compared to 2021. We often find that our estimates on trading values are off by 15% to 20% for many transactions, and it’s challenging to determine if that estimate is accurate. It’s also tough to ascertain the reasons behind this discrepancy. It could be related to differences in underwriting expectations or variances in cost of capital and return expectations. Additionally, the quality of available assets in the market hasn’t been as high as what we saw in the two years prior to the last 12 to 18 months. All these factors contributed to our relatively low investment opportunities in 2022. However, I remain optimistic that we will soon encounter opportunities that align with our strategy and are priced appropriately concerning our cost of capital.

Steve Sakwa, Analyst

Okay. I want to revisit the question about expense growth. Chris, you briefly mentioned the employee side. I'm interested in understanding, from a technological standpoint, how much additional cost savings or FTE savings you expect to achieve at the property moving forward.

Chris Marr, CEO

Yes. That's the evolving question. I think it relates on both sides. What and how does the consumer of our product, what do they want to use and how do they want to be engaged with? And we are doing an awful lot of work and an awful lot of testing to figure out that balance. It's not surprising, and it's not necessarily entirely demographically related, but there's a portion of our customers who are entirely comfortable with a self-service model, no different than our kids texting from upstairs asking what time dinner is. And there's a segment of our population who absolutely want that in-person service and want to know that there's a store team made available to assist them with their storage needs. And to try to find that balance is what we've been really focused in on, and it's a combination of video, it's a combination of chat, and it's using smart rental more efficiently. So we're going to continue to navigate through that. To date, we've been able to find some really good operational efficiencies through the testing that we've done, and we're just going to continue to attack that here in 2023. I just don't think our model ever ends up being one where it's entirely self-service. I don't think we ever end up in a model where it's entirely an in-person store teammate. I think ultimately, it will vary by market and by property, and we'll find that balance. I think there's still good opportunity though for us to continue to be more efficient.

Operator, Operator

The next question comes from the line of Ki Bin Kim with Truist.

Ki Bin Kim, Analyst

Just a couple of questions on the expense front. In 4Q, your personnel expenses were down 9%. I'm curious if that's an efficiency-driven type of metric? Or were you just not fully staffed? I'm just trying to understand kind of the forward path for that line item?

Tim Martin, CFO

Yes. I wouldn't overread into that being a forward path. That has a little bit to do with the comp issue from last year. So I think it's less to do with what we were doing this year and a little bit more to do with what we were doing last year and creating an easier comp.

Ki Bin Kim, Analyst

Okay. And your expense growth in 2023 was only 3%, beating your guidance and even for 2023, your expense guidance is lower than your peers. So I'm curious if you think that's a little bit of a geographic-driven item? Or going back to your other comments, is it other things you're working on that are keeping those expenses lower?

Chris Marr, CEO

Ki Bin, it's Chris. I cannot discuss what our competitors are doing; you'll need to ask them about their focus. However, reflecting on my earlier comments, we had a belief at the start of 2022 that companies emphasizing operational excellence, efficiency, and agility would be best equipped to handle economic uncertainties. Our organization has been particularly focused on improving efficiency and operating intelligently. When you consider that in light of the previous question about customer service preferences, I believe we've identified ways to remain as streamlined as possible. I see continued opportunities for improvement in 2023. As usual, we will experiment with various approaches; some will succeed, and others won't, and we will learn from those that don't and move forward. Our focus on this area, combined with the right personnel, can lead to significant achievements.

Ki Bin Kim, Analyst

And your repairs and maintenance expenses in your same-store pool account for about 1% of total revenues. That's at the lower end when I look at some other competitors that might be as high as 3%. I'm curious if that's like a weather-driven snow removal cost-driven type of item or some other things that you've been working on?

Chris Marr, CEO

Yes, I can't speak for others, so you would need to ask them about their situation. From our viewpoint, we have exceptional properties, the best in our industry, and we take great care of them. When repairs are needed, we address them promptly, which may help us avoid additional costs in the long run by not neglecting daily maintenance. This focus has always been important to us. Our facility services team is outstanding, and we are committed to providing our customers with a high-quality product, which includes ensuring our stores are maintained optimally.

Operator, Operator

The last question comes from the line of Mike Mueller with JPMorgan.

Mike Mueller, Analyst

Chris, I guess your comment earlier on about New York performance being a little bit better than the portfolio average. I guess, was that more of a 2023 comment as you move through 2023? Or is that intended to be a little bit more of a multiyear outlook for the next few years?

Chris Marr, CEO

The back half of 2023, the boroughs, as I said in the opening comments, I think will outperform. And I think that, again, in our expectation for a more normalized environment versus what we saw in '21 in the first couple of months of '22, I think the low beta, high-quality demographic markets, the more urban markets will tend to outperform some of the markets that saw great performance in '21 and into the beginning of '22.

Tim Martin, CFO

Mike, it's Tim. This is an area we are monitoring. Historically, our development pipeline has concentrated on a few markets. The markets we focus on have experienced a significant amount of new supply, which we believe will continue to decrease. We are actively seeking opportunities in prime locations that complement our existing portfolio where there is demand, allowing us to expand and strengthen our already dominant position in these select markets. It's difficult to predict if we will find opportunities to add to our development pipeline. However, it has diminished in recent years, but we do not anticipate it dropping to zero. We are on the lookout for opportunities, and you can expect to see a few projects emerge on that list as the year progresses.

Operator, Operator

There are no further questions registered. So at this time, I'll pass the conference back to management team for closing remarks.

Chris Marr, CEO

Thank you, everyone, for joining us today. Our high-quality properties, balance sheet, people, an industry that is just simply wonderful, and the great teams that we have serving our customers and our stores throughout the country have us well positioned for 2023. We look forward to another successful year. We appreciate your continued support and look forward to speaking to many of you over the coming weeks and months. Thanks for your participation.

Operator, Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.