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CubeSmart  (NYSE:CUBE)
Q4 2018 Earnings Conference Call
Feb. 22, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the CubeSmart Fourth Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, today's event is being recorded.

And at this time, I'd like to turn the conference call over to Mr. Charles Place, Director of Investor Relations. Sir, please go ahead.

Charles Place -- Director, Investor Relations

Thank you, Jamie. Hello, everyone. Good morning from sunny Malvern, Pennsylvania. Welcome to CubeSmart's fourth quarter 2018 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 those 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 Tim.

Timothy M. Martin -- Chief Financial Officer

Thanks, Charlie, and thank you to everyone on the call for your continued interest and support.

Our fourth quarter results rounded out another successful year across many fronts for CubeSmart. Same-store performance included headline results of 3.2% revenue growth and 6.9% expense growth, yielding NOI growth of 1.9% for the quarter. For the full year, same-store revenues grew 3.3%, expenses grew 3.5%, leading to NOI growth of 3.3%. Average occupancy in the fourth quarter was 91.8%, down 40 basis points year-over-year, while quarter ending occupancy of 91.2% is a 30 basis point decrease. Both of those measures improved on a relative year-over-year basis compared to Q3, as we distance further from top occupancy comps due to the residual occupancy gains achieved in 2017 from hurricanes Harvey and Irma.

Thanks to our expense growth for the fourth quarter was in line with our expectations. Property taxes, again, this quarter were a large contributor to the increase in overall expenses and in particular in the fourth quarter, those real estate taxes were up against a very tough comp from last year when we had the benefit of a handful of successful property tax appeals. Repair and maintenance expenses were up 9% this quarter, largely driven by timing, as indicated by the full year result, which was essentially flat year-over-year. Marketing costs were also impacted by timing in the fourth quarter based on when we spend our advertising budget this year relative to when we spent it last year. We reported FFO per share as adjusted of $0.42 for the quarter, which was at the high end of the range we provided and represents growth of 2.4% over the same quarter last year. For the year, our reported FFO per share of a $1.64 was a 3.1% increase over 2017.

We remain active and disciplined in our pursuit of external growth opportunities. During the fourth quarter, we closed on the purchase of four properties for a $117.7 million and we closed on the final deal in our C/O pipeline in San Diego for $19.1 million. That brought our full year acquisition activity to $227.5 million. During the quarter, we also completed the sale of two stores in Arizona for a total sales price of $17.5 million and on the third party management front, we finished off another very productive year by adding 61 stores in the fourth quarter, bringing our 2018 total 209 new stores added to our program. We ended the year with 593 managed stores, allowing us to enhance our market position and expand the CubeSmart brand.

On our balance sheet, we continue to focus on funding our growth in a conservative manner, consistent with our BBB/Baa2 credit ratings. We were active in the fourth quarter, using our aftermarket equity program raising net proceeds of $23.5 million at an average sales price of $32.25 per share. In January, we completed the offering of $350 million of 10-year senior unsecured notes with a coupon of 4.375%. We appreciate the support we received from our fixed income investor base and we remain committed to being a regular issuer over time in the bond market. We used the proceeds from the bond deal to repay a $200 million term loan that was set to expire early in 2019 and the balance to reduce borrowings under our revolver. That effectively addresses our 2019 debt maturities and our 2020 and '21 maturities are very manageable. Our balance sheet is well positioned and we continue to have the ability to fund our existing development commitments on a leverage-neutral basis over the next two years without raising any additional equity capital by utilizing our expected free cash flow.

In December, we announced the 6.7% increase to our quarterly dividend, bringing our dividend to a $1.28 per share on an annualized basis and based on the midpoint of our 2019 guidance, the increased dividend suggests an FFO payout ratio of 76.9%. Details of our 2019 earnings guidance and related assumptions were included in our release last evening. Our 2019 same-store property pool increased by 12 stores. Same-store revenue guidance assumes little impact from occupancy, and as again, overwhelmingly driven by expected growth in net effective rate. Consistent with prior years, our forecasts are based on a detailed asset-by-asset round up approach and consider the impact at the store level, if any, of competitive new supply delivered in 2017 and 2018 as well as the impact of 2019 deliveries that will compete with our stores.

Embedded in our same-store expectations for 2019 is the impact of new supply that will compete with approximately 50% of our same-store portfolio. That's up from 40% last year and up from 25% back in 2017. The impact to an individual store facing new competition in its competitive train -- can range based on many factors, but overall, we expect the group of stores impacted by new supply to have revenue growth 200 to 300 basis points lower than the stores that are not impacted by new supply.

We remain very pleased with the lease-up progress of our newly developed stores as well as stores that we have recently acquired that have been in early stages of lease-up. We believe our development pipeline and non-stabilized store acquisitions will create meaningful NAV accretion at stabilization, but, of course, in the short-term, those investments create a drag to our FFO per share. Our FFO guidance for 2019 is impacted negatively by $0.09 to $0.10 per share as a result of this dilution. Our guidance includes the impact of acquisitions we've closed to-date or have under contract, but does not include the impact of any speculative acquisition or disposition activity as levels of activity and timing are difficult to predict.

As we wrap up 2018 reporting and look forward to 2019, clearly we do so recognizing the impact of new supply. While we firmly believe that we're in the very late stages of this development cycle, the near-term headwinds for store facing new supply are front and center and are a daily focus for our team. We believe the storage sector performance speaks well of the product's ability to perform well in face of new supply and we believe our results continue to validate the high quality of our real estate portfolio and the strength of our people and the strength of our operating platform.

Thanks again for joining us on the call this morning. Now, let me turn the call over to Chris for some additional color on the quarter.

Christopher P. Marr -- President and Chief Executive Officer

Thanks, Tim. As you note, a very solid fourth quarter caps a year in which our significant markets held up very well in the face of new supply. As we reflect on how 2018 concluded relative to our expectations and shift our thoughts to 2019, our outlook is generally unchanged from the comments on our earnings call in October. We believe those markets impacted by supply that are characterized by strong demographics and not -- do not heavily rely on population growth to absorb the new supply will continue to be more resilient. We believe that the market demand for self-storage remains very solid and that the new stores being delivered will lease-up. However, the more recent deliveries will likely lease-up at a slower pace and certainly at market rents lower than the developers would have originally projected. We are bullish on our third party management program, which generated revenues of $20 million in 2018, up from $15 million in the prior year.

In summary, we remain optimistic about our future opportunities. Our recent successful bond offering along with our 2018 asset sales and proceeds from our at-the-market equity program result in the balance sheet with no significant near-term maturities, we believe the growth in our third party management program is a validation of the strength of our operating platform and we continue to invest in our people and technology to maximize the potential of our existing assets, while our investment team is focused on prudently growing our platform.

At this point, we would like to turn the call over for questions.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions) Our first question today comes from Jeremy Metz from BMO Capital Markets. Please go ahead with your question.

Jeremy Metz -- BMO Capital Markets -- Analyst

Hey, good morning. Chris, obviously, you mentioned the challenges you will be facing from new supply here in 2019. But just at a broad level, can you just comment on your expected starts overall for the sector, how that compared to the delivery that actually hit in '18? And then, if you could look in further into your crystal ball here, are you seeing anything on the ground to suggest that supply will slow further from here into 2020?

Christopher P. Marr -- President and Chief Executive Officer

Thanks, Jeremy. So I think nothing, as I said, has really fundamentally changed from our expectation in -- as we talked at the end of the third quarter. We would expect deliveries in '19 on a rolling three-year basis to certainly be more than what we saw delivered in on our top-12 markets in 2016, so the impact being felt on the same-store portfolio as Tim articulated will be greater in '19 than it was 18. I think when we look at markets, certainly in our top-12, the themes are pretty consistent with what we talked about a quarter ago.

When you look at markets that had been impacted by new supply early in the cycle, so you think about a market like Chicago, for example, we can see a steady decline in the amount of deliveries going into '19. When you look at markets that saw just a very significant increase in deliveries in 2018, and I'll call out markets like Denver and Nashville, Raleigh, you do see a pretty then significant drop off in what we have on our radar for 2019 coming off those very significant 2018 deliveries. Markets like Miami and Dallas continue to see levels of -- consistent levels of new supply being projected for '19 on top of what we saw in '18 on top of what we saw on '17. So I think it's a pretty consistent message market-by-market. It seems to us, when you look at compressed yields, you look at where rental rates are in these markets that has seen supply, you look at cost of construction, cost of land, shortage of labor, that looking out into 2020, it still feels like '19 plus or minus is going to be a peak in terms of overall deliveries.

I think you then have to take that question and say there is the impact of actual supply coming into the market in terms of the quantity and then there is the impact on your same-store growth metrics from the impact of that supply. And I think based on the levels of supply being delivered in 2019, again, as our forecasts have been for the last several years, no one should be surprised to the extent that the deceleration in those same-store metrics continues beyond the peak levels of supply until you reach some more stabilization. So I think the message remains the same largely from what we've talked about over the last couple of quarters.

Jeremy Metz -- BMO Capital Markets -- Analyst

No, that's helpful. And just switching gears, in terms of rents, where did Street rents, net effective rents and your existing customer rate increases trend in the fourth quarter and are those holding so far in the January and February?

Timothy M. Martin -- Chief Financial Officer

Hey, Jeremy. It's Tim, thanks for the question. Street rates are a complicated question because it's -- with a portfolio the size of ours and the many, many markets that we operate in, it really is the tale -- in the fourth quarter, it's really the tale of three different buckets that you need to focus on. Obviously, for markets that have had an impact from new supply, those markets have been under the most pressure from an asking rate perspective and you can focus on markets like Charlotte, Austin, Miami, Nashville, Denver. Those are all markets that year-over-year in the fourth quarter we would have seen the most pressure on Street rates, and in those markets, you would have seen Street rates down in the 8% to 11%, 11.5% range. If you focus on other markets that saw minimal levels of new supply, markets including Philadelphia, Las Vegas, Tucson, you're in a much different operating environment, in those markets, you've seen 5% to 10% growth in asking rates. And then the third bucket that's somewhat unique to the fourth quarter here is made up of markets like the Western part of Florida and Houston, who had the remaining impacts of the hurricanes last year and so you think about the fourth quarter of last year in those markets, you had high levels of occupancy and you had pretty strong rates, given the outsized demand that came as a result of the hurricanes. So those are very difficult comps from a year-over-year comparison in Street rates. And in those markets, when you look at Street rates year-over-year, you're down 9% to 11%. So it's really a much more complicated question at times than that I think some would like it to be, but it's really all over the place depending on those factors. As we think about where that's trended here going into the first part of 2019, it's much the same.

Jeremy Metz -- BMO Capital Markets -- Analyst

And if you blend that into effective rents, sorry, if I missed that, but like overall just effective rents at a portfolio level, are those -- I think you were around 1% last quarter?

Christopher P. Marr -- President and Chief Executive Officer

Yeah. And, I think if you look at Q4, blend all that together and you're down between 1% and 2% and then in the more recent month of January, it's about flat.

Jeremy Metz -- BMO Capital Markets -- Analyst

All right. And last question from me. In terms of your existing customer rate increases, I mean, how many of your customers are hitting the buffer you put in place in terms of rent spread relative to market, or maybe said differently, what percentage of customers are getting those increases? And is that something that's moderating here and therefore also impacting some of the overall deceleration of growth you're expecting beyond just the supply impacts?

Christopher P. Marr -- President and Chief Executive Officer

So at the end of December, about 60% of our customers had been with us for over a year. And so to the extent then you've been with us for over a year, you've seen at least one rate increase. 42% of those have been with us for more than two years, so they've seen multiple rate increases. The average length of stay has continued to elongate. So I think it's -- that's actually been a positive overall to our growth in same-store revenues. What we've seen particularly in the more urban markets is a gradual longer length of stay. And I think overall activity has been such that we've seen fewer vacates over the last couple of quarters and that's contributed then to a slightly longer length of stay, which has then contributed to the ability to pass along rate increases to a larger component of our overall population. So that has actually been a slight positive to us in recent quarters.

Timothy M. Martin -- Chief Financial Officer

And then just to add on to that Jeremy, you get different answers to that questions across the public REITs. Some I have heard have talked about not pass along increases to certain portions of their customer base based on where they are versus Street rate or other factors for us and not opening up the black box. But it's more typical for us as to how much the increase is to a customer that has been with us for a period of time, not if they get a rate increase, but our systems will vary the amount of increase somebody gets rarely do we not pass along a rate increase.

Jeremy Metz -- BMO Capital Markets -- Analyst

Appreciate. Thanks.

Timothy M. Martin -- Chief Financial Officer

Thanks, Jeremy.

Operator

Our next question comes from Shirley Wu from Bank of America Merrill Lynch. Please go ahead with your question.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Hey guys, thanks for taking the time. So can you talk about New York a little bit? You guys had revenue growth of 2.5%. So what's the latest on the supply story and how that market is performing overall?

Christopher P. Marr -- President and Chief Executive Officer

So New York continues, and again I think back to my comments on the beginning of the call, I think, again, a market like Greater New York MSA, which, obviously, it includes North Jersey and Long Island, we're not relying on population growth as you would see in, for example, a market like Austin or Denver to absorb the supply. So I think it's actually hung in there pretty well. Our outlook for the impact of supply is unchanged. So I think we continue to expect to see supply in particular in Brooklyn and I think our guidance overall for all our stores, but certainly for our Greater New York stores factors in that impact. I think the impact was a little bit less in 2018 than we would have expected. So that's encouraging. I think The Bronx in particular continues to perform quite well as it bounces back from having experienced the more early impact from that new supply. And I think the other comment I would make on the boroughs is that as we look out at the new supply coming in, the impact of the supply being generated by us whether it'd be owned or managed is also going to wane a bit. So the new supply coming in '19 is a little bit more heavily weighted toward non-Cube branded stores, which actually is a positive for us as we tend to perform a bit better when we are competing against another brand in that market.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Got it. That makes sense. So could you -- would you be able to talk to Street rates in those boroughs in 4Q or maybe even January?

Christopher P. Marr -- President and Chief Executive Officer

Yeah. I think again overall The Bronx, when we look at rate, it's up -- it was up in the quarter about 2% over where we were in The Bronx the prior quarter. Queens and Brooklyn down between 3% and 5%, but occupancy in Brooklyn and in Queens is up 80, 90 basis points. So we're getting the customers, we're just offsetting a little bit of that occupancy growth with some lower asking rates and then Staten Island, as it has been for many, many years, continues to be largely unaffected by competition and Street rate growth there was pretty aggressive, high single-digit.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. So one more question from me. In terms of the transaction markets, what are you seeing? And has there been more signs of distress selling lately?

Timothy M. Martin -- Chief Financial Officer

Yeah. There really hasn't been signs of distress selling, I think that's still a little bit too early in the cycle. When you think about a development project, it takes a period of time until you get to that point, likely when a loan comes due. We're certainly seeing more activity on non-stabilized assets, that's not a new trend. So what comes across our investment team's desk is more heavily weighted to something that is in some stage of lease-up than stabilized asset opportunities at least in the markets that we're most focused on.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Great. Thanks for the color, guys.

Christopher P. Marr -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from Todd Thomas from KeyBanc Capital Markets. Please go ahead with your question.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Yeah. Hi, thanks. Good morning. Just to dig in a little bit on the same-store revenue forecast for '19, what does that assume in terms of occupancy throughout the year?

Timothy M. Martin -- Chief Financial Officer

Todd, we never answer that question, you know that. We guide to an overall revenue expectation, we don't guide to the individual components. I would tell you that what I mentioned in my opening remarks is that we do expect occupancies to not be materially different in 2019 than we did in 2018. So without getting into specifics on the components, it's going to be certainly much heavily weighted to net effective rate as a bucket that's going to be the primary driver of revenue growth.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right. And then in terms of the revenue growth then, can you share what you're forecasting for New York and also maybe Miami?

Timothy M. Martin -- Chief Financial Officer

We don't provide revenue guidance on a market-by-market basis. Our overall expectation is same-store revenue growth of 1.5% to 2.5% for the year.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then you mentioned that you've seen some recovery in markets like Chicago, maybe Denver, Dallas, Houston, in Texas in general, I was just wondering if you're beginning to see signs of a rebound there or is it still a little bit early?

Christopher P. Marr -- President and Chief Executive Officer

Yeah. I think it's early. Certainly in Dallas, you're going to continue to see the impact of supply. There's more supply being delivered in '19 Houston, where it seems like the supply is starting to wane. Again, there is going to be a lagging effect on where your performance is in terms of those same-store growth metrics. And so I would suspect that for most of the Texas markets, you're going to see 2019 revenue growth over 2018 that's at the lower end of our overall same-store expectation.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And just lastly the $0.09 to $0.10 of dilution from lease-up properties. I was just curious, if you could talk a little bit about how you expect that to trend throughout the year and whether you expect '19 which is up about $0.03, I think at the midpoint, to be the year of maximum dilution from lease-up properties or will that sort of flow through and be perhaps a little bit heavier heading into 2020 as you think about the cumulative impact from your development in lease-up?

Timothy M. Martin -- Chief Financial Officer

So as I sit here and think about that today with what's embedded in our guidance, it would suggest that 2019 would be the peak because as you get into 2020 for the projects that are embedded in that $0.09 to $0.10, they will continue to lease-up as they open and get through and get closer and closer to stabilization. The unknown, of course, is where our investment activity takes us here throughout the course of 2019. So to the extent that we were to add projects more likely than not through acquisition of acquiring, and as I mentioned on -- in my answer to Shirley's question, more opportunities that we're seeing in the markets that we're most focused are in non-stabilized assets. So my only caution to that answer suggesting that 2019 will be the peak is subject to change based on where our activity -- our investment activity throughout the course of the year takes us.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. All right, thank you.

Timothy M. Martin -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Ki Bin Kim from SunTrust. Please go ahead with your question.

Ki Bin Kim -- SunTrust -- Analyst

Hey, guys. So I just want to wrap up a couple -- follow up a couple of questions earlier. On the impact from new supply, you said 2019 will be about 50% of your assets will be impacted, but you also said the peak year for new delivery to be 2019. Does that imply that 2020 should be at least 50% or maybe even higher?

Timothy M. Martin -- Chief Financial Officer

Boy, it took a lot of work to prepare the 2019 guidance, now you're looking for 2020 guidance. I think that the starting point then is you're going to then focus on 2020 deliveries relative to 2017 deliveries and it is a little bit too early to make that call. I would think from a directional standpoint, I wouldn't think that the number of stores impacted by supply in 2020 would be materially different than those in '19, but it's way too early to do that with any high degree of confidence.

Ki Bin Kim -- SunTrust -- Analyst

Right. And looking at the number of stores that are impacted by new supply is one aspect of looking at supply. But if you look at how deep and meaningful that supply is in those cities, meaning a city that had 2% new supply is counted the same in that aspect as a city that had maybe 8% of supply deliveries. How do you think about how deep that impact is in '19 versus '18?

Timothy M. Martin -- Chief Financial Officer

Yeah. What's interesting in that question is the other component of what I tried to provide color on was not only is our same-store impacted by -- 50% of the stores are impacted by supply, but then I've also provided the expectation that those stores that are impacted by supply, we expect to underperform, if you will, or trail in growth the non-supply impacted stores by 200 to 300 basis points. And that range of varying performance from the supply impacted stores to the non-supply impacted stores hasn't really changed that much over the last two years. So that would suggest that despite the fact that I completely get where you're are coming from suggesting that maybe a store that's impacted by supply is even more impacted by supply as you get deeper in the cycle.

Ki Bin Kim -- SunTrust -- Analyst

Right.

Timothy M. Martin -- Chief Financial Officer

What we've seen thus far and what's in our detailed ground up budgeting and forecasting would suggest that the relative performance of the supply impacted stores to those that are not impacted by supply has remained fairly consistent here over the past year and a half to two years and we expect it to be same into 2019. That's what our assumptions would suggest.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And in terms of your same-store revenue guidance, if you assumed flat Street rates, flat occupancy for -- all else equal, what is the inherent revenue growth that your portfolio would generate just from the existing customer rate increases?

Timothy M. Martin -- Chief Financial Officer

Yeah. Don't really have that. Don't really have that component to share, but it's not zero. I think it's probably somewhere between 0% and 1%.

Ki Bin Kim -- SunTrust -- Analyst

Actually that's a little surprising because I thought if your -- 60% of your customers are getting, call it, 8% to 9%, 10% increase, you would think -- and then taking into account the people that actually move off from that, you would think the inherent growth would be at least 3%. Am I missing something?

Timothy M. Martin -- Chief Financial Officer

Well, except for the same thing happened last year.

Ki Bin Kim -- SunTrust -- Analyst

Right. Okay, thanks.

Timothy M. Martin -- Chief Financial Officer

All right. Thanks, Ki Bin.

Operator

Our next question comes from Eric Frankel from Green Street Advisors. Please go ahead with your question.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. Just a couple of platform related question. First, your G&A guidance looks to be about 10% or so higher than what occurred in '18, excluding the legal settlement. So maybe you can just provide some color on that increase, and then also on the legal settlement itself?

Timothy M. Martin -- Chief Financial Officer

Sure, happy to. The increase in G&A ex the legal charge are consistent with our continued investment in building out our platform to support a store count that has grown far in excess of 10%. So it is a -- it is certainly a scalable platform, but as we add 209 managed stores and additional stores on balance sheet, certainly that growth necessitates the need to continue to invest in people and systems and platform. As it relates to the legal charge, we are in a consumer-facing business. The result of which is that occasionally we find ourselves involved in various legal proceedings. These cases are related to things ranging from state-specific self-storage laws to consumer protection related matters to ADA cases to claims of wrongful foreclosures. In one such case that was brought as a class action suit, we've accrued a $1.8 million liability during the fourth quarter that represents our best estimate of the charge associated with selling that matter and all of the related cost associated with doing that, we expect it to be a non-recurring one-time expense.

Eric Frankel -- Green Street Advisors -- Analyst

Okay. And then related to third party property management, I understand you guys added 61 stores, but per our math, it looks like a net addition to third party management is only, excluding JVs, is only nine stores. So first, can you confirm if that's correct? And then second, if that -- if so, what caused the attrition? Yeah, that's it. Thank you.

Timothy M. Martin -- Chief Financial Officer

Yeah. I think that math is accurate, plus or minus one or two, I don't have that math right in front of me. But we had talked about on our prior call that we had a portfolio of 40 assets, 41 stores that were leaving our platform. We discussed that I think last quarter or maybe even the quarter prior. And those 41 stores left our 3PM platform at the end of October. So that was the primary driver of the stores that left the platform. We consistently have stores that leave the platform when they're sold to ultimate buyers who self-manage, so stores come on the platform and off the platform, we've been fortunate here over the past couple of years as we've dramatically increased the scale and the size of our 3PM platform that the additions are obviously well in excess of the stores that leave the platform.

Eric Frankel -- Green Street Advisors -- Analyst

Okay. I didn't realize that a portfolio left in the fourth quarter after third quarter. And then just in third party management, are you seeing any sort of pricing pressure with your customers just related to public storage entering the third party managed space?

Timothy M. Martin -- Chief Financial Officer

I think there is -- the third party management business remains competitive. It was competitive prior to another group entering the business. Recent trade show, you see eight, nine, 10 different third party managed providers and so going from nine to 10 doesn't make it exponentially more competitive, it has been for several years.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, thank you.

Timothy M. Martin -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Smedes Rose from Citi. Please go ahead with your question.

Smedes Rose -- Citi -- Analyst

Hi, thanks. I wanted to ask on the third party management platform as industry conditions seem to be getting a little more challenging, have you seen an uptick in increase from independents who would -- who are interested in having a large -- being part of a larger platform or is that something you would expect to see going forward? In other words, capacities grow faster, just given that conditions are tough. Right?

Timothy M. Martin -- Chief Financial Officer

Yeah. I think it's a good question, I think we've seen that over time already. And owner-by-owner, it's going to be a unique decision point. I think certainly as operating conditions get more difficult, I think owners who are operating independently start to recognize things that they don't recognize when business is better and fundamentals are very strong, it starts to become more apparent that not having a sophisticated marketing platform is -- becomes more and more apparent that that causes a relative underperformance. I think focusing on results that companies like ours put up quarter-after-quarter and thinking about the contributions that a sophisticated revenue management platform do to add to growth in cash flow, I think they become more apparent. Others recognize that when times are good and they realize that times -- while their property is performing well, it could perform even better under the hands of one of the high-powered platforms. And so I think on the margin, I guess, I would say, yes. I think the other thing that has certainly been a driver that has been helpful to grow the platform has been the development cycle. So stores being delivered are still -- new stores being delivered or in early stages of lease-up are still more of -- more than the majority of -- or they alter majority of the stores that we've been adding to the platform here over the past 18 to 24 months.

Charles Place -- Director, Investor Relations

In 2018, 40% of the additions were existing open and operating stores and the balance were new developments.

Smedes Rose -- Citi -- Analyst

Okay. And then I wanted to ask you, it looked like you increased your same-store pool by, I guess, it's been a dozen properties or so, is that pretty broad-based geographically or does that reflect a lot of your New York properties rolling into the same-store pool?

Timothy M. Martin -- Chief Financial Officer

I think it's -- they're broadly spread out. I think they would be generally representative of our portfolio. I don't have it right in front of me, but I'll see if I can grab it, but it's not heavily weighted to any particular market.

Smedes Rose -- Citi -- Analyst

Okay.

Timothy M. Martin -- Chief Financial Officer

I think off the top of my head, four -- I think -- I'm sorry, Smedes. I think off the top of my head, four of the 12 are in the New York MSA.

Smedes Rose -- Citi -- Analyst

Okay. Okay. And then you talked about the dilution expected this year a little bit from properties in lease-up. I just wanted to make sure I understood it. Is it more a reflection of you have more properties in lease-up now than you did last year or is the time to lease-up stretching out further than you had initially expected?

Timothy M. Martin -- Chief Financial Officer

No, it's the result of having more. So we have more stores being -- that we have opened, development stores that are in lease-up. And then, while many of the stores that we have acquired on balance sheet have been -- are stabilized assets, many of them are not and we're buying them in the very early stages of lease-up. So the increase in that dilution is more driven by additional stores that have opened, for instance in the fourth quarter, we closed on the final store of our C/O pipeline in San Diego. So that's another store that is added to the group of lease-up assets and then some of the other stores that we bought on balance sheet were in early stages of lease-up.

Smedes Rose -- Citi -- Analyst

Okay, thank you.

Timothy M. Martin -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Todd Stender from Wells Fargo. Please go ahead with your question.

Todd Stender -- Wells Fargo -- Analyst

Hi, not to beat a dead horse, but just back to third party management. Just to stay competitive, what management fees, I guess, on a percentage basis are you charging now versus, call it, two years ago, if any?

Christopher P. Marr -- President and Chief Executive Officer

Yeah. Hey, Todd, it's Chris. No change. I mean, the market for a service that is based on components of a percentage of revenues with some minimum for stores that are opening brand new, there's related costs that are passed through for marketing for our sales center, obviously the direct cost of the store pass through to the owner. Those -- that framework is unchanged. The negotiation, as in any service business around the individual components, has always been somewhat individual to the market, the owner, the quantity of stores being offered to take over from management, et cetera. But I would say from a -- from an overall perspective, the economics of that business are very consistent over the last many years.

Todd Stender -- Wells Fargo -- Analyst

Okay, thank you. And then just switching gears to your ad spend, what is your Google ad spend budget for 2019 and what other channels are you evaluating right now to reach prospects via social media, how are you guys looking at that?

Timothy M. Martin -- Chief Financial Officer

Yeah. So, again, we don't guide to individual components of the expense growth guidance and certainly aren't going to provide our competitors an exact dollar amount of how much we intend to spend on Google, but that Google Search is the overwhelming majority of our spend and we expect that to continue to be the same. We continue to explore many different opportunities to selectively invest in other types of digital medium to attract customers and we constantly test things. And as we find opportunities to get us a good return on those marketing dollars, we continue to invest.

Christopher P. Marr -- President and Chief Executive Officer

I think, Todd, it's safe to say that given their position, we certainly spend a lot of time exploring other avenues of digital marketing outside of paid search or search in general to try and diversify our risk away from the dominant player, but without a doubt, they are the dominant player and have to have a big focus of ours.

Todd Stender -- Wells Fargo -- Analyst

Thank you.

Timothy M. Martin -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Tayo Okusanya from Jefferies. Please go ahead with your question.

Tayo Okusanya -- Jefferies -- Analyst

Hi. Yes. Good morning. Could -- in fourth quarter, could you talk a little bit about the mark-to-market that was in the portfolio? And then kind of like in-place rents relative to when someone moves in, kind of what that mark-to-market is? And then could you just kind of talk about it, like over the course of the year, what kind of happens with that number?

Timothy M. Martin -- Chief Financial Officer

Yeah. Thanks for the question. So it is -- the back half of your question is the really important point to focus on, which is that question on rent roll down or churn gap is, some of our folks refer to it internally, going to be heavily dependent upon what time of year you ask that question. And so you think about where you sit at the end of the year or in January, February seasonally, that is the point in time where your asking rates throughout the course of the year are at their lowest because that's when demand typically is at its lowest. And in the summer months, your rates on a relative basis to your own portfolio are at their highest. And so the disproportionate amount of your rental activity comes in the summer months. And when you think about a medium length of stay between six and six and half months, a lot of those customers who come in during the higher priced summer months are the customers that are vacating this time of year. So you have customers who came in at the peak price who leave and you're going to compare them to the customers that are now coming in at seasonally depressed rental rates. So this is the time of year where that gap is always at its widest and it is consistently for us at this time of year been in the 10% to 15% range, this year was no exception. And then if you were to ask that question in July, that number historically would be about flat, so your customers leaving would be about flat to what you're asking. And in each of those cases, this past year has been no different than trends we would have seen over the past several years.

Tayo Okusanya -- Jefferies -- Analyst

And so adjusting for seasonality, you haven't seen any -- it hasn't gotten worse?

Timothy M. Martin -- Chief Financial Officer

Well, I mean, it's has gotten a little bit worse, not all that different than what we would talk about an overall asking rates. If overall asking rates are down a little bit, then that negative churn is going to be a little bit wider than it would have been in last year's number as a result of Street rates being a little bit lower, but not in any material way.

Tayo Okusanya -- Jefferies -- Analyst

Okay. That's helpful. Thank you.

Timothy M. Martin -- Chief Financial Officer

Sure. Thanks.

Operator

Our next question is a follow-up from Eric Frankel from Green Street Advisors. Please go ahead with your follow up.

Ryan Lumb -- Green Street Advisors -- Analyst

Thanks. This is Ryan Lumb. And yeah, just following up on Todd's question on ad spend. I know in your opening remarks, you mentioned that there was a timing sort of issue in the fourth quarter for ad spend to be down, but it looks like for the full year of '18, you're effectively flat. Can you kind of expand on why or how Cube has been able to keep a lid on marketing spend when many peers in the industry are seeing outsized growth in ad spend?

Christopher P. Marr -- President and Chief Executive Officer

Yeah. I can't comment on what others are seeing or doing, I think it's a combination of the reality that paid search is growing, the cost of paid search is growing faster than inflation. We're able to offset some of that cost with efficiency in our model as to how we are making determinations around daily spend. And then in our largest market of New York, given the fact that we are between owned and managed 23% of the square footage of self-storage in the boroughs, we do have an advantage in that we have a significant amount of organic search in that market, customers who are looking specifically for a CubeSmart because they see it every day when they ride by on the subway or walk or drive within the -- in their communities. So I think part of it is the less expensive organic is certainly helping us relative to those who don't have that benefit in a large market like New York. Part of it is efficiencies and part of it is where we see opportunities to utilize additional marketing dollars to drive traffic and it will change quarter-by-quarter. So I wouldn't -- I would certainly caution you not to interpret that the growth in '18 over '17 is going to be there or similar '19 over '18. I think we would expect that those efficiencies that we've been able to wring out are getting increasingly more difficult. And so I would suspect, you would see growth in that number in '19 over '18. Quarter-by-quarter, it may vary, but overall, I think we'll continue to see that line item grow.

Ryan Lumb -- Green Street Advisors -- Analyst

It's helpful color. Thanks.

Operator

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to Chris Marr for any closing remarks.

Christopher P. Marr -- President and Chief Executive Officer

Okay. Thank you. Again, very, very pleased with a successful wrap to 2018. I think we've been particularly consistent on how we've thought about how 2019 will play out. Obviously, at the beginning of the year, given the nature of our business and the fact that a significant amount of our activity occurs in the typical spring and summer moving months, it is a challenge to look ahead. I think we've -- we in the industry have done a nice job of being realistic on our expectations and delivering against those. I don't suspect that 2019 will be any different. And so we appreciate the interest in our Company. Thank you for today's call. We look forward to seeing many of you at upcoming industry events. And if not, we will speak to you all at the end of our first quarter. Thank you very much.

Operator

Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Duration: 52 minutes

Call participants:

Charles Place -- Director, Investor Relations

Timothy M. Martin -- Chief Financial Officer

Christopher P. Marr -- President and Chief Executive Officer

Jeremy Metz -- BMO Capital Markets -- Analyst

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Eric Frankel -- Green Street Advisors -- Analyst

Smedes Rose -- Citi -- Analyst

Todd Stender -- Wells Fargo -- Analyst

Tayo Okusanya -- Jefferies -- Analyst

Ryan Lumb -- Green Street Advisors -- Analyst

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