What I'm Watching With CubeSmart Stock To See If It Beats The Market

CubeSmart (NYSE: CUBE) is the country's third-largest self-storage property company with over 1,500 locations. While self-storage REITs have historically been strong performers over multiple decades, CubeSmart hasn't beaten the market over the past 10 years (and underperformed its largest rival during the time frame). It has also trailed both the S&P 500 and its two larger peers over the last one-, three-, and five-year periods.

Here's a look at what I'm watching to see whether CubeSmart can beat the market and other self-storage REIT investments in the future.

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Better industry fundamentals

A significant factor driving CubeSmart's underperformance has been the headwinds facing the self-storage industry over the past several years. Low interest rates following the pandemic provided developers with low-cost capital to build new self-storage properties. That caused a massive increase in new supply, which has weighed on the industry's occupancy levels and rental rates over the past few years as it absorbed all this new space.

After several challenging years, the self-storage market seems to be turning a corner. CubeSmart achieved its first year-over-year increase in move-in rates since early 2022 in the third quarter. Meanwhile, leading self-storage REIT Extra Space Storage (NYSE: EXR) reported new customer growth of 3% during the third quarter, the first meaningful period of positive pricing in almost three years. I'm watching to see if this positive momentum continues. If it does, that would go a long way toward enabling CubeSmart to start outperforming the market.

CubeSmart needs a differentiator

The U.S. self-storage industry is highly fragmented. Extra Space Storage controls a market-leading 14.4% of the country's self-storage space, while Public Storage is second at 11.2%. CubeSmart is a distant third at 4.9% of the U.S. self-storage market.

One reason those REITs are so much larger than CubeSmart is their differentiated growth strategies. Extra Space Storage has an industry-leading third-party management platform (1,811 locations compared to 814 for Cube Smart and 339 for Public Storage). It also has the fastest-growing platform (1,275 locations added since 2018 compared to 372 for Cube Smart and 339 for Public Storage). Meanwhile, Public Storage has a best-in-class in-house development program that drives significant value creation.

CubeSmart needs a difference maker to drive faster growth. One area the REIT could lean into is forming more joint ventures to accelerate growth. For example, it recently formed a $250 million joint venture with CBRE Investment Management to invest in high-growth markets. It also had one joint venture development property under construction ($19 million investment). The company currently has $900 million invested across existing joint ventures. Leveraging joint venture capital could enable the REIT to accelerate its growth rate in the coming years.

Looking for some improvements

CubeSmart has underperformed the S&P 500 and its larger self-storage REIT peers over the past several years. That's due to the headwinds facing the self-storage market and the company's lack of a differentiated growth strategy. I'm watching to see if those things change before I'd have confidence that an investment in the REIT can deliver market-beating returns.

Annie Dean, Chief Strategy Officer at CBRE, is a member of The Motley Fool's board of directors. Matt DiLallo has positions in Public Storage. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.