Bank Of America Downgrades CubeSmart On Intensifying Supply Pressures

CubeSmart CUBE is facing elevated supply pressures and risk of negative SS NOI (same-store net operating income), according to BofA Securities.

The Analyst

BofA analyst Jeffrey Spector downgraded CubeSmart from Neutral to Underperform, reducing the price target from $33 to $31.

The Thesis

CubeSmart is at more risk than its peers to supply pressures, given that it continues to have the highest number of new supply under construction as a percentage of existing stock, Spector said in the downgrade note.

BofA’s proprietary webscraping data indicates continued decline in street rates in New York and Washington DC, while Miami and Dallas remain weak, the analyst mentioned. He expects a continued deceleration in CubeSmart’s top line growth in 2020.

Although the company was able to better control marketing expenses versus its peers in 2019, “we remain concerned over this volatile line item in the face of increased supply pressures,” Spector wrote, citing the massive increase in marketing by peers last year.

“Since SS NOI is close to going negative, we are wary of any swings in marketing expenses,” the analyst said, while added that this would be “a negative catalyst for the stock.”

Price Action

Shares of CubeSmart were down 0.76% to $31.39 at the time of publishing on Monday.