Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The Company is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in acquiring, developing, and operating self-storage facilities. As of March 31, 2009, the portfolio consisted of 386 facilities totaling approximately 24.9 million square feet across 26 states and the District of Columbia. The Company operates under a single reportable segment.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $57.7 million | $57.9 million |
| Net Operating Income (NOI) | $33.2 million | $33.4 million |
| Operating Income | $9.0 million | $8.4 million |
| Net Loss (GAAP) | $(2.3) million | $(4.3) million |
| Net Loss Attributable to Company | $(2.1) million | $(4.0) million |
| Loss Per Share (Basic & Diluted) | $(0.03) | $(0.07) |
| Cash from Operating Activities | $11.3 million | $11.7 million |
| Cash and Cash Equivalents | $1.6 million | $5.6 million |
| Total Debt Outstanding | $965.9 million | $977.5 million |
| Available Credit Facility | $87.0 million | N/A |
Material Changes vs. Prior Period
- Revenue: Total revenues decreased slightly by 0.4% ($0.2 million) compared to Q1 2008. Rental income declined 1% due to lower occupancy levels in the same-store portfolio, while other property-related income increased 9% driven by higher tenant administrative and insurance fees.
- Operating Expenses: Property operating expenses remained flat. Depreciation and amortization decreased 4% ($0.8 million) primarily due to the absence of amortization on finite-lived intangible assets acquired in prior years, partially offset by increased depreciation on capital improvements.
- Interest Expense: Interest expense decreased significantly by 18% ($2.5 million) to $11.4 million, attributed to lower interest rates on unsecured debt and reduced outstanding borrowings on the credit facility.
- Discontinued Operations: Income from discontinued operations dropped 99% to $9,000 as the Company no longer owned the properties sold in 2008. Net gain on disposition decreased to $0.5 million from $0.6 million.
- Portfolio Activity: The Company sold one facility in Q1 2009 (68th Street Asset in Miami, FL) for a gross price of $2.97 million. No acquisitions were made in the quarter.
Guidance, Outlook, and Risks
Liquidity and Capital Resources: The Company reported $1.6 million in cash and $87.0 million available under its revolving credit facility. Management intends to fund 2009 liquidity needs (including $513 million in scheduled principal payments) through operating cash flow, borrowing under the credit facility, and extending the termination date of the credit facility and secured term loans from November 2009 to November 2010.
Outlook: Management expects recurring capital expenditures for 2009 to range between $7 million and $9 million. The Company plans to focus on internal growth and selective dispositions while monitoring the impact of the national recession on consumer spending and occupancy.
Risks and Contingencies:
- Market Conditions: The ongoing recession, higher unemployment, and tight credit markets pose risks to occupancy levels and the ability to refinance debt.
- Debt Refinancing: Significant debt maturities are scheduled for 2009 and 2010. The Company relies on extending its credit facility and accessing capital markets, which may be constrained by current market dislocations.
- Interest Rate Risk: A 1% increase in market rates on variable rate debt would increase annual interest expense by approximately $4.2 million. The Company utilizes interest rate swaps on $300 million of notional principal to mitigate this risk.
- REIT Compliance: The Company must distribute at least 90% of taxable income to maintain REIT status, creating substantial liquidity needs.
Investor Verification Checklist
- Debt Maturity Wall: Verify the Company's ability to refinance or extend the $420.4 million in principal payments deferred to 2010 and the $92.1 million due in 2009.
- Occupancy Trends: Monitor same-store occupancy rates and rental pricing power given the 2% decrease in average occupancy noted in Q1 2009.
- Credit Facility Extension: Confirm the execution of the one-year extension option for the credit facility and secured term loans prior to the November 20, 2009 termination date.
- Dividend Sustainability: Assess the impact of reduced distributions (from $0.18 to $0.025 per share in Q1 2009) on future cash flow requirements and shareholder returns.
- Derivative Exposure: Review the fair value and effectiveness of the $300 million notional interest rate swap portfolio in the context of counterparty risk.