Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2008
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 June 30, 2008, the portfolio consisted of 403 facilities totaling approximately 25.9 million square feet across 26 states.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 |
Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $60.4 million | $120.1 million |
| Operating Income | $8.2 million | $17.2 million |
| Net Income (Loss) | $0.3 million | $(3.7) million |
| Net Income from Continuing Ops | $(4.7) million | $(9.5) million |
| Net Income from Discontinued Ops | $5.0 million | $5.7 million |
| Cash Flow from Operations | N/A | $28.9 million |
| Total Debt (Principal) | $1,026.0 million (as of June 30, 2008) | |
| Cash and Equivalents | $0.7 million | |
| Available Credit Facility | $37.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 9% ($4.9 million) for the three months ended June 30, 2008, compared to the same period in 2007. This was driven by a 6% increase in same-store rental income and contributions from 2007 and 2008 acquisitions.
- Operating Expenses: Property operating expenses rose 16% ($3.6 million) quarter-over-quarter, primarily due to increased marketing, personnel, and real estate tax costs on same-store assets, alongside expenses from new acquisitions.
- Depreciation: Depreciation expense increased 22% ($3.7 million) due to the addition of new facilities.
- Discontinued Operations: The Company recognized a gain of $5.3 million on the disposition of discontinued operations in Q2 2008, compared to $2.1 million in Q2 2007. This gain significantly offset the loss from continuing operations.
- Portfolio Activity: The Company acquired one facility (Uptown Asset, DC) for $13.3 million and sold seven facilities for a total of $17.1 million during the first half of 2008.
Guidance, Outlook, and Risks
- Liquidity and Capital Resources: The Company reported $0.7 million in cash and $37.8 million available under its revolving credit facility. Management expects to meet short-term liquidity needs through operating cash flow and borrowings.
- Capital Expenditures: Recurring capital expenditures are expected to range between $8 million and $12 million for the remainder of 2008 and approximately the same for 2009.
- Debt Maturities: Scheduled principal payments are approximately $7 million for the remainder of 2008 and $94 million in 2009.
- Market Risks: The filing highlights risks related to the dislocation in U.S. debt markets, which has reduced the availability and increased the cost of long-term debt capital. A 1% increase in interest rates on variable rate debt would increase annual interest expense by approximately $4.7 million.
- Forward-Looking Statements: Management notes that future results may differ materially due to economic conditions, competitive environments, financing risks, and the ability to maintain REIT status.
Investor Verification Checklist
- Debt Refinancing: Verify the Company's ability to refinance the $94 million in debt maturing in 2009 given current market conditions.
- Continuing Operations Loss: Analyze the sustainability of the loss from continuing operations ($(9.5) million for six months) excluding the one-time gains from asset sales.
- Same-Store Performance: Confirm the 20 basis point increase in average occupancy and the drivers behind the 5% revenue growth in the same-store portfolio.
- Interest Rate Exposure: Assess the impact of the $470 million in variable rate debt (unhedged portion) on future cash flows if rates rise.
- Dividend Coverage: Review the ability to maintain distributions ($0.36 per share for six months) given the net loss from continuing operations.