Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) focused on the ownership, operation, acquisition, and development of self-storage facilities in the United States. As of December 31, 2007, the Company owned 409 facilities in 26 states, aggregating approximately 26.1 million rentable square feet with an occupancy rate of 79.5%.
Key Financial Metrics
| Metric | 2007 | 2006 |
|---|---|---|
| Total Revenues | $229.2 million | $210.6 million |
| Net Income (Loss) | $(13.1) million | $(8.6) million |
| Operating Income | $38.5 million | $38.4 million |
| Net Operating Income (NOI) | $132.3 million | $125.1 million |
| Interest Expense | $54.1 million | $45.6 million |
| Total Assets | $1,687.8 million | $1,615.3 million |
| Total Liabilities | $1,083.2 million | $930.9 million |
| Shareholders' Equity | $555.6 million | $627.5 million |
| Debt to Total Capitalization | 64.1% | Filing text does not provide a clear value for 2006 |
| Cash and Cash Equivalents | $4.5 million | $19.7 million |
Material Changes vs. Prior Period
- Portfolio Growth: The Company acquired 17 facilities for approximately $140.5 million in 2007, compared to 60 facilities for $362.4 million in 2006. Five facilities were sold in 2007 for $19.2 million.
- Revenue Growth: Total revenues increased 9% to $229.2 million, driven by rental income growth of 8% ($212.0 million) due to acquisitions and a 0.5% increase in same-store occupancy.
- Net Loss Expansion: Net loss increased to $(13.1) million from $(8.6) million. This was primarily driven by a 19% increase in interest expense ($54.1 million) due to higher debt levels financing acquisitions, and a $1.3 million lease abandonment charge related to corporate office relocation.
- Dividend Reduction: The quarterly dividend was reduced from $0.29 per share in the third quarter to $0.18 per share in the fourth quarter of 2007.
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates spending between $7 million and $9 million on capital improvements in 2008.
- Liquidity: As of December 31, 2007, the Company had approximately $31.0 million available under its revolving credit facility. Scheduled principal payments on debt for 2008 are approximately $11.5 million, with $94.4 million due in 2009.
- Debt Maturities: Approximately 50% of mortgage and revolving indebtedness is due on or before December 31, 2009, creating refinancing risk.
- Key Risks:
- Interest Rate Risk: A 1% increase in variable interest rates would increase annual interest expense by approximately $4.4 million.
- Market Conditions: Performance is sensitive to national and local economic conditions, competition, and supply/demand dynamics in the self-storage industry.
- REIT Status: Failure to qualify as a REIT would subject the Company to corporate income tax, substantially reducing earnings.
- Insurance: Potential losses from natural disasters (hurricanes, floods) may exceed policy limits or be uninsured.
Investor Verification Checklist
- Refinancing Capability: Verify the Company's ability to refinance approximately $94.4 million in debt maturing in 2009 given current credit market conditions.
- Dividend Sustainability: Assess the impact of the dividend reduction on shareholder yield and the Company's ability to maintain REIT status distribution requirements.
- Same-Store Performance: Review same-store facility metrics to distinguish organic growth from acquisition-driven revenue increases.
- Debt Covenants: Confirm compliance with financial covenants, specifically the maximum total indebtedness to total asset value ratio of 65% and minimum interest coverage ratio of 2.0:1.0.
- Related Party Transactions: Review the settlement and acquisition of the Rising Tide Portfolio ($121 million) from the Amsdell family entities for valuation fairness.