CubeSmart Q1 2020 Form 10-Q Summary
Business context and reporting period
For the three months ended March 31, 2020, CubeSmart operated as a self-storage REIT through CubeSmart, L.P. At quarter-end, it owned 524 stores across 24 states and Washington, D.C., totaling approximately 36.7 million rentable square feet, and managed 707 third-party stores. The company reports one operating segment.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $164.1 million | $152.8 million | +7.4% |
| Net income | $38.3 million | $35.8 million | +7.1% |
| Net income attributable to common shareholders | $37.9 million | $35.5 million | +6.8% |
| Diluted earnings per share | $0.20 | $0.19 | Up $0.01 |
| Net cash from operating activities | $80.9 million | $75.5 million | +$5.5 million |
| Net cash used in investing activities | $34.8 million | $79.0 million | $44.2 million less used |
| Net cash used in financing activities | $66.1 million | Net cash provided of $3.6 million | -$69.8 million |
- Rental income rose 7.1% to $141.0 million. Same-store rental income increased 2.2%; realized annual rent per occupied square foot rose 2.0% to $17.19.
- Same-store net operating income (NOI), a non-GAAP measure, increased 0.8% to $99.6 million. Total portfolio NOI increased 6.8% to $108.3 million. Same-store period-end occupancy was 91.8%, versus 92.0%; total portfolio occupancy was 90.2% in both periods.
- Operating expenses increased 8.0% to $106.9 million. Property operating expenses rose 8.4%, depreciation and amortization 6.2%, and general and administrative expense 13.3%. Interest expense increased 6.6% to $18.7 million.
- At March 31, cash and cash equivalents were $35.7 million, plus $2.8 million of restricted cash. Debt carrying value was approximately $1.932 billion, consisting of $1.836 billion of unsecured senior notes and $95.3 million of mortgage loans and notes payable; no revolver balance was outstanding. The $750 million revolver had $749.3 million available, net of a letter of credit.
- Total assets were $4.003 billion and total liabilities were $2.159 billion. Cash, cash equivalents and restricted cash decreased by $20.0 million during the quarter to $38.5 million.
Material changes and transactions
- Revenue growth reflected higher same-store rental rates, acquired and developed stores, and increased third-party management fees. Stores under management increased to 707 from 619 a year earlier.
- Same-store property operating expenses rose, primarily due to higher property taxes and advertising. Average outstanding debt increased by $133.3 million year over year, contributing to higher interest expense, despite a lower weighted-average effective debt rate of 3.96% versus 4.10%.
- The company acquired one San Antonio-area store for $9.0 million. After quarter-end, it acquired two additional stores in Maryland and New Jersey for $65.7 million in total.
- Investment in real estate ventures was $95.2 million at quarter-end. The company invested $5.6 million in a newly formed venture that acquired 14 stores.
- The quarterly common-share distribution was $0.33 per share, compared with $0.32 in Q1 2019. The company reported no impairment losses in either comparison period.
Outlook, risks and contingencies
- Management said COVID-19 did not materially affect Q1 2020 results, but warned that prolonged disruption could reduce rents, occupancy and customers’ ability to pay, materially harming cash flow and results. The company adjusted operations and pricing to comply with local requirements and keep stores open where legally permitted. The magnitude and duration of the impact remained uncertain.
- For the remainder of 2020, the company expected recurring capital expenditures of $10–$15 million, planned improvements and upgrades of $17–$22 million, new-store development costs of $30–$45 million, and scheduled debt principal payments of approximately $12.2 million. These are disclosed spending expectations, not earnings guidance.
- Management considered cash from operations, equity-market access and revolver capacity adequate for its current plan, while noting capital availability and cost could be affected by market conditions. The company was in compliance with its debt covenants at March 31, 2020.
- Senior notes total $1.85 billion principal, with maturities from 2022 through 2030. Mortgage principal payments are concentrated in 2020 and 2021. The company also reported $46.4 million of operating lease liabilities.
- Ordinary-course claims and proceedings were not expected by management to have a material adverse effect. No material change to previously reported risk factors was identified other than the added COVID-19 risk.
Most important facts for investors to verify
- Subsequent-quarter trends in same-store rental rates, occupancy, bad debt and customer payment behavior as COVID-19 effects develop.
- Whether same-store NOI growth, expense increases and customer insurance participation persist in later quarters.
- Liquidity, revolver availability, covenant compliance and refinancing needs, particularly the mortgage maturities in 2020–2021 and senior-note maturity in 2022.
- Whether planned 2020 development and capital spending proceeds as expected, and the operating performance of the acquired stores and venture investments.
- Cash flow coverage of distributions and capital requirements; Q1 operating cash flow and distributions should be assessed alongside investment and financing cash flows.