Cubesmart annual report, FY2020

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CubeSmart 2020 Form 10-K Summary

Business context and reporting period

Annual report for the fiscal year ended December 31, 2020; it reports full-year results, not standalone fourth-quarter results. CubeSmart is a self-managed U.S. self-storage REIT operating through CubeSmart, L.P. At year-end, it owned 543 stores with 38.5 million rentable square feet and 92.3% occupancy, and managed 723 third-party stores, for 1,266 owned or managed locations overall.

Financial performance and condition

  • Revenue: $679.2 million, up 5.5% from $643.9 million in 2019. Rental income rose 5.2% to $581.0 million; property-management fees increased 14.6% to $27.4 million.
  • Operating performance: Net operating income (NOI), a non-GAAP measure, was $455.5 million, up 4.9%. Same-store NOI was nearly flat, up 0.1%; same-store revenue rose 0.8% while property operating expenses increased 2.4%.
  • Profit and per-share results: Net income was $167.6 million, down 1.9%; net income attributable to common shareholders was $165.6 million, down 2.1%. Diluted EPS was $0.85 versus $0.88 in 2019. FFO attributable to common shareholders and OP unitholders was $321.1 million, versus $326.2 million; adjusted FFO was $339.1 million, up from $326.3 million.
  • Cash flow: Operating cash flow was $351.0 million, compared with $331.8 million. Investing activities used $511.4 million, principally for acquisitions; financing activities provided $108.2 million. Cash and cash equivalents were $3.6 million at year-end.
  • Debt and liquidity: Debt carrying value was approximately $2.365 billion. The company reported $631.6 million available under its $750 million revolving facility. Debt to total market capitalization was 25.6%, versus 23.9% in 2019; debt to undepreciated asset cost was 41.0%, versus 39.0%. Scheduled 2021 mortgage principal payments were approximately $46.4 million.
  • Margins and distributions: The filing reports NOI but does not present a GAAP operating-margin figure in the cited discussion. Annual common-share distributions were $1.33 per share, versus $1.29 in 2019.

Material changes versus 2019

  • Owned-store count rose from 523 to 543; year-end occupancy increased from 89.5% to 92.3%. Same-store average occupancy increased from 92.2% to 93.2%, while realized annual rent per occupied square foot was broadly steady at $17.10 versus $17.07.
  • Acquired 21 stores for a reported aggregate purchase price of approximately $735.9 million, including the eight-store Storage Deluxe portfolio for $540 million. Sold one New York store for $12.8 million and recorded a $6.7 million gain.
  • Issued $450 million of 2.0% senior notes due 2031 and redeemed $250 million of 4.8% notes due 2022. The redemption generated an $18.0 million early-extinguishment loss, including a $17.6 million prepayment premium.
  • Raised $120.7 million net through at-the-market share sales, compared with $196.3 million in 2019. The Storage Deluxe purchase was partly funded with $175.1 million of OP units.
  • Interest expense increased to $75.9 million from $72.5 million as average debt outstanding grew; the reported weighted-average effective debt rate declined to 3.82% from 4.06%.

Outlook, commentary, risks and unusual items

  • Management said stores remained open as an essential business during COVID-19. It temporarily paused existing-customer rate increases and delinquency processes in late March 2020, resuming them by jurisdiction beginning in May. It reported no material deterioration in rent collections or occupancy to date, while warning outcomes depend on the pandemic and economic conditions.
  • For 2021, the company anticipated $11.0–$16.0 million of recurring capital expenditures, $10.5–$15.5 million of store improvements, and $34.0–$49.0 million for development. Six joint-venture projects were under construction, with completion expected by the second quarter of 2022; the filing also reports remaining construction commitments.
  • Management planned selective acquisitions, asset dispositions where returns were unattractive, and continued growth in third-party management. The filing gives no specific 2021 revenue, earnings or FFO guidance.
  • Key risks include COVID-19 effects on customers and operations, economic and market weakness, competition and supply, acquisition and development execution, financing and refinancing access, interest rates, insurance gaps, environmental liabilities, cybersecurity, and maintaining REIT qualification. The portfolio is geographically concentrated: New York, Florida, Texas and California generated 16%, 15%, 9% and 8% of 2020 revenue, respectively.
  • No property impairment losses were recorded in 2020, 2019 or 2018. The auditor identified storage-property impairment evaluation as a critical audit matter because valuation depends on forecast growth and terminal capitalization-rate assumptions. KPMG issued unqualified opinions on the financial statements and internal controls. The company reported no material pending legal proceedings.

Important facts for investors to verify

  • Whether same-store revenue and NOI growth can improve given higher operating costs and largely flat same-store NOI in 2020.
  • Post-acquisition performance and financing of Storage Deluxe, including assumed mortgage debt, issued OP units and related ground-lease obligations.
  • Liquidity and refinancing capacity, particularly scheduled debt payments, revolver availability, covenant compliance and any joint-venture maturities.
  • Whether rent collection, occupancy and pricing remain resilient as pandemic-related conditions and customer relief measures evolve.
  • Dividend sustainability relative to operating cash flow and FFO, and the impact of continued share or OP-unit issuance.
  • Impairment assumptions and exposure to development costs, insurance limitations, environmental claims and geographically concentrated markets.