CubeSmart 2015 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2015; the filing was signed February 19, 2016. CubeSmart is a self-managed U.S. self-storage REIT operating through CubeSmart, L.P. The filing covers the full year, not just fourth-quarter results; unaudited fourth-quarter figures are noted below.
At year-end, CubeSmart owned 445 facilities in 22 states and Washington, D.C., with 30.4 million rentable square feet and 90.2% occupancy, compared with 421 facilities, 28.6 million square feet and 89.1% occupancy a year earlier. It also managed 227 third-party facilities, for 672 owned or managed. Customers generally rent month-to-month; no single customer was a significant revenue concentration.
Financial and operating metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $444.5 million | $377.0 million |
| Operating income | $107.9 million | $81.5 million |
| Net income | $78.8 million | $26.7 million |
| Net income attributable to common shareholders | $71.7 million | $20.4 million |
| Diluted earnings per common share | $0.42 | $0.14 |
| Net cash from operating activities | $215.7 million | $166.0 million |
| Net cash used in investing activities | ($374.6 million) | ($522.7 million) |
| Net cash from financing activities | $218.9 million | $356.4 million |
Revenue increased 17.9%; operating income margin was approximately 24.3%, versus 21.6% in 2014. Same-store revenue rose 7.3% and same-store NOI rose 9.6%. Same-store average occupancy improved to 92.3% from 90.8%, and realized annual rent per occupied square foot increased to $14.76 from $13.96. Total portfolio NOI was $291.3 million, up 19.3%.
Net income included $17.6 million in gains from real estate sales, versus $0.5 million in 2014. The 2015 annual dividend declared was $0.69 per common share; the fourth-quarter declared dividend was $0.21 per share.
Fourth-quarter 2015 revenue was $115.0 million, operating expenses were $83.2 million, net income attributable to CubeSmart was $37.1 million, and diluted EPS was $0.20. The corresponding 2014 fourth-quarter figures were $100.3 million, $82.5 million, $5.5 million and $0.02.
Debt and liquidity
Year-end debt carrying amounts totaled approximately $1.262 billion: $750 million of unsecured senior notes, $400 million of unsecured term loans and $112.2 million of mortgage loans and notes payable. The company had $62.9 million in cash and $500 million of revolving-credit availability. Debt to total capitalization was 18.7%, down from 23.9%; debt to undepreciated asset cost was 34.0%, down from 35.8%.
In October, CubeSmart issued $250 million of 4.00% senior notes due 2025. Its revolving credit facility was expanded from $300 million to $500 million and extended to 2020. The company reported compliance with its debt covenants at year-end. Scheduled 2016 principal payments were approximately $36.9 million.
Material changes, outlook and risks
- CubeSmart acquired 29 facilities for approximately $292.4 million and sold eight assets for $37.8 million, recording $14.4 million in gains on those dispositions. It also sold the remaining London asset held through a consolidated venture, recording a $3.0 million gain net of foreign-currency loss.
- It issued 9.0 million common shares through its at-the-market program at an average $26.35 per share, generating $234.1 million in net proceeds. Share issuance funded acquisitions and general corporate purposes; it also increased the weighted-average share count.
- Operating cash flow increased by $49.7 million, supported by acquisitions and stronger same-store NOI. Acquisition spending declined from 2014, while development spending increased.
- Management planned selective 2016 acquisitions in targeted markets, continued dispositions of assets in slower-growth markets, and growth in third-party management. Expected 2016 spending included $15–20 million in recurring capital expenditures, $5–10 million in facility improvements and $35–40 million for new development.
- Five facilities were under contract at year-end for a total purchase price of $101.4 million, subject to customary conditions. Subsequent to year-end, the company acquired five facilities for $105.9 million; its HVP joint venture acquired one additional facility for approximately $5.7 million.
- Key risks include local economic and competitive pressure on occupancy and rents; acquisition, development and construction execution; access to capital and refinancing; interest-rate exposure and derivative-counterparty performance; geographic concentration; and maintaining REIT qualification. The company cited ordinary-course litigation and stated it had made adequate provisions; management did not expect pending suits to materially affect the financial statements.
Management stated that disclosure controls and internal control over financial reporting were effective; KPMG issued unqualified opinions on the financial statements and internal controls. No impairment losses were recorded in 2013–2015.
Important facts for investors to verify
- How much of earnings growth reflects recurring same-store performance versus acquisition contributions and the $17.6 million of property-sale gains.
- Whether rent increases, occupancy and same-store NOI remain durable as market supply, competition and seasonal demand change.
- The expected returns, lease-up pace and remaining funding needs for development projects and facilities acquired or under contract.
- Debt maturity and refinancing requirements, covenant headroom, exposure to variable rates, and the capacity to fund investment and distributions.
- The impact of ongoing share issuance on per-share growth and whether cash generation supports the declared dividend.