CUBE

Business Context and Reporting Period

CubeSmart (CubeSmart, L.P.) is a self-managed real estate investment trust (REIT) that owns, operates, develops, and manages self-storage properties. As of June 30, 2024, the Company owned or partially owned 615 properties totaling approximately 44.4 million rentable square feet across 24 states and the District of Columbia. The Company also manages 879 third-party stores. This report covers the quarterly period ended June 30, 2024.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 2.1% ($5.4 million) for the quarter and 2.0% ($10.3 million) for the six months compared to the prior year periods. Growth was driven by non-same-store acquisitions and developments, increased property management fees, and higher ancillary income from storage protection plans.
• Operating Expenses: Property operating expenses rose 11.1% ($8.3 million) for the quarter and 9.7% ($14.2 million) for the six months. Increases were attributed to higher employee medical coverage, property insurance, property taxes, and third-party management program expansion.
• Net Income Decline: Net income attributable to common shareholders decreased 4.0% ($3.9 million) for the quarter and 3.6% ($7.0 million) for the six months. This was primarily due to higher operating expenses and a significant decrease in equity earnings from unconsolidated real estate ventures ($2.1 million drop for the six months), which included one-time distributions in the prior year.
• Interest Expense: Interest expense decreased 3.3% for both periods due to a lower average outstanding debt balance and a slight reduction in the weighted average effective interest rate (3.01% in Q2 2024 vs. 3.05% in Q2 2023).
• Portfolio Expansion: The Company acquired two stores in Connecticut for $20.2 million and opened two newly developed stores in New York during the first half of 2024.

Outlook, Risks, and Management Commentary

• Capital Expenditures: For the remainder of 2024, the Company expects recurring capital expenditures of $9.0–$14.0 million, planned capital improvements of $8.0–$13.0 million, and development costs of $7.0–$17.0 million.
• Liquidity: The Company maintains $838.8 million in availability under its $850 million revolving credit facility. Management believes cash flows from operations and access to equity markets provide adequate liquidity to fund operations and growth.
• Dividends: The Company declared cash dividends of $0.51 per share/unit for the quarter ended June 30, 2024, totaling $1.02 for the six-month period.
• Risks: Key risks include adverse economic conditions affecting consumer spending, competition impacting occupancy and rental rates, rising interest rates, and potential refinancing risks. The Company is exposed to interest rate risk on its variable-rate debt, though the majority of its debt portfolio is fixed-rate.
• Unusual Items: The decrease in equity earnings from real estate ventures was largely due to the absence of distributions in excess of investment from a specific joint venture (HVPSE) that occurred in the prior year period.

Investor Verification Checklist

• Verify the sustainability of the 2.0% revenue growth given the 11.1% increase in property operating expenses.
• Confirm the impact of the $2.1 million decrease in equity earnings from unconsolidated ventures on future FFO projections.
• Review the $29.4 million in development commitments due in 2024 and 2025 to assess capital allocation needs.
• Monitor the $10.6 million outstanding balance on the variable-rate revolving credit facility and its sensitivity to interest rate hikes.
• Assess the same-store occupancy trend (91.9% vs. 92.6% prior year) to gauge market demand stability.