CubeSmart — Q1 2023 Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2023. CubeSmart is a self-storage REIT operating through CubeSmart, L.P. At quarter-end, it owned or partially owned 611 properties totaling approximately 44.1 million rentable square feet, and managed 676 third-party properties. The company reports one operating segment.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $256.5 million | $238.6 million | +7.5% |
| Net income | $97.9 million | $38.3 million | +156.0% |
| Net income attributable to common shareholders | $97.6 million | $38.2 million | +155.7% |
| Diluted earnings per share | $0.43 | $0.17 | — |
| Operating cash flow | $135.5 million | $130.7 million | +$4.8 million |
| Net cash used in investing activities | $24.4 million | $9.1 million | — |
| Net cash used in financing activities | $111.3 million | $124.5 million | — |
- Same-store revenue increased 6.9% and same-store net operating income (NOI) increased 9.1%. Total-portfolio NOI increased 10.4% to $185.4 million.
- Same-store rental income rose 6.5%; realized annual rent per occupied square foot increased 8.2%. Same-store period-end occupancy declined to 91.9% from 93.4%, and average occupancy was 91.5%.
- Property operating expenses rose 0.8% to $71.1 million. Depreciation and amortization fell 39.0% to $50.3 million. Interest expense rose 3.8% to $23.7 million; the weighted-average effective debt rate increased to 3.05% from 2.84%.
- At March 31, total assets were $6.29 billion and total liabilities were $3.40 billion. Debt carrying value was approximately $3.00 billion, excluding finance lease liabilities. Cash and cash equivalents were $5.5 million; cash, cash equivalents and restricted cash totaled $8.8 million.
- The $850 million revolving facility had $61.4 million drawn at 5.90%, with $788.0 million available. The company reported compliance with debt covenants. Its common-share distribution was $0.49 per share for the quarter, versus $0.43 a year earlier.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher same-store rental rates. Same-store realized rent per occupied square foot rose 8.2%.
- Net income rose substantially, helped by a $32.2 million reduction in depreciation and amortization, primarily from lower amortization of acquired in-place lease intangibles, and by the absence of $9.4 million of prior-year transaction-related expenses, mainly severance. Q1 2023 also included increased equity-method earnings, in part from distributions tied to a venture’s 2022 property sale.
- Interest costs increased despite lower average debt balances, reflecting higher rates. Cash used in investing increased year over year, partly because Q1 2022 included $43.2 million of real estate sale proceeds; Q1 2023 had no acquisitions and higher development spending.
Outlook, risks, contingencies and unusual items
- Management expects, for the remainder of 2023, recurring capital expenditures of approximately $10.5–$15.5 million, planned capital improvements and upgrades of $7.5–$12.5 million, development costs of $16–$26 million, and scheduled debt principal payments of approximately $32 million.
- Management said operating cash flow, equity-market access and available revolver capacity are expected to support the current business plan, while noting that future access to debt and equity capital is not assured. The filing provides no full-year earnings or operating guidance.
- Risks highlighted include economic weakness affecting customer demand and collections, competition and pricing pressure, higher interest rates and operating costs, refinancing and capital availability, development and acquisition execution, and natural disasters, cyber incidents, regulatory changes and other real-estate risks. Storage demand and occupancy are seasonal, generally higher in summer.
- The California Yacht Club property was classified as held for sale; estimated fair value less selling costs exceeded carrying value, so no loss was recorded. No impairment losses were recognized on held-for-use properties or unconsolidated venture investments in the quarter. Management said routine legal matters are not expected to have a material adverse effect and that adequate provisions have been made for potential liabilities.
Important facts for investors to verify
- Whether same-store rental-rate growth can continue and offset the year-over-year decline in occupancy.
- Debt maturities, refinancing terms and sensitivity to higher floating rates; the revolver rate was 5.90%, with $788.0 million available at quarter-end.
- Whether planned development spending and the two projects under construction remain on schedule and within the expected total cost of $64.0 million.
- The basis and sustainability of reported net-income growth, including lower acquired-lease amortization, absence of prior-year transaction costs and venture-sale-related distributions.
- Progress and expected timing of the California Yacht Club sale, and any resulting proceeds or gains or losses.