Business Context and Reporting Period
This Form 8-K filing by CubeSmart and CubeSmart, L.P. (the "Operating Partnership") reports on events occurring on November 30, 2021. The filing details the completion of a material definitive agreement involving the issuance of senior notes to fund a significant acquisition.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Operating Partnership issued $1.05 billion in aggregate principal amount of senior notes:
- $550 million of 2.25% senior notes due December 15, 2028.
- $500 million of 2.50% senior notes due February 15, 2032.
- Net Proceeds: Approximately $1.035 billion after deducting underwriters' discounts and estimated transaction expenses.
- Use of Proceeds: Funds are designated to finance a portion of the $1.648 billion cash purchase price for the acquisition of LAACO, Ltd. ("LAACO"), including the payoff of approximately $40.9 million of LAACO's existing indebtedness. Remaining proceeds will cover transaction expenses.
- Acquisition Scope: The transaction involves the acquisition of 59 open and operating self-storage properties containing approximately 4.4 million rentable square feet (the "Storage West Portfolio Acquisition").
- Debt Structure: The notes are senior unsecured indebtedness, ranking equally with other unsecured unsubordinated indebtedness. They are effectively subordinated to secured indebtedness and liabilities of consolidated subsidiaries.
Material Changes and Covenants
The filing represents a material increase in the company's debt load to facilitate expansion. The Indenture and Ninth Supplemental Indenture impose specific covenants, including:
- Restrictions on incurring additional debt and debt secured by liens, subject to exceptions.
- A requirement that the Operating Partnership and its subsidiaries maintain unencumbered assets representing at least 150% of the outstanding principal amount of unsecured debt.
Outlook, Risks, and Redemption Terms
Redemption Provisions:
- 2028 Notes: May be redeemed prior to October 15, 2028, at a make-whole price. On or after that date, they may be redeemed at 100% of principal plus accrued interest.
- 2032 Notes: May be redeemed prior to November 15, 2031, at a make-whole price. On or after that date, they may be redeemed at 100% of principal plus accrued interest.
Contingencies: If the Storage West Portfolio Acquisition is not consummated, or if proceeds exceed the amount necessary for the acquisition, the Operating Partnership intends to use the funds for general corporate purposes, including funding other acquisitions, investment opportunities, or repurchasing existing indebtedness.
Risks: The filing notes that the notes are effectively subordinated to secured indebtedness and the liabilities of consolidated subsidiaries. The success of the capital raise is tied to the consummation of the LAACO acquisition.
Investor Verification Checklist
- Verify the final closing status of the LAACO acquisition and the exact amount of proceeds applied to the purchase price versus general corporate purposes.
- Review the full text of the Ninth Supplemental Indenture to understand specific exceptions to the debt incurrence and lien covenants.
- Confirm the interest payment schedule, noting that the first interest payments are due June 15, 2022 (2028 Notes) and August 15, 2022 (2032 Notes).
- Assess the impact of the new $1.05 billion debt load on the company's leverage ratios and unencumbered asset coverage ratio (150% threshold).