Business Context and Reporting Period
Company: U-Store-It Trust (operating as CubeSmart)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: The Company is a self-administered and self-managed Real Estate Investment Trust (REIT) that acquires, develops, and operates self-storage facilities. As of March 31, 2010, the portfolio consisted of 367 facilities totaling approximately 23.7 million rentable square feet across 26 states and the District of Columbia. The Company operates under a single reportable segment.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $53.1 million | $54.9 million |
| Net Operating Income (NOI) | $30.2 million | $31.3 million |
| Operating Income | $7.9 million | $8.0 million |
| Net Loss | $(3.2) million | $(2.3) million |
| Net Loss Attributable to Company | $(3.5) million | $(2.1) million |
| Loss Per Share (Basic & Diluted) | $(0.04) | $(0.03) |
| Cash from Operating Activities | $10.9 million | $11.3 million |
| Cash and Cash Equivalents (End of Period) | $41.5 million | $1.6 million |
| Total Debt Outstanding | $683.3 million | $769.0 million |
| Available Credit Facility | $250.0 million | N/A (Replaced in Dec 2009) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 3% ($1.8 million) year-over-year. Rental income dropped 4% primarily due to decreased occupancy levels in the same-store portfolio. However, other property-related income increased 11% due to higher tenant insurance commissions.
- Expense Reductions: Property operating expenses decreased 3% ($0.6 million), driven by lower marketing spend. Depreciation and amortization fell 8% ($1.4 million) as certain assets became fully depreciated in 2009.
- Interest Expense: Interest expense decreased 11% ($1.3 million) due to the payoff of the $83.3 million YSI 1 loan in Q1 2010 and lower outstanding borrowings on the credit facility.
- Discontinued Operations: The prior year period included $1.5 million in income from discontinued operations (properties sold in 2009). There were no discontinued operations in Q1 2010.
- Liquidity Improvement: Cash and cash equivalents increased significantly from $1.6 million to $41.5 million, aided by $17.6 million in proceeds from the repayment of a note receivable.
Outlook, Risks, and Management Commentary
Management Commentary: Management attributes the revenue decline to a 2% decrease in average occupancy rates and a 2% decrease in realized annual rent per occupied square foot on the same-store portfolio. The Company expects to fund remaining 2010 principal payment requirements ($29.1 million) with available cash and operating cash flows. Recurring capital expenditures for the remainder of 2010 are estimated at $6 million to $8 million.
Debt and Liquidity: The Company maintains a $450 million senior secured credit facility (consisting of a $200 million term loan and $250 million revolver). As of March 31, 2010, the full $250 million revolver was available. The Company is in compliance with all financial covenants, including a maximum total indebtedness to total asset value ratio of 65% (67.5% in the first year) and a minimum fixed charge coverage ratio of 1.45:1.0.
Risks and Contingencies:
- Economic Conditions: Ongoing economic downturns, unemployment, and tight credit markets may reduce consumer spending and demand for self-storage.
- Refinancing Risk: Significant debt maturities are scheduled for 2010 ($29.1 million) and 2011 ($90.5 million). The Company faces risks regarding the ability to refinance existing indebtedness.
- Interest Rate Risk: While the Company has no outstanding interest rate swaps, a 1% increase in market rates would decrease the fair value of fixed-rate debt by approximately $11.8 million. Variable rate debt is subject to a 1.5% LIBOR floor.
- REIT Status: The Company must distribute at least 90% of taxable income to maintain REIT status, creating substantial liquidity needs.
Investor Verification Checklist
- Debt Maturities: Verify the Company's ability to refinance or pay down the $29.1 million in principal payments due for the remainder of 2010 and the $90.5 million due in 2011.
- Occupancy Trends: Monitor same-store occupancy rates and rental rate trends to assess if the 2% decline in both metrics stabilizes or worsens.
- Credit Facility Covenants: Confirm continued compliance with the 65% leverage ratio and 1.45:1.0 fixed charge coverage ratio, especially given the economic environment.
- Cash Flow Coverage: Assess whether operating cash flows ($10.9 million in Q1) are sufficient to cover debt service, distributions, and capital expenditures without further dilution or asset sales.
- Joint Venture Exposure: Review the financial performance of the HART joint venture (50% interest) and the USIFB, LLP venture (97% interest in UK operations) for potential noncontrolling interest impacts.