Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) focused on the ownership, operation, acquisition, and development of self-storage facilities in the United States. As of December 31, 2010, the Company owned 363 facilities across 26 states and the District of Columbia, totaling approximately 23.6 million rentable square feet with a weighted average occupancy of 76.3%. The Company also managed 93 third-party properties.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenues | $216.8 million | $210.7 million |
| Net Operating Income (NOI) | $123.1 million | $119.4 million |
| Operating Income | $34.8 million | $27.7 million |
| Net Loss (GAAP) | $(6.0) million | $(0.3) million |
| Net Loss Attributable to Company | $(7.4) million | $(0.9) million |
| Loss Per Share (Basic & Diluted) | $(0.08) | $(0.01) |
| Cash Flow from Operating Activities | $71.5 million | $62.2 million |
| Total Debt | $615.5 million | $769.0 million |
| Debt to Total Capitalization | 38.5% | 51.9% |
| Cash and Cash Equivalents | $5.9 million | $102.8 million |
Material Changes vs. Prior Period
- Portfolio Activity: The Company acquired 12 facilities for approximately $85.1 million and sold 16 facilities for approximately $38.1 million in 2010. This resulted in a net reduction of 4 facilities compared to 2009.
- Revenue Growth: Total revenues increased 3% to $216.8 million, driven by a 16% increase in other property-related income and a significant increase in property management fee income ($2.8 million vs. $56,000 in 2009) following the acquisition of 85 management contracts.
- Expense Reduction: Interest expense decreased 17% to $37.8 million due to lower average outstanding borrowings and reduced interest rates. Depreciation and amortization decreased 9% to $62.9 million as certain assets became fully depreciated.
- Debt Reduction: Total debt decreased significantly from $769.0 million in 2009 to $615.5 million in 2010, primarily due to the repayment of $196.6 million in mortgage loans and notes payable.
- Discontinued Operations: Gains on disposition of discontinued operations dropped from $14.1 million in 2009 to $1.8 million in 2010, reflecting fewer asset sales in the current period.
Guidance, Outlook, and Risks
Outlook and Strategy: Management intends to focus on maximizing internal growth and selectively pursuing targeted acquisitions in markets with high barriers to entry and strong demographics. The Company anticipates capital expenditures of $7 million to $9 million for 2011. The Company maintains a disciplined investment process and expects to finance growth through its credit facility, secured financings, and equity issuances.
Liquidity: As of December 31, 2010, the Company had $5.9 million in cash and $207.0 million available under its revolving credit facility. The Company is in compliance with all debt covenants.
Key Risks:
- Economic Conditions: Sensitivity to national and local economic downturns, unemployment, and consumer spending habits.
- Competition: Intensified competition from new development and other operators may pressure rental rates and occupancy.
- Financing: Risks related to refinancing debt maturities, interest rate fluctuations on variable-rate debt, and availability of capital markets.
- REIT Status: Failure to qualify as a REIT would subject the Company to federal income tax, significantly reducing cash available for distribution.
- Environmental and Legal: Potential liabilities for environmental contamination and ongoing litigation regarding indemnification claims by former executives.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, noting significant principal payments due in 2012 ($159.9 million) and the reliance on refinancing or asset sales to meet these obligations.
- Occupancy Trends: Monitor same-store occupancy and rental rate trends, particularly in key markets like Florida (18% of revenue) and California (15% of revenue), which showed lower occupancy rates in some facilities.
- Capital Expenditures: Confirm actual 2011 capital spending against the $7-$9 million guidance to ensure it does not strain liquidity.
- Dividend Sustainability: Assess the ability to maintain distributions given the GAAP net loss, relying on Funds From Operations (FFO) and cash flow from operations.
- Legal Proceedings: Track the status of the lawsuit filed by the Amsdell Plaintiffs seeking indemnification, as a material adverse judgment could impact financial results.