Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
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 September 30, 2009, the portfolio consisted of 368 facilities totaling approximately 23.8 million rentable square feet across 26 states and the District of Columbia. The Company operates under a single reportable segment.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenues | $54.9 million | $164.4 million |
| Net Income (GAAP) | $7.5 million | $2.1 million |
| Net Income Attributable to Company | $6.8 million | $1.9 million |
| Operating Income | $8.3 million | $22.4 million |
| Net Operating Income (NOI) | $31.7 million | $92.6 million (Calculated) |
| Cash from Operating Activities | N/A | $47.0 million |
| Cash and Cash Equivalents | $61.0 million (Balance Sheet) | N/A |
| Total Debt | $728.1 million (Carrying Value) | N/A |
| Weighted-Average Shares Outstanding | 75.2 million | 63.8 million |
Note: NOI is a non-GAAP measure calculated as Total Revenues less Property Operating Expenses. For the nine months ended Sep 30, 2009, NOI is approximately $92.6 million ($164.4M - $71.8M).
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 4% ($2.4 million) for the three months ended September 30, 2009, compared to the same period in 2008. This was primarily driven by a 5% decrease in rental income from same-store properties due to lower occupancy levels, partially offset by income from non-same-store assets.
- Expense Reduction: Property operating expenses decreased 6% ($1.6 million) for the quarter, driven by reductions in advertising, utilities, property taxes, and repairs. Interest expense decreased 6% ($0.8 million) due to lower interest rates and reduced borrowings on the credit facility.
- Discontinued Operations: Net income was significantly bolstered by discontinued operations. The Company recognized a net gain on disposition of discontinued operations of $10.9 million for the quarter (up 45% from $7.5 million in 2008) and $13.5 million for the nine-month period.
- Portfolio Changes: The Company reduced its facility count from 387 at year-end 2008 to 368 at September 30, 2009, due to the sale of 19 facilities and eminent domain proceedings.
Guidance, Outlook, and Risks
Capital Markets and Liquidity: The Company completed a public offering of 32.2 million common shares in August 2009, raising net proceeds of $161.9 million, which were used for general corporate purposes and debt repayment. As of September 30, 2009, the Company held $61.0 million in cash and had $250.0 million available under its revolving credit facility.
Debt Refinancing: The Company's existing $450 million unsecured credit facility matures on November 20, 2009. The Company has received commitments for a new $450 million senior secured credit facility (comprising a $200 million term loan and $250 million revolver) and expects to close in the fourth quarter of 2009. If the new facility does not close by the maturity date, the Company has exercised an option to extend the existing facility for one year.
Joint Venture: In August 2009, the Company formed a joint venture (HART) with Heitman, LLC, contributing properties valued at $102 million and receiving $51 million in cash while retaining a 50% interest. This transaction resulted in a deferred gain.
Risks and Contingencies:
- Economic Conditions: The ongoing recession has led to higher unemployment and shrinking demand, impacting occupancy and rental rates.
- Refinancing Risk: Disruptions in credit markets could hinder the ability to refinance debt at reasonable rates or at all.
- Competition: New and existing self-storage facilities may cause rents and occupancy rates to decline.
- REIT Status: The Company must maintain its status as a REIT to avoid federal income tax, requiring the distribution of at least 90% of taxable income.
Investor Verification Checklist
- Credit Facility Closing: Verify the successful closing and funding of the new $450 million secured credit facility before the November 20, 2009 maturity of the current facility.
- Occupancy Trends: Monitor same-store occupancy rates and rental rate trends to assess the impact of the recession on core operating performance.
- Debt Maturities: Review the schedule of mortgage loan maturities, particularly the $113.8 million due in 2010, to ensure refinancing plans are on track.
- Discontinued Operations: Distinguish between recurring operating income and one-time gains from property dispositions when evaluating profitability.
- Joint Venture Accounting: Confirm the treatment of the Heitman joint venture (HART) and the deferral of gains on the partial sale of properties.