Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2008
Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) owning and operating 408 self-storage facilities across 26 states, totaling approximately 26.1 million square feet. The company operates under month-to-month leases.
Key Financial Metrics
| Metric (in thousands) | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Revenues | $60,063 | $54,658 |
| Operating Income | $9,229 | $9,230 |
| Net Loss | $(3,984) | $(3,358) |
| Net Loss from Continuing Ops | $(4,545) | $(3,606) |
| Net Cash from Operating Activities | $11,735 | $12,944 |
| Net Cash Used in Investing Activities | $(14,001) | $(23,737) |
| Net Cash from Financing Activities | $3,374 | $(3,274) |
| Total Debt Outstanding | $1,042,053 | N/A |
| Cash and Cash Equivalents | $5,625 | $4,517 |
| Distributions Declared per Share | $0.18 | $0.29 |
Note: Total Debt includes Revolving Credit Facility ($235M), Unsecured Term Loan ($200M), Secured Term Loan ($47.4M), and Mortgage Loans ($559.6M).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10% ($5.4 million) year-over-year. Rental income rose 12% ($6.1 million) driven by a 100 basis point increase in average occupancy on the same-store portfolio and income from 2007/2008 acquisitions.
- Operating Expenses: Property operating expenses increased 11% ($2.5 million) primarily due to acquisitions. General and administrative expenses decreased 8% ($0.5 million), excluding approximately $1.0 million in non-recurring legal costs incurred in Q1 2007 related to litigation with the Amsdells.
- Depreciation: Increased 20% ($3.4 million) due to the addition of new facilities.
- Interest Expense: Increased 8% ($1.0 million) due to higher outstanding debt levels financing recent acquisitions.
- Discontinued Operations: Generated $561,000 in income in Q1 2008, including a $571,000 gain on disposition, compared to $248,000 in Q1 2007.
- Distributions: The quarterly distribution per share was reduced from $0.29 in 2007 to $0.18 in 2008.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects recurring capital expenditures to range between $8 million and $12 million for both 2008 and 2009.
- Debt Maturities: Scheduled principal payments are approximately $9.3 million for the remainder of 2008 and $94 million for 2009.
- Liquidity: As of March 31, 2008, the company held $5.6 million in cash and had approximately $15 million available under its $450 million unsecured credit facility.
- Market Risks:
- Interest Rate Risk: A 1% increase in market rates on variable rate debt would increase annual interest expense by approximately $4.8 million. The company utilizes interest rate swaps (notional amount of $100 million as of March 31, 2008, increased to $300 million in April 2008) to hedge variable rate exposure.
- Capital Markets: Management noted that dislocation in U.S. debt markets has reduced the availability and increased the cost of long-term debt capital.
- REIT Status: The company must distribute at least 90% of taxable income to maintain REIT status, creating substantial liquidity needs.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the credit facility covenants, specifically the maximum total indebtedness to total asset value (65%) and minimum interest coverage ratio (2.0:1.0).
- Refinancing Needs: Assess the company's ability to refinance the $94 million in debt maturing in 2009 given current market conditions.
- Dividend Sustainability: Review the impact of the reduced distribution ($0.18 vs $0.29) on future cash flow requirements and shareholder returns.
- Acquisition Strategy: Evaluate the performance of the 2007 Rising Tide acquisition (14 facilities) and the 2008 Uptown Asset acquisition on same-store metrics.
- Related Party Transactions: Monitor the status of the settlement with the Amsdells and ongoing office lease obligations with related parties.