Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2006
Business Overview: The Company is a self-storage Real Estate Investment Trust (REIT) owning, acquiring, developing, and operating facilities. As of June 30, 2006, the portfolio consisted of 383 facilities totaling approximately 24.2 million rentable square feet, an increase from 339 facilities at year-end 2005.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2006) | Value (in thousands) |
|---|---|
| Total Revenues | $100,568 |
| Net Income (Loss) | $(1,617) |
| Funds From Operations (FFO) (Allocable to common shareholders) | $25,969 |
| Net Cash Provided by Operating Activities | $30,439 |
| Net Cash Used in Investing Activities | $(265,666) |
| Total Debt Outstanding | $773,423 |
| Cash and Cash Equivalents | $13,479 |
| Revolving Credit Facility Availability | $162,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 58.9% to $100.6 million for the six months ended June 30, 2006, compared to $63.5 million in the prior year period. This was driven primarily by the acquisition of 44 facilities in the first half of 2006 and 108 facilities in late 2005.
- Net Loss: The Company reported a net loss of $1.6 million for the six months ended June 30, 2006, compared to net income of $3.8 million in the prior year. The decline was due to increased depreciation ($13.6 million increase), higher interest expense ($8.1 million increase), and a $1.3 million non-cash write-off of loan procurement costs.
- Same-Store Performance: Same-store revenues increased 2.9% to $58.4 million, driven by a $2.5 million increase in rents offset by a $0.8 million decrease in occupancy. Same-store operating expenses increased 8.2% due to higher taxes, insurance, and utilities.
- Acquisitions: The Company spent approximately $266.7 million on acquisitions and improvements during the six-month period, significantly higher than the $105.7 million spent in the prior year period.
Guidance, Outlook, and Risks
- Capital Strategy: Management intends to pursue internal growth and selective acquisitions. The Company expects to incur approximately $4.9 million in recurring capital expenditures and $3.9 million in renovations for 2006.
- Debt Refinancing: The Company anticipates refinancing two fixed-rate mortgage loans totaling $103.2 million in late 2006 (due November and December 2006) with unsecured borrowings.
- Subsequent Events: In August 2006, the Company terminated two executives, expecting to record a $2.0 million charge in the third quarter for severance and accelerated equity expense. Additionally, three portfolios were acquired subsequent to June 30, 2006, totaling approximately $63.8 million.
- Risks: Key risks include the ability to maintain REIT status, refinancing risks, increases in interest rates (100 basis point increase would raise annual interest expense by ~$0.9 million on variable debt), and potential inability to obtain insurance coverage required by loan covenants.
Investor Verification Checklist
- Debt Maturities: Verify the status of the $103.2 million in fixed-rate debt maturing in late 2006 and the terms of the proposed refinancing.
- Acquisition Integration: Assess the performance of the 44 facilities acquired in the first half of 2006 to ensure they meet projected cash flow targets.
- Executive Turnover: Monitor the impact of the August 2006 executive terminations and the associated $2.0 million charge on Q3 results.
- Accounting Adjustments: Note the $1.0 million revenue reduction recorded in Q2 to correct an immaterial accounting error regarding tenant receivables.
- Liquidity Position: Confirm the utilization of the $250 million revolving credit facility, which had $88 million outstanding and $162 million available as of June 30, 2006.