CubeSmart 2023 Third-Quarter 10-Q Summary
Business context and reporting period
CubeSmart is a self-storage REIT operating through CubeSmart, L.P. This combined, unaudited filing covers the quarter and nine months ended September 30, 2023, with comparisons to 2022. At quarter-end, the company owned or partially owned 611 stores with approximately 44.1 million rentable square feet and managed 763 third-party stores. Its owned properties were in 24 states and the District of Columbia.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $267.9 million | $261.4 million | $785.2 million | $748.6 million |
| Net income | $103.1 million | $113.4 million | $299.3 million | $210.3 million |
| Net income attributable to common shareholders | $102.6 million | $112.9 million | $298.1 million | $209.4 million |
| Diluted earnings per share | $0.45 | $0.50 | $1.32 | $0.93 |
| Net cash from operating activities | Not separately reported | Not separately reported | $465.1 million | $446.5 million |
- Q3 revenue increased 2.5%; same-store revenue increased 2.3% and same-store NOI increased 2.0%. Same-store realized annual rent per occupied square foot rose 3.8%, while average same-store occupancy declined to 92.1% from 93.6%.
- For the first nine months, revenue increased 4.9%, same-store NOI rose 5.3%, and total portfolio NOI rose 6.4%. Same-store realized annual rent per occupied square foot increased 6.0%; average same-store occupancy was 92.1% versus 93.6%.
- Total portfolio NOI was $190.3 million in Q3 and $561.7 million year to date. Calculated as NOI divided by total revenue, NOI margin was approximately 71.0% in Q3 and 71.5% for the nine months.
- For the nine months, cash used in investing activities was $54.8 million and cash used in financing activities was $409.3 million. Cash, cash equivalents and restricted cash totaled $9.9 million at period-end.
- At September 30, reported debt carrying value was approximately $2.920 billion: $2.775 billion of unsecured senior notes, $129.1 million of mortgage loans and notes payable, and $15.2 million drawn on the revolving facility. Finance-lease liabilities were $65.7 million separately. Total liabilities were $3.360 billion.
- Cash and cash equivalents were $8.0 million, with $834.2 million available under the $850 million revolving credit facility. The revolver carried a 6.34% interest rate at quarter-end. The company reported compliance with its debt covenants.
- Cash distributions to common shareholders were $331.6 million in the first nine months. Dividends declared were $1.47 per share/unit for the nine months, including $0.49 for Q3.
Material changes versus the prior comparable period
- Q3 net income attributable to common shareholders fell 9.1%, despite revenue growth. The principal comparison was equity earnings from real estate ventures: $1.1 million in Q3 2023 versus $46.6 million in Q3 2022, when the company recognized gains related to the sale of a venture’s 14 properties.
- Nine-month common-shareholder income rose 42.4%, reflecting substantially lower depreciation and amortization—down $90.5 million, primarily because amortization of acquired in-place lease intangibles declined. The comparison also includes unusually high 2022 venture-sale gains and 2022 LAACO-related transaction expenses.
- Interest expense on loans was $70.4 million year to date, up $0.7 million. The weighted-average effective interest rate increased to 3.05% from 2.91%, partly offset by lower average debt outstanding.
- Operating cash flow increased $18.6 million year over year. Investing cash use increased $23.6 million, largely because 2022 included larger venture distributions and property-sale proceeds; 2023 had no self-storage acquisitions through September.
- Same-store period-end occupancy was 91.4%, compared with 93.1% a year earlier; total portfolio period-end occupancy was 90.7%, compared with 92.1%.
Outlook, risks, contingencies and unusual items
- The filing provides no explicit full-year revenue, earnings or FFO guidance. For the remainder of 2023, management estimated recurring capital expenditures of $2–$7 million, planned improvements and upgrades of $1–$5 million, development costs of $7–$17 million, and scheduled debt principal payments of approximately $0.5 million.
- Three properties under development in New Jersey and New York had $51.5 million of costs incurred at September 30; total expected construction costs were $82.5 million, with completion expected at various points in 2024.
- Management cited reliance on rental income and collections, economic and consumer-spending conditions, competition, operating-cost and interest-rate increases, capital availability, refinancing and leverage, acquisitions and development execution, and natural disasters and other risks. Occupancy is typically seasonal and somewhat higher in summer.
- Q3 included a $0.2 million loss on the August 2023 sale of the California Yacht Club, previously acquired with LAACO. The 2022 comparison included $10.5 million of LAACO-related transaction expenses and venture-sale gains. No property impairment losses were reported for the periods presented.
- The company reported routine claims and litigation with adequate provisions, no known material legal proceedings beyond routine matters, and no off-balance-sheet arrangements other than disclosed co-investment partnerships. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
- On November 1, 2023, the Board amended the Executive Severance Plan, including enhanced treatment of certain equity awards and termination benefits in specified change-in-control circumstances.
Important facts for investors to verify
- How rental-rate growth and weaker occupancy trends affect same-store revenue and NOI in subsequent quarters.
- Whether the 2023 earnings comparison is being assessed using recurring operating measures, given 2022 venture-sale gains and reduced acquired-intangible amortization in 2023.
- Debt maturities, refinancing terms, variable-rate exposure and compliance with revolving-facility and note covenants; the filing estimates a $0.2 million annual cash-flow impact from a 100-basis-point change in variable rates.
- Actual development spending, construction-cost outlook and expected completion timing for the three projects.
- The sustainability of distributions relative to operating cash flow, capital needs and the REIT distribution requirement.