CubeSmart (CUBE) — Q3 2020 Form 10-Q
Business and period. The combined filing covers CubeSmart and its operating partnership for the quarter and nine months ended September 30, 2020. CubeSmart is a self-storage REIT operating in 24 states and Washington, D.C. At quarter-end it owned 527 properties and managed 733 third-party properties; the business reports one segment.
Financial performance
| Metric | Q3 2020 | Change vs. Q3 2019 | Nine months 2020 | Change vs. 2019 |
|---|---|---|---|---|
| Total revenue | $172.5 million | +3.6% | $500.4 million | +4.6% |
| Net income | $47.4 million | +11.3% | $124.7 million | -2.8% |
| Net income attributable to common shareholders | $46.9 million; $0.24 diluted EPS | +11.2%; EPS $0.22 prior year | $123.3 million; $0.63 diluted EPS | -3.0%; EPS $0.67 prior year |
| Net operating income (NOI, non-GAAP) | $115.4 million | +2.1% total; same-store NOI -1.6% | $332.2 million | +2.7% total; same-store NOI -1.6% |
| Cash from operating activities | Not separately stated for quarter | — | $267.8 million | Up $8.0 million |
Operating trends. Q3 same-store revenue rose 0.1%, while same-store operating costs increased 4.2%. Same-store average occupancy was 94.4%, versus 93.0% a year earlier; realized annual rent per occupied square foot was $17.03, down from $17.27. Period-end occupancy was 93.2% overall, versus 90.6%. Management attributed rental-income growth mainly to higher same-store occupancy and acquisitions/openings; same-store other property income was affected by lower fee revenue during COVID-19. Property expenses rose, including higher property taxes and advertising costs.
Cash flow and investment. For the nine months, investing activities used $160.4 million, mainly for acquisitions, property improvements and development. Financing activities used $159.1 million, including $194.1 million of distributions to common shareholders and OP unitholders. Quarterly common-share distributions were $0.33 per share.
Financial position and material changes
- At September 30, total assets were $4.03 billion and total liabilities were $2.21 billion. Cash and cash equivalents were $3.9 million; cash, cash equivalents and restricted cash totaled $6.7 million.
- Debt carrying value was approximately $1.97 billion: $1.84 billion of senior notes, $37.3 million drawn on a $750 million revolving facility, and $93.7 million of mortgage loans and notes payable. Revolver availability was $712.0 million. The company reported compliance with applicable debt covenants.
- Average debt balances were higher year over year, while effective weighted-average debt interest rates declined: 3.89% versus 4.05% in Q3 and 3.92% versus 4.09% for the nine-month period.
- Nine-month net income declined despite revenue growth, principally because 2019 included the company’s share of gains from a real-estate venture’s property sale. Q3 earnings increased; lower depreciation and amortization also supported the comparison.
- Same-store operating performance weakened: NOI declined 1.6% in both Q3 and the nine-month period. Portfolio-wide NOI growth reflected acquisitions, development and third-party management growth.
Outlook, risks and unusual items
- COVID-19: Stores remained open as an essential business, and the company introduced contactless online rentals and remote work. It temporarily paused existing-customer rate increases and delinquency processes in late March, then resumed them by jurisdiction beginning in May. Management reported no material deterioration in rent collections or occupancy through the filing, but warned prolonged pandemic and economic effects could reduce customer activity, effective rents, rent payments and operating cash flow.
- Spending outlook: For the remainder of 2020, management expected $2–7 million of recurring capital expenditures, $4–9 million of planned improvements and upgrades, $16–26 million of development costs, and about $10.9 million of scheduled principal payments. No full-year earnings or revenue guidance is stated in the supplied filing text.
- Subsequent financing: On October 6, the partnership issued $450 million of 2.00% notes due 2031. It used proceeds to redeem $250 million of 4.80% notes due 2022 and repay the revolver; the redemption included a make-whole charge.
- Subsequent acquisitions: The company agreed to acquire eight New York-area properties for about $540 million, funded with cash, OP units and assumed secured debt, and signed agreements for seven more properties for $89.2 million. These transactions were expected to close in Q4 2020; completion and financing remain execution points to monitor.
- Other risks and contingencies: Management cited economic and competitive conditions, capital availability, leverage/refinancing and interest-rate exposure, COVID-19, development and acquisition execution, and other real-estate risks. Routine legal matters were not expected to have a material adverse effect. No property impairment losses were recorded in the first nine months.
Investor verification priorities
- Track same-store rent, occupancy, fee income and operating costs as rate and delinquency processes resume.
- Verify rent collection and customer payment trends, including any deterioration from COVID-19 effects.
- Assess acquisition closings, consideration mix, assumed debt, and the effect on leverage and per-share performance.
- Review cash available after distributions and planned development/capital spending, alongside revolver use and upcoming debt maturities.
- Reconcile GAAP earnings with FFO and adjusted FFO; these non-GAAP measures are supplemental and are not cash-flow or liquidity measures.