CubeSmart 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. CubeSmart is a self-storage REIT operating through CubeSmart, L.P. At year-end, CubeSmart owned 370 facilities across 26 states and Washington, D.C., with 24.4 million rentable square feet and 78.4% occupancy; it also managed 103 third-party properties.
Financial and operating results
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $237.6 million | $209.7 million |
| Operating income | $45.5 million | $32.6 million |
| Operating margin | 19.2% | 15.6% |
| Net income (loss) | $2.4 million | $(6.0) million |
| Net loss attributable to common shareholders | $(1.6) million; $(0.02) per share | $(7.4) million; $(0.08) per share |
| Cash from operating activities | $84.3 million | $71.5 million |
| FFO, a non-GAAP measure | $60.8 million | $51.1 million |
| Total debt at year-end | $758.4 million | $615.5 million |
- Revenue increased 13%. Rental income rose 12%; management cited both acquisitions and same-store growth. Same-store revenue grew 4% and same-store NOI grew 6%.
- Year-end occupancy increased to 78.4% from 76.3%. Total portfolio rent per occupied square foot was $12.79 versus $11.66, though acquisitions affect this comparison.
- GAAP net income includes $7.5 million from discontinued operations, including $3.9 million of disposition gains. Continuing operations remained loss-making at $(5.1) million.
- Fourth-quarter revenue was $64.0 million; net loss attributable to CubeSmart was $8.0 million, or $(0.08) per share.
- Cash and cash equivalents were $9.1 million, with $400 million of stated borrowing availability under the credit facilities. The filing does not provide a current ratio or other conventional liquidity ratio.
- Debt to total capitalization was 36.0%, down from 38.5%; debt to depreciated cost of real estate was 42.4%, down from 43.1%. The reported weighted-average rate on the unsecured term facilities was 3.57%; swaps fixed rates on portions of the debt.
Material changes and financing
- CubeSmart acquired 27 facilities for approximately $467.1 million and sold 19 for approximately $45.2 million. The Storage Deluxe transaction accounted for 16 acquisitions at approximately $357.3 million; the agreement covered 22 facilities, with the remaining closings subject to loan assumptions.
- To help fund the Storage Deluxe purchase, the company raised approximately $202.5 million net from a common-share offering and $74.8 million net from a 7.75% Series A preferred-share offering. The common offering issued 23 million shares, creating dilution.
- The company replaced its prior credit facility and added term financing. At year-end, it reported $400 million of unsecured term loans, $358.4 million of mortgage debt, and no revolver borrowings.
- Scheduled 2012 mortgage principal payments were approximately $168.8 million. Management expected to meet contractual obligations using operating cash flow and credit-facility borrowings.
- Common dividends declared totaled $0.29 per share in 2011 versus $0.145 in 2010; the fourth-quarter 2011 declaration was $0.08 per share. Future distributions remain at the Board’s discretion and are subject to credit-facility limits.
Outlook, commentary, risks and unusual items
- Management plans to pursue selective acquisitions in targeted, higher-barrier markets, sell facilities in slower-growth markets, and expand third-party management. No specific revenue, earnings or FFO guidance is provided.
- For 2012, management expected recurring capital expenditures of $7–9 million and approximately $8 million of additional spending for rebranding and the SuperStore initiative. About $4 million had been incurred on these initiatives in 2011, of which approximately $0.7 million was expensed.
- Management said the late-2011 Storage Deluxe acquisition’s anticipated positive effect was not yet reflected in the full-year historical results. The remaining acquisition closings were still in progress; subsequent events report four more properties closed in February 2012 and two expected to close in March.
- Unusual 2011 expenses included $8.2 million to write off deferred financing costs after repayment or replacement of prior debt, and $3.8 million of acquisition-related costs. The company also recognized $1.9 million of income from compensation for an earlier eminent-domain taking.
- Key risks include economic weakness and local market concentration, competition and pressure on rents or occupancy, acquisition integration and financing risks, refinancing and 2012 debt payments, interest-rate and derivative-counterparty exposure, rising property expenses, natural disasters and insurance limits, environmental liabilities, and maintaining REIT status.
- Amsdell-related indemnification litigation remained pending on cross-motions for summary judgment; management believed resolution would not materially affect the company, while noting litigation uncertainty. Management reported no known environmental condition expected to have a material adverse effect.
Most important facts for investors to verify
- Performance excluding acquisition and disposition effects: same-store occupancy, rental rates, revenue and NOI trends.
- Completion, financing and operating performance of the remaining Storage Deluxe properties, including assumed debt and integration costs.
- Ability to fund approximately $168.8 million of 2012 mortgage principal payments while maintaining liquidity and complying with debt covenants.
- Cash available for distributions after capital spending, debt service and preferred dividends; common distributions are not guaranteed.
- How much reported earnings and FFO depend on acquisitions, discontinued operations, disposition gains and other nonrecurring items.
- Capital needs and execution progress for the rebranding and SuperStore programs, and exposure to concentrated markets and uninsured losses.