Business Context and Reporting Period
This Form 8-K Current Report was filed by U-Store-It Trust (doing business as CubeSmart) on February 23, 2006. The filing discloses the entry into material definitive agreements regarding executive compensation and a significant restructuring of the company's credit facilities.
Key Financial Metrics and Agreements
Executive Compensation
- Position: Kathleen A. Weigand appointed Executive Vice President, General Counsel, and Secretary.
- Base Salary: $250,000 annually, subject to board discretion for increases.
- Equity: 5,841 deferred share units granted, vesting 10% annually from January 30, 2007, to January 30, 2011.
- Severance: In the event of termination without "cause" or resignation for "good reason," the executive is entitled to a cash payment equal to two times the sum of her annual salary and the average bonus of the prior two years, plus 18 months of medical benefits and immediate vesting of equity.
Debt and Liquidity
- New Facility: Entered into a three-year, $250 million unsecured revolving credit facility.
- Previous Facility: Replaced a $150 million secured revolving credit facility.
- Capacity Increase: Borrowing capacity increased by $100 million.
- Maturity: Scheduled to terminate on February 22, 2009, with a one-year extension option.
- Interest Rates:
- Alternative Base Rate: Prime or Fed Funds + 50 bps, plus a margin of 0.15% to 0.60%.
- Eurodollar Rate: LIBOR-based, plus a margin of 1.15% to 1.60%.
Material Changes Versus Prior Period
- Debt Structure: The company transitioned from a secured to an unsecured credit facility, releasing all collateral previously securing the old facility.
- Liquidity: Total available borrowing capacity increased from $150 million to $250 million.
- Management: Addition of a new senior executive (General Counsel) with a multi-year employment contract.
Guidance, Risks, and Covenants
The new credit facility imposes specific financial covenants that the company must maintain to borrow:
- Maximum total indebtedness to total asset value: 65%.
- Maximum floating rate indebtedness to total indebtedness: 35%.
- Minimum interest coverage ratio: 2.0:1.0.
- Minimum fixed charge coverage ratio: 1.6:1.0.
- Minimum tangible net worth: $675 million (plus 75% of net proceeds from equity issuances after Dec 31, 2005).
Distribution Restrictions: For periods ending on or after December 31, 2007, distributions on common shares are restricted to the greater of 95% of funds from operations or the amount necessary to maintain REIT status.
Intended Use of Proceeds: Financing future acquisition and development of self-storage facilities, debt repayments, and general working capital.
Investor Verification Checklist
- Verify the company's current leverage ratio against the new 65% maximum indebtedness to asset value covenant.
- Confirm the tangible net worth exceeds the $675 million threshold required by the new credit agreement.
- Review the impact of the unsecured facility on the company's cost of capital compared to the previous secured facility.
- Assess the potential cash outflow implications of the new executive's severance package (2x salary + bonus) in a termination scenario.
- Monitor the company's ability to maintain the minimum interest coverage ratio of 2.0:1.0 given the new debt structure.