CubeSmart 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. CubeSmart is a self-managed U.S. self-storage REIT; its operating business is conducted through CubeSmart, L.P.
Business context
At year-end, the company owned or partially owned and consolidated 607 stores in 24 states and the District of Columbia, with 43.6 million rentable square feet and 92.0% occupancy. It also managed 651 third-party stores, for 1,258 owned and/or managed locations. Revenue is principally from month-to-month storage rentals.
Financial and operating results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $822.6 million | $679.2 million | +21.1% |
| Net income | $230.8 million | $167.6 million | +37.7% |
| Net income attributable to common shareholders | $223.5 million | $165.6 million | +34.9% |
| Diluted earnings per share | $1.09 | $0.85 | Up $0.24 |
| NOI, a non-GAAP measure | $570.5 million | $455.5 million | +25.2% |
| Cash from operating activities | $449.2 million | $351.0 million | +$98.2 million |
Total-portfolio NOI was approximately 69.3% of revenue, versus 67.1% in 2020. Same-store revenue rose 13.1% and same-store NOI rose 17.2%; average same-store occupancy increased to 94.7% from 92.9%, and realized annual rent per occupied square foot rose 11.1% to $18.78. Year-end total-portfolio occupancy was 92.0%, compared with 92.3% a year earlier.
Cash used in investing activities was $1.85 billion, primarily reflecting the LAACO acquisition; cash provided by financing activities was $1.41 billion. Year-end cash and cash equivalents were $11.1 million, with $539.5 million available under the revolving credit facility.
Debt, liquidity and capital
At December 31, 2021, the balance sheet reported $2.768 billion of unsecured senior notes, $209.9 million drawn on the revolver, and $167.7 million of mortgage loans and notes payable, net. It also reported $65.8 million of finance lease liabilities. The company’s debt-to-market-capitalization ratio was 19.7%, down from 25.6%; debt to undepreciated asset cost was 41.2%, versus 41.0%.
In November, the Operating Partnership issued $550 million of 2.250% notes due 2028 and $500 million of 2.500% notes due 2032; proceeds helped fund LAACO and refinance $300 million of 4.375% notes due 2023. The refinancing generated a $20.3 million early-extinguishment loss. CubeSmart also raised $765.6 million net from a 15.5 million-share public offering and $200.0 million net through its at-the-market program.
Annual common-share distributions were $1.45 per share in 2021, compared with $1.33 in 2020. The filing says the annualized dividend was increased from $1.36 to $1.72 per share during 2021; future distributions remain subject to Board discretion.
Material changes and unusual items
- CubeSmart acquired LAACO in December for a stated purchase price of approximately $1.69 billion, adding 57 Storage West stores and interests in two ventures. The transaction also included athletic-club and yacht-club operations, classified as held for sale at year-end; related assets held for sale were $49.3 million.
- Owned-store count increased from 543 to 607. The company reported $1.80 billion of 2021 acquisitions and $43.8 million of store dispositions; disposition gains were $32.7 million.
- Depreciation and amortization rose 48.2% to $232.0 million, primarily reflecting acquired and developed properties. Property operating expenses rose 12.7% to $252.1 million.
- LAACO-related transaction expenses included $14.8 million of severance expense in 2021; the company expected another $10.3 million to be expensed in the first half of 2022. The filing also reports $25.3 million of equity earnings from real estate ventures, mainly reflecting the company’s share of a venture’s property-sale gain.
- No impairment losses on storage properties or unconsolidated real estate venture investments were recorded in 2021, 2020 or 2019. KPMG identified impairment assessment as a critical audit matter because valuations depend on forecast growth and terminal capitalization assumptions.
Outlook, commentary and risks
Management plans to pursue selective acquisitions in targeted markets, continue evaluating dispositions, expand third-party management and maximize store-level cash flow. For 2022, the company estimated $10.5–$15.5 million of recurring capital expenditures, $8.5–$13.5 million of store upgrades and $27–$37 million for new-store development. Three joint-venture projects were under construction, with completion expected by the first quarter of 2023. A Maryland store acquisition for $32 million occurred after year-end.
Management reported that stores remained open during the COVID-19 pandemic and that it had not experienced material deterioration in rent collections or occupancy to date, while cautioning that future effects remained uncertain. Principal risks include economic weakness and market-level competition affecting rents or occupancy; acquisition, development and integration risks; higher operating costs and interest rates; access to capital and debt refinancing; REIT qualification; joint-venture, environmental, insurance and cyber risks. New York, Florida, Texas and California generated 19%, 15%, 9% and 8% of 2021 revenue, respectively. The company reported compliance with debt covenants and effective internal controls; the financial statements received an unqualified audit opinion. No material legal proceedings were reported.
Important facts for investors to verify
- How much of 2021’s revenue, NOI and earnings growth came from same-store operations versus acquisitions, and how occupancy and achieved rents trend after year-end.
- LAACO integration and the timing, proceeds and tax consequences of selling the acquired Club Operations; also verify the remaining severance expense expected in 2022.
- Debt maturities, floating-rate exposure, revolver availability and covenant headroom. Management estimated a 100-basis-point rate increase would add about $2.1 million to annual interest expense on variable-rate debt.
- The sustainability of the $1.72 annualized dividend relative to operating cash flow, distributions and planned investment needs.
- Acquisition and development returns, including construction costs and lease-up assumptions; these are important given the auditor’s critical audit matter concerning property impairment estimates.