Cubesmart quarterly report, Q1 FY2022

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CubeSmart 10-Q Summary

Business context and reporting period

Quarter ended March 31, 2022; comparisons are to the quarter ended March 31, 2021 unless otherwise noted. CubeSmart is a self-storage REIT operating through CubeSmart, L.P., with one reportable segment. At quarter-end, it owned or partially owned 608 stores totaling 43.6 million rentable square feet and managed 664 third-party stores.

Financial and operating performance

  • Revenue: $238.6 million, up 26.3%. Rental income rose 28.2% to $208.4 million; same-store rental income increased 15.6%, primarily on higher rates.
  • NOI and margins: Net operating income (NOI, a non-GAAP measure) was $168.0 million, up 31.6%; NOI margin was approximately 70.4%, versus 67.6%. Same-store NOI increased 21.4% to $134.1 million. Same-store period-end occupancy was 94.1%, versus 94.2%; realized annual rent per occupied square foot increased 15.5%.
  • Profit: Net income was $38.3 million, down 11.7%; net income attributable to common shareholders was $38.2 million, down 8.6%. Diluted EPS fell to $0.17 from $0.21. FFO attributable to common shareholders and OP unitholders was $122.5 million, versus $98.0 million; adjusted FFO was $131.9 million, versus $98.4 million.
  • Costs and interest: Property operating expenses rose 15.3% to $70.6 million; depreciation and amortization rose 53.4% to $82.6 million; G&A increased 33.1% to $14.5 million. Loan interest expense increased 18.7% to $22.8 million. Average debt increased to $3.20 billion from $2.33 billion, while its weighted-average effective rate declined to 2.84% from 3.39%.
  • Cash flow: Operating cash flow was $130.7 million, up from $98.2 million. Investing activities used $9.1 million, including $39.8 million for property acquisitions, offset substantially by $43.2 million of real estate sale proceeds. Financing activities used $124.5 million, including $96.6 million of distributions to common shareholders. Cash, cash equivalents and restricted cash ended at $10.5 million.
  • Debt and liquidity: Debt carrying value was approximately $3.12 billion, including $2.77 billion of unsecured notes, $185.4 million drawn on the revolver, and $166.5 million of mortgage loans and notes payable. Revolver availability was $564.0 million. The company reported compliance with debt covenants.
  • Distributions: Quarterly common-share/unit distributions were $0.43, compared with $0.34 in the prior-year quarter.

Material changes, outlook and risks

  • Same-store rental growth and the addition of acquired/developed stores drove higher revenue and NOI. The portfolio expanded from 543 owned stores at March 31, 2021 to 608 at March 31, 2022.
  • Profit was reduced by higher depreciation and amortization and $9.4 million of transaction-related expenses, principally severance associated with the 2021 LAACO acquisition. Management expects a further $1.1 million of severance expense in the second quarter of 2022.
  • The company acquired one Maryland store for $32.0 million and land in the Bronx for $7.5 million. It sold the Los Angeles Athletic Club for $44.0 million with no gain or loss; the California Yacht Club remained classified as held for sale.
  • No full-year earnings guidance is stated in the provided filing text. For the remainder of 2022, management estimated recurring capital expenditures of $7–12 million, planned improvements and upgrades of $6–11 million, development costs of $14–24 million, and scheduled debt principal payments of about $1.8 million.
  • Management cited economic and market uncertainty, competition, inflation and rising operating costs, interest-rate exposure, access to capital, refinancing and leverage, acquisition/development execution, and labor availability as risks. Stores remained open during COVID-19; future impacts were uncertain. Self-storage demand is seasonal, typically stronger in summer.
  • The company reported no material legal proceedings and no material change in internal control over financial reporting. It cautioned that forward-looking statements are subject to risks and may differ from actual results.

Important facts for investors to verify

  1. Whether same-store rent and NOI growth can persist, particularly as occupancy was broadly flat year over year.
  2. How much reported earnings remain affected by LAACO-related severance and acquisition amortization, and the timing of remaining costs.
  3. Debt maturities, refinancing needs, floating-rate exposure, and continued compliance with covenants as interest rates change.
  4. Whether management’s 2022 capital expenditure and development estimates, and the planned sale of the California Yacht Club, proceed as expected.
  5. How acquisition-related portfolio growth and the higher share count affect per-share results and distribution coverage.