CubeSmart 10-Q Summary — Third Quarter 2021
Business context and period. CubeSmart, a self-storage REIT, filed for the quarter ended September 30, 2021. It owned or partially owned 545 stores totaling approximately 39.0 million rentable square feet across 24 states and the District of Columbia, and managed 706 stores for third parties. The Parent Company conducts business through CubeSmart, L.P.; the two entities report as one consolidated enterprise.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $212.6 million | $172.5 million | $600.7 million | $500.4 million |
| Net income | $90.6 million | $47.4 million | $184.3 million | $124.7 million |
| Net income attributable to common shareholders | $87.7 million | $46.9 million | $178.1 million | $123.3 million |
| Diluted earnings per share | $0.43 | $0.24 | $0.88 | $0.63 |
| Net operating income (NOI) | $148.5 million | $115.4 million | $411.6 million | $332.2 million |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $342.9 million | $267.8 million |
Q3 total revenue grew 23.2%, net income 91.1%, and NOI 28.7% year over year. For the nine months, revenue increased 20.0%, net income 47.8%, and NOI 23.9%. NOI is a company-defined non-GAAP measure and should not be treated as GAAP operating income or cash flow.
Operating performance and changes versus prior year
- Same-store Q3 revenue increased 15.6% to $170.4 million and same-store NOI rose 21.1% to $121.2 million. Same-store period-end occupancy was 94.8%, versus 94.1%; period-average occupancy was 95.6%, versus 94.1%.
- Same-store realized annual rent per occupied square foot increased 14.4% in Q3 to $19.26. For the first nine months, it increased 9.4% to $18.33, while same-store average occupancy was 95.0%, compared with 92.6%.
- Q3 rental income rose 24.5% to $182.4 million, driven by same-store rental rates and occupancy and by stores acquired or opened in 2020–2021. Property operating expenses rose 12.2%; depreciation and amortization rose 46.7%, largely due to acquired and developed stores.
- Q3 general and administrative expense increased 18.7% to $12.1 million, primarily reflecting personnel costs and growth-related headcount. Interest expense was nearly flat at $19.1 million; the reported average effective debt rate declined to 3.40% from 3.89% despite higher average debt.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $342.9 million. Investing used $129.9 million, including $65.5 million for acquisitions, $27.9 million for property additions and improvements, and $60.8 million for development; net property-sale proceeds were $37.3 million. Financing used $159.2 million, including $204.5 million of distributions to common shareholders and $200.0 million of net proceeds from common-share issuance.
- At September 30, 2021, cash and cash equivalents were $20.3 million and restricted cash was $39.7 million. The company reported $749.4 million available under its $750 million revolving facility, with no revolver borrowings outstanding; a $0.6 million letter of credit reduced availability.
- Debt carrying value was approximately $2.20 billion, including $2.03 billion of unsecured senior notes, $168.9 million of mortgage loans and notes payable, and $65.8 million of finance lease liabilities. Senior-note principal totaled $2.05 billion. The company reported compliance with applicable debt covenants.
- The quarterly common-share distribution was $0.34 per share; declared distributions totaled $1.02 per share for the first nine months. Management said operating cash flow, equity issuance and revolver capacity were expected to support its business plan and liquidity needs.
Transactions, outlook and risks
- During the first nine months, CubeSmart acquired three stores for approximately $55.1 million; a 50%-owned consolidated joint venture acquired one store for $12.0 million. It sold four stores for $38.6 million and recorded $28.8 million in gains. A Texas store with a $5.2 million sale price was held for sale at quarter-end.
- Three joint-venture development projects were underway, with completion expected by Q2 2022. Costs incurred were $56.5 million against expected total construction costs of $75.0 million. For the remainder of 2021, management estimated recurring capital expenditures of $1–$6 million, planned improvements and upgrades of $1–$6 million, and new-store development costs of $2.5–$12.5 million. Scheduled debt principal payments were approximately $0.6 million.
- The filing gives no explicit revenue, earnings or FFO guidance. Management cautioned that COVID-19 effects and economic conditions could affect demand, operations, access to capital and results. Other identified risks include competition, higher interest rates and operating costs, labor availability, financing and refinancing, acquisitions and development execution, natural disasters, cybersecurity, and REIT qualification.
- Unusual items include the $28.8 million property-sale gain, which materially contributed to reported earnings. No property impairment losses were recorded in the periods discussed. Management said routine legal matters were not expected, in aggregate, to have a material adverse effect. Subsequent to quarter-end, a joint venture sold seven Texas stores for approximately $85 million.
Important facts for investors to verify
- How much Q3 earnings growth and future performance depend on elevated same-store rent growth, occupancy and pricing trends.
- The effect of acquisition-related depreciation and amortization, and the nonrecurring $28.8 million disposition gain, on comparisons of reported earnings.
- Development-project costs, completion timing and returns, and the terms and completion status of pending acquisitions, dispositions and like-kind exchanges.
- Debt maturities, covenant headroom, variable-rate exposure and continued access to equity and revolving-credit markets.
- Whether COVID-19, inflation, labor and other operating costs, or local competition change demand, collection levels or margins.