CubeSmart 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. CubeSmart, formerly U-Store-It Trust, changed its name on September 14, 2011. The filing combines CubeSmart and CubeSmart, L.P.; the Operating Partnership conducts the business. Unless noted, amounts below are in millions.
Business context
CubeSmart is a self-storage REIT operating in 26 states and Washington, D.C. At quarter-end it owned 353 facilities with approximately 23.3 million rentable square feet and managed 103 additional properties for third parties. Revenue is principally from month-to-month rentals.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $60.4 | $53.8 | $174.0 | $155.2 |
| Operating income | $14.0 | $9.3 | $34.7 | $22.5 |
| Income (loss) from continuing operations | $4.0 | ($2.2) | $3.1 | ($11.6) |
| Net income (loss), consolidated | $7.9 | ($1.1) | $10.0 | ($8.7) |
| Net income (loss) attributable to CubeSmart | $6.8 | ($1.5) | $7.6 | ($9.5) |
| Basic and diluted EPS | $0.07 | ($0.02) | $0.08 | ($0.10) |
- Q3 total portfolio NOI was $35.5 million, up 16%; same-store NOI increased 8%. For the first nine months, total NOI was $99.9 million, up 14%, and same-store NOI increased 6%.
- Cash provided by operations for the first nine months was $64.4 million, versus $50.9 million a year earlier. Investing used $54.6 million; financing used $3.1 million. Cash and cash equivalents were $12.5 million at September 30.
- Quarter-end debt was approximately $646.0 million: $300.0 million of unsecured term loans and $346.0 million of mortgage debt; no revolving-credit borrowings were outstanding. The company reported $250 million available on its revolving facility and a 3.90% weighted-average rate on credit-facility and term-loan borrowings.
- Total assets were $1.503 billion and total liabilities were $713.1 million. The filing reports compliance with debt covenants. It lists approximately $159.5 million of scheduled principal payments in 2012, primarily mortgage debt.
Changes versus comparable periods
- Q3 revenue rose 12%, driven by acquisitions and same-store growth; same-store rental income increased 3% as occupancy and scheduled rent per square foot improved.
- Q3 operating income increased 51%. Lower interest expense and general and administrative expense contributed to the improvement; property operating costs and depreciation increased.
- Nine-month revenue rose 12%, while operating income increased 54%. Interest expense declined 16%, reflecting debt repayments and lower Credit Facility rates.
- Portfolio activity included nine facility acquisitions for $78.6 million and the sale of 18 facilities for $43.5 million during 2011. Owned facilities fell to 353 from 363 at year-end 2010.
Outlook, risks and unusual items
- Management expected remaining 2011 recurring capital expenditures of $2–$4 million and approximately $10 million for store upgrades and rebranding through June 2012. It said available credit, its at-the-market program and operating cash flow were expected to support the current business plan, while noting that future capital-market access is not assured.
- Management intended to pursue internal growth and selectively target acquisitions and development, with additional debt potentially used to fund activity. Risks cited include economic and local real-estate conditions, competition and pricing, capital availability, refinancing and leverage, interest rates and operating costs, derivatives counterparty performance, REIT qualification, acquisitions, taxes, regulation, disasters and environmental liabilities.
- Q3 and nine-month results included a $3.5 million gain on disposition of discontinued operations. Nine-month results also included a $2.1 million write-off of loan procurement costs from early debt repayment and $1.9 million of income related to California eminent-domain proceedings. No impairment losses were reported for the periods.
- Interest-rate swaps had a $9.2 million fair-value liability at quarter-end, recorded in accumulated other comprehensive loss. Management estimated that a 1% increase in rates on variable-rate debt would raise annual interest expense by about $3.0 million; swaps and a cap mitigate some exposure.
- After quarter-end, CubeSmart completed a 23 million-share common offering, netting about $202.4 million, and a Series A preferred offering, netting about $67.5 million. It acquired 16 Storage Deluxe facilities on November 3 for approximately $357.3 million, funded in part by $93 million of revolver borrowings. The remaining facilities were expected to close in Q1 2012, subject to loan-assumption and other conditions; completion was not assured.
Most important facts to verify
- Whether same-store revenue and NOI gains reflect sustained occupancy and rental-rate improvement, rather than acquisition mix or seasonal effects.
- The funding plan and final terms for the remaining Storage Deluxe properties, including assumed debt, required equity and any additional borrowing.
- Debt maturities, refinancing needs, covenant headroom and sensitivity to higher interest rates, particularly the scheduled 2012 principal payments.
- The extent to which reported net income and EPS depend on property-sale gains and other nonrecurring items; compare GAAP earnings with operating cash flow and FFO.
- Whether projected capital spending and access to debt and equity markets are sufficient to support distributions, acquisitions and the stated business plan.