CubeSmart Reports 2022 Annual Results

CubeSmart

MALVERN, PA — CubeSmart (NYSE: CUBE) recently announced its operating results for the three and twelve months that ended December 31, 2022.

“We ended another great year of extraordinary growth, showcasing the strength of our operating platform to maximize cash flows,” commented President and Chief Executive Officer Christopher P. Marr. “We are reaping the benefits of our efficiency initiatives as we’ve managed our expense growth in the face of inflationary pressures. We continue to see good demand for the product and our platform is well-positioned to drive growth throughout 2023.”

Key Highlights for the Fourth Quarter

  • Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.36.
  • Reported funds from operations (“FFO”) per share, as adjusted, of $0.67.
  • Increased same-store (521 stores) net operating income (“NOI”) 12.1% year over year, driven by 9.5% revenue growth and a 2.3% increase in property operating expenses.
  • Averaged same-store occupancy of 92.8% during the quarter and ended the quarter at 92.1%.
  • Amended and restated the Company’s unsecured revolving credit facility, increasing the size from $750 million to $850 million, improving the pricing, and extending the maturity date to February 15, 2027.
  • Increased the quarterly dividend 14.0% to an annualized rate of $1.96 per common share from the previous annualized rate of $1.72 per common share.
  • Added 28 stores to the Company’s third-party management platform during the quarter, bringing its total third-party managed store count to 668.

Financial Results

Net income attributable to the Company’s common shareholders was $81.9 million for the fourth quarter of 2022, compared with $45.3 million for the fourth quarter of 2021. EPS attributable to the Company’s common shareholders was $0.36 for the fourth quarter of 2022, compared with $0.21 for the same period last year.

Net income attributable to the Company’s common shareholders for the year ended December 31, 2022 was $291.3 million, compared with $223.5 million for the year ended December 31, 2021. EPS increased 18.3% to $1.29 for the year ended December 31, 2022 compared with $1.09 for the prior year.

FFO, as adjusted, was $152.3 million for the fourth quarter of 2022, compared with $126.4 million for the fourth quarter of 2021. FFO per share, as adjusted, increased 15.5% to $0.67 for the fourth quarter of 2022, compared with $0.58 for the same period last year.

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FFO, as adjusted, for the year ended December 31, 2022 was $574.5 million, compared with $448.6 million for the year ended December 31, 2021. FFO per share, as adjusted, increased 19.9% to $2.53 for the year ended December 31, 2022, compared with $2.11 for the year ended December 31, 2021.

Investment Activity

Acquisition Activity

During the year ended December 31, 2022, the Company acquired three wholly-owned stores located in Georgia (1), Maryland (1) and Texas (1) for $75.7 million.

Development Activity

The Company has agreements with developers for the construction of self-storage properties in high-barrier-to-entry locations. During the year ended December 31, 2022, the Company opened for operation two development projects in New York (1) and Virginia (1) for a total cost of $60.8 million.

As of December 31, 2022, the Company had two joint venture development properties under construction. The Company anticipates investing a total of $57.3 million related to these projects and had invested $22.7 million of that total as of December 31, 2022. The stores are located in New Jersey (1) and New York (1) and are expected to open at various times during the first and second quarters of 2024.

Third-Party Management

As of December 31, 2022, the Company’s third-party management platform included 668 stores totaling 44.5 million rentable square feet. During the three and twelve months ended December 31, 2022, the Company added 28 stores and 135 stores, respectively, to its third-party management platform.

Same-Store Results

The Company’s same-store portfolio at December 31, 2022 included 521 stores containing approximately 36.9 million rentable square feet, or approximately 83.5% of the aggregate rentable square feet of the Company’s 611 consolidated stores. These same-store properties represented approximately 85.4% of property NOI for the three months ended December 31, 2022.

Same-store physical occupancy as of December 31, 2022 and 2021 was 92.1% and 93.3%, respectively. Same-store revenues for the fourth quarter of 2022 increased 9.5% and same-store operating expenses increased 2.3% from the same quarter in 2021. Same-store NOI increased 12.1% from the fourth quarter of 2021 to the fourth quarter of 2022.

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Operating Results

As of December 31, 2022, the Company’s total consolidated portfolio included 611 stores containing 44.1 million rentable square feet and had physical occupancy of 90.3%.

Revenues increased $39.1 million and property operating expenses increased $9.4 million in the fourth quarter of 2022, as compared to the same period in 2021. Increases in revenues were primarily attributable to revenues generated from property acquisitions and recently opened development properties as well as increased rental rates on the Company’s same-store portfolio. Increases in property operating expenses were primarily attributable to a $6.2 million increase from stores acquired or opened in 2021 and 2022 included in its non-same store portfolio as well as increases in expenses from same-store properties primarily related to property taxes.

Interest expense increased from $21.0 million during the three months ended December 31, 2021 to $23.6 million during the three months ended December 31, 2022, an increase of $2.6 million. The increase was attributable to a higher amount of outstanding debt during the 2022 period compared to the 2021 period. To fund a portion of the Company’s growth, the average outstanding debt balance increased to $3.06 billion during the three months ended December 31, 2022 as compared to $2.56 billion during the three months ended December 31, 2021, partially offset by lower effective interest rates during the 2022 period. The weighted average effective interest rate on its outstanding debt for the three months ended December 31, 2022 and 2021 was 3.02% and 3.27%, respectively.

Financing Activity

On October 26, 2022, the Company amended and restated its unsecured revolving credit facility. The amendment increased the size of the facility from $750 million to $850 million, improved the pricing, and extended the maturity date from June 19, 2024 to February 15, 2027.

During the three months ended December 31, 2022, the Company did not sell any common shares of beneficial interest through its at-the-market (“ATM”) equity program. As of December 31, 2022, the Company had 5.8 million shares available for issuance under the existing equity distribution agreements.

Quarterly Dividend

On December 7, 2022, the Company declared a quarterly dividend of $0.49 per common share, a 14.0% increase compared to the Company’s previously declared quarterly dividend of $0.43 per common share. The dividend was paid on January 17, 2023 to common shareholders of record on January 3, 2023.

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2023 Financial Outlook

“Our balance sheet is well-positioned to take advantage of external growth opportunities that present themselves as clarity returns to the transaction market,” commented Chief Financial Officer Tim Martin. “Our initial 2023 guidance ranges reflect expectations of a solid fundamental backdrop coupled with more normalized operating trends.”

The Company estimates that its fully diluted earnings per share for the year will be between $1.76 and $1.83, and that its fully diluted FFO per share, as adjusted, for 2023 will be between $2.64 and $2.71. Due to uncertainty related to the timing and terms of transactions, the impact of any potential future speculative investment activity is excluded from guidance. For 2023, the same-store pool will consist of 594 properties totaling 42.6 million rentable square feet.

Current Ranges for
2023 Full Year Guidance Range Summary Annual Assumptions
Same-store revenue growth 4.00 % to 5.50 %
Same-store expense growth 4.00 % to 5.00 %
Same-store NOI growth 4.00 % to 6.00 %
Acquisition of consolidated operating properties $ 100.0M to $ 200.0M
Dilution from properties in lease-up $ (0.02 ) to $ (0.03 )
Property management fee income $ 36.0M to $ 38.0M
General and administrative expenses $ 55.5M to $ 57.5M
Interest and loan amortization expense $ 99.0M to $ 101.0M
Full year weighted average shares and units 227.5M 227.5M
Earnings per diluted share allocated to common shareholders $ 1.76 to $ 1.83
Plus: real estate depreciation and amortization 0.88 0.88
FFO per diluted share, as adjusted $ 2.64 to $ 2.71
1st Quarter 2023 Guidance Range
Earnings per diluted share allocated to common shareholders $ 0.41 to $ 0.43
Plus: real estate depreciation and amortization 0.22 0.22
FFO per diluted share, as adjusted $ 0.63 to $ 0.65
Supplemental operating and financial data as of December 31, 2022 is available in the Investor Relations section of the Company’s corporate website.

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