MALVERN, PA — CubeSmart (NYSE: CUBE) announced its operating results for the three months ended March 31, 2020.
“The last few weeks have brought about a time of great uncertainty… and have also brought out the best in our people. Our store teammates continue to serve our customers with genuine care while implementing appropriate social distancing with a focus on safety and well-being,” commented President and Chief Executive Officer Christopher P. Marr. “In keeping with our reputation for innovation, I am extremely proud of our team’s ability to quickly adapt to the changing landscape. We successfully launched SmartRental, our contactless online rental process, and maintained our focus on simplifying the challenges faced by our customers.”
Key Highlights for the First Quarter
- Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.20.
- Reported funds from operations (“FFO”) per share, as adjusted, of $0.41.
- Increased same-store (477 stores) net operating income (“NOI”) 0.8% year over year, driven by 1.7% revenue growth and a 3.8% increase in property operating expenses.
- Same-store occupancy during the quarter averaged 91.5% and ended the quarter at 91.8%.
- Closed on one property acquisition totaling $9.0 million.
- Established a 10% ownership position in a newly formed joint venture that acquired 14 stores for an aggregate purchase price of $135.3 million.
- Added 66 stores to their third-party management platform during the quarter, bringing their total third-party managed store count to 707.
The spread of COVID-19 and the corresponding government regulations have had an impact on the Company’s business since mid-March. Self-storage has been designated as an essential business and customers are able to access their belongings at all CubeSmart locations. The Company launched SmartRental™, its contactless online rental process, eliminating the need for face-to-face interaction while supporting efforts to maintain teammate and customer safety. Additionally, store teammates continue to follow detailed cleaning protocols which include thoroughly wiping down all public surfaces. The Company has paused all rate increases to existing customers and suspended its normal delinquency processes temporarily. Both decisions will continue to be evaluated and each will resume when it is believed to be appropriate given market conditions.
Further, government stay-at-home orders have reduced rental volume as move-in and move-out activity declined in April compared to last year. At month end, same-store occupancy stood at 91.8%, down from 92.3% at the end of April 2019. Rent is due throughout the month on the anniversary date of a customer’s move-in. To-date, 93% of April rents have been collected compared to last year, when approximately 98% of April rent was ultimately collected.
Due to the uncertainty of the impact of the COVID-19 pandemic, the Company is withdrawing its previously issued 2020 guidance.
Net income attributable to the Company’s common shareholders was $37.9 million for the first quarter of 2020, compared with $35.5 million for the first quarter of 2019. EPS attributable to the Company’s common shareholders was $0.20 for the first quarter of 2020, compared with $0.19 for the same period last year.
FFO, as adjusted, was $80.0 million for the first quarter of 2020, compared with $75.5 million for the first quarter of 2019. FFO per share, as adjusted, increased 2.5% to $0.41 for the first quarter of 2020, compared with $0.40 for the same period last year.
During the quarter ended March 31, 2020, the Company acquired one store located in Texas (1) for $9.0 million. In total for the year through the date of this press release, the Company has acquired three stores for $74.7 million.
Unconsolidated Real Estate Venture Activity
On March 19, 2020, the Company invested a 10% ownership position in a newly formed unconsolidated joint venture (“HVPSE”) that acquired 14 stores for an aggregate purchase price of $135.3 million. These properties contain an aggregate of 1.1 million rentable square feet and are located in Florida (2), Georgia (8) and South Carolina (4). To fund a portion of the purchase price, HVPSE entered into an $81.6 million term loan that bears interest at LIBOR plus 1.60% and matures on March 19, 2023, with options to extend until March 19, 2025. The Company’s contribution to HVPSE related to this portfolio acquisition was $5.6 million.
As of March 31, 2020, the Company had five joint venture development properties under construction. The Company anticipates investing a total of $131.9 million related to these projects and had invested $64.0 million of that total as of March 31, 2020. These stores are located in New York (2), Massachusetts (1), Pennsylvania (1) and Virginia (1) and are expected to open at various times between the second quarter of 2020 and the second quarter of 2021.
As of March 31, 2020, the Company’s third-party management program included 707 stores totaling 47.0 million square feet. During the three months ended March 31, 2020, the Company added 66 new stores to its third-party management platform.
The Company’s same-store portfolio at March 31, 2020 included 477 stores containing approximately 33.2 million rentable square feet, or approximately 90.4% of the aggregate rentable square feet of the Company’s 524 owned stores. These same-store properties represented approximately 92.0% of property NOI for the three months ended March 31, 2020.
Same-store physical occupancy as of March 31, 2020 and 2019 was 91.8% and 92.0%, respectively. Same-store revenues for the first quarter of 2020 increased 1.7% and same-store operating expenses increased 3.8% from the same quarter in 2019. Same-store NOI increased 0.8% from the first quarter of 2019 to the first quarter of 2020.
As of March 31, 2020, the Company’s total owned portfolio included 524 stores containing 36.7 million rentable square feet and had physical occupancy of 90.2%.
Revenues increased $11.2 million and property operating expenses increased $4.3 million in the first quarter of 2020, as compared with the same period in 2019. Increases in revenues were primarily attributable to increased net effective rents in the same-store portfolio and revenues generated from property acquisitions and recently opened development properties. Increases in property operating expenses were attributable to a $1.6 million increase in same-store expenses primarily due to higher property taxes and advertising costs, $2.5 million of increased expenses associated with newly acquired or developed stores and $0.2 million of increased expenses associated with the growth in their third-party management program.
General and administrative expenses increased from $9.1 million during the three months ended March 31, 2019 to $10.4 million during the three months ended March 31, 2020, an increase of $1.3 million. The change is primarily attributable to increased personnel expenses resulting from additional headcount to support the Company’s growth.
Interest expense increased from $17.5 million during the three months ended March 31, 2019 to $18.7 million during the three months ended March 31, 2020, an increase of $1.2 million. The increase is attributable to a higher amount of outstanding debt during the 2020 period. To fund a portion of the Company’s growth, the average debt balance during the three months ended March 31, 2020 increased approximately $133.3 million from the same period in 2019 from $1,811 million to $1,944 million. The weighted average effective interest rate on their outstanding debt for the three months ended March 31, 2020 and 2019 was 3.96% and 4.10%, respectively.
During the first quarter, the Company did not sell any common shares of beneficial interest through its at-the-market (“ATM”) equity program. As of March 31, 2020, the Company had 14.6 million shares available for issuance under the existing equity distribution agreements.
On February 19, 2020, the Company declared a dividend of $0.33 per common share. The dividend was paid on April 15, 2020 to common shareholders of record on April 1, 2020.
2020 Financial Outlook
“Given the uncertainty we are facing and the rapidly changing environment, we felt it prudent to withdraw our guidance until we have better clarity on the length of economic disruptions caused by COVID-19,” commented Chief Financial Officer Tim Martin. “Our liquidity position remains solid, as we have the strength of our investment-grade balance sheet, including modest leverage levels and $680.9 million of capacity on our revolving line of credit as of the end of April, to fund our remaining commitments, which include just $55.7 million of debt maturities and $67.9 million of development funding through 2021.”
The Company’s initial 2020 guidance provided in its earnings release on February 20, 2020 did not contemplate the COVID-19 pandemic. While the impact of COVID-19 on the results of operations for the three months ended March 31, 2020 was not material, due to the uncertainty surrounding the duration, scope and severity of the pandemic, and the associated mitigation efforts, it is difficult to predict the impact on future operational and financial results. The Company’s ability to operate its stores and customers’ ability to make rental payments could be impacted and will largely depend on future developments. The success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets are highly uncertain and cannot be predicted, therefore the Company is withdrawing its previously issued full-year 2020 guidance and is not providing updated guidance for 2020 at this time.
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