MALVERN, PA — CubeSmart (NYSE: CUBE)recently announced its operating results for the three months ended March 31, 2021.
“Performance remains strong across the country as we continue to meet the needs of our customers in this rapidly changing environment,” commented President and Chief Executive Officer Christopher P. Marr. “As we enter the busy rental season, record-high occupancy and an improving macroeconomic backdrop will continue to provide a positive operating environment. We remain disciplined in evaluating external growth opportunities with our continued focus on generating attractive risk-adjusted returns for our shareholders.”
Key Highlights for the First Quarter
- Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.21.
- Reported funds from operations (“FFO”) per share, as adjusted, of $0.47.
- Increased same-store (511 stores) net operating income (“NOI”) 8.9% year over year, driven by 6.7% revenue growth and a 2.0% increase in property operating expenses.
- Same-store occupancy during the quarter averaged 93.8% and ended the quarter at 94.4%.
- Opened for operation a development project for a total cost of $26.4 million.
- Established a 20% ownership position in a newly formed joint venture that acquired its initial store during the quarter for a purchase price of $14.0 million.
- Added 31 stores to their third-party management platform during the quarter.
Net income attributable to the Company’s common shareholders was $41.7 million for the first quarter of 2021, compared with $37.9 million for the first quarter of 2020. EPS attributable to the Company’s common shareholders was $0.21 for the first quarter of 2021, compared with $0.20 for the same period last year.
FFO, as adjusted, was $98.4 million for the first quarter of 2021, compared with $80.0 million for the first quarter of 2020. FFO per share, as adjusted, increased 14.6% to $0.47 for the first quarter of 2021, compared with $0.41 for the same period last year.
The Company did not acquire any wholly-owned stores during the first quarter of 2021. Subsequent to March 31, 2021, the Company contributed $3.4 million to acquire a 50% interest in a store located in Minnesota.
The Company has agreements with developers for the construction of Class A self-storage properties in high-barrier-to-entry locations. During the three months ended March 31, 2021, the Company opened for operation a development project in Virginia for a total investment of $26.4 million. This project is the second of a two-phase development by a consolidated joint venture in which the Company owns a 90% interest. As the two phases of the development are located adjacent to one another, they have been combined in their store count, as well as for operational and reporting purposes.
As of March 31, 2021, the Company had five joint venture development properties under construction. The Company anticipates investing a total of $120.5 million related to these projects and had invested $62.6 million of that total as of March 31, 2021. These stores are located in New York (2), Massachusetts (1), Pennsylvania (1) and Virginia (1). Subsequent to quarter end, the Company opened for operation one of the properties in New York and the property in Pennsylvania. The remaining three properties are expected to open at various times between the second quarter of 2021 and the second quarter of 2022.
Unconsolidated Real Estate Venture Activity
On March 17, 2021, the Company invested a 20% ownership position in HVP V, a newly formed unconsolidated real estate venture. In conjunction with its formation, HVP V acquired one store located in Florida for a purchase price of $14.0 million, of which the Company contributed $2.8 million.
During the first quarter of 2021 and through the date of this press release, the Company’s joint venture, HVP IV, acquired two properties located in Connecticut and Maryland for $35.5 million. Additionally, HVP IV has five properties under contract located in Illinois for $73.5 million that are expected to close during the second quarter of 2021.
As of March 31, 2021, the Company’s third-party management program included 701 stores totaling 46.8 million square feet. During the three months ended March 31, 2021, the Company added 31 stores to its third-party management platform.
The Company’s same-store portfolio at March 31, 2021 included 511 stores containing approximately 35.7 million rentable square feet, or approximately 92.3% of the aggregate rentable square feet of the Company’s 543 owned stores. These same-store properties represented approximately 90.7% of property NOI for the three months ended March 31, 2021.
Same-store physical occupancy as of March 31, 2021 and 2020 was 94.4% and 91.3%, respectively. Same-store revenues for the first quarter of 2021 increased 6.7% and same-store operating expenses increased 2.0% from the same quarter in 2020. Same-store NOI increased 8.9% from the first quarter of 2020 to the first quarter of 2021.
As of March 31, 2021, the Company’s total owned portfolio included 543 stores containing 38.7 million rentable square feet and had physical occupancy of 93.0%.
Revenues increased $24.8 million and property operating expenses increased $5.5 million in the first quarter of 2021, as compared to the same period in 2020. Increases in revenues were primarily attributable to revenues generated from property acquisitions and recently opened development properties as well as increased revenues from same-store properties. Increases in property operating expenses were primarily attributable to a $3.1 million increase from the stores acquired or opened in 2020 and 2021 included in their non-same store portfolio.
Interest expense increased from $18.7 million during the three months ended March 31, 2020 to $19.2 million during the three months ended March 31, 2021, an increase of $0.5 million. The increase is attributable to a higher amount of outstanding debt during the 2021 period partially offset by lower interest rates during the 2021 period. To fund a portion of the Company’s growth, the average outstanding debt balance increased $382.2 million to $2,326.4 million during the three months ended March 31, 2021 as compared to $1,944.2 million during the three months ended March 31, 2020. The weighted average effective interest rate on their outstanding debt for the three months ended March 31, 2021 and 2020 was 3.39% and 3.96%, respectively.
During the three months ended March 31, 2021, the Company sold 2.8 million common shares of beneficial interest through its at-the-market (“ATM”) equity program at an average sales price of $35.52 per share, resulting in net proceeds of $99.7 million, after deducting offering costs. As of March 31, 2021, the Company had 8.1 million shares available for issuance under the existing equity distribution agreements.
On February 23, 2021, the Company declared a dividend of $0.34 per common share. The dividend was paid on April 15, 2021 to common shareholders of record on April 1, 2021.
2021 Financial Outlook
“The strong performance trends to start the year have improved our outlook for 2021 which is reflected in increased guidance ranges for same-store and FFO per share estimates,” commented Chief Financial Officer Tim Martin. “During the quarter, we were able to continue executing on our long-term balance sheet strategy, raising $99.7 million of attractively priced capital through our at-the-market equity program.”
The Company estimates that its fully diluted earnings per share for the year will be between $0.75 and $0.81 (previously $0.71 to $0.77), and that its fully diluted FFO per share, as adjusted, for 2021 will be between $1.80 and $1.86 (previously $1.77 to $1.83). Changes to the underlying assumptions for 2021 guidance are detailed in the table below. Due to uncertainty related to the timing and terms of transactions, the impact of any potential future speculative investment activity is excluded from guidance. For 2021, the same-store pool consists of 511 properties totaling 35.7 million square feet.
|Current Ranges for|
|2021 Full Year Guidance Range Summary||Annual Assumptions||Prior Guidance(1)|
|Same-store revenue growth||4.75||%||to||5.75||%||3.75||%||to||5.00||%|
|Same-store expense growth||4.00||%||to||5.00||%||4.00||%||to||5.50||%|
|Same-store NOI growth||5.25||%||to||6.25||%||3.75||%||to||5.00||%|
|Acquisition of wholly-owned operating properties||$||100.0M||to||$||200.0M||$||100.0M||to||$||200.0M|
|Acquisition of properties at C/O||$||0.0M||$||0.0M||$||0.0M||$||0.0M|
|New development openings||$||88.9M||to||$||88.9M||$||88.9M||to||$||88.9M|
|Dilution from properties in lease-up||$||(0.05||)||to||$||(0.06||)||$||(0.05||)||to||$||(0.06||)|
|Property management fee income||$||27.5M||to||$||29.5M||$||27.5M||to||$||29.5M|
|General and administrative expenses||$||45.0M||to||$||46.0M||$||45.0M||to||$||46.0M|
|Interest and loan amortization expense||$||80.0M||to||$||82.0M||$||80.0M||to||$||82.0M|
|Full year weighted average shares and units||208.7M||208.7M||206.0M||206.0M|
|Earnings per diluted share allocated to common shareholders||$||0.75||to||$||0.81||$||0.71||to||$||0.77|
|Plus: real estate depreciation and amortization||$||1.05||$||1.05||$||1.06||$||1.06|
|FFO per diluted share, as adjusted||$||1.80||to||$||1.86||$||1.77||to||$||1.83|
(1) Prior guidance as included in the Company’s fourth quarter earnings release dated February 25, 2021.
|2nd Quarter 2021 Guidance||Range or Value|
|Earnings per diluted share allocated to common shareholders||$||0.19||to||$||0.21|
|Plus: real estate depreciation and amortization||0.26||0.26|
|FFO per diluted share, as adjusted||$||0.45||to||$||0.47|
Supplemental operating and financial data as of March 31, 2021 is available on the Company’s corporate website under Investor Relations – Financial Information – Financial Reports.
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