MALVERN, PA — CubeSmart (NYSE: CUBE) recently announced its operating results for the three months ended March 31, 2022.
“The year got off to a strong start in the first quarter as we saw a continuation of positive trends from 2021,” commented President and Chief Executive Officer Christopher P. Marr. “We believe that demand trends remain constructive and will continue to support growth going forward.”
Key Highlights for the First Quarter
- Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.17.
- Reported funds from operations (“FFO”) per share, as adjusted, of $0.58.
- Increased same-store (523 stores) net operating income (“NOI”) 21.4% year over year, driven by 15.6% revenue growth and a 2.9% increase in property operating expenses.
- Same-store occupancy during the quarter averaged 93.6% and ended the quarter at 94.1%.
- Closed on one property acquisition for $32.0 million.
- Added 33 stores to the Company’s third-party management platform during the quarter, bringing its total third-party managed store count to 664.
Net income attributable to the Company’s common shareholders was $38.2 million for the first quarter of 2022, compared with $41.7 million for the first quarter of 2021. EPS attributable to the Company’s common shareholders was $0.17 for the first quarter of 2022, compared with $0.21 for the same period last year.
FFO, as adjusted, was $131.9 million for the first quarter of 2022, compared with $98.4 million for the first quarter of 2021. FFO per share, as adjusted, increased 23.4% to $0.58 for the first quarter of 2022, compared with $0.47 for the same period last year.
During the three months ended March 31, 2022, the Company acquired one wholly-owned store in Maryland for $32.0 million. Additionally, the Company is under contract to acquire a store in New Jersey for $20.0 million. This acquisition is expected to close during the second quarter of 2022.
During the three months ended March 31, 2022, the Company sold the Los Angeles Athletic Club, which it purchased through its December 2021 acquisition of LAACO, Ltd. (“LAACO”), the owner of the Storage West self-storage platform, the Los Angeles Athletic Club and the California Yacht Club. The sales price for the Los Angeles Athletic Club was $44.0 million.
As of March 31, 2022, the Company had three joint venture development properties under construction. The Company anticipates investing a total of $92.3 million related to these projects and had invested $51.2 million of that total as of March 31, 2022. These stores are located in New York (2) and Virginia (1) and are expected to open at various times between the second quarter of 2022 and the first quarter of 2023.
Unconsolidated Real Estate Venture Activity
The Company’s joint venture, HVP V, is under contract to purchase a property located in New Jersey for $35.2 million. This acquisition is expected to close during the second quarter of 2022.
As of March 31, 2022, the Company’s third-party management platform included 664 stores totaling 44.9 million square feet. During the three months ended March 31, 2022, the Company added 33 stores to its third-party management platform.
The Company’s same-store portfolio at March 31, 2022 included 523 stores containing approximately 36.9 million rentable square feet, or approximately 84.6% of the aggregate rentable square feet of the Company’s 608 consolidated stores. These same-store properties represented approximately 85.9% of property NOI for the three months ended March 31, 2022.
Same-store physical occupancy as of March 31, 2022 and 2021 was 94.1% and 94.2%, respectively. Same-store revenues for the first quarter of 2022 increased 15.6% and same-store operating expenses increased 2.9% from the same quarter in 2021. Same-store NOI increased 21.4% from the first quarter of 2021 to the first quarter of 2022.
As of March 31, 2022, the Company’s total consolidated portfolio included 608 stores containing 43.6 million rentable square feet and had physical occupancy of 92.6%.
Revenues increased $49.7 million and property operating expenses increased $9.3 million in the first quarter of 2022, as compared to the same period in 2021. Increases in revenues were primarily attributable to increased rental rates on the Company’s same-store portfolio as well as revenues generated from property acquisitions and recently opened development properties. Increases in property operating expenses were primarily attributable to a $6.4 million increase from stores acquired or opened in 2021 and 2022 included in the Company’s non-same store portfolio as well as increased expenses from same-store properties primarily related to property taxes.
Interest expense increased from $19.2 million during the three months ended March 31, 2021 to $22.8 million during the three months ended March 31, 2022, an increase of $3.6 million. The increase was attributable to a higher amount of outstanding debt during the 2022 period partially offset by lower interest rates. To fund a portion of the Company’s growth, the average outstanding debt balance increased $0.87 billion to $3.20 billion during the three months ended March 31, 2022 as compared to $2.33 billion during the three months ended March 31, 2021. The weighted average effective interest rate on the Company’s outstanding debt for the three months ended March 31, 2022 and 2021 was 2.84% and 3.39%, respectively.
Net income was also impacted by transaction-related expenses associated with the acquisition of LAACO in December 2021. LAACO entered into severance agreements with certain employees, including members of their executive team, prior to the acquisition. In accordance with GAAP, and based on the specific details of the arrangements with the employees prior to closing, $9.2 million of these costs are considered post-combination compensation expenses for the three months ended March 31, 2022 and are included in the component of other income (expense) designated as Other. The Company expects that an additional $1.1 million in severance costs will be expensed during the three months ended June 30, 2022.
During the three months ended March 31, 2022, the Company did not sell any common shares of beneficial interest through its at-the-market (“ATM”) equity program. As of March 31, 2022, the Company had 5.9 million shares available for issuance under the existing equity distribution agreements.
On February 23, 2022, the Company declared a quarterly dividend of $0.43 per common share. The dividend was paid on April 18, 2022 to common shareholders of record on April 1, 2022.
2022 Financial Outlook
“The solid start to the year has improved our expectations for 2022 and led to an increase in our key guidance ranges,” commented Chief Financial Officer Tim Martin. “The transaction market remains active, and we remain focused on looking for opportunities to grow our portfolio in a manner that will create long-term value.”
The Company estimates that its fully diluted earnings per share for the year will be between $0.95 and $1.00 (previously $0.93 to $1.00), and that its fully diluted FFO per share, as adjusted, for 2022 will be between $2.37 and $2.42 (previously $2.35 to $2.42). Due to uncertainty related to the timing and terms of transactions, the impact of any potential future speculative investment activity is excluded from guidance. For 2022, the same-store pool consists of 523 properties totaling 36.9 million square feet.
|Current Ranges for|
|2022 Full Year Guidance Range Summary||Annual Assumptions||Prior Guidance(1)|
|Same-store revenue growth||8.75||%||to||10.25||%||8.00||%||to||10.00||%|
|Same-store expense growth||5.50||%||to||6.50||%||5.50||%||to||7.00||%|
|Same-store NOI growth||10.25||%||to||11.75||%||9.50||%||to||11.50||%|
|Acquisition of consolidated operating properties||$||100.0M||to||$||300.0M||$||100.0M||to||$||300.0M|
|New development openings||$||54.9M||to||$||54.9M||$||54.9M||to||$||54.9M|
|Accretion from Storage West transaction||$||0.02||to||$||0.03||$||0.02||to||$||0.03|
|Dilution from properties in lease-up||$||(0.05||)||to||$||(0.06||)||$||(0.05||)||to||$||(0.06||)|
|Property management fee income||$||30.5M||to||$||32.5M||$||30.5M||to||$||32.5M|
|General and administrative expenses||$||54.0M||to||$||56.0M||$||54.0M||to||$||56.0M|
|Interest and loan amortization expense||$||99.0M||to||$||101.0M||$||99.0M||to||$||101.0M|
|Full year weighted average shares and units||227.6M||227.6M||227.1M||227.1M|
|Earnings per diluted share allocated to common shareholders||$||0.95||to||$||1.00||$||0.93||to||$||1.00|
|Plus: real estate depreciation and amortization||1.37||1.37||1.37||1.37|
|Plus: transaction-related expenses||0.05||0.05||0.05||0.05|
|FFO per diluted share, as adjusted||$||2.37||to||$||2.42||$||2.35||to||$||2.42|
|2nd Quarter 2022 Guidance||Range or Value|
|Earnings per diluted share allocated to common shareholders||$||0.23||to||$||0.24|
|Plus: real estate depreciation and amortization||0.36||to||0.36|
|FFO per diluted share, as adjusted||$||0.59||to||$||0.60|
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