MALVERN, PA — CubeSmart (NYSE: CUBE) announced its operating results for the three months that ended March 31, 2023.
“Our high-quality portfolio with industry-leading demographics generated another quarter of strong performance,” commented President and Chief Executive Officer Christopher P. Marr. “Our team continues to innovate and evolve our operating platform, maintaining focus on providing the exceptional levels of service our customers expect as we head into the busy summer season.”
Key Highlights for the First Quarter
- Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.43.
- Reported funds from operations (“FFO”) per share of $0.65.
- Increased same-store (593 stores) net operating income (“NOI”) 9.1% year over year, driven by 6.9% revenue growth and a 1.0% increase in property operating expenses.
- Averaged same-store occupancy of 91.5% during the quarter and ended the quarter at 91.9%.
- Added 25 stores to the Company’s third-party management platform during the quarter, bringing its total third-party managed store count to 676.
Financial Results
Net income attributable to the Company’s common shareholders was $97.6 million for the first quarter of 2023, compared with $38.2 million for the first quarter of 2022. A significant driver of the year over year increase was decreased amortization of in-place lease intangibles related to stores acquired in 2021. EPS attributable to the Company’s common shareholders was $0.43 for the first quarter of 2023, compared with $0.17 for the same period last year.
FFO, as adjusted, was $147.5 million for the first quarter of 2023, compared with $131.9 million for the first quarter of 2022. FFO per share, as adjusted, increased 12.1% to $0.65 for the first quarter of 2023, compared with $0.58 for the same period last year.
Investment Activity
Development Activity
The Company has agreements with developers for the construction of self-storage properties in high-barrier-to-entry locations. As of March 31, 2023, 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 $25.0 million of that total as of March 31, 2023. 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 March 31, 2023, the Company’s third-party management platform included 676 stores totaling 45.1 million rentable square feet. During the three months ended March 31, 2023, the Company added 25 stores to its third-party management platform.
Same-Store Results
The Company’s same-store portfolio at March 31, 2023 included 593 stores containing 42.4 million rentable square feet, or approximately 96.2% of the aggregate rentable square feet of the Company’s 611 consolidated stores. These same-store properties represented approximately 97.3% of property NOI for the three months ended March 31, 2023.
Same-store physical occupancy as of March 31, 2023 and 2022 was 91.9% and 93.4%, respectively. Same-store revenues for the first quarter of 2023 increased 6.9% and same-store operating expenses increased 1.0% from the same quarter in 2022. Same-store NOI increased 9.1% from the first quarter of 2022 to the first quarter of 2023.
Operating Results
As of March 31, 2023, the Company’s total consolidated portfolio included 611 stores containing 44.1 million rentable square feet and had physical occupancy of 90.9%.
Revenues increased $18.0 million and property operating expenses increased $0.6 million in the first quarter of 2023, as compared to the same period in 2022. Increases in revenues were primarily attributable to increased rental rates on the Company’s same-store portfolio. Increases in property operating expenses were primarily attributable to increases in expenses from same-store properties primarily related to property taxes.
Interest expense increased from $22.8 million during the three months ended March 31, 2022 to $23.7 million during the three months ended March 31, 2023, an increase of $0.9 million. The increase was attributable to higher interest rates during the 2023 period compared to the 2022 period, partially offset by a decrease in the average outstanding debt balance. The weighted average effective interest rate on the Company’s outstanding debt increased to 3.05% for the three months ended March 31, 2023 compared to 2.84% during the three months ended March 31, 2022. The average outstanding debt balance decreased to $3.06 billion during the three months ended March 31, 2023 as compared to $3.20 billion during the three months ended March 31, 2022.
Financing Activity
During the three months ended March 31, 2023, the Company did not sell any common shares of beneficial interest through its at-the-market (“ATM”) equity program. As of March 31, 2023, the Company had 5.8 million shares available for issuance under the existing equity distribution agreements.
Quarterly Dividend
On February 22, 2023, the Company declared a quarterly dividend of $0.49 per common share. The dividend was paid on April 17, 2023 to common shareholders of record on April 3, 2023.
2023 Financial Outlook
“Our balance sheet is well-positioned with low levels of leverage, minimal floating-rate debt, and no major debt maturities until late 2025,” commented Chief Financial Officer Tim Martin. “On the external growth front, we remain disciplined in our search for opportunities that would generate attractive risk-adjusted returns and create long-term value for shareholders.”
The Company estimates that its fully diluted earnings per share for the year will be between $1.77 and $1.84, 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 consists of 593 properties totaling 42.4 million rentable square feet.
| Current Ranges for | |||||||||||||||||||
| 2023 Full Year Guidance Range Summary | Annual Assumptions | Prior Guidance (1) | |||||||||||||||||
| Same-store revenue growth | 4.00 | % | to | 5.50 | % | 4.00 | % | to | 5.50 | % | |||||||||
| Same-store expense growth | 4.00 | % | to | 5.00 | % | 4.00 | % | to | 5.00 | % | |||||||||
| Same-store NOI growth | 4.00 | % | to | 6.00 | % | 4.00 | % | to | 6.00 | % | |||||||||
| Acquisition of consolidated operating properties | $ | 100.0M | to | $ | 200.0M | $ | 100.0M | to | $ | 200.0M | |||||||||
| Dilution from properties in lease-up | $ | (0.02 | ) | to | $ | (0.03 | ) | $ | (0.02 | ) | to | $ | (0.03 | ) | |||||
| Property management fee income | $ | 36.0M | to | $ | 38.0M | $ | 36.0M | to | $ | 38.0M | |||||||||
| General and administrative expenses | $ | 55.5M | to | $ | 57.5M | $ | 55.5M | to | $ | 57.5M | |||||||||
| Interest and loan amortization expense | $ | 99.0M | to | $ | 101.0M | $ | 99.0M | to | $ | 101.0M | |||||||||
| Full year weighted average shares and units | 227.5M | 227.5M | 227.5M | 227.5M | |||||||||||||||
| Earnings per diluted share allocated to common | |||||||||||||||||||
| shareholders | $ | 1.77 | to | $ | 1.84 | $ | 1.76 | to | $ | 1.83 | |||||||||
| Plus: real estate depreciation and amortization | 0.88 | 0.88 | 0.88 | 0.88 | |||||||||||||||
| Less: gains from sales of real estate | (0.01 | ) | (0.01 | ) | — | — | |||||||||||||
| FFO per diluted share, as adjusted | $ | 2.64 | to | $ | 2.71 | $ | 2.64 | to | $ | 2.71 | |||||||||
| 2nd Quarter 2023 Guidance | Range | |||||||||
| Earnings per diluted share allocated to common shareholders | $ | 0.43 | to | $ | 0.45 | |||||
| Plus: real estate depreciation and amortization | 0.22 | 0.22 | ||||||||
| FFO per diluted share, as adjusted | $ | 0.65 | to | $ | 0.67 | |||||
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