CubeSmart Reports Second Quarter 2021 Results

CubeSmart

MALVERN, PA — CubeSmart (NYSE: CUBE) announced its operating results for the three and six months ended June 30, 2021.

“Operating fundamentals continued to strengthen throughout the rental season resulting in an exceptional quarter,” commented President and Chief Executive Officer Christopher P. Marr. “We believe the foundational elements of consumer demand will continue to have positive implications for growth throughout the balance of this year and into 2022.”

Key Highlights for the Second Quarter

  • Reported earnings per share (“EPS”) attributable to the Company’s common shareholders of $0.24.
  • Reported funds from operations (“FFO”) per share, as adjusted, of $0.50.
  • Increased same-store (511 stores) net operating income (“NOI”) 17.6% year over year, driven by 14.0% revenue growth and a 6.6% increase in property operating expenses.
  • Same-store occupancy during the quarter averaged 95.6% and ended the quarter at 96.1%.
  • Closed on two property acquisitions for $34.1 million.
  • Opened for operation two development properties for a total cost of $48.7 million.
  • Added 45 stores to our third-party management platform during the quarter, bringing our total third-party managed store count to 718.

Financial Results

Net income attributable to the Company’s common shareholders was $48.8 million for the second quarter of 2021, compared with $38.5 million for the second quarter of 2020. EPS attributable to the Company’s common shareholders was $0.24 for the second quarter of 2021, compared with $0.20 for the same period last year.

FFO, as adjusted, was $105.4 million for the second quarter of 2021, compared with $79.9 million for the second quarter of 2020. FFO per share, as adjusted, increased 22.0% to $0.50 for the second quarter of 2021, compared with $0.41 for the same period last year.

Investment Activity

 Activity

During the quarter ended June 30, 2021, the Company acquired one wholly-owned store in Maryland for $22.1 million. In addition, the Company contributed $3.4 million to acquire a 50% ownership interest in a consolidated joint venture that acquired a store located in Minnesota for $12.0 million. Subsequent to June 30, 2021, the Company acquired two wholly-owned stores in New Jersey (1) and Pennsylvania (1) for $33.0 million. In total for the year through the date of this press release, the Company has acquired four stores, including the store in Minnesota, for $67.1 million.

Development Activity

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 June 30, 2021, the Company opened for operation two development properties, one located in New York and one located in Pennsylvania, for a total cost of $48.7 million. In total for the year through the date of this press release, the Company has opened for operation three development properties for a total cost of $75.1 million.

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As of June 30, 2021, the Company had three joint venture development properties under construction. The Company anticipates investing a total of $73.7 million related to these projects and had invested $34.1 million of that total as of June 30, 2021. These stores are located in Massachusetts, New York and Virginia. These properties are expected to open at various times between the third quarter of 2021 and the second quarter of 2022.

Unconsolidated Real Estate Venture Activity

During the second quarter of 2021, the Company’s joint venture, HVP IV, acquired five properties located in Connecticut (1) and Illinois (4) for $74.2 million. In total for the year through the date of this press release, HVP IV has acquired six properties for $92.7 million. Additionally, HVP IV has one property located in Illinois under contract for $15.9 million that is expected to close during the third quarter of 2021.

During the second quarter of 2021, the Company’s joint venture, HVP V, acquired a property located in Florida for $23.0 million. In total for the year through the date of this press release, HVP V has acquired two properties for $37.0 million. Additionally, HVP V has four properties located in New Jersey (3) and New York (1) under contract for $140.0 million. These acquisitions are expected to close in multiple tranches during the third and fourth quarters of 2021.

Third-Party Management

As of June 30, 2021, the Company’s third-party management program included 718 stores totaling 48.2 million square feet. During the three and six months ended June 30, 2021, the Company added 45 stores and 74 stores, respectively, to its third-party management platform.

Same-Store Results

The Company’s same-store portfolio at June 30, 2021 included 511 stores containing approximately 35.7 million rentable square feet, or approximately 91.5% of the aggregate rentable square feet of the Company’s 547 consolidated stores. These same-store properties represented approximately 90.6% of property NOI for the three months ended June 30, 2021.

Same-store physical occupancy as of June 30, 2021 and 2020 was 96.1% and 93.7%, respectively. Same-store revenues for the second quarter of 2021 increased 14.0% and same-store operating expenses increased 6.6% from the same quarter in 2020. Same-store NOI increased 17.6% from the second quarter of 2020 to the second quarter of 2021.

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Operating Results

As of June 30, 2021, the Company’s total consolidated portfolio included 547 stores containing 39.0 million rentable square feet and had physical occupancy of 94.5%.

Revenues increased $35.4 million and property operating expenses increased $8.4 million in the second quarter of 2021, as compared to the same period in 2020. Increases in revenues were primarily attributable to increased occupancy and rental rates on our 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 $3.2 million increase from the stores acquired or opened in 2020 and 2021 included in our non-same store portfolio as well as increased expenses from same-store properties, primarily related to property taxes and advertising.

Interest expense on loans increased from $18.7 million during the three months ended June 30, 2020 to $19.1 million during the three months ended June 30, 2021, an increase of $0.4 million. The increase was attributable to a higher amount of outstanding debt during the 2021 period partially offset by lower interest rates. To fund a portion of the Company’s growth, the average outstanding debt balance increased $265.8 million to $2,246.5 million during the three months ended June 30, 2021 as compared to $1,980.7 million during the three months ended June 30, 2020. The weighted average effective interest rate on our outstanding debt for the three months ended June 30, 2021 and 2020 was 3.41% and 3.92%, respectively.

Financing Activity

During the three months ended June 30, 2021, the Company sold 1.0 million common shares of beneficial interest through its at-the-market (“ATM”) equity program at an average sales price of $41.02 per share, resulting in net proceeds of $42.4 million, after deducting offering costs. As of June 30, 2021, the Company had 7.0 million shares available for issuance under the existing equity distribution agreements.

Quarterly Dividend

On May 12, 2021, the Company declared a dividend of $0.34 per common share. The dividend was paid on July 15, 2021 to common shareholders of record on July 1, 2021.

2021 Financial Outlook

“Strong demand trends through the spring and summer months have improved our outlook for the year, reflected in increased guidance ranges for both same-store and FFO per share metrics,” commented Chief Financial Officer Tim Martin. “We continue to find attractive ways to grow the portfolio, investing in high quality stores both on balance sheet and with joint venture partners.”

The Company estimates that its fully diluted earnings per share for the year will be between $0.93 and $0.97 (previously $0.75 to $0.81), and that its fully diluted FFO per share, as adjusted, for 2021 will be between $1.99 and $2.03 (previously $1.80 to $1.86). 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.

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Current Ranges for
2021 Full Year Guidance Range Summary      Annual Assumptions Prior Guidance(1)
Same-store revenue growth 10.25 % to 11.25 % 4.75 % to 5.75 %
Same-store expense growth 4.00 % to 5.00 % 4.00 % to 5.00 %
Same-store NOI growth 13.00 % to 14.00 % 5.25 % to 6.25 %
Acquisition of consolidated operating properties $ 150.0M to $ 250.0M $ 100.0M to $ 200.0M
Acquisition of properties at C/O $ 0.0M $ 0.0M $ 0.0M $ 0.0M
New development openings $ 96.1M to $ 96.1M $ 88.9M to $ 88.9M
Dispositions $ 0.0M to $ 50.0M $ 0.0M to $ 50.0M
Dilution from properties in lease-up $ (0.05 ) to $ (0.06 ) $ (0.05 ) to $ (0.06 )
Property management fee income $ 29.5M to $ 31.5M $ 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 209.9M 209.9M 208.7M 208.7M
Earnings per diluted share allocated to common
shareholders
$ 0.93 to $ 0.97 $ 0.75 to $ 0.81
Plus: real estate depreciation and amortization $ 1.06 $ 1.06 $ 1.05 $ 1.05
FFO per diluted share, as adjusted $ 1.99 to $ 2.03 $ 1.80 to $ 1.86
(1)   Prior guidance as included in our first quarter earnings release dated April 29, 2021.
3rd Quarter 2021 Guidance      Range or Value
Earnings per diluted share allocated to common shareholders $ 0.24 to $ 0.26
Plus: real estate depreciation and amortization 0.27 0.27
FFO per diluted share, as adjusted $ 0.51 to $ 0.53

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