Explanatory Note This report combines the quarterly reports on Form 10-Q for CubeSmart (the "Parent Company") and CubeSmart, L.P. (the "Operating Partnership"), detailing their nearly identical financial statements for clearer investor presentation - This report is a combined Form 10-Q for CubeSmart, a REIT, and its operating entity, CubeSmart, L.P4 - As of September 30, 2022, the Parent Company (CubeSmart) owned a 99.4% interest in the Operating Partnership5 - The primary substantive difference between the two entities' financial statements is the treatment of equity, as the Parent Company has publicly traded equity while the Operating Partnership does not8 Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for CubeSmart and CubeSmart, L.P. for the periods ended September 30, 2022, including balance sheets, statements of operations, comprehensive income, equity/capital, cash flows, and detailed notes Consolidated Financial Statements (CubeSmart & CubeSmart, L.P.) Presents the consolidated balance sheets, statements of operations, comprehensive income, equity/capital, and cash flows for both CubeSmart (the Parent Company) and CubeSmart, L.P. (the Operating Partnership), reflecting their nearly identical financial positions due to the UPREIT structure CubeSmart Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $6,371,170 | $6,548,079 | | Total Liabilities | $3,446,907 | $3,549,699 | | Total CubeSmart Shareholders' Equity | $2,851,654 | $2,871,563 | CubeSmart Consolidated Operations Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $261,408 | $212,564 | $748,637 | $600,652 | | Net Income | $113,440 | $90,569 | $210,300 | $184,250 | | Diluted EPS | $0.50 | $0.43 | $0.93 | $0.88 | Notes to Unaudited Consolidated Financial Statements Provides detailed explanations of the company's accounting policies and activities, including its UPREIT structure, acquisition and disposition activities, debt, risk management, and the impact of Hurricane Ian - The company operates as a self-managed REIT through an UPREIT structure, with CubeSmart as the parent and CubeSmart, L.P. as the operating partnership. As of September 30, 2022, the company owned or partially owned 611 self-storage properties69172 - During the nine months ended September 30, 2022, the company acquired three stores for an aggregate price of $75.7 million83 - On August 30, 2022, the HVPSE unconsolidated joint venture sold all 14 of its stores for $235.0 million, resulting in a gain of approximately $114.1 million for the venture109 - The company incurred $1.6 million in charges during Q3 2022 related to damages from Hurricane Ian, based on initial assessments and insurance deductibles159 - Subsequent to the quarter end, on October 26, 2022, the company amended and restated its credit facility, increasing the unsecured revolver to $850.0 million and extending the maturity to February 15, 2027170 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting strong performance driven by acquisitions and same-store revenue growth, cash flow activities, liquidity, and capital resources Overview The company is an integrated self-storage REIT that owned 611 properties and managed 663 third-party stores as of September 30, 2022, focusing on internal growth and acquisitions in key markets like New York, Florida, California, and Texas - As of September 30, 2022, the company owned 611 self-storage properties and managed an additional 663 stores for third parties, bringing the total portfolio to 1,274 stores172 - For the nine months ended September 30, 2022, stores in New York, Florida, California, and Texas contributed approximately 16%, 15%, 11%, and 9% of total revenues, respectively179 Results of Operations The company's results were significantly impacted by acquisition and development activities, with total revenues growing 23.0% to $261.4 million and Net Operating Income (NOI) increasing 24.4% to $184.7 million for Q3 2022, driven by higher rental rates and acquired properties Q3 2022 vs Q3 2021 Performance | Metric | Q3 2022 (in thousands) | Q3 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $261,408 | $212,564 | 23.0% | | Total Net Operating Income (NOI) | $184,680 | $148,499 | 24.4% | | Same-Store NOI | $147,587 | $127,873 | 15.4% | | Net Income | $113,440 | $90,569 | 25.3% | Nine Months 2022 vs Nine Months 2021 Performance | Metric | 9M 2022 (in thousands) | 9M 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $748,637 | $600,652 | 24.6% | | Total Net Operating Income (NOI) | $527,870 | $411,608 | 28.2% | | Same-Store NOI | $421,000 | $355,440 | 18.4% | | Net Income | $210,300 | $184,250 | 14.1% | - Same-store rental income for Q3 2022 increased by $19.9 million (11.6%) primarily due to higher rental rates, with realized annual rent per occupied square foot up 12.8%203204 - Equity in earnings of real estate ventures increased by $45.7 million in Q3 2022, primarily due to gains from the sale of 14 stores by the HVPSE joint venture212 - A $1.6 million charge related to Hurricane Ian damage was recorded in Q3 2022 and included in property operating expenses215 Cash Flows For the nine months ended September 30, 2022, cash from operating activities increased by $103.6 million to $446.5 million, while cash used in investing activities decreased by $98.7 million to $31.2 million, and cash used in financing activities increased by $261.2 million to $420.4 million Cash Flow Comparison (Nine Months Ended Sep 30) | Activity | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $446,496 | $342,940 | $103,556 | | Net Cash used in Investing Activities | ($31,221) | ($129,949) | $98,728 | | Net Cash used in Financing Activities | ($420,389) | ($159,150) | ($261,239) | - The decrease in cash used for investing was driven by a $43.3 million reduction in development costs and a $44.4 million increase in cash distributed from real estate ventures234 - The increase in cash used for financing was primarily due to a $195.1 million decrease in proceeds from the "at-the-market" equity program and an $85.7 million increase in distributions paid to shareholders235 Liquidity and Capital Resources The company's liquidity is supported by cash flow from operations, its revolving credit facility, and access to equity and debt markets, with $5.2 million in cash and $663.4 million available on its credit facility as of September 30, 2022 - As of September 30, 2022, the company had approximately $5.2 million in cash and $663.4 million available under its revolving credit facility243 - The company maintains an "at-the-market" (ATM) equity program. During the first nine months of 2022, it sold 0.1 million shares for net proceeds of $4.9 million. As of September 30, 2022, 5.8 million shares remained available for issuance254 - On October 26, 2022, the company entered into a Second Amended and Restated Credit Facility, increasing its unsecured revolver from $750 million to $850 million and extending the maturity to February 15, 2027255 Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including Net Operating Income (NOI), Funds from Operations (FFO), and FFO, as adjusted, with Q3 2022 FFO at $148.4 million and FFO, as adjusted, at $150.0 million - Net Operating Income (NOI) is defined as total continuing revenues less continuing property operating expenses and is used to measure operating performance at the store level256 - Funds from Operations (FFO) is defined per the Nareit White Paper as net income excluding gains/losses from property sales and real estate depreciation. FFO, as adjusted, further excludes items like acquisition costs and other non-recurring items262266 FFO Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Income Attributable to Common Shareholders | $112,888 | $209,401 | | FFO attributable to common shareholders and OP unitholders | $148,439 | $410,021 | | Transaction-related expenses | — | $10,546 | | Property damage related to hurricane | $1,578 | $1,578 | | FFO, as adjusted, attributable to common shareholders and OP unitholders | $150,017 | $422,145 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with $2.95 billion in fixed-rate debt and $86.0 million in floating-rate debt as of September 30, 2022 - As of September 30, 2022, consolidated debt consisted of $2.95 billion in fixed-rate notes and loans, and $86.0 million in floating-rate borrowings277 - A hypothetical 100 basis point increase in market interest rates would decrease future annual earnings and cash flows by approximately $0.9 million from variable-rate debt278 - A hypothetical 100 basis point increase in market interest rates would decrease the fair value of the company's outstanding fixed-rate debt by approximately $138.8 million279 Item 4. Controls and Procedures Management, including the CEO and CFO of both the Parent Company and the Operating Partnership, concluded that disclosure controls and procedures are effective, with no material changes in internal control over financial reporting during the most recent fiscal quarter - The Chief Executive Officer and Chief Financial Officer of both CubeSmart and CubeSmart, L.P. concluded that their respective disclosure controls and procedures are effective283286 - No changes occurred in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls284287 Part II. Other Information Item 1. Legal Proceedings The company reports that it is not involved in any legal proceedings, other than routine matters, that are expected to have a material adverse effect on its financial condition, results of operations, or cash flows - Other than routine actions, there are no pending legal proceedings against the company that are expected to have a material adverse effect288 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity, noting that during Q3 2022, 952 common shares were withheld to cover employee tax obligations, and no repurchases have been made under the 3.0 million share repurchase program to date - The Board of Trustees approved a share repurchase program for up to 3.0 million common shares, but no repurchases have been made under this program to date291 - During Q3 2022, 952 common shares were withheld to cover employee tax obligations related to vested restricted shares290 Item 5. Other Information On October 26, 2022, the company amended and restated its credit facility, increasing the unsecured revolving credit line to $850 million and extending the maturity to February 15, 2027, with pricing based on SOFR plus a 0.775% margin and a 0.15% facility fee - On October 26, 2022, the company amended and restated its credit facility, increasing the unsecured revolver to $850 million and extending the maturity to February 15, 2027292 - The new credit facility's pricing is tied to SOFR, with the current rate based on a margin of 0.775%, a 0.15% facility fee, and a 0.10% SOFR adjustment293 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Second Amended and Restated Credit Agreement, certifications by the CEO and CFO, and the Inline XBRL financial data files - Key exhibits filed include the new Second Amended and Restated Credit Agreement (Exhibit 10.1) and CEO/CFO certifications (Exhibits 31 and 32)299
CubeSmart(CUBE) - 2022 Q3 - Quarterly Report