CubeSmart(CUBE) - 2023 Q4 - Annual Report

Part I Business Overview CubeSmart is a self-storage REIT owning 611 properties and managing 795, focused on maximizing cash flow and strategic growth Owned and Managed Property Portfolio (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Owned Properties | 611 | | Rentable Square Feet (Owned) | ~44.1 million | | States of Operation (Owned) | 24 states and DC | | Managed Properties for Third Parties | 795 | | Total Owned and/or Managed Stores | 1,406 | - The company's business strategy focuses on maximizing cash flow, acquiring stores in targeted markets, disposing of non-core assets, and expanding its third-party management business to source future acquisition opportunities[33][39] 2023 Acquisition and Disposition Activity | Activity | Number of Stores | Transaction Price (in thousands) | | :--- | :--- | :--- | | Acquisition (New Jersey) | 1 | $22,000 | | Disposition (Illinois) | 1 | $8,000 | - Revenue is geographically concentrated, with four states contributing over half of the total revenues for FY2023: New York (17%), Florida (15%), California (11%), and Texas (9%)[36] - As of December 31, 2023, the company employed 3,040 teammates in the United States, with an average tenure of 3.5 years, and a workforce that is 56% female and approximately 45% self-identified as belonging to a racial or ethnic minority group[54][62] Risk Factors The company faces operational, financial, regulatory, and organizational risks, including economic downturns, market concentration, and interest rate fluctuations - The company's financial performance is highly dependent on economic conditions in its key markets of New York, Florida, California, and Texas, which together accounted for approximately 52% of total 2023 revenues[72] - Significant competition exists from other self-storage REITs and local operators for both customers and acquisition opportunities, which could pressure rental rates and increase acquisition costs[84][86] - The company faces risks from climate change, including potential damage to properties from severe weather events and increased costs related to transitioning to a low-carbon economy[92] - Failure to maintain its status as a REIT would subject the company to U.S. federal income tax, significantly reducing cash available for distribution to shareholders[108] - The company faces refinancing risk associated with significant outstanding balances on debt maturities ("balloon payments") and is subject to restrictive covenants in its credit facilities and senior notes[126][131] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[170] Cybersecurity The company integrates cybersecurity into its risk management, overseen by a dedicated team and the Audit Committee, with no material incidents since January 2021 - The company's information security strategy is guided by the Critical Security Controls from the Center for Internet Security, Inc., and it engages external experts for regular audits and threat assessments[174][175] - The Board's Audit Committee, which includes two independent Trustees with significant information technology experience, has primary responsibility for overseeing cybersecurity risks and receives annual briefings from the Cybersecurity Leadership Team[183][184] - The company has not experienced any cybersecurity incidents resulting in material financial loss since January 1, 2021, and is not aware of any threats likely to materially affect its business or financial condition[177] Properties As of December 31, 2023, CubeSmart owned 611 properties totaling 44.1 million rentable square feet with 89.8% occupancy, and plans significant capital expenditures for 2024 Owned Properties by State (Top 5 as of Dec 31, 2023) | State | Number of Stores | Total Rentable Square Feet | % of Total Rentable SF | Ending Occupancy | | :--- | :--- | :--- | :--- | :--- | | Florida | 90 | 6,787,173 | 15.4% | 90.9% | | Texas | 76 | 5,447,787 | 12.3% | 90.3% | | California | 63 | 4,786,036 | 10.9% | 90.4% | | New York | 59 | 4,722,118 | 10.7% | 90.8% | | Arizona | 48 | 3,092,942 | 7.0% | 87.8% | | Total | 611 | 44,131,804 | 100.0% | 89.8% | - The company holds ownership interests (ranging from 10% to 50%) in seven unconsolidated real estate ventures, which collectively own 77 self-storage properties with approximately 5.6 million net rentable square feet[193] - For 2024, planned capital expenditures are projected to be between $69.0 million and $89.0 million, covering improvements, recurring expenses, and new development[196] Legal Proceedings The company reports no material legal proceedings that would adversely affect its financial condition or operations - There are no material legal proceedings pending against the company[198] Mining Safety Disclosures This item is not applicable to the company's business - Not applicable[199] Part II Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities CubeSmart's common shares trade on the NYSE, with 161 record holders and a share repurchase program, showing a 97.56% cumulative return over five years - The Parent Company's common shares trade on the NYSE under the symbol CUBE. As of December 31, 2023, there were 161 registered holders of record[203] - A share repurchase program for up to 3.0 million common shares is in place, but no shares have been repurchased under this program to date[202] Cumulative Total Shareholder Return (2018-2023) | Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | CubeSmart | 100.00 | 114.12 | 127.44 | 222.49 | 163.95 | 197.56 | | S&P 500 Index | 100.00 | 131.49 | 155.68 | 200.37 | 164.08 | 207.21 | | FTSE NAREIT All Equity REIT Index | 100.00 | 128.66 | 122.07 | 172.49 | 129.45 | 144.16 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues increased 4.0% to $1.05 billion in 2023, with net income up 41.0% to $410.8 million, and strong liquidity maintained Comparison of Operations (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,050,334 | $1,009,624 | 4.0% | | Net Operating Income (NOI) | $755,554 | $716,364 | 5.5% | | Net Income Attributable to Common Shareholders | $410,757 | $291,263 | 41.0% | | Same-Store Rental Income | $882,011 | $853,939 | 3.3% | - The 3.7% increase in total rental income was primarily driven by higher rental rates, as evidenced by a 4.8% increase in realized annual rent per occupied square foot in the same-store portfolio[239] - Depreciation and amortization expense decreased by 35.2% ($109.4 million), mainly due to reduced amortization of in-place lease intangibles related to stores acquired in 2021[241] FFO Reconciliation (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net income attributable to common shareholders | $410,757 | $291,263 | | FFO attributable to common shareholders | $615,106 | $562,654 | | FFO, as adjusted | $609,435 | $574,466 | - As of December 31, 2023, the company had $6.5 million in cash and $831.3 million available for borrowing under its revolving credit facility, indicating a strong liquidity position[271] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, with $2.92 billion in fixed-rate debt and $18.1 million in variable-rate debt as of year-end 2023 - As of December 31, 2023, the company's consolidated debt included $2.92 billion of fixed-rate obligations and $18.1 million of floating-rate borrowings[290] - A hypothetical 100 basis point increase in interest rates would result in an estimated $0.2 million increase in annual interest expense on the company's variable-rate debt[291] - A 100 basis point increase in market interest rates would decrease the fair value of the company's outstanding fixed-rate debt by approximately $122.2 million[292] Financial Statements and Supplementary Data Audited consolidated financial statements and supplementary data are included in a separate section of the report, starting on page F-1 - The required financial statements are located in a separate section of the report, beginning on page F-1[293] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[294] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal controls - Both the Parent Company's and the Operating Partnership's management concluded that their respective disclosure controls and procedures were effective as of the end of the period[296][301] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[298][302] Other Information No Trustees or officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2023 - No Trustees or officers adopted or terminated Rule 10b5-1 trading arrangements during the three months ended December 31, 2023[304] Part III Trustees, Executive Officers, and Corporate Governance Information on Trustees, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information regarding Trustees, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[309] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement[310] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership information is incorporated by reference from the 2024 Proxy Statement, detailing equity compensation plan securities Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 2,763,159 | $34.75 | 1,332,836 | | Total | 2,763,159 | $34.75 | 1,332,836 | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2024 Proxy Statement[312] Certain Relationships and Related Transactions, and Trustee Independence Information on related party transactions and trustee independence is incorporated by reference from the 2024 Proxy Statement - Information regarding certain relationships, related transactions, and trustee independence is incorporated by reference from the 2024 Proxy Statement[312] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[313] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item provides an index of all financial statements, schedules, and exhibits filed with the report[315][316] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[325] Financial Statements and Supplementary Data Consolidated Financial Statements The consolidated financial statements show $1.05 billion in revenues and $410.8 million in net income for FY2023, with $611.1 million in operating cash flow Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Storage properties, net | $5,951,236 | $6,048,003 | | Total Assets | $6,225,020 | $6,325,830 | | Total Liabilities | $3,344,212 | $3,428,030 | | Total CubeSmart shareholders' equity | $2,798,828 | $2,826,203 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | $1,050,334 | $1,009,624 | $822,564 | | Net Income | $412,435 | $292,472 | $230,813 | | Net Income Attributable to Common Shareholders | $410,757 | $291,263 | $223,482 | | Diluted EPS | $1.82 | $1.29 | $1.09 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Account (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $611,136 | $591,466 | $449,185 | | Net cash used in investing activities | $(93,818) | $(48,767) | $(1,852,668) | | Net cash (used in) provided by financing activities | $(518,026) | $(547,092) | $1,410,572 | Notes to Consolidated Financial Statements The notes detail accounting policies, property transactions, unconsolidated ventures, debt instruments, lease obligations, and share-based compensation plans - In 2023, the company acquired one store for $22.0 million and disposed of one store for $8.0 million via an involuntary conversion[460] - As of December 31, 2023, the company held investments in seven unconsolidated real estate ventures, which collectively own 77 properties. The carrying value of these investments was $98.3 million[482] - The company had $2.8 billion in principal outstanding on unsecured senior notes and $121.4 million on mortgage loans and notes payable as of December 31, 2023[487][493] - As of December 31, 2023, the company had 2,763,159 outstanding stock options and 360,529 non-vested restricted shares and performance units under its share-based compensation plans[533][537]