CubeSmart (NYSE: CUBE) owns or manages nearly 1,300 self-storage properties across the United States and is one of the top three operators in the storage space sector, according to the 2020 Self Storage Almanac.
Based in the Philadelphia suburb of Malvern, Pennsylvania, CubeSmart is one of five self-storage real estate investment trusts (REITs) in an industry that includes approximately 48,000 properties with 1.9 billion rentable square feet, of which the top 10 operators hold nearly a quarter of the market share.
That means buying a self-storage REIT is an easy way to invest in a business that has proven to be resilient to recession and the COVID-19 pandemic alike as individuals and businesses downsize, relocate, and just generally run out of room for all the stuff they've accumulated.
Here are some things to know about CubeSmart.
Growing through acquisitions, development, and third-party management deals
CubeSmart grows through property acquisition and adding stores to its third-party management platform. The total count of 1,266 properties it owned or managed as of September 2020 includes 719 stores (representing 48 million square feet) in its third-party management program. That number grew by 93 stores in the first half of 2020.
Most of the company's revenue comes from the rest of the portfolio: stores that CubeSmart owns, including three it bought for $74.7 million in the first six months of 2020. The company also developed one more in New York City that opened in the first six months, while four joint-venture development properties are expected to come online later this year or by mid-2021.
CubeSmart was operating in 25 states as of June 30, 2020, with locations in Florida, Texas, and New York leading the way at 85, 67, and 49, respectively, among the 527 stores in the owned portfolio at that point. The overall occupancy rate of that 37 million square feet of rentable space was 92.5% as the second quarter ended.
New technology for a contactless age
CubeSmart is also growing in reliance on self-service technology, which has played well during a pandemic that found the company among those businesses declared essential. The company's customer base is now expected to rapidly take up two new offerings: CubeSmart's contactless SmartRental online rental process launched in April and a mobile app launched in September.
SmartRental eliminates the need for face-to-face interaction in setting up a rental and already is accounting for more than 25% of all new rentals, the company said in its second-quarter 2020 supplemental report. The mobile app also accommodates new rentals and adds access code storage, bill payment, and other account management features.
Financial facts about CubeSmart
CubeSmart declared a quarterly dividend of $0.33 per share for the second quarter of 2020, the fourth-straight quarter at that rate, which represents a healthy funds from operations (FFO) payout ratio of 80.5%. That gives it a dividend yield of 4.06% as of September 30, exactly the same as the FTSE Nareit All REITs average at that point.
The company recorded $643.9 million in total revenue in 2019. Of that, $552.4 million was from rental income, $67.6 million was from other property-related income, and $24 million was from property management fee income. That's up from a total of $597.9 million in 2018 and $558.9 million in 2017. Net income for the past three full years was $170.8 million, $165.5 million, and $135.6 million, respectively.
For the second quarter of 2020, total revenue rose to $163.8 million from $159 million in the same period in 2019, and net income was $38.5 million, up slightly from $37.9 million in the first quarter. Rental income again accounted for most of the company's revenue, at $140.5 million.
FFO for the second quarter was $79.9 million, down slightly from $80 million the quarter before and $81 million the year-ago second quarter. Earnings per share were $0.20, the same as the first quarter of 2020 and down from $0.26 in the second quarter of 2019, when the payout ratio was 76.2%.
Crucially, realized annualized rent per occupied square foot was $16.63 in second quarter 2020, down from $17.12 in the previous quarter and $16.98 in the year-ago quarter.
Raising the rent and riding the market
In its second-quarter earnings call, CubeSmart president and CEO Christopher Marr said rate increase letters were sent out to all customers in July and August. And while the REIT has, like many others, discontinued quarterly guidance for now, Marr says, "We remain cautiously optimistic. Our industry has been and remains very resilient."
Marr said in that call his team continues to monitor the effects school closings and openings and other disruptions caused by the pandemic are having on the self-storage business in each of its market areas.
Also in that call, CFO Timothy Martin said that along with resuming normal operations this summer, work to catch up with accounts receivables has brought those total balances to a slightly better spot than they even were at this point last year.
Rent collections also remain strong, at about 98% per month even through the worst of the pandemic's first wave, again speaking to the resilience of the self-storage business.
The bottom line for an essential business
"Given the volatile macro environment and continued uncertainty of potential future economic disruption caused by COVID-19, we have decided not to reinstate guidance at this time," CFO Martin said in the second-quarter earnings announcement.
But he added, "Our liquidity position remains strong, as the modest leverage levels on our investment-grade balance sheet and over $700 million of capacity on our revolving line of credit position us to both fund our outstanding commitments as well as pursue attractive investment opportunities."
CubeSmart was trading at about $32 a share as September ended, near its 52-week high of $35.49 a share after plunging as low as $20.85 in March. It doesn't appear to be as much a growth stock for now as it does a typical REIT; more a stock investors should consider for steady income and the possibility of some share price appreciation.
With a payout ratio consistently around 70% to 80% in recent quarters atop its long record of dividend payouts since going public in 2004, a continuing investment in its own business -- one proving seaworthy even before the pandemic -- sufficient liquidity, and manageable debt, this looks like a REIT to consider now and for years to come.