CUBESMART The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Report. Some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws. For a discussion of forward-looking statements, see the section in this Report entitled "Forward-Looking Statements." Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see the section entitled "Risk Factors" in the Parent Company's andOperating Partnership's combined Annual Report on Form 10-K for the year endedDecember 31, 2022 . Overview
We are an integrated self-storage real estate company, and as such we have in-house capabilities in the operation, design, development, leasing, management and acquisition of self-storage properties.The Parent Company's operations are conducted solely through theOperating Partnership and its subsidiaries.The Parent Company has elected to be taxed as a REIT forU.S. federal income tax purposes. As of bothMarch 31, 2023 andDecember 31, 2022 , we owned (or partially owned and consolidated) 611 self-storage properties totaling approximately 44.1 million rentable square feet. As ofMarch 31, 2023 , we owned stores in theDistrict of Columbia and the following 24 states:Arizona ,California ,Colorado ,Connecticut ,Florida ,Georgia ,Illinois ,Indiana ,Maryland ,Massachusetts ,Minnesota ,Nevada ,New Jersey ,New Mexico , NewYork, North Carolina ,Ohio ,Pennsylvania ,Rhode Island ,South Carolina ,Tennessee ,Texas ,Utah andVirginia . In addition, as ofMarch 31, 2023 , we managed 676 stores for third parties (including 77 stores containing an aggregate of approximately 5.6 million rentable square feet as part of six separate unconsolidated real estate ventures) bringing the total number of stores which we owned and/or managed to 1,287. As ofMarch 31, 2023 , we managed stores for third parties in the following 38 states:Alabama ,Arizona ,Arkansas ,California ,Colorado ,Connecticut ,Delaware ,Florida ,Georgia ,Illinois ,Indiana ,Iowa ,Kentucky ,Louisiana ,Maine ,Maryland ,Massachusetts ,Michigan ,Minnesota ,Mississippi ,Missouri ,Nevada ,New Hampshire ,New Jersey ,New Mexico , NewYork, North Carolina ,Ohio ,Oklahoma ,Pennsylvania ,Rhode Island ,South Carolina ,Tennessee ,Texas ,Vermont ,Virginia ,Washington andWisconsin . We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases. Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage cubes to new customers while maintaining and, where possible, increasing our pricing levels. In addition, our operating results depend on the ability of our customers to make required rental payments to us. Our approach to the management and operation of our stores combines centralized marketing, revenue management and other operational support with local operations teams that provide market-level oversight and management. We believe this approach allows us to respond quickly and effectively to changes in local market conditions, and to maximize revenues by managing rental rates and occupancy levels.
We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer months due to increased moving activity.
Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, inflation and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.
We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage properties.
We have one reportable segment: we own, operate, develop, manage and acquire self-storage properties.
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Our self-storage properties are located in major metropolitan and suburban areas
and have numerous customers per store. No single customer represents a
significant concentration of our revenues. Our stores in New York , Florida ,
California and Texas provided approximately 17%, 15%, 11% and 9%, respectively,
of total revenues for the three months ended March 31, 2023 .
Summary of Critical Accounting Policies and Estimates
Set forth below is a summary of the accounting policies and estimates that management believes are critical to the preparation of the unaudited consolidated financial statements included in this Report. Certain of the accounting policies used in the preparation of these unaudited consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in this Report. For additional discussion of the Company's significant accounting policies, see note 2 to the Consolidated Financial Statements included in the Parent Company's andOperating Partnership's combined Annual Report on Form 10-K for the year endedDecember 31, 2022 . These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management.
Basis of Presentation
The accompanying unaudited consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries. The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company
evaluates the entity to determine if the entity is deemed a variable interest
entity ("VIE"), and if the Company is deemed to be the primary beneficiary, in
accordance with authoritative guidance issued by the Financial Accounting
Standards Board ("FASB") on the consolidation of VIEs. To the extent that the
Company (i) has the power to direct the activities of the VIE that most
significantly impact the economic performance of the VIE and (ii) has the
obligation or rights to absorb the VIE's losses or receive its benefits, then
the Company is considered the primary beneficiary. The Company may also consider
additional factors included in the authoritative guidance, such as whether or
not it is the partner in the VIE that is most closely associated with the VIE.
When an entity is not deemed to be a VIE, the Company considers the provisions
of additional FASB guidance to determine whether a general partner, or the
general partners as a group, controls a limited partnership or similar entity
when the limited partners have certain rights. The Company consolidates
(i) entities that are VIEs and of which the Company is deemed to be the primary
beneficiary and (ii) entities that are non-VIEs which the Company controls and
in which the limited partners do not have substantive participating rights, or
the ability to dissolve the entity or remove the Company without cause nor
substantive participating rights.
The Company records self-storage properties at cost less accumulated
depreciation. Depreciation on buildings and equipment is recorded on a
straight-line basis over their estimated useful lives, which range from five to
39 years. Expenditures for significant renovations or improvements that extend
the useful life of assets are capitalized. Repairs and maintenance costs are
expensed as incurred.
When stores are acquired, the purchase price is allocated to the tangible and
intangible assets acquired and liabilities assumed based on estimated fair
values. Allocations to land, building and improvements and equipment are
recorded based upon their respective fair values as estimated by management. If
appropriate, the Company allocates a portion of the purchase price to an
intangible asset attributed to the value of in-place leases. This intangible
asset is generally amortized to expense over the expected remaining term of the
respective leases. Substantially all of the storage leases in place at acquired
stores are at market rates, as the majority of the leases are month-to-month
contracts. Accordingly, to date, no portion of the purchase price has been
allocated to above- or below-market lease intangibles associated with storage
leases assumed at acquisition. Above- or below- market lease intangibles
associated with assumed ground leases in which the Company serves as lessee are
recorded as an adjustment to the right-of-use asset and reflect the difference
between the contractual amounts to be paid pursuant to each in-place ground
lease and management's estimate of fair market lease rates. These amounts are
amortized over the term of the lease. To date, no intangible asset has been
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recorded for the value of customer relationships, because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent.
Long-lived assets classified as "held for use" are reviewed for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment. The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the store's basis is recoverable. If a store's basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized in accordance with these procedures during the three months endedMarch 31, 2023 and 2022. The Company considers long-lived assets to be "held for sale" upon satisfaction of the following criteria: (a) management commits to a plan to sell a store (or group of stores), (b) the store is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such stores, (c) an active program to locate a buyer and other actions required to complete the plan to sell the store have been initiated, (d) the sale of the store is probable and transfer of the asset is expected to be completed within one year, (e) the store is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing. However, each potential transaction is evaluated based on its separate facts and circumstances. Stores classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell.The California Yacht Club that we acquired through our acquisition ofLAACO, Ltd. inDecember 2021 was classified as held for sale as ofMarch 31, 2023 . There were no self-storage properties classified as held for sale as ofMarch 31, 2023 .
Investments in
The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is determined that the Company has the ability to exercise significant influence over the venture. Under the equity method, investments in unconsolidated real estate ventures are recorded initially at cost, as investments in real estate entities, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions and impairments. On a periodic basis, management also assesses whether there are any indicators that the carrying value of the Company's investments in unconsolidated real estate entities may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. If an investment is impaired, the loss would be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. The determination as to whether an investment is impaired requires significant management judgment about the fair value of its ownership interest. Fair value is determined through various valuation techniques, including, but not limited to, discounted cash flow models, quoted market values and third-party appraisals. There were no impairment losses related to the Company's investments in unconsolidated real estate ventures recognized during the three months endedMarch 31, 2023 or 2022. Differences between the Company's net investment in unconsolidated real estate ventures and its underlying equity in the net assets of the ventures are primarily a result of the Company acquiring interests in existing unconsolidated real estate ventures. The Company's net investment in unconsolidated real estate ventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of$32.5 million and$32.7 million as ofMarch 31, 2023 andDecember 31, 2022 , respectively. These differences are amortized over the lives of the self-storage properties owned by the real estate ventures. This amortization is included in equity in earnings of real estate ventures on the Company's consolidated statements of operations. 31 Table of Contents Results of Operations The following discussion of our results of operations should be read in conjunction with the unaudited consolidated financial statements and the accompanying notes thereto. Historical results set forth in the consolidated statements of operations reflect only the existing stores and should not be taken as indicative of future operations. We consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable periods presented. We consider a store to be stabilized once it has achieved an occupancy rate that we believe, based on our assessment of market-specific data, is representative of similar self-storage assets in the applicable market for a full year measured as of the most recentJanuary 1 and has not been significantly damaged by natural disaster or undergone significant renovation. We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As ofMarch 31, 2023 , we owned 593 same-store properties and 18 non-same-store properties. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Report.
Acquisition and Development Activities
The comparability of our results of operations is affected by the timing of
acquisition and disposition activities during the periods reported. The
following table summarizes the change in the number of owned stores from
2023 2022
Balance - January 1 611 607
Stores acquired - 1
Balance - March 31 611 608
Stores acquired 1
Stores developed 1
Stores combined (1) (1)
Balance - June 30 609
Stores acquired 1
Stores developed 1
Balance - September 30 611
Stores acquired -
Balance - December 31 611
On
(1) to an existing consolidated joint venture store. Given this proximity, the
developed store has been combined with the adjacent existing store in our
store count upon opening, as well as for operational and reporting purposes.
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Comparison of the three months ended
Non Same-Store Other/
Same-Store Property Portfolio Properties Eliminations Total Portfolio
% %
2023 2022 Change Change 2023 2022 2023 2022 2023 2022 Change Change
REVENUES:
Rental income $ 217,382 $ 204,185 $ 13,197 6.5 %
22,280 2,104 9.4 %
Property management fee income - - - 0.0 % - - 8,560 7,914 8,560 7,914 646 8.2 %
Total revenues 226,733 212,169 14,564 6.9 % 6,468 4,342 23,327 22,054 256,528 238,565 17,963 7.5 %
OPERATING EXPENSES: Property operating expenses 60,074 59,469 605 1.0 % 1,859 1,830 9,194 9,268 71,127
70,567 560 0.8 %
NET OPERATING INCOME: 166,659 152,700 13,959 9.1 % 4,609 2,512 14,133 12,786 185,401 167,998 17,403 10.4 %
Store count 593 593 18 15 611 608
Total square footage 42,424 42,424 1,694 1,225 44,118 43,649
Period end occupancy 91.9 % 93.4 % 65.6 % 66.6 % 90.9 % 92.6 %
Period average occupancy 91.5 % 93.0 %
Realized annual rent per
occupied sq. ft. (1) $ 22.39 $ 20.70
Depreciation and amortization 50,329 82,557 (32,228) (39.0) %
General and administrative 14,674 14,525 149 1.0 %
Subtotal 65,003 97,082 (32,079) (33.0) %
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans (23,691) (22,824) (867) (3.8) %Loan procurement amortization expense (1,040) (957) (83) (8.7) % Equity in earnings of real estate ventures
2,551 294 2,257 767.7 %
Other (276) (9,163) 8,887 97.0 %
Total other income (22,456) (32,650) 10,194 31.2 %
NET INCOME 97,942
38,266 59,676 156.0 %
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the
(614) (292) (322) (110.3) %
Noncontrolling interests in subsidiaries 238 181 57 31.5 %
NET INCOME ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS $ 97,566 $
38,155
(1) Realized annual rent per occupied square foot is computed by dividing rental
income by the weighted average occupied square feet for the period.
Revenues
Rental income increased from$208.4 million during the three months endedMarch 31, 2022 to$223.6 million for the three months endedMarch 31, 2023 , an increase of$15.2 million , or 7.3%. The$13.2 million increase in same-store rental income was primarily due to higher rental rates. Realized annual rent per occupied square foot in our same-store portfolio increased 8.2% as a result of higher rental rates for new and existing customers for the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 . The remaining increase in rental income was due to stores acquired or opened in 2021 or 2022 included in our non-same-store portfolio. Other property related income increased from$22.3 million during the three months endedMarch 31, 2022 to$24.4 million for the three months endedMarch 31, 2023 , an increase of$2.1 million , or 9.4%. The increase was primarily due to a$1.4 million increase in fee revenue as well as a$0.6 million increase in revenue related to customer storage protection plan participation at our owned and managed stores. Operating Expenses
Depreciation and amortization decreased from$82.6 million during the three months endedMarch 31, 2022 to$50.3 million for the three months endedMarch 31, 2023 , a decrease of$32.2 million , or 39.0%. This decrease was primarily attributable to decreased amortization of in-place lease intangibles related to stores acquired in 2021. Other (Expense) Income Interest expense on loans increased from$22.8 million during the three months endedMarch 31, 2022 to$23.7 million for the three months endedMarch 31, 2023 , an increase of$0.9 million , or 3.8%. 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 our outstanding debt increased to 3.05% for the three months endedMarch 31, 2023 compared to 2.84% during the three months endedMarch 31, 2022 . The average 33
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outstanding debt balance decreased to
Equity in earnings of real estate ventures increased from$0.3 million during the three months endedMarch 31, 2022 to$2.6 million for the three months endedMarch 31, 2023 , an increase of$2.3 million . The increase was primarily due to distributions in excess of our equity investment associated with the sale by 191IV CUBE Southeast LLC ("HVPSE") of all of its 14 stores onAugust 30, 2022 (see note 5 to our unaudited consolidated financial statements). For the three months endedMarch 31, 2022 , the component of other (expense) income designated as Other includes$9.4 million of transaction-related expenses comprised primarily of severance costs associated with the acquisition ofLAACO, Ltd. inDecember 2021 . There were no such expenses for the three months endedMarch 31, 2023 . Cash Flows
Comparison of the three months ended
A comparison of cash flow from operating, investing and financing activities for
the three months ended
Three Months Ended March 31,
Net cash provided by (used in): 2023 2022
Change
(in thousands)
Operating activities $ 135,506 $ 130,735 $ 4,771
Investing activities $ (24,360) $ (9,088) $ (15,272)
Financing activities $ (111,289) $ (124,502) $ 13,213 Cash provided by operating activities increased from$130.7 million for the three months endedMarch 31, 2022 to$135.5 million for the three months endedMarch 31, 2023 , reflecting an increase of$4.8 million . Our increased cash flow from operating activities was primarily attributable to increased net operating income levels in the same-store portfolio in the 2023 period as compared to the corresponding 2022 period. Cash used in investing activities increased from$9.1 million for the three months endedMarch 31, 2022 to$24.4 million for the three months endedMarch 31, 2023 , reflecting an increase of$15.3 million . The change was primarily driven by$43.2 million in net proceeds received from the sale of real estate during the three months endedMarch 31, 2022 , with no comparable cash inflows during the corresponding 2023 period. Additionally, development costs increased by$10.3 million , primarily due to the payment of a put liability associated with a previously consolidated joint venture. These changes were offset by a decrease in acquisitions of storage properties of$39.8 million . We acquired one store and land during the three months endedMarch 31, 2022 , with no acquisitions closing during the 2023 period. Cash used in financing activities was$124.5 million for the three months endedMarch 31, 2022 compared to$111.3 million for the three months endedMarch 31, 2023 , reflecting a decrease of$13.2 million . This change was primarily the result of a$25.0 million increase in net proceeds from our revolving credit facility. This change was offset by a$13.9 million increase in cash distributions paid to common shareholders and noncontrolling interests in theOperating Partnership due to an increase in the common dividend per share/unit.
Liquidity and Capital Resources
Liquidity Overview
Our cash flow from operations has historically been one of our primary sources
of liquidity used to fund debt service, distributions and capital expenditures.
We derive substantially all of our revenue from customers who lease space at our
stores and fees earned from managing stores. Therefore, our ability to generate
cash from operations is dependent on the rents and management fees that we are
able to charge and collect from our customers. We believe that the properties in
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which we invest, self-storage properties, are less sensitive than other real estate product types to near-term economic downturns. However, prolonged economic downturns could adversely affect our cash flows from operations.
In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of its REIT taxable income, excluding capital gains, to its shareholders on an annual basis, and must pay federal income tax on undistributed income to the extent it distributes less than 100% of its REIT taxable income. The nature of our business, coupled with the requirement that we distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs over both the short term and the long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and dividends to shareholders, capital expenditures and the development of new stores. These funding requirements will vary from year to year, in some cases significantly. For the remainder of the 2023 fiscal year, we expect recurring capital expenditures to be approximately$10.5 million to$15.5 million , planned capital improvements and store upgrades to be approximately$7.5 million to$12.5 million and costs associated with the development of new stores to be approximately$16.0 to$26.0 million . Our currently scheduled principal payments on our outstanding debt are approximately$32.0 million for the remainder of 2023. Our most restrictive financial covenants limit the amount of additional leverage we can add; however, we believe cash flows from operations, access to equity financing (including through our "at-the-market" equity program), and available borrowings under our Second Amended and Restated Credit Facility (defined below) provide adequate sources of liquidity to enable us to execute our current business plan and remain in compliance with our covenants. Our liquidity needs beyond 2023 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionary expenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating stores; (iii) acquisitions of additional stores; and (iv) development of new stores. We will have to satisfy the portion of our needs not covered by cash flow from operations through additional borrowings, including borrowings under our Second Amended and Restated Credit Facility, sales of common or preferred shares of the Parent Company and common or preferred units of theOperating Partnership and/or cash generated through store dispositions and joint venture transactions. We believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, we cannot provide any assurance that this will be the case. Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. There can be no assurance that such capital will be readily available in the future. Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions of us.
As of
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Unsecured Senior Notes
Our unsecured senior notes, which are issued by the
March 31, December 31, Effective Issuance Maturity
Unsecured Senior Notes 2023 2022 Interest Rate Date Date
(in thousands)
$300M 4.000% Guaranteed Notes due
2025 (1) $ 300,000 $ 300,000 3.99 % Various (1) Nov-25
$300M 3.125% Guaranteed Notes due
2026 300,000 300,000 3.18 % Aug-16 Sep-26
$550M 2.250% Guaranteed Notes due
2028 550,000 550,000 2.33 % Nov-21 Dec-28
$350M 4.375% Guaranteed Notes due
2029 350,000 350,000 4.46 % Jan-19 Feb-29
$350M 3.000% Guaranteed Notes due
2030 350,000 350,000 3.04 % Oct-19 Feb-30
$450M 2.000% Guaranteed Notes due
2031 450,000 450,000 2.10 % Oct-20 Feb-31
$500M 2.500% Guaranteed Notes due
2032 500,000 500,000 2.59 % Nov-21 Feb-32
Principal balance outstanding 2,800,000 2,800,000
Less: Discount on issuance of
unsecured senior
notes, net (11,388) (11,801)
Less: Loan procurement costs, net (15,227) (15,849)
Total unsecured senior notes, net
On
4.000% senior notes due 2025, which are part of the same series as the
million principal amount of the
(1) due
the principal amount to yield 3.811% and 4.032%, respectively, to
maturity. The combined weighted average effective interest rate of the 2025
notes is 3.994%.
The indenture under which the Senior Notes were issued restricts the ability of theOperating Partnership and its subsidiaries to incur debt unless theOperating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0 after giving effect to the incurrence of the debt. The indenture also restricts the ability of theOperating Partnership and its subsidiaries to incur secured debt unless theOperating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of theOperating Partnership and its consolidated subsidiaries. As ofMarch 31, 2023 , theOperating Partnership was in compliance with all of the financial covenants under the Senior Notes.
Revolving Credit Facility
OnDecember 9, 2011 , we entered into a credit agreement (the "Credit Facility"), which was subsequently amended and restated. OnOctober 26, 2022 , we again amended and restated, in its entirety, the Credit Facility (the "Second Amended and Restated Credit Facility") which, subsequent to the amendment and restatement, is comprised of an$850.0 million unsecured revolving facility (the "Revolver") maturing onFebruary 15, 2027 . Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings and leverage levels. At our current unsecured debt credit ratings and leverage levels, amounts drawn under the Revolver are priced using a margin of 0.775% plus a facility fee of 0.15% over SOFR and a 0.10% SOFR adjustment.
As of
Under the Second Amended and Restated Credit Facility, our ability to borrow
under the Revolver is subject to ongoing compliance with certain financial
covenants which include, among other things, (1) a maximum total indebtedness to
total asset value of 60.0%, and (2) a minimum fixed charge coverage ratio of
1.5:1.0. As of
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At-the-Market Equity Program
We maintain an "at-the-market" equity program that enables us to sell common shares through sales agents pursuant to equity distribution agreements (the "Equity Distribution Agreements").
We did not sell any common shares under the Equity Distribution Agreements
during the three months ended
Non-GAAP Financial Measures NOI We define net operating income, which we refer to as "NOI", as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income (loss): interest expense on loans, loan procurement amortization expense, loss on early extinguishment of debt, acquisition-related costs, equity in losses of real estate ventures, other expense, depreciation and amortization expense, general and administrative expense, and deducting from net income (loss): equity in earnings of real estate ventures, gains from sales of real estate, net, other income, gains from remeasurement of investments in real estate ventures and interest income. NOI is a measure of performance that is not calculated in accordance with GAAP. We use NOI as a measure of operating performance at each of our stores, and for all of our stores in the aggregate. NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP.
We believe NOI is useful to investors in evaluating our operating performance because:
it is one of the primary measures used by our management and our store managers
? to evaluate the economic productivity of our stores, including our ability to
lease our stores, increase pricing and occupancy and control our property
operating expenses;
it is widely used in the real estate industry and the self-storage industry to
measure the performance and value of real estate assets without regard to
? various items included in net income that do not relate to or are not
indicative of operating performance, such as depreciation and amortization,
which can vary depending upon accounting methods and the book value of assets; and
it helps our investors to meaningfully compare the results of our operating
? performance from period to period by removing the impact of our capital
structure (primarily interest expense on our outstanding indebtedness) and
depreciation of our basis in our assets from our operating results.
There are material limitations to using a measure such as NOI, including the
difficulty associated with comparing results among more than one company and the
inability to analyze certain significant items, including depreciation and
interest expense, that directly affect our net income. We compensate for these
limitations by considering the economic effect of the excluded expense items
independently as well as in connection with our analysis of net income. NOI
should be considered in addition to, but not as a substitute for, other measures
of financial performance reported in accordance with GAAP, such as total
revenues, operating income and net income.
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FFO
Funds from operations ("FFO") is a widely used performance measure for real
estate companies and is provided here as a supplemental measure of operating
performance. The April 2002 National Policy Bulletin of the National Association
of Real Estate Investment Trusts (the "White Paper"), as amended and restated,
defines FFO as net income (computed in accordance with GAAP), excluding gains
(or losses) from sales of real estate and related impairment charges, plus real
estate depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
Management uses FFO as a key performance indicator in evaluating the operations
of our stores. Given the nature of our business as a real estate owner and
operator, we consider FFO a key measure of our operating performance that is not
specifically defined by accounting principles generally accepted in the United
States . We believe that FFO is useful to management and investors as a starting
point in measuring our operational performance because FFO excludes various
items included in net income that do not relate to or are not indicative of our
operating performance such as gains (or losses) from sales of real estate, gains
from remeasurement of investments in real estate ventures, impairments of
depreciable assets, and depreciation, which can make periodic and peer analyses
of operating performance more difficult. Our computation of FFO may not be
comparable to FFO reported by other REITs or real estate companies.
FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our performance. FFO does not
represent cash generated from operating activities determined in accordance with
GAAP and is not a measure of liquidity or an indicator of our ability to make
cash distributions. We believe that to further understand our performance, FFO
should be compared with our reported net income and considered in addition to
cash flows computed in accordance with GAAP, as presented in our unaudited
consolidated financial statements.
FFO, as adjusted
FFO, as adjusted represents FFO as defined above, excluding the effects of
acquisition-related costs, gains or losses from early extinguishment of debt,
and non-recurring items, which we believe are not indicative of the Company's
operating results. We present FFO, as adjusted because we believe it is a
helpful measure in understanding our results of operations insofar as we believe
that the items noted above that are included in FFO, but excluded from FFO, as
adjusted are not indicative of our ongoing operating results. We also believe
that the analyst community considers our FFO, as adjusted (or similar measures
using different terminology) when evaluating us. Because other REITs or real
estate companies may not compute FFO, as adjusted in the same manner as we do,
and may use different terminology, our computation of FFO, as adjusted may not
be comparable to FFO, as adjusted reported by other REITs or real estate
companies.
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The following table presents a reconciliation of net income attributable to the Company's common shareholders to FFO (and FFO, as adjusted) attributable to common shareholders and OP unitholders for the three months endedMarch 31 ,
2023
and 2022.
Three Months Ended March 31,
2023 2022
Net income attributable to the Company's common shareholders
Add (deduct): Real estate depreciation and amortization: Real property 48,916 81,503 Company's share of unconsolidated real estate ventures 2,134 2,538 Gains from sales of real estate, net (1) (1,713) - Noncontrolling interests in the Operating Partnership 614 292
FFO attributable to the Company's common shareholders and OP unitholders
$
147,517
Add:
Transaction-related expenses (2) - 9,408
FFO, as adjusted, attributable to the Company's common shareholders and OP unitholders
$
147,517
Weighted average diluted shares outstanding 226,183 225,737 Weighted average diluted units outstanding 1,423 1,716 Weighted average diluted shares and units outstanding 227,606 227,453
Represents distributions made to the Company in excess of its investment in
the 191
(1) HVPSE sold all 14 of its properties on
during the three months ended
held back at the time of the sale. This gain is included in the Company's
share of equity in earnings of real estate ventures.
Transaction-related expenses include severance expenses ($9.2 million ) and
other transaction expenses (
Ltd. on
agreements with certain employees, including members of their executive team.
These costs were known to us and the assumption of the obligation to make
(2) these payments post-closing was contemplated in our net consideration paid in
the transaction. In accordance with GAAP, and based on the specific details
of the arrangements with the employees prior to closing, these costs are
considered post-combination compensation expenses. Transaction-related
expenses are included in the component of other income (expense) designated
as Other.
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Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements, financings or other relationships with other unconsolidated entities (other than our co-investment partnerships) or other persons, also known as variable interest entities, not previously discussed.
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