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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

Current Report Pursuant To

Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 1, 2017

 

CUBESMART
CUBESMART, L.P.

(Exact Name of Registrant as Specified in Charter)

 

Maryland
(CubeSmart)

 

 

 

 

Delaware
(CubeSmart, L.P.)

 

001-32324
000-54462

 

20-1024732
34-1837021

(State or Other Jurisdiction
of Incorporation)

 

(Commission File Number)

 

(IRS Employer Identification
Number)

 

5 Old Lancaster Road
Malvern, PA 19355
(Address of Principal Executive Offices)

 

(610) 535-5700
(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o          Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o          Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o          Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o          Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02 Results of Operations and Financial Condition

 

We are furnishing with this report a slide presentation (attached as Exhibit 99.1) that may be used in presentations to investors from time to time.

 

Item 7.01 Regulation FD Disclosure.

 

The information disclosed in Item 2.02 above is incorporated into this Item 7.01.

 

The information included in this Current Report on Form 8-K (including the exhibit hereto) is being furnished under Item 2.02, “Results of Operations and Financial Condition,” Item 7.01, “Regulation FD Disclosure” and Item 9.01 “Financial Statements and Exhibits” of Form 8-K. As such, the information (including the exhibit) herein shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing. This Current Report (including the exhibit hereto) will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

 

Item 9.01                                           Financial Statements and Exhibits.

 

(d)                                 Exhibits.

 

Exhibit No.

 

Description

99.1

 

Slide Presentation dated March 2017

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

CUBESMART

 

 

Date: March 1, 2017

 

 

By:

/s/ Jeffrey P. Foster

 

Name:

Jeffrey P. Foster

 

Title:

Senior Vice President, Chief Legal

 

 

Officer & Secretary

 

 

 

 

CUBESMART, L.P.

 

 

 

By: CubeSmart, its general partner

 

 

Date: March 1, 2017

 

 

By:

/s/ Jeffrey P. Foster

 

Name:

Jeffrey P. Foster

 

Title:

Senior Vice President, Chief Legal

 

 

Officer & Secretary

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

99.1

 

Slide Presentation dated March 2017

 

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Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

1 INVESTOR PRESENTATION MARCH 2017

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2 Safe Harbor Statement The forward-looking statements contained in this presentation are subject to various risks and uncertainties. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. You should not rely on our forward-looking statements because the matters they describe are subject to known and unknown risks and uncertainties that could cause the Company’s future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such statements. Such risks are set forth under the captions “Item 1A. Risk Factors” and “Forward-Looking Statements” in our annual report on Form 10-K and under the caption “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (or similar captions) in our quarterly reports on Form 10-Q, and described from time to time in the Company’s filings with the SEC. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

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INTRODUCTION TO CUBESMART 3 Self-Storage REIT with Expansive National Platform Owned Portfolio by Market New England 15 MN 1 NYC, No. NJ 58 CT 22 Chicago 40 No. CA 12 Ohio 20 Phila., So. NJ 19 CO, UT 15 Inland Empire 16 Balt., DC 28 Tenn 7 AZ, NV, NM 43 NC 9 So. CA 12 Atlanta 18 Major TX 63 Other FL 58 Miami 19 Total Market Cap2 $6.5 billion Headquarters Malvern, PA 791 475 316 Stores1 Owned Managed 1) Property count as of December 31, 2016. 2) Market value of common and book value of debt as of December 31, 2016.

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HIGH-QUALITY PORTFOLIO 4 A Disciplined Investment Leading Demographics Strategy has Built an Industry-Leading Portfolio A Focus on Supply Constrained Markets (in ‘000) 1 ($ in ‘000) 1) Determined by ranking top 100 markets by net rentable square feet per person with “1” being the market with the lowest supply and “100” being the market with the highest supply compared to the National Average. Evercore ISI Market “Score” reflects each REIT’s property portfolio as measured by existing supply in its markets. Source: Evercore ISI Research Reports dated February 28, 2016 and March 8, 2016. © Copyright 2016. Evercore Group L.L.C. All rights reserved.

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LONG-TERM VISION FOR VALUE CREATION 5 INTERNAL GROWTH Maximize portfolio value through continued focus on customer service and operational enhancements. EXTERNAL GROWTH Continue to prudently build a portfolio of high-quality assets, with a focus on targeted markets. FINANCIAL STRENGTH Finance growth by strategically accessing the full array of capital sources available through a BBB/Baa2 investment grade balance sheet.

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6 INTERNAL GROWTH 2016 Same-Store Results1 Revenue Growth primarily driven by effective rent growth NOI2 +10.2% Revenue +7.0% Expenses (0.3%) Average Occupancy +92.9% (+80 bps YOY) Expense Growth is expected to remain inflationary, except for continued pressure on real estate taxes and increases in weather-related costs 2017 Same-Store Guidance3 NOI2 +4.0% to Revenue +3.75% to +4.75% Expenses +4.0% to +5.0% +5.0% 1) Financial data from January 1, 2016 through December 31, 2016. 2) Net operating income, or revenues less property operating expenses. Please refer to CubeSmart’s public filings for a detailed explanation of NOI and how it reconciles to a GAAP measure. 3) As provided in the Company’s Earnings Release dated February 16, 2017.

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INTERNAL GROWTH: NEW SUPPLY IMPACT 7 New development in 2016 & 2017 will increase available supply in our top 12 markets by ~5% Note: Bubbles sized by 2015 population Source: 2016 Mini Store Messenger Self Storage Almanac, Company Research

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INTERNAL GROWTH: PERFORMANCE FUELED BY INNOVATION 8 Enhancing the customer experience at all points of engagement through proprietary systems and processes. Constantly testing digital platforms, utilizing marketing advancements, sophisticated systems, and new programs that strengthen customer relationships before, during and after the storage rental process. Developing and implementing sophisticated processes and systems to inform pricing decisions related to attracting and retaining customers, with the ultimate objective of maximizing value from each rental. Raising the bar for customer expectations by making strategic investments in people, training, and technology to better meet customer needs and improve our customer’s storage experience. DIGITAL MARKETING REVENUE MANAGEMENT CUSTOMER SERVICE

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9 INTERNAL GROWTH: UNDERSTANDING OUR CUSTOMER Our Customers have a spectrum of needs. And it’s not always an easy time for them when they come to us. Our goal is to understand what’s meaningful to each and every person, provide an attractive offer, and exceed their expectations with industry-leading customer service. jokes never stop. much additional move, we were tired. woman, safety is big enough for a home for 34 years, and home, we were in a passed, I could barely with building an crazy to marry a have definitely workshop, my wife’s looking for a good wanted was to have her, let alone finding don’t want to feels like it’s in girls, when I have hoops to get our extra for my things. But, I hallways by myself. office. We need a everything in between. CubeSmart was a moment. But, at least But, we’re doing Lucky for us, we got CubeSmart made open areas, and access our supplies without a basement better, people really things are clean and make it one big happy record time at and were very kind to feel safe.” stressful. We needed to make things as easy means making some spot at CubeSmart. before we knew it, we CubeSmart to help us whole process.” storage unit while our puzzle.” relaxing.” Single Sonia Enterprising Erik Downsizing Dave Foreclosure Fred Moving Mary Senior Sam Remarried Ryan Renovating Rita “As a single“Our business isn’t“We lived in our family“After losing our“At the end of our“When my wife“The Brady Bunch“I didn’t realize how critical to me. Iwarehouse, but weso did my fulltough spot andThe last thing weimagine life withoutPeople thought I wasstress would come navigate long, darkoutgrown the homelamp collection, anddeal. What we got atto jump througha storage unit to carewoman with threeaddition. My house I need bright lights,place where we canMoving to a housegreat deal and, eventhings in storage.was grateful thatthree boys already.shambles at the above all, I need towithout a hassle.”was incrediblywent out of their waysquared away inthings easy for meeverything we can toI know the important the experts atas possible for us.”CubeSmart, andme throughout thefamily. Part of thatsafe, and in a secure solve our spacewere back homedetours to the households merge. I like that they have a family feel, too. They greet all of us by name, which is impressive, since there are a lot of us!”

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INTERNAL GROWTH: INTERNET MARKETING 10 Optimizing marketing efforts and efficiently attracting customers through use of industry leading analytics.

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INTERNAL GROWTH: INTERNET MARKETING 11 D EXPERIENCE 1 PERSONA 1 PERSONA 2 D EXPERIENCE 2 VISITOR DATA AND BEHAVIOR PERSONA 3 D EXPERIENCE 3 VISITORS Adjusting to evolving marketing ecosystems and engagement mediums  Continued focus on capturing and leveraging insights about customers to create experiences that increase engagement and conversion  Understanding the motivations of different customers and engaging with them through methods they trust

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12 INTERNAL GROWTH: TRADITIONAL MARKETING  Out-of-home placements in markets with high store concentration  Hyper-targeted direct mail campaigns in select markets  Customized local marketing efforts to target residential and commercial customers Supplementing internet marketing initiatives with a traditional platform to take advantage of market depth and to reach customers offline

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INTERNAL GROWTH: REVENUE MANAGEMENT 13 Revenue Management Landscape Multi-Family Residential Self Storage Airlines Hotels Supply Constraints Competition Seasonality Low Transaction Volume Unpredictable Length of Stay Historically, advanced revenue management techniques have boosted revenue in a number of supply-constrained industries, beginning with airlines and then moving on to hotels Multi-family represents the closest analogy, but the unpredictable lengths of stay for self-storage customers adds additional complexity

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INTERNAL GROWTH: REVENUE MANAGEMENT 14 Fundamental Pricing Issues Pricing optimization requires consideration of a multi-dimensional demand landscape and dynamic capacity constraints Substitutability CSoumbspteittuittiaobnility TCimominpgetition    CTaimpaincgity / Economic Outcomes Capacity / Economic Outcomes Pricing Decisions Optimal Pricing

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INTERNAL GROWTH: REVENUE MANAGEMENT 15 Long-Term Revenue Maximization Strategy Demand Forecast/ Revenue Optimization Price optimization requires consideration of a multi-dimensional demand landscape & dynamic capacity constraints Balance between Street Rates, Discounts, and Concessions Goal of providing the most compelling offer to the customer that maximizes long-term revenue Unit Mix Decisions and Inventory Management Maximizing revenue through dynamic inventory management, prioritization, & unit conversions to create optimal unit availability In-Place Rate Increases Dynamic in-place rate increase strategies take advantage of customer stickiness to maximize long-term revenue

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INTERNAL GROWTH: CUSTOMER SERVICE 16 Striving to fulfill our mission of simplifying organizational challenges through unparalleled customer service.  Focus on customer service throughout all touch points (store, sales center, and website) to create a fully-integrated interaction with each customer  Modern offices and operational training focused on service-oriented values facilitate an efficient rental process

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INTERNAL GROWTH: CUSTOMER SERVICE 17 An Award-Winning Service Culture

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18 EXTERNAL GROWTH Investment Strategy  $334.2 million in 2016 acquisitions  Focus on high-quality properties in high-barrier-to-entry markets  $133.4 million in 2016 new development openings  Leverage relationships with development partners to invest selectively in accretive development and built-to-suit opportunities  115 new properties added in 2016 to the third-party platform  $366.0 million of investments under contract1 - $61.1 million of acquisitions at c/o, $304.9 million of JV development  Utilize third-party management program to gain additional scale and efficiencies and create potential acquisition opportunities with private owners 1) Includes acquisitions under contract as of February 16, 2017.

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EXTERNAL GROWTH: FOCUSED INVESTMENT STRATEGY 19 Focus on Adding Scale in Attractive, High-Barrier-to-Entry Markets 6 Acquisitions1,2 $2.6 billion Dispositions1 $460 million 147 Stores 242 Stores 1) Transactions closed from 2008 through December 31, 2016. 2) Includes investment in 35 properties through HHF Joint Venture. Acquisitions, 2008 – December 31, 2016 Dispositions, 2008 – December 31, 2016 Development Properties, 2014 – December 31, 201

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EXTERNAL GROWTH: FOCUSED INVESTMENT STRATEGY 20 Acquisitions 2008 – December 20162 Total Portfolio December 20162 Total Portfolio January 2008 Dispositions, 2008 – December 20162 Note: Bubbles sized by revenue. 1) Realized annual rent per occupied sq ft is computed by dividing rental income by the weighted occupied sq ft for the period. 2) Includes transactions closed or announced and under contract as of December 31, 2016. 1

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EXTERNAL GROWTH: HIGH-QUALITY ASSETS 21 Enhancing Our Portfolio by Adding Purpose-Built Class A Stores

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EXTERNAL GROWTH: DEVELOPMENT 22 Leverage Local Market Expertise of Partners to Generate Highest Returns 2015 2016 2017 2018 $49.3M Total 2Q15 Arlington, VA - $17.1M $64.0M Total 1Q16 Queens, NY - $31.8M $159.2M Total 1Q17 N. Palm Beach, FL - $9.7M $145.7M Total 2Q18 Bronx, NY - $90.0M 4Q15 Queens, NY - $17.4M 2Q16 Bronx, NY - $32.2M 1Q17 Washington, DC - $25.4M 2Q18 New York, NY - $10.0M 4Q15 Brooklyn, NY - $14.8M 3Q17 New York, NY - $74.3M 4Q18 Queens, NY - $45.7M 4Q17 Brooklyn, NY - $49.8M

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EXTERNAL GROWTH: PURCHASE AT COMPLETION 23 Acquire High-Quality, Purpose-Built Assets and Add to CubeSmart Platform Sophisticated Marketing and Revenue Management Systems with 2016 2017 2015 $69.4M Total $61.1M Total $15.8M Total 2Q17 Chicago, IL - $11.2M 2Q15 Dallas, TX - $15.8M 1Q16 Brooklyn, NY - $48.5M 2Q17 Chicago. IL - $11.3M 2Q16 Fort Worth, TX - $10.1M 4Q17 Miami, FL - $20.8M 2Q16 Grapevine, TX - $10.8M 4Q17 Delray Beach, FL - $17.8M

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EXTERNAL GROWTH: IMPACTFUL THIRD-PARTY MANAGEMENT PLATFORM 24 Third-party management allows us to leverage our operating platform and generate additional economies of scale  Platform has grown to 316 properties since its inception in 2009  Purchased 63 properties from our managed million1 since 2010 portfolio for $577 1) Includes acquisitions closed or under contract as of December 31, 2016.

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25 FINANCIAL STRENGTH 2016 Activity Raised $136.1 million in net offering proceeds through at-the-market equity program  Approach  Fund external growth in a manner consistent with our objective of maintaining our investment grade credit ratings Issued $300.0 million  of 3.125% unsecured senior notes due September 2026  Conservative balance sheet strategy provides capacity and flexibility to close transactions and the ability to access multiple sources of capital  Redeemed all 3.1 million outstanding shares of our 7.75% Series A Cumulative Redeemable Preferred Shares for $77.5 million

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FINANCIAL STRENGTH: INVESTMENT GRADE BALANCE SHEET 26 Investment Grade Ratings Conservative Metrics (As of December 31, 2016) Debt / Gross Assets Debt / EBITDA1 Secured Debt / Gross Assets 38.5% 4.9x 2.8% Baa2 (Stable) BBB (Stable) 1) Based on annualized 4Q16 EBITDA and average debt outstanding during 4Q16. Well-Staggered Debt Maturity Schedule (As of December 31, 2016) Weighted Maturity 6.1 Years Average (in thousands)

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FINANCIAL STRENGTH: DISCIPLINED CAPITAL ALLOCATION 27 Access to the full spectrum of capital has helped finance $2.9 billion of total investment since 2010 Annual Investment Activity Annual Financing Activity

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EXTERNAL GROWTH: KEY CREDIT METRICS 28 Strong Operating Performance Coupled with Conservative Balance Sheet Management Continues to Improve Credit Metrics 1) Source: Company Filings. 2) Source: SNL, Company Filings. 3) Dividend payout ratio calculated as annual common distributions declared per share/funds from operations per share, as adjusted. Historical Leverage Levels1 EBITDA Coverage Ratio1 Gross Assets1 Dividends2 3 3

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29 Summary  Robust organic growth fueled by a focus on customer service, continued enhancement of our operational infrastructure, and a widening divide between large and small operators  Meaningful external growth through a disciplined investment process supplemented by a competitive and expanding third-party management platform Strategic growth objectives are supported by an investment grade balance sheet and access to a broad array of capital sources 

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HISTORICAL COMPANY DATA 30 Same-Store Performance 1 2010 2011 2012 2013 2014 2015 2016 External Growth Trading & Valuation Metrics 1) Performance as reported for the same-store pool as it was constituted at the end of the respective year. 2) Year-ending values as detailed in Company’s supplemental packages. 3) Calculated as ending common share price / funds from operations per share, as adjusted. Please refer to CubeSmart’s public filings for a detailed explanation of FFO and how it reconciles to a GAAP measure. 4) Calculated as annual common distributions declared per share / funds from operations per share, as adjusted. 5) Calculated as annual dividend per share / ending common share price. Market Equity Value2 $965 $1,277 $2,049 $2,335 $3,752 $5,496 $4,875 Total Market Capitalization2 $1,580 $2,035 $3,073 $3,474 $4,926 $6,758 $6,471 Total Gross Assets2 $1,793 $2,195 $2,504 $2,757 $3,278 $3,709 $4,146 P / FFO (Trailing)3 18.7x 16.4x 19.7x 17.5x 20.4x 24.5x 18.6x FFO Payout Ratio4 28.4% 44.6% 47.3% 50.5% 50.9% 55.2% 62.5% Dividend Yield5 1.5% 2.7% 2.4% 2.9% 2.5% 2.7% 3.4% # Acquired Properties 12 27 37 20 53 29 28 Acquisition Value ($MM) $85.1 $467.1 $432.3 $189.8 $568.2 $292.4 $403.6 # of Disposed Properties 16 19 26 35 0 8 0 Disposition Value ($MM) $38.1 $45.2 $60.0 $126.4 $0.0 $37.8 $0.0 Revenue Growth 0.3% 3.6% 3.8% 7.4% 7.2% 7.3% 7.0% NOI Growth 1.0% 5.7% 6.0% 9.3% 9.6% 9.6% 10.2% YOY Occupancy Growth (BPS) 0.6% 2.0% 3.4% 5.3% 2.6% 1.5% 0.8% Annual Avg. Occupancy 76.8% 78.8% 82.6% 88.4% 90.8% 92.3% 92.9%

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31 Contact Us Contact Info Charles Place Director, Investor Relations Email: cplace@cubesmart.com Telephone Office Phone: 610.535.5700

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