CubeSmart joint venture unloaded 50-facility portfolio for $294 million

John Egan
July 29, 2019

A joint venture between CubeSmart and Heitman LLC was the recent seller of a 50-facility self-storage portfolio that fetched nearly $294 million, CubeSmart revealed July 26.

When the deal was announced July 11, the seller was identified only as a joint venture between an institutional investment adviser and a publicly traded self-storage REIT. The sale price also wasn’t disclosed.

As part of CubeSmart’s second-quarter earnings report, the Malvern, PA-based REIT divulged the name of the seller — HVP III, a joint venture it formed in 2015 with Chicago, IL-based real estate investment manager Heitman — and the $293.5 million sale price.

Taking advantage of buying and selling

Heitman held a 90 percent stake in HVP III, and CubeSmart held 10 percent. CubeSmart said the joint venture recorded a gain of $106.7 million. In all, the joint venture owned 68 self-storage facilities, which were acquired in 2015 and 2016.

On June 5, HVP III sold 50 of the facilities to SROA Capital Fund VII LP, managed by West Palm Beach, FL-based real estate investment firm SROA Capital LLC. A day later, on June 6, CubeSmart bought out Heitman’s 90 percent interest in the remaining 18 facilities for $128.3 million. The $128.3 million consisted of $120 million in cash and $8.3 million in CubeSmart proceeds from the joint venture’s sale of the 50 facilities.

Tim Martin, CubeSmart’s chief financial officer, said the REIT continues to manage most of the 50-facility portfolio as the new owner switches the properties to its own Storage Rentals of America platform.

More deals ahead

While CubeSmart will lose third-party management fees on the 68 facilities, Martin said the REIT is able to offset the disappearing income thanks to the attractive investment yield it achieved with the 18-facility acquisition.

Although HVP III has wound down, CubeSmart hasn’t severed ties with Heitman. Their HVP IV joint venture recently bought four facilities for $42.2 million and has another three facilities under contract for $71 million, CubeSmart said in a news release.

“We will continue to unlock value by leveraging our JV relationships and third-party management program to grow our platform,” CubeSmart CEO Chris Marr told Wall Street analysts July 26.

Benefiting from industry “stress” and “difficulty”

Also during CubeSmart’s second-quarter earnings call, Marr said the REIT stands to benefit from “a little stress and a little difficulty” that the supply-stressed industry is poised to face over the next few years on the operations and development fronts.

“As we look out, it’s going to be more and more difficult for the local entrepreneur to make projects make sense. And I think it’s going to be more and more difficult for the smaller operator to compete in those markets that have seen the pressures of new supply,” Marr said.

As a result, CubeSmart will enjoy competitive advantages, he said, in terms of picking up more third-party management business from “struggling” operators and completing “good” acquisitions of facilities that are coping with lending troubles.

“I think there are very sunny skies in looking ahead, from all aspects,” Marr said.

Other highlights of CubeSmart’s second-quarter:

  • Same-store revenue for the second quarter rose 2 percent compared with the same period last year.
  • Same-store operating expenses jumped 3.8 percent versus the same period in 2018.
  • Same-store NOI grew 1.3 percent from the second quarter of 2018 to the second quarter of 2019.
  • Same-store occupancy stood at 93.7 percent at the end of the second quarter, compared with 94.1 percent at the same time in 2018.

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