CubeSmart (CUBE) Raised to 'BBB' by S&P; Outlook Stable
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Standard & Poor's Ratings Services raised its corporate credit and senior unsecured ratings on CubeSmart (NYSE: CUBE) to 'BBB' from 'BBB-'. The outlook is stable.
"The upgrade acknowledges CubeSmart's improved operating results from a larger, higher-quality portfolio than we initially rated in December 2011. Average occupancy in the same-store portfolio grew 180 basis points (bps) year over year to 92.3% in the third quarter 2014, while realized annual rent per occupied square foot increased to $14.05 from $13.35 in the prior year. Operating metrics which have historically lagged peers are now much more in line with the group," said credit analyst Matthew Lynam.
The stable outlook reflects our expectation that CubeSmart will continue to generate relatively steady cash flow, given the progress the company has made in improving occupancy levels and enhancing the quality of its portfolio, while maintaining existing leverage metrics.
We would consider a downgrade if the company's credit metrics are not sustained (such that FCC falls below 2.5x or debt to EBITDA rises above 7x), perhaps because of leveraged acquisitions or declines in operational performance.
We view another upgrade as unlikely in the near term. However, longer-term consideration for a higher rating would require significantly larger scale and greater market share or a shift in financial policy to run the balance with meaningfully lower leverage (debt + preferred to EBITDA below 5x and debt plus preferred to gross assets in the mid-30% range).
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