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CubeSmart's (CUBE) Rating Affirmed by Moody's: Time to Buy?

Zacks Equity Research

Ushering in good news for CubeSmart’s CUBE shareholders, Moody's Investors Service recently affirmed the company’s senior unsecured rating at Baa2, with a stable outlook.

Per the rating agency, the move is backed by CubeSmart’s premium portfolio of self-storage properties that are concentrated in markets enjoying comparatively lower levels of supply than the national average on a historic basis. Moreover, the rating agency acknowledged the conservative balance sheet of the company that is aided by a considerable unencumbered asset pool. However, the highly competitive and management intensive sector, geographic concentration risks and increasing supply, which might affect the overall sector, remain challenges.

The rating agency expects the company to adhere to conservative capital structure, even while pursuing growth, deliver steady performance and maintain decent financial flexibility. This is well reflected in the stable rating outlook.

Notably, the latest rating affirmation reinstalls the company’s creditworthiness in the market and is likely to boost investors’ confidence in the stock. In fact, such moves provide companies an opportunity to enjoy favorable costs on debts and solid access to capital.

In addition to the above, this Zacks Rank #2 (Buy) company remains poised to capitalize on encouraging prospects of the industry and benefit shareholders accordingly. It enjoys a solid operating performance and adheres to conservative balance-sheet management. The company enjoys an investment-grade balance sheet and access to wide range of capital sources. Its debt maturity schedule as of Sep 30, 2017, is well staggered. Also, reflecting optimal utilization of equity, CubeSmart’s ROE is 7.58%, higher than the industry average of 5.78%.

Shares of CubeSmart have outperformed the industry it belongs to, in the past three months. The company’s shares have rallied 9.4%, while the industry has registered growth of 2.2% during the same time period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recently, CubeSmart announced an 11.1% hike in its quarterly dividend rate to 30 cents from 27 cents paid earlier. The company will pay the raised dividend for the fourth quarter on Jan 16, 2018, to shareholders on record as of Jan 2, 2018. Based on the increased rate, the annual dividend comes to $1.20 per share, up from the prior annual rate of $1.08 per share.

Solid dividend payouts remain arguably the biggest enticement for REIT investors and apart from Cubesmart, a number of REITs have announced dividend hikes in recent times. Notable among them are Mid-America Apartment Communities, Inc. MAA, Ventas, Inc. VTR and SL Green Realty Corp. SLG. Mid-America Apartment Communities approved a 6% hike to its common dividend rate for fiscal 2018. Ventas raised the fourth-quarter 2017 dividend by 2% to 79 cents per share. Further, SL Green announced a 4.8% increase in its fourth-quarter dividend and will now pay a dividend of 81.25 cents per share.

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